SSP-2014.09.30-10Q
Table of Contents

 
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 September 30, 2014     
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 September 30, 2014, there were 44,692,345 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 September 30, 2014
Item No.
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Signatures
 
 
 
 

2

Table of Contents

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.

Members of the Board of Directors of Journal Communications, Inc. ("Journal"), and the parties to the Master Transaction Agreement, including Journal and Scripps, are defendants in a class action lawsuit filed in Circuit Court, Milwaukee County, Wisconsin (Howard Goldfinger v. Journal Communications, Inc., et al.). The plaintiff in this lawsuit alleges that the directors of Journal breached their fiduciary duties to Journal shareholders in connection with the transactions and that the other parties to the lawsuit aided and abetted such alleged breaches of fiduciary duty. The plaintiff alleges that the directors of Journal breached their fiduciary duties by, among other things, (i) agreeing to enter into the Master Transaction Agreement for inadequate consideration, (ii) having certain conflicts of interest, (iii) not negotiating a “collar” mechanism on the share exchange ratio, and (iv) agreeing to certain deal protection provisions, such as a termination fee, a “no-shop” provision, and a “matching rights” provision. The plaintiff also challenges the qualifications of Journal's financial advisor, Methuselah Advisors LLC ("Methuselah"), and asserts that Methuselah has a conflict because the founder and managing partner of Methuselah, who is the lead investment banker at Methuselah for Journal in this transaction, was employed by Lazard Freres & Co. LLC (“Lazard”) prior to 2010 as a managing partner and group co-head, where he had responsibility for Lazard’s relationship with Scripps.
The outcome of this lawsuit is uncertain and cannot be predicted. An adverse judgment for monetary damages could have a material adverse effect on the operations and liquidity of Journal or Scripps. An adverse judgment granting permanent injunctive relief could indefinitely enjoin completion of the transactions. Journal and Scripps believe the allegations of the plaintiff’s complaint are without merit and intend to vigorously defend against the claims alleged in this lawsuit. On August 29, 2014, the defendants filed motions asking the Circuit Court to dismiss this lawsuit. On October 20, 2014, the Circuit Court held a hearing and stated it would issue a ruling on such motions on or about November 11, 2014.



3

Table of Contents

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2013, except that the following risk factor has been added.

Scripps faces cybersecurity and similar risks, which could result in the disclosure of confidential information, disruption of its operations, damage to its brands and reputation, legal exposure and financial losses.

Security breaches, computer malware or other “cyber attacks” could harm Scripps’ business by disrupting its delivery of services, jeopardizing Scripps’ confidential information and that of its vendors and clients, and damaging its reputation. Scripps’ operations are expected to routinely involve receiving, storing, processing and transmitting sensitive information. Although Scripps monitors its security measures regularly and believes it is not in a key target industry, any unauthorized intrusion, malicious software infiltration, theft of data, network disruption, denial of service, or similar act by any party could disrupt the integrity, continuity, and security of Scripps’ systems or the systems of its clients or vendors. These events could create financial liability, regulatory sanction, or a loss of confidence in our ability to protect information, and adversely affect our revenue by causing the loss of current or potential clients.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no sales of unregistered equity securities during the quarter ended September 30, 2014.
Our board of directors authorized a repurchase program in November 2012 of up to $100 million of our Class A Common shares. We have repurchased a total of $95 million of shares under this authorization. An additional $5 million of shares may be repurchased pursuant to this authorization which expires December 31, 2014.
In May 2014, our board of directors authorized a new repurchase program of up to $100 million of our Class A Common shares through December 2016. No shares have been repurchased under this program as of September 30, 2014.
Based on the terms of the Master Transaction Agreement with Journal Communications, we are precluded from repurchasing shares prior to closing the transactions.

Item 3. Defaults Upon Senior Securities
There were no defaults upon senior securities during the quarter ended September 30, 2014.

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

Table of Contents

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: November 7, 2014
By:
/s/ Douglas F. Lyons 
 
 
Douglas F. Lyons
 
 
Vice President and Controller
 
 
(Principal Accounting Officer)



5

Table of Contents

The E. W. Scripps Company
Index to Financial Information

Item
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


F-1

Table of Contents

The E. W. Scripps Company
Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share data)
 
As of 
 September 30, 
 2014
 
As of 
 December 31, 
 2013
 
 
 
 
 
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
124,369

 
$
221,255

Restricted cash
 
6,810

 
8,210

Accounts and notes receivable (less allowances - $1,806 and $2,027)
 
125,096

 
139,703

Inventory
 
7,495

 
6,543

Deferred income taxes
 
11,510

 
17,861

Income taxes receivable
 
6,200

 
436

Miscellaneous
 
8,400

 
8,046

Total current assets
 
289,880

 
402,054

Investments
 
16,765

 
16,567

Property, plant and equipment
 
348,979

 
353,797

Goodwill
 
106,423

 
27,966

Other intangible assets
 
192,172

 
137,862

Deferred income taxes
 
7,890

 
8,733

Miscellaneous
 
16,334

 
19,151

Total Assets
 
$
978,443

 
$
966,130

Liabilities and Equity
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
16,719

 
$
16,529

Customer deposits and unearned revenue
 
34,058

 
28,633

Current portion of long-term debt
 
2,000

 
2,000

Accrued liabilities:
 
 
 
 
Employee compensation and benefits
 
36,802

 
26,986

Miscellaneous
 
33,908

 
28,930

Other current liabilities
 
13,173

 
10,043

Total current liabilities
 
136,660

 
113,121

Long-term debt (less current portion)
 
196,500

 
198,000

Other liabilities (less current portion)
 
108,432

 
107,272

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: 44,692,345 and 44,094,501 shares
 
447

 
441

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

 
119

Total
 
566

 
560

Additional paid-in capital
 
511,064

 
509,243

Retained earnings
 
102,976

 
116,893

Accumulated other comprehensive loss, net of income taxes:
 
 
 
 
Unrealized loss on derivatives
 
(541
)
 
(718
)
Pension liability adjustments
 
(78,876
)
 
(80,205
)
Total The E.W. Scripps Company shareholders’ equity
 
535,189

 
545,773

Noncontrolling interest
 
1,662

 
1,964

Total equity
 
536,851

 
547,737

Total Liabilities and Equity
 
$
978,443

 
$
966,130

See notes to condensed consolidated financial statements.

F-2

Table of Contents

The E. W. Scripps Company
Condensed Consolidated Statements of Operations (Unaudited)

 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(in thousands, except per share data)
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
 
Operating Revenues:
 
 
 
 
 
 
 
 
Advertising
 
$
154,030

 
$
141,139

 
$
458,055

 
$
446,391

Subscriptions
 
28,738

 
28,184

 
90,736

 
86,751

Retransmission
 
15,235

 
10,403

 
40,409

 
31,345

Other
 
9,597

 
9,809

 
34,140

 
31,554

Total operating revenues
 
207,600

 
189,535

 
623,340

 
596,041

Costs and Expenses:
 
 
 
 
 
 
 
 
Employee compensation and benefits
 
103,425

 
95,581

 
308,242

 
292,409

Programs and program licenses
 
16,181

 
14,318

 
42,951

 
40,332

Newsprint, press supplies and other printing costs
 
10,122

 
10,614

 
33,206

 
34,965

Newspaper distribution
 
11,492

 
11,623

 
35,046

 
35,837

Other expenses
 
46,760

 
49,502

 
150,727

 
149,629

Defined benefit pension plan expense
 
1,670

 
2,490

 
8,525

 
7,028

Acquisition and related integration costs
 
5,049

 

 
9,408

 

Separation and restructuring costs
 

 
1,290

 

 
3,691

Total costs and expenses
 
194,699

 
185,418

 
588,105

 
563,891

Depreciation, Amortization, and (Gains) Losses:
 
 
 
 
 
 
 
 
Depreciation
 
10,925

 
10,360

 
30,431

 
30,497

Amortization of intangible assets
 
2,270

 
1,736

 
6,088

 
5,187

(Gains) losses, net on disposal of property, plant and equipment
 
(2,951
)
 
177

 
(2,861
)
 
140

Net depreciation, amortization, and (gains) losses
 
10,244

 
12,273

 
33,658

 
35,824

Operating income (loss)
 
2,657

 
(8,156
)
 
1,577

 
(3,674
)
Interest expense
 
(2,050
)
 
(2,655
)
 
(6,347
)
 
(7,924
)
Miscellaneous, net
 
(216
)
 
(1,087
)
 
(1,061
)
 
(4,025
)
Income (loss) from operations before income taxes
 
391

 
(11,898
)
 
(5,831
)
 
(15,623
)
Provision (benefit) for income taxes
 
1,835

 
(3,047
)
 
(341
)
 
(7,286
)
Net loss
 
(1,444
)
 
(8,851
)
 
(5,490
)
 
(8,337
)
Net loss attributable to noncontrolling interests
 
(103
)
 

 
(302
)
 

Net loss attributable to the shareholders of The E.W. Scripps Company
 
$
(1,341
)
 
$
(8,851
)
 
$
(5,188
)
 
$
(8,337
)
Net loss per basic share of common stock attributable to the shareholders of The E.W. Scripps Company
 
$
(0.02
)
 
$
(0.16
)
 
$
(0.09
)
 
$
(0.15
)
Net loss per diluted share of common stock attributable to the shareholders of The E.W. Scripps Company
 
$
(0.02
)
 
$
(0.16
)
 
$
(0.09
)
 
$
(0.15
)
See notes to condensed consolidated financial statements.


F-3

Table of Contents

The E. W. Scripps Company
Condensed Consolidated Statements of Comprehensive Loss (Unaudited)

 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(in thousands)
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
 
Net loss
 
$
(1,444
)
 
$
(8,851
)
 
$
(5,490
)
 
$
(8,337
)
Changes in fair value of derivative, net of tax of $37, $(107), $111 and $299
 
59

 
(177
)
 
177

 
494

Changes in defined benefit pension plans, net of tax of $364, $460, $924 and $1,759
 
441

 
1,179

 
1,329

 
3,135

Total comprehensive loss
 
(944
)
 
(7,849
)
 
(3,984
)
 
(4,708
)
Less comprehensive loss attributable to noncontrolling interest
 
(103
)
 

 
(302
)
 

Total comprehensive loss attributable to the shareholders of The E.W. Scripps Company
 
$
(841
)
 
$
(7,849
)
 
$
(3,682
)
 
$
(4,708
)
See notes to condensed consolidated financial statements.

