UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number 0-16914
THE E. W. SCRIPPS COMPANY
(Exact name of registrant as specified in its charter)
Ohio 31-1223339
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
312 Walnut Street
Cincinnati, Ohio 45202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (513) 977-3000
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. As of October 30, 1998
there were 59,272,519 of the Registrant's Class A Common Shares outstanding
and 19,218,913 of the Registrant's Common Voting Shares outstanding.
INDEX TO THE E. W. SCRIPPS COMPANY
REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
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 3
5 Other Information 3
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
There were no matters submitted to a vote of security holders during the
quarter for which this report is filed.
ITEM 5. OTHER INFORMATION
If a shareholder intends to raise at the Company's 1999 annual meeting a
proposal that he does not seek to have included in the Company's proxy
statement and form of proxy, he must notify the Company of the proposal on
or before February 10, 1999. If the shareholder fails to notify the
Company, the Company's proxies will be permitted to use their discretionary
voting authority with respect to such proposal when and if it is raised at
such annual meeting, whether or not there is any discussion of such
proposal in the 1999 proxy statement.
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: November 16, 1998 BY: 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 Comprehensive
Income and Stockholders' Equity F-6
Notes to Consolidated Financial Statements F-7
Management's Discussion and Analysis of Financial
Condition and Results of Operations F-13
CONSOLIDATED BALANCE SHEETS
( in thousands ) As of
September 30, December 31, September 30,
1998 1997 1997
( Unaudited ) ( Unaudited )
ASSETS
Current Assets:
Cash and cash equivalents $ 14,861 $ 14,321 $ 14,597
Short-term investments 2,529 3,105
Accounts and notes receivable (less
allowances -$7,723, $6,305, $4,915) 188,714 218,310 169,311
Program rights and production costs 80,961 61,698 63,436
Inventories 15,896 13,685 12,683
Deferred income taxes 24,180 21,630 23,161
Miscellaneous 53,577 46,365 34,765
Total current assets 380,718 379,114 317,953
Investments 107,320 84,645 71,000
Property, Plant and Equipment 473,931 480,037 430,331
Goodwill and Other Intangible Assets 1,208,558 1,237,482 597,028
Other Assets:
Program rights and production costs (less current portion) 39,576 32,546 35,489
Prepaid distribution fees (less current portion) 35,000 48,287 50,483
Miscellaneous 23,003 18,722 20,626
Total other assets 97,579 99,555 106,598
TOTAL ASSETS $ 2,268,106 $ 2,280,833 $ 1,522,910
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
( in thousands, except share data ) As of
September 30, December 31, September 30,
1998 1997 1997
( Unaudited ) ( Unaudited )
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 231,005 $ 171,254
Accounts payable 102,574 90,408 $ 86,909
Customer deposits and unearned revenue 37,748 39,395 32,591
Accrued liabilities:
Employee compensation and benefits 43,749 41,645 35,842
Distribution fees 15,931 33,388 33,190
Miscellaneous 52,338 53,870 46,434
Total current liabilities 483,345 429,960 234,966
Deferred Income Taxes 101,358 88,051 82,109
Long-Term Debt (less current portion) 501,840 601,852 52,671
Other Long-Term Obligations and Minority Interests (less current portion) 118,500 112,008 119,651
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: 60,404,819; 61,296,157; and 61,705,953 shares 604 613 617
Voting - authorized: 30,000,000 shares; issued and
outstanding: 19,218,913; 19,333,711; and 19,333,711 shares 192 193 193
Total 796 806 810
Additional paid-in capital 206,448 259,739 277,644
Retained earnings 837,677 782,329 752,064
Unrealized gains on securities available for sale 22,528 11,397 7,227
Foreign currency translation adjustment 63 293 509
Unvested restricted stock awards (4,449) (5,602) (4,741)
Total stockholders' equity 1,063,063 1,048,962 1,033,513
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,268,106 $ 2,280,833 $ 1,522,910
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME ( UNAUDITED )
( in thousands, except per share data ) Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
Operating Revenues:
Advertising $ 256,492 $ 212,906 $ 791,123 $ 644,193
Circulation 37,803 31,369 116,084 97,330
Licensing 13,914 12,423 44,520 43,050
Joint operating agency distributions 11,836 11,921 35,879 36,451
Affiliate fees 9,491 5,302 27,565 14,203
Program production 2,650 2,243 6,144 15,962
Other 11,237 10,017 35,835 31,214
Total operating revenues 343,423 286,181 1,057,150 882,403
Operating Expenses:
Employee compensation and benefits 113,635 97,491 343,340 288,677
Newsprint and ink 36,100 30,204 109,406 87,971
Program, production and copyright costs 25,901 18,356 73,883 61,171
Other operating expenses 85,020 72,532 263,910 215,212
Depreciation 15,019 13,141 46,354 39,035
Amortization of intangible assets 10,292 4,882 30,139 14,550
Total operating expenses 285,967 236,606 867,032 706,616
Operating Income 57,456 49,575 190,118 175,787
Other Credits (Charges):
Interest expense (11,712) (2,300) (35,471) (7,350)
Gain on newspaper swap 20,981 20,981
Miscellaneous, net 285 914 (238) 1,395
Net other credits (charges) (11,427) 19,595 (35,709) 15,026
Income Before Taxes and Minority Interests 46,029 69,170 154,409 190,813
Provision for Income Taxes 18,852 29,668 63,191 80,873
Income Before Minority Interests 27,177 39,502 91,218 109,940
Minority Interests 1,099 924 3,638 2,760
Net Income $ 26,078 $ 38,578 $ 87,580 $ 107,180
Net Income per Share of Common Stock:
Basic $.33 $.48 $1.09 $1.33
Diluted .32 .47 1.08 1.31
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS ( UNAUDITED )
( in thousands ) Nine months ended
September 30,
1998 1997
Cash Flows from Operating Activities:
Net income $ 87,580 $ 107,180
Adjustments to reconcile net income
to net cash flows from operating activities:
Depreciation and amortization 76,493 53,585
Gains on newspaper swap and long-term investments (21,030)
Deferred income taxes 4,758 15,777
Minority interests in income of subsidiary companies 3,638 2,760
