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Transcript

First Quarter 2005 Earnings
Conference Call
April 15, 2005

Ruthellyn Musil, Sr. Vice President/Corporate Relations
Thank you, and good morning, everyone. Welcome to our conference call to review 2005 first quarter results. We know this is the end of a very busy week for all of you, so we’re going to keep our opening remarks fairly brief and leave plenty of time for questions, and we’ll try to be finished within the hour.

Our speakers this morning are Dennis FitzSimons, Tribune’s chairman, president and CEO; Don Grenesko, our sr. vice president and CFO; and Scott Smith, president of Tribune Publishing. Pat Mullen, head of our broadcasting group, is with us for Q&A, as well as some other folks that I think you know.

Turning to our press release, Tribune’s first quarter diluted EPS of $0.44 on a GAAP basis includes a net non-operating gain of $0.03 per share. Our release contains the information needed to make a meaningful comparison to first call estimates.

Now, before turning the call over to Dennis, I’ll remind you that our discussion may include forward-looking statements that are covered in greater detail in our SEC filings. Now here’s Dennis.

Dennis FitzSimons, Chairman, President and CEO
Thanks, Ruthellyn. Good morning, everybody.

We made progress in several areas during the first quarter, despite the impact of the Easter holiday and general softness in the broadcast marketplace.

As you know, our emphasis as we began 2005 was to check off the issues that have created uncertainty for Tribune investors. Let us give you an update on that check list.

• On the West Coast, we’ve announced a number of management changes at the Los Angeles Times. Jeff Johnson becomes publisher on June; and Dave Murphy, one of our most seasoned sales and marketing executives, will move from Chicago as general manager. This week the paper named a new head of circulation with excellent experience in the Los Angeles market, and we also brought a new ad director on board four months ago. This executive team will work to reestablish The Times’ topline momentum.
• At Newsday, we’ve reached settlement agreements with nearly 80% of our major advertisers. 25,000 smaller ones as well. Now this month, we plan to again contact the remainder of these advertisers, excluding the 60 or so who are involved in litigation, notifying them that the settlement process will end in June. So our goal is to substantially resolve all Newsday restitution offers by the end of the second quarter.
• At the WB, our new programming is in the works. Pilots will be ready for the upfront presentation in May. Some of Hollywood’s best producers are developing for the WB. That includes Jerry Bruckheimer, who’ doing CSI; David Kelley, who produced Ally McBeal and The Practice. They’re both developing new fall series. Also in the first quarter, we agreed to extend our affiliation agreement until fall 2006.
• In the Matthew Bender tax case, we filed post trial briefs on April 1. We will file final briefs at the end of May, and look for resolution later this year, or in -- early in 2006. Outside observers have commented that the trial went well for us.
• We did get some welcome news in Hartford this week, when the FCC granted our request for a temporary waiver of the newspaper broadcast cross-ownership rule. Now, this waiver will be in effect until April 1, 2007, when our TV station license is up for renewal. Hopefully this will end the short-term confusion about our ability to own both TXX and The Courant. Now, longer term, we still have confidence that either the FCC or the courts will grant permanent relief on the cross-ownership restrictions and give the industry the clarity it needs.

Let’s turn to newspapers and television. Publishing ad revenue grew 2% in the quarter. As you saw in our monthly releases, January and February grew 4% and 3%, respectively. In March, where ad revenue was up 8% last year, we were down 2% due in part to the timing of the Easter holiday. Excluding Newsday, ad revenues increased 3% in the quarter. As a result of lower rates implemented last fall, ad revenue at Newsday was down 7%; however, both Chicago and Los Angeles posted ad revenue growth of 3% in the quarter.

Our preprint strategy continues to deliver excellent results with an increase of 8% in the quarter. That was driven by a 14% growth rate in Los Angeles. And though it doesn’t directly impact the bottom line, the four Pulitzer Prizes awarded to the LA Times, Chicago Tribune and Newsday underscore the quality of our journalism.

Finally, our internet businesses are also performing very well. Revenues were up 39% in the quarter with significant growth in auto and recruitment. At CareerBuilder, March traffic was up 29% over last year at more than 20 million unique visitors. Network revenue was up 88% over the first quarter of 2004.

We also recently announced an acquisition in the internet space, again, in partnership with Gannett and Knight Ridder, and that is Topix.net. This service monitors breaking news from over 10,000 online sources, categorizes content by ZIP code, industry, and over 300,000 topics. Topix is an early stage business. We think it’s got great potential. It’s currently accessed by 1.6 million unique visitors each month. We see valuable linkage to our established news and classified websites as well.

Publishing’s overall performance was muted by circulation revenue declines, which Scott will discuss further in a moment. We want to be sure you have a clear picture of what’s happening and the actions we’re taking to improve circulation trends.

