10-Q 1 ssp-20130630x10q.htm 10-Q SSP-2013.06.30-10Q
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2013     
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 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
(State or other jurisdiction of
incorporation or organization)
 
31-1223339
(IRS Employer
Identification Number)
 
 
 
312 Walnut Street
Cincinnati, Ohio
(Address of principal executive offices)
 
45202
(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 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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company “in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer þ
 
Non-accelerated filer o 
(Do not check if a smaller reporting company)
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of June 30, 2013, there were 45,157,991 of the registrant’s Class A Common shares, $.01 par value per share, outstanding and 11,932,722 of the registrant’s Common Voting Shares, $.01 par value per share, outstanding.
 



Index to The E. W. Scripps Company Report
on Form 10-Q for the Quarter Ended June 30, 2013

2


PART I

As used in this Quarterly Report on Form 10-Q, the terms “Scripps,” “Company,” “we,” “our” or “us” may, depending on the context, refer to The E. W. Scripps Company, to one or more of its consolidated subsidiary companies, or to all of them taken as a whole.

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.

Item 4.
Controls and Procedures
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
We are involved in litigation arising in the ordinary course of business, such as defamation actions, and governmental proceedings primarily relating to renewal of broadcast licenses, none of which is expected to result in material loss.

Item 1A.
Risk Factors

There have been no material changes to the factors disclosed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2012, except for the following risk factor which has been updated:

Ownership of our Common Voting Shares by descendants of our founder could inhibit potential change of control.

Certain descendants of Edward W. Scripps own approximately 93% of our Common Voting Shares and are signatories to the Scripps Family Agreement, which governs the transfer and voting of Common Voting Shares held by them.

As a result of the foregoing, these descendants have the ability to elect two-thirds of the Board of Directors and to direct the outcome of any matter on which Ohio law does not require a vote of the Class A Common Shares. Because this concentrated control could discourage others from initiating any potential merger, takeover or other change of control transaction, the market price of our Class A Common Shares could be adversely affected.


3


Item 2.
Unregistered Sales of Equity and Use of Proceeds

There were no sales of unregistered equity securities during the quarter for which this report is filed.

The following table provides information about Company purchases of Class A Common shares during the quarter ended June 30, 2013 and the remaining amount that may still be purchased under the program:
Period
 
Total number of shares purchased
 
Average price paid per share
 
Total market value of shares purchased
 
Maximum value that may yet be purchased under the plans or programs
 
 
 
 
 
 
 
 
 
4/1/13 - 4/30/13
 

 

 

 
$
89,352,371

5/1/13 - 5/31/13
 
942,378

 
$
13.63

 
$
12,843,623

 
$
76,508,748

6/1/13 - 6/30/13
 
800,364

 
14.27

 
11,419,205

 
$
65,089,543

Total
 
1,742,742

 
$
13.92

 
$
24,262,828

 
 
In November 2012, our board of directors authorized a repurchase program of up to $100 million of our Class A Common shares through December 2014.

Item 3.
Defaults Upon Senior Securities
There were no defaults upon senior securities during the quarter for which this report is filed.

Item 4.
Mine Safety Disclosures
None.

Item 5.
Other Information
None.

Item 6.
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.


4


Signatures
Pursuant to the requirements of the Securities 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 9, 2013
By:
/s/ Douglas F. Lyons 
 
 
Douglas F. Lyons
 
 
Vice President and Controller
 
 
(Principal Accounting Officer)



5


The E. W. Scripps Company
Index to Financial Information



F-1


Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share data)
 
As of 
 June 30, 
 2013
 
As of 
 December 31, 
 2012
 
 
 
 
 
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
218,101

 
$
242,642

Restricted cash
 
8,210

 
10,010

Accounts and notes receivable (less allowances - $1,591 and $2,491)
 
130,059

 
125,639

Inventory
 
6,864

 
6,437

Deferred income taxes
 
7,210

 
7,210

Income taxes receivable
 
6,093

 
2,926

Miscellaneous
 
7,599

 
7,836

Total current assets
 
384,136

 
402,700

Investments
 
20,330

 
21,115

Property, plant and equipment
 
367,567

 
374,931

Goodwill
 
27,966

 
27,966

Other intangible assets
 
141,334

 
144,783

Deferred income taxes
 
32,360

 
36,095

Miscellaneous
 
19,238

 
23,178

Total Assets
 
$
992,931

 
$
1,030,768

Liabilities and Equity
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
16,791

 
$
23,329

Customer deposits and unearned revenue
 
24,402

 
26,240

Current portion of long-term debt
 
27,200

 
15,900

Accrued liabilities:
 
 
 
 
Employee compensation and benefits
 
24,631

 
37,118

Miscellaneous
 
29,524

 
28,545

Other current liabilities
 
9,786

 
14,901

Total current liabilities
 
132,334

 
146,033

Long-term debt (less current portion)
 
160,950

 
180,200

Other liabilities (less current portion)
 
159,704

 
164,625

Equity:
 
 
 
 
Preferred stock, $.01 par — authorized: 25,000,000 shares; none outstanding
 

 

Common stock, $.01 par:
 
 
 
 
Class A — authorized: 240,000,000 shares; issued and outstanding: 45,157,991 and 43,594,229 shares
 
452

 
436

Voting — authorized: 60,000,000 shares; issued and outstanding: 11,932,722 and 11,932,735 shares
 
119

 
119

Total
 
571

 
555

Additional paid-in capital
 
520,196

 
517,688

Retained earnings
 
131,175

 
136,293

Accumulated other comprehensive loss, net of income taxes:
 
 
 
 
Unrealized loss on derivatives
 
(338
)
 
(1,009
)
Pension liability adjustments
 
(113,875
)
 
(115,831
)
Total The E.W. Scripps Company shareholders’ equity
 
537,729

 
537,696

Noncontrolling interest
 
2,214

 
2,214

Total equity
 
539,943

 
539,910

Total Liabilities and Equity
 
$
992,931

 
$
1,030,768

See notes to condensed consolidated financial statements.

