UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number 0-16914 THE E. W. SCRIPPS COMPANY (Exact name of registrant as specified in its charter) Ohio 31-1223339 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 312 Walnut Street Cincinnati, Ohio 45202 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (513) 977-3000 Not Applicable (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of July 31, 2001 there were 60,237,588 of the Registrant's Class A Common Shares outstanding and 19,096,913 of the Registrant's Common Voting Shares outstanding.
INDEX TO THE E. W. SCRIPPS COMPANY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001 Item No. Page PART I - FINANCIAL INFORMATION 1 Financial Statements 3 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 3 3 Quantitative and Qualitative Disclosures About Market Risk 3 PART II - OTHER INFORMATION 1 Legal Proceedings 3 2 Changes in Securities 3 3 Defaults Upon Senior Securities 3 4 Submission of Matters to a Vote of Security Holders 4 5 Other Information 4 6 Exhibits and Reports on Form 8-K 4
PART I ITEM 1. FINANCIAL STATEMENTS The information required by this item is filed as part of this Form 10-Q. See Index to Financial Information at page F-1 of this Form 10-Q. ITEM 2. 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-Q. See Index to Financial Information at page F-1 of this Form 10-Q. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this item is filed as part of this Form 10-Q. See Index to Financial Information at page F-1 of this Form 10-Q. PART II ITEM 1. LEGAL PROCEEDINGS The Company is involved in litigation arising in the ordinary course of business, such as defamation actions and various governmental and administrative proceedings relating to renewal of broadcast licenses, none of which is expected to result in material loss. ITEM 2. CHANGES IN SECURITIES There were no changes in the rights of security holders during the quarter for which this report is filed. ITEM 3. DEFAULTS UPON SENIOR SECURITIES There were no defaults upon senior securities during the quarter for which this report is filed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The following table presents information on matters submitted to a vote of security holders at the 2001 Annual Meeting of Shareholders. <TABLE> <s> <c> <c> <c> <c> Broker Description of Matters Submitted In Favor Against Abstain Non-Votes Class A Common Shares: Election of Directors: Daniel J. Meyer 55,603,637 136,574 Nicholas B. Paumgarten 55,229,706 510,505 Ronald W. Tysoe 55,603,607 136,604 Julie A. Wrigley 55,603,692 136,519 Common Voting Shares: Election of Directors: William R. Burleigh 19,047,813 John H. Burlingame 19,047,813 Joseph P. Clayton 19,047,813 Kenneth W. Lowe 19,047,813 Nackey E. Scagliotti 19,047,813 Charles E. Scripps 19,047,813 Edward W. Scripps 19,047,813 Paul K. Scripps 19,047,813 </TABLE> ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibits The information required by this item is filed as part of this Form 10-Q. See Index to Exhibits at page E-1 of this Form 10-Q. Reports on Form 8-K No reports on Form 8-K were filed during the quarter for which this report is filed.
SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE E. W. SCRIPPS COMPANY Dated: August 13, 2001 BY: D. J. Castellini D. J. Castellini Senior Vice President and Chief Financial Officer
THE E. W. SCRIPPS COMPANY Index to Financial Information Item Page Consolidated Balance Sheets F-2 Consolidated Statements of Income F-4 Consolidated Statements of Cash Flows F-5 Consolidated Statements of Comprehensive Income and Stockholders' Equity F-6 Notes to Consolidated Financial Statements F-7 Management's Discussion and Analysis of Financial Condition and Results of Operations Forward Looking Statements F-16 Results of Operations F-16 Newspapers F-19 Scripps Networks F-20 Broadcast Television F-21 Liquidity and Capital Resources F-22 Market Risk F-23
<TABLE> <s> <c> <c> <c> CONSOLIDATED BALANCE SHEETS ( in thousands ) As of June 30, December 31, June 30, 2001 2000 2000 ( Unaudited ) ( Unaudited ) ASSETS Current Assets: Cash and cash equivalents $ 16,519 $ 14,112 $ 15,326 Accounts and notes receivable (less allowances -$13,618, $13,891, $12,990) 250,845 289,583 286,011 Program rights and production costs 108,561 115,513 80,502 Network distribution fees 21,976 21,105 18,601 Inventories 9,350 17,802 16,852 Deferred income taxes 29,967 30,421 27,035 Miscellaneous 36,035 35,449 32,088 Total current assets 473,253 523,985 476,415 Investments 403,088 177,922 241,007 Property, Plant and Equipment 383,480 502,041 482,497 Goodwill and Other Intangible Assets 1,202,401 1,209,132 1,208,648 Other Assets: Program rights and production costs (less current portion) 99,185 96,881 81,320 Network distribution fees (less current portion) 42,613 40,571 48,342 Miscellaneous 19,390 22,334 27,128 Total other assets 161,188 159,786 156,790 TOTAL ASSETS $ 2,623,410 $ 2,572,866 $ 2,565,357 See notes to consolidated financial statements. </TABLE>
<TABLE> <s> <c> <c> <c> CONSOLIDATED BALANCE SHEETS ( in thousands, except share data ) As of June 30, December 31, June 30, 2001 2000 2000 ( Unaudited ) ( Unaudited ) LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 202,758 $ 212,828 $ 260,170 Accounts payable 62,902 114,275 91,918 Customer deposits and unearned revenue 35,158 37,214 41,078 Accrued liabilities: Employee compensation and benefits 36,488 49,089 43,581 Network distribution fees 54,779 48,257 46,696 Miscellaneous 83,118 71,313 65,127 Total current liabilities 475,203 532,976 548,570 Deferred Income Taxes 144,813 129,932 147,275 Long-Term Debt (less current portion) 508,555 501,781 501,855 Other Long-Term Obligations and Minority Interests (less current portion) 129,470 130,367 132,791 Stockholders' Equity: Preferred stock, $.01 par - authorized: 25,000,000 shares; none outstanding Common stock, $.01 par: Class A - authorized: 120,000,000 shares; issued and outstanding: 60,203,383; 59,641,828; and 59,306,189 shares 602 596 593 Voting - authorized: 30,000,000 shares; issued and outstanding: 19,096,913; 19,096,913; and 19,216,913 shares 191 191 192 Total 793 787 785 Additional paid-in capital 183,435 157,394 152,395 Retained earnings 1,175,191 1,093,138 1,031,413 Unrealized gains on securities available for sale 17,950 31,877 59,317 Foreign currency translation adjustment (58) 361 700 Unvested restricted stock awards (11,942) (5,747) (9,744) Total stockholders' equity 1,365,369 1,277,810 1,234,866 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,623,410 $ 2,572,866 $ 2,565,357 See notes to consolidated financial statements. </TABLE>
