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Tribune Company (TRB)

Q4 2005 Earnings Conference Call

February 1st 2006, 9:00 AM.

Executives:

Ruthellyn Musil, Senior Vice President, Corporate Relations

Dennis FitzSimons, Chairman, President and Chief Executive Officer

Donald Grenesko, Senior Vice President, Finance and Administration

John Reardon, President and Chief Executive of Tribune Broadcasting

Scott Smith, President and Chief Executive Officer of Chicago Tribune Company

Timothy Landon, President

Analysts:

Lauren Fine, Merrill Lynch

William Bird, Citigroup

Douglas Arthur, Morgan Stanley

Alexia Quadrani, Bear Stearns

Steven Barlow, Prudential Equity

Frederick Searby, JP Morgan

John Janedis, Banc of America Securities

Lee Westerfield, Harris Nesbitt

Peter Appert, Goldman Sachs

Craig Huber, Lehman Brothers

Paul Ginocchio, Deutsche Bank

Brian Shipman, UBS

Jacqueline Spring, Thomas Weisel Partners

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2005 Tribune Earnings Conference Call. My name is Ann Marie, and I’ll be your coordinator for today. At this time all participants are in listen-only mode, we will be facilitating a question and answer sessi00on towards the end of today’s conference. If at any time during the call you require assistance please press “*” followed by “0” and a coordinator will be happy to assist you. I will now turn the presentation over to Ms. Ruthellyn Musil. You may proceed, please.

Ruthellyn Musil, Senior Vice President, Corporate Relations

Thank you, operator, and good morning, everyone. Welcome to Tribune's conference call to review our 2005 fourth quarter and full year results. Our opening remarks will be brief in order to leave plenty of time for questions and be finished within the hour. Speakers this morning will be CEO Dennis FitzSimons, and Don Grenesko, our Chief Financial Officer. John Reardon and Scott Smith, Heads of our Broadcasting and Publishing Groups will join the Q&A session.

Turning to our press release, which we hope you had a moment to take a look at, Tribune's fourth quarter diluted EPS of $0.43, and full year diluted EPS of $1.67, both on a GAAP basis, include several special items. Our release contains the information that will enable you to make a meaningful comparison to First Call estimates.

Before turning things over to Dennis, just a quick reminder that our discussion may include forward looking statements that are covered in greater detail in Tribune's SEC filings. Now, here is Dennis.

Dennis J. FitzSimons, Chairman, President and Chief Executive Officer

Thanks, Ruthellyn, and thank you for joining us this morning. We will cover both our 2005 results and a brief look at the year ahead, but first, some positives from a difficult year.

In 2005 overall, we saw good revenue growth in several of our newspapers, led by our Florida papers and Chicago. Interactive was strong, with revenues up 43% overall, and CareerBuilder revenues increased 75%. Revenues from our interactive operations totaled $180 million. If you add our share of revenues from joint ventures, such as CareerBuilder and Classified Ventures, which are not included in consolidated revenues, this category totaled nearly $300 million in 2005. Also in publishing, a color press installation was completed at the LA Times, and more color capacity will come on stream in Chicago and South Florida in 2006, and that position as well for the future. As you know, color advertising carries a significant premium because of high demand from advertisers.

Our targeted publications, AM New York, Red Eye, and Hoy, are showing good growth. Just last week, the New York edition of Hoy converted to a free model, and we expect increased distribution and readership as a result. In Chicago, Red Eye's competition has folded and we expect both Red Eye and AM New York to turn cash flow positive in 2006. Between these three publications, we reach 3 million readers a week. Circulation revenue trends, while still down, improved significantly throughout 2005 and we continue to make progress toward our goal of stabilizing individually paid circulation. Those are the copies that matter most to advertisers. During the fourth quarter, individually paid circulation was essentially flat on Sunday and down 2% daily.

In TV, our morning news performance was solid in November book. KTLA’s morning news continues to rank number one in Los Angeles among all newscasts. In Chicago, WGN’s morning news was number two in all key demos. We also continue to see growth Denver, New York and Seattle, in what is an increasingly important day part to advertisers.

Education and financial services were strong categories for TV, and movies finished the year on a positive note. However, given the overall revenue picture, we increased our emphasis on cost control and took a number of steps in the fourth quarter to further reduce expenses and increase efficiency. Some of these actions outlined in our press release resulted in special charges, and Don will review them in a moment. Excluding the charges, our local media business has generated EBITDA of over 1.4 billion. We converted over half of that to free cash flow of nearly 800 million. At our current stock price, that’s about an 8.5% yield. Most of that cash was used to return capital to our shareholders. We repurchased more than 12 million shares and paid out about 230 million in dividends. On that note, let’s go to Don, and I will be back with a look at 2006.

Donald C. Grenesko, Senior Vice President, Finance and Administration

Thanks, Dennis, and good morning, everyone. Let me start with some fourth quarter specifics. On a GAAP basis diluted earnings per share of $0.43 compares to $0.67 in the fourth quarter of 2004. Consolidated revenues were down 5% to $1.4 billion. Consolidated cash expenses, excluding special charges, were up less than 1%, as higher newsprint and broadcast rights amortization expense was largely offset by lower compensation.