Turning to television, revenues were down 5% in the quarter due to the general softness across the industry in the first quarter and also the impact of local people meters in our top markets. Next month, Nielsen plans to implement several initiatives to improve the effectiveness of their data gathering including in-home coaching of sample participants, cash payments to encourage participation, and reminder mailings. These moves indicate that Nielsen recognizes that they need to improve their accuracy in measuring younger audiences. Looking ahead, second quarter TV trends are much like what we saw in the first quarter. One bright spot, we’re beginning to see some political advertising in New York that should tighten the market and build somewhat through the year. We expect a hotly contested mayoral election and the same with the New Jersey governor’s race.

Given these revenue trends in publishing, as well as broadcasting, strong expense control will continue. Consolidated expenses were essentially flat in first quarter, and all of our business units have performed well on the cost side. Going forward, we’ll continue to make expense control a high priority.

On that note, I’ll turn things over to Don for some additional detail and Scott will follow. I’ll be back to wrap up.

Don Grenesko, Sr. Vice President and CFO
Thanks, Dennis, and good morning, everyone.

Let me start with some first quarter specifics:

• On a GAAP basis, our diluted earnings per share of $0.44 compares to $0.35 per share in the first quarter of 2004.
• Consolidated operating revenues were down 1%, while consolidated cash expenses were up just a half percent, despite higher retirement, medical, and newsprint expenses.
• This quarter’s results also included a non-operating gain of $0.03 per share, related primarily to the favorable resolution of certain federal income tax issues.

Now let’s take a closer look at the performance of our publishing and broadcasting groups in the first quarter. Publishing’s operating revenues at $1 billion were essentially flat with last year. As Dennis mentioned, newspaper ad revenue grew by 3%, excluding Newsday.

The group’s retail advertising was up 2% on the strength of auto supply, food and drug, and hardware, partially offset by declines in education and apparel. Preprint revenues continue to be strong, up 8% in the first quarter.

National advertising was down 1%, with decreases in the transportation, technology, resorts, and movie categories, mostly offset by increases in financial and auto.

Classified advertising revenues for the group increased 3%. Help wanted revenues rose 11%, including LA up 7%; Chicago, plus 11%; and both Florida papers up over 20%.

Cash operating expenses for the publishing group were down 1% from the first quarter of 2004, due primarily to a 5% reduction in staffing levels, partially offset by higher benefit costs, and newsprint prices. Newsprint and ink expense rose 2%, as higher newsprint prices were mostly offset by a decline in consumption.

Turning now to broadcasting and entertainment, first quarter operating revenues for the group were $310 million, down 6% from the first quarter of 2004. The group’s cash operating expenses rose by 5%, or $11 million, all of which related to the Cubs. As you know, the Cubs recorded $13.5 million of additional compensation expense related to the Sammy Sosa trade, which impacted earnings by about $0.03 this quarter. This is really a timing issue because the team’s budget remains the same for the year. Excluding the Sosa trade, the group’s expenses were down 1% in the quarter.

Turning to the equity line, income was $0.5 million in the first quarter, compared to a net loss of $4 million in the first quarter of 2004. The increase reflects improvements at Comcast SportsNet in Chicago and the TV Food Network. Finally, our average shares outstanding declined by about 5% in the quarter, due to the significant stock repurchases we made last year. We have $600 million remaining in our current board authorization, and we plan to be active repurchasers of our stock this year as well. Coupled with our recent 50% dividend increase, we think this clearly demonstrates our commitment to returning capital to shareholders.

And with that, I’ll turn it over to Scott.

Scott Smith, President/Tribune Publishing
Thank you, Don.

As we said in the press release, first quarter circulation revenue for our newspaper group was down 9% due to volume declines and selectively higher discounting. When the March ABC results are announced via FAS-FAX in a couple of weeks, each of our newspapers will show volume declines, reflecting trends across our industry that are more pronounced in the most competitive major markets. As you know, we have implemented tighter policies and controls, including more expensive verification of sales by channel. These tighter controls have also impacted first quarter circulation to some degree.

Across the group, home delivery is down on average about 4%, due to lower sales volume from all the primary channels. These include telemarketing, which, as you know, has been impacted by “Do-Not-Call” legislation, as well as lower direct mail response rates and field crew sales.

Single copy sales declined a few points more, continuing the trend we in the industry have been experiencing for several years. We are deliberately managing down other paid circulation, including NIE, hotel, and third party sponsored sales. So this category will be down a lot at many of our papers as we focus on copies that have the most value to readers and advertisers.

Looking forward, we are committed to improving these circulation volume trends, particularly home delivery. There are a number of key initiatives under way at each of our papers, which should begin to show results by the September ABC reporting period.

First, retention is a priority, keeping existing customers longer and acquiring new subscribers who are most likely to stay with us. Our sales efforts are built to improve subscriber retention and are already showing signs of reducing churn, particularly in Los Angeles.

Second, we’re making additional investments in marketing. New promotional campaigns are under way in Chicago, LA, and Newsday and several of our midsize markets. A new marketing database is online in Los Angeles, similar to the one in Chicago; and we’re expanding that to our other newspapers as well.