<TABLE> <s> <c> <c> <c> <c> CONSOLIDATED STATEMENTS OF INCOME ( UNAUDITED ) ( in thousands, except per share data ) Three months ended Six months ended June 30, June 30, 2001 2000 2001 2000 Operating Revenues: Advertising $ 284,451 $ 345,926 $ 557,224 $ 663,625 Circulation 34,058 36,548 70,240 74,897 Affiliate fees 19,935 14,535 39,692 29,165 Licensing 17,251 17,409 35,251 33,660 Joint operating agency distributions 7,727 12,266 16,784 23,149 Other 10,631 12,774 22,241 25,821 Total operating revenues 374,053 439,458 741,432 850,317 Operating Expenses: Employee compensation and benefits 118,087 129,314 236,842 256,606 Newsprint and ink 22,383 38,646 48,624 75,838 Amortization of purchased programming 33,694 29,332 65,789 57,370 Other operating expenses 98,841 120,008 203,115 237,280 Depreciation 13,595 17,185 27,952 34,259 Amortization of intangible assets 11,122 10,071 21,530 19,805 Total operating expenses 297,722 344,556 603,852 681,158 Operating Income 76,331 94,902 137,580 169,159 Other Credits (Charges): Interest expense (10,859) (13,481) (23,320) (26,117) Investment results, net of expenses 2,957 (1,449) 61,742 (10,511) Net gains on divested operations 6,269 Miscellaneous, net 480 45 833 991 Net other credits (charges) (7,422) (14,885) 39,255 (29,368) Income Before Taxes and Minority Interests 68,909 80,017 176,835 139,791 Provision for Income Taxes 28,584 32,833 69,226 57,947 Income Before Minority Interests 40,325 47,184 107,609 81,844 Minority Interests 975 1,063 1,821 2,119 Net Income $ 39,350 $ 46,121 $ 105,788 $ 79,725 Net Income per Share of Common Stock: Basic $.50 $.59 $1.34 $1.02 Diluted .49 .58 1.32 1.01 See notes to consolidated financial statements. </TABLE>
<TABLE> <s> <c> <c> CONSOLIDATED STATEMENTS OF CASH FLOWS ( UNAUDITED ) ( in thousands ) Six months ended June 30, 2001 2000 Cash Flows from Operating Activities: Net income $ 105,788 $ 79,725 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 49,482 54,064 Net investment results and loss (gain) on divestitures (63,431) 4,242 Deferred income taxes 22,845 2,879 Dividends greater than share of earnings of equity method investments 24,499 1,563 Minority interests in income of subsidiary companies 1,821 2,119 Network distribution fee amortization greater (less) than payments 3,170 5,165 Program cost amortization greater (less) than payments (17,024) (15,400) Other changes in certain working capital accounts, net (19,031) (23,408) Miscellaneous, net 15,288 4,691 Net operating activities 123,407 115,640 Cash Flows from Investing Activities: Additions to property, plant and equipment (29,095) (26,145) Purchase of subsidiary companies and long-term investments (23,923) (87,058) Payment for interest in Denver JOA (62,520) Sale of subsidiary companies and long-term investments 14,048 26,910 Miscellaneous, net 1,298 4,347 Net investing activities (100,192) (81,946) Cash Flows from Financing Activities: Increase in long-term debt 6,790 55 Payments on long-term debt (10,103) (7,490) Repurchase Class A Common shares (1,988) Dividends paid (23,735) (21,921) Dividends paid to minority interests (784) (785) Miscellaneous, net (primarily employee stock compensation) 9,012 1,317 Net financing activities (20,808) (28,824) Increase in Cash and Cash Equivalents 2,407 4,870 Cash and Cash Equivalents: Beginning of year 14,112 10,456 End of period $ 16,519 $ 15,326 Supplemental Cash Flow Disclosures: Interest paid, excluding amounts capitalized $ 22,966 $ 25,784 Income taxes paid 19,989 55,665 Denver newspaper assets contributed to JOA 162,227 Destin newspaper traded for Fort Pierce newspaper (see Note 2) 3,857 See notes to consolidated financial statements. </TABLE>
<TABLE> <s> <c> <c> <c> <c> <c> <c> <c> CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND STOCKHOLDERS' EQUITY ( UNAUDITED ) ( in thousands, except share data ) Accumulated Unvested Comprehensive Additional Other Restricted Total Income for Common Paid-in Retained Comprehensive Stock Stockholders' Three Months Stock Capital Earnings Income Awards Equity Ended June 30 Balances at December 31, 1999 $ 781 $ 136,731 $ 973,609 $ 58,271 $ (4,940)$ 1,164,452 Comprehensive income: Net income 79,725 79,725 $ 46,121 Unrealized gains, net of tax of $1,525 and ($22,753) 2,824 2,824 (42,256) Less: reclassification adjustment for gains in income, net of tax of ($433) (805) (805) Increase (decrease) in unrealized gains on securities 2,019 2,019 (42,256) Foreign currency translation adjustments (273) (273) (246) Total 79,725 1,746 81,471 $ 3,619 Dividends: declared and paid - $.28 per share (21,921) (21,921) Compensation plans, net: 407,851 shares issued; 1,500 shares forfeited; 25,611 shares repurchased 4 14,404 (4,804) 9,604 Tax benefits of compensation plans 1,260 1,260 Balances at June 30, 2000 $ 785 $ 152,395 $1,031,413 $ 60,017 $ (9,744)$ 1,234,866 Balances at December 31, 2000 $ 787 $ 157,394 $1,093,138 $ 32,238 $ (5,747)$ 1,277,810 Comprehensive income: Net income 105,788 105,788 $ 39,350 Unrealized gains, net of tax of $19,655 and $14,213 36,523 36,523 26,313 Less: reclassification adjustment for gains in income, net of tax of ($27,165) and ($4,084) (50,450) (50,450) (7,584) Increase (decrease) in unrealized gains on securities (13,927) (13,927) 18,729 Foreign currency translation adjustments (419) (419) 163 Total 105,788 (14,346) 91,442 $ 58,242 Dividends: declared and paid - $.30 per share (23,735) (23,735) Repurchase 35,200 Class A Common Shares (1,988) (1,988) Compensation plans, net: 706,660 shares issued; 108,505 shares repurchased; 1,400 shares forfeited 6 20,979 (6,195) 14,790 Tax benefits of compensation plans 7,050 7,050 Balances at June 30, 2001 $ 793 $ 183,435 $1,175,191 $ 17,892 $ (11,942)$ 1,365,369 See notes to consolidated financial statements. </TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ________________________________________________________________________ 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation - The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The information disclosed in the notes to consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000, has not changed materially unless otherwise disclosed herein. Financial information as of December 31, 2000, included in these financial statements has been derived from the audited consolidated financial statements included in that report. In management's opinion all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the interim periods have been made. Results of operations are not necessarily indicative of the results that may be expected for future interim periods or for the full year. Joint Operating Agencies - The application for a joint operating agency ("JOA") between the Company's Denver Rocky Mountain News ("RMN") and MediaNews Group Inc.'s Denver Post was approved in January 2001 by the U.S. Department of Justice. The JOA commenced operations on January 22, 2001. The Denver Publishing Company, a wholly owned subsidiary of the Company, holds a 50% interest in the JOA. Included in JOA distributions in the Consolidated Statements of Income is the Company's share of the operating profit (loss) of the Denver JOA from January 22, 2001. The Company also includes in its operating expenses its editorial costs associated with the RMN. The Company's financial statements no longer include the advertising and other revenue of the RMN, the costs to produce, distribute and market the newspaper, nor related depreciation. The Company's residual interest in the net assets of the JOA is included in Investments in the Consolidated Balance Sheets. Derivative Instruments and Hedging Activities - The Company adopted Financial Accounting Standard ("FAS") No. 133 - Accounting for Derivative Instruments and Hedging Activities effective January 1, 2001. Adoption of the new standard had no effect on the Company's financial statements. Net Income Per Share - The