SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A (2)
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
SECOND AMENDMENT TO CURRENT 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
(D) Description of Scripps Cable 5
(E) Financial Statements and Exhibits 28
(F) Signatures 28
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
This second amendment to The E.W. Scripps Company Current Report on Form 8-K
filed on December 29, 1995 supersedes the information included in the
original Current Report on Form 8-K in its entirety. The financial
statements of Scripps Cable as of December 31, 1995 and for the three years
then ended included in this second amendment replace the Scripps Cable
financial statements as of December 31, 1994 and for the three years then
ended included in the original filing. This second amendment also replaces
the material included under the following captions in the original filing:
Description of the Transactions, Litigation Regarding the Transactions,
Description of Scripps Cable, and Pro Forma Financial Information. The
information included in the original filing under the caption Description of
Scripps and New Scripps, updated through December 31, 1995, may be found in
The E.W. Scripps Company Annual Report on Form 10-K for the year ended
December 31, 1995, which was filed on March 28, 1996.
DESCRIPTION OF THE TRANSACTIONS
On October 28, 1995, 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 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") prior to the Merger and thereafter renamed The E.W. Scripps Company.
As a condition of the Merger Scripps has agreed to retire or defease its $32
million aggregate principal amount 7.375% notes due in 1998 ("Defeasance").
The Merger, Spin-off and Defeasance are collectively referred to as the
"Transactions."
The total value in Comcast shares that Scripps shareholders are expected to
receive is $1.575 billion, subject to certain closing adjustments. In the
Spin-Off Scripps shareholders will 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, and accordingly New Scripps' results of operations for periods
prior to the consummation of the Transactions will be identical to the
historical results previously reported by Scripps. Because Scripps Cable
represents an entire business segment that will be divested, its results are
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, are reported as
"continuing operations." Management of New Scripps intends to continue to
pay the same quarterly dividend per share as Scripps. Future dividends
will, however, be subject to New Scripps' earnings, financial condition, and
capital requirements.
The closing date of the Transactions is expected to be in the third quarter
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, and as a result completion of the Transactions is assured so
long as such conditions are met and such regulatory approvals (including
approval of the Spin-Off as a tax-free transaction by the Internal Revenue
Service and approval of the Merger by the Federal Communications Commission
and certain franchise authorities) are received. While there can be no
assurances regarding such approvals, management believes all such approvals
will be obtained.
LITIGATION REGARDING THE TRANSACTIONS
Stockholders' Litigation - 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 Merger
and related 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 Stockholders' Litigation challenges the terms of the Merger and names
Scripps and its directors as defendants. The 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 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 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 class members
to participate in the review of any transaction relating to the disposition
of the Scripps cable television businesses.
The defendants named in the Stockholders' Litigation deny the material
allegations asserted against them. It is the defendants' intention to
defend vigorously the Stockholders' Litigation. Management believes the
Stockholders' Litigation is without merit and will not have a material
adverse effect on Scripps' results of operations or financial position.
River City Litigation - On January 3, 1996 River City Cablevision, Inc.
("River City") commenced an action in California Superior Court, Sacramento
County, against Scripps Howard Cable Company of Sacramento ("Scripps Howard
Sacramento") relating to the partnership that operates the Scripps cable
television system in Sacramento. River City is the minority partner and
Scripps Howard Sacramento is the majority partner of the partnership. In
the complaint, River City alleges breach of fiduciary duty, breach of
contract and other claims based upon the contention that Scripps Howard
Sacramento improperly misappropriated more than $100 million from the
partnership through unauthorized or improper loans, interest payments and
management fees. Management believes this action is without merit and
intends to contest it vigorously. Management does not believe that this
action will have a material adverse effect on Scripps' financial position or
results of operations.
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. While Scripps Cable purchased several cable
television systems adjacent to existing service areas in the periods between
January 1, 1991 and December 31, 1995, substantially all of Scripps Cable's
subscriber growth has been achieved by increasing subscribers in its
existing service areas. The acquisitions have not had a significant impact
on operations.
In 1995 Scripps Cable sold its Barbourville, Ky. cable television system.
The Barbourville system had approximately 2,500 subscribers. Sale of the
system did not have a significant impact on operating revenues or operating
income.
