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 June 30, 1997
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 33-43989
THE E. W. SCRIPPS COMPANY
(Exact name of registrant as specified in its charter)
Ohio 31-1223339
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
312 Walnut Street
Cincinnati, Ohio 45201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (513) 977-3000
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 July 31, 1997
there were 61,681,102 of the Registrant's Class A Common Shares outstanding
and 19,333,711 of the Registrant's Common Voting Shares outstanding.
INDEX TO THE E. W. SCRIPPS COMPANY
REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997
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
The Company is involved in litigation arising in the ordinary course of
business, such as defamation actions and various governmental and
administrative proceedings relating to renewal of broadcast licenses, none
of which is expected to result in material loss.
ITEM 2. CHANGES IN SECURITIES
There were no changes in the rights of security holders during the quarter
for which this report is filed.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There were no defaults upon senior securities during the quarter for which
this report is filed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following table presents information on matters submitted to a vote of
security holders at the 1997 Annual Meeting of Shareholders.
Broker
Description of Matters Submitted In Favor Against Abstain Non-Votes
Class A Common Shares:
Election of Directors:
Daniel J. Meyer 58,398,381 152,749 3,045,231
Nicholas B. Paumgarten 58,038,421 512,709 3,045,231
Ronald W. Tysoe 58,398,381 152,749 3,045,231
Common Voting Shares:
Election of Directors 18,286,233 1,047,478
Adopt 1997 Long-Term Incentive Plan 18,286,233 1,047,478
Amend 1994 Non-Employee Directors' Stock Option Plan 18,286,233 1,047,478
Adopt 1997 Deferred Compensation
and Stock Plan for Directors 18,286,233 1,047,478
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
A Current Report on Form 8-K reporting the Company's agreement to acquire
the newspaper and broadcast properties of Harte-Hanks Communications, Inc.
was filed on June 5, 1997.
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: August 1, 1997 BY:/s/ D. J. Castellini
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
June 30, December 31, June 30,
1997 1996 1996
(Unaudited) (Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 13,794 $ 10,145 $ 15,594
Short-term investments 33,389 2,700
Accounts and notes receivable (less
allowances -$4,834, $3,974, $3,736) 176,484 182,687 157,426
Program rights and production costs 29,979 44,639 32,960
Inventories 12,705 11,753 11,126
Deferred income taxes 25,134 24,897 23,365
Miscellaneous 43,034 32,203 28,773
Total current assets 334,519 309,024 269,244
Net Assets of Discontinued Operation - Scripps Cable 354,234
Investments 66,067 40,580 51,273
Property, Plant and Equipment 426,267 430,703 437,635
Goodwill and Other Intangible Assets 581,170 590,452 596,454
Other Assets:
Program rights and production costs (less current portion) 25,330 35,281 38,983
Subscriber acquisition costs (less current portion) 49,046 38,337 2,195
Miscellaneous 19,961 19,236 14,410
Total other assets 94,337 92,854 55,588
TOTAL ASSETS $ 1,502,360 $ 1,463,613 $ 1,764,428
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
( in thousands, except share data ) As of
June 30, December 31, June 30,
1997 1996 1996
(Unaudited) (Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 90,040 $ 90,040 $ 32,040
Accounts payable 53,860 88,574 68,149
Customer deposits and unearned revenue 33,905 30,208 31,931
Accrued liabilities:
Employee compensation and benefits 32,764 33,622 30,281
Subscriber acquisition costs 40,357 33,895 2,223
Miscellaneous 45,298 47,063 38,263
Total current liabilities 296,224 323,402 202,887
Deferred Income Taxes 69,998 63,953 63,987
Long-Term Debt (less current portion) 31,819 31,793 131,815
Other Long-Term Obligations and Minority Interests (less current portion) 102,105 99,874 112,563
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: 61,640,302; 61,293,240; and 60,981,720 shares 616 613 610
Voting - authorized: 30,000,000 shares; issued and
