UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number 0-16914
THE E. W. SCRIPPS COMPANY
(Exact name of registrant as specified in its charter)
Ohio 31-1223339
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
312 Walnut Street
Cincinnati, Ohio 45202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (513) 977-3000
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. As of October 31, 1999
there were 58,890,296 of the Registrant's Class A Common Shares
outstanding and 19,218,913 of the Registrant's Common Voting Shares
outstanding.
<PAGE>
INDEX TO THE E. W. SCRIPPS COMPANY
REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999
Item No. Page
PART I - FINANCIAL INFORMATION
1 Financial Statements 3
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 3
PART II - OTHER INFORMATION
1 Legal Proceedings 3
2 Changes in Securities 3
3 Defaults Upon Senior Securities 3
4 Submission of Matters to a Vote of Security Holders 4
5 Other Information 4
6 Exhibits and Reports on Form 8-K 4
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
The information required by this item is filed as part of this Form 10-Q.
See Index to Financial Information at page F-1 of this Form 10-Q.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is filed as part of this Form 10-Q.
See Index to Financial Information at page F-1 of this Form 10-Q.
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in litigation arising in the ordinary course of
business, such as defamation actions and various governmental and
administrative proceedings relating to renewal of broadcast licenses, none
of which is expected to result in material loss.
ITEM 2. CHANGES IN SECURITIES
There were no changes in the rights of security holders during the quarter
for which this report is filed.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There were no defaults upon senior securities during the quarter for which
this report is filed.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
quarter for which this report is filed.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
The information required by this item is filed as part of this Form 10-Q.
See Index to Exhibits at page E-1 of this Form 10-Q.
Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this report
is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
THE E. W. SCRIPPS COMPANY
Dated: November 8, 1999 BY: D. J. Castellini
D. J. Castellini
Senior Vice President and
Chief Financial Officer
<PAGE>
THE E. W. SCRIPPS COMPANY
Index to Financial Information
Item Page
Consolidated Balance Sheets F-2
Consolidated Statements of Income F-4
Consolidated Statements of Cash Flows F-5
Consolidated Statements of Comprehensive Income and
Stockholders' Equity F-6
Notes to Consolidated Financial Statements F-7
Management's Discussion and Analysis of Financial
Condition and Results of Operations F-13
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
( in thousands ) As of
September 30, December 31, September 30,
1999 1998 1998
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 14,726 $ 15,419 $ 14,966
Short-term investments 66 20,551 2,529
Accounts and notes receivable (less
allowances -$11,358, $7,689, $7,742) 235,014 226,683 194,777
Program rights and production costs 102,782 68,870 80,961
Network distribution fees 16,649 18,729 17,531
Inventories 15,387 15,009 15,896
Deferred income taxes 27,725 24,140 24,180
Miscellaneous 31,329 29,926 28,089
Total current assets 443,678 419,327 378,929
Investments 216,258 131,230 104,547
Property, Plant and Equipment 482,436 479,286 473,985
Goodwill and Other Intangible Assets 1,181,638 1,204,469 1,217,887
Other Assets:
Program rights and production costs (less current portion) 68,530 50,763 49,619
Network distribution fees (less current portion) 53,972 43,204 33,192
Miscellaneous 34,758 31,095 22,819
Total other assets 157,260 125,062 105,630
TOTAL ASSETS $ 2,481,270 $ 2,359,374 $ 2,280,978
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
( in thousands, except share data ) As of
September 30, December 31, September 30,
1999 1998 1998
(Unaudited) (Unaudited)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 257,158 $ 268,780 $ 231,019
Accounts payable 115,428 101,870 101,686
Customer deposits and unearned revenue 44,971 42,094 41,849
Accrued liabilities:
Employee compensation and benefits 50,032 40,816 45,129
Network distribution fees 39,329 35,520 15,931
Miscellaneous 47,972 57,687 54,877
Total current liabilities 554,890 546,767 490,491
Deferred Income Taxes 140,830 115,577 101,358
Long-Term Debt (less current portion) 501,869 501,877 501,842
Other Long-Term Obligations and Minority Interests (less current portion) 141,212 126,421 124,224
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: 58,989,873; 59,324,967; and 60,404,819 shares 590 593 604
Voting - authorized: 30,000,000 shares; issued and
outstanding: 19,218,913 shares 192 192 192
Total 782 785 796
Additional paid-in capital 141,577 161,878 206,448
Retained earnings 938,559 870,315 837,677
Unrealized gains on securities available for sale 65,969 38,904 22,528
Foreign currency translation adjustment 710 581 63
Unvested restricted stock awards (5,128) (3,731) (4,449)
Total stockholders' equity 1,142,469 1,068,732 1,063,063
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,481,270 $ 2,359,374 $ 2,280,978
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME ( UNAUDITED )
<CAPTION>
( in thousands, except per share data ) Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Operating Revenues:
Advertising $ 280,999 $ 256,447 $ 862,941 $ 791,422
Circulation 34,237 37,803 106,793 116,084
Licensing 14,520 13,914 45,571 44,520
Joint operating agency distributions 12,479 11,836 36,826 35,879
Affiliate fees 13,012 9,491 37,651 27,565
Other 14,652 13,932 41,853 41,680
Total operating revenues 369,899 343,423 1,131,635 1,057,150
Operating Expenses:
Employee compensation and benefits 123,647 112,388 364,658 339,954
Newsprint and ink 32,775 36,100 104,360 109,406
Program, production and copyright costs 33,531 26,095 92,121 74,624
Other operating expenses 97,846 86,073 286,629 266,555
Depreciation 17,240 15,019 47,644 46,354
Amortization of intangible assets 9,443 10,292 28,795 30,139
Total operating expenses 314,482 285,967 924,207 867,032
Operating Income 55,417 57,456 207,428 190,118
Other Credits (Charges):
Interest expense (11,279) (11,712) (33,378) (35,471)
Miscellaneous, net (214) 285 2,740 (238)
Net other credits (charges) (11,493) (11,427) (30,638) (35,709)
Income Before Taxes and Minority Interests 43,924 46,029 176,790 154,409
Provision for Income Taxes 17,954 18,852 72,442 63,191
Income Before Minority Interests 25,970 27,177 104,348 91,218
Minority Interests 1,077 1,099 3,223 3,638
Net Income $ 24,893 $ 26,078 $ 101,125 $ 87,580
Net Income per Share of Common Stock:
Basic $.32 $.33 $1.30 $1.09
Diluted .32 .32 1.28 1.08
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS ( UNAUDITED )
<CAPTION>
( in thousands ) Nine months ended
September 30,
1999 1998
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 101,125 $ 87,580
Adjustments to reconcile net income
to net cash flows from operating activities:
Depreciation and amortization 76,439 76,493
Deferred income taxes 7,116 4,758
Minority interests in income of subsidiary companies 3,223 3,638
Network distribution fee amortization greater (less) than payments (6,719) (6,904)
