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Transcript

Second Quarter 2004 Earnings
Conference Call
July 15, 2004

Ruthellyn Musil, Sr. Vice President/Corporate Relations
Thank you operator and good morning everyone. Welcome to our conference call to review 2004 second quarter results.

As reported in our press release, Tribune’s second quarter earnings per share of $.29 cents on a GAAP basis included charges that totaled $.09 cents per share -- $.03 related to severance charges in the publishing group and $.06 related to accruals for anticipated settlements with advertisers at Newsday and Hoy New York.

We also recorded a net non-operating loss of $.24 cents primarily related to the early retirement of debt completed in March and the quarterly marking-to-market of our PHONES derivatives.

Our release contains the information needed to make a meaningful comparison to the estimates on First Call.

As we get started, I’ll remind everyone that our discussion may include forward looking statements that are covered in greater detail in our SEC filings.

With that, let’s go to Dennis FitzSimons, Tribune’s chairman, president and CEO. Dennis will be followed by Jack Fuller, president of Tribune Publishing who is in New York today. Jerry Agema, CFO of the publishing group, is with us in Chicago. Don Grenesko, our chief financial officer, will wrap up and then we’ll take your questions.

Dennis FitzSimons, Chairman, president and CEO
Thanks, Ruthellyn and good morning.

There is a lot to cover today. In addition to reviewing our quarterly results, we want to update you on circulation issues at Newsday and Hoy New York. You heard both Jack Fuller and me at the Mid-Year Media Review talk about our ongoing investigation at both these papers. Since then we’ve found additional circulation misstatements.

You can see in our press release that we are taking a $35 million charge related to this issue. This is our present estimate of what it will take to settle up and make this circulation misstatement right for our advertisers. Newsday has had strong relationships with its advertising clients. It’s crucial that this continues to be the case.

In terms of additional controls, beginning this quarter, we have expanded quarterly certification requirements to include circulation reporting. Now every newspaper publisher, chief financial officer and circulation VP is certifying the accuracy of reported figures and that ABC rules have been followed.

The Newsday/Hoy situation is a complex issue and it will take time to fully resolve. Be assured that it will be fixed as quickly as possible.

On June 7, we announced expense reduction initiatives across the publishing group. Associated with these moves, we took a $17 million charge relating to the elimination of 375 positions, about half of which came from the LA Times.

Excluding these charges, our broadcasting group and the majority of our newspapers posted solid operating results, with consolidated revenues up just over 3%. Consolidated cash expenses, excluding the charges in publishing, grew 4%.

Moving to TV, revenue grew 4%, expenses were up just 1% and operating cash flow increased 7%. Third quarter pacing is up in the mid-single digits. We’re cautiously optimistic about a strong end to the year, as comparisons ease and political advertising tightens inventory. Jack will have the details in publishing in a moment.

Turning to the regulatory front, in late June, the Philadelphia Court did two things: it extended its stay on the FCC’s relaxation of the newspaper/ broadcast cross-ownership rule, and it remanded the rule to the Commission for further consideration of the diversity index. But we see some positive news in the court’s opinion. What was submerged in most coverage of the decision was that the court clearly stated several things:

1. The FCC clearly has the right to relax the cross-ownership rule, and that the evidence supports relief.

2. Cross-ownership actually enhances localism and doesn’t harm diversity.

3. The Court does not find fault with the FCC’s conclusion that markets with 9+ stations are beyond the need for cross-ownership analysis via the diversity index.

We feel this provides a helpful framework for resolution of cross-ownership issues in large markets.

On the acquisition front, we expect little to change in the near term. We will continue to look, but we have not seen acquisitions that meet the returns we are looking for.

In the meantime, we have accelerated share repurchases, buying back nearly 12 million shares in the second quarter. Year-to-date, the total is more than 13 million shares.

And we will continue being aggressive in this area. With our stock trading at less than 9x estimated 2005 operating cash flow, a good way for us to return value to shareholders is by investing in our own company.

We expect a solid finish to 2004, and, as our share buybacks indicate, we have a high degree of confidence in the future.

On that note, I’ll turn it over to Jack.

Jack Fuller, President/Tribune Publishing
Thanks Dennis. Since speaking with you at the Mid-Year Media Review, we have been continuously engaged in a thorough investigation of the circulation practices at Newsday and Hoy. As Dennis mentioned, this investigation has uncovered further misstated circulation. For example, it now appears that the overstatement in our March 2004 unaudited publishers’ statement at Newsday is of roughly the same dimension as the 2003 overstatement.

