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Prepared by R.R. Donnelley Financial -- Form 10-Q
Table of Contents
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
 
      
 
For the quarterly period ended March 31, 2002
 
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 incorporation or organization)
  
(I.R.S. Employer
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 April 30, 2002 there were 60,754,505 of the Registrant’s Class A Common Shares outstanding and 19,096,913 of the Registrant’s Common Voting Shares outstanding.
 

Table of Contents
 
INDEX TO THE E. W. SCRIPPS COMPANY
 
REPORT ON FORM 10–Q FOR THE QUARTER ENDED MARCH 31, 2002
 
Item No.
       
Page
PART I—FINANCIAL INFORMATION
1
     
3
2
     
3
3
     
3
PART II—OTHER INFORMATION
1
     
3
2
     
3
3
     
3
4
     
4
5
     
4
6
     
4

2

Table of Contents
 
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.
 
Item  3.
 
Quantitative and Qualitative Disclosures About Market Risk
 
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.

3

Table of Contents
 
Item  4.
 
Submission of Matters to a Vote Of Security Holders
 
There were no matters submitted to a vote of security holders during the quarter for which this report is filed.
 
Item  5.
 
Other Information
 
None.
 
Item  6.
 
Exhibits and Reports on Form 8-k
 
Exhibits
 
The information required by this item is filed as part of this Form 10-Q. See Index to Exhibits at page E-1 of this Form 10-Q.
 
Reports on Form 8-K
 
No reports on Form 8-K were filed during the quarter for which this report is filed.
 
SIGNATURES
 
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
THE E. W. SCRIPPS COMPANY
By:
  
/s/  JOSEPH G. NECASTRO        
   
Joseph G. NeCastro
Senior Vice President and Chief Financial Officer
Dated: May 13, 2002

4

Table of Contents
 
THE E. W. SCRIPPS COMPANY
 
Index to Financial Information
 
Item
   
Page
  
F-2
  
F-4
  
F-5
  
F-6
  
F-7
Management’s Discussion and Analysis of Financial Condition and Results of Operations
     
  
F-13
  
F-13
  
F-16
  
F-17
  
F-19
  
F-20
  
F-21

F-1

Table of Contents
THE E. W. SCRIPPS COMPANY
 
CONSOLIDATED BALANCE SHEETS
 
    
March 31,
2002
   
As of
December 31,
2001
   
March 31,
2001
    
( Unaudited)
        
( Unaudited)
    
( in thousands )
ASSETS
                     
Current Assets:
                     
Cash and cash equivalents
   
$
13,330
   
$
17,419
   
$
13,840
Accounts and notes receivable (less allowances—$14,667, $13,964, $12,794)
   
 
218,515
   
 
236,311
   
 
233,845
Program rights and production costs
   
 
131,062
   
 
120,715
   
 
110,442
Inventories
   
 
6,845
   
 
7,345
   
 
10,106
Deferred income taxes
   
 
32,380
   
 
30,850
   
 
30,251
Miscellaneous
   
 
37,770
   
 
38,018
   
 
34,593
    
  
  
Total current assets
   
 
439,902
   
 
450,658
   
 
433,077
    
  
  
Investments
   
 
305,944
   
 
331,542
   
 
395,011
    
  
  
Property, Plant and Equipment
   
 
402,624
   
 
394,677
   
 
383,254
    
  
  
Goodwill
   
 
1,143,467
   
 
1,138,232
   
 
1,160,411
    
  
  
Other Assets:
                     
Program rights and production costs (less current portion)
   
 
112,998
   
 
122,620
   
 
106,228
Network distribution contracts
   
 
136,168
   
 
124,639
   
 
62,417
Other intangible assets
   
 
64,011
   
 
64,959
   
 
68,945
Miscellaneous
   
 
14,603
   
 
16,433
   
 
18,705
    
  
  
Total other assets
   
 
327,780
   
 
328,651
   
 
256,295
    
  
  
TOTAL ASSETS
   
$
2,619,717
   
$
2,643,760
   
$
2,628,048
    
  
  
 
 
See notes to consolidated financial statements.

F-2

Table of Contents
 
THE E. W. SCRIPPS COMPANY
 
CONSOLIDATED BALANCE SHEETS
 
    
March 31, 2002
     
As of December 31, 2001
     
March 31, 2001
  
    
(Unaudited)
            
(Unaudited)
  
    
(in thousands, except share data)
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                           
Current Liabilities:
                           
Current portion of long-term debt
   
$
591,810
 
   
$
613,878
 
   
$
237,742
 
Accounts payable
   
 
70,488
 
   
 
81,690
 
   
 
110,234
 
Customer deposits and unearned revenue
   
 
29,214
 
   
 
29,381
 
   
 
32,976
 
Accrued liabilities:
                           
Employee compensation and benefits
   
 
39,573
 
   
 
44,792
 
   
 
37,766
 
Network distribution contracts
   
 
48,756
 
   
 
61,624
 
   
 
51,220
 
Miscellaneous
   
 
62,551
 
   
 
74,146
 
   
 
62,521
 
    
  
  
Total current liabilities
   
 
842,392
 
   
 
905,511
 
   
 
532,459
 
    
  
  
Deferred Income Taxes
   
 
142,409
 
   
 
146,989
 
   
 
155,291
 
    
  
  
Long-Term Debt (less current portion)
   
 
113,809
 
   
 
109,966
 
   
 
508,411
 
    
  
  
Other Long-Term Obligations and Minority Interests (less current portion)
   
 
134,171
 
   
 
129,394
 
   
 
123,704
 
    
  
  
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: 60,461,279; 60,103,746; and 59,987,153 shares
   
 
605
 
   
 
601
 
   
 
600
 
Voting—authorized: 30,000,000 shares; issued and outstanding: 19,096,913 shares
   
 
191
 
   
 
191
 
   
 
191
 
    
  
  
Total
   
 
796
 
   
 
792
 
   
 
791
 
Additional paid-in capital
   
 
191,744
 
   
 
174,485
 
   
 
170,415
 
Retained earnings
   
 
1,211,571
 
   
 
1,183,595
 
   
 
1,147,723
 
Unrealized gains (losses) on securities available for sale
   
 
(7,381
)
   
 
5,067
 
   
 
(779
)
Foreign currency translation adjustment
   
 
(447
)
   
 
(554
)
   
 
(221
)
Unvested restricted stock awards
   
 
(9,347
)
   
 
(11,485
)
   
 
(9,746
)
    
  
  
Total stockholders’ equity
   
 
1,386,936
 
   
 
1,351,900
 
   
 
1,308,183
 
    
  
  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
   
$
2,619,717
 
   
$
2,643,760
 
   
$
2,628,048
 
    
  
  
 
See notes to consolidated financial statements.

