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Transcript

Fourth Quarter and Full Year 2000
Conference Call
January 26, 2001

Ruthellyn Musil:
Thank you very much and good morning everyone. Welcome to our conference call to review Tribune’s fourth quarter and full year 2000 earnings. We hope everyone’s had a chance to review our press release, which was on the wires early this morning. It also can be found on our Web site, Tribune.com.

Tribune reported fourth quarter earnings per share of 36 cents on a fully diluted basis, 2 cents ahead of First Call estimates. For the full year, we reported diluted earnings per share of $1.30, also 2 cents ahead of First Call. These results are consistent with our guidance at the December conferences. In the fourth quarter we also wrote down some of our investments. Don Grenesko, senior vice president and chief financial officer, will address this in a minute. And in addition to Don’s remarks today, we’ll also hear from Dennis FitzSimons, our executive vice president, who has responsibility for our three operating groups. And with us to help answer your questions are group CFO’s, Jerry Agema for broadcasting, Phil Doherty for publishing and Brigid Kenney for interactive.

During today’s discussions please keep in mind that our publishing and interactive results are on a pro forma basis. Pro forma assumes that the Times Mirror acquisition occurred at the beginning of 1999. You may have noticed that along with today’s release, there are pro forma tables for all four quarters of 1999 and 2000, which should be helpful for modeling purposes and the tables are on our Web site.

Before turning the call over to Dennis, I must remind you that both our commentary and our responses may include forward-looking statements which are subject to a number of risks and uncertainties that we’ve discussed in greater detail in our SEC filings. Our future results could vary materially. Now, let’s hear from Dennis.

Dennis FitzSimons:
Thanks Ruthellyn. Well 2000 was an exciting year for Tribune. Let me just start with a few highlights. First we made the largest acquisition in our history in Times Mirror. We paid an excellent price of 8.5 times EBITDA and certainly that’s a good price when compared with other recent media transactions. It’s given us great mass media franchises concentrated in top markets, including newspaper/television combos in the top three.

Now we’ve achieved our key merger goals of installing a completely, new senior management team at the LA Times. We eliminated duplicate corporate positions, saving 125 FTEs. We divested non-core assets like Tribune Education, Jeppesen, and Times Mirror Magazines at great prices, and we reduced debt to a comfortable 2 times EBITDA.

Now in 2000, broadcasting also posted its ninth consecutive record performance. Our TV cash flow margins have consistently improved between one to two points per year for the last six years. We’re well positioned for 2001, even in the face of slower ad trends and that’s because we’ve got major markets and in many of those markets multiple media.

Now in broadcasting for 2001, we’re not as dependent as some traditional affiliate groups on events like the Olympics and political, so we don’t have those numbers, particularly political. We don’t have any of Olympic money in our figures, but we did have a relatively small share of political so that will not be a big hangover for us going into 2001.

In publishing, we’re expecting integration synergies of $130 million in incremental pro forma cash flow in 2001 and that breaks down like this: $50 million in annualized savings from the corporate staff reductions that were completed last year, $45 million in new incremental revenue, primarily from Tribune Media Net, and $35 million of margin improvements at the former Times Mirror newspapers and from cost synergies due to our combining our interactive businesses.

Looking ahead with a new administration in Washington we think that the new regulatory environment will be positive, and we were glad to see the announcement of Michael Powell as Chairman of the FCC. We would expect the FCC at some point during this year to launch a meaningful review of the newspaper broadcast cross ownership restriction.

In publishing, as we’ve mentioned to you before, we’re focused on margin expansion. Last year we reduced staff at the LA Times and at other East Coast papers by about 400 FTEs, saving us in total about $15 million annually. We’re down nearly 200 FTEs at former Tribune papers in the 2000 fourth quarter, by not filling open positions. We’ve also reduced newsprint waste and are improving productivity.

