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, 1999
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 July 31, 1999
there were 58,962,989 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 JUNE 30, 1999
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 1999 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 54,132,353 18,333
Nicholas B. Paumgarten 54,114,453 36,233
Ronald W. Tysoe 54,132,349 18,337
Common Voting Shares:
Election of Directors:
William R. Burleigh 18,946,673
John H. Burlingame 18,946,673
Nackey E. Scagliotti 18,946,673
Charles E. Scripps 18,946,673
Edward W. Scripps 18,946,673
Paul K. Scripps 18,946,673
Julie A. Wrigley 18,946,673
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
The information required by this item is filed as part of this Form 10-Q.
See Index to Exhibits at page E-1 of this Form 10-Q.
Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this report
is filed.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
THE E. W. SCRIPPS COMPANY
Dated: August 5, 1999 BY: D. J. Castellini
D. J. Castellini
Senior Vice President and
Chief Financial Officer
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-12
CONSOLIDATED BALANCE SHEETS
( in thousands ) As of
June 30, December 31, June 30,
1999 1998 1998
(Unaudited) (Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 12,386 $ 15,419 $ 17,882
Short-term investments 385 20,551 3,237
Accounts and notes receivable (less
allowances -$10,721, $7,689, $7,298) 239,719 226,683 207,695
Program rights and production costs 81,811 68,870 50,389
Network distribution fees 15,854 18,729 18,600
Inventories 14,086 15,009 17,267
Deferred income taxes 25,136 24,140 22,698
Miscellaneous 33,743 29,926 25,636
Total current assets 423,120 419,327 363,404
Investments 171,056 131,230 108,926
Property, Plant and Equipment 478,506 479,286 472,399
Goodwill and Other Intangible Assets 1,189,988 1,204,469 1,227,649
Other Assets:
Program rights and production costs (less current portion) 41,117 50,763 42,970
Network distribution fees (less current portion) 53,038 43,204 35,324
Miscellaneous 34,560 31,095 22,312
Total other assets 128,715 125,062 100,606
TOTAL ASSETS $ 2,391,385 $ 2,359,374 $ 2,272,984
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
( in thousands, except share data ) As of
June 30, December 31, June 30,
1999 1998 1998
(Unaudited) (Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 271,383 $ 268,780 $ 122,777
Accounts payable 72,357 101,870 81,455
Customer deposits and unearned revenue 39,520 42,094 42,256
Accrued liabilities:
Employee compensation and benefits 45,200 40,816 45,157
Network distribution fees 39,453 35,520 18,026
Miscellaneous 56,214 57,687 48,161
Total current liabilities 524,127 546,767 357,832
Deferred Income Taxes 127,726 115,577 100,383
Long-Term Debt (less current portion) 503,295 501,877 601,851
Other Long-Term Obligations and Minority Interests (less current portion) 127,977 126,421 120,396
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: 58,933,789; 59,324,967; and 61,356,653 shares 589 593 614
Voting - authorized: 30,000,000 shares; issued and
outstanding: 19,218,913 shares 192 192 192
Total 781 785 806
Additional paid-in capital 140,160 161,878 251,849
Retained earnings 924,613 870,315 822,825
Unrealized gains on securities available for sale 48,542 38,904 21,600
Foreign currency translation adjustment 164 581 59
Unvested restricted stock awards (6,000) (3,731) (4,617)
Total stockholders' equity 1,108,260 1,068,732 1,092,522
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,391,385 $ 2,359,374 $ 2,272,984
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,
1999 1998 1999 1998
Operating Revenues:
Advertising $ 299,044 $ 277,427 $ 581,942 $ 534,975
Circulation 34,968 37,740 72,556 78,281
Licensing 15,285 16,022 31,051 30,606
Joint operating agency distributions 13,430 13,227 24,347 24,043
Affiliate fees 12,702 9,397 24,639 18,074
Other 12,884 13,105 27,201 27,748
Total operating revenues 388,313 366,918 761,736 713,727
Operating Expenses:
Employee compensation and benefits 123,031 113,372 241,011 227,566
Newsprint and ink 34,282 36,958 71,585 73,306
Program, production and copyright costs 28,980 25,100 58,590 48,529
Other operating expenses 91,979 90,854 188,783 180,482
Depreciation 14,051 15,504 30,404 31,335
Amortization of intangible assets 9,716 9,923 19,352 19,847
Total operating expenses 302,039 291,711 609,725 581,065
Operating Income 86,274 75,207 152,011 132,662
Other Credits (Charges):
Interest expense (11,026) (11,747) (22,099) (23,759)
Miscellaneous, net 1,652 915 2,954 (523)
Net other credits (charges) (9,374) (10,832) (19,145) (24,282)
Income Before Taxes and Minority Interests 76,900 64,375 132,866 108,380
Provision for Income Taxes 31,556 26,380 54,488 44,339