F-3

Table of Contents
THE E.W. SCRIPPS COMPANY
 
CONSOLIDATED STATEMENTS OF INCOME ( unaudited )
 
    
Three months ended
March 31,
  
    
2002
     
2001
  
    
( in thousands, except per share data )
  
Operating Revenues:
                  
Advertising
   
$
263,796
 
   
$
272,773
 
Circulation
   
 
35,423
 
   
 
36,182
 
Affiliate fees
   
 
18,160
 
   
 
14,458
 
Licensing
   
 
16,198
 
   
 
18,000
 
Share of joint operating agency profits
   
 
15,097
 
   
 
9,057
 
Other
   
 
11,108
 
   
 
11,610
 
    
  
Total operating revenues
   
 
359,782
 
   
 
362,080
 
    
  
 
Operating Expenses:
                  
Employee compensation and benefits
   
 
121,823
 
   
 
118,755
 
Newsprint and ink
   
 
17,909
 
   
 
26,241
 
Amortization of program rights and production costs
   
 
36,868
 
   
 
32,095
 
Other operating expenses
   
 
86,883
 
   
 
98,975
 
Depreciation
   
 
12,859
 
   
 
14,357
 
Amortization of goodwill and other intangible assets
   
 
1,024
 
   
 
10,408
 
    
  
Total operating expenses
   
 
277,366
 
   
 
300,831
 
    
  
 
Operating Income
 
   
 
82,416
 
   
 
61,249
 
    
  
Other Credits (Charges):
                  
Interest expense
   
 
(6,592
)
   
 
(12,461
)
Investment results, net of expenses
   
 
(8,388
)
   
 
58,785
 
Miscellaneous, net
   
 
146
 
   
 
353
 
    
  
Net other credits (charges)
   
 
(14,834
)
   
 
46,677
 
    
  
 
Income Before Taxes and Minority Interests
   
 
67,582
 
   
 
107,926
 
Provision for Income Taxes
   
 
26,868
 
   
 
40,642
 
    
  
Income Before Minority Interests
   
 
40,714
 
   
 
67,284
 
Minority Interests
   
 
834
 
   
 
846
 
    
  
Net Income
   
$
39,880
 
   
$
66,438
 
    
  
 
Net Income per Share of Common Stock:
                  
Basic
   
$
.50
 
   
$
.84
 
Diluted
   
 
.50
 
   
 
.83
 
    
  
 
See notes to consolidated financial statements.

F-4

Table of Contents
THE E. W. SCRIPPS COMPANY
 
CONSOLIDATED STATEMENTS OF CASH FLOWS ( unaudited )
 
    
Three months ended
March 31,
  
    
2002
     
2001
  
    
( in thousands )
  
Cash Flows from Operating Activities:
                  
Net income
   
$
39,880
 
   
$
66,438
 
Adjustments to reconcile net income to net cash flows from operating activities:
                  
Depreciation and amortization
   
 
13,883
 
   
 
24,765
 
Net investment results
   
 
8,171
 
   
 
(59,165
)
Tax benefits of stock compensation plans
   
 
5,751
 
   
 
5,653
 
Cash received greater than share of profits of JOAs and equity method investments
   
 
8,210
 
   
 
10,630
 
Stock and deferred compensation plans
   
 
2,750
 
   
 
1,774
 
Minority interests in income of subsidiary companies
   
 
834
 
   
 
846
 
Deferred income taxes
   
 
483
 
   
 
25,992
 
Cash received for affiliate fees, net of launch incentive payments, greater (less) than affiliate fees revenue
   
 
(23,808
)
   
 
4,297
 
Program cost amortization greater (less) than payments
   
 
(10,751
)
   
 
(11,344
)
Other changes in certain working capital accounts, net
   
 
3,288
 
   
 
5,195
 
Miscellaneous, net
   
 
(861
)
   
 
334
 
    
  
Net operating activities
   
 
47,830
 
   
 
75,415
 
    
  
Cash Flows from Investing Activities:
                  
Additions to property, plant and equipment
   
 
(21,378
)
   
 
(14,716
)
Purchase of subsidiary companies and long-term investments
   
 
(11,623
)
   
 
(20,348
)
Investments in Denver JOA
            
 
(62,520
)
Miscellaneous, net
   
 
939
 
   
 
355
 
    
  
Net investing activities
   
 
(32,062
)
   
 
(97,229
)
    
  
Cash Flows from Financing Activities
                  
Increase in long-term debt
   
 
3,894
 
   
 
31,552
 
Payments on long-term debt
   
 
(22,128
)
   
 
(17
)
Dividends paid
   
 
(11,904
)
   
 
(11,853
)
Dividends paid to minority interests
   
 
(392
)
   
 
(392
)
Repurchase Class A Common shares
            
 
(1,988
)
Miscellaneous, net (primarily employee stock options)
   
 
10,673
 
   
 
4,240
 
    
  
Net financing activities
   
 
(19,857
)
   
 
21,542
 
    
  
Increase (Decrease) in Cash and Cash Equivalents
   
 
(4,089
)
   
 
(272
)
Cash and Cash Equivalents:
                  
Beginning of year
   
 
17,419
 
   
 
14,112
 
    
  
End of period
   
 
$13,330
 
   
 
$13,840
 
 
Supplemental Cash Flow Disclosures:
                  
Interest paid, excluding amounts capitalized
   
$
3,261
 
   
$
9,217
 
Income taxes paid
   
 
26,607
 
   
 
10,909
 
Denver newspaper assets contributed to JOA
            
 
162,227
 
    
  
 
See notes to consolidated financial statements.

F-5

Table of Contents
THE E. W. SCRIPPS COMPANY
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
AND STOCKHOLDERS’ EQUITY (UNAUDITED )
 
    
Common Stock
   
Additional Paid-in Capital
     
Retained Earnings
     
Accumulated Other Comprehensive Income
     
Unvested Restricted Stock Awards
     
Total Stockholders’ Equity
  
    
( in thousands, except share data )
  
As of December 31, 2000
   
$
787
   
$
157,394
 
   
$
1,093,138
 
   
$
32,238
 
   
$
(5,747
)
   
$
1,277,810
 
Comprehensive income:
                                                    
Net income
                   
 
66,438
 
                     
 
66,438
 
                    
                    
Unrealized gains, net of tax of $5,442
                            
 
10,210
 
            
 
10,210
 
Reclassification adjustment for losses (gains) in income, net of tax of ($23,081)
                            
 
(42,866
)
            
 
(42,866
)
                             
           
Increase (decrease) in unrealized gains
                            
 
(32,656
)
            
 
(32,656
)
Currency translation
                            
 
(582
)
            
 
(582
)
                    
  
           
Total
                   
 
66,438
 
   
 
(33,238
)
            
 
33,200
 
Dividends: declared and paid—$.15 per share
                   
 
(11,853
)
                     
 
(11,853
)
Repurchase 35,200 Class A Common Shares
          
 
(1,988
)
                              
 
(1,988
)
Compensation plans, net: 482,294 shares issued; 101,769 shares repurchased
   
 
4
   
 
9,356
 
                     
 
(3,999
)
   
