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Transcript

Second Quarter 2002 Earnings
Conference Call
July 18, 2002

Ruthellyn Musil, VP/Corporate Relations
Good morning, and welcome to our conference call and webcast to discuss 2002 second quarter results. We hope that you have had a chance to review our press release, which can be found on our website at www.tribune.com.

We reported diluted earnings-per-share, before special items of $.52, which is six cents ahead of First Call consensus, primarily because of June results.

The $.52 is up 33 percent from last year's second quarter pro forma results, which have been adjusted to reflect the recent accounting changes for goodwill. Our press release also has an additional column with pro forma results for 2001, and the full year schedules are on our website for your convenience.

Don Grenesko, our Chief Financial Officer will lead today's call; Dennis FitzSimons would have liked to have been with us, but today he is out of town. As usual, we'll try to keep our call to about 45 minutes--our opening remarks will be brief, as we want to try to get to all of the questions.

Before Don begins, please bear with me for the standard reminder that our discussion may include forward-looking statements that are covered in greater detail in our SEC filings. Now, here's Don.

Don Grenesko, VP/Finance & Administration
Tribune had a good second quarter, marked by both revenue growth and lower cash expenses. We're especially pleased that the cost control initiatives put in place last year continue to have a positive impact on our results. Our consolidated cash expenses were down 4 percent compared to last year and EBITDA was up 14 percent to $398 million.

Our press release contains a lot of detail, but I would like to emphasize some of the highlights:

In publishing, revenues were even with last year's second quarter, and revenue trends continue to move in a positive direction. Even with flat revenues, publishing EBITDA margins in the second quarter were up over 4 percentage points, with the best results coming from our four largest newspapers.

Retail advertising was up 2 percent in the quarter. Preprints, which are primarily retail revenues, rose by 12 percent. All markets showed increases in preprints with strong results in Chicago and Los Angeles, which were up 14 percent and 19 percent, respectively.

National advertising rose by 2 percent in the second quarter, including a 5 percent increase in June, and growth is continuing into July.

In classified, auto advertising increased 7 percent in the second quarter and real estate was up 5 percent.

In help wanted, Chicago fell 36 percent; Los Angeles was off 26 percent; and New York was down 16 percent. Help wanted revenue was down 23 percent for the group as a whole compared to 40 percent decrease in Q1. Trends in help wanted continue to improve.

Publishing cash expenses were down 5%, driven by a 26% decline in newsprint pricing. Although a newsprint price increase has been announced for August 1st, we don't think it will take hold until demand increases.

Publishing compensation was down 2 percent in the second quarter and other cash expenses rose by 2 percent, because of higher outsourcing costs in Los Angeles, and additional mailing costs associated with a total market coverage product, that's part of our new pre-print strategy in Los Angeles.

For the balance of the year, we expect publishing revenue growth of 1-2 percent, compared with minus 3 percent in the first half. Our strong cost controls will remain in place in the second half of the year, and we expect Publishing cash expenses to be down about 4 percent. Publishing will, however, cycle through staff reductions completed last year and will be impacted by higher benefits costs, lower pension credits and restoration of bonuses. Turning to television, revenues increased 1 percent to $316 million. Advertising revenues increased 3 percent in the quarter, and 7 percent in June and each would have been about 2 percentage points better had it not been for the absence of Dodgers baseball at KTLA. As you know, we did not renew those rights when they expired after the 2001 season.

Television cash operating expenses, excluding acquisitions, decreased 3 percent. EBITDA rose by 5 percent and the television group increased its operating cash flow margin by 2 percentage points in the second quarter to 43 percent. Staffing levels remain 4% below last year's levels, although we will begin to cycle through those savings in the second half of the year.

TV programming costs were down 3% in the quarter, primarily due to the absence of Dodgers baseball. For the full year, we still anticipate TV programming costs to be up 3 to 4 percent due to the impact of last fall's premiere of Everybody Loves Raymond, which has been a ratings success on our stations. And this fall we add Will & Grace to our program lineups, which positions us well for revenue growth for the rest of this year and 2003.

And speaking of revenues, in television we are seeing better trends due to tightening inventory and easier comps. Third quarter pacing is healthy, and we expect that July and August ad revenues will be up in the mid-to-high single digits.

