Ruthellyn Musil, Sr. Vice President/Corporate Relations
Thank you very much, operator, and good morning, everyone. Welcome to our conference call to review 2004 fourth quarter, as well as full year results. Since this is the end of a very busy week for all of you, our opening remarks will be brief. We’ll leave plenty of time for questions, but we will try to be finished within the hour. Our speakers this morning are Dennis FitzSimons, Tribune’s chairman, president and CEO, and Don Grenesko, our senior vice president of finance and administration and chief financial officer. With us for Q&A are Pat Mullen and Scott Smith, who head up our broadcasting and publishing groups, as well as some others that I think you know.
Turning to our press release, Tribune’s fourth quarter diluted EPS of $0.67 and full year diluted EPS of $1.67 on a GAAP basis, included several special items. Our release contains the information needed to make a meaningful comparison to First Call estimates. Now, before turning the call over to Dennis, I’ll remind you that our discussion may include forward-looking statements that are covered in greater detail in our SEC filings. Now, here’s Dennis.
Dennis FitzSimons, Chairman, President & CEO
Thanks, Ruthellyn. Good morning, everyone. As we noted at the December conferences, due to an uneven advertising environment, 2004 was not the recovery year that we had looked for. In addition, the issues we faced at Newsday and Hoy were not only out of character with our history of business integrity, but also created financial challenges for us.
But as we also told you in December, we moved quickly in 2004 to address these situations. We have new management teams in place at Newsday and Hoy that are making good progress. And in the fourth quarter, the publishing group implemented additional staff reductions, primarily at our East Coast newspapers. So our financial results for the year reflect these challenges.
Overall, excluding special charges, our publishing and television businesses generated EBITDA of nearly $1.6 billion, which was about even with 2003. We converted a little over half of that to free cash flow, and used $730 million to return capital to our shareholders through the repurchase of 15.5 million shares of common stock. Our repurchase program will continue in 2005. Debt was about $2 billion at the end of 2004, giving us a debt-to-EBITDA ratio of about 1.3 times. This year we expect that to be in that same range. Our equity investments, including TV Food Network, continue to grow in value, and they contributed to higher equity income this past year.
Turning to our operating businesses, our major market newspaper and TV franchises are the foundation of our company. These strong local media outlets produce excellent journalism and results for our advertisers, and we’re focused on telling our audience story more clearly than ever before. As you know, the lack of political advertising in our top three TV markets, as well as overall softness in the movie category, made 2004 an especially challenging year for broadcasting. In publishing, the Baltimore Sun and the Hartford Courant had comeback years, and the Chicago Tribune turned in another good performance with strong cash flow growth. Overall for the publishing group, preprints continue to show excellent growth, up 9 percent, and that was led by Los Angeles and Chicago. Classified help wanted was up 12 percent, and real estate grew 7 percent. Although uneven, the national category grew 1 percent in 2004.
And our interactive businesses had another terrific year, with revenue growth at 33 percent. Our combined print and online strategy continues to work well. CareerBuilder Network revenue grew 76 percent, to over $280 million. CareerBuilder increased its revenue share by six points, to about 23 percent. That’s based on Morgan Stanley’s estimate of total online recruitment spending. So we’re picking up share on Monster.
The Cars.com network added over 3,000 new dealers. 4 of our markets, LA, Chicago, Newsday, and Hartford, were among the top 10 performers within the affiliate network of more than 140 newspapers. Finally, Tim Knight, our publisher at Newsday and his new management team have made great progress, especially in improving relationships with advertisers. They are starting 005 with a strong sense of optimism.
Despite the circulation revisions, the strength of Newsday’s Long Island franchises, evidenced by its market penetration of more than 50 percent even after the adjustments, works for advertisers. On that note, let’s go to Don for some specifics on fourth quarter performance, and I’ll be back to wrap up.
Don Grenesko, Sr. 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 $0.67 compares to diluted EPS of $1.00 in the fourth quarter of 2003. Consolidated revenues were up 1 percent, to $1.4 billion. Consolidated cash expenses, excluding special charges, were up 2 percent due to the impact of higher expenses for retirement plans, newsprint, and new publications.