F-2


Condensed Consolidated Statements of Income (Unaudited)


 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
(in thousands, except per share data)
 
2013
 
2012
 
2013
 
2012
 
 
 
 
 
 
 
 
 
Operating Revenues:
 
 
 
 
 
 
 
 
Advertising
 
$
158,105

 
$
168,869

 
$
305,252

 
$
324,452

Subscriptions
 
28,096

 
28,642

 
58,567

 
60,267

Other
 
21,652

 
19,423

 
42,687

 
39,342

Total operating revenues
 
207,853

 
216,934

 
406,506

 
424,061

Costs and Expenses:
 
 
 
 
 
 
 
 
Employee compensation and benefits
 
96,129

 
97,152

 
196,828

 
197,863

Programs and program licenses
 
13,218

 
14,499

 
26,014

 
28,954

Newsprint, press supplies, and other printing costs
 
11,407

 
12,678

 
24,351

 
26,443

Newspaper distribution
 
11,941

 
12,320

 
24,214

 
25,533

Other expenses
 
51,246

 
48,929

 
100,127

 
96,528

Pension expense
 
2,569

 
1,819

 
4,538

 
3,775

Acquisition and related integration costs
 

 

 

 
5,826

Separation and restructuring costs
 
1,425

 
2,355

 
2,401

 
4,066

Total costs and expenses
 
187,935

 
189,752

 
378,473

 
388,988

Depreciation, Amortization, and (Gains) Losses:
 
 
 
 
 
 
 
 
Depreciation
 
10,035

 
10,832

 
20,137

 
21,362

Amortization of intangible assets
 
1,739

 
1,771

 
3,451

 
3,547

(Gains) losses, net on disposal of property, plant and equipment
 
(42
)
 
212

 
(37
)
 
(30
)
Net depreciation, amortization, and (gains) losses
 
11,732

 
12,815

 
23,551

 
24,879

Operating income
 
8,186

 
14,367

 
4,482

 
10,194

Interest expense
 
(2,656
)
 
(3,211
)
 
(5,269
)
 
(6,365
)
Miscellaneous, net
 
(1,634
)
 
(1,435
)
 
(2,938
)
 
(1,552
)
Income (loss) from operations before income taxes
 
3,896

 
9,721

 
(3,725
)
 
2,277

Provision (benefit) for income taxes
 
711

 
4,305

 
(4,239
)
 
1,276

Net income
 
3,185

 
5,416

 
514

 
1,001

Net income attributable to noncontrolling interests
 

 

 

 

Net income attributable to the shareholders of The E.W. Scripps Company
 
$
3,185

 
$
5,416

 
$
514

 
$
1,001

Net income per basic share of common stock attributable to the shareholders of The E.W. Scripps Company:
 
$
0.05


$
0.09

 
$
0.01

 
$
0.02

Net income per diluted share of common stock attributable to the shareholders of The E.W. Scripps Company:
 
$
0.05

 
$
0.09

 
$
0.01

 
$
0.02

See notes to condensed consolidated financial statements.


F-3


Condensed Consolidated Statements of Comprehensive Income (Unaudited)


 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
(in thousands)
 
2013
 
2012
 
2013
 
2012
 
 
 
 
 
 
 
 
 
Net income
 
$
3,185

 
$
5,416

 
$
514

 
$
1,001

Changes in fair value of derivative, net of tax of $371, $(477), $406 and $(445)
 
612

 
(796
)
 
671

 
(742
)
Changes in defined benefit pension plans, net of tax of $1,001, $353, $1,299 and $691
 
1,105

 
591

 
1,956

 
1,152

Total comprehensive income
 
4,902

 
5,211

 
3,141

 
1,411

Less comprehensive income attributable to noncontrolling interest
 

 

 

 

Total comprehensive income attributable to the shareholders of The E.W. Scripps Company
 
$
4,902

 
$
5,211

 
$
3,141

 
$
1,411

See notes to condensed consolidated financial statements.

F-4


Condensed Consolidated Statements of Cash Flows (Unaudited)


 
Six Months Ended 
 June 30,
(in thousands)
 
2013

2012
 
 
 
 
 
Cash Flows from Operating Activities:
 



Net income
 
$
514


$
1,001

Adjustments to reconcile net income to net cash flows from operating activities:
 



Depreciation and amortization
 
23,588


24,909

Contract termination fees
 

 
5,663

Gains on sale of property, plant and equipment
 
(37
)

(30
)
Deferred income taxes
 
2,041


2,794

Excess tax benefits of share-based compensation plans
 


(4,311
)
Stock and deferred compensation plans
 
4,757


4,881

Pension expense, net of payments
 
3,113


1,863

Other changes in certain working capital accounts, net
 
(31,044
)

29,258

Miscellaneous, net
 
1,960


1,910

Net cash provided by operating activities
 
4,892


67,938

Cash Flows from Investing Activities:
 



Additions to property, plant and equipment
 
(12,169
)

(6,086
)
Purchase of investments
 
(1,375
)

(1,272
)
Change in restricted cash
 
1,800

 

Miscellaneous, net
 
320

 
486

Net cash used in investing activities
 
(11,424
)

(6,872
)
Cash Flows from Financing Activities:
 



Payments on long-term debt
 
(7,950
)

(7,950
)
Repurchase of Class A Common shares
 
(34,910
)

(16,407
)
Proceeds from employee stock options
 
33,675


4,605

Tax payments related to shares withheld for RSUs
 
(5,970
)

(7,423
)
Excess tax benefits from stock compensation plans
 


4,311

Miscellaneous, net
 
(2,854
)

1,015

Net cash used in financing activities
 
(18,009
)

(21,849
)
(Decrease) increase in cash and cash equivalents
 
(24,541
)

39,217

Cash and cash equivalents:
 



Beginning of year
 
242,642


127,889

End of period
 
$
218,101


$
167,106

Supplemental Cash Flow Disclosures
 
 
 
 
Interest paid
 
$
3,917

 
$
4,735

Income taxes paid
 
$
111

 
$
741

See notes to condensed consolidated financial statements.

F-5


Condensed Consolidated Statements of Equity (Unaudited)

(in thousands, except share data)
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Noncontrolling
Interests
 
Total
Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2011
 
$
543

 
$
515,421

 
$
96,105

 
$
(97,548
)
 
$
2,480

 
$
517,001

Net income
 

 

 
1,001

 

 

 
1,001

Changes in defined benefit pension plans
 

 

 

 
1,152

 

 
1,152

Change in fair value of derivative
 

 

 

 
(742
)
 

 
(742
)
Repurchase 1,772,193 Class A Common Shares
 
(18
)
 
(16,389
)
 

 

 

 
(16,407
)
Compensation plans: 2,165,341 net shares issued *
 
21

 
2,026

 

 

 

 
2,047

Excess tax benefits of compensation plans
 

 
6,500

 

 

 

 
6,500

As of June 30, 2012
 
$
546

 
$
507,558

 
$
97,106

 
$
(97,138
)
 
$
2,480

 
$
510,552

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2012
 
$
555

 
$
517,688

 
$
136,293

 
$
(116,840
)
 
$
2,214

 
$
539,910

Net income
 

 

 
514

 

 

 
514

Changes in defined benefit pension plans
 

 

 

 
1,956

 

 
1,956

Change in fair value of derivative
 

 

 

 
671

 

 
671

Repurchase 2,684,876 Class A Common Shares
 
(27
)
 
(29,251
)
 
(5,632
)
 

 

 
(34,910
)
Compensation plans: 4,248,638 net shares issued *
 
43

 
31,759

 

 

 

 
31,802

As of June 30, 2013
 
$
571

 
$
520,196

 
$
131,175

 
$
(114,213
)
 
$
2,214

 
$
539,943

* Net of $5,970 in 2013 and $7,423 in 2012 of tax payments related to shares withheld for vested stock and RSUs.
See notes to condensed consolidated financial statements.


