Tribune Co. uncovers more inflated circulation

Tribune Co. uncovers more inflated circulation

Original Article on Chicago Tribune

CHICAGO – Tribune Co. said yesterday that it uncovered more circulation misstatements at its two New York newspapers and set aside $35 million to compensate advertisers who were overcharged.

The revelations came as the publisher and broadcaster reported that second-quarter earnings plunged 58 percent from the year-earlier period. The decline was driven largely by charges for the circulation problems and for layoffs prompted by lower-than-expected advertising revenue.

Tribune stock fell $1.12, or 2.6 percent, on the news, closing at $42 a share, a 52-week low.

Paul Ginocchio, a media analyst at Deutsche Bank North America, said investors appear worried by the possibility of more circulation problems. “The market seems to be somewhat concerned that this hasn’t been fully dealt with yet, that they may have to allocate even more money to a reserve,” he said.

In a conference call, Tribune said it had taken steps to correct the inflated 2003 and 2004 circulation figures, disclosed last month, at Newsday on New York’s Long Island and at the New York edition of Hoy, a Spanish-language paper.

But the company also said it found new circulation misstatements at the papers in those years, as well as in 2001 and 2002.

Because newspapers set their advertising rates based on circulation, inflated figures cause advertisers to overpay for their ads. To compensate Newsday and Hoy advertisers, Tribune said it had taken a pretax charge of $35 million, or 6 cents per share. But it warned that it might not be enough.

“The company will continue to evaluate the adequacy of this $35 million reserve on an ongoing basis, as the audits are completed and negotiations with advertisers proceed,” Tribune said.

Dennis J. FitzSimons, the company’s chairman, president and chief executive, called the circulation problems ethical lapses that were “unacceptable and wholly out of character” for Tribune.

“We are confident in our investigation, but we will not make a definitive statement yet until we have gone over this thoroughly with ABC,” FitzSimons said, referring to the Audit Bureau of Circulations, the newspaper industry’s circulation watchdog.

FitzSimons said the company’s 12 other daily newspapers, including the Chicago Tribune and The Sun, have taken actions to prevent similar circulation problems.

The company has instituted additional “internal controls” in its papers’ circulation departments, he said. Every Tribune publisher, chief financial officer and circulation vice president must now certify the accuracy of reported figures and that ABC rules were followed. False reports could cost the managers their bonuses and stock options.

Earlier this week, the audit bureau censured Newsday and Hoy for what it called “deceptive and fraudulent circulation practices.” The bureau also censured the Chicago Sun-Times, which revealed last month that it had been significantly overstating its circulation figures for “the past several years.”

For Tribune, the new disclosures came as the company reported that its net income fell to $96.4 million, or 29 cents a share, compared with $229.5 million, or 67 cents a share, for the second quarter of 2003.

Tribune took another pretax charge of $17 million, or 3 cents a share, for severance packages associated with the elimination of 375 jobs, about half of them at the Los Angeles Times.

Tribune also reported that second-quarter operating revenue rose 3 percent, to $1.5 billion from $1.45 billion. It reiterated that it expects revenue to grow 4 percent for the rest of the year.

Meanwhile, Tribune said it anticipates that operating expenses will increase 2.5 percent to 3 percent because of higher costs of retirement and health insurance programs, and newsprint.

The Chicago Tribune is a Tribune Publishing newspaper.