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Transcript

Third Quarter 2004 Earnings
Conference Call
October 28, 2004

Ruthellyn Musil, Sr. Vice President/Corporate Relations
Thank you operator and good morning everyone. Welcome to our conference call to review 2004 third quarter results. As our press release indicated, Tribune reported earnings per share of 37 cents on GAAP basis, including charge of 10 cents per share related to settlements with advertisers at Newsday and Hoy, New York. We also reported a net non-operating loss of 4 cents per share related to quarterly marking-to-market of our PHONES derivatives. Our release contains the information needed to make a meaningful comparison to the estimates that are on First Call.

As we get started, just a reminder that our discussion may include forward-looking statements that are covered in greater details in our SEC filings. Our speakers this morning are going to be Dennis FitzSimons, Tribune’s chairman, president and CEO, Jack Fuller, president of our publishing group, and Don Grenesko, our chief financial officer and then we’ll have plenty of time for your questions. On that note I’ll turn it over to Dennis.

Dennis FitzSimons, Chairman, President, CEO
Thank you, Ruthellyn, and good morning. We have a number of things to cover, including third quarter results and update on circulation issues, however we also announced several management changes in the Publishing Group yesterday afternoon, including Jack Fuller’s retirement at the end of this year, so let me talk about that first.

Jack and I have been discussing this transition for some time. As many of you know Jack has many talents and interests outside of the newspaper business and he has decided to devote himself full time to those interests. Jack’s going to have some more comments on that in a minute. But we appreciate all that Jack has accomplished and all the contributions he has made to the company. The good news for us is we have placed significant emphasis on our succession management process and that speaks to the depth of talent in our organization. Scott Smith and David Hiller both have proven track records with our company and many of you know them. Each has made a significant contribution to Tribune, both in the Publishing Group and at the corporate level. Scott will join the Publishing Group on Monday as COO and become President when Jack retires on December 31. David will move to the Chicago Tribune as of Monday.

Now let’s move to circulation. As you saw in our release, third quarter earnings included an additional pre-tax charge of $55 million related to resolving Newsday and Hoy circulation misstatements with advertisers. This is within the range we indicated to you in September. Both newspapers are making good progress with advertisers. So far Newsday has received more than 18,000 signed settlement agreements and about 60% of the newspaper’s top 350 advertisers have either signed agreements or agreed in principal to accept our offers, and that includes seven of the top ten accounts. At most of our other newspapers, we have completed internal audits and have found no evidence of circulation misstatements likes those at Newsday. While these results are preliminary until verified by ABC, the findings confirm our belief that the deliberate unethical behaviors of Newsday and Hoy were isolated incidents. Nevertheless as we told you back in June, we strengthened our circulation reporting practices across the publishing group in the second quarter. We now require each newspaper CEO and publisher circulation VP and CFO to attest to the accuracy of reported circulation and that ABC rules have been followed. Employees who violate the company’s Code of Conduct will be disciplined or terminated depending on offense. In addition, we instituted a "claw back" provision, allowing us to recover incentive compensation and stock options in the event of unethical conduct. And just recently we took a couple of additional steps and those were standardizing circulation policies throughout our publishing group, increasing the role and responsibility of our finance department in circulation activities and further tightening controls over all third party programs.

Now let me turn things over to Jack and Don will follow with a discussion of business trends and I’ll be back to wrap up.

Jack Fuller, President/Tribune Publishing
Thanks, Dennis. First let me talk for a minute about my retirement. As some of you know, I have published a number of books over the years, novels mostly, but also a study of ethical values in journalism. For the past several years, Dennis and I have been talking about my desire to retire early and see if, by devoting full time to writing, I could produce better books or at least produce them a little more quickly. As the circulation issues at Newsday are clearing, the end of year seemed to be the right timing and Dennis’s decision on Scott Smith was clearly the right one. I worked closely with Scott for a long time. He’s proven himself as a newspaper publisher and he has the right stuff to move Tribune Publishing where it needs to go.

Now let’s turn to an update on circulation issues. As earlier noted, Tribune’s corporate internal audit staff has substantially completed its work at Los Angeles Times, Chicago Tribune, Orlando Sentinel, South Florida Sun Sentinel, Baltimore Sun, and Hartford Courant, and we have detected no evidence of circulation misstatements like those at Newsday. Reviews at our four smaller in Allentown, Pennsylvania, and Newport News, Virginia, and southern Connecticut are scheduled for later this year and we expect results at those papers to be positive as well.

