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Previous: COOKER RESTAURANT CORP /OH/, 10-Q, 1997-11-12 |
Next: IDM PARTICIPATING INCOME CO II, 10-Q, 1997-11-12 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number 33-43989
THE E. W. SCRIPPS COMPANY
(Exact name of registrant as specified in its charter)
Ohio 31-1223339
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
312 Walnut Street
Cincinnati, Ohio 45202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (513) 977-3000
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. As of October 31, 1997
there were 60,854,587 of the Registrant's Class A Common Shares outstanding
and 19,333,711 of the Registrant's Common Voting Shares outstanding.
<PAGE>
INDEX TO THE E. W. SCRIPPS COMPANY
REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997
Item No. Page
PART I - FINANCIAL INFORMATION
1 Financial Statements 3
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 3
PART II - OTHER INFORMATION
1 Legal Proceedings 3
2 Changes in Securities 3
3 Defaults Upon Senior Securities 3
4 Submission of Matters to a Vote of Security Holders 4
5 Other Information 4
6 Exhibits and Reports on Form 8-K 4
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
The information required by this item is filed as part of this Form 10-Q.
See Index to Financial Information at page F-1 of this Form 10-Q.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is filed as part of this Form 10-Q.
See Index to Financial Information at page F-1 of this Form 10-Q.
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in litigation arising in the ordinary course of
business, such as defamation actions and various governmental and
administrative proceedings relating to renewal of broadcast licenses, none
of which is expected to result in material loss.
ITEM 2. CHANGES IN SECURITIES
There were no changes in the rights of security holders during the quarter
for which this report is filed.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There were no defaults upon senior securities during the quarter for which
this report is filed.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
for which this report is filed.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
The information required by this item is filed as part of this Form 10-Q.
See Index to Exhibits at page E-1 of this Form 10-Q.
Reports on Form 8-K
A Current Report on Form 8-K dated September 4, 1997 reporting Item 2.
"Acquisition or Disposition of Assets" for the purchase of the newspaper
and broadcast operations of Harte-Hanks Communications, Inc. ("HHC") and
the sale of HHC's broadcast operations in connection with the acquisition
of approximately 56% controlling interest in The Television Food Network,
G.P. was filed on September 29, 1997.
An amendment to the Current Report on Form 8-K filed September 29, 1997 was
filed on October 6, 1997. The amendment provided certain information
regarding rights of first refusal related to the acquisition of The
Television Food Network, G.P., corrected certain financial information in
Notes C and D to the Pro Forma Financial Information and reflected the
execution of the Variable Rate Credit Facilities. The Form 8-K/A included
the financial information listed below:
Financial Statements of Harte-Hanks Newspapers
Financial Statements as of December 31, 1996, and for the Three Years
Then Ended
Financial Statements as of June 30, 1997, and for the Six Months Then
Ended
Financial Statements of Harte-Hanks Television
Financial Statements as of December 31, 1996, and for the Three Years
Then Ended
Financial Statements as of June 30, 1997, and for the Six Months Then
Ended
Financial Statements of the Television Food Network, G.P.
Financial Statements as of December 31, 1996, and for the Three Years
Then Ended, and as of June 30, 1997, and for the Six Months Ended June
30, 1997, and June 30, 1996
Combined Pro Forma Financial Information
Pro Forma Balance Sheet as of June 30, 1997
Pro Forma Statement of Income for the Six Months Ended June 30, 1997
Pro Forma Statement of Income for the Year Ended December 31, 1996
Notes to Pro Forma Financial Information
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
THE E. W. SCRIPPS COMPANY
Dated: November 11, 1997 BY: /s/ D. J. Castellini
D. J. Castellini
Senior Vice President,
Finance & Administration
<PAGE>
THE E. W. SCRIPPS COMPANY
Index to Financial Information
Item Page
Consolidated Balance Sheets F-2
Consolidated Statements of Income F-4
Consolidated Statements of Cash Flows F-5
Consolidated Statements of Stockholders' Equity F-6
Notes to Consolidated Financial Statements F-7
Management's Discussion and Analysis of Financial
Condition and Results of Operations F-11
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
( in thousands ) As of
September 30, December 31, September 30,
1997 1996 1996
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 14,597 $ 10,145 $ 16,334
Short-term investments 2,700
Accounts and notes receivable (less
allowances -$4,915, $3,974, $3,642) 169,311 182,687 150,578
Program rights and production costs 63,436 44,639 70,805
Inventories 12,683 11,753 9,932
Deferred income taxes 23,161 24,897 21,545
Miscellaneous 34,765 32,203 38,900
Total current assets 317,953 309,024 308,094
Net Assets of Discontinued Operation - Scripps Cable 354,951
Investments 71,000 40,580 54,494
Property, Plant and Equipment 430,331 430,703 433,076
Goodwill and Other Intangible Assets 597,028 590,452 591,746
