SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
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 45201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (513) 977-3000
Title of each class Name of each exchange
Securities registered pursuant to on which registered
Section 12(b) of the Act:
Class A Common Shares, $.01 par value New York Stock Exchange
Securities registered pursuant to
Section 12(g) of the Act:
Not applicable
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 by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of the
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
X
The aggregate market value of Class A Common Shares of the
Registrant held by nonaffiliates of the Registrant, based on
the $53.06 per share closing price for such stock on
February 28, 1998, was approximately $1,447,000,000. As of
February 28, 1998, nonaffiliates held approximately
1,563,000 Common Voting Shares. There is no active market
for such stock.
As of February 28, 1998, there were 61,535,430 of the
Registrant's Class A Common Shares, $.01 par value per
share, outstanding and 19,218,913 of the Registrant's Common
Voting Shares, $.01 par value per share, outstanding.
<PAGE>
INDEX TO THE E. W. SCRIPPS COMPANY
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997
Item No. Page
PART I
1. Business
Newspapers 3
Broadcast Television 7
Category Television 10
Licensing and Other Media 11
Employees 12
2. Properties 12
3. Legal Proceedings 12
4. Submission of Matters to a Vote of Security Holders 12
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters 13
6. Selected Financial Data 13
7. Management's Discussion and Analysis of Financial
Condition and Results of Operation 13
8. Financial Statements and Supplementary Data 13
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 13
PART III
10. Directors and Executive Officers of the Registrant 14
11. Executive Compensation 15
12. Security Ownership of Certain Beneficial Owners and Management 15
13. Certain Relationships and Related Transactions 15
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 15
<PAGE>
PART I
ITEM 1. BUSINESS
The E. W. Scripps Company ("Company") is a diversified media
company operating in three reportable segments: newspapers,
broadcast television and category television. The newspaper
segment includes 20 daily newspapers in the U.S. The
broadcast television segment includes nine network-
affiliated stations. Category television includes Home &
Garden Television ("HGTV"), The Television Food Network
("Food Network"), and the Company's 12% equity interest in
SportSouth, a regional cable television network. Licensing
and other media aggregates the Company's operating segments
that are too small to report separately, including
syndication and licensing of news features and comics,
television program production, and publication of
independent telephone directories. A summary of segment
information for the three years ended December 31, 1997, is
set forth on page F-31 of this Form 10-K.
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. Despite the economic gain, accounting rules
required the Company to record the Cable Transaction as a
spin-off, at net book value, of Scripps Cable to the
Company's shareholders. Therefore no gain was reflected in
the Company's financial statements.
Scripps Cable represented an entire business segment,
therefore its results are reported as a "discontinued
operation" for all periods presented (see Note 15 to the
Consolidated Financial Statements). 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."
Newspapers
General - The Company publishes daily newspapers in 20
markets. From its Washington bureau the Company operates
the Scripps Howard News Service, a supplemental wire service
covering stories in the capital, other parts of the United
States and abroad. The Company acquired or divested the
following newspaper operations in the five years ended
December 31, 1997:
1997 - Acquired daily newspapers in Abilene, Corpus
Christi, Plano, San Angelo and Wichita Falls, Texas, and
a daily newspaper in Anderson, South Carolina. Traded
its Monterey and San Luis Obispo, California, daily
newspapers for the daily newspaper in Boulder, Colorado,
and terminated the joint operating agency and ceased
operations of its newspaper in El Paso, Texas.
1996 - Acquired the Vero Beach, Florida, daily newspaper.
1995 - Divested the Watsonville, California, daily
newspaper.
1993 - Divested the Tulare, California, and San Juan,
Puerto Rico, newspapers.
<PAGE>
Revenues - The Company's newspaper operating revenues for
the five years ended December 31, 1997, were as follows:
<TABLE>
<CAPTION>
( in thousands )
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Newspaper advertising:
Local ROP $ 221,199 $ 192,563 $ 185,821 $ 179,599 $ 167,247
Classified ROP 214,912 184,629 170,058 153,156 133,588
National ROP 23,056 19,384 16,480 14,963 11,490
Preprint and other 73,268 64,538 65,585 60,045 54,436
Total newspaper advertising 532,435 461,114 437,944 407,763 366,761
Circulation 129,612 121,365 117,288 109,057 105,952
Joint operating agency distributions 47,052 39,341 39,476 39,375 33,793
Other 14,689 8,669 7,399 7,745 8,462
Total 723,788 630,489 602,107 563,940 514,968
Divested newspapers 27,226 40,372 38,291 38,998 53,086
Total newspaper operating revenues $ 751,014 $ 670,861 $ 640,398 $ 602,938 $ 568,054
</TABLE>
The Company's newspaper operating revenues are derived
primarily from advertising and circulation. Joint operating
agency distributions represent the Company's share of
profits of newspapers managed by the other parties to joint
operating agencies (see "Joint Operating Agencies"). Other
newspaper operating revenues include commercial printing.
Advertising rates and revenues vary among the Company's
newspapers depending on circulation, type of advertising,
local market conditions and competition. Advertising
revenues are derived from run-of-paper ("ROP")
advertisements included with news stories in the body of the
newspaper and from preprinted advertisements that are
generally produced by advertisers and inserted into the
newspaper.
ROP is further broken down among "local," "classified" and
"national" advertising. Local refers to advertising that is
not in the classified advertising section and is purchased
by in-market advertisers. Classified refers to advertising
in the section of the newspaper that is grouped by type of
advertising, e.g., automotive and help wanted. National
refers to advertising purchased by businesses that operate
beyond the local market and purchase advertising from many
newspapers, primarily through advertising agencies. A given
volume of ROP advertisements is generally more profitable to
the Company than the same volume of preprinted
advertisements.
Advertising revenues vary through the year, with the first
and third quarters generally having lower revenues than the
second and fourth quarters. Advertising rates and volume
are highest on Sundays, primarily because circulation and
readership is greatest on Sundays.
Full-run ROP advertising volume for the Company's newspapers
was as follows (excluding divested newspapers):
<TABLE>
<CAPTION>
( in thousands )
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Newspaper advertising inches:
Local 7,889 6,332 6,124 6,186 5,894
Classified 7,611 6,228 5,796 5,876 5,387
National 477 375 307 275 244
Total full-run advertising inches 15,977 12,935 12,227 12,337 11,525
</TABLE>
<PAGE>
Circulation revenues are derived from home delivery sales of
newspapers to subscribers and from single-copy sales made
through retail outlets and vending machines. Circulation
information for the Company's daily newspapers is as follows:
<TABLE>
<CAPTION>
( in thousands ) (1) Morning (M)
Newspaper Evening (E) 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Daily Paid Circulation
Abilene (TX) Reporter-News M (5) 40.3 41.3 42.7 42.7 42.6
Albuquerque (NM) Tribune (2) E 25.1 27.2 30.0 32.4 34.7
Anderson (SC) Independent-Mail M (5) 41.4 42.0 42.4 42.9 42.5
Birmingham (AL) Post-Herald (2) E (3) 25.6 49.7 58.2 59.6 60.1
Boulder (CO) Camera M (5) 34.2 33.9 34.7 34.6 34.6
Bremerton (WA) Sun M (4) 38.4 36.2 35.9 38.2 39.6
Cincinnati (OH) Post (2) E (6) 77.2 81.3 87.4 90.9 95.1
Corpus Christi (TX) Caller-Times M (5) 68.1 64.8 66.4 66.3 66.8
Denver (CO) Rocky Mountain News M 302.9 316.9 331.0 344.9 342.9
Evansville (IN) Courier (2) M 61.8 60.5 61.8 62.8 64.3
Knoxville (TN) News-Sentinel M 122.3 122.7 124.9 127.9 123.9
Memphis (TN) Commercial Appeal M 185.7 182.6 190.2 198.0 196.2
Naples (FL) Daily News M 49.2 48.4 47.8 45.2 44.1
Plano (TX) Star Courier M (5) 10.9 11.8 12.3 12.9 12.9
Redding (CA) Record-Searchlight M (4) 35.7 35.2 37.7 37.1 38.4
San Angelo (TX) Standard-Times M (5) 31.5 32.2 32.7 32.2 32.3
Stuart (FL) News M 35.4 35.1 36.3 34.7 33.1
Ventura County (CA) Star M (4) 95.9 94.7 96.3 102.9 99.6
Vero Beach (FL) Press Journal M (5) 32.4 33.3 32.9 32.2 31.5
Wichita Falls (TX) Times Record News M (5) 37.9 38.0 38.4 39.3 39.1
Total Daily Circulation 1,351.9 1,387.8 1,440.0 1,477.7 1,474.3
Sunday Paid Circulation
Abilene (TX) Reporter-News (5) 50.4 51.5 52.8 53.7 54.1
Anderson (SC) Independent-Mail (5) 47.8 48.1 48.5 49.0 48.4
Boulder (CO) Camera (5) 41.4 41.7 42.7 43.1 44.0
Bremerton (WA) Sun 41.7 39.8 39.6 40.5 40.7
Corpus Christi (TX) Caller-Times (5) 89.4 88.1 96.1 95.3 95.0
Denver (CO) Rocky Mountain News 415.7 406.5 436.1 447.2 453.3
Evansville (IN) Courier 109.2 109.6 114.0 116.4 118.6
Knoxville (TN) News-Sentinel 166.2 167.6 174.8 177.9 183.5
Memphis (TN) Commercial Appeal 256.6 259.4 269.4 279.9 279.5
Naples (FL) Daily News 63.1 61.5 61.4 58.4 57.4
Plano (TX) Star Courier (5) 12.6 13.2 13.9 14.8 14.5
Redding (CA) Record-Searchlight 38.1 38.2 39.9 40.3 40.7
San Angelo (TX) Standard-Times (5) 37.7 38.7 39.4 38.9 39.3
Stuart (FL) News 45.4 44.1 44.4 43.1 40.6
Ventura County (CA) Star 103.4 102.8 104.0 108.8 106.2
Vero Beach (FL) Press Journal (5) 35.9 35.7 35.3 34.5 33.8
Wichita Falls (TX) Times Record News (5) 44.4 45.2 46.8 48.1 48.0
Total Sunday Circulation 1,599.0 1,591.7 1,659.1 1,689.9 1,697.6
</TABLE>
(1) Based on Audit Bureau of Circulation Publisher's
Statements ("Statements") for the six-month periods
ending September 30, except figures for the Naples Daily
News, the Stuart News and the Vero Beach Press Journal
which are from the Statements for the twelve-month
periods ending September 30.
(2) This newspaper is published under a JOA with another
newspaper in its market. See "Joint Operating Agencies."
(3) Moved to evening distribution in 1996.
(4) Redding moved from evening to morning distribution
in 1994. Bremerton and the Thousand Oaks and Simi Valley
editions of the Ventura County newspaper moved to morning
distribution in 1995.
(5) Abilene, Anderson, Boulder, Corpus Christi, Plano,
San Angelo and Wichita Falls acquired in 1997. Vero
Beach acquired in 1996.
(6) Includes circulation of The Kentucky Post.
<PAGE>
Joint Operating Agencies - The Company is currently a party
to newspaper joint operating agencies ("JOAs") in four
markets. A JOA combines all but the editorial operations of
two competing newspapers in a market in order to reduce
aggregate expenses and take advantage of economies of scale,
thereby allowing the continuing operation of both newspapers
in that market. The Newspaper Preservation Act of 1970
("NPA") provides a limited exemption from anti-trust laws,
generally permitting the continuance of JOAs in existence
prior to the enactment of the NPA and the formation, under
certain circumstances, of new JOAs between newspapers.
Except for the Company's JOA in Cincinnati, all of the
Company's JOAs were entered into prior to the enactment of
the NPA. From time to time the legality of pre-NPA JOAs has
been challenged on anti-trust grounds but no such challenge
has yet succeeded in the courts.
JOA revenues less JOA expenses, as defined in each JOA,
equals JOA profits, which are split between the parties to
the JOA. In each case JOA expenses exclude editorial
expenses. The Company manages the JOA in Evansville and
receives approximately 80% of JOA profits. Each of the
other three JOAs are managed by the other party to the JOA.
The Company receives approximately 20% to 40% of JOA profits
for those JOAs.
The table below provides certain information about the
Company's JOAs.
<TABLE>
<CAPTION>
Year JOA Year of JOA
Newspaper Publisher of Other Newspaper Entered Into Expiration
<S> <S> <C> <C>
Managed by the Company:
The Evansville Courier Hartmann Publications 1938 1998
Managed by Other Publisher:
The Albuquerque Tribune Journal Publishing Company 1933 2022
Birmingham Post-Herald Newhouse Newspapers 1950 2015
The Cincinnati Post Gannett Co., Inc. 1977 2007
</TABLE>
The JOAs generally provide for automatic renewal terms of
ten years unless an advance notice of termination ranging
from two to five years is given by either party. The
Company has notified Hartmann Publications of its intent to
terminate the Evansville JOA.
Competition - The Company's newspapers compete for
advertising revenues primarily with other local media,
including other local newspapers, television and radio
stations, cable television, telephone directories and direct
mail. Competition for advertising revenues is based upon
audience size and demographics, price and effectiveness.
Changes in technology and new media, such as electronic
publications, may create additional competitors for
classified advertising revenue. Most of the Company's
newspapers publish electronic versions of the newspaper on
the internet. Newspapers compete with all other information
and entertainment media for consumers' discretionary time.
All of the Company's newspaper markets are highly
competitive, particularly Denver, the largest market in
which the Company publishes a newspaper.
Newspaper Production - The Company's daily newspapers are
printed using offset or flexographic presses and use
computer systems for writing, editing and composing and
producing the advertising and news material printed in each
edition.
Raw Materials and Labor Costs - The Company consumed
approximately 214,000 metric tons of newsprint for the year
ended December 31, 1997 and 190,000 metric tons of newsprint
in 1996. The Company purchases newsprint from various
suppliers, many of which are Canadian. Management believes
that the Company's sources of supply of newsprint are
adequate for its anticipated needs.
Newsprint prices have fluctuated widely in recent years.
Newsprint prices generally declined from 1992 through 1998,
but began rising in the first quarter of 1994, from
approximately $420 per metric tonne to $745 by the first
quarter of 1996. Newsprint prices declined from that
level, to approximately $500 by March 1997, before
beginning to increase to $560 in December 1997. The
March 1998 price of newsprint is 8% higher than the average
price in 1997. At the current price, newsprint costs in
1998 would increase approximately 30%. However, some
newsprint suppliers have announced a 7% price increase
effective April 1, 1998. It is uncertain if the announced
increase will be billed or, rather, resistance from buyers
will cause suppliers to reduce or delay the increase.
Labor costs accounted for approximately 43% of the Company's
newspaper operating expenses in 1997 and in 1996. A
substantial number of the Company's newspaper employees are
represented by labor unions. See "Employees."
<PAGE>
Broadcast Television
General - The Company's broadcast television segment
consists of nine network-affiliated television stations.
The Company acquired or divested the following broadcast
operations in the five years ended December 31, 1997:
1993 - Divested radio stations and Memphis, Tennessee,
television station.
Revenues - The Company's broadcasting operating revenues for
the five years ended December 31, 1997, were as follows:
<TABLE>
<CAPTION>
( in thousands )
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Local advertising $ 171,211 $ 159,412 $ 150,489 $ 142,491 $ 130,603
National advertising 139,322 127,172 125,476 122,668 114,558
Political advertising 2,106 19,505 3,207 14,291 1,344
Other 18,577 17,378 16,056 8,734 8,439
Total 331,216 323,467 295,228 288,184 254,944
Divested television and radio stations 29,350
Total broadcasting operating revenues $ 331,216 $ 323,467 $ 295,228 $ 288,184 $ 284,294
</TABLE>
The Company's television operating revenues are derived
primarily from the sale of time to businesses for commercial
messages that appear during entertainment and news
programming. Local and national advertising refer to time
purchased by local, regional and national businesses;
political refers to campaigns for elective office and
campaigns for political issues. Automobile advertising
accounts for approximately one-fourth of the Company's local
and national advertising revenues.
The first and third quarters of each year generally have
lower advertising revenues than the second and fourth
quarters. The television stations have benefited from
increasing political advertising in even-numbered years
when congressional and presidential elections occur,
making it more difficult to achieve year-over-year
increases in operating results in odd-numbered years.
Other revenues primarily consist of network compensation
(see "Network Affiliation and Programming"). The new and
extended network affiliation agreements signed in 1994 and
1995 with ABC caused the increase in network compensation
payments.