Fourth quarter results included the following special items. A charge of $45 million, or $0.09 per share, related to severance for reducing staff across the company by approximately 900 positions. The bulk of these reductions came from our publishing group, with the largest reductions at the Los Angeles Times and Newsday. Second, there was a charge of $22 million, or $0.04 per share, for the shutdown of the Los Angeles Times San Fernando Valley printing plant. This charge includes 16 million of accelerated depreciation for old presses and equipment, and $6 million of cash expenses. We are evaluating whether we will use one of the newer presses and 12 color towers at other newspaper facilities. Importantly, this plant shutdown and the 900-position elimination I mentioned will result in annual savings of approximately $55 million to $60 million. The third special item was a pension curtailment gain of $18 million, or $0.03 per share, that resulted from replacing certain defined benefit pension plans with a defined contribution plan. This should allow us to better control our retirement expenses going forward. We also reported a non-operating loss of $20 million, or $0.04 per share, associated primarily with the change in fair value of our phones and Time Warner stock.

Now, let's take a closer look at our publishing and broadcasting groups. Publishing’s revenues in the fourth quarter decreased approximately $25 million, or 2%, to just over $1 billion. Publishing cash expenses, excluding the special charges, increased 1%. Newsprint and ink expense rose 6%, as higher newsprint prices were somewhat offset by lower consumption and a switch to lighter weight paper. Advertising revenues were down 2% for the quarter, reflecting declines in retail and national advertising. Preprint revenues declined 3%, as a 9% increase at Los Angeles was more than offset by a 24% decrease at Newsday. You recall that last year, we severed a relationship with a preprint distributor for Newsday because of an ethical breach. Excluding Newsday, preprint revenues were up 1%. On a positive side, we continue seeing double-digit increases in help wanted and real estate categories.

Circulation revenues decreased by 4% primarily, due to volume declines in most of our newspapers as well as selectively higher discounting. This was an improvement over the 8% to 9% declines we saw in the first three quarters of 2005. Broadcasting revenues, at $343 million, were down 11% compared to the fourth quarter of 2004. Cash expenses for the group were up 1%, due largely to higher broadcast rights amortization expense.

Turning to our equity line, income was $21 million for the quarter, up slightly from $20 million a year ago. The increase is largely due to additional equity income from our interest in the TV Food Network. As a reminder, we are no longer recording losses for The WB network, as our book investment has been reduced to zero. Also, we have no equity interest in the CW network, which will launch in the fall. And with that, I will turn it back to Dennis.

Dennis J. FitzSimons, Chairman, President and Chief Executive Officer

Okay. Thanks, Don. So you can see we’ve taken steps to improve our expense picture for 2006, and each of our business units will continue to look for opportunities as the year progresses. But we started the year with two very positive developments first, Newsday labor settlements. We agreed to 4-year contracts with 6 collective bargaining units at Newsday, and terms of the new agreements include position eliminations, work rule improvements and greater sharing of healthcare costs, and a switch to a less costly defined contribution retirement plan. We expect savings of approximately 7 million in 2006 and more than 10 million annually in future years.

Our most recent positive development is last week's announcement of the new CW network, a 50/50 joint venture between Warner Brothers and CBS. Both, as you know, the WB and UPN will cease operations in the fall. 16 of our 19 WB stations have agreed to 10-year affiliations with the new network, and this is a great move for Tribune for several reasons. First of all, stronger programming. Starting in September, we will have an improved prime time schedule, effectively the best of WB and UPN, plus we will have the development capabilities of two large, successful TV studios. Greater investment in programming will result from better overall distribution because of a stronger station lineup that will lead to higher ratings for the network. And the network will also have reduced operating costs because the CW will operate off the CBS television network's infrastructure, effectively a network duopoly. So these higher ratings will mean increased revenues for both the network and the affiliates.

The 10-year affiliation agreement has significant economic value for us. First of all, prime time program costs will be predictable, locked in. We get shielded from the economic uncertainty of the network business. And while The WB has been great for our stations, had we and Warner gone forward alone, we would have had to fund significant losses. Now, maybe the most important point here is that one of the 50% owners, CBS, also will own 12 CW affiliates, and this ensures the alignment of the station’s interests and the network's interest. And CBS certainly is going to have a very strong incentive to put a great lineup on the air.

Now, this also means we’ll be back in the independent station business at three of our stations, Philadelphia, Atlanta and Seattle, and a couple of key points here. First of all, the stations gain additional advertising inventory to offset lower ratings, and while we will have new programming costs, part of that increase will be offset by the elimination of reversed compensation that would have been paid to the network. A third point, there was lots of activity at NATPE regarding this newly available real estate. But that's going to take awhile to shake out to see exactly what happens to prime time programming in a lot of markets that are going to have time periods available. One other point to note here is, in this negotiation, so we will have independence in Philadelphia, Atlanta and Seattle, but we held on to the affiliation for this stronger network in Boston, Dallas, Miami and New Orleans, where we also have overlap with CBS.

Now, turning to publishing, interactive will, again, be a key driver of our growth. CareerBuilder continues to gain market share in the US and is looking to expand overseas. Topix.net has tripled its monthly unique visitors to 3 million since we acquired it last March along with Gannett and Knight Ridder. And another priority is to accelerate the growth of ShopLocal.com in the online retail category.