We will not stop the inquiry until we have numbers of which the Audit Bureau of Circulation and our advertisers can be completely confident.

We have had initial discussions with Newsday’s and Hoy’s advertisers, and were advised to be meticulous in our investigation even if it takes a little time. We have followed that advice. But we feel we are nearing the time when we can go back to them with concrete details of how the circulation misstatements affected each of them.

Since different categories and different accounts are impacted in very different ways, appropriate settlements need to be determined on a case-by-case basis. It may be in the form of cash, make-goods or some combination of both. This will be determined in individual conversations with customers.

We also said in June that we have confidence in the accuracy of the circ numbers at our other newspapers. We still do, but we’re verifying that confidence. Tribune auditors have now begun working their way through our other newspapers. By the end of September, we plan to have completed circulation reviews at our six largest newspapers, and then we will move to the smaller dailies. Finally, we will review subsidiaries like Chicago magazine and our weekly newspapers.

The immediate purpose of these reviews is to make sure that the numbers we give ABC are scrupulously accurate. But we’ll also use the occasion to strengthen controls over circulation reporting. Our goal is to have the most authoritative circulation reporting in the publishing industry.

Now, let’s turn to second quarter advertising trends.

Ad revenues at our newspapers were up 5% in the quarter driven by strength in retail and help wanted.

Excluding the LA Times, publishing ad revenue was up 7%. The Times continues to see weakness in department stores and, while movie advertising has come back, the national category remains soft due to travel and high tech. While classified auto in LA was down in the quarter, help wanted was up 15%.

Turning to publishing as a whole, retail was up 5% in the quarter with good growth in most categories, including food, as well as furniture and electronics, which have helped offset continued weakness in department store spending in all our markets.

Our preprint strategy is working, as advertising revenues in preprints grew 9% in the quarter driven by an 18% gain in LA and a 10% gain in Chicago. Importantly, our newspapers are posting preprint volume gains in low double digits while the industry preprint volume is showing lower growth. Clearly, our investments are paying off.

National advertising grew 2% in the quarter, on strength in the financial category, which is benefiting from strong local banking and financial services spending. Movie advertising, which was weak early in the quarter, picked up in June on the strength of hits like Shrek 2 and finished up 1% in the quarter. We think this lift in movie advertising should continue through the summer.

Hi-tech has been a drag on national all year, and it was down 9% in the second quarter. You may remember that this category posted tremendous gains last year, particularly in Q2. We should cycle through these tough comps by Q4.

Finally, classified continues to perform well. It was up 6% in the quarter driven by continued strong performance of help wanted, which was up 16% in Q2.

Interactive revenues grew 38% in the quarter, reflecting momentum in all categories. Total online classified revenues were up 44% in the second quarter, while online non-classified revenues were up 30%.

Increases in CareerBuilder traffic, driven by distribution on AOL and MSN, are beating our expectations and CareerBuilder’s careers traffic has exceeded Monster's for five straight months. On the revenue side, CareerBuilder’s second quarter network revenues grew 82% over last year, and 20% over the first quarter of this year.

So far in July, both retail and help wanted are tracking up year-over-year yet slightly below Q2. However, with only two weeks under our belt, it’s really too early to call. And, as always, the wild card will be national.

With that, I’ll turn it over to Don.

Don Grenesko, Sr. Vice President/Finance and Administration
Thanks, Jack. I’ll wrap up with a few comments from the corporate finance perspective.

First, as previously announced, we recorded an after-tax non-operating charge of
$80 million in the quarter which is primarily related to the early retirement of
$620 million of long-term debt. This refinancing reduces our interest expense by about
$25 million in 2004, it increases our exposure to low short term interest rates, and was an efficient use of cash.

Second, we received good news from the bond rating agencies this quarter. S&P raised their outlook on Tribune from negative to stable in June, and Fitch upgraded our bond rating from A minus to A. These announcements indicate that our balance sheet is strong and cash flow from operations is improving.

And third, we ended the quarter with debt at $2.2 billion, slightly above our projections because we’ve increased short-term borrowing to fund our share repurchases. As Dennis mentioned, we’ve invested $630 million in share repurchases year-to-date, which reduced our shares outstanding from 328 million shares at the end of 2003 to 319 million shares at the end of the second quarter. And, we still have Board authorization for approximately $700 million dollars in additional share repurchases.

