Scripps operating cash flow up 19 percent

Tue, January 23, 2001 by Tim Stautberg

CINCINNATI - The E.W. Scripps Company's operating cash flow increased 19 percent to $104 million in the third quarter, excluding unusual items and divested operations.Results were driven by rapid growth of the company's cable television networks and strong performance by the company's broadcast television station group.Earnings per share from core operations were 46 cents vs. 36 cents during the same quarter a year earlier, excluding the unusual items."The growing value of our cable television networks is clearly demonstrated by our third quarter results," said Kenneth W. Lowe, president and chief executive officer. "Strong revenue and cash flow growth at the Food Network and Home and Garden Television, coupled with better than expected numbers from our TV station group, contributed to strong consolidated third quarter results.""HGTV and Food continue to be tremendous success stories. Category media, our fastest growing business segment, was started from scratch just six years ago and is on target to generate more than $300 million in revenues this year," Lowe said. "Priority one at Scripps has been, and will continue to be, the expansion of category media. This Fall, we've launched more new programming on both networks than ever before. In the coming weeks, weЎ¦ll be ramping up our promotion and marketing efforts to attract more viewers and boost ratings." "The Scripps television station group is having a great year," Lowe said. "Revenues and cash flow are up significantly over a year ago, the result of robust political advertising and the impact of programming and employee cost reductions. Operating costs at our television stations are down 2 percent for the quarter and 1 percent through the first nine months.""In our newspaper division, modest revenue growth was offset by increased newsprint costs at all of our newspapers and continued losses at the Denver Rocky Mountain News. We expect to stem the losses in Denver by entering into a joint operating agreement with the competing newspaper there, and weЎ¦re encouraged by the progress our JOA application has made since it was filed with the Justice Department in May."If the joint operating agreement is approved, the business and production operations of the News and The Denver Post, owned by MediaNews Group, would be managed by the Denver Newspaper Agency, a third entity owned equally by Scripps and MediaNews. The News and The Post would maintain independent editorial operations, publishing separate daily, morning editions and combined weekend editions. The proposed Denver JOA, allowed under the Newspaper Preservation Act of 1970, requires approval of the U.S. Attorney General. On Sept.10 the Justice DepartmentЎ¦s antitrust division recommended that the Attorney General approve the Denver JOA without a public hearing. The Attorney General can rule after a 30-day public comment period that ends Friday, Oct. 13.Excluding operating losses at the Denver Rocky Mountain News, third quarter earnings per share were 50 cents vs. 38 cents in 1999. Operating losses during the third quarter at the News, including depreciation and amortization expenses, were $5.1 million compared to $1.9 million for the same period in 1999.Following are results by operating group:Newspapers (excluding divested operations and an unusual item in 2000)Operating cash flow decreased 5.4 percent to $63.3 million. Excluding the Denver Rocky Mountain News, operating cash flow decreased 1 percent. Newsprint costs increased 17 percent over the prior year on a 17 percent increase in newsprint prices.Pro forma newspaper advertising revenue during the third quarter increased 4.7 percent to $181 million. Broken down by category: --Local retail decreased 1 percent to $63.3 million. --Classified increased 6 percent to $79.3 million. --National increased 13 percent to $9.3 million. --Preprint and other increased 12 percent to $29.2 million. Pro forma circulation revenues decreased 6.8 percent to $34.9 million. Pro forma total newspaper revenues were $231 million, up 2.1 percent. Category Media (excluding unusual items in 1999) Category media operating cash flow was $13.8 million vs. $2.1 million in the year ago period. Home & Garden Television produced operating cash flow of $15 million vs. $4.3 million in the year-ago period. HGTV revenues grew 30 percent to $47.7 million. Unlike the fourth quarter of 1999, the company does not expect year over year revenue growth rates at HGTV to accelerate in the fourth quarter of 2000 due largely to sharply reduced Internet sector advertising. Home & Garden Television now reaches 65.9 million domestic subscribers, an increase of 8 million in the past 12 months and up 3 million in the third quarter. The Food Network had revenues of $24.7 million, up 62 percent. Food Network had positive operating cash flow of $1.3 million compared to a loss of $1.8 million in the third quarter last year. The network reaches 52.3 million domestic subscribers, up 10 million in the past 12 months and up 3.2 million in the third quarter. Start-up costs for the Do It Yourself (DIY) network were $2.7 million vs. $900,000 in the year-ago period. The company currently anticipates that Fine LivingЎ¦s impact on earnings per share will be negligible for 2000 and as much as a negative 10 cents per share for 2001. Broadcast Television (excluding severance costs of $1.2 million in 1999) Broadcast television operating cash flow increased 45 percent to $28.2 million. Revenues increased 11 percent to $79.8 million. Broadcast television cash operating costs during the third quarter decreased 2.2 percent. Broadcast television political advertising revenues for the third quarter 2000 were $10.2 million vs. $3.8 million for the same period during the 1998 congressional elections and $4 million in the same period during the 1996 presidential elections. Fourth quarter television political advertising revenues were $12.8 million in 1998 and $12.4 million in 1996 and are expected to be up 10 to 20 percent from that level in 2000. Licensing and Other Media (excluding divested operations) Revenues increased 10 percent to $23.6 million. Operating cash flow was $3.9 million vs. $2.4 million in the third quarter of last year. Internet The 31 Scripps Internet sites recorded approximately 357 million page views during the third quarter compared to 256 million in the same period last year, an increase of 40 percent. Broken down by category, third quarter page views were: --Local portals (newspapers and television stations), 91 million, up 24 percent.