Scripps operating cash flow up 42 percent

Thu, January 23, 2003 by Tim Stautberg

CINCINNATI - The E. W. Scripps Company’s fourth quarter operating cash flow (EBITDA) from core operations increased 42 percent to $150 million compared to $105 million during the fourth quarter of 2001. Operating cash flow for the fourth quarter of 2001 excludes a $3.4 million charge for employee workforce reductions.The improved results reflect exceptionally strong growth at the company’s flagship national programming services (Home & Garden Television and the Food Network); strong political advertising at the company’s nine network-affiliated broadcast television stations; and modestly improved advertising revenues at the company’s 21 daily newspapers.Fourth quarter operating cash flow includes $1.7 million in cash operating losses during November and December at Shop At Home Network, the company’s newest subsidiary, which was acquired on Oct. 31. Excluding unusual items, income per share from core operations was 90 cents compared to an adjusted 61 cents, up 48 percent from the year-ago quarter. Previously reported fourth quarter 2001 income per share of 52 cents from core operations included a charge for amortization of goodwill and other intangible assets that are no longer amortized under accounting rules adopted Jan. 1, 2002.Fourth quarter 2002 consolidated net income, including unusual items, was $75.8 million, or 94 cents per share, compared to $9.5 million, or 12 cents per share in the year earlier period. Unusual items during the fourth quarter 2002 increased net income by about $3.2 million. The unusual items include an after-tax gain of $2.4 million from the sale of property in Denver.A number of unusual items reported by the company during the fourth quarter 2001 also contributed to the favorable year-over-year comparison. The write down of certain impaired investments, the charge for amortization of goodwill and other intangible assets that are no longer amortized under accounting rules adopted Jan. 1, 2002 and a charge for employee workforce reductions reduced net income by about $39 million in the fourth quarter of 2001. Scripps Networks, the company’s fastest growing division, posted a 41 percent increase in revenues to $119 million for the quarter just ended. Operating cash flow at Scripps Networks increased to $41.9 million compared to $15.5 million in the fourth quarter of 2001. Scripps Networks includes the company’s portfolio of national television programming services – Home & Garden Television, Food Network, DIY – Do It Yourself Network and Fine Living.Operating cash flow from the company’s broadcast television station group was up 42 percent to $36.7 million on a 19 percent increase in revenues. The increase in fourth-quarter broadcast television revenues included $17.3 million in political advertising compared to $1.4 million in the same period a year ago. The company’s newspaper group reported fourth quarter operating cash flow of $75.2 million, up 15 percent year over year. Revenues for the period were up 6.3 percent to $202 million. Improved newspaper division results include a $6.5 million increase in the company’s share of profits from the Denver Newspaper Agency. The company has a 50 percent share of the profits generated by the agency, which publishes the Scripps-owned Rocky Mountain News and The Denver Post, which is owned by MediaNews Group. The fourth-quarter newspaper results also reflect continuing improvement in classified, national and preprint advertising sales. The company’s fourth quarter 2002 consolidated revenues increased 28 percent to$478 million, including $42.3 million in revenues from Shop At Home Network in November and December, the two months of the year that the business was controlled by Scripps. Excluding Shop At Home, fourth-quarter revenues were up 17 percent, year over year.“Scripps had an exceptional fourth quarter thanks to extraordinary growth at Home & Garden Television and Food Network, a healthy boost from political advertising at our local TV stations and industry-leading performance by our daily newspapers,” said Kenneth W. Lowe, president and chief executive officer for Scripps. “The company’s strong performance in a challenging environment, we believe, affirms our strategy to build value over the long term by rationally investing in our growth businesses while at the same time maintaining financial discipline.” “HGTV and Food Network benefited during the quarter from their growing popularity and the improved advertising environment,” Lowe said. “Both networks posted some of their best ratings and viewership numbers ever, which has given them considerable leverage in the strengthening scatter advertising market. Our top priority continues to be expansion of Scripps Networks, which includes investing to build the HGTV and Food brands and gaining distribution for DIY and Fine Living.”