E W Scripps Co (SSP) 2002 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. The conference will begin momentarily. Ladies and gentlemen, thank you for standing by. Good morning and welcome to the E. W. Scripps Company's Second Quarter Earnings Release. At this time, all phone lines are muted or in a listen only mode; however, after the presentations today, there will be opportunities for questions and the instructions will be given at that time. Should you require assistance during today's earnings release, you may reach an AT&T operator by pressing zero, then star on your phone keypad. As a reminder, today's call is being recorded for replay purposes. We ask that you stand by at the conclusion of today's meeting to receive that replay information. With that being said, here with our opening remarks is Vice President of Investor Relations for the E. W. Scripps Company, Mr. Tim Stautberg. Please go ahead sir.

Good morning everyone and welcome. This morning, we are going to take about 15 minutes to hit some of the quarter's highlights and then we will open it up for your questions. Ken Lowe, our President and CEO, and Joe NeCastro, our new Chief Financial Officer, will lead the discussion this morning. Also on the call and available to field your questions are Rich Boehne, the company's Executive Vice President, Alan Horton and Steve Sullivan, from our Newspaper Division, Frank Gardner, who heads up Scripps Networks, John Lansing, who leads the Scripps Broadcast TV Group, and Lori Hickok, the company's new Controller. Let me remind you that if you have not received our second quarter earnings press release, please call Sara at 513-977-3719 and we will fax you a copy during the call.

Also, we offer a live audio web cast; if you would prefer to listen in on the web, go to scripps.com, click on Investor Relations and follow the live web cast link at the top of the page. An audio archive of the call will be available on scripps.com later today and we will leave it there for a few weeks so you can access it at your convenience. A replay also will be available by telephone from 2:00 this afternoon until Midnight Monday, by calling 800-475-6701. The international number is 320-365-3844. The access code for the replay is 643104. Our discussion this morning will contain certain forward-looking statements. Actual results may differ from those predicted. Some of the factors, which may cause results to differ are set forth in our publicly filed documents, including our 2001 Form 10-K, and the latest Form 10-Q. Now, here is Ken.

Thanks very much, Tim and good morning everyone. Let me start out by saying, as always, we do appreciate your interest in the E. W. Scripps Company and we think we have some pretty good news to share with you this morning. We are very encouraged by the company's performance during the second quarter. We saw improved operating results just about across the board, which suggests to us that for Scripps, recovery is well under way. Growth at Scripps Networks is accelerating. We have definitely turned the corner in Denver and business has stabilized at our other local newspapers and at our local broadcast television stations. The quarter finished on a particularly strong note when we saw solid top line improvement at most of our media businesses in June.

At Home and Garden, and Food Networks, we are well into the up-front advertising season and I have to see it is looking very good. We are not only seeing the return of advertisers who had re-trenched during the recession, but we are also getting a lot of new business. For example, the folks down in Knoxville are telling us that as much as 40 percent, 40 percent of the business that we are booking at Food is coming from advertisers who are new to the network. That really affirms for us that our decision to make expansion of these valuable businesses the company's number one priority. During the worst advertising recession in a generation, HGTV and Food continue to grow and now, they are in great position to capitalize on the improving economy. Remember, we molded these networks to be very efficient marketplaces for advertisers who want to reach motivated consumers. We deliver audiences and advertisers that value advertisers by consistently providing high-quality lifestyle programming that are entertaining and informative.

It is an audience that advertisers truly value. And we will be sticking to that formula and we will continue to build these valuable businesses. That includes, by the way, spending some more on consumer marketing as business accelerates to drive viewer-ship of our widely distributed networks, namely, HGTV and Food, and we will also be investing in our two newer brands, DIY - the Do It Yourself Network - and Fine Living, to add to programming and expand distribution. HGTV, Food and Fine Living programming can now be seen by millions of airline passengers thanks to long-term carriage agreements we have reached with Delta, United Airlines and US Airways. Scripps Networks programming is being shown on selected domestic and international flights and is regularly featured in in-flight magazines. The airline carriage deals are just a good example of how we are working to build these brands beyond just being cable networks.

Now, we remain committed to our belief that investing in these valuable and growing businesses is a wise use of the company's capital. Let us turn now to our 50-50 newspaper partnership in Denver, where we are beginning to see the kind of results we had hoped for when we decided to end the circulation war a couple of years ago. Second quarter operating income from Denver approached three million dollars compared to a four and one-half million dollar loss in the same year ago period. Now, that is a significant swing and evidence of emerging profitability in Denver, just 18 months after we merged the business operations of our Denver Rocky Mountain News and those of Media News Group's Denver Post. The improved results from Denver stem from the millions of dollars of expenses that have been taken out of the system and a very measured approach to bringing war-weary advertising rates in line with industry norms.

We now believe Scripps is in excellent position in Denver to share 50/50 in the profits of two great Metropolitan newspapers and one of the most attractive newspaper markets in the country. Now looking at the rest of our newspaper division, business in general appears to be stabilizing. Advertising revenues for the quarter were essentially flat to last year. We had a healthy boost in newspaper operating cash flow thanks to significantly lowered newsprint prices. Our newspapers continue to benefit from their favorable geography too.

Their location and stable midsize markets across the United States we believe helped insulate them somewhat from the worst of the recession. Now just a word about help wanted. Our newspapers continue to experience some weakness in this category. We thought all along that for our newspaper group, the decline in help wanted has largely been a function of the economic cycle rather than a loss of share to competitors. We believe help wanted will come back as the economy improves, but we aren't taking any chances. At all of our newspapers, we've established and trained help wanted ad sales teams that have the sole responsibility of strengthening established relationships with local employers and going after their business. We believe we're taking the right steps to protect our help wanted franchise very proactively.

