UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number 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.)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
and Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. As of May
1, 1996 the registrant had outstanding 60,494,549 shares of Class A
Common Stock and 19,807,053 shares of Common Voting Stock.
INDEX TO THE E.W. SCRIPPS COMPANY
REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996
Item No. Page
PART I - FINANCIAL INFORMATION
1 Financial Statements 3
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 3
PART II - OTHER INFORMATION
1 Legal Proceedings 3
2 Changes in Securities 3
3 Defaults Upon Senior Securities 3
4 Submission of Matters to a Vote of Security Holders 4
5 Other Information 4
6 Exhibits and Reports on Form 8-K 4
PART I
ITEM 1. FINANCIAL STATEMENTS
The information required by this item is filed as part of this Form 10-
Q. See Index to Financial Information at page F-1 of this Form 10-Q.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required by this item is filed as part of this Form 10-
Q. See Index to Financial Information at page F-1 of this Form 10-Q.
PART II
ITEM 1. LEGAL PROCEEDINGS
Scripps is involved in litigation arising in the ordinary course of
business, such as defamation actions. In addition Scripps is involved
from time to time in various governmental and administrative
proceedings relating to, among other things, renewal of broadcast
licenses. The costs to defend or settle such litigation and other
proceedings are not expected to have a material adverse effect on
Scripps' financial condition or results of operations.
ITEM 2. CHANGES IN SECURITIES
There were no changes in the rights of security holders during the
quarter for which this report is filed.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There were no defaults upon senior securities during the quarter for
which this report is filed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the quarter for which this report is filed.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
The information required by this item is filed as part of this Form 10-
Q. See Index to Exhibits at page E-1 of this
Form 10-Q.
Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this
report is filed.
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: May 15, 1996 BY:
D. J. Castellini
Senior Vice President,
Finance & Administration
THE E.W. SCRIPPS COMPANY
Index to Financial Information
Item Page
Consolidated Balance Sheets F-2
Consolidated Statements of Income F-4
Consolidated Statements of Cash Flows F-5
Consolidated Statements of Stockholders' Equity F-6
Notes to Consolidated Financial Statements F-7
Management's Discussion and Analysis of Financial
Condition and Results of Operations F-11
CONSOLIDATED BALANCE SHEETS
( in thousands ) As of
March 31, December 31, March 31,
1996 1995 1995
(Unaudited) (Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 12,871 $ 30,021 $ 28,227
Short-term investments 25,013
Accounts and notes receivable (less
allowances -$3,534, $3,447, $4,215) 148,468 166,867 133,286
Program rights and production costs 51,911 52,402 27,644
Refundable income taxes 7,828 1,810
Inventories 12,941 11,459 13,776
Deferred income taxes 22,608 21,694 19,671
Miscellaneous 17,630 18,961 17,590
Total current assets 266,429 334,245 242,004
Net assets of discontinued operations 372,784 305,838 311,823
Investments 55,069 53,186 34,041
Property, Plant, and Equipment 428,885 425,959 420,066
Goodwill and Other Intangible Assets 490,692 495,773 510,770
Other Assets:
Program rights and production costs (less current portion) 23,379 26,829 34,476
Miscellaneous 15,360 13,722 9,668
Total other assets 38,739 40,551 44,144
TOTAL ASSETS $ 1,652,598 $ 1,655,552 $ 1,562,848
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
( in thousands, except share data ) As of
March 31, December 31, March 31,
1996 1995 1995
(Unaudited) (Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 34,741 $ 78,698 $ 47,000
Accounts payable 62,537 78,538 56,946
Customer deposits and unearned revenue 23,799 21,307 19,258
Accrued liabilities:
Employee compensation and benefits 27,137 32,901 29,097
Artist and author royalties 8,734 6,843 10,306
Interest 1,030 2,169 2,029
Income taxes 7,301 634 3,264
Lawsuits and related settlements 7,867 8,803 11,539