following table presents additional information about basic and diluted weighted-average shares outstanding: <TABLE> <s> <c> <c> <c> <c> ( in thousands ) Three months ended Six months ended June 30, June 30, 2001 2000 2001 2000 Basic weighted-average shares outstanding 78,844 78,115 78,781 78,078 Effect of dilutive securities: Unvested restricted stock held by employees 160 135 153 125 Stock options held by employees 998 745 999 739 Diluted weighted-average shares outstanding 80,002 78,995 79,933 78,942 </TABLE> Recently Issued Accounting Standards - The Emerging Issues Task Force reached a consensus on Issue 00-25 - Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products in April 2001. The consensus, which must be adopted no later than January 1, 2002, requires consideration paid to customers to be deducted from revenue. The Company currently classifies amortization of distribution fees paid to cable television and satellite broadcast systems as an operating expense in its financial statements. The Company plans to adopt this policy effective with its Annual Report on Form 10-K for the year ended December 31, 2001. Financial statements for prior periods will be restated. The change in classification will have no impact on the Company's reported operating income or financial position. However, operating revenues will be reduced by the amounts of amortization of distribution fees, which in the six months ended June 30 totaled $10,900,000 in 2001 and $9,000,000 in 2000.
In July 2001 the Financial Accounting Standards Board issued FAS No. 141 - Business Combinations and FAS No. 142 - Goodwill and Other Intangible Assets. FAS No. 141 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting. FAS 141 also specifies the types of acquired intangible assets that are required to be recognized and reported separately from goodwill and those acquired intangible assets that are required to be included in goodwill. Currently recorded goodwill and intangibles will be evaluated against this new criteria and, as a result, certain intangibles may be subsumed into goodwill, or amounts initially recorded as gooodwill may be separately identified and recognized apart from goodwill. Under FAS 142 recorded goodwill will no longer be amortized, but instead will be tested for impairment at least annually. Recognized intangible assets will be amortized over their respective estimated useful lives and reviewed for impairment in accordance with FAS 121 - Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. Any recognized intangible asset determined to have an indefinite useful life will not be amortized, but will instead be tested for impairment in accordance with the Standard until its life is determined to no longer be indefinite. Goodwill and intangible assets with indefinite lives acquired in business combinations completed before July 1, 2001 will continue to be amortized until December 31, 2001. Upon adoption of FAS 142, management expects amortization of goodwill and other intangible assets will be substantially reduced commencing January 1, 2002. In connection with the adoption of FAS 142 the Company will also make a transitional impairment evaluation of whether goodwill is impaired as of January 1, 2002. To accomplish this, the Company must (1) identify its reporting units, (2) determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets to those reporting units, and (3) determine the fair value of each reporting unit. This first step of the transitional assessment must be completed by June 30, 2002. If the carrying value of any reporting unit exceeds its fair value, then detailed fair values for each of the assigned assets (excluding goodwill) and liabilities will be determined to calculate the amount of goodwill impairment, if any. This second step is required to be completed as soon as possible, but no later than December 31, 2002. Any transitional impairment loss resulting from the adoption will be recognized as the effect of a change in accounting principle. It is not practicable to reasonably estimate the impact of the transitional impairment evaluation or to quantify the reduction in amortization of goodwill and other intangible assets. The recorded net book value of goodwill and other intangible assets at June 30, 2001, was $1,202,401,000. Amortization was $21,530,000 for the six months ended June 30, 2001. Reclassifications - For comparative purposes, certain 2000 amounts have been reclassified to conform to 2001 classifications.
2. ACQUISITIONS AND DIVESTITURES Acquisitions 2001 - In the first quarter the Company acquired an additional 3.5% interest in The Television Food Network. 2000 - In the first quarter the Company acquired the daily newspaper in Fort Pierce, Florida, in exchange for its newspaper in Destin, Florida, and cash; and television station KMCI in Lawrence, Kansas. In later periods the Company acquired the daily newspaper in Henderson, Kentucky, and the weekly newspaper in Marco Island, Florida. The following table presents additional information about the acquisitions: <TABLE> <s> <c> <c> ( in thousands ) Six months ended June 30, 2001 2000 Goodwill and other intangible assets acquired $ 14,435 $ 40,357 Other assets acquired 6,518 Total 14,435 46,875 Fair value of Destin newspaper (3,857) Liabilities assumed (38) Cash paid $ 14,435 $ 42,980 </TABLE> The acquisitions have been accounted for as purchases. The allocations of the purchase prices are based on preliminary appraised values of the assets acquired and liabilities assumed, and are therefore subject to change. Operating results are included in the Consolidated Statements of Income from the dates of acquisitions, with the exception of KMCI whose results were included while the Company operated the station under a contract with the former owner. Pro forma results are not presented because the combined results of operations would not be significantly different than the reported amounts. Divestitures 2000 - In the first quarter the Company sold its independent telephone directories in Memphis, Tennessee; Kansas City, Missouri; and North Palm Beach, Florida, and traded its Destin, Florida, newspaper and cash for the daily newspaper in Fort Pierce, Florida. The sales and trade resulted in net gains of $6,269,000, $3,800,000 after-tax ($.05 per share). In the third quarter the Company sold its remaining independent telephone directories in Louisiana. Included in the consolidated financial statements are the following results of divested operations (excluding gains on sales): <TABLE> <s> <c> <c> ( in thousands ) Three months Six months ended ended June 30, June 30, 2000 2000 Operating revenues $ 1,262 $ 8,064 Operating income (loss) (261) (372) </TABLE>