Other Assets:
Program rights and production costs (less current portion) 35,489 35,281 27,622
Subscriber acquisition costs (less current portion) 50,483 38,337 2,218
Miscellaneous 20,626 19,236 18,143
Total other assets 106,598 92,854 47,983
TOTAL ASSETS $ 1,522,910 $ 1,463,613 $ 1,790,344
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
( in thousands, except share data ) As of
September 30, December 31, September 30,
1997 1996 1996
(Unaudited) (Unaudited)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 90,040 $ 112,540
Accounts payable $ 86,909 88,574 76,132
Customer deposits and unearned revenue 32,591 30,208 33,298
Accrued liabilities:
Employee compensation and benefits 35,842 33,622 32,855
Subscriber acquisition costs 33,190 33,895 2,024
Miscellaneous 46,434 47,063 44,074
Total current liabilities 234,966 323,402 300,923
Deferred Income Taxes 82,109 63,953 71,868
Long-Term Debt (less current portion) 52,671 31,793 31,804
Other Long-Term Obligations and Minority Interests (less current portion) 119,651 99,874 104,129
Stockholders' Equity:
Preferred stock, $.01 par - authorized: 25,000,000 shares; none outstanding
Common stock, $.01 par:
Class A - authorized: 120,000,000 shares; issued and
outstanding: 61,816,953; 61,293,240; and 61,036,512 shares 618 613 610
Voting - authorized: 30,000,000 shares; issued and
outstanding: 19,333,711; 19,470,382; and 19,470,382 shares 193 195 195
Total 811 808 805
Additional paid-in capital 282,073 272,703 268,865
Retained earnings 752,064 676,471 992,373
Treasury stock: 111,000 Class A Common shares (4,430)
Unvested restricted stock awards (4,741) (5,241) (3,841)
Unrealized gains (losses) on securities available for sale 7,227 (713) 22,733
Foreign currency translation adjustment 509 563 685
Total stockholders' equity 1,033,513 944,591 1,281,620
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,522,910 $ 1,463,613 $ 1,790,344
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME ( UNAUDITED )
<CAPTION>
( in thousands, except per share data ) Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Operating Revenues:
Advertising $ 212,556 $ 196,748 $ 643,098 $ 593,107
Circulation 31,369 31,793 97,330 97,459
Licensing 12,539 13,156 43,427 37,938
Joint operating agency distributions 11,921 9,966 36,451 30,581
Program production 2,243 3,222 15,962 7,597
Other 15,553 10,598 46,135 30,370
Total operating revenues 286,181 265,483 882,403 797,052
Operating Expenses:
Employee compensation and benefits 97,491 90,078 288,677 266,294
Newsprint and ink 30,204 29,402 87,971 96,732
Program, production and copyright costs 18,356 17,814 61,171 50,824
Other operating expenses 72,532 65,688 215,212 194,332
Depreciation 13,140 12,518 39,035 36,697
Amortization of intangible assets 4,883 4,738 14,550 15,029
Total operating expenses 236,606 220,238 706,616 659,908
Operating Income 49,575 45,245 175,787 137,144
Other Credits (Charges):
Interest expense (2,300) (2,713) (7,350) (6,350)
Gain on sale of operations 20,981 20,981
Miscellaneous, net 914 291 1,395 614
Net other credits (charges) 19,595 (2,422) 15,026 (5,736)
Income from Continuing Operations
Before Taxes and Minority Interests 69,170 42,823 190,813 131,408
Provision for Income Taxes 29,668 18,331 80,873 56,603
Income from Continuing Operations
Before Minority Interests 39,502 24,492 109,940 74,805
Minority Interests 924 841 2,760 2,326
Income From Continuing Operations 38,578 23,651 107,180 72,479
Income From Discontinued Operation - Scripps Cable 12,268 34,645
Net Income $ 38,578 $ 35,919 $ 107,180 $ 107,124
Per Share of Common Stock:
Income from continuing operations $.48 $.29 $1.32 $.90
Net income $.48 $.45 $1.32 $1.33
Dividends declared $.13 $.13 $.39 $.39
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS ( UNAUDITED )
<CAPTION>
( in thousands ) Nine months ended
September 30,
1997 1996
<S> <C> <C>
Cash Flows from Operating Activities:
Income from continuing operations $ 107,180 $ 72,479
Adjustments to reconcile income from continuing operations
to net cash flows from continuing operating activities:
Depreciation and amortization 53,585 51,726
Gain on sale of subsidiary companies and long-term investments (21,030)
Deferred income taxes 15,777 11,680
Minority interests in income of subsidiary companies 2,760 2,326
Subscriber acquisition costs (8,786) (873)
Other changes in certain working capital accounts, net 6,053 (4,606)
Miscellaneous, net 8,033 (19,210)
Net cash provided by continuing operating activities 163,572 113,522
Discontinued Operation - Scripps Cable:
Income 34,645
Adjustment to derive cash flows from operating activities 35,129
Net cash provided 69,774
Net operating activities 163,572 183,296
Cash Flows from Investing Activities:
Additions to property, plant and equipment (37,336) (41,921)
Purchase of subsidiary companies and long-term investments (24,658) (125,923)
Change in short-term investments, net 2,700 25,013
Sale of long-term investments 880 12,113
Miscellaneous, net 715 4,313
Net investing activities of continuing operations (57,699) (126,405)
Net investing activities of discontinued operation (108,075)
Net investing activities (57,699) (234,480)
Cash Flows from Financing Activities:
Increases in long-term debt 20,800 112,500
Payments on long-term debt (90,034) (49,031)
Dividends paid (31,587) (31,353)
Dividends paid to minority interests (1,189) (1,255)
Miscellaneous, net (primarily exercise of stock options) 589 7,261
Net financing activities of continuing operations (101,421) 38,122