Income Before Minority Interests 45,344 37,995 78,378 64,041
Minority Interests 1,113 1,571 2,146 2,539
Net Income $ 44,231 $ 36,424 $ 76,232 $ 61,502
Net Income per Share of Common Stock:
Basic $.57 $.45 $.98 $.77
Diluted .56 .45 .96 .75
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS ( UNAUDITED )
( in thousands )
Six months ended
June 30,
1999 1998
Cash Flows from Operating Activities:
Net income $ 76,232 $ 61,502
Adjustments to reconcile net income
to net cash flows from operating activities:
Depreciation and amortization 49,756 51,182
Deferred income taxes 5,958 5,765
Minority interests in income of subsidiary companies 2,146 2,539
Network distribution fee amortization greater (less) than payments (9,067) (7,856)
Program cost amortization greater (less) than payments (22,841) (14,004)
Other changes in certain working capital accounts, net (25,672) 20,312
Miscellaneous, net 6,409 5,217
Net operating activities 82,921 124,657
Cash Flows from Investing Activities:
Additions to property, plant and equipment (36,301) (25,807)
Purchase of subsidiary company and long-term investments (30,851) (13,408)
Change in short-term investments, net 20,166 (59)
Miscellaneous, net 7,596 18
Net investing activities (39,390) (39,256)
Cash Flows from Financing Activities:
Increase in long-term debt 5,668
Payments on long-term debt (1,694) (48,564)
Repurchase Class A Common shares (28,217) (13,889)
Dividends paid (21,934) (21,006)
Dividends paid to minority interests (784) (794)
Miscellaneous, net (primarily exercise of stock options) 397 2,318
Net financing activities (46,564) (81,935)
Increase (Decrease) in Cash and Cash Equivalents (3,033) 3,466
Cash and Cash Equivalents:
Beginning of year 15,419 14,416
End of period $ 12,386 $ 17,882
Supplemental Cash Flow Disclosures:
Interest paid, excluding amounts capitalized $ 21,892 $ 23,685
Income taxes paid 43,647 40,853
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 June 30
Balances a December 31, 1997 $ 806 $ 259,739 $ 782,329 $ 11,690 $ (5,602) $ 1,048,962
Comprehensive income:
Net income 61,502 61,502 $ 36,424
Unrealized gains, net of deferred tax
of $5,811 and $3,520 10,837 10,837 6,536
Less: reclassification adjustment for gains
in income, net of deferred tax of $317 (634) (634)
Increase in unrealized gains on securities 10,203 10,203 6,536
Foreign currency translation adjustments (234) (234) (140)
Total 61,502 9,969 71,471 $ 42,820
Dividends: declared and paid - $.26 per share (21,006) (21,006)
Convert 114,798 Voting Shares to Class A Shares
Repurchase and retire 270,000 Class A Common Shares (2) (13,887) (13,889)
Compensation plans, net: 235,924 shares issued, 1,500
shares forfeited and 18,726 shares repurchased 2 3,023 985 4,010
Tax benefits of compensation plans 2,974 2,974
Balances at June 30, 1998 $ 806 $ 251,849 $ 822,825 $ 21,659 $ (4,617) $ 1,092,522
Balances at December 31, 1998 $ 785 $ 161,878 $ 870,315 $ 39,485 $ (3,731) $ 1,068,732
Comprehensive income:
Net income 76,232 76,232 $ 44,231
Unrealized gains, net of deferred tax
of $5,254 and $1,001 9,696 9,696 1,798
Less: reclassification adjustment for gains
in income, net of deferred tax of $31 (58) (58)
Increase in unrealized gains on securities 9,638 9,638 1,798
Foreign currency translation adjustments (417) (417) (156)
Total 76,232 9,221 85,453 $ 45,873
Dividends: declared and paid - $.28 per share (21,934) (21,934)
Repurchase 636,600 Class A Common Shares (6) (28,211) (28,217)
Compensation plans, net: 273,651 shares issued;
28,229 shares repurchased 2 4,265 (2,269) 1,998
Tax benefits of compensation plans 2,228 2,228
Balances at June 30, 1999 $ 781 $ 140,160 $ 924,613 $ 48,706 $ (6,000) $ 1,108,260
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, 1998, has not
changed materially unless otherwise disclosed herein. Financial
information as of December 31, 1998, 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 Six months ended
June 30, June 30,
1999 1998 1999 1998
Basic weighted-average shares outstanding 77,937 80,404 78,017 80,381
Effect of dilutive securities:
Unvested restricted stock held by employees 177 197 184 198
Stock options held by employees 836 1,087 837 1,073
Diluted weighted-average shares outstanding 78,950 81,688 79,038 81,652
Recently Issued Accounting Standards - The Financial Accounting
Standards Board issued FAS No. 133 - Accounting for Derivative
Instruments and Hedging Activities. As market conditions warrant, 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,
2001, 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, when used, are not 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.
Use of Estimates - In the first quarter of 1999 the Company increased
the estimated useful lives of network distribution fees to the greater
of five years or the remaining terms of the distribution contracts.