Our broadcast television stations are experiencing trends similar to our newspaper group. Local television advertising has stabilized and we've had some bright spots worth noting in some of our individual markets. For example, WXYZ, our ABC affiliate in Detroit, reaped a very nice dividend from the Red Wings Stanley Cup Championships. We booked about a million dollars in Red Wing related ad revenues during the quarter in Detroit. It also should be noted though that our three NBC affiliates continue to outperform our six ABC affiliates thanks to the Peacock networks highly rated prime time programming. Top line growth at our ABC affiliates was about 1% during the quarter compared to 6% revenue growth at our NBC stations.

Now looking ahead to the rest of the year, our station group is expected to benefit from spirited political campaigns in Michigan and Florida. We're expecting about five million dollars in political advertising during the third quarter and about 18 million dollars in political advertising for the full year.

Now before I turn it over to Joe, let me just take a moment to talk about our decision to wind down our venture capital fund. We decided during the quarter to discontinue active management of Scripps Ventures after determining that it no longer fit the overall strategic focus of the company. Just to remind you, we created Scripps Ventures back in 1996 to invest an early stage internet and online commerce businesses and while it had its successes, we thought it best to get out of that business especially considering the current market environment. Now it's been at least 18 months since we invested any new money so we decided now is the best time to end it. We've conservatively written down the value of the remaining investments to what we believe is a very safe value and we'll continue to hold them until there is a good opportunity to liquidate.

That's a broad look at how the company's doing. As I said, we're very encouraged by the operating results year to date and it would appear barring any unforeseen circumstances, that the second half recovery we had anticipated is going to materialize. Now here's Joe to talk about the company's finances. Joe?

Thanks Ken. Good morning everyone. Now that Ken's taken a look at the company's operating performance, I'm going to spend just a couple of minutes on non-operating items and on the balance sheet and then we can get to your questions. Let's start by looking at the capital structure. A couple of weeks ago, we took advantage of an opportunity to secure some ten-year money at an attractive 5 3/4% interest rate. We issued $200 million dollars in new senior notes and we'll be using the proceeds to pay off $100 million dollar note due in October and pay down some of our commercial paper borrowings.

We're also deep into discussions with our bank group to come up with a successor agreement to the company's $675 million dollar revolving credit facility, which expires in December. We'll let you know when we finish those talks. At the end of June, the company's net debt stood at about $670 million dollars. Turning to CapEx briefly, we're still on track to spend about $80 million dollars this year with the bulk of that going to our newspaper division. We'll be spending about $22 million dollars to finish the new plant for the Knoxville News Sentinal. We expect to be moving folks into the new building by the end of the year and we should be entirely through the transition by early 2003.

Let's turn to the P & L just for a moment. Corporate expenses were up in the Quarter and in the six-month period. This is due to two factors. First, the number reflects the vesting of a portion of a long-term restricted stock agreement to our CEO, and secondly the 2002 number includes the accrual of performance bonuses, which we didn't need last year, but hope to pay out for 2002 performance. As for where we stand on FAS142, we've completed our review and determined that we won't need to take a charge this year for impairment of goodwill and any other intangible assets. As you know, company's are required under the new accounting rules to periodically review goodwill and intangibles and recognize any impairment in value. In exchange, we no longer are required to amortize those assets. As a reminder, through the first half of 2001 we had recorded $19 million dollars in amortization expense on these types of assets.

As Ken mentioned, during the Second Quarter we did write down the value of several investments the company has made through its venture capital fund. To provide a little perspective, Scripps ventures invested about $100 million dollars in a number of early stage internet companies since it was created in 1996. We've recouped about half of our total investments with the sale of some of those assets over time and we've written all but $4 million dollars of those investments that remain in the portfolio. Finally, let me quickly review our guidance for the Third Quarter. All of the company's fundamentals seem to be moving in the right direction, especially at our national cable television networks.

Scripps network's ad revenues are expected to be up by around 20% over the next three months. Newspaper revenues should be at least even with last year and with a boost from political campaigns, broadcast TV revenues should be up 12 - 15% in the quarter. Based on those forecasts, we're expecting Third Quarter income from core operations to be in the 55 - 60 cent range, compared with an adjusted 47 cents a year ago. Those estimates include about $9 million dollars in costs in the quarter to continue to build the DIY and Fine Living brands. We're on track to spend about $35 million dollars this year to develop those two newest networks. And, with that, that's a look at the numbers. We're ready to take your questions.

Very good. Thank you, sir. And ladies and gentlemen if you do have any questions or comments, as you just heard, we certainly invite them at this time. Simply press the "one" on your phone keypad. You'll hear a tone indicating that you've been placed in queue. Now, just as a note, you may remove yourself from the queue just by pressing the "pound" key. Once again, if there are questions or comments, please take this opportunity to queue up. Just press the "one" on your touchtone phone. And, representing Morgan Stanley, our first question comes from the line of Craig Huber. Please go ahead.

Good morning. I just want to talk about the Third Quarter. The guidance you provided. Do you think there's - I mean, how conservative do you guys think you're being here. I mean, obviously the trend has been the numbers have worked out that you guys were very conservative through March of this year for the Third Quarter here. And then my other question has to do with the distribution of your two main cable networks and how saturated do you think you're getting out there, I mean, in terms of how much more growth you can get on new cable systems?

Craig, you're speaking specifically of HGTV and food, right?

Yeah, that was the second question, yes.

Joe, why don't you take the third quarter and Frank you take the Scripps Networks question.

Craig, I'm sorry to, to just answer that specifically, I think we are being reasonably conservative. I don't think that we are out of the realm of possibility here, you know, other than that I'm not sure how deep you want me to go. We have looked at every line of business as we get deeper into the year obviously we feel better about where we are in the year. You'll notice that the second quarter we had a range of ten cents on the guidance and this quarter we're using a five-cent range. So that's an indication that we're a little more confident with where we are. So ...

