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Scripps operating cash flow up 17 percent

Jan. 23, 2001
 

CINCINNATI – The E.W. Scripps CompanyЎ¦s operating cash flow from core operations increased 17 percent to $136 million in the fourth quarter of 2000, excluding divested operations and unusual items.Earnings per share from core operations were up 21 percent to 69 cents compared to 57 cents during the same quarter a year earlier, excluding the unusual items.Exceptionally strong political advertising revenues at the companyЎ¦s local broadcast television stations drove consolidated operating cash flow and earnings per share growth for the quarter. At Scripps Networks, the companyЎ¦s fastest growing business segment, operating cash flow for the full year 2000 doubled to $69 million and full-year revenues increased 36 percent to $314 million. The segmentЎ¦s year-over-year revenue growth rate slowed to 14 percent in the fourth quarter, however, because of a sharp decline in Ў§dot-comЎЁ advertising and general weakness in the advertising scatter market. Based on advanced advertising sales so far in 2001, the advertising market appears to be rebounding for Scripps Networks and the company projects 20 to 25 percent total revenue growth for the segment in the first quarter.Scripps Networks includes Home & Garden Television, Food Network, the Do It Yourself network, and launching later this year, the companyЎ¦s fourth cable network brand, Fine Living.Ў§Solid fourth quarter results, thanks to robust political advertising at our local television stations, capped a very good year for Scripps and its shareholders,ЎЁ said Kenneth W. Lowe, president and chief executive officer. Ў§Scripps Networks continued to grow at a strong pace in 2000, and in Denver, a long and costly newspaper circulation war ended in an amicable truce that we believe will benefit the community, our employees and our shareholders for many years to come.ЎЁ Ў§Looking at the fourth quarter, our television station group benefited from the close elections, especially in Florida, Michigan and Ohio, where we operate four of our biggest stations. The strong political advertising provided a significant boost to the companyЎ¦s consolidated results for the period.ЎЁЎ§Turning to Scripps Networks, Food continued to grow at a very healthy clip during the quarter, but Home & Garden Television growth slowed when dot-com advertising dropped off the charts and the scatter market softened. Plus, comparisons for HGTV were extremely difficult, considering that the networkЎ¦s ad revenues during the fourth quarter of 1999 were up 115 percent. The first quarter of 2001 is looking very good for both HGTV and Food, and weЎ¦ll be forging ahead this year with our plans to establish the Do It Yourself brand and launch Fine Living.ЎЁЎ§At our newspapers, advertising revenues during the fourth quarter grew a respectable 6 percent, although retail advertising remained soft. A 14 percent increase in newsprint costs during the period held newspaper cash flow growth to a modest 4 percent,ЎЁ Lowe said. Ў§Looking to 2001, weЎ¦re anticipating significantly improved results for the newspaper segment in the second half of the year now that we have the green light to implement the joint operating agreement in Denver.ЎЁThe joint operating agreement went into effect yesterday. It is a 50-50 partnership between Scripps, which owns the Rocky Mountain News, and MediaNews Group, which owns The Denver Post. The two companies have created a third entity, the Denver Newspaper Agency, which will manage the business and production operations of the two newspapers. The Rocky and The Post will maintain separate editorial operations and will continue to compete for news and information, publishing separate editions in the morning, Monday through Friday.On April 7 the newspapers will begin publishing combined weekend editions – one on Saturday and one on Sunday ЎV each bearing the names of both newspapers. On April 3 the agency will begin publishing a single, improved classified advertising section that will be distributed daily and on weekends in both newspapers.Scripps is currently estimating that first quarter earnings per share from core operations will be in the 35- to 45-cent range vs. 45 cents in 2000, and $2.45 to $2.65 for the full-year 2001 vs. $2.20 in 2000. The estimates include projected start-up losses for DIY and Fine Living of 5 cents per share in the first quarter (vs. 2 cents in 2000) and 20 cents for the full year (vs. 9 cents in 2000). In addition to the inherent uncertainty in all estimates, these should be evaluated with the understanding that they include the Denver Newspaper Agency, which has no operating history.Estimated advertising revenue growth in 2001 by segment is as follows:ѓЮ Scripps Networks, 25 to 30 percent.