Net financing activities of discontinued operation (625)
Net financing activities (101,421) 37,497
Increase (Decrease) in Cash and Cash Equivalents 4,452 (13,687)
Cash and Cash Equivalents:
Beginning of year 10,145 30,021
End of period $ 14,597 $ 16,334
Supplemental Cash Flow Disclosures:
Interest paid, excluding amounts capitalized $ 8,033 $ 5,009
Income taxes paid 46,343 50,313
Monterey and San Luis Obispo newspapers traded for Boulder newspaper 50,000
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
<CAPTION>
( in thousands, except share data )
Unrealized
Unvested Gains(Losses) Foreign
Additional Restricted on Securities Currency
Common Paid-in Retained Treasury Stock Available Translation
Stock Capital Earnings Stock Awards for Sale Adjustment
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 $ 801 $ 254,063 $ 916,602 $ (1,573) $ 20,720 $ 813
Net income 107,124
Dividends: declared and
paid - $.39 per share (31,353)
Conversion of 507,991 Common Voting Shares
to 507,991 Class A Common Shares
Class A Common Shares issued pursuant to
compensation plans, net:
447,600 shares issued; 4,487 shares 4 12,862 (5,598)
repurchased
Tax benefits of compensation plans 1,940
Amortization of restricted stock awards 3,330
Foreign currency translation adjustment (128)
Increase in unrealized gains (losses) on
securities available for sale, net
of deferred income taxes of $1,084 2,013
Balances at September 30, 1996 $ 805 $ 268,865 $ 992,373 $ (3,841) $ 22,733 $ 685
Balances at December 31, 1996 $ 808 $ 272,703 $ 676,471 $ (5,241) $ (713) $ 563
Net income 107,180
Dividends: declared and
paid - $.39 per share (31,587)
Conversion of 136,671 Common Voting Shares
to 136,671 Class A Common Shares
Class A Common Shares issued pursuant to
compensation plans, net:
405,925 shares issued; 18,883 shares 3 5,982 (1,560)
repurchased
Tax benefits of compensation plans 3,388
Amortization of restricted stock awards 2,060
Foreign currency translation adjustment (54)
Increase in unrealized gains (losses) on
securities available for sale, net
of deferred income taxes of $4,114 7,940
Treasury stock: 111,000 shares $ (4,430)
Balances at September 30, 1997 $ 811 $ 282,073 $ 752,064 $ (4,430) $ (4,741) $ 7,227 $ 509
See notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ( UNAUDITED )
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. The information disclosed in the notes to
consolidated financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 has not
changed materially unless otherwise disclosed herein. Financial
information as of December 31, 1996 included in these financial
statements has been derived from the audited consolidated financial
statements included in that report. In management's opinion all
adjustments (consisting of normal recurring accruals) necessary for a
fair presentation of the interim periods have been made.
Results of operations are not necessarily indicative of the results
that may be expected for future interim periods or for the full year.
Net Income Per Share - Net income per share computations are based
upon the weighted-average common shares outstanding. Common stock
equivalents in the form of stock options are excluded from the
computations as they have no material effect on the per share amounts.
The weighted-average common shares outstanding were as follows:
<TABLE>
<CAPTION>
( in thousands ) Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Weighted-average shares outstanding 81,032 80,473 80,969 80,328
</TABLE>
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128 - Earnings per Share in the first quarter
of 1997. The new standard, which the Company must adopt in the fourth
quarter of 1997, will require the presentation of basic earnings per
share and diluted earnings per share. Basic and diluted earnings per
share would not be materially different than earnings per share
presented in these financial statements.
Recently Issued Accounting Standards - The Financial Accounting
Standards Board has issued Statements of Financial Accounting
Standards No. 129 - Disclosure of Information about Capital Structure
("FAS 129"), No. 130 - Reporting Comprehensive Income ("FAS 130"), and
No. 131 - Disclosures about Segments of an Enterprise and Related
Information ("FAS 131"). FAS 129, which must be adopted in the fourth
quarter of 1997, will have no effect on the Company's financial
position or results of operations. FAS 130, which must be adopted in
the first quarter of 1998, and FAS 131, which must be adopted in the
fourth quarter of 1998, will also have no effect on the Company's
financial position. However, FAS 130 will require the Company to
report comprehensive income, a measure of performance that includes
all non-owner sources of changes in equity. In addition to net income
reported in these financial statements, comprehensive income would
include unrealized gains and losses on securities available for sale
and foreign currency translation adjustments. Management expects FAS
131 will require the Company to change the reportable business
segments included in its 1996 Annual Report on Form 10-K and to
present additional information, including presenting certain business
segment information in its quarterly financial statements.
<PAGE>
2. ACQUISITIONS AND DIVESTITURES
A. Acquisitions
1997 - In August the Company acquired the daily newspaper in Boulder,
Colorado, in exchange for its daily newspapers in Monterey and San
Luis Obispo, California.
