SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Date of report (Date of earliest event reported) December 28, 1995
Commission File Number 1-16914
THE E.W. SCRIPPS COMPANY
(Exact name of registrant as specified in its charter)
Delaware 51-0304972
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1105 N. Market Street
Wilmington, Delaware 19801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (302) 478-4141
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report.)
INDEX TO THE E. W. SCRIPPS COMPANY
REPORT ON FORM 8-K DATED DECEMBER 28, 1995
Item No. Page
5 Other Events
(A) Description of the Transactions 3
(B) Litigation Regarding the Transactions 3
(C) Description of Scripps and New Scripps 4
(D) Description of Scripps Cable 64
(E) Financial Statements and Financial Information 86
(F) Signatures 86
7 Financial Statements and Exhibits
(A) Index to Financial Statements and
Financial Information F - 1
(B) Index to Pro Forma Financial Information P - 1
(C) Index to Exhibits E - 1
DESCRIPTION OF THE TRANSACTIONS
On October 28, 1995, The E.W. Scripps Company ("Scripps") and Comcast
Corporation ("Comcast") reached an agreement pursuant to which Scripps will
contribute all of its non-cable television assets to Scripps Howard, Inc.
("SHI" - a wholly-owned subsidiary of Scripps and the direct or indirect
parent of all of Scripps' operations) and SHI's cable television system
subsidiaries ("Scripps Cable") will be transferred to and held directly by
Scripps. Scripps Cable will then be acquired by Comcast through a tax-free
merger (the "Merger") with Scripps. The remaining SHI business will
continue as "New Scripps", which will be distributed in a tax-free "spin-
off" to Scripps shareholders (the "Spin-Off") and thereafter renamed The
E.W. Scripps Company. As a condition of the Merger Scripps has agreed to
retire or defease its $61 million aggregate principal amount 7.375% notes
due in 1998 ("Defeasance"). The Merger, Spin-off and Defeasance are
collectively referred to as the "Transactions." Upon completion of the
Transactions the separate existence of Scripps will cease.
The total value in Comcast shares that Scripps shareholders are expected to
receive is $1.575 billion, subject to certain closing adjustments. Scripps
shareholders will also receive one New Scripps Common Voting Share for each
share of Scripps Common Voting Stock held and one New Scripps Class A
Common Share for each share of Scripps Class A Common Stock held.
Scripps' historical basis in its assets and liabilities will be carried
over to New Scripps. The transactions will be recorded as a reverse-spin
transaction, accordingly New Scripps' results of operations for periods
prior to the consummation of the Transactions will represent the historical
results previously reported by Scripps. Because Scripps Cable represents
an entire business segment that will be divested, its results will be
reported as "discontinued operations" for all periods presented. Results
of the remaining business segments, including results for divested
operating units within these segments through their dates of sale, will be
reported as "continuing operations." Management of New Scripps intends to
maintain the dividend payment policy of Scripps. Future dividends will be
subject to New Scripps' earnings, financial condition, and capital
requirements.
The closing date of the Transactions is expected to be in the latter part
of 1996, subject to regulatory approvals and certain other conditions.
Controlling shareholders in Scripps and Comcast have agreed to vote in
favor of the Merger. Upon completion of the Transactions New Scripps
expects to record a gain of approximately $1.2 billion and a distribution
to shareholders of approximately $1.58 billion.
LITIGATION REGARDING THE TRANSACTIONS
On October 30, 1995, three purported class actions on behalf of Scripps
stockholders were filed in the Court of Chancery, New Castle County, State
of Delaware with respect to the proposed transactions: Steven J. Gutter v.
Daniel J. Meyer, et al., Case No. 14650; David Shaev v. Lawrence A. Leser,
et al., Case No. 14653 and Jack Shanfield v. Lawrence A. Leser, et al.,
Case No. 14655. These actions are expected to be consolidated and are
collectively referred to herein as the "Stockholders' Litigation".
The Scripps Stockholders' Litigation challenges the terms of the proposed
transactions by Scripps and certain of its directors. The Scripps
Stockholders' Litigation alleges that the defendants breached their
fiduciary duties to the stockholders of Scripps with respect to the
proposed transactions because they failed to obtain the best price for the
disposition of the cable assets and have failed to maximize shareholder
value. The Scripps Stockholders' Litigation further claims, among other
things, that the defendants breached their fiduciary duties to the Scripps
stockholders by entering into the transactions to benefit The Scripps
Trust and Scripps family members contrary to the best interests of the
other stockholders of Scripps.
The Scripps Stockholders' Litigation seeks to have the Merger enjoined or,
if the Merger is consummated, to have it rescinded and to recover
unspecified amounts of damages, fees, and expenses. In addition, the
actions seek an order to have a Scripps stockholders' committee consisting
of purported class members to participate in the review of any transaction
relating to the disposition of the Scripps cable television business.
The defendants named in the Scripps Stockholders' Litigation deny the
material allegations asserted against them. It is the defendants'
intention to defend vigorously the Scripps Stockholders' Litigation.
Defendants are unable to evaluate the likelihood of the outcome, favorable
or unfavorable, or to estimate the amount or range of potential loss, if
any.
DESCRIPTION OF SCRIPPS AND NEW SCRIPPS
BUSINESS
If the Transactions are consummated, the newspaper, broadcasting and
entertainment businesses of Scripps will continue to be operated by New
Scripps, which is a wholly owned subsidiary of Scripps and the direct or
indirect parent of all of Scripps' newspaper, broadcasting and
entertainment businesses. Accordingly, the discussions set forth below of
the Scripps newspaper, broadcasting and entertainment business also serves
as a discussion of the New Scripps businesses.
Scripps publishes daily newspapers in fifteen markets, operates local
television stations in nine markets, and its entertainment division
primarily produces television programming and licenses comic characters.
Newspapers
General - Scripps publishes daily newspapers in fifteen markets. From its
Washington bureau Scripps operates the Scripps Howard News Service, a
supplemental wire service covering stories in the capital, other parts of
the United States, and abroad.
Scripps acquired or divested the following newspaper operations between
January 1, 1990 and September 30, 1995:
1995 - Divested the Watsonville, California, daily newspaper.
1993 - Acquired the remaining 2.7% minority interest in the Knoxville News-
Sentinel. Divested the Tulare, California, and San Juan, Puerto Rico
newspapers.
1992 - Acquired three daily newspapers in California (including The
Monterey County Herald in connection with the sale of The Pittsburgh
Press). Divested The Pittsburgh Press.
Revenues - The composition of Scripps's newspaper operating revenues for
the nine months ended September 30, 1995 and 1994 and for the most recent
five years is as follows:
( in thousands )
For the nine months For the years ended
ended September 30, December 31,
1995 1994 1994 1993 1992 1991 1990
Newspaper advertising:
Local ROP $ 141,270 $ 135,328 $ 190,147 $ 177,028 $ 168,286 $ 165,900 $ 175,196
Classified ROP 136,146 122,272 161,835 141,994 122,081 118,641 123,537
National ROP 12,014 11,653 15,595 11,999 12,094 12,438 14,814
Preprint 47,576 43,956 63,103 57,304 50,720 45,729 44,502
Total newspaper advertising 337,006 313,209 430,680 388,325 353,181 342,708 358,049
Circulation 93,192 87,173 116,117 112,393 102,679 98,126 95,306
Joint operating agency distributions 31,732 32,064 44,151 38,647 40,018 36,647 37,394
Other 6,408 5,776 8,274 8,815 8,971 7,840 7,896
Total 468,338 438,222 599,222 548,180 504,849 485,321 498,645
Divested newspapers 294 2,725 3,716 19,874 103,838 205,565 213,543
Total newspaper operating revenues $ 468,632 $ 440,947 $ 602,938 $ 568,054 $ 608,687 $ 690,886 $ 712,188
Scripps's newspaper operating revenues are derived primarily from
advertising and circulation. Advertising rates and revenues vary among
Scripps'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. ROP advertisements are generally more profitable to
Scripps than 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.
Advertising information for Scripps' newspapers is as follows:
( in thousands )
For the nine months For the years ended
ended September 30, December 31,
1995 1994 1994 1993 1992 1991 1990
Newspaper advertising inches:
Local 4,883 4,955 7,180 6,618 7,016 6,915 7,686
Classified 8,119 7,893 10,889 9,750 8,817 8,280 8,680
National 242 235 358 283 311 363 410
Total full-run advertising inches 13,244 13,083 18,427 16,651 16,144 15,558 16,776
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 Scripps' newspapers is as
follows:
( in thousands ) (1) Morning
(M)
Newspaper Evening 1995 1994 1993 1992 1991 1990
(E)
Daily Paid Circulation
Albuquerque (NM) Tribune (2) E 30.0 32.4 34.7 35.5 38.6 40.1
Birmingham (AL) Post-Herald (2) M (3) 58.2 59.6 60.1 61.9 60.6 62.0
Bremerton (WA) Sun E 35.9 38.2 39.6 38.6 40.4 41.2
Cincinnati (OH) Post (2) E (6) 87.4 90.9 95.1 98.5 100.9 104.3
Denver (CO) Rocky Mountain News M 331.0 344.9 342.9 356.9 355.9 352.0
El Paso (TX) Herald Post (2) E 22.3 23.7 25.2 27.6 28.3 28.2
Evansville (IN) Courier (2) M 61.8 62.8 64.3 63.9 62.8 63.2
Knoxville (TN) News-Sentinel M 124.9 127.9 123.9 126.0 103.9 104.2
Memphis (TN) Commercial Appeal M 190.2 198.0 196.2 191.8 194.9 210.5
Monterey County (CA) Herald M (5) 34.7 35.3 34.3 36.7 35.3 35.6
Naples (FL) Daily News M 47.8 45.2 44.1 42.0 39.8 36.7
Redding (CA) Record-Searchlight E 37.7 37.1 38.4 38.6 40.6 40.4
San Luis Obispo (CA)
Telegram-Tribune E 32.2 32.2 32.5 31.5 32.5 32.3
Stuart (FL) News M 36.3 34.7 33.1 30.9 29.7 29.4
Ventura County (CA) M (4),(7) 96.3 102.9 99.6 97.8 98.9 99.6
Total Daily Circulation 1,226.7 1,265.8 1,264.0 1,278.2 1,263.1 1,279.7
Sunday Paid Circulation
Bremerton (WA) Sun 39.6 40.5 40.7 39.5
Denver (CO) Rocky Mountain News 436.1 447.2 453.3 430.1 425.4 407.9
Evansville (IN) Courier 114.0 116.4 118.6 118.1 117.7 116.9
Knoxville (TN) News-Sentinel 174.8 177.9 183.5 182.9 174.9 171.9
Memphis (TN) Commercial Appeal 269.4 279.9 279.5 282.3 282.4 288.8
Monterey County (CA) Herald (5) 38.1 39.1 35.1 38.2 37.3 37.2
Naples (FL) Daily News 61.4 58.4 57.4 54.8 51.7 48.5
Redding (CA) Record-Searchlight 39.9 40.3 40.7 40.9 40.0 39.3
Stuart (FL) News 44.4 43.1 40.6 37.5 35.4 34.7
Ventura County (CA) (7) 104.0 108.8 106.2 105.4 107.2 107.8
Total Sunday Circulation 1,321.7 1,351.6 1,355.6 1,329.7 1,272.0 1,253.0
(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 and the Stuart
News 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) Will move to evening distribution in 2000.
(4) Ventura County edition moved from evening
to morning distribution in March 1990.
Thousand Oaks and Simi Valley editions moved
to morning distribution in January 1995. (see
(7)).
(5) Acquired in 1992.
(6) Includes circulation of The Kentucky Post.
(7) Prior year amounts have been restated.
Ventura County, Thousand Oaks, and Simi Valley
Star are now reported as separate editions of
a single newspaper.
Joint operating agency distributions represent Scripps' share of profits of
newspapers managed by the other party to a joint operating agency (see
"Joint Operating Agencies"). Other newspaper operating revenues include
commercial printing.
Joint Operating Agencies - Scripps is currently a party to newspaper joint
operating agencies ("JOAs") in five 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 Scripps'
JOA in Cincinnati, all of Scripps' 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. Scripps manages the JOA in Evansville and
receives approximately 80% of JOA profits. Each of the other four JOAs are
managed by the other party to the JOA. Scripps receives approximately 20%
to 40% of JOA profits for those JOAs.
The table below provides certain information about Scripps' JOAs.
Year JOA Year of
Publisher of Entered JOA
Newspaper of Other Newspaper Into Expiration
Managed by Scripps:
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 Newspapers 1977 2007
El Paso Herald Post Gannett Newspapers 1936 2015
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. Scripps has notified Hartmann Publications of its intent to
terminate the Evansville JOA.
Competition - Scripps' newspapers compete for advertising revenues
primarily with other local media, including other local newspapers,
television and radio stations, and direct mail. Competition for
advertising revenues is based upon audience size and demographics, price,
and effectiveness. Newspapers compete with all other information and
entertainment media for consumers' discretionary time.
All of Scripps' newspaper markets are highly competitive, particularly
Denver, the largest market in which Scripps publishes a newspaper.
Newspaper Production - Scripps' 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 - Scripps consumed approximately 142,000
metric tons of newsprint for the nine months ended September 30, 1995, a 4%
decrease from the same period in 1994. Scripps purchases newsprint from
various suppliers, many of which are Canadian. Management believes that
Scripps' sources of supply of newsprint are adequate for its anticipated
needs. Newsprint prices have risen dramatically in 1994 and 1995. As a
result newsprint costs accounted for approximately 22% of Scripps'
newspaper operating expenses for the nine months ended September 30, 1995,
as compared to 18% in the same period of 1994.
Labor costs accounted for approximately 43% of Scripps' newspaper operating
expenses in 1995. A substantial number of Scripps' newspaper employees are
represented by labor unions. See "Employees."
Broadcast Television
General - Scripps' television operations consist of nine network-affiliated
television stations. Scripps acquired or divested the following broadcast
operations between January 1, 1990 and September 30, 1995:
1993 - Divested radio stations and Memphis television station.
1991 - Acquired Baltimore television station WMAR.
Revenues - The composition of Scripps' broadcasting operating revenues for
the nine months ended September 30, 1995 and 1994 and for the most recent
five years is as follows:
( in thousands )
For the nine months For the years ended
ended September 30, December 31,
1995 1994 1994 1993 1992 1991 1990
Local advertising $ 108,199 $ 103,124 $ 142,491 $ 130,603 $ 120,148 $ 106,610 $ 98,235
National advertising 91,090 87,768 122,668 114,558 109,204 99,459 89,110
Political advertising 758 5,121 14,291 1,344 8,836 665 8,292
Other 11,664 6,432 8,734 8,439 9,037 9,661 9,509
Total 211,711 202,445 288,184 254,944 247,225 216,395 205,146
Divested television and radio stations 29,350 30,062 29,055 30,434
Total broadcasting operating revenues $ 211,711 $ 202,445 $ 288,184 $ 284,294 $ 277,287 $ 245,450 $ 235,580
Scripps' television operating revenues are derived primarily from the sale
of time to businesses for commercial messages that appear during
entertainment and news programming. Local advertising refers to time
purchased by local businesses; national refers to regional and national
businesses; political refers to campaigns for elective office.
The first and third quarters of each year generally have lower advertising
revenues than the second and fourth quarters, due in part to higher retail
advertising during the holiday seasons and political advertising in
election years. Advertising rates are based primarily upon the size and
demographics of the audience for each program.
Information concerning Scripps' stations and the markets in which they
operate is as follows:
Current
Expiration Affiliation Stations
Network of FCC Rank of Agreement in
Station and Market Affiliation License Market (1) Expires Market (3) 1995 1994 1993 1992 1991 1990
WXYZ, Detroit, Ch. 7 ABC 1997 9 2004 6
Average Audience Share (2) 21 21 21 22 23 22
Station Rank in Market (3) 1 1 1 1 1 1
WEWS, Cleveland, Ch. 5 ABC 1997 13 2004 10
Average Audience Share (2) 19 20 20 21 20 21
Station Rank in Market (3) 1 1 1 1 1 1
WFTS, Tampa, Ch. 28 ABC (6) 1997 15 2004 10
Average Audience Share (2) 10 8 8 7 7 8
Station Rank in Market (3) 4 4 4 4 4 4
KNXV, Phoenix, Ch. 15 ABC (6) 1993 (4) 19 2004 11
Average Audience Share (2) 10 10 9 10 10 8
Station Rank in Market (3) 4 4 4 4 4 5
WMAR, Baltimore, Ch. 2 (5) ABC (6) 1996 23 2004 6
Average Audience Share (2) 15 17 19 17 21 21
Station Rank in Market (3) 3 3 2 2 1 2
WCPO, Cincinnati, Ch. 9 CBS (7) 1997 30 1996 5
Average Audience Share (2) 17 19 21 22 20 24
Station Rank in Market (3) 1 1 1 1 1 1
KSHB, Kansas City, Ch. 41 NBC (6) 1998 31 2004 7
Average Audience Share (2) 10 11 10 11 9 10
Station Rank in Market (3) 4 4 4 4 4 4
WPTV, W. Palm Beach, Ch. 5 NBC 1997 45 2004 6
Average Audience Share (2) 18 20 24 23 25 25
Station Rank in Market (3) 1 1 1 1 1 1
KJRH, Tulsa, Ch. 2 NBC 1998 59 2004 7
Average Audience Share (2) 16 16 15 16 17 17
Station Rank in Market (3) 3 4 3 3 3 3
All market and audience data is based on
November A.C. Nielsen Company survey,
except for 1995 which is based on the
May 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
Sign-On/Sign-Off, Sunday - Saturday,
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) Scripps filed an application for
renewal of the FCC license on June 1,
1993 for a term to expire in 1998.
Petitions to deny or revoke this license
are pending.
(5) Station purchased May 30, 1991.
(6) Prior to January 1995 WFTS and KNXV
were FOX affiliates and WMAR was a NBC
affiliate; prior to September 1994 KSHB
was a FOX affiliate.
(7) Affiliation will change to ABC in
June 1996. The ABC affiliation
agreement has a term of ten years.
Competition - Scripps' television stations compete for advertising revenues
primarily with other local media, including other television stations,
radio stations, newspapers, 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 from such service
providers and from local telephone companies which are pursuing efforts to
enter this market is expected to increase. Scripps intends to undertake
upgrades in its services as may be permitted by the FCC to maintain its
competitive posture, and such facility upgrades may require large capital
investments. Technological advances in interactive media services will
increase these competitive pressures.
Network Affiliation and Programming - Scripps' 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, Scripps' television stations broadcast
locally produced programs, syndicated programs, sports events, movies, and
public service programs. News is the focus of Scripps' locally produced
programming. Advertising during local news programs accounts for more than
30% of a station's revenues.
Federal Regulation of Broadcasting - Television broadcasting is subject to
the jurisdiction of the Federal Communications Commission ("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.
Television broadcast licenses are granted for a maximum of five years, and
are renewable upon application. Application for renewal of the license for
Scripps' Phoenix station was filed in 1993 and is still pending. A
petition to deny this renewal application, raising Equal Employment
Opportunity issues, has been filed by the League of United Latin American
Citizens ("LULAC") and is still pending. While there can be no assurance
regarding the outcome of this petition, Scripps 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, or controlling, or having an interest
in, more than twelve television stations or in television stations whose
total national audience reach exceeds 25% of all television households.
FCC rules also generally prohibit "cross-ownership" of a television station
and daily newspaper or cable television system in the same service area.
Scripps' television station and daily newspaper in Cincinnati were owned by
Scripps 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. The FCC and Congress are actively
considering some relaxation of these ownership restrictions.
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. Scripps'
stations have generally elected to negotiate retransmission consent
agreements with cable companies.
Management believes Scripps is in substantial compliance with all
applicable regulatory requirements.
Entertainment
General - Scripps' Entertainment segment includes United Media, a licensor
and syndicator of news features and comics, Home & Garden Television
("HGTV"), Scripps Howard Productions ("SHP"), Cinetel Productions
("Cinetel"), an independent producer of cable television programming, and
Scripps' equity interests in The Television Food Network and SportSouth,
both cable television networks.
HGTV was launched on December 30, 1994. Cinetel was acquired on March 31,
1994. SHP began operations in 1993 and began selling programs in 1995.
Revenues - The composition of Scripps' entertainment revenues for the nine
months ended September 30, 1995 and 1994 and for the most recent five years
is as follows:
( in thousands )
For the nine months For the years ended
ended September 30, December 31,
1995 1994 1994 1993 1992 1991 1990
Licensing $ 38,682 $ 38,054 $ 49,236 $ 55,083 $ 57,136 $ 62,167 $ 63,127
Syndication of comics and features 13,613 13,545 17,998 18,814 19,013 19,827 20,689
Film and television production 8,921 4,422 5,725 10,757 11,060 9,617 7,896
Other 7,748 322 514 87
Total entertainment operating revenues $ 68,964 $ 56,343 $ 73,473 $ 84,741 $ 87,209 $ 91,611 $ 91,712
Scripps, 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 "US Acres" copyrights in 1994. Film and television
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. Merchandise,
literary, and exhibition licensing revenues are generally a negotiated
percentage of the licensee's sales. Scripps generally receives a fixed fee
for the use of its copyrights for promotional and advertising purposes.
More than half of the licensing revenues are from markets outside the
United States. Scripps generally pays a percentage of gross syndication
and licensing royalties to the creators of these properties.
HGTV features 24 hours of daily programming focusing on home repair and
remodeling, gardening, decorating, and home electronics. While most of the
programming is transmitted by HGTV, affiliated local television stations
throughout the United States may insert local programming and
advertisements in certain time periods. The subscriber base has been
established through a collaboration of local television stations (one per
market) and cable television systems. Several of the largest cable
television system operators have entered into agreements to carry the new
network in exchange for permission to carry the signals of local television
stations affiliated with HGTV.
Scripps expects to invest an additional $45,000,000 in HGTV over the next
three years, including capital expenditures and pre-tax operating losses.
HGTV revenues are derived from the sale of advertising time and from fees
received from cable television and other distribution systems that carry
the network. Such license fees are generally based on the number of
subscribers who can receive HGTV.
HGTV programming is transmitted via satellite to cable television systems.
The HGTV audience includes satellite dish owners, who can view HGTV
programming without paying a fee.
Scripps established SHP to acquire, create, develop, produce, and own
programming product for domestic and international television, including
prime-time series for network and first-run syndication, movies, and
miniseries for network, cable, and pay cable television broadcast, along
with news, information, and entertainment services for the emerging
multimedia marketplace. Cinetel produces programs for cable television,
such as Club Dance at the Whitehorse Cafe and Shadetree Mechanic.
Scripps' film and television program production revenues are derived from
the licensing of programming to broadcast and cable television networks,
the fees for which are negotiated with the networks. License fees are
recognized as revenue when the programs are available for broadcast. The
success of Scripps' programs is dependent upon public taste, which is
unpredictable and subject to change. Consequently, operating revenues are
subject to substantial fluctuations.
Programs are developed and produced internally and in collaboration with a
number of independent writers, producers and creative teams under
production arrangements. SHP generally licenses a program prior to
commencing production. The initial license fee generally covers the cost
of production. SHP retains the distribution rights for foreign, syndicated
television, cable television, and home video markets.
Competition - Scripps' syndication 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.
Scripps' program and production operations compete with all forms of
entertainment. In addition to competing for market share with other
entertainment companies, Scripps competes to obtain creative talents, story
properties, advertiser support and broadcast rights. A significant number
of other companies produce and/or distribute programs and provide
programming to cable television and other system operators. Competition is
primarily based on price, quality of the programming, and public taste.
Employees
As of September 30, 1995 Scripps had approximately 6,700 full-time
employees, of whom approximately 4,800 were engaged in newspapers, 1,500 in
broadcasting, and 350 in entertainment. Various labor unions represent
approximately 1,900 employees, primarily in newspapers. Collective
bargaining agreements covering approximately 50% of union-represented
employees are being negotiated currently or will be negotiated in 1996.
Except for work stoppages at The Pittsburgh Press, which was sold in 1992,
Scripps has not experienced any work stoppages since March 1985. Scripps
considers its relationship with employees to be generally satisfactory.
PROPERTIES
The properties used in Scripps' newspaper operations generally include
business and editorial offices and printing plants.
Scripps' 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.
Scripps' entertainment operations require offices and studios and other
real and personal property to deliver programming product. HGTV and
Cinetel operate from an 80,000 square-foot production facility in
Knoxville.
Management believes Scripps' present facilities are generally well-
maintained and are sufficient to serve its present needs.
LEGAL PROCEEDINGS
Scripps is involved in litigation arising in the ordinary course of
business, such as defamation actions and various governmental and
administrative proceedings relating to, among other things, renewal of
broadcast licenses, none of which is expected to result in material loss.
DIRECTORS AND EXECUTIVE OFFICERS OF SCRIPPS AND NEW SCRIPPS
Executive Officers
The Executive officers of Scripps and New Scripps are identical. Executive
officers serve at the pleasure of the Boards of Directors. Certain
information as of December 1, 1995, about such officers appears in the
table below.
Name Age Position
Lawrence A. Leser 60 Chairman of the Board of Directors (since August
1994); Chief Executive Officer (since 1985);
Director (since 1977); President
(1985 to August 1994)
William R. Burleigh 60 President (since August 1994); Chief Operating
Officer (since May 1994); Director (since 1990);
Executive Vice President (1990 to August 1994);
Senior Vice President/Newspapers and Publishing
(1986 to 1990)
Daniel J. Castellini 55 Senior Vice President/Finance and
Administration (since 1986)
F. Steven Crawford 47 Senior Vice President/Cable (since September
1992); Vice President, Cable (1990 to September
1992); General Manager, TeleScripps Cable
Company (1983 to 1990)
Paul F. (Frank) Gardner 53 Senior Vice President/Broadcasting
(since April 1993); Senior Vice President,
News Programming, Fox Broadcasting Company
(1991 to 1993); Vice President and General
Manager, WCPO Television, Cincinnati (1988
to 1991)
Alan M. Horton 52 Senior Vice President/Newspapers (since May
1994); Vice President/Operations, Newspapers
(1992 to May 1994); Editor, Naples Daily News
(1987 to 1992)
Craig C. Standen 53 Senior Vice President/Corporate Development
(since August 1994); Vice President/Marketing-
Advertising, Newspapers (1990 to August 1994)
J. Robert Routt 41 Vice President and Controller (since 1985)
E. John Wolfzorn 50 Treasurer (since 1979)
M. Denise Kuprionis 39 Corporate Secretary (since 1987)
Gregory L. Ebel 40 Vice President/Human Resources (since
1994); Senior Vice President, PNC Bank Ohio
(1990 to 1994)
Richard A. Boehne 39 Vice President/Corporate Communications and
Investor Relations (since 1995); Director of
Corporate Communications and Investor
Relations (1989 to 1994)
Directors
The directors of Scripps and New Scripps are identical. Each director
serves until the next succeeding annual meeting of stockholders and until
their respective successors are elected and qualified. Certain information
as of December 1, 1995, about such directors appears in the table below.
Principal Occupation or
Director Occupation/Business
Name Age Since Experience for
Past Five Years
Daniel J. Meyer(1) 59 1988 Chairman since January 1, 1991,
Chief Executive Officer since
April 24, 1990, President and
Chief Operating Officer from
November 1987 through April 1990,
of Cincinnati Milacron Inc. (a
manufacturer of metal working and
plastics processing machinery and
systems).