With regard to the Audit Bureau of Circulations, regular annual audits are currently underway at various Tribune newspapers. At Newsday, ABC tells us they are close to completing their audits for the periods ending September 30th 2003 and March 31st, 2004. We expect the audited the circulation numbers in the range of the restated we announced on September 10th. ABC audits of Hoy for these periods are still in progress. I’d also add that Newsday has appointed a new vice president of circulation. Paul Barbetta was previously director of circulation services for the Baltimore Sun.

Now I would like to turn to FAS FAX, because September reports should be released next week. As you know, neither Newsday or Hoy will be included. Most other Tribune newspapers will show some circulation decline, reflecting a number of industry-wide factors, including the impact of "Do Not Call" legislation. In addition, we have been focusing our circulation efforts on readers who present the most value for advertisers. This led us to reduce circulation that has lower value to certain advertisers such as some third party sponsorship programs. We have also chosen to tighten some policies and procedures beyond ABC requirements.

For the period ending September 30th, the L.A. Times reported a six-day circulation average of 902,164 and the Sunday circulation of 1,292,274, representing declines in the 6% range, primarily due to lower home delivery. A home delivery price increase adversely impacted the newspaper’s circulation. In addition, circulation was significantly affected by two other developments, the impact of the national "Do Not Call" law on telesales operations and a deliberate decision to reduce third party sponsored home delivery and single-copy bulk sales. To turn around the declines, the newspaper hass invested in a new database marketing system and increased its use of direct-mail programs, which are expected to improve retention.

At the Chicago Tribune, the five-day circulation average for September ‘04 time period was 591,504 and Sunday was 963,926. A decrease of about 2.5% daily and 4% Sunday. These decreases were due to modest declines in both single copy and home delivery sales. Readership trends are slightly better due to efforts that focus on circulation with the highest, most loyal readership. In addition, ABC recently completed its audit of the Chicago Tribune for the twelve months ending March 30th 2003 with no adjustments to reported in circulation results. In Florida, the Sun Sentinel was flat while Orlando Sentinel was up slightly, both daily and Sunday. Finally, I want to reiterate that while we have seen circulation soften I’m pleased to say we found nothing like we found at Newsday. Now I will turn it over to Don.

Don Grenesko, Sr. Vice President/Finance and Administration
Thanks, Jack. Now let’s turn to third quarter results.

Consolidated revenues were up 2% in the quarter, while consolidated cash expenses increased 3%, excluding the Newsday/Hoy charge. In publishing, total advertising revenues rose by 3% driven by strength in retail and Help Wanted. Retail was up 4% with the strong categories being electronics, furniture, food, health care and hardware. Pre-print revenue was up 11% in the quarter, led by a 27% increase at the L.A. Times and a 10% increase at the Chicago Tribune. Our pre-print strategy and investments are clearly paying off and helping to offset weakness in some department store advertising.

National advertising rose slightly as increases from auto manufacturers and financial advertisers were partially offset by weakness in travel and technology. Travel continues to be impacted by the financial problems plaguing the airline industry, and you may remember that the high-tech category posted tremendous gains last year, particularly in the second and third quarters. These tough comps ease in the fourth quarter. In classifieds, automotive dealer revenue fell by 8%, but real estate continues to do well, particularly on both coasts. Help Wanted was up 10%, reflecting improved employment in all of newspaper markets except New York.

Interactive revenues grew 30% with momentum in all categories. Online classified advertising, which is the majority of interactive revenues, was up 40% in the third quarter. CareerBuilder network revenues grew 80% over last year. CareerBuilder’s traffic has now exceeded Monster’s for nine straight months. On our equity line, Career Builder’s loss in the quarter was a little larger than in 2004 due to cost associated AOL and MSN distribution agreements.

In terms of ad revenue performance across our three large markets, Chicago led the quarter with a 4% increase and posted the highest Help Wanted increase of the three up 12%. L.A. Times advertising revenues were up 1%, while Newsday group’s ad revenues up slightly. Third quarter operating expenses in publishing rose by only 3%, excluding the Newsday/Hoy special charge. Staffing levels were 4% below last year, but higher pension, medical cost and merit increases caused a modest increase in compensation.

Newsprint costs were also up by 7%. Consumption was down 4% in the third quarter and we expect that trend to continue into the fourth. As you are aware major newsprint suppliers announced a September 1st price increase of $50 per ton, however, only a small portion of that increase has taken hold in October.