Program cost amortization greater (less) than payments (28,389) (12,812)
Other changes in certain working capital accounts, net (16,626) 22,798
Miscellaneous, net 5,766 2,904
Net operating activities 141,935 178,455
Cash Flows from Investing Activities:
Additions to property, plant and equipment (58,613) (42,873)
Purchase of subsidiary company and long-term investments (43,435) (14,614)
Change in short-term investments, net 20,485 576
Miscellaneous, net 11,777 10,698
Net investing activities (69,786) (46,213)
Cash Flows from Financing Activities:
Increase in long-term debt 3,865
Payments on long-term debt (15,557) (40,369)
Repurchase Class A Common shares (29,101) (62,161)
Dividends paid (32,881) (32,232)
Dividends paid to minority interests (1,176) (1,189)
Miscellaneous, net (primarily exercise of stock options) 2,008 4,259
Net financing activities (72,842) (131,692)
Increase (Decrease) in Cash and Cash Equivalents (693) 550
Cash and Cash Equivalents:
Beginning of year 15,419 14,416
End of period $ 14,726 $ 14,966
Supplemental Cash Flow Disclosures:
Interest paid, excluding amounts capitalized $ 29,674 $ 31,490
Income taxes paid 79,224 61,223
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
AND STOCKHOLDERS' EQUITY ( UNAUDITED )
<CAPTION>
( in thousands, except share data )
Accumulated Unvested Comprehensive
Additional Other Restricted Total Income for the
Common Paid-in Retained Comprehensive Stock Stockholders' Three Months
Stock Capital Earnings Income Awards Equity Ended Sept. 30
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1997 $ 806 $ 259,739 $ 782,329 $ 11,690 $ (5,602) $ 1,048,962
Comprehensive income:
Net income 87,580 87,580 $ 26,078
Unrealized gains, net of deferred tax
of $6,206 and $395 11,570 11,570 733
Less: reclassification adjustment for gains
in income, net of deferred tax
of $212 and ($105) (439) (439) 195
Increase in unrealized gains on securities 11,131 11,131 928
Foreign currency translation adjustments (230) (230) 4
Total 87,580 10,901 98,481 $ 27,010
Dividends: declared and paid - $.40 per share (32,232) (32,232)
Convert 114,798 Voting Shares to Class A Shares
Repurchase 1,269,800 Class A Common Shares (13) (62,148) (62,161)
Compensation plans, net: 284,735 shares issued,
1,500 shares forfeited and 19,571
shares repurchased 3 5,567 1,153 6,723
Tax benefits of compensation plans 3,290 3,290
Balances at September 30, 1998 $ 796 $ 206,448 $ 837,677 $ 22,591 $ (4,449) $ 1,063,063
Balances at December 31, 1998 $ 785 $ 161,878 $ 870,315 $ 39,485 $ (3,731) $ 1,068,732
Comprehensive income:
Net income 101,125 101,125 $ 24,893
Unrealized gains, net of deferred tax
of $14,620 and $9,366 27,123 27,123 17,427
Less: reclassification adjustment for gains
in income, net of deferred tax of $31 (58) (58)
Increase in unrealized gains on securities 27,065 27,065 17,427
Foreign currency translation adjustments 129 129 546
Total 101,125 27,194 128,319 $ 42,866
Dividends: declared and paid - $.42 per share (32,881) (32,881)
Repurchase 655,100 Class A Common Shares (6) (29,095) (29,101)
Compensation plans, net: 348,435 shares issued;
200 shares forfeited; 28,229 shares repurchased 3 6,204 (1,397) 4,810
Tax benefits of compensation plans 2,590 2,590
Balances at September 30, 1999 $ 782 $ 141,577 $ 938,559 $ 66,679 $ (5,128) $ 1,142,469
See notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. The information disclosed in the notes to
consolidated financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998, has not
changed materially unless otherwise disclosed herein. Financial
information as of December 31, 1998, included in these financial
statements has been derived from the audited consolidated financial
statements included in that report. In management's opinion all
adjustments (consisting of normal recurring accruals) necessary for a
fair presentation of the interim periods have been made.
Results of operations are not necessarily indicative of the results
that may be expected for future interim periods or for the full year.
Net Income Per Share - The following table presents additional
information about basic and diluted weighted-average shares
outstanding:
<TABLE>
<CAPTION>
( in thousands ) Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Basic weighted-average shares outstanding 77,874 79,874 77,969 80,212
Effect of dilutive securities:
Unvested restricted stock held by employees 170 191 180 195
Stock options held by employees 881 976 851 1,041
Diluted weighted-average shares outstanding 78,925 81,041 79,000 81,448
</TABLE>
Recently Issued Accounting Standards - The Financial Accounting
Standards Board issued FAS No. 133 - Accounting for Derivative
Instruments and Hedging Activities. As market conditions warrant, the
Company uses foreign currency forward and option contracts to reduce
the risk of changes in the exchange rate for the Japanese yen on the
Company's anticipated net licensing receipts and forward contracts to
reduce the risk of changes in the price of newsprint on anticipated
purchases. The new standard, which must be adopted by January 1,
2001, will not have a material effect on the Company's financial
position or its results of operations. Foreign currency forward and
option contracts are currently recognized at fair value, however
changes in the fair value of such contracts, which under current
accounting rules are recognized immediately, will be initially
reported as a separate component of comprehensive income and
reclassified into earnings when the related licensing revenue is
earned. Newsprint forward contracts, when used, are not recorded in
the Company's balance sheet and gains and losses are deferred and
recognized in income as the newsprint is consumed. Under the new
standard newsprint forward contracts will be recorded at fair value
and changes in the value of the contracts will be initially reported
as a separate component of comprehensive income and reclassified into
earnings when the newsprint is consumed.
Use of Estimates - In the first quarter of 1999 the Company increased
the estimated useful lives of network distribution fees to the greater
of five years or the remaining terms of the distribution contracts.
Because of the previous uncertainty regarding the conditions under which
the distribution contracts would be renewed, such fees had been
amortized over the terms of the contracts. The Company has committed to
pay certain cable television system operators additional distribution
fees to carry the networks on systems not included in the original
distribution contracts. Management believes the expanded distribution
of the networks will increase affiliate fee and advertising revenue
beyond the remaining terms of the original distribution contracts. The
change in the estimated amortization period was made to better match
revenue and expense. Also in the first quarter of 1999 the Company
increased the estimated useful lives of certain newspaper presses from
20 years to 30 years. The changes in estimated useful lives of the
network distribution fees and the newspaper presses were made
prospectively. The effect of these changes was to increase operating
income $2,800,000 and net income $1,800,000 ($.02 per share) for the
third quarter of 1999. The year-to-date increases were operating
income, $9,100,000 and net income, $5,700,000 ($.07 per share). The
effect of the changes on the full year 1999 will be to increase net
income per share by approximately $.10.