Because of the previous uncertainty regarding the conditions under which
the distribution contracts would be renewed, such fees had been
amortized over the terms of the contracts. The Company has committed to
pay certain cable television system operators additional distribution
fees to carry the networks on systems not included in the original
distribution contracts. Management believes the expanded distribution
of the networks will increase affiliate fee and advertising revenue
beyond the remaining terms of the original distribution contracts. The
change in the estimated amortization period was made to better match
revenue and expense. Also in the first quarter of 1999 the Company
increased the estimated useful lives of certain newspaper presses from
20 years to 30 years. The changes in estimated useful lives of the
network distribution fees and the newspaper presses were made
prospectively. The effect of these changes was to increase operating
income $3,300,000 and net income $2,100,000 ($.03 per share) for the
second quarter of 1999. The year-to-date increases were: operating
income, $6,300,000 and net income, $3,900,000 ($.05 per share). The
effect of the changes on the full year 1999 will be to increase net
income per share by approximately $.10.
Reclassifications - For comparative purposes, certain 1998 amounts have
been reclassified to conform to 1999 classifications.
2. ACQUISITIONS AND DIVESTITURES
Acquisitions
1999 - In the first quarter the Company acquired the 70% of Colorado
Real Estate On-Line, a provider of real estate listings on the
Internet, that it did not already own for $1,100,000 and acquired
an additional 1.86% interest in The Television Food Network for
$2,400,000.
1998 - In the second quarter the Company acquired independent yellow
page directories in Memphis, Tennessee, and Kansas City, Missouri,
for $2,200,000.
Divestitures
1998 - The Company sold Scripps Howard Productions, its program
television production operation based in Los Angeles, in the
second quarter and the Dallas, Texas, community newspapers,
including the Plano daily in the fourth quarter. No material gain
or loss was realized on either divestiture as proceeds
approximated the book value of the net assets sold.
Included in the consolidated financial statements are the following
results of divested operations (excluding gains on sales):
( in thousands ) Three months Six months
ended ended
June 30, June 30,
1998 1998
Operating revenues $ 3,600 $ 7,400
Operating income (loss) 300 (500)
3. LONG-TERM DEBT
Long-term debt consisted of the following:
( in thousands ) As of
June 30, December 31, June 30,
1999 1998 1998
Variable rate credit facilities $ 570,515 $ 567,561 $ 492,921
$100 million, 6.625% note, due in 2007 99,880 99,872 99,865
$100 million, 6.375% note, due in 2002 99,935 99,925 99,916
$30 million, 7.375% notes, due in 1998 29,802
Other notes 4,348 3,299 2,124
Total long-term debt 774,678 770,657 724,628
Current portion of long-term debt 271,383 268,780 122,777
Long-term debt (less current portion) $ 503,295 $ 501,877 $ 601,851
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. The weighted average interest rates on the
Variable Rate Credit Facilities were 5.04% at June 30, 1999, 5.25% at
December 31, 1998, and 5.65% at June 30, 1998.
4. INVESTMENTS
Investments consisted of the following:
( in thousands ) As of
June 30, December 31, June 30,
1999 1998 1998
Securities available for sale:
Time Warner common stock (1,344,000 shares) $ 97,648 $ 83,446 $ 57,438
Other 5,723 5,075 4,747
Total securities available for sale 103,371 88,521 62,185
Investments accounted for using the equity method 6,333 5,599 8,013
Other (primarily venture capital) 61,352 37,110 38,728
Total investments $ 171,056 $ 131,230 $ 108,926
Unrealized gains on securities available for sale $ 74,727 $ 59,866 $ 33,244
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.
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 Six months ended
June 30, June 30,
1999 1998 1999 1998
OPERATING REVENUES
Newspapers $ 224,893 $ 220,077 $ 444,633 $ 435,203
Broadcast television 81,605 88,733 156,972 163,548
Category television 57,586 35,725 105,786 66,195
Licensing and other media 24,229 22,383 54,345 48,781
Total $ 388,313 $ 366,918 $ 761,736 $ 713,727
EBITDA
Newspapers $ 69,992 $ 65,621 $ 135,400 $ 128,347
Broadcast television 27,709 35,414 49,157 57,967
Category television 14,290 556 19,284 (184)
Licensing and other media 2,524 3,334 6,775 6,133
Corporate (4,474) (4,291) (8,849) (8,419)
Total $ 110,041 $ 100,634 $ 201,767 $ 183,844
DEPRECIATION
Newspapers $ 8,383 $ 9,987 $ 17,760 $ 20,198
Broadcast television 4,408 3,828 9,103 7,754
Category television 634 1,242 2,449 2,472
Licensing and other media 375 207 601 424
Corporate 251 240 491 487
Total $ 14,051 $ 15,504 $ 30,404 $ 31,335
AMORTIZATION OF INTANGIBLE ASSETS
Newspapers $ 5,593 $ 5,743 $ 11,239 $ 11,486
Broadcast television 2,374 2,405 4,740 4,810
Category television 1,608 1,772 3,182 3,546
Licensing and other media 141 3 191 5
Total $ 9,716 $ 9,923 $ 19,352 $ 19,847
OPERATING INCOME
Newspapers $ 56,016 $ 49,891 $ 106,401 $ 96,663
Broadcast television 20,927 29,181 35,314 45,403
Category television 12,048 (2,458) 13,653 (6,202)
Licensing and other media 2,008 3,124 5,983 5,704
Corporate (4,725) (4,531) (9,340) (8,906)
Total $ 86,274 $ 75,207 $ 152,011 $ 132,662
OTHER NONCASH ITEMS
Broadcast television $ 522 $ (666) $ 812 $ (1,430)
Category television (12,772) (13,308) (32,720) (20,180)
Licensing and other media (219) (250)
Total $ (12,250) $ (14,193) $ (31,908) $ (21,860)
Other noncash items include programming and program production
expenses in excess of (less than) the amounts paid, and, for category
television, amortization of network distribution fees in excess of
(less than) distribution fee payments.
