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| Scripps Reports Third Quarter Results |
CINCINNATI, Oct. 17 /PRNewswire-FirstCall/ -- The E. W. Scripps Company (NYSE: SSP) today reported third quarter operating results, including strong revenue growth at its national lifestyle television networks, local broadcast TV stations and interactive media businesses, Shopzilla and uSwitch. Third quarter income from continuing operations was $78.4 million, or 48 cents per share, compared with $63.8 million, or 39 cents per share, during the same period a year earlier. Third quarter earnings also were affected by the expensing of employee stock options, which commenced on Jan. 1. The stock option expense reduced earnings for the period by $2.6 million after tax, or 2 cents per share. Consolidated revenue from continuing operations rose 13 percent year-over- year during the third quarter to $583 million. On a pro forma basis, as if Scripps had owned Shopzilla and uSwitch since Jan. 1, 2005, third quarter operating revenue from continuing operations increased 12 percent. Operating income was up 24 percent to $138 million during the three-month period. Operating results from the company's former television retailing subsidiary, Shop At Home, and former newspaper in Birmingham, Ala., have been reclassified as discontinued operations for all periods presented in the company's financial statements. The company sold the Shop At Home television network in June and announced in September that it had reached an agreement to sell its five Shop At Home- affiliated broadcast television stations. The sale of the stations for $170 million is expected to be completed during the first half of 2007. The Birmingham newspaper was closed during the third quarter of 2005. The company's net income for the third quarter was $73.1 million compared with $82.2 million for the year-ago period. Net income was reduced by a $5.4 million loss from discontinued operations, including an after-tax impairment charge of $4.9 million on the intangible assets associated with the five TV stations held for sale at Shop At Home. During the third quarter of 2005, income from discontinued operations was $18.3 million, reflecting the net effect of a cash payment the company received for terminating the newspaper joint operating agreement to which it was a party in Birmingham offset by operating losses at Shop At Home. Consolidated third quarter results for Scripps benefited from strong financial performance at the company's Scripps Networks division, which includes HGTV, Food Network, DIY Network, Fine Living and Great American Country. Total revenue at Scripps Networks increased 19 percent to $249 million. Scripps Networks advertising revenue was up 18 percent to $192 million. Segment profit at Scripps Networks was up 32 percent year-over-year to $116 million. At the company's Scripps Interactive Media division, which includes Shopzilla and uSwitch, third quarter segment profit reached $9.0 million on revenue of $60.9 million. On a pro forma basis, as if Scripps had owned Shopzilla and uSwitch since Jan. 1, 2005, interactive media division revenue was up about 50 percent. Shopzilla is a leading search and price comparison Web site for consumer products in the U.S. In the United Kingdom, uSwitch is a leading Web site for consumers who want to find, compare and switch essential home services. At the company's local television stations third quarter revenue was up 12 percent to $81.7 million, due primarily to increased political advertising revenue. Political advertising during the period was $11.7 million compared with $1.0 million during the same period a year ago. Broadcast television segment profit for the period was up 54 percent to $22.7 million. Revenue at newspapers managed solely by Scripps was up 0.8 percent to $168 million, excluding newspapers that were contributed to a partnership in Colorado created during the first quarter. Advertising revenue at newspapers managed solely by Scripps was up 0.7 percent to $134 million. Online newspaper advertising revenue was up 40 percent, year over year. The newspaper division's contribution to segment profit was $39.7 million compared with $41.6 million during the same period in 2005. Total segment profit for the Scripps newspaper division was negatively affected by soft advertising sales, the continued investment in division-wide online initiatives and new products in the company's Florida markets. "Scripps had a very solid third quarter thanks primarily to strong advertising sales at our national lifestyle television networks and a flood of political advertising at our local television stations," said Kenneth W. Lowe, the company's president and chief executive officer. "Ratings and viewership at HGTV and Food Network have good momentum, providing a sound foundation for strong double-digit increases in advertising revenue and segment profit at our Scripps Networks division. "The Scripps Television Station Group also fared well during the three- month period as a result of strong political advertising in our key television markets," Lowe said. "Our stations are benefiting from vigorously contested races, primarily in Ohio, Michigan and Florida. "Strong financial performance at Shopzilla and uSwitch also contributed to the company's consolidated growth," Lowe said. "Consumers in growing numbers in the U.S. and the U.K. are turning to our Internet search businesses to shop for the best deals on retail products and essential home services. "At the company's newspapers, a generally soft advertising climate, led by declines in national advertising and automotive and help wanted classified advertising, held back revenue and segment profit growth during the quarter," Lowe said. "Online newspaper advertising revenue, however, continues to be a bright spot, delivering very strong double-digit growth as we effectively monetize the Internet audiences that we're aggregating." Following are third quarter results by segment: Scripps Networks Scripps Networks advertising revenue increased 18 percent to $192 million. Affiliate fee revenue was $49.0 million, up 12 