1996 - In May the Company acquired the daily newspaper in Vero Beach,
Florida.
The following table presents additional information about the
acquisitions:
<TABLE>
<CAPTION>
( in thousands ) Nine months
ended
September 30,
1997 1996
<S> <C> <C>
Goodwill and other intangible assets acquired $ 24,570 $ 110,967
Other assets acquired 27,260 10,900
Total 51,830 121,867
Fair value of Monterey and San Luis Obispo daily newspapers (50,000)
Liabilities assumed (1,794)
Cash paid $ 1,830 $ 120,073
</TABLE>
The acquisitions have been accounted for as purchases. The allocation
of the purchase prices were based on estimated fair values and are
subject to adjustment.
The acquired operations have been included in the Consolidated
Statements of Income from the dates of acquisition. The following
table summarizes, on an unaudited, pro forma basis, the estimated
combined results of operations of the Company and the Vero Beach
newspaper assuming the acquisition had occurred on January 1, 1996.
The pro forma information includes adjustments for interest expense
that would have been incurred to finance the acquisition, additional
depreciation based on the fair market value of the property, plant and
equipment, and the amortization of intangible assets resulting from
the acquisition. The unaudited pro forma results of operations are
not necessarily indicative of the results which actually would have
occurred had the acquisition been completed January 1, 1996.
<TABLE>
<CAPTION>
( in thousands ) Nine months
ended
September 30,
1996
<S> <C>
Operating revenues $ 803,007
Income from continuing operations 68,863
Net income 103,508
Per share of common stock:
Income from continuing operations $ .86
Net income 1.29
</TABLE>
Pro forma results are not presented for the Boulder acquisition
because the combined results of operations would not be significantly
different from the reported amounts.
<PAGE>
In May the Company agreed to acquire the newspaper and broadcast operations
of Harte-Hanks Communications, Inc. ("Harte-Hanks") for $775 million, plus
working capital, in cash. Harte-Hanks newspaper and broadcast operations
include daily newspapers in Abilene, Corpus Christi, Plano, San Angelo and
Wichita Falls, Texas, a daily newspaper in Anderson, South Carolina
(collectively the "HHC Newspaper Operations"), and a television and radio
station in San Antonio (the "HHC Broadcast Operations").
In September the Company agreed to sell the HHC Broadcast Operations to
A.H. Belo Corporation ("Belo") in exchange for $75 million in cash and
Belo's approximate 56% controlling interest in The Television Food Network,
G.P. ("Food Network" a 24-hour cable television network). The amount of
cash received by the Company was to be adjusted based upon the positive or
negative working capital of the HHC Broadcast Operations and Food Network
at the closing date.
The Company completed the acquisition of the HHC Newspaper and Broadcast
Operations on October 15, 1997. Immediately upon completion of the
acquisition, Belo paid the Company $37.5 million and transferred its
interest in Food Network to the Company. Belo operates the HHC Broadcast
Operations under a local marketing agreement until the Federal
Communications Commission ("FCC") approves the transfer of the HHC
Broadcast Operations' FCC licenses to Belo, at which time the sale of the
HHC Broadcast Operations will be completed and Belo will pay the Company
the balance of the purchase price. The Company expects to complete the
sale of the HHC Broadcast Operations by the end of 1997.
B. Divestitures
1997 - In the third quarter the Company traded its newspapers in
Monterey and San Luis Obispo, California, for the newspaper in
Boulder, Colorado. The estimated fair value of the Boulder newspaper
was $50,000,000, resulting in a pre-tax gain of $20,981,000,
$11,147,000 after tax, $.14 per share. The Company's newspaper in El
Paso ceased operations after October 11, 1997.
Included in the consolidated financial statements are the following
results of divested operations (excluding gains on sale):
<TABLE>
<CAPTION>
( in thousands ) Three months Nine months
ended ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Operating revenues $ 6,900 $ 9,800 $ 27,200 $ 29,100
Operating income 200 1,100 2,100 3,100
</TABLE>
<PAGE>
3. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
( in thousands ) As of
September 30, December 31, September 30,
1997 1996 1996
<S> <C> <C> <C>
6.17% note, due in 1997 $ 90,000 $ 100,000
7.375% notes, due in 1998 $ 29,730 29,658 29,658
Variable Rate Credit Facilities 20,800 12,500
Other notes 2,141 2,175 2,186
Total long-term debt 52,671 121,833 144,344
Current portion of long-term debt 90,040 112,540
Long-term debt (less current portion) $ 52,671 $ 31,793 $ 31,804
</TABLE>
The Company has Competitive Advance/Revolving Credit Agreements
("Variable Rate Credit Facilities") which collectively permit
aggregate borrowings up to $800,000,000. The Variable Rate Credit
Facilities are comprised of two unsecured lines, one limited to
$400,000,000 principal amount maturing in 1998, and the other limited
to $400,000,000 principal amount maturing in 2002. Borrowings under
the Variable Rate Credit Facilities are available on a committed
revolving credit basis at any of three short-term rates (including the
prime rate) or through an auction procedure at the time of each
borrowing allowing banks to offer lower rates. The Variable Rate
Credit Facilities may also be used in whole or in part, in lieu of
direct borrowings, as credit support for commercial paper. The
Variable Rate Credit Facilities may be extended upon mutual agreement.
