Tribune Co. said Thursday 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 Chicago-based publisher and broadcaster reported its second-quarter earnings, which plunged 58 percent from the year-earlier period.
The decline was driven largely by charges for the circulation problems and for layoffs forced 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,” Ginocchio said.
In a conference call, Tribune said it had launched a number of 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 pay too much for their ads.
To compensate Newsday and Hoy advertisers, Tribune said it had taken the 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 in a written statement.
Dennis 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 Schaumburg-based Audit Bureau of Circulations, the newspaper industry’s circulation watchdog.
Along with the internal audits under way at Newsday and Hoy, FitzSimons said, the company’s 12 other daily newspapers, including the Chicago Tribune, have taken actions to prevent similar circulation problems.
The company has instituted additional internal controls in its papers’ circulation departments, FitzSimons said.
For example, circulation managers at each newspaper must sign quarterly statements attesting to the validity of reported figures.
False reports could cost the managers their bonuses and stock options.
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 net income fell to $96.4 million, or 29 cents a share, compared with $229.5 million, or 67 cents a share, for the same period a year ago.
Tribune also took a 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.
Last month, Tribune said it would eliminate about 200 jobs across the company because of weaker-than-expected advertising revenue.
At the time, the company also reduced its 2004 revenue growth projection, to 4 percent from 6 percent.
But more employees than expected took advantage of the company’s buyout package, Tribune said. The staff reductions will save the company about $12 million in the second half of 2004 and $25 million for 2005.
The company also reported that second-quarter operating revenue rose 3 percent, to $1.5 billion from $1.45 billion.
Meanwhile, Tribune said it anticipates that operating expenses will increase 2.5 percent to 3 percent because of higher costs of retirement, health insurance programs and newsprint.