We’ve changed our sales compensation system on the publishing side to tie incentives closer to revenue growth. An important driver of 2001 top line growth is Tribune Media Net. Since its inception in June 2000 when we hired a staff, Tribune Media Net has generated about $5 million in incremental business and building on last year’s success we’re targeting $45 million in new incremental revenues for 2001.

We’ve got 8 to 10 special sections planned this year across the group that will be sold on a national basis, and we’ve already got $5 million in business sold or booked from Tribune Media Net for this year, and, again, we now have our full team in place across the country selling.

Another growth area in publishing is our insert business and in 2000 the inserts represented about $400 million in revenue. This is an area that’s growing on a double-digit basis. And we have upside here for increased capacity, primarily at the LA Times. What we’re really doing here is going after ADVO’s business on the West Coast.

Finally, in publishing we’re creating new products to grow classified business in all categories, the Chicago Tribune launched a series of new and improved sections the second week of January. It’s combining new content to the classifieds sections. We’re doing a Working section which is really the jobs classified on Sunday’s and Wednesday’s, we’re doing car sections three days a week with emphasis both on buyers and all who own a vehicle and real estate will be two days a week with the most complete listings and information about buying, renting and maintaining homes. This effort is being supported by stepped up promotion on our television stations and so far the sections have been well received by both readers and advertisers.

Now broadcasting in 2001, we’re confident we’ll again outperform the industry. As I mentioned before, we don’t have any Olympic dollars that we have to worry about from comparisons and we have a small share of political dollars. We went through the similar cycle back in 1999 after an Olympic and political year where we did very well.

Another positive factor is the ongoing success of The WB Network. In November The WB showed the highest year-to-year ratings increases of any network in almost all the key demographics. Adults 18-34 were up 28 percent year-to-year, adults 18-49 up 19 percent.

We’ve also concentrated at broadcasting on expanding local news programming. We now do more than 200 hours of local news programming per week and in particular the morning news area has been good for us in the top markets. KTLA’s morning news in Los Angeles is number one, among adults 25-54. WGN’s morning news now three hours is already the number one morning show and we’re having good success in New York also. We’re also getting excellent assistance from using the content from our newspapers and great cross promotion.

Our stations continue to be strong in both early and late fringe, the sitcom Friends continues to do really well for us and the good news we’ve got coming in fall, 2001 is that we’ll be launching Everybody Loves Raymond, and that’s one of the top shows on CBS and the number one sitcom on television right now.

Tribune Entertainment just continued or completed the NATPE convention. Tribune Entertainment has become the largest producer of syndicated action hours, and we’ll have four hours in production next fall. Our show Gene Roddenberry’s Andromeda is the season’s number one action drama in first run syndication and that’s averaging a 4.1 rating year to date.

In the fourth quarter we sold the syndication rights for Earth Final Conflict to the Sci-Fi Channel and we will also, we just announced this, that we’ll sell the national ad time for Hearst Entertainment. So we’re adding new revenue with little incremental expense.

On the Tribune Interactive front, we’re scaling operations to fit the revenue projections and going into 2001, we have 80 fewer positions at Tribune Interactive than in mid-year 2000. We’ve got significant cross promotion activities that we’re taking advantage of with our television stations and newspapers, and TI remains the number one consolidated newspaper site.

In December 2000, TI had over 5 million unique visitors. National reach was just under 7 percent. Page views were up 40 percent from December 1999.

Our plans for 2001 in interactive revenue growth in the 40 to 50 percent area with the largest percentage of that coming from classified. We’re looking to cut our cash flow losses to around $25 million and look to be profitable by the second half of 2002.

And now I’ll turn it over to Don Grenesko.

Don Grenesko:
Thanks Dennis. 2000 has been a solid financial year for Tribune. As Ruthellyn stated, we reported fourth quarter earnings per share of $.36 on a diluted basis and $1.30 for the full year. Cash EPS was $.55 for the quarter and for the full year cash earnings per diluted share was $1.90. In the fourth quarter the Times Mirror acquisition was accretive to cash earnings by 1 cent per share. In other words, the operating cash flow from the former Time Mirror businesses is more than covering the incremental interest expense and common shares issued in association with the transaction. This is good news because we’re ahead of our original acquisition plan targets. Now let’s talk about our operating businesses.

