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Transcript

First Quarter 2006 Earnings
Conference Call
April 13, 2006

Ruthellyn Musil, SVP/Corporate Relations
Good morning, everyone, and welcome to Tribune’s conference call to review our 2006 first-quarter earnings results. Our opening remarks will be brief in order to leave plenty of time for questions and be finished within the hour. Speakers this morning will be our CEO, Dennis FitzSimons, and Don Grenesko, our senior vice president and CFO. Other members of management are here for the Q&A period.

Turning to our press release, Tribune’s first-quarter diluted EPS of $0.33 on a GAAP basis includes several special items. Our release contains the information that will enable you to make a meaningful comparison to First Call estimates. Before turning the call over the Dennis, a quick reminder that our discussions may include forward-looking statements that are covered in greater detail in Tribune’s SEC filings. Now here is Dennis.

Dennis FitzSimons, Chairman, President and CEO
Thanks Ruthellyn. Good morning everyone. While there were some bright spots in our first-quarter revenue picture, overall results continue to reflect the challenging ad environment. But our focus on cost control is paying off.

We will start with a closer look at publishing results, which include our daily newspapers, our interactive businesses and targeted publications. Total ad revenue was flat, daily newspapers were down slightly, but interactive grew nearly 30%. Excluding Newsday, which I will talk about in a moment, total ad revenues were up 1%.

Classified real estate was up 35% with gains in both print and interactive and the category was especially strong in Los Angeles and Florida. Recruitment was up in the high single digits driven by online. Although auto was down significantly on the print side, we saw again healthy growth online.

Increases in classified helped offset softness in the national and retail categories. In addition to department store consolidation, a part of the decline in retail is due to lower preprint revenue at Newsday. You may know that in March of last year, Newsday terminated its relationship with an outside sales agent and some preprint customers elected to move business to that individual’s competing products. Bringing that business back is one of our highest priorities.

Some of the actions Newsday has taken -- they have improved their products and the reliability of distribution. For example, a late week TMC product has been added that will be mailed to single-family homes on Long Island. There is greater transparency with advertisers to re-establish confidence and Newsday’s publisher and Scott Smith are each calling on key accounts.

Our targeted publications, amNewYork, RedEye and Hoy continue to grow. Together they reach about 3 million readers per week. Revenues for these publications - primarily from local clients who don’t advertise in our metro daily - were up about 25% in the first quarter.

In the national category, most of the shortfall came at the L.A. Times and over half of their decline was due to movie advertising, which as you know is very significant in Los Angeles. Excluding movies, the Times ad revenue was up slightly. In many cases it outperformed or was in-line with the rest of our newspaper group in the first quarter.

Turning to interactive, which is the fastest-growing sector of our business, interactive revenues were just over $50 million, up almost 30% over 2005. In 2006, interactive will represent over 6% of total publishing ad revenues and 16% of the classified category. When you include our share of revenue from joint ventures such as CareerBuilder and Classified Ventures, 2006 interactive revenue should be in the range of $350 million.

Our web sites on average had almost 15 million monthly unique visitors in the first quarter. That is a 32% increase over ‘05 and in part reflects the growing popularity of the differentiated local content we provide. As broadband penetration also increases, we will be taking advantage of our cross ownership positions to supply news video to our newspaper web sites.

CareerBuilder continues to gain share against Monster. CB’s unique visitors in March were 22 million compared to 12 million for Monster. Careerbuilder network revenues totaled $157 million in the first quarter, up 46% year-over-year. We’re also pleased with the performance of our other online investments. In March, auto searches on Cars.com hit a record high driven by more than 8.3 million unique visitors to the site.

Turning to circulation, we made progress in the first quarter toward our goal of stabilizing individually paid circulation which was up 1% daily, and down 1% Sunday versus the prior year. Total circulation was down about 3% daily and Sunday as we continue to manage down the "other paid" category. The "other paid" category is less valuable to advertisers and managing it down reduces our newsprint and distribution expenses.

On the cost side, publishing has taken a number of steps that have improved the group’s expense picture. FTEs this quarter are down by 1,000 year-over-year. Compensation, excluding special charges and option expense, is down 4%. Total cash expenses are down slightly in publishing and new labor agreements at Newsday will reduce expenses by about $7 million this year, with $10 million annual savings in the years ahead.