Reclassifications - For comparative purposes, certain 1998 amounts have
been reclassified to conform to 1999 classifications.
<PAGE>
2. ACQUISITIONS AND DIVESTITURES
Acquisitions
1999 - In the first quarter the Company acquired the 70% of Colorado
Real Estate On-Line, a provider of real estate listings on the
Internet, that it did not already own for $1,100,000 and acquired
an additional 1.86% interest in The Television Food Network for
$2,400,000.
1998 - In the second quarter the Company acquired independent yellow
page directories in Memphis, Tennessee, and Kansas City, Missouri,
for $2,200,000.
Divestitures
1998 - The Company sold Scripps Howard Productions, its program
television production operation based in Los Angeles, in the
second quarter and the Dallas, Texas, community newspapers,
including the Plano daily in the fourth quarter. No material gain
or loss was realized on either divestiture as proceeds
approximated the book value of the net assets sold.
Included in the consolidated financial statements are the following
results of divested operations (excluding gains on sales):
<TABLE>
<CAPTION>
( in thousands ) Three months Nine months
ended ended
September 30, September 30,
1998 1998
<S> <C> <C>
Operating revenues $ 3,400 $ 10,900
Operating income (loss) 200 (400)
</TABLE>
3. UNUSUAL CREDITS AND CHARGES
In addition to the change in accounting estimates, unusual items that
affected the comparability of the Company's results of operations
included the following:
1999 - In the third quarter the Company reduced revenue by
$2,500,000 for "make goods" to Home & Garden Television ("HGTV")
advertisers related to possible under delivery of audience levels
since 1997. The accrual of make goods reduced net income by
$1,600,000 ($.02 per share).
In the third quarter the Company made severance payments totaling
$1,200,000 to certain television station employees, reducing net
income $700,000 ($.01 per share). The Company expects to incur
additional severance costs totaling approximately $900,000 in the
fourth quarter.
In the third quarter the Company incurred costs totaling $800,000
to move the Television Food Network's operations to a different
location in Manhattan, reducing net income $500,000 ($.01 per
share).
In the third quarter Scripps Ventures sold its interest in Family
Point Inc. to iVillage Inc. for cash and stock, resulting in a gain
of $8,600,000. Scripps Ventures also accrued $9,600,000 of
incentive compensation for its managers in the third quarter. The
incentive compensation is based on the Scripps Ventures portfolio's
net gain (realized and estimated unrealized) of $71,000,000 as of
September 30, 1999. The incentive compensation will be paid in 2001
based on the portfolio's return through June 2001. The estimated
value of the portfolio on September 30, 1999, was $111,000,000 (see
Note 5). The net effect of the gain and accrual was to reduce net
income $700,000 ($.01 per share).
<PAGE>
4. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
( in thousands ) As of
September 30, December 31, September 30,
1999 1998 1998
<S> <C> <C> <C>
Variable rate credit facilities, including commercial paper $ 555,474 $ 567,561 $ 501,138
$100 million, 6.625% note, due in 2007 99,883 99,872 99,869
$100 million, 6.375% note, due in 2002 99,940 99,925 99,920
$30 million, 7.375% notes, due in 1998 29,826
Other notes 3,730 3,299 2,108
Total long-term debt 759,027 770,657 732,861
Current portion of long-term debt 257,158 268,780 231,019
Long-term debt (less current portion) $ 501,869 $ 501,877 $ 501,842
</TABLE>
The Company has a Competitive Advance and Revolving Credit Facility
Agreement, which permits aggregate borrowings up to $700,000,000 (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 2000, and the other limited
to $300,000,000 principal amount maturing in 2002. 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 rates on the
Variable Rate Credit Facilities were 5.52% at September 30, 1999,
5.25% at December 31, 1998, and 5.59% at September 30, 1998.
<PAGE>
5. INVESTMENTS
Investments consisted of the following:
<TABLE>
<CAPTION>
( in thousands ) As of
September 30, December 31, September 30,
1999 1998 1998
<S> <C> <C> <C>
Securities available for sale:
Time Warner common stock (1,344,000 shares) $ 81,681 $ 83,446 $ 58,867
Garden.com Inc. (2,414,000 common shares and 276,000 warrants) 50,175
iVillage Inc. (270,000 common shares) 9,510
Other 9,069 5,075 7,446
Total securities available for sale 150,435 88,521 66,313
Investments accounted for using the equity method 6,582 5,599 6,050
Other 59,241 37,110 32,184
Total investments $ 216,258 $ 131,230 $ 104,547
Unrealized gains on securities available for sale $ 101,520 $ 59,866 $ 34,672
</TABLE>
The Company records its investments at fair value, except for equity
securities accounted for under the equity method or issued by private
companies. All investments recorded at fair value have been classified
as available for sale. The fair value of available-for-sale investments
is determined by quoted market prices. The difference between cost and
fair value, net of related tax effects, is recorded in the accumulated
other comprehensive income component of stockholders' equity.
In the third quarter of 1999 Scripps Ventures sold its interest in
Family Point Inc. to iVillage Inc. (see Note 3). Also in the third
quarter Garden.com Inc. completed an initial public offering of its
common stock. The Company's investments in Garden.com Inc. and Family
Point Inc. were previously included in other investments.
Other investments are primarily venture capital investments in private
companies. Because no quoted market prices are available, such
investments are recorded at cost, net of impairment write-downs.
However, based upon prices paid for shares in those companies by other
investors in the most recent round of financings, the indicated value
of those investments exceeds their recorded amount by $27,000,000,
however, there is no assurance that the Company could sell these
investments at the indicated values.
6. 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.
The Company primarily evaluates the operating performance of its
segments based on earnings before interest, income taxes, depreciation
and amortization ("EBITDA"). EBITDA also excludes all credits and
charges classified as non-operating in the Consolidated Statements of
Income.