Finally, the FCC has approved our acquisition of WTTV, the WB station we are acquiring in Indianapolis, and that transaction will close on July 23rd. Indianapolis will be our 4th two-station cluster. Last, but not least, we're happy to report that Tribune Interactive was cash flow positive for the first time in the second quarter, due to higher revenues as well as lower cash expenses. And despite higher promotion spending related to the launch of new recruitment products, TI is expected to be break-even or better in the second half of the year.

Let's now turn to our consolidated outlook for the rest of the year. Because of the improving revenue trends in all of our businesses, coupled with our strong cost controls, our projected earnings per share are at the high end of the current range of analyst estimates for both the third quarter and the full year.

We strengthened our balance sheet in the first half by reducing our debt by $300 million. Our debt, excluding the PHONES, is now down to $3.1 billion, and we expect to reduce that further to $2.8 billion by the end of the year, assuming no significant acquisitions.

In closing, I would like to address the issue of expensing stock options. We are continuing to monitor this complex issue, which has many pros and cons. We do feel that if options are to be expensed, then the valuation method should be consistent and applied across all of our peers.

Since 1996, the footnotes in our annual report show the earnings impact if stock options had been expensed and our diluted earnings per share calculation already reflects the impact of the stock option shares.

Now, let's go to questions

Douglas Arthur - Morgan Stanley
Q-Could you break out TV ad revenues for the 3rd quarter?
A-TV pace is a little stronger in the low double-digit percent. Some people are coming in earlier, like a more normal pattern. We are being a little conservative - business is definitely healthier. July is currently in the low double-digit percent. Should finish at least in the high single digits.

Q-Trends in July
A-Retail is strong especially the week including July 4th National is up with Movies and Entertainment continuing strong as well as Auto Manufacturers Classified is off more because Help Wanted and Real Estate advertisers avoided the July 4th weekend, but rebounded to more normal patterns in the second week of July.

Q-FTE trends in Publishing and Broadcasting
A-Publishing down 6% for full year Broadcasting off in the low single digits Total FTEs down in the mid-single digits for the company as a whole.

Steven Barlow - Prudential Securities
Q-Programming expenses, will they be higher in Sept?
A-Programming expense was down 3% in Q2. It was up double-digits in Q1 due to "Everybody Loves Raymond" and our accelerated amortization policy. The first half was up 4%, the second half should be up 3-4%. Because Dodgers baseball is gone, the third quarter should be flat and the fourth quarter up about 6%. That gets you to +3-4% for the second half.

Q-Should we expect the same type of margin improvements in publishing and TV in the second half of the year?
A-Publishing should be about the same in the second half of the year. We will be cycling through a lot of the staff reductions. And we will be impacted by pension credit and bonuses. TV about 2 points of growth in the 2nd half.

Lauren Fine - Merrill Lynch
Q-Are Interactive's costs in 2Q a good run rate for 2nd half?
A-2Q expenses were lower than Q1 by about $3M due to lower promotion costs. Expect third and fourth quarter to be closer to Q1 expense level because of increased promotion again, especially in recruitment area.

Q-Clarification of equity losses and expectations for the 2nd half?
A-Improvement in the first half due mostly to CareerBuilder, The WB Network and Classified Ventures. BrassRing was about even with last year. Equity losses should be about $15 to $20 million in the 2nd half.

Michael Kupinski - A.G. Edwards
Q-Discuss ad categories in broadcast segment.
A-Auto and movies, our largest categories, are the healthiest. We're seeing good trends. Telecommunications and financial services are also doing well. The rest of the categories vary market to market as to whether they are up or down.

Q-Are your larger markets doing better than your smaller markets?
A-Yes

Q-Discuss ad categories in Publishing.
A-Retail: food, hardware and furniture/home furnishings were strong. National: movies and entertainment were strong In terms of the first couple of weeks in July, seeing continued strength in retail and national. National is up with movies and entertainment doing well. Auto manufacturers, which has been down this year, is doing well.

Q-Have you factored in a newsprint price increase for the third and fourth quarters?
A-We don't think there will be an increase until demand increases. We've been somewhat cautious, so our internal projections include a price increase in the 4th quarter.

