Fourth Quarter and Full Year 2001
Conference Call
January 30, 2002
Ruthellyn Musil, VP/Corporate Relations
Good morning, and welcome to our conference call to review
2001 fourth quarter and full year results.
As you saw in our press release, Tribune reported
diluted earnings-per-share of $.21 for the fourth quarter.
For the full year, we reported diluted EPS
of $.72, at the high end of the range we gave in December.
Please note that both of these results are
before restructuring charges and non-operating items.
As our press release indicates, fiscal 2001
had 52 weeks, compared with 53 weeks in 2000. On a consolidated,
full-year basis, the difference is not material. However,
since it made a difference in the fourth quarter, we have
reflected that in the business segment results in our press
release. We hope you'll find this helpful.
If you have additional questions related to
the extra week, I'll be happy to help you after this call
is over. The same goes for detailed clarification of the impact
of the new accounting rules regarding amortization of goodwill,
which are effective in 2002.
Since today's release contains additional material
that's usually covered by our group CFOs, our speakers today
are Dennis FitzSimons, president and COO and Don Grenesko,
our Chief Financial Officer. Then we'll go to questions.
As we start, I need to remind you that our
discussion may include forward-looking statements which are
subject to risks and uncertainties that we discuss in greater
detail in our SEC filings. Future results could vary materially.
Now, here's Don…
Don Grenesko, VP/Finance & Administration
I'll start with several points related to our full year 2001
operating results.
My discussion of our results is based on the
pro forma table in the press release which adjusts for a full
year of Times Mirror, and excludes restructuring charges and
the impact of an additional week in 2000.
EBITDA came in at just over $1.24 billion,
despite the difficult economy. We generated almost $600 million
of free cash flow, and our consolidated cash expenses were
down 2% for the year, because of lower compensation and lower
newsprint prices.
Fourth quarter earnings were a penny above
Wall Street consensus. Consolidated revenues were $1.3 billion,
down 9% from last year's fourth quarter. In publishing, help
wanted declines remained in the 50% range, reflecting the
greater impact of the recession in larger markets. In TV,
revenues were down 11%. However, the sitcom "Raymond"
had a strong performance in the November sweeps, which bodes
well for the future. Consolidated cash expenses for the quarter
were down 3%.
Now, let's move to the non-operating items
for the fourth quarter.
We had a non-cash gain from marking to market
our PHONES derivatives and related AOLTW shares, and we sold
some of our AOL stock during the fourth quarter. We also took
non-cash write-downs, to reflect the current market value
of a number of our investments. The net result was a pre-tax
gain of about $62 million.
Restructuring charges in the fourth quarter
were just under $7 million, bringing our total for 2001 to
about $152 million, consistent with our earlier guidance.
Moving to 2002, Dennis will update you on current
business trends. For planning purposes, we're assuming flat
revenues for 2002 with a pick-up in the 2nd half of the year.
On the cost side, our 2002 plan calls for consolidated
cash operating expenses to be down 1-2% next year, and corporate
expenses will fall by 12%. A lot of this is related to the
cost-cutting measures we announced in November including salary
cuts for senior executives and a wage freeze throughout the
company.
As we said in December, our 2002 total compensation
and benefit costs will decline only slightly because of a
lower pension credit, higher medical costs, a full year of
compensation from acquisitions and staffing at new production
facilities.
However, we are continuing to look for ways
to further reduce compensation expenses, and all of our business
units are implementing additional cost-saving measures as
the year progresses.
Which brings me to earnings guidance for 2002,
which has two components:
- Adjusting for the new accounting rule that
took effect on January 1st, our annual goodwill amortization
expense will be reduced from about $240 million to less
than $10 million. As we've stated previously, the full year
benefit to earnings per share will be about 62 cents.
- On an operating basis:
- Cash flow and earnings for the year
should grow in the low-single digits, even with flat
revenues, because of a 1-2% reduction in cash expenses.
- If the economy recovers quickly, earnings
could increase in the high-single to low double-digit
range.
- With that in mind, we're comfortable
we will be within the current range of full year analysts'
estimates.
Now, here's Dennis...
Dennis FitzSimons, President and
Chief Operating Officer
Good morning everyone.
There's no question that given the economy,
2001 was a challenging year and we're glad it's behind us.