Nicholas B. Paumgarten 50 1988 Managing Director of J.P. Morgan &
Co. Inc. since February 10, 1992
(an investment banking firm);
Managing Director of Dillon,
Read & Co. Inc. from March 19, 1991
through February 9, 1992 (an
investment banking firm); Managing
Director from 1981 through
March 18, 1991 of The First Boston
Corporation (an investment banking
firm).
David R. Huhn 58 1991 Retired; President of McAlpin's,
Inc., a subsidiary of Mercantile
Stores Co., Inc. from October 16,
1991 through February 3, 1994;
Chairman and Chief Executive Officer
from September 1989 through
October 15, 1991, of Mercantile
Stores Co., Inc.
John H. Burlingame(2) 62 1988 Executive Partner since 1982 of
Baker & Hostetler (law firm).
William R. Burleigh 60 1990 President of Scripps since August
1994; Chief Operating Officer since
May 1994, Executive Vice President
from March 1990 through August 1994,
Senior Vice President/Newspapers
and Publishing of Scripps from
September 1986 to March 1990;
and Vice President and General
Editorial Manager of Scripps from
January 1984 to September 1986.
Lawrence A. Leser(3) 60 1977 Chairman of Scripps since
August 1994, Chief Executive
Officer since July 1985, President
from July 1985 through August 1994.
Charles E. Scripps(4) 75 1946 Chairman of the Executive Committee
of Scripps since August 1994;
Chairman of the Board of Directors
of Scripps from 1953 to August 1994.
Paul K. Scripps(5) 50 1986 Chairman since December 1989 and
Vice Chairman and Editorial Director
from December 1988 through
December 3, 1989, of John P. Scripps
Newspapers, a subsidiary of Scripps.
Robert P. Scripps(6) 77 1949 A Director of Scripps since 1949.
(1) Mr. Meyer is a director of Cincinnati Milacron Inc., Star Bank
Corporation (bank holding company), Hubbell Incorporated (manufacturer of
wiring and lighting devices) and Sunbeam Corporation (a consumer products
company).
(2) Mr. Burlingame is a Trustee of the Scripps Trust.
(3) Mr. Leser is a director of Union Central Life Insurance Company and AK
Steel Holding Corporation (steel manufacturer).
(4) Mr. Charles E. Scripps is the brother of Robert P. Scripps and Chairman
of the Board of Trustees of the Scripps Trust.
(5) Mr. Paul K. Scripps serves as a director of the Company pursuant to an
agreement between the Scripps Trust and John P. Scripps. See "Certain
Transactions--John P. Scripps Newspapers."
(6) Mr. Robert P. Scripps is a Trustee of the Scripps Trust and the brother
of Charles E. Scripps.
Committees. The Scripps Board has, and after the Spin-Off the New Scripps
Board will have, an Executive Committee, an Audit Committee and a Compensation
Committee. The functions of each of these committees are described and the
members of each are listed below.
Charles E. Scripps, Lawrence A. Leser and John H. Burlingame are the
members of the Executive Committee. The Executive Committee exercises
all of the powers of the Board in the management of corporate business
and affairs between Board meetings, except the power to fill vacancies on
the Board or its committees.
Daniel J. Meyer, Nicholas B. Paumgarten and David R. Huhn are the members
of the Audit Committee, which nominates the independent auditors each year,
reviews the audit plans of both the internal and independent auditors,
evaluates the adequacy of and monitors compliance with corporate accounting
policies, and reviews the annual financial statements. The internal and
independent auditors have unrestricted access to the Audit Committee.
Charles E. Scripps, Daniel J. Meyer and David R. Huhn are the members of
the Compensation Committee, which establishes overall compensation policy,
determines compensation of senior management and administers the Scripps
Incentive Plan (as defined).
Compensation of Directors. Each director elected by the holders of Scripps
Class A Common Stock receives an annual fee of $22,000, and an additional
$2,000 for each meeting that he attends of the Scripps Board or a committee
thereof on which he serves. Additionally, for each committee of which he
is chairman, such director receives an annual fee of $3,000. Directors
elected by the holders of Scripps Common Voting Stock, with the exception
of Charles E. Scripps, do not receive any compensation for services as
directors or committee members. Charles E. Scripps receives a fee for
such services at the annual rate of $50,000, but does not receive any
additional fees for his attendance at Scripps Board or Committee meetings.
It is expected that New Scripps will compensate directors following the
Spin-Off substantially in accordance with the foregoing practices.
EXECUTIVE COMPENSATION
Prior to the Spin-Off, Scripps executive officers will not have received
any compensation from New Scripps for serving as executive officers thereof.
It is expected that New Scripps will compensate its executive officers
following the Spin-Off substantially in accordance with the compensation
practices of Scripps. Stockholders interested in the compensation
paid by Scripps to its executive officers may refer to Scripps' Proxy
Statement for its 1995 Annual Meeting of Stockholders, a copy of which
is on file with the SEC and is available without charge upon written or
oral request to Investor Relations, The E.W. Scripps Company, 312 Walnut
Street, Cincinnati, Ohio 45202, telephone (513) 977-3825.
Scripps Stock Plans Assumed by New Scripps
Scripps maintains the following stock plans: (i) the 1987 Long-Term
Incentive Plan ("Scripps Incentive Plan") and (ii) the 1994 Non-Employee
Directors' Stock Option Plan ("Scripps Director's Plan," and collectively,
the "Scripps Stock Plans"). In connection with the Merger and related
transactions, New Scripps will assume the Scripps Stock Plans and the
options and awards outstanding thereunder. All references in such plans
to Scripps and Scripps Class A Common Stock will be deemed to refer to
New Scripps and New Scripps Class A Common Shares. Approval of the
Merger by the holders of Scripps Common Voting Stock will constitute
approval of New Scripps' assumption of the Scripps Stock Plans for
purposes of the stockholder approval requirements of Rule 16b-3 under
the Exchange Act.
Scripps Incentive Plan. Upon consummation of the Spin-Off, New Scripps
will assume the Scripps Incentive Plan and all options and awards outstanding
thereunder. All such options and awards will be adjusted in accordance with
the plan by the Compensation Committee so as to prevent enlargement or
dilution of the rights represented by such options and awards. No
amendments will be made to the Scripps Incentive Plan as a result of the
Spin-Off. All information appearing below about the Scripps Incentive Plan
will continue to apply to the plan after assumption thereof by New Scripps.
The purpose of the Scripps Incentive Plan is to promote the long-term
growth and profitability of Scripps by enabling it to attract and retain
the best available persons for positions of substantial responsibility.
Grants of incentive or nonqualified stock options, stock appreciation
rights (in tandem with or independent of options) ("SARs"), restricted or
nonrestricted share awards, performance units, or any combination thereof,
may be made under the Scripps Incentive Plan. Participation is limited to
officers and other key employees of Scripps selected by the Compensation
Committee. Directors who are not officers of Scripps are not eligible to
participate in the Scripps Incentive Plan. Scripps has reserved 3,250,000
shares of Class A Common Stock for issuance under the plan. The maximum
number of shares of Scripps Class A Common Stock with respect to which
options, SARs, restricted stock or performance units, or any combination
thereof, may be granted under the Scripps Incentive Plan to any employee in
any one calendar year is limited to 500,000 shares.
Stock Options and SARs. The exercise price of stock options granted under
the Scripps Incentive Plan shall not be less than 100% of the fair market
value of the shares on the date the option is granted. The Compensation
Committee may grant incentive or nonqualified options. Options may be
exercised upon payment of the exercise price in cash, in shares previously
acquired by the optionee, or a combination of cash and such shares.
Options may also be exercised in accordance with a "cashless" exercise
procedure that permits the optionee to sell all or a portion of the shares
underlying the option or obtain a margin loan from a broker sufficient to
enable payment in either case of the exercise price of the option. The
Compensation Committee shall determine the date or dates on which each
option shall become exercisable. The Compensation Committee may accelerate
the vesting of any option or SAR held by an employee who retires or whose
employment is otherwise terminated for any reason other than cause.
"Cause" means, generally, conviction of a felony, conduct that could cause
demonstrable and serious injury to Scripps, or gross dereliction of duty or
other grave misconduct. Retired employees have a period of five years
following retirement to exercise their options and SARs. Upon a change in
control of Scripps there will be an automatic acceleration of the vesting
of any outstanding option or SAR as of the date of such change in control.
The Compensation Committee is authorized to grant SARs under the Scripps
Incentive Plan independently of or in tandem with stock options. The
exercise of an option shall result in an immediate forfeiture of its
corresponding tandem SAR, and the exercise of a tandem SAR shall cause
an immediate forfeiture of its corresponding option. A tandem SAR
shall expire at the same time as and shall be transferable only when
and under the same conditions as the related option. Tandem SARs
shall be exercised only when, to the extent and on the conditions that
the related option is exercisable. Upon exercise, the optionee shall
be entitled to distribution of an amount equal to the difference
between the fair market value of a share of Scripps Class A Common
Stock on the date of exercise and the exercise price of the option to
which the SAR corresponds. The Compensation Committee shall decide
whether such distribution shall be in cash, in shares, or in a
combination thereof. All tandem SARs will be exercised automatically
on the last day prior to the expiration date of the related option.
An independent SAR will entitle an employee to receive, with respect
to each share of Class A Common Stock as to which the SAR is
exercised, the excess of the fair market value of one share of such
stock on the date of exercise over its fair market value on the date
such SAR was granted. As defined in the Scripps Incentive Plan, "fair
market value" means the average of the highest and lowest selling
prices of the Scripps Class A Common Stock as reported on the New York
Stock Exchange on the date in question. Independent SARs may become
exercisable at such times or times, and on such conditions as the
Compensation Committee may specify, except that no such SAR will
become exercisable during the first six months following the date on
which it was granted. The Scripps Incentive Plan provides that each
independent SAR will be exercised automatically on the last day prior
to its expiration date. Payments of the amount to which an employee
is entitled upon the exercise of an independent SAR shall be made in
cash or shares of Scripps Class A Common Stock, or in any combination
thereof, as the Compensation Committee shall determine. To the extent
that the payment is made in shares, the shares will be valued at their
fair market value on the day of exercise of such SAR.
No option, SAR or performance unit shall be transferable by an employee
otherwise than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order. The Scripps
Incentive Plan provides that the Compensation Committee shall make
adjustments as it deems appropriate in the number and kind of shares
reserved for issuance under the Plan, and the number and kind of
shares covered by grants made under the plan and in the exercise price
of outstanding options, in certain events, such as reorganization,
recapitalization, stock split or merger. The Compensation Committee
may also authorize cash awards to any participant in order to assist
him or her in meeting tax obligations with respect to shares received
under the plan.
Share Awards. The Compensation Committee may award shares of Scripps Class
A Common Stock under the Scripps Incentive Plan and place restrictions
on transfer of such shares. Each award shall specify the applicable
restrictions, if any, on such shares, the duration of such
restrictions, and the time at which such restrictions shall lapse.
Participants will be required to deposit shares with Scripps during
the period of any restriction on transfer.
Performance Units. The Compensation Committee may grant performance units
to participants under the Scripps Incentive Plan. Each unit shall
have a dollar value determined at the time of grant. The value of
each unit may be fixed or it may fluctuate based on a performance
factor (e.g., return on equity) selected by the Compensation
Committee. The Compensation Committee shall establish performance
goals that, depending on the extend to which they are met, will
determine the final value of the performance units or the final number
of units actually earned by participants, or both. Performance units
that are earned by a participant may be paid in restricted or
nonrestricted shares, in cash, or in a combination of both in the
Compensation Committee's discretion.
Miscellaneous. The Scripps Incentive Plan provides for vesting, exercise
or forfeiture of rights granted under the Scripps Incentive Plan on
retirement, death, disability, termination of employment or a change
of control. The Board of Directors may modify, suspend or terminate
the Scripps Incentive Plan as long as it does not impair the rights of
any participant thereunder. The holders of Scripps Common Voting
Stock must approve any increase in the maximum number of shares
reserved for issuance under the plan, any change in the classes of
employees eligible to participate in the plan and any material
increase in the benefits accruing to participants. The Scripps
Incentive Plan was approved by the holders of Scripps Common Voting
Stock in December 1987 and shall terminate in December 1997 except
with respect to awards or options then outstanding.
Scripps Directors' Option Plan. Upon consummation of the Spin-Off, New
Scripps will assume the Scripps Directors' Plan and all options
outstanding thereunder. All such options will be adjusted in
accordance with the plan by the Compensation Committee so as to
prevent enlargement or dilution of the rights represented by such
options. No amendments will be made to this plan as a result of the
Spin-Off. All information appearing below about the Scripps
Directors' Plan will continue to apply to the plan after assumption
thereof by New Scripps.
The purpose of the plan is to strengthen the alignment of interests between
non-employee directors and the stockholders of Scripps through the
increased ownership by such directors of shares of Scripps Class A
Common Stock. The total number of shares of Class A Common Stock of
Scripps that may be made subject to options awarded under the Plan is
50,000. Participation is limited to non-employee directors of Scripps
elected by the holders of Class A Common Stock.
Under the plan, each qualified director shall receive a one-time non-
qualified stock option for 5,000 shares of Class A Common Stock at the time
of initial election. On December 9, 1994, each of the three non-employee
directors currently in office received an option for 5,000 shares of Class
A Common Stock. The plan was subsequently approved by the holders of the
Common Voting Stock.
The exercise price of each option granted under the plan shall be equal to
the fair market value of a share of Scripps Class A Common Stock on the
date that the option is granted. Options may be exercised in whole or in
part upon payment of the exercise price in cash or in shares of Scripps
Class A Common Stock previously acquired or a combination of cash and such
shares. The plan also provides for "cashless exercise" of options pursuant
to which a participant pays the exercise price of his options by selling
all or part of the underlying common shares.
The stock options granted under the plan to the current non-employee
directors of the Company are exercisable and shall expire on December 9,
2004. All other stock options granted under the plan shall be exercisable
on the first anniversary of the recipient's election as a director by the
holders of Scripps Class A Common Stock and shall have terms of ten years
from the date of grant.
Options granted under the plan are not transferable except as permitted by
applicable law. The plan provides for appropriate adjustments in the
number and kind of shares reserved for issuance under the plan or covered
by options granted under the Plan and in the exercise price of outstanding
options in the event of a reorganization, stock split, merger, or similar
event. The plan will continue in effect until its expiration on December
9, 2004, and options then outstanding will continue in effect until the
expiration of their terms.
Rule 16b-3. Pursuant to Section 16(b) of the Exchange Act, directors,
certain officers and 10% stockholders of Scripps are generally liable to
Scripps for repayment of any "short-swing" profits realized from any non-
exempt purchase and sale of Scripps Common Stock occurring within a six-
month period. Rule 16b-3, promulgated under the Exchange Act, provides an
exemption from Section 16(b) liability for certain transactions by an
officer or director pursuant to an employee benefit plan that complies with
such rule. Specifically, the grant of an option under an employee benefit
plan that complies with Rule 16b-3 will not be deemed the purchase of a
security and the actual or deemed sale of shares in connection with certain
option exercises will not be deemed a sale for Section 16(b) purposes. The
Scripps Stock Plans are designed to comply with Rule 16b-3.
Federal Income Tax Consequences of the Scripps Stock Plans. The following
is a summary of the federal income tax consequences of transactions under
the Scripps Stock Plans.
Non-Qualified Stock Options. In general, with respect to non-qualified
stock options under each of the Scripps Stock Plans (a) no income is
realized by the optionee at the time the option is granted, (b) upon
exercise of the option, the optionee realizes ordinary income in an amount
equal to the excess of the fair market value of the shares of Class A
Common Stock on the date of exercise over the option price paid for the
shares, and Scripps is entitled to a tax deduction in the same amount, and
(c) at disposition of the Class A Common Stock received upon the exercise
of the option, the optionee receives, as either short-term or long-term
capital gain (or loss) the difference between the amount realized and the
fair market value of the shares on the date of exercise.
Incentive Stock Options. No taxable income is realized by the optionee
upon the grant or exercise of an incentive stock option under the Scripps
Incentive Plan. If Class A Common Stock is issued to an optionee pursuant
to the exercise of an incentive stock option, and if no disqualifying
disposition of such stock is made by such optionee within two years after
the date of grant or within one year after the transfer of such shares to
such optionee, then (a) upon the sale of such stock a long-term capital
gain or loss will be realized in an amount equal to the difference between
the option price and the amount realized by the optionee and (b) no
deduction will be allowed to Scripps for federal income tax purposes. The
excess (if any) of the fair market value of the shares on the date of
exercise over the option price, however, is includable in alternative
minimum taxable income unless the shares are disposed of in the taxable
year the option is exercised.
If Class A Common Stock acquired upon the exercise of an incentive stock
option is disposed of prior to the expiration of either holding period
described above, generally (i) the optionee realizes ordinary income in the
year of disposition in an amount equal to the excess (if any) of the fair
market value of the shares on the date of exercise (or, if less, the amount
realized on the disposition of the shares) over the option price paid for
such shares and (ii) Scripps will be entitled to deduct the amount realized
as ordinary income by the optionee if Scripps satisfies certain federal
withholding or reporting requirements. Any further gain (or loss) realized
by the participant will be taxed as short-term or long-term capital gain
(or loss), as the case may be, and will not result in any deduction for
Scripps.
Stock Appreciation Rights. No income will be realized by an optionee in
connection with the grant of a stock appreciation right under the Scripps
Incentive Plan. When the right is exercised, the optionee will generally
be required to recognize as ordinary income in the year of exercise an
amount equal to the sum of the amount of cash and the fair market value of
any shares received. Scripps will be entitled to a deduction equal to the
amount included in such optionee's ordinary income by reason of the
exercise if Scripps satisfies certain federal withholding or reporting
requirements. If the optionee receives Class A Common Stock upon the
exercise of a stock appreciation right, the post-exercise appreciation (or
depreciation) will be treated in the same manner as discussed above under
"Non-Qualified Stock Options."
Restricted Stock Awards. A recipient of a restricted stock award under the
Scripps Incentive Plan generally will recognize ordinary income equal to
the difference between the fair market value of the restricted stock at the
time the stock is transferable or not subject to a substantial risk of
forfeiture and the consideration, if any, paid for the stock. A recipient
may elect, however, within 30 days of the date of grant, to recognize
taxable ordinary income on the date of grant equal to the excess of the
fair market value of the shares of restricted stock on such date
(determined without regard to any restrictions other than restrictions
which will never lapse) over the consideration, if any, paid for such
restricted stock. Scripps generally will be entitled to a deduction equal
to the amount that is taxable as ordinary income to the recipient if
Scripps satisfies certain federal withholding requirements.
Performance Units. A recipient of performance units under the Scripps
Incentive Plan will recognize ordinary income when the objectives for a
performance unit are satisfied. The time at which a recipient of a
performance unit will recognize ordinary income will generally depend upon
whether the recipient receives restricted or nonrestricted stock, cash or a
combination thereof. Scripps generally will be entitled to a deduction
equal to the amount that is taxable as ordinary income to the recipient if
Scripps satisfies certain witholding requirements.
Capital Gains. Under current law, capital gains are subject to the same
tax rates that apply to ordinary income, except the rate may not exceed
28%. Capital losses may be utilized to offset capital gains to the extent
of capital gains, and $3,000 of capital losses in excess of capital gains
($1,500 in the case of a married individual filing a separate return) is
deductible against other income.
To receive long-term capital gain (loss) treatment with respect to any
appreciation (depreciation) in the value of Class A Common Stock acquired
pursuant to the Scripps Stock Plans, the participant must hold such shares
for more than one year. Shares held for one year or less will receive
short-term capital gain or loss treatment.
Dividends and Dividend Equivalents. Dividends paid on restricted stock
generally will be treated as compensation that is taxable as ordinary
income to the participant and may be deductible by Scripps. If, however,
the participant makes a Section 83(b) election, the dividends will be
taxable as ordinary income to the participants, but will not be deductible
by Scripps.
$1,000,000 Deduction Limitation. Scripps is not entitled to deduct annual
remuneration in excess of $1 million (the "Deduction Limitation") paid to
certain of its employees unless such remuneration satisfies an exception to
the Deduction Limitation, including an exception for performance-based
compensation established by a compensation committee and approved by
shareholders. Thus, unless options, rights or awards granted under the
Scripps Incentive Plan satisfy an exception to the Deduction Limitation,
Scripps' deduction with respect to such options, rights or awards will be
subject to the Deduction Limitation.
Under Treasury Regulations, compensation attributable to stock options or
stock appreciation rights is deemed to satisfy the performance based
compensation exception if:
"the grant or award is made by the compensation committee; the
plan under which the option or right is granted states the maximum number
of shares with respect to which options or rights may be granted during a
specified period to any employee; and, under the terms of the option or
right the amount of compensation the employee could receive is based solely
on an increase in the value of the stock after the date of the grant or
award . . ."
If a compensation committee comprised solely of two or more "outside
directors" within the meaning of Section 162(m) of the Code makes grants,
Scripps' deduction with respect to options granted under the Scripps
Incentive Plan will not be subject to the Deduction Limitation.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to persons
known to Scripps to be the beneficial owners of more than five percent of
Scripps Class A Common Stock or Scripps Common Voting Stock. Unless
otherwise indicated, all information is as of September 30, 1995, and the
persons named in the table have sole voting and investment power with
respect to all shares shown therein as being beneficially owned by them.
Assuming that the Spin-Off had occurred as of the aforesaid date, the
information in the table below would also reflect the number of Class A
Common Shares and Common Voting Shares of New Scripps, and the respective
percentages thereof, beneficially owned by the persons named in such table.
Common
Name and Address Class A Voting
of Beneficial Owner Common Stock Percent Stock Percent
The Edward W. Scripps Trust(1) 32,610,000 54.3% 16,040,000 80.2%
312 Walnut Street
Cincinnati, Ohio
Jack R. Howard(2) 3,659,198 6.1% 170,000 0.9%
c/o Scripps Howard, Inc.
Attn: Corporate Secretary
312 Walnut Street
Cincinnati, Ohio
Paul K. Scripps and 189,097 0.3% 1,616,113 8.1%
John P. Scripps Trust(3)
525 C Street, Suite 306
San Diego, California
Wellington Management Company(4) 3,442,030 5.7% -0- -0-
75 State Street
Boston, Massachusetts
The Capital Group 3,113,400 5.2% -0- -0-
Companies, Inc. (5)
333 South Hope Street
Los Angeles, California
Chemical Bank, Trustee(6) 71,367 0.1% 1,392,000 7.0%
270 Park Avenue
New York, New York
(1) Under the Trust Agreement establishing the Scripps Trust, the Scripps
Trust must retain voting stock sufficient to ensure control of Scripps (and
following the Spin-Off, New Scripps) until the final distribution of the
Scripps Trust estate unless earlier stock dispositions are necessary for
the purpose of preventing loss or damage to such estate. The Scripps Trust
will terminate upon the death of the last to survive of four persons
specified in the Scripps Trust, the youngest of whom is 72 years of age.
Upon the termination of the Scripps Trust, substantially all of its assets
(including all shares of capital stock of Scripps or, following the Spin-
Off, New Scripps, held by the Scripps Trust) will be distributed to the
grandchildren of Robert Paine Scripps (a son of Edward W. Scripps), of whom
there are 28. Certain of these grandchildren have entered into an
agreement among themselves, other cousins and Scripps which will restrict
transfer and govern voting of shares of Scripps Common Voting Stock (and,
following the Spin-Off, New Scripps Common Voting Shares) to be held by
them upon termination of the Scripps Trust and distribution of the Scripps
Trust estate. This agreement will apply to the New Scripps Common Voting
Shares following the Spin-Off. See "Certain Transactions--Scripps Family
Agreement."
(2) The shares listed for Mr. Howard consist of 3,327,385 shares of
Scripps Class A Common Stock and 170,000 shares of Scripps Common Voting
Stock held in an irrevocable trust established for the benefit of Mr.
Howard and his wife and of which Mr. Howard and his wife are the sole
trustees; and 331,813 shares of Scripps Class A Common Stock owned by Mr.
Howard's wife. Mr. Howard disclaims any beneficial interest in these
shares except those held in the irrevocable trust.
(3) The shares listed for Mr. Paul K. Scripps include 119,520 shares of
Scripps Common Voting Stock and 400 shares of Scripps Class A Common Stock
held in various trusts for the benefit of certain relatives of Paul K.
Scripps and 100 shares of Scripps Class A Common Stock owned by his wife.
Mr. Scripps is a trustee of the aforesaid trusts. Mr. Scripps disclaims
beneficial ownership of the shares held in such trusts and the shares owned
by his wife. The shares listed also include 1,445,453 shares of Scripps
Common Voting Stock and 188,497 shares of Scripps Class A Common Stock held
by five trusts of which Mr. Scripps is a trustee. Mr. Scripps is the sole
beneficiary of one of such trusts, holding 349,018 shares of Scripps Common
Voting Stock and 47,124 shares of Scripps Class A Common Stock. He
disclaims beneficial ownership of the shares held in the other four trusts.
(4) Represents shares of Class A Common Stock held as of December 31,
1994. Wellington Management Company ("Wellington"), an investment advisory
firm, has filed a Schedule 13G with the SEC with respect to Scripps Class A
Common Stock. According to the Schedule 13G for the year ended December
31, 1994, the shares listed in the table are owned by various clients of
Wellington, which possesses investment or voting power with respect to such
shares pursuant to the provisions of investment advisory agreements with
such clients.
(5) Represents shares of Class A Common Stock held as of December 31,
1994. The Capital Group Companies, Inc. ("Capital"), the parent company of
six investment management companies, has filed a Schedule 13G with the SEC
with respect to the Scripps Class A Common Stock. According to the
Schedule 13G for the year ended December 31, 1994, the shares listed in the
table are owned by various clients of Capital, which possesses investment
or voting power with respect to such shares pursuant to the provisions of
investment advisory agreements with such clients.
(6) Represents shares of Class A Common Stock held as of December 31, 1994
and Common Voting Stock held as of September 30, 1995. The shares shown in
the table are held in two trusts of which Chemical Bank is the sole
trustee. These trusts were established by Jack R. Howard's parents for the
benefit of his sister.
Security Ownership of Management
The following information is set forth with respect to Scripps Class A
Common Stock and Scripps Common Voting Stock beneficially owned as of
September 30, 1995, by each director, each named executive officer, and by
all directors and executive officers of Scripps as a group. Unless
otherwise indicated, the persons named in the table have sole voting and
investment power with respect to all shares shown therein as being
beneficially owned by them. Assuming that the Spin-Off had occurred as of
the aforesaid date, the information in the table below would also reflect
the number of New Scripps Class A Common Shares and New Scripps Common
Voting Shares, and the respective percentages thereof, beneficially owned
by the persons named in the table.
Name of Individual Common
or Number of Persons Class A Voting
in Group Common Stock Percent Stock Percent
William R. Burleigh(l) 32,515 * --- ---
John H. Burlingame(2) 0 --- --- ---
David R. Huhn(3) 500 * --- ---
Lawrence A. Leser(4) 34,240 * --- ---
Daniel J. Meyer 300 * --- ---
Nicholas B. Paumgarten(5) 3,250 * --- ---
Charles E. Scripps(2)(6) 39,680 * --- ---
Paul K. Scripps(7) 189,097 * 1,616,113 8.0%
Robert P. Scripps(2) 0 --- ---
Daniel J. Castellini(8) 24,735 * --- ---
Paul F. (Frank) Gardner(9) 26,974 * --- ---
Craig C. Standen(10) 11,355 * --- ---
All directors and executive
officers as a group
(19 persons) (11) 33,001,930 55.0% 17,656,113 88.3%
* Shares owned represent less than one percent of the outstanding shares
of such class of stock.