 
5,361
 
Tax benefits of compensation plans
          
 
5,653
 
                              
 
5,653
 
    
  
  
  
  
  
As of March 31, 2001
   
$
791
   
$
170,415
 
   
$
1,147,723
 
   
$
(1,000
)
   
$
(9,746
)
   
$
1,308,183
 
    
  
  
  
  
  
As of December 31, 2001
   
$
792
   
$
174,485
 
   
$
1,183,595
 
   
$
4,513
 
   
$
(11,485
)
   
$
1,351,900
 
Comprehensive income:
                                                    
Net income
                   
 
39,880
 
                     
 
39,880
 
                    
                    
Unrealized gains (losses), net of tax of ($6,670)
                            
 
(12,387
)
            
 
(12,387
)
Reclassification adjustment for losses (gains) in income, net of tax of ($33)
                            
 
(61
)
            
 
(61
)
                             
           
Increase (decrease) in unrealized gains (losses)
                            
 
(12,448
)
            
 
(12,448
)
Currency translation, net of tax of ($108)
                            
 
107
 
            
 
107
 
                    
  
           
Total
                   
 
39,880
 
   
 
(12,341
)
            
 
27,539
 
Dividends: declared and paid—$.15 per share
                   
 
(11,904
)
                     
 
(11,904
)
Compensation plans, net: 377,507 shares issued; 19,974 shares repurchased
   
 
4
   
 
11,508
 
                     
 
2,138
 
   
 
13,650
 
Tax benefits of compensation plans
          
 
5,751
 
                              
 
5,751
 
    
  
  
  
  
  
As of March 31, 2002
   
$
796
   
$
191,744
 
   
$
1,211,571
 
   
$
(7,828
)
   
$
(9,347
)
   
$
1,386,936
 
    
  
  
  
  
  
 
See notes to consolidated financial statements.

F-6

Table of Contents
 
THE E. W. SCRIPPS COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
 
1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation—The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America 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, 2001, has not changed materially unless otherwise disclosed herein. Financial information as of December 31, 2001, 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.
 
Use of Estimates—Preparation of the financial statements requires the use of estimates. The Company’s financial statements include estimates for such items as self-insured risks and income taxes payable. The Company self-insures for employees’ medical and disability income benefits, workers’ compensation and general liability. The recorded liability for self-insured risks is calculated using actuarial methods and is not discounted. The recorded liability for self-insured risks totaled $21.9 million at March 31, 2002. Management does not believe it is likely that its estimates for self-insured risks will change materially in the near term.
 
The Company reached an agreement with the Internal Revenue Service (“IRS”) to settle the audit of its 1992 through 1995 consolidated federal income tax returns. As a result, the Company expects to reduce its estimated liability for prior year income taxes by approximately $8 million in the second quarter. The Company’s 1996 through 2000 consolidated federal income tax returns are currently under examination by the IRS. Management believes that adequate provision has been made for all open years.
 
Joint Operating Agencies—The joint operating agency (“JOA”) between the Company’s Denver Rocky Mountain News (“RMN”) and MediaNews Group Inc.’s Denver Post was approved by the U.S. Attorney General in January 2001. The 50-year agreement created a new entity called the Denver Newspaper Agency L.L.C., which is 50% owned by each partner. Both partners contributed certain assets used in the operations of their newspapers to the new entity. In addition, the Company paid $60 million to MediaNews Group Inc. The JOA commenced operations on January 22, 2001.
 
Net Income Per Share—The following table presents additional information about basic and diluted weighted-average shares outstanding:
 
    
Three months ended
March 31,
    
2002
   
2001
    
( in thousands )
Basic weighted-average shares outstanding
   
79,017
   
78,719
Effect of dilutive securities:
          
Unvested restricted stock held by employees
   
174
   
146
Stock options held by employees
   
1,072
   
999
    
  
Diluted weighted-average shares outstanding
   
80,263
   
79,864
    
  

F-7

Table of Contents

THE E. W. SCRIPPS COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

 
Goodwill and Other Intangible Assets—The Company adopted Financial Accounting Standard (“FAS”) No. 142 – Goodwill and Other Intangible Assets effective January 1, 2002. Recorded goodwill and intangible assets with indefinite lives are no longer amortized, but instead are tested for impairment at least annually. Other intangible assets are reviewed for impairment in accordance with FAS No. 144. The Company must complete a transitional evaluation of whether goodwill is impaired prior to June 30, 2002. To complete the transitional impairment evaluation, the Company must (i) identify reporting units, (ii) determine the carrying value of each reporting unit by assigning the assets and liabilities, including existing goodwill and other intangible assets, to those reporting units, and (iii) determine whether the carrying value of each reporting unit exceeds its fair value. If the carrying value of any reporting unit exceeds its fair value, then detailed fair values for each of the assigned assets (excluding goodwill) and liabilities will be determined to calculate the amount of goodwill impairment, if any. This second step is required to be completed as soon as possible, but no later than December 31, 2002. Any transitional impairment loss will be recorded as the cumulative effect of a change in accounting principle.
 
If the non-amortization provisions of FAS No. 142 had been effective in 2001, reported results of operations would have been as follows:
 
    
Three months ended
March 31, 2001
    
Net
Income
   
Basic
EPS
   
Diluted
EPS
    
(in thousands, except per share data )
As reported
   
$
66,438
   
$
0.84
   
$
0.83
Add back amortization of:
                     
Goodwill
   
 
6,717
   
 
.09
   
 
.08
FCC licenses
   
 
118
   
 
.00
   
 
.00
Network affiliation and other
   
 
58
   
 
.00
   
 
.00
    
  
  
As adjusted
   
$
73,331
   
$
0.93
   
$
0.92
    
  
  
 
Reclassifications—For comparative purposes, certain 2001 amounts have been reclassified to conform to 2002 classifications.
 
2.    ACQUISITIONS AND DIVESTITURES
 
Acquisitions
 
2002—In the first quarter the Company acquired an additional 1% interest in The Television Food Network (“Food Network”) for $5.2 million in cash.
 
2001—In the first quarter the Company acquired an additional 3% interest in Food Network for $14.4 million. In the fourth quarter the Company acquired an additional 1% interest in Food Network for $5.0 million.
 
The acquisitions have been accounted for as purchases. The purchase prices were allocated entirely to goodwill.

F-8

Table of Contents

THE E. W. SCRIPPS COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

 
3.    UNUSUAL CREDITS AND CHARGES
 
Investment results include (i) recognized investment gains and losses and (ii) adjustments to accrued incentive compensation related to changes in the net gains (realized and unrealized) on the Scripps Ventures I portfolio. The incentive compensation for Scripps Ventures I will be paid in 2003 based on the portfolio return through December 2002.
 
2002—Included in net investment results are $7.3 million in write–downs for several investments. There was no change in accrued incentive compensation, which is zero at March 31, 2002. Net investment results decreased net income $5.4 million ($.07 per share).
 