“In addition to growth at Scripps Networks, the company’s consolidated fourth quarter results benefited from record political advertising revenues at our local broadcast television stations,” Lowe said. “Political advertising revenues for the quarter – and the full year – topped previous highs for a non-presidential election year. Also, stronger local advertising sales at nearly all of our TV stations in the weeks following the election contributed to the division’s improved performance.”“At our newspapers, the turnaround we engineered in Denver with the creation of a joint operating agreement two years ago continues to contribute to our improved results. We also saw some improvement in classified advertising, including help wanted, in many of our local markets. Overall, our newspaper group continues to out-perform the industry largely because of its concentration in small- to mid-size markets and because of a number of revenue enhancing initiatives we’ve implemented.” Guidance Based on advance advertising sales, the company currently anticipates first quarter 2003 advertising revenue for Scripps Networks will be up about 30 percent year over year. Affiliate fee revenue for Scripps Networks is expected to increase about 20 percent during the first quarter, net of distribution fee amortization. Operating cash flow losses related to the development of DIY and Fine Living are expected to be about $11 million, or 8 cents per share. Based on a stronger than expected scatter advertising market in the first quarter, the company now projects Scripps Networks advertising sales will increase 20 percent for the full-year 2003. The company previously had projected a 15 percent increase in Scripps Networks advertising sales for the full year. Newspaper advertising revenues are expected to be up 2 to 4 percent over the prior year in the first quarter.At the company’s broadcast television stations, advertising revenues are expected to be up 7 to 10 percent in the first quarter. Shop At Home Network is expected to have a first quarter pre-tax operating loss of $4 million to $5 million, resulting in a loss of about 4 cents per share.First quarter income per share from core operations is expected to be between 60 and 70 cents compared to 56 cents per share in the first quarter of 2002. Other financial projections for the full year follow: Capital expenditures, $100 million, up 13 percent. The company expects capital spending to increase because of its decision to begin construction of a newspaper plant on the Treasure Coast of Florida and a new production facility for its television station in Cincinnati. Depreciation and amortization, $71 million, up 15 percent. Interest expense, $34 million, up 20 percent due to higher effective interest rates. Tax rate, 40 percent. Following are fourth quarter operating results by business segment: Newspapers (Excluding unusual items in 2001) Total newspaper operating cash flow increased 15 percent to $75.2 million. Newspaper advertising revenue during the fourth quarter was $142 million, up 4.5 percent from the same period a year ago. Newspaper advertising revenues broken down by category were:  Local retail, down 1.9 percent to $50.3 million. Classified, up 5.9 percent to $50.9 million. National, up 8.5 percent to $9.8 million. Preprint and other, up 13 percent to $30.8 million. Circulation revenues were $34.8 million, down 0.8 percent from the same period a year ago. Newsprint costs decreased 8.3 percent over the prior year on a 12 percent decrease in newsprint prices. Operating income from the Rocky Mountain News in Denver was $5.4 vs. a loss of $1.3 million in the same quarter a year ago. Scripps Networks Scripps Networks operating cash flow increased to $41.9 million from $15.5 million. Scripps Networks advertising revenue increased 47 percent to $97.5 million and affiliate fee revenue was up 21 percent to $19.3 million. Home & Garden Television produced operating cash flow of $33.1 million, up from $17.6 million in the year-ago period. HGTV revenues grew 28 percent to $67.5 million. Home & Garden Television reaches 80.4 million domestic subscribers, an increase of 4 million in the past 12 months. The Food Network had revenues of $46.9 million, up 55 percent. Food Network operating cash flow was $18.7 million up from $5.5 million in the fourth quarter last year. Food Network reaches 78.2 million domestic subscribers, up 7 million in the past 12 months. Cash operating losses for DIY and Fine Living reduced Scripps Networks operating cash flow by $9.3 million during the fourth quarter vs. $6.0 million in the year-ago period. Both DIY and Fine Living can be seen in about 13 million homes. Broadcast Television Broadcast television revenues increased 19 percent to $91.2 million and operating cash flow increased 42 percent to $36.7 million. Political advertising revenues were $17.3 million vs. $1.4 million in the year-ago period. Strong political advertising at all of the company’s television stations displaced other local and national advertising during the quarter. Excluding political, broadcast television advertising revenues broken