outstanding: 19,333,711; 19,470,382; and 19,470,382 shares 193 195 195
Total 809 808 805
Additional paid-in capital 277,634 272,703 266,833
Retained earnings 724,026 676,471 966,916
Unrealized gains (losses) on securities available for sale 4,385 (713) 22,285
Unvested restricted stock awards (5,265) (5,241) (4,332)
Foreign currency translation adjustment 625 563 669
Total stockholders' equity 1,002,214 944,591 1,253,176
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,502,360 $ 1,463,613 $ 1,764,428
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME ( UNAUDITED )
( in thousands, except per share data ) Three months ended Six months ended
June 30, June 30,
1997 1996 1997 1996
Operating Revenues:
Advertising $ 226,661 $ 209,432 $ 430,542 $ 396,359
Circulation 32,153 32,102 65,961 65,666
Licensing 14,532 12,176 30,888 24,782
Joint operating agency distributions 13,121 11,704 24,530 20,615
Program production 2,299 1,734 13,719 4,375
Other 16,746 10,176 30,582 19,772
Total operating revenues 305,512 277,324 596,222 531,569
Operating Expenses:
Employee compensation and benefits 96,381 89,333 191,186 176,216
Newsprint and ink 30,416 33,161 57,767 67,330
Program, production and copyright costs 16,988 16,460 42,815 33,010
Other operating expenses 74,072 66,996 142,680 128,644
Depreciation 12,470 11,741 25,894 24,179
Amortization of intangible assets 4,824 5,210 9,668 10,291
Total operating expenses 235,151 222,901 470,010 439,670
Operating Income 70,361 54,423 126,212 91,899
Other Credits (Charges):
Interest expense (2,484) (2,224) (5,050) (3,637)
Miscellaneous, net 368 705 481 323
Net other credits (charges) (2,116) (1,519) (4,569) (3,314)
Income from Continuing Operations
Before Taxes and Minority Interests 68,245 52,904 121,643 88,585
Provision for Income Taxes 28,728 22,998 51,205 38,272
Income from Continuing Operations
Before Minority Interests 39,517 29,906 70,438 50,313
Minority Interests 938 798 1,836 1,485
Income From Continuing Operations 38,579 29,108 68,602 48,828
Income From Discontinued Operation - Scripps Cable 12,782 22,377
Net Income $ 38,579 $ 41,890 $ 68,602 $ 71,205
Per Share of Common Stock:
Income from continuing operations $.48 $.36 $.85 $.61
Net income $.48 $.52 $.85 $.89
Dividends declared $.13 $.13 $.26 $.26
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS ( UNAUDITED )
( in thousands ) Six months ended
June 30,
1997 1996
Cash Flows from Operating Activities:
Income from continuing operations $ 68,602 $ 48,828
Adjustments to reconcile income from continuing operations
to net cash flows from continuing operating activities:
Depreciation and amortization 35,562 34,470
Deferred income taxes 3,066 2,343
Minority interests in income of subsidiary companies 1,836 1,485
Subscriber acquisition costs (7,384) (524)
Other changes in certain working capital accounts, net (14,738) 12,166
Miscellaneous, net 8,250 (13,987)
Net cash provided by continuing operating activities 95,194 84,781
Discontinued Operation - Scripps Cable:
Income 22,377
Adjustment to derive cash flows from operating activities 21,259
Net cash provided 43,636
Net operating activities 95,194 128,417
Cash Flows from Investing Activities:
Additions to property, plant and equipment (22,154) (36,774)
Purchase of subsidiary companies and long-term investments (20,503) (122,678)
Change in short-term investments, net (30,689) 25,013
Sale of subsidiary companies and long-term investments 364 11,400
Miscellaneous, net 624 7,305
Net investing activities of continuing operations (72,358) (115,734)
Net investing activities of discontinued operation (93,332)
Net investing activities (72,358) (209,066)
Cash Flows from Financing Activities:
Increases in long-term debt 132,000
Payments on long-term debt (23) (49,020)
Dividends paid (21,047) (20,891)
Dividends paid to minority interests (793) (838)
Miscellaneous, net (primarily exercise of stock options) 2,676 5,596
Net financing activities of continuing operations (19,187) 66,847
Net financing activities of discontinued operation (625)
Net financing activities (19,187) 66,222
Increase (Decrease) in Cash and Cash Equivalents 3,649 (14,427)
Cash and Cash Equivalents:
Beginning of year 10,145 30,021
End of period $ 13,794 $ 15,594
Supplemental Cash Flow Disclosures:
