ITEM 1. BUSINESS
The Company is a diversified media company operating principally in three segments: publishing, broadcasting, and cable television. In 1993 the Company announced plans to introduce the Home & Garden Television Network, a 24-hour cable channel, and established a new business, Scripps Howard Productions, to develop news and entertainment programming for domestic and international distribution. In February 1994 the Company acquired Cinetel Productions, one of the largest independent producers of cable television programming. See "Business - New Businesses."
A summary of segment information for the three years ended December 31, 1993 is set forth on page of this Form 10-K.
Publishing
General - The Company publishes 19 metropolitan and suburban daily newspapers. From its Washington bureau the Company operates the Scripps Howard News Service ("SHNS"), a supplemental wire service covering stories in the capital, other parts of the United States, and abroad. While the revenue for this service is not significant, management believes the Company's image is enhanced by the wide distribution of SHNS. In addition to its newspaper operations, the Company, under the trade name United Media, is a leading distributor of news columns, comics, and other features for the newspaper industry. United Media owns and licenses worldwide copyrights relating to "Peanuts" and "Garfield," and other character properties for use on numerous products, including plush toys, greeting cards, and apparel, and for exhibit on television, video cassettes, and other media.
The Company acquired or divested the following publishing operations in the three years ended December 31, 1993:
1993 - The Company acquired the remaining 2.7% minority interest in the Knoxville News-Sentinel. The Company divested its book publishing operations and its newspapers in Tulare, California, and San Juan.
1992 - The Company purchased three daily newspapers in California (including The Monterey County Herald in connection with the sale of The Pittsburgh Press). The Company sold The Pittsburgh Press and its television listings business.
Revenues - The composition of the Company's publishing operating revenues for the most recent five years is as follows:
Substantially all of the Company's newspaper publishing operating revenues are derived from advertising and circulation. Advertising rates and revenues vary among the Company's newspapers depending on circulation demographics, type of advertising, local market conditions, and competition. Advertising revenues are derived from "run-of-paper" advertisements included in each copy of a newspaper's editions, from "zoned" editions which feature sections with stories and advertisements intended for limited areas of distribution, from "preprinted" advertisements that are inserted into newspapers, and from "shoppers" which have little or no news content and contain primarily advertising run in the regular edition of the newspaper. Run-of-paper advertisements are generally more profitable to the Company than other advertisements.
Advertising revenues vary through the year, with the first and third quarters generally having lower revenues than the second and fourth quarters. Advertising rates and volume are highest on Sundays, primarily because circulation and readership is greater on Sundays.
Circulation revenues are derived from home delivery sales of newspapers to subscribers and from single-copy sales made through retail outlets and vending machines serviced by delivery and collection agents. Circulation information for the Company's newspapers is as follows:
Joint operating agency distributions represent the Company's share of profits of newspapers managed by the other party to a joint operating agency (see "Joint Operating Agencies"). Other newspaper operating revenues include commercial printing.
Under the trade names United Feature Syndicate and Newspaper Enterprise Association, the Company sells news columns, comic strips, crossword puzzles, editorial cartoons, and miscellaneous features and games to newspapers and other organizations throughout the world. Included among these features are "Peanuts" and "Garfield," two of the most successful strips in the history of comic art. These syndication revenues are included in miscellaneous revenues. Licensing revenues are derived from royalties on the sale of merchandise such as plush toys, greeting cards, and apparel. Such royalties are generally a negotiated percentage of the licensee's sales. More than half of the licensing revenues are from markets outside the United States. The Company generally pays a percentage of gross syndication and licensing royalties to the creators of these properties.
Joint Operating Agencies - The Company is currently a party to newspaper joint operating agencies ("JOAs") in five markets. JOAs combine all but the editorial operations of two competing newspapers in a market in order to reduce aggregate expenses and take advantage of economies of scale, thereby allowing the continuing operation of both newspapers in that market. The Newspaper Preservation Act of 1970 ("NPA") provides a limited exemption from anti-trust laws, generally permitting the continuance of JOAs in existence prior to the enactment of the NPA and the formation, under certain circumstances, of new JOAs between newspapers. Except for the Company's JOA in Cincinnati, all of the Company's JOAs were entered into prior to the enactment of the NPA. From time to time the legality of pre-NPA JOAs has been challenged on anti-trust grounds but no such challenge has yet succeeded in the courts.
JOA revenues less JOA expenses, as defined in each JOA, equals JOA profits, which are split between the parties to the JOA. In each case JOA expenses exclude editorial expenses. The Company manages the JOA in Evansville and receives approximately 80% of JOA profits. Each of the other four JOAs are managed by the other party to the JOA. The Company receives approximately 20% to 40% of JOA profits for those JOAs.
The table below provides certain information about the Company's JOAs.
The JOAs generally provide for automatic renewal terms of ten years unless an advance notice of termination ranging from two to five years is given by either party. The Company has notified Hartmann Publications of its intent to terminate the Evansville JOA.
Competition - Competition occurs primarily in local markets, however certain newspapers, such as The New York Times and The Wall Street Journal, are sold in all of the Company's markets. The Company's newspapers compete for advertising revenues in varying degrees with other types of publications, such as magazines, and with other media such as television, radio, cable television, and direct mail. Competition for advertising revenues is based upon circulation levels, readership demographics, price, and effectiveness. The Company's newspapers compete for readership with other publications and compete for readers' discretionary time with other information and entertainment media.
All of the Company's newspaper markets are highly competitive, particularly Denver, which is the largest market in which the Company operates a newspaper.
Newspaper Production - The Company's daily newspapers are printed using letterpress, offset, or flexographic presses and use computer systems for writing, editing, and composing and producing the printing plates used in each edition.
Raw Materials and Labor Costs - The Company consumed approximately 188,000 metric tonnes of newsprint in 1993. The Company purchases newsprint from various suppliers, many of which are Canadian. Management believes that the Company's sources of supply of newsprint are adequate for its anticipated needs. Newsprint costs accounted for approximately 17% of the Company's newspaper operating expenses in 1993.
Labor costs accounted for approximately 47% of the Company's newspaper operating expenses in 1993. A substantial number of the Company's newspaper employees are represented by labor unions. See "Employees."
Broadcasting
General - The Company's broadcasting operations are owned by Scripps Howard Broadcasting Company ("SHB"), an Ohio corporation. The Company, through Scripps Howard, Inc. (its wholly-owned subsidiary), owns 86.1% of the outstanding shares of SHB Common stock. The remainder of the shares trade in the over-the-counter market under the NASDAQ symbol "SCRP." On February 17, 1994 the Company announced it had offered to acquire the 13.9% of SHB that it does not already own. See Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations - Proposed Merger."