As you can see, the fourth quarter came in
as we anticipated, with Broadcasting & Entertainment group
revenues down 10%, publishing down 10% and interactive up
24%. You'll find additional details in our press release.
Here's what we're seeing in business trends
as the year starts out.
In newspapers, retail and national both are
a little better than Q4.
- Retail is down in the mid-single digits.
- National is down in the high single digits.
- Classified overall is about the same as
the fourth quarter, down in the mid-20% range.
- Help wanted is about the same as December.
- Auto and real estate each are up in the
low single digits.
You may be wondering about Kmart, which filed
for Chapter 11 bankruptcy on Tuesday:
- They are one of our large pre-print advertisers,
and spent about $35 million with Tribune newspapers in 2001.
- Only a small amount of that is unpaid, and
we are fully reserved for what they currently owe us.
- The company has announced that it will reorganize.
- We expect that they will stay in business--and
need to advertise in our newspapers. Actually, an article
in the Wall Street Journal last week speculated that Kmart's
fourth quarter sales problems were due in part to their
cutting preprint advertising. · Kmart is not a major
advertiser on our television stations.
Which brings us to television trends...
Pacings:
- January is down in low single digits, but
10 of 23 stations are in positive territory.
- February is expected to be down as advertisers
avoid Olympics.
- March is already strong, considering that
business has been breaking late.
- If trends play out, first quarter would
end down in the low-single digits.
As we look to the second quarter, we are hearing
some positives in terms of better network sell-outs, which
we hope will be the first step in improving how things will
look in our local markets.
But while we can't control the economy, we
have taken steps to ensure we're well positioned for 2002
and beyond
- We have unique multi-media assets in major
markets, with newspaper/TV combinations in New York, LA
and Chicago.
- We now have our sales force in place at
Tribune Media Net and they generated incremental revenue
in the fourth quarter of more than $30 million, even in
this tough market. We are looking to double that this year.
- We've also seen the benefits from cross-promotion
and content sharing between our newspapers and TV stations.
It's improved our news coverage on the television side and
we've added value to CareerBuilder.
Don mentioned cost controls. We've accomplished
a lot but want to do more. Controlling costs is a big part
of bringing our newer newspapers to the industry-leading publishing
margins you expect from us.
CareerBuilder is the backbone of our aggressive
strategy to grow recruitment advertising in print and online
and its working. More than 75% of our print ads are "upsold"
to online, CB contracts are being bundled with print advertising,
and we have given recruitment agencies a welcome alternative
to Monster.
We are expecting changes in regulatory environment,
which should work in our favor.
We're looking for more television acquisitions,
but we'll pick our spots. They must be at the right price.
We were successful building the TV group coming out of the
last recession, and we're looking for similar opportunities
now. As you know, we announced the sale of our three Denver
radio stations for $180M, or about 17x cash flow. We'll re-deploy
that cash into TV to continue to enlarge our national footprint
and double-up in markets where we can. That will continue
to enhance programming buying power and make us that much
more attractive as a launch vehicle for programming for Tribune
Entertainment and other suppliers. We will also be working
in 2002 to build additional distribution for our WGN Superstation.
Now, all we need is for the economy to cooperate.
So on that note, let's go to questions...
Lauren Fine, Merrill Lynch
Q: Newsprint prices were only down 7%, expected them to be
down more. What was the average price paid in Q4?
A: We don't disclose actual prices. We made an adjustment
for a newsprint hedge and that cost us $5M in the fourth quarter.
We have rescinded our Enron contracts. In 2002, we will not
have this hedge expenses. Yes, the declines should be in the
double digit range.
Q. Is the newsprint hedge still in place?
A. Had about 160,000 tons hedged with Enron. We have rescinded
those contracts. They were to run into 2003. Will not have
any newsprint hedge expense in 2002.
Q. So, newsprint price should decline in double
digit range?
A. Yes.
Q: Effective rate increases on the newspaper
side, particularly in classified?
A: Stated increase in low to mid single digits, but we are
working with our advertisers in Q1. In recruitment, we are
holding our rates flat. In auto and real estate, the increases
are in the low-to mid single digits and we're getting the
rate increases.
Steve Barlow, Prudential
Q: Interest expense did not go down as much as I thought.
Are there cash costs related to severance.