We’re also very committed to making our editorial content more accessible, engaging and distinctive. We’re making our papers more appealing through improved navigation, graphics and headlines. We’re also emphasizing news you will find only in our papers, as well as more useful, entertaining coverage. These initiatives will help drive valuable circulation and readership at each of our leading metropolitan newspapers and at important new publications like RedEye and AM New York.

To sum up, we are very focused on improving circulation and readership trends. Our fundamental goal is to grow responsive readership among our most valuable customers, home delivery subscribers and single copy buyers; and we’re committed to making sustainable progress in 2005.

Now let me turn it back to Dennis.

Dennis FitzSimons, Chairman, President and CEO
Before we go to questions, just let me reemphasize a few points.

First, we’re addressing near-term issues that we’ve got to deal with. We’ve made progress toward completion of the settlement process with Newsday advertisers. New leadership is in place at the LA Times, and WB should have a much improved schedule this fall.

Regarding circulation, the initiatives that Scott reviewed should show improved trends as early as September. And Nielsen’s actions on local people meters are a positive step.

Our major market newspaper and broadcasting assets generate significant cash flow, and nearly 50% of that converts to free cash flow. In addition, analysts’ reports suggest that our public and private company equity investments are worth about $1 billion.

Our goal to deliver results, eliminate these areas of uncertainty that are causing our stock to trade at a discount to our peer group. We’ll continue to take steps to earn back the premium multiple that reflects the quality of our people and our major market assets.

Now we’ll be happy to take your questions.

Questions and Answers

Lauren Fine, Merrill Lynch
Q. I’m wondering if you could give us the progression during the quarter of Newsday’s ad revenues, and what you think the outlook is? Does it get worse before it gets better? And then relatedly, if you could comment on April trends. Could you also comment on GM’s decision and what financial impact you think that will have in Los Angeles.

A. If you recall for us, last year the first four months of ‘04 were strong. April was plus 7% last year. So we’re looking at a tough comparison for April. But we’ve got the advantage of not having Easter in the month and I would say we’re very strong at our two Florida papers. Northeast has been softer. Overall, I would say it’s more similar to the first quarter.

As far as the GM situation, we’ve got multiple points of contact at different levels with General Motors. The LA Times is responding in a thoughtful way to make sure if there were any factual errors that they will be corrected, but there is no indication at this point that that is the case. But right now in terms of cancellation, the factory cancellations have been for April; but we have seen a little in the way of dealer cancellations.

One other thing, Lauren, on your question on GM because there were some estimates that were out there that quoted CMR. CMR is a worthwhile tool in terms of directional information and share information, but frequently the estimates on revenues are very high, so some of the estimates that were out there on potential impact were quite high for The LA Times.

I would add that we have a very good relationship with General Motors. There are no issues with our other newspapers or television stations.

Through the first two periods, advertising at Newsday was down about 4%. It was down low double digits and some of that was the Easter impact. We expect declines like the first quarter to continue for the second quarter and into the third quarter. By the fourth quarter, which was when we implemented the lower rates last year, we would expect to show improving trends at Newsday.

Q. In the release, you indicated that you still expect costs to be up 2% for the year. And given the better performance in the first quarter, would that suggest that there will be a ramp-up related to some of the marketing initiatives that you indicated, or is it possible that you’ll do better than the 2% for the year?

A. Certainly there are some marketing initiatives that we are considering; but we will make expense control given these revenue trends a priority.

John Janedis, Banc of America
Q. First, I think we’re used to seeing your TV outperform versus the industry in the off political years. Is it possible somehow to isolate how much the decline in the first quarter was because of the people meters, and do you think you’ll actually start to outperform again the industry in the second half of the year? And just briefly on the newspaper side, can you tell us what percentage of your subscribers, maybe in your top three or four markets currently receive some form of discounts, and how that compares to a year ago.

A. Nielsen certainly continues to have problems measuring the younger viewers in the homes with five or more people. These are homes and trends that these younger viewers simply don’t like pushing the button, and this has resulted in lower viewing levels for the young adult demographics. Obviously it’s been a disproportionate hit to the younger skewing stations, such as Fox and WB and UPN,. But as we’ve said in the past, we’ve been working very aggressively with Nielsen. Dennis mentioned a few of the improvements they expect to put in place in May, and we do hope that that will have some impact in improving their ability to measure the younger audience, but I think you’ll see us begin in essence to cycle through the local people meter impact as we approach the end of the year. But LPMs are having a disproportionate impact on the younger skewing stations.

Q. Well, I guess what I’m saying is that typically at least for your TV business, you tend to outperform in the third and fourth quarters of an off political year. It seems like, maybe, the people meters are having a negative impact there. That being said, do you think you’ll is still be able to have some sort of premium on the ad side relative to some of the more political skewed stations in the third and fourth quarter?