Fourth quarter results included the following special items: A charge of $0.05 per share relates to severance for reducing staff in our publishing group by approximately 230 positions. The bulk of these reductions came at Newsday and the Baltimore Sun. Coupled with the elimination of 370 positions during 2004’s second quarter, publishing will realize annual total savings of more than $40 million, $15 million of which occurred in the second half of 2004. Second, a charge of $0.05 per share related to a one-time non-cash charge of adopting a new accounting principal related to how FCC licenses are valued. We also recorded a non-operating gain of $0.06 per share associated with marking-to-market our PHONES and Time Warner stock. For comparison purposes on last year’s fourth quarter, we recorded a non-operating gain of $0.34 per share, which included a gain on the sale of our interest in the Golf Channel.
Now let’s take a closer look at our publishing and broadcasting groups. Publishing revenues increased 1 percent to $1.1 billion in the fourth quarter, while publishing’s cash expenses, excluding the severance charge, increased 2 percent. Advertising revenue rose 3.3 percent for the quarter, as we continue to see growth in preprint, and in the help wanted and real estate categories. Circulation revenue, however, decreased by 6 percent, primarily due to fewer copies sold at the Los Angeles Times and at Newsday. Newsprint and ink expense rose 5 percent, as average newsprint prices increased 15 percent compared to the fourth quarter of 2003, while consumption decreased 8 percent. Broadcasting revenues at $385 million for the quarter, were essentially flat compared to the fourth quarter of 2003. Cash expenses for the group were up 3 percent, due largely to higher compensation and benefits expense.
Turning to our equity line, income was $20 million for the quarter, up from $12 million a year ago. The increase is largely due to additional equity income from our interest in the TV Food Network and from the Comcast Sports Network. Let me quickly cover some additional full year information. 2004 capital expenditures totaled $217 million, and we expect CapEx to increase somewhat in 2005. ROIC, return on invested capital, was 7.8 percent in 2004, and we expect it to increase to more than 8 percent this year. And with that, let me now turn it back to Dennis.
Dennis FitzSimons, Chairman, President & CEO
Okay. As we begin 2005, economic trends are still choppy. In publishing, January ad revenue growth is similar to the fourth quarter, up about 3 percent. Chicago and LA were up more than that. Newsday, though, continues to slightly reduce the overall growth of the group.
In TV, we’re being impacted by Local People Meters in New York, Los Angeles, Chicago, and Boston. As they were in fourth quarter, these markets are somewhat soft, and younger skewing stations, like ours and FOX and UPN, seem to be disproportionately impacted by the People Meters. As a result, January TV pacing is down in the mid single-digits.
In this kind of environment, our 2005 budget process has us well positioned on the cost side. We’ve held publishing group cash expense budgets at just 2 percent growth this year, and that includes significant pension, medical, and newsprint price increases. Absent these areas, cash expenses are planned to be down for 2005. We’ll continue to achieve greater efficiencies at our individual business units and take advantage of economies of scale, wherever possible.
We’re also moving forward with what have been successful strategies for creating more value in Interactive and winning in classified. We’re very focused on improving execution and eliminating these temporary obstacles that we have been faced with. So in 2005, we’ll check off the issues, one by one, that have been a cause of uncertainty for investors. Let me be specific.
At Newsday, we’ll look to complete settlements with our advertisers, bring the situation to closure as soon as possible. As we do this, our exposure to the advertiser class action suit will be reduced. Regarding the Matthew Bender tax case, it went to trial in December. Our lawyers did an excellent job of presenting our case in tax court, and we’re looking for resolution later this year or early in 2006.
On the West Coast, we’ll look to reestablish financial momentum at the LA Times, which represents about 30 percent of our publishing revenues. In TV, we’re working with Warner Brothers to improve ratings at the WB. And today, we will file our petition for cert. at the Supreme Court, seeking clarity on media ownership rules. We’ll do all of this in a manner that’s consistent with our values. As we said in December, our goal is to deliver results, and eliminate the areas of uncertainty that are causing our stock to trade at a discount to our peer group. Our goal is to earn back the premium multiple that reflects the quality of our people and our assets. We’re very positive about Tribune’s prospects over the long-term. So with that, we’ll be happy to take your questions.