Miscellaneous 35,840 36,226 28,558
Total current liabilities 208,986 266,119 207,997
Deferred Income Taxes 84,057 82,229 69,936
Long-Term Debt (less current portion) 31,824 2,177 63,455
Other Long-Term Obligations and Minority Interests 110,268 113,601 116,234
Commitments and Contingencies (Note 5)
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: 60,471,678; 60,085,408; and 59,715,019 shares 605 601 597
Voting - authorized: 30,000,000 shares; issued and
outstanding: 19,807,053; 19,978,373; and 20,174,833 shares 198 200 202
Total 803 801 799
Additional paid-in capital 259,824 254,063 249,173
Retained earnings 935,483 916,602 843,535
Unrealized gains on securities available for sale 21,966 20,720 12,430
Unvested restricted stock awards (1,340) (1,573) (1,981)
Foreign currency translation adjustment 727 813 1,270
Total stockholders' equity 1,217,463 1,191,426 1,105,226
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,652,598 $ 1,655,552 $ 1,562,848
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME ( UNAUDITED )
( in thousands, except per share data ) Three months ended
March 31,
1996 1995
Operating Revenues:
Advertising $ 114,002 $ 108,251
Circulation 33,564 31,320
Other newspaper revenue 11,277 12,036
Total newspapers 158,843 151,607
Broadcast television 70,721 66,968
Entertainment 24,681 26,694
Total operating revenues 254,245 245,269
Operating Expenses:
Employee compensation and benefits 86,883 83,753
Newsprint and ink 34,169 26,871
Program rights and production costs 16,576 17,386
Other operating expenses 61,622 60,959
Depreciation 12,438 11,017
Amortization of intangible assets 5,081 5,046
Total operating expenses 216,769 205,032
Operating Income 37,476 40,237
Other Credits (Charges):
Interest expense (1,413) (3,353)
Miscellaneous, net (382) 782
Net other credits (charges) (1,795) (2,571)
Income from Continuing Operations
Before Taxes and Minority Interests 35,681 37,666
Provision for Income Taxes 15,274 16,971
Income from Continuing Operations
Before Minority Interests 20,407 20,695
Minority Interests 687 935
Income From Continuing Operations 19,720 19,760
Income From Discontinued Operations 9,595 9,354
Net Income $ 29,315 $ 29,114
Per Share of Common Stock:
Income from continuing operations $.25 $.25
Net income $.37 $.36
Dividends declared $.13 $.11
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS ( UNAUDITED )
( in thousands ) Three months ended
March 31,
1996 1995
Cash Flows from Operating Activities:
Income from continuing operations $ 19,720 $ 19,760
Adjustments to reconcile income from continuing operations
to net cash flows from continuing operating activities:
Depreciation and amortization 17,519 16,063
Deferred income taxes 53 (1,110)
Minority interests in income of subsidiary companies 687 935
Settlement of 1985 - 1987 federal income tax audits (45,000)
Other changes in certain working capital accounts, net 14,187 9,453
Miscellaneous, net (4,760) 7,592
Net cash provided by continuing operating activities 47,406 7,693
Discontinued cable operations:
Income 9,595 9,354
Adjustment to derive cash flows from operating activities 16,156 22,825
Net cash provided 25,751 32,179
Net operating activities 73,157 39,872
Cash Flows from Investing Activities:
Additions to property, plant, and equipment (17,396) (12,638)
Purchase of long-term investments (1,187) (1,942)
Change in short-term investments, net 25,013
Sale of subsidiary companies 2,711
Miscellaneous, net 1,622 1,311
Net cash provided by (used in) investing activities of continuing operations 8,052 (10,558)
Net cash provided by (used in) investing activities of discontinued cable operations (76,431) (8,394)
Net investing activities (68,379) (18,952)
Cash Flows from Financing Activities:
Increases in long-term debt 34,700
Payments on long-term debt (49,010) (13)
Dividends paid (10,434) (8,783)
Dividends paid to minority interests (449) (421)
Miscellaneous, net 3,890 1,165
Net cash provided by (used in) financing activities of continuing operations (21,303) (8,052)
Net cash provided by (used in) financing activities of discontinued cable operations (625) (1,250)
Net financing activities (21,928) (9,302)
Increase (Decrease) in Cash and Cash Equivalents (17,150) 11,618
Cash and Cash Equivalents:
Beginning of year 30,021 16,609
End of period $ 12,871 $ 28,227