Moving to TV, third quarter revenues were impacted by the fact that advertisers avoided going up against the Olympics, because our stations typically don’t share in as much political advertising as others do. Also our stations did not benefit from overall inventory tightening. TV revenues were flat with last yearas gains in telecom and education were offset by softness in movies and automotive. Broadcast rights expenses continue to run below last year.

Turning to debt we ended the quarter at just under $2.1 billion, excluding the PHONES. Interest expense was $13 million below year because of the high cost debt that we retired in April. We expect year-over-year interest expense reduction in the fourth quarter to be about the same. In addition to Career Builder our equity losses at the WB Network were somewhat higher in the third quarter. On a full-year basis however, total equity results will be positive and somewhat higher than in 2003. Year-to-date, we have repurchased 14.4 million shares of our stock including just over 1 million shares in the third quarter. Our average shares outstanding for the quarter were almost 4% below last year.

Looking ahead, we expect consolidated revenues and operating expenses to grow in the low single digit range in the fourth quarter. October’s ad revenue growth at our newspapers is similar to what we saw in the third quarter, with classified Help Wanted and real estate leading the way. In TV, pacings for the fourth quarter are a little behind last year. Outside of the political swing states, we continue to see weak demand in most markets. The WB Network is six weeks into its fall season and showing strength with returning shows. With that, I will turn it back to Dennis.

Dennis FitzSimons
Thank you, Don. So you can see the second half of the year is clearly impacted by the soft advertising environment, but despite the challenges of an uneven economy, Tribune generated cash flow of $300 million and we’re on track to reach $1.6 billion for the full year. We expect modest growth in the fourth quarter and we’ll continue to aggressively manage expenses. As our share repurchases indicate, we have a high degree of confidence in the future and with our stock trading at less than nine Times estimated 2005 operating cash flow, we feel it’s an excellent investment.

We’ll look forward to discussing 2005 with you in greater detail in December. But for now, let me just mention that our newspapers and television stations are still great vehicles for advertising to reach mass audiences with impactful messages, critical markets and strong readership, quality of audience, and competitive positions are all key factors that have not changed. And on that note we’ll be happy to take your questions.

Q&A

Steven Barlow, Prudential Equity Group

Q. The entertainment line in terms of revenue, it looks like you have new shows going on there. A little clarification there.

A. In terms of the entertainment line, the entertainment group sold "Andromeda" syndicated sales to the SciFi Network and that accounted for most of the increase in the revenue line there.

Q. Why didn’t you buy back more shares than a million during the quarter? Back in the second quarter, stock price has been weak and I guess I was surprised that you didn’t buy back more.

A. In terms of share repurchases, our long-term strategy is to reduce our shares outstanding by 1-2% a year and we bought back a lot in the first half of year. We slowed it down a bit in the third quarter. We repurchased a little bit more in the fourth quarter. I think we have done basically the bulk of our share repurchases for the year, but we could do a little bit more in the last couple months of the year.

Paul Ginocchio, Deutsche Bank

Q. Just a question on the Newsday rebate. What percentage of revenues have advertisers accepted the rebate?

A. In terms of Newsday situation, the Newsday people are with working with their advertisers and the response has been good. As we said the 18,000 signed settlements, but in terms of the reserve, we are where we expected to be. That is, we feel the estimate for the reserve is a good one, but we don’t want to say anything beyond that because we want to get further down the line. So Newsday is about where they thought they would be. We have some advertisers that are negotiating on a number of fronts next year, so in some instances these negotiations are tied in to resolution of past issues, as well as forward looking contracts.

Q. On the L.A. Times how does the 6% circulation decline, how are rate negotiations going right now, I guess for ‘05, and do advertisers know this?

A. We’re just in the beginning of working with our advertisers for the contracts for next year and we really can’t comment on these things beyond that. Rates are typically not set just based on circulation numbers. The conversations that we’re going to have with our advertisers bring in things like readership, quality of circulation and a lot of the things that Jack talked about earlier.

Q. Great. Just a follow-up on the Newsday rebates. I think Belo got 80% of acceptance and 71% of revenue accepted and in a quicker time period. It seem like it’s longer for you and only at 60% acceptance for the top 350 just seems relative, acceptance rate hasn’t been as good?