3. UNUSUAL CREDITS AND CHARGES 2001 - Included in net investment results are i) recognized net investment gains and ii) adjustments to accrued incentive compensation related to changes in the net gains (realized and estimated unrealized) on the Scripps Ventures I portfolio. Included in year-to-date recognized net investment gains are i) a gain of $65,900,000 on the exchange of the Company's investment in Time Warner for America Online, which acquired Time Warner, and an $11,700,000 gain on the sale of a portion of the Company's investment in Centra Software, ii) $22,600,000 in write-downs for several investments, and iii) an $8,400,000 reduction in accrued incentive compensation, to $3,100,000 at June 30, 2001, in conjunction with the $56,000,000 decrease in the total realized and estimated unrealized net gain on Scripps Ventures I's portfolio, to $21,000,000. Net investment results increased net income $40,500,000 ($.51 per share) year-to-date and $1,900,000 ($.02 per share) for the quarter. Costs associated with workforce reductions, including the Company's share of such costs at the Denver JOA, reduced operating income $11,200,000 in the second quarter and year-to-date period. Net income was reduced $7,100,000 ($.09 per share). The combined effect of the above items was to increase 2001 year-to-date net income $33,400,000 ($.42 per share) and to reduce 2001 second quarter net income $5,100,000 ($.07 per share). 2000 - Included in net investment results are i) realized gains of $5,000,000 on the sale of certain investments, ii) $11,000,000 in write-downs of certain investments, and iii) a $3,800,000 increase in accrued incentive compensation, to $10,800,000 at June 30, 2000, in conjunction with the $25,000,000 increase in the total realized and estimated unrealized net gain on Scripps Ventures I's portfolio, to $72,000,000. Net investment results reduced net income $6,800,000 ($.09 per share) year-to-date and $1,000,000 ($.01 per share) for the quarter. $800,000 of expenses associated with preparations for the joint newspaper operations in Denver, reduced net income $500,000 ($.01 per share) in the second quarter. The combined effect of the above items and the gains on divestitures (see Note 2) was to reduce 2000 year-to-date net income $3,600,000 ($.05 per share) and to reduce second quarter net income $1,500,000 ($.02 per share).
4. LONG-TERM DEBT Long-term debt consisted of the following: <TABLE> <s> <c> <c> <c> ( in thousands ) As of June 30, December 31, June 30, 2001 2000 2000 Variable rate credit facilities, including commercial paper $ 502,718 $ 512,788 $ 559,950 $100 million, 6.625% note, due in 2007 99,908 99,901 99,894 $100 million, 6.375% note, due in 2002 99,973 99,964 99,954 Other notes 8,714 1,956 2,227 Total long-term debt 711,313 714,609 762,025 Current portion of long-term debt 202,758 212,828 260,170 Long-term debt (less current portion) $ 508,555 $ 501,781 $ 501,855 </TABLE> The Company has a Competitive Advance and Revolving Credit Facility Agreement, which permits aggregate borrowings up to $700,000,000 (the "Variable Rate Credit Facilities"). The Variable Rate Credit Facilities are comprised of two unsecured lines, one limited to $400,000,000 principal amount maturing in 2001, and the other limited to $300,000,000 principal amount maturing in 2002. Borrowings under the Variable Rate Credit Facilities are available on a committed revolving credit basis at the Company's choice of three short-term rates or through an auction procedure at the time of each borrowing. The Variable Rate Credit Facilities are also used by the Company in whole or in part, in lieu of direct borrowings, as credit support for its commercial paper. The weighted-average interest rates on the Variable Rate Credit Facilities were 4.1% at June 30, 2001, 6.6% at December 31, 2000, and 6.7% at June 30, 2000.
5. INVESTMENTS Investments consisted of the following: <TABLE> <s> <c> <c> <c> ( in thousands, except share data ) As of June 30, December 31, June 30, 2001 2000 2000 Securities available for sale (at market value): AOL Time Warner common stock (2,017,000 shares) $ 106,891 Time Warner common stock (1,344,000 shares) $ 70,239 $ 102,185 Centra Software (700,500; 1,792,500; 1,792,500 common shares) 11,901 6,946 17,030 garden.com Inc. (2,414,000 common shares and 276,000 warrants) 5,797 iVillage Inc. (41,000; 270,000; 270,000 common shares) 59 40 5,412 Other 4,542 3,929 4,819 Total available-for-sale securities 123,393 81,154 135,243 Denver newspaper JOA 199,695 FOX SportSouth and other joint ventures 8,787 9,502 7,270 Other equity investments 71,213 87,266 98,494 Total investments $ 403,088 $ 177,922 $ 241,007 Unrealized gains (losses) on securities available for sale $ 27,607 $ 49,047 $ 91,323 </TABLE> Investments available for sale represent securities in publicly traded companies. Investments available for sale are recorded at fair value. Fair value is based upon the closing price of the security on the reporting date. The Company exchanged its investment in Time Warner for America Online, which acquired Time Warner, in the first quarter of 2001. The Company sold 1,092,000 shares of Centra Software in the second quarter of 2001. See Note 3. The values of several of the Company's investments in available-for-sale securities declined below historical cost and were written down in 2000. During the third quarter of 2000 the Company received $5,000,000 upon delivery of 229,000 iVillage shares under the provisions of a zero-cost collar. Other equity investments includes securities that do not trade in public markets, so they do not have readily determinable fair values. However, based upon the price paid by other investors for similar securities in subsequent rounds of financing, if any, and based upon management's assessment when circumstances indicate fair value is less than the price paid in the most recent round, the total estimated value of these investments was $80,000,000 on June 30, 2001, $163,000,000 on December 31, 2000, and $156,000,000 on June 30, 2000. There can be no assurance as to the amounts the Company would receive if these securities were sold. The Company's Scripps Ventures Funds I and II invest in new businesses focusing primarily on new media technology. Scripps Ventures I invested $54,000,000. The managers' compensation includes a share of the portfolio's cumulative net gain through December 2002 if a specified minimum return is achieved. Based on the portfolio's realized and estimated unrealized net gains of $21,000,000 through June 30, 2001, the incentive compensation accrual was $3,100,000. The incentive compensation accrual will be subject to change as the net gain changes through December 2002. Scripps Ventures II is authorized to invest up to $100,000,000, of which $41,000,000 was invested as of June 30, 2001. The managers have a minority equity interest in the return on Scripps Ventures II's investments if a specified minimum return is achieved.
6. SEGMENT INFORMATION The Company's reportable segments are strategic businesses that offer different products and services. The Company primarily evaluates the operating performance of its segments based on earnings before interest, income taxes, depreciation and amortization ("EBITDA"), excluding divested operating units (see Note 2), unusual items (see Note 3) and all credits and charges classified as non-operating in the Consolidated Statements of Income. No single customer provides more than 10% of the Company's revenue. International revenues are primarily derived from licensing comic characters and HGTV and Food Network programming in international markets. Licensing of comic characters in Japan provides more than 50% of the Company's international revenues, which are less than $50,000,000 annually.