Interest paid, excluding amounts capitalized $ 2,341 $ 4,344
Income taxes paid 48,858 32,246
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY ( UNAUDITED )
( in thousands, except share data )
Unrealized
Gains (Losses) Unvested Foreign
Additional on Securities Restricted Currency
Common Paid-in Retained Available Stock Translation
Stock Capital Earnings for Sale Awards Adjustment
Balances at December 31, 1995 $ 801 $ 254,063 $ 916,602 $ 20,720 $ (1,573) $ 813
Net income 71,205
Dividends: declared and
paid - $.26 per share (20,891)
Conversion of 507,991 Common Voting Shares
to 507,991 Class A Common Shares
Class A Common Shares issued pursuant to
compensation plans, net:
390,950 shares issued; 2,629 shares repurchased 4 11,195 (5,598)
Tax benefits of compensation plans 1,575
Amortization of restricted stock awards 2,839
Foreign currency translation adjustment (144)
Increase in unrealized gains (losses) on
securities available for sale, net
of deferred income taxes of $843 1,565
Balances at June 30, 1996 $ 805 $ 266,833 $ 966,916 $ 22,285 $ (4,332) $ 669
Balances at December 31, 1996 $ 808 $ 272,703 $ 676,471 $ (713) $ (5,241) $ 563
Net income 68,602
Dividends: declared and
paid - $.26 per share (21,047)
Conversion of 136,671 Common Voting Shares
to 136,671 Class A Common Shares
Class A Common Shares issued pursuant to
compensation plans, net:
217,950 issued; 7,559 shares repurchased 1 3,462 (1,383)
Tax benefits of compensation plans 1,469
Amortization of restricted stock awards 1,359
Foreign currency translation adjustment 62
Increase in unrealized gains (losses) on
securities available for sale, net
of deferred income taxes of $2,745 5,098
Balances at June 30, 1997 $ 809 $ 277,634 $ 724,026 $ 4,385 $ (5,265) $ 625
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. 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, 1996 has not
changed materially unless otherwise disclosed herein. Financial
information as of December 31, 1996 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. Common stock
equivalents in the form of stock options are excluded from the
computations as they have no material effect on the per share amounts.
The weighted-average common shares outstanding were as follows:
( in thousands ) Three months ended Six months ended
June 30, June 30,
1997 1996 1997 1996
Weighted-average shares outstanding 80,970 80,308 80,937 80,256
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128 - Earnings per Share in the first quarter
of 1997. The new standard, which the Company must adopt in the fourth
quarter of 1997, will require the presentation of basic earnings per
share and diluted earnings per share. Basic and diluted earnings per
share would not be materially different than earnings per share
presented in these financial statements.
Recently Issued Accounting Standards - The Financial Accounting Standards
Board has issued Statements of Financial Accounting Standards No. 129 -
Disclosure of Information about Capital Structure ("FAS 129"), No. 130 -
Reporting Comprehensive Income ("FAS 130"), and No. 131 - Disclosures
about Segments of an Enterprise and Related Information ("FAS 131").
FAS 129, which must be adopted in the fourth quarter of 1997, will have
no effect on the Company's financial position or results of operations.
FAS 130, which must be adopted in the first quarter of 1998, and FAS 131,
which must be adopted in the fourth quarter of 1998, will also have no
effect on the Company's financial position. However, FAS 130 will
require the Company to report comprehensive income, a measure of
performance that includes all non-owner sources of changes in equity.
In addition to net income reported in these financial statements,
comprehensive income would include unrealized gains and losses
on securities available for sale and foreign curency translation
adjustments. Management expects FAS 131 will require the Company to
change the reportable business segments included in its 1996 Annual
Report on Form 10-K and to present additional information, including
presenting certain business segment information in its quarterly
financial statements.
2. ACQUISITIONS AND DIVESTITURES
A. Acquisitions
1997 - There were no acquisitions in the six months ended June 30, 1997.
