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Transcript

Fourth Quarter and Full Year 2003
Earnings Conference Call
Questions & Answers
January 28, 2004

In newspapers is January sequentially slower than Dec? How will the next few months play out?

January Retail is about the same as December. HW was slow but is coming back to the same momentum we saw in Jan. we are making up for that now.

What will be the bottom line for all the new investments like RedEye?

Investments in 2004 are modest. We are looking for growth in the future with continued improvement into 2005. We also have a lot of opportunities in LA. We are beating ad projections in CHI with Hoy and feel we have a lot of opportunities in LA with Hoy.

Interest in Hollinger properties in Chicago market?

Doesn’t make sense to comment until we see how the process is going to shake out.

How much are rights fees going up for the Cubs?

Channel will launch in September and we have an excellent deal with FOX through 2004. 2005 is when the new deal kicks in and we have very good rights fees, which will continue to go up annually. Upside for us is equity in channel. The transaction made a lot of sense all around without any disruption.

TV cash expenses were down 6% in Q4. Is a 6% decrease a good number to use in 2004?

TV cash expenses are expected to up in the low-single digits in 2004. Programming expenses will decline in the low-single digits in 2004 -- declining over three quarters until the fourth quarter, which will be up year-over-year due to the addition of "Malcom In the Middle" on many of our middle-market stations. This will help offset rising medical and retirement costs.

What was the WB’s EBITDA contribution in 2003?

Relatively small given our 22% ownership -- not material. Expecting better than break even.

Encouraged by 5% organic growth in December TV; what is going on in January? Were there dollars that moved into December because of the early Oscars?

In Q4 we saw strong Retail. Movies were a little soft in Dec because of the soft scatter market, which got the money rather than spot. Categories similar in 2004 -- auto should be strong with the new product launches. Movie business is the wildcard. Going against strong comps in Q1.

Preprint share in LA.

Surpassing our plan in LA -- our share increased in 2003 and we are anticipating further share increases.

What are the trends in soft drink category?

Soft in 2003 due to Pepsi shift to network. We are working off a low base in 03, so 04 should be better.

WB ratings trends in 18-34 demographic and how does that and how does that with TRB’s prime time ratings?

Last year we were at record levels. Season to date our stations are down only 4% - the network is down almost twice that amount. We exceed the national numbers by 58%. It is 17% of our revenue and a decline of only 4%. 18-34 (November book) is down about 12% for TRB versus the NTI average of 21%.

What were non-newsprint cash costs for newspapers for Q4?

About flat with last year.

What was driving the corporate expense line increase?

Higher compensation reflecting higher bonuses and pension credit.
Pension credit was $8M lower on a consolidated basis about $2M lower at corporate.

What were the Classified trends at the major newspapers in December?

Stronger in the smaller markets, particularly in HW.

What were the circulation volume trends in major markets?

For daily LA and NY were flat with CHI down about 4%. For Sunday Chicago was flat with LA and NY down between 1% and 3%.

Do you think that your WB station performance is benefiting from the strength of your early fringe programming?

Yes, we have strong programs with Friends and Everybody Loves Raymond and the lead-in is helpful. We also benefit from the fact that our stations are mature.

Scatter pricing -- what is going on in the first quarter?

Local is slightly stronger than national but we are seeing the trends of late placement. The younger demos have been impacted by the trend toward reality programming, although we have weathered that storm well, our late fringe numbers are actually up.

The Philadelphia court case: the hinge factor is whether the FCC has established a sufficient record to carry this forward. What are your thoughts?

It doesn’t make sense that the Philly court is hearing this case. Unfortunately the reality is a lot more complex and more difficult to understand than what has been portrayed -- we will take cross ownership to the Supreme Court if needed.

Can you give us Classified by category in December?

HW +10%; Auto +6%; Real Estate +4%

Was CapEx spending up in Q4 compared to the other quarters?

CapEx was $90M in Q4; up significantly from other quarters. We typically see higher Cap Ex spending in Q4.

What will CB losses be next year?

They will be about flat with what we saw in 2003.

Were newspaper FTEs down in the quarter and what are your expectations in 2004?

FTEs were down 2% in Q4. In 2004, we expect FTEs to be up slightly due in large part to new products.

What are the trends in Local vs. National in TV?

Local was stronger because we were up against some strong political in national from last year. About 2% of our annual revenue is from political in a strong year; Q4 2002 political was about $15 million.

Can you give us an update on the tax issue?

Expect trial date in 4Q '04 or Q1 '05. Trial will run a few weeks and an opinion could take approximately a year to be issued. Thus, we expect to have a judgment from the Tax Court in mid-to-late 2005. We continue to believe the transactions were legitimate tax-free reorganizations.

What is your level of Pension overfunding?

We were overfunded by $30 million at end of 2002 and this moved up to $150 million by end of 2003.

Has the Do Not Call List increased your circulation marketing expense?

It has somewhat, but we have been moving in that direction for some time.

What is the major contributor to equity line?

TV Food is the biggest contributor and this should continue in 2004.

What are your corporate expense expectation for 2004?

About flatish at this point.

Are you worried about potential programming in years to come with the dearth of reality programming?

Reality programming is a factor as it has changed the face of TV. We are looking at other creative ways aside from network sitcoms to get programming. Our HBO relationship and the "Sex and the City" deal is a great example. We are also continuing to talk with Warner and Universal about opportunities.

Can you comment on the Food Network investment and placement in portfolio?

It has been a tremendous investment for us. We see it growing more in the future.

Comment on December Help Wanted?

Help was up 10% in December. But it is important to point out that December is typically the smallest month for Help, so it is not a bellwether month and small changes in revenue can create big changes in percentages.

Can you provide more color on the market by market revenue performance at the big three newspapers and the margin performance at those papers in the quarter?

LA had a great margin performance in Q4 due to a reduction in expenses and we haven’t even seen the revenue up tick. We have made these improvements without the help from the CA economy. CHI also had a good performance with both revenue and margin improvement. NY also showed improved revenue and cash flow margins.

What sort of rate increases were implemented at your newspapers in 2003?

Low to mid-single digits or 2-5% increase. Retail was at the lower end of that range.

Which newspapers have the biggest margin upside in 2004?

We see the biggest opportunity at our Hartford and Baltimore papers.

Comment on February and March pacings?

Placement pattern is still an issue -- seeing the same pattern in Feb that we saw in March. March is a big month for us and we will have weaker comps due to the Iraq war last year. Also a year ago we were seeing more block booking for movies and this is moving more toward one-off buys.

Q4 Classified by category?

HW +2.8%; Auto +4.0%; Real Estate +7.7%; Other –5.7%

Comment on TV comps?

We have more difficult comps in first half and this gets easier in second half.

Are the Grocer’s strike in LA and Dominick’s store closings in Chicago having an impact on your Retail numbers?

LA has been hurt by the grocer’s strike but is showing strong retail in January. Dominicks has been advertising less but we think there could be upside going into 2004 because they are relaunching some stores.

Will you do more to leverage your cross ownership position in New York?

We already are doing that. Newsday is growing steadily in Queens and we launched amNewYork in Manhattan. We plan to build our position in NY smartly.

What is your definition of free cash flow?

OCF less cash interest less cash taxes less capital expenditures less working capital and other. It is before dividends and does not include non-operating items.

What will your non-newsprint cash costs be in 2004?

Up about 4-5%. 5% including new publications; 4%, excluding them.

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