Now looking ahead in publishing in some key advertising categories. In national, automotive should show growth driven by domestic manufacturers, transportation should be up, with the airline category gaining strength, and we should see continued growth in financial, while movies will be again difficult to forecast. The department store category will be challenged by consolidation, although we may have a positive impact in Chicago with the re-branding of Marshall Field's to Macy's. Preprints will benefit from increased targeting and zoning capabilities, although overall growth will be slowed by Newsday. In classifieds, we expect continued growth in recruitment and real estate, but auto classifieds will be challenged.

Now January is off to a better start in publishing, with ad revenues basically flat compared to the same period last year, which was up nearly 4%. On the broadcast side, first quarter has improved from the fourth quarter; however, we do expect some weakness in February as the Winter Olympics drain money from a number, from many of our markets. Pacing for several of our key categories is strong, in particular telecom and the education category. Movies are rebounding, due to favorable comparisons to last year and a 30% increase in scheduled releases for the first quarter. Also, the move from kids’ animated programming to off network dramas and sitcoms on weekday afternoons is a positive for our WB stations. They have been able to increase rates significantly in the Monday through Friday 3 to 5 time period. Also, our FOX stations are off to a solid 2006, fueled by the success of American Idol and 24, and the group is pacing positive for the quarter despite losing the Super Bowl this year. So, overall, as we move into 2006, we got our cost structure in line to reflect what have been challenging revenue trends, and now our priority is top line growth. Now, we are ready to take your questions.

Ruthellyn Musil, Senior Vice President, Corporate Relations

Operator?

Question-and-Answer Session

Operator

Thank you. Ladies and gentleman if you wish to ask a question please press “*” followed by “1” on your touchtone phone. If your question has been answered or you wish to withdraw your question please press “*” followed by “2”. Again ladies and gentleman it is “*”, “1” if you do wish to ask a question.

And your first question will come from Lauren Fine with Merrill Lynch. You may proceed, please.

Q - Lauren Fine

Thank you. I guess, just a couple of quick questions. With all the headcount reductions that you are making, from an outside position looking in, it looks very reactive. Is there a semblance of a strategic thought process, sort of how you need to reengineer the publishing business in view of the Internet and your successes there? And are the headcount reductions being made with that thought in mind? And I have a follow up after that.

A - Scott Smith

Lauren, this is Scott. We very much are focused on how we overall reengineer our cost structure in publishing to take advantage of our scale, both within our local markets and across our markets. We think the progress we made last year was smart progress, where we were taking advantage of scale. A number of the changes we made were tied to technology and greater resource sharing across the group, and we continue to pursue that path to take advantage of similar dynamics moving forward.

Q - Lauren Fine

Okay.

A - Dennis FitzSimons

Just a couple of points to expand on that, because we are, when you say reactive, the game is changing, and what we can accomplish using our large national structure, all right? We are investing in sales systems that are giving us new e-commerce capabilities that will be common across the group. We are also investing in a new editorial system, which will be common across the group, which will enable content sharing, greater content sharing in a more efficient way. So we are looking forward, and we are using our size and investments in technology to better position us and better, really structure our costs to continue to deliver quality products at the same time as we reduce costs.

Q - Lauren Fine

Great. And then, just on the broadcasting side, you noted that there was an increase in program amortization in the fourth quarter. I am wondering if you could tell us what the percentage increase was. And for ’06 you have said that publishing will be up mid-single digit, and just want to know if that's going to be first half weighted, and if that's changed at all in view of the CW announcement?

A - Dennis FitzSimons

Sure, Lauren. The fourth quarter was about 10% on the program amortization line, and that was because of the premier of Sex and the City on our stations, and also My Wife and Kids on a number of our stations. Now going forward into 2006, we will see mid-single digits.

Q - Lauren Fine

Right. I guess, the question there was will that be presumably first half weighted? So higher increases in the first half, but lower in the second half?

A - Dennis FitzSimons

It's about even. It's not heavily weighted, might be a little more, but not heavily.

Q - Lauren Fine

Okay. And then, just one last…

A - Dennis FitzSimons

And we will have according to Jim, premiering in the fall.

A - Dennis FitzSimons

Oh, okay. And I guess, just the last question, you know, when you look right now at the landscape, what traditional media companies have been doing, some have made some pretty large interactive acquisitions, and you’ve made some comments over the last few months that would suggest that maybe this is something that you are looking at as well. Would you consider some type of a large interactive acquisition? And are you just, even philosophically, looking at acquisitions right now?

A - Dennis FitzSimons

What we said, and what we will continue to say, is that we are looking to expand that part of our business. We will look for acquisitions on our own or, as we have done very successfully with our partners, sort of the network affiliate type model, where multiple partners invest in a network type operation and get the advantages at our local newspapers, the equivalent of affiliates. So we’ll look at both types of acquisition.

Q - Lauren Fine

Okay, great. Thank you.

A - Dennis FitzSimons

Thanks.

Operator

Thank you. And your next question will come from William Bird with Citigroup. You may proceed, please.

Q - William Bird

Yeah. I was wondering if you could talk a little bit about strategies for improving top line performance at LA Times. And also if you could just discuss, what you are seeing in online ad pricing in '06. Thanks.