Supplemental Cash Flow Disclosures:
Interest paid, excluding amounts capitalized $ 2,552 $ 3,323
Income taxes paid 5,347 36,519
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY ( UNAUDITED )
( 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
Balances at December 31, 1994 $ 799 $ 248,098 $ 823,204 $ 12,518 $ (2,036) $ 885
Net income 29,114
Dividends: declared and
paid - $.11 per share (8,783)
Class A Common shares issued pursuant to
compensation plans, net:
58,500 shares issued,
and 14,723 shares repurchased 811 (86)
Tax benefits of compensation plans 264
Amortization of restricted stock awards 141
Foreign currency translation adjustment 385
Increase (decrease) in unrealized gains
on securities available for sale, net
of deferred income taxes of ($47) (88)
Balances at March 31, 1995 $ 799 $ 249,173 $ 843,535 $ 12,430 $ (1,981) $ 1,270
Balances at December 31, 1995 $ 801 $ 254,063 $ 916,602 $ 20,720 $ (1,573) $ 813
Net income 29,315
Dividends: declared and
paid - $.13 per share (10,434)
Conversion of 171,320 Common Voting shares
to 171,320 Class A Common shares
214,950 Class A Common shares issued
pursuant to compensation plans 2 4,499 (63)
Tax benefits of compensation plans 1,262
Amortization of restricted stock awards 296
Foreign currency translation adjustment (86)
Increase in unrealized gains on
securities available for sale, net
of deferred income taxes of $671 1,246
Balances at March 31, 1996 $ 803 $ 259,824 $ 935,483 $ 21,966 $ (1,340) $ 727
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ( UNAUDITED )
____________________________________________________________________
_____________________________
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The financial statements have been prepared
in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q
and Rule 10-01 of Regulation S-X. Except as disclosed herein, there
has been no material change in the information disclosed in the
notes to consolidated financial statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.
Financial information as of December 31, 1995 included in these
financial statements has been derived from the audited consolidated
financial statements included in that report. In management's
opinion all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of the interim periods have been
made.
Results of operations are not necessarily indicative of the results
that may be expected for future interim periods or for the full
year.
Net Income Per Share - Net income per share computations are based
upon the weighted average common shares outstanding. The weighted
average common shares outstanding were as follows:
( in thousands ) Three months ended
March 31,
1996 1995
Weighted average shares outstanding 80,204 79,854
2. ACQUISITIONS AND DIVESTITURES
A. Acquisitions
1996 - There were no acquisitions in the three months ended March
31, 1996.
In May Scripps acquired the Vero Beach, Florida, Press-Journal. The
acquisition will be accounted for as a purchase and the acquired
operations will be included in the Consolidated Statements of Income
from the date of acquisition.
1995 - There were no acquisitions in the three months ended
March 31, 1995.
B. Divestitures
1995 - Scripps sold its Watsonville, California, daily newspaper.
No gain or loss was realized as proceeds equaled the net book value
of the net assets sold.
3. LONG-TERM DEBT
Long-term debt consisted of the following:
( in thousands ) As of
March 31, December 31, March 31,
1996 1995 1995
7.375% notes, due in 1998 $ 29,658 $ 31,658 $ 61,198
Variable Rate Credit Facilities 34,700
9.0% notes, due in 1996 47,000 47,000
Other notes 2,207 2,217 2,257
Total long-term debt 66,565 80,875 110,455
Current portion of long-term debt 34,741 78,698 47,000
Long-term debt (less current portion) $ 31,824 $ 2,177 $ 63,455
Scripps has a Competitive Advance/Revolving Credit Agreement and
other variable rate credit facilities ("Variable Rate Credit
Facilities") which expire through September 1996 and permit maximum
borrowings up to $50,000,000. Maximum borrowings under the
facilities are changed as Scripps' anticipated needs change and are
not indicative of Scripps' short-term borrowing capacity. The
credit facilities 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. Scripps is in
compliance with all debt covenants.