The Company's broadcast operations consist of six network-affiliated VHF television stations and three Fox-affiliated UHF television stations. The Company acquired or divested the following broadcast operations in the three years ended December 31, 1993:
1993 - The Company purchased 589,000 shares of SHB Common stock, increasing the Company's ownership from 80.4% to 86.1%, and sold its radio stations and its Memphis television station.
1991 - The Company purchased its Baltimore television station.
Revenues - The composition of the Company's broadcasting operating revenues for the most recent five years is as follows:
Substantially all of the Company's broadcasting operating revenues are derived from advertising. Local advertising consists of short announcements and sponsored programs on behalf of advertisers in the area served by the station. National advertising consists of short announcements and sponsored programs on behalf of regional and national advertisers.
The first and third quarters of each year generally have lower advertising revenues than the second and fourth quarters, due in part to higher retail advertising during the holiday seasons and political advertising in election years. Advertising rates charged by the stations are based primarily upon the population of the market, the number of stations competing in the market, as well as the station's ability to attract audiences.
Information concerning the Company's stations and the markets in which they operate is as follows:
Competition - Competition occurs primarily in local markets. The Company's television stations compete for advertising revenues with other television stations and other providers of video entertainment in their market, and in varying degrees with other media, such as newspapers and magazines, radio, and direct mail. Competition for advertising revenues is based upon audience levels, demographics, price, and effectiveness. The Company's television stations compete for viewers' time with other information and entertainment media. All of the Company's television markets are highly competitive.
Network Affiliation and Programming - The Company's television stations are affiliated with national television networks under standard two-year affiliation agreements. These agreements are customarily renewed for successive two-year terms. The networks offer a variety of programs to affiliated stations, which have the right of first refusal before such programming may be offered to other television stations in the same market. Pursuant to the affiliation agreements, compensation is paid to the affiliated station for carrying network programming. The network has the right to decrease the amount of such compensation during the terms of the affiliation agreements but, upon any such decrease, an affected station has the right to terminate the agreement.
The ranking of a station in its local market is affected by fluctuations in the national ranking of the affiliated network. Management believes such fluctuations are normal and has not sought to change the Company's network affiliations because of declines in national rankings of the affiliated networks.
In addition to network programs, the Company's television stations broadcast locally produced programs, syndicated programs, sports events, movies, and public service programs. Local news is the focus of the Company's network-affiliated stations' locally produced programming and is an integral factor in developing the station's ties to its community and viewer loyalty. Advertising relating to local news and information programs generally represent more than 30% of a station's revenues. The Company's Kansas City Fox-affiliated station began broadcasting local news in 1993 and the Company expects to add local news programming at its Phoenix and Tampa stations.
Federal Regulation of Broadcasting - Television broadcasting is subject to the jurisdiction of the Federal Communications Commission ("FCC") pursuant to the Communications Act of 1934, as amended ("Communications Act"). The Communications Act prohibits the operation of television broadcasting stations except in accordance with a license issued by the FCC and empowers the FCC to revoke, modify, and renew broadcasting licenses, approve the transfer of control of any corporation holding such licenses, determine the location of stations, regulate the equipment used by stations, and adopt and enforce necessary regulations.
Television broadcast licenses are granted for a maximum of five years, and are renewable upon application. Application for renewal of the license for the Company's Phoenix station was filed in 1993 and is still pending. While there can be no assurances the Company's existing licenses will be renewed, the Company has never been denied a renewal and all previous renewals have been for the maximum term. The Company's application for renewal of the FCC license for its Baltimore station has been challenged by a competing applicant. The FCC is required to hold a hearing to assess which applicant's proposal would better serve the public interest. That hearing is proceeding on qualifications issues added by the presiding judge against both applicants, but the FCC has "frozen" its consideration of the comparative issues in light of an appeals court decision invalidating one of the principal criteria the FCC had used in assessing new applicants' qualifications. Revising the process so as to permit continuation of the comparative hearing may take an extended period of time, but the Company will continue to operate the station while its renewal of license application is pending. Management believes that granting of the Company's renewal would best serve the public interest and thus expects the renewal application to be granted.
FCC regulations govern the multiple ownership of television stations and other media. Under the multiple ownership rule, a license for a television station will generally not be granted or renewed if (i) the applicant already owns, operates, or controls a television station serving substantially the same area, or (ii) the grant of the license would result in the applicant's owning, operating, or controlling, or having an interest in, more than twelve television stations or in television stations whose total national audience reach exceeds 25% of all television households. FCC rules also generally prohibit "cross-ownership" of a television station and daily newspaper or cable television system in the same service area. The Company's television station and daily newspaper in Cincinnati were owned by the Company at the time the cross-ownership rules were enacted and enjoy "grandfathered" status. These properties would become subject to the cross-ownership rules upon their sale.
Under the Cable Television Consumer Protection and Competition Act of 1992 ("1992 Act"), each television broadcast station gained "must-carry" rights on any cable system defined as "local" with respect to that station. Stations may waive their must-carry rights and instead negotiate retransmission consent agreements with local cable companies. The Company's stations have generally elected to negotiate retransmission consent agreements with cable companies.
Management believes the Company is in substantial compliance with all applicable regulatory requirements.
Cable Television
General - The Company's cable television systems in Lake County, Florida; Sacramento, California; and the Longmont, Colorado cluster are owned by SHB. Other wholly-owned subsidiaries of the Company operate cable television systems in Florida, Georgia, Indiana, Kentucky, South Carolina, Tennessee, Virginia, and West Virginia. In the three years ended December 31, 1993 the Company purchased several cable television systems adjacent to existing service areas.
Revenues - The composition of the Company's cable television operating revenues for the most recent five years is as follows:
Substantially all of the Company's cable television operating revenues are derived from services provided to subscribers of the Company's systems. Subscriber information as of December 31 for the Company's cable television systems is as follows:
The Company's cable television systems carry a wide variety of entertainment and information services. Basic cable generally consists of video programming broadcast by local television stations, locally produced programming, and distant broadcast television signals. Advertiser- supported video programming such as ESPN and CNN and other entertainment and information services are included in various "enhanced basic" service packages. Premium programming consists of non-advertiser supported entertainment services such as Home Box Office and Showtime. Certain of the Company's systems are equipped with addressable decoding converters which enable the Company to offer interactive services, such as pay-per- view programming, and to change customer services without visiting the customer's home. Other monthly services includes revenues from services such as remote control and converter rental and audio programming.