A. I think we will see that the LPMs will somewhat mute the political impact, so that may balance the two out. As Dennis mentioned, though, with New York particularly, we’re seeing, and will see, a real increase in political spending, which will tighten up that market and should be a real benefit. And of course in the programming side, we expect a strong WB schedule; and we’re also launching Sex and the City on our stations in late fringe in September and My Wife and Kids as an early fringe program on our stations. So we do expect a ratings bump starting in September, and with local people meters, the good news is those ratings bumps are recognized immediately and hopefully will translate into better revenues.

John, on the question on newspaper circulation rate discounts, I don’t have the exact data here with me. We can get back to you that. Let me just comment in general. First of all, keep in mind that particularly The Chicago Tribune and LA Times have the highest full price subscriber rate of any paper in their markets, and so when we do discounting, we’re still selling at levels that may well be higher than some of the local competitors. The discounting we have been doing, and where it’s increased, is largely to retain subscribers as opposed to deeper discounts on new subscribers. The traditional newspaper approach was offer somebody a big discount up front. When they come up for renewal, raise their price, and to retain those people, we are extending discounts longer and also in some cases offering an extra day or two for the same price, again, to extend readership among current subscribers. That’s our strategy. It’s very focused on readership and retention.

Paul Ginocchio, Deutsche Bank
Q. Following up on the question about April ad trends, are you suggesting that April’s looking sort of more like plus 2 than the previous plus 3 in January and February? And second, maybe could you talk about where you think the circulation declines level out?

A. I did not indicate that that 2% was the number, but because of the economy is kind of choppy, what we’re trying to do is indicate what are the factors that we’re dealing with in April. Those are tough comparisons. The positive is Easter having moved into March, so we get a benefit there, but we wouldn’t want to give you a number other than to say it would be more similar to January and February.

Our goal is to substantially reduce the year-over-year declines in page circulation, particularly, again, home delivery and single copy. As the year progresses and to show meaningful progress in that regard for the September ABC audit period and then to show further progress beyond that.

Q. So we should expect this sort of current declines through the third quarter?

A. No, what I said was we would expect the rate of decline to diminish between now and September.

Craig Huber, Lehman Brothers
Q. First, your non-local people meter TV markets, can you tell us what the percent change was in your broadcasting revenues for the quarter, please?

A. We don’t normally break that out specifically, Craig, but it was less.

Q. So it was still down, outside your top four markets?

A. Down slightly, yes. We’re dealing with two issues. We’ve got the local people meters and very soft market. We’re hoping that those trends improve a little bit, given the political advertising in the top three. In the top three there’s been some reaction on the part of advertisers to the whole local people issue. There’s been a lot of confusion, so we hope that spins [ph] out as we go towards second half of the year. But certainly in the other markets, the non-people meter markets, the trends have not been bad. The markets are a little bit stronger, and we haven’t had to deal with the local people meter issue.

Q. Okay. You are saying they’re still down elsewhere?

A. Yes.

Q. Can you preview what your ABC circulation numbers are going to be, the March audit for LA Times, Chicago Tribune? Thanks.

A. You know, I gave you a sense for the group as a whole. We’re going to let each newspaper, as they always have, issue their individual reports as part of FAS-FAX. That’s due out about May 1st, so look for it then with a good explanation from each paper on their trends.

Q. I would suspect, though, that The LA Times would be down more than just the 5% or 6% that you guys posted for September audit?

A. Slightly more than that, yes.

Q. How many more years can you run your newspaper division with sort of up low single digit non-newsprint costs where you really impact the overall franchise of your great newspapers? It’s been going on for about four years here, but at some point do you have to start putting a lot more money back into your newspapers? I’ve got to think from a culture standpoint it’s pretty rough at times, labor force.

A. Let me mention a couple of things first just in terms of we’ve been making significant capital investments. Look at preprint business, a couple hundred million dollars there across our group to improve our topline prospects. Also, we’ve added a lot of color capacity, a significant investment that we’ve made in The LA Times that’s just starting to kick in now. We’re in process with a color expansion here in Chicago that will start to have impact in the second half of the year, and also in South Florida. So we have not been starving the papers in any way. Now, in terms of operating efficiency, we’re always going to try to do better on that side of things, but by evidence of our Pulitzer Prizes, nobody has won more. We’re not starving editorial either, but we will do whatever we can to take advantage of our economy of scale as a larger company to improve our performance with the quality of the papers and keep expenses down.

We have gained significant efficiencies in recent years. We’re taking advantage of our scale. In some cases we’ve been able to negotiate better arrangements in collective bargaining, such as at the Baltimore Sun and we see continuing opportunities to gain efficiency, partly in ways where we continue to serve advertisers and readers very well.

And on that front, we’re investing in new ad systems that we have same system across our group that we’ll be able to better understand advertisers’ spending patterns. So, again, we are making the capital expenditures that we need to continue to grow, improve our growth rate.

Christa Quarles, Thomas Weisel Partners
Q. Some of your competitors have indicated that they expect the national side to start picking up in Q2 and beyond. And I was wondering if you could comment if you’re seeing a similar trend in terms of the bookings that you’re seeing. And then I know real estate can be impacted by Easter, but could you tell us what it ended up coming out in March? And we’re seeing some softness in some of the other papers as well in the real estate side, and I was just wondering if that market is finally maybe starting to show maybe a chink in the armor, if you will? And then, you guys indicated that newsprint consumption was down and prices were up, but I was wondering if you could just be more specific?