Financial information for the Company's business segments is as follows: <TABLE> <s> <c> <c> <c> <c> ( in thousands ) Three months ended Six months ended June 30, June 30, 2001 2000 2001 2000 OPERATING REVENUES Newspapers $ 181,902 $ 239,507 $ 371,450 $ 469,531 Scripps Networks 99,182 86,466 186,799 159,789 Broadcast Television 74,199 87,471 140,120 164,158 Licensing and other media 22,819 24,752 47,112 48,775 Total 378,102 438,196 745,481 842,253 Unusual item (4,049) (4,049) Divested operating units 1,262 8,064 Per consolidated financial statements $ 374,053 $ 439,458 $ 741,432 $ 850,317 EBITDA Newspapers $ 60,059 $ 65,635 $ 114,282 $ 128,096 Scripps Networks 26,593 25,179 42,414 40,517 Broadcast Television 25,255 32,910 41,342 56,464 Licensing and other media 3,902 4,154 8,641 8,630 Corporate (4,048) (4,735) (8,904) (9,561) Total 111,761 123,143 197,775 224,146 Unusual items (10,713) (836) (10,713) (836) Divested operating units (149) (87) Per consolidated financial statements $ 101,048 $ 122,158 $ 187,062 $ 223,223 DEPRECIATION Newspapers $ 6,085 $ 10,359 $ 13,230 $ 20,360 Scripps Networks 1,958 1,584 3,843 3,441 Broadcast Television 5,076 4,725 9,992 9,409 Licensing and other media 190 193 384 384 Corporate 223 267 440 504 Total 13,532 17,128 27,889 34,098 Unusual items 63 63 Divested operating units 57 161 Per consolidated financial statements $ 13,595 $ 17,185 $ 27,952 $ 34,259 AMORTIZATION OF INTANGIBLE ASSETS Newspapers $ 6,460 $ 5,787 $ 12,732 $ 11,373 Scripps Networks 1,899 1,873 3,706 3,600 Broadcast Television 2,352 2,356 4,681 4,708 Total 10,711 10,016 21,119 19,681 Unusual items 411 411 Divested operating units 55 124 Per consolidated financial statements $ 11,122 $ 10,071 $ 21,530 $ 19,805 OPERATING INCOME Newspapers $ 47,514 $ 49,489 $ 88,320 $ 96,363 Scripps Networks 22,736 21,722 34,865 33,476 Broadcast Television 17,827 25,829 26,669 42,347 Licensing and other media 3,712 3,961 8,257 8,246 Corporate (4,271) (5,002) (9,344) (10,065) Total 87,518 95,999 148,767 170,367 Unusual items (11,187) (836) (11,187) (836) Divested operating units (261) (372) Per consolidated financial statements $ 76,331 $ 94,902 $ 137,580 $ 169,159 </TABLE>
<TABLE> <s> <c> <c> ( in thousands ) Three months ended Six months ended June 30, June 30, 2001 2000 2001 2000 PAYMENTS (GREATER) LESS THAN PROGRAM AMORTIZATION AND NETWORK DISTRIBUTION COSTS Scripps Networks $ (7,658) $ (4,665) $ (15,218) $ (10,089) Broadcast Television 1,437 198 1,364 (146) Total $ (6,221) $ (4,467) $ (13,854) $ (10,235) ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT Newspapers $ 5,375 $ 5,150 $ 15,763 $ 9,354 Scripps Networks 3,650 1,654 5,289 3,250 Broadcast Television 4,816 3,979 7,344 12,822 Licensing and other media 182 231 280 316 Corporate 356 72 419 293 Total 14,379 11,086 29,095 26,035 Divested operating units 45 110 Per consolidated financial statements $ 14,379 $ 11,131 $ 29,095 $ 26,145 BUSINESS ACQUISITIONS AND OTHER ADDITIONS TO LONG-LIVED ASSETS Newspapers $ 382 $ 805 $ 64,650 $ 32,806 Scripps Networks 9,299 8,415 27,850 8,992 Broadcast Television 27 55 27 14,660 Licensing and other media 5 10 Venture capital and other investments 3,161 37,101 7,372 46,052 Total $ 12,869 $ 46,381 $ 99,899 $ 102,520 ASSETS Newspapers $ 1,280,470 $ 1,230,571 Scripps Networks 569,280 492,002 Broadcast Television 473,584 491,804 Licensing and other media 25,870 31,243 Venture capital and other investments 196,066 231,874 Corporate 70,250 56,282 Total 2,615,520 2,533,776 Divested operating units 7,890 31,581 Total $ 2,623,410 $ 2,565,357 </TABLE> Other additions to long-lived assets include investments and network distribution fees. Corporate assets are primarily cash, cash equivalent and other short-term investments, and refundable and deferred income taxes.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company operates in three reportable segments: Newspapers, Scripps Networks, and Broadcast Television. FORWARD-LOOKING STATEMENTS This discussion and the information contained in the notes to the consolidated financial statements contain certain forward-looking statements that are based on management's current expectations. Forward-looking statements are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from the expectations expressed in the forward-looking statements. Such risks, trends and uncertainties, which in most instances are beyond the Company's control, include changes in advertising demand and other economic conditions; consumers' taste; newsprint prices; program costs; labor relations; technological developments; competitive pressures; interest rates; regulatory rulings; and reliance on third-party vendors for various products and services. The words "believe," "expect," "anticipate," "estimate," "intend" and similar expressions identify forward-looking statements. All forward-looking statements, which are as of the date of this filing, should be evaluated with the understanding of their inherent uncertainty. RESULTS OF OPERATIONS Acquisitions and divestitures can affect the comparability of year-over-year reported results. Amounts included in the accompanying tables include the results of acquired operations from the dates of acquisition. The results of divested operating units are removed from the segment operating results and reported separately because management believes they impede analysis of the Company's ongoing operations. See Note 2 to the Consolidated Financial Statements on page F-9 regarding acquisitions and divestitures. The application for a JOA between the Company's Denver Rocky Mountain News ("RMN") and MediaNews Group Inc.'s Denver Post was approved by the U.S. Department of Justice. The JOA commenced operations on January 22, 2001. The Denver Publishing Company, a wholly owned subsidiary of the Company holds a 50% interest in the JOA. Included in RMN revenue is the Company's share of the operating profit (loss) of the Denver JOA from January 22, 2001. The Company also includes in its operating expenses its editorial costs associated with the RMN. The Company's financial statements no longer include the advertising and other revenue of the RMN, the costs to produce, distribute and market the newspaper, nor related depreciation. To enhance comparability of year-over-year operating results, the Company is reporting the RMN separately. All per share disclosures included in management's discussion and analysis of financial condition and results of operations are on a diluted basis.