F-6


Condensed Notes to Consolidated Financial Statements (Unaudited)

1. Summary of Significant Accounting Policies
As used in the Condensed Notes to Consolidated Financial Statements, the terms “Scripps,” “Company,” “we,” “our,” or “us” may, depending on the context, refer to The E. W. Scripps Company, to one or more of its consolidated subsidiary companies or to all of them taken as a whole.
Basis of Presentation — The condensed consolidated 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 interim financial statements should be read in conjunction with the audited consolidated financial statements, including the notes thereto included in our 2012 Annual Report on Form 10-K. In management's opinion all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the interim periods have been made. Certain amounts in prior periods have been reclassified to conform to the current period’s presentation.
Results of operations are not necessarily indicative of the results that may be expected for future interim periods or for the full year.
Nature of Operations — We are a diverse media company with interests in television and newspaper publishing. All of our media businesses provide content and advertising services via digital platforms, including the Internet, mobile devices and tablets. Our media businesses are organized into the following reportable business segments: Television, Newspapers, and Syndication and other. Additional information for our business segments is presented in the Notes to our Condensed Consolidated Financial Statements.
Use of Estimates — Preparing financial statements in accordance with accounting principles generally accepted in the United States of America requires us to make a variety of decisions that affect the reported amounts and the related disclosures. Such decisions include the selection of accounting principles that reflect the economic substance of the underlying transactions and the assumptions on which to base accounting estimates. In reaching such decisions, we apply judgment based on our understanding and analysis of the relevant circumstances, including our historical experience, actuarial studies and other assumptions.
Our financial statements include estimates and assumptions used in accounting for our defined benefit pension plans; the periods over which long-lived assets are depreciated or amortized; the fair value of long-lived assets, goodwill and indefinite lived assets; the liability for uncertain tax positions and valuation allowances against deferred income tax assets; and self-insured risks.
While we re-evaluate our estimates and assumptions on an ongoing basis, actual results could differ from those estimated at the time of preparation of the financial statements.
Revenue Recognition — We recognize revenue when persuasive evidence of a sales arrangement exists, delivery occurs or services are rendered, the sales price is fixed or determinable and collectability is reasonably assured.
Our primary sources of revenue are from the sale of print, broadcast and digital advertising and the sale of newspaper subscriptions.
The revenue recognition policies for each source of revenue are described in our Annual Report on Form 10-K for the year ended December 31, 2012.
Share-Based Compensation — We have a Long-Term Incentive Plan (the “Plan”) which is described more fully in our Annual Report on Form 10-K for the year ended December 31, 2012. The Plan provides for the award of incentive and nonqualified stock options, stock appreciation rights, restricted stock units (RSUs), unrestricted Class A Common shares and performance units to key employees and non-employee directors.
Share-based compensation costs totaled $0.5 million and $1.6 million for the second quarter of 2013 and 2012, respectively. Year-to-date share-based compensation costs totaled $3.9 million and $4.7 million in 2013 and 2012, respectively.

F-7


Earnings Per Share (“EPS”) — Unvested awards of share-based payments with rights to receive dividends or dividend equivalents, such as our RSUs, are considered participating securities for purposes of calculating EPS. Under the two-class method, we allocate a portion of net income to these participating securities and therefore exclude that income from the calculation of EPS for common stock. We do not allocate losses to the participating securities.
The following table presents information about basic and diluted weighted-average shares outstanding:
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
(in thousands)
 
2013
 
2012
 
2013
 
2012
 
 
 
 
 
 
 
 
 
Numerator (for basic and diluted earnings per share)
 
 
 
 
 
 
 
 
Net income attributable to the shareholders of The E.W. Scripps Company
 
$
3,185

 
$
5,416

 
$
514

 
$
1,001

Less income allocated to RSUs
 
(89
)

(225
)
 
(16
)
 
(51
)
Numerator for basic and diluted earnings per share
 
$
3,096

 
$
5,191

 
$
498

 
$
950

Denominator
 
 
 
 
 
 
 
 
Basic weighted-average shares outstanding
 
57,448


55,146

 
56,894

 
54,961

Effect of dilutive securities:
 



 

 
 
Stock options held by employees and directors
 
1,299


340

 
1,172

 
221

Diluted weighted-average shares outstanding
 
58,747

 
55,486

 
58,066

 
55,182

Anti-dilutive securities (1)
 

 
5,824

 

 
5,824

(1) Amount outstanding at Balance Sheet date, before application of the treasury stock method and not weighted for period outstanding.

Derivative Financial Instruments — It is our policy that derivative transactions are executed only to manage exposures arising in the normal course of business and not for the purpose of creating speculative positions or trading. Derivative financial instruments are utilized to manage interest rate risks. We do not hold derivative financial instruments for trading purposes. All derivatives must be recorded on the balance sheet at fair value. Each derivative is designated as a cash flow hedge or remains undesignated. Changes in the fair value of derivatives that are designated and effective as cash flow hedges are recorded in other comprehensive income (loss) and reclassified to the statement of operations when the effects of the item being hedged are recognized in the statement of operations. These changes are offset in earnings to the extent the hedge was effective by fair value changes related to the risk being hedged on the hedged item. Changes in the fair value of undesignated hedges are recognized currently in the statement of operations. All ineffective changes in derivative fair values are recognized currently in earnings.

All designated hedges are formally documented as to the relationship with the hedged item as well as the risk-management strategy. Both at inception and on an ongoing basis the hedging instrument is assessed as to its effectiveness, when applicable. If and when a derivative is determined not to be highly effective as a hedge, or the underlying hedged transaction is no longer likely to occur, or the hedge designation is removed, or the derivative is terminated, the hedge accounting discussed above is discontinued.