Competition - Competition occurs primarily in local markets. The Company's cable television systems compete for subscribers with other cable television systems in certain of its franchise areas. All of the Company's cable television systems compete for subscribers with other methods of delivering entertainment and information programming to the subscriber's home, such as broadcast television, multi-point distribution systems, master and satellite antenna systems, television receive-only satellite dishes, and home systems such as video cassette and laser disc players. In the future the Company's cable television systems may compete with new technologies such as more advanced "wireless cable systems" and broadcast satellite delivery services, as well as "video dial tone" services whereby the local telephone company leases video distribution lines to programmers on a common carrier basis. Management believes additional technologies for delivering entertainment and information programming to the home will continue to be developed, and that some of those competitive services will be capable of offering interactive services.
Programming - The Company purchases programming from a variety of suppliers, the charge for which is generally based upon the number of subscribers receiving the service. Programming expenses as a percentage of basic and premium programming service revenues have risen in recent years, primarily due to additional and improved services provided to basic subscribers and to discounts offered to subscribers receiving multiple premium channels. See Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Under the Copyright Act of 1976 cable television system operators are granted compulsory licenses permitting the carriage of the copyrighted works of local and distant broadcast signals for a statutory fee. The Copyright Royalty Tribunal is empowered to review and adjust such fees. FCC rules on syndicated exclusivity provide that if a local broadcast licensee has purchased the exclusive local distribution rights for a particular syndicated program, such licensee is generally entitled to insist that a local cable television system operator delete that program from any distant television signal carried by the cable television system.
Regulation and Legislation - Cable television systems are regulated by federal, local, and in some instances, state authorities. Certain powers of regulatory agencies and officials, as well as various rights and obligations of cable television operators, are specified under the Cable Communications Policy Act of 1984 ("1984 Act") and the 1992 Act.
Pursuant to the 1984 Act, local franchising authorities are given the right to award and renew one or more franchises for the community over which they have jurisdiction, the fees for which are prohibited from exceeding 5% of a cable television system's gross annual revenues.
The 1992 Act, among other things: (i) reimposes rate regulations on most cable television systems; (ii) reimposes "must carry" rules with respect to local broadcast television signals (see "Federal Regulation of Broadcasting"); (iii) grants all broadcasters the option to refuse carriage of their signals; (iv) requires that vertically integrated cable television companies not unreasonably refuse to deal with any multichannel programming distributor or discriminate in the price, terms, and conditions of carriage of programming between cable television operators and other multichannel programming distributors if the effect would be to impede retail competition; and (v) establishes cross-ownership rules with respect to cable television systems and direct broadcast satellite systems, multi- channel multipoint distribution systems, and satellite master antenna systems.
In April 1993 the FCC issued rules that established allowable rates for cable television services (other than programming offered on a per-channel or per-program basis) and for cable equipment based on benchmarks established by the FCC. The rules require rates for equipment to be cost- based, and require reasonable rates for regulated cable television services based upon, at the election of the cable television system operator, application of the benchmarks established by the FCC or a cost-of-service showing based upon standards established by the FCC. The rules became effective in September 1993 and were recently revised to further reduce regulated rates. The revised rules are expected to become effective in May 1994.
Management believes the Company is in substantial compliance with all applicable regulatory requirements.
New Businesses
Entertainment - The Company plans to introduce the Home & Garden Television Network ("Home & Garden") in late 1994. This network will feature 24 hours of daily programming focused on home repair and remodeling, gardening, decorating, and home electronics. While most of the programming will be produced by the new network, local television stations affiliated with the network will have the opportunity for daily programming and advertised inserts. The subscriber base of the new network will be established through a collaboration of local television stations and cable television systems. Several cable television system operators, including Time Warner Cable and Continental Cablevision, the nation's second- and third-largest cable television system operators, have entered into agreements to carry the new network in exchange for permission to carry the signals of local television stations affiliated with the network. The Company is discussing carriage agreements with other cable television systems and intends to expand the network's affiliate group to include additional broadcast stations. The Company's cable television systems will carry the network and all of the Company's television stations (except the Fox-affiliated stations) are members of the network's affiliate group.
In February 1994 the Company announced that it had agreed to purchase Cinetel Productions in Knoxville, Tennessee. Cinetel is one of the largest independent producers of cable television programming. Cinetel's production facility will also be the primary production facility for Home & Garden.
In September 1993 the Company established Scripps Howard Productions to acquire, create, develop, produce, and own programming product for domestic and international television, including prime-time series for network and first-run syndication, movies, and miniseries for network, cable, and pay cable television broadcast, along with news, information, and entertainment services for the emerging multimedia marketplace.
Employees
As of December 31, 1993 the Company had approximately 7,600 full-time employees, of whom approximately 5,100 were engaged in publishing, 1,200 in broadcasting, and 1,200 in cable television. Various labor unions represent approximately 2,400 employees, primarily in the publishing segment. Collective bargaining agreements covering approximately 50% of union-represented employees are being negotiated currently or will be negotiated in 1994. Except for work stoppages at The Pittsburgh Press, which was sold in 1992, the Company has not experienced any work stoppages since March 1985. The Company considers its relationship with employees to be generally satisfactory.
ITEM 2.
ITEM 2. PROPERTIES
The properties used in the Company's publishing operations generally include business and editorial offices and printing plants. The Company has added or upgraded production facilities at three of its major daily newspapers in recent years, including a state-of-the-art production plant for the Denver Rocky Mountain News.
The Company's broadcasting operations require offices and studios and other real property for towers upon which broadcasting transmitters and antenna equipment are located. Ongoing advances in the technology for delivering video signals to the home, such as "high definition television" may, in the future, require a high level of expenditures by the Company for new equipment in order to maintain its competitive position of the Company's television stations.
The properties required to support the Company's cable television operations generally include offices and other real property for towers, antennas, and satellite earth stations. In recent years the Company has completed rebuilding the cable television distribution system for its Rome, Georgia, cable television system and the Company is currently upgrading the distribution systems for its Chattanooga, Knoxville, and Sacramento systems. Ongoing advances in the technology for delivering video signals to the home and emergence of the multimedia marketplace could require a high level of expenditures to further upgrade the Company's cable television distribution systems.
The Company's new entertainment operations will require offices and studios and other real and personal property to deliver programming product. The Company plans to expand the 60,000 square foot Cinetel production facility by approximately one-third to accommodate Home & Garden.
Management believes the Company's present facilities are generally well- maintained and are sufficient to serve its present needs.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
In September 1991 Four Jacks Broadcasting, Inc., a company whose principals own and operate an existing Baltimore television station, submitted to the FCC an application for a construction permit to build and operate a new television station on channel 2 in Baltimore. This application is mutually exclusive with the Company's application for renewal of its license for its Baltimore television station. See Item 1 "Business - Broadcasting - Federal Regulation of Broadcasting."