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 December 31 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
December 31, 1995
Sacramento, CA cluster 448.3 230.3 51% 324.8 141%
Chattanooga, TN cluster 179.9 113.3 63% 66.1 58%
Knoxville, TN cluster 150.5 107.2 71% 55.2 51%
Atlanta, GA cluster 100.3 74.6 74% 46.1 62%
Bluefield, WV cluster 75.0 55.1 73% 30.6 56%
Lake County, FL cluster 70.9 54.0 76% 18.6 34%
Rome, GA cluster 65.1 50.3 77% 36.4 72%
Elizabethtown, KY cluster 49.4 43.4 88% 24.7 57%
Longmont, CO cluster 53.3 38.2 72% 30.3 79%
Total 1,192.7 766.4 64% 632.8 83%
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%
(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 is as follows:
( in thousands )
For the years ended December 31,
1995 1994 1993 1992 1991
Basic and cable
programming services $ 183,196 $ 165,682 $ 171,703 $ 163,069 $ 145,258
Premium programming services 53,297 49,242 46,401 44,559 45,280
Other monthly services 16,873 17,422 14,611 13,002 13,807
Advertising 13,215 11,367 8,870 8,394 7,071
Installation and other 12,901 11,643 10,207 9,094 6,775
Total operating revenues $ 279,482 $ 255,356 $ 251,792 $ 238,118 $ 218,191
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
proper complaint, 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 by the FCC and local franchise authorities
total less than $300,000 through December 31, 1995. 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 adverse effect on
Scripps Cable's results of operations or financial position.
The Telecommunications Act of 1996 (the "Telecommunications Act") provides
some significant relief from the burdens of rate regulation by, among other
things, expanding the flexibility of operators to set differing rates for
providing services to multiple dwelling units and by modifying the threshold
for the filing of a complaint that would trigger review of new non-basic
cable programming rates. Most importantly, the new law sets a maximum
timetable of three years for the elimination of all rate regulation of non-
basic cable programming services.
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 broadcast satellite delivery services and more advanced
"wireless cable systems" gain greater consumer acceptance.
In the past federal cross-ownership restrictions limited entry into the
cable television business by the telephone companies. After a string of
judicial determinations that these restrictions were unconstitutional, the
Telecommunications Act eliminated them. The Telecommunications Act further
sets out alternative means by which telephone companies may enter the
business of distribution cable-like video services, including operating as a
locally franchised cable operator.
Prior to the elimination of these restrictions, some telephone companies
chose to initiate efforts to offer cable programming under a regulatory
scheme known as Video Dial Tone ("VDT"), which limits the telephone
company's participation in programming the video delivery system but avoids
the need to obtain a local cable franchise. BellSouth has initiated a trial
of such a system in a segment of Scripps Cable's Atlanta cluster. The
Telecommunications Act vacates the FCC's VDT rules, but sets out guidelines
for the offering of a somewhat similar "open video system" service. It is
not known how or whether BellSouth will proceed with this trial.
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. 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 cannot predict the extent to which the anticipated competition
from telephone companies, other cable television operators, other
distribution systems for delivering video programming to the home, and other
potential competitors may effect 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. 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.
The 1992 Cable Act substantially expanded this regulation. It, among other
things: (i) reimposed rate regulations on most cable television systems;
(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 Telecommunications Act offers some significant relief from the 1992
Cable Act's rate regulation (see "Revenues and Pricing"). The
Telecommunications Act also seeks to encourage competition in the offering
of local telephone service from cable operators and others by, among other
things, requiring local telephone companies to provide interconnection with
their existing networks and by precluding the state from prohibiting
competition in local telephone service. Nevertheless, developing the
regulations that will govern how such competitors may offer telephone local
service is expected to be controversial and time-consuming.
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.
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. With the
exception of the 1991 income statement and cash flow data, and the 1992 and
1991 balance sheet data, which have not been audited, all data have been
derived from audited combined financial statements of Scripps Cable.
SCRIPPS CABLE
SELECTED FINANCIAL DATA
( in millions )
For the years ended December 31,
1995(1) 1994(1) 1993(1) 1992(1) 1991(1)
Summary of Operations
Operating revenues $ 279.5 $ 255.4 $ 251.8 $ 238.1 $ 218.2
Operating income
Operating income excluding unusual items $ 64.0 $ 42.8 $ 45.2 $ 43.7 $ 35.7
Accrual for certain lawsuits (2) (1.4) (6.5)
Special rebates to subscribers(3) (3.0)
Settlement of antitrust and unfair trade practices litigation (4) (12.0)
Total operating income 62.6 33.3 45.2 43.7 23.7
Interest expense (35.3) (33.8) (29.8) (30.9) (34.0)
Gain on sale of cable television system (1) 1.5
Miscellaneous, net 0.8 (3.0) (2.4) (2.4) (1.8)
Income taxes (5) (11.9) 10.6 (8.3) (14.9) (0.6)
Net income (loss) $ 17.7 $ 7.1 $ 4.7 $ (4.5) $ (12.7)
Other Financial Data
EBITDA(6) - excluding unusual items(2,3,4) $ 118.1 $ 100.1 $ 105.3 $ 101.3 $ 91.6
EBITDA as a percentage of operating revenues 42.2% 39.2% 41.8% 42.5% 42.0%
Depreciation and amortization 54.1 57.3 60.0 57.6 55.9
Net cash flow from operating activities 72.0 56.7 65.4 51.4 50.1
Investing activity:
Capital expenditures (47.5) (41.6) (67.0) (58.3) (36.8)
Other (investing)/divesting activity, net 2.6 (24.6) (3.8) (3.0) (4.6)
Total assets 422.6 438.4 430.1 419.9 420.7
Advances from parent company 312.7 336.3 325.0 318.3 310.7
Stockholders' equity (deficiency) (15.0) (32.6) (39.7) (44.4) (40.0)
Notes to Selected Financial Data
(1) 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. The acquisitions and the
Barbourville sale had no significant impact on operating revenues or
operating income.