A. Your first question was about national advertising. Again, we characterize the trends there still as choppy. There are some parts of national where we’re showing good growth. As Don mentioned, particularly financial through the regional banks. And we see that continuing. Also, our advertising year-to-date with the auto manufacturers is up at a healthy rate. Conversely, there are some declines. We and others have talked about the impact of the merger between AT&T Wireless and Cingular, for example, impacting telecommunications. So national is a category that bounces a lot, and it’s hard for us at this juncture to see clear trends that would yield significant upside near-term, but our folks, whether Tribune Media Net or individual papers are out working to gain share in each of those categories and doing it through a variety of innovative approaches.

In terms of real estate, it turned out that it was about flat in March, again, held down by the Easter impact where all classified is lower in the Easter week. It’s shown growth again so far in April. Are the growth rates slowing some? Yes, a little, but we still have strong housing markets in virtually all of our markets, and we see growth continuing through the year.

Q. And then newsprint side?

A. Newsprint consumption is down 9% through the first quarter.

Q. And prices were?

A. Up low double digits.

Douglas Arthur, Morgan Stanley
Q. WB Network looks like it has its first possible hit in a long time on Fridays with Living With Fran. I know it’s early. If that continues, would the network possibly move that to Wednesday or Thursday in the context that your WB ratings on Monday and Tuesday are pretty solid. Wednesday is somewhat of a nightmare, and Thursday totally disappears. So how do you see WB strengthening the back half of its week schedule?

A. Doug, first, thank you for identifying Living With Fran as a new hit. It certainly started out of the box stronger than, I think, any of us expected. So we’ll see how it does in weeks two, three and four. It’s way too early to anticipate what kind of scheduling changes the WB might make. I will say that, again, we’re overall year-to-date for the network on adults 18 to 49, the WB is down 1/10th of a rating point. And it is the returning shows that have held us here. Now, Living With Fran is a new show, and we’re thrilled to see that. But as we move towards the screenings in May, we expect to see these new programs from David E. Kelley and from Jerry Bruckheimer, Tom Fontana and others. So we think we’re going to have a lot of good options for the schedule for the fall, and once we’ve seen all of those, then of course, we sit down with the executives at the network and determine that what schedule will be, but that will be sometime in early May.

Q. Okay. So bottom line is ‘06, if everything falls into place, should be a much better year for this network?

A. We think Garth Ancier and then David Janollari, who have just terrific relationships in Hollywood, are bringing a whole new level of talent, both in the producers as well as the on-air talent that gives us a lot more upside. And then just in syndication with Sex and the City and My Wife and Kids, we think we’ve got substantial upside there as well, so we’re looking forward to the fall launch.

Fred Searby, J.P. Morgan
Q. Can you give us an update on the tax litigation related to The LA Times acquisition? In the past, you’ve talked about buying more WB stations. It’s been an underperformer fairly markedly recently, what your thoughts are. I know the Granite assets obviously have been one that’s been bedded openly and whether the preference is still to buy back more shares as you did last year’s over making acquisitions on the TV side.

A. On the Matthew Bender tax case, we mentioned we filed post trial briefs on April 1st. We’ll file final briefs at the end of May. We hope to have a resolution by the end of the year or in early 2006. This is something out of our control. And as I mentioned earlier, outside observers felt our lawyers did a terrific job presenting this case, and the trial went well for us in their opinion.

Now, as far as acquisitions go, we should be clear about this, given where our shares are trading right now -- we are focused on the short-term issues to clear out these uncertainties like Newsday, like revenue momentum on the West Coast, and the tax case. Again, once we get those things handled, we’ve got the financial flexibility to do acquisitions We’re not looking for dilutive acquisitions. We want to get our multiple back to where we feel it should be, and then we’ll still have plenty of financial flexibility. So we’ll look to buy our own shares back this year. We’ll be active in the market as we were last year.

Q. Follow up with one question. Is there any sense that given what’s happened with Newsday and the fraud on the circ side there and these other issues that there could be a clawback with The LA Times acquisition?

A. No. Not at this point.

William Drewry, CSFB
Q. First, on the WB, just wondering why the affiliation agreement is relatively short-term. Just wondering what the impediment is to doing a longer-term deal, and just wondering if both sides are committed long-term to the network? And then on The LA Times, if you could talk about what the March revenue was? I think it was flat, if I remember correctly, for February, and just wondering what the second quarter ad revenue outlook at The Times would be, given also the $10 million of promotional campaign and relatively low single digit to no ad revenue growth? Does that mean that there’s a negative margin trend, at least over the near-term at The LA Times, or is that able to be offset with cost cutting?