The Company is involved in other litigation arising in the ordinary course of business, such as defamation actions. In addition, the Company is involved from time to time in various governmental and administrative proceedings relating to, among other things, renewal of broadcast licenses, none of which is expected to result in material loss.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders for the quarter ended December 31, 1993.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Shares of the Company's Class A Common stock are traded on the New York Stock Exchange under the symbol "SSP." There are approximately 4,500 owners of the Company's Class A Common stock and 27 owners of the Company's Common Voting stock, which does not have a public market, based on security position listings.
The Company has declared cash dividends in every year since its incorporation in 1922. Future dividends are subject to the Company's earnings, financial condition, and capital requirements.
The range of market prices of the Company's Class A Common stock, which represents the high and low sales prices for each full quarterly period, and quarterly cash dividends are as follows:
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is filed as part of this Form 10- K. See Index to Consolidated Financial Statement Information at page F- 1 of this Form 10-K.
ITEM 7.
ITEM 7. 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- K. See Index to Consolidated Financial Statement Information at page F- 1 of this Form 10-K.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is filed as part of this Form 10- K. See Index to Consolidated Financial Statement Information at page F- 1 of this Form 10-K.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
Name Age Position Charles E. Scripps 74 Chairman of the Board of Directors ( since 1953)
Lawrence A. Leser 58 President, Chief Executive Officer and Director (since 1985)
William R. Burleigh 58 Executive Vice President and Director (since 1990); Vice President, Newspapers and Publishing (1986 to 1990)
Daniel J. Castellini 54 Senior Vice President, Finance and A dministration (since 1986)
F. Steven Crawford 45 Senior Vice President, Cable Televis ion (since September 1992); Vice President, Cable Television (1990 to September 1992); General Manager, TeleScripps Cable Company (1983 to 1990)
Paul F. Gardner 51 Vice President, Television (since Ap ril 1993); Senior Vice President, News Programming, Fox Broadcasting Company (1991 to 1993); Vice President and General Manager, WCPO Television, Cincinnati (1989 to 1991)
J. Robert Routt 40 Vice President and Controller (since 1985)
E. John Wolfzorn 48 Treasurer (since 1979)
M. Denise Kuprionis 37 Secretary (since 1987)
The executive officers of the Company serve at the pleasure of the Board of Directors.
The information required by Item 10 of Form 10-K relating to directors of the Company is incorporated herein by reference to the material captioned "Election of Directors" in the Company's definitive proxy statement for the Annual Meeting of Stockholders ("Proxy Statement"). The Proxy Statement will be filed with the Securities and Exchange Commission on or before April 11, 1994.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 of Form 10-K is incorporated herein by reference to the material captioned "Executive Compensation" in the Proxy Statement.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 of Form 10-K is incorporated herein by reference to the material captioned "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 of Form 10-K is incorporated herein by reference to the material captioned "Certain Transactions" in the Proxy Statement.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Financial Statements and Supplemental Schedules
(a) The consolidated financial statements of the Company are filed as part of this Form 10-K. See Index to Consolidated Financial Statement Information at page.
The report of Deloitte & Touche, Independent Auditors, dated January 26, 1994 is filed as part of this Form 10-K. See Index to Consolidated Financial Statement Information at page.
(b) The consolidated supplemental schedules of the Company are filed as part of this Form 10-K. See Index to Consolidated Financial Statement Schedules at page S-1.
Exhibits
The information required by this item appears at page E-1 of this Form 10- K.
Reports on Form 8-K
No reports on Form 8-K were filed for the quarter ended December 31, 1993.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934 the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereby duly authorized, on March 28, 1994.
THE E.W. SCRIPPS COMPANY
By /s/ Lawrence A. Leser Lawrence A. Leser President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities indicated, on March 28, 1994.
Signature Title
/s/ Lawrence A. Leser President, Chief Executive Officer and Director Lawrence A. Leser (Principal Executive Officer)
/s/ Daniel J. Castellini Senior Vice President, Finance and Administration Daniel J. Castellini (Principal Financial and Accounting Officer)
/s/ Charles E. Scripps Charles E. Scripps Chairman of the Board of Directors
/s/ William R. Burleigh William R. Burleigh Executive Vice President and Director
/s/ John H. Burlingame John H. Burlingame Director
/s/ Daniel J. Meyer Daniel J. Meyer Director
/s/ Nicholas B. Paumgarten Nicholas B. Paumgarten Director
/s/ Paul K. Scripps Paul K. Scripps Director
/s/ Robert P. Scripps Robert P. Scripps Director
/s/ David R. Huhn David R. Huhn Director
THE E.W. SCRIPPS COMPANY
Index to Consolidated Financial Statement Information
Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Independent Auditors' Report Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Cash Flows Consolidated Statements of Stockholders' Equity Notes to Consolidated Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Consolidated results of operations were as follows:
The following items affected the comparability of the Company's reported results of operations:
(i) The Company divested the following operations:
1993 - Book publishing; newspapers in Tulare, California, and San Juan; Memphis television station; radio stations.
1992 - The Pittsburgh Press; TV Data; certain other investments.
1991 - George R. Hall Company.
The businesses referred to above, and any related gains on the sales of the businesses, are hereinafter referred to as the "Divested Operations." See Note 3B to the Consolidated Financial Statements.
The following items related to Divested Operations affected the comparability of the Company's reported results of operations:
The Herald, a newspaper with a circulation of approximately 37,000 in Monterey, California, was acquired on December 31, 1992 in connection with the sale of The Pittsburgh Press.
(ii) In 1993 management changed the estimate of the additional amount of copyright fees the Company would owe when a dispute between the television industry and the American Society of Composers, Authors and Publishers was resolved ("ASCAP Adjustment"). The adjustment increased broadcasting operating income $4,300,000 and net income $2,300,000, $.03 per share. See Note 4 to the Consolidated Financial Statements.
(iii) In 1993 the Company's agreement to guarantee up to $53,000,000 of the Ogden, Utah, Standard Examiner's debt expired with a change in ownership of the Standard Examiner. The Company received a $2,500,000 fee in connection with the transaction ("Ogden Fee"). The fee increased net income $1,600,000, $.02 per share. See Note 4 to the Consolidated Financial Statements.
(iv) In 1993 the Company realized a gain on the sale of certain publishing equipment ("Gain on Sale"). The gain increased publishing operating income $1,100,000 and net income $700,000, $.01 per share. See Note 4 to the Consolidated Financial Statements.
(v) In 1993 the Company recorded a charge to restructure operations at the Denver Rocky Mountain News and United Media ("Restructuring Charge"). The charge included severance payments and a write-down of certain assets to estimated realizable value. The charge reduced publishing operating income $6,300,000 and net income $3,600,000, $.05 per share. See Note 4 to the Consolidated Financial Statements.
(vi) In August 1993 the federal income tax rate was increased to 35%, retroactive to January 1, 1993, and management changed its estimate of the tax basis and lives of certain assets ("Income Tax Changes"). The net effect was to increase net income $1,700,000, $.02 per share. See Note 5 to the Consolidated Financial Statements.