Questions and Answers
Alexia Quadrani, Bear, Stearns
Q. Just following up on your comment you made about the FCC. Some believe that the FCC and the Solicitor General may review all the petitions filed by various media interest, and then decide within the next 30 days if they want to cross petition. And we’ve heard suggestions that if there may be one issue that might get supported it, will be the newspaper-broadcast cross-ownership issue. Do you agree with that?
A. Well, we hope you’re right on that front. We have heard that the Solicitor General will not petition the Supreme Court. That’s our understanding at this moment. But we are hopeful that the Court will accept our petition. We think the odds of acceptance would have been greater if the Solicitor General chose to petition also. But we have petitioned, along with Viacom, NBC, and FOX. We think this is an area of significant interest, where the Philadelphia Court and the DC Circuit have conflicting opinions. So we are hoping the Court will accept our petition, and we will find out in the spring if that’s the case.
Q. Do you have circ revenues for your three major properties in the quarter?
A. We don’t break those out separately.
William Bird, Smith Barney
Q. On the topic of circulation, could you comment on where you stand in terms of rebasing circulation. That is, at this stage have you fully eliminated certain channels, like third party distribution, and are there any new strategies in place for trying to reverse the declines?
A. As we said in December, we worked hard to make sure all our circulation practices are solid and clear. We’ve made great headway in that regard. And we’re now working very hard on building responsive readership that we believe, over time, will show in our circulation results.
We’re focused primarily on what we would consider core circulation. Home delivery, which is about three-quarters of the total, and essentially our most valuable readers for advertisers, and also single copy. We are over time, managing what we call the “all other” category, which are bulk sales, NIE, and circulation of that type. We’re managing that down gradually over time. You’re not going to see a dramatic change. Many of those copies have real value to advertisers, and so we’re not taking a precipitous approach in that regard. But we are working very hard on subscriber retention and smart sales, using our database capabilities, which, for example, just went live in LA in the fourth quarter. And we do expect to see meaningful progress through the course of the year.
Here in Chicago, the Tribune just launched something that’s called Subscriber Advantage, an added value program, where subscribers will get additional benefits from the online piece of the Tribune. There will be special offers and other kinds of incentives for subscribers and non-subscribers will get less depth. So we’re experimenting with that here. Initial indications are positive on that.
Q. What proportion is “all other” as a percentage of circulation?
A. As a percent of the total, it’s about 7 percent daily, 4 percent Sunday, which are already are much lower percentages than you’ll find with many of our competitors.
Frederick Searby, J.P. Morgan
Q. Is your assumption then that you should be able to grow circulation at the LA Times, and why the sudden precipitous falloff there?
A. Our long-term goal is certainly to grow circulation and responsive readership at the LA Times. As we’ve said previously, the Times was hit the hardest of any of our papers by the Do-Not-Call legislation. They were very dependent on that channel of sales, because they did not have the database capabilities, for example, that we’ve had in Chicago. We’re working through that transition. We’re making progress. It’s going to take a while before we see positive comparisons in Los Angeles.
Subscriber churn in Los Angeles, with the implementation of the database marketing system and the elimination of some of these programs that Scott was referring to, was reduced in the fourth quarter.
Craig Huber, Lehman Brothers
Q. Your non-newsprint cash costs in the fourth quarter, what was the percent change there, please?
A. It was up about 1.5 percent before the severance charge with most of the ex newsprint costs due to higher benefits.
For ‘05, publishing costs are plus 2 percent, but without benefits and newsprint, they are actually down year-over-year.
Q. What was your year-end circulation in LA and Chicago? How much was it down? I’m trying to get a sense if it’s worse than down your 6 percent, and 2 to 4 percent respectively, in your ABC audits for September. So, how much was they down as of year end?
A. At this juncture, we haven’t released year-end circulation figures. As you saw, the circulation revenue for the fourth quarter was down about 6 percent. Most of that revenue decline was in Los Angeles, and also at Newsday, and it was essentially volume-related in those markets.
Q. Isn’t it fair to say that the down 6 percent circulation volume number in LA for 6 months ending September, didn’t start on April 1st, and down that rate was more back end loaded in that 6 month period, so that at the end of the period, it’s perhaps down worse than 6 percent? That’s what I’m trying to get at, for both markets.