<PAGE>
Information concerning the Company's stations and the
markets in which they operate is as follows:
<TABLE>
<CAPTION>
Current
Expiration Affiliation Stations
Network of FCC Rank of Agreement in
Station and Market Affiliation License Market(1) Expires Market(3) 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
WXYZ, Detroit, Ch. 7 ABC 2005 9 2004 6
Average Audience Share (2) 18 21 21 21 21
Station Rank in Market (3) 2 1 1 1 1
WEWS, Cleveland, Ch. 5 ABC 2005 13 2004 11
Average Audience Share (2) 17 19 19 20 20
Station Rank in Market (3) 2 1 1 1 1
WFTS, Tampa, Ch. 28 ABC (5) 2005 15 2004 10
Average Audience Share (2) 9 9 11 8 8
Station Rank in Market (3) 4 4 4 4 4
KNXV, Phoenix, Ch. 15 ABC (5) 1998 17 2004 11
Average Audience Share (2) 10 10 11 10 9
Station Rank in Market (3) 4 4 3 4 4
WMAR, Baltimore, Ch. 2 ABC (5) 2001 23 2005 6
Average Audience Share (2) 11 12 14 17 19
Station Rank in Market (3) 3 3 3 3 2
WCPO, Cincinnati, Ch. 9 ABC (4) 2005 30 2006 6
Average Audience Share (2) 17 18 17 19 21
Station Rank in Market (3) 1 1 1 1 1
KSHB, Kansas City, Ch. 41 NBC (6) 2006 31 2004 8
Average Audience Share (2) 10 10 11 11 10
Station Rank in Market (3) 4 4 4 4 4
WPTV, W. Palm Beach, Ch. 5 NBC 2005 43 2004 7
Average Audience Share (2) 19 20 21 20 24
Station Rank in Market (3) 1 1 1 1 1
KJRH, Tulsa, Ch. 2 NBC 1998 58 2004 8
Average Audience Share (2) 14 14 16 16 15
Station Rank in Market (3) 3 3 3 4 3
</TABLE>
All market and audience data is based on the November A.C. Nielsen
Company survey.
(1) Rank of Market represents the relative size of the television
market in the United States.
(2) Represents the number of television households tuned to a
specific station from 6 a.m. to 2 a.m. each day, as a
percentage of total viewing households in Area of
Dominant Influence.
(3) Stations in Market does not include public broadcasting
stations, satellite stations, or translators which rebroadcast
signals from distant stations. Station Rank in Market is
based on Average Audience Share as described in (2).
(4) Prior to June 1996, WCPO was a CBS affiliate.
(5) Prior to January 1995, WFTS and KNXV were FOX affiliates and WMAR
was a NBC affiliate.
(6) Prior to September 1994, KSHB was a FOX affiliate.
<PAGE>
Competition - The Company's television stations compete for
advertising revenues primarily with other local media,
including other television stations, radio stations, cable
television, newspapers, and telephone directories and direct mail.
Competition for advertising revenues is based upon audience size
and demographics, price and effectiveness. Television stations
compete for consumers' discretionary time with all other
information and entertainment media. Continuing
technological advances will improve the capability of
alternative service providers such as traditional cable,
"wireless" cable and direct broadcast satellite television
to offer video services in competition with terrestrial
broadcasting. The degree of competition is expected to
increase. The Company intends to undertake upgrades in its
services as may be permitted by the Federal Communications
Commission ("FCC") to maintain its competitive posture.
Such facility upgrades may require large capital
investments. Technological advances in interactive media
services will increase these competitive pressures.
Network Affiliation and Programming - The Company's
television stations are affiliated with national television
networks. The networks offer a variety of programs to
affiliated stations, which have the right of first refusal
before such programming may be offered to other television
stations in the same market. Networks compensate affiliated
stations for carrying network programming.
In addition to network programs, the Company's television
stations broadcast locally produced programs, syndicated
programs, sports events, movies and public service programs.
News is the focus of the Company's locally produced
programming. Advertising during local news programs
accounts for more than 30% of revenues.
Federal Regulation of Broadcasting - Television broadcasting
is subject to the jurisdiction of the FCC pursuant to the
Communications Act of 1934, as amended ("Communications
Act"). The Communications Act prohibits the operation of
television broadcasting stations except in accordance with a
license issued by the FCC and empowers the FCC to revoke,
modify and renew broadcasting licenses, approve the transfer
of control of any corporation holding such licenses,
determine the location of stations, regulate the equipment
used by stations and adopt and enforce necessary
regulations. The Telecommunications Act of 1996 (the "1996
Act") significantly relaxed the regulatory environment
applicable to broadcasters.
Under the 1996 Act, television broadcast licenses may be
granted for a term of eight years, rather than five, and
they remain renewable upon request. While there can be no
assurance regarding the renewal of the Company's television
broadcast licenses, the Company has never had a license
revoked, has never been denied a renewal and all previous
renewals have been for the maximum term.
FCC regulations govern the multiple ownership of television
stations and other media. Under the multiple ownership
rule, a license for a television station will generally not
be granted or renewed if (i) the applicant already owns,
operates, or controls a television station serving
substantially the same area, or (ii) the grant of the
license would result in the applicant's owning, operating,
controlling, or having an interest in television stations
whose total national audience reach exceeds 35% of all
television households. The legislation also directed the
FCC to promptly reconsider its local multiple ownership
limits for television. The FCC rules also generally
prohibit "cross-ownership" of a television station and daily
newspaper or cable television system in the same service
area. The Company's television station and daily newspaper
in Cincinnati were owned by the Company at the time the
cross-ownership rules were enacted and enjoy "grandfathered"
status. These properties would become subject to the cross-
ownership rules upon their sale.
Under the Cable Television Consumer Protection and
Competition Act of 1992 ("1992 Act"), each television
broadcast station gained "must-carry" rights on any cable
system defined as "local" with respect to that station.
Stations may waive their must-carry rights and instead
negotiate retransmission consent agreements with local cable
companies. The Company's stations have generally elected to
negotiate retransmission consent agreements with cable
companies. A challenge to the validity of the must-carry
rules is pending before the United States Supreme Court.
Management believes the Company is in substantial compliance
with all applicable regulatory requirements.
<PAGE>
Category Television
General - The Company's category television segment includes
HGTV, Food Network and a 12% interest in SportSouth, a
regional cable television network. The Company acquired
its approximate 56% controlling interest in Food
Network in 1997.
Food Network began telecasting in December 1993 and HGTV on
December 31, 1994.
Revenues - The Company's category television revenues for
the five years ended December 31, 1997, were as follows:
<TABLE>
<CAPTION>
( in thousands )
1997 1996 1995
<S> <C> <C> <C>
Advertising 36,603 14,888 8,175
Affiliate fees 19,711 6,943 3,021
Other 2,082 280 140
Total category television operating revenues 58,396 22,111 11,336
</TABLE>
Category television revenues are derived from the sale of
advertising time and, if provided for in the affiliation
agreement, from affiliate fees received from cable
television and other distribution systems that carry the
networks. Such fees are generally based on the number of
subscribers who receive the networks. Most of Food
Network's affiliation agreements do not provide for
affiliate fees.
Programming - HGTV features 24 hours of daily programming,
focusing on home repair and remodeling, gardening,
decorating and other activities associated with the home.
Food Network also features 24 hours of daily programming,
focusing on food and nutrition. Both HGTV and Food Network
strive to entertain as well as inform viewers.
Some programming is produced internally and other programming
is purchased from a variety of independent producers. Programming
is transmitted via satellite to cable television systems and to
satellite dish owners.
Competition - HGTV and Food Network compete with other television
networks for distribution on cable television and direct broadcast
satellite systems, and for advertiser support. Popularity of the
programming is a primary factor in obtaining and retaining distribution
and attracting advertising revenues. Because of limited channel
capacity, cable television system operators have been able to demand
incentive payments or equity interests in cable television programming
networks in exchange for long-term agreements to distribute the
networks. In 1996 and 1997 the Company agreed to pay
distribution fees of approximately $75,000,000 to certain
cable and direct broadcast satellite systems in exchange for
long-term contracts to carry HGTV. The amount of the
incentives approximates the affiliate fee revenue HGTV
expects to receive over the lives of the contracts. In 1996
and 1997 Food Network paid approximately $6,000,000 in
distribution fees (including $1,500,000 subsequent to its
acquisition by the Company) to cable television systems in
exchange for long-term contracts that do not provide for
affiliate fee revenue, and approximately $10,000,000 to
direct broadcast satellite systems for long-term contracts
that do provide for affiliate fee revenue. Advertising
revenues are expected to increase as distribution of the
networks increases, consistent with the historical growth in
advertising revenues.
According to the Nielsen Homevideo Index, HGTV was telecast
to 36.1 million homes in December 1997, up 10.9 million from
December 1996. Food Network was telecast to 29.1 million
homes in December 1997, up 10.0 million from December 1996.
Additional distribution fees may be required to obtain
carriage on additional cable television systems.
Management believes the popularity of HGTV and Food Network,
which consistently rank among the favorite channels of cable
television subscribers, will enable the Company to expand
distribution and to attract additional advertising revenue.
<PAGE>
Licensing and Other Media
General - Licensing and other media aggregates operating
segments that are too small to report separately, including
syndication and licensing of news features and comics,
television program production, and publication of
independent telephone directories. The Company announced
its intention to sell Scripps Howard Productions in December 1997.
The Company will continue to operate Cinetel Productions, which
produces non-fiction programming for broadcast and cable
television.
Cinetel was acquired on March 31, 1994. SHP began
operations in 1993 and sold its first programs in 1995.
Revenues - The Company's licensing and other media revenues
for the five years ended December 31, 1997, were as follows:
<TABLE>
<CAPTION>
( in thousands )
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Licensing $ 56,813 $ 53,672 $ 49,366 $ 49,236 $ 55,083
Newspaper feature distribution 20,920 20,695 18,915 17,998 18,814
Program production 17,823 29,062 13,554 5,682 10,757
Other 5,775 1,990 1,581 557 87
Total licensing and other media revenues $ 101,331 $ 105,419 $ 83,416 $ 73,473 $ 84,741
</TABLE>
The Company, under the trade name United Media, is a leading
distributor of news columns, comics and other features for
the newspaper industry. Included among these features is
PEANUTS, one of the most successful strips in the history
of comic art. United Media sold its worldwide GARFIELD
and U.S. ACRES copyrights in 1994. Program production
revenues prior to 1994 were primarily related to GARFIELD
television programming.
United Media owns and licenses worldwide copyrights relating
to PEANUTS and other character properties for use on
numerous products, including plush toys, greeting cards and
apparel, for promotional purposes and for exhibit on
television, video cassettes and other media. PEANUTS
provides more than 80% of the Company's licensing revenues.
Approximately 70% of PEANUTS licensing revenues are earned
in international markets, with the Japanese market providing
approximately two-thirds of international revenue.
Merchandise, literary and exhibition licensing revenues are
generally a negotiated percentage of the licensee's sales.
The Company generally receives a fixed fee for the use of
its copyrights for promotional and advertising purposes.
The Company generally pays a percentage of gross syndication
and licensing royalties to the creators of these properties.
Cinetel and SHP create, develop and produce television
programming product for domestic and international markets.
Programs are developed and produced internally and in
collaboration with a number of independent writers,
producers and creative teams under production arrangements.
Generally, Cinetel licenses the initial telecast rights for
programs prior to commencing production. Initial license
fees commonly approximate the production costs of a program.
Additional license fees may be pursued from foreign,
syndicated television, cable television and home video
markets. The ultimate profitability of the Company's
programs is dependent upon public taste, which is
unpredictable and subject to change.
Competition - The Company's newspaper feature distribution
operations compete for a limited amount of newspaper space
with other distributors of news columns, comics and other
features. Competition is primarily based on price and
popularity of the features. Popularity of licensed
characters is a primary factor in obtaining and renewing
merchandise and promotional licenses.
The Company's program production operations compete with all
forms of entertainment. In addition to competing for market
share with other entertainment companies, the Company also
competes to obtain creative talents and story properties. A
significant number of other companies produce and/or
distribute programs. Competition is primarily based on
price, quality of the programming and public taste.
<PAGE>
Employees
As of December 31, 1997, the Company had approximately 8,100
full-time employees, of whom 6,000 were engaged in newspapers,
1,500 in broadcast television, 300 in category television
and 200 in licensing and other media. Various labor unions
represent approximately 2,800 employees, primarily in newspapers.
The present operations of the Company have not experienced any
work stoppages since March 1985. The Company considers its
relationship with employees to be generally satisfactory.
ITEM 2. PROPERTIES
The properties used in the Company's newspaper operations
generally include business and editorial offices and
printing plants.
The Company's television operations require offices and
studios and other real property for towers upon which
broadcasting transmitters and antenna equipment are located.
Increased capital expenditures in 1994 and 1995 are
associated with more local news programming, primarily, in
Kansas City, Phoenix and Tampa. Ongoing advances in the
technology for delivering video signals to the home, such as
"high definition television," may, in the future, require a
high level of capital expenditures in order to maintain
competitive position. The Company's Detroit station is
expected to begin high definition broadcasting in 1998.
Capital spending is expected to increase from $16,000,000
in 1997 to approximately $38,000,000 in 1998 and $33,000,000
in 1999, including costs of a new building for the Phoenix
and West Palm Beach stations.
The Company's category television operations require offices
and studios and other real and personal property to produce
programs and to transmit the network programming via leased
satellite. HGTV and Cinetel operate from an 80,000 square-
foot production facility in Knoxville. Food Network
operates from leased facilities in New York.
Management believes the Company's present facilities are
generally well-maintained and are sufficient to serve its
present needs.
ITEM 3. 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
primarily relating to renewal of broadcast licenses, none of
which is expected to result in material loss.
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.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Class A Common Shares are traded on the New
York Stock Exchange ("NYSE") under the symbol "SSP." There
are approximately 5,000 owners of the Company's Class A
Common Shares, based on security position listings, and 21
owners of Company's Common Voting Shares (which does not
have a public market). The Company has declared cash
dividends in every year since its incorporation in 1922.
Future dividends are, however, subject to the Company's
earnings, financial condition and capital requirements.
The range of market prices of the Company's Class A Common
Shares, which represents the high and low sales prices for
each full quarterly period, and quarterly cash dividends,
are as follows:
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
<S> <C> <C> <C> <C> <C>
1997
Market price of common stock:
High $37.500 $41.750 $43.938 $48.938
Low 32.625 32.250 36.563 40.250
Cash dividends per share of common stock $ .13 $ .13 $ .13 $ .13 $ .52
1996
Market price of common stock:
High $43.500 $47.000 $47.500 $52.375
Low 38.125 40.625 40.750 32.750
Cash dividends per share of common stock $ .13 $ .13 $ .13 $ .13 $ .52
</TABLE>
On November 13, 1996, the Company completed the Cable
Transaction. For each share of the Company, shareholders
received 1.15826 shares of Class A Special Common Stock of
Comcast Corporation with a value of $19.83, based on
Comcast's November 13, 1996, closing price of $17.125 on
NASDAQ.
ITEM 6. SELECTED FINANCIAL DATA
The Selected Financial Data required by this item is filed
as part of this Form 10-K. See Index to Consolidated
Financial Statement Information at page F-1 of this Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Management's Discussion and Analysis of Financial Condition
and Results of Operation required by this item is filed as
part of this Form 10-K. See Index to Consolidated Financial
Statement Information at page F-1 of this Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Supplementary Data required by
this item is filed as part of this Form 10-K. See Index to
Consolidated Financial Statement Information at page F-1 of
this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Executive Officers
Executive officers serve at the pleasure of the Board of
Directors. Certain information about such officers appears
in the table below.