4. DISCONTINUED CABLE TELEVISION OPERATIONS
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. The Merger and Spin-off are collectively referred
to as the "Transactions."
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.
Because Scripps Cable represents an entire business segment that
will be divested, its results are reported as "discontinued
operations" for all periods presented.
Summarized operating results for the discontinued cable television
operations are as follows:
( in thousands ) Three months ended
March 31,
1996 1995
Operating revenues $ 76,250 $ 66,995
Income before income taxes 15,907 14,358
Income taxes (6,312) (5,004)
Income from discontinued cable operations $ 9,595 $ 9,354
Summarized balance sheet data for the discontinued cable television
operations are as follows:
( in thousands ) As of
March 31, December 31, March 31,
1996 1995 1995
Property, plant, and equipment $ 307,579 $ 294,557 $ 291,434
Goodwill and other intangible assets 142,094 93,496 99,179
Other assets 26,746 26,014 25,535
Deferred income tax liabilities (75,352) (76,210) (76,702)
Other liabilities (28,283) (32,019) (27,623)
Net assets of discontinued cable television operations $ 372,784 $ 305,838 $ 311,823
The major components of cash flow for discontinued operations are as
follows:
( in thousands ) Three months ended
March 31,
1996 1995
Income from discontinued operations $ 9,595 $ 9,354
Depreciation and amortization 15,511 13,723
Other, net 645 9,102
Net cash provided by discontinued cable operating activities $ 25,751 $ 32,179
Capital expenditures $ (14,994) $ (7,693)
Acquisition of cable television systems (primarily equipment and intangible assets) (62,152) (132)
Other, net 715 (569)
Net cash used in investing activities of discontinued cable operations $ (76,431) $ (8,394)
In January 1996 Scripps Cable acquired cable television systems
adjacent to its Knoxville and Chattanooga systems (the "Mid-Tenn.
Purchase") for $62,500,000, including assumed liabilities. The
acquired cable television systems are included in the results of
discontinued operations from the date of acquisition.
5. COMMITMENTS AND CONTINGENCIES
In 1994 Scripps accrued an estimate of the ultimate costs, including
attorneys' fees and settlements, of lawsuits filed by certain former
employees and independent contractors of a divested operating unit.
The lawsuits allege that the employees were due severance pay and
that certain contractual obligations were unfulfilled, respectively.
In April 1996 Scripps reached an agreement to settle the severance
pay lawsuits. There was no additional charge resulting from the
settlement. Management believes the possibility of incurring a loss
greater than the amount accrued for the independent contractor
lawsuits is remote.
In 1994 Scripps Cable accrued 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 May 1996 Scripps Cable agreed to settle
the late-payment fee lawsuits. There was no additional charge
resulting from the settlement. Management believes the possibility
of incurring a loss greater than the amount accrued for the
employment issues lawsuits is remote. Pursuant to the terms of the
Merger New Scripps will indemnify Comcast against losses related to
these lawsuits.