Current maturities are classified as long-term to the extent they can
be refinanced through existing long-term credit commitments.
Certain long-term debt agreements contain maintenance requirements on
net worth and coverage of interest expense and restrictions on
dividends and incurrence of additional indebtedness. The Company is
in compliance with all debt covenants.
4. SHARE REPURCHASE PROGRAM
In 1997 the Board of Directors authorized, subject to business and
market conditions, the purchase of up to 4,000,000 of the Company's
Class A Common Shares. As of September 30, 1997, the Company had
purchased 111,000 shares.
5. DISCONTINUED OPERATION - SCRIPPS CABLE
The Company's cable television systems ("Scripps Cable") were acquired
by Comcast Corporation ("Comcast") on November 13, 1996 ("Cable
Transaction") through a merger whereby the Company's shareholders
received, tax-free, a total of 93 million shares of Comcast's Class A
Special Common Stock. The aggregate market value of the Comcast
shares was $1,593,000,000 ($19.83 per share of the Company) and the
net book value of Scripps Cable was $356,000,000, yielding an economic
gain of $1,237,000,000 to the Company's shareholders.
Scripps Cable represented an entire business segment, therefore its
results are reported as a "discontinued operation" for all periods
presented. Results of the remaining business segments, including
results for divested operating units within these segments through
their dates of sale, are reported as "continuing operations."
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The E. W. Scripps Company ("Company") publishes daily newspapers in 14
markets, operates television stations in nine markets, and its
entertainment division consists of Home & Garden Television ("HGTV," a
24-hour cable television network), comic character licensing and
television program production. In October 1997 the Company acquired
the newspaper operations of Harte-Hanks Communications, Inc. ("Harte-
Hanks"), increasing the Company's newspaper markets to 20. In October
1997 the Company also acquired controlling interest in The Television
Food Network, G.P. ("Food Network" a 24-hour cable television
network).
The Company's cable television systems ("Scripps Cable") were acquired
by Comcast Corporation ("Comcast") on November 13, 1996 ("Cable
Transaction") through a merger whereby the Company's shareholders
received, tax-free, a total of 93 million shares of Comcast's Class A
Special Common Stock. The aggregate market value of the Comcast
shares was $1,593,000,000 ($19.83 per share of the Company) and the
net book value of Scripps Cable was $356,000,000, yielding an economic
gain of $1,237,000,000 to the Company's shareholders. The operating
results of Scripps Cable are excluded from management's discussion and
analysis of financial condition and results of operation as management
believes it is not relevant to an understanding of the Company's
continuing operations.
Consolidated results of continuing operations were as follows:
<TABLE>
<CAPTION>
( in thousands, except per share data ) Quarterly Period Year-to-Date
1997 Change 1996 1997 Change 1996
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Newspapers $ 168,967 9.8 % $ 153,882 $ 505,389 9.8 % $ 460,455
Broadcast television 76,905 3.5 % 74,325 236,730 2.8 % 230,250
Entertainment 33,455 21.9 % 27,455 113,107 46.4 % 77,274
Total 279,327 9.3 % 255,662 855,226 11.4 % 767,979
Divested operating units 6,854 9,821 27,177 29,073
Total operating revenues $ 286,181 7.8 % $ 265,483 $ 882,403 10.7 % $ 797,052
Operating income:
Newspapers $ 34,255 11.3 % $ 30,789 $ 114,813 27.1 % $ 90,303
Broadcast television 19,512 (4.9)% 20,522 70,359 3.5 % 67,999
Entertainment (185) (2,618) 1,337 (6,847)
Corporate (4,208) (4,581) (12,800) (13,435)
Total 49,374 11.9 % 44,112 173,709 25.9 % 138,020
Unusual items (4,000)
Divested operating units 201 1,133 2,078 3,124
Total operating income 49,575 9.6 % 45,245 175,787 28.2 % 137,144
Interest expense (2,300) (2,713) (7,350) (6,350)
Gain on sale of operations 20,981 20,981
Miscellaneous, net 914 291 1,395 614
Income taxes (29,668) (18,331) (80,873) (56,603)
Minority interest (924) (841) (2,760) (2,326)
Income from continuing operations $ 38,578 63.1 % $ 23,651 $ 107,180 47.9 % $ 72,479
Per share of common stock:
Income from continuing operations $.48 65.5 % $.29 $1.32 46.7 % $.90
Gain on sale of operations .14 .14
Unusual charge .03
Adjusted income from continuing operations $.34 17.2 % $.29 $1.19 28.0 % $.93
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
( in thousands ) Quarterly Period Year-to-Date
1997 Change 1996 1997 Change 1996
Other Financial and Statistical Data - excluding
divested operations and unusual item:
<S> <C> <C> <C> <C> <C> <C>
Total advertising revenues $ 208,389 9.4 % $ 190,543 $ 625,992 8.9 % $ 574,647
Advertising revenues as a
percentage of total revenues 74.6 % 74.5 % 73.2 % 74.8 %
EBITDA:
Newspapers $ 44,433 9.7 % $ 40,522 $ 144,689 23.2 % $ 117,463
Broadcast television 25,666 (2.7)% 26,374 88,683 1.4 % 87,470
Entertainment 851 (1,670) 4,468 (4,069)
Corporate (3,932) (4,343) (11,991) (12,650)
Total $ 67,018 10.1 % $ 60,883 $ 225,849 20.0 % $ 188,214
Effective income tax rate 42.9 % 42.8 % 42.4 % 43.1 %
Weighted-average shares outstanding 81,032 0.7 % 80,473 80,969 0.8 % 80,328
Total capital expenditures $ 15,108 $ 4,907 $ 36,526 $ 41,205
</TABLE>
Earnings before interest, income taxes, depreciation and amortization
("EBITDA") is included in the discussion of segment results because:
Changes in depreciation and amortization are often unrelated to
current performance. Management believes the year-over-year
change in EBITDA is a more useful measure of year-over-year
performance than the change in operating income because, combined
with information on capital spending plans, it is a more reliable
indicator of results that may be expected in future periods.