(2) In 1994 Scripps Cable accrued $6.5 million as an estimate of the
ultimate costs, including attorneys' fees and settlements, of certain
lawsuits against the Sacramento cable television system related
primarily to employment issues and to the timing and amount of late-
payment fees assessed to subscribers. The accrual reduced 1994 net
income $4.0 million. In 1995 Scripps Cable accrued an additional $1.4
million based upon a reassessment of the probable costs of these and
additional employment-related lawsuits. The additional accrual reduced
1995 net income $0.9 million.
(3) 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.
(4) 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.
(5) 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 liability 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.
(6) Earnings before interest, income taxes, corporate management fees,
depreciation, and amortization ("EBITDA") is included in the Selected
Financial Data 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. However, management's belief that EBITDA is a more useful
measure of year-over-year performance is not shared by the accounting
profession.
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 as EBITDA excludes significant costs of doing business.
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",
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. However, management's belief that EBITDA is a more useful
measure of year-over-year performance is not shared by the accounting
profession.
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 as
EBITDA excludes significant costs of doing business.
Combined results of operations are as follows:
( in thousands, except per subscriber information)
For the years ended
December 31,
1995 Change 1994 Change 1993
Operating revenues:
Basic and cable
programming services $ 183,196 10.6 % $ 165,682 (3.5)% $ 171,703
Premium programming services 53,297 8.2 % 49,242 6.1 % 46,401
Other monthly service 16,873 (3.2)% 17,422 19.2 % 14,611
Advertising 13,215 16.3 % 11,367 28.2 % 8,870
Installation and miscellaneous 12,901 10.8 % 11,643 14.1 % 10,207
Total operating revenues 279,482 9.4 % 255,356 1.4 % 251,792
Operating expenses:
Employee compensation and benefits 42,952 3.9 % 41,343 5.4 % 39,237
Program costs 69,826 13.3 % 61,614 10.9 % 55,548
Other 48,630 (7.0)% 52,271 1.0 % 51,747
Depreciation and amortization 54,099 (5.6)% 57,331 (4.5)% 60,029
Total operating expenses 215,507 1.4 % 212,559 2.9 % 206,561
Operating income
excluding unusual items 63,975 49.5 % 42,797 (5.4)% 45,231
Unusual items (1,402) (9,493)
Operating income 62,573 33,304 45,231
Interest expense (35,258) (33,789) (29,805)
Corporate management fee (2,957) (2,293)
Gain on sale of cable television system 1,502
Other credits (charges) 786 (69) (139)
Income taxes (11,913) 10,590 (8,273)
Net income (loss) $ 17,690 $ 7,079 $ 4,721
Other Financial and Statistical Data:
EBITDA excluding unusual items $ 118,074 17.9 % $ 100,128 (4.9)% $ 105,260
Percent of operating revenues:
Operating income 22.9 % 16.8 % 18.0 %
EBITDA 42.2 % 39.2 % 41.8 %
Capital expenditures $ 47,484 14.1 % $ 41,616 (37.9)% $ 67,019
Average number of basic subscribers 753.1 4.9 % 717.7 4.9 % 684.3
Average monthly revenue
per basic subscriber $ 30.93 4.3 % $ 29.65 (3.3)% $ 30.66
Program costs as a percent
of basic and premium revenue 29.5 % 28.7 % 25.5 %
Homes passed at end of period 1,192.7 1.9 % 1,170.0 2.0 % 1,146.8
Basic subscribers at end of period 766.4 3.7 % 739.2 5.4 % 701.0
Penetration at end of period 64.3 % 63.2 % 61.1 %
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 Scripps Cable accrued $6.5 million as an estimate of the
ultimate costs, including attorneys' fees and settlements, of certain
lawsuits against the Sacramento cable television system related primarily to
employment issues and to the timing and amount of late-payment fees assessed
to subscribers. The accrual reduced 1994 net income $4.0 million. In 1995
Scripps Cable accrued an additional $1.4 million based upon a reassessment
of the probable costs of these and additional employment-related lawsuits.
The additional accrual reduced 1995 net income $0.9 million.
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 1994 the Internal Revenue Service proposed adjustments related to
certain intangible assets and a deduction related to the redemption of
partnership interest in certain of its cable systems. Based upon the
proposed adjustments management changed its estimate of the tax liability
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 $72.0 million in 1995, $56.7 million
in 1994, and $65.4 million in 1993. The increase in 1995 was due to the
substantial increase in EBITDA. The decrease in 1994 was primarily due to
the effects of rate regulation.