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 ) Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
OPERATING REVENUES
Newspapers $ 221,999 $ 214,390 $ 666,632 $ 649,593
Broadcast television 72,205 72,615 229,177 236,163
Category television 51,468 35,838 157,254 102,033
Licensing and other media 24,227 20,580 78,572 69,361
Total $ 369,899 $ 343,423 $1,131,635 $1,057,150
EBITDA
Newspapers $ 67,181 $ 63,589 $ 202,581 $ 191,936
Broadcast television 18,257 20,229 67,414 78,196
Category television (1,163) 1,347 18,121 1,163
Licensing and other media 1,892 2,116 8,667 8,249
Corporate (4,067) (4,514) (12,916) (12,933)
Total $ 82,100 $ 82,767 $ 283,867 $ 266,611
DEPRECIATION
Newspapers $ 10,595 $ 10,009 $ 28,355 $ 30,207
Broadcast television 4,367 3,466 13,470 11,220
Category television 1,447 1,065 3,896 3,537
Licensing and other media 540 200 1,141 624
Corporate 291 279 782 766
Total $ 17,240 $ 15,019 $ 47,644 $ 46,354
AMORTIZATION OF INTANGIBLE ASSETS
Newspapers $ 5,440 $ 5,797 $ 16,679 $ 17,283
Broadcast television 2,367 2,405 7,107 7,215
Category television 1,574 2,093 4,756 5,639
Licensing and other media 62 (3) 253 2
Total $ 9,443 $ 10,292 $ 28,795 $ 30,139
OPERATING INCOME
Newspapers $ 51,146 $ 47,783 $ 157,547 $ 144,446
Broadcast television 11,523 14,358 46,837 59,761
Category television (4,184) (1,811) 9,469 (8,013)
Licensing and other media 1,290 1,919 7,273 7,623
Corporate (4,358) (4,793) (13,698) (13,699)
Total $ 55,417 $ 57,456 $ 207,428 $ 190,118
OTHER NONCASH ITEMS
Broadcast television $ 1,923 $ 1,673 $ 2,735 $ 243
Category television (5,123) 479 (37,843) (19,701)
Licensing and other media (8) (258)
Total $ (3,200) $ 2,144 $ (35,108) $ (19,716)
</TABLE>
Other noncash items include programming and program production
expenses in excess of (less than) the amounts paid, and, for category
television, amortization of network distribution fees in excess of
(less than) distribution fee payments.
<PAGE>
<TABLE>
<CAPTION>
( in thousands ) Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
Newspapers $ 6,510 $ 5,447 $ 21,673 $ 17,446
Broadcast television 5,964 8,931 15,525 20,927
Category television 6,901 1,717 15,322 2,852
Licensing and other media 2,706 803 5,580 920
Corporate 231 168 513 728
Total $ 22,312 $ 17,066 $ 58,613 $ 42,873
BUSINESS ACQUISITIONS AND OTHER ADDITIONS TO LONG-LIVED ASSETS
Newspapers $ 107 $ 113 $ 1,236 $ 893
Broadcast television 35 73 105 298
Category television 6,044 460 29,841 4,050
Licensing and other media 12,443 1,641 34,957 13,423
Total $ 18,629 $ 2,287 $ 66,139 $ 18,664
ASSETS
Newspapers $1,222,443 $1,272,555
Broadcast television 503,194 500,477
Category television 432,868 313,034
Licensing and other media 264,008 143,983
Corporate 58,757 50,929
Total $2,481,270 $2,280,978
</TABLE>
Other additions to long-lived assets include investments and network
distribution fees. Corporate assets are primarily cash, short-term
investments, and refundable and deferred income taxes.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The E. W. Scripps Company ("Company") operates in three reportable
segments: Newspapers, Broadcast Television and Category Television. The
newspaper segment includes 19 daily newspapers in the U.S. The
broadcast television segment includes nine network-affiliated stations.
The category television segment includes Home & Garden Television
("HGTV"), The Television Food Network ("Food Network"), Do It Yourself
Network ("DIY") and the Company's 12% equity interest in FOX Sports South,
a regional cable television network. Licensing and Other Media aggregates
operating segments that are too small to warrant separate reporting,
including syndication and licensing of news features and comics and
publication of independent telephone directories.
Earnings before interest, income taxes, depreciation and amortization
("EBITDA") is included in the discussion of results of operations
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, the
plan for which is important information so it 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.
Consolidated results of operations were as follows:
<TABLE>
<CAPTION>
( in thousands, except per share data ) Quarterly Period Year-to-Date
1999 Change 1998 1999 Change 1998
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Newspapers $ 221,999 5.2 % $ 210,941 $ 666,632 4.4 % $ 638,709
Broadcast television 72,205 (0.6)% 72,615 229,177 (3.0)% 236,163
Category television 51,468 43.6 % 35,838 157,254 54.1 % 102,033
Licensing and other media 24,227 17.7 % 20,580 78,572 13.3 % 69,361
Total 369,899 8.8 % 339,974 1,131,635 8.2 % 1,046,266
Divested operating units 3,449 10,884
Total operating revenues $ 369,899 7.7 % $ 343,423 $1,131,635 7.0 % $1,057,150
Operating income:
Newspapers $ 51,146 7.4 % $ 47,612 $ 157,547 9.5 % $ 143,905
Broadcast television 11,523 (19.7)% 14,358 46,837 (21.6)% 59,761
Category television (4,184) (1,811) 9,469 (8,013)
Licensing and other media 1,290 (32.8)% 1,919 7,273 (14.8)% 8,541
Corporate (4,358) (4,793) (13,698) (13,699)
Total 55,417 (3.3)% 57,285 207,428 8.9 % 190,495
Divested operating units 171 (377)
Total operating income 55,417 (3.5)% 57,456 207,428 9.1 % 190,118
Interest expense (11,279) (11,712) (33,378) (35,471)
Miscellaneous, net (214) 285 2,740 (238)
Income taxes (17,954) (18,852) (72,442) (63,191)
Minority interest (1,077) (1,099) (3,223) (3,638)
Net income $ 24,893 (4.5)% $ 26,078 $ 101,125 15.5 % $ 87,580
Per share of common stock:
Net income $.32 $.32 $1.28 18.5 % $1.08
</TABLE>
All per share disclosures are on a diluted basis.
<PAGE>
Other financial and statistical data, excluding divested operations, is
as follows:
<TABLE>
<CAPTION>
( in thousands ) Quarterly Period Year-to-Date
1999 Change 1998 1999 Change 1998
<S> <C> <C> <C> <C> <C> <C>
Total advertising revenues $ 280,999 10.9 % $ 253,412 $ 862,941 10.3 % $ 782,228
Advertising revenues as a
percentage of total revenues 76.0 % 74.5 % 76.3 % 74.8 %
EBITDA:
Newspapers $ 67,181 6.1 % $ 63,305 $ 202,581 6.2 % $ 190,787
Broadcast television 18,257 (9.7)% 20,229 67,414 (13.8)% 78,196
Category television (1,163) 1,347 18,121 1,163
Licensing and other media 1,892 2,116 8,667 (5.1)% 9,135
Corporate (4,067) (4,514) (12,916) (12,933)
Total $ 82,100 (0.5)% $ 82,483 $ 283,867 6.6 % $ 266,348
Effective income tax rate 40.9 % 41.0 % 41.0 % 40.9 %
Weighted-average shares outstanding 78,925 (2.6)% 81,041 79,000 (3.0)% 81,448
Cash provided by operating activities $ 59,014 $ 53,798 $ 141,935 $ 178,455
Capital expenditures (22,312) (17,018) (58,613) (42,674)
Business acquisitions and other
additions to long-lived assets (18,629) (2,287) (66,139) (18,664)
Increase (decrease) in long-term debt (15,666) 8,195 (11,692) (40,369)
Repurchase Class A Common shares (884) (48,272) (29,101) (62,161)
Dividends paid, including minority interests (11,339) (11,621) (34,057) (33,421)
</TABLE>
In order to accurately assess underlying operating trends, management
believes that the results of operations for each period should be
analyzed after excluding the effects of certain unusual items,
nonrecurring gains and losses, and divested operations. The following
discussion and analysis focuses on amounts and trends excluding the
impact of such unusual items and divested operations.