Banks and other lenders use EBITDA to determine the Company's
borrowing capacity.
Financial analysts use EBITDA to value communications media
companies.
Acquisitions of communications media businesses are based on
multiples of EBITDA.
EBITDA should not, however, be construed as an alternative measure of
the amount of the Company's income or cash flows from operating
activities as EBITDA excludes significant costs of doing business.
In August 1997 the Company acquired the daily newspaper in Boulder,
Colorado, in exchange for its newspapers in Monterey and San Luis
Obispo, California. The trade resulted in a pre-tax gain of
$20,981,000, $11,147,000 after tax, $.14 per share. The Company's
newspaper in El Paso ceased operations after October 11, 1997.
Operating results for the Monterey, San Luis Obispo and El Paso
newspapers are included in "Divested Operations."
The Company acquired the Vero Beach, Florida, Press Journal in May
1996.
In the second quarter of 1996 the Company incurred an unusual charge
of approximately $4,000,000, $2,600,000 after-tax, $.03 per share, for
the Company's share of certain costs associated with restructuring
portions of the distribution system of the Cincinnati joint operating
agency ("Cincinnati JOA Charge").
Year-to-date operating losses for HGTV totaled $5,800,000, $3,900,000
after-tax, $.05 per share in 1997 and $12,200,000, $7,500,000 after-
tax, $.09 per share in 1996. Operating losses for the quarterly
periods were $1,400,000, $1,000,000 after-tax, $.01 per share in 1997
and $5,300,000, $3,300,000 after-tax, $.04 per share in 1996.
Operating results, excluding Divested Operations and the Cincinnati
JOA Charge, are presented on the following pages. The results of
Divested Operations and the Cincinnati JOA Charge are excluded from
the segment operating results because management believes they are not
relevant to understanding the Company's ongoing operations.
<PAGE>
NEWSPAPERS - Operating results for the newspaper segment, excluding
Divested Operations and the Cincinnati JOA charge, were as follows:
<TABLE>
<CAPTION>
( in thousands ) Quarterly Period Year-to-Date
1997 Change 1996 1997 Change 1996
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Local $ 47,644 6.9 % $ 44,551 $ 149,990 10.5 % $ 135,682
Classified 55,337 12.9 % 49,010 156,032 10.8 % 140,774
National 5,284 12.4 % 4,699 16,597 20.2 % 13,806
Preprint and other 15,941 8.2 % 14,733 47,322 4.4 % 45,317
Total advertising 124,206 9.9 % 112,993 369,941 10.2 % 335,579
Circulation 29,986 1.3 % 29,592 91,360 0.4 % 90,979
Joint operating agency distributions 11,182 22.8 % 9,104 34,575 23.1 % 28,092
Other 3,593 63.8 % 2,193 9,513 63.9 % 5,805
Total operating revenues 168,967 9.8 % 153,882 505,389 9.8 % 460,455
Operating expenses:
Employee compensation and benefits 57,418 9.8 % 52,286 167,755 8.6 % 154,443
Newsprint and ink 29,470 4.2 % 28,283 84,836 (8.8)% 93,044
Other 37,646 14.8 % 32,791 108,109 13.2 % 95,505
Depreciation and amortization 10,178 4.6 % 9,733 29,876 10.0 % 27,160
Total operating expenses 134,712 9.4 % 123,093 390,576 5.5 % 370,152
Operating income $ 34,255 11.3 % $ 30,789 $ 114,813 27.1 % $ 90,303
Other Financial and Statistical Data:
EBITDA $ 44,433 9.7 % $ 40,522 $ 144,689 23.2 % $ 117,463
Percent of operating revenues:
Operating income 20.3 % 20.0 % 22.7 % 19.6 %
EBITDA 26.3 % 26.3 % 28.6 % 25.5 %
Capital expenditures $ 8,871 $ 1,428 $ 22,138 $ 18,857
Advertising inches:
Local 1,622 12.6 % 1,440 5,141 15.7 % 4,442
Classified 1,874 12.1 % 1,671 5,247 11.8 % 4,693
National 107 17.6 % 91 333 29.1 % 258
Total full run ROP 3,603 12.5 % 3,202 10,721 14.1 % 9,393
</TABLE>
Assuming the Boulder newspaper were owned for the full quarter in both
years, total revenues and advertising revenues would have increased
8.1%. Advertising volume increased 8.7% on the same pro forma basis.