In 1995 Scripps Cable reached an agreement to acquire cable television
systems adjacent to its Knoxville and Chattanooga systems for $62.5 million.
The acquisition was completed January 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 have decreased from 1993 levels as the rebuilds of the
Knoxville and Chattanooga systems are substantially completed. Acquisitions
of cable television systems and capital expenditures are financed through
cash flow from operating activities and, if necessary, additional advances
from Scripps.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders,
The E.W. Scripps Company:
We have audited the accompanying combined balance sheets of Scripps Cable
(see Note 1) as of December 31, 1995 and 1994, 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, 1995. These financial
statements are the responsibility of the management of The E.W. Scripps
Company. 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,
1995 and 1994, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
February 22, 1996
SCRIPPS CABLE
COMBINED BALANCE SHEETS
( in thousands )
December 31,
1995 1994
ASSETS
CURRENT ASSETS :
Cash and cash equivalents $ 3,085 $ 2,103
Accounts receivable (less allowances - 1995, $1,288; 1994, $1,115) 12,107 9,914
Inventories 12,822 10,433
Refundable property taxes 10,400
Deferred income taxes 5,421 5,401
Miscellaneous 446 3,186
Total current assets 33,881 41,437
PROPERTY, PLANT, AND EQUIPMENT :
Land and improvements 3,691 3,704
Buildings and improvements 9,529 9,230
Equipment 587,052 548,275
Total property, plant, and equipment 600,272 561,209
Less accumulated depreciation 305,715 266,980
Net property, plant, and equipment 294,557 294,229
GOODWILL AND OTHER INTANGIBLE ASSETS :
Goodwill 40,965 40,671
Non-competition agreements 5,800 5,800
Franchise costs 158,541 159,541
Customer lists 1,719 1,719
Other intangible assets 7,100 7,053
Total goodwill and other intangible assets 214,125 214,784
Less accumulated amortization 120,629 113,067
Net goodwill and other intangible assets 93,496 101,717
OTHER ASSETS 639 993
TOTAL ASSETS $ 422,573 $ 438,376
See notes to combined financial statements.
SCRIPPS CABLE
COMBINED BALANCE SHEETS
( in thousands )
December 31,
1995 1994
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
CURRENT LIABILITIES :
Accounts payable $ 12,244 $ 14,915
Customer deposits and unearned revenue 2,475 3,089
Accrued liabilities :
Employee compensation and benefits 1,174 1,276
Copyright and programming costs 7,164 7,312
Commitments and contingencies 3,784 6,500
Property taxes 1,038 1,674
Interest on advances from parent company 1,599 1,618
Income taxes (22) (437)
Miscellaneous 5,818 5,632
Total current liabilities 35,274 41,579
DEFERRED INCOME TAXES 80,193 80,622
ADVANCES FROM PARENT COMPANY 312,737 336,332
OTHER LONG-TERM OBLIGATIONS 9,325 12,489
STOCKHOLDER'S DEFICIENCY :
Capital stock 1,801 1,801
Additional paid-in capital 35,144 35,144
Retained earnings (deficit) (51,901) (69,591)
Total stockholder's deficiency (14,956) (32,646)
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIENCY $ 422,573 $ 438,376
See notes to combined financial statements.
SCRIPPS CABLE
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
( in thousands )
For the years ended
December 31,
1995 1994 1993
OPERATING REVENUES :
Basic services $ 183,196 $ 165,682 $ 171,703
Premium programming services 53,297 49,242 46,401
Other monthly services 16,873 17,422 14,611
Advertising 13,215 11,367 8,870
Installation and miscellaneous 12,901 11,643 10,207
Total operating revenues 279,482 255,356 251,792
OPERATING EXPENSES :
Employee compensation and benefits 42,952 41,343 39,237
Cable television programming costs 69,826 61,614 55,548
Other operating expenses 50,032 61,764 51,747
Depreciation and amortization 54,099 57,331 60,029
Total operating expenses 216,909 222,052 206,561
OPERATING INCOME 62,573 33,304 45,231
OTHER CREDITS (CHARGES) :
Interest on advances from parent company (34,915) (33,447) (28,916)
Other interest expense (343) (342) (889)
Corporate management fee (2,957) (2,293)
Gain on sale of cable television system 1,502
Miscellaneous, net 786 (69) (139)
Net other credits (charges) (32,970) (36,815) (32,237)
INCOME (LOSS) BEFORE INCOME TAXES 29,603 (3,511) 12,994
PROVISION (CREDIT) FOR INCOME TAXES 11,913 (10,590) 8,273
NET INCOME 17,690 7,079 4,721
RETAINED EARNINGS (DEFICIT) :
Beginning of year (69,591) (76,670) (81,391)
End of year $ (51,901) $ (69,591) $ (76,670)
See notes to combined financial statements.