A. Circulation in Los Angeles was down a little more than that. In Chicago, the declines are less than that figure.
Lauren Fine, Merrill Lynch
Q. CapEx seemed a little bit higher in the fourth quarter than we were expecting, and I’m wondering if some of that was maybe just extra spending that would have taken place in 2005.
A. CapEx was 95 million in the fourth quarter, as I mentioned, $217 million for the full year.
We generally have higher payments in the fourth quarter of each of our years, and in particular, we had progress payments in the fourth quarter of this year on the color press projects at Chicago, Los Angeles, and Fort Lauderdale. In addition, we’ve got new inserting equipment going in at Fort Lauderdale, Orlando, and Newport News.
So those were the principal projects that that we had in the fourth quarter of last year and those are going to continue into 2005. CapEx will be up somewhat in 2005. In addition, we’re going to be installing common advertising and circulation systems at all of our newspapers, and we’ve already started that. That will continue into 2005 as well.
Q. I’m wondering if you could provide us with, with your current capital structure, what your all in cost of debt is.
A. Our overall cost of debt is 5.7 percent, and we’re roughly paying something over 6 percent for our fixed debt and 2.35 percent on commercial paper.
Q. And then as you look at some of the proposed mergers, Federated/Mays, Sears/Kmart, Sprint/Nextel, and all of those, have you tried quantify what the potential impact would be on the newspaper and the broadcast side?
A. Federated and May are major advertisers with us, in both newspapers and TV. We’ve got a very good relationship with both of them. But I think it’s too early to predict if that is going to happen, and then what might happen after that. As far as Proctor & Gamble and Gillette, actually P&G became a much larger spot television advertiser again this past year, which was a benefit to us. But again, it’s way too early to predict.
Q. Could you maybe then, tell us on Federated/May on a combined basis and Sears/Kmart, what percent they represent of newspaper division and broadcast division revenues?
A. We don’t really give out individual, but it would be very low single-digits, on the publishing side. We don’t give out specific numbers for any individual advertisers.
Q. On interest expense for 2005, you said that probably stays flat for the year. I’m just curious, is there something else that’s going into that calculation because we’re coming out quite a bit lower.
A. We expect it to be down somewhat over this year.
William Drewry, Credit Suisse First Boston
Q. Talk about the rating situation at WB and the People Meter. Specifically, I mean given the trend line there, is that something that’s going to hold back or hamper growth at the TV stations until you, I guess, start to annualize the introduction of those People Meters?
A. We had a real good meeting with David Janollari and Garth and group at NATPE. I have to tell you, we have the utmost confidence in this new management team. David, particularly, has very, very deep roots in Los Angeles.
On WB ratings, year to date, we’re only down one-tenth of a rating point. We got a little bad publicity a week or so ago about 1 particular week where we were down more. But season to date, we’re down a tenth. So we’re really in pretty good shape, and the returning shows are the strength of the season. But when you look at the new development, they have signed deals with David E. Kelly for the production of a new show, called Halley’s Comet, which sounds terrific. We have a development deal with Jerry Bruckheimer and Tom Fontana. So these are people who had not produced for the WB before, that are now producing shows for us. So looking forward, with this team in place, we have a great deal of confidence.
To your question about local People Meters, the New York, LA, and Chicago markets have been generally soft in fourth quarter and that softness continues in first quarter. But then we’re being further impacted by the Local People Meters, which tend to under-report, in our view, the younger viewing. So FOX, UPN and WB stations tend to be more impacted than the others. So we’re working very aggressively with Nielsen. They understand some of the problems, and we’re trying to get the fixes in place, if you will, to better measure those younger audiences.
Q. Could you just walk us through what has to happen specifically to get Matthew Bender to a resolution? Is there a specific timeframe we should think about a decision coming back?
A. The trial took place in December. Post-trial briefs still need to be filed, and so we’re still not expecting to have a decision until the end of 2005, or the beginning of 2006. But we feel that the trial went very well, and we continue to feel very comfortable with our case.
Q. On the advertising environment, it looked like the retail numbers were actually better than we would have expected for both December and the fourth quarter. National’s obviously still weak. Anything you can share with us that you have to see, or what needs to happen to turn those numbers up in aggregate from your perspective. And then you talked about the January numbers. Are you seeing the same sort of category trends, just out of curiosity, early in the year that you saw in Q4 as well?