(1) The shares listed for Mr. Burleigh do not include 165,000 shares
of Scripps Class A Common Stock underlying exercisable options held by him.
(2) This person is a Trustee of the Scripps Trust and has the power,
together with the other Trustees, to vote and dispose of the 32,610,000
shares of Scripps Class A Common Stock and the 16,040,000 shares of Scripps
Common Voting Stock held by the Scripps Trust. Messrs. Charles E. Scripps
and Robert P. Scripps have a life income interest in the Scripps Trust.
Mr. Burlingame disclaims any beneficial interest in the shares held by the
Scripps Trust.
(3) The shares listed for Mr. Huhn are held jointly with his wife.
(4) The shares listed for Mr. Leser include 5,500 shares of Scripps
Class A Common Stock owned by his wife and 640 shares of Scripps Class A
Common Stock owned by one of his children. Mr. Leser disclaims any
beneficial interest in these shares. The shares listed do not include
285,500 shares of Scripps Class A Common Stock underlying exercisable
options held by Mr. Leser.
(5) The shares listed for Mr. Paumgarten include 2,000 shares of
Scripps Class A Common Stock held in trusts for the benefit of Mr.
Paumgarten's sons, and 850 shares of Scripps Class A Common Stock owned by
his wife. Mr. Paumgarten is the sole trustee of the aforesaid trusts. Mr.
Paumgarten disclaims beneficial ownership of the shares held in such trusts
and the shares owned by his wife.
(6) The shares listed for Mr. Charles E. Scripps include 300 shares
of Scripps Class A Common Stock owned by his wife. Mr. Scripps disclaims
any beneficial interest in these shares.
(7) The shares listed for Mr. Paul K. Scripps include 119,520 shares
of Scripps Common Voting Stock and 400 shares of Scripps Class A Common
Stock held in various trusts for the benefit of certain relatives of Paul
K. Scripps and 100 shares of Scripps Class A Common Stock owned by his
wife. Mr. Scripps is a trustee of the aforesaid trusts. Mr. Scripps
disclaims beneficial ownership of the shares held in such trusts and the
shares owned by his wife. The shares listed also include 1,445,453 shares
of Scripps Common Voting Stock and 188,497 shares of Scripps Class A Common
Stock held by five trusts of which Mr. Scripps is a trustee. Mr. Scripps
is the sole beneficiary of one of such trusts, holding 349,018 shares of
Scripps Common Voting Stock and 47,124 shares of Scripps Class A Common
Stock. He disclaims beneficial ownership of the shares held in the other
four trusts.
(8) The shares listed for Mr. Castellini include 1,000 shares of
Scripps Class A Common Stock owned by his wife. Mr. Castellini disclaims
any beneficial interest in these shares. The shares listed for
Mr. Castellini do not include 109,000 shares of Scripps Class A Common
Stock underlying exercisable options held by him.
(9) The shares listed for Mr. Gardner do not include 56,500 shares of
Scripps Class A Common Stock underlying exercisable options held by him.
(10) The shares listed for Mr. Standen include 180 shares of Scripps
Class A Common Stock held by Mr. Standen as custodian for the benefit of
his children. Mr. Standen disclaims any beneficial interest in these
shares. The shares listed for Mr. Standen do not include 40,275 shares of
Scripps Class A Common Stock underlying exercisable options held by him.
(11) The shares listed include 32,610,000 shares of Scripps Class A
Common Stock and 16,040,000 shares of Scripps Common Voting Stock owned by
the Scripps Trust.
CERTAIN TRANSACTIONS
Scripps Family Agreement. Scripps and certain persons and trusts are
parties to an agreement (the "Scripps Family Agreement") restricting the
transfer and governing the voting of shares of Scripps Common Voting Stock
that such persons and trusts may acquire or own at or after the termination
of the Scripps Trust. Such persons and trusts (the "Signatories") consist
of certain grandchildren of Robert Paine Scripps who are beneficiaries of
the Scripps Trust, the descendants of John P. Scripps, and certain trusts
of which descendants of John P. Scripps are trustees and beneficiaries.
Robert Paine Scripps and John P. Scripps were sons of the founder of
Scripps.
If the Scripps Trust were to have terminated as of September 30, 1995, the
Signatories would have held in the aggregate approximately 86% of the
outstanding shares of Scripps Common Voting Stock as of such date.
Once effective, the provisions restricting transfer of shares of Scripps
Common Voting Stock under the Scripps Family Agreement will continue until
twenty-one years after the death of the last survivor of the descendants of
Robert Paine Scripps and John P. Scripps alive when the Scripps Trust
terminates. The provisions of the Scripps Family Agreement governing the
voting of Scripps Common Voting Stock will be effective for a ten year
period after termination of the Scripps Trust and may be renewed for
additional ten year periods pursuant to certain provisions set forth in the
Agreement.
No Signatory will be able to dispose of any shares of Scripps Common Voting
Stock (except as otherwise summarized below) without first giving other
Signatories and Scripps the opportunity to purchase such stock.
Signatories will not be able to convert shares of Scripps Common Voting
Stock into shares of Scripps Class A Common Stock except for a limited
period of time after giving other Signatories and Scripps the aforesaid
opportunity to purchase and except in certain other limited circumstances.
Signatories will be permitted to transfer shares of Scripps Common Voting
Stock to their lineal descendants or trusts for the benefit of such
descendants, or to any trust for the benefit of such a descendant, or to
any trust for the benefit of the spouse of such descendant or any other
person or entity. Descendants to whom such shares are sold or transferred
outright, and trustees of trusts into which such shares are transferred,
must become parties to the Scripps Family Agreement or such shares shall be
deemed to be offered for sale pursuant to the Scripps Family Agreement.
Signatories will also be permitted to transfer shares of Scripps Common
Voting Stock by testamentary transfer to their spouses provided such shares
are converted to Scripps Class A Common Stock and to pledge such shares as
collateral security provided that the pledgee agrees to be bound by the
terms of the Scripps Family Agreement. If title to any such shares subject
to any trust is transferred to anyone other than a descendant of Robert
Paine Scripps or John P. Scripps, or if a person who is a descendant of
Robert Paine Scripps or John P. Scripps acquires outright any such shares
held in trust but is not or does not become a party to the Scripps Family
Agreement, such shares shall be deemed to be offered for sale pursuant to
the Scripps Family Agreement. Any valid transfer of shares of Scripps
Common Voting Stock made by Signatories without compliance with the Scripps
Family Agreement will result in automatic conversion of such shares to
Class A Common Shares.
The Scripps Family Agreement provides that Scripps will call a meeting of
the Signatories prior to each annual or special meeting of the stockholders
of Scripps held after termination of the Scripps Trust (each such meeting
hereinafter referred to as a "Required Meeting"). At each Required
Meeting, Scripps will submit for decision by the Signatories each matter,
including election of directors, that Scripps will submit to its
stockholders at the annual meeting or special meeting with respect to which
the Required Meeting has been called. Each Signatory will be entitled,
either in person or by proxy, to cast one vote for each share of Scripps
Common Voting Stock owned of record or beneficially by him on each matter
brought before the meeting. Each Signatory will be bound by the decision
reached with respect to each matter brought before such meeting, and, at
the related meeting of the stockholders of Scripps, will vote his shares of
Scripps Common Voting Stock in accordance with decisions reached at the
meeting of the Signatories.
Following the Spin-Off, the Scripps Family Agreement will apply to the New
Scripps Common Voting Shares and the New Scripps Class A Common Shares held
by the Signatories after termination of the Scripps Trust.
John P. Scripps Newspapers. In connection with the merger in 1986 of the
John P. Scripps Newspaper Group ("JPSN") into a wholly owned subsidiary of
Scripps (the "JPSN Merger"), Scripps and the Scripps Trust entered into
certain agreements discussed below. All of these agreements will apply to
New Scripps, the New Scripps Class A Common Shares and the New Scripps
Common Voting Shares following the Spin-Off.
JPSN Board Representation Agreement. The Scripps Trust and John P. Scripps
entered into a Board Representation Agreement dated March 14, 1986 in
connection with the JPSN Merger. Under this agreement, the surviving adult
children of Mr. Scripps who are stockholders of Scripps have the right to
designate one person to serve on the Scripps Board so long as they continue
to own in the aggregate 25% of the sum of (i) the shares issued to them in
the JPSN Merger and (ii) the shares received by them from John P. Scripps's
estate. In this regard, the Scripps Trust has agreed to vote its Scripps
Common Voting Stock in favor of the person designated by John P. Scripps's
children. Pursuant to this agreement, Paul K. Scripps currently serves on
Scripps Board. The Board Representation Agreement terminates upon the
earlier of the termination of the Scripps Trust or the completion of a
public offering by Scripps of its Common Voting Stock.
Stockholder Agreement. The former stockholders of the John P. Scripps
Newspaper Group, including John P. Scripps and Paul K. Scripps, entered
into a Stockholder Agreement with Scripps in connection with the JPSN
Merger. This agreement restricts to certain transferees the transfer of
Scripps Common Voting Stock received by such stockholders pursuant to the
JPSN Merger. These restrictions on transfer will terminate on the earlier
of the termination of the Scripps Trust or completion of a public offering
of Scripps Common Voting Stock. Under the agreement, if a stockholder has
received a written offer to purchase 25% or more of his shares of Scripps
Common Voting Stock, Scripps has a "right of first refusal" to purchase
such shares on the same terms as the offer. On the death of any of these
stockholders, Scripps is obligated to purchase from the stockholder's
estate a sufficient number of shares of the Scripps Common Stock to pay
federal and state estate taxes attributable to all shares included in such
estate. This obligation expires in 2006. Under certain other
circumstances, such as bankruptcy or insolvency of a stockholder, Scripps
has an option to buy all shares of Scripps Common Stock owned by such
stockholder. Under the agreement, stockholders owning 25% or more of the
outstanding shares of Scripps Common Voting Stock issued pursuant to the
JPSN Merger may require Scripps to register shares of Scripps Common Voting
Stock (subject to the right of first refusal mentioned above) under the
Securities Act for sale at the stockholders' expense in a public offering.
In addition, the former stockholders of the John P. Scripps Newspaper Group
will be entitled, subject to certain conditions, to include shares of
Scripps Common Voting Stock (subject to the right of first refusal) that
they own in any registered public offering of shares of the same class by
Scripps. The registration rights expire three years from the date of a
registered public offering of shares of Scripps Common Voting Stock.
Other Transactions. Mr. Charles E. Scripps and Mr. Robert P. Scripps,
directors of Scripps and New Scripps, are general partners in Jefferson
Building Partnership (the "Jefferson Partnership"), which was formed in
1984. The Albuquerque Publishing Company, a subsidiary of Scripps that is
a 50% owned partnership that operates The Albuquerque Tribune under a joint
operating agreement, leases the facilities for The Albuquerque Tribune from
a partnership controlled in part by the Jefferson Partnership. This lease
terminates in 2004. Total rent under the lease through September 30, 1995,
was approximately $700,000. The Albuquerque Publishing Company has an
option to purchase the property that is exercisable until 2034. The
purchase price will be equal to 7.7 times the basis rent for the lease year
in which the property is purchased. The parties to the Albuquerque joint
operating agreement lease the land on which the Albuquerque facilities are
situated to the Jefferson Partnership under a lease terminating in 2034 and
providing for rent of $150,000 per year, subject to certain adjustments for
inflation. The Jefferson Partnership has subleased the land to the
Albuquerque Publishing Company as part of the facilities lease arrangement
described above.
Mr. Charles E. Scripps is a Trustee of the Scripps Trust. Mr. Scripps is
expected to continue to serve as a Trustee of the Scripps Trust in 1996.
As a Trustee, Mr. Scripps shares the power, together with the other two
Trustees, to vote and dispose of the 32,610,000 shares of Scripps Class A
Common Stock and 16,040,000 shares of Scripps Common Voting Stock held by
the Scripps Trust. Following the Spin-Off, the Scripps Trust will hold
32,610,000 New Scripps Class A Common Shares and 16,040,000 New Scripps
Common Voting Shares. Mr. Scripps has a life income interest in the
Scripps Trust.
Mr. John H. Burlingame, a director of Scripps and a Trustee of the Scripps
Trust, is the Executive Partner of Baker & Hostetler, which is general
counsel to Scripps and the Scripps Trust. Baker & Hostetler has performed
legal services for Scripps and the Scripps Trust for many years and is
expected to do so in the future.
Mr. Nicholas B. Paumgarten, a director of Scripps, is a Managing Partner of
J.P. Morgan & Co. Incorporated ("J.P. Morgan"). Morgan Guaranty Trust
Company of New York (an affiliate of J.P. Morgan) is a lender to Scripps
under a revolving credit agreement. Another affiliate of J.P. Morgan, J.P.
Morgan Securities Inc., has performed investment banking services for
Scripps in the past and may perform such services in the future.
MARKET PRICE OF AND DIVIDENDS ON COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
New Scripps shares do not currently trade in a public market. New Scripps'
Class A Common Shares issued in the Spin-Off are expected to be listed on
the New York Stock Exchange ("NYSE") and to trade under the symbol "SSP,"
which is the symbol under which Scripps Class A Common Stock currently
trades on the NYSE.
There are approximately 4,500 owners of Scripps' Class A Common Stock and
27 owners of Scripps' Common Voting Stock (which does not have a public
market), based on security position listings. Upon completion of the
Transactions the separate existence of Scripps will cease.
Scripps has declared cash dividends in every year since its incorporation
in 1922. Management of New Scripps intends to maintain the dividend
payment policy of Scripps. Future dividends will be subject to New
Scripps' earnings, financial condition, and capital requirements.
The range of market prices of Scripps' Class A Common Stock, which
represents the high and low sales prices for each full quarterly period
(with the exception of the 4th quarter of 1995 which is through December
20, 1995) and quarterly cash dividends are as follows:
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
1995
Market price of common stock:
High $32.750 $32.375 $34.625 $40.375
Low 26.750 28.000 30.625 33.500
Cash dividends per share of common stock $ .11 $ .13 $ .13 $ .13 $ .50
1994
Market price of common stock:
High $29.250 $29.500 $30.500 $31.000
Low 24.875 23.000 27.875 27.500
Cash dividends per share of common stock $ .11 $ .11 $ .11 $ .11 $ .44
1993
Market price of common stock:
High $29.125 $28.500 $26.625 $30.875
Low 23.750 24.750 22.875 25.125
Cash dividends per share of common stock $ .11 $ .11 $ .11 $ .11 $ .44
SELECTED FINANCIAL DATA
The following selected financial data has been derived from the
consolidated financial statements of Scripps. The data should be read in
conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations and the consolidated financial
statements and notes thereto included elsewhere herein.
The income statement data for the five years ended December 31, 1994 and
the balance sheet data as of the same dates have been derived from the
audited consolidated financial statements of Scripps. The income statement
data for the nine months ended September 30, 1995 and 1994 and the balance
sheet data as of the same dates have been derived from the unaudited
consolidated financial statements of Scripps, which, in the opinion of
management, include all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of financial position and
results of operations for such periods. Operating results for the nine
month periods are not necessarily indicative of results that may be
expected for the entire year or for future interim periods.
THE E.W. SCRIPPS COMPANY
SELECTED FINANCIAL DATA
( in millions, except share data ) September 30, December 31,
1995 1994 1994 1993 1992 1991 1990
Summary of Operations
Operating Revenues:
Newspapers $ 468.3 $ 438.2 $ 599.2 $ 548.2 $ 504.8 $ 485.3 $ 498.6
Broadcast television 211.7 202.4 288.2 254.9 247.2 216.4 205.1
Entertainment 69.0 56.3 73.5 84.7 87.2 91.6 91.7
Total 749.0 697.0 960.9 887.9 839.3 793.3 795.4
Divested operating units * 0.3 2.7 3.7 57.4 178.1 281.0 301.7
Total operating revenues $ 749.3 $ 699.7 $ 964.6 $ 945.2 $ 1,017.4 $ 1,074.3 $ 1,097.2
Operating Income (Loss):
Newspapers $ 88.5 $ 90.8 $ 119.8 $ 76.7 $ 88.7 $ 70.8 $ 81.2
Broadcast television 57.5 62.5 94.5 69.1 61.6 49.6 60.8
Entertainment (7.9) (0.8) (7.1) 3.2 7.7 9.6 9.9
Corporate (12.8) (11.2) (15.5) (13.6) (15.0) (12.7) (14.8)
Total 125.3 141.3 191.7 135.4 143.1 117.3 137.2
Divested operating units * (0.1) (0.1) (0.2) 7.5 (14.6) 33.2 31.8
Unusual items (7.9) (0.9) (36.4)
Total operating income 125.1 141.3 183.6 142.0 128.5 150.4 132.6
Interest expense (8.6) (12.9) (16.3) (26.4) (33.8) (38.4) (43.3)
Net gains and unusual items 31.6 14.7 94.4 74.5
Miscellaneous, net 2.6 (0.4) (0.9) (2.4) (3.6) (0.5) (1.9)
Income taxes (52.3) (67.6) (80.4) (86.4) (65.1) (48.4) (44.1)
Minority interests (2.6) (7.1) (7.8) (16.2) (9.1) (7.2) (8.4)
Income from continuing operations $ 64.2 $ 84.9 $ 92.8 $ 104.9 $ 91.4 $ 55.9 $ 34.9
Share Data
Income from continuing operations (excluding
unusual items and net gains) $.80 $ .90 $1.25 $ .72 $ .80 $.75 $.77
Unusual items and net gains .23 (.04) .68 .42 (.31)
Income from continuing operations $.80 $1.13 $1.22 $1.41 $1.22 $.75 $.46
Dividends $ .37 $ .33 $ .44 $ .44 $ .40 $ .40 $ .40
Common stock price:
High $34.625 $30.500 $31.000 $30.875 $29.000 $24.500 $24.000
Low 26.750 23.000 23.000 22.875 22.125 14.750 $13.000
Other Financial Data
EBITDA (see page 31) - excluding divested
operating units * and unusual items:
Newspapers $ 116.0 $ 117.3 $ 154.9 $ 114.1 $ 122.8 $ 100.8 $ 106.7
Broadcast television 76.7 77.8 115.8 89.5 81.6 65.9 74.6
Entertainment (5.7) 0.5 (5.3) 4.2 8.5 10.4 10.7
Corporate (12.2) (10.7) (14.8) (13.0) (13.4) (11.7) (13.8)
Total ** 174.9 185.0 250.6 194.7 199.6 165.5 178.2
Depreciation and amortization of
intangible assets ** 49.6 43.7 58.9 60.8 64.3 56.2 49.1
Net cash provided by continuing operations** 57.8 105.2 170.2 142.0 127.0 135.9 154.7
Investing activity:**
Capital expenditures (40.8) (29.2) (54.0) (36.8) (86.9) (114.2) (49.1)
Other (investing)/divesting activity, net (39.9) 23.4 18.9 105.4 21.9 (127.9) 13.8
Total assets ** 1,362.6 1,315.8 1,286.7 1,255.1 1,286.6 1,296.3 1,095.4
Long-term debt (including current portion) 110.5 137.2 110.4 247.9 441.9 491.8 367.6
Net debt (including current portion) *** 70.0 137.2 104.7 235.9 440.6 475.2 367.6
Stockholders' equity 1,161.0 1,073.7 1,083.5 859.6 733.1 676.6 639.0
Net debt % of total capitalization 6% 11% 9% 22% 38% 41% 37%
* Refers to operating units sold prior to
September 30, 1995, but does not include cable
television, which is reported as a discontinued
business segment. Because Scripps will receive
no proceeds from the divestiture of its cable
television segment, that segment is excluded from
the Summary of Operations.
** Excludes cable television.
*** Net debt is defined as long-term debt less
cash equivalents and short-term investments.
Note: Certain amounts may not foot as each is
rounded independently.
Notes to Selected Financial Data
In the periods presented Scripps acquired and divested the following:
Acquisitions
1994 - The remaining 13.9% minority interest in Scripps Howard
Broadcasting Company ("SHB") in exchange for 4,952,659 shares of
Scripps Class A Common stock. Cinetel Productions (an independent
producer of programs for cable television).
1993 - Remaining 2.7% minority interest in the Knoxville News-
Sentinel. 5.7% of the outstanding shares of SHB.
1992 - Three daily newspapers in California (including The Monterey
County Herald in connection with the sale of The Pittsburgh Press).
1991 - Baltimore television station WMAR.
Divestitures
1995 - Watsonville, California, daily newspaper. No gain or loss was
realized.
1993 - Book publishing; newspapers in Tulare, California, and San
Juan; Memphis television station; radio stations. The net gains on
the divestitures increased net income $46.8 million, $.63 per share.
1992 - The Pittsburgh Press; TV Data; certain other investments. The
net gains on the divestitures increased net income $45.6 million,
$.61 per share.
Total operating income included the following unusual items:
1994 - Loss on program rights expected be sold as a result of changes
in television network affiliations. The loss reduced net income
$4.9 million, $.07 per share.
1993 - Change in estimate of disputed music license fees; gain on the
sale of certain publishing equipment; a restructuring charge. The
net effect of the unusual items reduced net income $0.6 million,
$.01 per share.
1992 - Operating losses of $32.7 million during the Pittsburgh Press
strike (reported in divested operating units) reduced net income
$20.2 million; $.27 per share.
1990 - Payments to JOA partner related to termination of Knoxville
JOA. Net income was reduced $23.7 million, $.31 per share.
Net gains and unusual items included the following unusual items:
1994 - Sale of 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.
Estimated loss on sale of real estate associated with changes in
television network affiliations; special contribution to a
charitable foundation; lawsuits associated with divested operating
units. These items totaled $16.9 million and combined with the
estimated change in the tax liability for prior years reduced net
income $15.1 million, $.20 per share.
1993 - Received $2.5 million fee in connection with Ogden, Utah,
newspaper sale. Combined with the change in the estimate of
prior year tax liabilities and the effect of the increase in
the federal income tax rate to 35% from 34%, net income was
increased $4.8 million, $.06 per share.
1992 - Write-down of real estate and investments totaled $3.5 million.
Combined with the adjustment of the tax liability for prior years,
net income was increased $6.1 million, $.08 per share.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On October 28, 1995 The E.W. Scripps Company ("Scripps") and Comcast
Corporation ("Comcast") reached an agreement pursuant to which
Scripps will contribute all of its non-cable television assets to
Scripps Howard, Inc. ("SHI" - a wholly-owned subsidiary of Scripps
and the direct or indirect parent of all of Scripps' operations) and
SHI's cable television system subsidaries ("Scripps Cable") will be
transferred to and held directly by Scripps. Scripps Cable will
then be acquired by Comcast through a tax-free merger (the "Merger")
with Scripps. The remaining SHI business will continue as "New
Scripps", which will be distributed in a tax-free "spin-off" to
Scripps shareholders (the "Spin-Off") and thereafter renamed The
E.W. Scripps Company. The Merger and the Spin-Off are collectively
referred to as the "Transactions." Upon completion of the
Transactions the separate existence of Scripps will cease.
Because Scripps Cable represents an entire business segment that will be
divested, its results are reported as "discontinued operations" in
Scripps' 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."
Scripps' historical basis in its assets and liabilities will be carried
over to New Scripps. The Transactions will be recorded as a reverse spin
transaction, accordingly New Scripps' results of operations for periods
prior to the consummation of the Transactions will represent the
historical results of operations previously reported by Scripps.
Scripps Cable is excluded from Management's Discussion and Analysis
of Financial Condition and Results of Operations results because
management believes its results are not relevant to understanding
Scripps' ongoing operations.
Consolidated results of continuing operations were as follows:
( in thousands, except per share data ) (Unaudited)
For the nine months ended For the years ended
September 30, December 31,
1995 Change 1994 1994 Change 1993 Change 1992
Operating revenues:
Newspapers $ 468,338 6.9 % $ 438,222 $ 599,222 9.3 % $ 548,180 8.6 % $ 504,849
Broadcast television 211,711 4.6 % 202,445 288,184 13.0 % 254,944 3.1 % 247,225
Entertainment 68,964 22.4 % 56,343 73,473 (13.3)% 84,741 (2.8)% 87,209
Total 749,013 7.5 % 697,010 960,879 8.2 % 887,865 5.8 % 839,283
Divested operating units 294 2,725 3,716 57,350 178,072
Total operating revenues $ 749,307 7.1 % $ 699,735 $ 964,595 2.1 % $ 945,215 (7.1)% $ 1,017,355
Operating income:
Newspapers $ 88,491 (2.5)% $ 90,776 $ 119,759 56.1 % $ 76,701 (13.5)% $ 88,680
Broadcast television 57,455 (8.0)% 62,455 94,540 36.9 % 69,071 12.1 % 61,629
Entertainment (7,905) (752) (7,083) 3,239 (58.0)% 7,708
Corporate (12,782) (14.6)% (11,154) (15,471) (13.5)% (13,625) 8.9 % (14,956)
Total 125,259 (11.4)% 141,325 191,745 41.6 % 135,386 (5.4)% 143,061
Divested operating units (130) (64) (220) 7,476 (14,577)
Unusual items (7,915) (900)
Total operating income 125,129 (11.4)% 141,261 183,610 29.3 % 141,962 10.5 % 128,484
Interest expense (8,623) (12,934) (16,274) (26,397) (33,792)
Net gains and unusual items 31,621 14,651 94,374 74,483
Miscellaneous, net 2,603 (387) (917) (2,413) (3,583)
Income taxes (52,285) (67,597) (80,441) (86,387) (65,145)
Minority interest (2,587) (7,068) (7,833) (16,228) (9,087)
Income from continuing operations $ 64,237 (24.3)% $ 84,896 $ 92,796 (11.5)% $ 104,911 14.8 % $ 91,360
Per share of common stock:
Income from continuing operations $ .80 (29.2)% $1.13 $1.22 (13.5)% $1.41 15.6 % $1.22
Note Ref.
(i) Garfield gain ( .23) ( .23)
(ii) Net gains on sales of
divested operating units ( .63) ( .61)
(iii) TV programs/property write-downs .09
(iv) Special charitable contribution .06
(v) Change in tax liability .07 ( .07) ( .11)
(vi) Lawsuits re: divested operating units .05
(vii) ASCAP adjustment and other items .02
(viii), (ix) Pittsburgh strike and write-downs .30
Adjusted income from continuing operations
(excluding unusual items and
net gains) $ .80 (11.1)% $ .90 $ 1.25 73.6 % $ .72 (10.0)% $ .80
Note: The sum of the reported income
per share from continuing operations and
the per share effect of unusual items
and net gains may not equal the
adjusted income per share from
continuing operations as each is
computed independently based on the
weighted average shares outstanding for
the respective periods.