SCRIPPS CABLE
COMBINED STATEMENTS OF CASH FLOWS
( in thousands )
For the years ended
December 31,
1995 1994 1993
Cash Flows From Operating Activities:
Net income $ 17,690 $ 7,079 $ 4,721
Adjustments to reconcile net income
to net cash flows from operating activities:
Depreciation and amortization 54,099 57,331 60,029
Gain on sale of cable television system (1,502)
Deferred income taxes (449) (657) (3,866)
Adjustment of liability for prior year income taxes (11,800)
Payment of prior year income taxes to Scripps (7,400)
Prepaid franchise fees 2,576 2,574 2,574
Refundable property taxes 10,400 (6,612) (3,788)
Commitments and contingencies (2,716) 6,500
Changes in certain working capital accounts (5,431) 4,262 6,504
Miscellaneous, net (2,652) 5,421 (809)
Net operating activities 72,015 56,698 65,365
Cash Flows From Investing Activities:
Additions to property, plant, and equipment (47,484) (41,616) (67,019)
Additions to intangible assets (124) (89) (62)
Sale of cable television system 2,800
Purchase of cable television systems and minority interests (384) (26,501) (7,121)
Miscellaneous, net 254 2,037 3,377
Net investing activities (44,938) (66,169) (70,825)
Cash Flows From Financing Activities:
Increases in advances from parent company 13,455 8,613
Payments on long-term debt (71)
Payments on advances from parent company (23,595) (2,102) (1,906)
Miscellaneous, net (2,500) (1,875) (593)
Net financing activities (26,095) 9,478 6,043
Increase in Cash and Cash Equivalents 982 7 583
Cash and Cash Equivalents:
Beginning of year 2,103 2,096 1,513
End of year $ 3,085 $ 2,103 $ 2,096
Supplemental Cash Flow Disclosures:
Interest paid $ 35,142 $ 33,472 $ 29,821
Income taxes paid 12,747 10,947 8,582
See notes to combined financial statements.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The combined financial statements of 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"), which is a wholly-owned subsidiary of The E.W. Scripps Company
("Scripps"). 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 8).
On October 28, 1995 Scripps and Comcast Corporation ("Comcast") reached an
agreement pursuant to which Scripps will contribute all of its non-cable
television assets to SHI and SHI's cable television systems 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 closing date of the Transactions is expected to be in the third quarter
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, and as a result completion of the Transactions is assured so
long as such conditions are satisfied and such regulatory approvals
(including approval of the Spin-Off as a tax-free transaction by the
Internal Revenue Service and approval of the Merger by the Federal
Communications Commission and certain franchise authorities) are received.
While there can be no assurances regarding such approvals, management
believes all such approvals will be obtained.
Certain liabilities included in these combined financial statements
(primarily income taxes payable, accruals for commitments and contingencies,
and amounts due Scripps) will not be assumed by Comcast. At December 31,
1995 those liabilities totaled approximately $325,300,000.
Nature of Business - Scripps Cable operates cable television systems with
766,000 subscribers (at December 31, 1995) in several states in the
southeastern United States, Colorado, and Sacramento, California. 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. Rate regulations adopted
by the Federal Communications Commission pursuant to the 1992 Cable Act have
affected Scripps Cable's ability to increase rates for certain services.
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.
Use of Estimates - Preparation of the financial statements requires the use
of estimates. Scripps Cable's financial statements include estimates for
such items as income taxes and certain accrued liabilities, such as
copyright and programming costs, property taxes and commitments and
contingencies. Management does not believe it is likely that its estimates
for such items will change materially in the near term.
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 8).
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.
Refundable Property Taxes - In 1991 the property tax valuation of the
Sacramento cable television system was increased. Scripps Cable disputed
the amount and basis for the increased valuation. Refundable property taxes
represent additional property taxes paid by Scripps Cable while the
valuation was under appeal. The appeal was settled in favor of Scripps
Cable in the first quarter of 1995. As a result Scripps Cable received
property tax refunds totaling $10,400,000, excluding interest.
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 and
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.
The Financial Accounting Standards Board issued Financial Accounting
Standard 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
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 Cable is required to adopt in 1996, is not
expected to have any immediate impact on Scripps Cable's results of
operations or financial position.
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. In the three years ended December 31,
1995 substantially all tax benefits allocated to Scripps Cable for taxable
losses or tax deductions would have been available if Scripps Cable were an
independent company.
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.
Other Long-term Obligations - Other long-term obligations primarily include
non-current income taxes payable.
Postemployment Benefits - 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. Scripps Cable is
allocated a share of the annual cost of those coverages. The cost is
allocated using actuarial methods and insurance pricing models.
2. ACQUISITIONS AND DIVESTITURES
Acquisitions
In 1995 SHB reached an agreement to acquire cable television systems
adjacent to the Knoxville and Chattanooga systems for $62,500,000 (the
"Mid-Tenn Purchase"). The acquisitions were completed in January 1996.