Prepaid distribution fee amortization greater (less) than payments (6,869) (8,786)
Other changes in certain working capital accounts, net 18,860 6,053
Miscellaneous, net (6,312) 8,033
Net operating activities 178,148 163,572
Cash Flows from Investing Activities:
Additions to property, plant and equipment (42,873) (37,336)
Business acquisitions and purchase of investments (14,361) (24,658)
Change in certain short-term investments, net 2,700
Miscellaneous, net 11,250 1,595
Net investing activities (45,984) (57,699)
Cash Flows from Financing Activities:
Increase in long-term debt 20,800
Payments on long-term debt (40,359) (90,034)
Repurchase Class A Common shares (63,217) (5,171)
Dividends paid (32,232) (31,587)
Dividends paid to minority interests (1,189) (1,189)
Miscellaneous, net (primarily exercise of stock options) 5,373 5,760
Net financing activities (131,624) (101,421)
Increase in Cash and Cash Equivalents 540 4,452
Cash and Cash Equivalents:
Beginning of year 14,321 10,145
End of period $ 14,861 $ 14,597
Supplemental Cash Flow Disclosures:
Interest paid, excluding amounts capitalized $ 31,490 $ 8,033
Income taxes paid 61,223 46,343
Monterey and San Luis Obispo newspapers traded for Boulder newspaper 50,000
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
AND STOCKHOLDERS' EQUITY ( UNAUDITED )
( in thousands, except share data )
Accumulated Unvested Comprehensive
Additional Other Restricted Total Income for the
Common Paid-in Retained Comprehensive Stock Stockholders' Three Months
Stock Capital Earnings Income Awards Equity Ended Sept. 30
Balances at December 31, 1996 $ 808 $ 272,703 $ 676,471 $ (150) $ (5,241) $ 944,591
Comprehensive income
Net income 107,180 107,180 $ 38,578
Unrealized holding gains arising in
period, net of deferred income taxes
of $4,114 and $1,369 7,940 7,940 2,842
Foreign currency translation adjustments (54) (54) (116)
Total 107,180 7,886 115,066 $ 41,304
Dividends: declared and paid - $.39 per share (31,587) (31,587)
Conversion of 136,671 Common Voting Shares
to 136,671 Class A Common Shares
Repurchase and retire 111,000
Class A Common Shares (1) (4,429) (4,430)
Class A Common Shares issued pursuant to
compensation plans, net: 405,925
issued; 18,883 shares repurchased 3 5,982 (1,560) 4,425
Tax benefits of compensation plans 3,388 3,388
Amortization of restricted stock awards 2,060 2,060
Balances at September 30, 1997 $ 810 $ 277,644 $ 752,064 $ 7,736 $ (4,741) $ 1,033,513
Balances at December 31, 1997 $ 806 $ 259,739 $ 782,329 $ 11,690 $ (5,602) $ 1,048,962
Comprehensive income:
Net income 87,580 87,580 $ 26,078
Unrealized holding gains arising in
period, net of deferred income taxes
of $6,206 and $395 11,570 11,570 733
Less: reclassification adjustment for
gains included in net income, net of
deferred income taxes of $212 and ($105) (439) (439) 195
Increase in unrealized gains on securities 11,131 11,131 928
Foreign currency translation adjustments (230) (230) 4
Total 87,580 10,901 98,481 $ 27,010
Dividends: declared and paid - $.40 per share (32,232) (32,232)
Conversion of 114,798 Common Voting Shares
to 114,798 Class A Common Shares
Repurchase and retire 1,269,800
Class A Common Shares (13) (62,148) (62,161)
Class A Common Shares issued pursuant to
compensation plans, net: 284,735 shares
issued, 1,500 shares forfeited and 19,571
shares repurchased 3 5,567 (992) 4,578
Tax benefits of compensation plans 3,290 3,290
Amortization of restricted stock awards 2,145 2,145
Balances at September 30, 1998 $ 796 $ 206,448 $ 837,677 $ 22,591 $ (4,449) $ 1,063,063
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, 1997, has not
changed materially unless otherwise disclosed herein. Financial
information as of December 31, 1997, included in these financial
statements has been derived from the audited consolidated financial
statements included in that report. In management's opinion all
adjustments (consisting of normal recurring accruals) necessary for a
fair presentation of the interim periods have been made.
Results of operations are not necessarily indicative of the results
that may be expected for future interim periods or for the full year.
Net Income Per Share - The following table presents additional
information about basic and diluted weighted-average shares
outstanding:
( in thousands ) Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
Basic weighted-average shares outstanding 79,874 80,644 80,212 80,567
Effect of dilutive securities:
Unvested restricted stock held by employees 191 216 195 214
Stock options held by employees 976 954 1,041 920
Diluted weighted-average shares outstanding 81,041 81,814 81,448 81,701
Comprehensive Income - The Company adopted Financial Accounting
Standard ("FAS") No. 130 - Reporting Comprehensive Income in the first
quarter of 1998.
Recently Issued Accounting Standards - The Financial Accounting
Standards Board issued FAS No. 133 - Accounting for Derivative
Instruments and Hedging Activities. The Company uses foreign currency
forward and option contracts to reduce the risk of changes in the
exchange rate for the Japanese yen on the Company's anticipated net
licensing receipts and forward contracts to reduce the risk of changes
in the price of newsprint on anticipated purchases. The new standard,
which must be adopted by January 1, 2000, will not have a material
effect on the Company's financial position or its results of
operations. Foreign currency forward and option contracts are
currently recognized at fair value, however changes in the fair value
of such contracts, which under current accounting rules are recognized
immediately, will be initially reported as a separate component of
comprehensive income and reclassified into earnings when the related
licensing revenue is earned. Newsprint forward contracts are not
currently recorded in the Company's balance sheet and gains and losses
are deferred and recognized in income as the newsprint is consumed.
Under the new standard newsprint forward contracts will be recorded at
fair value and changes in the value of the contracts will be initially
reported as a separate component of comprehensive income and
reclassified into earnings when the newsprint is consumed.
2. ACQUISITIONS AND DIVESTITURES
A. Acquisitions
1998 - There were no acquisitions in the nine months ended September
30, 1998.