( in thousands ) Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
Newspapers $ 6,463 $ 5,687 $ 15,163 $ 11,999
Broadcast television 6,488 6,903 9,561 11,996
Category television 7,193 828 8,421 1,135
Licensing and other media 434 54 921 117
Corporate 1,525 245 2,235 560
Total $ 22,103 $ 13,717 $ 36,301 $ 25,807
BUSINESS ACQUISITIONS AND OTHER ADDITIONS TO LONG-LIVED ASSETS
Newspapers $ 449 $ 1,129 $ 780
Broadcast television $ 15 155 70 225
Category television 9,058 845 23,797 3,590
Licensing and other media 16,463 8,949 22,514 11,782
Total $ 25,536 $ 10,398 $ 47,510 $ 16,377
ASSETS
Newspapers $1,225,291 $1,282,243
Broadcast television 475,567 479,331
Category television 413,463 309,466
Licensing and other media 223,279 152,540
Corporate 53,785 49,404
Total $2,391,385 $2,272,984
Other additions to long-lived assets include investments and network
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 19 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 FOX Sports South, 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 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 operations were as follows:
( in thousands, except per share data ) Quarterly Period Year-to-Date
1999 Change 1998 1999 Change 1998
Operating revenues:
Newspapers $ 224,893 3.9 % $ 216,430 $ 444,633 3.9 % $ 427,768
Broadcast television 81,605 (8.0)% 88,733 156,972 (4.0)% 163,548
Category television 57,586 61.2 % 35,725 105,786 59.8 % 66,195
Licensing and other media 24,229 8.2 % 22,383 54,345 11.4 % 48,781
Total 388,313 6.9 % 363,271 761,736 7.9 % 706,292
Divested operating units 3,647 7,435
Total operating revenues $ 388,313 5.8 % $ 366,918 $ 761,736 6.7 % $ 713,727
Operating income:
Newspapers $ 56,016 12.9 % $ 49,625 $ 106,401 10.5 % $ 96,293
Broadcast television 20,927 (28.3)% 29,181 35,314 (22.2)% 45,403
Category television 12,048 (2,458) 13,653 (6,202)
Licensing and other media 2,008 (35.7)% 3,124 5,983 (9.6)% 6,622
Corporate (4,725) (4,531) (9,340) (8,906)
Total 86,274 15.1 % 74,941 152,011 14.1 % 133,210
Divested operating units 266 (548)
Total operating income 86,274 14.7 % 75,207 152,011 14.6 % 132,662
Interest expense (11,026) (11,747) (22,099) (23,759)
Miscellaneous, net 1,652 915 2,954 (523)
Income taxes (31,556) (26,380) (54,488) (44,339)
Minority interest (1,113) (1,571) (2,146) (2,539)
Net income $ 44,231 21.4 % $ 36,424 $ 76,232 24.0 % $ 61,502
Per share of common stock:
Net income $.56 24.4 % $.45 $.96 28.0 % $.75
( in thousands ) Quarterly Period Year-to-Date
1999 Change 1998 1999 Change 1998
Other Financial and Statistical Data - excluding
divested operations:
Total advertising revenues $ 299,044 9.1 % $ 274,192 $ 581,942 10.0 % $ 528,816
Advertising revenues as a
percentage of total revenues 77.0 % 75.5 % 76.4 % 74.9 %
EBITDA:
Newspapers $ 69,992 7.5 % $ 65,121 $ 135,400 6.2 % $ 127,482
Broadcast television 27,709 (21.8)% 35,414 49,157 (15.2)% 57,967
Category television 14,290 556 19,284 (184)
Licensing and other media 2,524 3,334 6,775 (3.5)% 7,019
Corporate (4,474) (4,291) (8,849) (8,419)
Total $ 110,041 9.9 % $ 100,134 $ 201,767 9.7 % $ 183,865
Effective income tax rate 41.0 % 41.0 % 41.0 % 40.9 %
Weighted-average shares outstanding 78,950 (3.4)% 81,688 79,038 (3.2)% 81,652
Cash provided by operating activities $ 22,824 $ 35,219 $ 82,921 $ 124,657
Capital expenditures (22,103) (13,662) (36,301) (25,656)
Business acquisitions and other
additions to long-lived assets (25,536) (10,398) (47,510) (16,377)
Increase (decrease) in long-term debt 40,042 14,430 3,974 (48,564)
Repurchase Class A Common shares (11,508) (13,889) (28,217) (13,889)
Dividends paid, including minority interests (11,356) (10,906) (22,718) (21,800)
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.