Turning now to television, we are seeing some encouraging developments. March was considerably better than February where the Winter Olympics impacted our markets. In New York, revenue at WPIX grew for the first time since the introduction of Local People Meters. Los Angeles was flat and Washington D.C. showed strong growth. Our Fox stations are off to a solid 2006 fueled by the success of "American Idol", "24", "House", and "Prison Break". Overall first quarter revenues were up 2% for our Fox stations and that is despite the loss of the Super Bowl and the Daytona 500 this year. In March, revenues for our Fox stations were up 11%.

In terms of key category performance, telecom, education and fast food were strong. Movies were up for the second quarter in a row as TV tends to get more "launch" spending. Automotive and retail remains soft.

On our WB stations, the move from kid’s animation to off-network dramas and sitcoms on weekday afternoon has been a positive. Demand and rates have increased significantly in the Monday through Friday 3:00 to 5:00 time period. We have also noticed that the cable interconnects are cooling off in many of our markets. After enjoying double-digit growth for years, spot cable revenue has softened recently as agencies are demanding more accountability and local people meters clearly document the tiny ratings delivered by individual cable nets in wired cable homes. Competitively, this accountability is a positive for us.

Now, let me turn it over to Don and I will be back to wrap up.

Don Grenesko SVP/Finance and Administration
Thanks, Dennis, and good morning everyone. On a GAAP basis, our diluted earnings per share of $0.33 compares to $0.44 per share in the first quarter of 2005. These results include the following items. Stock based compensation expense of $18 million or $0.04 per share as a result of adopting a new accounting standard that requires recognition of stock option and restricted stock expense in the income statement. Second, a pretax charge of $19 million or $0.04 per share for severance and other payments associated with new union contracts covering most of the employees at Newsday. We recorded a $7 million pretax gain or $0.01 per share related to the sale of real estate by our publishing group. And finally, there was a non-operating loss of $0.02 per share associated with the change in the fair value of our PHONES and Time Warner stock.

Combined, these items reduced our earnings by $0.09 per share in this year’s first quarter. Conversely, 2005’s first-quarter results included a non-operating gain of $0.03 per share.

Our expense control remains tight; excluding stock based compensation and special items, consolidated cash expenses were down 2%. On that same basis, cash operating expenses in publishing were down slightly as higher newsprint and TMC postage costs were more than offset by lower compensation and benefits expenses due to staff reductions.

In broadcasting and entertainment, the group’s cash operating expenses were down 4% or $10 million, most of which relates to the Cubs.

Again, excluding stock based compensation, expenses in the corporate office were down $1 million due to staff reductions and other savings.

Now turning to the equity line, income was about $7 million in the first quarter compared to $0.5 million in the first quarter of 2005. The increase reflects improvements at the TV Food Network and Comcast SportsNet Chicago. In addition, we’re no longer recording losses for The WB Network.

First quarter interest expense was up 39% to $49 million due to higher interest rates and debt levels. Excluding the PHONES, outstanding debt stands at $2.8 billion. We also repurchased 4.6 million shares in the first quarter and continued deploying our capital resources to the areas of the company that generate the most revenue.

In closing, let me add more detail on our stock based compensation expense. The company plans to record a total of $0.07 per share of stock based compensation for the full year of 2006. $0.04 was recorded in the first quarter, and $0.01 per share will be recorded in each of the next three quarters. The first quarter was higher because stock based awards granted to retirement eligible employees are required to be expensed immediately.

Now with that, I will turn it back to Dennis.

Dennis FitzSimons
Okay, thanks Don. As we begin the second quarter, we expect April ad revenues to be somewhat of a challenge in publishing because of the timing of Easter. That is going to work against us slightly. However, we look for May and June to be better. Second quarter TV pacing right now is similar to first quarter results, but we’re especially encouraged by improvements in our biggest markets; Los Angeles pacing is positive and so is New York when you adjust for 13 fewer New York Mets games compared to 2005’s second quarter. Our Fox affiliates again are up in high single digits for the quarter.

As you know, our priority is top-line growth. Our strategy is to be the leading provider of local news and entertainment in our markets. More specifically that means making our content available on multiple platforms, capitalizing on scale that we have nationally by sharing resources, expanding our current Internet businesses, and investing in additional interactive ventures.

Just a reminder, given our current stock price, keep in mind that management and employees own nearly 10% of Tribune shares outstanding. We are all intensely focused on shareholder value. We will look to improve returns to shareholders over the long-term through revenue improvement and continued expense control. We have made progress and that will continue.