Last, capital expenditures in the quarter were $47 million, in-line with our full year plan of $220 million.

Looking forward to the second half of the year, we expect revenue to grow around 4%, driven by continued momentum in help wanted, and by easier comps and tighter inventory levels in television. Our expense growth will come down to the 2.5% to 3% range, because of the additional $35M savings at the publishing group.

With that, we’re ready to take questions...

Questions and Answers

Craig Huber, Lehman Brothers
Q. Can you quantify your non-newsprint expense growth in the quarter?
A. In the Newspaper Group, expenses excluding newsprint and the special charges were up 4.8% in the quarter.

Q. And then also, should we expect any more one-time items in the third or fourth quarter?
A. Based upon the information that we have right now, we put this charge in place of $35 million. As for the rest of the year, we don’t know at this point. It's really going to depend upon the investigation as it continues forward.

Q. And you think you're done on the layoff front?
A. We feel like we've take some aggressive steps on the personnel reduction, with 375 employees. So yes, at this point, we do feel that way.

Q. And then lastly, can you just give us an update on how your three largest WB TV stations did in the quarter? Thanks. Talk a little more in-depth, thanks.
A. We've had some good growth in Chicago, where we've been helped by Cubs, excellent ratings, and strong demand for Cubs advertising. The New York market has been a little bit weaker, and Los Angeles, I would describe as just okay at this point.

Our performance last year was very strong in the first six months. Third quarter, those comparisons eased. We have seen some softening in spot activity in third quarter, particularly in August, where some advertisers, and this is not unusual, have been looking to avoid going up against the Olympics.

But on the other hand, we do have stations in six of the swing states, so we think come September, October and early November, we'll be getting some significant political advertising that will be tightening those markets in particular. This will be an overall benefit to us.

Christa Sober, Thomas Weisel Partners
Q. I know your department store advertising had remained strong in Chicago when others had been getting weak, but now we're starting to cycle over those weak department stores at some of the other papers. I was just wondering what your outlook is on the department store front going forward?
A. Well, we started seeing softness last year in Q3. I think we were down in department stores 2 to 3%, and then in Q4, down about 5 or 6%, so we ought to start cycling through in Q3, and Q4 would be, you know, a bigger impact.

Our biggest issue was Rob May out in Los Angeles, and that really hit in the third quarter of last year. So we are cycled through that and we’re starting to see some encouraging signs out there. We also will have the supermarket strike, which started in fourth quarter of last year and is now over. That should be a positive factor for the fourth quarter.

Q. On the national advertiser front, just in your conversations with the national advertisers, is it just that they're just lacking visibility in their own earnings, or is it just in specific categories like tech, which you mentioned. If you could just give some color on sort of what they're thinking in their outlook. A. Well, in the tech area we had some really tough comps last year, as well as travel. Travel’s been soft for us, particularly in L.A. Usually they get a lot of money for travel to Vegas and that's dried up.

Q. On the preprint side, is it mostly the strength in L.A. that's causing you again to outperform some of your peers on the local side?
A. In the quarter, as we mentioned, Chicago has been performing well and Hartford had a very good quarter. In fact, preprint revenue at all of our newspapers were up, with one minor exception, Newport News. They were down a little bit. So it's really all of them, but certainly it’s Chicago, L.A. and Hartford that drove the numbers in this quarter.

Brian Shipman, UBS Warburg -
Q. You put in your press release 4% revenue guidance, and you mentioned in your prepared remarks mid-single digit pacings currently in TV. I was hoping you could elaborate a little bit more on what your expectations were for revenue growth in the second half on the Publishing Division?
A. I think we've mentioned some of this already. We're going to start to cycle through the department store negatives, particularly in Q4. While we had tough comps in high- tech in national, that should lessen starting in Q4. The food category hurt us in Q4 in L.A. because of the strike out there, but we’ll cycle through that.

I think on the movie side, which is a big category for us, we're looking at 6 or 8 good releases. It all depends on the legs, but we're expecting that they should do well.

And on the auto front, we've got a number of new models that are still going to be introduced, and, as you know, the U.S. auto manufacturers have suffered through some tough time here lately. We think that they're going to have to push advertising to push their product out the door.