A. One of the things that has probably caused our situation to move a little bit more slowly is the fact that we are asking advertisers to sign waivers agreeing not to join the class action litigation. I’m not sure Belo had the same type of situation. I actually shouldn’t comment on their settlement offer, I think it was for one year, our negotiations and resolution extend further back. So we are trying to accomplish two things. Make sure going forward our relationships with advertisers are in good shape, as well as to get sign-off on this class action litigation. So it’s taking a little bit longer. In fact, working through the legal departments of some of the larger advertisers has taken time because of this waiver that we are asking people to sign. So that is why I believe ours is going a little bit slower. But we expect, once we have full sign-off or certification from ABC on the numbers, that we’ll see an increase in the rate of signing of these documents.

William Drewry, Credit Suisse First Boston

Q. Just to get away from the minutia of Newsday and get to the point. If you look going forward, what do you think the effect is now over the next 12-18 months on the ad revenue growth there? It’s obviously slowed down dramatically. It was growing I think growing higher single digit earlier in the year, now it’s basically down to flatter and may have been by September negative. Tell us what you think the affect is going to be there, and how it’s going impact overall TRB earnings potential in 2005?

A. In the first instance, the question about what affect this will have on Newsday’s 2005 revenue, it’s just too soon to know that. We are in the process of negotiating, right now, with our advertisers over their 2005 contracts. And we haven’t begun the annual budget review that will produce the kind of projections that you are asking for. So it’s just too soon to say for next year.

Q. Do you think that you know over the next 6-12 plus months you will see the same kind of ABC numbers down low to mid-single digits or is that just the sort of one-time first year fall out from "Do Not Call"?

A. We think it’s not a durable thing. We are taking steps both in Chicago and Los Angeles to turn around the situation. As can you imagine, we are being very, very conservative in how we report our numbers now. We believe that the underlying situation both in Los Angeles and Chicago will be strong. We have to move in Los Angeles more to a database marketing approach to circulation growth. We don’t think that this is the beginning of a long pattern of circulation decline at all.

The biggest factor that impacts us is the economy in our various local markets. And also our competitive position. So in Newsday’s situation, despite the adjustments in circulation, we have got a very strong position in Nassau and Suffolk. That’s what we’ve been finding. The advertisers want to work with Newsday, they want to make sure they negotiate the best deal on restitution, but also going forward. So, we think as the New York economy improves, Newsday is still going to be in good shape. And putting it in total perspective for the company, Newsday represents about 10% of consolidated revenue. So, we are going through the budgeting process right now, we’ll be out there in a couple of weeks. So we see the health of economy as the biggest factor and the negotiations that are going on right now in terms of forward-looking contracts.

John Janedis, Banc of America Securities

Q. Could you get more specific on Newsday on circulation and Help Wanted revenue there? Were the declines a function of the circulation issue? And also how does the demand for October look given the new rate card?

A. I think two things are happening at Newsday in terms of Help Wanted revenue. One, the economic recovery is spotty and we see it bumpy across the country. And two, I think the distraction of the circulation issues have had some effect. We expect Newsday to bounce back, it’s hard to have visibility going much further than that in the fourth quarter.

Q. Would you expect to over-index or under-index the overall publishing grid for you guys?

A. We expect it to under-index right now, realistically looking at it just because of the time consumed by getting these resolutions, these agreements settled.

Q. Should we interpret the comments related to Newsday for the overall portfolio. I mean, you don’t see any other issues period, or you have the just not to Newsday?

A. Well, we don’t see issues like Newsday at all. You know, we have stood the big papers in our organization to a very, very hard frisk and we found nothing like what we found at Newsday.

Lauren Fine, Merrill Lynch - Analyst

Q. Going back to a previous question as it related to Los Angeles given the circulation declines, how would that be reflected in the rate increases that you’re looking for given that the circulation is down that much?

A. ROP pricing is based on a lot of factors -- circulation, competition, readership, audience demos, main news demand, ad positioning, changes in advertiser volume. Audience declines do not automatically mean rate declines. We have seen that again and again in our own business. Jst think of network television and what has happened over the last decade in network TV. Rate increases have never been linked to circulation changes. Our fastest growing ROP segment is local retail, and frankly our leverage there is very good. A significant portion of our national ROP is new every year and it runs at the a higher rate. This revenue shouldn’t be impacted. Our large national retailers will negotiate harder, for sure, but we have increased color and positioning premiums that will help us increase ROP rates and revenue as well. In preprint, CPM’s won’t be affected. Pre-print demand is high. Our papers have strong and improving market position. We are investing in better targeting capability and we have effective TMC programs in our market. So you might see some reduction in preprint volume in the newspaper but we can pick it back up on the TMC. And in the preprint areas you know, it really all comes down to what zip codes they want to be in and what happened to the circulation in those zip codes. And since some of this decline we have seen in Los Angeles relates to decisions we made about reducing a certain kind of bulk sales and third-party sponsored circulation, that circulation was never strongly valued by our preprint customers anyway.