Name Age Position
Lawrence A. Leser 62 Chairman of the Board of
Directors (since August 1994);
Director (since 1977); Chief
Executive Officer (1985 to 1996);
President (1985 to August 1994)
William R. Burleigh 62 Chief Executive Officer (since
May 1996); President (since August
1994); Director (since 1990); Chief
Operating Officer (1994 to 1996);
Executive Vice President (1990 to
1994)
Daniel J. Castellini 58 Senior Vice President/Finance
and Administration (since 1986)
Paul F. (Frank) Gardner 55 Senior Vice President/Television
(since April 1993); Senior Vice
President, News Programming, Fox
Broadcasting Company (1991 to 1993)
Alan M. Horton 54 Senior Vice President/Newspapers
(since May 1994); Vice President/
Operations, Newspapers (1991 to 1994)
Craig C. Standen 55 Senior Vice President/Corporate
Development (since August 1994); Vice
President/Marketing-Advertising,
Newspapers (1990 to 1994)
J. Robert Routt 43 Vice President and Controller
(since 1985)
E. John Wolfzorn 52 Treasurer (since 1979)
M. Denise Kuprionis 41 Corporate Secretary (since 1987)
Gregory L. Ebel 42 Vice President/Human Resources
(since 1994); Senior Vice
President, PNC Bank Ohio (1990 to
1994)
Richard A. Boehne 41 Vice President/Corporate
Communications and Investor
Relations (since 1995); Director of
Corporate Communications and
Investor Relations (1989 to 1994)
Jeffrey J. Hively 44 Vice President/Newspaper
Operations (since May 1994);
Director of Circulation (1992 to
1994)
Stephen W. Sullivan 51 Vice President/Newspapers (since
October 1997); previously Senior
Vice President, Harte-Hanks
Communications, Inc. and President,
Harte-Hanks Newspapers
Daniel K. Thomasson 64 Vice President/News -
Newspapers (since 1986)
James M. Hart 56 Vice President/Television
(since May 1995); President,
Multimedia, Inc.'s broadcasting
division (1994 to 1995); Vice
President and General Manager WBIR,
a Multimedia television station
(1981 to 1994)
Neal F. Fondren 39 Vice President/New Media
(since November 1996); Director
Administration and Business
Development, Cable Division (1994
to 1996); General Manager Northwest
Georgia cable systems (1990 to 1994)
<PAGE>
Directors
The information required by Item 10 of Form 10-K relating to
directors of the Company is incorporated by reference to the
material captioned "Election of Directors" in the Company's
definitive proxy statement for the Annual Meeting of
Shareholders ("Proxy Statement"). The Proxy Statement will
be filed with the Securities and Exchange Commission on or
before April 30, 1998.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 of Form 10-K is
incorporated by reference to the material captioned
"Executive Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 of Form 10-K is
incorporated by reference to the material captioned
"Security Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 of Form 10-K is
incorporated by reference to the material captioned "Certain
Transactions" in the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Financial Statements and Supplemental Schedules
(a) The consolidated financial statements of the Company
are filed as part of this Form 10-K. See Index to
Consolidated Financial Statement Information at page
F-1.
The report of Deloitte & Touche LLP, Independent
Auditors, dated January 22, 1998, is filed as part of
this Form 10-K. See Index to Consolidated Financial
Statement Information at page F-1.
(b) The consolidated supplemental schedules of the
Company are filed as part of this Form 10-K. See
Index to Consolidated Financial Statement Schedules
at page S-1.
Exhibits
The information required by this item appears at page E-1
of this Form 10-K.
<PAGE>
Reports on Form 8-K
A Current Report on Form 8-K reporting the Company's
agreement to acquire the newspaper and broadcast
properties of Harte-Hanks Communications, Inc. was filed
on June 5, 1997.
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 Section 13 or 15(d) 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, on March 27, 1998.
THE E. W. SCRIPPS COMPANY
By /s/ William R. Burleigh
William R. Burleigh
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant in the capacities
indicated, on March 27, 1998.
Signature Title
/s/ Lawrence A. Leser Chairman of the Board
Lawrence A. Leser
/s/ William R. Burleigh President, Chief Executive
William R. Burleigh Officer and Director
(Principal Executive Officer)
/s/ Daniel J. Castellini Senior Vice President/Finance
Daniel J. Castellini and Administration
(Principal Financial and
Accounting Officer)
/s/ Charles E. Scripps Chairman of the Executive
Charles E. Scripps Committee of the Board of
Directors
/s/ John H. Burlingame Director
John H. Burlingame
/s/ Daniel J. Meyer Director
Daniel J. Meyer
/s/ Nicholas B. Paumgarten Director
Nicholas B. Paumgarten
/s/ Paul K. Scripps Director
Paul K. Scripps
/s/ Robert P. Scripps Director
Robert P. Scripps
/s/ Ronald W. Tysoe Director
Ronald W. Tysoe
/s/ Julie A. Wrigley Director
Julie A. Wrigley
<PAGE>
THE E. W. SCRIPPS COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENT INFORMATION
Item No. Page
1. Selected Financial Data F-2
2. Management's Discussion and Analysis of Financial
Condition and Results of Operation
Consolidated Results of Continuing Operations F-5
Newspapers F-8
Broadcast Television F-9
Category Television F-10
Liquidity and Capital Resources F-11
Year 2000 Issues F-11
Market Risk F-11
3. Independent Auditors' Report F-13
4. Consolidated Balance Sheets F-14
5. Consolidated Statements of Income F-16
6. Consolidated Statements of Cash Flows F-17
7 Consolidated Statements of Stockholders' Equity F-18
8. Notes to Consolidated Financial Statements F-19
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA
<CAPTION>
( in millions, except share data )
1997 (1) 1996 (1) 1995 (1) 1994 (1) 1993 (1)
<S> <C> <C> <C> <C> <C>
Summary of Operations
Operating Revenues:
Newspapers $ 723.8 $ 630.5 $ 602.1 $ 563.9 $ 515.0
Broadcast television 331.2 323.5 295.2 288.2 254.9
Category television 58.4 22.1 11.3
Licensing and other media 101.3 105.4 83.4 73.5 84.7
Total 1,214.7 1,081.5 992.1 925.6 854.7
Divested operating units (2) 27.2 40.4 38.3 39.0 90.5
Total operating revenues $ 1,242.0 $ 1,121.9 $ 1,030.4 $ 964.6 $ 945.2
Operating Income (Loss):
Newspapers $ 172.7 $ 134.0 $ 120.8 $ 116.0 $ 73.8
Broadcast television 103.7 100.4 86.9 94.5 69.1
Category television (13.1) (17.9) (18.6) (9.1) (0.5)
Licensing and other media 2.9 6.5 4.2 2.1 3.7
Corporate (17.2) (18.5) (16.8) (15.5) (13.6)
Total 249.0 204.5 176.5 188.0 132.5
Divested operating units (2) 1.8 5.4 4.7 3.5 10.4
Unusual items (3) (4.0) (7.9) (0.9)
Total operating income 250.8 205.9 181.2 183.6 142.0
Interest expense (18.5) (9.6) (11.2) (16.3) (26.4)
Net gains on divested operating units (1) 47.6 91.9
Gain on sale of Garfield copyrights (4) 31.6
Other unusual credits (charges) (5) (2.7) 21.5 (16.9) 2.5
Miscellaneous, net 3.1 1.8 1.5 (0.9) (2.4)
Income taxes (6) (117.5) (86.0) (74.5) (80.4) (86.4)
Minority interests (5.1) (3.4) (3.3) (7.8) (16.2)
Income from continuing operations $ 157.7 $ 130.1 $ 93.6 $ 92.8 $ 104.9
Share Data
Income from continuing operations $1.93 $1.61 $1.17 $1.21 $1.40
Adjusted income from continuing operations
(excluding unusual items and net gains) 1.63 1.41 1.17 1.25 .72
Dividends .52 .52 .50 .44 .44
Other Operating Data
EBITDA(8) - excluding divested operating units(2) and unusual items(3):
Newspapers $ 217.1 $ 170.6 $ 155.5 $ 149.5 $ 109.7
Broadcast television 128.0 126.2 113.0 115.8 89.5
Category television (9.3) (16.4) (17.6) (9.1) (0.5)
Licensing and other media 5.3 8.8 6.3 3.8 4.6
Corporate (16.0) (17.4) (15.9) (14.8) (13.0)
Total $ 325.2 $ 271.8 $ 241.3 $ 245.2 $ 190.3
Note: Certain amounts may not foot as each is rounded independently.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
( in millions )
1997 (1) 1996 (1) 1995 (1) 1994 (1) 1993 (1)
<S> <C> <C> <C> <C> <C>
Cash Flow Statement Data
Net cash provided by continuing operations $ 196.9 $ 176.2 $ 113.8 $ 170.2 $ 142.0
Depreciation and amortization of intangible assets 77.6 69.4 66.6 58.9 60.8
Investing activity:
Capital expenditures (56.6) (53.3) (57.3) (54.0) (36.8)
Business acquisitions and investments (749.2) (127.7) (12.2) (32.4) (41.5)
Other (investing)/divesting activity, net 30.6 35.0 (18.7) 51.3 146.9
Financing activity:
Increase (decrease) in long-term debt 651.2 41.0 (29.7) (137.9) (194.0)
Dividends paid (46.0) (44.5) (42.6) (37.3) (37.0)
Purchase and retirement of common stock (25.7)
Other financing activity 3.0 8.5 5.5 1.7 1.9
Balance Sheet Data
Total assets $ 2,280.8 $ 1,468.7 $ 1,349.7 $ 1,286.7 $ 1,255.1
Long-term debt (including current portion) (7) 773.1 121.8 80.9 110.4 247.9
Stockholders' equity (7) 1,049.0 944.6 1,191.4 1,083.5 859.6
Long-term debt % of total capitalization (7) 42% 11% 6% 9% 22%
Discontinued Operation - Scripps Cable
Operating revenues $ 270.2 $ 279.5 $ 255.4 $ 251.8
Operating income excluding unusual items 60.7 64.8 43.4 45.8
Net income 39.5 39.8 29.9 23.8
Net income per share of common stock .49 .50 .39 .32
EBITDA - excluding unusual items 108.7 118.8 100.8 105.9
Capital expenditures (57.9) (47.5) (41.6) (67.0)
Note: Certain amounts may not foot as each is rounded independently.
</TABLE>
<PAGE>
Notes to Selected Financial Data
The income statement and cash flow data for the five years
ended December 31, 1997, and the balance sheet data as of the
same dates have been derived from the audited consolidated
financial statements of the Company. The data should be
read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operation"
and the consolidated financial statements and notes thereto
included elsewhere herein. All per share amounts are
presented on a diluted basis.
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
billion and the net book value of Scripps Cable was $356
million, yielding an economic gain of $1.237 billion to the
Company's shareholders. This gain is not reflected in the
Company's financial statements as accounting rules required
the Company to record the transaction at book value. Unless
otherwise noted, the data excludes the cable television
segment, which is reported as a discontinued business
operation.
(1) In the periods presented the Company acquired and divested the following:
Acquisitions
1997 - Daily newspapers in Abilene, Corpus Christi,
Plano, San Angelo, and Wichita Falls, Texas;
Anderson, South Carolina; and Boulder, Colorado (in
exchange for the Company's daily newspapers in Monterey and
San Luis Obispo, California). Approximate 56%
interest in The Television Food Network.
1996 - Vero Beach, Florida, daily newspaper.
1994 - The remaining 13.9% minority interest in Scripps
Howard Broadcasting Company ("SHB") in exchange for
4,952,659 Class A Common Shares. Cinetel Productions
(an independent producer of programs for cable
television).
1993 - Remaining 2.7% minority interest in the
Knoxville News-Sentinel and 5.7% of the outstanding
shares of SHB.
Divestitures
1997 - Monterey and San Luis Obispo, California, daily
newspapers (in exchange for Boulder, Colorado, daily
newspaper). Terminated joint operating agreement
("JOA") and ceased operations of El Paso, Texas, daily
newspaper. The JOA termination and trade resulted in
pre-tax gains totaling $47.6 million, increasing
income from continuing operations by $26.2 million, $.32
per share.
1995 - Watsonville, California, daily newspaper. No
material gain or loss was realized as proceeds
approximated the book value of net assets sold.
1993 - Book publishing; newspapers in Tulare,
California, and San Juan; Memphis television station;
radio stations. The divestitures resulted in net pre-
tax gains of $91.9 million, increasing income from
continuing operations by $46.8 million, $.63 per share.
(2) Noncable television operating units sold prior to December 31, 1997.
(3) Total operating income included the following:
1996 - A $4.0 million charge for the Company's share of
certain costs associated with restructuring portions
of the distribution system of the Cincinnati JOA.
The charge reduced income from continuing operations
by $2.6 million, $.03 per share.
1994 - A $7.9 million loss on program rights expected
to be sold as a result of changes in television
network affiliations. The loss reduced income from
continuing operations by $4.9 million, $.07 per share.
1993 - A change in estimate of disputed music license
fees increased operating income by $4.3 million; a gain
on the sale of certain publishing equipment increased
operating income by $1.1 million; a charge for workforce
reductions at 1) the Company's Denver newspaper and
2) the newspaper feature and the licensing operations
of United Media decreased operating income by $6.3 million.
The planned workforce reductions were fully implemented
in 1994. These items totaled $0.9 million and reduced
income from continuing operations by $0.6 million, $.01 per
share.
(4) In 1994 the Company sold its worldwide GARFIELD and
U.S. ACRES copyrights. The sale resulted in a pre-tax
gain of $31.6 million, $17.4 million after-tax, $.23 per
share.
(5) Other unusual credits (charges) included the following:
1997 - Write-down of investments totaling $2.7 million.
Income from continuing operations was reduced $1.7
million, $.02 per share.
1996 - A $40.0 million gain on the Company's investment
in Turner Broadcasting Systems when Turner was merged
into Time Warner; $3.0 million write-off of an
investment in Patient Education Media, Inc.; and
$15.5 million contribution to a charitable
foundation. These items totaled $21.5 million and
increased income from continuing operations by $19.1
million, $.23 per share.
1994 - An estimated $2.8 million loss on real estate
expected to be sold as a result of changes in
television network affiliations; $8.0 million
contribution to a charitable foundation; and $6.1
million accrual for lawsuits associated with a
divested operating unit. These items totaled $16.9
million and reduced income from continuing operations
by $9.8 million, $.13 per share.
1993 - A $2.5 million fee received in connection with
the change in ownership of the Ogden, Utah,
newspaper. Income from continuing operations was
increased $1.6 million, $.02 per share.
(6) The provision for income taxes is affected by the
following unusual items:
1994 - A change in estimated tax liability for prior
years increased the tax provision, reducing income
from continuing operations by $5.3 million, $.07 per
share.
1993 - A change in estimated tax liability for prior
years decreased the tax provision, increasing income
from continuing operations by $5.4 million, $.07 per
share; the effect of the increase in the federal
income tax rate to 35% from 34% on the beginning of
the year deferred tax liabilities increased the tax
provision, reducing income from continuing operations
by $2.3 million, $.03 per share.
(7) Includes effect of discontinued cable television operations prior to
completion of the Cable Transaction.
(8) EBITDA is defined as earnings before interest,
income taxes, depreciation and amortization (see page F-6).
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
The E. W. Scripps Company ("Company") operates in three
reportable segments: newspapers, broadcast television and
category television. The newspaper segment includes 20
daily newspapers in the U.S. The broadcast television
segment includes nine network-affiliated stations. Category
television includes Home & Garden Television ("HGTV"), The
Television Food Network ("Food Network"), and the Company's
12% equity interest in SportSouth, a regional cable
television network. Licensing and other media aggregates
the Company's operating segments that are too small to
report separately, including syndication and licensing of
news features and comics, television program production, and
publication of independent telephone directories.
All per share disclosures included in management's
discussion and analysis of financial condition and results
of operation are on a diluted basis.
Consolidated results of continuing operations were as
follows:
<TABLE>
<CAPTION>
( in thousands, except per share data )
For the years ended December 31,
1997 Change 1996 Change 1995
<S> <C> <C> <C> <C> <C>
Operating revenues:
Newspapers $ 723,788 14.8 % $ 630,489 4.7 % $ 602,107
Broadcast television 331,216 2.4 % 323,467 9.6 % 295,228
Category television 58,396 164.1 % 22,111 95.1 % 11,336
Licensing and other media 101,331 (3.9)% 105,419 26.4 % 83,416
Total 1,214,731 12.3 % 1,081,486 9.0 % 992,087
Divested operating units 27,226 40,372 38,291
Total operating revenues $ 1,241,957 10.7 % $ 1,121,858 8.9 % $ 1,030,378
Operating income (loss):
Newspapers $ 172,653 28.9 % $ 133,952 10.9 % $ 120,783
Broadcast television 103,690 3.2 % 100,437 15.5 % 86,927
Category television (13,079) 27.1 % (17,949) 3.7 % (18,634)
Licensing and other media 2,940 (55.0)% 6,531 57.3 % 4,151
Corporate (17,207) 6.8 % (18,471) (10.1)% (16,772)
Total 248,997 21.8 % 204,500 15.9 % 176,455
Divested operating units 1,827 5,351 4,701
Unusual items (4,000)
Total operating income 250,824 21.8 % 205,851 13.6 % 181,156
Interest expense (18,543) (9,629) (11,223)
Net gains and unusual items 44,894 21,531
Miscellaneous, net 3,126 1,834 1,535
Income taxes (117,510) (86,011) (74,532)
Minority interest (5,089) (3,436) (3,347)
Income from continuing operations $ 157,702 21.2 % $ 130,140 39.1 % $ 93,589
Per share of common stock:
Income from continuing operations $ 1.93 19.9 % $ 1.61 37.6 % $ 1.17
Adjusted income from continuing operations
(excluding unusual items and net gains) $ 1.63 15.6 % $ 1.41 20.5 % $ 1.17
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
( in thousands )
For the years ended December 31,
1997 Change 1996 Change 1995
<S> <C> <C> <C> <C> <C>
Other Financial and Statistical Data - excluding
divested operating units and unusual items:
Total advertising revenues $ 899,556 12.8 % $ 797,267 7.8 % $ 739,360
Advertising revenues as a percentage of total revenues 74.1 % 73.7 % 74.5 %
EBITDA:
Newspapers $ 217,147 27.3 % $ 170,557 9.7 % $ 155,521
Broadcast television 128,048 1.4 % 126,225 11.7 % 112,956
Category television (9,306) 43.1 % (16,362) 6.8 % (17,550)
Licensing and other media 5,274 (39.9)% 8,775 39.9 % 6,271
Corporate (16,011) 7.8 % (17,372) (9.3)% (15,888)
Total $ 325,152 19.6 % $ 271,823 12.6 % $ 241,310
Effective income tax rate 41.9 % 39.2 % 43.5 %
Weighted-average shares outstanding 81,645 1.0 % 80,841 0.8 % 80,170
Net cash provided by continuing operating activities 196,908 11.7 % 176,224 54.9 % 113,771
Capital expenditures $ 55,808 7.3 % $ 51,988 (7.6)% $ 56,272
Business acquisitions and other
additions to long-lived assets $ 844,987 $ 173,543 $ 12,537
Increase (decrease) in long-term debt $ 651,170 $ 40,958 $ (29,703)
Dividends paid, including minority interests $ 46,014 3.3 % $ 44,537 4.6 % $ 42,581
Purchase and retirement of common stock $ 25,694
</TABLE>
Earnings before interest, income taxes, depreciation and
amortization ("EBITDA") is included in the discussion of
segment results because:
Management believes the year-over-year change in EBITDA
is a more useful measure of year-over-year economic
performance than the change in operating income
because, combined with information on capital spending
plans, it is more reliable. Changes in amortization
and depreciation have no impact on economic
performance. Depreciation is a function of capital
spending, which is important and is separately
disclosed.