Amounts accrued, less payments for settlements and attorneys fees,
are included in accrued lawsuits and related settlements in the
Consolidated Balance Sheets.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Consolidated results of continuing operations were as follows:
( in thousands, except per share data ) Year-to-Date
1996 Change 1995
Operating revenues:
Newspapers $ 158,843 5.0 % $ 151,313
Broadcast television 70,721 5.6 % 66,968
Entertainment 24,681 (7.5)% 26,694
Total 254,245 3.8 % 244,975
Divested operating units 294
Total operating revenues $ 254,245 3.7 % $ 245,269
Operating income:
Newspapers $ 26,271 (11.0)% $ 29,522
Broadcast television 17,483 7.3 % 16,296
Entertainment (2,068) (844)
Corporate (4,210) (4,629)
Total 37,476 (7.1)% 40,345
Divested operating units (108)
Total operating income 37,476 (6.9)% 40,237
Interest expense (1,413) (3,353)
Miscellaneous, net (382) 782
Income taxes (15,274) (16,971)
Minority interest (687) (935)
Income from continuing operations $ 19,720 $ 19,760
Per share of common stock:
Income from continuing operations $.25 $.25
( in thousands ) Year-to-Date
1996 Change 1995
Other Financial and Statistical Data - excluding divested operating units:
Total advertising revenues $ 187,911 6.6 % $ 176,231
Advertising revenues as a
percentage of total revenues 73.9 % 71.9 %
EBITDA:
Newspapers $ 35,780 (7.4)% $ 38,629
Broadcast television 24,339 8.1 % 22,515
Entertainment (1,143) (276)
Corporate (3,981) (4,463)
Total $ 54,995 (2.5)% $ 56,405
Effective income tax rate 42.8 % 45.1 %
Weighted average shares outstanding 80,204 0.4 % 79,854
Total capital expenditures $ 17,396 37.7 % $ 12,638
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. However, management's belief that EBITDA is a
more useful measure of year-over-year performance is not shared
by the accounting profession.
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 as EBITDA excludes significant costs of doing business.
The Company sold its Watsonville, California, daily newspaper in the
first quarter of 1995.
Year-to-date operating losses for the Home & Garden Television
network ("HGTV") totaled $3,800,000, $2,300,000 after-tax, $.03 per
share in 1996 and $3,200,000, $2,000,000 after-tax, $.03 per share
in 1995.
Interest expense decreased as a result of reduced borrowings.
Operating results, excluding the Watsonville newspaper, are
presented on the following pages. The results of the divested
operating unit are excluded from the segment operating results
because management believes it is not relevant to understanding the
Scripps' ongoing operations.
NEWSPAPERS - Operating results for the newspaper segment, excluding
the Watsonville newspaper, were as follows:
( in thousands ) Year-to-Date
1996 Change 1995
Operating revenues:
Local $ 48,585 3.8 % $ 46,815
Classified 45,621 8.4 % 42,094
National 4,246 9.2 % 3,889
Preprint 15,550 2.1 % 15,225
Newspaper advertising 114,002 5.5 % 108,023
Circulation 33,564 7.3 % 31,270
Joint operating agency distributions 8,911 (12.4)% 10,173
Other 2,366 28.1 % 1,847
Total operating revenues 158,843 5.0 % 151,313
Operating expenses:
Employee compensation and benefits 54,716 (0.1)% 54,780
Newsprint and ink 34,169 27.3 % 26,846
Other 34,178 10.0 % 31,058
Depreciation and amortization 9,509 4.4 % 9,107
Total operating expenses 132,572 8.9 % 121,791
Operating income $ 26,271 (11.0)% $ 29,522
Other Financial and Statistical Data:
Earnings before interest,
income taxes, depreciation,
and amortization ("EBITDA") $ 35,780 (7.4)% $ 38,629
Percent of operating revenues:
Operating income 16.5 % 19.5 %
EBITDA 22.5 % 25.5 %
Capital expenditures $ 5,231 63.8 % $ 3,194
Advertising inches:
Local 1,693 (2.4)% 1,734
Classified 1,530 (1.5)% 1,553
National 83 (4.6)% 87
Total full run ROP 3,306 (2.0)% 3,374
Higher newsprint prices resulted in a decrease in EBITDA at most of
Scripps' newspapers. The price of newsprint in the first quarter of
1996 was approximately 75% higher than in the first quarter of 1994.