I guess I'm really delving at your assumption of flat ad revenues in newspapers, while that would be great relative to your peers, you guys' numbers obviously have been trending better than your peers.

Well, we do lose one Sunday in the third quarter in the newspaper so that may account for the flatness then.

So that is incorporated in the flat number?

Yes.

Frank, on the distribution for ...

Yeah Craig, I think in terms of distribution HGTV right now is at about 78 million six, food's at 75 two and DIY's is at 11 four. We're approaching the upper end of the distribution universe or potential with HGTV and food and obviously we have a long way to go with the DIY and Living and plenty of room there. But I think that to get to what I suspect is the heart of the undertow of your question which is a good one about distribution saturation, as you know, you grow first in distribution and then the ad growth commensurate to that then kicks in. And that's what we're seeing with the recently concluded upfront negotiations.

I think the growth going forward will shift gradually from distribution to ad sales. And as the ad community and the clients grow to appreciate more keenly and they have just done in the last couple of months, the efficiency and the provision of the targeting that we deliver them, I think you will see us proportionately grow compared to some of the general interest cable networks. And so I think our growth picture is by no means thwarted or hindered at any way by the fact that our distribution is reaching the upper end of the spectrum with our two networks because it's at this point now when the ad sales efficiency that targeting delivers really starts to kick in and we've seen that in spades in the recent upfront negotiations.

Great. Thank you.

And thank you Mr. Huber. Next we go to the line of Michael Kopinski with A. G. Edwards and Sons. Please go ahead.

Thanks and congratulations on a quarter, I know it has been a difficult environment and you're team has done a great job. Just wanted to ask first of all you stated in your press release that you are seeing fairly broad advertising categories coming back and I was just wondering if you could highlight a few of those specifically if they are in the cable network business versus television and then secondly in the cable network business last year I recall that you may have cut a little bit of your promotional spending in the second half of last year given the weak advertising environment and I was just wondering if you can remind me of what level that promotional spending is going to continue in the second half of this year, if it's going to be up significantly from last year or if we are going to look for continue revenue improvement, if we're going to look for some pretty strong cash-flow numbers coming out of that division in the second half as well.

OK Mike, first off, thanks for the compliment. It does underscore, I think, the hard work that all the divisions have put in to come up with this kind of quarter. Let us just quickly bounce among the divisions, as far as ad categories coming back. Al and Steve, you start with papers. John, you might just top line TV. Frank, on the cable side. And the second part of the question, Mike, I think just needs one footnote and that is a lot of cable networks and broadcasts pulled back on some marketing budgets and advertising expenditures last year, including us, and Frank can talk a little bit and maybe Rich also about the second half of the year and one of the things that we are looking at. But, let us start out on the ad category side with Alan.

Thank you Ken you would expect. The economy, as we said, in the release, things have stabilized, so some categories are up and some are down, but overall, it looks better than it has. Two points: let me just take the local advertising first. Entertainment and amusement, which is a category that we combine several categories to create that one, was up in the quarter 11.4 percent. That is a very large increase for that category. That category says a lot about how people are feeling too. Maybe, it says, among other things, we are not traveling as much and they are spending more of their vacations at home; I do not know, but it also says that they do feel like they have free dollars to spend on entertainment.

The second thing that I wanted to point out is how strong automotive and real estate continue to be. We are still showing, against very tough comps last year, we are still showing increases in those two classified categories, which are helping to overcome help wanted, which as you know, has been down in this big double digits, and for us, in the third quarter or second quarter - excuse me - help wanted was down only 11.1 percent. I say only because that is a big change from what we have seen. And then, if you look at June directly, there were a number of categories in June that were - and I am not going to list them all; there were a whole bunch of them - a whole lot of categories were stronger than they have been until June. A part of that is we had an extra Sunday in June, but even without that, we had a strong June. We look at the delta, how much additional ad revenue we get this quarter versus last and last before the one... over the one before that and when you look at those deltas, the second quarter had a larger delta than we have seen for a while, which indicates that we are seeing a little more strength than we have seen. I hope that answers your question; that is probably more than you need.

John, how about on the TV side?

Yeah, thanks Ken. I can actually echo one of the categories Alan spoke of, Travel and Leisure, we are seeing an increase of nine percent quarter to quarter and again, a lot of this is the regional kind of travel advertising, people sticking close to home and advertisers taking advantage of that. Communications is up for the quarter five percent, but really the headline for us is Automotive, obviously, our top category, is beginning to show some signs of strength. For the quarter, it is up two percent, but for the month of June, it is up five percent. And in our strongest stations and in our biggest markets, we are seeing our best returns year over year. For instance, in Detroit, it is just under $900,000 better than it was in the quarter last year.

We continue to have some ABC ratings issues that affect this category in places, such as Phoenix, which offset the gains. If you were to negate that, the gain would be probably closer to seven to ten percent in automotive. The down categories for us retain continues to show a softness and grocery stores a significant softness for us. But overall we're optimistic and particularly on the automotive with the introduction of new incentive programs by General Motors and the other competitors, we anticipate that the strength in the category will continue in the third quarter.

Frank?

I think in terms of categories, Michael, the story with Scripps Networks is that there is no one particular headline story with categories, it's sort of across the board happily. The second quarter scatter market was almost twice what it was for 2001. Just for example for the food network, the third quarter, one of the remarkable aspects of the third quarter scatter for example the food network is the really remarkable increased volume per order. That really is more of a key issue for us than any particular standout category. The average revenue per order for business booked in June was really record breaking for us. I don't want to give you the specific number, but it was a very healthy number. And the other issue for us is the healthy CPM increases that are coming about by a larger and larger percentage of the advertising world recognizing the value of targeting and precision delivery.