Q. And then could you also just explain a little bit more the type of debt you retired, and what the cost of debt going forward is going to be?
A. The debt retired was $620 million of the face value of the debt. The interest rate on that debt was in the 6 to 7% range, and we refinanced that with a combination of excess cash that we had on-hand, as well as commercial paper. The commercial paper rates, are a little bit over 1% at this point, so obviously the spread there is quite wide. In our analysis we assumed that there are some increase in short-term rates going forward. We do plan to have $25 million in savings this year, and because of this refinancing, that number goes up to something over $30 million next year.

Q. June TV revenues were pretty strong. Would you say that that was due to anything in particular, or was it an anomaly? It sounds like it's going to be a little bit more moderate growth here the third quarter.
A. We're seeing somewhat of the same pattern in our pacing right now, that the third quarter is the quarter that is pacing most strongly ahead right now. I mentioned the August situation that we had with the Olympics, and July numbers are, I would say, moderate, mid-single digit at this point.

So, again, June was a good month. It was the weakest of the months in the second quarter last year. , This is where I mentioned our trends had softened a little bit early in the quarter because they had been very strong for the industry. What we're seeing is markets with heavy political activity are stronger, and others are a little bit softer than we thought. Once we get to September, we have most of our markets, looking very good at this point.

Frederick Searby, JP Morgan
Q. It sounded like it was one person at Newsday, and then you've uncovered, I assume in the last week, more issues on the subscription at Newsday. Is it the same one guy, or now you've found issues outside of that one area regionally?
A. We have found nothing outside of Newsday. What we found is that the 2004 number was impacted by programs that misstated ABC paid circulation, so our unaudited March 2004 number was misstated, and needs to be brought down. We also found misstatements that impact 2001 and 2002.

There are a variety of different kinds of programs. None of them fully compliant with ABC rules.

Q. So it is beyond this one person that you had highlighted?
A. Yes. The vice president of circulation was responsible for all of it. We're looking at, as you can imagine, all sorts of personnel questions, with respect to that, but it's all still in the gambit of the vice president of circulation for Newsday.

Q. And you're absolutely convinced that this is the last thing you'll find at Newsday, that you've already done the thorough fine tooth comb check, or is there incrementally potential more negative news flow?
A. We think that we're within a few weeks of being able to say we've got 100% confidence in what we've got out there. We're edging close to that now. But, you know, we're not quite done, and so I can't say that we won't find a little something here or there, but we think we've found most everything there is to be found.

We brought in the director of circulation from our Ft. Lauderdale newspaper. We also had the directors of circulation of Chicago Tribune, the Orlando Sentinel, and the Baltimore Sun, at Newsday on and off for several weeks, and they have gone through everything.

They have been on the street checking hawker positions, they have been doing lots of different things to make sure we fully understood the extent of this problem. But because it is a complex situation, we don't want to make any statement that says we have everything.

We have confidence that we've discovered just about everything, but we cannot say, with certainty, that that is the case. So we will not state it. We are continuing our investigation, and we are working with ABC. We want to go over the numbers and what we've discovered with ABC before we make any definitive statement.

Q. If you could give us some sense on local ratings. You've highlighted in the past local ratings doing better than the steep fall off we saw in WB, and we're obviously expecting some improvement there, but if you could give us some update on the ratings outlook, your ratings at WB?

A. Now, as far as local ratings go, I would say we were flat with the WB ratings on our local markets. We've got, as you've been reading, lots of issues with People Meters in both New York and Los Angeles, so this is adding some confusion to the marketplace.
We are encouraged by the premiere of Summerland on the WB, which it had some very encouraging ratings. As we look to the fall, with shows like Jack and Bobby, and
The Mountain, we think WB has had some good development. So we're encouraged going forward with the WB. Our May ratings were, I would say, about flat in prime time.

Q. With the local people meters, we've heard in New York there was very negative implications for you. What about in L.A. and other markets? What's your sense there? Is it similar or consistent with what the early trials have showed in other markets?
A. Well, we say negative implications for us, we were down. What happens is, and this happened when the people meters were installed on a national basis back in the late 80s,. because it requires active participation, you see a reduction in the actual people using television, or the estimates of people using television. So everybody's gross numbers are down.

And what also has happened is the higher-rated cable networks in some instances are down. So we were not impacted, we believe, any worse than many other stations. WABC in New York was down very significantly, so was FOX and UPN.