In the first quarter of 1999 the Company acquired the 70% of Colorado
Real Estate On-Line, a provider of real estate listings on the
Internet, that it did not already own for $1.1 million in cash and
acquired an additional 1.86% interest in The Television Food Network
for $2.4 million. In the second quarter of 1998 the Company acquired
independent yellow page directories in Memphis, Tennessee, and Kansas
City, Missouri, for $2.2 million.
The Company sold Scripps Howard Productions ("SHP"), the Company's
television program production operation based in Los Angeles in the
second quarter of 1998 and the Dallas, Texas, community newspapers,
including the Plano daily, in the fourth quarter of 1998. No material
gain or loss was realized on either as proceeds approximated the book
value of the net assets sold.
In the first quarter of 1999 the Company increased the estimated useful
lives of network distribution fees to the greater of five years or the
remaining terms of the distribution contracts. Also in the first
quarter of 1999 the Company increased the estimated useful lives of
certain newspaper presses from 20 years to 30 years. The changes in
estimated useful lives were made prospectively. The effect of these
changes was to increase EBITDA $2.3 million, operating income $3.3
million, and net income $2.1 million ($.03 per share) for the second
quarter of 1999. The year-to-date increases were: EBITDA, $4.1
million; operating income, $6.3 million; and net income, $3.9 million
($.05 per share). The effect of the changes on the full year 1999 will
be to increase net income per share by approximately $.10.
Excluding divested operations and the changes in estimated useful
lives, EBITDA increased 7.6% and operating income increased 11% in the
second quarter of 1999. Year-to-date EBITDA increased 7.5% and
operating income increased 9.4%. Operating results for the Company's
reportable segments, excluding Divested Operations, are presented on
the following pages.
Interest expense decreased $1.7 million year-over-year as lower average
interest rates more than offset increased average borrowings. The
average monthly balance of outstanding debt increased $22 million to
$756 million, however the weighted average interest rate on the
Company's variable rate borrowings decreased from 5.65% at June 30,
1998, to 5.04% at June 30, 1999.
NEWSPAPERS - Operating results, excluding Divested Operations, were as
follows:
( in thousands ) Quarterly Period Year-to-Date
1999 Change 1998 1999 Change 1998
Operating revenues:
Local $ 65,924 2.5 % $ 64,316 $ 134,117 4.1 % $ 128,842
Classified 72,311 5.9 % 68,261 139,751 6.3 % 131,418
National 8,938 45.1 % 6,158 16,870 34.8 % 12,519
Preprint and other 25,226 9.3 % 23,072 49,190 10.5 % 44,508
Newspaper advertising 172,399 6.5 % 161,807 339,928 7.1 % 317,287
Circulation 34,968 (6.7)% 37,497 72,556 (6.7)% 77,791
Joint operating agency distributions 13,430 1.5 % 13,227 24,347 1.3 % 24,043
Other 4,096 5.1 % 3,899 7,802 (9.8)% 8,647
Total operating revenues 224,893 3.9 % 216,430 444,633 3.9 % 427,768
Operating expenses:
Employee compensation and benefits 74,110 4.7 % 70,817 145,355 3.6 % 140,361
Newsprint and ink 34,282 (6.0)% 36,479 71,585 (1.1)% 72,389
Other 46,509 5.7 % 44,013 92,293 5.4 % 87,536
Depreciation and amortization 13,976 (9.8)% 15,496 28,999 (7.0)% 31,189
Total operating expenses 168,877 1.2 % 166,805 338,232 2.0 % 331,475
Operating income $ 56,016 12.9 % $ 49,625 $ 106,401 10.5 % $ 96,293
Other Financial and Statistical Data:
EBITDA $ 69,992 7.5 % $ 65,121 $ 135,400 6.2 % $ 127,482
Percent of operating revenues:
Operating income 24.9 % 22.9 % 23.9 % 22.5 %
EBITDA 31.1 % 30.1 % 30.5 % 29.8 %
Capital expenditures $ 6,463 $ 5,631 $ 15,163 $ 11,848
Business acquisitions and other
additions to long-lived assets 449 1,129 780
Newspaper results continue to be affected negatively by the effort to
gain market share in Denver. Circulation revenue decreased primarily
due to promotions and discounts offered in the Denver market.
Excluding Denver, EBITDA increased 10% in the second quarter and 9.7%
year-to-date.
Newsprint costs decreased in the second quarter due to a 16% decrease
in newsprint prices. Year-over-year newsprint costs are expected to
decrease approximately 10% in the third quarter of 1999.