A. On advertising trends, at least in publishing, the January trends overall are very similar to the fourth quarter, with ad revenue up around 3 percent or so. We’re actually doing better than that, both in Chicago and in Los Angeles. And that’s offset some by declines in Newsday, tied essentially to rolling back ad rates with the lower circulation base. The trends by category also are somewhat similar, with retail showing reasonably good growth. National, actually the trend’s a little better than the fourth quarter, classified trends continue, too. It’s moderate growth.
It’s still somewhat spotty, and a lot of this depends on the overall economic conditions, both nationally and in our market. Beyond that, we are working very hard with specific clients and categories to grow our share. And we are hopeful to see progress in those areas, as well.
Q. Could the situation with the Local People Meters turn out similar to what happened with Nielsen a year ago, where the young 18-34 male demo disappeared, and then they sort of tweaked the data, and they found it again? Is that possible in this situation where you can get a much better set of numbers fairly quickly, if they get it right?
A. It’s hard to tell how quickly they can implement the changes that we all agree need to happen, and then what impact it will have. But we certainly believe that they are having a very difficult time reporting the younger viewer, and particularly homes with 5 or more people, and that’s the area we’re focused on with Nielsen.
We like your scenario though.
Brian Shipman, UBS
Q. In the markets where you have potential cross-ownership issues, could you please remind us when the TV station licenses must be renewed with the FCC?
A. Our licenses are good and don’t expire until the end of 2006, and then 2007. After that, if there isn’t clarity by that point, we still have waiver possibilities and appeal possibilities. We’ve gotten estimates from lawyers that would be well after 2010 before there would be any type of divestiture required. So this is way out in the future. If there was a denial of a license, that appeal to the Supreme Court, we think, would be successful in getting the case heard.
So we’re still hopeful, that in the spring, the Court will take this case. But we are also realistic in the fact that the odds are less, seeing that the Solicitor General is not coming in along with us. But, again, there is no real issue here in the short or even mid-term regarding divestiture requirements.
Q. I know you haven’t talked about guidance at all, but just looking at preprints in particular, it was very strong in Q4. And can you discuss the outlook a little bit there, particularly in LA, in light of the circulation declines at that newspaper?
A. Preprints in Los Angeles continue to be a very positive growth story. Preprint revenue in the fourth quarter was up in the high teens. And it’s important to keep in mind that the preprint strategy includes not just in-paper distribution, but also distribution in the mail, in our TMC.
One of the great things the LA Times has also done is created what they call the Value Network, with another half dozen newspapers in Southern California, San Diego, Orange County, in fact all the way up to the Las Vegas paper. And together, they are having really good success attracting preprint advertisers to their very powerful blend of newspaper and mail distribution. We remain very optimistic we’ll see excellent growth in preprints in Southern California.
Edward Atorino, Fulcrum
Q. Equity line was pretty good, and I think Scripps is projecting a big increase in the Food Network. Could you give us a little look at how you see equity in ‘05?
A. In terms of the equity income line, we made $18 million there in the equity line in 2004, and we’re expecting to have some increase over that amount in 2005. We haven’t gotten any more specific than that.
Q. Let’s say the Food Network is up 10 million. What offsets that? Assuming all, you know, that’s what happens?
A. We haven’t gone into specifics about the increase in TV Food Network, but we expect that to be up, again, somewhat next year. We’re also going to have additional promotional expenses at some of our equity investments next year, so that could hold down their results.
Q. And going back to the People Meter question, I don’t know if you could quantify , quote unquote, the impact of that issue. I mean, are advertisers knocking off a couple points, or is it just a matter of negotiating around the rate?
A. I guess there are a couple of things. We mentioned the issue on the younger skewing stations, but what’s uncertain right now is in those four markets where the People Meters are, those markets seem to be softer than the other markets.
So we’re not sure if advertisers are sort of playing a wait and see game, coming in late. But there are differences in the pacing that we see in those markets, both from our estimates of what the actual market is doing, as well as our own stations, versus the non-People Meter markets. So it’s a little bit difficult to say right now. The reaction in New York, LA, Chicago is very different than what happened in Boston two years ago.