For the first quarter of 1996 newsprint consumption decreased 6% and
the average price of newsprint was approximately 37% higher than in
1995. However, the price of newsprint decreased in April 1996.
The year-over-year expense increase in the second quarter of 1996 is
expected to be approximately 10%. If the price does not change
again, the year-over-year third quarter newsprint expense will be
about the same as, and the fourth quarter expense is expected to be
slightly less than, in 1995.
Higher advertising rates led to the increase in advertising revenues
as volume decreased in most of Scripps' newspaper markets.
Circulation revenues increased primarily due to increased rates.
BROADCAST TELEVISION - Operating results for the broadcast
television segment were as follows:
( in thousands ) Year-to-Date
1996 Change 1995
Operating revenues:
Local $ 35,560 0.9 % $ 35,256
National 29,377 6.2 % 27,668
Political 1,382 61
Other 4,402 10.5 % 3,983
Total operating revenues 70,721 5.6 % 66,968
Operating expenses:
Employee compensation and benefits 23,727 9.3 % 21,710
Program costs 11,203 (1.8)% 11,408
Other 11,452 1.0 % 11,335
Depreciation and amortization 6,856 10.2 % 6,219
Total operating expenses 53,238 5.1 % 50,672
Operating income $ 17,483 7.3 % $ 16,296
Other Financial and Statistical Data:
Earnings before interest,
income taxes, depreciation,
and amortization ("EBITDA") $ 24,339 8.1 % $ 22,515
Percent of operating revenues:
Operating income 24.7 % 24.3 %
EBITDA 34.4 % 33.6 %
Capital expenditures $ 11,505 166.4 % $ 4,318
The increase in employee costs is due primarily to Scripps' expanded
schedules of local news programs. Construction of new facilities at
the Phoenix and Tampa stations resulted in the increase in capital
spending. Depreciation and amortization is expected to decrease
slightly from current levels as certain intangible assets acquired
in the 1991 purchase of the Baltimore station become fully
amortized.
ENTERTAINMENT - Operating results for the entertainment segment were
as follows:
( in thousands ) Year-to-Date
1996 Change 1995
Operating revenues:
Licensing $ 12,606 (18.7)% $ 15,509
Newspaper feature distribution 4,808 9.7 % 4,384
Program production 2,641 (45.9)% 4,880
Subscriber fees 1,132 189.5 % 391
Advertising 3,188 157.1 % 1,240
Other 306 5.5 % 290
Total operating revenues 24,681 (7.5)% 26,694
Operating expenses:
Employee compensation and benefits 5,566 22.8 % 4,531
Artists' royalties 8,874 (13.7)% 10,285
Programming and production costs 5,347 (10.6)% 5,978
Other 6,037 (2.3)% 6,176
Depreciation and amortization 925 62.9 % 568
Total operating expenses 26,749 (2.9)% 27,538
Operating income (loss) $ (2,068) $ (844)
Other Financial and Statistical Data:
Earnings before interest,
income taxes, depreciation,
and amortization ("EBITDA") $ (1,143) $ (276)
Capital expenditures $ 536 (87.2)% $ 4,193
Program production revenues are subject to substantial fluctuation
due to changes in public taste and demand for programming by
broadcast and cable television networks. In addition quarterly
revenues are affected by the timing of completion and delivery of
programming to the networks. Program production revenues decreased
in the current quarter as fewer programs were completed and
delivered by Scripps Howard Productions ("SHP") and Cinetel.
Program production revenues for the full year of 1996 are expected
to increase however, as SHP has commitments for four network prime-
time programs to be delivered in 1996 compared to two in 1995.
Subscriber fees increased due to an increase in the number of
subscribers receiving HGTV. At March 31, 1996 HGTV could be viewed
by 12,700,000 subscribers.
Year-to-date operating losses for HGTV totaled $3,800,000 in 1996
and $3,200,000 in 1995. Scripps expects to invest a total of
$35,000,000 in HGTV during 1996 and 1997, including capital
expenditures and pre-tax operating losses. See "Liquidity and
Capital Resources".