Kevin Gruneich - Bear Stearns
Q-Any onetime items in your equity line? What's driving the expected increase in equity losses in the 2nd half of the year? A
A-Most of the reduced losses came from a reduction in costs at our investments. There is some seasonality in the 2nd quarter number.

Q-Corporate expenses run rate?
A-$10 million is a good run rate. Corporate expenses are up over last year due to accruing bonuses again this year. We stopped accruing in the second and third quarter last year and actually reversed them in Q4.

Q-Performance of CareerBuilder.
A-CB Network revenues were $27 million for the quarter and they were $27 million in the first quarter for a total of $55 million in the first half of the year, we expect the second half to be about the same for about $110 million for the full year. The Network was cash flow positive in the 2nd quarter and will be cash flow positive for the full year. The CB joint venture, however, will have a loss that will show up in our equity line though at a declining rate quarter-over-quarter.

Barton Crockett - J.P. Morgan
Q-Impact of a baseball strike per game?
A-Wouldn't be much of an impact on TV because there is other programming we would put in place that would make up the revenues we lost. The real season attendance falls off in September. Not a material impact to earnings. Loose about $5-10 million in revenues offset by the loss of player's salaries.

Q-Is the overall preprint market growing or are you taking share?
A-LA is a $350 million market and we have one-third of the market there. We are taking share from Advo. The daily preprint insertion facility came online in January and the Sunday preprint insertion facility should come online in the third quarter. Chicago is a $250 million market and we have two-thirds of the market. Majority of growth is from taking share in LA.

William Bird - Salomon Smith Barney
Q-Comment on July help wanted trends? What do the upcoming comps look like in help wanted? Do you expect to see positive growth in help wanted before year-end?
A-Week of July 4th is always weak. But we saw strength in the second week. Classified comps: August -24%, September -20%, October -22%, November -25%. So, classified comps were off in the 20-25% range. Help wanted comps off in the 40-50% range.

Q-Any plans for increased promotional spending? Est. of total promotional spending for CB for 2nd half.
A-Some increases at CB to support the national brand and some in our markets to support the CB product and a new product. It's too early to estimate total promotional spending for the second half.

Brian Shipman - UBS Warburg
Q-WB upfront is very strong - if it is cash flow positive how will it flow through your incomes statement?
A-Our number is going to be very small regardless of whether is turns positive.

Q-Hearing that your reps are trying to drive political dollars - how is that going?
A-It's a little too early to tell. We think that the swing voters are the young voters, which are our demographic. So we have been making the case to Politians. We are hopeful that our share will go up and we have to wait and see how successful we are.

Bill Drewry - Credit Suisse First Boston
Q-What are the Chicago Tribune and Los Angeles Times margin projections for full year 2002 vs. 2001?
A-Will be up about the same as the first half.

Q-CB Network revenue of $110 million for the full year? How much is from TRB and KRI newspapers?
A-About 50 percent from the newspapers.

Jim Goss - Barrington Research
Q-Classified comps. Any specific dynamics in particular markets?
A-Improving trends in all our markets. Of the big three markets, New York has the most improved trend, followed by Los Angeles then Chicago.

Q-Are you starting to see any more opportunities in interactive?
A-We are seeing deals but we are really trying to focus on our existing investments

Steve Barlow - Prudential Securities
Q-Aren't your losses caped with the WB? We are capped on funding.
A-When we made our last funding in early 2000, we put that money on the balance sheet and we are amortizing that. So in terms of equity losses, and excess cash will go first to Time Warner.

Barton Crockett - J.P. Morgan
Q-TMN update?
A-We have booked about $35 million in incremental so far this year and we are still on track to book $50-60 million for the full year, up about 50% over last year. Half is cross media and half is national newspapers. We are hard on ourselves in how we rate incremental. Momentum is continuing. Have some other deals we hope to be able to talk about in the near future.

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This document contains certain comments or forward-looking statements that are based largely on the company's current expectations and are subject to certain risks, trends and uncertainties. Such comments and statements should be understood in the context of Tribune's publicly available reports filed with the SEC, including the most current annual report, 10-K and 10-Q, which contain a discussion of various factors that may affect the company's business. These factors could cause actual future performance to differ materially from current expectations. Tribune Company is not responsible for updating the information contained in this press release beyond the published date, or for changes made to this document by wire services or Internet service providers.