percent. Programming, marketing and other expenses increased 8.7 percent to $104 million. Employee costs were up 14 percent to $32.5 million. Scripps Networks segment profit was $116 million, up 32 percent from $87.9 million in the prior-year period. HGTV contributed $79.3 million to segment profit, up 19 percent from the year-ago period. HGTV revenue grew 16 percent to $123 million. HGTV now reaches about 91 million domestic subscribers compared with 89 million at the end of the third quarter 2005. Food Network contributed $61.4 million to segment profit, up 37 percent from the third quarter last year. Food Network revenue grew 23 percent to $98.0 million. Food Network reaches about 91 million domestic subscribers, up from 88 million at the end of the third quarter 2005. DIY contributed $100,000 to segment profit compared with $2.0 million in the third quarter 2005. DIY's contribution to segment profit was lower due to the company's decision to increase spending on original programming in preparation for the network becoming a Nielsen-rated service. Third quarter revenue at DIY was $12.3 million compared with $11.1 million in 2005. DIY can be seen in about 39 million households, up from about 35 million a year ago. Fine Living contributed $1.9 million to segment profit compared with a $300,000 segment loss in 2005. Fine Living revenue increased to $9.1 million from $6.4 million the previous year. Fine Living reaches about 40 million households vs. 29 million at this time a year ago. Revenue at Great American Country was $4.8 million compared with $3.9 million in 2005. An increase in programming and marketing expenses to build viewership caused Great American Country's contribution to segment profit to be about even with the prior-year period. Great American Country can be seen in about 44 million homes compared with 39 million a year ago. Newspapers Revenue from newspapers managed solely by Scripps was up 0.8 percent to $168 million. Advertising revenue from newspapers managed solely by Scripps increased 0.7 percent to $134 million. Advertising revenue broken down by category was:
- Local, up 0.6 percent to $35.4 million.
- Classified, down 0.7 percent to $54.1 million.
- National, down 22 percent to $8.2 million.
- Preprint, online and other, up 10 percent to $36.1 million. Online
advertising was up 40 percent.
Circulation revenue was $30.5 million, up 1.8 percent.
Newsprint expense increased 3.8 percent on a 7.0 percent increase in newsprint prices. Total newspaper segment profit was $39.7 million, compared with $41.6 million in the prior-year period. The decline in total newspaper segment profit is attributable, in part, to continuing investments in division-wide online initiatives and new products in growing Florida markets. The company reported a contribution to segment profit of $1.6 million vs. a segment loss of $1.8 million a year earlier from its newspapers operated under joint operating agreements and other partnerships. The improvement is due solely to lower depreciation costs related to an ongoing capital improvement project to consolidate production operations in Denver. Weak advertising sales at the Denver JOA continued in the third quarter. Interactive Media Revenue from the company's online search and comparison shopping services, Shopzilla and uSwitch, was $60.9 million for the third quarter. Segment profit was $9.0 million. On a pro forma basis, as if the company had owned both businesses since Jan. 1, 2005, combined revenue at Shopzilla and uSwitch increased about 50 percent during the third quarter.
Broadcast Television
Broadcast television revenue increased 12 percent to $81.7 million.
Revenue broken down by advertising category was:
- Political, $11.7 million vs. $1.0 million for the same period in 2005.
- Local, down 0.7 percent to $44.7 million.
- National, down 7.6 percent to $22.0 million.
The declines in the local and national categories were due, in part, to the displacement of regular inventory to accommodate the increased volume of political advertising business that occurred during the last month of the quarter. Broadcast television cash expenses were $59.0 million, up 1.5 percent from the prior-year period. The increase included the effects of expensing stock options. Broadcast television segment profit was $22.7 million, up 54 percent from the prior-year period. Licensing and Other Media Revenue was $24.6 million compared with $24.2 million in the prior-year period. Segment profit was $4.0 million compared with $4.4 million in the third quarter 2005. Discontinued operations In June the company sold the Shop At Home television retailing network for $17 million in cash. During the third quarter, the company announced that it had reached agreement to sell its five Shop At Home-affiliated broadcast television stations for $170 million. The sale of the stations is expected to be completed during the first half of 2007. Discontinued operations also include the company's former newspaper in Birmingham, Ala., which was closed during the third quarter of 2005. Fourth Quarter Guidance Employee costs will include approximately $4.0 million (pre-tax) or 2 cents per share, related to expensing stock options granted to employees. The additional cost is reflected in the guidance provided below. Based on advance advertising sales, the company currently anticipates total revenue for Scripps Networks will be up 11 to 13 percent year over year. Total Scripps Networks expenses are expected to increase 8 to 10 percent during the quarter as the company continues to build consumer awareness and expand distribution of its television and online lifestyle brands. For newspapers managed solely by Scripps, total revenue is expected to be up slightly over the prior year. Total newspaper expenses are expected to increase about 5 percent during the period. The contribution to segment profit coming from JOA newspapers and other partnerships is expected to be about $4 million in the quarter. At the company's broadcast television stations, total revenue, including political, is expected to be up 11 to 13 percent. Interactive media is expected to