Q. I’m wondering if you could dig into the ad revenue trends in Los Angeles and give us a sense of what the major categories did and what was dragging down the overall results there and what you’re seeing looking into the fourth quarter.

A. In L.A. for the third quarter their total ad revenues were up about 1%. The good performers were retail, help and real estate. In the retail line, we saw softness, continued softness in department stores, but the declines have lessened, as we started to cycle through the department store shifts we started to see last year. Food, electronics, home furnishings, hardware, health care were all strong in the quarter. On the national side, we had softness in high-tech and travel. We have seen these throughout the year in L.A. In other markets, strength in auto manufacturers, and movies and entertainment was up about 3%. Much of that on live entertainment. I think on the classified side I have already talked about that, but classified auto was the big slow one in the market. Real estate was very strong at 25% gain.

Q. I’m just trying to understand why, compared to the industry, the L.A. Times was growing so much slowly, because the commentary you just gave is similar throughout the industry, but something here is worse, and I guess it’s probably national, but I don’t know if you could isolate specific percentage changes in those categories?

A. Yeah, national was down 6% for the quarter in L.A.

William Bird, Smith Barney

Q. Just wondering if you could talk about December TV pacings and just thoughts on possibilities seeing pent-up demand released by non-political advertisers.

A. Sure. I think really if you look at fourth quarter in general and we’re looking at TV pacings somewhat similar to what we have seen in third quarter to this point with some very similar category issues. As we said over the year, the movie category in general has been a relatively soft category for us and that has continued through third quarter and current pacing of fourth quarter is similar. The auto business has been year to date relatively strong, but a little softer in third quarter, but we expect the auto business in fourth quarter to be again relatively flat. We’re seeing strength in telecommunications category and others. Getting through October, which there is a little bit of political business, we’re hearing some of our colleagues showing some optimism about pent-up demand. I hope they are right, but it’s simply too early to predict if it that pent-up demand is there and whether it will materialize or not.
One other recurring things you have heard both on the publishing side and TV side has been the movie category. This has not been a great year for the movie business and that is a significant category for us on both sides of house. So when the studios don’t have a good year it makes it a little bit more difficult for our side. We are rooting for them next year.

Q. At Newsday, just curious over what time period would you expect all the make-goods to be redeemed?

A. As far as make-goods we really haven’t offered make-goods, our settlement with our advertisers are cash settlements. The one exception is that we offered classified advertisers who advertised with us during this period a free, two-line classified ad. This is individual classified advertisers and not big companies. But those were all in a special section last Sunday and that’s over with. It’s not a material amount of revenue that is involved in that.

Craig Huber, Lehman Brothers

Q. Could you give us the September percent change numbers for Help Wanted, real estate and auto, if you would.

A. Because of the late Labor Day week and how our accounting periods fall, we think it’s better to look at August and September together and let me give you those figures. When you take the two months together Help was up 9%. Auto was down 11%. And real estate was up 6%.

Q. And then back on the TV pacing question, just for a little better clarity if you would, is there any significant differences in the percent changes you are seeing for each of the three months?

A. To go to the TV pacing, by month, I would categorize it as saying that October we see just a slight uptick over ‘03 and for November and December it’s flattish to down maybe just a hair for the quarter.

Let me mention one other thing on the TV side. I believe everybody knows this, but our three largest stations are not in swing states and we are not seeing any kind of tightening of inventory in our stations get a smaller share of political advertising in those states where we are in a heated battle for votes where there is significant political advertising.

Q. There’s about roughly 100,000 recirc papers daily you receded down by. What exactly happened to those newspapers going back to 2001? Were they dropped off each day at the recycling dump, were they dropped off at people’s homes for free and counted as paid circulation? What exactly happened to those papers everyday? And also how many people do you think were knowingly involved in this whole circulation fraud or restatement?