As you know, 2000 had 53 weeks. The impact was not significant for us, less than a penny, as higher operating income was mostly offset by a higher interest expense. Let me quickly review the business segments.

Broadcasting had a record fourth quarter with revenues of $371 million, on growth of 6 percent. Broadcasting cash flow rose 9 percent in the quarter to $152 million. Television revenues and cash flow grew 6 percent and 5 percent, respectively, in the fourth quarter. And for the full year, TV margins improved from 41 to 42 percent.

In publishing, which is reported on a pro forma basis, revenues and cash flows for the fourth quarter each rose about 1 percent. Advertising revenues increased modestly to $890 million as retail revenues gained 3 percent. Classifieds were flat and national declined 5 percent in the quarter due to lower dot.com and airline advertising.

In terms of advertising revenue by market, Los Angeles was down 4 percent, mostly due to the loss of dot.com advertising, which I just mentioned, and weakness in the transportation and entertainment categories. Chicago was up 1 percent, mainly due to the extra week. Newsday was flat for the quarter as higher retail offset lower real estate advertising.

On the expense side, newsprint costs rose 5 percent, on an 8 percent increase in average prices. Despite the extra week, consumption actually declined 3 percent due to reduced production waste, a benefit of converting some of our newspapers for the 50-inch web.

Importantly, expenses other than newsprint were flat in the quarter, as savings from our integration efforts were offset by inflation and the extra week.

We’re very pleased with interactive’s first quarter, which is also on a pro forma basis. TI’s revenues were up 51 percent to $13.4 million.

Classified advertising revenues rose 74 percent in both the quarter and for the year led by strong growth in recruitment, auto and real estate. These higher revenues, along with cost controls, reduced fourth quarter operating losses to $17 million from $20 million last year. And we’re well on our way to achieving reductions in operating losses in 2001 that Dennis mentioned.

Turning to non-operating items, as you saw in the earnings release, Tribune recorded normal mark to market adjustments for the PHONES and the related AOL stock in the quarter. This resulted in an 8 cent per share, non-cash loss.

We also recorded a charge of 17 cents per share in the quarter to adjust certain investments in our ventures portfolio to fair market value. In the past, we’ve marked these investments to market through the balance sheet. However, because the market value of these investments have been significantly below our cost basis for an extended period of time, we must now record these adjustments on the income statement. These write-downs do not change the rationale for our ventures investment since they continue to be strategically important to our businesses.

Looking ahead, we still see 20 percent EPS growth to around $1.55 per share in 2001, despite the slowing trends that Dennis mentioned. For the first quarter we see diluted EPS of around 25 cents, about equal to last year after adjusting 2001 for 5 cents of dilution for the Times Mirror acquisition. On a cash basis we also see 20 percent earnings per share growth to around $2.30 for the year, which is 10 to 12 percent accretive for the Times Mirror purchase. And also for the first quarter, cash EPS will be around 43 cents per share, also 10 to 12 percent accretive.

Our financial flexibility continues to keep us well positioned for growth. Our debt is currently around $3.6 billion and we expect it to rise to the $4 billion level as we plan to aggressively repurchase our stock. We repurchased 24.5 million shares last year and we expect to repurchase between 1 and 2 percent of shares outstanding this year.

Q&A

Peter Appert/DB Alex Brown:
Specific thoughts on revenue benefits that accrued from the cross ownership situation in either LA or NY.

Musil: Peter, you are talking about Tribune Media Net and some of the initial wins seen there.

Appert: Maybe that’s it, I am not exactly sure. I am trying to understand how you’re seeing the benefits of the acquisition from a revenue standpoint in terms of the joining filing efforts, specifically local properties.