ѓЮ Newspapers, 4 percent (excluding Denver).ѓЮ Broadcast television, 1 percent (excluding political). Here are fourth quarter operating results by business segment: Newspapers (excluding divested operations and an unusual item) Operating cash flow during the fourth quarter increased 3.8 percent to $78 million. Newsprint costs increased 14 percent over the prior year on a 22 percent increase in newsprint prices. Pro forma newspaper advertising revenue during the fourth quarter increased 5.9 percent to $201 million. Broken down by category: ѓЮ Local retail increased 0.2 percent to $78.7 million. ѓЮ Classified increased 6.1 percent to $72.1 million. ѓЮ National increased 15 percent to $12 million. ѓЮ Preprint and other increased 16 percent to $38.1 million. Pro forma circulation revenues decreased 1.9 percent to $37.9 million. Pro forma total newspaper revenues were $255 million, up 3.4 percent. Scripps Networks Scripps Networks operating cash flow was $14.4 million vs. $14.6 million in the year ago period. In addition to reasons stated above regarding revenue performance, profit growth was held back in part by the companyЎ¦s decision to step up its investment in consumer marketing to further build Scripps Networks brands. Home & Garden Television produced operating cash flow of $12.5 million vs. $13.7 million in the year-ago period. HGTV revenues grew 1.8 percent to $50.8 million. Home & Garden Television now reaches 67.1 million domestic subscribers, an increase of 8.1 million in the past 12 months and up 1.2 million in the fourth quarter. The Food Network had revenues of $30 million, up 38 percent. Food Network operating cash flow was $4.8 million compared to $2 million in the fourth quarter last year. Food Network reaches 54.4 million domestic subscribers, up 10.2 million in the past 12 months and up 2.1 million in the fourth quarter. Start-up costs for the Do It Yourself (DIY) network were $2.9 million vs. $1.5 million in the year-ago period. Broadcast Television Broadcast television operating cash flow increased 62 percent to $44.4 million. Revenues increased 19 percent to $99.2 million. Broadcast television cash operating costs during the fourth quarter decreased 1.8 percent. Broadcast television political advertising revenues for the fourth quarter 2000 were $20.7 million vs. $12.8 million and $12.4 million for the same period during the 1998 and 1996 elections, respectively. Broadcast television revenues in the first quarter of 2001 are expected to be 10 to 15 percent less than the first quarter of 2000. In the first quarter of 2000 Super Bowl advertising revenue at the companyЎ¦s six ABC-affiliated stations and political advertising revenue totaled about $4 million. Licensing and Other Media (excluding divested operations) Revenues decreased 4.1 percent to $24.6 million. Operating cash flow was $3.6 million vs. $3 million in the fourth quarter of last year. Internet The 31 Scripps Internet sites recorded approximately 410 million page views during the fourth quarter compared to 278 million in the same period last year, an increase of 48 percent. Broken down by category, fourth quarter page views were: ѓЮ Local portals (newspapers and television stations), 109 million, up 56 percent.ѓЮ Scripps Networks (hgtv.com, foodtv.com, diynet.com), 172 million, up 84 percent. ѓЮ United Media (comics.com), 129 million, up 12 percent. Full-year results Operating cash flow from core operations was up 16 percent to $464 million. Earnings per share were $2.20 vs. $1.87 in 1999. Following are results by operating group: ѓЮ Newspapers: Operating cash flow decreased 2.3 percent to $269 million. Revenues were up 4.5 percent to $955 million. Operating cash flow losses at the Rocky Mountain News in 2000 were $9.6 million. Its losses reduced earnings per share by 21 cents. ѓЮ Broadcast Television: Revenues increased 9.8 percent to $343 million; operating cash flow increased 35 percent to $129 million. ѓЮ Scripps Networks: Home & Garden Television revenues increased 32 percent to $209 million; operating cash flow was $65.7 million, compared to $32.6 million last