Banks and other lenders use EBITDA to determine the
Company's borrowing capacity.
Financial analysts and acquirors use EBITDA, combined
with capital spending requirements, to value
communications media companies.
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.
The estimated effect of amortization of intangible assets on
earnings per share was $.23 in 1997 and is expected to be
$.35 in 1998.
<PAGE>
In the three years ending December 31, 1997, the Company
acquired the following operations:
1997 - In October the Company acquired the newspaper and
broadcast operations of Harte-Hanks Communications
("Harte-Hanks") for $775,000,000, plus working capital,
in cash. The Harte-Hanks newspaper operations ("HHC
Newspaper Operations") include daily newspapers in
Abilene, Corpus Christi, Plano, San Angelo and Wichita
Falls, Texas, and a daily newspaper in Anderson, South
Carolina. The Company immediately traded the Harte-
Hanks broadcast operations for an approximate 56%
controlling interest in Food Network and approximately
$75,000,000 in cash. In August the Company traded its
daily newspapers in Monterey and San Luis Obispo,
California, for the daily newspaper in Boulder,
Colorado.
1996 - In May the Company acquired the Vero Beach,
Florida, Press Journal for $20,073,000 in cash and
$100,000,000 in notes issued to the seller.
The estimated reduction in earnings per share due to the HHC
Newspaper Operations and Food Network acquisitions was $.04
in 1997.
In the three years ended December 31, 1997, the Company
divested the following operations (the "Divested Operating
Units"):
1997 - Traded its Monterey and San Luis Obispo,
California, daily newspapers for the daily newspaper in
Boulder, Colorado, and terminated the joint operating
agreement ("JOA") and ceased operations of its
newspaper in El Paso, Texas. The JOA
termination and the trade resulted in gains totaling
$47,600,000, $26,200,000 after-tax, $.32 per share.
1995 - Sold its newspaper in Watsonville, California. No
material gain or loss was realized as proceeds
approximated the book value of the net assets sold.
Unusual items affecting the comparability of the Company's
results of operations include the following:
1997 - The Company adjusted certain investments to
estimated realizable value, resulting in a loss of
$2,700,000, $1,700,000 after tax, $.02 per share.
1996 - The Company incurred an unusual operating charge
(the "Cincinnati JOA Charge") of approximately
$4,000,000, $2,600,000 after tax, $.03 per share, the
Company's share of certain costs associated with
restructuring portions of the distribution system of
the Cincinnati JOA.
The Company recognized net gains that increased income
from continuing operations by $24,300,000, $.30 per
share. A pre-tax gain of $40,000,000 was recognized on
the Company's investment in Turner Broadcasting Systems
when Turner was merged into Time Warner, and a
$3,000,000 investment in Patient Education Media, Inc.
was written off.
The Company contributed 375,000 shares of Time Warner
stock to Scripps Howard Foundation, a private
charitable foundation. The contribution reduced pre-
tax income by $15,500,000 and income from continuing
operations by $5,200,000, $.07 per share.
Operating results for the Company's reportable segments,
excluding the Divested Operating Units and unusual items
described above, are presented on the following pages.
Licensing revenues increased $3,100,000 in 1997 due to sales
of PEANUTS and DILBERT merchandise in international markets.
Total licensing and other media operating revenues and
EBITDA decreased in 1997, however, as Scripps Howard
Productions ("SHP") delivered fewer hours of television
programming. SHP delivered 5 hours of programming in 1997,
8 hours in 1996 and 5 hours in 1995. The Company has
announced its intention to sell SHP. The Company will
continue to operate Cinetel Productions, which produces non-
fiction programming for broadcast and cable television.
The average balance of outstanding debt increased
$123,000,000 in 1997 and $10,900,000 in 1996. Long-term
debt was used to finance the purchase of acquired
operations. Lower average interest rates led to the
decrease in interest expense in 1996.
The effective income tax rate in 1996 was affected by
contributions to a charitable foundation described above.
The effective income tax rate in 1998 is expected to be
approximately 41%.
<PAGE>
NEWSPAPERS - Operating results, excluding Divested Operating
Units and the Cincinnati JOA Charge, were as follows:
<TABLE>
<CAPTION>
( in thousands )
For the years ended December 31,
1997 Change 1996 Change 1995
<S> <C> <C> <C> <C> <C>
Operating revenues:
Local $ 221,199 14.9 % $ 192,563 3.6 % $ 185,821
Classified 214,912 16.4 % 184,629 8.6 % 170,058
National 23,056 18.9 % 19,384 17.6 % 16,480
Preprint and other 73,268 13.5 % 64,538 (1.6)% 65,585
Newspaper advertising 532,435 15.5 % 461,114 5.3 % 437,944
Circulation 129,612 6.8 % 121,365 3.5 % 117,288
Joint operating agency distributions 47,052 19.6 % 39,341 (0.3)% 39,476
Other 14,689 69.4 % 8,669 17.2 % 7,399
Total operating revenues 723,788 14.8 % 630,489 4.7 % 602,107
Operating expenses:
Employee compensation and benefits 235,565 12.7 % 208,969 2.8 % 203,315
Newsprint and ink 120,361 1.4 % 118,729 (0.4)% 119,163
Other 150,715 14.0 % 132,234 6.5 % 124,108
Depreciation and amortization 44,494 21.6 % 36,605 5.4 % 34,738
Total operating expenses 551,135 11.0 % 496,537 3.2 % 481,324
Operating income $ 172,653 28.9 % $ 133,952 10.9 % $ 120,783
Other Financial and Statistical Data:
EBITDA $ 217,147 27.3 % $ 170,557 9.7 % $ 155,521
Percent of operating revenues:
Operating income 23.9 % 21.2 % 20.1 %
EBITDA 30.0 % 27.1 % 25.8 %
Capital expenditures $ 32,950 35.4 % $ 24,340 15.1 % $ 21,156
Business acquisitions and other
additions to long-lived assets $ 644,527 $ 122,230 $ 745
</TABLE>
The HHC Newspaper Operations and the Boulder newspaper
acquisitions accounted for 72% of the increase in
advertising revenue in 1997. The Vero Beach newspaper
accounted for one-third of the 1996 increase in advertising
revenue. Advertising revenues increased 7.6% in 1997 and
3.7% in 1996 on a pro forma basis, assuming all newspapers
owned at the end of 1997 were owned for the full three-year
period.
Newsprint prices have fluctuated widely in recent years.
The average price of newsprint increased from
approximately $420 per metric tonne in the first quarter
of 1994 to $745 in the first quarter of 1996, declined to
approximately $500 by March 1997, then increased to $560
in December 1997. For all of 1997 the average price of
newsprint was 15% less than in 1996. The average price of
newsprint in 1996 was 1% less than in 1995. The Company
anticipates that year-over-year newsprint costs will
increase approximately 40% in the first quarter of 1998 on
an increase in newsprint prices of about 15%. The current
price of newsprint is 8% higher than the average price in
1997. At the current price, newsprint costs in 1998
would increase approximately 30%. However, some newsprint
suppliers have announced a 7% price increase effective
April 1, 1998. It is uncertain if the announced increase
will be billed or, rather, resistance from buyers will
cause suppliers to reduce or delay the increase.
Excluding the acquired newspapers, employee compensation
and benefits and other operating expenses increased
approximately 5% in 1997. Depreciation and amortization
increased due to newspaper acquisitions. Capital
expenditures in 1998 are expected to be approximately
$27,000,000 and depreciation and amortization is expected
to increase approximately 45%.
<PAGE>
BROADCAST TELEVISION - Operating results were as follows:
<TABLE>
<CAPTION>
( in thousands )
For the years ended December 31,
1997 Change 1996 Change 1995
<S> <C> <C> <C> <C> <C>
Operating revenues:
Local $ 171,211 7.4 % $ 159,412 5.9 % $ 150,489
National 139,322 9.6 % 127,172 1.4 % 125,476
Political 2,106 19,505 3,207
Other 18,577 6.9 % 17,378 8.2 % 16,056
Total operating revenues 331,216 2.4 % 323,467 9.6 % 295,228
Operating expenses:
Employee compensation and benefits 103,350 5.4 % 98,099 9.5 % 89,570
Program and copyright costs 47,890 (0.3)% 48,049 4.1 % 46,138
Other 51,928 1.6 % 51,094 9.7 % 46,564
Depreciation and amortization 24,358 (5.5)% 25,788 (0.9)% 26,029
Total operating expenses 227,526 2.0 % 223,030 7.1 % 208,301
Operating income $ 103,690 3.2 % $ 100,437 15.5 % $ 86,927
Other Financial and Statistical Data:
EBITDA $ 128,048 1.4 % $ 126,225 11.7 % $ 112,956
Percent of operating revenues:
Operating income 31.3 % 31.1 % 29.4 %
EBITDA 38.7 % 39.0 % 38.3 %
Capital expenditures $ 15,632 (33.5)% $ 23,491 (0.6)% $ 23,630
Business acquisitions and other
additions to long-lived assets $ 3,000 76.5 % $ 1,700
</TABLE>
The television stations have benefited from increasing
political advertising in even-numbered years when
congressional and presidential elections occur, making it
more difficult to achieve year-over-year increases in
operating results in odd-numbered years.
The increase in employee costs and other operating expenses
in 1996 is due primarily to the Company's expanded schedules
of local news programs at the former FOX affiliates.
Program costs in 1996 include a $1,500,000 charge for the
unrecoverable cost of syndicated programming held by several
stations. Program costs are expected to increase nearly 20%
in 1998, primarily due to the higher cost of the popular
talk show "The Rosie O'Donnell Show," which is carried by
five stations.
In 1996 the Company changed its Cincinnati television
station's network affiliation to ABC from CBS. In 1995 the
Company changed its Baltimore station's affiliation to ABC
from NBC.
Capital expenditures in 1998 are expected to be
approximately $38,000,000, including a new building for the
Phoenix station and initial expenditures on a new building
for the West Palm Beach station. Depreciation and
amortization in 1998 is expected to increase approximately
5%.
<PAGE>
CATEGORY TELEVISION - Operating results were as follows:
<TABLE>
<CAPTION>
( in thousands )
For the years ended December 31,
1997 Change 1996 Change 1995
<S> <C> <C> <C> <C> <C>
Operating revenues:
Advertising $ 36,603 145.9 % $ 14,888 82.1 % $ 8,175
Affiliate fees 19,711 183.9 % 6,943 129.8 % 3,021
Other 2,082 280 100.0 % 140
Total operating revenues 58,396 164.1 % 22,111 95.1 % 11,336
Operating expenses:
Employee compensation and benefits 15,404 87.9 % 8,199 17.0 % 7,006
Programming and production costs 20,007 43.4 % 13,953 63.9 % 8,515
Other 32,291 97.8 % 16,321 22.1 % 13,365
Depreciation and amortization 3,773 137.7 % 1,587 46.4 % 1,084
Total operating expenses 71,475 78.4 % 40,060 33.7 % 29,970
Operating income (loss) $ (13,079) $ (17,949) $ (18,634)
Other Financial and Statistical Data:
EBITDA $ (9,306) $ (16,362) $ (17,550)
Capital expenditures $ 5,742 105.1 % $ 2,800 (51.0)% $ 5,716
Business acquisitions and other
additions to long-lived assets $ 173,569 $ 44,000 $ 7,269
</TABLE>
The increase in advertising and affiliate fee revenues is
primarily due to the increase in cable television systems
that carry HGTV, and, therefore, the increase in potential
audience. The October 1997 acquisition of Food Network
increased operating revenues approximately 30%. Operating
revenues increased 112% in 1997 and 97% in 1996 on a pro
forma basis, assuming Food Network was owned for the full
three-year period.
EBITDA for HGTV was ($9,700,000) in 1997, ($17,600,000) in
1996, and ($16,100,000) in 1995. Operating losses totaled
$11,900,000, $7,600,000 after-tax, $.09 per share in 1997;
$19,200,000, $11,900,000 after-tax, $.15 per share in 1996;
and $17,200,000, $10,600,000 after-tax, $.13 per share in
1995. Food Network operating losses included in the
Company's 1997 operating results were $2,500,000, $1,600,000
after-tax, $.02 per share.
In 1996 and 1997 the Company agreed to pay distribution fees
of approximately $75,000,000 to certain cable and direct
broadcast satellite systems in exchange for long-term
contracts to carry HGTV. The amount of the incentives
approximates the affiliate fee revenue HGTV expects to
receive over the lives of the contracts. In 1996 and 1997
Food Network paid approximately $6,000,000 in distribution
fees (including $1,500,000 subsequent to its acquisition by
the Company) to cable television systems in exchange for
long-term contracts that do not provide for affiliate fee
revenue, and approximately $10,000,000 to direct broadcast
satellite systems for long-term contracts that do provide
for affiliate fee revenue. Advertising revenues are
expected to increase as distribution of the networks
increases, consistent with the historical growth in
advertising revenues. Distribution fees are amortized based
upon the percentage of the current period's affiliate fee
revenue to the estimated total of such revenue over the
lives of the contracts, or, for contracts that do not
provide for affiliate fee revenue, on a straight-line basis.
Amortization of prepaid distribution fees was approximately
$9,000,000 in 1997.
According to the Nielsen Homevideo Index, HGTV was telecast
to 36.1 million homes in December 1997, up 10.9 million from
December 1996. Food Network was telecast to 29.1 million
homes in December 1997, up 10.0 million from December 1996.
Additional distribution fees may be required to obtain
carriage on additional cable television systems.
<PAGE>
Capital expenditures in 1998 are expected to be
approximately $10,000,000. Depreciation and amortization is
expected to increase approximately $7,000,000, primarily due
to the acquisition of Food Network.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates significant cash flow from operating
activities, primarily from its newspaper and broadcast
television operating segments. There are no significant
legal or other restrictions on the transfer of funds among
the Company's business segments. Cash flows provided by the
operating activities of the newspaper and broadcast
television segments in excess of the capital expenditures of
those segments are used primarily to invest in the category
television segment, to fund corporate expenditures, or to
invest in new businesses. Management expects total cash
flow from continuing operating activities in 1998 will be
sufficient to meet the Company's expected total capital
expenditures, required interest payments and dividend
payments. Total capital expenditures in 1998 are expected
to be approximately $75,000,000. The Company expects to
extend the $400,000,000 one-year term portion of its
variable rate credit facility, or to refinance the
borrowings under that line.
Cash flow provided by continuing operating activities was
$197,000,000 in 1997 compared to $176,000,000 in 1996 and
$114,000,000 in 1995. Payment of income taxes related to
the settlement with the Internal Revenue Service of the
audits of the 1985 through 1987 federal income tax returns
reduced 1995 cash flow provided by continuing operating
activities by $45,000,000. The increases in cash flow
provided by continuing operating activities in 1997 and in
1996 were primarily due to improvements in EBITDA.