2. Recently Adopted Standards and Issued Accounting Standards

Recently Adopted Accounting Standards — In February 2013, the FASB issued new guidance regarding the disclosure of comprehensive income (loss). The update requires an entity to present either on the face of the statement where net income (loss) is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income (loss) by the respective line items of net income (loss) but only if the amount reclassified is required under US GAAP to be reclassified to net income (loss) in its entirety in the same reporting period. For other amounts that are not required under US GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under US GAAP that provide additional details about those amounts. The update was effective for us on January 1, 2013. The implementation of this amended accounting guidance did not have a material impact on our consolidated financial position and results of operations.
In July 2012, the FASB amended the guidance on testing indefinite-lived assets, other than goodwill, for impairment. Under the revised guidance, an entity testing an indefinite-lived intangible asset for impairment has the option of performing a qualitative assessment before performing quantitative tests. If the entity determines, on the basis of qualitative factors, that the fair value of the indefinite-lived intangible asset is not more likely than not impaired, the entity would not need to perform the quantitative tests. This guidance will be effective for our annual impairment tests for the year ending December 31, 2013. The adoption of this guidance did not have a material impact on our financial statements; rather it may change our approach to testing indefinite-lived intangible assets for impairment.

3. Income Taxes

We file a consolidated federal income tax return, consolidated unitary tax returns in certain states, and other separate state income tax returns for our subsidiary companies.

The income tax provision for interim periods is determined based upon the expected effective income tax rate for the full year and the tax rate applicable to certain discrete transactions in the interim period. To determine the annual effective income tax rate, we must estimate both the total income (loss) before income tax for the full year and the jurisdictions in which that income (loss) is subject to tax. The actual effective income tax rate for the full year may differ from these estimates if income (loss) before income tax is greater or less than what was estimated or if the allocation of income (loss) to jurisdictions in which it is taxed is different from the estimated allocations. We review and adjust our estimated effective income tax rate for the full year each quarter based upon our most recent estimates of income (loss) before income tax for the full year and the jurisdictions in which we expect that income will be taxed.

The effective income tax rate for the six months ended June 30, 2013 and 2012, was 114% and 56.0%, respectively. The primary reason for the difference between these rates and the U.S. Federal statutory rate of 35% is the impact of state taxes, non-deductible expenses and reserves for uncertain tax positions (including interest). We recognized $2.4 million of previously unrecognized tax benefits in the first six months of 2013 upon settlement of audits or when the statutes of limitations lapsed in certain tax jurisdictions.

Deferred tax assets totaled $39.6 million at June 30, 2013. Management believes that it is more likely than not that we will realize the benefits of our Federal deferred tax assets and therefore has not recorded a valuation allowance for our Federal deferred tax assets. If economic conditions worsen, future estimates of taxable income could be lower than our current estimates, which may require valuation allowances to be recorded in future reporting periods.

During the period ended June 30, 2013, deferred tax assets relating to employee share-based compensation from the vesting of RSU's and the exercise of stock options have not been recognized since we are in a net tax loss position as of June 30, 2013. The additional tax benefits will be reflected as net operating loss carryforwards when we file our tax return for 2013, but the additional tax benefits are not recorded under GAAP until the tax deduction reduces taxes payable. The amount of unrecognized tax deductions for the period ended June 30, 2013 was approximately $26 million.

4. Restricted Cash

At June 30, 2013 and December 31, 2012, we had $8.2 million and $10 million, respectively, in a restricted cash account on deposit with our insurance carrier. This account serves as collateral, in place of an irrevocable stand-by letter of credit, to provide financial assurance that we will fulfill our obligations with respect to cash requirements associated with workers compensation self-insurance. This cash is to remain on deposit with the carrier until all claims have been paid or we provide a letter of credit in lieu of the cash deposit.

F-8


5. Goodwill and Other Intangible Assets
Other intangible assets consisted of the following:
(in thousands)
 
As of 
 June 30, 
 2013
 
As of 
 December 31, 
 2012
 
 
 
 
 
Amortizable intangible assets:
 
 
 
 
Carrying amount:
 
 
 
 
Television network affiliation relationships
 
$
78,844

 
$
78,844

Customer lists and advertiser relationships
 
22,304

 
22,304

Other
 
3,561

 
3,765

Total carrying amount
 
104,709

 
104,913

Accumulated amortization:
 
 
 
 
Television network affiliation relationships
 
(7,717
)
 
(5,755
)
Customer lists and advertiser relationships
 
(11,737
)
 
(10,346
)
Other
 
(1,736
)
 
(1,844
)
Total accumulated amortization
 
(21,190
)
 
(17,945
)
Net amortizable intangible assets
 
83,519

 
86,968

Other indefinite-lived intangible assets — FCC licenses
 
57,815

 
57,815

Total other intangible assets
 
$
141,334

 
$
144,783

Goodwill by business segment was as follows:
(in thousands)
 
Television
 
Newspapers
 
Total
 
 
 
 
 
 
 
Gross balance at December 31, 2012
 
$
243,380

 
$
778,900

 
$
1,022,280

Accumulated impairment losses
 
(215,414
)
 
(778,900
)
 
(994,314
)
Net balance as of December 31, 2012
 
$
27,966

 
$

 
$
27,966

 
 
 
 
 
 
 
Gross balance as of June 30, 2013
 
$
243,380

 
$
778,900

 
$
1,022,280

Accumulated impairment losses
 
(215,414
)
 
(778,900
)
 
(994,314
)
Net balance at June 30, 2013
 
$
27,966

 
$

 
$
27,966

Estimated amortization expense of intangible assets for each of the next five years is $3.6 million for the remainder of 2013, $6.8 million in 2014, $6.7 million in 2015, $6.7 million in 2016, $4.2 million in 2017, $4.2 million in 2018, and $51.3 million in later years.

F-9


6. Long-Term Debt
Long-term debt consisted of the following:
(in thousands)
 
As of 
 June 30, 
 2013
 
As of 
 December 31, 
 2012
 
 
 
 
 
Variable rate credit facility
 
$

 
$

Term loan
 
188,150

 
196,100

Long-term debt
 
188,150

 
196,100

Current portion of long-term debt
 
27,200

 
15,900

Long-term debt (less current portion)
 