QUESTION AND ANSWERS

Peter Appert, Goldman Sachs
Q. Is it possible to quantify the magnitude of the Easter swing? Can you give us any guidance on what the equity investment line should look like on a full year basis? I’m thinking based on the first quarter we could see some fairly dramatic full-year improvement there?

A. The Easter swing we quantify in the high single digits.

Two percentage points swing so we probably would have been down a little in March had it not been for the net benefit of not having Easter in the month of March this year.

Peter Appert, Goldman Sachs
Q. I’m sorry, you said 2% impact on revenue?

A. Two or a little over. It is hard to quantify precisely, but essentially what you get is more national and classified revenue in the non-Easter period.

And on the equity income line, we are expecting the number to be relatively flattish with last year and that is due to the fact that we are assuming that there will be additional development costs associated with new investments particularly in the Internet area.

Peter Appert, Goldman Sachs
Q. Okay, could CareerBuilder be profitable this year, do you think?

A. It will be closer.

Frederick Searby, JP Morgan
Q. Real estate was exceptionally strong, and it looks like there has been a cooling recently in the Florida market. Can you just give us an update specifically in how real estate advertising is reacting in the classifieds as the market starts to cool, whether there is a Goldilocks scenario?

On auto, I know cyclically it is extremely tough, but are you noticing any secular shift out of print to pure play online?

A. We are in a period where because homes are selling more slowly, advertising is benefiting in Florida. We are seeing our best real estate gains in both South Florida and Orlando and we think that can continue for a while. People need to move all of these homes that are on the market, whether they are new or existing.

Automotive is a challenge because manufacturers and dealers are still struggling as you all well know. We were down some in national automotive, which is essentially General Motors. They have started to promote some more. They have a new program called Showroom which is a special 8-page section that they actually started in Chicago. We’re looking to them to roll that out to some of our other markets here in the second quarter. But what we are up against is the very aggressive promotion that General Motors ran a year ago. As far as the other auto manufacturers, we are roughly flat year-over-year.

Frederick Searby, JP Morgan
Q. So you don’t think any of this is secular,you think it is entirely cyclical? The real estate classifieds and the auto?

A. Well, real estate, there will be some cyclicality, yes.

Frederick Searby, JP Morgan
Q. I meant auto classifieds.

A. Auto? We think it is cyclical, yes. You are seeing a little movement online from print, but it is not dramatic.

On the TV side, our pacing in the automotive category for second quarter is a little bit less than flat but we are still, as we go forward, going to see lots of new model launches and auto advertisers are going to continue to need to get that message out. So we don’t see any secular shifts away from television advertising or newspaper advertising.

It is going to be a competitive battle for market share, but we have been in that for quite a while.

Debra Schwartz , Credit Suisse
Q. On movie advertising, I was wondering if you could tell us how much it was off in the quarter? And along those same lines, how are the comps in the category as we progress throughout the year, and do you see it stabilizing at all?

A. Movies in print were off in total about $10 million or 18% for the quarter and almost all of that was a decline in Los Angeles where we get our biggest movie revenue. Also the first quarter is traditionally the biggest of the year because of the award season. And with scale back in effect in that trade advertising, that impacted L.A. in the first quarter. That phenomenon was just less money spent to promote films for awards because they were not backed by studios that had big budgets behind those movies. So that is part of the phenomenon.

The other phenomenon in movies is, as we’ve talked about before, with the glut of movies, and not many great ones, they are not running as long in the theaters. Newspaper advertising on movies has typically been for the full run of movies, and with shorter runs we’re getting less advertising there. A positive that we’re working on is we’re actually getting more pre-opening advertising than we have gotten before. There is some recent research that shows that newspapers follow television as the second-best media for pre-opening awareness for movies. So we are optimistic if we’re not going to get as long a run, is we can get more pre-opening movie advertising. There are structural forces at work there but we see some opportunity going forward.

On the television side, we did see an increase in the first quarter in movie advertising. So that is a positive, but again, television gets more of that launch advertising. It is viewed as a better medium to launch movies.

Christa Quarles, Thomas Weisel Partners
Q. Can you give us an update on CW? I think we know what existing programming is going to continue but is there new programming slated and your level of excitement about it? Could give us your CapEx and all-in cost of debt?

