Scripps reports third quarter earnings

Wed, October 10, 2001 by Tim Stautberg

CINCINNATI - The E.W. Scripps Company's operating cash flow from core operations was $86.3 million in the third quarter of 2001 compared to $104 million for the same year-ago period, excluding divested operations and unusual items. Third quarter operating results were affected by a downturn in business immediately following the Sept. 11 terrorist attacks, which exacerbated an already weak advertising market.Earnings per share from core operations were 38 cents compared to 46 cents during the same quarter a year earlier, excluding the unusual items. While the soft advertising environment and general business downturn held back growth at the company's newspapers and television stations, third quarter revenues at Scripps Networks, which includes Home & Garden Television and the Food Network, were up 15 percent to $83.1 million. Operating cash flow for Scripps Networks was up 28 percent to $17.6 million, including start-up losses of $5.7 million in 2001 and $3.0 million in 2000 related to the development of the Do It Yourself and Fine Living networks. Operating cash flow at Scripps Networks for the quarter was up 39 percent, excluding DIY and Fine Living.'At Scripps, we believe the intrinsic value of our company is particularly evident during times such as these,' said Kenneth W. Lowe, president and chief executive officer. 'Our shareholders will continue to benefit from the growth of our cable television networks and the fundamental strengths of our local newspapers and television stations. Our financial strength and flexibility enables the company to build value over the long-term by pursuing growth opportunities while efficiently managing all of our media businesses, even when macroeconomic conditions evolve beyond our control.' 'Our cable television networks continued to show growth, even in these most difficult of times,' Lowe said. 'Revenues and cash flow moved up, driven by substantial gains in distribution at both HGTV and Food. We're also making progress widening the reach of the Do It Yourself network and our plans to launch Fine Living early next year are on track.''The Scripps newspapers, we believe, are coping well with the short-term challenges, keeping expenses in check and finding new revenues in local markets,' Lowe added. 'Gains in national and pre-print advertising sales during the quarter were encouraging, but weakness continues in local retail and help wanted classified advertising. In Denver, we're seeing some improvement and emerging profitability related to the implementation of the joint operating agreement between our newspaper, the Rocky Mountain News, and The Denver Post.''At our broadcast television stations, the Sept. 11 terrorist attacks had a direct, negative effect on operating results that already were challenged by persistent advertising weakness and difficult comparisons resulting from record political advertising revenues in 2000,' Lowe said. 'All nine of our network-affiliated stations broadcast 36 hours of continuous, commercial free network and local news coverage following the terrorist attacks. We continue to manage these stations as efficiently as possible under difficult circumstances.' Here are third quarter operating results by business segment:Newspapers (excluding unusual items)Operating income decreased 3.8 percent to $45.4 million.Pro forma newsprint costs increased 1 percent over the prior year on a 7 percent increase in newsprint prices.Pro forma newspaper advertising revenue during the third quarter decreased 3.1 percent to $126 million. Broken down by category: -- Local retail decreased 3.8 percent to $45.7 million. -- Classified decreased 6.4 percent to $50.7 million. -- National increased 7.9 percent to $8.0 million. -- Preprint and other increased 3.0 percent to $21.9 million. Pro forma circulation revenues increased 7.4 percent to $34.9 million. Pro forma total newspaper revenues were $178 million, up slightly over the previous year. Scripps is seeing improvement in operating results in Denver, where the company's newspaper, the Rocky Mountain News, and The Denver Post, owned by MediaNews Group, entered into a joint operating agreement earlier this year. The company's operating loss in Denver narrowed to $1.8 million during the quarter compared to $4.5 million in the prior year. On the expense side, the Denver Newspaper Agency - which handles the business functions for both newspapers - has substantially trimmed costs in Denver by publishing combined weekend editions and a combined classified advertising section that is distributed daily in both newspapers. The agency is currently operating with 2,100 full-time equivalent employees, down 25 percent since merging operations in January. The agency also has signed contracts with more than 3,000 advertisers at higher rates. However, the newspaper advertising market in Denver is experiencing the same weakness as other large metropolitan markets, especially in the help wanted category. Scripps Networks Scripps Networks operating cash flow was $17.6 million vs. $13.8 million in the year ago period. Home & Garden Television produced operating cash flow of $22.2 million vs. $15.0 million in the third quarter of 2000. HGTV revenues rose 16 percent to $55.1 million. Home & Garden Television now reaches 74.3 million domestic subscribers, an increase of 8.4 million in the past 12 months and up 3.8 million in the third quarter. The Food Network had revenues of $26.8 million, up 8.7 percent. Food Network operating cash flow was $1.1 million compared to $1.3 million in the third quarter last year. Food Network reaches 67.7 million domestic subscribers, up 15.4 million in the past 12 months and up 7.3 million in the third quarter. Cash operating losses for the Do It Yourself (DIY) and Fine Living networks totaled $5.7 million vs. $3.0 million in the year-ago period. Excluding Fine Living and Do It Yourself, Scripps Networks operating cash flow was up 39 percent. Broadcast Television Broadcast television operating cash flow was $12.5 million in the third quarter compared to $28.2 million for the same period a year earlier. Revenues decreased 23 percent to $61.1 million. Broadcast television cash operating costs during the third quarter decreased 5.7 percent. Operating results at the Scripps television stations were adversely affected by the continuing downturn in television advertising and the relative absence of political