A. Yes, Bill, on the WB side, we continue to have a terrific relationship with the WB. It’s been a good partnership. Very honestly, there are so many things as you look forward in changing technology and how the content will be used over the air and on cell phones and streaming video, and so on and so forth, that we’ve got a lot of things to look at long-term. And now we’ve got the upfront upon us and the screenings and everything else. So rather than have any uncertainty about next year, we’ve decided to go ahead with the renewal on largely the same terms as last year with just a modest increase in the reverse comp. Everything else remaining the same. And then when we get through the upfront, we will sit back down and begin to talk about a longer-term deal and bring all these other items into that discussion.

On the LA Times, Bill, ad revenue at The Times was actually up about 2% in March, even with the Easter impact, so they had a relatively good March. Their circulation revenue decline, as we have said, has been somewhat greater than the group average, but revenue for the period was still roughly flat. We would expect ad revenue trends at The Times to continue in about those ranges for a while. In terms of the promotion campaign there, that’s a blend of a direct mail campaign, using their new database in a very targeted way, plus radio advertising. That’s all within the budget at The Times, and because they’ve gained some significant efficiencies, including through the staff reduction that occurred in the second quarter last year, we would expect The Times to show reasonable profit growth this year as well, including with more promotion.

Q. Okay. That’s helpful. Just one quick follow-up, if I could. If you look at the ABC numbers for, I guess, the season to September numbers down, I think, 5 to 6%, yet the two biggest competitor papers, LA Daily News and the Orange County Register were both relatively flat. Any comments you can make on why The LA Times is down so much versus the peer competitors, and have you gotten questions on those numbers from advertisers in any way in terms of what the issue is?

A. You know, each newspaper has its own dynamics. I would tell you that as we said, The LA Times was very dependent on telemarketing and was hit harder than many by the “Do-Not-Call” legislation, and they also implemented much tighter controls over field sales, so orders through that channel are down. We are very focused on home delivery and single copy in that market and do expect to show better trends by the September audit period.

A. Bill, this is one of the reasons we’ve done the restructuring and brought in this new circulation director. We’re not pleased with the trends out there. There are things that we can do better, including additional investment and that’s our intention.

Lee Westerfield, Harris Nesbitt
Q. You’ve been helpful in the past in helping us understand TV cost amortization with Sex and the City and some other things, and I wonder if you could help us understand how that effects your programming cost growth patterns in the second half of this year and the first half of next year. And then on Tribune Entertainment, if you can make a comment about investment capital into programming production at Tribune Entertainment, or whether that’s a source of capital at this stage, source of cash flow.

A. On the cost side on Sex and the City and My Wife and Kids, they’re both good acquisitions for us, but not near at the level that you’ve seen with others such as Friends and Raymond. We do use an accelerated amortization on those shows. What you’ll see with our broadcast rights in fourth quarter is just a small low single-digit increase in our overall programming expense. As Dennis mentioned in first quarter, overall expenses are down 1%; and we’ll be very aggressive on cost control otherwise and then we’ll see a slight increase in fourth quarter with the addition of those shows. But again, we expect ratings to increase accordingly.

And for Tribune Entertainment, we’ve seen some changes in dynamics, if you will, of the first run hours on the weekends. The international market changed substantially over the last few years; and accordingly, we’ve cut back on the number of hours that we create, and we do not at this point have any first run strips in daytime either. So our expenses for Tribune Entertainment are down. Now, the company still has a number of very good syndicated programs, which we distribute; and that’s been a very good business for us. But we’ll be selective moving forward, but I do think we’ll have opportunities, but we don’t see any real significant capital investment in the short-term.

Michael Kupinski, A.G. Edwards & Sons
Q. I believe that you mentioned that you were managing down some of your circulation and focusing on paid circulation. I was just wondering in terms of the circulation decline what percentage did that attribute to? And it seems that that might be contrarian to other newspaper companies, which appears to be focused on readership rather than paid circulation. I was just wondering if you could add some color there?

A. We are very focused on readership and our readership trends. If you look at Scarborough or Gallup, which we use in Chicago, those trends are actually somewhat better than the paid circulation trends, as we concentrate on the best read copies in our circulation strategy. I did say that we are managing down, in general, the other paid category, which includes third party sponsored copies, NIE, and hotel. And those will be down not in every market, but in some markets very significantly because those copies tend to not be, on average, quite as well read as home delivery and single copy. And so in our total reported paid circulation, part of the decline is due to our conscious decision to manage down this all other category. Because it’s a relatively low percentage of the total already for us, it would impact the total by 1 to 2%.

So we encourage you to focus largely on our home delivery and single copy trends, knowing there’s some real value in these other copies, but that’s an area that different newspapers will manage differently, including the way we approach it versus other companies.

Q. And the $10.5 million marketing program you instituted in The LA Times, is that factored into the budget for the year, or are you kind of shifting around the budget or should we look at that as being incremental to the costs?

A. That is within their budget.

Q. In terms of the appointment of Kevin Martin to head the FCC, what do you think in terms of his leadership? Do you think that he’ll be a little bit more aggressive in pursuing, lifting the newspaper cross-ownership ban? Are you seeing any movement on that front, or anything that you can talk about?