F-4

Table of Contents

The E. W. Scripps Company
Condensed Consolidated Statements of Cash Flows (Unaudited)


 
Nine Months Ended 
 September 30,
(in thousands)
 
2014

2013
 
 
 
 
 
Cash Flows from Operating Activities:
 



Net loss
 
$
(5,490
)
 
$
(8,337
)
Adjustments to reconcile net loss to net cash flows from operating activities:
 



Depreciation and amortization
 
36,519

 
35,684

(Gains) losses on sale of property, plant and equipment
 
(2,861
)
 
140

Deferred income taxes
 
4,934


(1,770
)
Stock and deferred compensation plans
 
4,608


6,092

Pension expense, net of payments
 
3,639


4,294

Liability for withdrawal from GCIU employer retirement fund
 
4,100

 

Other changes in certain working capital accounts, net
 
27,034


(13,486
)
Miscellaneous, net
 
(1,449
)

3,318

Net cash provided by operating activities
 
71,034


25,935

Cash Flows from Investing Activities:
 



Acquisitions

(149,334
)
 

Proceeds from sale of property, plant and equipment
 
6,453

 
300

Additions to property, plant and equipment
 
(13,437
)

(15,531
)
Purchase of investments
 
(2,003
)

(1,425
)
Change in restricted cash
 
1,400

 
1,800

Miscellaneous, net
 
453

 
39

Net cash used in investing activities
 
(156,468
)

(14,817
)
Cash Flows from Financing Activities:
 



Payments on long-term debt
 
(1,500
)

(11,925
)
Repurchase of Class A Common shares
 
(21,237
)

(69,313
)
Proceeds from employee stock options
 
13,175


40,229

Tax payments related to shares withheld for RSU vesting
 
(4,035
)

(6,157
)
Miscellaneous, net
 
2,145


(4,458
)
Net cash used in financing activities
 
(11,452
)

(51,624
)
Decrease in cash and cash equivalents
 
(96,886
)

(40,506
)
Cash and cash equivalents:
 



Beginning of year
 
221,255


242,642

End of period
 
$
124,369


$
202,136

 
 
 
 
 
Supplemental Cash Flow Disclosures
 
 
 
 
Interest paid
 
$
5,511

 
$
6,077

Income taxes paid
 
$
397

 
$
290

See notes to condensed consolidated financial statements.

F-5

Table of Contents

The E. W. Scripps Company
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, 2012
 
$
555

 
$
517,688

 
$
136,293

 
$
(116,840
)
 
$
2,214

 
$
539,910

Net income
 

 

 
(8,337
)
 

 

 
(8,337
)
Changes in defined benefit pension plans
 

 

 

 
3,135

 

 
3,135

Changes in fair value of derivative
 

 

 

 
494

 

 
494

Repurchase 4,816,228 Class A Common shares
 
(48
)
 
(52,501
)
 
(16,764
)
 

 

 
(69,313
)
Compensation plans: 4,980,097 net shares issued *
 
50

 
39,298

 

 

 

 
39,348

As of September 30, 2013
 
$
557

 
$
504,485

 
$
111,192

 
$
(113,211
)
 
$
2,214

 
$
505,237

 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2013
 
$
560

 
$
509,243

 
$
116,893

 
$
(80,923
)
 
$
1,964

 
$
547,737

Net loss
 

 

 
(5,188
)
 

 
(302
)
 
(5,490
)
Changes in defined benefit pension plans
 

 

 

 
1,329

 

 
1,329

Changes in fair value of derivative
 

 

 

 
177

 

 
177

Repurchase 1,181,560 Class A Common shares
 
(12
)
 
(12,496
)
 
(8,729
)
 

 

 
(21,237
)
Compensation plans: 1,779,404 net shares issued *
 
18

 
14,317

 

 

 

 
14,335

As of September 30, 2014
 
$
566

 
$
511,064

 
$
102,976

 
$
(79,417
)
 
$
1,662

 
$
536,851

* Net of tax payments related to shares withheld for vested stock and RSUs of $4,035 in 2014 and $6,157 in 2013.
See notes to condensed consolidated financial statements.


F-6

Table of Contents

The E. W. Scripps Company
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 2013 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.
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 enterprise with a portfolio of television, print and digital media brands. All of our media businesses provide content and advertising services via digital platforms, including the Internet, smartphones 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 Condensed Notes to 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. When a sales arrangement contains multiple elements, such as the sale of advertising and other services, we allocate revenue to each element based upon its relative fair value. We report revenue net of sales and other taxes collected from our customers.
Our primary sources of revenue are from the sale of print, broadcast and digital advertising, retransmission fees received from cable operators and satellite carriers and newspaper subscription fees.
The revenue recognition policies for each source of revenue are described in our 2013 Annual Report on Form 10-K.
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, 2013. 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 $0.2 million and $1.1 million for the third quarter of 2014 and 2013, respectively. Year-to-date share-based compensation costs totaled $4.9 million and $5.0 million in 2014 and 2013, respectively.

F-7

Table of Contents

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 
 September 30,
 
Nine Months Ended 
 September 30,
(in thousands)
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
 
Numerator (for basic and diluted earnings per share)
 
 
 
 
 
 
 
 
Net loss attributable to the shareholders of The E.W. Scripps Company
 
$
(1,341
)
 
$
(8,851
)
 
$
(5,188
)
 
$
(8,337
)
Less income allocated to RSUs
 



 



Numerator for basic and diluted earnings per share
 
$
(1,341
)
 
$
(8,851
)
 
$
(5,188
)
 
$
(8,337
)
Denominator
 
 
 
 
 
 
 
 
Basic weighted-average shares outstanding
 
56,469


56,177


56,200


56,696

Effect of dilutive securities:
 



 



Stock options held by employees and directors
 



 



Diluted weighted-average shares outstanding
 
56,469

 
56,177

 
56,200

 
56,696

Anti-dilutive securities (1)
 
3,313

 
5,551

 
3,313

 
5,551

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

For the quarter and nine months ended September 30, 2014 and 2013, we incurred a net loss and the inclusion of RSUs and stock options held by employees and directors would have been anti-dilutive, and accordingly the diluted EPS calculation for the period excludes those common share equivalents.

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 are 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 earnings when the effects of the item being hedged are recognized in earnings. 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 earnings. 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 Issued Accounting StandardsIn May 2014, the Financial Accounting Standards Board issued new guidance on revenue recognition. Under this new standard, an entity shall recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard creates a five-step process that requires entities to exercise judgment when considering the terms of the contract(s) and all relevant facts and circumstances. This standard permits the use of either the retrospective or cumulative effect transition method and will be effective for us beginning in 2017. Early adoption is not permitted. We are currently assessing the impact this new guidance will have on our consolidated financial statements and have not yet determined a transition method.


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In August 2014, the FASB issued new guidance related to the disclosures around going concern. The new standard provides guidance around management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on our consolidated financial statements.

3. Acquisitions

On June 16, 2014, we closed our acquisition of two television stations owned by Granite Broadcasting Corporation — the Detroit MyNetworkTV affiliate WMYD-TV and the Buffalo, N.Y. ABC affiliate WKBW-TV ("Acquired Granite Stations") — for $110 million in cash. The acquisition of WMYD-TV creates a duopoly with our Detroit ABC affiliate WXYZ-TV.

Pending the finalization of third-party valuations and other items, the following table summarizes the preliminary fair value of the assets acquired as of June 16, 2014:
(in thousands)
 
 
 
 
 
Assets:
 
 
Property, plant and equipment
 
$
12,025

Intangible assets
 
53,500

Goodwill
 
44,475

Net purchase price
 
$
110,000


Of the $54 million allocated to intangible assets, $34.4 million was for FCC licenses which we have determined to have an indefinite life and therefore will not be amortized. The remaining balance of $19.1 million will be allocated to television network affiliation relationships and advertiser relationships with estimated amortization periods of 10 to 20 years.

The goodwill of $44.5 million arising from the transaction consists largely of synergies and economies of scale and other benefits of a larger broadcast footprint, as well as synergies from being able to create a duopoly in our Detroit market. We have allocated the goodwill to our television segment. We will treat the transaction as an asset acquisition for income tax purposes resulting in a step-up in the assets acquired. The goodwill is deductible for income tax purposes.

Pro forma results of operations, assuming the transaction had taken place at the beginning of 2013, are included in the following table. The pro forma information includes the historical results of operations of Scripps and the Acquired Granite Stations and adjustments for additional depreciation and amortization of the assets acquired. The pro forma information does not include efficiencies, cost reductions or synergies expected to result from the acquisition. The unaudited pro forma financial information is not necessarily indicative of the results that actually would have occurred had the acquisition been completed at the beginning of the period. Reported results for the three months ended September 30, 2014 include the impact of the Acquired Granite Stations and therefore are not presented as pro forma results.
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(in thousands, except per share data) (unaudited)
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
Operating revenues
 
$
197,460

 
$
637,579

 
$
619,521

Loss from operations attributable to the shareholders of The E.W. Scripps Company
 
(7,974
)
 
(3,655
)
 
(5,129
)
Loss per share from operations attributable to the shareholders of The E.W. Scripps Company:
 
 
 
 
 
 
          Basic
 
(0.14
)
 
(0.07
)
 
(0.09
)
          Diluted
 
(0.14
)
 
(0.07
)
 
(0.09
)

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On January 1, 2014 we completed our acquisition of Media Convergence Group, Inc., which operates as Newsy, a digital video news provider, for $35 million in cash, plus a working capital adjustment of $0.2 million.

Pending the finalization of third-party valuations and other items, the following table summarizes the preliminary fair value of the assets acquired and the liabilities assumed as of January 1, 2014:
(in thousands)
 
 
 
 
 
Assets:
 
 
Accounts receivable
 
$
640

Other assets
 
74

Equipment and software
 
631

Intangible assets
 
5,900

Goodwill
 
28,938

Total assets acquired
 
36,183

Current liabilities
 
116

Long-term deferred liability
 
845

Net purchase price
 
$
35,222


Of the $5.9 million allocated to intangible assets, $4.1 million was allocated to customer relationships with an estimated amortization period of 5 years and the balance of $1.8 million was allocated to various other intangible assets.

The goodwill of $28.9 million arising from the transaction consists largely of the benefit we will derive from being able to enter the digital video market with an established business. We have allocated the goodwill to our syndication and other segment. We will treat the transaction as a purchase of stock for income tax purposes with no step-up in the assets acquired. The goodwill will not be deductible for income tax purposes. We are not presenting any pro forma results of operations since the impact of the acquisition is not material to prior year results of operations.

On September 16, 2014, we completed our acquisition of Geoterrestrial, Inc. ("WeatherSphere") for $4.1 million. WeatherSphere is a provider of weather-related mobile apps. The stock purchase agreement includes an earnout provision, whereby up to an additional $2.5 million in purchase price can be payable over a three year period, which we have estimated to have a fair value of $1.6 million. The purchase price allocation is preliminary as of September 30, 2014. We are not presenting any pro forma results of operations since the impact of the acquisition is not material to prior periods results of operations.

4. 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 generally 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 than 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 nine months ended September 30, 2014 and 2013 was 5.8% and 46.6%, 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 adjustments to reserves for uncertain tax positions (including interest). We recognized $2.4 million of previously unrecognized tax benefits in the first nine months of 2013 upon settlement of audits or when the statute of limitations lapsed in certain tax jurisdictions.

The impact of small changes in our estimated pretax income for the 2013 year significantly impacted our estimated effective tax rate for the year. Differences between pretax book and taxable earnings, such as non-deductible expenses and state income taxes, on the effective income tax rate varies significantly as income before income taxes changes. Accordingly, for the

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nine months ended September 30, 2013, we did not believe we could reasonably estimate our full year effective income tax rate, and as permitted by US GAAP, we determined our tax benefit for 2013 based upon year-to-date pretax loss and the effect of differences between book and taxable loss.