advertising in the third quarter this year compared to last. Third quarter political advertising revenue at the television stations was $700,000 compared to $10.2 million in 2000. Revenues at the Scripps television stations also decreased sharply following the Sept. 11 terrorist attacks. The stations broadcast commercial-free, continuous network and local news coverage of the disaster for the 36-hour period immediately following the attacks, and for the next several days there was little demand for television advertising. Licensing and Other Media (excluding unusual items) Revenues decreased 16 percent to $19.9 million. Operating cash flow was $2.5 million vs. $3.9 million in the third quarter of last year. Internet The 31 Scripps Internet sites recorded approximately 545 million page views during the third quarter compared to 361 million in the same period last year, an increase of 51 percent. Broken down by category, third quarter page views were: -- Local portals (newspapers and television stations), 141 million, up 53 percent. There was a significant spike in traffic at the company's Internet news sites immediately following the Sept. 11 terrorist attacks, particularly those operated by the broadcast television stations.-- Scripps Networks (hgtv.com, foodtv.com, diynet.com), 254 million, up 79 percent. -- United Media (comics.com), 150 million, up 18 percent.Year-to-date results (excluding divested operations and unusual items)Consolidated operating income declined 15 percent to $211 million.Earnings per share from core operations decreased 15 percent to $1.29. Guidance Scripps is currently estimating that fourth quarter earnings per share from core operations will be in the 55- to 65-cent range vs. 69 cents in 2000. The company anticipates that fourth quarter earnings will be held back by a general weakness in advertising affecting all of its business, but particularly as it pertains to its broadcast television stations which generated $21 million in political advertising during last yearЎ¦s fourth quarter.The estimate includes projected start-up losses for DIY and Fine Living of 5 cents per share in the fourth quarter and 18 cents for the full year (vs. 9 cents in 2000).The senior management team at Scripps will discuss the company's third 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 'investor relations' then follow the 'live Web cast' 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 800-230-1074 approximately 10 minutes prior to the start of the call. Callers will need the name of the call (third 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. EDT today until 11:59 p.m. EDT on Monday, Oct. 15. 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 605654. 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 company's businesses that are based on management'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 company's written policy on forward-looking statements can be found on page F-5 of its 2000 SEC Form 10K and page F-16 of its Form 10Q for the period ended June 30, 2001.The E.W. Scripps Company is a diverse media concern with interests in newspaper publishing, broadcast television, national 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 early 2002.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) 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. 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. Net investment results decreased net income in the third quarter of 2001 by $6.9 million ($.09 per share) and increased net income in the third quarter of 2000 by $0.8 million ($.01 per share). Included in third quarter 2001 net investment results are i) $12.4 million in write-downs for several investments andii) a $3.1 million decrease in accrued incentive compensation, to zero at September 30, 2001. Included in investment results in the third quarter of 2000 are i) realized gains of $7.5 million on the sale of certain investments, ii) $4.5 million in write-downs for several investments, and iii) a $2.4 million increase in accrued incentive compensation. In the first nine months net investment results increased net income $33.5 million ($.42 per share) in 2001 and reduced net income $6.1 million ($.08 per share) in 2000. Included in 2001 net investment results are i) realized investment gains totaling $77.8 million, ii) $35 million in write-downs for several investments, and iii) an $11.5 million reduction in accrued incentive compensation. Included in 2000 net investment results are i) realized investment gains of $12.4 million, ii) $15.4 million in write-downs for several investments, and iii) a $6.2 million increase in accrued incentive compensation.(c) Costs associated with workforce reductions reduced operating cash flow $1.5 million in the third quarter and $12.3 million year-to-date. Net income was reduced $0.9 million ($.01 per share) in the third quarter and $8.0 million ($.10 per share) year-to-date.(d) The application for a 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. Department of Justice in January 2001. The JOA commenced operations on January 22, 2001. Included in 2001 RMN revenue is the Company's 50% share of the operating profit (loss) of the Denver JOA from January 22, 2001. The Company also includes in its operating expenses its editorial costs associated with the RMN. The Company’s financial statements no longer include the advertising and other revenue produced by the RMN, the costs to produce, distribute and market the newspaper, nor related depreciation. To enhance comparability of year-over-year operating results, the Company is reporting the RMN separately. Reported results for the RMN in 2001 include the Company’s share of the operating profit (loss) of the Denver JOA and the related editorial expenses subsequent to January 22, 2001. For periods prior to the commencement of JOA operations, reported results for the RMN include the advertising and other revenue produced by the newspaper, and all editorial and other costs associated with the production, distribution, and marketing of the newspaper. Expenses associated with preparations for the joint newspaper operations in Denver totaled $2.4 million in the third quarter of 2000, reducing net income $1.6 million ($.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) Operating income by segment is as follows:(f) Operating results for the Company’s Scripps Networks, excluding unusual items, were as follows:

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