Our CPM increases contrary to what you're reading about a lot and lots and lots of the general interest networks which are flat to down, ours were significantly up let me just way. I don't want to be specific because there is a lot of business still being negotiated and a lot of business still being done. So I think the story is one of really being across the board as opposed to a particular category and as far as you mentioned marketing money, I think you'll see us continue to invest in programming and distribution and try to be smart about it and keep it in parallel to our result. But I think you can expect us to spend some more marketing dollars in the back half of the year because every time we do it, we see a good return on it. But the additional marketing and programming money that we may spend in the second quarter is contemplated in the guidance that was given to you earlier.

Can you give us an idea how much of inventory you plan to sell in the upfront? I know last year you didn't sell quite as much as you had in the past, but you do have a couple of big advertiser that do take up a lot of the inventory. Could you just give us a little bit of ...

Well that's a very sensitive issue. We don't like to be too public about how much runway we've left for ourselves. But it was, let me just say it was a healthy percentage.

OK. Thank you very much.

Thanks Mike.

And thank you Mr. Kopinski. Next we'll go to the line of Steven Barlow with Prudential Securities. Please go ahead.

Thanks. Look at the investment area with all the write-downs. In previous years you had all sorts of accruals and I don't know whether or not any money was actually paid out to these managers, but I'm curious whether actual money went out the door and that you guys had to then write all these things off. Secondly, going back to Huber's question on revenue and newspapers, yeah you have an extra Sunday, but you had the attacks and less advertising in the last half of September with June being up 5.8% to me it doesn't quite jive that you're not going to have up revenues in newspapers at this point. And then lastly TV up revenues down operating profit, you've been cutting costs there for three years in terms of the number of bodies. Why wasn't that profit up in the second quarter? Thanks.

All right Steven. Joe, do you want to take the first part of the question regarding accruals and the write-downs?

Right. Steve, there were, as you recall correctly, some accruals made related to performance on those venture funds. At one point, the funds were in very positive territory and we had an accrual on the books. Obviously, that didn't work out that way in the long run, so those accruals were reversed and we never paid out anything based on performance. There is some what I call breakage being paid out at the end related to the wind down and the termination of certain people related to their ventures activities, so. That's the only amount that was ever paid out.

Alan, on the newspaper and lack of revenue increase.

Well, Steve, let me just be clear. I mean, obviously we hope that you're correct. But, we're looking across the board, market by market, and if you look how we did in the Second Quarter, the revenue was essentially flat, just down a hair, bad revenue. We're projecting to be up a little bit in the Third Quarter, but not a whole lot, and it's just a continuation, a slow continuation of the same trend. I mean, we're not seeing - we're not seeing a huge bounce. But, on the other hand, we're seeing continued slight improvement overall and so, yeah, we'd like you to be correct, but we're trying to be as honest as we can be knowing what we know today.

John and Steven, thank you for noting that John Lansing improved on a good job of bringing down expenses year to year for the past three years on the TV side. John, you want to address the issue on the quarterly numbers on revenue versus profit?

Yes, thanks Ken. Steven, the story for the quarter for us would begin with our Redwings coverage where our variance on the expense side to last year - a third of that variance are expenses related to the extra coverage in following the Redwings, but it was associated with a Million 2 of revenue and had a margin of 63%. So, we felt like that was our expenses that were well spent. In terms of our overall expense line, it's important to note that our headcount is flat and our employee salary line is in line with our expectations. The one variable that is pushing us further north this quarter, and will be for the year, are the increases in employee benefits, including the increase in medical expense.

But, in terms of managing the actual headcount, we are flat, but in reality are keeping several positions open throughout the year and trying to keep that line managed. So, considering the impact of Redwings coverage, the impact also in Arizona, coverage of the fires, which was unexpected, and the known increase in employee benefits, we feel like we're where we want to be this quarter, although we certainly want to be in the positive operating profit range, versus last year. We felt like going after the revenue the way we did was really worth the expense that went along with it.

Thanks very much guys.

Thanks Steven.

And thank you Mr. .

Representing Bear Stearns, our next question comes from the line of Kevin . Please go ahead.

It's not going to be one question. Just a few, though. I was wondering if you guys could review your Adelphia exposure, your reserves right now, including those taken in Q2 and if further reserves are necessary? Secondly, it would seem like, perhaps, even you were surprised 80 percent gain in affiliate fees in June. Was there something one-time there and why are we going back to just 35 percent up in Q3. And then third, sticking with the cable networks, you know, this up-front looked like it was going to be done two weeks ago. Can you provide us a little bit more color on up-front and why the delay?

Sure Kevin. Joe, why do not you and Lori go ahead and jump on the Adelphia situation and affiliate fees, both in the quarter, June and looking to third quarter, and then Frank, you tackle the up-front question.

OK, Kevin, on Adelphia, we are through June 30, effectively 100 percent reserved against any balances that were due prior to that time. Obviously, they filed. We are not concerned, as concerned going forward. The charge we took in the second quarter related to getting us up to 100 percent was about two and one-half million dollars, and that is included in the numbers here. With respect to affiliate fees - let me handle that one quickly - and if we have any color on that, Lori can add, but basically, as part of our FAS142 review, we did look at some of the assets on the books, including those related to these affiliate fees. We found that we had a change in estimate related to the lives of some of the agreements, which had been extended, and we were effectively amortizing too quickly, so that as you extend that, it actually provides a revenue benefit in the quarter to the tune of just about a million and one-half dollars. So, part of that 80 percent is related to this change in estimate from our FAS142 work. Beyond that, the rest is real growth.

Frank, on wrapping up the up-front?