( in thousands ) (Unaudited)
For the nine months ended For the years ended
September 30, December 31,
1995 Change 1994 1994 Change 1993 Change 1992
Other Financial and Statistical Data -
excluding divested operating units and
unusual items
Total advertising revenues $ 554,420 7.5 % $ 515,654 $ 718,864 11.8 % $ 643,269 7.1 % $ 600,406
Advertising revenues as a percentage of 74.0 % 74.0 % 74.8 % 72.5 % 71.5 %
total revenues
EBITDA:
Newspapers $ 116,009 (1.1)% $ 117,342 $ 154,917 35.8 % $ 114,061 (7.1)% $ 122,806
Broadcast television 76,710 (1.4)% 77,794 115,829 29.5 % 89,477 9.6 % 81,604
Entertainment (5,680) 543 (5,344) 4,156 (51.4)% 8,544
Corporate (12,151) (13.5)% (10,710) (14,820) (14.0)% (13,000) 3.0 % (13,396)
Total $ 174,888 (5.5)% $ 184,969 $ 250,582 28.7 % $ 194,694 (2.4)% $ 199,558
Effective income tax rate 43.9 % 42.4 % 44.4 % 41.6 % 39.3 %
Weighted average shares outstanding 79,930 6.5 % 75,059 76,246 2.1 % 74,650 0.1 % 74,602
Total capital expenditures $ 40,792 39.9 % $ 29,150 $ 53,951 49.6 % $ 36,073 (56.7)% $ 83,332
Earnings before interest, income taxes, depreciation, and amortization
("EBITDA") is included in the discussion of segment results because:
Changes in depreciation and amortization are often unrelated to
current performance. Management believes the year-over-year change in
EBITDA is a more useful measure of year-over-year performance than the
change in operating income because, combined with information on
capital spending plans, it is a more reliable indicator of results
that may be expected in future periods.
Banks and other lenders use EBITDA to determine Scripps' borrowing
capacity.
Financial analysts use EBITDA to value communications media companies.
Acquisitions of communications media businesses are based on multiples
of EBITDA.
EBITDA should not, however, be construed as an alternative measure of the
amount of Scripps' income or cash flows from operating activities.
Operating losses for the nine-month period ended September 30, 1995 and
1994 for HGTV totaled $10,500,000, $6,400,000 after-tax, $.08 per share and
$3,500,000, $1,900,000 after-tax, $.03 per share. For the full year of
1994 operating losses for HGTV amounted to $7,700,000 and reduced Scripps'
net income by $4,500,000, $.06 per share.
In the third quarter of 1994 Scripps acquired the remaining 13.9% minority
interest in Scripps Howard Broadcasting Company ("SHB") in exchange for
4,952,659 shares of Scripps Class A Common stock. In 1993 Scripps
purchased 5.7% of the outstanding shares of SHB and the remaining 2.7%
minority interest in the Knoxville News-Sentinel.
The average balance of outstanding debt decreased $64,000,000 in 1995
through September 30, $202,000,000 in 1994 and $101,000,000 in 1993.
The effective income tax rate in all periods is affected by the changes in
estimate of the tax liability for prior years described in (v) below.
Net gains and unusual items affecting the comparability of Scripps'
reported results of operations include the following:
(i) In 1994 Scripps sold its worldwide Garfield and U.S. Acres
copyrights. The sale resulted in a pre-tax gain of $31,600,000,
$17,400,000 after-tax, $.23 per share.
(ii) Scripps divested the following operations:
1995 - Newspaper in Watsonville, California.
1993 - Book publishing; newspapers in Tulare, California, and San
Juan; Memphis television station; radio stations.
1992 - The Pittsburgh Press; TV Data; certain other investments.
The business units referred to above, and any related gains on the
sales of the business units, are hereinafter referred to as the
"Divested Operating Units."
The following items related to Divested Operating Units affected the
comparability of Scripps' reported results of operations:
( in thousands, except per share data )
1993 1992
Net gains recognized (before minority
interests and income taxes) $ 91,900 $ 78,000
Net gains recognized (after minority
interests and income taxes) 46,800 45,600
Net gains recognized per share (after minority
interests and income taxes) $ .63 $ .61
The Herald, a newspaper with a circulation of approximately 37,000 in
Monterey, California, was acquired on December 31, 1992 in connection
with the sale of The Pittsburgh Press.
(iii) In late 1994 and early 1995 Scripps' three television
stations that had been Fox affiliates changed their network
affiliation. In connection with the change certain program rights
were expected to be sold at an estimated loss of $7,900,000. Two of the
stations are constructing new buildings to accommodate expanded local
news programming, and currently owned real estate will be sold at an
estimated loss of $2,800,000. These estimated losses were recorded in
the fourth quarter of 1994, reducing net income $6,600,000, $.09 per
share.
(iv) In the fourth quarter of 1994 Scripps made a special contribution
to a charitable foundation that reduced pre-tax income by $8,000,000
and net income by $4,500,000, $.06 per share.
(v) In 1992 management changed its estimate of the tax liability for
prior years, increasing net income $8,400,000, $.11 per share. In
1993 management changed its estimate of the tax basis and lives of
certain intangible assets. The resulting change in the estimated tax
liability for prior years increased net income in 1993 by $5,400,000,
$.07 per share. In 1994 the Internal Revenue Service proposed
adjustments related to those intangible assets. Based upon the
proposed adjustments management again changed its estimate of the tax
liability for prior years, decreasing net income in 1994 by
$5,300,000, $.07 per share.
(vi) In 1994 Scripps accrued an estimate of the ultimate costs of
certain lawsuits associated with Divested Operating Units. The accrual
reduced net income by $3,600,000, $.05 per share.
(vii) Other unusual items in 1993 include the following:
Management changed the estimate of the additional amount of
copyright fees Scripps would owe when a dispute between the television
industry and the American Society of Composers, Authors and Publishers
was resolved. The adjustment increased operating income $4,300,000
and net income $2,300,000, $.03 per share.
Scripps realized a $1,100,000 gain on the sale of certain publishing
equipment and received a $2,500,000 fee in connection with the sale of
the Ogden, Utah, Standard Examiner, increasing net income $2,300,000,
$.03 per share.
Scripps recorded a $6,300,000 restructuring charge. The charge
reduced net income $3,600,000, $.05 per share.
The federal income tax rate was increased to 35% from 34%. The effect
on Scripps' deferred tax liabilities reduced net income $2,300,000,
$.03 per share.
(viii) The Pittsburgh Press was not published after May 17, 1992
due to a strike. Reported 1992 results include operating losses of
$32,700,000 and net losses of $20,200,000, $.27 per share, during the
strike period. Scripps sold The Pittsburgh Press on December 31, 1992
(see (ii) above).
(ix) In 1992 Scripps reduced the carrying value of certain property
and investments to estimated realizable value. The resultant
$3,500,000 charge reduced net income $2,300,000, $.03 per share.
Operating results, excluding the Divested Operating Units and unusual items
described above, for each of Scripps' business segments are presented on
the following pages. The effects of the foregoing unusual items and the
Divested Operations are excluded from the segment operating results because
management believes they are not relevant to understanding Scripps' ongoing
operations.
NEWSPAPERS - Operating results for the newspaper segment, excluding
Divested Operating Units and unusual items, were as follows:
(in thousands, except newsprint information) (Unaudited)
For the nine months ended For the years ended
September 30, December 31,
1995 Change 1994 1994 Change 1993 Change 1992
Operating revenues:
Local $ 141,270 4.4 % $ 135,328 $ 190,147 7.4 % $ 177,028 5.2 % $ 168,286
Classified 136,146 11.3 % 122,272 161,835 14.0 % 141,994 16.3 % 122,081
National 12,014 3.1 % 11,653 15,595 30.0 % 11,999 (0.8)% 12,094
Preprint 47,576 8.2 % 43,956 63,103 10.1 % 57,304 13.0 % 50,720
Newspaper advertising 337,006 7.6 % 313,209 430,680 10.9 % 388,325 10.0 % 353,181
Circulation 93,192 6.9 % 87,173 116,117 3.3 % 112,393 9.5 % 102,679
Joint operating agency distributions 31,732 (1.0)% 32,064 44,151 14.2 % 38,647 (3.4)% 40,018
Other 6,408 10.9 % 5,776 8,274 (6.1)% 8,815 (1.7)% 8,971
Total operating revenues 468,338 6.9 % 438,222 599,222 9.3 % 548,180 8.6 % 504,849
Operating expenses:
Employee compensation and benefits 164,177 1.3 % 162,064 217,806 (1.1)% 220,176 11.2 % 197,961
Newsprint and ink 88,235 33.4 % 66,130 93,815 9.5 % 85,671 9.2 % 78,454
Other 99,917 7.8 % 92,686 132,684 3.4 % 128,272 21.4 % 105,628
Depreciation and amortization 27,518 3.6 % 26,566 35,158 (5.9)% 37,360 9.5 % 34,126
Total operating expenses 379,847 9.3 % 347,446 479,463 1.7 % 471,479 13.3 % 416,169
Operating income $ 88,491 (2.5)% $ 90,776 $ 119,759 56.1 % $ 76,701 (13.5)% $ 88,680
Other Financial and Statistical Data:
Earnings before interest, income taxes,
depreciation, and amortization $ 116,009 (1.1)% $ 117,342 $ 154,917 35.8 % $ 114,061 (7.1)% $ 122,806
("EBITDA")
Percent of operating revenues:
Operating income 18.9 % 20.7 % 20.0 % 14.0 % 17.6 %
EBITDA 24.8 % 26.8 % 25.9 % 20.8 % 24.3 %
Capital expenditures $ 14,696 11.2 % $ 13,214 $ 21,225 (12.5)% $ 24,250 (67.0)% $ 73,392
Advertising inches:
Local 4,883 (1.5)% 4,955 7,180 8.5 % 6,618 (5.7)% 7,016
Classified 8,119 2.9 % 7,893 10,889 11.7 % 9,750 10.6 % 8,817
National 242 3.0 % 235 358 26.5 % 283 (9.0)% 311
Total full run ROP 13,244 1.2 % 13,083 18,427 10.7 % 16,651 3.1 % 16,144
Advertising revenue in the nine months ended September 30, 1995 increased
primarily due to higher advertising rates. Increased advertising volume
and higher rates led to increases in advertising revenues at all of
Scripps' newspapers in 1994. Operating revenues and expenses in 1993 were
boosted by the fourth-quarter-1992 acquisition of three California daily
newspapers.
Because the supply of newsprint exceeded demand, its price generally
declined from 1988 through August 1992. Since the first quarter of 1994
prices have increased sharply. Newsprint consumption decreased 4% in the
first nine months of 1995, however the average price of newsprint increased
40% compared to the average price in the first nine months of 1994.
Depreciation expense for 1992 includes a charge of $5,500,000 to reduce the
book value of certain equipment to estimated net realizable value.
Capital expenditures in 1992 included construction of the new production
facility in Denver.
BROADCAST TELEVISION - Operating results for the broadcast television
segment, excluding Divested Operating Units and unusual items, were as
follows:
( in thousands ) (Unaudited)
For the nine months ended For the years ended
September 30, December 31,
1995 Change 1994 1994 Change 1993 Change 1992
Operating revenues:
Local $ 108,199 4.9 % $ 103,124 $ 142,491 9.1 % $ 130,603 8.7 % $ 120,148
National 91,090 3.8 % 87,768 122,668 7.1 % 114,558 4.9 % 109,204
Political 758 5,121 14,291 1,344 8,836
Other 11,664 81.3 % 6,432 8,734 3.5 % 8,439 (6.6)% 9,037
Total operating revenues 211,711 4.6 % 202,445 288,184 13.0 % 254,944 3.1 % 247,225
Operating expenses:
Employee compensation and benefits 66,666 21.2 % 55,015 76,535 9.0 % 70,213 5.1 % 66,814
Program rights 31,488 (16.3)% 37,603 48,759 (9.1)% 53,621 (7.5)% 57,992
Other 36,847 15.0 % 32,033 47,061 13.0 % 41,633 2.0 % 40,815
Depreciation and amortization 19,255 25.5 % 15,339 21,289 4.3 % 20,406 2.2 % 19,975
Total operating expenses 154,256 10.2 % 139,990 193,644 4.2 % 185,873 0.1 % 185,596
Operating income $ 57,455 (8.0)% $ 62,455 $ 94,540 36.9 % $ 69,071 12.1 % $ 61,629
Other Financial and Statistical Data:
Earnings before interest, income taxes,
depreciation, and amortization $ 76,710 (1.4)% $ 77,794 $ 115,829 29.5 % $ 89,477 9.6 % $ 81,604
("EBITDA")
Percent of operating revenues:
Operating income 27.1 % 30.9 % 32.8 % 27.1 % 24.9 %
EBITDA 36.2 % 38.4 % 40.2 % 35.1 % 33.0 %
Capital expenditures $ 15,042 16.2 % $ 12,940 $ 23,532 154.9 % $ 9,234 32.9 % $ 6,948
In 1995 Scripps' Cincinnati station signed an agreement to change to ABC
from CBS. In 1994 Scripps negotiated 10-year affiliation agreements with
ABC to replace Fox affiliations at its Phoenix and Tampa stations and
changed its Kansas City station's affiliation from Fox to NBC. Also in
1994, Scripps signed an agreement to change its Baltimore station's
affiliation to ABC from NBC in January 1995 and to extend the ABC
affiliation agreements at the Cleveland and Detroit television stations.
Increased demand for advertising time led to increased EBITDA at all the
television stations in 1994. Demand for local and national advertising
moderated at Scripps' television stations in the first nine months of 1995.
Revenue in the fourth quarter of 1995 is expected to decrease versus the
fourth quarter of 1994 as the 1994 period included substantial political
advertising.
The increase in other revenue in the 1995 nine month period is primarily
due to the new and extended affiliation agreements with ABC. The increase
in employee costs, other operating expenses, depreciation and amortization,
and capital expenditures in 1994 and in the first nine months of 1995 is
due primarily to Scripps' expanded schedules of local news programs at the
former Fox affiliates. The decrease in program rights expense is due to
the availability of more network programming at the former Fox affiliates.
Program rights decreased in 1994 because the Baltimore station no longer
carried Orioles baseball games. Program rights decreased in 1993 as
several syndicated programs previously aired by Scripps' stations were
replaced with less-costly programs.
Depreciation and amortization in the 1995 nine month period also increased
as a result of the acquisition of the remaining minority interest in SHB.
ENTERTAINMENT - Operating results for the entertainment segment, excluding
unusual items, were as follows:
( in thousands ) (Unaudited)
For the nine months ended For the years ended
September 30, December 31,
1995 Change 1994 1994 Change 1993 Change 1992
Operating revenues:
Licensing $ 38,682 1.7 % $ 38,054 $ 49,236 (10.6)% $ 55,083 (3.6)% $ 57,136
Syndication of comics and features 13,613 0.5 % 13,545 17,998 (4.3)% 18,814 (1.0)% 19,013
Film and television production 8,921 101.7 % 4,422 5,725 (46.8)% 10,757 (2.7)% 11,060
Other 7,748 322 514 87
Total operating revenues 68,964 22.4 % 56,343 73,473 (13.3)% 84,741 (2.8)% 87,209
Operating expenses:
Employee compensation and benefits 14,603 47.2 % 9,920 14,040 1.4 % 13,849 1.4 % 13,656
Artists' royalties 26,663 1.1 % 26,360 34,668 (5.3)% 36,592 (2.0)% 37,346
Production costs 10,662 2,712 3,408 (57.4)% 7,993 (3.3)% 8,267
Other 22,716 35.1 % 16,808 26,701 20.5 % 22,151 14.2 % 19,396
Depreciation and amortization 2,225 71.8 % 1,295 1,739 89.6 % 917 9.7 % 836
Total operating expenses 76,869 34.6 % 57,095 80,556 (1.2)% 81,502 2.5 % 79,501
Operating income (loss) $ (7,905) $ (752) $ (7,083) $ 3,239 (58.0)% $ 7,708
Other Financial and Statistical Data:
Earnings before interest,
income taxes, depreciation,
and amortization ("EBITDA") $ (5,680) $ 543 $ (5,344) $ 4,156 (51.4)% $ 8,544
Percent of operating revenues:
Operating income (loss) (11.5)% (1.3)% (9.6)% 3.8 % 8.8 %
EBITDA (8.2)% 1.0 % (7.3)% 4.9 % 9.8 %
Capital expenditures $ 9,549 $ 2,581 $ 7,989 $ 981 $ 297
HGTV, a 24-hour cable television network, was launched on December 30,
1994. Scripps expects to invest an additional $45,000,000 in HGTV in the
next three years, including capital expenditures and pre-tax operating
losses. Operating losses for HGTV for the nine-months ended 1995 and 1994
totaled $10,500,000 and $3,500,000. Operating losses for HGTV amounted to
$7,700,000 for the year ended December 31, 1994.
Scripps acquired Cinetel Productions in Knoxville, Tennessee, on March 31,
1994. Cinetel is one of the largest independent producers of programs for
cable television. Cinetel's results of operations are included in the
Entertainment segment from the date of acquisition. SHP began operations
in 1993 and began selling programs in 1995.
In 1994 Scripps completed the sale of its Garfield and U.S. Acres
copyrights, resulting in the decrease in licensing and syndication
revenues. Film and television revenues prior to 1994 primarily relate to
Garfield.
Excluding Garfield, domestic licensing revenues increased 12% in the 1995
nine month period and 7.6% for the full year of 1994. Foreign licensing
revenues increased 21% in 1995 and were flat in 1994. In Japan, which
accounts for approximately 70% of foreign licensing revenue and 47% of
total licensing revenue, revenues in local currency decreased 6% in 1995,
8% in 1994 and 12% in 1993. The change in the exchange rate for the
Japanese yen increased licensing revenues $1,900,000 in 1995, $1,600,000 in
1994 and $2,700,000 in 1993.
Capital expenditures in 1995 and 1994 primarily relate to the launch of
HGTV.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow provided by continuing operating activities for the nine months
ended September 30 was $57,800,000 in 1995 compared to $105,200,000 in
1994. 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 caused the decrease. For the full year of 1994 cash flow from
operating activities for continuing operations was $170,200,000 compared
to $142,000,000 in 1993.
Scripps expects to finance its capital requirements and investments in HGTV
primarily through cash flow from operations.
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 as of December 31, 1994 and 1993,
and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1994. Our audits also included the financial statement schedule listed in
the Index at Item E-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, 1994
and 1993, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1994 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.
As discussed in Note 1 to the consolidated financial statements, as of
December 31, 1993 the Company changed its method of accounting for certain
investments to conform with Statement of Financial Accounting Standards No.
115.
As discussed in Note 1 to the consolidated financial statements, in 1992
the Company changed its method of accounting for postretirement benefits
other than pensions to conform with Statement of Financial Accounting
Standards No. 106.
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
January 23, 1995 (December 27, 1995 as to Notes 1 and 12)
THE E.W. SCRIPPS COMPANY
CONSOLIDATED BALANCE SHEETS
( in thousands ) (Unaudited)
As of As of
September 30, December 31,
1995 1994 1993
ASSETS
Current Assets:
Cash and cash equivalents $ 14,579 $ 16,609 $ 18,606
Short-term investments 38,000
Accounts and notes receivable (less allowances - $4,022, $4,538, 142,555 146,003 142,821
and $5,728)
Program rights and production costs 46,199 35,073 42,823
Refundable income taxes 23,255 25,214
Inventories 16,476 11,768 9,369
Deferred income taxes 18,350 16,606 13,201
Net assets of discontinued operations 305,760
Miscellaneous 20,796 16,821 15,685
Total current assets 625,970 268,094 242,505
Net assets of discontinued operations 322,737 329,899
Investments 52,108 34,879 79,765
Property, Plant, and Equipment 424,493 419,534 412,220
Goodwill and Other Intangible Assets 500,704 514,396 467,694
Other Assets:
Program rights and production costs (less current portion) 55,577 38,779 43,257
Miscellaneous 9,551 11,005 9,656
Total other assets 65,128 49,784 52,913
TOTAL ASSETS $ 1,668,403 $ 1,609,424 $ 1,584,996
See notes to consolidated financial statements.
THE E.W. SCRIPPS COMPANY
CONSOLIDATED BALANCE SHEETS
( in thousands, except share data ) (Unaudited)
As of As of
September 30, December 31,
1995 1994 1993
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 47,043 $ 96,383
Accounts payable 80,868 $ 123,120 71,624
Customer deposits and unearned revenue 20,847 20,757 16,475
Accrued liabilities:
Employee compensation and benefits 29,924 31,372 31,362
Artist and author royalties 9,277 8,177 10,985
Interest 2,297 1,999 2,834
Income taxes 2,345 2,507 7,763
Miscellaneous 39,617 43,437 33,460
Total current liabilities 232,218 231,369 270,886
Deferred Income Taxes 78,806 67,876 106,107
Long-Term Debt (less current portion) 63,461 110,431 151,535
Other Long-Term Obligations and Minority Interests 132,871 116,280 196,833
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: 1995 -
60,028,980 shares; 1994 - 59,671,242 shares; and 1993 -
54,586,495 shares 600 597 546
Voting - authorized: 30,000,000 shares; issued and
outstanding: 1995 - 19,990,833 shares; 1994 and 1993 -
20,174,833 shares 200 202 202
Total 800 799 748
Additional paid-in capital 252,655 248,098 97,945
Retained earnings 886,515 823,204 733,978
Unrealized gains on securities available for sale 21,997 12,518 27,381
Unvested restricted stock awards (1,823) (2,036) (1,009)
Foreign currency translation adjustment 903 885 592
Total stockholders' equity 1,161,047 1,083,468 859,635
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,668,403 $ 1,609,424 $ 1,584,996
See notes to consolidated financial statements.
THE E.W. SCRIPPS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
( in thousands, except per share data ) (Unaudited)
For the nine months ended For the years ended
September 30, December 31,
1995 1994 1994 1993 1992
Operating Revenues:
Advertising $ 337,234 $ 315,301 $ 433,551 $ 401,247 $ 432,799
Circulation 93,242 87,598 116,684 116,413 123,375
Other newspaper revenue 38,156 38,048 52,703 50,394 52,513
Total newspapers 468,632 440,947 602,938 568,054 608,687
Broadcasting 211,711 202,445 288,184 284,294 277,287
Entertainment 68,964 56,343 73,473 84,741 87,209
Other 8,126 44,172
Total operating revenues 749,307 699,735 964,595 945,215 1,017,355
Operating Expenses:
Employee compensation and benefits 252,914 234,488 318,629 336,609 378,758
Newsprint and ink 88,260 66,374 94,160 89,062 90,044
Program rights and production costs 42,150 40,315 60,082 63,731 68,367
Other operating expenses 191,222 173,563 249,178 253,002 287,353
Depreciation 34,477 29,823 40,040 41,089 44,172
Amortization of intangible assets 15,155 13,911 18,896 19,760 20,177
Total operating expenses 624,178 558,474 780,985 803,253 888,871
Operating Income 125,129 141,261 183,610 141,962 128,484
Other Credits (Charges):
Interest expense (8,623) (12,934) (16,274) (26,397) (33,792)
Net gains and unusual items 31,621 14,651 94,374 74,483
Miscellaneous, net 2,603 (387) (917) (2,413) (3,583)
Net other credits (charges) (6,020) 18,300 (2,540) 65,564 37,108
Income from Continuing Operations
Before Taxes and Minority Interests 119,109 159,561 181,070 207,526 165,592
Provision for Income Taxes 52,285 67,597 80,441 86,387 65,145
Income from Continuing Operations
Before Minority Interests 66,824 91,964 100,629 121,139 100,447
Minority Interests 2,587 7,068 7,833 16,228 9,087
Income From Continuing Operations 64,237 84,896 92,796 104,911 91,360
Income From Discontinued Operations 28,650 14,130 29,887 23,775 14,959
Cumulative Effect of Accounting Change - Adoption of
FAS No. 106 (net of deferred income taxes of $15,533) (22,413)
Net Income $ 92,887 $ 99,026 $ 122,683 $ 128,686 $ 83,906
Per Share of Common Stock:
Income From Continuing Operations $.80 $1.13 $1.22 $1.41 $1.22
Income From Discontinued Operations .36 .19 .39 .32 .20
Cumulative Effect of Accounting Change (.30)
Net Income $1.16 $1.32 $1.61 $1.72 $1.12
Note: The sum of the income per share amounts may not equal
the net income per share amount as each is computed
independently based on the weighted average shares
outstanding.
See notes to consolidated financial statements.
THE E.W. SCRIPPS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
( in thousands, except share data ) Nine months ended
September 30, Years ended December 31,
1995 1994 1994 1993 1992
Cash Flows from Operating Activities:
Income from continuing operations $ 64,237 $ 84,896 $ 92,796 $ 104,911 $ 91,360
Adjustments to reconcile income from continuing operations
to net cash flows from continuing operating activities:
Depreciation and amortization 49,632 43,734 58,936 60,849 64,349
Deferred income taxes 4,462 6,719 2,400 41,174 21,386
Minority interests in income of subsidiary companies 2,587 7,068 7,833 16,228 9,087
Net gains and unusual items (31,621) (1,109) (91,878) (77,990)
Changes in certain working capital accounts, net of
effects from subsidiary companies purchased and sold (71,099) (12,232) 9,040 315 11,230
Miscellaneous, net 7,997 6,685 337 10,424 7,583
Net cash provided by continuing operating activities 57,816 105,249 170,233 142,023 127,005
Income from discontinued operations 28,650 14,130 29,887 23,775 14,959
Adjustment to derive cash flows from discontinued operating 53,928 47,717 48,737 59,754 61,156
activities:
Net cash provided by discontinued operating activities 82,578 61,847 78,624 83,529 76,115
Net operating activities 140,394 167,096 248,857 225,552 203,120
Cash Flows from Investing Activities:
Additions to property, plant, and equipment (40,792) (29,151) (53,952) (36,845) (86,919)
Purchase of subsidiary companies and investments (44,270) (27,561) (32,389) (41,459) (16,646)
Sale of subsidiary companies, copyrights, and investments 2,729 47,591 47,592 140,538 36,966
Miscellaneous, net 1,621 3,332 3,659 6,398 1,595
Net cash provided by (used in) investing activities of (80,712) (5,789) (35,090) 68,632 (65,004)
continuing operations
Net cash provided by (used in) investing activities of (29,028) (29,075) (40,496) (64,007) (61,117)
discontinued cable operations
Net investing activities (109,740) (34,864) (75,586) 4,625 (126,121)
Cash Flows from Financing Activities:
Increase in long-term debt 50,500
Payments on long-term debt (38) (111,038) (137,885) (194,015) (100,602)
Dividends paid (29,576) (24,679) (33,457) (32,847) (29,841)
Dividends paid to minority interests (1,274) (2,655) (3,817) (4,189) (4,489)
Miscellaneous, net 704 1,284 1,649 1,998 (538)
Net cash provided by (used in) financing activities of
continuing operations (30,184) (137,088) (173,510) (229,053) (84,970)
Net cash provided by (used in) financing activities of (2,500) (1,045) (1,758) (1,494) (153)
discontinued cable operations
Net financing activities (32,684) (138,133) (175,268) (230,547) (85,123)
Increase (Decrease) in Cash and Cash Equivalents (2,030) (5,901) (1,997) (370) (8,124)
Cash and Cash Equivalents:
Beginning of year 16,609 18,606 18,606 18,976 27,100
End of period $ 14,579 $ 12,705 $ 16,609 $ 18,606 $ 18,976
Supplemental Cash Flow Disclosures:
Acquisition of remaining minority interest in Scripps
Howard Broadcasting
Company in exchange for 4,952,659 shares of Class A $ 146,724 $ 146,724
Common stock
Interest paid, excluding amounts capitalized $ 8,325 13,586 17,109 $ 32,123 $ 36,109
Income taxes paid 51,422 67,580 127,009 44,962 34,940
Increase in program rights and related liabilities 75,373 32,746 30,685 51,614 48,251
Received in the sale of The Pittsburgh Press:
Net tangible assets of The Monterey County Herald 20,375
Pittsburgh Post-Gazette preferred stock 14,000
See notes to consolidated financial statements.