In May the Company reached an agreement to acquire the newspaper and
broadcast properties of Harte-Hanks Communications, Inc. The transaction
will be structured as:
A tax-free "Morris Trust" transaction with an approximate value
between $605 million and $625 million. In a Morris Trust transaction
the Company will issue Class A Common stock to Harte-Hanks shareholders
valued at between $425 million and $605 million, depending upon the
amount of debt assumed by the Company. The Company has agreed to assume
a maximum of $200 million in debt, in which case the total consideration
would be approximately $625 million. The total consideration would be
approximately $605 million for an all-stock transaction. The exact
number of shares issued will be determined by the total consideration
and the trading price of the Company's shares within a "collar" range of
$32.72 and $40.
Or the Company will pay approximately $775 million in cash to Harte-
Hanks if a Morris Trust transaction is not feasible due to the outcome
of pending federal legislation.
The companies expect to determine the structure of the transaction by
December 31, 1997.
1996 - In May the Company acquired the Vero Beach, Florida, Press Journal.
The following table presents additional information about the
acquisition:
( in thousands ) Six months
ended
June 30,
1996
Goodwill and other intangible assets acquired $ 110,967
Other assets acquired 10,900
Total 121,867
Liabilities assumed (1,794)
Cash paid $ 120,073
The acquisition was accounted for as a purchase and accordingly the
purchase price was allocated to assets and liabilities based on the
estimated fair values as of the date of acquisition.
The acquired operation has been included in the Consolidated
Statements of Income from the date of acquisition. The following
table summarizes, on an unaudited, pro forma basis, the estimated
combined results of operations of the Company and the Press Journal
assuming the acquisition had occurred on January 1, 1996. The pro
forma information includes adjustments for interest expense that would
have been incurred to finance the acquisition, additional depreciation
based on the fair market value of the property, plant and equipment,
and the amortization of intangible assets resulting from the
acquisition. The unaudited pro forma results of operations are not
necessarily indicative of the results which actually would have
occurred had the acquisition been completed January 1, 1996.
( in thousands ) Three months Six months
ended ended
June 30, June 30,
1996 1996
Operating revenues $ 278,958 $ 537,524
Income from continuing operations 28,079 46,718
Net income 40,861 69,095
Per share of common stock:
Income from continuing operations $.35 $.58
Net income .51 .86
B. Divestitures
1997 - There were no divestitures in the six months ended June 30, 1997.
1996 - The Company sold its equity interest in The Television Food
Network, a cable programming network. No material gain or loss was
realized as proceeds approximated the book value of the net assets
sold.
3. LONG-TERM DEBT
Long-term debt consisted of the following:
( in thousands ) As of
June 30, December 31, June 30,
1997 1996 1996
6.17% note, due in 1997 $ 90,000 $ 90,000 $ 100,000
7.375% notes, due in 1998 29,706 29,658 29,658
Variable Rate Credit Facilities 32,000
Other notes 2,153 2,175 2,197
Total long-term debt 121,859 121,833 163,855
Current portion of long-term debt 90,040 90,040 32,040
Long-term debt (less current portion) $ 31,819 $ 31,793 $ 131,815
The Company has a Competitive Advance/Revolving Credit Agreement and
other variable rate credit facilities ("Variable Rate Credit
Facilities") which expire through September 1997 and permit maximum
borrowings up to $50,000,000. Maximum borrowings under the facilities
are changed as the Company's anticipated needs change and are not
indicative of the Company's 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. The Company is
in compliance with all debt covenants.
4. DISCONTINUED OPERATION - SCRIPPS CABLE
The Company's cable television systems ("Scripps Cable") were acquired
by Comcast Corporation ("Comcast") on November 13, 1996 ("Cable
Transaction") through a merger whereby the Company's shareholders
received, tax-free, a total of 93 million shares of Comcast's Class A
Special Common Stock. The aggregate market value of the Comcast
shares was $1,593,000,000 ($19.83 per share of the Company) and the
net book value of Scripps Cable was $356,000,000, yielding an economic
gain of $1,237,000,000 to the Company's shareholders.
Scripps Cable represented an entire business segment, therefore its
results are reported as a "discontinued operation" 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'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The E. W. Scripps Company ("Company") publishes daily newspapers in 16
markets, operates television stations in nine markets, and its
entertainment division consists of Home & Garden Television ("HGTV," a
24-hour cable television network), comic character licensing and
television program production.