1997 - In August the Company traded its daily newspapers in Monterey
and San Luis Obispo, California, for the daily newspaper in Boulder,
Colorado. In October the Company acquired the newspaper and
broadcast operations of Harte-Hanks Communications ("Harte-Hanks") for
approximately $790,000,000 in cash. The Harte-Hanks newspaper
operations include daily newspapers in Abilene, Corpus Christi, Plano,
San Angelo and Wichita Falls, Texas, and a daily newspaper in
Anderson, South Carolina. The Company immediately traded the Harte-
Hanks broadcast operations for an approximate 56% controlling interest
in The Television Food Network and $75,000,000 in cash.
The following table presents additional information about the
newspaper trade:
( in thousands ) Nine months
ended
September 30,
1997
Goodwill and other intangible assets acquired $ 24,570
Other assets acquired 27,260
Total 51,830
Fair value of Monterey and San Luis Obispo daily newspapers (50,000)
Cash paid $ 1,830
The acquisitions have been accounted for as purchases. The acquired
operations have been included in the Consolidated Statements of Income
from the dates of acquisition. The following table summarizes, on an
unaudited pro forma basis, the estimated combined results of
operations of the Company and the acquired operations assuming the
transactions had taken place at the beginning of the period. 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 amortization of the intangible assets acquired. The pro forma
information excludes the results of operations of the Monterey and San
Luis Obispo newspapers, and excludes the gain recognized on the
transaction. The unaudited pro forma results of operations are not
necessarily indicative of the results that actually would have
occurred had the acquisition been completed at the beginning of the
period.
( in thousands, except share data ) Three months Nine months
ended ended
September 30, September 30,
1998 1997 1998 1997
Operating revenues $ 343,423 $ 322,106 $ 1,057,150 $ 984,027
Net Income 26,078 32,327 87,580 85,018
Net income per share of common stock:
Basic $.33 $.40 $1.09 $1.06
Diluted .32 .40 1.08 1.04
B. Divestitures
1998 - The Company sold Scripps Howard Productions, its Los Angeles-
based fiction television production operation, in May. No material
gain or loss was realized.
1997 - In August the Company traded its Monterey and San Luis Obispo,
California, daily newspapers for the daily newspaper in Boulder,
Colorado. The trade resulted in an after-tax gain of $11,100,000
($.14 per share). In October the Company terminated the joint
operating agency and ceased operations of its newspaper in El Paso,
Texas.
Included in the consolidated financial statements are the following
results of divested operations (excluding gains on sale):
( in thousands ) Three months Nine months
ended ended
September 30, September 30,
1998 1997 1998 1997
Operating revenues $ 0 $ 7,000 $ 0 $ 38,200
Operating income (loss) 0 (900) (900) (200)
3. LONG-TERM DEBT
Long-term debt consisted of the following:
( in thousands ) As of
September 30, December 31, September 30,
1998 1997 1997
Variable rate credit facilities $ 501,138 $ 541,459 $ 20,800
6.625% note, due in 2007 99,869 99,858
6.375% note, due in 2002 99,920 99,906
7.375% notes, due in 1998 29,826 29,754 29,730
Other notes 2,092 2,129 2,141
Total long-term debt 732,845 773,106 52,671
Current portion of long-term debt 231,005 171,254
Long-term debt (less current portion) $ 501,840 $ 601,852 $ 52,671
Weighted average interest rate on Variable Rate
Credit Facility at balance sheet date 5.59% 5.85% 6.16%
The Company has a Competitive Advance and Revolving Credit Facility
Agreement, which permits aggregate borrowings up to $700,000,000 (the
"Variable Rate Credit Facilities"). The Variable Rate Credit
Facilities are comprised of two unsecured lines, one limited to
$400,000,000 principal amount maturing in 1999, and the other limited
to $300,000,000 principal amount maturing in 2002. Borrowings under
the Variable Rate Credit Facilities are available on a committed
revolving credit basis at the Company's choice of three short-term
rates or through an auction procedure at the time of each borrowing.
The Variable Rate Credit Facilities are also used by the Company in
whole or in part, in lieu of direct borrowings, as credit support for
its commercial paper.
Certain long-term debt agreements contain maintenance requirements on
net worth and coverage of interest expense and restrictions on
incurrence of additional indebtedness. The Company is in compliance
with all debt covenants.
Current maturities of long-term debt are classified as long-term to
the extent they can be refinanced under existing long-term credit
commitments.
4. INVESTMENTS
Investments consisted of the following:
( in thousands ) As of
September 30, December 31, September 30,
1998 1997 1997
Securities available for sale:
Short-term investments $ 2,529 $ 3,105
Time Warner common stock (672,000 shares) 58,867 41,681 $ 36,429
Other 4,671 5,420 4,033
Total securities available for sale 66,067 50,206 40,462
Investments accounted for using the equity method 9,324 7,484 12,994
Other (primarily venture capital) 34,458 30,060 17,544
Total investments $ 109,849 $ 87,750 $ 71,000
Unrealized gains on securities available for sale $ 34,672 $ 17,547 $ 10,970
5. SEGMENT INFORMATION
The Company's reportable segments are strategic businesses that offer
different products and services. They are managed separately because
each business requires different technology and marketing strategies.
The Company primarily evaluates the operating performance of its
segments based on earnings before interest, income taxes, depreciation
and amortization ("EBITDA"). EBITDA also excludes all credits and
charges classified as non-operating in the Consolidated Statements of
Income. Intersegment sales, which primarily consist of programming
produced for Home & Garden Television and Food Network, are generally
recorded at cost.
No single customer provides more than 10% of the Company's revenue.
The Company derives less than 10% of its revenues from markets outside
of the U.S.