A. On The CW front, we’re real enthused given that we’re going to have the best returning shows from both networks. "Smallville", "Gilmore Girls" from The WB; we’re going to have "Everybody Hates Chris" and the better shows from UPN. Now, we have not seen the development yet of the upfront presentation, which is May 18 for The CW. I believe, with the reduction in actual network advertising now - there are really only five because the Fox effort is going to be something really completely different - I think you’re going to hear some very good buzz about CW. Re-branding of our stations will take place over the summertime, and yes, we are very excited about that. We think just when you look at the ratings of the shows that are going to come back, we see a possibility of 25 to 30% of a rating increase on our stations.

Christa Quarles, Thomas Weisel Partners
Q. Could you quantify the re-branding dollars?

A. No, I could not quantify that for you right now, other than to say that with our stations, we are doing a lot centrally. So we will not have each of our markets doing separate graphics packages and all that. We will centralize that. That should save us a good amount of money on that front. But as far as the network’s effort, no, we don’t have that information.

In terms of capital expenditures, we had $22 million of CapEx in the first quarter. That is relatively low compared to what we have had in the past but we are still expecting to spend in the $200 to $220 million range for the full year. We will have some larger projects that will begin shortly and in the past our CapEx has tended to skew more towards the second half of the year.

In terms of our debt, our cost on commercial paper is currently 4.8%, 4.9% and our fixed rate debt is in the high 5% at this point in time.

Paul Ginocchio, Deutsche Bank
Q. Could you give us the classified breakout for March growth? Individually paid circulation looked good in the first quarter. Can you maybe just give us a view of what has changed, what you have done and how that looks going forward?

A. So for March, auto classified was down 9%, help wanted up 12%, real estate up 47% in March. And in terms of circulation, we talked for a year now about our focus on improving individually paid circulation, essentially getting to a stable picture there, very much tied to the readership generated by that; strong home delivery and single-copy base and also where the value is for advertisers.

We, as you heard through the numbers that Dennis sited, are very close to stable, up 1 daily, down 1 Sunday on individually paid. Our goal is to sustain that over time through a blend of smart marketing. We have significantly improved retention of orders. Our churn on circulation is down under 50% groupwide now, which is a significant improvement over the last year or so. And also, continued editorial innovation, so we are delivering really interesting newspapers, relevant in people’s lives with a lot of local focus. Again, it’s all the competing media that we face today.

Paul Ginocchio, Deutsche Bank
Q. So it is safe to assume that L.A. is similar to the group. What papers are strong and what are weak within that?

A. Without going into a lot of detail, L.A. is actually better than the group totals, year-over-year, as is Chicago. So our two biggest markets are the two that are doing the best in this regard.

Edward Atorino, Benchmark
Q. Could you repeat the March classified numbers for auto, real estate and help wanted? It was a little garbled, sorry.

A. Auto, down 9%; help wanted up 12%; real estate, up 47%.

Alexia Quadrani, Bear Stearns
Q. Could you give us the preprint revenue growth for the three major markets? And then with regards to Newsday, your comments on the preprint side there, when would you expect to see some improvement given the initiatives you have taken in the first quarter?

Given your comments about the stock price and the ownership and use of cash, should we assume that we will see sort of the same amount of share buyback that we saw in this quarter going throughout the year?

A. Preprints were up in both Los Angeles and Chicago in the first quarter, and they were down significantly in New York and on Long Island. As we said, that decline was a significant impact on the groupwide preprint total. The decline there was on the order of 28% year-over-year. So that more than offset fairly normal growth in Chicago, L.A., and our other markets.

In terms of what we are doing. What Newsday management, with the circulation issues that we had, needed to do was stabilize. They had to repair and now they are rebuilding relationships with clients as well as convincing those clients that the distribution issues are behind us. And we have put a lot of emphasis on that. There are a few accounts -- there is one that just came in yesterday that was taken back from our competitor who used to be our sales agent. So that is good, and there is a lot of emphasis, a lot of sales incentives that had been put on the table to make that trend continue.

But look, this is a competitive situation, and again, we are just finishing the repair cycle and now we are in the rebuilding cycle at Newsday.

Alexia Quadrani, Bear Stearns
Q. And on share buybacks?

A. On share buybacks, we purchased $138 million worth of stock in the first quarter and our plan is to do in the 350, 400 million range for the full year.