Net debt (borrowings less cash equivalent and other short-
term investments) increased $651,000,000 during 1997 to
$770,000,000. The acquisition of the HHC Newspaper
Operations and Food Network caused the increase. At
December 31, 1997, net debt was 42% of total capitalization.
Management believes the Company's cash and cash equivalents,
short-term investments 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.
YEAR 2000 ISSUES
The Company has initiated a review of its computer systems
and applications to determine which are affected by the Year
2000 issue and the corrective actions to remedy the problem.
Most of the Company's systems and applications have been
determined to be Year 2000 compliant. The costs to remedy
other systems is not expected to have a material effect on
the Company's business, its results of operations or its
financial position.
MARKET RISK
The Company's earnings and cash flow can be affected by,
among other things, interest rate changes, foreign currency
fluctuations (primarily in the exchange rate for the
Japanese yen) and changes in the price of newsprint. See
"NEWSPAPERS". The Company is also exposed to changes in the
market value of its investments.
In the normal course of business, the Company employs
foreign currency forward and option contracts to hedge its
cash flow exposures denominated in Japanese yen. The
contracts reduce the risk of changes in the exchange rate
for Japanese yen on the Company's anticipated net licensing
receipts (licensing royalties less amounts due creators of
the properties and certain direct expenses) for the
following year. The Company employs off-balance-sheet
financial instruments, such as forward contracts, to reduce
the risk of changes in the price of newsprint on anticipated
newsprint purchases. As market conditions warrant, the
Company enters into foreign currency and newsprint forward
contracts only to hedge its anticipated transactions for, at
most, the ensuing year. The impact of any reasonably
possible change in the values of these derivative financial
instruments on the Company's financial position, its results
of operations, and its cash flows is immaterial.
<PAGE>
The Company manages interest-rate risk primarily by
maintaining a mix of fixed-rate and variable-rate debt. The
Company currently does not utilize interest rate swaps,
forwards or other derivative financial instruments. The
following table presents additional information about the
Company's market-risk-sensitive financial instruments:
<TABLE>
<CAPTION>
( in thousands ) Cost or
Carrying Fair
Value Value
<S> <C> <C>
Financial instruments subject to interest rate risk:
Variable rate credit facilities $ 541,459 $ 541,459
6.625% note, due in 2007 99,858 101,297
6.375% note, due in 2002 99,906 100,440
7.375% notes, due in 1998 29,754 30,289
Other notes 2,129 1,615
Total long-term debt 773,106 775,100
Program rights payable 45,856 42,800
Short-term investments 3,105 3,105
Financial instruments subject to market value risk:
Time Warner common stock (672,000 shares) $ 27,815 $ 41,681
Other 1,739 5,420
</TABLE>
The Variable Rate Credit Facilities are comprised of two
unsecured lines, one limited to $400,000,000 principal
amount maturing in one year, and the other limited to
$400,000,000 principal amount maturing in five years. The
Variable Rate Credit Facilities are used by the Company in
whole or in part, in lieu of direct borrowings, as credit
support for its commercial paper. At December 31, 1997, the
weighted-average interest rate on borrowings under the
Variable Rate Credit Facilities was 5.85%.
The Company does not hold financial instruments for trading
or speculative purposes, and does not hold leveraged
contracts.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders,
The E. W. Scripps Company:
We have audited the accompanying consolidated balance sheets
of The E. W. Scripps Company and subsidiary companies
("Company") as of December 31, 1997 and 1996, and the
related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the
period ended December 31, 1997. Our audits also included
the financial statement schedule listed in the Index at Item
S-1. These financial statements and financial statement
schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial
statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial
position of the Company at December 31, 1997 and 1996, and
the results of its operations and cash flows for each of the
three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule,
when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
January 22, 1998
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
( in thousands )
As of December 31,
1997 1996
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 14,321 $ 10,145
Short-term investments 3,105 2,700
Accounts and notes receivable (less allowances - 1997, $6,305; 1996, $3,974) 218,310 182,687
Program rights and production costs 61,698 44,639
Inventories 13,685 11,753
Deferred income taxes 21,630 24,897
Miscellaneous 46,365 37,259
Total current assets 379,114 314,080
Investments 84,645 40,205
Property, Plant and Equipment 480,037 430,703
Goodwill and Other Intangible Assets 1,237,482 590,452
Other Assets:
Program rights and production costs (less current portion) 32,546 35,281
Prepaid distribution fees (less current portion) 48,287 38,337
Miscellaneous 18,722 19,611
Total other assets 99,555 93,229
TOTAL ASSETS $ 2,280,833 $ 1,468,669
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
( in thousands, except share data )
As of December 31,
1997 1996
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 171,254 $ 90,040
Accounts payable 90,408 88,574
Customer deposits and unearned revenue 39,395 30,208
Accrued liabilities:
Employee compensation and benefits 41,645 33,622
Distribution fees 33,388 33,895
Miscellaneous 53,870 47,063
Total current liabilities 429,960 323,402
Deferred Income Taxes 88,051 63,953
Long-Term Debt (less current portion) 601,852 31,793
Other Long-Term Obligations and Minority Interests (less current portion) 112,008 104,930
Commitments and Contingencies (Note 13)
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: 1997 - 61,296,157 shares; 1996 - 61,293,240 shares 613 613
Voting - authorized: 30,000,000 shares; issued and
outstanding: 1997 - 19,333,711 shares; 1996 - 19,470,382 shares 193 195
Total 806 808
Additional paid-in capital 259,739 272,703
Retained earnings 782,329 676,471
Unrealized gains (losses) on securities available for sale 11,397 (713)
Unvested restricted stock awards (5,602) (5,241)
Foreign currency translation adjustment 293 563
Total stockholders' equity 1,048,962 944,591
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,280,833 $ 1,468,669
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
( in thousands, except per share data )
For the years ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Operating Revenues:
Advertising $ 916,661 $ 822,758 $ 763,705
Circulation 135,582 130,092 125,354
Licensing 56,813 53,672 49,366
Joint operating agency distributions 48,977 43,279 43,863
Affiliate fees 19,711 6,943 3,021
Program production 18,950 29,080 13,618
Other 45,263 36,034 31,451
Total operating revenues 1,241,957 1,121,858 1,030,378
Operating Expenses:
Employee compensation and benefits 400,014 360,697 338,521
Newsprint and ink 123,508 123,390 123,579
Program, production and copyright costs 85,227 88,990 65,996
Other operating expenses 304,778 273,553 254,536
Depreciation 54,085 49,528 46,496
Amortization of intangible assets 23,521 19,849 20,094
Total operating expenses 991,133 916,007 849,222
Operating Income 250,824 205,851 181,156
Other Credits (Charges):
Interest expense (18,543) (9,629) (11,223)
Net gains and unusual items 44,894 21,531
Miscellaneous, net 3,126 1,834 1,535
Net other credits (charges) 29,477 13,736 (9,688)
Income from Continuing Operations
Before Taxes and Minority Interests 280,301 219,587 171,468
Provision for Income Taxes 117,510 86,011 74,532
Income from Continuing Operations
Before Minority Interests 162,791 133,576 96,936
Minority Interests 5,089 3,436 3,347
Income From Continuing Operations 157,702 130,140 93,589
Discontinued Operation - Scripps Cable:
Income from operations 39,514 39,789
Costs of Cable Transaction (12,251)
Net Income $ 157,702 $ 157,403 $ 133,378
Per Share of Common Stock - Basic:
Income from continuing operations $1.96 $1.62 $1.17
Net income $1.96 $1.96 $1.67
Per Share of Common Stock - Diluted:
Income from continuing operations $1.93 $1.61 $1.17
Net income $1.93 $1.95 $1.66
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
( in thousands, except share data )
For the years ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Income from continuing operations $ 157,702 $ 130,140 $ 93,589
Adjustments to reconcile income from continuing operations
to net cash flows from continuing operating activities:
Depreciation and amortization 77,606 69,377 66,590
Deferred income taxes 28,865 13,650 3,814
Minority interests in income of subsidiary companies 5,089 3,436 3,347
Net gains and unusual items (44,894) (21,367)
Prepaid distribution fee amortization greater (less) than payments (12,490) (6,861) (369)
Settlement of federal income tax audits 4,824 (45,000)
Other changes in certain working capital accounts, net (24,094) (8,546) (13,979)
Miscellaneous, net 4,300 (3,605) 5,779
Net cash provided by continuing operating activities 196,908 176,224 113,771
Discontinued Operation - Scripps Cable:
Income 27,263 39,789
Adjustment to derive cash flows from operating activities 37,830 62,290
Net cash provided by Scripps Cable operating activities 65,093 102,079
Net operating activities 196,908 241,317 215,850
Cash Flows from Investing Activities:
Additions to property, plant and equipment (56,620) (53,300) (57,300)
Purchase of subsidiary companies and long-term investments (749,161) (127,749) (12,167)
Change in short-term investments, net 2,700 22,313 (25,013)
Sale of subsidiary companies and long-term investments 29,339 11,650 2,729
Miscellaneous, net (1,490) 1,057 3,598
Net cash used in continuing operations investing activities (775,232) (146,029) (88,153)
Net cash used in Scripps Cable investing activities (119,575) (44,938)
Net investing activities (775,232) (265,604) (133,091)
Cash Flows from Financing Activities:
New debt 741,216 100,000
Payments on long-term debt (90,046) (59,042) (29,703)
Dividends paid (42,064) (41,840) (39,980)
Dividends paid to minority interests (3,950) (2,697) (2,601)
Repurchase and retirement of 621,000 Class A Common Shares (25,694)
Miscellaneous, net (primarily exercise of stock options) 3,038 8,615 5,437
Net cash provided by (used in) continuing operations financing activities 582,500 5,036 (66,847)
Net cash used in Scripps Cable financing activities (625) (2,500)
Net financing activities 582,500 4,411 (69,347)
Increase (Decrease) in Cash and Cash Equivalents 4,176 (19,876) 13,412
Cash and Cash Equivalents:
Beginning of year 10,145 30,021 16,609
End of year $ 14,321 $ 10,145 $ 30,021
Supplemental Cash Flow Disclosures:
Interest paid, excluding amounts capitalized $ 19,343 $ 10,006 $ 11,053
Income taxes paid 86,599 66,320 55,176
Monterey and San Luis Obispo newspapers traded for Boulder newspaper 50,000
Cable Transaction (at book value; fair market value was $1,590,000) 355,694
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
( in thousands, except share data ) Unrealized
Gains
(Losses) on Unvested Foreign
Additional Securities Restricted Currency
Common Paid-in Retained Available Stock Translation
Stock Capital Earnings for Sale Awards Adjustment
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1994 $ 799 $ 248,098 $ 823,204 $ 12,518 $ (2,036) $ 885
Net income 133,378
Dividends: declared and paid - $.50 per share (39,980)
Conversion of 196,460 Common Voting Shares
to 196,460 Class A Common Shares
Class A Common Shares issued pursuant to
compensation plans, net: 238,850 shares
issued, 1,250 shares forfeited
and 19,894 shares repurchased 2 5,099 (538)
Tax benefits of compensation plans 866
Amortization of restricted stock awards 1,001
Foreign currency translation adjustment (72)
Increase in unrealized gains (losses)
on securities available for sale, net
of deferred income tax of $4,417 8,202
As of December 31, 1995 801 254,063 916,602 20,720 (1,573) 813
Net income 157,403
Dividends: declared and paid - $.52 per share (41,840)
Cable Transaction (at book value; fair market value
was $1,590,000, $19.83 per share of the Company) (355,694)
Conversion of 507,991 Common Voting Shares
to 507,991 Class A Common Shares
Class A Common Shares issued pursuant to
compensation plans, net: 707,200 shares
issued and 7,359 shares repurchased 7 16,068 (7,450)
Tax benefits of compensation plans 2,572
Amortization of restricted stock awards 3,782
Foreign currency translation adjustment (250)
Increase (decrease) in unrealized gains (losses)
on securities available for sale, net
of deferred income tax of $11,540 (21,433)
As of December 31, 1996 808 272,703 676,471 (713) (5,241) 563
Net income 157,702
Dividends: declared and paid - $.52 per share (42,064)
Adjustment to estimated net book value
of cable television assets (9,780)
Conversion of 136,671 Common Voting Shares
to 136,671 Class A Common Shares
Purchase and retirement of 621,000
Class A Common Shares (7) (25,687)
Class A Common Shares issued pursuant to
compensation plans, net: 529,475 shares
issued and 42,229 shares repurchased 5 8,038 (3,137)
Tax benefits of compensation plans 4,685
Amortization of restricted stock awards 2,776
Foreign currency translation adjustment (270)
Increase in unrealized gains (losses)
on securities available for sale, net
of deferred income tax of $6,521 12,110
As of December 31, 1997 $ 806 $ 259,739 $ 782,329 $ 11,397 $ (5,602) $ 293
See notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - The E. W. Scripps Company ("Company")
operates in three reportable segments: newspapers,
broadcast television and category television. The newspaper
segment includes 20 daily newspapers in the U.S. The
newspaper segment primarily derives revenue from the sale of
advertising space to local and national advertisers and from
the sale of the newspaper to readers. The broadcast
television segment includes nine network-affiliated
stations. Television stations derive revenue from the sale
of advertising time to local and national advertisers and
receive compensation for broadcasting network programming.
Category television includes Home & Garden Television
("HGTV"), The Television Food Network ("Food Network"), and
the Company's 12% equity interest in SportSouth, a regional
cable television network. Revenues are derived from the
sale of advertising time and from affiliate fees paid by
cable television and direct broadcast satellite systems
which distribute the networks. Licensing and other media
aggregates the Company's operating segments that are too
small to report separately, including syndication and
licensing of news features and comics, television program
production, and publication of independent telephone
directories. The relative importance of each line of
business to continuing operations is indicated in the
segment information presented in Note 12.
The Company's operations are geographically dispersed and
its customer base is diverse. However, more than 70% of the
Company's operating revenues are derived from advertising.
Operating results can be affected by changes in the demand
for advertising both nationally and in individual markets.
The Company grants credit to substantially all of its
customers. Management believes bad debt losses resulting
from default by a single customer, or defaults by customers
in any depressed region or business sector, would not have a
material effect on the Company's financial position.
Cable Transaction - 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. Despite the
economic gain, accounting rules required the Company to
record the Cable Transaction as a spin-off, at net book
value, of Scripps Cable to the Company's shareholders.
Therefore no gain was reflected in the Company's financial
statements. Pursuant to the terms of its agreement with
Comcast, the Company remained liable for any losses
resulting from certain lawsuits, certain other expenses, and
tax liabilities of Scripps Cable attributable to periods
prior to the Cable Transaction (see Notes 4 and 13). In
1997 the Company adjusted its estimate of these liabilities,
reducing stockholders' equity by $9,780,000.
Scripps Cable represented an entire business segment,
therefore its results are reported as a "discontinued
operation" for all periods presented (see Note 15). 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."
Use of Estimates - Preparation of the financial statements
requires the use of estimates. The Company's financial
statements include estimates for such items as income taxes
payable and self-insured risks. The Company self insures
for employees' medical and disability income benefits,
workers' compensation and general liability. The recorded
liability for self-insured risks is calculated using
actuarial methods and is not discounted. The recorded
liability for self-insured risks totaled $17,300,000 at
December 31, 1997. Management does not believe it is likely
that its estimates for such items will change materially in
the near term.
Consolidation - The consolidated financial statements
include the accounts of the Company and its majority-owned
subsidiary companies.
Revenue Recognition - Significant revenue recognition
policies are as follows:
Advertising revenues are recognized based on dates of
publication or broadcast.
Circulation revenue is recognized based on date of
publication.
Affiliate fees are recognized as programming is
provided to cable television and direct broadcast satellite
services.
Royalties from merchandise licensing are recognized as
products are sold by the licensee. Royalties from
promotional licensing are recognized over the lives of the
licensing agreements.
Program production revenues are recognized when the
program material is available for broadcast and certain
other conditions are met.
<PAGE>
Prepaid Distribution Fees - Prepaid distribution fees are
incentives paid to cable television and direct broadcast
satellite system operators in exchange for long-term
contracts to carry HGTV and Food Network. These fees are
amortized based upon the percentage of the current period's
affiliate fee revenues to the estimated total of such
revenue over the lives of the contracts, or, for contracts
that do not provide for the Company to receive affiliate
fees, on a straight-line basis. The portion of the
unamortized balance expected to be amortized within one year
is classified as a current asset.
Program Rights and Production Costs - Program rights are
recorded when programs become available for broadcast.
Amortization is computed using the straight-line method
based on the license period or based on usage, whichever
yields the greater accumulated amortization for each
program. The liability for program rights is not discounted
for imputed interest.