A. Sure. Mike, I would say that we’re pleased that Chairman Martin is in the position he’s in. He understands the issues. We look forward to working with him. Our hope is that there’ll be less rhetoric out of the Commission and more leadership in terms of clarity on a local media ownership rules. That’s what the industry needs. You’ve heard us talk about that for a long time, but I think Chairman Martin has already demonstrated a very different operating style than the prior chairman. So we think he understands, certainly, our issues; and he has been, we believe, favorable towards reasonable deregulatory measures.

Jim Goss, Barrington Research
Q. First, related to The LA Times circulation, could you talk about what you’ve just been referring to related to the intentional reshaping of markets versus “Do-Not-Call” and other issues as it relates to the roughly 100,000-copy circulation decline over the last several years at The LA Times? Is a lot of that intentional, or is that only a small factor, and a lot of it’s the competitive issues? Secondly, I know you have a number of circulation options in Chicago and elsewhere where you can take anywhere from Sunday only to three, four, five, six, seven days. How do you wind up counting subscribers when you have the various subscribers? Is it FTA equivalent sort of calculation? And then could you provide an update on the effort you’re making toward tiered internet access, and talk about the transferability of that to some of your other papers?

A. First, on Los Angeles, clearly some of the circulation decline has been due to issues we saw to manage better to achieve great readership. So if you go back to The Times Mirror acquisition, there were a bunch of copies that were distributed with La Opinion that frankly, if they were going to people who were reading primarily in Spanish, they weren’t likely to read a lot of The LA Times in English. So we consciously managed that out of the program, with essentially no impact on reported readership through the survey results. So that’s one we clearly managed down. There have been issues, because of our dependence on telemarketing and field sales, where we’ve lost some circulation that we would like to keep, but it tended to be high churn circulation. And so our strategy now is grounded in very solid fundamentals about selling subscriptions that are likely to have greater tenure and greater readership over the long haul. We’re in a transition there between a bunch of high churn circulation and more sustainable circulation and readership that is leading to these current significant declines. We’re going to work our way through that and are committed to showing better results in LA.

Q. Is there a way to quantify that at all or talk about the impact on ad pricing and revenues?

A. Well, I commented a couple minutes ago on ad revenue where The Times is showing some reasonable growth. Not huge, but up 3% through the first quarter, and certainly lower circulation is one of the considerations in setting ad rates, and generating ad revenue, but they’re a variety of factors that impact how well we deliver results for advertisers. One of the things The Times has done, we talked about earlier, is add more color capacity. That’s benefiting revenue, so there are a variety of factors beyond circulation levels that impact ad rates and ad responsiveness. And it’s hard to kind of split them up factor by factor.

Your second question was as we sell subscriptions with different frequencies, how does that get reported? What you see in reported circulation figures, historically has been an average daily figure and the Sunday figure. ABC is going to require reporting by day of week; and we in fact, in some of our markets, including Chicago, have already voluntarily started reporting by day of week. So, much as you can look at the ratings by day of week in broadcast, advertisers and you all will be able to see what circulation is on any given day. What you’ll see is significant differences across the days of the week with the greatest circulation on the days that have not only the best reader demand, but also the best advertising demand. This tends to be mid-week, around food day when we do a lot of food advertising, and later in the week where there’s more entertainment content in the paper as well. So that data’s coming. It’s a little more complex to look at, but you can see it by day of week. We do not actually report absolute number of subscribers at each of our papers. It’s much more average circulation by day or across the weekdays.

In terms of the tiered approach we’re taking, first here in Chicago where we implemented this program that you all have heard about, Subscriber Advantage, where essentially a subscriber, either a print subscriber or online only subscriber gets more content than others who access us on the internet, who continue to get great breaking news, all of our classified advertising and access to a few stories. The early results have been very encouraging. Our internet traffic in terms of unique users and page views continues to grow in total. While we are creating more value for those people who want more of our content, so we’re encouraged by the early results with this tiered approach, but it’s too soon to say exactly where we will go next on that front.

William Bird, Smith Barney
Q. Retail trends seemed to weaken a bit in March, despite the early Easter. Just wonder if you could drill down a little bit on what’s happening there. And just overall, I was wondering if you could give us kind of an updated progress report on the Comcast SportsNet relationship.

A. I think your comment on retail trends weakening is on the mark. I think that’s been true across the country. I think everybody that I’ve spoken to in the newspaper business was disappointed with how March ended up. And you saw reports yesterday on consumer confidence and consumer spending. We think it’s tied to broader economic issues in terms of consumer spending, and we’re hopeful we’ll work through that, but we think that’s a broad macroeconomic trend, not something specific to our business.

As far as Comcast SportsNet, it’s off to a great start. Actually distribution is where we expect it to be. Actually, they reached distribution a little bit earlier than they actually thought they would getting deals done with EchoStar and DirecTV. So the quality of the production has been good. They’re doing the games in high definition, as is WGN, so that’s worked out very well for the Cubs, and actually a positive was that the hockey season prior to all the distribution coming onstream, the absence of those rights fees turned out to be a positive in the early days of the network, so it’s more profitable than we expected. So we’re very pleased with what’s happened with Comcast SportsNet so far.