Well, the up-front was just a long dragged out affair and a lot of the niche networks were at the end of the parade, just from a timing standpoint, in terms of them getting to us. But, we are very happy with the overall results of the up-front, both in terms of adding new business - and you have already heard those numbers - and in terms of increasing our CPM's. I do not know... you said you wanted color on the up-front. I think that the bottom line was that CMR is saying that, you know, things are very flat in the national cable market. Our second quarter finished up six percent over last year and from a pure ad sales, but CMR's early indication was that the second quarter national cable market, as I said, was flat. So, we are sort of going against the trend and we are going against the tenor of what you are reading as it relates to the big, fully distributed general interest national networks that are doing lots and lots of big umbrella, cross media deals that are quite frankly, for some very what we think is very cheap money.

We are not doing those kinds of deals because the whole nature of a lot of these cross media deals that you are reading about with the big national networks, the big general interest networks, goes against the very nature of what our whole business model is about, which is targeting and efficiency and high cost per cash register ring delivery for the advertiser. The second quarter scatter market was almost twice what it was in 2001 and I am mentioning scatter in the backdrop against the discussion about up-front because you sort of have to take them together to see what is really going on. And keep in mind that the hole that we were filling in the scatter market was a 25% down hole from last year. It was just last year was catastrophic for everybody. So we're quite happy with not only where second quarter and third quarter scatter are turning out, but in terms of the increases that we're getting with our cost per points and our new business with the upfront and we're quite optimistic and I repeat again that remarkable increase in the volume per order issue which we experienced for the first time this year.

Frank, you're talking about the cable upfront in the past tense, so could you just give us an idea roughly of where the CPM's came in relative to last year and maybe for home and garden and food what the change in total upfront was?

Yeah. It's not smart business for us to be banding about in public with great specificity what our CPM's are, but suffice it to say that the advertisers' acknowledgment that targeting your audiences really works, we're therefore up in healthy numbers in our CPM's and there is just a significant gap between what our CPM's are and what the general interest networks are getting and so what you're reading about the overall tenor of the network business is in rarely dramatic contrast to what we're experiencing. But we're a nitch that not only, and this is of real significant importance, we're not just a nitch, everybody throws that phrase around with a fairly high degree of recklessness. We're nitch not only in terms of specifically attracting a nitch audience, but parallel nitch advertisers. There are some nitch networks and this is really important, there are some nitch networks that are generally regarded and referred to as nitch targeted, but if I say quick you tell me which are their advertisers, their most logical advertisers. You would have a hard time figuring out what those are. We're different because when we say that in regard to our targeting, you know instantly who our target advertisers are. And so it's the difference between that kind of targeting, not only targeting audiences but targeting advertisers that are in parallel that is what characterizes the big difference between us and the others and you're seeing that in the increase in CPM's that we're experiencing versus those who are not so targeted to specific advertisers.

Thank you.

Thanks Kevin.

And thank you sir. Next we'll go to the line of George Smith with Davenport and Company. Please go ahead.

Hey guys, I'm wondering in regards to the JOA, I mean, it looks as though, I mean, you exceeded at least our expectations on that front and I'm wondering have we reached a new plateau there and are we going to see the numbers continue to be this strong going forward?

Alan, you want to take that particular question?

Well, obviously we're going to see numbers continue to improve. I don't think we'll see quite as much improvement in the immediate term as we have because we've cycled on some of the costs that were taken out last year and we will be cycling on some of the rate increases that we got later of last year. So the bottom line is we're going to continue to see improvement there. We definitely turned the corner. We are very pleased with where they are. We don't see any new hurtles ahead in Denver. As you know, we've overcome a few. And quite frankly, a lot of it depends on what happens in the marketplace. Denver's just been hit with a fair number of major corporate announcements. You've heard them all. There are layoffs associated with some of those announcements that affect the community. Some of the real estate market is not strong. They've been hit with these fires that have affected people. They've got water shortages. Overall, the market's strong, but right now undergoing a fair amount of stress and it remains to be seen how much all of that will affect consumer confidence in Denver and, therefore, retail sales and so on. So far the real estate market continues to be strong. The automotive market continues to be strong. We're picking up a lot of ground in retail advertising. We still have the employment issue and obviously the marketplace affects that employment issue. So, that's about as well as I can do in a quick summary.

That answer, George?

Would you say it's safe to say, or fair to say, that you can again come close to $3 million in the third and fourth quarters?

It just looks as though, again, from my perspective the numbers were so much stronger than expected and I'm wondering again if that's going to spill into Q3 and Q4.

I'm looking at the delta between what we did last year and what we're going to do this year in any given period. Obviously, we saw a very large delta in the Second Quarter. It will not be so large in the third and the fourth quarters this year.

George, suffice it to say that we - to underscore what Alan said - we're very pleased that, you know, being able to carve out the expenses that we've been able to out there and to stabilize the advertising rates and increase them. All this is encouraging at this point and I think Alan has touched on some of the issues that still concern us a bit, but it's certainly nice to be in this position with the JOA about eighteen months in.

OK. Thank you very much.

Sure.

And thank you, Mr. Smith. Merrill Lynch's has our next question. Please go ahead.

Hi, good morning. First of all, I wonder if you could comment on newsprint pricing trends in the Second Quarter. What do you think? Sorry, second half. Whether you think the August increase will go through and second, I wonder if you can comment on the advertising revenue performance in Denver in the Second Quarter as far as percentage decline.

Go ahead Alan.