Consolidated results of operations were as follows: <TABLE> <s> <c> <c> <c> <c> <c> <c> ( in thousands, except per share data ) Quarterly Period Year-to-Date 2001 Change 2000 2001 Change 2000 Operating revenues: Newspapers $ 181,166 (0.8)% $ 182,537 $ 359,874 (0.4)% $ 361,337 Scripps Networks 99,182 14.7 % 86,466 186,799 16.9 % 159,789 Broadcast Television 74,199 (15.2)% 87,471 140,120 (14.6)% 164,158 Licensing and other media 22,819 (7.8)% 24,752 47,112 (3.4)% 48,775 Total 377,366 (1.0)% 381,226 733,905 (0.0)% 734,059 Rocky Mountain News 736 56,970 11,576 108,194 Unusual item (4,049) (4,049) Divested operating units 1,262 8,064 Total operating revenues $ 374,053 $ 439,458 $ 741,432 $ 850,317 Operating income: Newspapers $ 52,394 (7.0)% $ 56,345 $ 100,766 (10.7)% $ 112,821 Scripps Networks 22,736 4.7 % 21,722 34,865 4.1 % 33,476 Broadcast Television 17,827 (31.0)% 25,829 26,669 (37.0)% 42,347 Licensing and other media 3,712 (6.3)% 3,961 8,257 0.1 % 8,246 Corporate (4,271) 14.6 % (5,002) (9,344) 7.2 % (10,065) Total 92,398 (10.2)% 102,855 161,213 (13.7)% 186,825 Rocky Mountain News (4,880) 28.8 % (6,856) (12,446) 24.4 % (16,458) Unusual items (11,187) (836) (11,187) (836) Divested operating units (261) (372) Total operating income 76,331 94,902 137,580 169,159 Interest expense (10,859) (13,481) (23,320) (26,117) Investment results, net of expenses 2,957 (1,449) 61,742 (10,511) Net gains on divested operations 6,269 Miscellaneous, net 480 45 833 991 Income taxes (28,584) (32,833) (69,226) (57,947) Minority interest (975) (1,063) (1,821) (2,119) Net income $ 39,350 $ 46,121 $ 105,788 $ 79,725 Net income per share of common stock $.49 $.58 $1.32 $1.01 Weighted-average shares outstanding 80,002 78,995 79,933 78,942 Reconciliations to net income from core operations: Reported net income $ 39,350 $ 46,121 $ 105,788 $ 79,725 Add back / (deduct): Net investment results (1,930) 951 (40,454) 6,844 Workforce reductions 7,078 7,078 Net gains on divested operations (3,763) Denver JOA expenses 543 543 Net income from core operations $ 44,498 (6.5)% $ 47,615 $ 72,412 (13.1)% $ 83,349 Reported net income per share of common stock $.49 $.58 $1.32 $1.01 Add back / (deduct): Net investment results (.02) .01 (.51) .09 Workforce reductions .09 .09 Net gains on divested operations (.05) Denver JOA expenses .01 .01 Net income from core operations per share of common stock $.56 (6.7)% $.60 $.91 (14.2)% $1.06 See Note 3 to the Consolidated Financial Statements on page F-10 regarding items excluded from core operations. </TABLE>
Other financial and statistical data, excluding divested operations and unusual items, is as follows: <TABLE> <s> <c> <c> <c> <c> <c> <c> ( in thousands ) Quarterly Period Year-to-Date 2001 Change 2000 2001 Change 2000 Total advertising revenues $ 284,451 (2.8)% $ 292,639 $ 546,445 (1.9)% $ 557,084 Advertising revenues as a percentage of total revenues 75.4 % 76.8 % 74.5 % 75.9 % EBITDA: Newspapers $ 64,413 (6.4)% $ 68,812 $ 124,954 (9.0)% $ 137,271 Scripps Networks 26,593 5.6 % 25,179 42,414 4.7 % 40,517 Broadcast Television 25,255 (23.3)% 32,910 41,342 (26.8)% 56,464 Licensing and other media 3,902 (6.1)% 4,154 8,641 0.1 % 8,630 Corporate (4,048) 14.5 % (4,735) (8,904) 6.9 % (9,561) Total 116,115 (8.1)% 126,320 208,447 (10.7)% 233,321 Denver Rocky Mountain News (4,354) (3,177) (10,672) (9,175) Total EBITDA $ 111,761 $ 123,143 $ 197,775 $ 224,146 Effective income tax rate for core operations 41.1 % 40.9 % 41.2 % 41.0 % Net cash provided by operating activities $ 47,992 $ 58,500 $ 123,407 $ 115,640 Capital expenditures (14,379) (11,086) (29,095) (26,035) Business acquisitions and other additions to long-lived assets (12,869) (46,381) (99,899) (102,520) Increase (decrease) in long-term debt (34,848) (13,941) (3,313) (7,435) Dividends paid, including minority interests (12,274) (11,363) (24,519) (22,706) Purchase and retirement of common stock (1,988) </TABLE> Earnings before interest, income taxes, depreciation and amortization ("EBITDA") is included in the discussion of results of operations because: Management believes the year-over-year change in EBITDA, combined with information on historical and anticipated capital spending, is a more useful and reliable measure of year-over-year performance than the change in operating income. Banks and other lenders use EBITDA to determine the Company's borrowing capacity. Financial analysts and acquirors use EBITDA, combined with capital spending requirements, to value communications media companies. EBITDA should not, however, be construed as an alternative measure of the amount of the Company's income or cash flows from operating activities. Average daily borrowings under short-term credit facilities in the second quarter were $534 million in 2001 and $568 million in 2000. The weighted-average interest rate on such borrowings were 4.5% in 2001 and 6.4% in 2000. For the year-to-date period the weighted-average interest rate on the short-term credit facilities was 5.2% in 2001 and 6.2% in 2000. The Company is currently rolling over short-term debt at an effective 90-day yield of 3.7%. The average balance of all interest bearing obligations for the first half of the year was $770 million in 2001 and $799 million in 2000. Interest capitalized was $410,000 in 2001 and $30,000 in 2000. Operating results for each of the Company's reportable segments, excluding divested operating units and unusual items, are presented on the following pages.