(vii) The Pittsburgh Press was not published after May 17, 1992 due to a strike ("Pittsburgh Strike"). Reported 1992 results include operating losses of $32,700,000 and net losses of $20,200,000, $.27 per share, during the strike period. See Note 4 to the Consolidated Financial Statements. The Company sold The Pittsburgh Press on December 31, 1992 (see (i) above).
(viii) In 1992 the Company adopted Financial Accounting Standard No. 106 - Employers' Accounting for Postretirement Benefits Other Than Pensions. The cumulative effect of the accounting change ("Cumulative Effect") decreased net income $22,413,000, $.30 per share, of which $18,000,000, $.24 per share, was associated with Divested Operations. See Note 2 to the Consolidated Financial Statements.
(ix) In 1992 the Company reduced the carrying value of certain property and investments to estimated realizable value ("Write-downs"). The resultant $3,500,000 charge reduced net income $2,300,000, $.03 per share. See Note 4 to the Consolidated Financial Statements.
(x) In 1991 the Company agreed to settle a lawsuit filed in 1988 by Pacific West Cable Company that alleged violations of antitrust and unfair trade practice laws ("Sacramento Settlement"). The resultant charge reduced cable television operating income by $12,000,000 and net income by $6,300,000, $.08 per share. See Note 4 to the Consolidated Financial Statements.
The items above are excluded from the consolidated and segment operating results presented in the following pages of this Management's Discussion and Analysis. Management believes they are not relevant to understanding the Company's ongoing operations.
Net income per share was as follows:
The Company's average debt balance in 1993 was $101,000,000 less than in 1992. The combined effects of reduced rates and lower average debt balances were in part offset by a decrease in capitalized interest in 1993. Interest expense decreased in 1992 as reduced rates and an increase in capitalized interest more than offset a $37,000,000 increase in average debt balances. Capitalized interest costs, which in 1992 and 1991 primarily related to the construction of the new production facility at the Denver Rocky Mountain News, were as follows:
Miscellaneous includes the net gains described in (i), the Ogden Fee described in (iii), and the Write-downs described in (ix) above.
In 1993 the Company purchased 589,000 shares of Scripps Howard Broadcasting Company common stock, increasing the Company's ownership from 80.4% to 86.1%. The Company also acquired the remaining 2.7% minority interest in the Knoxville News-Sentinel.
The effective income tax rate decreased in 1993 and 1992 because pre-tax income increased, thereby reducing the relative impact of non-deductible amortization of goodwill. The rate in 1993 was also affected by the Income Tax Changes. See Note 5 to the Consolidated Financial Statements. The effective income tax rate in 1994 is expected to be approximately 43%.
RESULTS OF OPERATIONS
CONSOLIDATED - Operating results, excluding the Divested Operations (including the Pittsburgh Strike), ASCAP Adjustment, Gain on Sale, Restructuring Charge, and Sacramento Settlement, were as follows:
SEGMENTS - Operating results, excluding the Divested Operations (including the Pittsburgh Strike), ASCAP Adjustment, Gain on Sale, Restructuring Charge, and Sacramento Settlement, for each of the Company's business segments are presented on the following pages.
Earnings before interest, income taxes, depreciation, and amortization ("EBITDA") is included in the discussion of segment results because: - Acquisitions of communications media businesses are based on multiples of EBITDA. - Financial analysts use EBITDA to value communications media companies. - Changes in depreciation and amortization are often unrelated to current performance. Management believes the year-over-year change in EBITDA is a more useful measure of year-over-year performance than the change in operating income because, combined with information on capital spending plans, it is a more reliable indicator of results that may be expected in future periods. - Banks and other lenders use EBITDA to determine the Company's borrowing capacity.
EBITDA should not, however, be construed as an alternative measure of the amount of the Company's income or cash flows from operating activities.
PUBLISHING - Operating results for the publishing segment, excluding the Divested Operations (including the Pittsburgh Strike), Gain on Sale, and Restructuring Charge, were as follows:
Publishing revenues in 1993 were boosted by the fourth quarter 1992 acquisition of three California daily newspapers. See Note 3A to the Consolidated Financial Statements.
Excluding the acquired newspapers, total advertising revenues increased 5.0% in 1993 and 3.0% in 1992. The strengthening demand for classified advertising that began in 1992 continued throughout 1993. Excluding the acquired newspapers, classified advertising revenues increased 11.2% and volume increased 5.7% in 1993.
Demand for local advertising remained sluggish in 1993, particularly in the Company's California markets, but began to improve in the fourth quarter of the year. Local advertising revenues increased 1.9% in the fourth quarter to finish the year up 0.3%, excluding the effects of the acquired newspapers.
Domestic licensing revenues decreased 0.8% and foreign licensing revenues decreased 5.3% in 1993, after decreasing 11% and 6.3% in 1992. In Japan, which accounts for approximately 60% of foreign licensing revenue and 37% of total licensing revenue, revenues in local currency decreased 12% in 1993 and 8.3% in 1992. The change in the exchange rate for the Japanese yen increased licensing revenues $2,700,000 in 1993 and $1,100,000 in 1992.
Operating expenses in 1993 were affected by the inclusion of the acquired newspapers for the full year. Excluding the acquired newspapers, employee compensation and benefits increased approximately 4% and other expenses increased approximately 10% in 1993. Other expenses increased primarily because of start-up costs associated with a new production facility and new editions at the Denver Rocky Mountain News.
Depreciation expense for 1992 and 1991 includes charges of $5,500,000 and $4,000,000, respectively, to reduce the book value of certain equipment to estimated net realizable value. Depreciation and amortization increased in 1993 because of the acquired newspapers and the new production facility in Denver.
Capital expenditures were unusually high in 1992 and in 1991 due to the construction of the new production facility in Denver. Capital expenditures in 1994 are expected to be approximately $20,000,000. Depreciation and amortization is expected to increase approximately 5% in 1994.
BROADCASTING - Operating results for the broadcasting segment, excluding the Divested Operations and ASCAP Adjustment, were as follows:
Revenues increased at most of the Company's television stations in 1993 and in 1992. Revenues at the Fox affiliates have been particularly strong.
Program costs decreased in 1993 as several syndicated programs previously aired by the Company's stations were replaced with less-costly programs.
Revenues and operating expenses in 1992 were affected by the inclusion of Baltimore television station WMAR, acquired May 30, 1991, for the full year.
Capital expenditures in 1994 are expected to be approximately $14,000,000. Depreciation and amortization is expected to increase approximately 5% in 1994.