But what happens is the actual universe of rating points is less, so supply and demand kicks in. We saw this in Boston because that was the first market where local people meters were rolled out. Advertisers are still looking to reach a certain number of rating points or impressions, so sometimes, and this is what happened on the national level back the late 80s, it can have a perverse effect of causing more money coming into the marketplace. We're not making that flat projection, but the impact of local people meters is still to be determined.

Lauren Fine, Merrill Lynch
Q. I know political is small for you, but it would still be helpful since other companies do it, if you could quantify the contribution in the second quarter and if you have any expectations for the third quarter.
A. Political for us was only a couple of million dollars in the second quarter. We expect that to increase. We're still budgeting probably over $20 million for the year, but most of that would come in September-October, and most of that in the swing states, we believe.

Q. On the newspaper side, I'm wondering if you could give us a sense of how Los Angeles, Chicago and New York actually performed in total ad revenues for the quarter.
A. Well, in the quarter, L.A. was up 1%, Chicago was up about 7%, and New York was up about 8%.

Q. Could you give us a classified breakdown for June in terms of how the respective categories performed?
A. One of the things that we're looking at is we need to look at May and June together. Our accounting period end cutoff moved the Memorial Day holiday from our May to June, so we need to look at those together. So the classified categories for May and June together, help was up 15%, auto was up a tad, real estate was up 5%, and in total classified was up 6%. What happens is, retail is very strong in the month that the holiday is in, and classified suffers, and when it switches, it just makes it a difficult comparison. Retail was up 6% when you add the two months together.

Q. So would you suggest then we should look at May and June retails together as well?
A. Yes.

Q. What is your all in cost of debt right now with the current refinancing?
A. It's 5.7%.

Paul Ginocchio, Deutsche Bank
Q. That Chicago number sounds a lot better than Q1 if I remember correctly. Can you just give us the trend on just Chicago advertising from Q1 to Q2?
A. In Q1, Chicago was up roughly 4%. So second quarter was better. Looking down the line, retail growth was the same, 7%. National, they were soft in Q1, they were down 1%. Classified, they were up 7% in each quarter, so it was really on the national side. And that was in the high-tech category, as I remember, in Q1 for them.

Q. And then, can you give us, back on help warranted, could you give us a break down of what print grew versus online in the quarter
A. We haven't been breaking out print and online, because you really have to look at print and online together. I think we are seeing growth in both of those categories. In the interactive number, so much of that is classified which should give you a good feel for how online is growing.

Q. Have you seen an increased number of people asking for online only, or is online still being driven by more people accepting the upsell or taking the upsell?
A. In our online revenue growth in recruitment, we're seeing an increase in both. Our conversion rates for upsells are up, our pricing for that upsell piece of the print ad is up this year, but we're also seeing increase, and you'll see this through the CareerBuilder number, increased online-only ads, as well.

Steven Barlow, Prudential Equity Group
Q. If you could tell us a little bit about corporate expense, what happened there? It seemed to be up quite a bit.
A. The corporate expenses were actually down $1-$1.5 million, versus last year. We saw in the first quarter that the corporate expenses were up, but we felt that for the full year, that they were going to be flat to down somewhat, so I think the second quarter reinforces that.

Q. Do you have a debt forecast for the end of the year?
A.. Our debt is currently at $2.2 billion, as I mentioned. Originally we thought that the year-end number was going to be somewhat below the $2 billion range, but given the share repurchases that we've had, we think that we'll stay at this level, or perhaps go up a bit from here. So somewhere in that low-to-mid $2 billion level.

Q. And it appears you've bought back maybe a million shares since the beginning of July. Would that be a true statement?
A. I'm not certain on what we've repurchased during July. Most of the repurchases have been in May and June. There was some repurchasing in July, but I don't know if it was quite a million.

Jim Goss, Barrington Research
Q. Related to the help wanted classifieds in the quarter. I think the print said that you were up 16% for the group, with L.A. up 15%, New York up 8%, Chicago up 8%. With all three of your largest papers being below the main, is the balance from CareerBuilder, or were the smaller papers especially strong in some way?
A. Help wanted in the other markets, they were up, you know, it ranged from the high teens to 35% in Newport News. South Florida, was in the 25% range, Orlando was in the low 20% range, so all of them grew significantly to help that 16%.