John Janedis, Banc of America Securities
Q. I know you’re pretty excited about the CW but can you give us some sort of idea about when we should start to see an uptick? Meaning, would it be essentially in September when the launch comes, as opposed to November sweeps, or is it an ‘07 event?

A. It is sort of tough to predict that exactly, but we would suggest in the fourth quarter. The good news is from a market perspective, we are seeing particularly, L.A. and New York tighten up a little bit which enables sort of more pricing discipline and rate structures to improve. These markets were really impacted by the Local People Meters; advertisers pulled back a little bit and now, things seem to be normalizing a little bit.

So you add that situation to what should be a better primetime ratings, accepted shows, it’s not like we’re going to have a whole bunch of new shows that advertisers would wait to see how they do. These shows have an established track record and particularly some of the UPN shows that will be replacing the weaker WB shows have a strong urban appeal. So they are going to do better in some of the major markets. So I would say in fourth quarter, we should definitely see an uptick in primetime revenue. And hopefully that is going to be supported by strength in those markets.

John Janedis, Banc of America Securities
Q. On circulation, can you just talk more about your pricing strategy? You’ve have been discounting, I guess maybe for almost a year or so, but as you anniversary against them, how much of a risk do you think you run for increased churn or pressure for higher discounts?

A. Well, what we do is a fairly sophisticated analysis of pricing by customer behavior and in effect segment pricing so where we can charge full price, we do. But where it is fairly clear from a customer’s history that they will buy at a discount and stay with us at a discount, we will continue that rather than incur a much higher cost to sell a new customer at a discount and then have to replace them over time.

So we think the churn will stay down, but the likelihood that we need to continue to do selective discounting for some customers is high. That is just the nature of the competitive world we are in where so much in the way of news media is free to the consumer. But the net contribution, revenue less cost of acquisition and service, from those customers is improving.

John Janedis, Banc of America Securities
Q. Can you give us some sort of idea of in the markets that you are discounting in, what percentage of the circulation base is receiving a discount?

A. It varies widely, and what we would tell you is in almost all of our markets, we’re the highest priced newspaper in that market. So our discounted price may still be higher than a competitor’s full price. So it is not particularly useful to think of it in terms of what is the discount, it is far more useful to think of it in terms of what is the realized price per subscriber that you are getting.

Lisa Monaco, Morgan Stanley
Q. Could you just give us the percent change in total ad revenue for the top three markets? And then just a nit-picky question, can you give us some color on the thinking behind the revenue restatements for the three ad categories? Thanks.

A. The top three markets for the quarter: L.A. was down about 3%; essentially all of the decline in national advertising mostly movies. They were up 2% in retail and up 8% in classified. So it is clearly a movie driven issue there. Chicago was up 1%, and Newsday was down 6%. And again, that is almost entirely a preprint driven issue. Their performance at other categories in Newsday was reasonably good.

Lisa Monaco, Morgan Stanley
Q. Could you just explain the restatement of the three ad categories? It looks like retail was restated up a little bit; national was restated down; and classified was restated up a bit.

A. Are you referring to the revenue report, the footnote at the bottom? That was simply moving certain categories. There was no bottom-line impact as the footnote said. It was really to conform from one presentation to another, no affect on total revenue.

It was a very slight restatement, but this has happened over time where there is not an absolute line. What category a customer belongs in and we try to get it as consistent as we can across all our papers -- occasionally do fine tuning.

Lauren Fine, Merrill Lynch
Q. On the television side, any hope for any political at all in the next few months? I’m also wondering with the transition to The CW if you think there is any short-term risk to revenue of the advertisers who don’t feel they have to be as committed short-term until the new network is launched?

On the cost side, would you go through a little bit more detail in broadcasting? It was really good performance on cost. Where were the cuts in other and if you could break down the decline in compensation there in other costs and what is sustainable and what isn’t for the next few quarters?

A. On the political front, not real big for us in Q1, just a couple of million dollars, really. And then full year, we would expect to be somewhere in the area of $25 million. Again, as you know, not as big an impact for us as some of the traditional big three network affiliates. But still, significant in that our markets again tightened up.

As far as the decline in compensation. It was 4% in first quarter on the publishing side.

Lauren Fine, Merrill Lynch
Q. I guess the question is on the cost performance overall. Within broadcasting, how much of that is sustainable? Excluding programming, the cost performance looked quite good. And I’m just curious, if you can continue that performance going forward.