NEWSPAPERS - RMN operating results are presented separately as a single line item to enhance comparability of year-over-year Newspaper operating results. Excluding divested operations and unusual items, operating results were as follows: <TABLE> <s> <c> <c> <c> <c> <c> <c> ( in thousands ) Quarterly Period Year-to-Date 2001 Change 2000 2001 Change 2000 Operating revenues: Local $ 50,966 (1.8)% $ 51,888 $ 102,777 (1.5)% $ 104,348 Classified 51,228 (5.2)% 54,010 101,625 (3.7)% 105,485 National 8,733 16.5 % 7,498 16,061 14.2 % 14,061 Preprint and other 22,446 4.2 % 21,549 43,110 3.4 % 41,677 Newspaper advertising 133,373 (1.2)% 134,945 263,573 (0.8)% 265,571 Circulation 34,058 3.0 % 33,068 69,460 2.7 % 67,604 Joint operating agency distributions 11,051 (9.9)% 12,266 20,927 (9.6)% 23,149 Other 2,684 18.9 % 2,258 5,914 18.0 % 5,013 Total operating revenues 181,166 (0.8)% 182,537 359,874 (0.4)% 361,337 Expenses, excluding depreciation and amortization: Editorial and newspaper content 21,883 1.3 % 21,598 43,772 2.1 % 42,889 Newsprint and ink 21,582 11.4 % 19,377 43,972 13.3 % 38,825 Other press and production 17,236 1.3 % 17,020 34,362 4.5 % 32,894 Circulation and distribution 16,652 6.9 % 15,579 33,066 10.0 % 30,058 Other advertising, internet and printing 6,301 3.8 % 6,068 12,607 4.9 % 12,013 Advertising sales and marketing 16,621 3.5 % 16,065 32,978 4.1 % 31,677 General and administrative 15,817 (6.9)% 16,993 32,732 (3.8)% 34,017 Total 116,092 3.0 % 112,700 233,489 5.0 % 222,373 EBITDA 65,074 (6.8)% 69,837 126,385 (9.1)% 138,964 Share of pre-tax earnings of equity-method investments (661) (1,025) (1,431) (1,693) Total EBITDA 64,413 (6.4)% 68,812 124,954 (9.0)% 137,271 Depreciation and amortization 12,019 (3.6)% 12,467 24,188 (1.1)% 24,450 Operating income, excluding the RMN 52,394 (7.0)% 56,345 100,766 (10.7)% 112,821 RMN operating income (loss) (4,880) 28.8 % (6,856) (12,446) 24.4 % (16,458) Total operating income $ 47,514 (4.0)% $ 49,489 $ 88,320 (8.3)% $ 96,363 Other Financial and Statistical Data: Percent of operating revenues: EBITDA 35.6 % 37.7 % 34.7 % 38.0 % Operating income 28.9 % 30.9 % 28.0 % 31.2 % Capital expenditures $ 5,375 $ 5,150 $ 15,763 $ 9,354 Business acquisitions and other additions to long-lived assets 382 805 64,650 32,806 </TABLE> The demand for advertising was soft in most of the Company's markets for the first six months of 2001. On a pro forma basis, assuming all acquisitions had been completed as of January 1, 2000, local advertising decreased 3.7% in the quarter and 4.4% year-to-date. Classified advertising decreased 6% in the quarter and 5.3% year-to-date. Expenses, other than newsprint, decreased approximately 1% on the same pro forma basis for the quarter, and were flat year-to-date. Newsprint and ink increased primarily due to a 17% increase in year-over-year newsprint prices. The Company's operating results in Denver are beginning to improve due to advertising and circulation rate increases implemented by the JOA. The Company also anticipates a substantial reduction in JOA operating expenses resulting from headcount reductions, and the publication of combined weekend editions and a single classified advertising section distributed daily in both newspapers.
SCRIPPS NETWORKS - Operating results, excluding unusual items, were as follows: <TABLE> <s> <c> <c> <c> <c> <c> <c> ( in thousands ) Quarterly Period Year-to-Date 2001 Change 2000 2001 Change 2000 Operating revenues: Advertising $ 77,920 10.2 % $ 70,702 $ 144,519 12.7 % $ 128,177 Affiliate fees 19,935 37.2 % 14,535 39,692 36.1 % 29,165 Other 1,327 8.0 % 1,229 2,588 5.8 % 2,447 Total operating revenues 99,182 14.7 % 86,466 186,799 16.9 % 159,789 Operating expenses, excluding depreciation and amortization: Programming and production 25,025 16.3 % 21,516 49,086 18.4 % 41,474 Operations and distribution 9,317 18.7 % 7,852 18,914 15.6 % 16,368 Amortization of distribution fees 5,645 22.0 % 4,628 10,944 21.3 % 9,024 Sales and marketing 21,012 17.0 % 17,963 39,606 21.7 % 32,549 General and administrative 12,982 29.3 % 10,039 27,867 29.5 % 21,527 Total 73,981 19.3 % 61,998 146,417 21.1 % 120,942 EBITDA - consolidated networks 25,201 3.0 % 24,468 40,382 4.0 % 38,847 Share of pre-tax earnings of equity-method investments 1,392 711 2,032 1,670 Total EBITDA 26,593 5.6 % 25,179 42,414 4.7 % 40,517 Depreciation and amortization 3,857 11.6 % 3,457 7,549 7.2 % 7,041 Operating income $ 22,736 4.7 %$ 21,722 $ 34,865 4.1 %$ 33,476 Other Financial and Statistical Data: Percent of operating revenues: EBITDA 26.8 % 29.1 % 22.7 % 25.4 % Operating income 22.9 % 25.1 % 18.7 % 21.0 % Payments for programming and network distribution fees less than (greater than) amounts recognized as expense $ (7,658) $ (4,665) $ (15,218) $ (10,089) Capital expenditures 3,650 1,654 5,289 3,250 Business acquisitions and other additions to long-lived assets 9,299 8,415 27,850 8,992 </TABLE> According to the Nielsen Homevideo Index, HGTV was distributed to 70.5 million homes in June 2001, up 7.6 million from June 2000 and 0.7 million in the second quarter. Food Network was distributed to 60.4 million homes in June 2001, up 11.0 million from June 2000 and 2.5 million in the second quarter. The Company launched DIY in the fourth quarter of 1999 and expects to launch Fine Living, its fourth network, in early 2002. Start-up expenses associated with DIY and Fine Living reduced EBITDA in the second quarter by $4.9 million in 2001 compared to $2.5 million in the second quarter of 2000. DIY and Fine Living reduced year-to-date EBITDA $10.3 million in 2001 and $4.6 million in 2000. Full year start-up expenses are expected to reduce EBITDA by $20 million to $25 million. The cash required by DIY and Fine Living will substantially exceed the reported operating losses in 2001. Excluding the start-up expenses of the new networks, EBITDA increased 14% in the quarter and 17% year-to-date.