Production costs represent costs incurred in the production
of programming for distribution. Amortization is based on
the percentage of current period revenues to the estimated
total revenue for each program. The portion of the
unamortized balance expected to be amortized within one year
is classified as a current asset. Program and production
costs are stated at the lower of unamortized cost or fair
value.
Program rights liabilities payable within the next twelve
months are included in accounts payable. Noncurrent program
rights liabilities are included in other long-term
obligations. The following table presents additional
information about these liabilities:
<TABLE>
<CAPTION>
( in thousands )
As of December 31,
1997 1996
<S> <C> <C>
Liabilities for programs available for broadcast:
Carrying amount $ 45,856 $ 44,392
Fair value 42,800 41,400
</TABLE>
Long-Lived Assets - Long-lived assets to be held and used
are recorded at unamortized cost. Management reviews long-
lived assets, including related goodwill and other
intangible assets, for impairment whenever events or changes
in circumstances indicate the carrying amounts of the assets
may not be recoverable. Recoverability is determined by
comparing the forecasted undiscounted cash flows of the
operation to which the assets relate to the carrying amount
of the assets. If the operation is determined to be unable
to recover the carrying amount of its assets, then goodwill
and other intangible assets are written down first, followed
by other long-lived assets of the operation, to fair value.
Fair value is determined based on discounted cash flows.
Long-lived assets to be disposed of are reported at the
lower of carrying amount or fair value less costs to sell.
Goodwill and Other Intangible Assets - Goodwill represents
the cost of acquisitions in excess of tangible assets and
identifiable intangible assets received. Noncompetition
agreements and cable and direct broadcast satellite network
affiliation contracts are amortized on a straight-line basis
over the terms of the agreements. Goodwill, customer lists
and other intangible assets are amortized on a straight-line
basis over periods of up to 40 years.
Property, Plant and Equipment - Depreciation is computed
using the straight-line method over estimated useful lives
as follows:
Buildings and improvements 35 years
Printing presses 20 years
Other newspaper production equipment 5 to 10 years
Television transmission towers and related equipment 15 years
Other television and program production equipment 5 to 15 years
Office and other equipment 3 to 10 years
Interest costs related to major capital projects are
capitalized and classified as property, plant and equipment.
<PAGE>
Income Taxes - Deferred income taxes are provided for
temporary differences between the tax basis and reported
amounts of assets and liabilities that will result in
taxable or deductible amounts in future years. The
Company's temporary differences primarily result from
accelerated depreciation and amortization for tax purposes
and accrued expenses not deductible for tax purposes until
paid.
Investments - Investments in 20%- to 50%-controlled
companies and in all joint ventures are accounted for using
the equity method. Venture capital investments that do not
have a determinable fair value are carried at cost.
Investments in other debt and equity securities are
classified as available for sale and are carried at fair
value. Fair value is determined by reference to quoted
market prices. Unrealized gains or losses on those
securities are recognized as a separate component of
stockholders' equity. The cost of securities sold is
determined by specific identification.
Newspaper Joint Operating Agencies - The Company is
currently a party to newspaper joint operating agencies
("JOAs") in four markets. A JOA combines all but the
editorial operations of two competing newspapers in a
market. In each JOA the managing party distributes a
portion of JOA profits to the other party. The Company
manages the JOA in Evansville. The JOAs in Albuquerque,
Birmingham and Cincinnati are managed by the other parties
to the JOAs. The JOA in El Paso was terminated in 1997 (see
Note 2).
The Company includes the full amount of company-managed JOA
assets and liabilities, and revenues earned and expenses
incurred in the operation of the JOA, in the consolidated
financial statements. Distributions of JOA operating
profits to the other party are included in other operating
expenses.
For JOAs managed by the other party, the Company includes
distributions of JOA operating profits in operating revenues
in the Consolidated Statements of Income. The Company does
not include any assets or liabilities of JOAs managed by
other parties in its Consolidated Balance Sheets as the
Company has no residual interest in the net assets of these
JOAs.
Inventories - Inventories are stated at the lower of cost or
market. The cost of newsprint included in inventory is
computed using the last in, first out ("LIFO") method. At
December 31 newsprint inventories were approximately 64% of
total inventories in 1997 and 68% in 1996. The cost of
other inventories is computed using the first in, first out
("FIFO") method. Inventories would have been $1,400,000 and
$200,000 higher at December 31, 1997 and 1996 if FIFO (which
approximates current cost) had been used to compute the cost
of newsprint.
Postemployment Benefits - Retiree health benefits are
recognized during the years that employees render service.
Other postemployment benefits, such as disability-related
benefits and severance, are recognized when the costs of
such benefits are incurred.
Stock-Based Compensation - The Company's incentive plans
provide for the awarding of options to purchase Class A
Common Shares and awards of Class A Common Shares to certain
employees of the Company. Stock options are awarded to
purchase Class A Common Shares at not less than 100% of the
fair market value on the date of the award. Stock options
and awards of Class A Common Shares vest over an incentive
period, conditioned upon the individual's employment through
that period. The Company measures compensation expense
using the intrinsic-value-based method (see Note 14).
Cash and Cash Equivalents - Cash and cash equivalents
represent cash on hand, bank deposits and debt instruments
with an original maturity of less than three months. Cash
equivalents are stated at cost plus accrued interest, which
approximates fair value.
Short-term Investments - Short-term investments represent
excess cash invested in securities not meeting the criteria
to be classified as cash equivalents. Short-term
investments are carried at cost plus accrued income, which
approximates fair value.
<PAGE>
Risk Management Contracts - In the normal course of
business, the Company employs foreign currency forward and
option contracts to hedge cash flow exposures denominated in
Japanese yen. The contracts reduce the risk of changes in
the exchange rate for Japanese yen on the Company's
anticipated net licensing receipts (licensing royalties less
amounts due creators of the properties and certain direct
expenses) for the following year. Such contracts are
recorded at fair value in the Consolidated Balance Sheets
and gains or losses are recognized in income as changes
occur in the exchange rate for the Japanese yen.
The Company also employs off-balance-sheet financial
instruments, such as forward contracts, to reduce the risk
of changes in the price of newsprint on anticipated
newsprint purchases. Gains or losses on the contracts are
deferred and charged to newsprint and ink expense as the
newsprint is consumed.
As market conditions warrant, the Company enters into
foreign currency and newsprint forward contracts only to
hedge its anticipated transactions for, at most, the ensuing
year. The Company does not hold derivative financial
instruments for trading or speculative purposes, and does
not hold leveraged contracts.
The impact of risk management activities on the Company's
financial position, its results of operations, and its cash
flows is immaterial.
Net Income Per Share - The Financial Accounting Standards
Board ("FASB") issued Financial Accounting Standard ("FAS")
No. 128 - Earnings per Share in February 1997. It replaced
the presentation of primary and fully-diluted earnings per
share ("EPS") with basic and diluted EPS. Basic EPS
excludes all dilution. It is based upon the weighted-
average number of common shares outstanding during the
period. Diluted EPS reflects the potential dilution that
would occur if convertible securities or other contracts to
issue common stock were exercised. The Company adopted FAS
No. 128 in the fourth quarter of 1997. All previously
reported EPS amounts have been restated to conform to the
new presentation.
The following table presents additional information about
basic and diluted weighted-average shares outstanding:
<TABLE>
<CAPTION>
( in thousands )
For the years ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Basic weighted-average shares outstanding 80,500 80,230 79,852
Effect of dilutive securities:
Unvested restricted stock held by employees 214 99 41
Stock options held by employees 931 512 277
Diluted weighted-average shares outstanding 81,645 80,841 80,170
</TABLE>
Recently Issued Accounting Standards - The FASB issued FAS
No. 130 - Reporting Comprehensive Income in June 1997. The
statement, which must be adopted in the first quarter of
1998 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
includes unrealized gains and losses on securities available
for sale and foreign currency translation adjustments.
<PAGE>
2. ACQUISITIONS AND DIVESTITURES
Acquisitions
1997 - In October the Company acquired the newspaper and
broadcast operations of Harte-Hanks Communications ("Harte-
Hanks") for $775,000,000, plus working capital, in cash.
The Harte-Hanks newspaper operations include daily
newspapers in Abilene, Corpus Christi, Plano, San Angelo and
Wichita Falls, Texas, and a daily newspaper in Anderson,
South Carolina. The Company immediately traded the Harte-
Hanks broadcast operations for an approximate 56%
controlling interest in Food Network and approximately
$75,000,000 in cash. In August the Company traded its
daily newspapers in Monterey and San Luis Obispo,
California, for the daily newspaper in Boulder, Colorado.
1996 - In May the Company acquired the Vero Beach, Florida,
daily newspaper.
The following table presents additional information about
the acquisitions:
<TABLE>
<CAPTION>
( in thousands )
For the years ended December 31,
1997 1996
<S> <C> <C>
Goodwill and other intangible assets acquired $ 681,141 $ 110,967
Other assets acquired (primarily property, equipment and program costs) 108,221 10,900
Total 789,362 121,867
Fair value of Monterey and San Luis Obispo daily newspapers (50,000)
Liabilities assumed (19,006) (1,794)
Cash paid $ 720,356 $ 120,073
</TABLE>
The acquisitions have been accounted for as purchases. 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 acquired operations assuming the transactions had
taken place at the beginning of the respective periods. 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
amortization of the intangible assets acquired. The pro
forma information excludes the results of operations of the
Monterey and San Luis Obispo newspapers, and excludes the
gain recognized on the transaction. The unaudited pro forma
results of operations are not necessarily indicative of the
results that actually would have occurred had the
acquisition been completed at the beginning of the
respective periods.
<TABLE>
<CAPTION>
( in thousands, except per share data )
For the years ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Operating revenues $ 1,350,096 $ 1,253,798 $ 1,160,695
Income from continuing operations 124,965 100,704 62,836
Net income 124,965 127,967 102,625
Per share of common stock - basic:
Income from continuing operations $1.55 $1.26 $.79
Net income 1.55 1.60 1.29
Per share of common stock - diluted:
Income from continuing operations $1.53 $1.25 $.78
Net income 1.53 1.58 1.28
</TABLE>
<PAGE>
Divestitures
1997 - The Company traded its Monterey and San Luis Obispo,
California, daily newspapers for the daily newspaper in
Boulder, Colorado, and terminated the JOA and ceased
operations of its newspaper in El Paso, Texas. The
JOA termination and the trade resulted in gains totaling
$47,600,000, $26,200,000 after-tax ($.32 per share on a
diluted basis).
1995 - The Company sold its newspaper in Watsonville,
California. No material gain or loss was realized as
proceeds approximated the book value of the net assets sold.
Included in the consolidated financial statements are the
following results of divested operating units (excluding
gains on sales):
<TABLE>
<CAPTION>
( in thousands )
For the years ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Operating revenues $ 27,200 $ 40,400 $ 38,300
Operating income 1,800 5,400 4,700
</TABLE>
3. UNUSUAL CREDITS AND CHARGES
1997 - The Company adjusted certain investments to estimated
realizable value, resulting in a loss of $2,700,000,
$1,700,000 after tax, $.02 per share on a diluted basis.
1996 - The Company incurred an unusual operating charge of
approximately $4,000,000, $2,600,000 after tax, $.03 per
share on a diluted basis, the Company's share of certain
costs associated with restructuring portions of the
distribution system of the Cincinnati JOA.
The Company recognized net gains that increased income from
continuing operations by $24,300,000, $.30 per share on a
diluted basis. A pre-tax gain of $40,000,000 was recognized
on the Company's investment in Turner Broadcasting Systems
when Turner was merged into Time Warner, and a $3,000,000
investment in Patient Education Media, Inc., was written
off.
The Company contributed 375,000 shares of Time Warner stock
to Scripps Howard Foundation, a private charitable
foundation. The contribution reduced pre-tax income by
$15,500,000 and income from continuing operations by
$5,200,000, $.07 per share on a diluted basis.
<PAGE>
4. INCOME TAXES
The Company has reached an agreement with the Internal
Revenue Service to settle the audit of its 1988 through 1991
consolidated federal income tax returns. The settlement
will not result in an adjustment to the Company's tax
liability for prior years. Pursuant to the terms of its
agreement with Comcast, the Company remains liable for all
tax liabilities of Scripps Cable attributable to periods
prior to completion of the Cable Transaction. Management
believes that adequate provision for income taxes has been
made for all open years.
The approximate effects of the temporary differences giving
rise to the Company's deferred income tax liabilities
(assets) are as follows:
<TABLE>
<CAPTION>
( in thousands )
As of December 31,
1997 1996
<S> <C> <C>
Accelerated depreciation and amortization $ 91,573 $ 74,405
Investments 13,258 6,584
Accrued expenses not deductible until paid (13,323) (13,345)
Deferred compensation and retiree benefits (17,028) (14,952)
Other temporary differences, net (4,997) (10,632)
Total 69,483 42,060
State net operating loss carryforwards (9,576) (9,863)
Valuation allowance for state deferred tax assets 6,514 6,859
Net deferred tax liability $ 66,421 $ 39,056
</TABLE>
The Company's state net operating loss carryforwards expire
from 2003 through 2013. At each balance sheet date
management estimates the amount of state net operating loss
carryforwards that are not expected to be used prior to
expiration of the carryforward period. The tax effect of
these unused state net operating loss carryforwards is
included in the valuation allowance.
<PAGE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
( in thousands )
For the years ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Current:
Federal $ 68,600 $ 55,897 $ 60,044
State and local 14,275 9,814 5,027
Foreign 4,314 4,078 4,781
Total current 87,189 69,789 69,852
Deferred:
Federal 31,100 1,937 6,911
Other 3,432 173 1,320
Total deferred 34,532 2,110 8,231
Total income taxes 121,721 71,899 78,083
Income taxes allocated to stockholders' equity (4,211) 14,112 (3,551)
Provision for income taxes $ 117,510 $ 86,011 $ 74,532
</TABLE>
The difference between the statutory rate for federal income
tax and the effective income tax rate is summarized as
follows:
<TABLE>
<CAPTION>
For the years ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Statutory rate 35.0 % 35.0 % 35.0 %
Effect of:
State and local income taxes 4.1 2.9 2.5
Amortization of goodwill 1.8 1.8 2.9
Charitable contributions of appreciated investments (2.2)
Miscellaneous 1.0 1.7 3.1
Effective income tax rate 41.9 % 39.2 % 43.5 %
</TABLE>
<PAGE>
5. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
( in thousands )
As of December 31,
1997 1996
<S> <C> <C>
Variable rate credit facilities $ 541,459
6.625% note, due in 2007 99,858
6.375% note, due in 2002 99,906
7.375% notes, due in 1998 29,754 $ 29,658
6.17% note, due in 1997 90,000
Other notes 2,129 2,175
Total long-term debt 773,106 121,833
Current portion of long-term debt 171,254 90,040
Long-term debt (less current portion) $ 601,852 $ 31,793
Fair value of long-term debt * $ 775,100 $ 120,700
* Fair value is estimated based on current rates available to the Company for
debt of the same remaining maturity.
</TABLE>
The Company has a Competitive Advance and Revolving Credit
Facility Agreement which permits aggregate borrowings up to
$800,000,000 (the "Variable Rate Credit Facilities"). The
Variable Rate Credit Facilities are comprised of two
unsecured lines, one limited to $400,000,000 principal
amount maturing in one year, and the other limited to
$400,000,000 principal amount maturing in five years.
Borrowings under the Variable Rate Credit Facilities are
available on a committed revolving credit basis at the
Company's choice of three short-term rates or through an
auction procedure at the time of each borrowing. The
Variable Rate Credit Facilities are also used by the Company
in whole or in part, in lieu of direct borrowings, as credit
support for its commercial paper. The weighted-average
interest rate on the Variable Rate Credit Facilities at
December 31, 1997, was 5.85%.
Certain long-term debt agreements contain maintenance
requirements for 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.
Current maturities of long-term debt are classified as long-
term to the extent they can be refinanced under existing
long-term credit commitments.
Interest costs capitalized were as follows:
<TABLE>
<CAPTION>
( in thousands )
For the years ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Capitalized interest costs $ 1,200 $ 700 $ 400
</TABLE>
<PAGE>
6. INVESTMENTS
Investments consisted of the following:
<TABLE>
<CAPTION>
( in thousands, except share data )
As of December 31,
1997 1996
<S> <C> <C>
Securities available for sale:
Short-term investments $ 3,105 $ 2,700
Time Warner common stock (672,000 shares) 41,681 25,210
Other 5,420 3,364
Total securities available for sale 50,206 31,274
Investments accounted for using the equity method 7,484 5,084
Other (primarily venture capital) 30,060 6,547
Total investments $ 87,750 $ 42,905
Unrealized gain (loss) on securities available for sale $ 17,547 $ (1,084)
</TABLE>
In 1996 the Company's investment in Turner Broadcasting
Systems was exchanged for 1,047,000 shares of Time Warner
common stock when Turner was merged into Time Warner, and
the Company contributed 375,000 shares of Time Warner stock
to Scripps Howard Foundation (see Note 3).