$
160,950

 
$
180,200

Fair value of long-term debt *
 
$
194,000

 
$
196,100

* Fair value was estimated based on current rates available to the Company for debt of the same remaining maturity and are classified as Level 2 in the fair value hierarchy.
We have a $312 million revolving credit and term loan agreement (“Financing Agreement”). The Financing Agreement, which expires in December 2016, includes a $212 million term loan and a $100 million revolving credit facility.
The Financing Agreement includes certain affirmative and negative covenants, including maintenance of minimum fixed charge coverage and leverage ratios, as defined in the Financing Agreement. We were in compliance with all covenants at June 30, 2013 and December 31, 2012.
Interest is payable at rates based on LIBOR plus a margin based on our leverage ratio ranging from 3.5% to 4.0%. As of June 30, 2013 and December 31, 2012, the interest rate was 3.70% and 3.72%, respectively. The Financing Agreement also includes a provision that in certain circumstances we must use a portion of excess cash flow to repay debt. As of June 30, 2013, the current portion of long-term debt includes $6.0 million for the expected additional principal payment based on excess cash flow for 2013. The weighted-average interest rate on borrowings was 3.70% and 4.25% for the six months ended June 30, 2013 and 2012, respectively.
Scheduled principal payments on long-term debt at June 30, 2013, are: $8.0 million for the remainder of 2013, $26.5 million in 2014, $26.5 million in 2015, and $127.2 million in 2016.
Under the terms of the Financing Agreement we granted the lenders mortgages on certain of our real property, pledges of our equity interests in our subsidiaries and security interests in substantially all other personal property, including cash, accounts receivables, inventories and equipment.
The Financing Agreement allows us to make restricted payments (dividends and share repurchases) up to $25 million plus additional amounts based on our financial results and condition, up to a maximum of $250 million over the term of the agreement. We can also make additional restricted payments for share repurchases equal to the amount of proceeds that we receive from the exercise of stock options held by our employees. We can make acquisitions up to $25 million plus additional amounts based on our financial results and condition, up to a maximum of $150 million.
Commitment fees of 0.50% per annum of the total unused commitment are payable under the revolving credit facility.
As of June 30, 2013 and December 31, 2012, we had outstanding letters of credit totaling $0.2 million and $1.1 million, respectively.

F-10


7.
Financial Instruments

We are exposed to various market risks, including changes in interest rates. To manage risks associated with the volatility of changes in interest rates we may enter into interest rate management instruments.

We utilize interest rate swaps to manage our interest expense exposure by fixing our interest rate on portions of our floating rate term loan. We have entered into a $75 million notional value interest rate swap expiring in March 2016 which provides for a fixed interest rate of 1.08%. We did not provide or receive any collateral for this contract. The fair value of this financial derivative, which is designated as and qualifies as a cash flow hedge, is determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on the expectation of future interest rates (forward curves) derived from observed market interest rate curves and implied volatilities. In addition, credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, are incorporated in the fair values to account for potential nonperformance risk.

Fair Value of Derivative Instruments

The notional amounts and fair values of derivative instruments designated as cash flow are shown below.
 
 
As of June 30, 2013
 
As of December 31, 2012
 
 
Notional
 
Fair value
 
Notional
 
Fair value
(in thousands)
 
amount
 
Asset
 
Liability (1)
 
amount
 
Asset
 
Liability (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives designated as cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
 
   Interest rate swap
 
$
75,000

 
$

 
$
541

 
$
75,000

 
$

 
$
1,619


(1) Balance recorded in "Other liabilities"
    
The above derivative instrument that is designated and qualifies as a cash flow hedge and the effective portion of the unrealized gain and loss on the derivative is reported as a component of accumulated other comprehensive loss and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings. Gain and loss on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.
 
 
Three months ended June 30, 2013
(in thousands)
 
Effective portion recognized in Accumulated OCL,
Gain/(Loss)
 
Reclassified from Accumulated OCL,
Gain/(Loss)
 
Ineffective portion and amount excluded from effectiveness testing
Gain/(Loss)
 
 
 
 
 
 
 
Derivatives designated as cash flow hedges:
 
 
 
 
 
 
   Interest rate swap
 
$
817

 
$
167

 
$



F-11


 
 
Three months ended June 30, 2012
(in thousands)
 
Effective portion recognized in Accumulated OCL,
Gain/(Loss)
 
Reclassified from Accumulated OCL,
Gain/(Loss)
 
Ineffective portion and amount excluded from effectiveness testing
Gain/(Loss)
 
 
 
 
 
 
 
Derivatives designated as cash flow hedges:
 
 
 
 
 
 
   Interest rate swap
 
$
(1,401
)
 
$
160

 
$

 
 
Six months ended June 30, 2013
(in thousands)
 
Effective portion recognized in Accumulated OCL,
Gain/(Loss)
 
Reclassified from Accumulated OCL,
Gain/(Loss)
 
Ineffective portion and amount excluded from effectiveness testing
Gain/(Loss)
 
 
 
 
 
 
 
Derivatives designated as cash flow hedges:
 
 
 
 
 
 
   Interest rate swap
 
$
745

 
$
333

 
$

 
 
Six months ended June 30, 2012
(in thousands)
 
Effective portion recognized in Accumulated OCL,
Gain/(Loss)
 
Reclassified from Accumulated OCL,
Gain/(Loss)
 
Ineffective portion and amount excluded from effectiveness testing
Gain/(Loss)
 
 
 
 
 
 
 
Derivatives designated as cash flow hedges:
 
 
 
 
 
 
   Interest rate swap
 
$
(1,389
)
 
$
202

 
$

8.
Fair Value Measurement

We measure certain financial assets and liabilities at fair value on a recurring basis, such as derivatives. The fair value of these financial assets and liabilities were determined based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Inputs, other than quoted market prices in active markets, that are observable either directly or indirectly.
Level 3 — Unobservable inputs based on our own assumptions.

The following tables set forth our assets and liabilities that are measured at fair value on a recurring basis at June 30, 2013 and December 31, 2012:
 
 
As of June 30, 2013
(in thousands)
 
Total
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
 
 
 
 
 
Assets/(Liabilities):
 
 
 
 
 
 
 
 
  Cash equivalents
 
$
52,000

 
$
52,000

 
$

 
$

  Interest rate swap
 
(541
)
 

 
(541
)
 



F-12


 
 
As of December 31, 2012
(in thousands)
 
Total
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
 
 
 
 
 
Assets/(Liabilities):
 
 
 
 
 
 
 
 
  Cash equivalents
 
$


$

 
$

 
$

  Interest rate swap
 
(1,619
)
 

 
(1,619
)
 


9. Other Liabilities
Other liabilities consisted of the following:
(in thousands)
 
As of 
 June 30, 
 2013
 
As of 
 December 31, 
 2012
 
 
 
 
 
Employee compensation and benefits
 
$
21,349

 
$
20,596

Liability for pension benefits
 
112,446

 
112,556

Liabilities for uncertain tax positions
 
10,885

 
12,534

Other
 
15,024

 
18,939

Other liabilities (less current portion)
 
$
159,704

 
$
164,625

10. Noncontrolling Interests
Individuals and other entities own a 4% noncontrolling interest in the capital stock of the subsidiary company that publishes our Memphis newspaper and a 6% noncontrolling interest in the capital stock of the subsidiary company that publishes our Evansville newspaper. We are not required to redeem the noncontrolling interests in these subsidiary companies.