down by category were:  Local, up 0.5 percent to $45.1 million. National, down 6.2 percent to $25.0 million. Licensing and Other Media Revenues increased 9.6 percent to $23.9 million due primarily to stronger domestic and international licensing revenues from PEANUTS. Operating cash flow was up 8.6 percent to $4.0 million. Shop At Home Revenues at Shop At Home Network were $42.3 million for the two months (November and December) that Scripps controlled the network during the quarter. Cash operating losses for the two months were $1.7 million, resulting in a loss of 2 cents per share. On a pro forma basis (as if the company had owned the business for the full quarter in 2001 and 2002), revenues at Shop At Home increased 14 percent to $56.3 million in the fourth quarter. Full-year results (Excluding unusual items in 2001, where applicable) Operating cash flow from core operations was up 24 percent to $481 million. Income per share from core operations was $2.87 vs. an adjusted $2.16 in 2001. Previously reported full-year earnings per share for 2001 from core operations of $1.80 included charges for amortization of goodwill and other intangible assets that are no longer amortized under accounting rules adopted Jan. 1, 2002. Net income was $188 million, or $2.34 per share, vs. $138 million, or $1.73 per share. Following are full-year results by operating group:  Newspapers: Total revenues increased 2.3 percent to $756 million. Operating cash flow increased 14 percent to $270 million. Operating income at the Rocky Mountain news was $8.9 million compared to a $14.4 million loss in 2001.  Broadcast television: Revenues increased 9.9 percent to $305 million. Operating cash flow increased 23 percent to $98.1 million. Political advertising revenues for the year were $23.7 million compared to $2.4 million in 2001. Scripps Networks: Home & Garden Television revenues increased 15 percent to $246 million; operating cash flow increased 35 percent to $111 million. Food Network revenues increased 34 percent to $158 million; operating cash flow was $52.6 million compared to $16.2 million in 2001. Start-up losses to establish the DIY and Fine Living brands were $38.0 million compared to $22.1 million in 2001. Shop At Home Network: On a pro forma basis (as if the company had owned the business for the full year in 2001 and 2002), revenues increased 16 percent to $213 million.  Licensing and other media: Total revenues were up 1.7 percent to $90.3 million; operating cash flow increased 16 percent to $17.3 million.Conference callThe senior management team at Scripps will discuss the company’s fourth quarter results during a telephone conference call at 11 a.m. EST 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 Windows Media Player 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 888-428-4479 approximately 10 minutes prior to the start of the call. Callers will need the name of the call (fourth quarter earnings report) to be granted access. Callers also will be asked to provide their name and company affiliation. An instant replay line will be open from 2:30 p.m. EST on January 23 until 11:59 p.m. EST on Sunday, January 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 670042. 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.Forward looking statementsThis 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 2001 SEC Form 10K and page F-18 of its most recent Form 10Q.About ScrippsCelebrating its 125th anniversary, The E.W. Scripps Company is a diverse media concern with interests in newspaper publishing, broadcast television, national television networks, interactive media and television-retailing. Scripps operates 21 daily newspapers, 10 broadcast TV stations, four cable and satellite television programming services and a home shopping network. All of the company’s media businesses provide content and advertising services via the Internet.Scripps Networks brands include Home & Garden Television, Food Network, DIY -- Do It Yourself Network and Fine Living. Home & Garden and Food Network each can be seen in about 80 million U.S. television households. Scripps Networks is home to three of the Internet’s most popular Web sites – foodtv.com, hgtv.com and diynet.com. Scripps Networks programming can be seen in 25 countries. The company’s home shopping subsidiary, Shop At Home Network, markets a growing range of consumer goods directly to television viewers and visitors to the Shop At Home Web site, shopathometv.com. Shop At Home reaches about 46 million full-time equivalent U.S. households.Scripps also operates Scripps Howard News Service and United Media, which is the worldwide licensing and syndication home of PEANUTS and DILBERT.Income from core operations represents net income as defined under generally accepted accounting principles (“GAAP”) excluding certain unusual items. These items are excluded because management believes the items are unlikely to recur or they otherwise impede analysis of the Company’s on-going operations. In the periods