Financial information for the Company's business segments is as
follows:
( in thousands ) Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
OPERATING REVENUES
Newspapers $ 214,390 $ 175,821 $ 649,593 $ 532,566
Broadcast television 72,615 76,905 236,163 236,730
Category television 33,182 13,498 96,315 36,093
Licensing and other media 25,401 20,722 80,682 79,225
Total 345,588 286,946 1,062,753 884,614
Eliminate intersegment revenue (2,165) (765) (5,603) (2,211)
Total $ 343,423 $ 286,181 $1,057,150 $ 882,403
EBITDA
Newspapers $ 63,589 $ 45,831 $ 191,936 $ 151,160
Broadcast television 20,229 25,666 78,196 88,683
Category television (649) (271) 692 (3,324)
Licensing and other media 4,191 304 8,799 4,844
Corporate (4,593) (3,932) (13,012) (11,991)
Total $ 82,767 $ 67,598 $ 266,611 $ 229,372
DEPRECIATION
Newspapers $ 10,009 $ 8,216 $ 30,207 $ 24,393
Broadcast television 3,466 3,713 11,220 11,003
Category television 950 504 2,840 1,464
Licensing and other media 315 432 1,321 1,366
Corporate 279 276 766 809
Total $ 15,019 $ 13,141 $ 46,354 $ 39,035
AMORTIZATION OF INTANGIBLE ASSETS
Newspapers $ 5,797 $ 2,341 $ 17,283 $ 6,928
Broadcast television 2,405 2,441 7,215 7,321
Category television 1,666 5,012
Licensing and other media 424 100 629 301
Total $ 10,292 $ 4,882 $ 30,139 $ 14,550
OPERATING INCOME
Newspapers $ 47,783 $ 35,274 $ 144,446 $ 119,839
Broadcast television 14,358 19,512 59,761 70,359
Category television (3,265) (775) (7,160) (4,788)
Licensing and other media 3,452 (228) 6,849 3,177
Corporate (4,872) (4,208) (13,778) (12,800)
Total $ 57,456 $ 49,575 $ 190,118 $ 175,787
OTHER NONCASH ITEMS
Broadcast television $ 1,566 $ (317) $ 242 $ (2,901)
Category television (5,917) (2,413) (19,605) (10,789)
Licensing and other media 1,513 (2,733) (905) 1,373
Total $ (2,838) $ (5,463) $ (20,268) $ (12,317)
Other noncash items include programming and program production
expenses in excess of (less than) the amounts paid, and, for category
television, amortization of prepaid distribution fees in excess of
(less than) distribution fee payments.
( in thousands ) Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
Newspapers $ 5,447 $ 8,945 $ 17,446 $ 22,948
Broadcast television 8,931 2,992 20,927 9,310
Category television 1,718 3,035 2,852 4,170
Licensing and other media 800 96 920 366
Corporate 170 114 728 542
Total $ 17,066 $ 15,182 $ 42,873 $ 37,336
BUSINESS ACQUISITIONS AND OTHER ADDITIONS TO LONG-LIVED ASSETS
Newspapers $ 114 $ 51,836 $ 894 $ 52,177
Broadcast television 73 1,250 298 3,000
Category television 460 (2,454) 4,050 24,443
Licensing and other media 1,227 1,066 13,169 16,578
Corporate 1,350
Total $ 1,874 $ 51,698 $ 18,411 $ 97,548
ASSETS
Newspapers $1,272,705 $ 716,295
Broadcast television 500,477 520,632
Category television 290,786 132,402
Licensing and other media 148,458 99,016
Corporate 55,680 54,565
Total $2,268,106 $1,522,910
Other additions to long-lived assets include investments and prepaid
distribution fees. Corporate assets are primarily cash, investments,
and refundable and deferred income taxes.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The E. W. Scripps Company ("Company") operates in three reportable
segments: newspapers, broadcast television and category television.
The newspaper segment includes 20 daily newspapers in the U.S. The
broadcast television segment includes nine network-affiliated
stations. Category television includes Home & Garden Television
("HGTV"), The Television Food Network ("Food Network"), and the
Company's 12% equity interest in SportSouth, a regional cable
television network. Licensing and other media aggregates the
Company's operating segments that are too small to report separately,
including syndication and licensing of news features and comics,
television program production, and publication of independent
telephone directories.
All per share disclosures included in management's discussion and
analysis of financial condition and results of operations are on a
diluted basis.
Consolidated results of continuing operations were as follows:
( in thousands, except per share data ) Quarterly Period Year-to-Date
1998 Change 1997 1998 Change 1997
Operating revenues:
Newspapers $ 214,390 26.9 % $ 168,967 $ 649,593 28.5 % $ 505,389
Broadcast television 72,615 (5.6)% 76,905 236,163 (0.2)% 236,730
Category television 33,182 145.8 % 13,498 96,315 166.9 % 36,093
Licensing and other media 25,401 23.4 % 20,578 80,682 18.3 % 68,181
Total 345,588 23.4 % 279,948 1,062,753 25.6 % 846,393
Eliminate intersegment revenue (2,165) (765) (5,603) (2,211)
Divested operating units 6,998 38,221
Total operating revenues $ 343,423 20.0 % $ 286,181 $1,057,150 19.8 % $ 882,403
Operating income:
Newspapers $ 47,783 36.2 % $ 35,073 $ 144,446 22.7 % $ 117,761
Broadcast television 14,358 (26.4)% 19,512 59,761 (15.1)% 70,359
Category television (3,265) (775) (7,160) (49.5)% (4,788)
Licensing and other media 3,452 906 7,767 41.2 % 5,501
Corporate (4,872) (4,208) (13,778) (12,800)
Total 57,456 13.8 % 50,508 191,036 8.5 % 176,033
Divested operating units (933) (918) (246)
Total operating income 57,456 15.9 % 49,575 190,118 8.2 % 175,787
Interest expense (11,712) (2,300) (35,471) (7,350)
Gain on newspaper swap 20,981 20,981
Miscellaneous, net 285 914 (238) 1,395
Income taxes (18,852) (29,668) (63,191) (80,873)
Minority interest (1,099) (924) (3,638) (2,760)
Net income $ 26,078 (32.4)% $ 38,578 $ 87,580 (18.3)% $ 107,180
Per share of common stock:
Net income $.32 (31.9)% $.47 $1.08 (17.6)% $1.31
Adjusted net income (excluding
gain on newspaper swap) $.32 $.34 $1.08 $1.18
( in thousands ) Quarterly Period Year-to-Date
1998 Change 1997 1998 Change 1997
Other Financial and Statistical Data - excluding
divested operations:
Total advertising revenues $ 256,492 22.9 % $ 208,739 $ 791,123 26.2 % $ 627,088
Advertising revenues as a
percentage of total revenues 74.2 % 74.6 % 74.4 % 74.1 %
EBITDA:
Newspapers $ 63,589 40.5 % $ 45,251 $ 191,936 30.0 % $ 147,637
Broadcast television 20,229 (21.2)% 25,666 78,196 (11.8)% 88,683
Category television (649) (271) 692 (3,324)
Licensing and other media 4,191 1,407 9,685 37.0 % 7,071
Corporate (4,593) (3,932) (13,012) (11,991)
Total $ 82,767 21.5 % $ 68,121 $ 267,497 17.3 % $ 228,076
Effective income tax rate 41.0 % 42.9 % 40.9 % 42.4 %
Weighted-average shares outstanding 81,041 (0.9)% 81,814 81,448 (0.3)% 81,701
Cash provided by operating activities $ 53,983 $ 68,378 $ 178,148 $ 163,572
Capital expenditures (17,066) (15,108) (42,873) (36,406)
Business acquisitions and other
additions to long-lived assets (1,874) (51,698) (18,411) (97,548)
Increase (decrease) in long-term debt 8,205 (69,211) (40,359) (69,234)
Repurchase Class A Common shares (48,306) (4,884) (63,217) (5,171)
Dividends paid, including minority interests (11,621) (10,936) (33,421) (32,776)
Earnings before interest, income taxes, depreciation and amortization
("EBITDA") is included in the discussion of segment results because:
Management believes the year-over-year change in EBITDA is a more
useful measure of year-over-year economic performance than the
change in operating income because, combined with information on
capital spending plans, it is more reliable. Changes in
amortization and depreciation have no impact on economic
performance. Depreciation is a function of capital spending,
which is important and is separately disclosed.