A - Scott Smith

Sure. Los Angeles Times, we are very focused on dynamics within every advertising category there, and how we best position the Times and its high quality, broad reach readership and the value of that to advertisers. We have significantly also revamped the sales force there. There is new sales leadership in almost every category, and they are very focused on how we both improve revenue and improve share in Los Angeles. An example would be in recruitment, where we are growing at very healthy rates in Los Angeles now and have significant market share upside, and where we are working with CareerBuilder to expand significantly our sales force and are seeing great results in that category.

A - Dennis FitzSimons

And, Bill, your second question?

A - Ruthellyn Musil

Online ad pricing. Is that what you asked, Bill?

Q - William Bird

Yeah. I was kind of curious, kind of what rate of increase you are seeing across your sites in '06 and maybe if you could just put that in the context of what you saw in '05?

A - Dennis FitzSimons

Sure. Bill, we’ve got Tim Landon here, who heads up our Interactive division. Tim Landon, you can cover that.

A - Timothy Landon

Well, Bill, I think generally, you have to go by segment-by-segment, but I would say simply generally, across all our advertising lines in interactive pricing is creeping up. We have more pricing power and we are seeing that consistently. So I would say that whether it’s in the classified advertising space or the run of site space, rates are going up.

Q - William Bird

Appreciating, that's tough to put a point estimate on it. Just in terms of range, is it double-digit?

A - Timothy Landon

In some cases, it is. In some cases, it isn't.

A - Scott Smith

The highest increases, Bill, would be in the recruitment category, again, where we’ve got great momentum.

Q - William Bird

Thank you.

Operator

Thank you, sir. Your next question will come from the line of Douglas Arthur with Morgan Stanley. You may proceed, please.

Q - Douglas Arthur

Scott, I'm wondering if you can just take us back and review this preprint issue at Newsday. In theory, had you not had that, I would have expected Newsday to be showing some ad revenue growth at this point, given the comps, but this issue seems to have gotten deeper and worse than anticipated, and when do you see it resolving and how are you going to resolve it? Thanks.

A - Scott Smith

Sure. To recap, in the second quarter last year we terminated a relationship with an outside sales agent because of an ethical breach, essentially payment of money to an executive we terminated that was undocumented, that that agent claimed was a loan, but without any documentation. So we terminated that relationship. This company was, in effect, representing us to major food and drug advertisers, and a number of those clients chose to take their business to a competing operation that he started up. That's the reason for the significant decline that essentially started beginning of the third quarter. We are very focused on regaining those food and drug customers, explaining the quality of our reach, both in paper and our TMC distribution, both on Long Island and in the boroughs of New York City, and are optimistic that over time we will regain those customers, but the pace of that progress is, frankly, hard to predict. We are focused on it, but it’s likely we’ll take some time to regain that business.

A - Dennis FitzSimons

Doug, this is a residual impact of us cleaning house at Newsday. What prior Newsday management had allowed to happen was a sales agent getting in the middle between the newspaper and its customers, and that will not happen again, and we’re feeling the impact from that? So there is, as Scott said, total focus on getting those accounts back and making sure we don't lose any other accounts. We will cycle through a fair amount of that by the middle of 2006.

A - Scott Smith

That's correct. And then in terms of the rest of ad revenue in Newsday, it's performing reasonably well. So what you would expect there is occurring, it's just hidden by this preprint dynamic.

Q - Douglas Arthur

So can you ballpark the impact of this on the overall revenues of Newsday? Thanks.

A - Scott Smith

Well, as we said in the release, the preprint revenues there were down 24%, some figure about like that, in the fourth quarter. So it's, in the second half of the year, it was about $12 million.

Q - Douglas Arthur

Great. Thanks.

Operator

Thank you, sir. And your next question will come from Alexia Quadrani with Bear Stearns. You may proceed, please.

Q - Alexia Quadrani

Hi, thank you. A couple of questions. First, could you review what type of ad rate hikes you are expecting at your major papers in ‘06, and based on summary discussions with your advertisers maybe any feedback from them or your sentiment in terms of your likelihood of being successful with those ad rate hikes? And the second question is that we saw some nice improvement in your surf numbers in the fall in the ABC audit. What, can we expect similar improvement and what can we expect in March? Thank you.

A - Scott Smith

Sure. Ad rate increases on rate cards, it again varies a lot by category and also by paper, anywhere from some categories like classified auto that, in some markets, are pretty flat, to some categories up 6%, and that's before color premiums, where we’ve increased our color capacity. In terms of negotiations with major advertisers, the fact that we have made so much progress in stabilizing individually paid circulation, our readership story is good; we offer this array of product choices in our market all that is appreciated. That said, it's always a negotiation with them and with large clients, the likelihood you end up with something less than rate card increases is high. I am encouraged by what I'm hearing from our sales people about how major revenue contracts are settling in, in terms of the negotiation that occurs about this time of year. But again, particularly with major retailers, where their fiscal year is just ending, a number of those contracts, as is normal, haven't been finalized yet. On balance, I would say we are in a healthy, relatively normal environment in terms of negotiation of revenue contracts.

Q - Alexia Quadrani

And the circulation?