The price of newsprint in the third quarter of 1997 was approximately
7% lower than in the third quarter of 1996. Newsprint consumption
increased 11% year-over-year. The year-over-year cost of newsprint in
1997 will increase approximately 20% in the fourth quarter, excluding
the effects of the acquisition of the Harte-Hanks newspaper
operations.
Excluding the Boulder newspaper and the costs of developing new
businesses, such as telephone directories and electronic services, or
expanding markets, employee compensation and other operating expenses
increased approximately 6% in the third quarter.
<PAGE>
BROADCAST TELEVISION - Operating results for the broadcast television
segment were as follows:
<TABLE>
<CAPTION>
( in thousands ) Quarterly Period Year-to-Date
1997 Change 1996 1997 Change 1996
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Local $ 40,040 6.2 % $ 37,690 $ 122,270 5.4 % $ 116,013
National 32,006 12.9 % 28,338 99,862 6.0 % 94,194
Political 367 (90.8)% 3,982 620 (91.2)% 7,082
Other 4,492 4.1 % 4,315 13,978 7.8 % 12,961
Total operating revenues 76,905 3.5 % 74,325 236,730 2.8 % 230,250
Operating expenses:
Employee compensation and benefits 25,956 5.9 % 24,512 77,176 6.2 % 72,685
Program and copyright costs 11,844 (0.9)% 11,952 34,018 (1.5)% 34,520
Other 13,439 17.0 % 11,487 36,853 3.6 % 35,575
Depreciation and amortization 6,154 5.2 % 5,852 18,324 (5.9)% 19,471
Total operating expenses 57,393 6.7 % 53,803 166,371 2.5 % 162,251
Operating income $ 19,512 (4.9)% $ 20,522 $ 70,359 3.5 % $ 67,999
Other Financial and Statistical Data:
EBITDA $ 25,666 (2.7)% $ 26,374 $ 88,683 1.4 % $ 87,470
Percent of operating revenues:
Operating income 25.4 % 27.6 % 29.7 % 29.5 %
EBITDA 33.4 % 35.5 % 37.5 % 38.0 %
Capital expenditures $ 2,992 $ 2,079 $ 9,310 $ 19,661
</TABLE>
The increased political advertising in even-numbered years, when
congressional and presidential elections occur, have made it more
difficult to achieve year-over-year improvement in operating results
in odd-numbered years. Year-over-year comparisons in the fourth
quarter will be more difficult due to the $12,400,000 of political
advertising in the 1996 period.
The increase in employee costs is due primarily to the Company's
expanded schedules of local news programs. Increased promotion and
marketing of the expanded news programs led to the increase in other
operating expenses.
Year-to-date depreciation and amortization decreased as certain
intangible assets acquired in the 1991 purchase of the Baltimore
station became fully amortized.
<PAGE>
ENTERTAINMENT - Operating results for the entertainment segment were
as follows:
<TABLE>
<CAPTION>
( in thousands ) Quarterly Period Year-to-Date
1997 Change 1996 1997 Change 1996
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Licensing $ 12,539 (4.7)% $ 13,156 $ 43,427 14.5 % $ 37,938
Newspaper feature distribution 5,138 (0.3)% 5,152 16,101 7.1 % 15,035
Advertising 7,878 107.2 % 3,803 21,587 92.1 % 11,236
Subscriber fees 5,302 199.7 % 1,769 14,203 4,467
Program production 2,243 (30.4)% 3,222 15,962 110.1 % 7,597
Other 355 353 1,827 1,001
Total operating revenues 33,455 21.9 % 27,455 113,107 46.4 % 77,274
Operating expenses:
Employee compensation and benefits 7,847 40.3 % 5,594 22,752 35.2 % 16,826
Artists' royalties 8,097 (12.2)% 9,220 29,401 9.4 % 26,875
Programming and production costs 6,512 11.1 % 5,862 27,153 66.5 % 16,304
Other 10,148 20.1 % 8,449 29,333 37.5 % 21,338
Depreciation and amortization 1,036 9.3 % 948 3,131 12.7 % 2,778
Total operating expenses 33,640 11.9 % 30,073 111,770 32.9 % 84,121
Operating income (loss) $ (185) $ (2,618) $ 1,337 $ (6,847)
Other Financial and Statistical Data:
EBITDA $ 851 $ (1,670) $ 4,468 $ (4,069)
Capital expenditures $ 3,132 $ 1,056 $ 4,536 $ 2,096
HGTV subscribers 31,100 17,600
</TABLE>
Licensing revenues in the third quarter declined due to lower revenues
from international markets. Japanese licensing revenues decreased 14%
in local currency, and the stronger dollar resulted in a 7% decrease
in Japanese licensing revenues. Fourth quarter licensing comparisons
will be difficult as the fourth quarter of 1996 benefited from the
publication of The Dilbert Principle.