Programming and production costs decreased as higher programming
costs at HGTV were more than offset by the fewer number of programs
delivered by SHP and Cinetel during the current quarter.
Author royalties decreased due to the decrease in licensing
revenues.
United Media distributes news columns, comics, and features,
and licenses copyrights for "Peanuts" and other character
properties on a worldwide basis. Revenues derived from such
international activities represent less than 5% of Scripps
total revenues. The Japanese market provides more than two-
thirds of international revenues and approximately 45% of total
licensing revenue. The impact of changes in the value of the
U.S. dollar in foreign exchange markets does not have a
significant effect on the recorded value of Scripps foreign-
currency-denominated assets, which are primarily related to
uncollected licensing royalties and represent less than 1% of
total assets. Scripps foreign-currency-denominated liabilities
are primarily related to payments due to creators of the
properties. However, comparison of year-over-year licensing
revenues can be significantly affected by changes in the
exchange rate for the Japanese yen. Japanese licensing
revenues in local currency decreased 6% in 1996. The change in
the exchange rate for the Japanese yen decreased licensing
revenues $700,000 in 1996. The effect on licensing revenues of
changes in the exchange rate for other foreign currencies is
not significant.
From time-to-time Scripps uses foreign currency forward and
option contracts to hedge cash flow exposures denominated in
Japanese yen. The purpose of the contracts is to reduce the
risk of changes in the exchange rate on Scripps' anticipated
net licensing receipts (licensing royalties less amounts due
creators of the properties and certain direct expenses) for the
following year. The maturity of the contracts coincide with
the quarterly payment of licensing royalties. Scripps does not
hold foreign currency contracts for trading purposes and does
not hold leveraged contracts.
Information about Scripps' foreign currency contracts, which
require Scripps to sell yen at a specified rate, at December
31, 1995 was as follows:
Maturity Contract Exchange US Dollar
Date Amount (in yen) Rate Equivalent
5/31/96 83,060,000 83.06 $1,000,000
8/15/96 142,650,000 95.10 1,500,000
11/15/96 143,835,000 95.89 1,500,000
2/18/97 151,635,000 101.09 1,500,000
Capital expenditures in 1995 primarily relate to the launch of HGTV.
The increase in depreciation and amortization is primarily due to
the start-up of HGTV.
LIQUIDITY AND CAPITAL RESOURCES
Scripps generates significant cash flow from operating activities,
primarily from its newspaper and broadcast television operations.
There are no significant legal or other restrictions on the transfer
of funds among Scripps' business segments. Cash flows provided by
the operating activities of the newspaper and broadcast television
segments in excess of the capital expenditures of those segments are
used to invest in the entertainment segment and to fund corporate
expenses. Management expects total cash flow from continuing
operating activities in 1996 will exceed Scripps' expected total
capital expenditures, debt repayments, and dividend payments.
Cash flow provided by continuing operating activities was
$47,400,000 in 1996 compared to $7,700,000 in 1995. Cash flow
provided by continuing operating activities in 1995 was reduced by a
$45,000,000 payment to settle the audit of Scripps' 1985 through
1987 federal income tax returns.
Net debt (borrowings less cash equivalent and other short-term
investments) totaled $53,700,000 at March 31, 1996 and was less than
5% of total capitalization. Management believes Scripps' cash and
cash equivalents and substantial borrowing capacity, taken together,
provide adequate resources to fund the capital expenditures and
future expansion of existing businesses and the development or
acquisition of new businesses. The ability of Scripps' continuing
operations to produce significant cash flow and Scripps' significant
borrowing capacity were primary factors in structuring the
divestiture of its cable television assets so as to transfer the
proceeds of the divestiture tax-free to shareholders.
THE E.W. SCRIPPS COMPANY
Index to Exhibits
Exhibit
No. Item Page
12 Ratio of Earnings to Fixed Charges E-2