11. Supplemental Cash Flow Information
The following table presents additional information about the change in certain working capital accounts:
 
 
Six Months Ended 
 June 30,
(in thousands)
 
2013
 
2012
 
 
 
 
 
Other changes in certain working capital accounts, net
 
 
 
 
Accounts and notes receivable
 
$
(4,420
)
 
$
7,494

Income taxes receivable/payable — net
 
(3,167
)
 
25,769

Accounts payable
 
(6,538
)
 
(3,220
)
Accrued employee compensation and benefits
 
(12,487
)
 
(2,607
)
Other accrued liabilities
 
467

 
(2,121
)
Other, net
 
(4,899
)
 
3,943

Total
 
$
(31,044
)
 
$
29,258


12. Employee Benefit Plans
We sponsor various noncontributory defined benefit plans covering substantially all full-time employees that began employment prior to June 30, 2008. We also have a non-qualified Supplemental Executive Retirement Plan ("SERP"). Effective June 30, 2009, we froze the accrual of benefits under our defined benefit pension plans that cover the majority of our employees and our SERP.

F-13


We sponsor a defined contribution plan covering substantially all non-union and certain union employees. We match a portion of employees' voluntary contributions to this plan. In connection with freezing the accrual of service credits under certain of our defined benefit pension plans, we began contributing additional amounts to certain employees' defined contribution retirement accounts in 2011. These transition credits, which we will make through 2014, are determined based upon the employee’s age and compensation.
Other union-represented employees are covered by defined benefit pension plans jointly sponsored by us and the union, or by union-sponsored multi-employer plans.

The components of the expense consisted of the following:
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
(in thousands)
 
2013
 
2012
 
2013
 
2012
 
 
 
 
 
 
 
 
 
Service cost
 
$
17

 
$
13

 
$
34

 
$
26

Interest cost
 
5,975

 
6,470

 
11,951

 
12,940

Expected return on plan assets, net of expenses
 
(5,371
)
 
(5,642
)
 
(10,742
)
 
(11,283
)
Amortization of prior service cost
 

 
1

 

 
1

Amortization of actuarial loss
 
1,061

 
869

 
2,122

 
1,739

Total for defined benefit plans
 
1,682

 
1,711

 
3,365

 
3,423

Multi-employer plans
 
111

 
114

 
231

 
234

SERP
 
887

 
211

 
1,173

 
455

Defined contribution plans
 
2,907

 
2,693

 
6,286

 
5,429

Net periodic benefit cost
 
$
5,587

 
$
4,729

 
$
11,055

 
$
9,541


We contributed $1.3 million to fund current benefit payments for our SERP during the first six months of 2013. We anticipate contributing an additional $1.1 million to fund the SERP’s benefit payments during the remainder of 2013. We contributed $0.1 million to our defined benefit plans during the first six months of 2013.

A settlement charge of $0.6 million was recorded in the second quarter of 2013 for our SERP plan. We remeasured our SERP liability in the second quarter of 2013, reflecting the settlement of a significant portion of the plan's obligations. The actuarial assumptions used to remeasure the plan liability were substantially the same as those used in the December 31, 2012 measurement, except for an increase in the discount rate to 5%. The remeasurement reduced our pension liabilities and accumulated comprehensive loss by $3.3 million.

13. Segment Information
We determine our business segments based upon our management and internal reporting structure. Our reportable segments are strategic businesses that offer different products and services.
Television includes ten ABC affiliates, three NBC affiliates, one independent station and five Azteca affiliates. Our television stations reach approximately 13% of the nation’s television households. Television stations earn revenue primarily from the sale of advertising time to local and national advertisers.
Our newspaper business segment includes daily and community newspapers in 13 markets in the U.S. Newspapers earn revenue primarily from the sale of advertising space to local and national advertisers and from the sale of newspaper subscriptions to readers.
Syndication and other primarily includes syndication of news features and comics and other features for the newspaper industry.
We allocate a portion of certain corporate costs and expenses, including information technology, certain employee benefits, digital operations services and other shared services, to our business segments. The allocations are generally amounts agreed upon by management, which may differ from an arms-length amount. Corporate assets are primarily cash and cash equivalents, restricted cash and other short-term investments, property and equipment primarily used for corporate purposes, and deferred income taxes. A portion of our digital operations which are not allocated to our newspaper and television segments is included in shared services and corporate.

F-14


Our chief operating decision maker evaluates the operating performance of our business segments and makes decisions about the allocation of resources to our business segments using a measure called segment profit. Segment profit excludes interest, defined benefit plan pension expense (other than current service cost), income taxes, depreciation and amortization, impairment charges, divested operating units, restructuring activities, investment results and certain other items that are included in net income (loss) determined in accordance with accounting principles generally accepted in the United States of America.

Information regarding our business segments is as follows:
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
(in thousands)
 
2013
 
2012
 
2013
 
2012
 
 
 
 
 
 
 
 
 
Segment operating revenues:
 
 
 
 
 
 
 
 
Television
 
$
111,393


$
117,097

 
$
208,259

 
$
216,654

Newspapers
 
93,452


97,180

 
192,940

 
201,559

Syndication and other
 
3,008


2,657

 
5,307

 
5,848

Total operating revenues
 
$
207,853

 
$
216,934

 
$
406,506

 
$
424,061

Segment profit (loss):
 
 
 
 
 
 
 
 
Television
 
$
30,532


$
34,916

 
$
47,024

 
$
52,792

Newspapers
 
5,882


4,566

 
11,819

 
11,731

Syndication and other
 
(446
)

(401
)
 
32

 
408

Shared services and corporate
 
(12,056
)

(7,725
)
 
(23,903
)
 
(16,191
)
Depreciation and amortization of intangibles
 
(11,774
)

(12,603
)
 
(23,588
)
 
(24,909
)
Gains (losses), net on disposal of property, plant and equipment
 
42


(212
)
 
37

 
30

Pension expense
 
(2,569
)

(1,819
)
 
(4,538
)
 
(3,775
)
Interest expense
 
(2,656
)
 
(3,211
)
 
(5,269
)
 
(6,365
)
Acquisition and related integration costs
 



 

 
(5,826
)
Separation and restructuring costs
 
(1,425
)

(2,355
)
 
(2,401
)
 
(4,066
)
Miscellaneous, net
 
(1,634
)

(1,435
)
 
(2,938
)
 
(1,552
)
Income (loss) from continuing operations before income taxes
 
$
3,896

 
$
9,721

 
$
(3,725
)
 
$
2,277

Depreciation:
 
 
 
 
 
 
 