CABLE TELEVISION - Operating results for the cable television segment, excluding the Sacramento Settlement, were as follows:
The legislation passed in October 1992 to re-regulate the cable television industry affected the Company's cable television operations in 1993. Basic rates were frozen April 5, 1993 and new regulated rates became effective September 1, 1993. The Federal Communications Commission recently announced revised rules that will further reduce regulated rates. Based upon the revised rules, revenues and EBITDA will decline in 1994.
Program costs as a percent of basic and premium programming service revenues increased from 23.2% in 1991 to 24.8% in 1993, primarily due to expanded and improved programming offered to basic subscribers and discounts provided to customers receiving multiple premium channels. Program costs as a percentage of basic and premium programming service revenues are expected to increase in 1994.
The Company is upgrading the distribution systems for its Knoxville, Chattanooga, and Sacramento systems. Capital expenditures on these and other projects are expected to be approximately $60,000,000 in 1994. Depreciation and amortization is expected to increase approximately 3% in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities was $227,000,000 in 1993 compared to $205,000,000 in 1992.
Cash flow from operating activities and cash received in the sales of subsidiary companies totaled $367,000,000 in 1993 and was used primarily for capital expenditures of $104,000,000, acquisitions (including minority interests in subsidiary companies) and investments of $41,700,000, debt reduction of $194,000,000, and dividend payments of $38,300,000. The debt to total capitalization ratio at December 31 was .22 in 1993 and .38 in 1992.
Consolidated capital expenditures are expected to total approximately $100,000,000 in 1994, including The Home & Garden Television Network ("Home & Garden"), a 24-hour cable channel set for launch in late 1994. Scheduled maturities of long-term debt in 1994 total $96,400,000. The Company expects to finance its capital requirements and start-up costs for Home & Garden primarily through cash flow from operations.
EFFECTS OF PRICE CHANGES
General inflation has not been detrimental to the Company's long-term operating results. However, year-to-year comparisons can be significantly affected by newsprint price changes. Because the supply of newsprint has exceeded demand, its price generally declined from 1988 through August 1992. The price of newsprint has moved in a narrow band since that time, but has trended higher. The price of newsprint peaked in 1988 when it was approximately 25% higher than the current price.
PROPOSED MERGER
On February 17, 1994 the Company announced it had offered to acquire the 13.9% of Scripps Howard Broadcasting Company ("SHB") that it does not already own. In a merger proposal made to the SHB board of directors, the Company offered to exchange three shares of Class A Common stock for each SHB share. Directors of SHB have formed a special committee to evaluate the offer. The merger is subject to the execution of a mutually agreeable definitive agreement, regulatory approvals, and a vote of SHB shareholders. If the merger is effected under the terms proposed by the Company, an additional 4,300,000 shares of Class A Common stock would be issued. There can be no assurance that the merger will be entered into or that any transaction will be consummated.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders, The E.W. Scripps Company:
We have audited the accompanying consolidated balance sheets of The E.W. Scripps Company and subsidiary companies (Company) as of December 31, 1993 and 1992, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1993. Our audits also included the financial statement schedules listed in the Index at Item 14. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 1993 and 1992, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, as of December 31, 1993 the Company changed its method of accounting for certain investments to conform with Statement of Financial Accounting Standards No. 115.
As discussed in Note 2 to the consolidated financial statements, in 1992 the Company changed its method of accounting for postretirement benefits other than pensions to conform with Statement of Financial Accounting Standards No. 106.
DELOITTE & TOUCHE Cincinnati, Ohio January 26, 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation - The consolidated financial statements include the accounts of The E.W. Scripps Company and its majority-owned subsidiary companies ("Company").
Newspaper Joint Operating Agencies - The Company is currently a party to newspaper joint operating agencies ("JOAs") in five markets. JOAs combine all but the editorial operations of two competing newspapers in a market. In each JOA the managing party distributes a portion of JOA profits to the other party. The Company manages the JOA in Evansville. The JOAs in Albuquerque, Birmingham, Cincinnati, and El Paso are managed by the other parties to the JOAs. The Company managed the JOA in Pittsburgh prior to the sale of The Pittsburgh Press (see Note 3B).
The Company includes the full amount of Company-managed JOA assets and liabilities, and revenues earned and expenses incurred in the operation of the JOA, in the consolidated financial statements. Distributions of JOA operating profits to the non-managing party are included in other operating expenses in the Consolidated Statements of Income.
For JOAs managed by the other party, the Company includes distributions of JOA operating profits in operating revenues in the Consolidated Statements of Income. The Company does not include any assets or liabilities of JOAs managed by other parties in its Consolidated Balance Sheets as the Company has no residual interest in the net assets of the JOAs.
Goodwill and Other Intangible Assets - Goodwill and other intangible assets are stated at the lower of unamortized cost or fair value. Fair value is estimated based upon estimated future net cash flows. An impairment loss is recognized when the undiscounted estimated future net cash flows exceed the unamortized cost of the asset. Goodwill represents the cost of acquisitions in excess of tangible assets and identifiable intangible assets received. Cable television franchises are amortized generally over the remaining terms of acquired cable systems' franchise agreements and non- competition agreements over the terms of the agreements. Goodwill acquired after October 1970, customer lists, and other intangible assets are amortized over periods of up to 40 years. Goodwill acquired before November 1970 ($6,600,000) is not amortized.
Income Taxes - Deferred income tax liabilities are provided for temporary differences between the tax basis and reported amounts of assets and liabilities that will result in taxable or deductible amounts in future years. The Company's temporary differences primarily result from accelerated depreciation and amortization for tax purposes and accrued expenses not deductible for tax purposes until paid. Also, the Company received a tax certificate from the Federal Communications Commission upon the sale of the Memphis television and radio stations, enabling the Company to defer payment of income taxes on the $60,500,000 tax-basis gain for a minimum of two years.
Property, Plant, and Equipment - Depreciation is computed using the straight-line method over estimated useful lives. Interest costs related to major capital projects are capitalized and classified as property, plant, and equipment.
Program Rights - Program rights are recorded at the time such programs become available for broadcast. Program rights are stated at the lower of unamortized cost or fair value. Amortization is computed using the straight-line method based on the license period or based on usage, whichever yields the greater accumulated amortization for each program. The portion of the unamortized balance expected to be amortized within one year is classified as a current asset. The liability for program rights is not discounted for imputed interest. The current portion of the liability is included in accounts payable in the Consolidated Balance Sheets. Estimated fair values (which are based on current rates available to the Company for debt of the same remaining maturity) and the carrying amounts of the Company's program rights liabilities were as follows:
Investments - The Company adopted Financial Accounting Standard ("FAS") No. 115 - Accounting for Certain Investments in Debt and Equity Securities effective December 31, 1993 (see Note 2). Investments in such securities are classified as either held to maturity, trading, or available for sale. Securities classified as held to maturity are carried at amortized cost. Securities classified as trading and available for sale are carried at fair value. Fair value is determined by reference to quoted market prices for those or similar securities. Unrealized gains or losses on securities classified as trading are recognized in income and unrealized gains or losses on securities available for sale are recognized as a separate component of stockholders' equity. The cost of securities sold is determined by specific identification.