THE E.W. SCRIPPS COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
( in thousands, except share data ) Unrealized
Gains on Unvested Foreign
Additional Securities Restricted Currency
Common Paid-in Retained Available Stock Translation
Stock Capital Earnings for Sale Awards Adjustment
As of December 31, 1991 $ 746 $ 92,351 $ 584,074 $ (851) $ 274
Net income 83,906
Dividends: declared and paid - $.40 per share (29,841)
Class A Common shares issued pursuant to
compensation plans, net:
86,164 shares issued, 3,500 shares forfeited, 2,015 (373)
Amortization of restricted stock awards 708
Foreign currency translation adjustment 95
As of December 31, 1992 746 94,366 638,139 (516) 369
Net income 128,686
Dividends: declared and paid - $.44 per share (32,847)
Class A Common shares issued pursuant to
compensation plans, net:
165,775 shares issued, 4,270 shares forfeited,
and 17,071 shares repurchased 2 3,054 (817)
Tax benefits on compensation plans 525
Amortization of restricted stock awards 324
Foreign currency translation adjustment 223
Adoption of FAS No. 115, net of
deferred income tax of $14,744 $ 27,381
As of December 31, 1993 748 97,945 733,978 27,381 (1,009) 592
Net income 122,683
Dividends: declared and paid - $.44 per share (33,457)
Acquisition of minority interest in Scripps Howard
Broadcasting Company in exchange for
4,952,659 shares of Class A Common stock 49 146,675
Class A Common shares issued pursuant to
compensation plans:
140,025 shares issued, 2,810 shares forfeited,
and 5,127 shares repurchased 2 3,226 (1,527)
Tax benefits on compensation plans 252
Amortization of restricted stock awards 500
Foreign currency translation adjustment 293
Increase (decrease) in unrealized gains
on securities available for sale, net
of deferred income tax of $7,992 (14,863)
As of December 31, 1994 799 248,098 823,204 12,518 (2,036) 885
Net income 92,887
Dividends: declared and paid - $.37 per share (29,576)
Conversion of 184,000 Voting common shares
to 184,000 Class A common shares
Class A Common shares issued pursuant to
compensation plans:
191,750 shares issued, 1,250 shares forfeited,
and 16,762 shares repurchased 1 3,950 (538)
Tax benefits on compensation plans 607
Amortization of restricted stock awards 751
Foreign currency translation adjustment 18
Increase (decrease) in unrealized gains
on securities available for sale, net
of deferred income tax of $5,104 9,479
As of September 30, 1995 $ 800 $ 252,655 $ 886,515 $ 21,997 $ (1,823) $ 903
See notes to consolidated financial statements.
THE E.W. SCRIPPS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Proposed Transaction - On October 28, 1995 The E.W. Scripps Company
("Scripps") and Comcast Corporation ("Comcast") reached an agreement
pursuant to which Scripps will contribute all of its non-cable television
assets to Scripps Howard, Inc. ("SHI" - a wholly-owned subsidiary of
Scripps and the direct or indirect parent of all of Scripps' operations)
and SHI's cable television system subsidiaries ("Scripps Cable") will be
transferred to and held directly by Scripps. Scripps Cable will then be
acquired by Comcast through a tax-free merger (the "Merger") with Scripps.
The remaining SHI business will continue as "New Scripps", which will be
distributed in a tax-free "spin-off" to Scripps shareholders (the "Spin-
Off") and thereafter renamed The E.W. Scripps Company. The Merger and the
Spin-Off are collectively referred to as the "Transactions." Upon
completion of the Transactions the separate existence of Scripps will
cease. Scripps' historical basis in its assets and liabilities will be
carried over to New Scripps. The Transaction will be recorded as a reverse-
spin transaction, accordingly New Scripps' results of operations for
periods prior to the consummation of the Transactions will represent the
historical results previously reported by Scripps.
The closing date of the Transactions is expected to be in the latter part
of 1996 subject to regulatory approvals and certain other conditions.
Controlling shareholders in Scripps and Comcast have agreed to vote in
favor of the Merger.
Because Scripps Cable represents an entire business segment that will be
divested, its results are reported as "discontinued operations" for all
periods presented. See Note 12. 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."
Nature of Operations - Scripps publishes daily newspapers in fifteen
markets, operates local television stations in nine markets, and its
entertainment division primarily produces television programming and
licenses comic characters. The relative importance of each line of
business is indicated in the Segment Information presented in Note 9.
The newspaper and television operations are diversified geographically and
Scripps has a diverse customer base. More than 70% of Scripps' operating
revenues are derived from advertising, and as a result operating results
can be affected by changes in the demand for advertising nationally and in
Scripps' local markets.
Scripps 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 Scripps' financial position.
Unaudited Interim Financial Statements - The combined financial statements
as of September 30, 1995 and for the nine months ended September 30, 1995
and 1994 are unaudited. In management's opinion the interim financial
statements include all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the financial position
and results of operations and cash flows for these periods.
The results for the interim periods are not necessarily indicative of the
results that may be expected for the full year.
Use of Estimates - Preparation of the financial statements requires the use
of estimates. Scripps' financial statements include estimates for such
items as income taxes payable and self-insured risks. Self-insured risks
are primarily employee medical costs and disability income, workers'
compensation, and general liability. The recorded liability for self-
insured risks is not discounted. 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 Scripps and its majority-owned subsidiary companies.
Program Rights and Production Costs - Program rights are recorded at the
time such 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 of capitalized costs is based on the
percentage of current period revenues to anticipated total revenues for
each program.
Program and production costs are stated at the lower of unamortized cost or
fair value. The portion of the unamortized balance expected to be
amortized within one year is classified as a current asset.
Estimated fair values (which are based on current rates available to
Scripps for debt of the same remaining maturity) and the carrying amounts
of Scripps' program rights liabilities were as follows:
( in thousands ) (Unaudited)
As of As of
September 30, December 31,
1995 1994 1993
Liabilities for programs available for broadcast:
Carrying amount $ 78,700 $ 48,300 $ 64,300
Fair value 70,000 42,800 58,700
Goodwill and Other Intangible Assets - Goodwill and other intangible assets
are stated at the lower of unamortized cost or fair value. Fair value is
estimated based upon estimated future net cash flows. An impairment loss
is recognized when the unamortized cost of the asset exceeds the
undiscounted estimated future net cash flows. Goodwill represents the cost
of acquisitions in excess of tangible assets and identifiable intangible
assets received. Non-competition agreements are amortized on a straight-
line basis over the terms of the agreements. Goodwill acquired after
October 1970, customer lists, and other intangible assets are amortized on
a straight-line basis over periods of up to 40 years. Goodwill acquired
before November 1970 ($6,600,000) is not amortized.
The Financial Accounting Standards Board ("FASB") issued Financial
Accounting Standard ("FAS") No. 121 - Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of in March 1995.
The standard requires that long-lived assets and certain identifiable
intangible assets to be reviewed for impairment and that long-lived assets
to be disposed of be reported at the lower of carrying amount or fair value
less costs to sell. The standard, which Scripps is required to adopt in
1996, will not have any impact on Scripps' results of operations or
financial position.
Property, Plant, and Equipment - Depreciation is computed using the
straight-line method over estimated useful lives as follows:
Buildings and improvements 35 years
Newspaper presses 20 years
Other newspaper production equipment 5 to 10 years
Television transmitting towers 15 years
Other television and program production equipment 5 to 15 years
Office and other equipment 5 to 10 years
Interest costs related to major capital projects are capitalized and
classified as property, plant, and equipment.
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. Scripps'
temporary differences primarily result from accelerated depreciation and
amortization for tax purposes and accrued expenses not deductible for tax
purposes until paid. Also, Scripps received a tax certificate from the
Federal Communications Commission upon the 1993 sale of the Memphis
television and radio stations, enabling Scripps to defer payment of income
taxes on the $60,500,000 tax-basis gain for a minimum of two years.
Investments - Scripps adopted Statement of Financial Accounting Standards
("FAS") No. 115 - Accounting for Certain Investments in Debt and Equity
Securities on December 31, 1993.
Investments in 20%- to 50%-owned companies and in all joint ventures are
accounted for under the equity method. 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
for those or similar securities. 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 - Scripps is currently a party to
newspaper joint operating agencies ("JOAs") in five 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. Scripps manages the JOA in Evansville. The
JOAs in Albuquerque, Birmingham, Cincinnati, and El Paso are managed by the
other parties to the JOAs. Scripps managed the JOA in Pittsburgh prior to
the sale of The Pittsburgh Press.
Scripps 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 non-managing party are included in other operating
expenses in the Consolidated Statements of Income.
For JOAs managed by the other party, Scripps includes distributions of JOA
operating profits in operating revenues in the Consolidated Statements of
Income. Scripps does not include any assets or liabilities of JOAs managed
by other parties in its Consolidated Balance Sheets as Scripps has no
residual interest in the net assets of the 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 65% of total inventories in 1994 and 62% in 1993. The cost
of other inventories is computed using the first in, first out ("FIFO")
method. Inventories would have been $1,200,000 and $200,000 higher at
December 31, 1994 and 1993 if FIFO (which approximates current cost) had
been used to compute the cost of newsprint.
Postemployment Benefits - Scripps adopted FAS No. 106 - Employers'
Accounting for Postretirement Benefits Other Than Pensions in 1992.
Postretirement benefits are recognized during the years that employees
render service. Other postemployment benefits, such as disability-related
benefits and severance, are recognized when the benefits become payable.
Stock-Based Compensation - The FASB issued FAS No. 123 - Accounting for
Stock-Based Compensation in October 1995. The standard defines a fair
value based method of accounting for stock-based compensation, but permits
compensation expense to continue to be measured using the intrinsic value
based method previously used. Scripps intends to continue measuring
compensation expense using the intrinsic value based method and under the
provisions of the standard, which must be adopted in 1996, will be required
to make pro forma disclosures of net income and earnings per share as if
the fair value method had been used. Pro forma net income and earnings per
share for the nine months ended September 30, 1995 have not been
quantified.
Cash and Cash Equivalents - Cash and cash equivalents represent cash on
hand, bank deposits, and highly liquid debt instruments with an original
maturity of up to 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 primarily consist of preferred stocks,
and are carried at cost plus accrued dividends, which approximates fair
value.
Net Income Per Share - Net income per share computations are based upon the
weighted average common shares outstanding. Common stock equivalents in
the form of stock options are excluded from the computations as they have
no material effect on the per share amounts. Weighted average shares
outstanding were as follows:
( in thousands ) (Unaudited)
For the nine months ended For the years ended
September 30, December 31,
1995 1994 1994 1993 1992
Weighted average shares outstanding 79,930 75,059 76,246 74,650 74,602
2. ACQUISITIONS AND DIVESTITURES
Acquisitions
1994 - Scripps acquired the remaining 13.9% minority interest in Scripps
Howard Broadcasting Company in exchange for 4,952,659 shares of Class A
Common stock. Scripps acquired Cinetel Productions (an independent
producer of programs for cable television).
1993 - Scripps acquired the remaining 2.7% minority interest in the
Knoxville News-Sentinel for $2,800,000. Scripps purchased 5.7% of the
outstanding shares of Scripps Howard Broadcasting Company for $28,900,000.
1992 - Scripps purchased three daily newspapers in California (including
The Herald in connection with the sale of The Pittsburgh Press - see
Note 2B).
The following table presents additional information about the acquisitions:
( in thousands )
For the nine months For the years ended
ended September 30, December 31,
1994 1994 1993 1992
Goodwill and other intangible assets acquired $ 105,545 $ 108,690 $ 19,486 $ 7,401
Other assets acquired 14,596 14,596 7,177
Reduction in minority interests 45,468 45,958 12,287
Previous interest in acquired newspaper (3,936)
Class A Common stock issued (146,724) (146,724)
Liabilities assumed and notes issued (899) (899) (603)
Cash paid 17,986 21,621 31,773 10,039
Net assets of The Herald:
Tangible assets 21,602
Liabilities assumed (1,227)
Total acquisitions $ 17,986 $ 21,621 $ 31,773 $ 30,414
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. Pro forma results are not presented because the
combined results of operations would not be significantly different from
the reported amounts.
Divestitures
Scripps divested the following operating units:
1995 - Newspaper in Watsonville, California.
1993 - Book publishing; newspapers in Tulare, California, and San Juan;
Memphis television station; radio stations.
1992 - The Pittsburgh Press; TV Data; certain other investments.
The following table presents additional information about the divestitures:
( in thousands, except per share data )
For the nine months ended For the years ended
September 30, December 31,
1995 1993 1992
Cash received $ 2,711 $ 140,509 $ 36,919
Notes and preferred stock 14,150
Net assets of The Herald:
Tangible assets 21,602
Liabilities assumed (1,227)
Total proceeds 2,711 140,509 71,444
Net assets (liabilities) disposed 2,711 48,635 (6,539)
Net gains recognized (before minority
interests and income taxes) $ 0 $ 91,874 $ 77,983
Net gains recognized (after minority
interests and income taxes) $ 46,800 $ 45,600
Net gains recognized per share (after minority
interests and income taxes) $ .63 $ .61
Included in net assets (liabilities) disposed in 1992 are pension and other
postretirement benefit obligations totaling $36,500,000.
Included in the consolidated financial statements are the following results
of divested operating units (excluding gains on sales):
( in thousands )
For the nine months ended For the years ended
September 30, December 31,
1995 1994 1994 1993 1992
Operating revenues $ 300 $ 2,700 $ 3,700 $ 57,400 $ 178,100
Operating income (loss) (100) (100) (200) 7,500 (14,600)
3. UNUSUAL CREDITS AND CHARGES
1994 - Scripps sold its worldwide Garfield and U.S. Acres copyrights. The
sale resulted in a pre-tax gain of $31,600,000, $17,400,000 after tax, $.23
per share.
Scripps' three television stations that had been Fox affiliates changed
their network affiliation. In connection with the change certain program
rights were expected to be sold at an estimated loss of $7,900,000. Two of
the stations are constructing new buildings to accommodate expanded local
news staffs, and currently owned real estate will be sold at an estimated
loss of $2,800,000. These estimated losses were recorded in 1994, reducing
net income $6,600,000, $.09 per share.
Scripps made a special contribution of 589,165 shares of Turner
Broadcasting Class B common stock to a charitable foundation. The
contribution reduced pre-tax income by $8,000,000 and net income by
$4,500,000, $.06 per share.
Management changed its estimate of the tax liability for prior years as a
result of an audit by the Internal Revenue Service ("IRS"). The adjustment
decreased net income by $5,300,000, $.07 per share (see Note 4).
Scripps accrued an estimate of the ultimate costs of certain lawsuits
associated with divested operating units. The accrual reduced net income
by $3,600,000, $.05 per share.
1993 - Operating results include net pre-tax gains of $91,900,000,
$46,800,000 after-tax, $.63 per share (see Note 2).
Management changed the estimate of the additional amount of music license
fees Scripps would owe when a dispute between the television industry and
the American Society of Composers, Authors and Publishers ("ASCAP") was
resolved. The adjustment increased operating income $4,300,000 and net
income $2,300,000, $.03 per share.
Scripps realized a $1,100,000 gain on sale of certain publishing equipment
and received a $2,500,000 fee in connection with the sale of the Ogden,
Utah, Standard Examiner, increasing net income $2,300,000, $.03 per share.
Scripps recorded a $6,300,000 restructuring charge. The charge reduced net
income $3,600,000, $.05 per share.
Management changed its estimate of the tax liability for prior years (see
Note 4). The adjustment increased net income $5,400,000, $.07 per share.
The federal income tax rate was increased to 35% from 34%. The effect on
Scripps' deferred tax liabilities reduced net income $2,300,000, $.03 per
share.
1992 - Operating results include pre-tax gains of $78,000,000, $45,600,000
after-tax, $.61 per share (see Note 2).
The Pittsburgh Press was not published after May 17 due to a strike.
Reported 1992 results include operating losses of $32,700,000 and net
losses of $20,200,000, $.27 per share, during the strike period.
Management changed its estimate of the tax liability for prior years (see
Note 4). The adjustment increased net income $8,400,000, $.11 per share.
Scripps reduced the carrying value of certain property and investments to
estimated realizable value. The resultant $3,500,000 charge reduced net
income $2,300,000, $.03 per share.
4.INCOME TAXES
In 1995 Scripps reached agreement with the IRS to settle the audits of its
1985 through 1988 tax returns. There was no effect on net income as a
result of the settlement. The IRS is currently examining Scripps'
consolidated income tax returns for the years 1988 through 1991. Pursuant
to the terms of the Merger New Scripps will indemnify Comcast, on an after-
tax basis, against all tax liabilities of Scripps attributable to periods
prior to completion of the Merger.
In 1992 management changed its estimate of the tax liability for prior
years, increasing net income $8,400,000, $.11 per share. In 1993
management changed its estimate of the tax basis and lives of certain
intangible assets. The resulting change in the estimated tax liability for
prior years increased net income $5,400,000, $.07 per share. In 1994 the
IRS proposed adjustments related to those intangible assets. Based upon
the proposed adjustments management again changed its estimate of the tax
liabilities for prior years, decreasing net income in 1994 $5,300,000, $.07
per share.
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
Scripps' deferred income tax liabilities (assets) are as follows:
( in thousands ) (Unaudited) As of
September 30, December 31,
1995 1994 1993
Accelerated depreciation and amortization $ 71,393 $ 60,087 $ 90,314
Deferred gain on sale of Memphis television and radio stations 23,599 23,599 23,126
Investments 10,031 4,927 12,900
Accrued expenses not deductible until paid (24,785) (27,745) (20,625)
Deferred compensation and retiree benefits (11,830) (12,470) (10,380)
Other temporary differences, net (4,671) 6,008 1,167
Total 63,737 54,406 96,502
State net operating loss carryforwards (8,773) (7,922) (7,258)
Foreign tax credits and other carryforwards (1,371)
Valuation allowance for state deferred tax assets and foreign tax credits 5,492 4,786 5,033
Net deferred tax liability $ 60,456 $ 51,270 $ 92,906
Scripps' state net operating loss carryforwards expire from 2000 through
2019.
The provision for income taxes consists of the following:
( in thousands ) (Unaudited)
For the nine months ended For the years ended
September 30, December 31,
1995 1994 1994 1993 1992
Current:
Federal $ 37,093 $ 45,283 $ 61,026 $ 33,114 $ 33,287
State and local 6,343 12,008 12,351 7,829 6,455
Foreign 3,780 3,389 4,412 3,745 4,017
Total current 47,216 60,680 77,789 44,688 43,759
Deferred:
Federal 8,555 (27) (6,787) 51,813 14,128
Other 1,011 1,805 1,195 4,105 7,258
Total deferred 9,566 1,778 (5,592) 55,918 21,386
Total income taxes 56,782 62,458 72,197 100,606 65,145
Income taxes allocated to stockholders' equity (4,497) 5,139 8,244 (14,219)
Provision for income taxes $ 52,285 $ 67,597 $ 80,441 $ 86,387 $ 65,145
The difference between the statutory rate for federal income tax and the
effective income tax rate is summarized as follows:
(Unaudited)
For the nine months ended For the years ended
September 30, December 31,
1995 1994 1994 1993 1992
Statutory rate 35.0 % 35.0 % 35.0 % 35.0 % 34.0 %
Effect of:
State and local income taxes 5.1 5.4 4.7 3.7 5.5
Amortization of goodwill 2.6 1.5 2.2 2.4 2.9
Increase in tax rate to 35% on deferred tax liabilities 1.1
Change in estimated tax basis and lives of certain assets 2.1 (2.5) (5.5)
Difference between foreign and U.S. tax rates,
including foreign tax credits 0.1 0.3 0.3 0.4 0.9
Miscellaneous 1.1 0.2 0.1 1.5 1.5
Effective income tax rate 43.9 % 42.4 % 44.4 % 41.6 % 39.3 %
5.LONG-TERM DEBT
Long-term debt consisted of the following:
( in thousands ) (Unaudited) As of
September 30, December 31,
1995 1994 1993
Variable Rate Credit Facilities $ 88,000
7.375% notes, due in 1998 $ 61,272 $ 61,161 99,264
9.0% notes, due in 1996 47,000 47,000 50,000
8.5% notes, payable through 1994 8,334
Other notes 2,232 2,270 2,320
Total long-term debt 110,504 110,431 247,918
Current portion of long-term debt 47,043 96,383
Long-term debt (less current portion) $ 63,461 $ 110,431 $ 151,535
Fair value of long-term debt * $ 113,400 $ 109,600 $ 260,900
Weighted average interest rate on Variable Rate
Credit Facilities at December 31 3.4%
* Fair value is estimated based on current rates available to New
Scripps for debt of the same remaining maturity.
Scripps has a Competitive Advance/Revolving Credit Agreement ("Variable
Rate Credit Facility") which expires in September 1996 and permits maximum
borrowings up to $50,000,000. Maximum borrowings under the Variable Rate
Credit Facility are changed as Scripps' anticipated needs change and are
not indicative of Scripps' short-term borrowing capacity. The Variable
Rate Credit Facility may be extended upon mutual agreement.
Certain long-term debt agreements contain maintenance requirements on net
worth and coverage of interest expense and restrictions on dividends and
incurrence of additional indebtedness.
Pursuant to the terms of the Merger, Scripps will retire or defease its
7.375% notes due in 1998.
Interest costs capitalized were as follows:
( in thousands ) (Unaudited)
For the nine months ended For the years ended
September 30, December 31,
1995 1994 1994 1993 1992
Capitalized interest costs $ 300 $ 0 $ 0 $ 100 $ 4,500
6.INVESTMENTS
Investments consisted of the following:
( in thousands, except share data ) (Unaudited) As of
September 30, December 31,
1995 1994 1993
Securities available for sale:
Short-term investments, primarily preferred stocks $ 38,000
Turner Broadcasting Class C preferred stock
(convertible into 1,309,092 shares of Class B common stock) 36,000 $ 21,436 $ 35,345
Pittsburgh Post-Gazette preferred stock,
$25 million face value, 8% cumulative dividend 14,000
Turner Broadcasting Class B common stock (589,165 shares) 15,907
Other 5,766 2,351 3,938
Total securities available for sale 79,766 23,787 69,190
Investments accounted for under the equity method 10,342 11,092 10,575
Total investments $ 90,108 $ 34,879 $ 79,765
Unrealized gains on securities available for sale $ 33,586 $ 19,270 $ 42,125
7.PROPERTY, PLANT, AND EQUIPMENT AND INTANGIBLE ASSETS
Property, plant, and equipment consisted of the following:
( in thousands ) (Unaudited) As of
September 30, December 31,
1995 1994 1993
Land and improvements $ 39,760 $ 40,668 $ 43,112
Buildings and improvements 181,153 176,769 175,836
Equipment 510,281 484,495 452,320
Total 731,194 701,932 671,268
Accumulated depreciation 306,701 282,398 259,048
Net property, plant, and equipment $ 424,493 $ 419,534 $ 412,220
Goodwill and other intangible assets consisted of the following:
( in thousands ) (Unaudited) As of
September 30, December 31,
1995 1994 1993
Goodwill $ 440,920 $ 439,462 $ 382,946
Customer lists 133,329 133,334 131,708
Licenses and copyrights 28,221 28,221 28,221
Non-competition agreements 18,289 18,689 18,689
Other 32,247 32,247 24,817
Total 653,006 651,953 586,381
Accumulated amortization 152,302 137,557 118,687
Net goodwill and other intangible assets $ 500,704 $ 514,396 $ 467,694
8.EMPLOYEE BENEFIT PLANS
Scripps sponsors defined benefit plans covering substantially all non-union
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.
Scripps also sponsors defined contribution plans covering substantially all
non-union employees. Scripps matches a portion of employees' voluntary
contributions to these plans.
Union-represented employees are covered by retirement plans jointly
administered by subsidiaries of Scripps and the unions or by union-
administered, multi-employer plans. Funding is based upon negotiated
agreements.
Retirement plans expense consisted of the following:
( in thousands )
For the years ended
December 31,
1994 1993 1992
Service cost $ 8,729 $ 7,819 $ 7,832
Interest cost 11,509 13,111 14,026
Actual return on plan assets 1,637 (13,487) (13,404)
Net amortization and deferral (14,990) (2,619) (4,860)
Defined benefit plans 6,885 4,824 3,594
Multi-employer plans 1,028 1,044 1,664
Defined contribution plans 3,573 3,570 3,754
Total 11,486 9,438 9,012
Curtailment losses (gains) included in gain
on the sales of subsidiary companies 253 (3,632)
Total retirement plans expense $ 11,486 $ 9,691 $ 5,380
Assumptions used in the accounting for the defined benefit plans were as
follows:
1994 1993 1992
Discount rate as of December 31 8.5% 7.0% 8.0%
Expected long-term rate of return on plan assets 9.5% 8.0% 9.0%
Rate of increase in compensation levels 5.0% 3.5% 4.5%
The funded status of the defined benefit plans at December 31 was as
follows:
( in thousands )
1994 1993 1992
Actuarial present value of vested benefits $ (121,602) $ (133,754) $ (130,236)
Actuarial present value of accumulated benefits $ (130,126) $ (142,751) $ (138,029)
Actuarial present value of projected benefits $ (159,871) $ (176,212) $ (166,960)
Plan assets at fair value 155,283 171,837 176,895
Projected benefits in excess of plan assets (4,588) (4,375) 9,935
Unrecognized net loss 3,404 10,725 1,594
Unrecognized prior service cost 9,432 9,766 9,142
Unrecognized net asset at the date FAS No. 87 was
adopted, net of amortization (10,429) (11,846) (13,203)
Net pension asset (liability) recognized in the balance sheet $ (2,181) $ 4,270 $ 7,468
Plan assets consist of marketable equity and fixed-income securities.
Scripps 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 Scripps' current workforce. The
actuarial present value of the projected benefit obligation at December 31
was $6,900,000 in 1994 and $6,300,000 in 1993. The cost of the plan was:
1994, $500,000; 1993, $600,000; and 1992, $600,000 (excluding $3,200,000
related to divested operating units).
9.SEGMENT INFORMATION
The Other segment includes book publishing operations which were sold in
1993 and TV Data which was sold in 1992.
Broadcasting operating income in 1994 was reduced by $7,900,000 as a result
of the program rights write-down and was increased in 1993 by $4,300,000 as
a result of the change in estimate of the additional amount of copyright
fees owed ASCAP (see Note 3).