A - Scott Smith

Circulation. So, we made a lot a lot of progress. You saw the figures, and Dennis highlighted them in terms of individually paid circulation. You will see continued progress in March on individually paid. You will also see the other paid category continue to be down as we manage down hotel copies, third party sponsored copies, and IE, et cetera, that have value in select cases, but less value to advertisers than home delivery and single copy. On home delivery, I would say the story is very positive there in Los Angeles, Chicago and in Newsday's core Long Island market. Home delivery circulation is up year over year.

Q - Alexia Quadrani

Thank you.

A - Dennis FitzSimons

And on that other paid category, a point to mention here might be that Orlando, that had our best growth rate in ’05, did a significant reduction in the other category, eliminating just about all of their hotel circulation. So with proper communication to advertisers, and again, with the individually paid being the primary interest of advertisers, proper communication managing that number down to improve the expense picture, also we saw advertising growth at the same time.

A - Scott Smith

We also are telling our readership story using, in most markets, Scarborough, but in Chicago and Los Angeles, Gallup Research, and the fact that readership was up in Orlando in this period was a really compelling fact.

A - Dennis FitzSimons

Next question, please.

Operator

Thank you. Your next question will come from the line of Steven Barlow with Prudential Equity. You may proceed please.

Q - Steven Barlow

Thank you. Can you give us LA advertising revenues by quarter in 2005, please? And secondly, I am still trying to understand a little bit the television revenue pictures. I'm not sure you can blame the whole thing on The WB. I'm interested in your news ratings. Sex and the City had a lot of hype before you put it on the air. We, frankly, haven’t heard much about it since. Did the ad revenues not meet your expectations there? Thanks.

A - Scott Smith

Okay. So LA Times ad revenues last year by quarter, up 3, up 1, flat, down three, and they actually had a good October, and then had challenges, particularly in the movie category in November and December. Wireless was impacted there more lately in the year than our other markets. And they saw a greater depth in auto classifieds than many of our markets too. We are working on all those issues. The trends, other than movies in period one, are better in LA, and we are optimistic we will have improvement in their momentum as this year progresses.

Q - Steven Barlow

And on broadcasting…

A - Dennis FitzSimons

John Reardon is here, Steve, and he will cover your question.

A - John Reardon

Okay, Steve, from a broadcasting side, as far as news is concerned last year, news revenue was actually up. The late fringe, Sex and the City stabilized late fringe. The area still of concern for us is early fringe is the area that’s impacting us. But overall, things are stabilizing.

A - Dennis FitzSimons

Right, so our biggest as we have told you in prior calls, prime time represents about 17% of our revenue, and then what we saw with the big local People Meter impact, and with Friends getting a little bit older in terms of the number of years it's been on the air in syndication, that's what caused the early fringe issue last year.

A - John Reardon

On a positive standpoint, early fringe, Steve, we are out of the kids business 3 to 5, and net revenue is up substantially already in the first quarter going to adults, and we are very pleased with that.

A - Dennis FitzSimons

We, to some degree, or to a fairly large degree, in four of our markets, New York, LA, and Chicago, plus Boston, cycled through the impact of local People Meters. We are actually seeing New York, the market itself is strong and our station is in the plus category for first quarter, and New York was the second market to go into LPMs after Boston. So we think that's a real positive development. We are seeing news increases, or improvements in our news ratings, in New York, so that's a positive there. The second wave of LPMs in those markets would include Philadelphia, Dallas, Washington, have not been hit as hard, particularly Washington. We are still seeing, we are on the upswing in Washington, and continue to be. That's been a terrific growth story for us.

Q - Steven Barlow

Very good. Thanks, guys.

A - Ruthellyn Musil

Our next question, please.

Operator

Your next question will come from the line of Frederick Searby with JP Morgan. Please proceed.

Q - Frederick Searby

Yeah. Thank you. A couple of questions. First, one of your competitors yesterday was saying that out of the box auto is improving. It's obviously been a tough, tough category on the classified side, and then, I wondered what your thoughts are for this year on classified and national automotive, given the concern there in the way it's been trending and if you did see something there in January, or if you are seeing some kind of expectation of an improvement. And then secondly, if you could just update us on the entertainment category, and then kind of, maybe a curve ball question, but on the CW, have you fleshed out the affiliate relationship, as the network launches digital ventures what the economic relationship will be and how that will work? Thank you.

A - Scott Smith

On the auto category, in period one we saw slight improvement in the auto classifieds and very good growth in the manufacturer revenue in national. If you look at the couple combined, we are down 3%, and in many ways you’ve got to look at manufacturers spending plus local dealer spending together, because frequently the dealers hold back when General Motors, Ford, et cetera, are promoting aggressively. We expect the manufacturers, particularly domestic, to do that through the year. It may be sporadic, as it has been in past years. We are also working to get more business out of the leading import auto manufacturers. In terms of the local dealer business, it's really hard to forecast how they are going to behave as the year goes on, but again, at some point, we’re going to cycle the big declines last year and should have easier running on a year-over-year basis. We also in automotive are having great success selling our internet product, Cars.com, and are getting really good growth on that front.

A - Ruthellyn Musil

I think the second question was about the entertainment category.