The change in the maximum estimated lives of newspaper presses from 20
years to 30 years reduced depreciation expense by approximately $0.9
million in the second quarter and $1.7 million year-to-date. The change
will have similar effects on quarterly depreciation for the remainder of
1999.
BROADCAST TELEVISION - Operating results were as follows:
( in thousands ) Quarterly Period Year-to-Date
1999 Change 1998 1999 Change 1998
Operating revenues:
Local $ 45,138 0.1 % $ 45,098 $ 86,441 2.0 % $ 84,754
National 31,651 (11.9)% 35,923 60,590 (8.2)% 66,005
Political 165 (94.8)% 3,152 529 (84.8)% 3,482
Other 4,651 2.0 % 4,560 9,412 1.1 % 9,307
Total operating revenues 81,605 (8.0)% 88,733 156,972 (4.0)% 163,548
Operating expenses:
Employee compensation and benefits 26,822 0.4 % 26,710 53,374 0.3 % 53,209
Program and copyright costs 13,916 4.5 % 13,311 28,191 5.6 % 26,684
Other 13,158 (1.1)% 13,298 26,250 2.2 % 25,688
Depreciation and amortization 6,782 8.8 % 6,233 13,843 10.2 % 12,564
Total operating expenses 60,678 1.9 % 59,552 121,658 3.0 % 118,145
Operating income $ 20,927 (28.3)% $ 29,181 $ 35,314 (22.2)% $ 45,403
Other Financial and Statistical Data:
EBITDA $ 27,709 (21.8)% $ 35,414 $ 49,157 (15.2)% $ 57,967
Percent of operating revenues:
Operating income 25.6 % 32.9 % 22.5 % 27.8 %
EBITDA 34.0 % 39.9 % 31.3 % 35.4 %
Capital expenditures $ 6,488 $ 6,903 $ 9,561 $ 11,996
Business acquisitions and other
additions to long-lived assets 15 155 70 225
The demand for television advertising remained soft in most of the
Company's television markets during the second quarter. Advance
advertising sales indicate that year-over-year advertising sales for the
third quarter will be stronger than in the second quarter, but
comparisons will again be difficult because of the $3.8 million in
political advertising revenue in the 1998 period.
Other revenue is primarily network compensation. Both ABC and NBC are
engaged in efforts to reduce network compensation of all affiliates.
The Company's network compensation revenues decreased $0.3 million year-
to-date, and are expected to decrease further in subsequent periods.
CATEGORY TELEVISION - Operating results were as follows:
( in thousands ) Quarterly Period Year-to-Date
1999 Change 1998 1999 Change 1998
Operating revenues:
Advertising $ 43,203 81.2 % $ 23,848 $ 76,708 77.4 % $ 43,252
Affiliate fees 12,702 35.2 % 9,397 24,639 36.3 % 18,074
Other 1,681 (32.2)% 2,480 4,439 (8.8)% 4,869
Total operating revenues 57,586 61.2 % 35,725 105,786 59.8 % 66,195
Operating expenses:
Employee compensation and benefits 13,207 71.5 % 7,700 23,786 53.0 % 15,544
Programming and production costs 15,064 27.8 % 11,783 30,399 40.4 % 21,649
Network distribution costs 3,299 (14.8)% 3,874 7,390 5.1 % 7,032
Other 11,726 (0.7)% 11,812 24,927 12.5 % 22,154
Depreciation and amortization 2,242 (25.6)% 3,014 5,631 (6.4)% 6,018
Total operating expenses 45,538 19.3 % 38,183 92,133 27.3 % 72,397
Operating income (loss) $ 12,048 $ (2,458) $ 13,653 $ (6,202)
Other Financial and Statistical Data:
EBITDA $ 14,290 $ 556 $ 19,284 $ (184)
Payments for programming and network
distribution fees less than (greater than)
amounts recognized as expense (12,772) (13,308) (32,720) (20,180)
Capital expenditures 7,193 828 8,421 1,135
Business acquisitions and other
additions to long-lived assets 9,058 845 23,797 3,590
Increases in advertising and affiliate fee revenue are primarily due to
the increase in the cable television systems that carry HGTV and Food
Network. According to the Nielsen Homevideo Index, HGTV was distributed
to 55.2 million homes in June 1999, up 13 million from June 1998 and up
3.3 million in the quarter. Food Network was distributed to 40.7
million homes in June 1999, up 7.6 million from June 1998 and up 1.6
million in the quarter.
Program and production costs have increased as the Company improves
the quality and variety of programming and expands the hours of
original programming presented on its networks.
The increase in additions to long-lived assets is primarily due to fees
paid for expanded distribution of the networks and investments in
Internet ventures. The Company expects to continue to expand
distribution of HGTV and Food Network. Such expansion may require the
payment of distribution fees to obtain carriage on additional cable
television systems. Network distribution costs represents the
amortization of these fees over the estimated lives of the distribution
agreements. In the first quarter of 1999 the Company increased the
amortization period of such fees to the greater of five years or the
remaining terms of the initial distribution contracts. The change in
estimated lives reduced network distribution costs $2.3 million in the
second quarter and $4.1 million year-to-date. Network distribution
costs for the full year of 1999 are expected to be approximately
$18 million.