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
( in thousands )
As of December 31,
1997 1996
<S> <C> <C>
Land and improvements $ 48,235 $ 40,871
Buildings and improvements 214,337 200,578
Equipment 598,243 540,454
Total 860,815 781,903
Accumulated depreciation 380,778 351,200
Net property, plant and equipment $ 480,037 $ 430,703
</TABLE>
<PAGE>
8. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consisted of the following:
<TABLE>
<CAPTION>
( in thousands )
As of December 31,
1997 1996
<S> <C> <C>
Goodwill $ 1,187,979 $ 550,978
Customer lists 145,454 142,025
Cable and direct broadcast satellite network affiliation contracts 18,061
Licenses and copyrights 28,221 28,221
Noncompetition agreements 2,149 18,049
Other 27,577 27,409
Total 1,409,441 766,682
Accumulated amortization 171,959 176,230
Net goodwill and other intangible assets $ 1,237,482 $ 590,452
</TABLE>
9. OTHER LONG-TERM OBLIGATIONS AND MINORITY INTERESTS
Other long-term obligations and minority interests consisted
of the following:
<TABLE>
<CAPTION>
( in thousands )
As of December 31,
1997 1996
<S> <C> <C>
Program rights payable $ 45,856 $ 44,392
Employee compensation and benefits 59,402 52,984
Distribution fees 46,716 39,096
Minority interests 10,537 9,400
Other 26,854 34,809
Total other long-term obligations and minority interests 189,365 180,681
Current portion of other long-term obligations 77,357 75,751
Other long-term obligations and minority interests (less current portion) $ 112,008 $ 104,930
</TABLE>
<PAGE>
10. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
( in thousands )
For the years ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Other changes in certain working capital accounts, net:
Accounts receivable $ (22,202) $ (10,630) $ (20,864)
Inventories 1,464 55 270
Accounts payable (4,288) 7,467 (3,888)
Accrued income taxes (7,114) 669 15,076
Accrued interest 1,541 (377) 170
Other accrued liabilities 7,707 (2,611) (744)
Other, net (1,202) (3,119) (3,999)
Total $ (24,094) $ (8,546) $ (13,979)
</TABLE>
11. EMPLOYEE BENEFIT PLANS
The Company sponsors defined benefit plans covering
substantially all nonunion employees. Benefits are
generally based on the employees' compensation and years of
service. Funding is based on the requirements of the plans
and applicable federal laws.
The Company also sponsors defined contribution plans
covering substantially all nonunion employees. The Company
matches a portion of employees' voluntary contributions to
these plans.
Union-represented employees are covered by retirement plans
jointly administered by subsidiaries of the Company and the
unions or by union-administered, multi-employer plans.
Funding is based upon negotiated agreements.
Retirement plans expense consisted of the following:
<TABLE>
<CAPTION>
( in thousands )
For the years ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Service cost $ 9,047 $ 8,921 $ 7,929
Interest cost 14,729 13,605 12,907
Actual (return) loss on plan assets, net of expenses (41,665) (29,737) (41,698)
Net amortization and deferral 22,866 14,921 27,203
Total for defined benefit plans 4,977 7,710 6,341
Multi-employer plans 923 1,054 1,020
Defined contribution plans 4,585 4,124 3,612
Total $ 10,485 $ 12,888 $ 10,973
</TABLE>
<PAGE>
Assumptions used in the accounting for the defined benefit
plans were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Discount rate as of December 31 6.5% 7.5% 7.0%
Expected long-term rate of return on plan assets 7.5% 8.5% 8.0%
Rate of increase in compensation levels 3.0% 4.0% 3.5%
</TABLE>
The plans' long-term rates of return on assets, net of
expenses, has been approximately one percentage point
greater than the discount rate. Management believes the
discount rate plus one percentage point is the best estimate
of the long-term return on plan assets at any point in time.
Therefore, when the discount rate changes, management's
expectation for the future long-term rate of return on plan
assets changes in tandem.
The funded status of the defined benefit plans was as
follows:
<TABLE>
<CAPTION>
( in thousands )
As of December 31,
1997 1996 1995
<S> <C> <C> <C>
Actuarial present value of vested benefits $ (180,252) $ (157,600) $ (158,953)
Actuarial present value of accumulated benefits $ (194,636) $ (169,856) $ (170,875)
Actuarial present value of projected benefits $ (236,260) $ (203,919) $ (206,324)
Plan assets at fair value 246,811 220,603 195,667
Plan assets greater than (less than) projected benefits 10,551 16,684 (10,657)
Unrecognized net loss (gain) (18,979) (21,338) 7,089
Unrecognized prior service cost 5,704 6,486 8,337
Unrecognized net asset at the date FAS No. 87 was
adopted, net of amortization (6,328) (7,775) (9,222)
Net pension asset (liability) recognized in the balance sheet $ (9,052) $ (5,943) $ (4,453)
</TABLE>
Plan assets consist of marketable equity and fixed-income
securities.
The Company has unfunded health and life insurance benefit
plans that are provided to certain retired employees. The
combined number of 1) active employees eligible for such
benefits and 2) retired employees receiving such benefits is
approximately 5% of the Company's current workforce. The
actuarial present value of the projected benefit obligation
at December 31 was $8,200,000 in 1997 and $7,400,000 in
1996. The cost of the plan was less than $1,000,000 in each
year.
12. SEGMENT INFORMATION
The Company's reportable segments are strategic businesses
that offer different products and services. They are
managed separately because each business requires different
technology and marketing strategies. See Note 1 for
descriptive information about the Company's business
segments. The accounting policies of the segments are the
same as those described in the summary of significant
accounting policies. The Company evaluates performance based
on results of operations before income taxes, interest,
unusual items, and foreign exchange gains and losses.
Intersegment sales, which primarily consist of programming
produced for HGTV and Food Network, are generally recorded
at cost.
No single customer provides more than 10% of the Company's
revenue. The Company derives less than 10% of its revenues
from markets outside of the U.S.
<PAGE>
Financial information for the Company's business segments is
as follows:
<TABLE>
<CAPTION>
( in thousands )
For the years ended December 31,
1997 1996 1995
<S> <C> <C> <C>
OPERATING REVENUES
Newspapers $ 751,014 $ 670,861 $ 640,398
Broadcast television 331,216 323,467 295,228
Category television 58,396 22,111 11,336
Licensing and other media 105,723 108,490 84,471
Total 1,246,349 1,124,929 1,031,433
Eliminate intersegment revenue (4,392) (3,071) (1,055)
Total continuing operations $ 1,241,957 $ 1,121,858 $ 1,030,378
OPERATING INCOME
Newspapers $ 174,480 $ 139,303 $ 125,484
Broadcast television 103,690 100,437 86,927
Category television (13,079) (17,949) (18,634)
Licensing and other media 2,940 6,531 4,151
Corporate (17,207) (18,471) (16,772)
Total 250,824 209,851 181,156
Unusual credits (charges) - see Note 3 (4,000)
Total continuing operations $ 250,824 $ 205,851 $ 181,156
DEPRECIATION
Newspapers $ 33,840 $ 30,452 $ 30,206
Broadcast television 14,738 14,547 12,578
Category television 2,380 1,587 1,084
Licensing and other media 1,931 1,843 1,744
Corporate 1,196 1,099 884
Total continuing operations $ 54,085 $ 49,528 $ 46,496
AMORTIZATION OF INTANGIBLE ASSETS
Newspapers $ 12,105 $ 8,207 $ 6,267
Broadcast television 9,620 11,241 13,451
Category television 1,393
Licensing and other media 403 401 376
Total continuing operations $ 23,521 $ 19,849 $ 20,094
OTHER NONCASH ITEMS
Broadcast television $ (3,790) $ (1,448) $ (522)
Category television (16,913) (12,224) (9,148)
Licensing and other media (2,400) (2,856) 2,414
Total continuing operations $ (23,103) $ (16,528) $ (7,256)
</TABLE>
Other noncash items include programming and program
production expenses in excess of (less than) the amounts
paid, and, for category television, amortization of prepaid
distribution fees in excess of (less than) distribution fee
payments.
<PAGE>
<TABLE>
<CAPTION>
( in thousands )
For the years ended December 31,
1997 1996 1995
<S> <C> <C> <C>
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
Newspapers $ 33,762 $ 25,653 $ 22,184
Broadcast television 15,632 23,491 23,630
Category television 5,742 2,800 5,716
Licensing and other media 670 630 3,858
Corporate 814 726 1,912
Total continuing operations $ 56,620 $ 53,300 $ 57,300
BUSINESS ACQUISITIONS AND OTHER ADDITIONS TO LONG-LIVED ASSETS
Newspapers $ 644,527 $ 122,230 $ 745
Broadcast television 3,000 1,700
Category television 173,569 44,000 7,269
Licensing and other media 21,808 3,330 419
Corporate 2,083 2,283 4,104
Total continuing operations $ 844,987 $ 173,543 $ 12,537
ASSETS
Newspapers $ 1,330,487 $ 700,625 $ 606,989
Broadcast television 495,049 515,866 520,308
Category television 283,588 101,107 51,722
Licensing and other media 113,822 79,122 72,456
Corporate 57,887 71,949 98,239
Total continuing operations $ 2,280,833 $ 1,468,669 $ 1,349,714
</TABLE>
Other additions to long-lived assets include investments and
prepaid distribution fees. Corporate assets are primarily
cash, investments, and refundable and deferred income taxes.
13. COMMITMENTS AND CONTINGENCIES
In 1995 Scripps Cable adjusted an accrual for the estimated
costs of certain lawsuits against the Sacramento cable
television system related primarily to employment issues and
to the timing and amount of late-payment fees assessed to
subscribers based upon a reassessment of the probable costs
of these and additional employment-related lawsuits. The
additional accrual reduced income from discontinued
operations by $900,000. In 1996 the Company agreed to settle
the late-payment fees and certain of the employment issue
lawsuits. The settlements did not result in an additional
charge. Management believes the possibility of incurring a
loss greater than the amount accrued for the remaining
lawsuits is remote. Pursuant to the terms of its agreement
with Comcast, the Company remains liable for any losses
related to these lawsuits.
The Company is also involved in other litigation arising in
the ordinary course of business, none of which is expected
to result in material loss.
The Company purchased program rights totaling $70,100,000 in
1997, $53,700,000 in 1996, and $61,900,000 in 1995, the
payments for which are generally made over the lives of the
contracts. At December 31, 1997, the Company was committed
to purchase approximately $110,000,000 of program rights
that are not currently available for broadcast, including
$100,000,000 for programs not yet produced. If such
programs are not produced, the Company's commitments would
expire without obligation.
<PAGE>
Minimum payments on noncancelable leases at December 31,
1997, were as follows:
<TABLE>
<CAPTION>
( in thousands )
<S> <C>
1998 $ 10,400
1999 7,700
2000 5,300
2001 4,400
2002 4,100
Later years 14,900
Total $ 46,800
</TABLE>
Rental expense for cancelable and noncancelable leases was as follows:
<TABLE>
<CAPTION>
( in thousands )
For the years ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Rental expense $ 12,200 $ 10,300 $ 10,300
</TABLE>
14. CAPITAL STOCK AND INCENTIVE PLANS
The capital structure of the Company includes Common Voting
Shares and Class A Common Shares. The articles provide that
the holders of Class A Common Shares, who are not entitled
to vote on any other matters except as required by Ohio law,
are entitled to elect the greater of three or one-third of
the directors.
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. The
Company repurchased 621,000 shares in 1997.
The 1987 Long-Term Incentive Plan (the "1987 Plan"), which
expired on December 9, 1997, provided for the awarding of
stock options with 10-year terms, stock appreciation rights,
performance units and Class A Common Shares to key employees
and the 1994 Non-Employee Directors' Stock Option Plan
provides for the awarding of stock options to certain
nonemployee directors. The 1987 Plan was replaced by the
1997 Long-Term Incentive Plan (the "1997 Plan"). The terms
of the 1997 Plan are substantially the same as the 1987
Plan. The 1997 Plan expires in 2007, except for options
then outstanding. The number of shares authorized for
issuance under the plans is 7,913,000, of which 3,034,000
remain available.
Stock options may be awarded to purchase Class A Common
Shares at not less than 100% of the fair market value on the
date the option is granted. Stock options will vest over an
incentive period, conditioned upon the individual's
employment through that period.
<PAGE>
Information related to stock options is as follows:
<TABLE>
<CAPTION>
Weighted- Range of
Number Average Exercise
of Shares Exercise Price Prices
<S> <C> <C> <C>
Outstanding at December 31, 1994 2,125,975 $25.25 $16 - 34
Granted in 1995 25,000 31.00 29 - 34
Exercised in 1995 (221,350) 23.07 18 - 30
Forfeited in 1995 (10,000) 25.51 18 - 30
Outstanding at December 31, 1995 1,919,625 25.52 16 - 34
Granted in 1996 prior to the Cable Transaction 96,500 43.51 39 - 48
Exercised in 1996 prior to the Cable Transaction (353,350) 23.51 16 - 34
Adjustment of options upon completion of the Cable Transaction 1,036,225
Granted in 1996 subsequent to the Cable Transaction 25,000 34.25 34
Exercised in 1996 subsequent to the Cable Transaction (43,200) 14.39 10 - 19
Outstanding at December 31, 1996 2,680,800 16.74 10 - 34
Granted in 1997 605,500 35.33 35 - 43
Exercised in 1997 (448,975) 17.27 10 - 26
Forfeited in 1997 (11,800) 34.50 35
Outstanding at December 31, 1997 (by year granted):
1990 98,750 14.38 11 - 15
1991 463,350 12.00 11 - 13
1992 187,700 15.17 15 - 17
1993 729,800 17.54 15 - 21
1994 576,025 18.83 17 - 21
1995 12,000 19.63 18 - 20
1996 164,200 28.22 24 - 34
1997 593,700 35.35 35 - 43
Total options outstanding 2,825,525 $21.00 $11 - 43
Exercisable at December 31:
1995 1,739,125 $25.88 $16 - 34
1996 2,417,900 16.02 10 - 27
1997 2,190,625 16.90 11 - 27
</TABLE>
The number of options and the option price were adjusted
based on the market price of Class A Common Shares before
and after completion of the Cable Transaction, in order to
preserve the economic value of the options. Substantially
all options granted prior to 1997 are exercisable.
<PAGE>
The Company has adopted the "disclosure-only" provisions of
FAS No. 123; therefore no compensation expense has been
recognized for stock option grants. Had compensation
expense been determined based upon the fair value
(determined using the Black-Scholes option pricing model) at
the grant date consistent with the provisions of FAS No.
123, the Company's income from continuing operations would
have been reduced to the pro forma amounts as follows:
<TABLE>
<CAPTION>
( in thousands, except per share data )
For the years ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Pro forma income from continuing operations $ 155,800 $ 126,500 $ 93,500
Pro forma income from continuing operations per share of common stock:
Basic $1.94 $1.58 $1.17
Diluted 1.91 1.56 1.17
</TABLE>
The 1996 amounts above include the $2,900,000, $.04 per
share on a diluted basis, effect of the option adjustment
related to the Cable Transaction. That amount is the after-
tax difference between the fair value of the adjusted
options and the intrinsic value of the original options
outstanding on the date of the Cable Transaction. FAS No.
123 requires that, for options issued prior to the adoption
of FAS No. 123, such difference must be included in the pro
forma disclosures. There was no difference between the fair
values of the original and the adjusted options on the date
of the Cable Transaction. Information related to the fair
value of stock option grants is as follows:
<TABLE>
<CAPTION>
For the years ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Weighted-average fair value of options granted $12.03 $14.84 $11.08
Assumptions used to determine fair value:
Dividend yield 1.5% 1.5% 1.5%
Expected volatility 28% 27% 28%
Risk-free rate of return 6.0% 6.4% 6.0%
Expected life of options 7 years 7 years 7 years
</TABLE>
Awards of Class A Common Shares vest over an incentive
period, conditioned upon the individual's employment
throughout that period. During the vesting period shares
issued are nontransferable, but the shares are entitled to
all the rights of an outstanding share. Compensation
expense is determined based upon the fair value of the
shares at the grant date. Information related to awards of
Class A Common Shares is as follows:
<TABLE>
<CAPTION>
( in thousands, except share data )
For the years ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Class A Common Shares:
Shares awarded prior to completion of the Cable Transaction 130,500 17,500
Weighted-average price of shares awarded $43.45 $31.06
Adjustment of unvested shares upon completion
of the Cable Transaction 127,650
Awarded subsequent to completion of the Cable Transaction 80,500 52,500
Weighted-average price of shares awarded $38.97 $34.25
Shares forfeited 1,250
Compensation expense recognized:
Continuing operations $ 2,776 $ 1,482 $ 916
Scripps Cable 2,300 85
</TABLE>
The number of unvested shares was adjusted based on the
market price of Class A Common Shares before and after
completion of the Cable Transaction, in order to preserve
the economic value of the awards.