generate segment profit of about $26 million in the quarter. Corporate expenses are expected to be about $15 million. Depreciation and amortization are expected to be $31 million and interest expense is expected to be about $14 million. Earnings per share from continuing operations are expected to be between 67 cents and 71 cents. Earnings per share from continuing operations during the fourth quarter of 2005 were 60 cents. Conference call The senior management team at Scripps will discuss the company's third quarter results during a telephone conference call at 10 a.m. EDT today. Scripps will offer a live audio webcast of the conference call. To access the webcast, visit http://www.scripps.com, choose "Shareholders," then follow the link in the "Upcoming Events" section. Listeners need Windows Media Player to access the call online. To access the conference call by telephone, dial 1-888-428-4480 (U.S.) or 1-612-332-0932 (International), approximately 10 minutes before the start of the call. Callers will need the name of the call (third quarter earnings report) to be granted access. Callers also will be asked to provide their name and company affiliation. The media and general public are provided access to the conference call on a listen-only basis. A replay line will be open from 1:30 p.m. EDT today until 11:59 p.m. EDT Oct. 24. The domestic number to access the replay is 1-800-475-6701 and the international number is 1-320-365-3844. The access code for both numbers is 843889. 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 http://www.scripps.com approximately four hours after the call, choose "Shareholders" then follow the "audio archives" link on the left navigation bar. Forward-looking statements This press release contains certain forward-looking statements related to the company's businesses that are based on management's current expectations. Forward-looking statements are subject to certain risks, trends and uncertainties, including changes in advertising demand and other economic conditions that could cause actual results to differ materially from the expectations expressed in forward-looking statements. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. The company's written policy on forward-looking statements can be found on page F-5 of its 2005 SEC Form 10K. We undertake no obligation to publicly update any forward-looking statements to reflect events for circumstances after the date the statement is made. About Scripps The E. W. Scripps Company (NYSE: SSP) is a diverse and growing media enterprise with interests in national cable networks, newspaper publishing, broadcast television stations, interactive media, and licensing and syndication. The company's portfolio of media properties includes: Scripps Networks, with such brands as HGTV, Food Network, DIY Network, Fine Living and Great American Country; daily and community newspapers in 18 markets and the Washington-based Scripps Media Center, home to the Scripps Howard News Service; 10 broadcast TV stations, including six ABC-affiliated stations, three NBC affiliates and one independent; Scripps Interactive Media, including leading online search and comparison shopping services, Shopzilla and uSwitch; and United Media, a leading worldwide licensing and syndication company that is the home of PEANUTS, DILBERT and approximately 150 other features and comics.
THE E. W. SCRIPPS COMPANY
RESULTS OF OPERATIONS
(in thousands, except per share data) Three months ended Sept. 30,
2006 2005 Fav(Unf)
Operating revenues $583,449 $515,332 13.2 %
Costs and expenses (418,615) (378,593) (10.6)%
Depreciation and amortization
of intangibles (27,128) (25,307) (7.2)%
Gain on formation of Colorado
newspaper partnership
Gains (losses) on disposal of PP&E (277) (107)
Hurricane recoveries, net 150
Operating income 137,579 111,325 23.6 %
Interest expense (15,281) (12,136) (25.9)%
Equity in earnings of JOAs and
other joint ventures 13,942 10,096 38.1 %
Interest and dividend income 713 3,758 (81.0)%
Miscellaneous, net 1,421 417
Income from continuing operations
before income taxes and minority
interests 138,374 113,460 22.0 %
Provision for income taxes 44,132 37,895 (16.5)%
Income from continuing operations before
minority interests 94,242 75,565 24.7 %
Minority interests 15,806 11,729 (34.8)%
Income from continuing operations 78,436 63,836 22.9 %
Income (loss) from discontinued
operations, net of tax (5,373) 18,320
Net income $73,063 $82,156 (11.1)%
Net income (loss) per diluted share
of common stock:
Income from continuing operations $ .48 $ .39 24.6 %
Income (loss) from discontinued
operations (.03) .11
Net income per diluted share of
common stock $ .44 $ .50 (12.0)%
Weighted average diluted shares
outstanding 164,512 165,703
Nine months ended Sept. 30,
2006 2005 Fav(Unf)
Operating revenues $1,815,092 $1,538,706 18.0 %
Costs and expenses (1,261,801) (1,079,783) (16.9)%
Depreciation and amortization
of intangibles (85,909) (56,782) (51.3)%
Gain on formation of Colorado
newspaper partnership 3,535
Gains (losses) on disposal of PP&E (433) (65)
Hurricane recoveries, net 1,900 1,892 0.4 %
Operating income 472,384 403,968 16.9 %
Interest expense (42,971) (27,067) (58.8)%
Equity in earnings of JOAs and
other joint ventures 39,923 49,456 (19.3)%
Interest and dividend income 1,864 4,340 (57.1)%
Miscellaneous, net 3,400 350
Income from continuing operations
before income taxes and minority
interests 474,600 431,047 10.1 %
Provision for income taxes 159,929 150,968 (5.9)%
Income from continuing operations before
minority interests 314,671 280,079 12.4 %
Minority interests 49,881 40,354 (23.6)%
Income from continuing operations 264,790 239,725 10.5 %
Income (loss) from discontinued
operations, net of tax (45,518) 10,031
Net income $219,272 $249,756 (12.2)%
Net income (loss) per diluted share
of common stock:
Income from continuing operations $ 1.61 $1.45 10.9 %
Income (loss) from discontinued
operations (.28) .06
Net income per diluted share of
common stock $ 1.33 $1.51 (11.9)%
Weighted average diluted shares
outstanding 164,842 165,502
Net income per share amounts may not foot since each is calculated
independently.