Banks and other lenders use EBITDA to determine the Company's
borrowing capacity.
Financial analysts and acquirors use EBITDA, combined with capital
spending requirements, to value communications media companies.
EBITDA should not, however, be construed as an alternative measure of
the amount of the Company's income or cash flows from operating
activities as EBITDA excludes significant costs of doing business.
In October 1997 the Company acquired the newspaper and broadcast
operations of Harte-Hanks Communications ("Harte-Hanks"). The Company
immediately traded the Harte-Hanks broadcast operations for an
approximate 56% controlling interest in Food Network. The average
balance of outstanding debt increased $631,000,000, to $735,000,000,
as long-term debt was used to finance the acquisitions and to
repurchase Class A Common shares. The estimated reduction in earnings
per share due to the HHC Newspaper Operations and Food Network
acquisitions was $.07 per share in the third quarter of 1998 and $.21
per share year-to-date.
The Company sold Scripps Howard Productions ("SHP"), its Los Angeles-
based fiction television production operation, in May 1998. In August
1997 the Company traded its Monterey and San Luis Obispo, California,
daily newspapers for the daily newspaper in Boulder, Colorado. The
trade resulted in an after-tax gain of $11,100,000 ($.14 per share).
In October 1997 the Company terminated the joint operating agency and
ceased operations of its newspaper in El Paso, Texas. Operating
results for SHP and the Monterey, San Luis Obispo, and El Paso
newspapers are included in "Divested Operations".
Operating results for the Company's reportable segments, excluding
Divested Operations, are presented on the following pages. The
results of Divested Operations are excluded from the segment operating
results because management believes they are not relevant to
understanding the Company's ongoing operations.
NEWSPAPERS - Operating results, excluding Divested Operations, were as
follows:
( in thousands ) Quarterly Period Year-to-Date
1998 Change 1997 1998 Change 1997
Operating revenues:
Local $ 61,632 29.3 % $ 47,654 $ 191,580 27.7 % $ 149,990
Classified 69,230 25.1 % 55,337 204,678 31.2 % 156,032
National 7,115 34.7 % 5,284 19,619 18.2 % 16,597
Preprint and other 22,870 43.6 % 15,930 68,072 43.8 % 47,322
Newspaper advertising 160,847 29.5 % 124,205 483,949 30.8 % 369,941
Circulation 37,803 26.1 % 29,986 116,084 27.1 % 91,360
Joint operating agency distributions 11,836 5.8 % 11,182 35,879 3.8 % 34,575
Other 3,904 8.6 % 3,594 13,681 43.8 % 9,513
Total operating revenues 214,390 26.9 % 168,967 649,593 28.5 % 505,389
Operating expenses:
Employee compensation and benefits 71,101 25.1 % 56,842 215,003 29.2 % 166,377
Newsprint and ink 36,100 22.5 % 29,470 109,406 29.0 % 84,836
Other 43,600 16.6 % 37,404 133,248 25.1 % 106,539
Depreciation and amortization 15,806 55.3 % 10,178 47,490 59.0 % 29,876
Total operating expenses 166,607 24.4 % 133,894 505,147 30.3 % 387,628
Operating income $ 47,783 36.2 % $ 35,073 $ 144,446 22.7 % $ 117,761
Other Financial and Statistical Data:
EBITDA $ 63,589 40.5 % $ 45,251 $ 191,936 30.0 % $ 147,637
Percent of operating revenues:
Operating income 22.3 % 20.8 % 22.2 % 23.3 %
EBITDA 29.7 % 26.8 % 29.5 % 29.2 %
Capital expenditures $ 5,447 $ 8,871 $ 17,446 $ 22,138
Business acquistions and other
additions to long-lived assets 114 51,836 894 52,177
The acquired newspapers provided 85% of the increase in total
operating revenues in the quarter and 82% year-to-date. On a pro
forma basis, assuming all newspapers were owned for the full period in
both years, total operating revenues increased 4.4% in the quarter and
5.3% year-to-date. Advertising revenues increased 6.2% in the quarter
and 6.7% year-to-date, on the same pro forma basis. On a pro forma
basis classified advertising increased 12.0% year-over-year in the
first quarter, 9.1% in the second quarter and 4.4% in the third
quarter.
Excluding the acquired newspapers, employee compensation increased
2.4%, other operating expenses decreased 5.1%, and EBITDA increased
13% in the third quarter. Excluding the acquired newspapers, EBITDA
increased 3.5% in the first quarter and 1% in the second quarter.
More favorable year-over-year newsprint price comparisons and smaller
increases in newsprint consumption contributed to the improvement in
third quarter year-over-year growth in EBITDA compared to the prior
quarters.