Financial information relating to Scripps' business segments is as follows:
( in thousands ) (Unaudited)
For the nine months ended For the years ended
September 30, December 31,
1995 1994 1994 1993 1992
OPERATING REVENUES
Newspapers $ 468,632 $ 440,947 $ 602,938 $ 568,054 $ 608,687
Broadcasting 211,711 202,445 288,184 284,294 277,287
Entertainment 68,964 56,343 73,473 84,741 87,209
Other 8,126 44,172
Total continuing operations $ 749,307 $ 699,735 $ 964,595 $ 945,215 $ 1,017,355
OPERATING INCOME
Newspapers $ 88,361 $ 90,712 $ 119,539 $ 75,389 $ 60,234
Broadcasting 57,455 62,455 86,625 81,958 69,955
Entertainment (7,905) (752) (7,083) (1,561) 8,151
Other (199) 5,100
Corporate (12,782) (11,154) (15,471) (13,625) (14,956)
Total continuing operations $ 125,129 $ 141,261 $ 183,610 $ 141,962 $ 128,484
DEPRECIATION
Newspapers $ 22,758 $ 21,383 $ 28,399 $ 30,070 $ 31,879
Broadcasting 9,164 6,749 9,323 9,470 9,174
Entertainment 1,924 1,247 1,667 899 826
Other 25 733
Corporate 631 444 651 625 1,560
Total continuing operations $ 34,477 $ 29,823 $ 40,040 $ 41,089 $ 44,172
AMORTIZATION OF INTANGIBLE ASSETS
Newspapers $ 4,763 $ 5,273 $ 6,858 $ 6,902 $ 6,636
Broadcasting 10,091 8,590 11,966 12,212 12,119
Entertainment 301 48 72 18 10
Other 628 1,412
Total continuing operations $ 15,155 $ 13,911 $ 18,896 $ 19,760 $ 20,177
ASSETS
Newspapers $ 605,496 $ 633,612 $ 621,008 $ 667,167 $ 705,112
Broadcasting 533,169 524,228 515,617 465,622 491,653
Entertainment 116,798 85,094 84,816 82,538 39,037
Other 25,393
Corporate 107,180 72,825 65,246 39,770 25,391
Total continuing operations $ 1,362,643 $ 1,315,759 $ 1,286,687 $ 1,255,097 $ 1,286,586
CAPITAL EXPENDITURES
Newspapers $ 14,696 $ 13,215 $ 21,226 $ 24,523 $ 75,648
Broadcasting 15,042 12,940 23,532 9,733 8,129
Entertainment 9,549 2,581 7,989 981 297
Other 150
Corporate 1,505 415 1,205 1,608 2,695
Total continuing operations $ 40,792 $ 29,151 $ 53,952 $ 36,845 $ 86,919
Corporate assets are primarily cash, investments, and refundable and
deferred income taxes.
10. COMMITMENTS AND CONTINGENCIES
Scripps accrued an estimate of the ultimate costs of certain lawsuits
associated with divested operating units (see Note 3). Scripps is also
involved in other litigation arising in the ordinary course of business,
none of which is expected to result in material loss.
At December 31, 1994 Scripps was committed to purchase approximately
$118,000,000 of program rights that are not currently available for
broadcast, including programs not yet produced. If such programs are not
produced Scripps' commitment would expire without obligation.
Minimum payments on non-cancelable leases at December 31, 1994 were as
follows:
( in thousands )
1995 $ 10,400
1996 8,800
1997 7,800
1998 7,700
1999 7,900
Later years 42,200
Total $ 84,800
Rental expense for cancelable and non-cancelable leases was as follows:
( in thousands ) (Unaudited)
For the nine months ended For the years ended
September 30, December 31,
1995 1994 1994 1993 1992
Rental expense, net of sublease income $ 8,000 $ 7,300 $ 11,700 $ 9,700 $ 11,800
11. CAPITAL STOCK AND INCENTIVE PLANS
The capital structure of Scripps includes Common Voting Stock and Class A
Common Stock. The articles of Scripps provide that the holders of Class A
Common Stock, who are not entitled to vote on any other matters except as
required by Delaware law, are entitled to elect the greater of three or one-
third of the directors.
In connection with the Transactions, New Scripps will be recapitalized to
include Common Voting Shares and Class A Common Shares and the Articles of
Incorporation of New Scripps will be further amended to provide for
substantially the same shareholder voting rights and other terms as the
Scripps certificate of incorporation currently provides for. New Scripps
will issue to Scripps: (i) a number of New Scripps Common Voting Shares
equal to the number of shares of Scripps Common Voting Stock then
outstanding and (ii) a number of New Scripps Class A Common Shares equal to
the number of shares of Scripps Class A Common Stock then outstanding.
These shares will then be distributed to Scripps' shareholders in the Spin-
Off.
Pursuant to the Transactions, New Scripps will assume Scripps' incentive
plans. The 1987 Long-Term Incentive Plan ("1987 Plan") provides for the
awarding of stock options, stock appreciation rights, performance units,
and Class A Common stock to key employees. The number of shares authorized
for issuance under the 1987 Plan is 3,250,000.
Stock options may be awarded to purchase Class A Common stock 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. The plan expires on December
9, 1997, except for options then outstanding. In connection with the
Transactions, the number of options and the option price will be adjusted
based on the average market price of Scripps Class A Common Stock for a
specified time before the Transactions are completed, and of New Scripps
Class A Common Shares after the Transactions are completed. The number of
options outstanding is expected to increase and the option exercise price
is expected to decrease in order to preserve the economic value of the
outstanding options.
Information related to stock options is as follows:
Number Price
of Shares per Share
Outstanding at December 31, 1991 1,027,300 $16 - 24
Granted in 1992 282,300 24 - 37
Exercised in 1992 (4,050) 18
Forfeited in 1992 (59,000) 20 - 27
Outstanding at December 31, 1992 1,246,550 16 - 27
Granted in 1993 667,500 24 - 34
Exercised in 1993 (133,775) 16 - 24
Forfeited in 1993 (40,775) 18 - 27
Outstanding at December 31, 1993 1,739,500 16 - 34
Granted in 1994 493,500 27 - 30
Exercised in 1994 (87,025) 18 - 26
Forfeited in 1994 (20,000) 18 - 26
Outstanding at December 31, 1994 2,125,975 16 - 34
Granted in 1995 25,000 28 - 34
Exercised in 1995 (174,250) 18 - 27
Forfeited in 1995 (9,000) 18 - 30
Outstanding at September 30, 1995 1,967,725 $16 - 34
Exercisable at September 30, 1995 1,313,725 $16 - 34
Options issued to employees of Scripps Cable totaled 221,750 at September
30, 1995, of which 140,750 were exercisable. Options issued to employees
of Scripps Cable will vest and become exercisable upon completion of the
Transactions.
Awards of Class A Common Stock will vest over an incentive period,
conditioned upon the individual's employment throughout that period.
During the vesting period shares issued are non-transferable, but the
shares are entitled to all the rights of an outstanding share. Upon
vesting, when the stock awards become taxable to the employees, additional
awards of cash may also be made.
Information related to awards of Class A Common Stock is as follows:
( in thousands, except share data ) (Unaudited)
For the nine months ended For the years ended
September 30, December 31,
1995 1994 1994 1993 1992
Shares of Class A Common stock:
Awarded 17,500 53,000 53,000 32,000 16,750
Forfeited 1,250 2,810 2,810 4,270 3,500
Compensation expense recognized:
Continuing operations $ 735 $ 250 $ 435 $ 270 $ 600
Scripps Cable 65 50 65 30 100
Restricted shares issued to employees of Scripps Cable will vest upon
completion of the Transactions. There were 13,500 unvested shares issued
to employees of Scripps Cable at September 30, 1995.
12. DISCONTINUED OPERATIONS
Summarized operating results for the discontinued cable television
operations are as follows:
( in thousands ) (Unaudited)
For the nine months ended For the years ended
September 30, December 31,
1995 1994 1994 1993 1992
Operating revenues $ 207,855 $ 189,595 $ 255,356 $ 251,792 $ 238,116
Income before income taxes and minority interests 46,188 27,572 33,526 44,811 43,488
Income taxes (17,538) (13,287) (3,484) (20,363) (27,440)
Minority interests (155) (155) (673) (1,089)
Net income $ 28,650 $ 14,130 $ 29,887 $ 23,775 $ 14,959
In 1994 customers of the Sacramento system were awarded special rebates
totaling $3,000,000 in connection with litigation concerning the
system's pricing in the late 1980s. The rebates reduced net income
$1,600,000. Also in 1994 Scripps Cable accrued $6,500,000 as an
estimate of the ultimate costs of certain lawsuits. The accrual
reduced net income $4,200,000.
In 1992 management changed its estimate of a tax deduction received in
the redemption of a partnership interest in certain of its cable
television systems. The resulting change in the liability for prior
year income taxes decreased net income $8,400,000. In 1994 the IRS
proposed adjustments related to certain intangible assets and the
redemption of the partnership interest. Based upon the proposed
adjustments management again changed its estimate of the tax
liabilities for prior years. The resulting change in the liability
for prior year income taxes increased 1994 net income $11,800,000.
Summarized balance sheet data for the discontinued cable television
operations are as follows:
( in thousands ) (Unaudited) As of
September 30, December 31,
1995 1994 1993
Property, plant, and equipment $ 288,411 $ 294,229 $ 300,506
Goodwill and other intangible assets 95,275 101,717 85,295
Other assets 29,324 34,926 37,271
Deferred income tax liabilities (77,166) (77,691) (64,305)
Other liabilities (30,084) (30,444) (28,868)
Net assets of discontinued cable television operations 305,760 322,737 329,899
The major components of cash flow for discontinued operations are as
follows:
( in thousands ) (Unaudited)
For the nine months ended For the years ended
September 30, December 31,
1995 1994 1994 1993 1992
Income from discontinued operations $ 28,650 $ 14,130 $ 29,887 $ 23,775 $ 14,959
Depreciation and amortization 41,105 44,264 57,331 60,029 57,580
Other, net 12,823 3,453 (8,594) (275) 3,576
Net cash provided by discontinued operating activities $ 82,578 $ 61,847 $ 78,624 $ 83,529 $ 76,115
Capital expenditures $ (30,119) $ (28,753) $ (41,616) $ (67,019) $ (58,299)
Other, net 1,091 (322) 1,120 3,012 (2,818)
Net cash provided by (used in) investing activities of $ (29,028) $ (29,075) $ (40,496) $ (64,007) $ (61,117)
discontinued cable operations
13. SUMMARIZED QUARTERLY FINANCIAL INFORMATION (Unaudited)
Summarized financial information is as follows:
( in thousands, except per share data )
1st 2nd 3rd 4th
1995 Quarter Quarter Quarter Quarter Total
Operating revenues:
Newspapers $ 151,607 $ 161,112 $ 155,913 $ 468,632
Television 66,968 77,080 67,663 211,711
Entertainment 26,694 21,115 21,155 68,964
Total operating revenues 245,269 259,307 244,731 749,307
Operating expenses:
Employee compensation and benefits 83,820 84,233 84,861 252,914
Newsprint and ink 26,871 29,381 32,008 88,260
Program rights and production costs 15,546 12,523 14,081 42,150
Other operating expenses 62,732 65,191 63,299 191,222
Depreciation and amortization 16,063 16,429 17,140 49,632
Total operating expenses 205,032 207,757 211,389 624,178
Operating income 40,237 51,550 33,342 125,129
Interest expense (3,353) (2,829) (2,441) (8,623)
Net gains and unusual items
Miscellaneous, net 782 394 1,427 2,603
Income taxes (16,971) (21,127) (14,187) (52,285)
Minority interests (935) (868) (784) (2,587)
Income from continuing operations 19,760 27,120 17,357 64,237
Income from discontinued operations (net of income 9,354 9,019 10,277 28,650
taxes)
Net income $ 29,114 $ 36,139 $ 27,634 $ 92,887
Per share of common stock:
Income from continuing operations $ .25 $ .34 $ .22 $ .80
Income from discontinued operations .12 .11 .13 .36
Net income $ .36 $ .45 $ .35 $ 1.16
Weighted average shares outstanding 79,854 79,927 80,010 79,930
Cash dividends per share of common stock $ .11 $ .13 $ .13 $ .37
( in thousands, except per share data )
1st 2nd 3rd 4th
1994 Quarter Quarter Quarter Quarter Total
Operating revenues:
Newspapers $ 142,037 $ 151,765 $ 147,145 $ 161,991 $ 602,938
Broadcasting 60,353 73,892 68,200 85,739 288,184
Entertainment 20,978 18,676 16,689 17,130 73,473
Total operating revenues 223,368 244,333 232,034 264,860 964,595
Operating expenses:
Employee compensation and benefits 77,574 79,577 77,337 84,141 318,629
Newsprint and ink 20,657 22,131 23,586 27,786 94,160
Program rights and production costs 12,285 14,473 13,557 19,767 60,082
Other operating expenses 56,150 57,543 59,870 75,615 249,178
Depreciation and amortization 14,283 14,903 14,548 15,202 58,936
Total operating expenses 180,949 188,627 188,898 222,511 780,985
Operating income 42,419 55,706 43,136 42,349 183,610
Interest expense (4,576) (4,529) (3,829) (3,340) (16,274)
Net gains and unusual items 31,621 (16,970) 14,651
Miscellaneous, net 172 (371) (188) (530) (917)
Income taxes (16,681) (35,685) (15,231) (12,844) (80,441)
Minority interests (1,917) (2,886) (2,265) (765) (7,833)
Income from continuing operations 19,417 43,856 21,623 7,900 92,796
Income from discontinued operations (net of income 5,680 3,968 4,482 15,757 29,887
taxes)
Net income $ 25,097 $ 47,824 $ 26,105 $ 23,657 $ 122,683
Per share of common stock:
Income from continuing operations $ .26 $ .59 $ .29 $ .10 $ 1.22
Income from discontinued operations .08 .05 .06 .20 .39
Net income $ .34 $ .64 $ .35 $ .30 $ 1.61
Weighted average shares outstanding 74,762 74,776 75,638 79,808 76,246
Cash dividends per share of common stock $ .11 $ .11 $ .11 $ .11 $ .44
( in thousands, except per share data )
1st 2nd 3rd 4th
1993 Quarter Quarter Quarter Quarter Total
Operating revenues:
Newspapers $ 134,463 $ 143,632 $ 137,414 $ 152,545 $ 568,054
Broadcasting 61,845 77,401 67,178 77,870 284,294
Entertainment 19,625 18,644 24,964 21,508 84,741
Other 4,529 3,597 8,126
Total operating revenues 220,462 243,274 229,556 251,923 945,215
Operating expenses:
Employee compensation and benefits 82,760 84,637 83,288 85,924 336,609
Newsprint and ink 21,218 23,386 22,176 22,282 89,062
Program rights and production costs 13,110 15,553 21,195 13,873 63,731
Other operating expenses 56,689 64,542 60,067 71,704 253,002
Depreciation and amortization 15,483 14,571 15,332 15,463 60,849
Total operating expenses 189,260 202,689 202,058 209,246 803,253
Operating income 31,202 40,585 27,498 42,677 141,962
Interest expense (7,791) (6,642) (5,974) (5,990) (26,397)
Net gains and unusual items 23,162 1,774 (2,922) 72,360 94,374
Miscellaneous, net 869 (1,254) (852) (1,176) (2,413)
Income taxes (19,133) (15,216) (8,802) (43,236) (86,387)
Minority interests (1,881) (2,555) (1,856) (9,936) (16,228)
Income from continuing operations 26,428 16,692 7,092 54,699 104,911
Income from discontinued operations (net of income 6,170 5,395 6,975 5,235 23,775
taxes)
Net income $ 32,598 $ 22,087 $ 14,067 $ 59,934 $ 128,686
Per share of common stock:
Income from continuing operations $ .35 $ .22 $ .10 $ .73 $ 1.41
Income from discontinued operations .08 .07 .09 .07 .32
Net income $ .44 $ .30 $ .19 $ .80 $ 1.72
Weighted average shares outstanding 74,613 74,627 74,639 74,722 74,650
Cash dividends per share of common stock $ .11 $ .11 $ .11 $ .11 $ .44
The sum of the quarterly net income per share amounts may not equal the
reported annual amount and the sum of the income from continuing operations
per share and the income from discontinued operations per share may not
equal the net income per share amount because each is computed
independently based upon the weighted average number of shares outstanding
for that period.
THE E.W. SCRIPPS COMPANY
VALUATION AND QUALIFYING ACCOUNTS SCHEDULE VIII
( 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
YEAR ENDED DECEMBER 31, 1994:
Allowance for doubtful
accounts receivable $ 5,049 $ 3,317 $ 4,429 $ 3,937
Allowance for sales returns 679 78 601
Total receivable allowances $ 5,728 $ 3,317 $ 4,507 $ 4,538
YEAR ENDED DECEMBER 31, 1993:
Allowance for doubtful
accounts receivable $ 4,709 $ 5,116 $ 4,249 $ (527) $ 5,049
Allowance for sales returns 6,148 1,262 876 (5,855) 679
Total receivable allowances $ 10,857 $ 6,378 $ 5,125 $ (6,382) $ 5,728
YEAR ENDED DECEMBER 31, 1992:
Allowance for doubtful
accounts receivable $ 4,575 $ 6,160 $ 6,307 $ 281 $ 4,709
Allowance for sales returns 4,631 5,833 4,316 6,148
Total receivable allowances $ 9,206 $ 11,993 $ 10,623 $ 281 $ 10,857
DESCRIPTION OF SCRIPPS CABLE
BUSINESS
General - Scripps Cable operates cable television systems in Florida,
California, Colorado, Georgia, Indiana, Kentucky, South Carolina,
Tennessee, Virginia, and West Virginia. In the periods between January 1,
1990 and September 30, 1995, Scripps Cable purchased several cable
television systems adjacent to existing service areas.
Cable television delivers a variety of channels and television programming,
primarily video entertainment and informational programming, to subscribers
who pay a monthly fee for the services they receive. Television and radio
signals are received off-air or via satellite delivery by antennas,
microwave relay stations and satellite earth stations and are modulated,
amplified and distributed over a network of coaxial and fiber optic cable
to the subscribers' television sets. Cable television systems generally
operate pursuant to non-exclusive franchises awarded by local governmental
authorities for specified periods of time.
Subscriber information as of the end of the past five years and at
September 30, 1995 for Scripps Cable systems is as follows:
( in thousands ) Premium
Subs. as
Homes Basic Penetration Premium a % of
Cable Television System Cluster Passed Subs Rate Subs (1) Basic
September 30, 1995
Sacramento, CA cluster 446.9 231.3 52% 328.3 142%
Chattanooga, TN cluster 179.1 111.9 62% 67.9 61%
Knoxville, TN cluster 149.6 106.4 71% 54.4 51%
Atlanta, GA cluster 97.9 74.1 76% 45.5 61%
Bluefield, WV cluster 74.8 54.9 73% 30.4 55%
Lake County, FL cluster 70.5 49.3 70% 18.8 38%
Rome, GA cluster 63.9 49.5 77% 36.7 74%
Elizabethtown, KY cluster 48.9 43.1 88% 24.5 57%
Longmont, CO cluster 52.8 38.0 72% 29.2 77%
Total 1,184.4 758.5 64% 635.7 84%
December 31, 1994
Sacramento, CA cluster 442.0 222.8 50% 361.4 162%
Chattanooga, TN cluster 176.4 110.1 62% 74.9 68%
Knoxville, TN cluster 149.7 105.2 70% 53.3 51%
Atlanta, GA cluster 97.9 71.2 73% 48.4 68%
Bluefield, WV cluster 74.4 54.2 73% 30.9 57%
Lake County, FL cluster 69.0 50.8 74% 20.2 40%
Rome, GA cluster 60.6 47.0 78% 37.3 79%
Elizabethtown, KY cluster 48.8 42.2 86% 24.2 57%
Longmont, CO cluster 51.2 35.7 70% 29.7 83%
Total 1,170.0 739.2 63% 680.3 92%
( in thousands ) Premium
Subs. as
Homes Basic Penetration Premium a % of
Cable Television System Cluster Passed Subs Rate Subs (1) Basic
December 31, 1993
Sacramento, CA cluster 436.4 210.8 48% 307.8 146%
Chattanooga, TN cluster 172.9 105.8 61% 71.4 67%
Knoxville, TN cluster 146.0 101.5 70% 50.3 50%
Atlanta, GA cluster 97.6 66.9 69% 38.1 57%
Bluefield, WV cluster 73.3 51.2 70% 30.6 60%
Lake County, FL cluster 67.2 47.4 71% 18.8 40%
Rome, GA cluster 56.3 44.6 79% 33.9 76%
Elizabethtown, KY cluster 48.3 40.3 83% 20.7 51%
Longmont, CO cluster 48.8 32.5 67% 28.0 86%
Total 1,146.8 701.0 61% 599.6 86%
December 31, 1992
Sacramento, CA cluster 427.9 204.7 48% 270.5 132%
Chattanooga, TN cluster 173.0 99.8 58% 76.8 77%
Knoxville, TN cluster 143.1 97.0 68% 50.7 52%
Atlanta, GA cluster 97.4 64.6 66% 40.2 62%
Bluefield, WV cluster 72.6 49.5 68% 34.1 69%
Lake County, FL cluster 65.8 45.4 69% 17.9 39%
Rome, GA cluster 53.8 42.4 79% 41.7 98%
Elizabethtown, KY cluster 48.0 39.8 83% 17.7 44%
Longmont, CO cluster 47.2 29.9 63% 27.1 91%
Total 1,128.8 673.1 60% 576.7 86%
December 31, 1991
Sacramento, CA cluster 418.0 203.8 49% 245.1 120%
Chattanooga, TN cluster 164.1 96.0 59% 68.4 71%
Knoxville, TN cluster 140.6 90.9 65% 46.2 51%
Atlanta, GA cluster 95.2 58.8 62% 36.1 61%
Bluefield, WV cluster 66.3 47.6 72% 29.8 63%
Lake County, FL cluster 63.4 42.7 67% 14.7 34%
Rome, GA cluster 52.2 40.2 77% 36.1 90%
Elizabethtown, KY cluster 47.5 38.2 80% 14.2 37%
Longmont, CO cluster 45.8 27.3 60% 23.2 85%
Total 1,093.1 645.5 59% 513.8 80%
( in thousands ) Premium
Subs. as
Homes Basic Penetration Premium a % of
Cable Television System Cluster Passed Subs Rate Subs (1) Basic
December 31, 1990
Sacramento, CA cluster 401.3 196.0 49% 224.4 114%
Chattanooga, TN cluster 157.3 88.3 56% 61.2 69%
Knoxville, TN cluster 138.0 83.9 61% 42.6 51%
Atlanta, GA cluster 93.7 57.5 61% 39.0 68%
Bluefield, WV cluster 65.8 46.3 70% 24.3 52%
Rome, GA cluster 54.4 42.2 78% 22.5 53%
Lake County, FL cluster 59.5 39.3 66% 14.9 38%
Elizabethtown, KY cluster 46.9 36.2 77% 13.8 38%
Longmont, CO cluster 44.6 25.0 56% 20.4 82%
Total 1,061.5 614.7 58% 463.1 75%
(1) Each subscription to a premium
programming service is counted as one
subscriber.
Revenues and Pricing - The composition of Scripps Cable operating revenues
for the most recent five years and for the nine months ended September 30,
1995 is as follows:
( in thousands )
For the nine months
ended September 30, For the years ended December 31,
1995 1994 1994 1993 1992 1991 1990
Basic and cable
programming services $ 137,092 $ 123,730 $ 165,682 $ 171,703 $ 163,069 $ 145,258 $ 125,256
Premium programming services 38,945 36,447 49,242 46,401 44,559 45,280 42,050
Other monthly services 13,055 12,720 17,422 14,611 13,002 13,807 13,634
Advertising 9,428 7,925 11,367 8,870 8,394 7,071 5,663
Installation and other 9,335 8,773 11,643 10,207 9,094 6,775 6,212
Total operating revenues $ 207,855 $ 189,595 $ 255,356 $ 251,792 $ 238,118 $ 218,191 $ 192,815
Scripps Cable systems carry a wide variety of entertainment and information
services. Basic cable generally consists of video programming broadcast by
local television stations, locally produced programming, public,
educational and government access channels, and distant broadcast
television signals. Federal law requires customers to purchase the basic
cable package in order to receive additional services. Advertiser-
supported video programming such as ESPN and CNN and other entertainment
and information services are included in various cable programming service
packages. Premium programming consists of non-advertiser-supported
entertainment services such as Home Box Office and Showtime. A customer
generally pays an initial installation charge and fixed monthly fees for
basic, cable programming, premium programming and other services, such as
the rental of converters and remote control devices. These monthly fees
constitute the primary source of revenues for Scripps Cable's systems.
Certain of Scripps Cable systems are equipped with addressable decoding
converters which enable the systems to offer interactive services, such as
pay-per-view programming, for which the systems charge additional fees.
Addressable decoding converters also enable the systems to change customer
services without visiting the customer's home. Most of Scripps Cable's
systems also offer customers home shopping services, which pay the systems
a share of revenues from sales of products in the systems' service areas.
The systems also receive revenue from the sale of available advertising
spots on advertiser-supported programming.
Rates for cable television services are established by each system.
Pursuant to the Cable Television Consumer Protection Act of 1992 (the "1992
Cable Act") the Federal Communications Commission ("FCC") adopted
regulations that permit franchising authorities to set rates for basic
service and the provision of cable related equipment. To the extent that
existing rates are found to exceed those permitted by the FCC, franchising
authorities are able to require cable television systems to reduce the
rates and provide refunds for up to a one-year period initially calculated
from the effective date of the FCC's regulations. The FCC will also, upon
a complaint by a customer or franchising authority, determine whether rates
for regulated non-basic service tiers (except for service offered on a per-
channel or per-program basis) are unreasonable and, if so found, reduce
such rates and provide refunds from the date of such complaint. In
addition, the FCC's regulations, as they now stand, limit the ability to
increase revenues by increasing rates for regulated services. It is
possible that, pursuant to further review by the franchising authorities
and the FCC, certain additional rate reductions may be required.
Basic and cable service tier complaints have been filed against Scripps
Cable systems with local franchise authorities and with the FCC's Cable
Services Bureau, several of which have been resolved. Basic and cable
service tier refunds ordered to date total less than $300,000. A number of
basic and cable service tier complaints remain undecided. Management does
not expect the refunds to be awarded, if any, to have a material impact on
Scripps Cable's results of operations or financial position.
Various cable operators have initiated litigation challenging certain
aspects of the 1992 Cable Act. The constitutionality of the basic scheme
of rate regulation under the 1992 Cable Act has been upheld by a federal
district court, and the FCC's rate regulation rules were upheld by a
federal appeals court in June 1995. An appeal of that decision has been
filed with the United States Supreme Court. The outcome of the remainder
of this litigation can not be predicted. Management of Scripps Cable
believes that the regulation of the cable television industry, including
the rates charged for regulated services under present FCC rules and the
cable industry's restructuring of rates and services in response to the
1992 Cable Act, remain a matter of interest to Congress, the FCC and other
regulatory authorities. There can be no assurances as to what, if any,
future actions such legislative and regulatory authorities may take or the
effect thereof on Scripps Cable.
Competition - Cable television systems are operated under franchises
granted by local authorities which are subject to renewal and re-
negotiation from time to time. The 1992 Cable Act prohibits franchising
authorities from granting exclusive cable television franchises and from
unreasonably refusing to award additional competitive franchises; it also
permits municipal authorities to operate cable television systems in their
communities without a franchise. Therefore, there is a potential for
direct competition in Scripps Cable's franchise areas.
All of Scripps Cable's systems compete for subscribers with other methods
of delivering entertainment and information programming to the subscriber's
home, such as broadcast television, multi-channel, multi-point distribution
systems, master and satellite antenna systems, direct broadcast satellite
services, and home systems such as video cassette and laser disc players.
Management of Scripps Cable believes competition will increase as new
technologies such as more advanced "wireless cable systems" and broadcast
satellite delivery services improve and gain consumer acceptance. The
attractiveness of cable television compared to satellite delivery systems
may be enhanced now that most satellite-distributed program signals are
being electronically scrambled to permit reception only with authorized
decoding equipment, generally at a cost to the viewer, making unauthorized
reception of such scrambled signals by earth station viewers more
difficult.