BROADCAST TELEVISION - Operating results, excluding unusual items, were as follows: <TABLE> <s> <c> <c> <c> <c> <c> <c> ( in thousands ) Quarterly Period Year-to-Date 2001 Change 2000 2001 Change 2000 Operating revenues: Local $ 43,585 (9.3)% $ 48,072 $ 82,538 (7.4)% $ 89,151 National 26,266 (21.3)% 33,362 49,069 (22.6)% 63,414 Political 304 2,165 304 3,906 Other 4,044 4.4 % 3,872 8,209 6.8 % 7,687 Total operating revenues 74,199 (15.2)% 87,471 140,120 (14.6)% 164,158 Operating expenses, excluding depreciation and amortization: Programming and station operations 33,992 (7.7)% 36,826 68,763 (7.2)% 74,113 Sales and marketing 9,291 (17.5)% 11,258 17,995 (14.9)% 21,149 General and administrative 5,661 (12.6)% 6,477 12,020 (3.3)% 12,432 Total 48,944 (10.3)% 54,561 98,778 (8.3)% 107,694 EBITDA 25,255 (23.3)% 32,910 41,342 (26.8)% 56,464 Depreciation and amortization 7,428 4.9 % 7,081 14,673 3.9 % 14,117 Operating income $ 17,827 (31.0)% $ 25,829 $ 26,669 (37.0)% $ 42,347 Other Financial and Statistical Data: Percent of operating revenues: EBITDA 34.0 % 37.6 % 29.5 % 34.4 % Operating income 24.0 % 29.5 % 19.0 % 25.8 % Capital expenditures $ 4,816 $ 3,979 $ 7,344 $ 12,822 Business acquisitions and other additions to long-lived assets 27 55 27 14,660 </TABLE> The Company continues to be adversely affected by its relatively high exposure to weakly rated ABC television network programming. Six of the Company's 10 television stations are ABC affiliates. Year-over-year automobile advertising declined sharply in the quarter. Operating expenses, excluding depreciation and amortization, are expected to decrease 6% to 9% for the full year.
LIQUIDITY AND CAPITAL RESOURCES The Company's cash flow from operating activities is expected to substantially exceed the total of its capital expenditure requirements and cash dividends in 2001, as it has since 1992. The excess cash flow from existing businesses and the Company's substantial borrowing capacity have been used primarily to fund acquisitions, investments, and to develop new businesses. There are essentially no legal or other restrictions on the transfer of funds among the Company's business segments. Repurchase of a total of six million Class A Common shares was authorized by the Board of Directors in 1998. The balance remaining on this authorization is 2.1 million shares. The Company's Scripps Ventures Funds invest in new businesses focusing primarily on new media technology. See Note 5 to the Consolidated Financial Statements. At June 30, 2001, an additional $59 million remains to be invested under the Board of Directors authorization. Net debt (borrowings less cash equivalent and other short-term investments) decreased $7 million in the first half of 2001, to $707 million at June 30, 2001.
MARKET RISK The Company's earnings and cash flow can be affected by, among other things, interest rate changes, foreign currency fluctuations (primarily in the exchange rate for the Japanese yen) and changes in the price of newsprint. The information disclosed in Market Risk in the Company's Annual Report on Form 10-K for the year ended December 31, 2000, has not changed materially unless otherwise disclosed herein. The Company may use foreign currency forward and option contracts to hedge its cash flow exposures denominated in Japanese yen and forward contracts to reduce the risk of changes in the price of newsprint on anticipated newsprint purchases. The Company held no foreign currency or newsprint forward contracts in 2001 or 2000. The following table presents additional information about the Company's market-risk-sensitive financial instruments: <TABLE> <s> <c> <c> <c> <c> ( in thousands, except share data ) As of June 30, 2001 As of December 31, 2000 Cost Fair Cost Fair Basis Value Basis Value Financial instruments subject to interest rate risk: Variable rate credit facilities, including commercial paper $502,718 $ 502,718 $ 512,788 $ 512,788 $100 million, 6.625% note, due in 2007 99,908 99,800 99,901 97,900 $100 million, 6.375% note, due in 2002 99,973 101,100 99,964 99,800 Other notes 8,714 7,682 1,956 812 Total long-term debt $711,313 $ 711,300 $ 714,609 $ 711,300 Financial instruments subject to market value risk: AOL Time Warner common stock (2,017,000 shares) $ 93,719 $ 106,891 Time Warner common stock (1,344,000 shares) $ 27,816 $ 70,239 Centra Software (700,500 and 1,792,500 common shares) 1,427 11,901 3,652 6,946 Other available-for-sale securities 640 4,601 639 3,969 Total investments in publicly-traded companies 95,786 123,393 32,107 81,154 Other equity investments 71,213 (a) 87,266 (a) (a)Included in other equity investments are securities that do not trade in public markets, so they do not have readily determinable fair values. However, based upon the price paid by other investors for similar securities in subsequent rounds of financing, if any, and based upon management's assessment when circumstances indicate fair value is less than the price paid in the most recent round, the total estimated value of these investments was $80,000,000 on June 30, 2001, and $163,000,000 on December 31, 2000. There can be no assurance as to the amounts the Company would receive if these securities were sold. </TABLE> The Company manages interest rate risk primarily by maintaining a mix of fixed-rate and variable-rate debt. The Company currently does not use interest rate swaps, forwards or other derivative financial instruments to manage its interest rate risk. See Note 4 to the Consolidated Financial Statements. The weighted-average interest rate on borrowings under the Variable Rate Credit Facilities was 4.1% at June 30, 2001, and 6.6% at December 31, 2000.
THE E. W. SCRIPPS COMPANY Index to Exhibits Exhibit No. Item Page 12 Ratio of Earnings to Fixed Charges E-2
<TABLE> <s> <c> <c> <c> <c> RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 ( in thousands ) Three months ended Six months ended June 30, June 30, 2001 2000 2001 2000 EARNINGS AS DEFINED: Earnings from operations before income taxes after eliminating undistributed earnings of 20%- to 50%-owned affiliates $ 82,404 $ 81,082 $ 201,334 $ 141,417 Fixed charges excluding capitalized interest and preferred stock dividends of majority-owned subsidiary companies 12,202 15,056 26,035 29,503 Earnings as defined $ 94,606 $ 96,138 $ 227,369 $ 170,920 FIXED CHARGES AS DEFINED: Interest expense, including amortization of debt issue costs $ 10,859 $ 13,481 $ 23,320 $ 26,117 Interest capitalized 181 16 412 30 Portion of rental expense representative of the interest factor 1,343 1,575 2,715 3,386 Preferred stock dividends of majority-owned subsidiary companies 20 20 40 40 Fixed charges as defined $ 12,403 $ 15,092 $ 26,487 $ 29,573 RATIO OF EARNINGS TO FIXED CHARGES 7.63 6.37 8.58 5.78 </TABLE>