Deferred tax assets totaled $19.4 million at September 30, 2014. 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.

We recognize state net operating loss carryforwards as deferred tax assets, subject to valuation allowances. At each balance sheet date, we estimate the amount of carryforwards that are not expected to be used prior to expiration of the carryforward period. The tax effect of the carryforwards that are not expected to be used prior to their expiration is included in the valuation allowance.

During the periods ended September 30, 2014 and 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 for both periods. The additional tax benefits will be reflected as net operating loss carryforwards when we file our tax returns, but the additional tax benefits are not recorded under GAAP until the tax deduction reduces taxes payable. When the benefit is recognized, it will be recorded as additional paid-in capital. The amount of unrecognized tax deductions for the nine months ended September 30, 2014 and 2013 was approximately $31 million and $33 million, respectively.

5. Other Charges and Credits

Income (loss) from operations was affected by the following:

Acquisition and related integration costs of $5.0 million for the third quarter of 2014 and $9.4 million for the nine months ended September 30, 2014 include costs associated with the acquisition of two television stations from Granite Broadcasting as well as costs for spinning off our newspaper operations and the merger of Journal's broadcast business.

During the third quarter of 2014, we recorded a $3.0 million gain from the sale of excess land in our newspaper business.

Restructuring costs, primarily at our newspaper operations, totaled $1.3 million for the third quarter of 2013 and $3.7 million for the first nine months of 2013. Restructuring costs primarily include costs associated with efforts to simplify and standardize advertising and circulation systems and other processes in our newspaper division. In 2014, we are in the final stages of these system implementations and any remaining costs are now included in segment operating results.

6. Restricted Cash

At September 30, 2014 and December 31, 2013, we had $6.8 million and $8.2 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 our 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.


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7. Goodwill and Other Intangible Assets
Goodwill by business segment was as follows:
(in thousands)
 
Television
 
Newspapers
 
Syndication and other
 
Total
 
 
 
 
 
 
 
 
 
Gross balance as of December 31, 2013
 
$
243,380

 
$
778,900

 
$

 
$
1,022,280

Accumulated impairment losses
 
(215,414
)
 
(778,900
)
 

 
(994,314
)
Net balance as of December 31, 2013
 
27,966

 

 

 
27,966

2014 Newsy acquisition
 

 

 
28,938

 
28,938

2014 Granite Stations acquisitions
 
44,475

 

 

 
44,475

2014 WeatherSphere acquisition
 

 

 
5,044

 
5,044

Balance as of September 30, 2014
 
$
72,441

 
$

 
$
33,982

 
$
106,423

 
 
 
 
 
 
 
 
 
Gross balance as of September 30, 2014
 
$
287,855

 
$
778,900

 
$
33,982

 
$
1,100,737

Accumulated impairment losses
 
(215,414
)
 
(778,900
)
 

 
(994,314
)
Net balance as of September 30, 2014
 
$
72,441

 
$

 
$
33,982

 
$
106,423


Other intangible assets consisted of the following:
(in thousands)
 
As of 
 September 30, 
 2014
 
As of 
 December 31, 
 2013
 
 
 
 
 
Amortizable intangible assets:
 
 
 
 
Carrying amount:
 
 
 
 
Television network affiliation relationships
 
$
93,944

 
$
78,844

Customer lists and advertiser relationships
 
30,404

 
22,304

Other
 
6,361

 
3,561

Total carrying amount
 
130,709

 
104,709

Accumulated amortization:
 
 
 
 
Television network affiliation relationships
 
(12,855
)
 
(9,691
)
Customer lists and advertiser relationships
 
(15,746
)
 
(13,138
)
Other
 
(2,151
)
 
(1,833
)
Total accumulated amortization
 
(30,752
)
 
(24,662
)
Net amortizable intangible assets
 
99,957

 
80,047

Other indefinite-lived intangible assets — FCC licenses
 
92,215

 
57,815

Total other intangible assets
 
$
192,172

 
$
137,862


Estimated amortization expense of intangible assets for each of the next five years is $2.3 million for the remainder of 2014, $9.0 million in 2015, $8.9 million in 2016, $6.5 million in 2017, $6.4 million in 2018, $5.5 million in 2019, and $61.4 million in later years.


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8. Long-Term Debt
Long-term debt consisted of the following:
(in thousands)
 
As of 
 September 30, 
 2014
 
As of 
 December 31, 
 2013
 
 
 
 
 
Variable rate credit facility
 
$

 
$

Term loan
 
198,500

 
200,000

Long-term debt
 
198,500

 
200,000

Current portion of long-term debt
 
2,000

 
2,000

Long-term debt (less current portion)
 
$
196,500

 
$
198,000

Fair value of long-term debt *
 
$
198,500

 
$
200,000


* Fair value of the term loan was estimated based on quoted private market transactions and is classified as Level 1 in the fair value hierarchy.

We have a $275 million revolving credit and term loan agreement (“Financing Agreement”). The Financing Agreement includes a $200 million term loan B maturing in November 2020 and a $75 million revolving credit facility maturing in November 2018.

The Financing Agreement includes the maintenance of a net leverage ratio if we borrow more than 20% on the revolving credit facility. The term loan B requires that if we borrow additional amounts or make a permitted acquisition that we cannot exceed a stated net leverage ratio on a pro forma basis at the date of the transaction.

Interest is payable on the term loan B at rates based on LIBOR with a 0.75% floor, plus a fixed margin of 2.50%. Interest is payable on the revolving credit facility at rates based on LIBOR plus a margin based on our leverage ratio ranging from 2.25% to 2.75%. As of September 30, 2014 and December 31, 2013, the interest rate was 3.25% on the term loan B. 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 September 30, 2014, we were not required to make additional principal payments based on excess cash flow. The weighted-average interest rate on borrowings was 3.25% and 3.70% for the nine months ended September 30, 2014 and 2013, respectively.

Scheduled principal payments on long-term debt at September 30, 2014 are: $0.5 million for the remainder of 2014, $2.0 million in 2015, $2.0 million in 2016, $2.0 million in 2017, $2.0 million in 2018, $2.0 million in 2019 and $188 million thereafter.

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 $50 million plus additional amounts based on our financial results and condition. We can also make additional stock repurchases equal to the amount of proceeds that we receive from the exercise of stock options held by our employees. Additionally, we can make acquisitions as long as the pro forma net leverage ratio is less than 4.5 to 1.0.

Commitment fees of 0.30% to 0.50% per annum, based on our leverage ratio, of the total unused commitment are payable under the revolving credit facility.

As of September 30, 2014 and December 31, 2013, we had outstanding letters of credit totaling $0.2 million.


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9. 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 may 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 December 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 was designated as and qualified as a cash flow hedge through November 2013, 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 are shown in the table below:
 
 
As of September 30, 2014
 
As of December 31, 2013
 
 
Notional
 
Fair value
 
Notional
 
Fair value
(in thousands)
 
amount
 
Asset
 
Liability (1)
 
amount
 
Asset
 
Liability (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
Undesignated derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
   Interest rate swap
 
$
75,000

 
$

 
$
423

 
$
75,000

 
$

 
$
723


(1) Balance recorded as other liabilities in Condensed Consolidated Balance Sheets
    
Through November 2013, the above derivative instrument was designated as and qualified as a cash flow hedge and the effective portion of the unrealized gains and losses on the derivative was reported as a component of accumulated other comprehensive loss and reclassified into earnings in the periods during which the hedged transactions affected earnings. Upon refinancing our term loan in November 2013, this hedge no longer qualified as a cash flow hedge and gains and losses on the derivative are recorded in current period earnings. The balance in accumulated other comprehensive loss at the date of discontinuance of hedge accounting is being amortized into earnings on a straight-line basis through December 2016. For the year-to-date period ended September 30, 2014, approximately $0.3 million was amortized into earnings from accumulated other comprehensive loss and is included in the table below as amounts reclassified from accumulated OCL, gain/(loss).

 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(in thousands)
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
 
Effective portion recognized in accumulated OCL,
gain/(loss)
 

 
(455
)
 

 
290

Amounts reclassified from accumulated OCL, gain/(loss)
 
96

 
171

 
288

 
504

Gain/(loss) on derivative
 
362

 

 
300

 



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10. Fair Value Measurement

We measure certain financial assets and liabilities at fair value on a recurring basis, such as cash equivalents and derivatives. The fair value of these financial assets and liabilities was 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. These levels of input are as follows:

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 September 30, 2014 and December 31, 2013:
 
 
As of September 30, 2014
(in thousands)
 
Total
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
 
 
 
 
 
Assets/(Liabilities):
 
 
 
 
 
 
 
 
  Cash equivalents
 
$
10,000

 
$
10,000

 
$

 
$

  Interest rate swap
 
(423
)
 

 
(423
)
 


 
 
As of December 31, 2013
(in thousands)
 
Total
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
 
 
 
 
 
Assets/(Liabilities):
 
 
 
 
 
 
 
 
  Cash equivalents
 
$
30,000

 
$
30,000

 
$

 
$

  Interest rate swap
 
(723
)
 

 
(723
)
 


11. Other Liabilities
Other liabilities consisted of the following:
(in thousands)
 
As of 
 September 30, 
 2014
 
As of 
 December 31, 
 2013
 
 
 
 
 
Employee compensation and benefits
 
$
18,578

 
$
19,756

Liability for pension benefits
 
62,903

 
62,020

Liabilities for uncertain tax positions
 
11,078

 
10,670

Other
 
15,873

 
14,826

Other liabilities (less current portion)
 
$
108,432

 
$
107,272


12. 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.


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13. Supplemental Cash Flow Information
The following table presents additional information about the change in certain working capital accounts:
 
 
Nine Months Ended 
 September 30,
(in thousands)
 
2014
 
2013
 
 
 
 
 
Other changes in certain working capital accounts, net
 
 
 
 
Accounts and notes receivable
 
$
15,247

 
$
2,807

Income taxes receivable/payable, net
 
(5,764
)
 
(2,251
)
Accounts payable
 
79

 
(6,274
)
Accrued employee compensation and benefits
 
9,811

 
(5,827
)
Other accrued liabilities
 
4,284

 
(238
)
Other, net
 
3,377

 
(1,703
)
Total
 
$
27,034

 
$
(13,486
)

14. Employee Benefit Plans
We sponsor various noncontributory defined benefit pension plans covering substantially all full-time employees that began employment prior to June 30, 2008. Benefits earned by employees are generally based upon employee compensation and years of service credits. 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 and our SERP that cover the majority of our employees.
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 will be made through 2015, are determined based upon the employee’s age, compensation and years of service.
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 
 September 30,
 
Nine Months Ended 
 September 30,
(in thousands)
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
 
Service cost
 
$
21

 
$
17

 
$
64

 
$
51

Interest cost
 
6,600

 
5,976

 
19,155

 
17,927

Expected return on plan assets, net of expenses
 
(5,893
)
 
(5,371
)
 
(17,611
)
 
(16,113
)
Amortization of actuarial loss
 
862

 
1,060

 
2,145

 
3,182

Total for defined benefit plans
 
1,590

 
1,682

 
3,753

 
5,047

Multi-employer plans
 
100

 
95

 
324

 
326

Withdrawal from GCIU multi-employer plan
 

 

 
4,100

 

SERP
 
80

 
808

 
672

 
1,981

Defined contribution plans
 
2,419

 
2,341

 
8,635

 
8,627

Net periodic benefit cost
 
$
4,189

 
$
4,926

 
$
17,484

 
$
15,981


We contributed $0.6 million to fund current benefit payments for our SERP during the nine months ended September 30, 2014. We anticipate contributing an additional $0.2 million to fund the SERP’s benefit payments during the remainder of 2014. We contributed $0.1 million to our defined benefit pension plans during the first nine months of 2014.