In the past federal cross-ownership restrictions have limited entry into
the cable television business by potentially formidable competitors, such
as the telephone companies. Recent court and administrative decisions have
removed certain of the restrictions, and proposals recently under
consideration by Congress and cases currently pending in the courts could
result in the elimination of other such restrictions. While the regulatory
scheme for telephone company offerings of video services remains uncertain,
telephone companies are beginning to offer FCC-approved trials of such
services. One such trial is being pursued by Bell South in a segment of
Scripps Cable's Atlanta, Georgia cluster. Most observers believe that the
telephone companies will be formidable competitors in offering video
services and that their entry into the video market will hasten consumer
demand for interactive telecommunications capabilities through any system
providing video services. State regulations, however, in many cases
restrict a cable operator's ability to offer competing interactive
telecommunications services. (See "Regulation and Legislation.")
Relatedly, many observers believe that competition from the telephone
companies in the video marketplace will impose on cable operators the need
to serve a sufficiently large number of subscribers in contiguous regions
so as to permit the cable operator to compete in the offering of
interactive telecommunications services.
Management of Scripps Cable cannot predict the extent to which competition
will materialize from other cable television operators, other distribution
systems for delivering video programming to the home, or other potential
competitors, or to the extent of its effect on Scripps Cable's systems.
Programming - Scripps Cable purchases programming from a variety of
suppliers, the charge for which is generally based upon the number of
subscribers receiving the service. Program costs have risen in recent
years and are expected to continue to increase due to additional
programming offered subscribers, increased costs to produce or purchase
programming, regulation and other factors. Program costs as a percentage
of basic and premium programming service revenues have also risen in recent
years due to reductions in basic revenue per subscriber as a result of re-
regulation (see "Revenues and Pricing") and to discounts offered to
subscribers receiving multiple premium channels.
Under the Copyright Act of 1976 cable television system operators are
granted compulsory licenses permitting the carriage of the copyrighted
works of local and distant broadcast signals for a statutory fee. The
Copyright Royalty Tribunal is empowered to review and adjust such fees.
FCC rules on syndicated exclusivity provide that if a local broadcast
licensee has purchased the exclusive local distribution rights for a
particular syndicated program, such licensee is generally entitled to
insist that a local cable television system operator delete that program
from any distant television signal carried by the cable television system.
Under the 1992 Cable Act local broadcast stations may require cable
television operators to pay a fee for the right to continue to carry their
local television signals. Alternatively, a local broadcaster may demand
carriage under the 1992 Cable Act's "must-carry" provisions.
Regulation and Legislation - The cable television industry is subject to
extensive regulation on the federal, state, and local levels. Many aspects
of such regulations are currently the subject of judicial proceedings and
administrative or legislative proposals. The 1992 Cable Act has
significantly expanded the scope of cable television regulation. The FCC
was required to complete a number of rule-making proceedings under the 1992
Cable Act, the majority of which, including certain of those related to
rate regulation (see "Revenues and Pricing"), have been completed.
The 1992 Act, among other things: (i) reimposed rate regulations on most
cable television systems (see "Revenues and Pricing"); (ii) reimposed "must
carry" rules with respect to local broadcast television signals; (iii)
granted all broadcasters the option to refuse carriage of their signals;
(iv) required that vertically integrated cable television companies not
unreasonably refuse to deal with any multichannel programming distributor
or discriminate in the price, terms, and conditions of carriage of
programming between cable television operators and other multichannel
programming distributors if the effect would be to impede retail
competition; and (v) established cross-ownership rules with respect to
cable television systems and direct broadcast satellite systems, multi-
channel multipoint distribution systems, and satellite master antenna
systems.
The provisions of local cable television franchises are subject to federal
regulation under the Cable Communications Policy Act of 1984 (the "1984
Act"). Pursuant to the 1984 Act, local franchising authorities are given
the right to award and renew one or more franchises for the community over
which they have jurisdiction, the fees for which are prohibited from
exceeding 5% of a cable television system's gross annual revenues.
It is generally agreed that there is a need for a substantial revision of
the statutes governing telecommunications, and the relationship between
cable television and telephone services is a substantial part of the on-
going legislative effort to accomplish that goal. While legislation is by
no means assured, changes could bring some relief to cable operators from
the 1992 rate regulation requirements as well as provide a frame work for
telephone company competition in the delivery of video services.
Management believes Scripps Cable is in substantial compliance with all
applicable regulatory requirements.
SELECTED FINANCIAL DATA
The following selected combined financial data are derived from the
combined financial statements of Scripps Cable. The data should be read in
conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Scripps Cable" and the combined
financial statements and notes thereto included elsewhere herein. The
income statement data for the years ended December 31, 1994, 1993, and 1992
and the balance sheet data as of December 31, 1994 and 1993 have been
derived from the audited combined financial statements of Scripps Cable.
The income statement data for the years ended December 31, 1991 and 1990
and the nine months ended September 30, 1995 and 1994, and the balance
sheet data as of September 30, 1995 and 1994 and as of December 31, 1992,
1991, and 1990 are derived from the unaudited combined financial statements
of Scripps Cable, which, in the opinion of management, include all
adjustments (consisting of normal recurring adjustments) necessary for a
fair presentation of financial position and results of operations for such
periods. Operating results for the nine month periods ended September 30
are not necessarily indicative of results that may be expected for the full
year or for future interim periods.
SCRIPPS CABLE
SELECTED FINANCIAL DATA
( in millions )
For the nine months
ended September 30, For the years ended December 31,
1995 1994 1994 1993 1992 1991 1990
Summary of Operations
Operating revenues $ 207.9 $ 189.6 $ 255.4 $ 251.8 $ 238.1 $ 218.2 $ 192.8
Operating income
Operating income excluding unusual items $ 43.6 $ 30.4 $ 42.8 $ 45.2 $ 43.7 $ 35.7 $ 26.8
Unusual items (3.0) (9.5) (12.0)
Total operating income 43.6 27.4 33.3 45.2 43.7 23.7 26.8
Interest expense (25.8) (25.3) (33.8) (29.8) (30.9) (34.0) (34.5)
Net gains and unusual items 1.5
Miscellaneous, net (1.9) (2.3) (3.0) (2.4) (2.4) (1.8) (1.1)
Income taxes (6.6) (2.7) 10.6 (8.3) (14.9) (0.6) 1.2
Net income (loss) $ 10.8 $ (2.9) $ 7.1 $ 4.7 $ (4.5) $ (12.7) $ (7.6)
Other Financial Data
EBITDA (see page 70) - excluding unusual items $ 84.7 $ 74.7 $ 100.1 $ 105.3 $ 101.3 $ 91.6 $ 84.4
EBITDA as a percentage of operating revenues 40.7% 39.4% 39.2% 41.8% 42.5% 42.0% 43.8%
Depreciation and amortization 41.1 44.3 57.3 60.0 57.6 55.9 57.6
Net cash flow from operating activities 62.0 43.7 56.7 65.4 51.4 50.1 43.6
Investing activity:
Capital expenditures (30.1) (28.8) (41.6) (67.0) (58.3) (36.8) (35.9)
Other (investing)/divesting activity, net 2.5 (26.4) (24.6) (3.8) (3.0) (4.6) (2.8)
Total assets 419.4 443.8 438.4 430.1 419.9 420.7 429.7
Long-term debt and advances from parent company 303.4 338.9 336.3 325.0 318.3 310.7 336.3
Stockholders' equity (deficiency) (21.8) (42.6) (32.6) (39.7) (44.4) (40.0) (32.4)
Scripps Cable acquired several cable television systems adjacent to
existing service areas in the periods presented. In 1995 Scripps Cable
sold its Barbourville, Ky. system.
In 1994 customers of the Sacramento cable television system were awarded
special rebates in connection with litigation concerning the system's
pricing in the late 1980s. The rebates and related legal fees totaled $3.0
million and reduced net income $1.7 million. In the fourth quarter of 1994
Scripps Cable accrued $6.5 million as an estimate of the ultimate costs of
certain lawsuits. The accrual reduced 1994 net income $4.0 million.
In 1992 management changed its estimate of a tax deduction related to the
redemption of a partnership interest in certain of Scripps Cable's cable
television systems. The resulting change in the liability for prior year
income taxes decreased 1992 net income $8.4 million. In the fourth quarter
of 1994 the Internal Revenue Service proposed adjustments related to
certain intangible assets and the redemption of the partnership interest.
Based upon the proposed adjustments management again changed its estimate
of the tax liabilities for prior years. The resulting change in the
liability for prior year income taxes and the deferred income tax liability
increased 1994 net income $11.8 million.
In 1991 Scripps Cable settled a lawsuit alleging violations of antitrust
and unfair trade practice laws. The settlement and related legal fees
totaled $12.0 million and reduced net income $7.9 million.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF SCRIPPS CABLE
Scripps Cable's revenues are primarily earned from subscriber fees for
basic, cable programming and premium television services (including pay-per-
view programming), and the rental of converters and remote control devices.
Historically Scripps Cable's revenue growth has been primarily achieved
through internal subscriber growth, acquisitions, and increases in rates
for services provided to cable television subscribers. Regulations adopted
by the Federal Communications Commission ("FCC") pursuant to the 1992 Cable
Act have affected Scripps Cable's ability to increase rates for certain
subscriber services or to restructure its rates for certain services. The
rate regulation, which is described more fully under "Revenues and Pricing"
in this Form 8-K, is generally intended to reduce subscriber rates and to
limit future rate increases for basic and certain other cable programming
services.
RESULTS OF OPERATIONS
Earnings before interest, income taxes, corporate management fees,
depreciation, and amortization ("EBITDA") is included in the discussion of
results of operations because:
Changes in depreciation and amortization are often unrelated to current
performance. Management believes the year-over-year change in EBITDA is a
more useful measure of year-over-year performance than the change in
operating income because, combined with information on capital spending
plans, it is a more reliable indicator of results that may be expected in
future periods.
Financial analysts use EBITDA to value cable television businesses.
Acquisitions of cable television businesses are based on multiples of
EBITDA.
EBITDA should not, however, be construed as an alternative measure of the
amount of Scripps Cable's income or cash flow from operating activities.
Combined results of operations are as follows:
( in thousands, except per subscriber (Unaudited)
information ) For the nine months ended For the years ended
September 30, December 31,
1995 Change 1994 1994 Change 1993 Change 1992
Operating revenues:
Basic and cable
programming services $ 137,092 10.8 % $ 123,730 $ 165,682 (3.5)% $ 171,703 5.3 % $ 163,069
Premium programming services 38,945 6.9 % 36,447 49,242 6.1 % 46,401 4.1 % 44,559
Other monthly service 13,055 2.6 % 12,720 17,422 19.2 % 14,611 12.4 % 13,002
Advertising 9,428 19.0 % 7,925 11,367 28.2 % 8,870 5.7 % 8,394
Installation and miscellaneous 9,335 6.4 % 8,773 11,643 14.1 % 10,207 12.2 % 9,094
Total operating revenues 207,855 9.6 % 189,595 255,356 1.4 % 251,792 5.7 % 238,118
Operating expenses:
Employee compensation and benefits 32,359 5.5 % 30,673 41,343 5.4 % 39,237 2.4 % 38,332
Program costs 52,286 14.8 % 45,529 61,614 10.9 % 55,548 8.4 % 51,225
Other 38,526 (0.5)% 38,722 52,271 1.0 % 51,747 9.5 % 47,267
Depreciation and amortization 41,105 (7.1)% 44,264 57,331 (4.5)% 60,029 4.3 % 57,580
Total operating expenses 164,276 3.2 % 159,188 212,559 2.9 % 206,561 6.3 % 194,404
Operating income
excluding unusual items 43,579 43.3 % 30,407 42,797 (5.4)% 45,231 3.5 % 43,714
Unusual items (2,993) (9,493)
Operating income 43,579 27,414 33,304 45,231 43,714
Interest expense (25,823) (25,295) (33,789) (29,805) (30,934)
Corporate management fee (2,657) (2,218) (2,957) (2,293) (2,252)
Other credits (charges) 812 (60) (69) (139) (113)
Net gains 1,502
Income taxes (6,603) (2,749) 10,590 (8,273) (14,872)
Net income (loss) $ 10,810 $ (2,908) $ 7,079 $ 4,721 $ (4,457)
Other Financial and Statistical Data:
EBITDA excluding unusual items $ 84,684 13.4 % $ 74,671 $ 100,128 (4.9)% $ 105,260 3.9 % $ 101,294
Percent of operating revenues:
Operating income 21.0 % 16.0 % 16.8 % 18.0 % 18.4 %
EBITDA 40.7 % 39.4 % 39.2 % 41.8 % 42.5 %
Capital expenditures $ 30,119 4.8 % $ 28,753 $ 41,616 (37.9)% $ 67,019 15.0 % $ 58,299
Average number of basic subscribers 750.0 5.3 % 712.5 717.7 4.9 % 684.3 4.2 % 656.7
Average monthly revenue
per basic subscriber $ 30.79 4.1 % $ 29.57 $ 29.65 (3.3)% $ 30.66 1.5 % $ 30.22
Program costs as a percent
of basic and premium revenue 29.7 % 28.4 % 28.7 % 25.5 % 24.7 %
Homes passed at end of period 1,184.4 1.8 % 1,163.0 1,170.0 2.0 % 1,146.8 1.6 % 1,128.8
Basic subscribers at end of period 758.5 4.8 % 724.1 739.2 5.4 % 701.0 4.1 % 673.1
Penetration at end of period 64.0 % 62.3 % 63.2 % 61.1 % 59.6 %
The following items affected the comparability of the Scripps Cable reported
results of operations:
In 1995 Scripps Cable sold its cable television system in
Barbourville, Kentucky. The sale resulted in a pre-tax gain of $1.5
million, $0.9 million after-tax.
In 1994 customers of the Sacramento cable television system were
awarded special rebates in connection with litigation concerning the
system's pricing in the late 1980s. The rebates and related legal fees
totaled $3.0 million and reduced 1994 nine month and full year net income
$1.7 million.
In the fourth quarter of 1994 Scripps Cable accrued $6.5 million as an
estimate of the ultimate costs of certain lawsuits. The accrual reduced
1994 net income $4.0 million.
In 1992 management changed its estimate of a tax deduction related to
the redemption of a partnership interest in certain of Scripps Cable's
cable television systems. The resulting change in the liability for prior
year income taxes decreased 1992 net income $8.4 million. In the fourth
quarter of 1994 the Internal Revenue Service proposed adjustments related
to certain intangible assets and the redemption of the partnership
interest. Based upon the proposed adjustments management again changed its
estimate of the tax liabilities for prior years. The resulting change in
the liability for prior year income taxes and the deferred income tax
liability increased 1994 net income $11.8 million.
Rate regulations adopted by the FCC significantly affected Scripps Cable's
operating results in 1994 and in 1993. The effects of price decreases
resulting from the regulations were partially offset by subscriber growth
in 1994. After declining year-over-year for five straight quarters, EBITDA
increased in the fourth quarter of 1994 and in each quarter of 1995.
Program costs have increased due to the growth in the number of
subscribers, additional programming offered subscribers, and increased
costs to produce or purchase programming. Program costs as a percentage of
basic and premium programming service revenues increased sharply in 1994
due to the full-year impact of rate regulation on revenues.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities was $56.7 million in 1994, $65.4
million in 1993, and $51.4 million in 1992. The decrease in 1994 was
primarily due to the effects of rate regulation. Cash flow from operating
activities was $62.0 million for the nine months ended September 30, 1995
compared to $43.7 million in the 1994 nine month period. The increase was
primarily due to improved operating performance.
In the third quarter of 1995 Scripps Cable reached an agreement to acquire
cable television systems adjacent to its Knoxville and Chattanooga systems
for $62.5 million. The acquisition is expected to be completed by the
first quarter of 1996. Scripps Cable invests heavily in its cable plant,
continually replacing and modernizing its technology by rebuilding and
upgrading its systems with fiber optic cable. Capital expenditures
decreased in 1994 as the rebuilds of the Knoxville and Chattanooga systems
were substantially completed. Acquisitions of cable television systems and
capital expenditures are financed through cash flow from operating
activities and, if necessary, additional advances.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders,
The E.W. Scripps Company:
We have audited the accompanying combined balance sheets of The E.W.
Scripps Company ("EWS") Cable Television Operations ("Scripps Cable") (see
Note 1) as of December 31, 1994 and 1993, and the related combined
statements of income and retained earnings and of cash flows for each of
the three years in the period ended December 31, 1994. These financial
statements are the responsibility of EWS's management. Our responsibility
is to express an opinion on the financial statements 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 combined financial statements present fairly, in all
material respects, the financial position of Scripps Cable at December 31,
1994 and 1993, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1994 in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
November 9, 1995
SCRIPPS CABLE
COMBINED BALANCE SHEETS
( in thousands ) (Unaudited)
September 30, December 31,
1995 1994 1993
ASSETS
CURRENT ASSETS :
Cash and cash equivalents $ 970 $ 2,103 $ 2,096
Accounts receivable (less allowances - 11,532 9,914 7,850
$1,355, $1,115, and $1,267)
Inventories 15,314 10,433 14,379
Refundable property taxes 10,400 7,580
Deferred income taxes 5,421 5,401 4,896
Miscellaneous 1,855 3,186 3,365
Total current assets 35,092 41,437 40,166
PROPERTY, PLANT, AND EQUIPMENT :
Land and improvements 3,700 3,704 2,087
Buildings and improvements 9,577 9,230 8,872
Equipment 570,544 548,275 520,354
Total property, plant, and equipment 583,821 561,209 531,313
Less accumulated depreciation 295,410 266,980 230,807
Net property, plant, and equipment 288,411 294,229 300,506
GOODWILL AND OTHER INTANGIBLE ASSETS :
Goodwill 40,885 40,671 12,848
Non-competition agreements 5,800 5,800 13,400
Franchise costs 159,273 159,541 159,452
Customer lists 1,719 1,719 1,719
Other intangible assets 7,100 7,053 7,053
Total goodwill and other intangible assets 214,777 214,784 194,472
Less accumulated amortization 119,502 113,067 109,177
Net goodwill and other intangible assets 95,275 101,717 85,295
OTHER ASSETS 623 993 4,097
TOTAL ASSETS $ 419,401 $ 438,376 $ 430,064
See notes to combined financial statements.
SCRIPPS CABLE
COMBINED BALANCE SHEETS
( in thousands ) (Unaudited)
September 30, December 31,
1995 1994 1993
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
CURRENT LIABILITIES :
Accounts payable $ 13,607 $ 14,915 $ 12,773
Customer deposits and unearned revenue 2,401 3,089 1,005
Accrued liabilities :
Employee compensation and benefits 1,398 1,276 237
Copyright and programming costs 7,302 7,312 6,507
Commitments and contingencies 6,500 6,500
Property taxes 3,159 1,674 1,591
Interest on advances from parent company 1,618 1,618 1,635
Income taxes 6,966 (437) 1,843
Miscellaneous 5,688 5,632 7,287
Total current liabilities 48,639 41,579 32,878
DEFERRED INCOME TAXES 79,737 80,622 66,701
ADVANCES FROM PARENT COMPANY 303,371 336,332 324,979
OTHER LONG-TERM OBLIGATIONS 9,490 12,489 45,231
STOCKHOLDER'S DEFICIENCY :
Capital stock 1,801 1,801 1,801
Additional paid-in capital 35,144 35,144 35,144
Retained earnings (deficit) (58,781) (69,591) (76,670)
Total stockholder's deficiency (21,836) (32,646) (39,725)
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIENCY $ 419,401 $ 438,376 $ 430,064
See notes to combined financial statements.
SCRIPPS CABLE
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
( in thousands ) (Unaudited)
For the nine months ended For the years ended
September 30, December 31,
1995 1994 1994 1993 1992
OPERATING REVENUES :
Basic services $ 137,092 $ 123,730 $ 165,682 $ 171,703 $ 163,069
Premium programming services 38,945 36,447 49,242 46,401 44,559
Other monthly services 13,055 12,720 17,422 14,611 13,002
Advertising 9,428 7,925 11,367 8,870 8,394
Installation and miscellaneous 9,335 8,773 11,643 10,207 9,094
Total operating revenues 207,855 189,595 255,356 251,792 238,118
OPERATING EXPENSES :
Employee compensation and benefits 32,359 30,673 41,343 39,237 38,332
Cable television programming costs 52,286 45,529 61,614 55,548 51,225
Other operating expenses 38,526 41,715 61,764 51,747 47,267
Depreciation and amortization 41,105 44,264 57,331 60,029 57,580
Total operating expenses 164,276 162,181 222,052 206,561 194,404
OPERATING INCOME 43,579 27,414 33,304 45,231 43,714
OTHER CREDITS (CHARGES) :
Interest on advances from parent company (25,571) (25,038) (33,447) (28,916) (30,479)
Other interest expense (252) (257) (342) (889) (455)
Corporate management fee (2,657) (2,218) (2,957) (2,293) (2,252)
Gain on sale of cable television system 1,502
Miscellaneous, net 812 (60) (69) (139) (113)
Net other credits (charges) (26,166) (27,573) (36,815) (32,237) (33,299)
INCOME (LOSS) BEFORE INCOME TAXES 17,413 (159) (3,511) 12,994 10,415
PROVISION (CREDIT) FOR INCOME TAXES 6,603 2,749 (10,590) 8,273 14,872
NET INCOME (LOSS) 10,810 (2,908) 7,079 4,721 (4,457)
RETAINED EARNINGS (DEFICIT) :
Beginning of year (69,591) (76,670) (76,670) (81,391) (76,934)
End of period $ (58,781) $ (79,578) $ (69,591) $ (76,670) $ (81,391)
See notes to combined financial statements.
SCRIPPS CABLE
COMBINED STATEMENTS OF CASH FLOWS
( in thousands ) (Unaudited)
For the nine months ended For the years ended
September 30, December 31,
1995 1994 1994 1993 1992
Cash Flows From Operating Activities:
Net income (loss) $ 10,810 $ (2,908) $ 7,079 $ 4,721 $ (4,457)
Adjustments to reconcile net income (loss)
to net cash flows from operating
activities:
Depreciation and amortization 41,105 44,264 57,331 60,029 57,580
Gain on sale of cable television system (1,502)
Deferred income taxes (905) 69 (657) (3,866) (4,513)
Adjustment of liability for prior year (11,800) 8,400
income taxes
Payment of prior year income taxes to (7,400)
Scripps
Prepaid franchise fees 1,932 1,932 2,574 2,574 2,574
Refundable property taxes 10,400 (2,820) (2,820) (3,788) (3,792)
Commitments and contingencies 6,500
Changes in certain working capital 1,892 1,498 4,262 6,504 (9,811)
accounts
Miscellaneous, net (1,778) 1,657 1,629 (809) 5,383
Net operating activities 61,954 43,692 56,698 65,365 51,364
Cash Flows From Investing Activities:
Additions to property, plant, and equipment (30,119) (28,753) (41,616) (67,019) (58,299)
Additions to intangible assets (78) (15) (89) (62) (759)
Purchase of subsidiary companies
and minority interests (259) (26,361) (26,501) (7,121) (2,471)
Miscellaneous, net 2,830 (62) 2,037 3,377 244
Net investing activities (27,626) (55,191) (66,169) (70,825) (61,285)
Cash Flows From Financing Activities:
Increases in advances from parent company 15,525 13,455 8,613 9,264
Payments on long-term debt (71) (119)
Payments on advances from parent company (32,961) (1,557) (2,102) (1,906) (1,728)
Miscellaneous, net (2,500) (1,250) (1,875) (593) (9)
Net financing activities (35,461) 12,718 9,478 6,043 7,408
Increase (Decrease) in Cash and Cash (1,133) 1,219 7 583 (2,513)
Equivalents
Cash and Cash Equivalents:
Beginning of year 2,103 2,096 2,096 1,513 4,026
End of period $ 970 $ 3,315 $ 2,103 $ 2,096 $ 1,513
Supplemental Cash Flow Disclosures:
Interest paid $ 25,722 $ 25,044 $ 33,472 $ 29,821 $ 30,514
Income taxes paid 705 4,064 10,947 8,582 11,772
See notes to combined financial statements.
SCRIPPS CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The combined financial statements of The E.W.
Scripps Company ("Scripps") Cable Television Operations ("Scripps Cable")
include EWS Cable Company ("EWSCC") - 100 shares of no-par capital stock
authorized, 50 shares issued and outstanding; L-R Cable Company ("LRCC") -
100 shares of no-par capital stock authorized, 50 shares issued and
outstanding; Scripps Howard Cable Company ("SHCC") - 100 shares of no-par
capital stock authorized, 80 shares issued and outstanding; and Scripps
Howard Cable Company of Sacramento ("SHCCS") - 2,000 shares of no-par
capital stock authorized, 100 shares issued and outstanding.
EWSCC and LRCC are wholly-owned subsidiaries of Scripps Howard, Inc. ("SHI").
SHCC and SHCCS are wholly-owned subsidiary companies of Scripps Howard
Broadcasting Company ("SHB"). Prior to 1993 SHB was 86%-owned by SHI.
SHI acquired 5.7% of the outstanding shares of SHB in 1993 and Scripps
acquired the remaining minority interest in SHB in 1994 (see Note 2).
The historical basis in assets and liabilities of the cable television
systems has been carried over. The historical combined financial
statements do not necessarily reflect the results of operations or
financial position that would have existed if Scripps Cable were an
independent company. SHI provides certain legal, treasury, accounting,
tax, risk management and other corporate services to Scripps Cable (see
Note 7).
Nature of Business - Scripps Cable operates cable television systems in
several states in the southeastern United States, Colorado, and Sacramento,
California.
Unaudited Interim Financial Statements - The combined financial statements
as of September 30, 1995 and for the nine months ended September 30, 1995
and 1994 are unaudited. In management's opinion the interim financial
statements include all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the financial position
and results of operations and cash flows for these periods.
The results for the interim periods are not necessarily indicative of the
results that may be expected for the full year.
Cash and Cash Equivalents - Cash and cash equivalents represent cash on
hand, bank deposits, and highly liquid debt instruments with an original
maturity of up to three months. Cash equivalents are stated at cost plus
accrued interest, which approximates fair value (see Note 7).
Inventories - Inventories include converters, remote controls, and supplies
used to install and maintain cable television services. Inventories are
stated at the lower of cost or market. Cost is computed using the first in,
first out ("FIFO") method.
Property, Plant, and Equipment - Property, plant, and equipment is recorded
at cost. Costs of constructing transmission and distribution systems are
capitalized. Maintenance and repairs are expensed as incurred.
Depreciation is computed using the straight-line method over estimated
useful lives as follows:
Buildings and improvements 35 years
Cable television transmission and distribution systems 10 to 15 years
Other cable television equipment 5 to 10 years
Office and other equipment 3 to 10 years
Goodwill and Other Intangible Assets - Goodwill and other intangible assets
are stated at the lower of unamortized cost or fair value. At each balance
sheet date management reviews the realizability of goodwill and other
intangible assets based upon undiscounted estimated future net cash flows
of regional groupings of cable television systems. An impairment loss is
recognized when the unamortized cost of the assets of a grouping of cable
television systems exceeds the undiscounted estimated future net cash
flows.
Goodwill represents the cost of acquisitions in excess of tangible assets
and identifiable intangible assets received and also includes the excess of
cost over book value of shares purchased from minority SHB shareholders
allocated to Scripps Cable. Goodwill is amortized on the straight-line
basis over periods of up to forty years.