A: Interest expense was down 14% for the quarter, in line
with what we anticipated. We're paying 1.7% in the commercial
paper market on about $900M of commercial paper. More than
half of the expenses associated with the reductions were from
the pension fund, so we did have additional costs. There may
be some costs related to severance next year. Our debt was
$3.4B at end of 2001 and we expect that to drop to $3.1B by
end of 2002.
Q: You had $200M in debentures that matured
in October. Did you refinance that with commercial paper?
Also, there was $100M puttable note in November. Was it put
to you?
A: The $100M was put to us. We refinanced everything in commercial
paper.
Bill Drewry, CS First Boston
Q: You touched in the release on classified trends. Can you
give more specifics by market.
A: During the 1st 3 weeks of Jan., total advertising at LA
and Chicago were down mid-double digits. Newsday was down
in the high single digits. Newsday is doing a little better
than LA and Chicago in classifieds. National is down in the
mid-single digits across the board. On the retail side, Chicago
is doing better that either of the coasts.
Q. In aggregate, are the other newspapers doing
better than the big markets?
A. Our Florida papers are doing a little bit better than other
markets.
Q: Was CareerBuilder down in the 4th Quarter?
A: Yes, on a pro forma basis, CareerBuilder was down, due
mainly to the tough economy. It is important to note though,
that everyone else was down. Online was down less than print.
CareerBuilder's sales were strong in the 4th quarter, which
will translate into a good 1st quarter. So, we are going to
see healthy quarter over quarter growth.
Lee Westerfield, UBS Warburg
Q: What is the outlook coming out of NATPE for Tribune Entertainment?
On WB network, what is in development for upfront? On the
Denver swap-what are you looking for, a broken station or
something else?
A: It was a very different NATPE, reflecting the situation
in the industry right now. Tribune Entertainment is doing
well and has become much more of a profit contributor for
us. As we said in the release, Tribune Entertainment has the
#1 and #2 weekly action hours in syndication. Tribune Entertainment
just announced another action hour, "The Ultimate Adventure
Company." It's a partnership with Fireworks on the international
side - this is the same formula we've been using - and it
involves Gale Anne Hurd, the producer of "Aliens"
and "Terminator." We're excited about the new show
and our station group is excited. We think that this will
add to the library of hour programming that we already have.
For Tribune Entertainment, we think it will be a good convention.
In the fourth quarter, the WB had its first quarter of positive
cash flow. "Gilmore Girls" and "Smallville"
are doing really well for us. We're very encouraged with the
WB and look forward to good cash flow in 2002, relative to
prior years, despite the down advertising market. We're very
pleased with the job Jamie Kellner, Jed Petrick and Jordan
Levin are doing. The WB's last upfront was better than others
due to the good demographic niche the network has. We think
they're going to have a good upfront. On the Denver swap,
we'll continue to look at stations in the top 30 markets.
If we can pick up a broken station or duopoly situation that
works for us, we will.
Bill Bird, Solomon Smith Barney
Q: In TV, what kinds of trends are you seeing in auto?
A: Auto pacing is OK-just about flat. A good trend we've seen
is that GM is going toward a more local advertising strategy,
giving more control to dealer associations and that will be
to our benefit. Also, we see a couple of manufacturers moving
to the 18-49 demographic as opposed to the 25-54 demo, that
is a positive because of the demo skew that our TV stations
have.
Q: Would you consider more newspaper acquisitions
or are you exclusively focused on broadcasting?
A: Right now, we're looking to bring the cash flow mix closer
to 50-50 so we're focused on broadcasting acquisitions. If
we saw a really great newspaper opportunity, we would consider
it but we're focused on growing our broadcasting business.
Q: Can you give us an update on BrassRing?
A: BrassRing has two principal businesses: the HireSystems
software business, which grew strongly in 2001; and the job
fair business, which was hit hard by the overall downturn
of the recruitment marketplace.
Kevin Gruneich, Bear Stearns
Q: Review expectations for the equity line in 2002. Are they
similar quarter to quarter?
A: We're expecting equity losses (after goodwill) to be down
in $35M range from $50M in 2001.
Q: Cap Ex for 2002?
A: Cap Ex came in at $275M in 2001 and we're expecting about
the same for 2002. $30M related to digital TV upgrades and
the pre-print facilities in LA and CHI. For 2003, Cap Ex spending
should be down in $225M range.
:: :: ::
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. |