Edward Atorino, Fulcrum Global Partners
Q. Could you talk about the equity line? It was a nice improvement there. You’ve got the Food Network stuff coming in. Anything offsetting that that would slow down the improvement in equity line?

A. I think as we had mentioned, Ed, the Comcast SportsNet as we just talked about and the TV Food Network were both up for the quarter, so we did see a nice increase on the equity line, about $5 million better than the first quarter of 2004, and for the full year, we’re still expecting to see some increase in the total income from that line.

Q. Why wouldn’t it be $5 million a quarter?

A. Things move. It’s not $5 million in each particular quarter. There can be some seasonality in some of those numbers.

I would add to that, Ed, though, that certainly we’re pleased with the Food Network, which is a big piece of that. The results there have been outstanding, and we continue to be focused on the value of that asset as it increases.

Peter Appert, Goldman Sachs
Q. Dennis, these first quarter newspaper operating margins are pretty impressive in the context of the revenue pressures you’re seeing. As you cycle through some of the cost reductions from last year, can you sustain on a year-to-year basis the operating margins within newspapers? On a full-year basis, is there any upside, do you think?

A. Our goal certainly is to sustain margins around the levels we achieved in the first quarter. Again, so much depends, though, on what the ad revenue trends are that because of our caution on giving guidance on ad revenue, it’s hard to get real specific on what that will mean in terms of margins for the whole year.

Peter, we’ve got some good stories. Scott referenced earlier the improved efficiency situation we have in Baltimore based on our labor negotiation. We’ve started to see some reasonable revenue increases in Baltimore. Hartford has been a pretty good story for us also. Some of those margin increases that we have wanted to achieve from The Times Mirror properties are starting to get a little better, but our big opportunity certainly is with topline growth on the West Coast. And that’s what we have to make happen.

But we are focused on expense control. You can see that in the first quarter, and that will continue.

Q. Can you just give us a flavor for the TV pacings in the second quarter?

A. The network and cable scatter markets continue to be quite soft, and we’re seeing some of the same category weakness in the spot business. So at this point, we’re seeing trends in the second quarter fairly similar to first, but I would also add that business certainly is late breaking in a non-political year, so it’s really too early to predict the entire quarter.

Steven Barlow, Prudential
Q. Don, if you could address, please, share buybacks. We know there’s an outstanding amount, but it doesn’t look like you’ve bought any in the first quarter, so I guess I’m trying to understand the rationale maybe for not buying with the stock down. And then if you could give us your debt number at the end of the quarter? And a last question would be just a recap on LA on the national side in particular, what was the national revenues in LA?

A. The debt at the end of the first quarter was $1.8 billion, and that’s probably down a little bit from where we were at the end of the year. I think we were at $2 billion at the end of last year, and typically we get a lot of cash in in the first quarter because the fourth quarter is the biggest revenue of the year for us. In terms of the share buybacks, we’ve been very aggressive as we have talked about over the last two years. We have repurchased 23 million shares costing about 1.1 billion over the last two years, and we only bought a little bit back in the first quarter. But as we’ve mentioned, we’re going to be active in repurchasing our shares throughout the remainder of the year and we didn’t buy in every particular period last year or the year before that. And we can also buy back about $10 million in terms of dollar value, $10 million a day so we can do a large amount of stock in a relatively short period of time in the open market.

On national revenue in Los Angeles, it was essentially flat in the first quarter, with growth in financial package goods, media, and actually a little growth in movies offset by declines in technology, telecom and travel.

Alexia Quadrani, Bear Stearns
Q. A couple of quick follow-ups, actually. I’m not sure if we got the circulation revenue breakout by newspaper. If you could give that for New York, LA, Chicago and also Baltimore, that would be great, please. And I guess the only other question actually remaining is stock option expense. Now that it looks like FASB or the SEC is pushing out the mandatory stock options until 2006, do you have plans to adopt still starting July 1, or might that go out to ‘06?

A. On circulation revenue, we don’t provide breakouts by paper on that. What we said, and I would reiterate, is the largest declines were at The LA Times and at Newsday.

And in terms of the stock option expense, we are going push this back until 2006.

Brian Shipman, UBS
Q. If you could just tell us what you’re budgeting for newsprint in for the rest of the year in light of another price hike slated for the fall, and your assumptions for improved circulation as the year wears on.

A. On newsprint, I said the price was up low double digits in the first quarter. That’s our assumption on average for the whole year.

Q. Okay, and you indicated that newsprint expenses were up 2%. With your assumption for improved circulation, I’m assuming that that number will go higher as well as the year wears on.

A. Yes, most likely. The consumption decline you saw in the first quarter of 9%. That decline may not be as great as the year progresses.

Q. And accordingly, newsprint expenses?

A. Yes.

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