Let me try to take the newsprint question first and Joe may want to add a little to this. Frankly, we're a little surprised on the one hand that the newsprint manufacturers are pushing for an August increase in newsprint. We think it's a little soon based on the demand for newsprint that exists in the marketplace. We certainly understand, and did expect, that there would be a late summer increase. We kind of thought more like September, but, so we think the manufacturers are going to get a fair amount of pushback from newspaper companies based on the demands - supply and demand curve. As far as the Denver advertising revenue - advertising performance in the second quarter, local revenue, which is retail, was up 16%. National was up 1%, which is, by the way, outperforming the rest of the newspaper industry at the moment. Classified revenue in spite of a 32% below last year performance and employment, classified revenue was only down 2%. There was strong 18% growth in auto revenue and a 16% growth in real estate, so their advertising performance really was quite remarkable against what the industry is reporting.

And I assume the increases were driven more by rates than by volume. Is that correct?

You're correct, although we saw a fair amount of volume increase in some categories over what we budgeted.

Great thank you.

Thanks Carl.

And thank you Mr. . We will go to the line of William now, with Credit Suisse First Boston. Please go ahead.

Thanks a lot. Just two questions. One is on the cable network affiliate fees, how much of that is volume-driven versus any price percent increases that you are getting and that is more of a forward-looking question, as well. As you go into next year and, you know, the net sub ads start to plateau probably a little bit, will you be able to get increased pricing, you know, per month per sub? That is number one. And then, number two, do you have any guess as far as a time line to returning back to some sort of flat, if not positive growth number in help wanted advertising? Can that happen, based on the trends you are seeing, some time before the end of this year? Thanks.

OK. Thanks Bill. Joe, Lori, do you want to take the first part of the question on the cable affiliate fees and Alan and Steve on help wanted?

Bill, the best way to answer the volume effect is to look at basically, the distribution difference. In the release, we talked about the subscriber growth, that of HGTV being about 11.5 percent year on year and then Food at 24.7, so the balance would have to be, you know, take out the accounting change we talked about. The remaining growth would be a combination of these numbers and then rate.

Hey Bill, it is Rich. You know, over the long term, you do have a fairly significant lag in sub cues because you have brought along an awful lot of these subs recently at the bottom of the rate card. So, you know, that will continue to vest over the long term. So even when you hit 80 million or whatever, you have quite a long runway still ahead of you on the fee side.

Yeah, especially Rich, you might mention on the Food side in particular.

Yeah, in Food, you still have a significant number of subs that were under the ten-year free deal; that expires in 2004, so we are working through the deals now that bring some of those subscribers onto the rate card for the first time. So, all of that is still out there ahead of us.

Bill, on the recruitment advertising question, classified employment revenues for us in June actually ended up two percent over last year. So, now June had an extra Sunday, but to be up - extra Sunday or not - was very encouraging. And again, as I said, for the quarter, we were only down 11 percent versus last year. We are beginning to cycle on a lot of the employment problem. A number of our markets were up. For example, I will just mention one - Evansville jumped 21 percent in employment revenue in June over June a year ago. We have... there are several others, one other that had a double-digit increase and a couple that had big high single-digit increases in June.

So, it is not to say we are out of the woods, but we have cycled on the worst of the downs and we are beginning to show recovery and remember, most recruitment dollars are local, especially at mid size and smaller newspapers. And the papers that continue to be adversely impacted are the very large papers in the metro markets that are not getting the national recruitment dollars and the regional recruitment dollars that they used to get. Now, some of that is beginning to come back in some parts of the country and we're working hard at it and as Ken said in the beginning, we've got more effort devoted to this category than any other category right now across the board, online and print. And I think we're going to start showing some results from all of that.

Not to get too granular on it, but on that plus two for June, if you tried to adjust that the extra Sunday, it would probably have been down mid to high single digit but definitely better than that 11% that you said for the quarter. Would that a right way to think about it?

Absolutely right. It would be just barely down actually.

OK. All right. That's great. Thank you very much.

Thanks Bill.

And thank you sir. Ladies and gentlemen, if there are additional questions or comments, please queue up, just press the one on your touchtone phone and with a follow-up question we go to Craig Huber once again with Morgan Stanley. Please go ahead.

Yes, hi, just quickly if you could just comment as you look out here for the ratings for ABC as a network, I mean, just curious how optimistic you might be on that frontal as to how it pertains obviously to your own ABC stations at this stage as you look out versus where you were a year ago. And then a second question, could you just touch on ad rates for help wanted at your main papers and just what you've done with the rates here for this year and also have you had to step up any extra discounting or what have you in the help wanted front to help drive ? Thanks.

All right Craig. John, ABC?

Sure, thanks Ken. Craig, I just got back from an ABC meeting yesterday and I can tell you that we do feel some modest hope that we certainly have bottomed out on that side. For instance in May the May we've just, the rating period we've just completed, ABC prime time for our six stations was down 17% in households and down 15% in adult demos from the prior May which was as you know the worst that they had experienced to date. And so as we went to the meeting yesterday, it was a full affiliate meeting, we had a chance to hear from all of the brass at ABC including a presentation from Susan Line on an update post the upfront programming update and I will tell you that although nobody's jumping up and down about it, we certainly feel like they're taking a smart approach returning to the family hour eight to nine they do have some fairly attractive sitcoms that attracted an unusually, which I think surprised them, pretty good results in the upfront.

ABC News shows some strength particularly with Good Morning America, but for us of course the big question is the news lead-in. I think the move of prime time, 20/20 back to Friday at ten and PrimeTime Live back to Thursday at ten is a positive, particularly in the times we're in right now, I think having two built in news oriented lead ins on the back of a strong news division is potentially very positive. Also I think Monday night football with John Madden joining that team is clearly the best move they've made there in several years and the return of NYPD Blue to ten o'clock on Tuesday. Well we may all remember that's where we're used to seeing it, it actually has not been in that time period in the fall for four years and so with The Practice on Sunday night having softened somewhat, but still a very strong hit program. My feeling coming out of there was optimistic in a guarded way.

Alan, on the rates for help wanted.

Craig, a couple of points I'd like to make on that. The first is if you look at the overall classified volume increase, overall classified, that's not just help wanted, we showed a 7.7% gain in June year over year. The revenue was up 6.8%. The volume's up 7.7%, so as you can see we sacrificed a little rate. But, we're all on classified. What we are sacrificing much rate in real estate and automotive, so what rate we did sacrifice was employment. But, let me explain that a little. If you get less national employment, that's where the high rate is.

And, if your employment inches are more local and less national, you're going to be sacrificing a little rate because of the mix. That doesn't mean we cut our rates. It means that the mix of the kind of business we got was different. But, I will say this just to add a little color. We have had some programs where we said to employers, particularly national employers and agencies, we've said, "look, we'll give you two Sundays for the price of one" or "we'll give you two Sundays for the price of one and a half." We have said, in some markets, "if you buy Sunday, we'll run it on another day or two during the week." So, we've done some of that and that has the impact of reducing rate a little bit, but it also gives them more bang for their buck and their hurting just like the rest of us have been and we want them to continue to look at us as partners. So, that's, in general, what's been happening. I hope that helps.

Can you also maybe just touch on the Cincinnati market and what is doing in that market? Thanks.

Well, I think you've all heard what they're doing. They've launched a program called Job Match here in Cincinnati against the JOA here in Cincinnati, which, as you know, is part Scripps, but run by Gannett, and, in my opinion, the JOA is holding its own and then some. If you look at the total number of resumes, if you look at any measure that you would measure how the two are doing, you would have to say that the JOA is more than holding its own so far. Now, obviously, this is not a short-term battle. This is a battle that will continue for a while and the joint operating agreement here in Cincinnati and Gannett are absolutely committed to winning this battle and we're going to do anything we can to help them and so is everybody else. So, we think they're doing a marvelous job showing the industry how to take on Monster in the local market.

Thank you, . That was a good .

Thanks .

And thank you Mr. . With five participants in queue, next we go to Solomon Smith Barney's William . Please go ahead.

Thanks a lot. Ken, I was wondering at this stage what percentage of food subs are your earning affiliate fees on?

Tim, help me. If we released that number I...

Yeah, Ken...

It's about 20%, is it not?

Well, we've got about under $50 million - maybe $45 - $50 million are not on a rate card of the $75.

Yeah. The difficulty, Bill, in getting to that is it's a blended rate because obviously none of the cable MSO's that initially launched this network and subsequently added before we acquired were required to pay rates, although on the direct home and Direct TV we were able to negotiate a different rate card. So, there's a blended rate coming in here, but I think right now on the record we're saying about 20%.

OK. Great. Thanks.

And, thank you Mr. . We do have a follow-up question from Kevin once again with Bear Stearns. Please go ahead.

OK. Thanks. I was wondering if you could comment on for the newspaper group the non-newsprint cash cost increase for the quarter? At the Rocky, your costs, cash costs are up five to six percent in the quarter. Is that something that will persist? What is driving that? And finally, given your commentary regarding political advertising and TV, that would point to fourth quarter political advertising of just about $12 million, which compares to $20.7 million in the Q4 of 2000. Now understanding 2000 is a , I can see maybe a little bit of conservative from there, but I am missing that is going to drop your political advertising so much in Q4?

Alan, do you want to take the first part of Kevin's question?

Yeah, let me... the cash expenses, excluding newsprint and ink is what you asked for, Kevin? We are up 3.5 percent in the second quarter and obviously, we are continuing to control the things that do not have a bearing on future revenue opportunities. FTE's are down substantially. In fact, they are down 140 roughly from a year ago and 335 from two years ago. We are spending money to grow readership and circulation in key markets where we need to, to protect future revenue streams.

We are spending money on our marketing efforts to go after the help wanted dollars and we have a fair number of other similar initiatives under way in several different advertising categories, and we are spending newsprint on news hole to improve our editorial products in markets where we absolutely have to show circulation and readership gains. But the answer on the Rocky Mountain News question is that you said it was plus six percent at the Rocky Mountain News?

I do not know how you got that math; I think it is not quite right, but let me just say this. We had some major fires in Colorado in the last quarter. We installed a new front-end publishing and pagination system. It required a fair amount of overtime and we have made a couple of hires that required some relocation costs and so on. It is a... the costs are very much under control at the Rocky Mountain News and will continue to be, but we are going to do what we have to, to put out the best paper we possibly can, including the best paper in Denver.

Something else, Kevin, you have got to factor in, is the substantial increase we have had in insert, both local and national, and the distribution center FTE's that go along with them.

That does not have anything to do with Denver; he is just talking about editorial costs.

No, he is talking about the non newsprint costs. First of all, that influences our costs.

John, on the political, specifically, fourth quarter and the comps into 2000?

Whether it is conservative or a little aggressive at this point, I would say we are right in the middle. When you compare it to 2000, one thing that you have to remember is aside from the obvious fact it was a presidential election year, Michigan was one of the key contested states of that fourth quarter. In fact, at WXYZ, in 2000 alone, at that single station, we put $10 million of political revenue on, which was twice the amount that we had ever seen at that station. It was just an unusual amount of political revenue and the year 2000 far surpasses any other political year we have had by a stretch.

As we are looking right now at the landscape and again, a fair question - how do we feel about the projection? We do see another very, very aggressive year albeit a midterm year in Michigan with a contested governor's race both in the primary and general course and congressional seats. A big question mark for us is Florida with Governor Bush and Janet Reno. There is money being raised on the Bush side, not all that much on the Reno side and in fact a competitor, a challenger to Reno has emerged on the Democratic side that could in fact bring some money to the table. So we are guardedly optimistic that Florida will be a significant state for us in terms of political revenue. We're seeing a little bit out of Maryland with Kathleen Kennedy Townsend being in the race there and being challenged and the Kennedy machine behind her.