Second quarter EBITDA for HGTV was $10.6 million in 1999 and $3.4
million in 1998. Year-to-date EBITDA was $14.8 million in 1999 and
$5.2 million in 1998. EBITDA for Food Network was $3.3 million in the
second quarter of 1999 compared to a loss of $1.8 million in 1998.
Year-to-date EBITDA was $3.8 million in 1999 compared to a loss of
$4.2 million in 1998. Food Network is not expected to produce
positive EBITDA for the full year of 1999 due to further increases in
programming and network distribution costs.
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 is 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 1999 will be sufficient to meet the Company's expected
total capital expenditures, required interest payments and dividend
payments.
Cash flow from operating activities was $82.9 million in 1999 compared
to $125 million in 1998. Increases in working capital employed by the
category television segment combined with increased spending to
improve programming and to expand distribution of HGTV and Food
Network were the primary causes of the decrease.
Net debt (borrowings less cash equivalent and other short-term
investments) increased $24.2 million in the first six months of 1999
and totaled $774 million at June 30, 1999. The Company currently
intends to repay debt only when there are not more productive uses for
excess cash.
Cash flow from operating activities and the increase in net debt was
used for capital expenditures of $36.3 million, dividend payments of
$22.7 million, business acquisitions and other investments $30.9
million, and the repurchase of 0.6 million Class A Common Shares at a
cost of $28.2 million. The 1998 authorization by the Board of
Directors allows for the repurchase of an additional 2.4 million
shares.
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
Items disclosed herein constitute "Y2000 Readiness Disclosures" under
the Year 2000 Information and Readiness Disclosure Act.
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 term "Y2K compliant" as used throughout this document means that the
relevant hardware, software, embedded chips or interfaces specifically
referenced herein will correctly process, provide and receive date data
within and between the 20th and 21st centuries.
The Company's Y2K remediation project includes the following phases:
- - identifying and assessing the Y2K issue,
- - determining required revisions to or replacements of affected
computer applications and equipment,
- - testing of those revisions and replacements,
- - 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 was completed in 1998. This
phase 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 that, if they were to fail, would
seriously impair the Company's ability to operate its business,
2) applications and equipment that, if they were to fail, would affect
business operations but would not prevent the Company from inserting
advertising, printing and delivering newspapers, or broadcasting its
programs,
3) applications and equipment that, if they were to fail, would have
little or no effect on business operations.
The Company 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 method of
remediation (upgrade or replace), and targeted remediation completion
date. Approximately 40% of the Company's applications were classified
in the highest priority and 33% 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, testing compliant
and remediated 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
other applications several years ago. Many of these systems have been
installed and implemented. Vendors have either certified their
applications to be Y2K compliant or have Y2K-compliant upgrades
currently available.
Equipment and applications used in producing, printing, sorting and
distributing newspapers use software or embedded chips that are not
Y2K compliant. Management 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.
As of early August, the Company had verified compliance or completed
upgrades or replacements of 84% of newspaper systems included in the
highest priority, and 81% of those included in the second priority.
Remediation of the remaining systems is expected to be completed
by the end of the third quarter.
Management anticipates increasing its newsprint 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 has discussed Y2K issues with the managing parties to ensure
the managing parties are addressing their Y2K issues. The Company's
share of JOA profits could be adversely affected if those managing
parties experience a significant disruption in business operations;
however management believes the possibility of a significant
disruption is unlikely.
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.
The Company has completed tests of the affiliate networks with NBC and ABC.
Based upon such tests the Company expects it will be able to receive
programming from the networks after 1999. Management does not anticipate
any disruption in receiving programming, 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 system, which is used in three of the Company's markets,
was certified Y2K-compliant by the vendor. The Company completed
installation of a Y2K-compliant upgrade of the other system during the
second quarter of 1999. The Company can perform these functions manually
in the event of unforeseen failure of the systems.
The insertion of advertising into program breaks is automated by
computer-controlled equipment. 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 can 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's tests of this equipment
indicate it will continue to operate after 1999.
As of early August, the Company had verified compliance or completed
upgrades or replacements of 86% of broadcast television systems
included in the highest priority, and 92% of those included in the
second priority. Remediation of the remaining systems is expected to
be completed during the third quarter of 1999.
Category Television
The Company uses advertising inventory management software to manage,
schedule and bill advertising. Y2K-compliant upgrades of all non-compliant
systems were installed in the second quarter of 1999. The Company can
perform these functions manually in the event of unforeseen failure
of the systems.
The insertion of advertising into program breaks is automated by
computer-controlled equipment. Failure of this software or equipment
would not materially disrupt the Company's business operations as this
process can be performed manually.