presented, the following items were excluded from income from core operations:(a) Employee work force reduction2001 - Costs associated with workforce reductions, including the Company’s share of such costs at the Denver JOA, reduced operating income $3.4 million, $2.1 million after tax, ($.03 per share) in the fourth quarter and $16.1 million, $10.1 million after tax, ($.13 per share) year-to-date. (b) Amortization of goodwill and intangible assets with indefinite livesEffective January 1, 2002, the Company adopted Financial Accounting Standard (“FAS”) No. 142 – Goodwill and Other Intangible Assets. Recorded goodwill and intangible assets with indefinite lives are no longer amortized, but instead are tested for impairment annually. The Company has determined that there was no impairment of goodwill or other intangible assets on the date of adoption of FAS No. 142.2001 - Amortization of goodwill and intangible assets with indefinite lives, primarily FCC licenses and broadcast television network affiliation agreements, was $9.6 million, $7.1 million after tax, ($.09 per share) in the fourth quarter and $38.1 million, $28.1 million after tax, ($.35 per share) year-to-date. (c) Net investment results2002 - Net investment losses were $1.7 million, $1.0 million after tax ($.01 per share) in the fourth quarter, and $85.7 million, $55.6 million after tax ($.69 per share) year-to-date. Fourth quarter net investment results include $1.5 million in write-downs of investments. Year-to-date investment results include $3.6 million of costs associated with winding down the Scripps Ventures I and II investment funds and $80.1 million of investment write-downs. Investment write-downs include $35.1 million due to the decline in value of the Company’s investment in America Online ("AOL") and $23.0 million due to the decline in value of the Scripps Ventures investment portfolios. 2001 - Net investment losses were $45.8 million, $29.8 million after tax ($.37 per share) in the fourth quarter. For the year-to-date period net investment gains were $5.1 million, $3.8 million after tax ($.05 per share). Fourth quarter net investment results included $44.7 million in write-downs of several investments, including a $29.0 million write-down of the Company's investment in AOL. There was no change in accrued incentive compensation, which was zero at December 31, 2001. Year-to-date realized gains totaled $77.3 million, including $65.9 million on the exchange of the Company’s investment in Time Warner for AOL, which acquired Time Warner in January 2001, and an $11.7 million gain on the sale of a portion of the Company’s investment in Centra Software. Write-downs totaled $80.2 million in the year-to-date period, while accrued incentive compensation decreased $11.5 million, to zero.(d) Gain on sale of real estate2002 - A $3.9 million gain on the sale of real estate at the Denver JOA increased net income in the fourth quarter by $2.4 million ($.03 per share). (e) Prior year tax liability adjustment2002 – In the fourth quarter of 2002 the Company reduced its estimated tax liability for prior years and increased the amount it expects to realize from foreign tax credit carryforwards. The changes in estimates increased net income $1.8 million ($.02 per share).In the second quarter the Company changed its estimated tax liability for prior years reducing the tax provision by $8.0 million upon reaching agreement with the Internal Revenue Service (“IRS”) to settle the audit of its 1992 through 1995 consolidated federal income tax returns. Net income was increased $8.0 million ($.10 per share). (f) Income taxesTax effect of non-core credits (charges) as described in notes (a) through (d).Reconciliation of amounts reported as income from core operations to comparable GAAP amounts is as follows: Management uses earnings before interest, income taxes, depreciation and amortization (“EBITDA”) along with operating income and other GAAP measures to evaluate the performance of the Company’s operating segments. Management uses EBITDA to evaluate the performance of the Company’s operating segments because:EBITDA, combined with information on historical and planned capital spending, is a useful and reliable measure of year-over-year operating performance.Banks and other lenders use EBITDA and other cash flow measures to evaluate the Company’s ability to meet its debt service requirements and its other obligations.Financial analysts and investors use EBITDA, combined with capital spending requirements, to estimate the value of communications media companies.Income from core operations and EBITDA should not be construed as alternative measures of, but as supplemental information to, the Company’s net income and cash flow from operating activities as defined under GAAP. 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. Core operating income by segment was as follows:Operating results for Scripps Networks, excluding unusual items, were as follows:

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