2001—Included in net investment results are i) a gain of $65.9 million on the exchange of the Company’s investment in Time Warner for America Online, which acquired Time Warner, ii) $17.9 million in write–downs for several investments, and iii) an $11.5 million reduction in accrued incentive compensation, to zero at March 31, 2001. Net investment results increased net income $38.5 million ($.48 per share).
 
4.    LONG-TERM DEBT
 
Long-term debt consisted of the following:
 
    
March 31,
2002
   
As of
December 31,
2001
   
March 31,
2001
    
( in thousands )
Variable rate credit facilities, including commercial paper
   
$
491,745
   
$
513,855
   
$
537,701
$100 million, 6.625% note, due in 2007
   
 
99,919
   
 
99,916
   
 
99,905
$100 million, 6.375% note, due in 2002
   
 
99,988
   
 
99,983
   
 
99,968
Other notes
   
 
13,967
   
 
10,090
   
 
8,579
    
  
  
Total long-term debt
   
 
705,619
   
 
723,844
   
 
746,153
Current portion of long-term debt
   
 
591,810
   
 
613,878
   
 
237,742
    
  
  
Long-term debt (less current portion)
   
$
113,809
   
$
109,966
   
$
508,411
    
  
  
 
The Company has a Competitive Advance and Revolving Credit Facility Agreement, which expires in September 2002 and permits aggregate borrowings up to $675 million (the “Variable Rate Credit Facilities”). Borrowings 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 1.8% at March 31, 2002, 2.0% at December 31, 2001, and 5.4% at March 31, 2001.
 
The Variable Rate Credit Facilities are expected to be replaced with a similar facility prior to expiration.

F-9

Table of Contents

THE E. W. SCRIPPS COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

 
5.    INVESTMENTS
 
Investments consisted of the following:
 
    
March 31,
2002
     
As of
December 31,
2001
   
March 31,
2001
  
    
( in thousands, except share data )
  
Securities available for sale (at market value):
                         
AOL Time Warner common stock (2,017,000 shares)
   
$
47,698
 
   
$
64,740
   
$
80,975
 
Centra Software (700,500 common shares at March 31, 2002 and December 31, 2001; 1,792,500 common shares at March 31, 2001)
   
 
3,376
 
   
 
5,604
   
 
11,651
 
Other
   
 
4,320
 
   
 
4,213
   
 
4,134
 
    
  
  
Total available-for-sale securities
   
 
55,394
 
   
 
74,557
   
 
96,760
 
Denver newspaper JOA
   
 
197,216
 
   
 
198,527
   
 
216,268
 
FOX SportSouth and other joint ventures
   
 
6,231
 
   
 
6,744
   
 
8,703
 
Other equity investments
   
 
47,103
 
   
 
51,714
   
 
73,280
 
    
  
  
Total investments
   
$
305,944
 
   
$
331,542
   
$
395,011
 
    
  
  
Unrealized gains (losses) on securities available for sale
   
$
(11,358
)
   
$
7,793
   
$
(1,252
)
    
  
  
 
Investments available for sale represent securities in publicly traded companies. Investments available for sale are recorded at fair value. Fair value is based upon the closing price of the security on the reporting date.
 
Other equity investments include securities that do not trade in public markets, so they do not have readily determinable fair values. Management estimates the fair value of these securities is approximately $49 million. However, many of the investees have not issued new equity in the past two years and there can be no assurance that the Company would realize the carrying value of these securities upon their sale.
 
The Company’s Scripps Ventures Funds I and II invest in new businesses focusing primarily on new media technology. Scripps Ventures I invested $54 million. The managers’ compensation includes a share of the portfolio’s cumulative net gain through December 2002 if a specified minimum return is achieved. The incentive compensation accrual was zero at March 31, 2002, and will be subject to change as the net gain changes through December 2002. Scripps Ventures II is authorized to invest up to $100 million, of which $45 million was invested as of March 31, 2002. The managers have a minority equity interest in the return on Scripps Ventures II’s investments if a specified minimum return is achieved.

F-10

Table of Contents

THE E. W. SCRIPPS COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

 
6.    SEGMENT INFORMATION
 
The Company’s reportable segments are strategic businesses that offer different products and services. The Company evaluates the operating performance of its segments based primarily on earnings before interest, income taxes, depreciation and amortization (“EBITDA”), excluding unusual items (see Note 3) and all amounts classified as other credits (charges) in the Consolidated Statements of Income. No single customer provides more than 10% of the Company’s revenue. International revenues are primarily derived from licensing comic characters and HGTV and Food Network programming in international markets. Licensing of comic characters in Japan provides more than 60% of the Company’s international revenues, which are less than $50 million annually.
 
Financial information for the Company’s business segments is as follows:
 
    
Three months ended
March 31,
  
    
2002
     
2001
  
    
( in thousands )
  
OPERATING REVENUES
                  
Newspapers
   
$
184,033
 
   
$
189,548
 
Scripps Networks
   
 
88,701
 
   
 
82,318
 
Broadcast television
   
 
65,521
 
   
 
65,921
 
Licensing and other media
   
 
21,527
 
   
 
24,293
 
    
  
Per consolidated financial statements
   
$
359,782
 
   
$
362,080
 
    
  
 
EBITDA
                  
Newspapers
   
$
63,713
 
   
$
54,223
 
Scripps Networks
   
 
19,874
 
   
 
15,821
 
Broadcast television
   
 
15,967
 
   
 
16,087
 
Licensing and other media
   
 
4,087
 
   
 
4,739
 
Corporate
   
 
(7,342
)
   
 
(4,856
)
    
  
Per consolidated financial statements
   
$
96,299
 
   
$
86,014
 
    
  
 
DEPRECIATION
                  
Newspapers
   
$
6,011
 
   
$
7,145
 
Scripps Networks
   
 
1,904
 
   
 
1,885
 
Broadcast television
   
 
4,528
 
   
 
4,916
 
Licensing and other media
   
 
191
 
   
 
194
 
Corporate
   
 
225
 
   
 
217
 
    
  
Per consolidated financial statements
   
$
12,859
 
   
$
14,357
 
    
  
AMORTIZATION OF INTANGIBLE ASSETS
                  
Newspapers
   
$
168
 
   
$
101
 
Scripps Networks
   
 
825
 
   
 
939
 
Broadcast television
   
 
31
 
   
 
2
 
    
  
Total
   
 
1,024
 
   
 
1,042
 
Amortization of goodwill and intangible assets with indefinite lives
            
 
9,366
 
    
  
Per consolidated financial statements
   
$
1,024
 
   
$
10,408
 
    
  
 
OPERATING INCOME
                  
Newspapers
   
$
57,534
 
   
$
46,977
 
Scripps Networks
   
 
17,145
 
   
 
12,997
 
Broadcast television
   
 
11,408
 
   
 
11,169
 
Licensing and other media
   
 
3,896
 
   
 
4,545
 
Corporate
   
 
(7,567
)
   