See notes to results of operations.
Notes to Results of Operations
1. DISCONTINUED OPERATIONS
On June 21, 2006, we reached agreement to sell the operations of the Shop At Home television network and certain of its assets to Jewelry Television. Under the terms of the agreement, Jewelry Television also assumed a number of Shop At Home's television affiliation agreements. In the third quarter of 2006, we reached agreement to sell the five Shop At Home-affiliated broadcast television stations to Multicultural Television Broadcasting LLC. In the third quarter of 2005, we reached an agreement with Advance Publications, Inc., the publisher of the Birmingham News ("News"), to terminate the Birmingham joint operating agreement between the News and our Birmingham Post-Herald newspaper. During the third quarter of 2005, we also ceased publication of our Birmingham Post-Herald newspaper and sold certain assets to the News. In accordance with the provisions of Financial Accounting Standards ("FAS") 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the results of businesses held for sale or that have ceased operations are presented as discontinued operations within our results of operations. Accordingly, these businesses have also been excluded from segment results for all periods presented.
Operating results of our discontinued operations were as follows:
(in thousands) Three months Nine months
ended Sept. 30, ended Sept. 30,
2006 2005 Fav(Unf) 2006 2005 Fav(Unf)
Operating revenues:
Shop At Home $1,962 $79,370 (97.5)% $166,584 $268,382 (37.9)%
Birmingham-Post
Herald 9 27
Total operating
revenues $1,962 $79,379 (97.5)% $166,584 $268,409 (37.9)%
Equity in earnings
of JOA, including
termination fee $41,970 $45,423
Income (loss) from
discontinued
operations:
Shop At Home:
Loss from
operations $(8,110) $(9,836) 17.5 % $(58,612) $(24,688)
Loss on
divestiture (12,054)
Total Shop At Home (8,110) (9,836) 17.5 % (70,666) (24,688)
Birmingham-Post
Herald 40,658 (2) 42,799
Income (loss) from
discontinued
operations,
before tax (8,110) 30,822 (70,668) 18,111
Income taxes
(benefit) (2,737) 12,502 (25,150) 8,080
Income (loss) from
discontinued
operations $(5,373) $18,320 $(45,518) $10,031
In connection with reaching agreement on the sale of the five Shop At Home-affiliated broadcast television stations, we recognized an impairment charge on our FCC intangible assets totaling $7.5 million in the third quarter of 2006. Shop At Home's loss from operations in the 2006 year-to-date period also includes $15.6 million in costs associated with the termination of long-term agreements and employee termination benefits, and a $6.4 million non-cash charge to write-down assets on the Shop At Home television network. The loss on divestiture in 2006 represents losses on the sale of property and other assets to Jewelry Television. In 2005, we received cash consideration of approximately $40.8 million from the transactions associated with the termination of the Birmingham joint operating agreement and selling certain assets of the Birmingham-Post Herald newspaper. Third quarter 2005 net income was increased by $24.2 million.
2. STOCK-BASED COMPENSATION COSTS AND OTHER CHARGES AND CREDITS
Net income was affected by the following:
Stock-based compensation costs
Beginning on January 1, 2006, we adopted the requirements of FAS 123R, "Share-Based Payments", and began recording compensation expense on stock options granted to employees. Stock option expense, including the costs of immediately expensed options granted to retiree eligible employees, increased our costs and expenses $4.2 million in the third quarter of 2006 and $17.0 million for the year-to-date period of 2006. Net income was reduced by $2.6 million, $.02 per share in the third quarter of 2006. Year-to-date net income was reduced by $10.7 million, $.07 per share. Based upon stock options issued through September 30, 2006, we expect stock option expense to increase our costs and expenses by approximately $4.0 million for the remainder of 2006. Gain on formation of Colorado newspaper partnership In February of 2006, we completed the formation of a newspaper partnership with MediaNews Group, Inc. ("MediaNews") that will operate certain of both companies' newspapers in Colorado. We contributed the assets of our Boulder Daily Camera, Colorado Daily and Bloomfield Enterprise newspapers for a 50% interest in the partnership. MediaNews contributed the assets of publications they operate in Colorado. In addition, MediaNews also paid us cash consideration of $20.4 million. We recognized a pre-tax gain of $3.5 