We participate in multi-employer pension plans that cover certain employees that are members of unions or trade associations that have a collective bargaining agreement with us. In the second quarter of 2014, unions ratified our plan to

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withdraw from the Graphics Communication International Union (GCIU) Employer Retirement Fund. Upon ratification of the agreement, we estimated the undiscounted liability to be approximately $6.5 million and recorded a liability of $4.1 million for the present value withdrawal liability. Once the final withdrawal liability is determined at the end of this year with the GCIU, we either will pay the liability in a lump sum or make equal monthly installments over 20 years beginning in 2015.

15. 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.
Our television segment includes 11 ABC affiliates, three NBC affiliates, and two independent stations that operate as duopolies with our Kansas City NBC affiliate and our Detroit ABC affiliate. We also own five Azteca America affiliates. Our television stations reach approximately 14% of the nation’s households. Television stations earn revenue primarily from the sale of advertising time to local and national advertisers and retransmission fees received from cable operators and satellite carriers.
Our newspaper segment includes daily and community newspapers in 13 markets across the United States. Newspapers earn revenue primarily from the sale of advertising space to local and national advertisers and newspaper subscription fees.
Syndication and other primarily includes certain digital operations outside of our television and newspaper markets and syndication of news features and comics and other features for the newspaper industry. Newsy, a digital video news service, and WeatherSphere, a provider of weather-related mobile apps, are also included in syndication and other.
We allocate a portion of certain corporate costs and expenses, including information technology, certain employee benefits, digital operation 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, property and equipment primarily used for corporate purposes, and deferred income taxes. A portion of our digital operations, which is not allocated to our television and newspaper segments, is included in shared services and corporate.
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 pension plan 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.

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Information regarding our business segments is as follows:
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(in thousands)
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
 
Segment operating revenues:
 
 
 
 
 
 
 
 
Television
 
$
121,068


$
99,289

 
$
339,004

 
$
307,548

Newspapers
 
84,473


88,346

 
275,213

 
281,286

Syndication and other
 
2,059


1,900

 
9,123

 
7,207

Total operating revenues
 
$
207,600

 
$
189,535

 
$
623,340

 
$
596,041

Segment profit (loss):
 
 
 
 
 
 
 
 
Television
 
$
29,813

 
$
18,921

 
$
78,591

 
$
65,945

Newspapers
 
767

 
3,038

 
14,759

 
14,857

Syndication and other
 
(872
)
 
(177
)
 
(1,385
)
 
(145
)
Shared services and corporate
 
(10,088
)
 
(13,885
)
 
(38,797
)
 
(37,788
)
Defined benefit pension plan expense
 
(1,670
)
 
(2,490
)
 
(8,525
)
 
(7,028
)
Acquisition and related integration costs
 
(5,049
)
 

 
(9,408
)
 

Separation and restructuring costs
 

 
(1,290
)
 

 
(3,691
)
Depreciation and amortization of intangibles
 
(13,195
)
 
(12,096
)
 
(36,519
)
 
(35,684
)
Gains (losses), net on disposal of property, plant and equipment
 
2,951

 
(177
)
 
2,861

 
(140
)
Interest expense
 
(2,050
)
 
(2,655
)
 
(6,347
)
 
(7,924
)
Miscellaneous, net
 
(216
)
 
(1,087
)
 
(1,061
)
 
(4,025
)
Income (loss) from operations before income taxes
 
$
391

 
$
(11,898
)
 
$
(5,831
)
 
$
(15,623
)
Depreciation:
 
 
 
 
 
 
 
 
Television
 
$
5,894

 
$
5,751

 
$
16,033

 
$
16,958

Newspapers
 
4,255

 
4,015

 
12,167

 
12,132

Syndication and other
 
127

 
20

 
327

 
58

Shared services and corporate
 
649

 
574

 
1,904

 
1,349

Total depreciation
 
$
10,925

 
$
10,360

 
$
30,431

 
$
30,497

Amortization of intangibles:
 
 
 
 
 
 
 
 
Television
 
$
1,909

 
$
1,599

 
$
5,108

 
$
4,778

Newspapers
 
92

 
137

 
303

 
409

Syndication and other
 
269

 

 
677

 

Total amortization of intangibles
 
$
2,270

 
$
1,736

 
$
6,088

 
$
5,187

Additions to property, plant and equipment:
 
 
 
 
 
 
 
 
Television
 
$
4,100

 
$
2,169

 
$
10,540

 
$
7,325

Newspapers
 
573

 
285

 
1,486

 
1,746

Syndication and other
 
302

 

 
432

 

Shared services and corporate
 
253

 
908

 
979

 
6,460

Total additions to property, plant and equipment
 
$
5,228

 
$
3,362

 
$
13,437

 
$
15,531

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

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16. 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. Tax deductions for the nine months ended September 30, 2014 and 2013 resulting from the exercise of those awards totaled approximately $7.4 million and $11.4 million, respectively. These benefits are recorded as additional paid-in capital at the time they are realized. At September 30, 2014, our employees held options on approximately 0.2 million SNI shares which expire through 2015.

17. 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. Under the authorization, we repurchased $21.2 million of shares at prices ranging from $16.35 to $19.99 per share during the first nine months of 2014. For the nine months ended September 30, 2013, we purchased $69.3 million of shares at prices ranging from $10.83 to $17.94 per share. As of September 30, 2014, we have $5 million remaining for share repurchases under this authorization.
In May 2014, our board of directors authorized a new repurchase program of up to $100 million of our Class A Common shares through December 2016. No shares have been repurchased under this program as of September 30, 2014.
Based on the terms of the Master Transaction Agreement with Journal Communications, we are precluded from repurchasing shares prior to closing the transactions.
Options Outstanding Information about options outstanding and options exercisable by year of grant as of September 30, 2014 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)
 
 
 
 
 
 
 
 
 
 
 
2004 – expire in 2014
 
$10
 
0.18
 
3,794

 
$
9.78

 
$

2005 – expire in 2015
 
10-11
 
0.54
 
43,188

 
10.90

 
0.3

2006 – expire in 2016
 
10-11
 
1.66
 
47,737

 
10.03

 
0.3

2007 – expire in 2015
 
9-10
 
0.42
 
349,497

 
10.27

 
2.1

2008 – expire in 2016
 
7-10
 
1.50
 
1,610,994

 
8.73

 
12.2

Total
 
$7-11
 
1.29
 
2,055,210

 
$
9.07

 
$
14.9



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18. Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive loss ("AOCL") by component, including items reclassified out of AOCL, were as follows:

 
 
Three Months Ended September 30, 2014
(in thousands)
 
Gains and Losses on Derivatives
 
Defined Benefit Pension Items
 
Other
 
Total
 
 
 
 
 
 
 
 
 
Beginning balance, June 30, 2014
 
$
(600
)
 
$
(79,489
)
 
$
172

 
$
(79,917
)
  Other comprehensive income before reclassifications
 

 

 

 

  Amounts reclassified from accumulated other
  comprehensive loss
 
 
 
 
 
 
 
 
     Interest rate swap, net of tax of $37 (a)
 
59

 

 

 
59

     Actuarial loss, net of tax of $364 (b)
 

 
441

 

 
441

Net current-period other comprehensive income
 
59

 
441

 

 
500

Ending balance, September 30, 2014
 
$
(541
)
 
$
(79,048
)
 
$
172

 
$
(79,417
)

 
 
Three months ended September 30, 2013
(in thousands)
 
Gains and Losses on Derivatives
 
Defined Benefit Pension Items
 
Other
 
Total
 
 
 
 
 
 
 
 
 
Beginning balance, June 30, 2013
 
$
(338
)
 
$
(114,232
)
 
$
357

 
$
(114,213
)
  Other comprehensive income before reclassifications
 
(284
)
 

 

 
(284
)
  Amounts reclassified from accumulated other
  comprehensive loss
 
 
 
 
 
 
 
 
     Interest rate swap, net of tax of $64 (a)
 
107

 

 

 
107

     Actuarial loss, net of tax of $460 (b)
 

 
1,179

 

 
1,179

Net current-period other comprehensive income
 
(177
)
 
1,179

 

 
1,002

Ending balance, September 30, 2013
 
$
(515
)
 
$
(113,053
)
 
$
357

 
$
(113,211
)

 
 
Nine Months Ended September 30, 2014
(in thousands)
 
Gains and Losses on Derivatives
 
Defined Benefit Pension Items
 
Other
 
Total
 
 
 
 
 
 
 
 
 
Beginning balance, December 31, 2013
 
$
(718
)
 
$
(80,377
)
 
$
172

 
$
(80,923
)
  Other comprehensive income before reclassifications
 

 

 

 

  Amounts reclassified from accumulated other
  comprehensive loss
 
 
 
 
 
 
 
 
     Interest rate swap, net of tax of $111 (a)
 
177

 

 

 
177

     Actuarial loss, net of tax of $924 (b)
 

 
1,329

 

 
1,329

Net current-period other comprehensive income
 
177

 
1,329

 

 
1,506

Ending balance, September 30, 2014
 
$
(541
)
 
$
(79,048
)
 
$
172

 
$
(79,417
)

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Nine Months Ended September 30, 2013
(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
 
180

 

 

 
180

  Amounts reclassified from accumulated other
  comprehensive loss
 
 
 
 
 
 
 
 
     Interest rate swap, net of tax of $190 (a)
 
314

 

 

 
314

     Actuarial loss, net of tax of $1,759 (b)
 

 
3,135

 

 
3,135

Net current-period other comprehensive income
 
494

 
3,135

 

 
3,629

Ending balance, September 30, 2013
 
$
(515
)
 
$
(113,053
)
 
$
357

 
$
(113,211
)

(a) Interest rate swap is included in interest expense in the Condensed Consolidated Statements of Operations
(b) Actuarial loss is included in defined benefit pension plan expense in the Condensed Consolidated Statements of Operations

19. Pending Broadcast Merger and Newspaper Spin-off
On July 30, 2014, Scripps and Journal Communications, Inc. ("Journal") agreed to merge their broadcast operations and spin-off their newspaper businesses into a separate publicly traded company (the “Transactions”). The Transactions are expected to close in the first half of 2015.
The merged broadcast and digital media company, to be based in Cincinnati, will retain The E.W. Scripps Company name and continue to be controlled by the Scripps family. The company’s television operations will reach approximately 18% of all U.S. households and have approximately 4,000 employees across its television, radio and digital media operations.
The newspaper company will be named Journal Media Group, combining the 13 Scripps newspapers with Journal's Milwaukee Journal Sentinel. The company will have approximately 3,600 employees and will be headquartered in Milwaukee.
The board of directors of both companies have approved the Transactions, which are subject to customary regulatory and shareholder approvals. As part of the Transactions, Scripps shareholders will receive a $60 million special cash dividend. Based on the terms of the Master Transaction Agreement, we are precluded from repurchasing shares prior to closing the transaction.
In order to carry out the Transactions, we will incur $25 to $30 million in costs, of which we have incurred $6.7 million to date. With the Journal Transactions, we will also assume Journal's outstanding liabilities, including any employee benefit obligations ($66 million as of December 31, 2013). Journal also has outstanding debt of $144 million as of September 30, 2014, of which we will be required to refinance $131 million and can assume the remainder.

In the case that Scripps breaches its obligation to consummate the Transactions, the Master Transaction Agreement may require Scripps to pay liquidated damages of $15.8 million plus expenses, subject to an overall limit of $23.5 million.

20. Contingencies

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.

Members of the Board of Directors of Journal Communications, Inc. ("Journal"), and the parties to the Master Transaction Agreement, including Journal and Scripps, are defendants in a class action lawsuit filed in Circuit Court, Milwaukee County, Wisconsin (Howard Goldfinger v. Journal Communications, Inc., et al.). The plaintiff in this lawsuit alleges that the directors of Journal breached their fiduciary duties to Journal shareholders in connection with the transactions and that the other parties to the lawsuit aided and abetted such alleged breaches of fiduciary duty. The plaintiff alleges that the directors of Journal breached their fiduciary duties by, among other things, (i) agreeing to enter into the Master Transaction Agreement for inadequate consideration, (ii) having certain conflicts of interest, (iii) not negotiating a “collar” mechanism on the share exchange ratio, and (iv) agreeing to certain deal protection provisions, such as a termination fee, a “no-shop” provision, and a “matching rights” provision. The plaintiff also challenges the qualifications of Journal's financial advisor, Methuselah Advisors LLC ("Methuselah"), and asserts that Methuselah has a conflict because the founder and managing partner of Methuselah, who is the

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lead investment banker at Methuselah for Journal in this transaction, was employed by Lazard Freres & Co. LLC (“Lazard”) prior to 2010 as a managing partner and group co-head, where he had responsibility for Lazard’s relationship with Scripps.

The outcome of this lawsuit is uncertain and cannot be predicted. An adverse judgment for monetary damages could have a material adverse effect on the operations and liquidity of Journal or Scripps. An adverse judgment granting permanent injunctive relief could indefinitely enjoin completion of the transactions. Journal and Scripps believe the allegations of the plaintiff’s complaint are without merit and intend to vigorously defend against the claims alleged in this lawsuit. On August 29, 2014, the defendants filed motions asking the Circuit Court to dismiss this lawsuit. On October 20, 2014, the Circuit Court held a hearing and stated it would issue a ruling on such motions on or about November 11, 2014.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations
The E. W. Scripps Company (“Scripps”) is a diverse media enterprise with interests in television stations, newspapers and local and national digital media sites. We serve audiences and businesses through a growing portfolio of television, print and digital media brands. We own 21 local television stations, as well as daily newspapers in 13 markets across the United States. We also run an expanding collection of local and national digital journalism and information businesses including digital video news service Newsy. We also produce television programming, run an award-winning investigative reporting newsroom in Washington, D.C., and serve as the longtime steward of one of the nation's largest, most successful and longest-running educational programs, the Scripps National Spelling Bee.
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

On July 30, 2014, Scripps and Journal Communications, Inc. ("Journal") agreed to merge their broadcast operations and spin off their newspaper businesses into a separate publicly traded company. The merged broadcast operations, which will retain The E.W. Scripps Company name, will reach approximately 18% of all U.S. households serving 27 markets. The company will have approximately 4,000 employees across its television, radio and digital media operations. After the deal closes, Scripps will be the fifth-largest independent television station group in the country and one of the largest owners of ABC-affiliated TV stations in the country by market reach with 15 ABC affiliates. The merger will grow our national broadcast footprint and expands our affiliations to all of the big four networks. The deal is expected to close in the first half of 2015.

The merger further leverages Scripps' digital investments, adding large and attractive markets to the portfolio. The company is expecting to build and launch market-leading digital brands that serve growing digital media audiences in addition to supporting the on-air local news brands. Further, the company expects to benefit from the new geographic markets with the national reach of digital brands such as Newsy and WeatherSphere.

The newspaper company will be called Journal Media Group, combining the 13 Scripps newspapers with Journal's Milwaukee Journal Sentinel. The company will have approximately 3,600 employees and will be headquartered in Milwaukee.

The board of directors of each company have approved the Transactions, which are subject to customary regulatory and shareholder approvals. As part of the Transactions, Scripps shareholders will receive a $60 million special cash dividend.

In June 2014, we completed our acquisition of two television stations from Granite Broadcasting Corporation for $110 million in cash. The acquisition includes the Detroit MyNetworkTV affiliate and the Buffalo, N.Y., ABC affiliate. The acquisition of the Detroit station creates a duopoly with our ABC affiliate WXYZ-TV.
 
We continue with our strategies of improving our ratings in key news blocks. In the July 2014 rating period, eight of our stations finished first or second in key adult demographics in at least one of the major local news time periods (6 a.m., 6 p.m. or late news). Eleven of our 14 major network-affiliated stations improved their percentage of local news viewing in at least one of these time periods in July 2014.

We continue 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 — with one or both being

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aired during the access period between evening news and prime time in 10 of our markets. We intend to roll them out in the rest of our markets when commitments to air other programming during that time period expire. In 2014, we signed a deal to syndicate Let's Ask America in markets nationwide. We are also a partner in another original show called RightThisMinute, a daily news and entertainment program that airs on 13 of our stations and reaches more than 90% of the country. We launched our fourth original show called The Now in eight of our markets in the third quarter of 2014. The Now is a combination of news and entertainment stories trending on social media and invites the audience to join the conversation across the traditional and digital media platforms.

In our newspaper division, we saw the launch late in the first quarter of 2013 of our bundled-subscription model in our Memphis and Treasure Coast markets. By the end of the third quarter of 2013, all of our newspaper markets had rolled out this model. Under our bundled model, subscribers receive access to all of our newspaper content on all platforms. Only limited digital content is available to non-subscribers. We also offer digital-only subscriptions. As we have cycled against the completion of the launch of our digital bundles, subscription revenue growth has moderated.

We continued our investment in digital with the January 2014 acquisition of digital video news provider Media Convergence Group, Inc. which operates as Newsy, for $35 million in cash, plus a working capital adjustment of $0.2 million. This acquisition fits our digital strategy to run a national news brand that both enhances our local content offerings and gives us more access to the fast-growing digital news audiences and revenues on national platforms. Newsy adds a new dimension to our video news strategy with a multi-platform approach to storytelling specifically geared for digital audiences.

On September 16, 2014 we continued our digital expansion with our acquisition of Geoterrestrial, Inc. ("WeatherSphere"), a top-selling provider of weather-related mobile apps. The acquisition reinforces our commitment to creating more products and deeper connections with digital consumers around news and information. WeatherSphere's brands include top-rated weather and lifestyle apps available for sale for most smartphones. The WeatherSphere portfolio will expand our national digital footprint and complement StormShield, our existing paid weather app, which provides emergency alerts to consumers through their smartphones and tablets. We are building our inventory of digital assets that generate revenue as stand-alone apps and also serve as a vehicle for our television and newspaper markets to strengthen consumer connections across traditional and digital media platforms.

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 that affect reported amounts and related disclosures, including the selection of appropriate accounting principles 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. 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 for the year ended December 31, 2013 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, 2013.


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Recently Adopted Standards and Issued Accounting Standards

Recently Issued Accounting StandardsIn May 2014, the Financial Accounting Standards Board issued new guidance on revenue recognition. Under this new standard, an entity shall recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard creates a five-step process that requires entities to exercise judgment when considering the terms of the contract(s) and all relevant facts and circumstances. This standard permits the use of either the retrospective or cumulative effect transition method and will be effective for us beginning in 2017. Early adoption is not permitted. We are currently assessing the impact this new guidance will have on our consolidated financial statements and have not yet determined a transition method.

In August 2014, the FASB issued new guidance related to the disclosures around going concern. The new standard provides guidance around management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on our consolidated financial statements.





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Table of Contents

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 September 30,
 
Nine months ended September 30,
(in thousands)
 
2014
 
Change
 
2013
 
2014
 
Change
 
2013
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating revenues
 
$
207,600

 
9.5
 %
 
$
189,535

 
$
623,340

 
4.6
 %
 
$
596,041

Employee compensation and benefits
 
(103,425
)
 
8.2
 %
 
(95,581
)
 
(308,242
)
 
5.4
 %
 
(292,409
)
Programs and program licenses
 
(16,181
)
 
13.0
 %
 
(14,318
)
 
(42,951
)
 
6.5
 %
 
(40,332
)
Newsprint, press supplies and other printing costs
 
(10,122
)
 
(4.6
)%
 
(10,614
)
 
(33,206
)
 
(5.0
)%
 
(34,965
)
Newspaper distribution
 
(11,492
)
 
(1.1
)%
 
(11,623
)
 
(35,046
)
 
(2.2
)%
 
(35,837
)
Other expenses
 
(46,760
)
 
(5.5
)%
 
(49,502
)
 
(150,727
)
 
0.7
 %
 
(149,629
)
Defined benefit pension plan expense
 
(1,670
)
 


 
(2,490
)
 
(8,525
)
 


 
(7,028
)
Acquisition and related integration costs
 
(5,049
)
 
 
 

 
(9,408
)
 
 
 

Separation and restructuring costs
 

 
 
 
(1,290
)
 

 


 
(3,691
)
Depreciation and amortization of intangibles
 
(13,195
)
 
 
 
(12,096
)
 
(36,519
)
 
 
 
(35,684
)
Gains (losses), net on disposal of property, plant and equipment
 
2,951

 
 
 
(177
)
 
2,861

 
 
 
(140
)
Operating income (loss)
 
2,657

 
 
 
(8,156
)
 
1,577

 
 
 
(3,674
)
Interest expense
 
(2,050
)
 
 
 
(2,655
)
 
(6,347
)
 
 
 
(7,924
)
Miscellaneous, net
 
(216
)
 
 
 
(1,087
)
 
(1,061
)
 
 
 
(4,025
)
Income (loss) from operations before income taxes
 
391

 
 
 
(11,898
)
 
(5,831
)
 
 
 
(15,623
)
(Provision) benefit for income taxes
 
(1,835
)
 
 
 
3,047

 
341

 
 
 
7,286

Net loss
 
(1,444
)
 
 
 
(8,851
)
 
(5,490
)
 
 
 
(8,337
)
Net loss attributable to noncontrolling interests
 
(103
)
 
 
 

 
(302
)
 
 
 

Net loss attributable to the shareholders of The E.W. Scripps Company
 
$
(1,341
)
 
 
 
$
(8,851
)
 
$
(5,188
)
 
 
 
$
(8,337
)

The Company completed its acquisition of the two Granite television stations on June 16, 2014. The inclusion of operating results from these stations for the period subsequent to the acquisition impacts the comparability of our television division operating results.