The Company transmits its network programming to cable television and
direct broadcast satellite systems via satellite. Management has
determined that certain equipment, while noncompliant, will continue
to function after 1999 and therefore it does not need to be upgraded
or replaced.
As of early August, the Company had verified compliance or completed
upgrades or replacements of 78% of category television systems
included in the highest priority, and 76% of those included in the
second priority. Remediation of the remaining systems is expected to
be completed during the third quarter of 1999.
Management believes the satellites used in transmitting the Company's
networks are Y2K compliant and has received 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. Management believes that failure of
this equipment could potentially prevent cable television systems from
delivering the Company's programming to viewers. Management understands
that equipment and set-top box manufacturers have developed solutions
that cable television systems have begun to install in their headend
equipment, and that these solutions would be substantially implemented
by the third quarter of 1999. Management 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 Y2K remediation program also
includes testing of upgrades and replacements of noncompliant systems
and equipment as those upgrades and replacements are installed and
upon completion of the installations. Most of the Company's Y2K
remediation efforts for the remainder of 1999 will focus on testing.
Testing includes the use of dates that 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
cannot be tested. As of early August the Company had verified
compliance or completed upgrades or replacements, and completed
testing, of 83% of all systems included in the highest priority and
81% of those included in the second priority. Remediation and testing
of the remaining systems is expected to be completed during the third
quarter of 1999.
Costs of Y2K Remediation Program
The Company does not routinely accumulate costs of the Company's Y2K
remediation program. The total costs of the program, including
capital spending on equipment and computer software, are estimated at
less than $10 million. This estimate does not include the costs of
labor and other internal resources. The majority of these costs would
have been incurred regardless of the Y2K issue, although the Y2K issue
has slightly accelerated the Company's plans to replace certain
equipment and computer software. Management believes the redeployment
of internal resources and the acceleration of these projects has not
had a material adverse effect on other business operations.
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. Management has attempted to ensure that
the third parties upon which the Company relies address their Y2K
issues, but management has no direct knowledge of those issues and
cannot estimate the costs to the Company if such issues are not
remedied. Management believes the possibility of failure of these
critical third party systems is unlikely.
As part of normal business practices, the company maintains site-
specific emergency plans to be followed during emergency circumstances,
such as failure of editorial systems, printing presses, or broadcast
equipment. These emergency plans will be updated with 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 will update those plans throughout the
remainder of 1999 based upon the progress of the Y2K remediation
program.
The Company is currently planning to impose a "quiet" period at the
beginning of the fourth quarter of 1999 during which any installation or
modification of systems that interface with other systems will be
minimized to permit the Company to conduct testing in a stable
environment. The Company also expects to freeze technology updates or
installation of new systems, to the extent possible, until the first
quarter of 2000.
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, management does not expect the Y2K issue to
pose significant problems for the Company's operations or to have a
material effect on the Company's 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, or if third parties fail to
remediate their own Y2K issues, 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 Six months ended
June 30, June 30,
1999 1998 1999 1998
EARNINGS AS DEFINED:
Earnings from operations before income taxes after
eliminating undistributed earnings of 20%- to
50%-owned affiliates $ 76,665 $ 64,738 $ 133,011 $ 109,163
Fixed charges excluding capitalized interest and
preferred stock dividends of majority-owned
subsidiary companies 12,436 12,976 24,782 26,210
Earnings as defined $ 89,101 $ 77,714 $ 157,793 $ 135,373
FIXED CHARGES AS DEFINED:
Interest expense, including amortization of
debt issue costs $ 11,026 $ 11,747 $ 22,099 $ 23,759
Interest capitalized (2) 69 9 100
Portion of rental expense representative
of the interest factor 1,410 1,221 2,683 2,451
Preferred stock dividends of majority-owned
subsidiary companies 20 20 40 40
Fixed charges as defined $ 12,454 $ 13,057 $ 24,831 $ 26,350
RATIO OF EARNINGS TO FIXED CHARGES 7.15 5.95 6.35 5.14
5
1000
6-MOS
DEC-31-1999
JUN-30-1999
12,386
385
250,440
10,721
14,086
423,120
922,954
444,448
2,391,385
524,127
503,295
0
0
781
1,107,479
2,391,385
0
761,736
0
0
604,807
4,918
22,099
132,866
54,488
76,232
0
0
0
76,232
$.98
$.96
5
1000
YEAR 6-MOS
DEC-31-1998 DEC-31-1998
DEC-31-1998 JUN-30-1998
15,419 17,882
20,551 3,237
234,372 214,993
7,689 7,298
15,009 17,267
419,327 363,404
908,218 879,785
428,932 407,386
2,359,374 2,272,984
546,767 357,832
501,877 601,851
0 0
0 0
785 806
1,067,947 1,091,716
2,359,374 2,272,984
0 0
1,454,555 713,727
0 0
0 0
1,169,539 576,966
8,972 4,099
47,108 23,759
229,162 108,380
93,075 44,339
131,214 61,502
0 0
0 0
0 0
131,214 61,502
$1.65 $.77
$1.62 $.75