Newsprint prices in the third quarter of 1998 were approximately 5%
higher than in the third quarter of 1997, after increasing 15% in the
first quarter and 8% in the second quarter. Excluding the acquired
newspapers, newsprint consumption increased 1%. At the current price,
the cost of newsprint would increase approximately 9% in the fourth
quarter, including the effects of the acquired newspapers.
BROADCAST TELEVISION - Operating results were as follows:
( in thousands ) Quarterly Period Year-to-Date
1998 Change 1997 1998 Change 1997
Operating revenues:
Local $ 36,749 (8.2)% $ 40,040 $ 121,503 (0.6)% $ 122,270
National 27,613 (13.7)% 32,006 93,618 (6.3)% 99,862
Political 3,767 367 7,249 620
Other 4,486 (0.1)% 4,492 13,793 (1.3)% 13,978
Total operating revenues 72,615 (5.6)% 76,905 236,163 (0.2)% 236,730
Operating expenses:
Employee compensation and benefits 25,971 0.1 % 25,956 79,180 2.6 % 77,176
Program and copyright costs 13,925 17.6 % 11,844 40,609 19.4 % 34,018
Other 12,490 (7.1)% 13,439 38,178 3.6 % 36,853
Depreciation and amortization 5,871 (4.6)% 6,154 18,435 0.6 % 18,324
Total operating expenses 58,257 1.5 % 57,393 176,402 6.0 % 166,371
Operating income $ 14,358 (26.4)% $ 19,512 $ 59,761 (15.1)% $ 70,359
Other Financial and Statistical Data:
EBITDA $ 20,229 (21.2)% $ 25,666 $ 78,196 (11.8)% $ 88,683
Percent of operating revenues:
Operating income 19.8 % 25.4 % 25.3 % 29.7 %
EBITDA 27.9 % 33.4 % 33.1 % 37.5 %
Capital expenditures $ 8,931 $ 2,992 $ 20,927 $ 9,310
Business acquisitions and other
additions to long-lived assets 73 1,250 298 3,000
The demand for local and national television advertising declined
sharply in most of the Company's television markets during the third
quarter. The decline was due to a number of factors, including:
Continued softness in automobile advertising.
The negative effect that mergers and reorganizations in the
telecommunications, grocery, financial and packaged goods industries
are having on advertising.
The Company's dependence upon poorly rated ABC network programming
as a lead in to the late news in its six largest markets.
Increased political advertising softened the effect on year-over-year
revenue comparisons. While political advertising is expected to
increase as election day nears, advance sales in other categories
indicate the softness in television advertising will continue into the
fourth quarter.
The increase in program costs is primarily due to the higher cost of
the popular talk show "The Rosie O'Donnell Show," which is carried by
five stations. The costs of developing locally-produced shows
contributed to the year-to-date increase in other operating expenses.
The increase in capital expenditures is primarily due to the
construction of a new building for the Phoenix station.
CATEGORY TELEVISION - Operating results were as follows:
( in thousands ) Quarterly Period Year-to-Date
1998 Change 1997 1998 Change 1997
Operating revenues:
Advertising $ 22,522 195.3 % $ 7,628 $ 65,394 212.3 % $ 20,939
Affiliate fees 9,491 79.0 % 5,302 27,565 94.1 % 14,203
Other 1,169 105.8 % 568 3,356 951
Total operating revenues 33,182 145.8 % 13,498 96,315 166.9 % 36,093
Operating expenses:
Employee compensation and benefits 8,835 200.9 % 2,936 25,437 204.0 % 8,368
Programming and production costs 11,018 110.5 % 5,235 28,556 95.0 % 14,642
Other 13,978 149.7 % 5,598 41,630 153.7 % 16,407
Depreciation and amortization 2,616 504 7,852 1,464
Total operating expenses 36,447 155.4 % 14,273 103,475 153.1 % 40,881
Operating income (loss) $ (3,265) $ (775) $ (7,160) $ (4,788)
Other Financial and Statistical Data:
EBITDA $ (649) $ (271) $ 692 $ (3,324)
Capital expenditures $ 1,718 $ 3,035 $ 2,852 $ 4,170
Business acquisitions and other
additions to long-lived assets 460 (2,454) 4,050 24,443
The October 1997 acquisition of Food Network provided approximately 50%
of the increase in operating revenues for the quarter and year-to-date
periods. The remaining increase in advertising and affiliate fee
revenues is primarily due to the increase in cable television systems
that carry HGTV, and, therefore, the increase in potential audience.
According to the Nielsen Homevideo Index, HGTV was telecast to 45.1
million homes in September 1998, up 11.8 million from September 1997 and
2.9 million in the quarter. Food Network was telecast to 34.5 million
homes in September 1998, up 6.8 million from September 1997 and 1.3
million in the quarter.
Other operating revenues includes the sale of merchandise and the sale
of programming in international markets.
Third quarter 1998 EBITDA was reduced by development costs of
$1,000,000 for extensions of the HGTV brand. Such costs totaled
$2,700,000 in the year to date period. The other increases in
operating expenses are consistent with the increases in revenue.
Third quarter EBITDA for HGTV was $900,000 in 1998 and ($900,000) in
1997. Year-to-date EBITDA was $6,100,000 in 1998 and ($4,400,000) in
1997. Operating income (losses) for the quarterly periods were
$200,000, $6,000 after-tax, $0.00 per share, in 1998 and ($1,400,000),
($1,000,000) after-tax, ($.01) per share, in 1997. Year-to-date
operating income (losses) totaled $4,200,000, $2,400,000 after-tax,
$.03 per share, in 1998 and ($5,800,000), ($3,900,000) after-tax,
($.05) per share, in 1997.
EBITDA for Food Network was ($2,300,000) in the third quarter of 1998
and ($6,500,000) year-to-date. Operating income (losses) for Food
Network totaled ($4,200,000), ($2,600,000) after-tax, ($.03) per
share, for the quarter and ($12,400,000), ($7,800,000) after-tax,
($.10) per share, year-to-date.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates significant cash flow from operating activities,
primarily from its newspaper and broadcast television operating
segments. There are no significant legal or other restrictions on the
transfer of funds among the Company's business segments. Cash flow
provided by the operating activities of the newspaper and broadcast
television segments in excess of the capital expenditures of those
segments are used primarily to invest in the category television
segment, to fund corporate expenditures, or to invest in new
businesses. Management expects total cash flow from operating
activities in 1998 will be sufficient to meet the Company's expected
total capital expenditures, required interest payments and dividend
payments.