million in the first quarter of 2006 upon completion of the transaction. Net income was increased by $2.1 million, $.01 per share. Denver newspaper production facilities In the third quarter of 2005, the management committee of the Denver Newspaper Agency ("DNA") approved plans to consolidate DNA's newspaper production facilities. As a result, assets used in certain of the existing facilities will be retired earlier than previously estimated. The reduction in these assets' estimated useful lives increased DNA's depreciation expense in 2006 and 2005. The increased depreciation resulted in a $3.0 million decrease in our equity in earnings from JOAs in the third quarter of 2006 and $9.1 million in the third quarter 2005. Third quarter net income was decreased by $1.9 million, $.01 per share in 2006 and $5.7 million, $.03 per share in 2005. Year-to-date equity in earnings from JOAs was decreased $9.3 million in 2006 reducing net income by $5.7 million, $.04 per share. The increased depreciation is expected to decrease equity in earnings from JOAs approximately $3.0 million in each remaining quarter until the second quarter of 2007. Hurricanes Certain of our Florida operations sustained hurricane damages in 2004 and 2005. Throughout the course of 2005 and 2006, we reached agreements with insurance providers and other responsible third parties on certain of our property and business interruption claims and recorded year-to-date insurance recoveries of $1.9 million in 2006 and $2.2 million in 2005. The insurance recoveries recorded in 2005 were partially offset by additional estimated losses of $0.3 million. Year-to-date net income was increased by $1.2 million, $.01 per share in 2006 and 2005. 3. SEGMENT INFORMATION Our reportable segments are strategic businesses that offer different products and services. Scripps Networks includes national television networks, Newspapers includes daily and community newspapers, Broadcast television includes nine network affiliated stations and one independent station, Interactive media includes our online search and comparison shopping services, and Licensing and other media primarily includes syndication and licensing of news features and comics. Our chief operating decision maker (as defined by FAS 131 - Segment Reporting) evaluates the operating performance of our business segments using a measure we call segment profits. Segment profits excludes interest, income taxes, depreciation and amortization, divested operating units, restructuring activities, investment results and certain other items that are included in net income determined in accordance with accounting principles generally accepted in the United States of America. Items excluded from segment profits generally result from decisions made in prior periods or from decisions made by corporate executives rather than the managers of the business segments. Depreciation and amortization charges are the result of decisions made in prior periods regarding the allocation of resources and are therefore excluded from the measure. Financing, tax structure and divestiture decisions are generally made by corporate executives. Excluding these items from our business segment performance measure enables us to evaluate business segment operating performance for the current period based upon current economic conditions and decisions made by the managers of those business segments in the current period. We account for our share of the earnings of joint operating agreements ("JOAs") and newspaper partnerships using the equity method of accounting. Our equity in earnings of JOAs and newspaper partnerships is included in "Equity in earnings of JOAs and other joint ventures" in our Results of Operations. Newspaper segment profits include equity in earnings of JOAs and newspaper partnerships. Scripps Networks segment profits include equity in earnings of FOX Sports Net South and joint ventures with foreign entities.
Information regarding the operating performance of our business segments
determined in accordance with FAS 131 and reconciliation to our Results of
Operations is as follows:
(in thousands) Three months ended Sept. 30,
2006 2005 Fav(Unf)
Segment operating revenues:
Scripps Networks $248,795 $209,115 19.0 %
Newspapers:
Newspapers managed solely by us 167,892 166,543 0.8 %
JOAs and newspaper partnerships 43 181 (76.2)%
Total 167,935 166,724 0.7 %
Boulder prior to formation of Colorado
newspaper partnership 7,314
Total newspapers 167,935 174,038 (3.5)%
Broadcast television 81,667 72,808 12.2 %
Interactive media 60,864 35,210 72.9 %
Licensing and other media 24,647 24,214 1.8 %
Corporate/intercompany (459) (53)
Total operating revenues $583,449 $515,332 13.2 %
Segment profit (loss):
Scripps Networks $116,247 $87,943 32.2 %
Newspapers:
Newspapers managed solely by us 38,110 42,187 (9.7)%
JOAs and newspaper partnerships 1,568 (1,829)
Total 39,678 40,358 (1.7)%
Boulder prior to formation of Colorado
newspaper partnership 1,241
Total newspapers 39,678 41,599 (4.6)%
Broadcast television 22,694 14,714 54.2 %
Interactive media 8,957 7,309 22.5 %
Licensing and other media 4,007 4,425 (9.4)%
Corporate/intercompany (12,657) (9,155) (38.3)%
Depreciation and amortization of
intangibles (27,128) (25,307) (7.2)%
Gain on formation of Colorado
newspaper partnership
Gains (losses) on disposal of PP&E (277) (107)
Interest expense (15,281) (12,136) (25.9)%
Interest and dividend income 713 3,758 (81.0)%
Miscellaneous, net 1,421 417
Income from continuing operations
before income taxes and minority
interests $138,374 $113,460 22.0 %
(in thousands) Nine months ended Sept. 30,
2006 2005 Fav(Unf)
Segment operating revenues:
Scripps Networks $772,700 $656,092 17.8 %
Newspapers:
Newspapers managed solely by us 533,988 516,009 3.5 %
JOAs and newspaper partnerships 147 331 (55.5)%
Total 534,135 516,340 3.4 %
Boulder prior to formation of Colorado
newspaper partnership 2,189 20,716 (89.4)%
Total newspapers 536,324 537,056 (0.1)%
Broadcast television 251,875 228,251 10.4 %
Interactive media 184,472 36,257
Licensing and other media 70,778 81,227 (12.9)%
Corporate/intercompany (1,057) (177)
Total operating revenues $1,815,092 $1,538,706 18.0 %
Segment profit (loss):
Scripps Networks $373,062 $292,345 27.6 %
Newspapers:
Newspapers managed solely by us 141,835 149,798 (5.3)%
JOAs and newspaper partnerships 2,984 14,674 (79.7)%
Total 144,819 164,472 (11.9)%
Boulder prior to formation of Colorado
newspaper partnership (125) 2,799
Total newspapers 144,694 167,271 (13.5)%
Broadcast television 71,598 58,067 23.3 %
Interactive media 39,341 7,667
Licensing and other media 10,027 15,609 (35.8)%
Corporate/intercompany (43,608) (30,688) (42.1)%
Depreciation and amortization of
intangibles (85,909) (56,782) (51.3)%
Gain on formation of Colorado
newspaper partnership 3,535
Gains (losses) on disposal of PP&E (433) (65)
Interest expense (42,971) (27,067) (58.8)%
Interest and dividend income 1,864 4,340 (57.1)%
Miscellaneous, net 3,400 350
Income from continuing operations
before income taxes and minority
interests $474,600 $431,047 10.1 %
Certain items required to reconcile segment profitability to consolidated results of operations determined in accordance with accounting principles generally accepted in the United States of America are attributed to particular business segments. Significant reconciling items attributable to each business segment are as follows:
(in thousands) Three months ended Nine months ended
Sept. 30, Sept. 30,
2006 2005 Fav(Unf) 2006 2005 Fav(Unf)
Depreciation:
Scripps Networks $4,550 $3,569 (27.5)% $12,467 $10,569 (18.0)%
Newspapers:
Newspapers managed
solely by us 5,576 5,039 (10.7)% 16,156 14,968 (7.9)%
JOAs and newspaper
partnerships 311 310 (0.3)% 921 919 (0.2)%
Total 5,887 5,349 (10.1)% 17,077 15,887 (7.5)%
Boulder prior to
formation of Colorado
newspaper partnership 316 111 931 88.1 %
Total newspapers 5,887 5,665 (3.9)% 17,188 16,818 (2.2)%
Broadcast television 4,281 4,688 8.7 % 13,413 13,845 3.1 %
Interactive media 1,143 1,994 42.7 % 7,924 2,046
Licensing and other
media 120 221 45.7 % 442 664 33.4 %
Corporate 378 559 32.4 % 1,030 1,651 37.6 %
Total depreciation $16,359 $16,696 2.0 % $52,464 $45,593 (15.1)%
Amortization of
intangibles:
Scripps Networks $801 $1,112 28.0 % $2,481 $2,482 0.0 %
Newspapers:
Newspapers managed
solely by us 562 77 1,003 238
JOAs and newspaper
partnerships 67 200
Total 562 144 1,003 438
Boulder prior to
formation of Colorado
newspaper partnership 20 21 60 65.0 %
Total newspapers 562 164 1,024 498
Broadcast television 284 296 4.1 % 844 880 4.1 %
Interactive media 9,122 7,039 (29.6)% 29,096 7,329
Total amortization of
intangibles $10,769 $8,611 (25.1)% $33,445 $11,189
Gains (losses) on disposal of PP&E:
Scripps Networks $(10) $(104) $(25)
Newspapers:
Newspapers managed
solely by us (161) $(84) (91.7)% (196) (222) 11.7 %
JOAs and newspaper
partnerships 1 9
Total newspapers (160) (84) (90.5)% (187) (222) 15.8 %
Broadcast television (107) (23) (142) 200
Corporate (18)
Gains (losses) on
disposal of PP&E $(277) $(107) $(433) $(65)
Gain on formation of
Colorado newspaper
partnership $3,535
4. JOINT OPERATING AGREEMENTS AND NEWSPAPER PARTNERSHIPS
Three of our newspapers are operated pursuant to the terms of JOAs. The Newspaper Preservation Act of 1970 provides a limited exemption from anti- trust laws, permitting competing newspapers in a market to combine their sales, production and business operations in order to reduce aggregate expenses and take advantage of economies of scale, thereby allowing the continuing operation of both newspapers in that market. Each newspaper in a JOA maintains a separate and independent editorial operation. In February of 2006, we formed a newspaper partnership with MediaNews Group, Inc. ("MediaNews") that will operate certain of both companies' newspapers in Colorado, including their editorial operations. We have a 50% interest in the partnership. Our share of the operating profit (loss) of JOAs and newspaper partnership are reported as "Equity in earnings of JOAs and other joint ventures" in our financial statements. Information related to the operating results of our JOAs and newspaper partnerships is as follows:
(in thousands) Three months ended Nine months ended
Sept. 30, Sept. 30,
2006 2005 Fav(Unf) 2006 2005 Fav(Unf)
Equity in earnings of
JOAs and newspaper
partnerships included
in segment profit:
Denver $1,736 $(1,614) $5,939 $16,055 (63.0)%
Cincinnati 5,341 6,100 (12.4)% 14,386 17,138 (16.1)%
Albuquerque 2,622 2,783 (5.8)% 7,958 8,476 (6.1)%
Colorado 402 957
Other newspaper
partnerships and
joint ventures (15) (18) 16.7 % 131 209 (37.3)%
Total equity in
earnings of JOAs
included in
segment profit 10,086 7,251 39.1 % 29,371 41,878 (29.9)%
Operating revenues
of JOAs and
newspaper
partnerships 43 181 (76.2)% 147 331 (55.6)%
Total $10,129 $7,432 36.3 % $29,518 $42,209 (30.1)%
JOAs and newspaper
partnerships
contribution to
segment profit:
Denver $(4,213) $(7,454) 43.5 % $(12,236) $(1,857)
Cincinnati 3,812 3,922 (2.8)% 9,256 10,974 (15.7)%
Albuquerque 1,582 1,721 (8.1)% 4,876 5,348 (8.8)%
Colorado 402 957
Other newspaper
partnerships and
joint ventures (15) (18) 16.4 % 131 209 (37.4)%
Total contribution
to segment profit $1,568 $(1,829) $2,984 $14,674 (79.7)%
Additional depreciation incurred by the Denver News Agency reduced equity in earnings of JOAs by $3.0 million in the third quarter of 2006 and $9.1 million in the third quarter of 2005. Year-to-date equity in earnings of JOAs was reduced by $9.3 million in 2006. (See Note 2). Gannett Newspapers has notified us of its intent to terminate the Cincinnati JOA upon its expiration in December 2007. 5. SCRIPPS NETWORKS Scripps Networks includes five national television networks and their affiliated Websites, Home & Garden Television ("HGTV"), Food Network, DIY Network ("DIY"), Fine Living and Great American Country ("GAC"); and our 12% interest in FOX Sports Net South, a regional television network. Our networks also operate internationally through licensing agreements and joint ventures with foreign entities. The networks utilize common facilities and certain sales, operational and support services are shared by the networks. Expenses directly attributable to the operations of a network are charged directly to that network. The costs of shared facilities and services are not allocated to individual networks for segment reporting purposes.
Financial information for Scripps Networks is as follows:
(in thousands) Three months ended Sept. 30,
2006 2005 Fav(Unf)
HGTV:
Operating revenues $122,867 $106,201 15.7 %
Direct segment operating expenses (44,081) (39,619) (11.3)%
Equity in earnings of joint ventures 557 30
Contribution to segment profit $79,343 $66,612 19.1 %
Food Network:
Operating revenues $97,995 $80,013 22.5 %
Direct segment operating expenses (36,725) (35,347) (3.9)%
Equity in earnings of joint ventures 90 287 (68.6)%
Contribution to segment profit $61,360 $44,953 36.5 %
DIY:
Operating revenues $12,321 $11,055 11.5 %
Direct segment operating expenses (12,219) (9,078) (34.6)%
Contribution to segment profit $102 $1,977 (94.8)%
Fine Living:
Operating revenues $9,082 $6,382 42.3 %
Direct segment operating expenses (7,166) (6,628) (8.1)%
Equity in earnings (losses) of
joint ventures 31 (97)
Contribution to segment profit $1,947 $(343)
Great American Country:
Operating revenues $4,817 $3,857 24.9 %
Direct segment operating expenses (4,817) (3,985) (20.9)%
Contribution to segment profit $- $(128) 100.0 %
Unallocated costs and other $(26,505) $(25,128) (5.5)%
(in thousands) Nine months ended Sept. 30,
2006 2005 Fav(Unf)
HGTV:
Operating revenues $382,555 $333,815 14.6 %
Direct segment operating expenses (128,309) (118,022) (8.7)%
Equity in earnings of joint ventures 1,667 1,038 60.6 %