Scripps Cable acquired several cable television systems adjacent to
existing service areas in the three years ended December 31, 1995.
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 )
For the years ended
December 31,
1995 1994 1993
Goodwill and other intangible assets acquired $ 247 $ 233 $ 161
Other assets acquired, primarily property, plant, and equipment 137 152 90
Total cable television system acquisitions 384 385 251
Excess of cost over book value of SHB stock
allocated to Scripps Cable and paid to SHI 26,116 6,870
Total $ 384 $ 26,501 $ 7,121
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
In 1994 the IRS proposed adjustments related to certain intangible assets
and a deduction related to the 1986 redemption of a partnership interest in
certain of Scripps Cable's systems. Based upon the proposed adjustments
management changed its estimate of the tax liability 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. In
1995 Scripps reached agreement with the IRS to settle the audits of its 1985
through 1987 tax returns. The settlement payment was charged to the tax
liability for prior years. The liability was not adjusted as a result of
the settlement.
The IRS is currently examining Scripps' consolidated income tax returns for
the years 1988 through 1991. 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,
1995 1994 1993
Accelerated depreciation and amortization $ 81,852 $ 85,870 $ 71,516
Commitments and contingencies (1,438) (2,470)
Refundable property taxes (2,900)
Other temporary differences, net (1,839) (1,892) (1,027)
Total 78,575 81,508 67,589
State net operating loss carryforwards (6,625) (8,949) (7,516)
Valuation allowance for state deferred tax assets 2,822 2,662 1,732
Net deferred tax liability $ 74,772 $ 75,221 $ 61,805
Scripps Cable's state net operating loss carryforwards expire from 1996
through 2005. At each balance sheet date management estimates the amount of
state net operating loss carryforwards that are not expected to be utilized
prior to expiration of the carryforward period. The tax effect of these
unused state net operating loss carryforwards is included in the valuation
allowance.
The provision (credit) for income taxes is as follows:
( in thousands )
For the years ended
December 31,
1995 1994 1993
Current:
Federal $ 11,777 $ (10,290) $ 11,905
State and local 585 357 234
Total current 12,362 (9,933) 12,139
Deferred:
Federal (2,579) (2,482) (4,141)
State and local 2,130 1,825 275
Total deferred (449) (657) (3,866)
Total income tax provision (credit) $ 11,913 $ (10,590) $ 8,273
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,
1995 1994 1993
Statutory rate 35.0 % (35.0)% 35.0 %
Effect of:
State and local income taxes 6.0 41.0 2.6
Amortization not deductible for tax purposes 1.1 30.3 17.8
Increase in tax rate to 35% on deferred tax liabilities 10.5
Change in estimated tax liability for prior years (336.3)
Miscellaneous (1.9) (1.6) (2.2)
Effective income tax rate 40.2 % (301.6)% 63.7 %
4. ADVANCES FROM PARENT COMPANY
Advances from parent company consisted of the following at December 31:
( in thousands )
December 31,
1995 1994
9.5% note, due to Scripps through 2017 $ 125,388 $ 127,019
11% note, due to Scripps through 2017 66,118 66,806
Variable rate borrowings from SHI 121,231 142,507
Total advances $ 312,737 $ 336,332
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 8). 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: 1996,
$2,558,000; 1997, $2,822,000; 1998, $3,114,000; 1999, $3,436,000; 2000,
$3,792,000; and later years, $175,784,000. All advances are classified as
non-current as such amounts can be refinanced on a long-term basis.
5. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information is as follows:
( in thousands )
For the years ended December 31,
1995 1994 1993
Other changes in certain working capital accounts, net:
Accounts receivable $ (2,193) $ (2,064) $ 1,292
Inventories (2,389) 3,946 1,058
Accounts payable (2,671) 2,142 2,489
Accrued income taxes 415 (2,280) 3,417
Other, net 1,407 2,518 (1,752)
Total $ (5,431) $ 4,262 $ 6,504
6. 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,
1995 1994 1993
Service cost $ 579 $ 684 $ 615
Interest cost 331 321 284
Actual return on plan assets (179) (20) 67
Net amortization and deferral 100 58 (43)
Defined benefit plan 831 1,043 923
Defined contribution plan 518 429 373
Total retirement plans expense $ 1,349 $ 1,472 $ 1,296
Assumptions used in the accounting for the defined benefit plan were
as follows:
For the years ended
December 31,
1995 1994 1993
Discount rate as of December 31 7.0% 8.5% 7.0%
Expected long-term rate of return on plan assets 8.0% 9.5% 8.0%
Rate of increase in compensation levels 3.5% 5.0% 3.5%
The plans' long-term rate of return on plan assets has been approximately
one percentage point greater than the discount rate. Management believes
the discount rate plus one percentage point is the best estimate of the long-
term return on plan assets at any point in time. Therefore, when the
discount rate changes, management's expectation for the future long-term
rate of return on plan assets changes in tandem.