Q. The preprint side, I think earlier on, preprint seemed to be something that took away from ROP. You have talked about in the past, a difference in purpose or identity of the advertisers as explaining that that wasn't really the case so much, but I'm wondering whether the aggressiveness you have taken toward preprints, especially in L.A. and Chicago, has started to blur those lines as those growth opportunities are pursued, and what the profit implications of those are?
A. We are not driving our customers with our preprint strategy, we're following our customers. And it has been a change in the needs of the customer base that drove many of them to direct mailers, instead of newspapers. What we're doing through our preprint strategy is taking that business back.

It's not an issue of cannibalization, it's an issue of competing with a competitor that was, until we figured out how to compete with them better, was taking share from us.

Q. On the regulatory side, it did seem likemost of the things related to the cross media did seem to go your way in this latest ruling, except for the diversity definitions in the smaller markets. I'm just wondering if that could be an issue that could be stripped out easily, or if that's going to be something that will cause the timing to realistically be delayed, because it seemed that earlier on the FCC was taking a lot of detail with that diversity definition, and if that wasn't acceptable, it's hard to see it satisfying the court easily again.
A. We think your assessment is right on target, and the court did have the most problem with this mechanism that the FCC designed, called "The Diversity Index". But in the court's ruling, and this is where we see a potential opportunity, there was no argument about the FCC's findings in major markets, and that was that cross-ownership didn't harm diversity, that the Diversity Index really didn't come into play in the larger markets. So we're assessing our legal options at this point as to what we might be able to do that would, perhaps, eliminate the stay in large markets. But we agree with your assessment of the ruling.

James Marsh, S.G. Cowen
Q. I was wondering if you could walk through the methodology in getting to the present estimate of the $35 million settlement. Specifically, I was wondering if you could comment on the periods that are included in that estimate. Namely is '01 and '02, or is this just '03 and '04 so far?
A. The reserve relates to the 2001 through 2004 year-to-date period, so it does go back and pick up 2001 and 2002.

Q. I was hoping you could you share with us the assumptions that you use in make-goods versus cash, and does that impact the total of settlement amount? For example, is cash payment different in your mind than a make-good because obviously, you could just add pages and make people whole that way..
A. In terms of the reserve, we broke it up into preprints and to ROP. The preprints are relatively straightforward, since that's really sold on a cost per thousand basis.

The ROP reserve is more judgmental, and it's really going to impact different advertisers, differently by category and by accounts, and so we're going to be negotiating a settlement with our advertisers on a case-by-case basis. Again, this one is more judgmental. We have assumed that there will be some type of combination of cash and make goods, and we've looked at different alternatives for that, but it will be some different combinations of cash and of make goods. And you're correct, the make goods would be less than a straight cash payment.

Q. Is there an assumption that there will be increased legal costs related to that, and do you get the sense that there'll be lawsuits, or do you think that this can all be resolved amicably?
A. We will expense the legal costs as we go along. There has nothing that's been put into the reserve for this. We're already contacting our advertisers, and we have discussions going with them, and so we think that this will be able to be resolved.

William Bird, Smith Barney
Q. I was wondering if you could talk a little bit about the increased color capacity projects in L.A. and Chicago versus your current color utilization?
A. The color, adding color capacity project is on track. I'm not sure what exactly you're interested in learning. How much extra color?

Q. How many pages of color are you trending out at each of those papers now versus your full utilization rate, and how much color will you be capable of when these projects are finished?
A. Basically, you have to think about this at least in part in terms of a peak use period. And so what you're building is capacity to handle the seasons where most of our revenue comes in anyway, and that's when we get out of color, and that's when the revenue potential is the greatest.

L.A. should be starting it's new color press maybe Q4 this year, but certainly Q1 in '05 and then Chicago would be Q3 '05.

Q. Just want to drill down on revenue guidance. Prior guidance called for full-year revenue growth at 4%. Now you're calling for 4% for the second half, yet the first half was up 3.2. Just want to understand if something has changed in the past few weeks.
A. The first thing is, as you mentioned, 3.2% growth in the first half. We have slightly more revenue in the second half of our year, given the fourth quarter, than the first half. That is one factor. But we've brought down our projections a little bit in Los Angeles, given the weakness that we have seen there. So that's part of the reduction in the second half. So we're still projecting, as we did back in June, about 4% for the full year.