Program production revenues are subject to substantial fluctuation due
to the timing of completion and delivery of programs. Scripps Howard
Productions ("SHP") delivered five hours of programming year-to-date
in 1997 and none year-to-date in 1996. SHP delivered eight hours of
programming in the fourth quarter of 1996, but expects to deliver none
in the fourth quarter of 1997.
Advertising revenue and subscriber fees increased due to the continued
growth of HGTV. Operating losses for HGTV totaled $1,400,000 in the
third quarter of 1997 and $5,300,000 in the third quarter of 1996.
The increases in operating expenses are consistent with the increases
in revenue.
The Company has agreed to pay cash or other incentives ("Subscriber
Acquisition Costs") to cable television system operators in exchange for
increased distribution of HGTV. Subscriber acquisition costs are
amortized based upon the percentage of the current period's subscriber
revenues to estimated total subscriber revenue over the terms of the
contracts. At September 30, 1997, unamortized subscriber acquisition
costs totaled approximately $63,400,000.
At September 30, 1997, HGTV was carried by cable television and
satellite broadcast systems with approximately 31 million subscribers
under contracts with average remaining terms of approximately four
years. Additional incentive payments may be required to obtain carriage
on additional cable television systems.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company generates significant cash flow from operating activities,
primarily from its newspaper and broadcast television operations.
There are no significant legal or other restrictions on the transfer
of funds from any ofamong the Company's business segments.
Cash flow provided by continuing operating activities was $163,600,000
in 1997 compared to $113,500,000 in 1996. The improvement was due to
the increase in EBITDA and collection of tax refunds of approximately
$24 million related to the settlement of the audit of the Company's
1984 to 1987 federal income tax returns with the Internal Revenue
Service. The 1996 period also included costs of producing eight hours
of programming delivered by SHP in the fourth quarter of 1996.
The Company completed the acquisitions of the Harte Hanks newspaper
operations and Food Network on October 15, 1997. The Company financed
the acquisitions through existing cash and short-term investments,
issuing $100,000,000 in five-year and $100,000,000 in ten-year notes,
and additional borrowings supported by Competitive Advance and
Revolving Credit Facility Agreements. The acquisitions are expected
to result in approximately 15% dilution to the Company's net income
in 1998.
In 1997 the Board of Directors authorized, subject to business and
market conditions, the purchase of up to 4,000,000 of the Company's
Class A Common Shares. As of September 30, 1997, the Company
had purchased 111,000 shares.
Management expects total cash flow from continuing operating
activities for the remainder of 1997, and in 1998, will be sufficient
to meet the Company's expected capital expenditures, required debt
payments and dividend payments. Net debt (borrowings less cash
equivalent and other short-term investments) totaled $52,700,000 at
September 30, 1997 and increased approximately $720,000,000 upon
completion of the acquisitions. The Company will be paid
approximately $40,000,000 upon completion of the sale of the Harte-
Hanks broadcast operations to Belo. The Company expects to complete
the sale prior to the end of the year. Management believes the
Company's cash flow from operations and substantial borrowing
capacity, taken together, provide adequate resources to fund the
capital expenditures and expansion of existing businesses and the
development or acquisition of new businesses.
<PAGE>
THE E. W. SCRIPPS COMPANY
Index to Exhibits
Exhibit
No. Item Page
12 Ratio of Earnings to Fixed Charges E-2
<TABLE>
RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12
<CAPTION>
( in thousands ) Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
EARNINGS AS DEFINED:
Earnings from operations before income taxes after
eliminating undistributed earnings of 20%- to
50%-owned affiliates $ 68,406 $ 43,362 $ 190,399 $ 132,404
Fixed charges excluding capitalized interest and
preferred stock dividends of majority-owned
subsidiary companies 3,313 3,548 10,172 8,873
Earnings as defined $ 71,719 $ 46,910 $ 200,571 $ 141,277
FIXED CHARGES AS DEFINED:
Interest expense, including amortization of
debt issue costs $ 2,300 $ 2,713 $ 7,350 $ 6,350
Interest capitalized 352 158 773 567
Portion of rental expense representative
of the interest factor 1,013 835 2,822 2,523
Preferred stock dividends of majority-owned
subsidiary companies 20 20 60 60
Fixed charges as defined $ 3,685 $ 3,726 $ 11,005 $ 9,500
RATIO OF EARNINGS TO FIXED CHARGES 19.46 12.59 18.23 14.87
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 14,597
<SECURITIES> 0
<RECEIVABLES> 174,226
<ALLOWANCES> 4,915
<INVENTORY> 12,683
<CURRENT-ASSETS> 317,953
<PP&E> 806,709
<DEPRECIATION> 376,378
<TOTAL-ASSETS> 1,522,910
<CURRENT-LIABILITIES> 234,966
<BONDS> 52,671
0
0
<COMMON> 811
<OTHER-SE> 1,032,702
<TOTAL-LIABILITY-AND-EQUITY> 1,522,910
<SALES> 0
<TOTAL-REVENUES> 882,403
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 700,747
<LOSS-PROVISION> 5,869
<INTEREST-EXPENSE> 7,350
<INCOME-PRETAX> 190,813
<INCOME-TAX> 80,873
<INCOME-CONTINUING> 107,180
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 107,180
<EPS-PRIMARY> $1.32
<EPS-DILUTED> $1.32
</TABLE>
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