A. Yes, we expect to be able to continue that performance through the rest of the year.

Lauren Fine, Merrill Lynch
Q. The other question was on any potential near-term revenue risk with the transition to The CW?

A. I don’t think so. We actually have more first-run programming on The WB because they needed to get these shows, that prior to announcing the shutdown of The WB they were holding back to avoid the amortization costs, on the air. So now, they are running all of that original programming so that is a bit of an advantage for us. And we don’t see any advertisers that seem to be pulling back at this point. So again there is a lot of anticipation on The CW.

The WB is running its course, and a lot depends on the tightening of the markets and we see that happening in the major markets. It feels a little bit better out there, but we’re not going to predict anything. From what we’re hearing from our salespeople the markets are tightening up a little bit and that’s good. And political will help that.

Michael Kupinski, A.G. Edwards
Q. Just following up on the expense outlook. I have somewhere in my notes that you were anticipating that publishing expenses were going to be flat for the year. I was wondering if you have any update on the expense guidance for that segment?

Then the classified advertising linage versus the revenues being up 8.4%. I was just wondering if you could just talk a little bit about the classified pricing and the differential between the linage numbers and the revenue numbers? And if there was anything special going on there online?

Finally, if there is any update on CareerBuilder and the situation with Knight Ridder and that stake there?

A. First of all on the expense side for publishing, those numbers will remain flat for the year. On the CareerBuilder front, it really wouldn’t be appropriate for us to comment on those discussions regarding the Knight Ridder ownership stake in CareerBuilder.

On your third question, you were looking at the revenue growth and classified relative to the linage growth. You see that revenue grew, for example, for the quarter, 8%, and full run inches grew 11%. What you get is just some real mix issues there. With the categories performing as differently as I described in terms of revenue, you get very different rates. You’ve also got a blend where some categories like real estate will run more part run. Then for example, help wanted, that’s almost all full run. So we can go off line and give you a little more of that feel, but it is all in a mix question.

What we have also said is most of the growth in classified, other than real estate, is online. It is true in auto, it is true in recruitment. And what we’re essentially doing is looking at how do we manage where we sell those in a bundled basis, the combined price of print and online. So it is a competitive offering in the marketplace that creates the solutions that customers are looking for.

Michael Kupinski, A.G. Edwards
Q. But it seems like you are getting a little bit better pricing at this point online. Is that true?

A. The online pricing is growing. I would say in auto, it is clearly up whereas in print because dealers are struggling we’re holding rates flat or lowered them a little bit to get more frequency and help them rebuild their businesses. So we really price to the market demand in these cases.

Michael Kupinski, A.G. Edwards
Q. Some are suggesting that with General Motors and a few others kind of moving more towards traditional incentive type advertising that the dealers now are more incentivized to advertise? Are you seeing any visibility on that front?

A. Well, if you just look at the trend, we don’t like down 9% in terms of dealer advertising. But that is a much smaller decline than late last year. So I think that would support your premise at least in terms of the direction it’s headed.

Craig Huber, Lehman Brothers
Q. I missed what you said, how many shares you bought back in the quarter? Also, I think you said you plan on buying back $350 to $400 million of stock this year. I was just curious, given your unhappiness with your stock price and you mentioned you had $1 billion share buyback you announced in December, why you’re not going to exhaust the whole $1 billion perhaps this year? Are you running into something on your debt front you are uncomfortable getting a whole lot more debt here?

A. We repurchased $138 million worth of our stock in the first quarter. That was the number and as you have it right there, we’re looking to do $350 to $400 million for the full year. You know, we continue to evaluate this, but we have to also look at our share repurchases with regard to what we are going to do with Internet related investments and acquisitions, so we still want to maintain some flexibility there to be able to do additional acquisitions.

Craig Huber, Lehman Brothers
Q. How many shares was that exactly in the quarter?

A. 4.6 million shares.

Craig Huber, Lehman Brothers
Q. Your adjusted non-newsprint cash cost in the first quarter, adjusted for the onetime items including stock options for your newspapers, how much was that down again? Was that down 1%, 2%?

A. Yes, at least. Newsprint costs were up $7 million, and total cash expenses in publishing, excluding the non-recurring stuff, were down $2 million, so in total down $9 million and excluding newsprint that would be 1% or 2%. You are right on the money.