Q. Are you underperforming your markets in New York, LA, Chicago?
Again, as we mentioned, those markets are soft. But LPM is having more impact on FOX, UPN, and WB than it would on the traditional affiliates. So in general, we are slightly underperforming in the rest of the stations, or the traditional affiliates in those markets. I would also say that there is a difference, market to market, and also day part to day part, in the impact of the LPM. So for us, it’s still a learning process to understand how this is going work long-term.
This is one of the reasons Pat and his group, are working so aggressively on Nielsen to get this right, to make sure the sample is correct. Because we would like to see, needless to say, an adjustment in some of these ratings. Because, it’s very different than the set meters we’re showing.
Christa Quarles, Thomas Weisel
Q. Could you give us the December classified category breakouts?
A. Help wanted, across the group was up 15 percent.
Auto was down about 8 percent. But a variety of outcomes by market, with some down more than others, and also please keep in mind where Christmas fell in the calendar. And the fact that it was on a weekend really impacted auto in the 12th period. Real estate was up 18 percent. Classified, in total, was up 4 percent.
Q. Could you quantify what entertainment advertising was down in the quarter, and then maybe more specifically, what it was down at the LA Times?
A. Entertainment is largely driven by movies, and it was down right around 10 percent in the fourth quarter and also period 12. As we’ve said, that’s largely been driven by the lackluster performance of a lot of the movies. Those studios are not staying with promoting a movie that is not a huge hit as long as they might have in past times.
We’re hoping this is a potential upside for us in ‘05, given that the studios had a very tough year. If they come back, our advertising will hopefully come back in that category, which is so important to the LA Times.
Q. Ad rate increases at your papers, could you discuss sort of what you ended up with for the year, and maybe quantify that at your top 3 papers? Thanks.
A. There’s really not a simple answer to that, because it’s very market and category specific. We’re getting some overall rate realization, certainly meaningful CPM increases. A lot depends on supply and demand, and categories, as well as our readership base. I’d say on average, we’ll see a modest increase in average ad rates and absolute terms in 2005.
Q. Have you gotten much pushback in any of your other markets other than New York, in terms of the rate increases, generally speaking?
A. Well, we go through the annual ritual, particularly with major advertisers, of working through on their revenue contracts, what’s the right balance there. And what I would tell you is, they’re all very cost conscious. They work hard in the negotiations. But this year has not been much different than prior years, in terms of how that dynamic’s gone. And we feel very good about the relationships, and believe that’s settling in about where we expected it to.
Doug Arthur, Morgan Stanley
Q. Update on the DOJ investigation of Newsday. How do you see that playing out?
A. We continue to cooperate fully. We are very hopeful on that front. We’re also in conversations with the SEC. Again, we have been, cooperating to the fullest. So we would like to see, needless to say, that come to a close as soon as possible. It’s just an area that we continue to work on. We don’t control the timing of that. But there’s really nothing new to report there.
Q. You bought back a ton of stock in 2004. Looking at your valuation, I would think you would want to actually step that up in ‘05. What are your plans there?
A. We will continue buybacks this year. This is something that we talk to our board about all the time, how best to return capital to our shareholders. We talk about dividends, stock buybacks and we’ll continue to do that. So we will be repurchasing stock, and we have authorization to do so.
James Goss, Barrington Research
Q. How are you looking at buybacks and dividends, versus acquisitions right now? And is there a perceived required debt rating level you want to maintain? Or might you even reduce the current debt rating to step up some of the buybacks and dividends?
A. As far as dividends versus acquisitions, we’ve got terrific financial flexibility. But we have been very disciplined on acquisitions. We will continue to be. As we said in December, given the current discount that we’re trading at, we have not been aggressive on this front. And we want to check off the areas of uncertainty to investors to earn back the premium that we had. And that’s the way we will look at acquisitions. It would have to be something that made total financial sense for us at this point. We’re working and focused internally.
We’ll look at small acquisitions that are complimentary to our existing businesses. As far as dividends, again, this is something that we’re evaluating, and that we talk to our board about at every one of our meetings.
Q. As part of the incremental subscriber services in the publishing area, are you considering increased video usage, possibly even from your television? Or even more of a link between the newspaper and website, TV websites?
A. We’ve seen really good demand on the Internet for photos. We do run some short video clips, and there’s interest, but we have not seen huge interest yet.