The Company's cable television systems ("Scripps Cable") were acquired
by Comcast Corporation ("Comcast") on November 13, 1996 ("Cable
Transaction") through a merger whereby the Company's shareholders
received, tax-free, a total of 93 million shares of Comcast's Class A
Special Common Stock. The aggregate market value of the Comcast
shares was $1,593,000,000 ($19.83 per share of the Company) and the
net book value of Scripps Cable was $356,000,000, yielding an economic
gain of $1,237,000,000 to the Company's shareholders. The operating
results of Scripps Cable are excluded from management's discussion and
analysis of financial condition and results of operation as management
believes it is not relevant to an understanding of the Company's
continuing operations.
Consolidated results of continuing operations were as follows:
( in thousands, except per share data ) Quarterly Period Year-to-Date
1997 Change 1996 1997 Change 1996
Operating revenues:
Newspapers $ 181,891 8.9 % $ 166,982 $ 356,745 9.5 % $ 325,825
Broadcast television 87,129 2.3 % 85,204 159,825 2.5 % 155,925
Entertainment 36,492 45.2 % 25,138 79,652 59.9 % 49,819
Total operating revenues $ 305,512 10.2 % $ 277,324 $ 596,222 12.2 % $ 531,569
Operating income:
Newspapers $ 42,169 19.7 % $ 35,234 $ 82,435 34.0 % $ 61,505
Broadcast television 32,116 7.1 % 29,994 50,847 7.1 % 47,477
Entertainment 488 (2,161) 1,522 (3,811)
Corporate (4,412) (4,644) (8,592) (8,854)
Total 70,361 20.4 % 58,423 126,212 31.0 % 96,317
Unusual items (4,000) (4,000)
Television Food Network (418)
Total operating income 70,361 29.3 % 54,423 126,212 37.3 % 91,899
Interest expense (2,484) (2,224) (5,050) (3,637)
Miscellaneous, net 368 705 481 323
Income taxes (28,728) (22,998) (51,205) (38,272)
Minority interest (938) (798) (1,836) (1,485)
Income from continuing operations $ 38,579 32.5 % $ 29,108 $ 68,602 40.5 % $ 48,828
Per share of common stock:
Income from continuing operations $.48 33.3 % $.36 $.85 39.3 % $.61
Unusual charge .03 .03
Adjusted income from continuing operations $.48 23.1 % $.39 $.85 32.8 % $.64
( in thousands ) Quarterly Period Year-to-Date
1997 Change 1996 1997 Change 1996
Other Financial and Statistical Data - excluding
unusual item and Television Food Network:
Total advertising revenues $ 226,661 8.2 % $ 209,432 $ 430,542 8.6 % $ 396,359
Advertising revenues as a
percentage of total revenues 74.2 % 75.5 % 72.2 % 74.6 %
EBITDA:
Newspapers $ 52,269 18.3 % $ 44,199 $ 103,199 29.0 % $ 79,979
Broadcast television 38,087 3.6 % 36,757 63,017 3.1 % 61,096
Entertainment 1,488 (1,256) 3,617 (1,981)
Corporate (4,189) (4,326) (8,059) (8,307)
Total $ 87,655 16.3 % $ 75,374 $ 161,774 23.7 % $ 130,787
Effective income tax rate 42.1 % 43.5 % 42.1 % 43.2 %
Weighted-average shares outstanding 80,970 0.8 % 80,308 80,937 0.8 % 80,256
Total capital expenditures $ 13,258 $ 19,378 $ 22,154 $ 36,774
Earnings before interest, income taxes, depreciation and amortization
("EBITDA") is included in the discussion of segment results because:
Changes in depreciation and amortization are often unrelated to
current performance. Management believes the year-over-year
change in EBITDA is a more useful measure of year-over-year
performance than the change in operating income because, combined
with information on capital spending plans, it is a more reliable
indicator of results that may be expected in future periods.
Banks and other lenders use EBITDA to determine the Company's
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 the Company's income or cash flows from operating
activities as EBITDA excludes significant costs of doing business.