Musil: So like TV and newspapers working together.

FitzSimons: We’ve probably seen more incremental revenue coming from the efforts to package all of the newspapers together. We’ve seen some excellent cross-promotional benefits in both NY and LA with WPIX with Newsday and KTLA with the LA Times. We just put an individual an associate managing editor for multimedia in LA to improve the working relationship between the television station and the newspaper there. We don’t have a lot to talk about, specifically just yet other than a number of cross promotions, a number of advertisers on a local basis that have decided to participate in those cross promotions. We wouldn’t put out a revenue figure on that right now.

Appert: Can you talk about the movie business in LA and what you’re seeing there?

FitzSimons: On the print side?

Appert: On the print side, yes specifically and basically the threats of reduced spending

FitzSimons: I think there is a lot of posturing that goes on when there is a rate increase likely put in, and we felt, the management team felt that the cost per thousands on the LA Times were very reasonable, still below what the New York Times is and that was the rationale for the rate increase and we’re seeing 1st qtr movie business pretty healthy in LA despite what you are reading.

William Drewry/CS First Boston:
Two questions…one more macro on the newspaper business. If you like at the at the December numbers, a big step up in turnaround, over what you’d been reporting in let’s say September, October and especially November-is that step up in general health that we can continue to see here in the 1st qtr, underlying that EPS and cash EPS number that you quoted Don for Q1. Does that include revenue actually continuing at the pace we saw in December?

Grenesko: We’ve had some slowness at the Chicago Tribune but in general the other newspapers seem to be doing relatively well.

Musil: I think we have seen good news at LA, Newsday.

Doherty: Certainly, I think the news is a little bit better in December than it was in October and November. One of the things that was driving the 4th qtr was the extra week. I do not know that I'd say that it was significantly better.

Musil: Moving in the right direction.

Drewry: Ok, but even if you strip out the extra week flat its still better than down 200-300 basis points. Can you just talk about the retail trends and the markets? Are the comparisons starting to get easier on the retail side? I know you were cycling against a lot of out of business accounts throughout 2000. Will those comparisons start to get easier going forward?

Doherty: With the Tribune papers, that’s the case. The Times Mirror papers had a pretty strong 1st qtr. So on a combined basis I think we’re still seeing some…The comparisons will be tougher in the first half, even in retail on a combined basis than it will be in the second half.

Drewry: TV pacings and the 1st qtr, if you could talk about those things.

FitzSimons: We’re up against some real tough numbers from 1st qtr and 2nd qtr last year, double digit increases where the rest of industry wasn’t doing pretty well. What we see is a real change in the placement pattern by advertisers. So, some advertisers right now, I think, are holding back and trying to buy opportunistically. Pacing for 1st qtr is not all that strong. We are seeing some tightening in February and March and we hope that is going to improve and we would think that 2nd half year comparisons are much easier. 2001 numbers have got to be much stronger.

Drewry: Q1, is it in positive territory for TV?

FitzSimons: No, I would not say so.

Lauren Fine/Merrill Lynch:
I want to go back to the impact of the extra week and I am wondering if there is any way that you can help us understand what TV might have looked like without the extra week because you had incredibly challenging comparisons and it looks like you had good rebound there, so I am trying to understand that. Also, do you know what percent of your TV revenue comes from the auto industry? As we’re hearing a lot of pullback from auto advertising.

FitzSimons: Automotive for us is at about 19-20% of total business and that’s probably, in percent terms, than a lot less than traditional affiliate groups which in some instances are up in the 30% range.

Fine: Are you seeing a slow-down in the auto category specifically?

FitzSimons: Auto in the 1st qtr is not great for us. Sometimes we see trends that again have this placement issue, which is making this pacing issue look not that great. In a tough automotive sales environment, we get a lot of rebate advertising that can sometimes make us look a lot better.