--Category television (hgtv.com, foodtv.com, diynet.com), 137 million, up 75 percent.--United Media (comics.com), 129 million, up 18 percent.The company's Internet sites generated $4 million in revenue during the third quarter. Related costs were $7 million. Year-to-date results (excluding unusual items)Consolidated operating cash flow rose 15 percent to $328 million.Earnings per share from core operations increased 16 percent to $1.51. The senior management team at Scripps will discuss the companyЎ¦s third quarter results during a telephone conference call at 9 a.m. EDT today. The conference call can be accessed simultaneously via the investor relations link on the Scripps corporate Web site at www.scripps.com.This press release contains certain forward-looking statements related to the companyЎ¦s newspaper publishing, category media and broadcast television businesses that are based on managementЎ¦s current expectations. Forward-looking statements are subject to certain risks, trends and uncertainties, including changes in advertising demand and other economic conditions, that could cause actual results to differ materially from the expectations expressed in forward-looking statements. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. The companyЎ¦s written policy on forward-looking statements can be found on page F-4 of its 1999 SEC Form 10K and page F-13 of its most recent Form 10Q.The E.W. Scripps Company is a diverse media concern with interests in newspaper publishing, broadcast television, cable television networks and interactive media. Scripps operates 20 daily newspapers, 10 broadcast TV stations and three cable television networks, with plans to launch a fourth.Scripps cable television network brands include Home & Garden Television, Food Network, Do it Yourself, and Fine Living, due to launch in the second half of 2001.The company also operates Scripps Howard News Service, United Media, the worldwide licensing and syndication home of PEANUTS and DILBERT, and 31 Web sites, including hgtv.com, foodtv.com, diynet.com and comics.com.(a) In the first quarter of 2000 the Company i) acquired the daily newspaper in Fort Pierce, Florida, in exchange for its newspaper in Destin, Florida, and cash and ii) sold its independent telephone directories in Memphis, Tennessee, Kansas City, Missouri, and North Palm Beach, Florida. The sales and trade resulted in net gains of $6.3 million, $3.8 million after-tax ($.05 per share). In the third quarter of 2000 the Company sold its remaining independent telephone directories in Louisiana. No material gain or loss was realized on the divestiture as proceeds approximated the book value of the net assets sold. (b) Effective July 1, 2000, the Company began accounting for newsprint inventories by the first-in, first-out (FIFO) method. Newsprint inventories were previously valued using the last-in, first-out (LIFO) method. The Company typically maintains a 30-day supply of newsprint and FIFO more accurately reflects the current value of the Company?s newsprint inventory. Financial statements for all prior periods have been restated to apply the new method retroactively. The effect of the change on third quarter 1999 EBITDA was immaterial. Previously reported year-to-date 1999 EBITDA was reduced by $1.5 million and net income was reduced $0.9 million ($.01 per share). EBITDA for the first half of 2000 was increased $0.8 million and net income was increased $0.5 million ($.01 per share).(c) Included in investment results are i) recognized investment gains and losses and ii) adjustments to accrued incentive compensation related to changes in the net gains (realized and estimated unrealized) on the Scripps Ventures I portfolio. Net income in 2000 was increased $0.8 million ($.01 per share) in the third quarter and reduced $6.1 million ($.08 per share) year-to-date. Net income in 1999 was reduced $0.7 million ($.01 per share) in the third quarter.Accrued incentive compensation was increased $2.4 million, to $13.2 million at September 30, 2000, in conjunction with the increase in the net gain on Scripps Ventures I?s portfolio of $15.8 million, to $87.8 million. The incentive compensation for Scripps Ventures I will be paid in 2001 based on the portfolio?s return through June 2001. Scripps Ventures II?s portfolio managers have a minority equity interest in the income of that portfolio. The estimated value of Scripps Ventures I and II?s portfolios at September 30, 2000, was $144 million. (d) Third quarter 2000 newspaper results were reduced by $2.4 million of expenses associated with preparations for the anticipated joint newspaper operations in Denver. Net income was reduced $1.6 million ($.02 per share). Expenses associated with the joint operations totaled $3.2 million year-to-date. Net income was reduced $2.1 million ($.03 per share).(e) Third quarter 1999 Category Media results were reduced by a $2.5 million accrual for ?make goods? to HGTV advertisers and $0.8 million of costs incurred to move the Food Network?s operations to a different location in Manhattan. Net income was reduced $2.1 million ($.03 per share). The effect on year-to-date net income was $0.9 million less, or $1.2 million ($.02 per share), because $1.4 million of the $2.5 million accrual was for advertisements aired in the first half of 1999.(f) In the third quarter 1999 the Company made severance payments totaling $1.2 million to certain television station employees, reducing net income $0.7 million ($.01 per share). (g) Operating income by segment is as follows:(h) Operating results for the Company’s Category Television networks are as follows: