Business Context and Reporting Period
Company: The E. W. Scripps Company
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2001
Business Overview: The Company operates in three primary reportable segments: Newspapers (21 daily U.S. newspapers), Scripps Networks (cable networks including HGTV, Food Network, and DIY), and Broadcast Television (10 stations). Advertising comprises 75% to 80% of total revenues. The Company also holds a 12% interest in FOX SportsSouth and operates licensing/media ventures (United Media).
Key Financial Metrics (Year Ended Dec 31, 2001)
| Metric | 2001 | 2000 | Change |
|---|---|---|---|
| Total Operating Revenues | $1,437.1 million | $1,701.8 million | (15.6)% |
| Operating Income | $274.4 million | $345.1 million | (20.5)% |
| Net Income | $138.0 million | $163.5 million | (15.6)% |
| Diluted EPS | $1.73 | $2.06 | (16.0)% |
| EBITDA (Total) | $389.2 million | $463.5 million | (16.0)% |
| Cash from Operating Activities | $206.1 million | $255.7 million | (19.4)% |
| Capital Expenditures | $68.2 million | $74.6 million | (8.6)% |
| Long-Term Debt (Total) | $723.8 million | $714.6 million | +1.3% |
| Stockholders' Equity | $1,351.9 million | $1,277.8 million | +5.8% |
Material Changes vs. Prior Period
- Revenue Decline: Total operating revenues decreased 15.6% primarily due to a 91.2% drop in Denver Rocky Mountain News (RMN) revenues following the formation of a Joint Operating Agency (JOA) in January 2001, which shifted revenue recognition to "Share of JOA Profits." Additionally, the Broadcast Television segment saw a 19.1% revenue decline due to the absence of political advertising (an election year in 2000) and weak national ad demand.
- Segment Performance:
- Newspapers: Operating income fell 12.1% to $201.9 million. Classified advertising revenues declined 6.2% due to weak demand for help-wanted ads.
- Scripps Networks: Operating income increased 9.0% to $59.4 million, driven by a 14.0% revenue increase. Affiliate fees grew 46.8% due to contract renewals with AT&T and AOL Time Warner.
- Broadcast Television: Operating income plummeted 49.6% to $50.6 million, heavily impacted by the lack of political advertising revenue ($34.8M in 2000 vs. $2.4M in 2001).
- Investment Results: Net investment results swung from a $24.8 million loss in 2000 to a $5.1 million gain in 2001. This was largely due to a $65.9 million gain on the exchange of Time Warner stock for AOL Time Warner stock, partially offset by an $80.2 million write-down of other investments.
- Unusual Items: Workforce reduction costs totaled $16.1 million in 2001, reducing net income by $10.1 million.
Guidance, Outlook, and Risks
- Outlook: Management expects cash flow from operations to substantially exceed capital expenditures and dividends in 2002. Capital expenditures for 2002 are estimated at $78 million. Affiliate fee revenue for HGTV and Food Network is expected to increase approximately 9% in 2002.
- Denver JOA: While the JOA has improved operating results through cost-cutting, weak advertising demand in major metropolitan markets continues to limit immediate improvements.
- Network Launches: The Company launched "Fine Living" in March 2002. Operating losses for new networks (DIY and Fine Living) are expected to reduce EBITDA by $28 million to $33 million in 2002.
- Risks:
- Advertising Sensitivity: 75-80% of revenue is advertising-dependent; recessionary periods adversely affect all segments.
- Competition: Increasing competition from cable, satellite, and internet media for audience share and advertising dollars.
- Regulatory: FCC regulations regarding digital television transition and ownership rules.
- Market Risk: Exposure to interest rate changes, foreign currency fluctuations (Japanese Yen), and newsprint price volatility.
Investor Verification Checklist
- JOA Accounting Impact: Verify the long-term sustainability of the Denver JOA profit-sharing model versus the previous full revenue recognition for the Rocky Mountain News.
- Political Ad Cyclicality: Assess the impact of the 2002 election cycle on Broadcast Television revenues, which are expected to rebound from the 2001 low.
- Investment Portfolio Volatility: Review the composition of the $331.5 million investment portfolio, specifically the concentration in AOL Time Warner and the valuation of private equity holdings (Scripps Ventures).
- Debt Maturity: Note that $613.9 million of long-term debt is classified as current, supported by commercial paper facilities expiring in September 2002.
- Goodwill Amortization: Confirm the impact of the upcoming adoption of FAS No. 142 (effective Jan 1, 2002), which will cease goodwill amortization but requires annual impairment testing.