Douglas Arthur, Morgan Stanley
Q. Can you just remind us, what are preprints as a percent of total retail, and specifically, what are they as a percent of total revenues in Los Angeles?
A. Preprints in L.A., as a percentage of total advertising revenue was around 15%, and the proportion of retail advertising is in the 35 to 40% range.

Peter Appert, Goldman Sachs
Q. I was hoping you could comment on your expectations for profitability at Newsday in the context of what I assume is going to be lower circulation numbers going forward or maybe some reductions in ad rates, so can you talk to that? June ad revenues at Newsday specifically, have you seen any pull back by advertisers in response to the problem there?
A. First of all, a critical, most of the advertising in our newspapers is not based in any direct way on circulation. Preprint advertising is anomalous in that respect.

Take for example recruitment advertising. Recruitment advertising is based on a newspaper being in the market place for help wanted, and there's usually one of them in an area. Recruiters want to get into that newspaper not because of the total number of newspapers that are sold, whether they're up a couple, ten thousand, down ten thousand, whatever. They want to be in that paper, because when people are looking for a job, that's where they go to look. So many of the categories are not directly related to circulation, although they're impacted by it.

Long Island is a unique market, and Newsday is a, is uniquely situated in it. It's an extremely effective marketing tool for the Long Island market. There aren't real efficient alternatives to Newsday either in print, or even in television for reaching that market. So it's in a strong position.

The critical element here is as to whether we come out of this in a good way, or we come out of it in a weakened way, is whether we take the steps that we need to make sure our circulation reporting is scrupulously accurate, and we deal fairly with our advertisers. I believe that if we do those two things, we'll be in fine shape coming out of this.

Q. But specifically, no evidence that there's any diminution in ad revenues because of this specific issue?
A. No, we haven't seen it.

Q. The share repurchase activity in the second quarter was obviously pretty aggressive. Do you think that pace of activity continues, which is to say, will you use up the,
$700 million in remaining authorization by the end of the year?
A. Haven't made a decision on whether or not it's going to be $700 million or not, but we will continue to be aggressive in the second half on our share repurchases. Again, we are looking at the debt level something in the $2.2 -$2.5 billion range.

William Drewry, Credit Suisse First Boston
Q. I know of you've cut the data a lot of different ways, but just wondering for the big three newspapers, could you give us the number for June, for New York, L.A. and Chicago? I think May you'd said at the Mid-Year Review was like negative two in L.A., plus nine in New York, and plus seven in Chicago, or maybe I reversed those two. If you could just confirm those numbers and give us June.
A. Big three in June. Total advertising, L.A. was flat, Chicago was up 4%, and Newsday was up 8%

Q. Regarding the Newsday circulation situation, it was my understanding that you've already seen some advertiser lawsuits filed. Is that true or not? And if it is, are any of your largest advertisers participants in that?
A. On the Newsday circulation lawsuit. That was originally filed back in January, or early February. An amended complaint has been filed recently with seven additional advertisers added on to the original three. The original three were pretty much defunct businesses, very small advertisers, and only a few additional very small advertisers have signed up to this lawsuit.

And I think this points to Jack's discussion of Newsday and the importance that it has for advertisers who have distribution outlets on Long Island. And it also points to the need that we have to be open and honest about the revised circulation figures, and exactly what has happened here. And if we do that right, there are not going to be a lot of advertisers, we don't feel, signing up for this lawsuit.

So we do not want to make any firm predictions on this, but we know we need to do our job right, getting out, talking with the advertisers, telling them exactly what has happened, exactly after we get confirmation from ABC, what our circulation numbers are, and then make it right in terms of the kinds of adjustments we need to make, and whether those are terms of cash settlements or make-goods as we said earlier. That's what we will do, and we feel confident that we will continue to have those good relationships with advertisers.

Q. The reality of you potentially getting Nomar for the Cubs?
A. No comment on Nomar.

Alexia Quadrani, Bear, Stearns and Company
Q. Could you give us the year-over-year EBITDA margin change at the big three newspapers in the quarter?
A. We typically don't disclose those for individual newspapers

Q. The split of programming versus other cash costs in the TV group in the quarter?
A. Programming was minus 5%, and then o non-programming, was plus 7. Which is what got us to the slight increase. And again, that was the biggest piece of that was medical benefits, as well as retirement.

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