 
Television
 
$
5,616

 
$
5,768

 
$
11,207

 
$
11,389

Newspapers
 
4,004

 
4,823

 
8,117

 
9,473

Syndication and other
 
19

 
12

 
38

 
24

Shared services and corporate
 
396

 
229

 
775

 
476

Total depreciation
 
$
10,035

 
$
10,832

 
$
20,137

 
$
21,362

Amortization of intangibles:
 
 
 
 
 
 
 
 
Television
 
$
1,602

 
$
1,594

 
$
3,179

 
$
3,189

Newspapers
 
137

 
177

 
272

 
358

Total amortization of intangibles
 
$
1,739

 
$
1,771

 
$
3,451

 
$
3,547

Additions to property, plant and equipment:
 
 
 
 
 
 
 
 
Television
 
$
3,269

 
$
3,975

 
$
5,156

 
$
4,551

Newspapers
 
572

 
392

 
1,461

 
926

Shared services and corporate
 
3,349

 
582

 
5,552

 
609

Total additions to property, plant and equipment
 
$
7,190

 
$
4,949

 
$
12,169

 
$
6,086

No single customer provides more than 10% of our revenue.

F-15


14. Spin-off of Scripps Networks Interactive, Inc.
On July 1, 2008, we distributed all of the shares of Scripps Networks Interactive, Inc. (“SNI”) to shareholders of record as of the close of business on June 16, 2008. SNI owned and operated our national lifestyle cable television networks and interactive media businesses.
In connection with the separation we entered into several agreements, including a Tax Allocation Agreement. This agreement sets forth the allocations between us and SNI with regards to liabilities for federal, state and local taxes for periods prior to the separation.
Under the terms of the Tax Allocation Agreement we receive any tax deductions for share-based compensation awards held by our employees in SNI. In the first half of 2013 and 2012, tax deductions resulting from the exercise of those awards totaled approximately $8.9 million and $11.1 million, respectively. At June 30, 2013, our employees held options on approximately 0.6 million SNI shares, which expire through 2015.
15. Capital Stock
Capital Stock — We have two classes of common shares, Common Voting Shares and Class A Common shares. The Class A Common shares are only entitled to vote on the election of the greater of three or one-third of the directors and other matters as required by Ohio law.
Share Repurchase Plan — In November 2012, our board of directors authorized a repurchase program of up to $100 million of our Class A Common shares through December 2014. Shares may be repurchased from time to time at management's discretion, either in the open market, through pre-arranged trading plans or in privately negotiated block transactions. The Company currently intends to fund approximately half of the buybacks from its cash balance and half using cash proceeds from the future exercise of employee stock options. Under the authorization, we repurchased $34.9 million of shares at prices ranging from $10.83 to $15.49 per share during the first half of 2013.
Information about options outstanding and options exercisable by year of grant as of June 30, 2013 is as follows:
 
 
 
 
 
 
Options Outstanding and Exercisable
Year of Grant
 
Range of Exercise Prices
 
Average Remaining Term
(in years)
 
Options on Shares Outstanding
 
Weighted Average Exercise Price
 
Aggregate Intrinsic Value (in millions)
 
 
 
 
 
 
 
 
 
 
 
2003 – expire in 2013
 
9-10
 
0.33
 
8,065

 
$
9.66

 
$

2004 – expire in 2014
 
10-11
 
0.73
 
355,154

 
10.55

 
1.8

2005 – expire in 2013
 
10
 
0.34
 
13,212

 
9.75

 
0.1

2006 – expire in 2014
 
10-11
 
0.70
 
518,844

 
10.38

 
2.7

2007 – expire in 2015
 
9-10
 
1.66
 
1,375,041

 
10.36

 
7.2

2008 – expire in 2016
 
7-10
 
2.75
 
2,326,834

 
8.70

 
16.0

Total
 
7-11
 
2.02
 
4,597,150

 
$
9.54

 
$
27.8



F-16


16. Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive loss ("AOCL") by component, including items reclassified out of AOCL, were as follows:
(in thousands)
 
Gains and Losses on Derivatives
 
Defined Benefit Pension Items
 
Other
 
Total
 
 
 
 
 
 
 
 
 
Beginning balance, March 31, 2013
 
$
(950
)
 
$
(115,337
)
 
$
357

 
$
(115,930
)
  Other comprehensive income before reclassifications
 
509

 

 

 
509

  Amounts reclassified from accumulated other
  comprehensive loss
 
 
 
 
 
 
 
 
     Interest rate swap (a), net of tax of $63
 
103

 

 

 
103

     Actuarial loss (b), net of tax of $1,001
 

 
1,105

 

 
1,105

Net current-period other comprehensive income
 
612

 
1,105

 

 
1,717

Ending balance, June 30, 2013
 
$
(338
)
 
$
(114,232
)
 
$
357

 
$
(114,213
)
(in thousands)
 
Gains and Losses on Derivatives
 
Defined Benefit Pension Items
 
Other
 
Total
 
 
 
 
 
 
 
 
 
Beginning balance, December 31, 2012
 
$
(1,009
)
 
$
(116,188
)
 
$
357

 
$
(116,840
)
  Other comprehensive income before reclassifications
 
464

 

 

 
464

  Amounts reclassified from accumulated other
  comprehensive loss
 
 
 
 
 
 
 
 
     Interest rate swap (a), net of tax of $126
 
207

 

 

 
207

     Actuarial loss (b), net of tax of $1,299
 

 
1,956

 

 
1,956

Net current-period other comprehensive income
 
671

 
1,956

 

 
2,627

Ending balance, June 30, 2013
 
$
(338
)
 
$
(114,232
)
 
$
357

 
$
(114,213
)

(a) Included in interest expense on the Statement of Operations
(b) Included in pension expense on the Statement of Operations

F-17


Management’s Discussion and Analysis of Financial Condition and Results of Operations
The E. W. Scripps Company ("Scripps") is a diverse media company with interests in television stations and newspaper publishing. The Company's portfolio of media properties includes: 19 television stations, including ten ABC-affiliated stations, three NBC affiliates, one independent station and five Azteca affiliates; daily and community newspapers in 13 markets; syndication of news features and comics; and the Washington-based Scripps Howard News Service.
This discussion and analysis of financial condition and results of operations is based upon the condensed consolidated financial statements and the condensed notes to the consolidated financial statements. You should read this discussion in conjunction with those financial statements.

Forward-Looking Statements
Certain forward-looking statements related to our businesses are included in this discussion. Those forward-looking statements reflect our 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 our control, include changes in advertising demand and other economic conditions; consumers’ tastes; 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. You should evaluate our forward-looking statements, which are as of the date of this filing, with the understanding of their inherent uncertainty. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date the statement is made.