 
(5,073
)
    
  
Total
   
 
82,416
 
   
 
70,615
 
Amortization of goodwill and intangible assets with indefinite lives
            
 
(9,366
)
    
  
Per consolidated financial statements
   
$
82,416
 
   
$
61,249
 
    
  

F-11

Table of Contents

THE E. W. SCRIPPS COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)—(Continued)

 
    
Three months ended
March 31,
    
2002
   
2001
    
( in thousands )
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
              
Newspapers
   
$
11,343
   
$
10,388
Scripps Networks
   
 
1,774
   
 
1,639
Broadcast television
   
 
6,107
   
 
2,528
Licensing and other media
   
 
44
   
 
98
Corporate
   
 
2,110
   
 
63
    
  
Per consolidated financial statements
   
$
21,378
   
$
14,716
    
  
 
BUSINESS ACQUISITIONS AND
    OTHER ADDITIONS TO LONG-LIVED ASSETS
              
Newspapers
   
$
24
   
$
64,268
Scripps Networks
   
 
25,221
   
 
18,551
Broadcast television
   
 
20
       
Venture capital and other investments
   
 
4,069
   
 
4,211
    
  
Total
   
$
29,334
   
$
87,030
    
  
 
ASSETS
              
Newspapers
   
$
1,273,670
   
$
1,322,239
Scripps Networks
   
 
664,534
   
 
550,590
Broadcast television
   
 
481,962
   
 
498,055
Licensing and other media
   
 
28,229
   
 
34,178
Venture capital and other investments
   
 
104,151
   
 
171,784
Corporate
   
 
67,171
   
 
51,202
    
  
Per consolidated financial statements
   
$
2,619,717
   
$
2,628,048
    
  
 
Other additions to long-lived assets include investments and launch incentives capitalized. Corporate assets are primarily cash, cash equivalent and other short-term investments, and refundable and deferred income taxes.

F-12

Table of Contents
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 
The Company operates in three reportable segments: newspapers, cable television networks (referred to as “Scripps Networks”), and broadcast television.
 
FORWARD-LOOKING STATEMENTS
 
This discussion and the information contained in the notes to the consolidated financial statements contain certain forward–looking statements that are based on management’s current expectations. Forward-looking statements are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from the expectations expressed in the forward-looking statements. Such risks, trends and uncertainties, which in most instances are beyond the Company’s control, include changes in advertising demand and other economic conditions; consumers’ taste; newsprint prices; program costs; labor relations; technological developments; competitive pressures; interest rates; regulatory rulings; and reliance on third-party vendors for various products and services. The words “believe,” “expect,” “anticipate,” “estimate,” “intend” and similar expressions identify forward-looking statements. All forward-looking statements, which are as of the date of this filing, should be evaluated with the understanding of their inherent uncertainty.
 
RESULTS OF OPERATIONS
 
Management excludes certain unusual items from its evaluation of the Company’s operating performance because management believes the items are unlikely to recur or they otherwise impede analysis of the Company’s on-going operations. Earnings from core operations represents net income as defined under generally accepted accounting principles (“GAAP”) excluding these unusual items.
 
In addition, management evaluates the operating performance of the Company’s operating segments based primarily on earnings before interest, income taxes, depreciation and amortization (“EBITDA”). Management evaluates the operating performance of the Company’s operating segments based on EBITDA because:
 
 
•
 
Management believes the year-over-year change in EBITDA, combined with information on historical and anticipated capital spending, is a more useful and reliable measure of year-over-year performance than the change in operating income.
 
 
•
 
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.
 
Earnings from core operations and EBITDA should not, however, be construed as alternative measures of the amount of the Company’s net income or cash flows from operating activities as defined under GAAP.
 
Acquisitions and divestitures can affect the comparability of year-over-year reported results. The accompanying tables include the results of operations for acquired operations from the dates of acquisition. Divested operating units are removed from segment operating results and reported separately because management believes they impede analysis of the Company’s on-going operations.
 
See Note 2 to the Consolidated Financial Statements on page F-8 regarding acquisitions and divestitures.
 
The application for a 50-year Joint Operating Agency (“JOA”) between the Company’s Denver Rocky Mountain News (“RMN”) and MediaNews Group Inc.’s (“MediaNews”) Denver Post was approved in January 2001 by the U.S. Department of Justice. The JOA commenced operations on January 22, 2001. The Denver Publishing Company, a wholly owned subsidiary of the Company, received a 50% interest in the JOA in exchange for the contribution of most of its assets to the JOA and the payment of $60 million to MediaNews.
 
The Company’s 50% share of the operating profit (loss) of the Denver JOA is reported as “Share of Joint Operating Agency Profits” in its financial statements. Editorial costs associated with the RMN are included in operating expenses. The Company’s financial statements do not include advertising and other revenue of the JOA, nor the costs to produce, distribute and market the newspapers, nor related depreciation. The Company reports the RMN separately in Management’s Discussion and Analysis.

F-13

Table of Contents
 
Consolidated results of operations were as follows:
 
    
2002
       
Year-to-Date
Change
     
2001
  
    
(in thousands, except per share data )
  
Operating revenues:
                           
Newspapers excluding RMN
   
$
178,777
 
     
0.0 %
  
   
$
178,708
 
Rocky Mountain News
   
 
5,256
 
            
 
10,840
 
    
    
  
Total newspapers
   
 
184,033
 
     
(2.9
)%
   
 
189,548
 
Scripps Networks
   
 
88,701
 
     
7.8 %
  
   
 
82,318
 
Broadcast television
   
 
65,521
 
     
(0.6
)%
   
 
65,921
 
Licensing and other media
   
 
21,527
 
     
(11.4
)%
   
 
24,293
 
    
    
  
Total operating revenues
   
$
359,782
 
     
(0.6
)%
   
$
362,080
 
    
    
  
 
Operating income:
                           
Newspapers excluding RMN
   
$
57,526
 
     
6.0 %
  
   
$
54,276
 
Rocky Mountain News
   
 
8
 
            
 
(7,299
)
    
    
  
Total newspapers
   
 
57,534
 
     
22.5 %
  
   
 
46,977
 
Scripps Networks
   
 
17,145
 
     
31.9 %
  
   
 
12,997
 
Broadcast television
   
 
11,408
 
     
2.1 %
  
   
 
11,169
 
Licensing and other media
   
 
3,896
 
     
(14.3
)%
   
 
4,545
 
Corporate
   
 
(7,567
)
     
(49.2
)%
   
 
(5,073
)
    
    
  
Total operating income
   
 
82,416
 
     
16.7 %
  
   
 
70,615
 
 
Interest expense
   
 
(6,592
)
            
 
(12,461
)
Miscellaneous, net
   
 
146
 
            
 
353
 
Income taxes
   
 
(29,830
)
            
 
(22,854
)
Minority interest
   
 
(834
)
            
 
(846
)
    
    
  
Income from core operations
   
 
45,306
 
            
 