Operating revenues increased 9.5% in the third quarter of 2014 compared to 2013 and 4.6% for the first nine months of 2014 compared to prior year. Television revenues increased 21.9% in the third quarter of 2014 and 10.2% for the first three quarters of 2014 primarily driven by higher political advertising and increased retransmission revenues, while newspaper revenues declined 4.4% and 2.2% for the third quarter and first three quarters of 2014, respectively.

On a same station basis, retransmission revenues increased by approximately 45% and 28% for the 2014 quarter and nine months ended September 30, 2014 compared to 2013, respectively, due to contractual rate increases. In 2014, retransmission agreements covering about a third of our subscribers expire. In June 2014, we renewed contracts covering about a quarter of those subscribers at higher rates and the remainder will be renewed in December 2014. In 2015, we expect our retransmission revenues to grow substantially as a result of the increased rates. Many factors can impact the revenues we will receive from renewals, including competitive conditions, governmental regulations and cable and television industry consolidation.


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Table of Contents

Employee compensation and benefits increased 8.2% in the third quarter of 2014 and 5.4% in the year-to-date period. Employee compensation and benefits associated with supporting our digital operations increased year-to-date costs by approximately $9.3 million, while employee related costs in our newspaper segment were down due to lower employment levels. The impact of the acquisition of two Granite television stations on employee compensation and benefits was $2.3 million in the third quarter of 2014. The increase was also due to the addition of approximately 80 positions in our television division to staff The Now and The List, two of our internally developed and produced programs. The television division also incurred severance costs primarily as a result of centralizing our master control hub which accounted for $1.4 million of the increase in the first three quarters of 2014.
 
Programs and program licenses increased by 13.0% for the 2014 quarter and 6.5% for the nine months ended September 30, 2014 on an as reported basis. On a same-station basis, programs and program licenses increased by 2.6% for the 2014 quarter and 2.2% for the nine months ended September 30, 2014, primarily due to increases in fees we pay under our network affiliation agreements, which require us to pay a portion of retransmission revenues above a threshold to the network. The fees paid to the networks increased $1.9 million and $4.3 million for the third quarter of 2014 and nine months ended September 30, 2014, respectively, as our retransmission revenues increased. This was partially off-set by a $1.5 million reduction in the 2014 third quarter and a $3.4 million reduction in 2014 year-to-date in costs for syndicated programming as more of our stations replaced syndicated programming with our internally produced programming.

Newsprint, press supplies and other printing costs declined by approximately 5% for the quarter and the nine months ended September 30, 2014 primarily due to lower expenditures for newsprint. Average newsprint prices increased 4.1% and newsprint consumption decreased 8.4% for the quarter ended September 30, 2014. For the nine months ended September 30, 2014, average newsprint prices decreased 3.4% and newsprint consumption decreased 3.6%.

Newspaper distribution costs decreased as a result of lower net paid circulation levels. A large portion of our distribution costs are variable and increase or decrease in relation to our circulation levels.

Other expenses include the following:
 
 
Three Months Ended September 30,

Nine months ended September 30,
(in thousands)
 
2014
 
Change
 
2013
 
2014
 
Change
 
2013
 
 
 
 
 
 
 
 
 
 
 
 
 
Facilities rent and maintenance
 
$
10,782

 
8.1
 %
 
$
9,974

 
$
30,959

 
3.8
 %
 
$
29,835

Purchased news and content
 
3,387

 
(5.3
)%
 
3,576

 
10,635

 
(5.8
)%
 
11,284

Marketing and promotion
 
2,219

 
(38.3
)%
 
3,595

 
9,954

 
(20.4
)%
 
12,500

Miscellaneous costs
 
30,372

 
(6.1
)%
 
32,357

 
99,179

 
3.3
 %
 
96,010

Total other expenses
 
$
46,760

 
(5.5
)%
 
$
49,502

 
$
150,727

 
0.7
 %
 
$
149,629


Marketing and promotion costs in the 2013 year-to-date period includes costs to promote our bundled subscription offerings in the newspaper division. We completed the launch of our bundled subscription model in the third quarter of 2013.

Defined benefit pension plan expense increased to $8.5 million for the nine months ended September 30, 2014. In the second quarter of 2014, unions ratified our plan to withdraw from the GCIU Employer Retirement Fund. Upon ratification of the agreement, we estimated the undiscounted liability to be approximately $6.5 million and recorded a liability of $4.1 million for the present value withdrawal liability. Once we reach an agreement with the GCIU, we either will pay the liability in a lump sum or make equal monthly installments over 20 years beginning in 2015.

Acquisition and related integration costs of $5.0 million for the 2014 quarter and $9.4 million for the nine months ended September 30, 2014 include costs associated with the acquisition of two television stations from Granite Broadcasting as well as costs for spinning off our newspaper operations and the merger of Journal's broadcast business.

Separation and restructuring costs were $1.3 million in the third quarter of 2013 and $3.7 million year-to-date 2013 related to costs associated with the implementation of common advertising and circulation systems. In 2014, we are in the final stages of these system implementations and any remaining costs are now included in segment operating results.

During the third quarter of 2014 we recognized a gain of approximately $3.0 million on the sale of excess land in our newspaper division.


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Interest expense decreased in 2014 due to a decline in our borrowing rate when we refinanced our debt in the fourth quarter of 2013.

The effective income tax rate was 5.8% and 46.6% for the nine months ended September 30, 2014 and 2013, respectively. The impact of state and local taxes and non-deductible expenses has made our effective rate volatile due to relatively small amounts of pretax income or loss in each of the reporting periods. In addition, our effective income tax rates for 2013 were impacted by tax settlements and changes in our reserve for uncertain tax positions. In 2013, we recognized $2.4 million of previously unrecognized tax benefits upon settlement of tax audits or upon the lapse of the statute of limitations in certain jurisdictions.

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Business Segment Results — As discussed in the Condensed Notes to the Consolidated Financial Statements, our chief operating decision maker evaluates the operating performance of our business segments using a measure called segment profit. Segment profit excludes interest, defined benefit pension plan 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.
Items excluded from segment profit generally result from decisions made in prior periods or from decisions made by corporate executives rather than the managers of the business segments. Depreciation and amortization charges are the result of decisions made in prior periods regarding the allocation of resources and are therefore excluded from the measure. Generally, our corporate executives make financing, tax structure and divestiture decisions. Excluding these items from measurement of our business segment performance enables us to evaluate business segment operating performance based upon current economic conditions and decisions made by the managers of those business segments in the current period.
We allocate a portion of certain corporate costs and expenses, including information technology, certain employee benefits, digital operation 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, property and equipment primarily used for corporate purposes, and deferred income taxes. A portion of our digital operations, which is not allocated to our television and newspaper segments, is included in shared services and corporate.
Information regarding the operating performance of our business segments and a reconciliation of such information to the consolidated financial statements is as follows:
 
 
Three Months Ended September 30,
 
Nine months ended September 30,
(in thousands)
 
2014
 
Change
 
2013
 
2014
 
Change
 
2013
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment operating revenues:
 
 
 
 
 
 
 
 
 
 
 
 
Television
 
$
121,068

 
21.9
 %
 
$
99,289

 
$
339,004

 
10.2
 %
 
$
307,548

Newspapers
 
84,473

 
(4.4
)%
 
88,346

 
275,213

 
(2.2
)%
 
281,286

Syndication and other
 
2,059

 
8.4
 %
 
1,900

 
9,123

 
26.6
 %
 
7,207

Total operating revenues
 
$
207,600

 
9.5
 %
 
$
189,535

 
$
623,340

 
4.6
 %
 
$
596,041

Segment profit (loss):
 
 
 
 
 
 
 
 
 
 
 
 
Television
 
$
29,813

 
57.6
 %
 
$
18,921

 
$
78,591

 
19.2
 %
 
$
65,945

Newspapers
 
767

 
(74.8
)%
 
3,038

 
14,759

 
(0.7
)%
 
14,857

Syndication and other
 
(872
)
 


 
(177
)
 
(1,385
)
 


 
(145
)
Shared services and corporate
 
(10,088
)
 
(27.3
)%
 
(13,885
)
 
(38,797
)
 
2.7
 %
 
(37,788
)
Defined benefit pension plan expense
 
(1,670
)
 
 
 
(2,490
)
 
(8,525
)
 
 
 
(7,028
)
Acquisition and related integration costs
 
(5,049
)
 
 
 

 
(9,408
)
 
 
 

Separation and restructuring costs
 

 
 
 
(1,290
)
 

 
 
 
(3,691
)
Depreciation and amortization of intangibles
 
(13,195
)
 
 
 
(12,096
)
 
(36,519
)
 
 
 
(35,684
)
Gains (losses), net on disposal of property, plant and equipment
 
2,951

 
 
 
(177
)
 
2,861

 
 
 
(140
)
Interest expense
 
(2,050
)
 
 
 
(2,655
)
 
(6,347
)
 
 
 
(7,924
)
Miscellaneous, net
 
(216
)
 
 
 
(1,087
)
 
(1,061
)
 
 
 
(4,025
)
Income (loss) from operations before income taxes
 
$
391

 
 
 
$
(11,898
)
 
$
(5,831
)
 
 
 
$
(15,623
)

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Television — Our television segment includes 11 ABC-affiliated stations, three NBC-affiliated stations, and two independent stations that operate as duopolies with our Kansas City NBC affiliate and our Detroit ABC affiliate. We also own five Azteca America affiliates. Our television stations reach approximately 14% of the nation’s households. Our television stations earn revenue primarily from the sale of advertising time to local and national advertisers and retransmission fees received from cable operators and satellite carriers.
National television networks offer affiliates a variety of programs and sell the majority of advertising within those programs. In addition to network programs, we broadcast locally produced programs, syndicated programs, sporting events, and other programs of interest in each station's market. News is the primary focus of our locally-produced programming.
The operating performance of our television group is most affected by local and national economic conditions, particularly conditions within the automotive, services and retail categories, and by the volume of advertising time purchased by campaigns for elective office and political issues. The demand for political advertising is significantly higher in the third and fourth quarters of even-numbered years.
Operating results for our television segment were as follows:
 
 
Three Months Ended September 30,
 
Nine months ended September 30,
(in thousands)
 
2014
 
Change
 
2013
 
2014
 
Change
 
2013
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment operating revenues:
 
 
 
 
 
 
 
 

 
 
 
 