In the second quarter of 1996 the Company incurred an unusual charge
of approximately $4,000,000, $2,600,000 after-tax, $.03 per share, for
the Company's share of certain costs associated with restructuring
portions of the distribution system of the Cincinnati joint operating
agency ("Cincinnati JOA Charge").
The Company acquired the Vero Beach, Florida, Press Journal in May
1996 and sold its equity interest in The Television Food Network ("TV
Food") in April 1996.
Year-to-date operating losses for HGTV totaled $4,400,000, $2,900,000
after-tax, $.04 per share in 1997 and $6,900,000, $4,200,000 after-
tax, $.05 per share in 1996. Operating losses for the quarterly
periods were $1,800,000, $1,300,000 after-tax, $.02 per share in 1997
and $3,100,000, $1,900,000 after-tax, $.02 per share in 1996.
Interest expense increased in the quarter and year-to-date periods due
primarily to the Vero Beach newspaper acquisition.
Operating results, excluding the Cincinnati JOA Charge and TV
Food, are presented on the following pages. The Cincinnati
JOA Charge and the results of TV Food are excluded from the segment
operating results because management believes they are not relevant to
understanding the Company's ongoing operations.
NEWSPAPERS - Operating results for the newspaper segment, excluding
the Cincinnati JOA charge, were as follows:
( in thousands ) Quarterly Period Year-to-Date
1997 Change 1996 1997 Change 1996
Operating revenues:
Local $ 53,639 10.5 % $ 48,557 $ 107,784 11.9 % $ 96,349
Classified 55,745 9.8 % 50,747 106,205 9.5 % 96,988
National 6,136 22.3 % 5,018 11,762 24.6 % 9,437
Preprint and other 16,867 2.4 % 16,477 32,923 2.7 % 32,067
Total advertising 132,387 9.6 % 120,799 258,674 10.1 % 234,841
Circulation 32,153 0.2 % 32,102 65,961 0.4 % 65,666
Joint operating agency distributions 13,121 12.1 % 11,704 24,530 19.0 % 20,615
Other 4,230 78.0 % 2,377 7,580 61.2 % 4,703
Total operating revenues 181,891 8.9 % 166,982 356,745 9.5 % 325,825
Operating expenses:
Employee compensation and benefits 60,346 7.9 % 55,928 119,636 8.1 % 110,644
Newsprint and ink 30,416 (8.3)% 33,161 57,767 (14.2)% 67,330
Other 38,860 15.3 % 33,694 76,143 12.2 % 67,872
Depreciation and amortization 10,100 12.7 % 8,965 20,764 12.4 % 18,474
Total operating expenses 139,722 6.1 % 131,748 274,310 3.8 % 264,320
Operating income $ 42,169 19.7 % $ 35,234 $ 82,435 34.0 % $ 61,505
Other Financial and Statistical Data:
EBITDA $ 52,269 18.3 % $ 44,199 $ 103,199 29.0 % $ 79,979
Percent of operating revenues:
Operating income 23.2 % 21.1 % 23.1 % 18.9 %
EBITDA 28.7 % 26.5 % 28.9 % 24.5 %
Capital expenditures $ 7,846 $ 12,674 $ 14,003 $ 17,905
Advertising inches:
Local 1,878 12.6 % 1,668 3,851 15.3 % 3,339
Classified 1,946 9.3 % 1,780 3,672 10.2 % 3,332
National 129 27.7 % 101 257 38.2 % 186
Total full run ROP 3,953 11.4 % 3,549 7,780 13.5 % 6,857
Strong growth in newspaper advertising revenue and a decline in
newsprint prices led to the improvement in EBITDA. The Vero Beach
newspaper, acquired in May 1996, accounted for approximately one-
fourth of the increase in advertising revenues year-to-date and
approximately one-fifth of the increase in advertising revenues for
the second quarter.
The price of newsprint in the first half of 1997 was approximately 26%
lower than in the first half of 1996 and the 1997 second quarter price
was approximately 20% lower than in the second quarter of 1996.