Craig Huber, Lehman Brothers
Q. If you could, could you just comment on your outlook here for wireless and telecom? In the write up, it sounded like it did better here in the first quarter. What are your thoughts on the second quarter?

A. It continues to pace well in broadcasting. And in publishing we were up in the first quarter, having largely cycled the last round of mergers. Again, newspapers tend to be a great medium for promoting not only wireless, but all of the new services coming in the telecom area, and so we see the outlook maybe a little choppy, but promising.

William Bird, Citigroup
Q. In publishing, just wondering if you have seen the full positive impact of enhanced color in L.A. and Chicago? And bigger picture, given the stock’s performance, how do you think about driving value beyond delivering better results?

A. So on color, in Los Angeles, we have all of the color capacity available now but there is still more potential to sell additional color ads at premium prices. So we see more upside coming in L.A. In Chicago, we are only about two-thirds done with the color enhancement project there. So it won’t be available until the third quarter to sell final run in color. And where we also are going to be able to go from four final run sections to six so there is much more color upside coming in Chicago, starting later this year.

On your second question, could you just clarify what you were thinking about there?

William Bird, Citigroup
Q. Yes, I guess I am just curious what your thoughts are on creative ways to surface value at the company, beyond cutting costs and beyond some of the operational adjustments that you’re making?

A. As we have said in the past, we always look at our portfolio of assets and make decisions if there are things we can do in terms of divestitures. We will continue to look at that, but it seems to us that investors are looking for results and that is what we are trying to deliver. You know our biggest priority is to get our top-line growing. In the meantime, we’re going to be very tough on expenses.

But again, if there is a divestiture that really makes sense that we feel that will provide value to shareholders, we will do it. But in the environment with media companies and multiple compressions, we have not seen prices that make up for the tax bite because of our low basis in many other assets. So we will continue looking. We continue to have conversations, but at this point, we’re focused on results. We seem to be in a show-me market; people want to see results and that is what we want to deliver.

William Bird, Citigroup
Q. Just a follow-on, in TV, I was curious if there are any other upcoming LPM rollouts in your markets?

A. The next one will be Atlanta. We have cycled through New York, L.A., Chicago, Washington, Dallas, has been the other one, and Philadelphia. And Atlanta will be the next.

Thomas Russo, Gardner, Russo & Gardner
Q. On the newspaper front, could you address your experience in the free daily markets in Chicago and New York? How it’s fairing? Also how you are responding in other markets where people may have launched free dailies against you, the metro type papers?

A. Our experience with amNew York and the RedEye edition in Chicago has been very positive. First, from a reader point of view, we are generating lots of fresh new readership that overlaps some with core newspaper readership, but is really expanding our audience very much in the ways that we would like to. We’ve got between those two markets, something in the neighborhood of 2 million readers every week. So that is working well. So revenue in terms of advertising is building in a very healthy way and again, it’s lots of advertisers that don’t advertise in our core dailies partially because they are more affordable and partially because you deliver an audience that tends to skew somewhat younger.

So we are generating very healthy revenue growth and we see that continuing in these two markets. We are considering whether there are other markets where free compact dailies makes sense. I haven’t come to final conclusions on that, but we really aren’t facing direct competition from free dailies in our other markets in any significant way at this time.

Thomas Russo, Gardner, Russo & Gardner
Q. Early on when Don referred to both the repurchase of 4.2 million shares, I think he said you’re going to direct resources to areas that generate the most revenues and I am not sure that I heard that right and if so, I wanted to know what you had in mind.

A. We wanted to keep some flexibility to make Internet acquisitions, businesses that relate to our existing businesses and as we see advertising migrating to online, we want to be able to have a greater position in online. As we look three years out, we want to have a significantly higher percentage of our business coming from online related businesses and we have found the model of a network and local affiliate relationship like CareerBuilder to be a very positive model, just as it is on the broadcast side of our business. So we will look to make acquisitions in that area that have a national footprint, but we, as local affiliates, with the strength in our markets can sell into those national networks.

Thomas Russo, Gardner, Russo & Gardner
Q. And do you have any sense as to where that share of revenues might end up within say five or ten years, just projecting out your Internet share of total newspaper?

A. In three years, we would like to see that percentage double to 12%. I would say that is a minimum goal.

Larry Haverty, GAMCO
Q. Can you tell me what your cash tax rate is right now?