Investments in 20%- to 50%-owned companies and joint ventures are accounted for under the equity method.
Inventories - Inventories are stated at the lower of cost or market. The cost of newsprint included in inventory is computed using the last in, first out ("LIFO") method. At December 31 newsprint inventories were approximately 25% of total inventories in 1993 and in 1992. The cost of other inventories is computed using the first in, first out ("FIFO") method. Inventories would have been $200,000 higher at December 31, 1993 and 1992 if FIFO (which approximates current cost) had been used to compute the cost of newsprint.
Postemployment Benefits - The Company adopted FAS No. 112 - Employers' Accounting for Postemployment Benefits in 1993 (see Note 2). Postretirement benefits are recognized during the years that employees render service. Other postemployment benefits, such as disability-related benefits and severance, are recognized when the benefits become payable.
Self Insurance - The Company is primarily self-insured for employee health, workers' compensation, and general liability insurance. Self-insurance liabilities are estimated based upon claims filed and estimated claims incurred but not reported. The self-insurance liabilities are not discounted. Amounts estimated to be paid within one year are included in accrued liabilities in the Consolidated Balance Sheets.
Cash and Cash Equivalents - Cash and cash equivalents represent cash on hand, bank deposits, and highly liquid debt instruments with an original maturity of up to three months. Cash equivalents are stated at cost plus accrued interest, which approximates fair value.
Net Income Per Share - Net income per share computations are based upon the weighted average common shares outstanding. Common stock equivalents in the form of stock options are excluded from the computations as they have no material effect on the per share amounts. Weighted average shares outstanding were as follows:
Reclassifications - For comparison purposes certain 1992 and 1991 items have been reclassified to conform with 1993 classifications.
2. ACCOUNTING CHANGES
The Company adopted FAS No. 115 - Accounting for Certain Investments in Debt and Equity Securities on December 31, 1993. As a result of the change, total assets increased $42,125,000 and stockholders' equity increased $27,381,000. Adoption of the new standard had no effect on retained earnings. The Company also adopted FAS No. 112 - Employers' Accounting for Postemployment Benefits in 1993. The change had no effect on the Company's financial statements.
In 1992 the Company adopted FAS No. 106 - Employers' Accounting for Postretirement Benefits Other Than Pensions. As a result of the change, operating income decreased $2,100,000 and income before the cumulative effect decreased $1,400,000, $.02 per share. The Pittsburgh Press accounted for $1,800,000 of the decrease in operating income and $1,200,000, $.02 per share, of the decrease in income before the cumulative effect (see Note 3B).
3. ACQUISITIONS AND DIVESTITURES
A. Acquisitions
1993 - The Company purchased 589,000 shares of Scripps Howard Broadcasting Company common stock for $28,900,000, increasing the Company's ownership percentage from 80.4% to 86.1%. The Company also acquired the remaining 2.7% minority interest in the Knoxville News- Sentinel for $2,800,000 and purchased a cable television system.
1992 - The Company purchased three daily newspapers in California (including The Herald in connection with the sale of The Pittsburgh Press - see Note 3B) and several cable television systems.
1991 - The Company purchased Baltimore television station WMAR for $125,000,000 in cash and assumed liabilities totaling $29,000,000. The Company also purchased several cable television systems.
The following table presents additional information about the acquisitions:
The acquisitions have been accounted for as purchases, and accordingly the purchase prices were allocated to assets and liabilities based on the estimated fair value as of the dates of acquisition.
The acquired operations have been included in the consolidated statements of income from the dates of acquisition. The following table summarizes, on an unaudited, pro forma basis, the estimated combined results of the Company and WMAR for 1991, assuming the acquisition was completed at the beginning of the year. These results include certain adjustments, primarily increased interest expense and depreciation and amortization, and are not necessarily indicative of what the results would have been had the Company owned WMAR during 1991:
B. Divestitures
The Company divested the following operations:
1993 - Book publishing; newspapers in Tulare, California, and San Juan; Memphis television station; radio stations.
1992 - The Pittsburgh Press; TV Data; certain other investments.
1991 - George R. Hall Company.
The following table presents additional information about the divestitures:
Included in net assets (liabilities) disposed in 1992 are pension and other postretirement benefit obligations totaling $36,500,000.
Included in the consolidated financial statements are the following results of divested operations (excluding gains on sales):
4. UNUSUAL CREDITS AND CHARGES
The Company's operating results include net after-tax gains on the sales of subsidiary companies of $46,800,000, $.63 per share, in 1993 and $45,600,000, $.61 per share, in 1992 (see Note 3B).
1993 - Management changed the estimate of the additional amount of copyright fees the Company would owe when a dispute between the television industry and the American Society of Composers, Authors and Publishers ("ASCAP") was resolved. The adjustment increased operating income $4,300,000 and net income $2,300,000, $.03 per share. The U.S. television industry challenged the copyright fees required to be paid to ASCAP under a formula established in 1950. The dispute concerned payments for the past ten years. The U.S. District Court of the Southern District of New York ruled on February 26, 1993, and the change in estimate was based on that ruling.
The Company's agreement to guarantee up to $53,000,000 of the Ogden, Utah, Standard Examiner's debt expired with a change in ownership of the Standard Examiner. The Company received a $2,500,000 fee in connection with the transaction. The fee increased net income $1,600,000, $.02 per share.
The Company realized a gain of $1,100,000 on the sale of certain publishing equipment. The gain increased net income $700,000, $.01 per share.
In August 1993 the federal income tax rate was increased to 35%, retroactive to January 1, 1993, and management changed its estimate of the tax basis and lives of certain assets. The net effect was to increase net income $1,700,000, $.02 per share (see Note 5).
The Company recorded a $6,300,000 charge to restructure operations at the Denver Rocky Mountain News and United Media. The charge included severance payments and a write-down of certain assets to estimated realizable value. The charge reduced net income $3,600,000, $.05 per share.
1992 - The Pittsburgh Press was not published after May 17 due to a strike. Reported 1992 results include operating losses of $32,700,000 and net losses of $20,200,000, $.27 per share, during the strike period.
The Company reduced the carrying value of certain property and investments to estimated realizable value. The resultant $3,500,000 charge reduced net income $2,300,000, $.03 per share.
1991 - The Company agreed to settle a lawsuit filed in 1988 by Pacific West Cable Company that alleged violations of antitrust and unfair trade practice laws. The resultant charge reduced operating income by $12,000,000 and net income by $6,300,000, $.08 per share.