Newsprint consumption increased 14% in the year-to-date and quarter
periods. In late July, certain newsprint suppliers announced
price increases of approximately 6%, effective in the fourth quarter
of 1997. It is uncertain if the announced increase will actually
be billed, or rather, resistance from newsprint buyers will cause
the suppliers to reduce or delay the increase. If newsprint remains
at its current price, the year-over-year cost of newsprint in 1997
will be unchanged in the third quarter, and will increase 15% in
the fourth quarter.
Excluding the Vero Beach newspaper and the costs of developing new
businesses, such as telephone directories and electronic services,
employee compensation and other operating expenses increased
approximately 6% in the year-to-date period.
BROADCAST TELEVISION - Operating results for the broadcast television
segment were as follows:
( in thousands ) Quarterly Period Year-to-Date
1997 Change 1996 1997 Change 1996
Operating revenues:
Local $ 43,806 2.4 % $ 42,763 $ 82,230 5.0 % $ 78,323
National 38,399 5.3 % 36,479 67,856 3.0 % 65,856
Political 164 1,718 253 3,100
Other 4,760 12.2 % 4,244 9,486 9.7 % 8,646
Total operating revenues 87,129 2.3 % 85,204 159,825 2.5 % 155,925
Operating expenses:
Employee compensation and benefits 25,784 5.5 % 24,446 51,220 6.3 % 48,173
Program and copyright costs 11,132 (2.1)% 11,365 22,174 (1.7)% 22,568
Other 12,126 (4.0)% 12,636 23,414 (2.8)% 24,088
Depreciation and amortization 5,971 (11.7)% 6,763 12,170 (10.6)% 13,619
Total operating expenses 55,013 (0.4)% 55,210 108,978 0.5 % 108,448
Operating income $ 32,116 7.1 % $ 29,994 $ 50,847 7.1 % $ 47,477
Other Financial and Statistical Data:
EBITDA $ 38,087 3.6 % $ 36,757 $ 63,017 3.1 % $ 61,096
Percent of operating revenues:
Operating income 36.9 % 35.2 % 31.8 % 30.4 %
EBITDA 43.7 % 43.1 % 39.4 % 39.2 %
Capital expenditures $ 4,211 $ 6,077 $ 6,318 $ 17,582
The increased political advertising in even-numbered years, when
congressional and presidential elections occur, have made it more
difficult to achieve year-over-year improvement in operating results
in odd-numbered years. Year-over-year comparisons in subsequent
quarters will be more difficult due to greater amounts of political
advertising in the 1996 periods. Political advertising totaled
$3,982,000 in the third quarter, and $12,423,000 in the fourth
quarter, of 1996.
The increase in employee costs is due primarily to the Company's
expanded schedules of local news programs. Depreciation and
amortization in the year-to-date and quarter periods of 1997 decreased
as certain intangible assets acquired in the 1991 purchase of the
Baltimore station became fully amortized.
ENTERTAINMENT - Operating results for the entertainment segment,
excluding TV Food, were as follows:
( in thousands ) Quarterly Period Year-to-Date
1997 Change 1996 1997 Change 1996
Operating revenues:
Licensing $ 14,532 19.3 % $ 12,176 $ 30,888 24.6 % $ 24,782
Newspaper feature distribution 5,615 10.6 % 5,075 10,963 10.9 % 9,883
Advertising 8,036 89.3 % 4,245 13,709 84.4 % 7,433
Subscriber fees 5,164 1,566 8,901 2,698
Program production 2,299 32.6 % 1,734 13,719 4,375
Other 846 342 1,472 648
Total operating revenues 36,492 45.2 % 25,138 79,652 59.9 % 49,819
Operating expenses:
Employee compensation and benefits 7,525 32.8 % 5,666 14,905 32.7 % 11,232
Artists' royalties 10,649 21.3 % 8,781 21,304 20.7 % 17,655
Programming and production costs 5,856 14.9 % 5,095 20,641 97.7 % 10,442
Other 10,974 60.2 % 6,852 19,185 53.8 % 12,471
Depreciation and amortization 1,000 10.5 % 905 2,095 14.5 % 1,830
Total operating expenses 36,004 31.9 % 27,299 78,130 45.7 % 53,630
Operating income (loss) $ 488 $ (2,161) $ 1,522 $ (3,811)
Other Financial and Statistical Data:
EBITDA $ 1,488 $ (1,256) $ 3,617 $ (1,981)
Capital expenditures $ 936 $ 504 $ 1,404 $ 1,040
HGTV subscribers 28,400 16,000
Licensing revenues benefited primarily from the popularity of
"Dilbert" in the U.S. and the strength of "Peanuts" in international
markets. Long-term book publishing agreements for "Dilbert," which
were signed in 1996, provided approximately one-third of the increase
in year-to-date licensing revenues. Total international licensing
revenues, substantially all of which are provided by "Peanuts,"
increased 19% and 21% in the quarter and year-to-date periods,
respectively, despite the stronger dollar. Japanese licensing
revenues increased 29% in local currency in 1997.