Local
 
$
55,567

 
1.8
 %
 
$
54,581

 
$
174,440

 
3.0
 %
 
$
169,390

National
 
26,629

 
(2.8
)%
 
27,388

 
80,470

 
(7.3
)%
 
86,780

Political
 
17,396

 
 
 
1,038

 
25,339

 


 
2,142

Retransmission
 
15,235

 
46.4
 %
 
10,403

 
40,409

 
28.9
 %
 
31,345

Digital
 
4,643

 
8.5
 %
 
4,279

 
13,493

 
11.4
 %
 
12,110

Other
 
1,598

 
(0.1
)%
 
1,600

 
4,853

 
(16.1
)%
 
5,781

Total operating revenues
 
121,068

 
21.9
 %
 
99,289

 
339,004

 
10.2
 %
 
307,548

Segment costs and expenses:
 
 
 
 
 
 
 
 
 


 
 
Employee compensation and benefits
 
48,996

 
11.5
 %
 
43,949

 
142,956

 
7.0
 %
 
133,648

Programs and program licenses
 
16,181

 
13.0
 %
 
14,318

 
42,951

 
6.5
 %
 
40,332

Other expenses
 
26,078

 
18.0
 %
 
22,101

 
74,506

 
10.2
 %
 
67,623

Total costs and expenses
 
91,255

 
13.5
 %
 
80,368

 
260,413

 
7.8
 %
 
241,603

Segment profit
 
$
29,813

 
57.6
 %
 
$
18,921

 
$
78,591

 
19.2
 %
 
$
65,945


The Company completed its acquisition of the two Granite television stations on June 16, 2014. The inclusion of operating results from these stations for the period subsequent to the acquisition impact the comparability of our television division operating results.
Revenues
    
Total reported television revenues increased 21.9% in the third quarter of 2014 and 10.2% in the first nine months of 2014 compared to prior year. On a same-station basis, television revenues increased 15.7% in the third quarter of 2014 and 7.8% in the first nine months of 2014. Political advertising and retransmission revenues drove the same station growth while national advertising revenues were weak. Political advertising on a same-station basis is about $16 million and $23 million higher for the quarter and year-to-date periods, respectively. In certain of our markets, primarily Florida and Ohio, political advertising has not been as strong as in recent election cycles.

On a same station basis, retransmission revenues increased by approximately 45% and 28% for the 2014 quarter and nine months ended September 30, 2014 compared to 2013, respectively, due to contractual rate increases. In 2014, retransmission agreements covering about a third of our subscribers expire. In June 2014, we renewed contracts covering about a quarter of those subscribers at higher rates and the remainder will be renewed in December 2014. In 2015, we expect our retransmission revenues to grow substantially as a result of the increased rates. Many factors can impact the revenues we will receive from renewals, including competitive conditions, governmental regulations and cable and television industry consolidation.



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On February 13, 2014, Comcast and Time Warner Cable announced their agreement to merge. Comcast and Time Warner provide cable television service to about one-third of the households in our markets. In addition, Time Warner negotiates on behalf of cable provider Bright House for about 1 million subscribers in Scripps markets. The Scripps/Time Warner retransmission agreement, which covers about 3 million subscribers (including the Bright House subscribers), expires at the end of 2015. The Scripps/Comcast retransmission agreement, which covers approximately 2.5 million subscribers, expires at the end of 2019. Any Time Warner cable systems in the Scripps markets ultimately acquired by Comcast in the merger would become subject to the Scripps/Comcast retransmission agreement. The proposed merger would not affect retransmission revenues we expect to receive in 2014 and 2015. In May, details were released by Comcast about the cable systems that it expects to divest to Charter Communications as part of the merger transaction. About 2 million of the proposed divested households are in our markets (Detroit, Indianapolis, Cleveland and Cincinnati) and would fall under our contract with Charter Communications which comes up for renewal at the end of this year. The impact of this depends on when the merger between Comcast and Time Warner and the subsequent transaction between Comcast and Charter are completed, as well as the dollar amount of the rates we negotiate with Charter. The contract for the approximately 1 million Bright House subscribers expires at the end of 2015 and we believe that those subscribers will not be included under our Comcast retransmission agreement.

Digital revenues on a same-station basis increased 4.4%, or $0.2 million, in the third quarter of 2014 and 9.7%, or $1.2 million, for the nine months ended September 30, 2014 as we continued our focus on increasing digital advertising revenues with an expanded sales force.

Costs and expenses    

Total costs and expenses on a reported basis increased 13.5% in the third quarter of 2014 and 7.8% for the first nine months of 2014. On a same-station basis, total costs and expenses increased 6.7% for the quarter and 5.1% for first nine months of 2014, primarily driven by higher employee related costs and higher digital costs.

Employee compensation and benefits on a same-station basis increased $2.8 million, or 6.3%, in the third quarter of 2014 and $6.7 million, or 5.0%, year-to-date primarily due to annual salary increases and the addition of approximately 80 positions to staff The Now and The List, two of our internally developed and produced programs. We incurred severance costs primarily as a result of centralizing our master control hub which accounted for $1.4 million of the increase in the first three quarters of 2014.

Programs and program licenses increased by 13.0% for the 2014 quarter and 6.5% for the nine months ended September 30, 2014 on an as reported basis. On a same-station basis, programs and program licenses increased by 2.6% for the 2014 quarter and 2.2% for the nine months ended September 30, 2014, primarily due to increases in fees we pay under our network affiliation agreements, which require us to pay a portion of retransmission revenues above a threshold to the network. The fees paid to the networks increased $1.9 million and $4.3 million for the third quarter of 2014 and nine months ended September 30, 2014, respectively, as our retransmission revenues increased. This was partially off-set by a $1.5 million reduction in the third quarter and a $3.4 million reduction year-to-date in costs for syndicated programming as more of our stations replaced syndicated programming with our internally produced programming.

Other expenses on an as reported basis increased 18.0% for the 2014 quarter and 10.2% for the 2014 year-to-date period compared to prior year. On a same station basis, other expenses increased 10.2% for the 2014 quarter and 6.9% for the year-to-date period. Costs to support digital initiatives in the television segment increased $2.1 million and $5.6 million for the third quarter of 2014 and nine months ended September 30, 2014, respectively.

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Newspapers — We operate daily and community newspapers in 13 markets across the United States. Our newspapers earn revenue primarily from the sale of advertising to local and national advertisers and newspaper subscription fees. Our newspapers operate in mid-size markets, focusing on news coverage within their local markets. Advertising and subscription revenues provide substantially all of the operating revenues for each newspaper market and employee, newspaper distribution and newsprint costs are the primary expenses at each newspaper. The operating performance of our newspapers is most affected by local and national economic conditions, particularly within the retail, labor, housing and automotive markets, as well as newsprint prices.
Operating results for our newspaper segment were as follows:
 
 
Three Months Ended September 30,
 
Nine months ended September 30,
(in thousands)
 
2014
 
Change
 
2013
 
2014
 
Change
 
2013
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment operating revenues:
 
 
 
 
 
 
 
 
 
 
 
 
Local
 
$
15,545

 
(5.6
)%
 
$
16,467

 
$
52,710

 
(4.5
)%
 
$
55,219

Classified
 
15,070

 
(6.8
)%
 
16,174

 
49,096

 
(4.6
)%
 
51,456

National
 
786

 
(45.8
)%
 
1,449

 
3,351

 
(38.3
)%
 
5,429

Preprint and other
 
13,599

 
(7.1
)%
 
14,634

 
44,163

 
(5.8
)%
 
46,869

Digital advertising and marketing services
 
6,092

 
(3.9
)%
 
6,342

 
18,685

 
(6.3
)%
 
19,935

Advertising and marketing services
 
51,092

 
(7.2
)%
 
55,066

 
168,005

 
(6.1
)%
 
178,908

Subscriptions
 
28,738

 
2.0
 %
 
28,184

 
90,736

 
4.6
 %
 
86,751

Other
 
4,643

 
(8.9
)%
 
5,096

 
16,472

 
5.4
 %
 
15,627

Total operating revenues
 
84,473

 
(4.4
)%
 
88,346

 
275,213

 
(2.2
)%
 
281,286

Segment costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Employee compensation and benefits
 
38,543

 
(3.7
)%
 
40,029

 
117,440

 
(5.4
)%
 
124,199

Newsprint, press supplies and other printing costs
 
10,122

 
(4.6
)%
 
10,614

 
33,206

 
(5.0
)%
 
34,965

Distribution
 
11,492

 
(1.1
)%
 
11,623

 
35,046

 
(2.2
)%
 
35,837

Other expenses
 
23,549

 
2.2
 %
 
23,042

 
74,762

 
4.7
 %
 
71,428

Total costs and expenses
 
83,706

 
(1.9
)%
 
85,308

 
260,454

 
(2.2
)%
 
266,429

Segment profit
 
$
767

 
(74.8
)%
 
$
3,038

 
$
14,759

 
(0.7
)%
 
$
14,857


Revenues

Total newspaper revenues decreased 4.4% for the 2014 quarter and 2.2% for the year-to-date period compared to 2013. Advertising and marketing services revenues decreased over 6% in 2014 which was partially offset by an increase in subscription revenue from targeted price increases and print and digital subscription bundles. As of September 30, 2014, we had approximately 38,000 digital-only subscribers across all of our markets.

Advertising and marketing services declined primarily as a result of continued secular changes in the demand for print advertising. Automotive classified advertising, as well as both local and national advertising, remained particularly weak during the quarter.

Subscriptions include fees paid by readers for access to our content in print and digital formats. We completed the launch of our bundled subscription model in the third quarter of 2013. Under our bundled offerings, subscribers receive access to all of our newspaper content on all platforms and only limited digital content is available to non-subscribers. We also offer digital-only subscriptions. Subscription revenue increased in the third quarter by 2.0% and 4.6% for the first three quarters of 2014 which was driven by the rollout of our bundled subscription model, increases in single-copy prices and digital-only subscriptions. As we have cycled against the completion of the launch of our digital bundles, subscription revenue growth has moderated.

Other operating revenues, including commercial printing and distribution services, decreased by $0.4 million, or 8.9%, for the third quarter of 2014 and increased $0.8 million, or 5.4%, for the nine months ended September 30, 2014. In the 2014 and 2013 year-to-date period we had revenues of $2.1 million and $0.6 million, respectively for a commercial print job where

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Table of Contents

our Knoxville newspaper printed the Chattanooga newspaper while their plant was improved. The Chattanooga printing contract was completed in August 2014.
Costs and expenses

Employee compensation and benefits decreased approximately $1.5 million, or 3.7%, and $6.8 million, or 5.4%, for the 2014 quarter and year-to-date period, respectively, primarily due to lower employment levels compared to prior year. We had approximately 6% fewer newspaper employees in 2014 as compared to 2013.

Newsprint, press supplies and other printing costs declined by approximately 5% for the quarter and the nine months ended September 30, 2014 primarily due to lower expenditures for newsprint. Average newsprint prices increased 4.1% and newsprint consumption decreased 8.4% for the quarter ended September 30, 2014. For the nine months ended September 30, 2014, average newsprint prices decreased 3.4% and newsprint consumption decreased 3.6%.