The Company sold Scripps Howard Productions ("SHP"), the Company's
television program production operation based in Los Angeles in the
second quarter of 1998 and the Dallas, Texas, community newspapers,
including the Plano daily, in the fourth quarter of 1998. No material
gain or loss was realized on either as proceeds approximated the book
value of the net assets sold.
Unusual items and non-recurring gains and losses in the third quarter of
1999 that affected the comparability of reported results include the
following:
Category Television revenues were reduced by $2.5 million for "make
goods" to HGTV advertisers related to possible under delivery of
audience levels since 1997. In addition, the Company incurred costs
totaling $0.8 million to move the Food Network operations to a different
location in Manhattan. The accrual of make goods and the moving costs
reduced EBITDA by $3.3 million and net income by $2.1 million ($.03 per
share).
Broadcast Television EBITDA was reduced $1.2 million by severance
payments to certain television station employees, reducing net income
$0.7 million ($.01 per share). The Company expects to incur additional
severance costs totaling approximately $0.9 million in the fourth
quarter.
The Company sold its interest in Family Point Inc. to iVillage Inc.
for cash and stock, resulting in a gain of $8.6 million, and accrued
$9.6 million of incentive compensation for the managers of its venture
capital fund (see Note 3). The net effect of the gain and accrual was to
reduce net income $0.7 million ($.01 per share).
Excluding the unusual items described above, third quarter earnings per
share were $.36 in 1999 versus $.32 in 1998.
<PAGE>
In the first quarter of 1999 the Company increased the estimated useful
lives of network distribution fees to the greater of five years or the
remaining terms of the distribution contracts. Also in the first
quarter of 1999 the Company increased the estimated useful lives of
certain newspaper presses from 20 years to 30 years. The changes in
estimated useful lives were made prospectively. The effect of these
changes was to increase EBITDA $1.8 million, operating income $2.8
million, and net income $1.8 million ($.02 per share) for the third
quarter of 1999. The year-to-date increases were EBITDA, $5.9 million;
operating income, $9.1 million; and net income, $5.7 million ($.07 per
share). The effect of the changes on the full year 1999 will be to
increase net income per share by approximately $.10.
Excluding the change in accounting estimates, the divested operations,
and the unusual items previously described, EBITDA increased 2.9% and
operating income was flat in the third quarter. Year-to-date
EBITDA increased 6.1% and operating income increased 6.5%. Operating
results for the Company's reportable segments, excluding Divested
Operations, are presented on the following pages.
Interest expense decreased $2.1 million year-to-date as lower average
interest rates more than offset increased average borrowings. The
monthly average balance of interest-bearing obligations increased $23
million to $777 million.
In the first quarter of 1999 the Company acquired the 70% of Colorado
Real Estate On-Line, a provider of real estate listings on the
Internet, that it did not already own for $1.1 million in cash and
acquired an additional 1.86% interest in The Television Food Network
for $2.4 million. In the second quarter of 1998 the Company acquired
independent yellow page directories in Memphis, Tennessee, and Kansas
City, Missouri, for $2.2 million.
<PAGE>
NEWSPAPERS - Operating results, excluding Divested Operations, were as
follows:
<TABLE>
<CAPTION>
( in thousands ) Quarterly Period Year-to-Date
1999 Change 1998 1999 Change 1998
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Local $ 63,817 4.8 % $ 60,919 $ 197,934 4.3 % $ 189,761
Classified 74,306 10.6 % 67,186 214,057 7.8 % 198,604
National 7,629 7.5 % 7,099 24,499 24.9 % 19,618
Preprint and other 25,626 13.6 % 22,563 74,816 11.5 % 67,071
Newspaper advertising 171,378 8.6 % 157,767 511,306 7.6 % 475,054
Circulation 34,237 (8.8)% 37,561 106,793 (7.4)% 115,352
Joint operating agency distributions 12,479 5.4 % 11,836 36,826 2.6 % 35,879
Other 3,905 3.4 % 3,777 11,707 (5.8)% 12,424
Total operating revenues 221,999 5.2 % 210,941 666,632 4.4 % 638,709
Operating expenses:
Employee compensation and benefits 74,319 7.1 % 69,413 219,674 4.7 % 209,774
Newsprint and ink 32,775 (8.0)% 35,617 104,360 (3.4)% 108,006
Other 47,724 12.0 % 42,606 140,017 7.6 % 130,142
Depreciation and amortization 16,035 2.2 % 15,693 45,034 (3.9)% 46,882
Total operating expenses 170,853 4.6 % 163,329 509,085 2.9 % 494,804
Operating income $ 51,146 7.4 % $ 47,612 $ 157,547 9.5 % $ 143,905
Other Financial and Statistical Data:
EBITDA $ 67,181 6.1 % $ 63,305 $ 202,581 6.2 % $ 190,787
Percent of operating revenues:
Operating income 23.0 % 22.6 % 23.6 % 22.5 %
EBITDA 30.3 % 30.0 % 30.4 % 29.9 %
Capital expenditures $ 6,510 $ 5,399 $ 21,673 $ 17,247
Business acquisitions and other
additions to long-lived assets 107 113 1,236 893
</TABLE>
Newspaper results continue to be affected negatively by the effort to
gain market share in Denver. Circulation revenue decreased primarily
due to promotions and discounts offered in the Denver market.
Increased newspaper distribution, subscriber solicitation and
marketing costs account for 65% of the increase in third quarter other
cash expenses. Excluding Denver, EBITDA increased 9% in the third
quarter and 9.5% year-to-date.
Newsprint costs decreased in the third quarter due to a 20% decrease
in newsprint prices, which was partially offset by a 13% increase in
newsprint consumed. The increase in consumption is primarily due to a
19% year-over-year increase in circulation in the Denver market.
The change in the maximum estimated lives of newspaper presses from 20
years to 30 years reduced depreciation expense by approximately $0.9
million in the third quarter and $2.6 million year-to-date. The change
will have a similar effect on fourth quarter depreciation.