Executive Overview

Our 2011 addition of nine local television stations in four markets through the acquisition of McGraw-Hill Broadcasting Company, Inc. (“McGraw-Hill”) signified our shift of the balance of the Company's assets toward the television business.
 
Our emphasis on positioning our television stations in their markets to be leaders in local news continues to show strong results. In the May 2013 ratings, 10 of our stations finished first or second in key adults demographics in at least one of the major local news time periods (6 a.m., 6 p.m. or late news). Thirteen of 14 stations improved their percentage of local news viewing in these time periods over the same time in May 2012. Our Denver and Phoenix television stations won coveted Peabody awards in 2013. We believe that our emphasis on the strategy of being the local news leader in our markets will drive stronger operating results.

We continued to see strong results from our programming strategy lessening our reliance on purchased syndicated shows. We have two original shows — a game show called Let's Ask America and a nightly infotainment magazine called The List — aired during the access period between evening news and prime time. These shows are airing in seven of our markets currently, with two additional markets being launched in the fall of this year. We have the intention of rolling them out in the rest of our markets when commitments to air other programming during that time period expire. We are also a partner in another original show called Right This Minute, a daily news and entertainment program, that currently airs on 12 of our stations.

In our Newspaper division, we saw the launch late in the first quarter of 2013 of our bundled-subscription strategy in our Memphis and Treasure Coast newspaper markets. At the end of the second quarter, all but two of our newspaper markets have introduced this strategy. Under our bundled strategy, subscribers receive access to all of our newspaper content on all platforms, and only limited digital content is available to non-subscribers. We expect to realize the financial benefits of the bundled subscription strategy later in the year as subscriptions renew.

We continue our investment in our digital initiatives. We are hiring and developing digital-only sales personnel, streamlining digital sales processes and creating digital content. We expect these investments to drive digital revenue growth in each of our divisions. We have hired 59 digital-only sales resources so far this year and expect to have approximately 100 on board by the end of 2013.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) requires us to make a variety of decisions which affect reported amounts and related disclosures, including the selection of appropriate accounting principles and the assumptions on which to base accounting estimates. In

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reaching such decisions, we apply judgment based on our understanding and analysis of the relevant circumstances, including our historical experience, actuarial studies and other assumptions. We are committed to incorporating accounting principles, assumptions and estimates that promote the representational faithfulness, verifiability, neutrality and transparency of the accounting information included in the financial statements.

Note 1 to the Consolidated Financial Statements included in our Annual Report on Form 10-K describes the significant accounting policies we have selected for use in the preparation of our financial statements and related disclosures. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used or changes in estimates that are likely to occur could materially change the financial statements. We believe the accounting for Acquisitions, Long-Lived Assets, Goodwill and Indefinite-Lived Intangible Assets, Income Taxes and Pension Plans to be our most critical accounting policies and estimates. A detailed description of these accounting policies is included in the Critical Accounting Policies section of Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2012.

There have been no significant changes in those accounting policies or other significant accounting policies.
Recently Adopted Standards and Issued Accounting Standards

Recently Adopted Accounting Standards — In February 2013, the FASB issued new guidance regarding the disclosure of comprehensive income (loss). The update requires an entity to present either on the face of the statement where net income (loss) is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income (loss) by the respective line items of net income (loss) but only if the amount reclassified is required under US GAAP to be reclassified to net income (loss) in its entirety in the same reporting period. For other amounts that are not required under US GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under US GAAP that provide additional details about those amounts. The update was effective for us on January 1, 2013. The implementation of this amended accounting guidance did not have a material impact on our consolidated financial position and results of operations.
In July 2012, the FASB amended the guidance on testing indefinite-lived assets, other than goodwill, for impairment. Under the revised guidance, an entity testing an indefinite-lived intangible asset for impairment has the option of performing a qualitative assessment before performing quantitative tests. If the entity determines, on the basis of qualitative factors, that the fair value of the indefinite-lived intangible asset is not more likely than not impaired, the entity would not need to perform the quantitative tests. This guidance will be effective for our annual impairment tests for the year ending December 31, 2013. The adoption of this guidance did not have a material impact on our financial statements; rather it may change our approach to testing indefinite-lived intangible assets for impairment.


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Results of Operations
The trends and underlying economic conditions affecting the operating performance and future prospects differ for each of our business segments. Accordingly, you should read the following discussion of our consolidated results of operations in conjunction with the discussion of the operating performance of our business segments that follows.
Consolidated Results of Operations
Consolidated results of operations were as follows:
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
(in thousands)
 
2013
 
Change
 
2012
 
2013
 
Change
 
2012
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating revenues
 
$
207,853

 
(4.2
)%
 
$
216,934

 
$
406,506

 
(4.1
)%
 
$
424,061

Employee compensation and benefits
 
(96,129
)
 
(1.1
)%
 
(97,152
)
 
(196,828
)
 
(0.5
)%
 
(197,863
)
Programs and program licenses
 
(13,218
)
 
(8.8
)%
 
(14,499
)
 
(26,014
)
 
(10.2
)%
 
(28,954
)
Newsprint, press supplies, and other printing costs
 
(11,407
)
 
(10.0
)%
 
(12,678
)
 
(24,351
)
 
(7.9
)%
 
(26,443
)
Newspaper distribution
 
(11,941
)
 
(3.1
)%
 
(12,320
)
 
(24,214
)
 
(5.2
)%
 
(25,533
)
Other expenses
 
(51,246
)
 
4.7
 %
 
(48,929
)
 
(100,127
)
 
3.7
 %
 
(96,528
)
Pension expense
 
(2,569
)
 
41.2
 %
 
(1,819
)
 
(4,538
)
 
20.2
 %
 
(3,775
)
Acquisition and related integration costs
 

 
 
 

 

 
 
 
(5,826
)
Separation and restructuring costs
 
(1,425
)
 
 
 
(2,355
)
 
(2,401
)
 


 
(4,066
)
Depreciation and amortization of intangibles
 
(11,774
)
 
 
 
(12,603
)
 
(23,588
)
 
 
 
(24,909
)
Gains (losses), net on disposal of property, plant and equipment
 
42

 
 
 
(212
)
 
37

 
 
 
30

Operating income
 
8,186

 
 
 
14,367

 
4,482

 
 
 
10,194

Interest expense
 
(2,656
)
 
 
 
(3,211
)
 
(5,269
)
 
 
 
(6,365
)
Miscellaneous, net
 
(1,634
)
 
 
 
(1,435
)
 
(2,938
)
 
 
 
(1,552
)
Income (loss) from operations before income taxes
 
3,896