year. Food Network revenues increased 55 percent to $103 million; operating cash flow was $13.9 million compared to $4 million in 1999. Start-up losses to establish the DIY brand were $10.1 million compared to $3.7 million in 1999. ѓЮ Licensing and other media: total revenues were up 4.7 percent to $96.9 million; operating cash flow increased 28 percent to $16.1 million. Licensing and other media included about $3.5 million in corporate Internet expenses in 1999 that in 2000 were allocated to their respective operating segments.The senior management team at Scripps will discuss the companyЎ¦s fourth quarter results during a telephone conference call at 10:30 a.m. EDT today. Scripps will offer a live audio Web cast of the conference call. To access the Web cast, visit www.scripps.com , choose Ў§investor relationsЎЁ then follow the Ў§live Web castЎЁ link at the top of the page. Listeners will need Real Player G2 or higher (download free at www.real.com) to access the call online. Also, a limited number of dial-in lines for the conference call will be available on a listen-only basis. To access the conference call, dial 800-553-0349 approximately 10 minutes prior to the start of the call. Callers will need the name of the call (fourth quarter earnings release) to be granted access. Callers also will be asked to provide their name and company affiliation. An instant replay line will be open from 2 p.m. EST Tuesday until 11:59 p.m. EST on Friday, Jan. 26. The domestic number to access the replay is 800-475-6701 and the international number is 320-365-3844. The access code for both numbers is 564951. A replay of the conference call will be archived and available online for an extended period of time following the call. To access the audio replay, visit www.scripps.com approximately four hours after the call, choose “investor relations” then follow the “audio archives” link at the top of the page.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-14 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 21 daily newspapers, 10 broadcast TV stations and three cable television networks, with plans to launch a fourth.Scripps Networks cable television 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. In the fourth quarter of 2000 the Company acquired a daily newspaper in Henderson, Kentucky, and a weekly newspaper in Marco Island, Florida.(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 fourth quarter 1999 EBITDA was immaterial. Previously reported year-to-date 1999 EBITDA was reduced by $1.3 million and net income was reduced $0.8 million ($.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 reduced $9.8 million ($.12 per share) in the fourth quarter and reduced $15.8 million ($.20 per share) year-to-date. Net income in 1999 was increased $0.8 million ($.01 per share) in the fourth quarter and increased $0.4 million ($.00 per share) year-to-date. Accrued incentive compensation was decreased $1.7 million, to $11.5 million at December 31, 2000, in conjunction with the decrease in the net gain on Scripps Ventures I’s portfolio of $10.9 million, to $76.9 million. The incentive compensation for Scripps Ventures I will be paid in 2003 based on the portfolio’s return through December 2002. 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 December 31, 2000, was $129.8 million.(d) Fourth quarter 2000 newspaper results were reduced by $6.3 million of expenses associated with preparations for the newspaper joint operating agency (JOA) in Denver. Net income was reduced $4.1 million ($.05 per share). Expenses associated with the preparations for the JOA totaled $9.5 million year-to-date. Net income was reduced $6.2 million ($.08 per share).(e) In the fourth quarter of 2000 the estimated tax liability for prior years was reduced, increasing net income by $7.2 million ($.09 per share).(f) Year-to-date 1999 Scripps Networks results were reduced by a $1.1 million accrual for “make goods” related to HGTV advertising in 1998 and $0.8 million of costs incurred to move the Food Network’s operations to a different location in Manhattan. Net income was reduced $1.2 million ($.02 per share). (g) In the third quarter of 1999 the Company made severance payments totaling $1.2 million to certain television station employees, reducing net income $0.7 million ($.01 per share). (h) Operating income by segment is as follows:(i) Operating results for the Company’s Scripps Networks, excluding unusual items, were as follows: