Tribune Co. earnings dip 33% in 3rd quarter

$55 million charge taken in circulation scandal

October 29, 2004|By James P. Miller | James P. Miller,CHICAGO TRIBUNE

Tribune Co.'s third-quarter earnings tumbled 33 percent, dragged down by a $55 million charge linked to a circulation scandal at two of the media company's newspapers.

The period that ended Sept. 30 "was a challenging quarter for the company," said Dennis FitzSimons, chairman, chief executive and president, citing what he characterized as "an uneven economy and soft advertising environment."

Tribune also announced yesterday that in-house audits initiated after a scandal this summer involving inflated circulation numbers at two other Tribune publications found no additional misstatements beyond those already disclosed.

Tribune, which owns 14 newspapers including The Sun and 26 television stations, reported net income of $121.6 million, or 37 cents a diluted share, down sharply from the year-earlier quarter's $182.3 million, or 53 cents a share. Tribune's revenue inched up 2 percent, to $1.41 billion from $1.38 billion.

As Tribune executives previously had warned investors to expect, the company's latest results were marred by a pretax $55 million charge to help fund still-pending settlements.

During the summer, Tribune disclosed that an internal investigation had discovered that its Newsday newspaper on Long Island, N.Y., and its Spanish-language Hoy publication in New York had substantially overstated their circulations. Because newspapers charge their advertisers based on how many readers the ads reach, such misstatements have the effect of cheating advertisers.

For Tribune, it has been not only an embarrassing episode, but also a costly one. In the second quarter, the company set aside $35 million to settle claims from Newsday and Hoy advertisers. Subsequently, officials decided to add $55 million to the reserve, taking the charge in the third quarter.

FitzSimons, sounding a cautious note, said yesterday that the company "will continue to evaluate the adequacy" of the $90 million set-aside. But he also said the company had completed in-house circulation audits and found "no evidence" of further misstatements like those at Newsday and Hoy.

Tribune's latest results were also skewed by nonoperating items, primarily the quarterly adjustment of the accounting value of certain hybrid securities. Excluding the big charge and the other special items, Tribune's operating earnings were 51 cents a share, up from 48 cents a year ago. That performance topped analyst expectations by a penny.

Tribune shares gained 90 cents, or 2.1 percent, to $43.25, yesterday on the New York Stock Exchange.

The results were "a little bit better than expected," said Merrill Lynch analyst Lauren Rich Fine. She maintained her "buy" rating on Tribune shares, noting pointedly, "We hope that this quarter is the first in a rebuilding process of both growth and restoration of management credibility."

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