Contribution to segment profit $255,913 $216,831 18.0 %
Food Network:
Operating revenues $305,011 $254,559 19.8 %
Direct segment operating expenses (115,893) (107,830) (7.5)%
Equity in earnings of joint ventures 817 771 6.0 %
Contribution to segment profit $189,935 $147,500 28.8 %
DIY:
Operating revenues $37,538 $33,067 13.5 %
Direct segment operating expenses (33,272) (27,506) (21.0)%
Contribution to segment profit $4,266 $5,561 (23.3)%
Fine Living:
Operating revenues $27,715 $19,479 42.3 %
Direct segment operating expenses (21,758) (19,655) (10.7)%
Equity in earnings (losses) of
joint ventures 64 (382)
Contribution to segment profit $6,021 $(558)
Great American Country:
Operating revenues $14,623 $10,808 35.3 %
Direct segment operating expenses (14,216) (11,751) (21.0)%
Contribution to segment profit $407 $(943)
Unallocated costs and other $(83,480) $(76,046) (9.8)%
REVENUE AND STATISTICAL SUMMARY FOR SELECTED OPERATING SEGMENTS
(amounts in millions, September Year-to-date
unless otherwise noted) 2006 2005 % 2006 2005 %
SCRIPPS NETWORKS
Operating Revenues
Advertising $67.4 $57.4 17.5% $611.8 $524.6 16.6%
Affiliate fees, net 16.2 15.2 7.1% 146.6 125.2 17.0%
Other 2.6 1.3 14.3 6.3
Scripps Networks $86.2 $73.8 16.8% $772.7 $656.1 17.8%
Subscribers (1)
HGTV 91.0 89.2 2.0%
Food Network 90.8 88.1 3.1%
Great American Country 44.3 39.0 13.6%
NEWSPAPERS (2)
Operating Revenues
Local $12.6 $12.3 2.2% $116.8 $115.4 1.3%
Classified 17.2 17.7 (2.9)% 175.5 166.2 5.6%
National 2.7 3.8 (27.2)% 27.6 30.7 (10.3)%
Preprints, online and other 12.1 11.0 10.3% 109.0 97.9 11.4%
Newspaper advertising 44.7 44.8 (0.3)% 428.9 410.2 4.6%
Circulation 10.8 9.6 12.3% 93.3 94.2 (1.0)%
Other 1.5 1.4 6.6% 11.8 11.6 2.0%
Newspapers managed solely
by us $57.0 $55.8 2.0% $534.0 $516.0 3.5%
Ad inches (excluding JOAs)
(in thousands)
Local 414 439 (5.7)% 3,908 3,993 (2.1)%
Classified 772 719 7.4% 7,234 6,635 9.0%
National 73 90 (18.5)% 718 830 (13.5)%
Full run ROP 1,260 1,248 0.9% 11,860 11,458 3.5%
BROADCAST TELEVISION
Operating Revenues
Local $15.9 $16.8 (5.1)% $152.2 $142.7 6.7%
National 7.8 9.5 (18.1)% 75.5 73.8 2.3%
Political 6.6 0.2 15.3 1.5
Other 1.5 1.4 11.6% 8.8 10.3 (14.7)%
Broadcast Television $31.9 $27.9 14.5% $251.9 $228.3 10.3%
(1) Subscriber counts are according to the Nielsen Homevideo Index of
homes that receive cable networks.
(2) On February 1, 2006, we contributed the Boulder Daily Camera, the
Colorado Daily and the twice-weekly Broomfield Enterprise in
exchange for a 50% interest in a partnership we jointly operate with
MediaNews Group Inc. To enhance comparability the reported revenues
do not include operating revenues of these newspapers prior to the
formation of the partnership. Our 50% share of the operating profit
(loss) of the partnership is reported as "Equity in earnings of JOAs
and other joint ventures" in our financial statements.
REVENUE AND STATISTICAL SUMMARY FOR SELECTED OPERATING SEGMENTS
(amounts in millions, unless
otherwise noted) Third Quarter
2006 2005 %
SCRIPPS NETWORKS
Operating Revenues
Advertising $191.8 $163.0 17.6%
Affiliate fees, net 49.0 43.6 12.4%
Other 8.0 2.5
Scripps Networks $248.8 $209.1 19.0%
Subscribers (1)
HGTV 91.0 89.2 2.0%
Food Network 90.8 88.1 3.1%
Great American Country 44.3 39.0 13.6%
NEWSPAPERS (2)
Operating Revenues
Local $35.4 $35.2 0.6%
Classified 54.1 54.5 (0.7)%
National 8.2 10.5 (21.5)%
Preprints, online and other 36.1 32.8 10.1%
Newspaper advertising 133.9 133.0 0.7%
Circulation 30.5 30.0 1.8%
Other 3.4 3.5 (1.8)%
Newspapers managed solely by us $167.9 $166.5 0.8%
Ad inches (excluding JOAs) (in
thousands)
Local 1,208 1,243 (2.8)%
Classified 2,329 2,192 6.3%
National 209 267 (21.7)%
Full run ROP 3,746 3,703 1.2%
BROADCAST TELEVISION
Operating Revenues
Local $44.7 $45.0 (0.7)%
National 22.0 23.8 (7.6)%
Political 11.7 1.0
Other 3.3 3.0 10.8%
Broadcast Television $81.7 $72.8 12.2%
(1) Subscriber counts are according to the Nielsen Homevideo Index of
homes that receive cable networks.
(2) On February 1, 2006, we contributed the Boulder Daily Camera, the
Colorado Daily and the twice-weekly Broomfield Enterprise in
exchange for a 50% interest in a partnership we jointly operate with
MediaNews Group Inc. To enhance comparability the reported revenues
do not include operating revenues of these newspapers prior to the
formation of the partnership. Our 50% share of the operating profit
(loss) of the partnership is reported as "Equity in earnings of JOAs
and other joint ventures" in our financial statements.
SOURCE The E. W. Scripps Company
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