SSP

Business Context and Reporting Period

Company: The E.W. Scripps Company
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2004
Business Overview: A diverse media concern operating in four primary segments: Newspapers (18 markets), Scripps Networks (HGTV, Food Network, DIY, Fine Living), Broadcast Television (10 stations), and Shop At Home (television retailing). The company also holds interests in Joint Operating Agreements (JOAs) and other joint ventures.

Key Financial Metrics

Liquidity: The company maintains a $450 million credit facility expiring in July 2009. As of September 30, 2004, borrowings under this facility were approximately $40 million. The company also has a U.S. shelf registration allowing for an additional $450 million in borrowings.

Material Changes vs. Prior Period

• Revenue Growth: Operating revenues increased 13.5% in the quarter and 14.7% year-to-date compared to 2003. Growth was driven by Scripps Networks (advertising and affiliate fees), Shop At Home merchandise sales, and a return of political advertising in Broadcast Television.
• Profitability: Net income rose 7.2% in the quarter and 25.6% year-to-date. Operating income increased 17.2% in the quarter and 29.6% year-to-date.
• Acquisitions:
  • Summit America: Completed acquisition on April 14, 2004, for approximately $180 million, securing 100% ownership of Shop At Home.
  • Great American Country (GAC): Reached a definitive agreement in October 2004 to acquire the network for approximately $140 million (expected to close Q4 2004).
• Unusual Items:
  • Gain on Sale: Year-to-date results included an $11.1 million pre-tax gain on the sale of a Cincinnati television production facility, increasing net income by $7.0 million.
  • Investment Gains: Year-to-date results included $14.7 million in other investment results (realized gains), increasing net income by $9.5 million.
  • Hurricane Impact: Florida operations sustained damage from hurricanes, resulting in $2.4 million in estimated asset impairment and restoration costs, reducing net income by $1.5 million.

Guidance, Outlook, and Risks

• Segment Outlook:
  • Scripps Networks: Advertising revenues expected to increase ~25% year-over-year in Q4 2004; affiliate fees expected to increase ~45%. Continued investment in programming and marketing is anticipated to increase expenses by ~30% in Q4.
  • Shop At Home: Segment losses expected to be approximately $7 million in Q4 2004.
  • Broadcast Television: Advertising revenue growth (including political) expected to be in the mid-teens in Q4 2004.
• Capital Allocation: The company plans to use cash flow to fund the GAC acquisition, develop emerging brands (DIY, Fine Living), and support capital expenditures.
• Risks and Contingencies:
  • Insurance Claims: The company is in discussions with insurers regarding hurricane losses (estimated business interruption losses of $3.7 million). No recovery has been recorded yet.
  • JOA Termination: Gannett Newspapers has notified Scripps of its intent to terminate the Cincinnati JOA upon expiration in 2007.
  • Market Risks: Exposure to interest rate changes, foreign currency fluctuations (Japanese yen), and newsprint prices. No derivative instruments were held as of September 30, 2004.

Key Facts for Investor Verification

• Acquisition Financing: Verify the funding sources for the pending $140 million GAC acquisition and the impact on leverage ratios.
• Hurricane Recovery: Monitor the status of insurance claim negotiations for Florida operations to assess potential future recoveries.
• JOA Expiration: Assess the long-term strategic impact of the Cincinnati JOA termination in 2007.
• Segment Margins: Review the continued profitability of Shop At Home, which reported a segment loss of $7.6 million in Q3 2004.
• Stock Split: Note that a 2-for-1 stock split was executed in August 2004; all share and per-share data in the filing have been retroactively adjusted.