Certainly with the expansion of broadband, both at work and also particularly in the homes, we see long-term potential there. But it doesn’t seem to be something that consumers are highly interested in right now. As Dennis talked about, through our Subscriber Advantage program in Chicago, we do see potential to offer subscribers, whether it’s newspaper and online combined, or online only, special services beyond what we’ll offer to the broader audience for our Internet sites. And there’s potential to do that in the video area certainly, as well.
Michael Kupinski, A.G. Edwards & Sons
Q. It seems that LA and Chicago markets are pretty hot right now, especially for some other mediums. It seems like radio’s starting to see some pretty aggressive price increases. Are you seeing some benefit from the aggressive price increases from other mediums, or do you think it’s just the general lift in the market, particularly driven by classifieds, that is driving your LA and Chicago markets?
A. Those are trends that we’re not seeing right now, in TV anyway. And the aggressive radio rate increases are not something that we have seen in the market. You may have information that we’re missing at this point. And as you may have missed our comment on the People Meters, we’re not exactly sure what impact that’s having on advertiser spending, but we don’t see it as a positive right now. And our understanding of the market overall is the same.
Q. In terms of preprint revenues, they were up 8 percent, and that was a sequential decline, I guess, from the growth in the third quarter, particularly in LA. LA was up I think 27 percent, and the third quarter was up 17 percent, still pretty strong, but it looks like a sequential decline. I think in the past that you provided market share data. Do you believe that your current market share in LA is declining? I know that ADVO in Southern California has been a little bit stronger there of late. I was wondering if you can give me your current share in LA and Chicago?
A. We’ll get back to you on what we think our current share is. But what I can tell you is, you look at the year as a whole in the Los Angeles market, and we’re optimistic that our share overall, is up significantly, including with whatever ADVO is up to in that market. We’re confident we’re growing faster than they are.
Q. I know that on the basis of circulation in New York, you’ve had some issues, and help wanted I think was down for you in New York, if I’m correct. And I was just wondering, it seems like other papers are showing a little bit better numbers in New York in terms of help wanted, particularly. And I was just wondering, could there be any particular fallout from the circulation restatements there that might account for it? Or is it just maybe the target demographic for your paper, or is there any particular light that you can shed on that?
A. Not much light. What our impression is, is that the New York market as a whole has been one of the softer help wanted markets. And that Newsday’s experiences is part of that overall dynamic. Certainly, if you look at job creation data for the New York market, it is not one of the stronger ones by a lot.
Steven Barlow, Prudential Equity Group
Q. It sounded like you said the debt was going to remain flat year-over-year. But then you talked about your cash flow conversion rate in ‘04 was a little over 50 percent. Why would the debt level remain flat in ‘04, unless all you did was spend it on share repurchases?
A. For 2004, the share repurchases were $730 million. Dividends were $160 million. So that would eat up most of the free cash flow that we had there, so that’s why the debt stayed about the same.
Q. I’m sorry. I thought that it was mentioned that the debt level in ‘05 would remain the same as ‘04. Was that incorrect, then?
A. We’ve assumed that with dividends and share repurchases, and we’ve also modeled in some for acquisitions, that the debt would be flattish.
Q. You talked about compensation, and the corporate line going down a bit in the fourth quarter. What was the total amount of corporate compensation decline, in a dollar amount in 2004?
A. In terms of corporate compensation, it was actually down about $3 million for the full year of 2004.
Q. What is your newsprint assumption, when we try to look at the cost side?
A. As you know, newsprint producers have been working hard to raise prices. And what’s happened is that those increases have been both delayed and reduced. So there’s a dynamic here, where they have cut supply, but also demand across the industry has been down meaningfully. We budgeted conservatively, as have others, essentially assuming that newsprint prices on average for the year would be up high single or low double-digit percentages. But with a reduction in consumption, our newsprint expense in total shouldn’t be up any more than around where it was in 2004, which was 8 percent.
Q. Did you change your reserve or increase your reserve on Matthew Bender in the fourth quarter?
A. No, we did not, other than the accrued interest; there was a little bit of additional interest.
Edward Atorino, Fulcrum
Q. Did you mention what classified is doing in the first quarter? Did I miss that, help wanted, real estate, auto?
A. Again, it’s really early, but we’re seeing growth in help wanted. Auto is still down a little, year-over-year. And real estate continues to have healthy gains.
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