Agema: On the qtr, on the revenue line it had about four percentage point impact. You can probably subtract four points from our growth rate to come at what would have been on an apples-to-apples basis. The other thing I would add to follow what Dennis said, in the 1st qtr last year we had a couple of things that we were running against. One, we had some unusual copyright payments that we are not going to see recurring at the same level. They were about 12 in the 1st qtr of last year. We are probably going to be at half of that this year and auto was particularly strong last year.

Fine: Could you give us what the capital expenditures were for 2000 and what you expect for 2001 and then I am also wondering on interactive if you could comment, while the year over year revenue was good the sequential revenue growth was not as inspiring. I am wondering if there is anything specific in there?

Grenesko: For full year 2000 the cap ex was $270M and for the 4th qtr of 2000 it was $140M and we’re projecting 2001 being in the $350-$375M range.

FitzSimons: That reflects some heavier spending for digital television we’re rolling out the upgrade of our transmission facility.

Musil: Also, the completion of the Freedom Center packaging and fulfillment operation that drives preprint.

Grenesko: We believe this will be an unusually high cap ex year. We think if you exclude these one-time projections for capital expenditures for 2001, that more normal run rates for cap ex will be $275M or so.

Fine: So for now that would be a good number to use for 2002.

Grenesko: Yes

Kenney: Our quarter over quarter revenue growth was 7% which was strong for the local; National, which was about 30-35% and relatively flat classifieds. The classifieds are really due to the recruitment, the uploaded help wanted ads of the paper, the 4th qtr being the lowest qtr for those help wanted ads being uploaded. Auto and real estate remain strong; it’s really just the help wanted upload.

Doug Arthur /Morgan Stanley Dean Witter:
Pro forma advertising up .3%. So if you back out extra week, then actually down 4-ish on apples-to-apples basis which is actually similar to Nov. Is that a fair analysis?

Grenesko: Yes.

Arthur: The LA. Times full run linage was down 13% with the extra week. Apples-to-apples was ad revenue down 8-9-ish? What’s going on there... reorganization of sales staff, economic issue?

Doherty: Times Mirror papers didn’t have a full extra week, only an extra weekend. Add for the extra days not nearly as great.

FitzSimons: Ad director, John McKeon, been there about 2 years. Doing a good job. Reorganized sales force, new compensation system. This is coming around.

Arthur: TV pacings. Down double-digits or not that bad?

Musil: We don’t give out specifics on pacings.

Arthur: LA Times down 4% in ad revenues with the extra week. Full run linage down 13% with extra week. What would ad revenue have looked like without the extra week?

Doherty: About 6. Primary driver was dot.com. Down significantly from last year’s strong fourth quarter. Airline business lower. Significant opening of terminal by United. Heavy schedule. Working against that. Primarily in national.

Arthur: Knight Ridder said they’ve seen a falloff in help wanted in northern California. Have you seen that in southern California?

Doherty: No.

Leland Westerfield /UBS Warburg:
Thank you and good morning. Dennis or Jerry, I have questions on the broadcasting and entertainment side. On TV spot in December, if dot.com was as strong as I suspect it was in December 1999, what replaced that to give you your performance this year in the month of December? And then secondly, a question on The WB, looking to next fall. I am wondering if you could characterize your discussion at all with Jamie Kellner of the contingency plans in the event of the strike and also would that impact Tribune Entertainment or would that be favorable.

FitzSimons: First, about the dot.com spending the last 4th qtr represented about 5% of our total business; this 4th qtr 2000 it was about 1%. We will see dot.com business in our figures for the first six months and then it was gone. That’s the issue. Ok, the additional week helped. The movie business got a little bit stronger that took up some of the slack.

Agema: Retail was also strong.

FitzSimons: We’re trying to stockpile some additional episodes for WB series and that’s what Jamie and his people are working on. I think they range from good days and bad days on whether they think there’s going to be a strike, the softening economic conditions may be causing the guilds to get a little bit concerned about going out at this stage, but we really don’t know if that’s going to come out. We will know more in the next couple of weeks.