<PAGE>
BROADCAST TELEVISION - Operating results were as follows:
<TABLE>
<CAPTION>
( in thousands ) Quarterly Period Year-to-Date
1999 Change 1998 1999 Change 1998
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Local $ 39,248 6.8 % $ 36,749 $ 125,689 3.4 % $ 121,503
National 27,758 0.5 % 27,613 88,348 (5.6)% 93,618
Political 979 (74.0)% 3,767 1,508 (79.2)% 7,249
Other 4,220 (5.9)% 4,486 13,632 (1.2)% 13,793
Total operating revenues 72,205 (0.6)% 72,615 229,177 (3.0)% 236,163
Operating expenses:
Employee compensation and benefits 27,240 4.9 % 25,971 80,614 1.8 % 79,180
Syndicated programs and copyrights 14,618 5.0 % 13,925 42,809 5.4 % 40,609
Other 12,090 (3.2)% 12,490 38,340 0.4 % 38,178
Depreciation and amortization 6,734 14.7 % 5,871 20,577 11.6 % 18,435
Total operating expenses 60,682 4.2 % 58,257 182,340 3.4 % 176,402
Operating income $ 11,523 (19.7)% $ 14,358 $ 46,837 (21.6)% $ 59,761
Other Financial and Statistical Data:
EBITDA $ 18,257 (9.7)% $ 20,229 $ 67,414 (13.8)% $ 78,196
Percent of operating revenues:
Operating income 16.0 % 19.8 % 20.4 % 25.3 %
EBITDA 25.3 % 27.9 % 29.4 % 33.1 %
Capital expenditures $ 5,964 $ 8,931 $ 15,525 $ 20,927
Business acquisitions and other
additions to long-lived assets 35 73 105 298
</TABLE>
Year-over-year revenue comparisons improved in the third quarter, partly
due to the softness of the prior year period. Third quarter 1998 revenues
were 5.6% less than 1997, despite $3.8 million of political advertising
in the 1998 period compared to $0.4 million in the 1997 period.
Comparisons in the fourth quarter will be difficult because of the $12.8
million in political advertising revenue in the 1998 period.
Other revenue is primarily network compensation. The Company's network
compensation revenues decreased $1.1 million year-to-date, and are expected
to be down approximately $3.0 million, to $13.0 million, for the full year
of 1999. Network compensation revenues are expected to be approximately
$10.0 million in 2000 and 2001. These reductions in network compensation
will be partially offset by advertising revenue from additional spots
provided to the stations for local sales.
Employee compensation and benefits in the third quarter of 1999
includes termination benefits totaling $1.2 million. The Company
expects to incur employee termination costs of approximately $0.9
million in the fourth quarter. Excluding the termination benefits,
employee compensation and benefits were flat.
<PAGE>
CATEGORY TELEVISION - Operating results were as follows:
<TABLE>
<CAPTION>
( in thousands ) Quarterly Period Year-to-Date
1999 Change 1998 1999 Change 1998
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Advertising $ 34,849 52.5 % $ 22,847 $ 111,557 68.8 % $ 66,099
Affiliate fees 13,012 37.1 % 9,491 37,651 36.6 % 27,565
Other 3,607 3.1 % 3,500 8,046 (3.9)% 8,369
Total operating revenues 51,468 43.6 % 35,838 157,254 54.1 % 102,033
Operating expenses:
Employee compensation and benefits 13,065 60.9 % 8,121 36,851 55.7 % 23,665
Programming and production 18,913 56.1 % 12,117 49,312 46.0 % 33,766
Network distribution 3,721 0.4 % 3,708 11,607 (1.1)% 11,742
Other 16,932 60.6 % 10,545 41,363 30.5 % 31,697
Depreciation and amortization 3,021 (4.3)% 3,158 8,652 (5.7)% 9,176
Total operating expenses 55,652 47.8 % 37,649 147,785 34.3 % 110,046
Operating income (loss) $ (4,184) $ (1,811) $ 9,469 $ (8,013)
Other Financial and Statistical Data:
EBITDA $ (1,163) $ 1,347 $ 18,121 $ 1,163
Payments for programming and network
distribution fees less than (greater than)
amounts recognized as expense (5,123) 479 (37,843) (19,701)
Capital expenditures 6,901 1,717 15,322 2,852
Business acquisitions and other
additions to long-lived assets 6,044 460 29,841 4,050
</TABLE>
In the third quarter of 1999 the Company reduced revenue $2.5 million
for potential make goods to HGTV advertisers related to possible under
delivery of audience levels since 1997. Excluding the accrual of the
make goods, advertising revenue increased 63%. Based upon advance
advertising sales, advertising revenues in the fourth quarter of 1999
are expected to increase approximately 85% over the fourth quarter
of 1998.
According to the Nielsen Homevideo Index ("Nielsen"), HGTV was distributed
to 57.9 million homes in September 1999, up 12.8 million from September 1998
and up 2.7 million in the quarter. According to Nielsen, Food Network was
distributed to 42.4 million homes in September 1999, up 7.9 million from
September 1998 and up 1.6 million in the quarter.
Program and production costs have increased as the Company improves
the quality and variety of programming and expands the hours of
original programming presented on its networks. Third quarter 1999
other cash expenses include $0.8 million to move Food Network's
operations to a different location in Manhattan.
Excluding the accrual of the make goods and the moving costs, EBITDA
increased 59% to $2.1 million in the third quarter of 1999. Third
quarter EBITDA for HGTV was $3.4 million in 1999 and $0.9 million in
1998. Year-to-date EBITDA was $18.2 million in 1999 and $6.1 million
in 1998. EBITDA for Food Network was a loss of $1.8 million in 1999
compared to a loss of $2.3 million in 1998. Year-to-date EBITDA was
$2.0 million in 1999 compared to a loss of $6.5 million in 1998.
The increase in additions to long-lived assets is primarily due to fees
paid for expanded distribution of the networks and investments in
Internet ventures. The Company expects to continue to expand
distribution of HGTV and Food Network. Such expansion may require the
payment of distribution fees to obtain carriage on additional cable
television systems. Network distribution represents the amortization of
those fees over the estimated lives of the distribution agreements. In
the first quarter of 1999 the Company increased the amortization period
of such fees to the greater of five years or the remaining terms of the
initial distribution contracts. The change in estimated lives reduced
network distribution $1.8 million in the third quarter and $5.9 million
year-to-date.
<PAGE>
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 flow
provided by the operating activities of the newspaper and broadcast
television segments in excess of the capital expenditures of those
segments is 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 operating
activities in 1999 will be sufficient to meet the Company's expected
total capital expenditures, required interest payments and dividend
payments.
Cash flow from operating activities was $142 million in year-to-date
1999 compared to $178 million in 1998. Increases in working capital
employed by the category television segment combined with increased
spending to improve programming and to expand distribution of HGTV and
Food Network were the primary causes of the decrease.
Net debt (borrowings less cash equivalent and other short-term
investments) totaled $759 million at September 30, 1999. The Company
currently intends to repay debt only when there are not more
productive uses for excess cash.
Cash flow from operating activities and the increase in net debt was
used for capital expenditures of $58.6 million, dividend payments of
$34.1 million, business acquisitions and other investments of $43.4
million, and the repurchase of 0.7 million Class A Common Shares at a
cost of $29.1 million. The 1998 authorization by the Board of
Directors allows for the repurchase of an additional 2.4 million
shares.