A - Scott Smith

Oh. Entertainment is largely movies, and there is a combination of factors at work here. One is, you’ve got more releases coming in the first quarter, but January was somewhat slow and so much depends on quality and the popularity of the movies, because it's proven that the studios don't advertise as long on a movie that's not making it as they used to. We’ve also got the phenomena where the LA Times basically gets a whole bunch of trade advertising in the movie category, and that's driven both by Academy Awards and other awards this time of year, and just promoting to the trades in Los Angeles. There we had a soft first period. We expect a somewhat better second period, and expect over time that we will continue to get a really big share of movie advertising, particularly in Los Angeles, which is about 2/3 of our total movie revenue across the group. I think you have seen at the New York Times similar softness recently, because they also serve this trade advertising role, like the Los Angeles Times does. But it's hard to forecast. They don't commit far in advance, and that's part of the reason it's been hard to give good guidance on the movie category as they just aren't committing very far ahead.

A - John Reardon

As far as the CW network affiliate relationship, we feel good about where we came out on that. So we will still have exclusive distribution rights in our markets. We will have the right to negotiate for retransmission consent rights and generate value there. As far as digital rights go, we think we reached a reasonable compromise there, and believe there has got to be some flexibility depending on which way this develops in terms of paid distribution, that kind of model. The network does have certain rights there, but we feel that's a very reasonable tradeoff.

A - Ruthellyn Musil

Another question, please.

Q - Frederick Searby

Okay, thank you.

Operator

Thank you, sir. Your next question will come from the line of John Janedis with Banc of America Securities. Please proceed.

Q - John Janedis

Thank you. Good morning. When do you expect to start announcing some of the programming on the independents? And do think that programming currently is out there, or do you think its going to be new? And then along those lines, do you think that those stations can run at a margin, let’s just say the 37% or so that the rest of your station group is running at? Thanks?

A - Dennis FitzSimons

I think, John, this will be determined in the large markets. So with this shuffle, you've got stations, the Fox owned stations, what used to be the Chris-Craft stations, that will need to be programming prime time, and we will have to see what happens. But if there is some kind of national service, it will involve, I don't think it will be a full network service, but you might see a few nights of programming that will be described either as a network or some kind of barter service that we saw before the launch of The WB and UPN back in ‘95. So it's going to take a while for the market to absorb these changes and then figure out who is going to step to the plate and put some national programming there, but the interest level at the NATPE convention was really high. People see this as an opportunity. And so we can't really give you a good answer right now. All we know is that we were getting lots of calls from other stations that are interested in what we are going to do, and also, so you can have a local solution for this or some type of national solution that might take care of a few nights, and then you put other programming in there that, it's just going to take a little while for this to clear up.

Q - John Janedis

Okay, thanks. And just, typically, I'm not sure what the answer is on this, of it you have one, but what is the gap in relative ad rates between an independent and a WB-like station? Meaning you mentioned earlier that you are going to be selling all the ad time. What is the rate differential? And then also, I'm not sure if you mentioned this, if you did, I apologize. But what are the current pacings in the first quarter for TV? Thanks.

A - Dennis FitzSimons

We didn't mention specifically the TV pacings, although we are significantly better than we were in the fourth quarter. January was stronger than February, and then March looks better again. February, we do have some issues with the Olympics, which has taken a lot of money out of many of our markets. I’ll probably mention one other thing about The WB, because we got asked this question when we made the announcement last Tuesday, and that is what is this going to mean as you put the two schedules together. And John Reardon has some numbers on that, and particularly our big three markets. This is a very positive impact for us.

A - John Reardon

This is very positive. If you just do the straight math, and you take the best programs from both networks and kind of look at the schedule the way we see it going forward, the ratings in adults 18 to 34 and 18 to 49 would be up anywhere from 25 to 35%, and substantially higher in New York, Los Angeles and Chicago. And then on top of that, you’ve got to factor in the strength of the television stations that they are going on. For example, in Chicago, the UPN affiliate does a 2.7 sign on to sign off share where WGN does a 6.4. KCLP in LA does a 2.3, KTLA does a 4.2. WOR does a 2.9, PIX does a 5.4, substantially increased. Then you factor in supply side, as you talked about, and it's strategically a very good move for us and everybody is very excited about this.

A - Dennis FitzSimons

As far as your question on what happened, so they’re lower rates but you have a lot more spots to sell. You have the increased program cost, which is moderated by the reduction, or elimination really, of reverse compensation to the network. So, again, it all depends on whether we are going to get national network-type programming that is given to us on effectively a barter basis, or we go out and buy cash programming to program on an individual market-by-market basis, and that’s going to take a little while to shake out.

Q - John Janedis

Okay. Sorry, just one question related to the comment earlier. Do you have the same amount of minutes per hour with the new network, in terms of what you are selling?

A - Dennis FitzSimons

Yes, we do.

Q - John Janedis

Okay, great. Thanks.

A - Dennis FitzSimons

Thank you.

A - Ruthellyn Musil

Next question, please.

Operator

Your next question will come from Lee Westerfield with Harris Nesbitt. Please proceed.

Q - Leland Westerfield

Hi. Thanks. Actually, I just wanted to follow up on the question of the retransmission fee potential out in the future. And the question is this across the CW portfolio that you have now, when, I assume that they are rolling agreements over the course of the next few years with local cable operators, so in which markets generally would we be looking for negotiations to occur sooner and which later? Thank you very much.