A. Most of the papers were actually delivered to people. They just weren’t paid for. And one of the curious things about all of this is that when you look at Scarborough readership data over the period of misstatement of circulation, the Newsday, if I recall it right, its daily readership was up just a little bit over that period. And Sunday’s circulation was flat to down just a little bit. So, the papers were delivered, it’s just that they weren’t paid for and that is the principle thing that we found. That was the largest segment of what we found. As far as the number of people, it’s still under investigation. We have terminated a number of people, and we don’t want to try to put a number on it quite yet.

Brian Shipman, UBS Warburg

Q. I was wondering if you could discuss the retail advertising environment, excluding preprints. You did note preprints were up over 10%. Could you discuss what you are seeing in department store advertising a little bit further, please, and where you see that going through the end of the year and into the start of the new year?

A. Well, in the third quarter department stores were down roughly 4-5% for the publishing group. What we have seen is that, particularly in L.A., we have seen improvement there each quarter. Third quarter was less of a decline than the second quarter and we expect that to continue to happen as we cycle through the cutbacks that were started last year with the major department stores there Macys and Rob-May. We had similar situations with the other papers and we started to cycle through that earlier in the year. Chicago had been strong pretty much all year. In the third quarter we saw lower spending by Marshal Fields and Carson’s. The Fields situation was due to the re-opening of the State Street store. Everything I hear says that the retail spending in the fourth quarter is really going to depend upon how the consumers spend and we’re really going to be dependent on that.

Douglas Arthur, Morgan Stanley

Q. I think you mentioned tightening up circulation numbers around third-party sales in L.A., could you just elaborate on that? Which kind of third-party sales?

A. Well, there are third-party bulk sales and sponsored-third party home delivered programs. Typically, for most of our advertisers, that is very low-value circulation. All over the industry, as you probably noticed, there has been an increase in that kind of circulation usually to compensate for softness on the home delivery and single-copy side. The fact is that, though in ABC circulation terms all the circulation looks the same when you roll it up in the FAS FAX, to the advertisers all circulation is not the same. We just made the decision we are going to pull back on that kind of third-party sponsored circulation. We’re not going to do away with it entirely because for some advertisers really want to do that for their own reasons and it’s good business for to us accommodate them. But we’re going to pull way back on it as a device for showing better ABC numbers because the advertisers really don’t value that kind of circulation that much.

Q. And how much of the 6% does that comprise?

A. 12% of the decline was due to third-party bulk sales changes.

NOTE: The answer given to this question at the time of the call was incorrect. The correct answer is about 34% daily and 25% Sunday.

Alexia Quadrani, Bear Stearns

Q. What percentage roughly of your advertising is sold across more than one paper? And in those customers, did you see any impact at all in your other properties, you know associated with Newsday circulation issues?

A. No. We saw no impact across our other papers because of the Newsday situation at all. And I can’t really quantify the exact amount of revenue that is sold across all the papers and it’s not a huge number. It’s a relatively small percent age.

Q. And just a follow-up on the classified auto, was the decline that you saw there in the quarter was that predominantly in the New York area?

A. No, it was across the board.

Lee Westerfield, Harris Nesbitt

Q. The entertainment unit looked to show a revenue upside and it looked as costs were down and I wonder if you could detail the root causes of that performance within the radio/entertainment line?

A. On the entertainment line, the sale of Andromeda to the SciFi Channel, that was the main reason for increase with revenues. The broadcast rights expense was lower than what we had seen in previous years, so it’s really on the broadcast right side there.

Q. Give a quick update tax situation and the court system.

A. As far as the tax case, we are scheduled to go to court in December. On the Matthew Bender and tax situation and we are confident in our case and we will present in December 4th, I believe it is.

Q. In CareerBuilder, let me make sure I got the facts right, I think you suggested 80% growth in CareerBuilder, was there any particular industry or industries that were stronger in terms of postings?

A. You know CareerBuilder’s business is extraordinarily strong and there is is a lot of momentum there. It’s being driven by taking share in the Fortune 1,000-2,000 from Monster. It’s particularly strong in health care sales, and technical is starting to come back, but generally across the board, business is strong.

Frederick Searby, J.P. Morgan

Q. As I surmise your comments on circ, and it sounded a little bit ominous when you gave those numbers, but it sounds like you cleaned it up and obviously the "Do Not Call" legislation hurt you. So should we expect circ to grow next year?

A. The answer is you can expect us to grow our circulation in the areas where the advertisers value the circulation. We are going to put the emphasis on home delivery and single-copy. We are aggressively marketing. We are aggressively using our databases and direct-mail marketing and we believe we’re going to have good success. You are right, we have been very conservative in what we reported at all of our newspapers this year. We want our advertisers to be absolutely confident in every -- that everybody we say is a subscriber, every that is getting the paper, actually has gotten the paper and we are focused on that. And so some of what is your see saying consequence of that.