Cash flow from operating activities was $178,000,000 in the first nine
months of 1998 compared to $164,000,000 in the 1997 period. The
improvement was due to the increase in EBITDA and a decrease in
accounts receivable from customers, offset by an increase in interest
and income tax payments.
In 1997 the Board of Directors authorized, subject to business and
market conditions, the purchase of up to 4,000,000 of the Company's
Class A Common Shares. The Company repurchased 1,269,800 shares at a
cost of $62,200,000 in the first nine months of 1998 and 621,000 shares
at a cost of $25,700,000 in the second half of 1997. The Company
repurchased an additional 1,132,000 shares in October 1998. In
November 1998 The Board of Directors authorized an increase in the
number of shares to 6,000,000.
Net debt (borrowings less cash equivalent and other short-term
investments) totaled $730,000,000 at September 30, 1998 and was 41% of
total capitalization. Management believes the Company's cash flow from
operations and substantial borrowing capacity, taken together, provide
adequate resources to fund expansion of existing businesses and the
development or acquisition of new businesses.
YEAR 2000 READINESS
Description and Company Plans
The Year 2000 ("Y2K") issue results from computer programs, computer
equipment and certain embedded chips using two digits rather than four
to define the year. Computer applications and equipment that use
date-sensitive software or date-sensitive embedded chips may recognize
a date of "00" as the year 1900 instead of the year 2000. As a result,
those computer applications may fail or improperly process financial
transactions.
The Company's Y2K remediation project includes the following phases:
identification and assessment of the Y2K issue, determination
of required revisions to or replacements of affected computer
applications and equipment, testing of those revisions and
replacements, and developing contingency plans in the event that
revisions and replacements are not completed timely or do not
fully remediate the Y2K issues.
Identification and Assessment of Y2K Issues
The identification and assessment phase, which is substantially
complete, included a comprehensive inventory of internally developed
computer applications, computer applications and computer hardware
purchased or licensed from third parties (which includes the
majority of the Company's computer software applications), and
other equipment with embedded chips. The inventoried applications
and equipment were evaluated to identify Y2K issues. Y2K issues
were identified based upon review of applications and equipment
by the Company and/or communication with the vendor. This phase
also included an assessment of the impact of failing to remediate
identified Y2K issues on the Company's business operations, results
of operations, and financial condition. Based upon the identification
of Y2K issues and assessment of the effect of those issues, each
of the computer applications and items of equipment with embedded
chips were assigned to one of the following categories: 1) applications
and equipment with Y2K issues that, if they were to fail, would
seriously impair the Company's ability to operate its business,
2) applications and equipment with Y2K issues for which the Company
has feasible alternatives, 3) applications and equipment found
to be compliant or certified compliant by the vendor, and 4) noncompliant
applications and equipment that will have little or no effect
on business operations. The Company has created a central data
base identifying all inventoried applications and equipment, Y2K
issues identified, the priority of remediation based upon the
perceived business risk, the probable method of remediation
(upgrade or replace), and targeted remediation completion date.
Approximately 20% of the Company's applications were classified in the
highest priority and approximately 25% in the second priority.
The identification and assessment phase also included communications
with significant vendors, suppliers and customers to determine the
extent to which the Company's systems and business operations are
vulnerable if those third parties fail to remediate their own Y2K
issues.
Y2K Remediation Efforts
The Company's plan of remediation includes a mix of installing new
applications and equipment, upgrading existing applications and
equipment, retiring obsolete systems and equipment, and confirming
significant third party compliance. A discussion of the identified
Y2K issues that could materially affect each of the Company's
business segments and the Company's plan of remediation follows.
Newspapers
The Company uses a variety of newspaper circulation, advertising
and editorial computer systems in the production of its newspapers.
The Company began replacing most of its internally developed software
with applications developed by third-party software vendors
and upgrading othe applications several years ago. Many of these
systems have been installed and implemented. Approximately 80%
of the Company's circulation systems, 60% of its advertising
systems, and 65% of its editorial systems are currently Y2K
compliant, have been certified by the software vendor to be compliant,
or have only minor Y2K issues that would not result in a significant
disruption of business operations. Vendors for most of the
remaining systems have Y2K-compliant upgrades currently available.
Remediation of the noncompliant systems is expected to be
completed through early third quarter of 1999, with most upgrades
and replacements being completed in the first quarter of 1999.
Equipment and applications used in producing, printing, sorting and
distributing newspapers use software or embedded chips that
are not Y2K compliant. The Company has determined that in many
instances this equipment is not date dependent and the internal
calendars can be set back to an earlier year without affecting
the operation of the equipment. Other equipment and software
will have to be upgraded or replaced.
Most of the Company's newspapers receive newsprint via truck,
however the Company's Denver newspaper relies on rail transportation
for newsprint delivery. The Company anticipates increasing
its newspaper inventories in the latter part of 1999 to mitigate
the effect of any temporary disruption in the delivery of
newsprint or any disruption in the operation of newsprint mills.
The Company's Cincinnati, Birmingham and Albuquerque newspapers
operate under joint operating agreements ("JOAs") whereby the
Company receives a portion of the JOA profits from the managing
party. The Company's share of JOA profits could be adversely
affected if those managing parties experience a significant
disruption in business operations.
Broadcast Television
The Company receives network and syndicated programming via satellite.
The Company's receipt of that programming is dependent upon the
broadcast networks and program syndicators resolving their Y2K issues.
NBC has scheduled Y2K testing of its affiliate network. The Company
expects to perform similar testing with ABC. The Company does not
anticipate any disruption in receiving programming from the broadcast
networks or syndicators, but in the event of such a disruption
the Company has alternative programming available.
The Company uses advertising inventory management software to manage,
schedule and bill advertising in each of the Company's broadcast
television markets. This software is licensed from two different
vendors. One of the systems, used in three of the Company's
markets, has been certified by the vendor to be Y2K compliant.
The other system must be upgraded. The vendor has informed the
Company that Y2K compliant version of its software will be available
in the early part of the second quarter of 1999. The Company expects
to complete installation of the upgrades by the second quarter of 1999.