A. It is around 39.5%

Larry Haverty, GAMCO
Q. So your current yield is somewhere in the neighborhood of 255 right now? And if we gross up the current yield for your cash tax rate, that brings it up to somewhere around 360, okay, plus or minus. So you said your average commercial paper rate is 4.9%, so let’s say your marginal rate is somewhere around 5.2. So you can basically buy your stock and the dividend finances two-thirds of the share repurchased price, so your actual real cost on buying the stock is around 1.6 and depending on how you value these hidden assets, your cash flow yield is somewhere between 10 and 12. So you borrow at 1.6 and buy something at 10, 12. Why are you doing anything else? This is just an extraordinary relationship. I have seen it in the past, the most recent example, May Department Stores. It just opens the window for predators to come in. Your stock price and your dividend are incompatible. Can you deal with that question?

A. Well, we continue to take a hard look in this area and I think you’re absolutely right, we continue to feel very strongly that our stock price is undervalued.

Larry Haverty, GAMCO
Q. But, a $400 million program is just chump change given the economics that I just outlined which are not conjectural. They are factual.

A. Again, we are trying to have some balance and some blend between share repurchases and acquisitions and investments in the Internet area..

Larry Haverty, GAMCO
Q. But look, Internet investments are going at a 25, 30 multiple, okay? You would like to do it, but the market said you can’t. So I don’t get that either.

A. We appreciate your view on this. This is something we talk to our board about all the time. We look for opportunities, but we are in a business where we can add value to Internet investments with our existing promotional platform, and we think that is part of our future. We think we’ve been pretty prudent about it and we have not gone for something really big that has not worked. We believe our stock is a good value for us to repurchase and we will continue to do that.

James Goss, Barrington Research
Q. You made a comment earlier that spot cable revenues have fallen and people meter accountability might play into that. And I was wondering if that does provide an opportunity in all of your areas -- publishing, radio, TV -- and if so, how you are attempting to capitalize on that?

Also, about a year or so ago, I think you began a collaborative total market coverage effort effectively in Southern California led by the L.A. Times. I was wondering if you could give an update on the degree of success that it’s having and how meaningful that might be?

Finally, you might touch on the Washington update, given that there seem to be problems getting the fifth FCC Commissioner lined up and also Kevin Martin’s comments and the implications that might have.

A. The local sales issue. What we expected would happen in terms of the local cable interconnects has happened. That is now that Local People Meters rate the actual interconnect, and that is not the full cable network rating in a market but what percentage of that is wired cable and what actually is the rating of the interconnect. Once you discount satellite, if there is telco in the market, that different type of distribution which advertisers don’t have access to. So agencies are now looking at this and saying, okay, this is what I’m actually getting. So that will reduce the rates they are willing to pay for interconnect inventory.

That is an advantage. It’s a disadvantage for the cable interconnects and a competitive advantage for us. On the TV side, it makes their sell-out levels go higher if they are going to generate the same kind of revenues. Because the interconnects have been competing against newspapers, we are all battling for the same advertiser dollars. So if somebody’s ratings go down, their overall advertising revenue share should also go down.

We just have continued sales training on how to sell against other media. So we compete against each other when we have newspaper and television in the same market, but we also will try to sell on a combined basis where it makes sense. If there is creative packaging that can be done, we believe that gives us an edge. But it must be creative and offer value to the advertiser that doesn’t cost us a lot in terms of discounting.

Let me just deal with the Washington part of your question. And that is, we are not sure when the third Republican commissioner is going to be approved. My latest information is that Senator Rockefeller has a hold on the confirmation of the new commissioner. We spent three or four hours with Kevin Martin when he was in for NAA, and Kevin is not sure when this is going to happen. He said on his optimistic days he thinks this could happen in a few weeks. On his less optimistic days, it could happen at the end of the year when all of these things get traded by the legislators.

So we would say if there is going to be relief, and the chairman was very vocal, very open about his belief that there should be relief in major markets on cross ownership, we would look to that to happen in ‘07 at this point.

On the value network I would say a year later, it has been a net plus, but on balance a relatively modest one. The premise of newspapers coming together to offer very efficient preprint delivery between in paper and mail is a solid idea. We’re the linchpin of that network, delivering something over two-thirds of all of the homes in that network as it is. There have not been big clients either move to the network or from the network to competitors like ADVO, and the gains we have made have frankly been mostly gains through our own direct sales, not gains through the network as a whole. So there has been a little bit of extra growth there, nothing huge one way or another.

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