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,
1995 1994 1993
Actuarial present value of projected benefits $ 6,401 $ 4,462 $ 4,631
Plan assets at fair value 2,852 2,411 851
Projected benefits in excess of plan assets $ 3,549 $ 2,051 $ 3,780
Plan assets primarily consist of marketable equity and fixed-income
securities.
7. COMMITMENTS AND CONTINGENCIES
In 1994 Scripps Cable accrued $6,500,000 as an estimate of the ultimate
costs, including attorneys' fees and settlements, of certain lawsuits
against the Sacramento cable television system related primarily to
employment issues and to the timing and amount of late-payment fees assessed
to subscribers. In 1995 Scripps Cable accrued an additional $1,400,000
based upon a reassessment of the probable costs of these and additional
employment-related lawsuits. Management believes the possibility of
incurring a loss greater than the amount accrued is remote.
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, 1995 were as
follows: 1996, $1,260,000; 1997, $1,170,000; 1998, $1,160,000; 1999,
$1,160,000; 2000, $1,150,000; and later years, $1,150,000.
Rental expense for cancelable and non-cancelable leases was as follows:
1995, $4,380,000; 1994, $3,790,000; and 1993, $4,270,000.
8. PARENT COMPANY RELATIONSHIP
SHI 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 included in variable rate borrowings from SHI (see
Note 4).
Scripps Cable also 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. Payments are charged against cash excesses or added to cash
deficiencies as checks are issued.
The balance of advances, including cash deficiencies, at December 31, 1995
and 1994 was $312,737,000 and $336,332,000. Interest charged on advances
and cash deficiencies was $34,915,000 in 1995, $33,447,000 in 1994, and
$28,916,000 in 1993. Interest accrued on the advances at December 31 was
$1,599,000 in 1995 and $1,618,000 in 1994.
The federal tax provision (credit) allocated to Scripps Cable was $9,198,000
in 1995, ($12,772,000) in 1994, and $7,764,000 in 1993.
SHI provides management services to all of its subsidiaries. The cost for
such services, which include the costs of Scripps' corporate office, is
allocated on the basis of revenues. Management believes its method of
allocating the cost of such services, which generally would not be incurred
by Scripps Cable if it were an independent company, is reasonable. Scripps
Cable was not charged for such services in 1995. Scripps Cable's share of
the cost of such services was $2,957,000 in 1994 and $2,293,000 in 1993.
FINANCIAL STATEMENTS AND EXHIBITS
Financial Statements and Financial Information
See index to financial statements and financial information at page F-1 of
this second amendment to The E.W. Scripps Company Current Report on Form 8-K
dated December 28, 1995.
Exhibits
See index to exhibits at page E-1 of this second amendment to The E.W.
Scripps Company Current Report on Form 8-K dated December 28, 1995.
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 : March 28, 1996 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
1. Selected Financial Data 10
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations of Scripps Cable 12
3. Independent Auditors' Report 15
4. Combined Balance Sheets 16
5. Combined Statements of Income and Retained Earnings 18
6. Combined Statements of Cash Flows 19
7. Notes to Combined Financial Statements 20
THE E.W. SCRIPPS COMPANY
Index to Pro Forma Financial Information
Item No. Page
(B) 1. Pro Forma Balance Sheet as of December 31, 1995. P - 2
2. Pro Forma Statements of Income for the Year Ended
December 31, 1995. P - 4
3. Notes to Pro Forma Financial Information. P - 5
THE E.W. SCRIPPS COMPANY
PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 1995
( in thousands )
REPORTED SCRIPPS PRO FORMA PRO FORMA
AMOUNTS CABLE ADJUSTMENTS AMOUNTS
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 30,021 $ (7,955) (B)
(8,000) (D) $ 14,066
Short-term investments 25,013 (25,013) (B)
Accounts and notes receivable 170,314 170,314
Less allowances 3,447 3,447
Net accounts and notes receivable 166,867 166,867
Program rights and production costs 52,402 52,402
Refundable income taxes 7,828 7,828
Inventories 11,459 11,459
Deferred income taxes 21,694 21,694
Miscellaneous 18,961 18,961
Total current assets 334,245 (40,968) 293,277
NET ASSETS OF DISCONTINUED CABLE OPERATIONS 305,838 $ 305,838
INVESTMENTS 53,186 53,186
PROPERTY, PLANT, AND EQUIPMENT
Land and improvements 39,774 39,774
Buildings and improvements 180,180 180,180
Equipment 520,733 520,733
Total property, plant, and equipment 740,687 740,687
Less accumulated depreciation 314,728 314,728
Net property, plant, and equipment 425,959 425,959
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets 652,784 652,784
Less accumulated amortization 157,011 157,011