<PAGE>
15. DISCONTINUED OPERATION - SCRIPPS CABLE
Summarized financial information is as follows:
Operating Results
<TABLE>
<CAPTION>
( in thousands, except share data )
For the years
ended December 31,
1996 1995
<S> <C> <C>
Operating revenues $ 270,172 $ 279,482
Income before income taxes 60,541 65,247
Income taxes (21,027) (25,458)
Income from operations 39,514 39,789
Costs of Cable Transaction (12,251)
Net income $ 27,263 $ 39,789
Net income per share of common stock:
Basic $.34 $.50
Diluted .34 .50
</TABLE>
In 1995 Scripps Cable adjusted an accrual for the
ultimate costs of certain lawsuits (see Note 13). The
adjustment reduced net income by $900,000.
Cash Flows
<TABLE>
<CAPTION>
( in thousands )
For the years
ended December 31,
1996 1995
<S> <C> <C>
Net income $ 27,263 $ 39,789
Depreciation and amortization 48,008 53,999
Other, net (10,178) 8,291
Net cash provided by operating activities $ 65,093 $ 102,079
Capital expenditures $ (57,898) $ (47,484)
Acquisition of cable television systems (primarily equipment and intangible assets) (62,099) (384)
Other, net 422 2,930
Net cash used in investing activities $ (119,575) $ (44,938)
</TABLE>
<PAGE>
16. SUMMARIZED QUARTERLY FINANCIAL INFORMATION (Unaudited)
Summarized financial information is as follows:
<TABLE>
<CAPTION>
( in thousands, except per share data )
1st 2nd 3rd 4th
1997 Quarter Quarter Quarter Quarter Total
<S> <C> <C> <C> <C> <C>
Operating revenues $ 290,710 $ 305,512 $ 286,181 $ 359,554 $ 1,241,957
Operating expenses:
Employee compensation and benefits 94,805 96,381 97,491 111,337 400,014
Newsprint and ink 27,351 30,416 30,204 35,537 123,508
Program, production and copyright costs 25,827 16,988 18,356 24,056 85,227
Other operating expenses 68,608 74,072 72,532 89,566 304,778
Depreciation and amortization 18,268 17,294 18,023 24,021 77,606
Total operating expenses 234,859 235,151 236,606 284,517 991,133
Operating income 55,851 70,361 49,575 75,037 250,824
Interest expense (2,566) (2,484) (2,300) (11,193) (18,543)
Net gains and unusual items 20,981 23,913 44,894
Miscellaneous, net 113 368 914 1,731 3,126
Income taxes (22,477) (28,728) (29,668) (36,637) (117,510)
Minority interests (898) (938) (924) (2,329) (5,089)
Income from continuing operations $ 30,023 $ 38,579 $ 38,578 $ 50,522 $ 157,702
Income from continuing operations per
share of common stock:
Basic $ .37 $ .48 $ .48 $ .63 $ 1.96
Diluted $ .37 $ .47 $ .47 $ .62 $ 1.93
Basic weighted-average shares outstanding 80,496 80,562 80,644 80,297 80,500
Diluted weighted-average shares outstanding 81,588 81,701 81,814 81,476 81,645
Cash dividends per share of common stock $ .13 $ .13 $ .13 $ .13 $ .52
The sum of the quarterly net income per share amounts
may not equal the reported annual amount because each is
computed independently based upon the weighted-average
number of shares outstanding for the period.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
( in thousands, except per share data )
1st 2nd 3rd 4th
1996 Quarter Quarter Quarter Quarter Total
<S> <C> <C> <C> <C> <C>
Operating revenues $ 254,245 $ 277,324 $ 265,483 $ 324,806 $ 1,121,858
Operating expenses:
Employee compensation and benefits 86,883 89,333 90,078 94,403 360,697
Newsprint and ink 34,169 33,161 29,402 26,658 123,390
Program, production and copyright costs 16,550 16,460 17,814 38,166 88,990
Other operating expenses 61,648 66,996 65,688 79,221 273,553
Depreciation and amortization 17,519 16,951 17,256 17,651 69,377
Total operating expenses 216,769 222,901 220,238 256,099 916,007
Operating income 37,476 54,423 45,245 68,707 205,851
Interest expense (1,413) (2,224) (2,713) (3,279) (9,629)
Net gains and unusual items 21,531 21,531
Miscellaneous, net (382) 705 291 1,220 1,834
Income taxes (15,274) (22,998) (18,331) (29,408) (86,011)
Minority interests (687) (798) (841) (1,110) (3,436)
Income from continuing operations 19,720 29,108 23,651 57,661 130,140
Income from discontinued operation 9,595 12,782 12,268 (7,382) 27,263
Net income $ 29,315 $ 41,890 $ 35,919 $ 50,279 $ 157,403
Per share of common stock - basic:
Income from continuing operations $ .25 $ .36 $ .29 $ .72 $ 1.62
Net income $ .37 $ .52 $ .45 $ .63 $ 1.96
Basic weighted-average shares outstanding 80,109 80,220 80,258 80,333 80,230
Per share of common stock - diluted:
Income from continuing operations $ .24 $ .36 $ .29 $ .71 $ 1.61
Net income $ .36 $ .52 $ .44 $ .62 $ 1.95
Diluted weighted-average shares outstanding 80,597 80,750 80,820 81,198 80,841
Cash dividends per share of common stock $ .13 $ .13 $ .13 $ .13 $ .52
The sum of the quarterly net income per share amounts
may not equal the reported annual amount because each is
computed independently based upon the weighted-average
number of shares outstanding for the period.
</TABLE>
<PAGE>
THE E. W. SCRIPPS COMPANY
Index to Consolidated Financial Statement Schedules
Valuation and Qualifying Accounts S-2
<PAGE>
<TABLE>
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 SCHEDULE II
<CAPTION>
( in thousands )
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
INCREASE
ADDITIONS DEDUCTIONS (DECREASE)
BALANCE CHARGED TO AMOUNTS RECORDED BALANCE
BEGINNING COSTS AND CHARGED ACQUISITIONS END OF
CLASSIFICATION OF PERIOD EXPENSES OFF-NET (DIVESTITURES) PERIOD
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
Allowance for doubtful
accounts receivable $ 3,974 $ 7,387 $ 6,152 $ 1,096 $ 6,305
YEAR ENDED DECEMBER 31, 1996:
Allowance for doubtful
accounts receivable $ 3,447 $ 5,422 $ 4,895 $ 3,974
YEAR ENDED DECEMBER 31, 1995:
Allowance for doubtful
accounts receivable $ 3,937 $ 5,385 $ 5,875 $ 3,447
Allowance for sales returns 601 601 0
Total receivable allowances $ 4,538 $ 5,385 $ 6,476 $ 3,447
</TABLE>
<PAGE>
<TABLE>
THE E. W. SCRIPPS COMPANY
Index to Exhibits
<CAPTION>
Exhibit Exhibit No.
Number Description of Item Page Incorporated
<S> <C> <C> <C>
3.01 Articles of Incorporation (7) 3.01
3.02 Code of Regulations (7) 3.02
4.01 Class A Common Share Certificate (4) 4
4.02 Form of Indenture: 7.375% notes due in 1998 (2) 4.1
4.02A Form of Indenture: 6.375% notes due in 2002 (5) 4.1
4.02B Form of Indenture: 6.625% notes due in 2007 (5) 4.1
4.03 Form of Debt Securities: 7.375% notes due in 1998 (2) 4.2
4.03A Form of Debt Securities: 6.375% notes due in 2002 (5) 4.2
4.03B Form of Debt Securities: 6.625% notes due in 2007 (5) 4.2
10.02 Amended and Restated Joint Operating Agreement, dated February 29, 1988, among
Birmingham News Company and Birmingham Post Company (1) 10.02
10.03 Joint Operating Agreement, dated September 23, 1977, between the
Cincinnati Enquirer, Inc. and the Company, as amended (1) 10.03
10.05 Amended and Restated Joint Operating Agreement, dated October 23, 1986, among
Evansville Press Company, Inc., Hartmann Publications, Inc. and Evansville
Printing Corporation (1) 10.05
10.06 Building Lease, dated April 25, 1984, among Albuquerque Publishing Company,
Number Seven and Jefferson Building Partnership (1) 10.08A
10.06A Ground Lease, dated April 25, 1984, among Albuquerque Publishing Company,
New Mexico State Tribune Company, Number Seven and Jefferson Building
Partnership (1) 10.08B
10.07 Agreement, dated August 17, 1989, between United Feature Syndicate, Inc. and
Charles M. Schulz and the Trustees of the Schulz Family Renewal Copyright
Trust, as amended (1) 10.11
10.20 Acquisition Agreement, Dated as of May 16, 1997 by and between the E. W. Scripps
Company and Harte-Hanks Communications, Inc. (3) 10.01
10.21 Exchange Agreement, Dated as of September 4, 1997 By and Among Belo
Holdings Inc., Colony Cable Networks, Inc., PJ Programming, Inc., BHI Sub, Inc.
and The E. W. Scripps Company (3) 10.02
10.40 5-Year Competitive Advance and Revolving Credit Agreement, dated as of
September 26, 1997, among The E. W. Scripps Company, the Banks named
therein, The Chase Manhattan Bank, as Agent, and J. P. Morgan & Co., as
Documentation Agent (5) 10.1
10.41 364-Day Competitive Advance and Revolving Credit Agreement, dated as of
September 26, 1997, among The E. W. Scripps Company, the Banks named
therein, The Chase Manhattan Bank, as Agent, and J. P. Morgan & Co., as
Documentation Agent (5) 10.2
10.53 1987 Long-Term Incentive Plan (1) 10.36
10.53A Form of Nonqualified Stock Option Agreement (1) 10.36A
10.53B Form of Restricted Share Award Agreement (1) 10.36B
10.54 Agreement, dated December 24, 1959, between the Company and Charles E. Scripps,
as amended (1) 10.39A
10.54A Assignment, Assumption, and Release Agreement, dated December 31, 1987,
between the Company, Scripps Howard, Inc. and Charles E. Scripps (1) 10.39B
10.54B Amendment, dated June 21, 1988 to December 24, 1959 Agreement between
the Company and Charles E. Scripps (1) 10.39C
10.55 Board Representation Agreement, dated March 14, 1986, between
The Edward W. Scripps Trust and John P. Scripps (1) 10.44
10.56 Shareholder Agreement, dated March 14, 1986, between the Company and the
Shareholders of John P. Scripps Newspapers (1) 10.45
10.57 Scripps Family Agreement dated October 15, 1992 (6) 1
</TABLE>
<PAGE>
<TABLE>
THE E. W. SCRIPPS COMPANY
Index to Exhibits
<CAPTION>
Exhibit Exhibit No.
Number Description of Item Page Incorporated
<S> <C> <C> <C>
12 Computation of Ratio of Earnings to Fixed Charges for the Three Years Ended
December 31, 1997 E-3
22 Subsidiaries of the Company E-4
24 Independent Auditors' Consent E-5
27 Financial Data Schedule E-6
</TABLE>
(1) Incorporated by reference to Registration
Statement of The E. W. Scripps Company on Form S-1
(File No. 33-21714).
(2) Incorporated by reference to Registration
Statement of The E. W. Scripps Company on Form S-3
(File No. 33-43989).
(3) Incorporated by reference to The E. W. Scripps
Company Current Report on Form 8-K dated September 4,
1997.
(4) Incorporated by reference to The E. W. Scripps
Company Annual Report on Form 10-K for the year ended
December 31, 1990.
(5) Incorporated by reference to Registration
Statement on Form S-3 (File No. 33-36641).
(6) Incorporated by reference to The E. W. Scripps
Company Current Report on Form 8-K dated October 15,
1992.
(7) Incorporated by reference to Scripps Howard, Inc.
Registration Statement on Form 10 (File No. 1-11969).
<TABLE>
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12
<CAPTION>
( in thousands )
Years ended December 31,
1997 1996 1995
<S> <C> <C> <C>
EARNINGS AS DEFINED:
Earnings from operations before income taxes after eliminating
undistributed earnings of 20%- to 50%-owned affiliates $ 286,135 $ 221,565 $ 179,127
Fixed charges excluding capitalized interest and preferred stock
dividends of majority-owned subsidiary companies 22,618 13,050 15,652
Earnings as defined $ 308,753 $ 234,615 $ 194,779
FIXED CHARGES AS DEFINED:
Interest expense, including amortization of debt issue costs $ 18,543 $ 9,629 $ 11,223
Interest capitalized 1,193 749 447
Portion of rental expense representative of the interest factor 4,075 3,421 4,429
Preferred stock dividends of majority-owned subsidiary companies 80 80 80
Fixed charges as defined $ 23,891 $ 13,879 $ 16,179
RATIO OF EARNINGS TO FIXED CHARGES 12.92 16.90 12.04
</TABLE>
<TABLE>
SUBSIDIARIES OF THE COMPANY EXHIBIT 22
<CAPTION>
Jurisidiction of
Name of Subsidiary Incorporation
<S> <C>
BRV, Inc. (Boulder Daily Camera, Bremerton Sun, Redding Record Searchlight,
Ventura County Newspapers) California
Birmingham Post Company (Birmingham Post Herald) Alabama
Channel 7 of Detroit, Inc., (WXYZ) Michigan
Collier County Publishing Company (The Naples Daily News) Florida
Denver Publishing Company (Rocky Mountain News) Colorado
Evansville Courier Company, Inc., 91.5%-owned Indiana
Force V Corporation (Destin Log) Florida
Independent Publishing Company (Anderson Independent Mail) South Carolina
Knoxville News-Sentinel Company Tennessee
Memphis Publishing Company, 91.3%-owned (The Commercial Appeal) Delaware
New Mexico State Tribune Company (The Albuquerque Tribune) New Mexico
Scripps Acquisition L.P. (Corpus Christi Caller-Times, Abilene Reporter-News,
Wichita Falls Times Record News, San Angelo Standard-Times) Delaware
Scripps Community Newspapers, Inc. (Plano Star Courier) Texas
Scripps Howard Broadcasting Company, (WMAR, Baltimore;
WCPO, Cincinnati; WEWS, Cleveland; KSHB, Kansas City;
KNXV, Phoenix; KJRH, Tulsa; WPTV, West Palm Beach,
Home & Garden Television, Cinetel Productions) Ohio
Scripps Howard Productions, Inc. California
Stuart News Company (Stuart News, Jupiter Courier, Vero Beach Press Journal) Florida
Tampa Bay Television, (WFTS) Delaware
The Television Food Network, G.P., 56%-owned Delaware
United Feature Syndicate, Inc. (United Media, Newspaper Enterprise Association) New York
</TABLE>
INDEPENDENT AUDITORS' CONSENT EXHIBIT 24
We consent to the incorporation by reference in Registration
Statements Nos. 33-53953, 33-32740, 33-35525, 33-47828, 33-
63398, 33-59701, 333-27621, 333-27623 and 333-40767 of
The E. W. Scripps Company and subsidiary companies on Form S-8
and Registration Statement Nos. 33-43989 and 33-36641 of
The E. W. Scripps Company and subsidiary companies on Form S-3
of our report dated January 22, 1998, appearing in this Annual
Report on Form 10-K of The E. W. Scripps Company and subsidiary
companies for the year ended December 31, 1997.
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 14,321
<SECURITIES> 3,105
<RECEIVABLES> 224,615
<ALLOWANCES> 6,305
<INVENTORY> 13,685
<CURRENT-ASSETS> 379,114
<PP&E> 860,815
<DEPRECIATION> 380,778
<TOTAL-ASSETS> 2,280,833
<CURRENT-LIABILITIES> 429,960
<BONDS> 601,852
0
0
<COMMON> 806
<OTHER-SE> 1,048,156
<TOTAL-LIABILITY-AND-EQUITY> 2,280,833
<SALES> 0
<TOTAL-REVENUES> 1,241,957
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 983,003
<LOSS-PROVISION> 8,130
<INTEREST-EXPENSE> 18,543
<INCOME-PRETAX> 280,301
<INCOME-TAX> 117,510
<INCOME-CONTINUING> 157,702
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 157,702
<EPS-PRIMARY> $1.96
<EPS-DILUTED> $1.93
</TABLE>