Cable television franchises are amortized on the straight-line basis
generally over the remaining terms of acquired cable systems' franchise
agreements. Non-competition agreements are amortized on the straight-line
basis over the terms of the agreements. Other intangible assets are
amortized on the straight-line basis over estimated useful lives not
exceeding forty years.
Income Taxes - Scripps Cable is included in the consolidated federal tax
return of Scripps.
The provision (credit) for income taxes is generally prepared as if Scripps
Cable filed a separate return, however tax benefits for taxable losses and
other deductions that would be limited if Scripps Cable were an independent
company are recognized currently if such losses and benefits are utilized
in the consolidated Scripps provision.
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. Scripps Cable's
temporary differences primarily result from accelerated depreciation and
amortization for tax purposes and accrued expenses not deductible for tax
purposes until paid.
Postemployment Benefits - Scripps adopted FAS No. 106 - Employers'
Accounting for Postretirement Benefits Other Than Pensions in 1992.
Postretirement benefits are recognized during the years that employees
render service. Scripps Cable has no significant postretirement benefit
obligations. Other postemployment benefits, such as disability-related
benefits and severance, are recognized when the benefits become payable.
Self-Insurance - Scripps is primarily self-insured for employee health,
workers' compensation, and general liability insurance. Self-insurance
liabilities are estimated based upon claims filed and estimated claims
incurred but not reported. The cost of such insurance is allocated to
Scripps Cable based upon estimated claims. The self-insurance liabilities
are not discounted and are classified as Advances From Parent Company in
the accompanying Combined Balance Sheets.
Revenue Recognition - Scripps Cable bills its customers in advance and
recognizes revenue as cable television services are provided. Credit risk
is managed by disconnecting services to delinquent customers. Installation
revenues are generally less than direct selling and installation costs and
are recognized on the date of installation.
2. ACQUISITIONS AND DIVESTITURES
Acquisitions
In the third quarter of 1995 SHB reached an agreement to acquire cable
television systems adjacent to the Knoxville and Chattanooga systems for
$62,500,000.
Scripps Cable acquired several cable television systems adjacent to
existing service areas in the three years ended December 31, 1994.
In 1993 SHI acquired 5.7% of the outstanding shares of SHB and in 1994
Scripps acquired the remaining minority interest in SHB. The excess of
the cost over the book value of the shares related to SHB's cable
television operations has been recorded as goodwill by Scripps Cable.
The following table presents additional information about the acquisitions:
( in thousands ) (Unaudited)
For the nine months ended For the years ended
September 30, December 31,
1995 1994 1994 1993 1992
Goodwill and other intangible assets acquired $ 167 $ 158 $ 233 $ 161 $ 600
Other assets acquired 92 87 152 90 1,990
Liabilities assumed (119)
Total cable television system acquisitions 259 245 385 251 2,471
Excess of cost over book value of SHB stock
allocated to Scripps Cable and paid to SHI 26,116 26,116 6,870
Total $ 259 $ 26,361 $ 26,501 $ 7,121 $ 2,471
The acquisitions have been accounted for as purchases. The acquired
operations have been included in the Combined Statements of Income from
the dates of acquisition. Pro forma results are not presented because
the combined results of operations would not be significantly different
from the reported amounts.
Divestitures
In 1995 Scripps Cable sold its cable television system in Barbourville,
Kentucky. The sale resulted in a pre-tax gain of $1,502,000.
3.INCOME TAXES
The IRS is currently examining Scripps' consolidated income tax returns for
the years 1988 through 1991. In 1995 Scripps reached agreement with the
IRS to settle the audits of its 1985 through 1987 tax returns. There was
no charge to income as a result of the settlement.
In 1992 management changed its estimate of a tax deduction received in the
redemption of a partnership interest in certain of its cable television
systems. The resulting change in the liability for prior year income taxes
decreased net income $8,400,000. In 1994 the IRS proposed adjustments
related to certain intangible assets and the redemption of the partnership
interest. Based upon the proposed adjustments management again changed its
estimate of the tax liabilities for prior years. The resulting change in
the liability for prior year income taxes and the deferred income tax
liability increased 1994 net income $11,800,000.
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 Scripps
Cable's deferred income tax liabilities (assets) are as follows:
( in thousands )
December 31,
1994 1993
Accelerated depreciation and amortization $ 85,870 $ 71,516
Commitments and contingencies (2,470)
Refundable property taxes (2,900)
Other temporary differences, net (1,892) (1,027)
Total 81,508 67,589
State net operating loss carryforwards (8,949) (7,516)
Valuation allowance for state deferred tax assets 2,662 1,732
Net deferred tax liability $ 75,221 $ 61,805
Scripps Cable's state net operating loss carryforwards expire from 2000
through 2019. In 1992 the state of Tennessee extended the loss
carryforward period to 15 years and management reduced its estimate of the
valuation allowance increasing net income $3,600,000.
The provision (credit) for income taxes is as follows:
( in thousands )
For the years ended
December 31,
1994 1993 1992
Current:
Federal $ (10,290) $ 11,905 $ 18,431
State and local 357 234 954
Total current (9,933) 12,139 19,385
Deferred:
Federal (2,482) (4,141) (744)
State and local 1,825 275 (3,769)
Total deferred (657) (3,866) (4,513)
Total income tax provision (credit) $ (10,590) $ 8,273 $ 14,872
The difference between the statutory rate for federal income tax and the
effective income tax rate is as follows:
For the years ended
December 31,
1994 1993 1992
Statutory rate (35.0)% 35.0 % 34.0 %
Effect of:
State and local income taxes 41.0 2.6 (17.9)
Amortization not deductible for tax purposes 30.3 17.8 44.5
Increase in tax rate to 35% on deferred tax liabilities 10.5
Change in estimated tax basis and lives of certain assets (336.3) 80.7
Miscellaneous (1.6) (2.2) 1.5
Effective income tax rate (301.6)% 63.7 % 142.8 %
4.ADVANCES FROM PARENT COMPANY
Advances from parent company consisted of the following at December 31:
( in thousands )
December 31,
1994 1993
9.5% note, due to Scripps through 2017 $ 127,019 $ 128,504
11% note, due to Scripps through 2017 66,806 67,423
Variable rate borrowings from SHI 142,507 129,052
Total advances $ 336,332 $ 324,979
Scripps Cable has a variable rate borrowing agreement with SHI. Interest
on the borrowings is charged at 1% over the prime interest rate. SHI also
manages Scripps Cable's daily flow of cash (see Note 7). Net cash
deficiencies are included in variable rate borrowings. Interest on cash
deficiencies is charged at SHI's short-term borrowing rate.
Scheduled maturities of the 9.5% and 11% notes are as follows: 1995,
$2,319,000; 1996, $2,558,000; 1997, $2,822,000; 1998, $3,114,000; 1999,
$3,436,000; and later years, $179,576,000. All advances are classified as
non-current as such amounts can be refinanced on a long-term basis.
5.EMPLOYEE BENEFIT PLANS
SHI sponsors a defined benefit plan covering substantially all employees of
Scripps Cable. Benefits are generally based on the employees' compensation
and years of service. Funding is based on the requirements of the plan and
applicable federal laws.
SHI also sponsors a defined contribution plan covering substantially all
employees of Scripps Cable. Scripps Cable matches a portion of employees'
voluntary contributions to the plan.
Retirement plans expense allocated to Scripps Cable consisted of the
following:
( in thousands )
For the years ended
December 31,
1994 1993 1992
Service cost $ 684 $ 615 $ 450
Interest cost 321 284 240
Actual return on plan assets (20) 67 30
Net amortization and deferral 58 (43) 80
Defined benefit plan 1,043 923 800
Defined contribution plan 429 373 346
Total retirement plans expense $ 1,472 $ 1,296 $ 1,146
Assumptions used in the accounting for the defined benefit plan were
as follows:
For the years ended
December 31,
1994 1993 1992
Discount rate as of December 31 8.5% 7.0% 8.0%
Expected long-term rate of return on plan assets 9.5% 8.0% 9.0%
Rate of increase in compensation levels 5.0% 3.5% 4.5%
Scripps Cable's allocation of the funded status of the defined benefit
plan at December 31 was as follows:
( in thousands )
For the years ended
December 31,
1994 1993 1992
Actuarial present value of projected benefits $ 4,462 $ 4,631 $ 3,579
Plan assets at fair value 2,411 851 891
Projected benefits in excess of plan assets $ 2,051 $ 3,780 $ 2,688
Plan assets primarily consist of marketable equity and fixed-income
securities.
6.COMMITMENTS AND CONTINGENCIES
In 1994 Scripps Cable accrued $6,500,000 as an estimate of the ultimate
costs of certain lawsuits. Scripps Cable is also involved in other
litigation arising in the ordinary course of business, none of which is
expected to result in material loss.
In 1994 customers of the Sacramento cable television system were awarded
special rebates in connection with litigation concerning the system's
pricing in the late 1980s. The rebates and related legal fees totaled
$2,993,000.
Minimum payments on non-cancelable leases at December 31, 1994 were as
follows: 1995, $415,000; 1996, $214,000; 1997, $195,000; 1998, $170,000;
1999, $134,000; and later years, $710,000.
Rental expense for cancelable and non-cancelable leases was as follows:
1994, $3,790,000; 1993, $4,270,000; and 1992, $4,000,000.
7.PARENT COMPANY RELATIONSHIP
Scripps Cable participates in SHI's controlled disbursement system, where
the bank sends daily notification of checks presented for payment. SHI
transfers funds from other sources to cover checks presented for payment.
This program generally results in book overdrafts as a result of checks
outstanding. These book overdrafts have been classified as Accounts
Payable in the Combined Balance Sheets.
SHI also manages Scripps Cable's daily flow of cash. Cash excesses or
deficiencies earn or incur interest at appropriate short-term market rates.
Cash deficiencies are classified as Advances From Parent Company in the
accompanying Combined Balance Sheets (see Note 4).
The balance of advances, including cash deficiencies, at December 31, 1994
and 1993 was $336,332,000 and $324,979,000. Interest charged on advances
and cash deficiencies was $33,447,000 in 1994, $28,916,000 in 1993, and
$30,479,000 in 1992. Interest accrued on the advances at December 31 was
$1,618,000 in 1994 and $1,635,000 in 1993.
The federal tax provision (credit) allocated to Scripps Cable was
($12,772,000) in 1994, $7,764,000 in 1993, and $17,687,000 in 1992. The
current federal income tax payable (receivable) at December 31 was
($350,000) in 1994 and $2,510,000 in 1993.
Scripps Cable also purchases certain materials and services from SHI. The
prices charged are generally equal to prices that Scripps Cable would have
been able to negotiate on its own. SHI also provides management services
to all of its subsidiaries. Scripps Cable's share of the cost of such
services was $2,957,000 in 1994, $2,293,000 in 1993, and $2,252,000 in
1992.
8. PROPOSED TRANSACTION
In October 1995 Scripps reached a definitive agreement that will result in
Scripps Cable being owned by Comcast Corporation ("Comcast") through a tax-
free transaction. In the transaction Scripps will transfer to its
shareholders ownership of its non-cable operations in a separate entity
("New Scripps"). Following the transaction each Scripps shareholder will
receive one share in New Scripps and shares of Comcast in exchange for each
share of Scripps owned prior to the transaction. The number of Comcast
shares received by Scripps shareholders will depend upon the market price
of Comcast shares during a specified period shortly prior to closing.
The transaction is expected to close in 1996 and is conditioned upon, among
other things, approval by Scripps and Comcast shareholders. Controlling
shareholders in Scripps and Comcast have agreed to vote in favor of the
transaction.
Certain liabilities included in these combined financial statements will
not be assumed by Comcast. At September 30, 1995 those liabilities totaled
approximately $331,400,000.
FINANCIAL STATEMENTS AND FINANCIAL INFORMATION
See index to financial statements at page F-1 of this Form 8-K.
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 : December 28, 1995 By: /s/ D. J. Castellini
D. J. Castellini
Senior Vice President, Finance &
Administration
THE E.W. SCRIPPS COMPANY
Index to Financial Statements and Financial Information
Item No. Page
THE E.W. SCRIPPS COMPANY
(A) 1. Selected Financial Data 27
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 29
3. Independent Auditors' Report 38
4. Consolidated Balance Sheets 39
5. Consolidated Statements of Income
and Retained Earnings 41
6. Consolidated Statements of Cash Flows 42
7. Consolidated Statements of Stockholders' Equity 43
8. Notes to Consolidated Financial Statements 44
9. Valuation and Qualifying Accounts 63
SCRIPPS CABLE
(B) 1. Selected Financial Data 69
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations of Scripps Cable 70
3. Independent Auditors' Report 73
4. Combined Balance Sheets 74
5. Combined Statements of Income 76
6. Combined Statements of Cash Flows 77
7. Notes to Combined Financial Statements 78
THE E.W. SCRIPPS COMPANY
Index to Pro Forma Financial Information
Item No. Page
(B) 1. Pro Forma Balance Sheet as of September 30, 1995. P - 2
2. Pro Forma Statements of Income for the Nine Months
Ended September 30, 1995. P - 4
3. Pro Forma Statements of Income for the Year Ended
December 31, 1994. P - 5
4. Notes to Pro Forma Financial Information. P - 6
THE E.W. SCRIPPS COMPANY
PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1995
( in thousands )
REPORTED SCRIPPS PRO FORMA PRO FORMA
AMOUNTS CABLE ADJUSTMENTS AMOUNTS
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 14,579 $ 970 $ 970 (A)
(3,823) (F)
(8,000) (D) $ 2,756
Short-term investments 38,000 (38,000) (F)
Accounts and notes receivable 159,464 12,887 146,577
Less allowances 5,377 1,355 4,022
Net accounts and notes receivable 154,087 11,532 142,555
Program rights and production costs 46,199 46,199
Refundable income taxes 23,255 23,255
Inventories 31,790 15,314 16,476
Deferred income taxes 23,771 5,421 18,350
Miscellaneous 22,651 1,855 20,796
Total current assets 354,332 35,092 (48,853) 270,387
INVESTMENTS 52,375 267 52,108
PROPERTY, PLANT, AND EQUIPMENT
Land and improvements 43,460 3,700 39,760
Buildings and improvements 190,730 9,577 181,153
Equipment 1,080,825 570,544 510,281
Total property, plant, and equipment 1,315,015 583,821 731,194
Less accumulated depreciation 602,111 295,410 306,701
Net property, plant, and equipment 712,904 288,411 424,493
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets 867,783 214,777 653,006
Less accumulated amortization 271,804 119,502 152,302
Net goodwill and other intangible assets 595,979 95,275 500,704
OTHER ASSETS:
Program rights and production costs (less current 55,577 55,577
portion)
Miscellaneous 9,907 356 9,551
Total other assets 65,484 356 65,128
TOTAL ASSETS $ 1,781,074 $ 419,401 $ (48,853) $ 1,312,820
THE E.W. SCRIPPS COMPANY
PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1995
( in thousands )
REPORTED SCRIPPS PRO FORMA PRO FORMA
AMOUNTS CABLE ADJUSTMENTS AMOUNTS
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 47,043 $ 23,460 (F) $ 70,503
Accounts payable 91,414 $ 13,607 3,061 (A) 80,868
Customer deposits and unearned revenue 23,248 2,401 20,847
Accrued liabilities:
Employee compensation and benefits 31,322 1,398 29,924
Artist and author royalties 9,277 9,277
Copyright and programming costs 7,523 7,302 221
Interest 2,297 1,618 1,618 (A)
(1,323) (E) 974
Income taxes 2,345 6,966 6,966 (A) 2,345
Miscellaneous 47,243 15,347 7,500 (A) 39,396
Total current liabilities 261,712 48,639 41,282 254,355
DEFERRED INCOME TAXES 161,393 79,737 (2,850) (A) 78,806
ADVANCES FROM PARENT COMPANY 303,371 303,371 (A)
LONG-TERM DEBT (LESS CURRENT PORTION) 63,461 (61,272) (E) 2,189
OTHER LONG-TERM OBLIGATIONS AND MINORITY INTERESTS 133,461 9,490 8,900 (A) 132,871
STOCKHOLDERS' EQUITY 1,161,047 (21,836) (338,284) (D) 844,599
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,781,074 $ 419,401 $ (48,853) $ 1,312,820
THE E.W. SCRIPPS COMPANY
PRO FORMA STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
( in thousands, except per share data )
REPORTED SCRIPPS PRO FORMA PRO FORMA
AMOUNTS CABLE ADJUSTMENTS AMOUNTS
OPERATING REVENUES:
Advertising $ 337,234 $ 337,234
Circulation 93,242 93,242
Other newspaper revenue 38,156 38,156
Total newspapers 468,632 468,632
Broadcasting 211,711 211,711
Cable television 207,855 $ 207,855
Entertainment 68,964 68,964
Total operating revenues 957,162 207,855 749,307
OPERATING EXPENSES:
Employee compensation and benefits 285,273 32,359 252,914
Program rights and production costs 94,436 52,286 42,150
Newsprint and ink 88,260 88,260
Other operating expenses 227,799 38,526 $ 1,402 (G)
547 (B) 191,222
Depreciation 69,089 34,712 100 (G) 34,477
Amortization of intangible assets 21,548 6,393 15,155
Total operating expenses 786,405 164,276 2,049 624,178
OPERATING INCOME 170,757 43,579 (2,049) 125,129
OTHER CREDITS (CHARGES):
Interest on advances from parent (25,571) (25,571) (B)
Interest expense (8,875) (252) 3,402 (E)
(1,818) (F) (7,039)
Corporate management fees (2,657) (2,657) (B)
Miscellaneous, net 3,415 2,314 (1,294) (F)
1,502 (G) 1,309
Net other credits (charges) (5,460) (26,166) (26,436) (5,730)
INCOME BEFORE TAXES AND MINORITY INTERESTS 165,297 17,413 (28,485) 119,399
PROVISION FOR INCOME TAXES 69,823 6,603 (10,824) (C) 52,396
INCOME BEFORE MINORITY INTERESTS 95,474 10,810 (17,661) 67,003
MINORITY INTERESTS 2,587 2,587
NET INCOME $ 92,887 $ 10,810 $ (17,661) $ 64,416
AVERAGE WEIGHTED SHARES 79,930 79,930 79,930 79,930
EARNINGS PER SHARE $1.16 $.14 ($.22) $.81
THE E.W. SCRIPPS COMPANY
PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
( in thousands, except per share data )
REPORTED SCRIPPS PRO FORMA PRO FORMA
AMOUNTS CABLE ADJUSTMENTS AMOUNTS
OPERATING REVENUES:
Advertising $ 433,551 $ 433,551
Circulation 116,684 116,684
Other newspaper revenue 52,703 52,703
Total newspapers 602,938 602,938
Broadcasting 288,184 288,184
Cable television 255,356 $ 255,356
Entertainment 73,473 73,473
Total operating revenues 1,219,951 255,356 964,595
OPERATING EXPENSES:
Employee compensation and benefits 359,972 41,343 318,629
Program rights and production costs 121,696 61,614 60,082
Newsprint and ink 94,160 94,160
Other operating expenses 303,809 61,764 $ 6,500 (G)
633 (B) 249,178
Depreciation 85,883 45,843 40,040
Amortization of intangible assets 30,384 11,488 18,896
Total operating expenses 995,904 222,052 7,133 780,985
OPERATING INCOME 224,047 33,304 (7,133) 183,610
OTHER CREDITS (CHARGES):
Interest on advances from parent company (33,447) (33,447) (B)
Interest expense (16,616) (342) 6,195 (E)
(3,804) (F) (13,883)
Corporate management fees (2,957) (2,957) (B)
Net gains and unusual items 11,151 3,500 (G) 14,651
Miscellaneous, net (986) (69) (335) (F) (1,252)
Net other credits (charges) (6,451) (36,815) (30,848) (484)
INCOME BEFORE TAXES AND MINORITY INTERESTS 217,596 (3,511) (37,981) 183,126
PROVISION FOR INCOME TAXES 86,925 (10,590) (16,293) (C) 81,222
INCOME BEFORE MINORITY INTERESTS 130,671 7,079 (21,688) 101,904
MINORITY INTERESTS 7,988 (155) (H) 7,833
NET INCOME $ 122,683 $ 7,079 $ (21,533) $ 94,071
AVERAGE WEIGHTED SHARES 76,246 76,246 76,246 76,246
EARNINGS PER SHARE $1.61 $.09 ($.28) $1.23
THE E.W. SCRIPPS COMPANY
NOTES TO PRO FORMA FINANCIAL INFORMATION
On October 28, 1995 The E.W. Scripps Company ("Scripps") and Comcast
Corporation ("Comcast") reached an agreement pursuant to which Scripps will
contribute all of its non-cable television assets to Scripps Howard, Inc.
("SHI" - a wholly-owned subsidiary of Scripps and the direct or indirect
parent of all of Scripps' operations) and SHI's cable television system
subsidiaries ("Scripps Cable") will be transferred to and held directly by
Scripps. Scripps Cable will then be acquired by Comcast through a tax-free
merger (the "Merger") with Scripps. The remaining SHI business will
continue as "New Scripps", which will be distributed in a tax-free "spin-
off" to Scripps shareholders (the "Spin-Off") and thereafter renamed The
E.W. Scripps Company. As a condition of the Merger Scripps has agreed to
retire or defease its $61 million aggregate principal amount 7.375% notes
due in 1998 ("Defeasance"). The Merger, Spin-off and Defeasance are
collectively referred to as the "Transactions." Upon completion of the
Transactions the separate existence of Scripps will cease. The
accompanying unaudited pro forma balance sheet and statements of income
of Scripps assume completion of the Transactions.
The pro forma balance sheet as of September 30, 1995 assumes the
Transactions occurred as of that date. The pro forma statements of income
assume the Transactions were completed at the beginning of those periods.
Pro forma adjustments primarily represent liabilities which will not be
assumed by Comcast, management fees and other items charged to Scripps
Cable that will not be charged to Comcast, and defeasance of Scripps'
7.375% notes due in 1998. Earnings per share is based on the weighted
average shares outstanding for each period.
The pro forma financial information is not necessarily indicative of the
results which actually would have occurred had the Transactions been
completed as of the dates indicated or which may occur in the future.
Explanation of specific pro forma adjustments are as follows:
(A) Assets not purchased by Comcast. Liabilities of Scripps Cable not
assumed by Comcast.
(B) Intercompany interest, management fees and other items that will
not be charged to Comcast.
(C) Tax effect of pro forma adjustments.
(D) Effect of the Transactions, net of estimated expenses of $8.0 million,
on Stockholders' Equity.
(E) Defeasance of 7.375% notes and related reduction in interest expense.
(F) Cash and short-term investments used to defease 7.375% notes and
related reduction in investment income. Also incurrence of additional
short-term debt to defease the notes and interest on the short-term
debt at appropriate short-term rates.
(G) Miscellaneous adjustments and entries to conform classification of
Scripps and Scripps Cable reported amounts.
(H) Reduction of minority interest in cable television systems owned by
Scripps Howard Broadcasting Company ("SHB"). SHB was 86% owned by
Scripps prior to September 1994.
THE E.W. SCRIPPS COMPANY
Index to Exhibits
Item No. Page
10 Agreement and Plan of Merger by and among
The E.W. Scripps Company, Scripps Howard, Inc.,
and Comcast Corporation (1)
12 Computation of Ratio of Earnings to Fixed Charges E - 2
24 Independent Auditors' Consent E - 3
27 Financial Data Schedule E - 4
(1) The Agreement and Plan of Merger will be filed by
amendment to this Report on Form 8-K.
THE E.W. SCRIPPS COMPANY EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
( in thousands )
September 30, Years ended December 31,
1995 1994 1994 1993 1992
EARNINGS AS DEFINED:
Earnings from operations before income taxes after eliminating
undistributed earnings of 20%- to 50%-owned affiliates $ 125,502 $ 163,722 $ 185,611 $ 209,278 $ 165,366
Fixed charges excluding capitalized interest and preferred stock
dividends of majority-owned subsidiary companies 11,293 16,074 20,966 30,240 38,150
Earnings as defined $ 136,795 $ 179,796 $ 206,577 $ 239,518 $ 203,516
FIXED CHARGES AS DEFINED:
Interest expense, including amortization of debt issue costs $ 8,623 $ 12,934 $ 16,274 $ 26,397 $ 33,792
Interest capitalized 270 66 4,458
Portion of rental expense representative of the interest factor 2,670 2,418 3,696 3,181 3,920
Preferred stock dividends of majority-owned subsidiary
companies 60 60 80 82 119
Share of interest expense related to guaranteed debt
of a 50%-owned affiliated company 722 996 662 438
Fixed charges as defined $ 11,623 $ 16,134 $ 21,046 $ 30,388 $ 42,727
RATIO OF EARNINGS TO FIXED CHARGES 11.77 11.14 9.82 7.88 4.76
EXHIBIT 24
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements
Nos. 33-53953, 33-32740, 33-35525, 33-47828, and 33-63398 and 33-59701 of
The E.W. Scripps Company and subsidiary companies on Form S-8 and
Registration Statement No. 33-43989 of The E.W. Scripps Company and
subsidiary companies on Form S-3 of the following reports appearing in this
Report on Form 8-K of The E.W. Scripps Company dated December 28, 1995:
Our report dated November 9, 1995 relating to the financial statements of
The E.W. Scripps Company Cable Television Operations
Our report dated January 23, 1995 (December 27, 1995 as to Notes 1 and 12)
relating to the financial statements of The E.W. Scripps Company and
subsidiary companies.
DELLOITTE & TOUCHE LLP
Cincinnati, Ohio
December 28, 1995
5
1000
9-MOS YEAR 3-MOS 6-MOS
9-MOS
DEC-31-1994 DEC-31-1994 DEC-31-1995 DEC-31-1995
DEC-31-1995
SEP-30-1994 DEC-31-1994 MAR-31-1995 JUN-30-1995
SEP-30-1995
12,705 16,609 28,227 25,073
14,579
0 0 0 0
38,000
131,643 150,541 137,501 152,277
146,577
4,567 4,538 4,215 4,193
4,022
12,834 11,768 13,776 14,210
16,476
242,935 268,094 241,094 265,037
625,970
697,659 701,932 708,640 725,140
731,194
280,631 282,398 288,574 298,225
306,701
1,632,397 1,609,424 1,562,848 1,588,111
1,668,403
185,845 231,369 208,043 196,483
232,218
110,358 110,431 63,409 63,433
63,461
0 0 0 0
0
0 0 0 0
0
798 799 799 800
800
1,072,887 1,082,669 1,104,427 1,136,325
1,160,247
1,632,397 1,609,424 1,562,848 1,588,111
1,668,403
0 0 0 0
0
699,735 964,595 245,269 504,976
749,307
0 0 0 0
0
0 0 0 0
0
555,881 777,115 204,188 410,682
620,307
2,593 3,870 844 2,107
3,871
12,934 16,274 3,353 6,182
8,623
159,561 181,070 37,666 86,781
119,109
67,597 80,441 16,971 38,098
52,285
84,896 92,796 19,760 46,880
64,237
14,130 29,887 9,534 18,373
28,650
0 0 0 0
0
0 0 0 0
0
99,026 122,683 29,114 65,263
92,887
$1.13 $1.22 $0.25 $0.59
$0.80
$1.13 $1.22 $0.25 $0.59
$0.80