Management believes the Company's cash flow from operations and
substantial borrowing capacity, taken together, provide adequate
resources to fund expansion of existing businesses and the development
or acquisition of new businesses.
YEAR 2000 READINESS
Items disclosed herein constitute "Y2000 Readiness Disclosures" under
the Year 2000 Information and Readiness Disclosure Act.
Description and Company Plans
The Year 2000 ("Y2K") issue results from computer programs, computer
equipment and certain embedded chips using two digits rather than four
to define the year. Computer applications and equipment that use date-
sensitive software or date-sensitive embedded chips may recognize a
date of "00" as the year 1900 instead of the year 2000. As a result,
those computer applications may fail or improperly process financial
transactions.
The term "Y2K compliant" as used throughout this document means that the
relevant hardware, software, embedded chips or interfaces specifically
referenced herein will correctly process, provide and receive date data
within and between the 20th and 21st centuries.
The Company's Y2K remediation project includes the following phases:
identifying and assessing the Y2K issue,
determining required revisions to or replacements of affected
computer applications and equipment,
testing of those revisions and replacements,
developing contingency plans in the event that revisions and
replacements are not completed timely or do not fully remediate the Y2K
issues.
<PAGE>
Identification and Assessment of Y2K Issues
The identification and assessment phase was completed in 1998. This
phase included a comprehensive inventory of internally developed
computer applications, computer applications and computer hardware
purchased or licensed from third parties (which includes the majority
of the Company's computer software applications), and other equipment
with embedded chips. The inventoried applications and equipment were
evaluated to identify Y2K issues. Y2K issues were identified based
upon review of applications and equipment by the Company and/or
communication with the vendor. This phase also included an assessment
of the impact of failing to remediate identified Y2K issues on the
Company's business operations, results of operations, and financial
condition. Based upon the identification of Y2K issues and assessment
of the effect of those issues, each of the computer applications and
items of equipment with embedded chips were assigned to one of the
following categories:
1) applications and equipment that, if they were to fail, would
seriously impair the Company's ability to operate its business,
2) applications and equipment that, if they were to fail, would affect
business operations but would not prevent the Company from inserting
advertising, printing and delivering newspapers, or broadcasting its
programs,
3) applications and equipment that, if they were to fail, would have
little or no effect on business operations.
The Company created a central data base identifying all inventoried
applications and equipment, Y2K issues identified, the priority of
remediation based upon the perceived business risk, the method of
remediation (upgrade or replace), and targeted remediation completion
date. Approximately 40% of the Company's applications were classified
in the highest priority and 33% in the second priority.
The identification and assessment phase also included communications
with significant vendors, suppliers and customers to determine the
extent to which the Company's systems and business operations are
vulnerable if those third parties fail to remediate their own Y2K
issues.
Y2K Remediation Efforts
The Company's plan of remediation includes a mix of installing new
applications and equipment, upgrading existing applications and
equipment, retiring obsolete systems and equipment, testing compliant
and remediated systems and equipment, and confirming significant third
party compliance. A discussion of the identified Y2K issues that
could materially affect each of the Company's business segments and
the Company's plan of remediation follows.
Newspapers
The Company uses a variety of newspaper circulation, advertising and
editorial computer systems in the production of its newspapers. The
Company began replacing most of its internally developed software with
applications developed by third-party software vendors and upgrading
other applications several years ago. Most of these systems have been
installed and implemented. Vendors have either certified their
applications to be Y2K compliant or have Y2K-compliant upgrades
currently available.
Equipment and applications used in producing, printing, sorting and
distributing newspapers use software or embedded chips that are not
Y2K compliant. Management has determined that in many instances this
equipment is not date dependent and the internal calendars can be set
back to an earlier year without affecting the operation of the
equipment. Other equipment and software will have to be upgraded or
replaced.
As of early November, the Company had verified compliance or completed
upgrades or replacements of 93% of newspaper systems included in the
highest priority, and 93% of those included in the second priority.
Remediation of the remaining systems is expected to be completed by
mid-November.
Management anticipates increasing its newsprint inventories in the
latter part of 1999 to mitigate the effect of any temporary disruption
in the delivery of newsprint or any disruption in the operation of
newsprint mills.
The Company's Cincinnati, Birmingham and Albuquerque newspapers
operate under joint operating agreements ("JOAs") whereby the Company
receives a portion of the JOA profits from the managing party. The
Company has discussed Y2K issues with the managing parties to ensure
the managing parties are addressing their Y2K issues. The Company's
share of JOA profits could be adversely affected if those managing
parties experience a significant disruption in business operations;
however management believes the possibility of a significant
disruption is unlikely.
<PAGE>
Broadcast Television
The Company receives network and syndicated programming via satellite.
The Company's receipt of that programming is dependent upon the
broadcast networks and program syndicators resolving their Y2K issues.
The Company has completed tests of the affiliate networks with NBC and
ABC. Based upon such tests the Company expects it will be able to
receive programming from the networks after 1999. Management does not
anticipate any disruption in receiving programming, but in the event
of such a disruption the Company has alternative programming
available.
The Company uses advertising inventory management software to manage,
schedule and bill advertising in each of the Company's broadcast
television markets. This software is licensed from two different
vendors. One system, which is used in three of the Company's markets,
was certified Y2K-compliant by the vendor. The Company completed
installation of a Y2K-compliant upgrade of the other system during the
second quarter of 1999. In addition, the insertion of advertising
into program breaks is automated by computer-controlled equipment.
The Company has recently completed upgrades or installed new insertion
equipment at its television stations. The Company can perform these
functions manually in the event of unforeseen failure of the systems.
The Company uses various broadcast and studio equipment to produce and
transmit its broadcast signals. Although much of this equipment
includes embedded chips, the Company's tests of this equipment
indicate it will continue to operate after 1999.
As of early November, the Company had verified compliance or completed
upgrades or replacements of 96% of broadcast television systems
included in the highest priority, and 100% of those included in the
second priority. Remediation of the remaining systems is expected to
be completed by mid-November.
Category Television
The Company uses advertising inventory management software to manage,
schedule and bill advertising, and computer-controlled equipment is
used to insert advertising into program breaks. Y2K-compliant upgrades
of all non-compliant systems were installed in the second quarter of
1999. The Company can perform these functions manually in the event
of unforeseen failure of the systems.
The Company transmits its network programming to cable television and
direct broadcast satellite systems via satellite. Management has
determined that certain equipment, while noncompliant, will continue
to function after 1999 and therefore does not need to be upgraded or
replaced.
As of early November, the Company had verified compliance or completed
upgrades or replacements of 94% of category television systems
included in the highest priority, and 97% of those included in the
second priority. Remediation of the remaining systems is expected to
be completed by mid-November.