Newspaper distribution costs decreased as a result of lower net paid circulation levels. A large portion of our distribution costs are variable and increase or decrease in relation to our circulation levels.

Other expenses increased by 2.2% for the 2014 quarter and 4.7% for the nine months ended September 30, 2014. Costs related to support digital initiatives of our newspaper segment as well as costs to implement systems and process changes increased $3.4 million and $11.0 million for the 2014 quarter and nine months ended September 30, 2014, respectively, which was partially offset by decreases in various other operating expenses.

Shared services and corporate

We centrally provide certain services to our business segments. Such services include accounting, tax, cash management, procurement, human resources, employee benefits and information technology. The business segments are allocated costs for such services at amounts agreed upon by management. Such allocated costs may differ from amounts that might be negotiated at arms-length. Costs for such services that are not allocated to the business segments are included in shared services and corporate costs. Shared services and corporate also includes unallocated corporate costs, including costs associated with being a public company.

Shared services and corporate expenses were $10.1 million in the third quarter of 2014 compared to $13.9 million in the third quarter of 2013. For the nine months ended September 30, 2014, shared services and corporate expenses were $38.8 million compared to $37.8 million for the nine months ended September 30, 2013. Incremental costs to hire and develop digital-only sales professionals, streamline the digital sales processes, and create digital content that were not allocated to our television and newspaper divisions increased $0.5 million in 2014 compared to prior year. Also contributing to the increase in shared services and corporate expenses were costs related to system implementation and process changes, which increased $1.1 million in the first three quarters of 2014 compared to prior year. For the third quarter of 2014, costs decreased due to $2.3 million of lower third-party costs and an additional $5.5 million allocation of digital costs to our television and newspaper segments, partially offset by a net increase in employee related costs.


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Liquidity and Capital Resources
Our primary source of liquidity is our available cash and borrowing capacity under our revolving credit facility.

Operating activities

Cash flows from operating activities for the nine months ended September 30 is as follows:
 
 
Nine Months Ended 
 September 30,
(in thousands)
 
2014
 
2013
 
 
 
 
 
Cash Flows from Operating Activities:
 
 
 
 
Net loss
 
$
(5,490
)
 
$
(8,337
)
Adjustments to reconcile net loss to net cash flows from operating activities:
 
 
 
 
Depreciation and amortization
 
36,519

 
35,684

(Gains) losses on sale of property, plant and equipment
 
(2,861
)
 
140

Deferred income taxes
 
4,934

 
(1,770
)
Stock and deferred compensation plans
 
4,608

 
6,092

Pension expense, net of payments
 
3,639

 
4,294

Liability for withdrawal from GCIU employer retirement fund
 
4,100

 

Other changes in certain working capital accounts, net
 
27,034

 
(13,486
)
Miscellaneous, net
 
(1,449
)
 
3,318

Net cash provided by operating activities
 
$
71,034

 
$
25,935


The $45 million increase in cash provided by operating activities was primarily attributable to changes in working capital in 2014 compared to 2013. The primary factors affecting changes in operating activities are described below.

Collections of accounts receivable increased $12.4 million in 2014 compared to 2013. Collections in the first quarter of an odd year are lower due to the impact of political advertising in the preceding quarter, which is paid in advance.
The accrual of annual incentive compensation, net of the payment of amounts earned in the prior year, increased working capital by $1.6 million in 2014 and decreased working capital by $9.3 million in 2013.
The timing of payments for accounts payable increased working capital by $6.4 million in 2014.
In 2014, we recorded a $4.1 million liability for withdrawing from one of our multi-employer pension plans, which increased working capital.


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Investing activities

Cash flows from investing activities for the nine months ended September 30 is as follows:
 
 
Nine Months Ended 
 September 30,
(in thousands)
 
2014
 
2013
 
 
 
 
 
Cash Flows from Investing Activities:
 
 
 
 
Acquisitions
 
$
(149,334
)
 
$

Proceeds from sale of property, plant and equipment
 
6,453

 
300

Additions to property, plant and equipment
 
(13,437
)
 
(15,531
)
Purchase of investments
 
(2,003
)
 
(1,425
)
Change in restricted cash
 
1,400

 
1,800

Miscellaneous, net
 
453

 
39

Net cash used in investing activities
 
$
(156,468
)
 
$
(14,817
)

In 2014 and 2013 we used $156.5 million and $14.8 million, respectively, in cash for investing activities. The primary factors affecting our investing activities for the periods are described below.

On January 1, 2014 we completed our acquisition of Media Convergence Group, Inc., which operates as Newsy, a digital video news provider, for $35 million in cash.
On June 16, 2014, we completed our acquisition of two television stations owned by Granite Broadcasting Corporation for $110 million in cash.
On September 16, 2014, we completed our acquisition of Geoterrestrial, Inc. ("WeatherSphere") for $4 million in cash.
During the third quarter of 2014, we received $5.8 million in proceeds from the sale of excess land in our newspaper business.
Financing activities
Cash flows from financing activities for the nine months ended September 30 is as follows:
 
 
Nine Months Ended 
 September 30,
(in thousands)
 
2014
 
2013
 
 
 
 
 
Cash Flows from Financing Activities:
 
 
 
 
Payments on long-term debt
 
$
(1,500
)
 
$
(11,925
)
Repurchase of Class A Common shares
 
(21,237
)
 
(69,313
)
Proceeds from employee stock options
 
13,175

 
40,229

Tax payments related to shares withheld for RSU vesting
 
(4,035
)
 
(6,157
)
Miscellaneous, net
 
2,145

 
(4,458
)
Net cash used in financing activities
 
$
(11,452
)
 
$
(51,624
)

In 2014 and 2013 we used cash for financing activities of $11.5 million and $51.6 million, respectively. The primary items included in our financing activities for the periods are described below.
We have a $275 million revolving credit and term loan agreement (“Financing Agreement”). The Financing Agreement includes a $200 million term loan B maturing in November 2020 and a $75 million revolving credit facility maturing in November 2018. There were no borrowings under the revolving credit agreements in any of the years.
The Financing Agreement includes the maintenance of a net leverage ratio if we borrow more than 20% on the revolving credit facility. The term loan B requires that if we borrow additional amounts or make a permitted acquisition that we cannot exceed a stated net leverage ratio on a pro forma basis at the date of the transaction. We were in compliance with all financial covenants in our financing agreements at September 30, 2014 and December 31, 2013.

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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 September 30, 2014, we were not required to make additional principal payments based on excess cash flow.
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. We repurchased $21.2 million of shares under this authorization in 2014 and $69.3 million of shares in 2013.
In May 2014, our board of directors authorized a new repurchase program of up to $100 million of our Class A Common shares through December 2016.
Based on the terms of the Master Transaction Agreement with Journal Communications, we are precluded from repurchasing shares prior to closing the transactions.

In 2014, we received $13.2 million of proceeds from the exercise of employee stock options compared to $40.2 million in 2013. Our employees currently hold options to purchase 2.1 million shares at exercise prices between $6.63 and $10.92 per share.

Other
We have met our funding requirements for our defined benefit pension plans under the provisions of the Pension Funding Equity Act of 2004 and the Pension Protection Act of 2006. We expect to contribute $0.2 million in the remainder of 2014 to our defined benefit pension plans, primarily to fund benefit payments under the Supplemental Executive Retirement Plan.
We expect that our cash, cash from operating activities and available borrowing capacity will be sufficient to meet our operating and capital needs over the next 12 months.
As discussed previously, we have announced a transaction with Journal Communications whereby we will spin-off our newspaper operations, pay a special $60 million dividend and merge the Journal broadcast operations with Scripps. In order to carry out the Transactions we will incur $25 to $30 million in costs, of which we have incurred $6.7 million to date. With the Journal Transactions, we will also assume Journal's outstanding liabilities, including any employee benefit obligations ($66 million as of December 31, 2013). Journal also has outstanding debt of $144 million as of September 30, 2014, of which we will be required to refinance $131 million and can assume the remainder.
In the case that Scripps breaches its obligation to consummate the Transactions, the Master Transaction Agreement may require Scripps to pay liquidated damages of $15.8 million plus expenses, subject to an overall limit of $23.5 million.

Off-Balance Sheet Arrangements and Contractual Obligations
Off-Balance Sheet Arrangements
There have been no material changes to the off-balance sheet arrangements disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013.

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Quantitative and Qualitative Disclosures About Market Risk
Earnings and cash flow can be affected by, among other things, economic conditions and interest rate changes. We are also exposed to changes in the market value of our investments.
Our objectives in managing interest rate risk are to limit the impact of interest rate changes on our earnings and cash flows and to reduce overall borrowing costs.
The following table presents additional information about market-risk-sensitive financial instruments:
 
 
As of September 30, 2014
 
As of December 31, 2013
(in thousands)
 
Cost
Basis
 
Fair
Value
 
Cost
Basis
 
Fair
Value
 
 
 
 
 
 
 
 
 
Financial instruments subject to interest rate risk:
 
 
 
 
 
 
 
 
Variable rate credit facilities
 
$

 
$

 
$

 
$

Term loan
 
198,500

 
198,500

 
200,000

 
200,000

Total long-term debt including current portion
 
$
198,500

 
$
198,500

 
$
200,000

 
$
200,000

 
 
 
 
 
 
 
 
 
Interest rate swap
 
$
423

 
$
423

 
$
723

 
$
723

 
 
 
 
 
 
 
 
 
Financial instruments subject to market value risk:
 
 
 
 
 
 
 
 
Investments held at cost
 
$
12,405

 
(a)

 
$
11,724

 
(a)

 
 
 
 
 
 
 
 
 
(a) Includes securities that do not trade in public markets so the securities do not have readily determinable fair values. We estimate the fair value of these securities approximates their carrying value. There can be no assurance that we would realize the carrying value upon sale of the securities.

We may 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 December 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 is based on quoted market prices which reflect the present values of the difference between estimated future variable-rate receipts and future fixed-rate payments. Upon refinancing our term loan B in November 2013, this hedge no longer qualifies as a cash flow hedge.


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Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Scripps management is responsible for establishing and maintaining adequate internal controls designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Company’s internal control over financial reporting includes those policies and procedures that:
1.
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
2.
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and the directors of the Company; and
3.
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error, collusion and the improper overriding of controls by management. Accordingly, even effective internal control can only provide reasonable but not absolute assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal control may vary over time.
The effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) was evaluated as of the date of the financial statements. This evaluation was carried out under the supervision of and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures are effective. There were no changes to the Company's internal controls over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.


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Table of Contents

The E. W. Scripps Company
Index to Exhibits

Exhibit Number
 
Exhibit Description
 
 
 
31(A)
 
Section 302 Certifications
31(B)
 
Section 302 Certifications
32(A)
 
Section 906 Certifications
32(B)
 
Section 906 Certifications
101.INS
 
XBRL Instance Document (furnished herewith)
101.SCH
 
XBRL Taxonomy Extension Schema Document (furnished herewith)
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document (furnished herewith)
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document (furnished herewith)
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document (furnished herewith)
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document (furnished herewith)


E-1