The potential for issue advertising in Arizona is something we have a close eye on although nothing has emerged to date and as you may know last, two years ago in 2000 Arizona, there was really virtually no political advertising on the national front.

And in Ohio where we had very aggressive spending in 2000, we have a governor's race this year with very little being spent. It's a race where the challenger but really no, the outcome is really not in doubt. So the reality is we're comparing a midterm to a general election. A general election in 2000 where we had an extraordinary revenue performance in a couple of places to a midterm election this year with really right now as I sit here the only thing I know for sure is that Michigan will be big.

Hope it helps Kevin.

Absolutely. Thank you.

Sure.

And we have a question now from the line of Jim Harris with (Bizlett) Partners. Please go ahead.

Hi. Could you comment on how you might expect to be affected by the new more robust Comcast footprint?

Sure Jim. Right now we're hoping in a positive way for a couple of reasons. Number one, we have long-term deals with both Comcast and AT & T and we will be participating in Comcast VOD test in Philadelphia, which we think bodes well for continuing good relationships with what will be the new Comcast/AT&T. So because we've got some long-term deals in place Jim, we've always had a good relationship with Comcast dating back of course to the fact that we spun off our cable systems to them, the Roberts family and Scripps continue to see eye to eye on a lot of issues. So nothing really on the horizon, continuing conversations on all fronts including the launches of our new cable networks , fine living, where negotiations are moving along. So I don't want to say we're not concerned over the long-term, but for the immediate future because our thinking of Comcast quite possibly will run those AT&T systems a little better.

OK. Thanks.

And thank you Mr. Harris. We have a follow-up question from Michael Kopinski once again with A. G. Edwards and Sons. Please go ahead.

Thanks. I just have a quick question on the newspaper revenue category, in terms of total revenues, what is auto, real estate and help wanted account as a percent, if I were to estimate that auto's were roughly 13, 14% of total revenues, real estate about eight and help wanted about eight percent, would I be right? I suppose that the decline in help wanted, is that the smaller category now in terms of total revenues?

Alan?

I don't know the answer to that, Michael. We are going to have to take a calculator to some of that, so Steve, do you want to take a crack at a little of it?

Yeah if you, you looking specifically at Automotive Help Wanted combined, are you... as a percentage of our total ?

I am just looking in terms of the categories of what the contributions are to total revenues?

Not just advertising revenue, but total revenue?

Total advertising revenue, not circulation, just advertising.

We are going to have to take a calculator to that.

We could get you that information.

Could I call you back, Michael?

That would be great, thank you.

.

One thing you said is right and that is that help wanted is a lower percentage of the total than it was, obviously, and therefore, classified is a lower percentage of the total than it was, and you remember, a couple of years ago, we were talking in the industry of classified reaching some companies 50 percent of the total advertising revenue and that was because of the boom in help wanted at the time. Well, you are going to see that being well away from that breakdown.

Tim will get back to you on that one, Michael.

OK, thank you.

Sure.

We have a follow-up question now from William Drury, with Credit Suisse. Please go ahead.

Thanks. Just for Alan. Help wanted revenue on line, what you are getting out of your local web sites; does that amount to, you know, anything at this point, and if it does, is that any kind of significant percent of total help wanted revenue?

.

Well, Bill, let me give you another hedge. To be honest with you, I have not got it broken down in front of me right now, how much of the total revenue we are getting on line. Most of, a very large portion, the great majority of our on line revenue is for classified up sales.

Yeah.

Obviously, roughly the same percentage that our help wanted is of total classified would be the same percentage it would be of the classified portion of on line. So, my guess is it is something like 20 to 30 percent of our on line revenue is help wanted, but it might be 15. We will get a number and get back to you.

OK great.

And obviously, that is going to increase substantially over time because of all of the initiatives we have under way.

Sure. And final point, for whatever, or question, rather. For whatever rate that you are giving up, which seems like a smart thing, if you can drive revenue growth in this environment, in help wanted, would you not expect to get that back over the course of the cycle, that rate give-up if the, you know, job market tightens again, as one would hope it should.

Let me just repeat, Bill, what I said a few minutes ago and that is it will depend on the mix of business and, you know, over time, if you look at all of the projections and we have made a great study of this, if you look at the kinds of jobs that are going to be created over the next eight or ten years, you are going to see a higher mix of jobs that are going to be created in the local marketplace that are service-related jobs. A smaller percentage of the jobs overall that are created, the new jobs that are created will be the high-tech, the upper end jobs and as a result of that trend, the mix will be a little different in the future than it has been in the last few years. Now, over time, it will even out, but at least for the next five, six or seven years, I would expect the mix to be more local revenue and less national and that is for whatever advertising vehicle might handle this revenue. That's why Monster's trying so hard to get into the local marketplace.

Right.

OK. Thanks very much.

Thanks, Bill.

And thank you sir.

Now, ladies and gentlemen before we conclude for today, are there any additional questions or comments? And in a few moments, Mr. Lowe and our host panel, we have no further questions. Please continue.

OK, Tim. Go ahead.

Yeah, just if anybody has any questions after the call, please call me at (513) 977-3826 and have a great afternoon. Thank you.

And, ladies and gentlemen, your host is making today's conference available for digitized replay once again for four days starting at 2:30 PM Eastern Daylight Time July 11th through 11:59 PM July 15th. You may access AT &T's Executive Replay Service by dialing (800) 475-6701. At the voice prompt, enter today's conference ID of 643104. International participants please dial (320) 365-3844, again with the conference ID of 643104. And, that does conclude our Earnings Release for this quarter. Thank you very much for your participation, as well as for using AT & T's Executive Conference Service. You may now disconnect.