The Company utilizes equipment and software to automate
the insertion of advertising into program breaks. This equipment has
been found to be noncompliant and must be upgraded or replaced. Failure
of this software or equipment would not materially disrupt the Company's
business operations as this process could be performed manually.
The Company uses various broadcast and studio equipment to
produce and transmit its broadcast signals. Although much of this
equipment includes embedded chips, the Company believes the
equipment will continue to function after 1999. The Company
is currently testing this equipment. If such testing indicates that
the operation of the equipment is affected by Y2K issues, the necessary
upgrades or replacements would be installed by the second quarter
of 1999.
Category Television
The Company uses advertising inventory management software to manage,
schedule and bill advertising. Some of these systems are currently
Y2K compliant. Y2K compliant versions of remaining software
applications will be installed by the end of the first quarter of 1999.
The Company utilizes equipment and software to automate the
insertion of advertising into program breaks. Approximately 50%
of this equipment has been found to be noncompliant and must be
upgraded or replaced. Failure of this software or equipment
would not materially disrupt the Company's business operations as
this process could be performed manually.
The Company transmits its network programming to cable television and
direct broadcast satellite systems via satellite. Broadcast and
studio equipment used to produce and transmit the Company's
signal is considered to be approximately 50% compliant. The Company
has determined that certain equipment, while noncompliant, will
continue to function after 1999, therefore it does not need to be
upgraded or replaced. Noncompliant equipment that could affect
the production and transmission of a signal is scheduled to be
upgraded or replaced by the end of the second quarter of 1999.
The Company currently understands that the satellites used in
transmitting the Company's networks are Y2K compliant and expects
to receive written assurances to that effect. However, the
Company understands that headend equipment controlling set-top
boxes for virtually all cable television subscribers is presently
not Y2K compliant. The Company currently believes that failure
of this equipment could potentially prevent cable television
systems from delivering the Company's programming to viewers.
The Company understands that equipment and set-top box
manufacturers have recently developed solutions that cable
television systems have begun to install in their headend
equipment. The Company anticipates that this issue will be
remediated, but that process is not within the Company's control.
Testing of Upgrades and Replacements
The Company's Y2K remediation program includes testing of applications
and equipment identified by the Company as compliant or certified
as compliant by the vendor. The Company's program also includes
testing of upgrades and replacements during installation and upon
completion. Testing includes the use of dates which simulate
transactions and environments, both before and after the year 2000,
including leap year. While that testing provides assurance that the
upgrades and replacements installed by the Company perform as
designed, it is not possible for the Company to completely
simulate the effect of the year 2000 when testing the Company's
systems, and certain embedded chips can not be tested.
Costs of Y2K Remediation Program
To date costs of achieving Year 2000 compliance, including capital
spending, have not been material to the Company's results of operations,
its cash flow or its financial position, and such costs are not
expected to be material in the remainder of 1998 or 1999. Costs
of the Company's Y2K remediation program, including those incurred
to date, are expected to total less than $10,000,000. The costs
have been financed through cash flows from operations. Most
computer systems and equipment that have been or are scheduled to
be replaced whould have been replaced regardless of the Y2K issue,
although the Y2K issue has slightly accelerated the Company's
replacement plans. The Company believes that the acceleration
of these projects has not resulted in the deferral of other
information technology projects that would have a material effect
on the Company's results of operations or fianancial condition.
Risks of Y2K Issues and Contingency Plans
Like all large companies, the Company is dependent on the continued
functioning of basic, heavily computerized services such as banking,
telephony and electric power. The Company is making considerable
effort to ensure that the third parties upon which it relies are
addressing their Y2K issues, but cannot predict the likelihood of
those issues being remedied, or the costs to the Company if such
issues are not remedied. The Company believes the possibility of
failure of these critical third party systems is remote.
The Company's Y2K remediation program includes contingency planning
to ensure business continuity in each of the Company's markets.
Such plans will address a variety of internal and external scenarios
that might occur as a result of the Y2K issue, and will specify
alternatives if any Y2K-related business disruption occurs. The
Company expects to complete such contingency plans in early
1999, and will update those plans throughout the remainder of
1999 based upon the progress of the Y2K remediation program.
Management believes it has an effective program to resolve the
Y2K issue in a timely manner and that its Y2K issues will be
remediated. Based upon assessment of its internal systems and the
status of its Y2K remediation efforts, the Company does not
expect the Y2K issue to pose significant problems for its
operations or to have a material effect on its results of
operations or financial condition. However, if the Company
is unable to complete its Y2K remediation program, or if its
Y2K remediation program does not fully remediate the effects
of the Y2K issue, the Company could experience a material
disruption in its business operations. In addition, disruptions
in the general economy as a result of the Y2K issue could
lead to a reduction of advertising spending which could
adversely affect the Company.
THE E. W. SCRIPPS COMPANY
Index to Exhibits
Exhibit
No. Item Page
12 Ratio of Earnings to Fixed Charges E-2
RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12
( in thousands ) Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
EARNINGS AS DEFINED:
Earnings from operations before income taxes after
eliminating undistributed earnings of 20%- to
50%-owned affiliates $ 45,014 $ 68,406 $ 154,177 $ 190,399
Fixed charges excluding capitalized interest and
preferred stock dividends of majority-owned
subsidiary companies 13,024 3,313 39,216 10,172
Earnings as defined $ 58,038 $ 71,719 $ 193,393 $ 200,571
FIXED CHARGES AS DEFINED:
Interest expense, including amortization of
debt issue costs $ 11,712 $ 2,300 $ 35,471 $ 7,350
Interest capitalized 122 352 222 773
Portion of rental expense representative
of the interest factor 1,312 1,013 3,745 2,822
Preferred stock dividends of majority-owned
subsidiary companies 20 20 60 60
Fixed charges as defined $ 13,166 $ 3,685 $ 39,498 $ 11,005
RATIO OF EARNINGS TO FIXED CHARGES 4.41 19.46 4.90 18.23
5
1000
9-MOS
DEC-31-1998
SEP-30-1998
14,861
2,529
196,437
7,723
15,896
380,718
895,011
421,080
2,268,106
483,345
501,840
0
0
796
1,062,267
2,268,106
0
1,057,150
0
0
861,100
5,932
35,471
154,409
63,191
87,580
0
0
0
87,580
$1.09
$1.08