Q. What are you going to do differently in terms of attacking circ. You have had some innovative offerings out there, the tabloids and weeklies trying drawing the young demos in and could you give us update on Hispanic and tabloids what is working in the weeklies and frankly, what is not working?

A. As for the tabloids, Hoy was affected by the circulation misstatements. It had the exact same problem and situation that we found at Newsday and we also found at Hoy and so Hoy New York there is a substantial decline in circulation and the audits are still going on. So we don’t know what ABC will say. We still think in New York it’s going to be a very, very significant force in that Spanish-language market. One of the ironies in this area was that Hoy had actually grown real terms very substantially and very impressively over time. Even without all of the misstated circulation, it was doing quite well.

In Chicago, we are seeing very good year-over-year revenue trends for Hoy. We are in effect re-launching in Los Angeles, in the sense that we are re-thinking the way we distribute the newspaper. We have done a lot on the content side to make it more compelling and it’s still very early in Los Angeles and we are up against a strong competitor in La Opinion.

RedEye is a real success story. It’s coming along extremely well. The demand for it is strong. It continues to be a mixed paid and unpaid newspaper, and the paid circulation is growing slowly, but it’s growing and the demand for the paper is very strong. Advertising growth has been substantial in Hoy.

AM New York, which is all free, is a similar story. Advertising revenue growth has been good. National advertising revenue has not grown as fast as we had hoped, but the other categories are growing well and in some cases faster than we expected. And the demand for the newspaper is quite high. And so we are feeling pretty good about all of our tabloids.

We have work to do at Hoy, rebuilding, but we think it’s a great market. We think the newspaper is a terrific product and well-received in the community, and so, we think that is going to be a good business for us in the years to come as well.

Q. Help wanted in New York has looked pretty weak for both you and New York Times and yet when I look at the macro numbers I’m trying to figure out why that is, it’s really a true outlier and I can’t find in the macro numbers so if you could comment on that.

A. Earlier in the year, Newsday was coming back nicely like the other markets. Job creation has been spotty there and as Dennis said the distraction of the circulation issues had probably been problematic in terms of our sales focus. We expect the New York market to come back like the rest country and the economy and we are just working through it. I think New York Times probably has a similar view.

James Marsh, S.G. Cowen

Q. Just one quick follow-up question related to auto classified and the weakness there. I wanted to get a sense for is that kind of a one time or a comparison related issue, do you think it’s a trend? And if you could you just flush out if it’s a primarily rate or volume problem?

A. We think the primary issue in automotive is the dealer profitability is way down because of overhead costs. Also the incentives that the manufacturers have been pumping into the market have been somewhat reduced this year. So there is a lot of pressure on the dealers and they are not making as much money and they are not spending as much money. I don’t think it’s either a rate issue or volume issue. And in Chicago, you know, our automotive business as grown robustly this year. So it’s not completely consistent across the board. But in general in L.A., New York and some of our other larger markets it’s a fairly consistent story that the dealers’ budgets have been under pressure this year.

Christa Sober, Thomas Weisel

Q. Based on the combined September and August, it does look like September was down in Help Wanted. I think the Help Wanted index shift came up this morning it was also down. Can you just, as you look at the expectations going out through Q4, where they are in terms of obviously is it comps are going to beginning to get a little bit tougher there.

A. September was soft, but October has immediately bounced back to the same levels we are been showing all year. So we are pretty confident that it was a Labor Day issue.

Q. Can you give us what non-news print publishing costs would be up ex. the one time in the quarter?

A. In terms of them expenses the non-news print in publishing were up about 2% excluding the special charge and

Q. What your equity line outlook is for the fourth quarter?

A. For the fourth quarter on the equity line again we think it will be positive, perhaps a little bit below the income that we posted last year, but for the full year we’ll be up on the equity income line over 2003.

Q. And do you expect the losses for CareerBuilder to be greater in 2005 as well?

A. The losses in CareerBuilder should come down in 2005, we expect that they have been coming down and they should be lower in the fourth quarter versus the third quarter.

Michael Kupinski, A.G. Edwards

Q. I was just wondering if you could give a little bit more granular about L.A., specifically talking about your pre-print business as it relates to the circulation decline there. Does this open the door for some competition there given that Advo’s making a push in that market. And then if you could just describe the competitive moves that you’ve made, versus what you’ve seen Advo making in that market regarding your pre-print business.