5. INCOME TAXES
The Internal Revenue Service ("IRS") is currently examining the Company's consolidated income tax returns for the years 1985 through 1990. Management believes that adequate provision for income taxes has been made for all open years.
In 1991 the Company reached agreement with the IRS to settle the audits of its 1982 through 1984 federal income tax returns. The IRS required the Company's broadcast operations to change to the accrual method of accounting for income tax purposes. There was no charge to income resulting from the settlement.
In August 1993 the federal income tax rate was increased to 35%, retroactive to January 1, 1993. The change in the tax rate increased the Company's deferred tax liabilities $3,700,000. The resultant charge to income taxes reduced net income $3,700,000, $.05 per share. Also in 1993, management changed its estimate of the tax basis and lives of certain assets. The resulting change in the estimated tax liabilities for prior years increased net income $5,400,000, $.07 per share.
The approximate effect of the temporary differences giving rise to the Company's deferred income tax liabilities (assets) are as follows:
The Company's state net operating loss carryforwards expire from 2000 through 2018.
The provision for income taxes consists of the following:
The difference between the statutory rate for federal income tax and the effective income tax rate is summarized as follows:
6. LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
The Company has a Competitive Advance/Revolving Credit Agreement which, at December 31, 1993, permitted maximum borrowings up to $165,000,000, and additional lines of credit which, at December 31, 1993, totaled $60,000,000 (collectively "Variable Rate Credit Facilities"). Maximum borrowings under the Variable Rate Credit Facilities are changed as the Company's anticipated needs change and are not indicative of the Company's short-term borrowing capacity. The Variable Rate Credit Facilities expire at various dates through September 1994 and may be extended upon mutual agreement.
In 1993 the Company prepaid the scheduled 1994 payment on the 10.3% note.
Certain long-term debt agreements contain maintenance requirements on net worth and coverage of interest expense and restrictions on dividends and incurrence of additional indebtedness.
Interest costs capitalized were as follows:
7. INVESTMENTS
Investments consisted of the following at December 31:
8. PROPERTY, PLANT, AND EQUIPMENT AND INTANGIBLE ASSETS
Property, plant, and equipment consisted of the following at December 31:
Goodwill and other intangible assets consisted of the following at December 31:
9. EMPLOYEE BENEFIT PLANS
The Company sponsors defined benefit plans covering substantially all non- union employees. Benefits are generally based on the employees' compensation and years of service. Funding is based on the requirements of the plans and applicable federal laws.
The Company also sponsors defined contribution plans covering substantially all non-union employees. The Company matches a portion of employees' voluntary contributions to these plans.
Union-represented employees are covered by retirement plans jointly administered by subsidiaries of the Company and the unions or by union- administered, multi-employer plans. Funding is based upon negotiated agreements.
Retirement plans expense consisted of the following:
Assumptions used in the accounting for the defined benefit plans were as follows:
The funded status of the defined benefit plans at December 31 was as follows:
Plan assets consist of marketable equity and fixed-income securities.
The Company has unfunded health and life insurance benefit plans that are provided to certain retired employees. The combined number of 1) active employees eligible for such benefits and 2) retired employees receiving such benefits is approximately 5% of the Company's current workforce. The actuarial present value of the projected benefit obligation at December 31 was $6,300,000 in 1993 and $6,100,000 in 1992. The cost of the plan was $600,000 in 1993 and in 1992 (excluding $3,200,000 attributable to The Pittsburgh Press in 1992).
10. SEGMENT INFORMATION
The net effect of the gain on sale of equipment and the restructuring charges reduced publishing operating income $5,200,000 in 1993 (see Note 4). The change in accounting for health and life insurance benefits provided to certain retired employees reduced publishing operating income in 1992 by $2,100,000 (of which $1,800,000 relates to The Pittsburgh Press) (see Note 2).
Broadcasting operating income in 1993 was increased by $4,300,000 as a result of the change in estimate of the additional amount of copyright fees owed ASCAP (see Note 4).
Cable television operating income was reduced in 1991 by the $12,000,000 charge related to settlement of the Sacramento cable television litigation (see Note 4).
Other segment amounts represent the operating results of George R. Hall Company, which was sold by the Company in March 1991 (see Note 3B).
Financial information relating to the Company's business segments is as follows:
Corporate assets are primarily cash, investments, and deferred income taxes.
11. COMMITMENTS AND CONTINGENCIES
The Company is involved in litigation arising in the ordinary course of business, none of which is expected to result in material loss.
The Company is committed to purchase approximately $68,000,000 of program rights currently not available for broadcast, including programs not yet produced. If such programs are not produced the Company's commitment would expire without obligation.
The Company is diversified geographically and has a diverse customer base. The Company grants credit to substantially all of its customers. Management believes bad debt losses resulting from default by a single customer, or defaults by customers in any depressed region or business sector, would not have a material effect on the Company's financial position.
Minimum payments on non-cancelable leases at December 31, 1993 were as follows:
Rental expense for cancelable and non-cancelable leases was as follows:
12. CAPITAL STOCK AND INCENTIVE PLANS
The capital structure of the Company includes Common Voting stock and Class A Common stock. The articles of the Company provide that the holders of Class A Common stock, who are not entitled to vote on any other matters except as required by Delaware law, are entitled to elect the greater of three or one-third of the directors of the Company.
The 1987 Long-Term Incentive Plan ("1987 Plan") provides for the awarding of stock options, stock appreciation rights, performance units, and Class A Common stock to key employees. The number of shares authorized for issuance under the 1987 Plan is 2,500,000.
Stock options may be awarded to purchase Class A Common stock at not less than 100% of the fair market value on the date the option is granted. Stock options will vest over an incentive period, conditioned upon the individual's employment through that period. The plan expires on December 9, 1997, except for options then outstanding.
Information related to stock options is as follows:
Awards of Class A Common stock will vest over an incentive period, conditioned upon the individual's employment throughout that period. During the vesting period shares issued are non-transferable, but the shares are entitled to all the rights of an outstanding share. Upon vesting, when the stock awards become taxable to the employees, additional awards of cash may also be made.
Information related to awards of Class A Common stock is as follows:
13. SUMMARIZED QUARTERLY FINANCIAL INFORMATION (Unaudited)
Summarized financial information is as follows:
The sum of the quarterly net income per share amounts may not equal the reported annual amount because each is computed independently based upon the weighted average number of shares outstanding for that period.
THE E.W. SCRIPPS COMPANY
Index to Consolidated Financial Statement Schedules
Marketable Securities - Other Investments S-2 Property, Plant, and Equipment S-3 Accumulated Depreciation of Property, Plant, and Equipment S-4 Valuation and Qualifying Accounts S-5 Supplementary Income Statement Information S-6