Management believes the satellites used in transmitting the Company's
networks are Y2K compliant and has received written assurances to that
effect. However, the Company understands that much of the headend
equipment controlling set-top boxes for virtually all cable television
subscribers had to be upgraded or replaced. Based upon Y2K disclosures
of Company's in the cable television industry, management understands that
equipment and set-top box manufacturers and the cable television
industry have developed solutions that cable television systems have
installed and successfully tested.
<PAGE>
Testing of Upgrades and Replacements
The Company's Y2K remediation program includes testing of applications
and equipment identified by the Company as compliant or certified as
compliant by the vendor. The Company's Y2K remediation program also
includes testing of upgrades and replacements of noncompliant systems
and equipment as those upgrades and replacements are installed and
upon completion of the installations. As previously noted, the
Company has completed testing of more than 90% of its two highest
priority systems. Installation and testing of the remaining systems
in those two priorities will be completed by mid-November.
Testing of the Company's systems included the use of dates that
simulated transactions and environments, both before and after the
year 2000, including leap year. While that testing provided assurance
that the upgrades and replacements installed by the Company perform as
designed, it is not possible for the Company to completely simulate
the effect of the year 2000 when testing the Company's systems, and
certain embedded chips cannot be tested.
Costs of Y2K Remediation Program
The Company does not routinely accumulate costs of the Company's Y2K
remediation program. The total costs of the program, including
capital spending on equipment and computer software, are estimated at
less than $10 million. This estimate does not include the costs of
labor and other internal resources. The majority of these costs would
have been incurred regardless of the Y2K issue, although the Y2K issue
has slightly accelerated the Company's plans to replace certain
equipment and computer software. Management believes the redeployment
of internal resources and the acceleration of these projects has not
had a material adverse effect on other business operations.
Risks of Y2K Issues and Contingency Plans
Like all large companies, the Company is dependent on the continued
functioning of basic, heavily computerized services such as banking,
telephony and electric power. Management has attempted to ensure that
the third parties upon which the Company relies address their Y2K
issues, but management has no direct knowledge of those issues and
cannot estimate the costs to the Company if such issues are not
remedied. Management believes the possibility of failure of these
critical third party systems is unlikely.
As part of normal business practices, the company maintains site-
specific emergency plans to be followed during emergency circumstances,
such as failure of editorial systems, printing presses or broadcast
equipment. These emergency plans have been updated with a variety of
internal and external scenarios that might occur as a result of the Y2K
issue, and specify alternatives if any Y2K-related business disruption
occurs. The Company will continue to update those plans throughout the
remainder of 1999 based upon the progress of the Y2K remediation
program.
The Company has imposed a "quiet" period at the beginning of the fourth
quarter of 1999 during which any installation or modification of systems
that interface with other systems will be minimized. The Company has
also frozen technology updates and installation of new systems, to the
extent possible, until the first quarter of 2000. This "quiet" period
permits the Company to continue testing in a stable environment and
minimizes the impact that any new technology might have on Y2K issues.
Management believes it has an effective program to resolve the Y2K
issue in a timely manner and that its Y2K issues have been
substantially remediated. Based upon assessment of its internal
systems and the status of its Y2K remediation efforts, management does
not expect the Y2K issue to pose significant problems for the
Company's operations or to have a material effect on the Company's
results of operations or financial condition. However, if the
Company's Y2K remediation program does not fully remediate the effects
of the Y2K issue, or if third parties fail to remediate their own Y2K
issues, the Company could experience a material disruption in its
business operations. In addition, disruptions in the general economy
as a result of the Y2K issue could lead to a reduction of advertising
spending which could adversely affect the Company.
<PAGE>
THE E. W. SCRIPPS COMPANY
Index to Exhibits
Exhibit
No. Item Page
12 Ratio of Earnings to Fixed Charges E-2
<TABLE>
RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12
<CAPTION>
( in thousands ) Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
EARNINGS AS DEFINED:
Earnings from operations before income taxes after
eliminating undistributed earnings of 20%- to
50%-owned affiliates $ 43,719 $ 45,014 $ 176,730 $ 154,177
Fixed charges excluding capitalized interest and
preferred stock dividends of majority-owned
subsidiary companies 12,639 13,039 37,421 39,249
Earnings as defined $ 56,358 $ 58,053 $ 214,151 $ 193,426
FIXED CHARGES AS DEFINED:
Interest expense, including amortization of
debt issue costs $ 11,279 $ 11,712 $ 33,378 $ 35,471
Interest capitalized 333 122 342 222
Portion of rental expense representative
of the interest factor 1,360 1,327 4,043 3,778
Preferred stock dividends of majority-owned
subsidiary companies 20 20 60 60
Fixed charges as defined $ 12,992 $ 13,181 $ 37,823 $ 39,531
RATIO OF EARNINGS TO FIXED CHARGES 4.34 4.40 5.66 4.89
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 14,726
<SECURITIES> 66
<RECEIVABLES> 246,372
<ALLOWANCES> 11,358
<INVENTORY> 15,387
<CURRENT-ASSETS> 443,678
<PP&E> 940,944
<DEPRECIATION> 458,508
<TOTAL-ASSETS> 2,481,270
<CURRENT-LIABILITIES> 554,890
<BONDS> 501,869
0
0
<COMMON> 782
<OTHER-SE> 1,141,687
<TOTAL-LIABILITY-AND-EQUITY> 2,481,270
<SALES> 0
<TOTAL-REVENUES> 1,131,635
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 916,650
<LOSS-PROVISION> 7,557
<INTEREST-EXPENSE> 33,378
<INCOME-PRETAX> 176,790
<INCOME-TAX> 72,442
<INCOME-CONTINUING> 101,125
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 101,125
<EPS-BASIC> $1.30
<EPS-DILUTED> $1.28
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-END> DEC-31-1998 SEP-30-1998
<CASH> 15,419 14,966
<SECURITIES> 20,551 2,529
<RECEIVABLES> 234,372 202,519
<ALLOWANCES> 7,689 7,742
<INVENTORY> 15,009 15,896
<CURRENT-ASSETS> 419,327 378,929
<PP&E> 908,218 895,121
<DEPRECIATION> 428,932 421,136
<TOTAL-ASSETS> 2,359,374 2,280,978
<CURRENT-LIABILITIES> 546,767 490,491
<BONDS> 501,877 501,842
0 0
0 0
<COMMON> 785 796
<OTHER-SE> 1,067,947 1,062,267
<TOTAL-LIABILITY-AND-EQUITY> 2,359,374 2,280,978
<SALES> 0 0
<TOTAL-REVENUES> 1,454,555 1,057,150
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 1,169,539 860,608
<LOSS-PROVISION> 8,972 6,424
<INTEREST-EXPENSE> 47,108 35,471
<INCOME-PRETAX> 229,162 154,409
<INCOME-TAX> 93,075 63,191
<INCOME-CONTINUING> 131,214 87,580
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 131,214 87,580
<EPS-BASIC> $1.65 $1.09
<EPS-DILUTED> $1.62 $1.08
</TABLE>