A - Dennis FitzSimons

Lee, most of our negotiations are on a group basis, and because we have overlaps with a lot of the significant operators, like Comcast and Time Warner, so where we have significant overlaps, there’s been such a consolidation in the business that’s the way usually we will do it. But we have found ways to generate value from our retransmission consent rights, whether it’s additional coverage or distribution for the Superstation or, our biggest success really, was in ’92 with the launch of the Food Network where we have gotten that 31% interest basically for launching it off the power of our retransmission consent rights. So I would say our agreements still have several years to go that we recently negotiated with Time Warner, in particular, Comcast also, so nothing immediate on that front.

Q - Leland Westerfield

That's very helpful, Dennis. Thank you very much.

A - Dennis FitzSimons

Thank you.

A - Ruthellyn Musil

Thanks, Lee. Another question.

Operator

Your next question will come from Peter Appert with Goldman Sachs. You may proceed.

Q - Peter Appert

Scott, can you tell us what portion of the revenues are locked in, in advance under these revenue contracts, particularly in the retail and national categories?

A - Scott Smith

Primarily, Peter, it will be in the retail category, and it would be, out of total retail revenue of 1.3 billion, call it, a year, it's probably still something under half of that, but it would be approaching half. I don't have an exact figure for you, but it would be in that range.

Q - Peter Appert

Okay, great. Thank you. And then, unrelated issue, are there any labor agreements in '06 that we should be anticipating?

A - Dennis FitzSimons

We’ll have an upcoming negotiation in Baltimore. Scott, why don't you give a little color on that?

A - Scott Smith

All right. The press contract is up in Baltimore this spring. It's a relatively isolated event for us on the labor front. The fact that we were able to successfully conclude negotiations with six bargaining units all part of what's now the GCC that’s part of the Teamsters, at Newsday to get that done early in the first week of this year really puts us in a position. So, as Dennis said, with our costs in good shape now we can focus on top line growth.

Q - Peter Appert

Okay.

A - Dennis FitzSimons

And, Peter, we had, through our last negotiation in Baltimore, generated some real progress in terms of flexibility with the unions in Baltimore. We had inherited from Times Mirror some not very good contracts down there, and we’ve gotten them into much better shape, and we’ll look to make more progress this time around.

Q - Peter Appert

With the flow-through benefit from the staff reductions in '05, is it possible that total comp costs could be flattish in '06?

A - Dennis FitzSimons

Just bear with us for a second here.

Q - Peter Appert

Sure.

A - Scott Smith

I could tell you in publishing, the answer to that is, yes.

A - Dennis FitzSimons

And in broadcasting that would be, plus one.

Q - Peter Appert

Great. Thank you.

A - Donald Grenesko

And, Peter, I’d just like to mention, those comments are made, would exclude any option expense...

Q - Peter Appert

Okay.

A - Donald Grenesko

That we would have next year.

Q - Peter Appert

Got it. Thank you.

Operator

And your next question will come from Craig Huber with Lehman Brothers. You may proceed, please.

Q - Craig Huber

Yes. Good morning. Thank you. The TV pacings for the first quarter, are you against just quantifying exactly where they stand? Are they down five, are they flat the whole quarter? That's the first question. Secondly, are you guys expecting to have another restructuring charge any time in 2006? And I have a follow up. Thank you.

A - Donald Grenesko

Can you repeat the first question, Craig?

Q - Craig Huber

Just, if you can just specify where your TV pacings are for the first quarter, like you tend to do most of times around. Thanks.

A - Ruthellyn Musil

You know, we actually we typically haven't done that, Craig. I think…

A - Dennis FitzSimons

Yeah, Craig, we have not done specific pacing on that because we got people, as you would imagine, just asking us to be more and more specific and we have gotten away from that. We, what we said was, obviously, fourth quarter was a very difficult quarter for broadcasting as we cycled through the impact of the LPMs. First quarter is better. We are starting to see a turnaround in New York, and to some degree in LA, but we are still seeing placement of business very late. A lot of business being written in the month, for the month, so we don't like to get too far ahead on pacing, other than to say it's better than it was in the fourth quarter.

Q - Craig Huber

Okay. But does this word better mean down 3, 5%, or does it mean up?

A - Dennis FitzSimons

It means better.

Q - Craig Huber

Better. And the other question, please, about restructuring charge next year. And I have a follow-up as well.

A - Dennis FitzSimons

The question, I believe, was do we anticipate further restructuring charges in 2006?

A - Donald Grenesko

We are still looking at this, and still looking at our overall staffing levels, so it's possible that we could have some additional restructuring charges. There could be one at Newsday related to the union agreements that we just had signed. And also, on the equipment on the, that we are looking at from the LA Times plant that we just shut down. We are assuming and evaluating whether or not we are going to use all of that equipment at our other, some of our other facilities. But to the extent that we wouldn't use all of the color towers and the press there could be some additional write-off for that, accelerated depreciation write-off.

