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Newspaper operating profit rose $182 million or 16% in 1999. The Newsquest properties acquired in July 1999 contributed to the profit gain. Earnings were strong at Detroit, the company’s New Jersey Group and at USA WEEKEND. Most of the company’s local U.S. newspapers reported earnings gains as did USA TODAY. 

Newsquest financial results were translated from British pounds to U.S. dollars using a weighted average rate of $1.62 for the period it was owned in 1999. 

## Broadcasting 

The company’s broadcasting operations at the end of 2001 included 22 television stations in markets reaching 17.7 percent of U.S. television homes. 

Over the last three years, reported broadcasting revenues, expenses, operating income and operating cash flows were as follows: 

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Total broadcast revenues declined $126 million or 16% for 2001. The revenue decline reflects a generally soft broadcasting advertising environment and challenging comparisons with 2000, which benefited from Olympic and strong political ad spending and an additional week. The third quarter of 2001 was also affected by several days of commercial-free coverage in the wake of the Sept. 11 attacks. The negative effects of Sept. 11 on advertising demand continued throughout the fourth quarter of 2001. Local and national advertising revenues decreased 10% and 25%, respectively, from 2000. 

Reported operating expenses were down by 4% due to stringent cost controls. Headcount reductions have been made at most properties. Payroll expense decreased 3% in 2001. 

For 2002, television revenues and earnings are expected to improve with impetus from the Winter Olympics on our NBC stations and political advertising. 

Total broadcast revenues rose $60 million or 8% for 2000. Revenues were bolstered by strong political and issue advertising, revenues from the Summer Olympics in Australia on our NBC stations and the impact of the 53rd week. Local and national advertising revenues increased 2% and 19%, respectively, over 1999. Political and issue advertising in key states contributed to the increase in national revenues. 

Reported operating expenses for broadcast were up 10% in 2000 due to the WJXX-TV acquisition and the full year impact of the 1999 Austin/Sacramento station exchange. On a pro forma basis, operating costs were up 7%. Pro forma payroll was up 6%. 

Total broadcast reported revenues rose $7 million or 1% for 1999. However, on a pro forma basis, giving effect to the Austin/Sacramento station exchange, total station revenues were down 1% for the year. Pro forma local revenues rose 5% for the 

year, while national revenues were down 7%. The decline in national ad revenue in comparison with 1998 reflects in part revenue gains in 1998 on CBS stations for the Winter Olympics, on NBC affiliates for the Super Bowl and the Seinfeld program, and from political and issue advertising. 

Reported operating expenses for broadcast were up 4% in 1999, reflecting the impact of the Austin/Sacramento station exchange. On a pro forma basis, operating costs were down slightly. Pro forma payroll was up 1%. 

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## Consolidated operating expenses 

Over the last three years, the company’s consolidated operating expenses were as follows: 

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Cost of sales for 2001 increased $263 million or 9%, reflecting the full-year effect of the Newscom, Thomson and Central acquisi- tions, and higher average newsprint prices which were up 10%. These cost increases were tempered by stringent cost controls and the absence of a 53rd week in 2001. 

SG&A increased $18 million or 2%, due primarily to the acquisitions completed in 2000. 

Depreciation expense increased 4% and amortization of intangibles increased 34%, primarily due to the businesses acquired in 2000. 

For 2002, the company expects substantial savings from lower average newsprint costs and from cost control measures taken to date, including employee reductions at most properties. Medical benefit costs will be higher in 2002, due to inflation. 

During 2001, the company’s retirement plan assets declined in market value, as did the principal equity and other investment markets in the U.S. and overseas. As a result of this investment performance and the use of a lower discount rate to value plan liabilities at the end of 2001, total retirement plan obligations grew to exceed plan assets. To reduce this under-funding, the company made a $300 million tax-deductible contribution to the plan in December 2001, and may consider making additional contributions in 2002. 