34,807
 
 
Unusual credits (charges):
                           
Amortization of goodwill and intangible assets with indefinite lives
                     
 
(9,366
)
Investment results, net of expenses
   
 
(8,388
)
            
 
58,785
 
Tax effect of unusual credits (charges)
   
 
2,962
 
            
 
(17,788
)
    
    
  
Net income
   
$
39,880
 
            
$
66,438
 
    
    
  
 
Per share of common stock:
                           
Income from core operations
   
$
.56
 
     
27.3 %
  
   
$
.44
 
 
Unusual credits (charges):
                           
Amortization of goodwill and intangible assets with indefinite lives
                     
 
(.09
)
Net investment results
   
 
(.07
)
            
 
.48
 
    
    
  
Net income
   
$
.50
 
     
(39.8
)%
   
$
.83
 
    
    
  
Weighted-average shares outstanding
   
 
80,263
 
            
 
79,864
 
    
    
  
 
See Note 1—Goodwill and Other Intangible Assets on page F-8 and Note 3 on page F-9 regarding items excluded from core operations.
 
All per share disclosures are on a diluted basis.

F-14

Table of Contents
Other financial and statistical data, excluding unusual items, are as follows:
 
    
2002
       
Year-to-Date Change
     
2001
  
    
( in thousands )
  
Total advertising revenues
   
$
263,796
 
     
0.7
%
   
$
261,994
 
    
    
  
Advertising revenues as a percentage of total revenues
   
 
74.4
%
            
 
74.6
%
    
    
  
 
EBITDA:
                           
Newspapers excluding RMN
   
$
63,586
 
     
5.0
%
   
$
60,541
 
Rocky Mountain News
   
 
127
 
            
 
(6,318
)
    
    
  
Total newspapers
   
 
63,713
 
     
17.5
%
   
 
54,223
 
Scripps Networks
   
 
19,874
 
     
25.6
%
   
 
15,821
 
Broadcast television
   
 
15,967
 
     
(0.7
)%
   
 
16,087
 
Licensing and other media
   
 
4,087
 
     
(13.8
)%
   
 
4,739
 
Corporate
   
 
(7,342
)
     
(51.2
)%
   
 
(4,856
)
    
    
  
Total EBITDA
   
$
96,299
 
     
12.0 
%
   
$
86,014
 
    
    
  
 
Effective income tax rate for core operations
   
 
39.3
%
            
 
39.1
%
    
    
  
Net cash provided by operating activities
   
$
47,830
 
            
$
75,415
 
Capital expenditures
   
 
(21,378
)
            
 
(14,716
)
Business acquisitions and investments
   
 
(11,623
)
            
 
(82,868
)
Increase (decrease) in long-term debt
   
 
(18,234
)
            
 
31,535
 
Dividends paid, including to minority interests
   
 
(12,296
)
            
 
(12,245
)
Purchase and retirement of common stock
                     
 
(1,988
)
    
    
  
 
Certain restricted stock awards issued in 2001 are earned based upon the market price of the Company’s Class A Common Shares. The Company records expense related to these awards when the shares are earned. Corporate expense increased year-over-year in the first quarter when 20,000 shares were earned. An additional 20,000 shares were earned in April 2002. The remaining 20,000 shares under the award can be earned in 2003 if certain targets are met in 2003.
 
Average daily borrowings under short-term credit facilities in the first quarter were $484 million in 2002 and $547 million in 2001. The weighted-average interest rate on such borrowings in the first quarter was 1.9% in 2002 and 6.0% in 2001. The Company is currently rolling over short-term debt at an effective 90-day yield of 1.8%. The average balance of all interest bearing obligations for the first three months of the year was $731 million in 2002 and $785 million in 2001.
 
Interest capitalized was $160,000 in 2002 and $230,000 in 2001.
 
The Company adopted Financial Accounting Standard (“FAS”) No. 142—Goodwill and Other Intangible Assets effective January 1, 2002. See Note 1 to the Consolidated Financial Statements. If FAS No. 142’s provisions regarding not amortizing goodwill and intangible assets with indefinite lives had been effective in the first quarter of 2001, amortization of goodwill and other intangible assets would have been $9.4 million less, increasing earnings per share by $.09.
 
Operating results for each of the Company’s reportable segments, excluding divested operating units and unusual items, are presented on the following pages.

F-15

Table of Contents
 
NEWSPAPERS—RMN operating results are presented separately as a single line item to enhance comparability of year–over–year Newspaper operating results. Excluding unusual items, operating results were as follows:
 
    
2002
       
Year-to-Date Change
   
2001
  
    
( in thousands )
  
Operating revenues:
                         
Local
   
$
45,175
 
     
  1.3%
   
$
44,599
 
Classified
   
 
54,218
 
     
(5.4)%
   
 
57,310
 
National
   
 
7,856
 
     
4.3%
   
 
7,531
 
Preprint and other
   
 
23,075
 
     
11.2%
   
 
20,760
 
    
    
  
Newspaper advertising
   
 
130,324
 
     
0.1%
   
 
130,200
 
Circulation
   
 
35,423
 
     
0.1%
   
 
35,402
 
Share of joint operating agency profits
   
 
9,842
 
     
(0.3)%
   
 
9,876
 
Other
   
 
3,188
 
     
(1.3)%
   
 
3,230
 
    
    
  
Total operating revenues
   
 
178,777
 
     
0.0%
   
 
178,708
 
    
    
  
Expenses, excluding depreciation and amortization:
                         
Editorial and newspaper content
   
 
22,060
 
     
0.8%
   
 
21,889
 
Newsprint and ink
   
 
17,489
 
     
(21.9)%
   
 
22,390
 
Other press and production
   
 
17,443
 
     
1.8%
   
 
17,140
 
Circulation and distribution
   
 
16,376
 
     
3.4%
   
 
15,836
 
Other advertising, internet and printing
   
 
7,402
 
     
2.6%
   
 
7,215
 
Advertising sales and marketing
   
 
16,744
 
     
4.5%
   
 
16,026
 
General and administrative
   
 
17,536
 
     
3.8%
   
 
16,901
 
    
    
  
Total
   
 
115,050
 
     
(2.0)%
   
 
117,397
 
    
    
  
EBITDA before equity-method investments
   
 
63,727
 
     
3.9%
   
 
61,311
 
Share of pre-tax earnings (losses)
of equity-method investments
   
 
(141
)
          
 
(770
)
    
         
EBITDA
   
 
63,586
 
     
5.0%
   
 
60,541
 
Depreciation and amortization
   
 
6,060
 
     
(3.3)%
   
 
6,265
 
    
    
  
Operating income before RMN
   
 
57,526
 
     
6.0%
   
 
54,276
 
Rocky Mountain News (“RMN”)
   
 
8
 
          
 
(7,299
)
    
         
Operating income
   
$
57,534
 
     
22.5%
   
$
46,977
 
    
    
  
Other Financial and Statistical Data:
                         
Percent of operating revenues:
                         
EBITDA
   
 
35.6
%
          
 
33.9
%
    
         
Operating income
   
 
32.2
%
          
 
30.4
%
    
         
Cash received greater (less) than share of profits of JOAs
and equity-method investments
   
$
1,452
 
          
$
9,089
 
Capital expenditures
   
 
11,343
 
          
 
10,388
 
Business acquisitions and other
additions to long-lived assets
   
 
24
 
          
 
64,268
 
    
         
 
The demand for advertising remained soft in most of the Company’s markets in the first quarter of 2002, particularly help wanted classified advertising. First quarter results include the effect of an additional Sunday in the period. Excluding the additional Sunday, advertising revenue was down about 2%.            
 