A. Well, first of all, in terms of the lower circulation, we also have local market coverage in mail or hand-delivered product So if there is any falloff in the circulation side or single-copy side or the home delivery side we can make up for it in the mail or hand delivered side.

Advo announced in August that they are investing in an expansion in their direct-mail program, as well as other markets. It’s to include a second in-home product or program on Thursdays and Fridays. L.A. had moved its total market coverage package to Thursday-Friday back in April, because they knew that our preprint advertisers had desired these dates. So in our view Advo is really following us. L.A. is really better positioned than ever, thanks to a new agreement it has with five other publishers in the Southern California area that allow advertisers to reach over 7 million homes with over 2 million reached by newspapers. And this newly formed value network provides a superior distribution footprint to Advo through paid newspaper distribution and mail delivery. We continue to make great strides in pre-print area and our market share continues to grow, it’s grown over the last couple of years and we expect it to grow this year. Our numbers for third quarter was +27 for pre-prints in L.A.

Q. Can you talk a little bit about the WB Network. you mentioned about ratings there. How do you think that the network will perform against Fox’s schedule when that starts and how this might affect your local WB stations?

A. First I think I speak for almost all the networks other than Fox to say that we are thrilled that the Red Sox swept in four. It takes a little bit of competition away over the next few days. Overall we are very pleased to date. I think the network five-week season to date numbers, ratings I think down two-tenths of a point; our share is flat to last year. Our newest program that we have the most confidence moving into the fall was "Jack and Bobby" and you see that was picked up for a full year’s order. Unfortunately, we also put it up against "Desperate Housewives" on ABC which was a tough place for that show to premiere. We are moving that as I’m sure you have seen to Wednesday night following "Smallville" so that I think bodes well.

But probably the best news for us is the returning series have shown really remarkable strength. Our Monday night lineup with "Seventh Heaven" and "Everwood" have been strong. Tuesdays are off to really a record start for us. "The Gilmore Girls" numbers have never been better and "One Tree Hill", which is the show we talked so much about towards the end of last season is finally catching on and has really had a terrific start to the season. "Blue Collar" continues to do well and the Friday night comedies, which have been anchored by "Reba" are doing well. So all in all I think we are pleased with the start and I think the move of "Jack and Bobby" to Wednesday night is a good one, so we’ll keep our fingers crossed and see where it goes.

Peter Appert, Goldman Sachs

Q. Just trying to understand better the weakness you’re seeing in the fourth quarter from a pacing standpoint, particularly relative to some of the other broadcasters. You talked about some of the specific categories, but just help us understand better why the numbers are as bad as they are. Is there something geographically that is impacting you?

A. As far as the pace, there are a couple of things and it’s really driven, as Dennis mentioned by the top three markets. These are three markets that are seeing virtually no political. We are seeing a little bit in Los Angeles on the stem cell issue and on the gaming issue, but we are also up against some comparables from last year where there was a gubernatorial race taking place at the same time, so our comps in political were a little bit tougher. We expected a political race in Illinois. There is none. Barack Obama is a clear winner in this one and there’s no TV advertising to speak of. There is nothing in New York. So just simply not seeing the tightening of the market and the political demand in those markets that we might have expected.

I think if you look closely at the pace of most of the other companies, the bulk of their fourth quarter pace is still coming from the month of October, with political. And then other companies that have maybe 35% of their total revenue coming from the auto category, we have closer to 22%. It’s an important category for us, we are doing okay, meaning basically, flat in that category to last year. But the movie category continues to be a little bit tougher for us in fourth quarter, so I think that is what you are seeing.

Q. Do you think your November-December pacings then are more or less equivalent to what we are seeing industry-wide?

A. I think the core business is softer than everybody expected, but I will also say I think it’s still very early to predict where November and December are going. It could be the pent-up demand, we are hoping and we’re going to wait and see and we think ratings-wise we are good position to take advantage of it if there’s a market there.

Q. You benefited in ‘04 from lower amortization cost. What is that going to look like in ’05? Give us an sense of percentage cost increases we should be anticipating next year.

A. We expect amortization to be up just lightly in ‘05 as a result of "Sex In the City" premiering in the fall, we also have a number of our mid-size markets with "Malcolm In the Middle", a full year amortization on those, but only up slightly this next year.

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