Net goodwill and other intangible assets 495,773 495,773
OTHER ASSETS:
Program rights and production costs (less current portion) 26,829 26,829
Miscellaneous 13,722 13,722
Total other assets 40,551 40,551
TOTAL ASSETS $ 1,655,552 $ 305,838 $ (40,968) $ 1,308,746
THE E.W. SCRIPPS COMPANY
PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 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 $ 78,698 $ (31,658) (A) $ 47,040
Accounts payable 78,538 78,538
Customer deposits and unearned revenue 21,307 21,307
Accrued liabilities:
Employee compensation and benefits 32,901 32,901
Artist and author royalties 6,843 6,843
Interest 2,169 2,169
Income taxes 634 634
Commitments and contingencies 8,803 8,803
Miscellaneous 36,226 36,226
Total current liabilities 266,119 (31,658) 234,461
DEFERRED INCOME TAXES 82,229 82,229
LONG-TERM DEBT (LESS CURRENT PORTION) 2,177 2,177
OTHER LONG-TERM OBLIGATIONS AND MINORITY INTERESTS 113,601 113,601
STOCKHOLDERS' EQUITY 1,191,426 $ 305,838 (9,310) (D) 876,278
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,655,552 $ 305,838 $ (40,968) $ 1,308,746
THE E.W. SCRIPPS COMPANY
PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
( in thousands, except per share data )
REPORTED SCRIPPS PRO FORMA PRO FORMA
AMOUNTS CABLE ADJUSTMENTS AMOUNTS
OPERATING REVENUES:
Advertising $ 462,156 $ 462,156
Circulation 125,354 125,354
Other newspaper revenue 52,888 52,888
Total newspapers 640,398 640,398
Broadcasting 295,228 295,228
Entertainment 94,752 94,752
Total operating revenues 1,030,378 1,030,378
OPERATING EXPENSES:
Employee compensation and benefits 338,987 338,987
Newsprint and ink 123,579 123,579
Program rights and production costs 58,358 58,358
Other operating expenses 261,708 261,708
Depreciation 46,496 46,496
Amortization of intangible assets 20,094 20,094
Total operating expenses 849,222 849,222
OPERATING INCOME 181,156 181,156
OTHER CREDITS (CHARGES):
Interest expense (11,223) $ 4,353 (A)
(1,864) (B) (8,734)
Miscellaneous, net 1,535 (1,974) (B) (439)
Net other credits (charges) (9,688) 515 (9,173)
INCOME BEFORE TAXES AND MINORITY INTERESTS 171,468 515 171,983
PROVISION FOR INCOME TAXES 74,532 196 (C) 74,728
INCOME BEFORE MINORITY INTERESTS 96,936 319 97,255
MINORITY INTERESTS 3,347 3,347
INCOME FROM CONTINUING OPERATIONS 93,589 319 93,908
INCOME FROM DISCONTINUED OPERATIONS 39,789 $ 39,789
NET INCOME $ 133,378 $ 39,789 $ 319 $ 93,908
AVERAGE WEIGHTED SHARES 79,960 79,960 79,960 79,960
PER SHARE OF COMMON STOCK:
Income from continuing operations $1.17 $1.17
Income from discontinued operations .50 $.50
Net income $1.67 $.50 $1.17
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 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") prior to the Merger and
thereafter renamed The E.W. Scripps Company. As a condition of the Merger
Scripps has agreed to retire or defease its $32 million aggregate principal
amount 7.375% notes due in 1998 ("Defeasance"). The Merger, Spin-off and
Defeasance are collectively referred to as the "Transactions." 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 December 31, 1995 assumes the Transactions
occurred as of that date. The pro forma statements of income assume the
Transactions were completed at the beginning of the period. Pro forma
adjustments primarily represent defeasance of Scripps' 7.375% notes due in
1998 and related tax effects and estimated investment banking and other fees
on the Transactions. Earnings per share is based on the weighted average
shares outstanding for the 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) Defeasance of 7.375% notes and related reduction in interest expense.
(B) Cash and short-term investments used to defease 7.375% notes and related
reduction in investment income. Also interest on short-term borrowings
required to defease debt as of the beginning of the period, at
appropriate short-term rates.
(C) Tax effect of pro forma adjustments.
(D) Effect of the Transactions, net of estimated expenses of $8.0 million,
on Stockholders' Equity.
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)
24. Independent Auditors' Consent E - 2
(1) This exhibit was previously filed as Exhibit 10 in
the first amendment to The E.W. Scripps Company Current
Report on Form 8-K filed on December 29, 1995. The first
amendment was filed on January 3, 1996.
EXHIBIT 24
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements
Nos. 33-53953, 33-32740, 33-35525, 33-47828, 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 our report dated February 22, 1996
relating to the financial statements of Scripps Cable, appearing in this
Amendment Number 2 to the Current Report on this Form 8-K of
The E.W. Scripps Company and subsidiary companies.
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
March 28, 1996