Kevin Gruneich/ Bear Stearns:
Provide some color on January newspaper ad revs. Is it similar to apples-to-apples 4% decline you mentioned for Q4?

FitzSimons: LA looks good. So do Newsday, Orlando and Allentown. Some softness in Chicago and Ft. Lauderdale.

Gruneich: So there’s improved ad trend relative to Q4?

FitzSimons: Yes.

Gruneich: Newsprint: Pricing was significantly better at only 8% ($563/ton) relative to your peer group. Discuss.

Grenesko: $563 is average price in 4Q. $570 at year-end. We’ve done a good job at getting discounts vs. the market in general for TRB papers and with additional buying power of all TMC papers, we’ll be purchasing about 960,000 tons this year. Getting the discounts off market price for a lot more tonnage now and that’s being reflected in our costs. Another thing, we really have stepped in to reduce waste on the production side at former TMC papers and our operations people are really having an impact there and that’s reflected in the reduced consumption of 3% despite the extra week.

Gruneich: $3.6B in debt last year that’s going to $4B... elaborate on how this additional debt is structured, interest and terms.

Grenesko: Had about $525M in commercial paper outstanding at year-end, rest is fixed debt. Rates in the 6... 8% range. 6% on commercial paper. About $25 - $40M each year. Over the next several years is coming off. If we see dip in rates, we’d try to get debt with 7 -- 12 year fixed rate financing. We’ve seen a narrowing of the spread of treasuries over corporate bonds. Starting to move in our favor.

Gruneich: Advertisers: Are you hearing that they’re reluctant to pull back on advertising right now trying to figure out best strategy and still committed to advertising or are you hearing some people are looking at the economy and are wondering whether they want to spend now and maybe delay?

FitzSimons: Advertisers are reacting to change in psychology in market. Holding back, but still going to need advertising and are just trying to create reduced pricing in market. We’ve seen this in other 1Q soft times before. Usually, it’s mid- to late-February before inventory tightness up and stations get more aggressive in pricing.

Jim Goss/Barrington Research:
Net loss in equity investments: is it $79M vs. $59M, apples to apples? What amount in due to Classified Ventures? Discuss trends and 2001 expectations in Classified Ventures, CareerBuilder and iBlast.

Grenesko: $76M vs. $53M in 1999. We don’t break out the losses. On the Classified Ventures side, losses to decline significantly this year. On the CareerBuilder side, expecting lower equity losses. We had CareerPath for about 9 months then there were shutdown costs. iBlast is up and running and tests are ongoing on 5 stations. The technology works. Lots of technology partners are coming in to work with them, as they understand the capacity we have. Very pleased with the investment.

Goss: How much does digital transmission issues have to be settled before you have any visibility on the horizon of actual numbers coming in?

FitzSimons: All of our stations will be built out to digital by mid 2002. Our aggregated national spectrum by the end of 2002. Hope for significant revenue by 2003.

Doug Arthur: Elaborate on your revenue forecast for 2001 of 6 - 8% and you assumptions by sector.

Musil: Like we said in December, 4 - 6% in publishing, 6 -- 7% in broadcasting and $70 - $80M in interactive. This is consistent with what we’ve said at the December conferences.

Lauren Fine: How much is revenue increase coming from ad rates?

Doherty: As rate increases are similar to past. About 2/3 ad rate and rest by volume.

Fine: Quarter end shares outstanding?

Grenesko: 299.5M

Fine: Impact of newsprint hedge?

Grenesko: Not much impact. We’ve left them in place but reset the hedged price from $610/ton to $580/ton. If the price moves above $580, there’s a benefit to us. Again on the contracts. Roughly 250,000 tons or 25% of overall tonnage is covered by hedges.

Fine: Total tonnage?

Grenesko: 960,000 tons.

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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.