Newsprint and ink decreased primarily due to a 22% decrease in year-over-year newsprint prices.
 
First quarter results at the Denver newspaper were substantially improved over 2001 due to advertising and circulation rate increases and cost cutting measures implemented by the JOA, including the publication of combined weekend editions and a single classified advertising section distributed daily in both newspapers.

F-16

Table of Contents
 
SCRIPPS NETWORKS—Operating results, excluding unusual items, were as follows:
 
    
2002
       
Year-to-Date Change
   
2001
  
    
( in thousands )
  
Operating revenues:
                         
Advertising
   
$
69,426
 
     
4.2%
   
$
66,599
 
Affiliate fees
   
 
18,160
 
     
25.6%
   
 
14,458
 
Other
   
 
1,115
 
     
(11.6)%
   
 
1,261
 
    
    
  
Total operating revenues
   
 
88,701
 
     
7.8%
   
 
82,318
 
    
    
  
Operating expenses, excluding depreciation and amortization:
                         
Programming and production
   
 
28,896
 
     
20.1%
   
 
24,061
 
Operations and distribution
   
 
9,385
 
     
(2.6)%
   
 
9,639
 
Sales and marketing
   
 
15,950
 
     
(14.2)%
   
 
18,594
 
General and administrative
   
 
15,396
 
     
3.7%
   
 
14,843
 
    
    
  
Total
   
 
69,627
 
     
3.7%
   
 
67,137
 
    
    
  
EBITDA before equity-method investments
   
 
19,074
 
     
25.6%
   
 
15,181
 
Share of pre-tax earnings of
equity-method investments
   
 
800
 
          
 
640
 
    
         
EBITDA
   
 
19,874
 
     
25.6%
   
 
15,821
 
Depreciation and amortization
   
 
2,729
 
     
(3.4)%
   
 
2,824
 
    
    
  
Operating income
   
$
17,145
 
     
31.9%
   
$
12,997
 
    
    
  
Other Financial and Statistical Data:
                         
Percent of operating revenues:
                         
EBITDA
   
 
22.4
%
          
 
19.2
%
    
         
Operating income
   
 
19.3
%
          
 
15.8
%
    
         
Payments for programming less (greater) than amounts
recognized as expense
   
$
(9,998
)
          
$
(11,271
)
Cash received for affiliate fees, net of launch incentive
payments, greater (less) than amounts recognized as
affiliate fee revenue
   
 
(23,808
)
          
 
4,297
 
Cash received greater (less) than share of earnings of
equity-method investments
   
 
(800
)
          
 
1,521
 
Capital expenditures
   
 
1,774
 
          
 
1,639
 
Business acquisitions and investments
   
 
7,510
 
          
 
14,429
 
Other information:
                         
Program assets capitalized during the year
   
 
34,892
 
          
 
38,724
 
Launch incentives capitalized during the year
   
 
17,711
 
          
 
4,122
 
    
         
 
According to the Nielsen Homevideo Index, HGTV was distributed to 77.7 million homes in March 2002, up 7.8 million from March 2001 and 1.3 million in the first quarter. Food Network was distributed to 73.8 million homes in March 2002, up 16 million from March 2001 and 2.3 million in the first quarter.
 
Affiliate fee revenue increased 26% for HGTV and 7% for Food Network.
 
Programming and production expenses have increased as the Company improves the quality and variety of programming and expands the hours of original programming presented on its networks. Programming expense increased 20% for HGTV and 20% for Food Network.

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Table of Contents
 
Reduced marketing, advertising and promotional expenses led to the decrease in distribution and sales and marketing expenses. Excluding DIY and Fine Living, operations and distribution expenses are currently projected to decrease approximately 30% in 2002. Sales and marketing expenses for HGTV and Food Network are currently projected to decrease approximately 20% for the full year.
 
The Company launched DIY in the fourth quarter of 1999 and launched Fine Living, its fourth network, in March 2002. Start-up losses associated with DIY and Fine Living reduced EBITDA in the first quarter by $12.1 million in 2002 compared to $5.4 million in the first quarter of 2001. Full year start-up losses are currently projected to reduce EBITDA by approximately $28 million to $33 million in 2002.
 
Excluding the start-up expenses of the new networks, EBITDA increased 51% in the quarter.

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Table of Contents
 
BROADCAST TELEVISION—Operating results, excluding unusual items, were as follows:
 
    
2002
     
Year-to-Date Change
     
2001
  
    
( in thousands )
  
Operating revenues:
                         
Local
   
$
40,200
 
   
3.2
%
   
$
38,953
 
National
   
 
21,337
 
   
(6.4
)%
   
 
22,803
 
Political
   
 
278
 
                
Network compensation
   
 
1,941
 
   
(32.3
)%
   
 
2,868
 
Other
   
 
1,765
 
   
36.1
%
   
 
1,297
 
    
  
  
Total operating revenues
   
 
65,521
 
   
(0.6
)%
   
 
65,921
 
    
  
  
Operating expenses, excluding depreciation and amortization:
                         
Programming and station operations
   
 
34,739
 
   
(0.0
)%
   
 
34,755
 
Sales and marketing
   
 
8,579
 
   
(1.6
)%
   
 
8,719
 
General and administrative
   
 
6,236
 
   
(1.9
)%
   
 
6,360
 
    
  
  
Total
   
 
49,554
 
   
(0.6
)%
   
 
49,834
 
    
  
  
EBITDA
   
 
15,967
 
   
(0.7
)%
   
 
16,087
 
Depreciation and amortization
   
 
4,559
 
   
(7.3
)%
   
 
4,918
 
    
  
  
Operating income
   
$
11,408
 
   
2.1
%
   
$
11,169
 
    
  
  
Other Financial and Statistical Data:
                         
Percent of operating revenues:
                         
EBITDA
   
 
24.4
%
          
 
24.4
%
Operating income
   
 
17.4
%
          
 
16.9
%
    
         
Payments for programming greater (less) than amounts recognized
as expense
   
$
(753
)
          
$
(73
)
Capital expenditures
   
 
6,107
 
          
 
2,528
 
Business acquisitions and other additions to long-lived assets
   
 
20
 
                
Program assets capitalized during the year
   
 
3,252
 
          
 
656
 
    
         
 
The Company continues to be affected by its relatively high exposure to the ABC television network, for which audience levels have generally declined in recent years. Six of the Company’s 10 television stations are ABC affiliates. Local and national advertising revenues at the ABC affiliates decreased 6% year-over-year.
 