Q - Craig Huber

And then lastly, just back to CareerBuilder. Can you just clear this up, if you would? Is there a change of control provision in the contract for CareerBuilder among the three partners where if, hypothetically, Knight Ridder gets sold it will allow yourselves and Gannett to buy out that one-third stake from Knight Ridder, assuming a third party buys Knight Ridder, and that you guys have the first rights at a fair market value?

A - Dennis FitzSimons

Craig, there are confidentiality agreements that come into play there. We’re really not, we’d prefer not to comment on that.

Q - Craig Huber

Okay. Thanks a lot.

A - Dennis FitzSimons

Thank you.

A - Ruthellyn Musil

Next question, please.

Operator

Your next question will come from Paul Ginocchio with Deutsche Bank. Please proceed.

Q - Paul Ginocchio

Thank you. I think on the last call, Dennis, you’d mentioned you were looking at all your assets and looking all the opportunities. Has the affiliate agreement with CW now, the recent agreement, has that changed your view on your overall asset mix? Thanks.

A - Dennis FitzSimons

Well, certainly, having that long-term agreement makes us feel better about prime time. We think our broadcast properties have gone through this adjustment, to a large degree, from local People Meters, so, but we have always felt that in the broadcast space there is going to be another form of consolidation, and whether that's through trades, through establishing duopoly positions, we still think a lot of that is going to happen and we will participate in that where it makes sense for us. As far as the other assets that are frequently mentioned as, or described as, non-core, we sort of look at our portfolio all the time. We do take into account what is the tax hit that we would have to take, what is the cash flow that we would be losing, and what would be positive from an EPS standpoint and positive for our shareholders. So with the multiple compressions that's taken place in the media space, selling assets at premium prices right now is not as easy, perhaps, as it was several years ago. So we were only going to do something, not from an under pressure standpoint to just show motion, we will do it if it makes sense for our shareholders. So, but believe me, we look at these things all the time to see if we can generate shareholder value.

Q - Paul Ginocchio

Great. Thank you very much.

A - Dennis FitzSimons

Thanks.

Operator

Thank you. And your next question will come from Brian Shipman with UBS. Please proceed.

Q - Brian Shipman

Thanks. Good morning. Could you give us an update on the New Orleans market performance and your two TV stations in New Orleans? And also, if you look at the TV performance in the quarter, what would that have looked like excluding New Orleans, and what’s your outlook for that market going forward? Thanks.

A - John Reardon

The impact of New Orleans is better than I anticipated right now. Demand there is better. The impact is, it was about a 1% differential if you factor New Orleans out of the actual pacing. But there is great demand down there for news right now. Automotive is in demand. So it’s holding up better than I anticipated, quite honestly.

A - Dennis FitzSimons

Yeah, initially, I would say that probably in October, revenues were 30% of what they were in the year past, and now that is 50% to 60%. So it’s still not pretty, but it’s better than it was, and we were starting to see more activity, and obviously renovation rebuilding and, as John said, the automotive category of so many cars being put out of commission is very strong.

Q - Brian Shipman

Okay. Thank you.

A - Dennis FitzSimons

Thanks.

A - Ruthellyn Musil

Next question.

Operator

And thank you. We do have time for one final question. That will come from the line of Jacqueline Spring with Thomas Weisel Partners. Please proceed.

Q - Jacqueline Spring

Thanks. I was wondering if you could quantify the impact you saw in ’02 because of the Olympics. I was also hoping you could give us newsprint usage and prices. And then last question is do you have any idea what percent of revenue your target publications contribute and where you possibly see that going? Thanks.

A - Dennis FitzSimons

Why don't we start with that third question, the target publications?

A - Scott Smith

Sure. We have over 40 targeted publications that generate about $340 million of revenue a year and we see that continuing to grow at very healthy rates. Also, on targeting, keep in mind the role of preprints in that mix, not just in paper, but our growing total market coverage business delivered largely through the mail.

A - Dennis FitzSimons

In terms of newsprint usage, it might be better for Ruthellyn to get back to you off-line because you’ve got volume differential, price differential and different weighting. We’ve got a lot of different factors on that one which would be pretty complex to cover right now.

Q - Jacqueline Spring

Okay.

A - Dennis FitzSimons

I could just say simply, if you, because we converted to lighter weight paper that complicates that, as Dennis said. But if you take comparable weight paper, prices in the fourth quarter were up about 11%, consumption was down 5% or 6%.

A - Ruthellyn Musil

So I think that probably gets you where you need to be, but I’ll be happy to follow up if we have any other questions.

Q - Jacqueline Spring

Okay, thanks.

A - Ruthellyn Musil

And I think you also mentioned, I’ll get back to you on the political issue too, or on the Olympics.

Q - Jacqueline Spring

Yeah, okay.

A - Ruthellyn Musil

Olympics and political. I got it all mixed up.

Ruthellyn Musil, Senior Vice President, Corporate Relations

Anyway, I think that ends our Q&A period. Thanks, everyone, for participating, and we will look forward to speaking with you across the day.

Dennis J. FitzSimons, Chairman, President and Chief Executive Officer

Thank you everybody.

Operator

Once again, ladies and gentlemen, thank you so much for your participation in today's conference. This does conclude the presentation, and you may now disconnect. Have a great day.

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Source: Tribune Company Q4 2005 Earnings Conference Call Transcript (TRB)
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