Program production revenues are subject to substantial fluctuation due
to the timing of completion and delivery of programs. Scripps Howard
Productions ("SHP") delivered five hours of programming year-to-date
in 1997 and none year-to-date in 1996. SHP delivered eight hours of
programming in the second half of 1996.
Advertising revenue and subscriber fees increased due to the continued
growth of HGTV. Year-to-date operating losses for HGTV totaled $4,400,000
in 1997 and $6,900,000 in 1996. Operating losses in the second half of
1997 are expected to be higher than in the first half of 1997.
Artists' royalties increased in the quarter and year-to-date periods
due to the increase in licensing revenues. Programming and production
costs increased due to the additional hours of programming produced
by SHP and higher programming costs associated with the growth of HGTV.
The Company has agreed to pay cash or other incentives ("Subscriber
Acquisition Costs") to cable television system operators in exchange for
increased distribution of HGTV. Cable television system operators
carry HGTV under contracts with an average term of approximately
five years. Subscriber acquisition costs are amortized based
upon the percentage of the current period's subscriber revenues
to estimated total subscriber revenue over the terms of the
contracts. At June 30, 1997, unamortized subscriber acquisition costs
totaled approximately $59,000,000. Based on contractual commitments as of
early July 1997, HGTV will be telecast to at least 31 million homes
by June 30, 1998. Additional incentive payments may be required
to obtain carriage on additional cable television systems.
LIQUIDITY AND CAPITAL RESOURCES
The Company 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 the Company's business segments. Management
expects total cash flow from continuing operating activities in 1997
will be sufficient to meet the Company's expected capital
expenditures, required debt payments and dividend payments.
Cash flow provided by continuing operating activities was $95,200,000
in 1997 compared to $84,800,000 in 1996.
In May the Company reached an agreement to acquire the newspaper and
broadcast properties of Harte-Hanks Communications, Inc. The transaction
will be structured as:
A tax-free "Morris Trust" transaction with an approximate value
between $605 million and $625 million. In a Morris Trust transaction
the Company will issue Class A Common stock to Harte-Hanks shareholders
valued at between $425 million and $605 million, depending upon the
amount of debt assumed by the Company. The Company has agreed to assume
a maximum of $200 million in debt, in which case the total consideration
would be approximately $625 million. The total consideration would be
approximately $605 million for an all-stock transaction. The exact
number of shares issued will be determined by the total consideration
and the trading price of the Company's shares within a "collar" range of
$32.72 and $40.
Or the Company will pay approximately $775 million in cash to Harte-
Hanks if a Morris Trust transaction is not feasible due to the outcome
of pending federal legislation.
The Company's board has authorized the repurchase of up to the maximum
number of Class A Common shares that could be issued in a Morris Trust
transaction. The company intends to purchase shares in the open market from
time to time, depending upon market conditions.
The transaction is expected to result in approximately 5 percent dilution
to the company's earnings during the first year of ownership.
The companies expect to determine the structure of the transaction by
December 31, 1997.
Net debt (borrowings less cash equivalent and other short-term
investments) totaled $88,500,000 at June 30, 1997 and was 8% of total
capitalization. Management believes the Company's cash and cash
equivalents, short-term investments and substantial borrowing
capacity, taken together, provide adequate resources to fund the
capital expenditures and expansion of existing businesses and the
development or acquisition of new businesses.
THE E. W. SCRIPPS COMPANY
Index to Exhibits
Exhibit
No. Item Page
12 Ratio of Earnings to Fixed Charges E-2