Local and national advertising revenue for the Company’s three NBC affiliates increased $2.7 million, or 21%, year-over-year, most of which was attributed to the Olympics.
 
In 2001 the Company renegotiated and extended its affiliation agreements with NBC, which were originally scheduled to expire in 2004. Network compensation is sharply reduced under the new agreements, which expire in 2009. The Company’s ABC affiliation agreements expire on various dates during the period 2004 through 2006.

F-19

Table of Contents
 
LIQUIDITY AND CAPITAL RESOURCES
 
The Company’s primary source of liquidity is cash flow from operating activities. Advertising provides 70% to 80% of the Company’s total revenues, so the Company’s cash flow from operating activities is adversely affected during recessionary periods. The Company’s cash flow from operating activities in the first quarter was $48 million in 2002 and $75 million in 2001. Increased launch incentive payments to expand distribution of Scripps Networks was the primary cause of the decrease. The Company expects to continue to increase the distribution of Scripps Networks.
 
Cash flow from operating activities exceeded capital expenditures and cash dividends by $14 million in the first quarter and is expected to substantially exceed the total of its capital expenditure requirements and cash dividends in 2002, as it has each year since 1992.
 
The excess cash flow from existing businesses and the Company’s substantial borrowing capacity have been used primarily to fund acquisitions, investments, and to develop new businesses. There are essentially no legal or other restrictions on the transfer of funds among the Company’s business segments.
 
Repurchase of a total of six million Class A Common shares was authorized by the Board of Directors in 1998. The balance remaining on this authorization is 1.7 million shares.
 
Net debt (borrowings less cash equivalent and other short-term investments) decreased $17 million in the first three months of 2002, to $705 million at March 31, 2002. Net debt includes commercial paper borrowings totaling $489 million, with average maturities of 90 days or less. Commercial paper borrowings are supported by bank credit facilities which permit maximum borrowings of $675 million and expire in September 2002. The facility is expected to be replaced with a similar facility prior to expiration. The Company’s access to commercial paper markets can be affected by macroeconomic factors outside of its control. In addition to macroeconomic factors, the Company’s access to commercial paper markets and its borrowing costs are affected by short and long-term debt ratings assigned by independent rating agencies.

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Table of Contents
 
MARKET RISK
 
The Company’s earnings and cash flow can be affected by, among other things, economic conditions, interest rate changes, foreign currency fluctuations (primarily in the exchange rate for the Japanese yen) and changes in the price of newsprint. The Company is also exposed to changes in the market value of its investments. The information disclosed in Market Risk in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, has not changed materially unless otherwise disclosed herein.
 
The Company may use foreign currency forward and option contracts to hedge its cash flow exposures that are denominated in Japanese yen and forward contracts to reduce the risk of changes in the price of newsprint on anticipated newsprint purchases. The Company held no foreign currency or newsprint derivative financial instruments at March 31, 2002, or at December 31, 2001.
 
The following table presents additional information about the Company’s market-risk-sensitive financial instruments:
 
    
As of March 31, 2002
     
As of December 31, 2001
  
    
Cost
Basis
   
Fair
Value
     
Cost
Basis
   
Fair
Value
  
    
( in thousands, except share data )
  
Financial instruments subject to interest rate risk:
                                
Variable rate credit facilities, including commercial paper
   
$
491,745
   
$
491,745
 
   
$
513,855
   
$
513,855
 
$100 million, 6.625% note, due in 2007
   
 
99,919
   
 
103,000
 
   
 
99,916
   
 
104,376
 
$100 million, 6.375% note, due in 2002
   
 
99,988
   
 
102,006
 
   
 
99,983
   
 
102,685
 
Other notes
   
 
13,967
   
 
12,849
 
   
 
10,090
   
 
9,084
 
    
  
  
  
Total long-term debt including current portion
   
$
705,619
   
$
709,600
 
   
$
723,844
   
$
730,000
 
    
  
  
  
Financial instruments subject to market value risk:
                                
AOL Time Warner common stock (2,017,000 shares)
   
$
64,740
   
$
47,698
 
   
$
64,740
   
$
64,740
 
Centra Software (700,500 common shares)
   
 
1,427
   
 
3,376
 
   
 
1,427
   
 
5,604
 
Other available-for-sale securities
   
 
585
   
 
4,320
 
   
 
597
   
 
4,213
 
    
  
  
  
Total investments in publicly-traded companies
   
 
66,752
   
 
55,394
 
   
 
66,764
   
 
74,557
 
Other equity investments
   
 
47,103
   
 
(a
)
   
 
51,714
   
 
(a
)
    
  
  
  
(a)
 
Included in other equity investments are securities that do not trade in public markets, so they do not have readily determinable fair values. Management estimates the fair value of these securities is approximately $49 million. However, many of the investees have not issued new equity in the past two years. There can be no assurance that the Company would realize the carrying value of these securities upon their sale.
 
The Company manages interest rate risk primarily by maintaining a mix of fixed-rate and variable-rate debt. The Company currently does not use interest rate swaps, forwards or other derivative financial instruments to manage its interest rate risk. See Note 4 to the Consolidated Financial Statements. The weighted-average interest rate on borrowings under the Variable Rate Credit Facilities was 1.8% at March 31, 2002, and 2.0% at December 31, 2001.

F-21

Table of Contents
 
THE E. W. SCRIPPS COMPANY
 
Index to Exhibits
 
Exhibit
No.
   
Item
   
Page
12
   
Ratio of Earnings to Fixed Charges
   
E-2

E-1
Prepared by R.R. Donnelley Financial -- Ratio of Earnings to Fixed Charges
EXHIBIT 12
 
RATIO OF EARNINGS TO FIXED CHARGES
 
    
Three months ended
March 31,
    
2002
   
2001
    
( in thousands )
EARNINGS AS DEFINED:
              
Earnings from operations before income taxes after eliminating undistributed earnings of 20%—to
50%-owned affiliates
   
$
69,223
   
$
118,930
Fixed charges excluding capitalized interest and preferred stock dividends of majority-owned subsidiary companies
   
 
8,149
   
 
13,833
    
  
Earnings as defined
   
$
77,372
   
$
132,763
    
  
FIXED CHARGES AS DEFINED:
              
Interest expense, including amortization of debt issue costs
   
$
6,592
   
$
12,461
Interest capitalized
   
 
159
   
 
231
Portion of rental expense representative of the interest factor
   
 
1,557
   
 
1,372
Preferred stock dividends of majority-owned subsidiary companies
   
 
20
   
 
20
    
  
Fixed charges as defined
   
$
8,328
   
$
14,084
    
  
RATIO OF EARNINGS TO FIXED CHARGES
   
 
9.29
   
 
9.43
    
  

E-2