E W Scripps Co (SSP) 2003 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the first quarter earnings release teleconference. At this time, all participants are in a listen-only mode. Later, we will be having a question-and-answer session. And if you wish to ask a question at that time, please press 1 when the time for questions and answers arrives. Please press 1 on your touch-tone phone.

And if you're using a speakerphone, we do ask that you would pick up your hand set before you speak. If you need assistance from an operator, please press 0 and then star, and an operator will come on to your line to assist you. As a reminder, this conference is being recorded for a digitized replay. You may stay on the line at the conclusion of the call for the replay information. I would now like to turn the conference over to our host and first speaker, the Vice President of Investor Relations, Mr. Kenneth Lowe. Please go ahead.

Good morning and thanks for joining us. We'll start the conference call this morning with a few comments from Kenneth Lowe, our President and COE, and Joe NeCastro, our Chief Financial Officer. Our prepared remarks should take about 10 minutes. Then we'll open it up for your questions. Other members of our senior management team also are here with us and available to take your questions.

Joining us on the call are Rich Boehne, Executive Vice President, Alan Horton, Senior Vice President of Newspapers, Frank Gardner, Senior Vice President and Chairman of Scripps Networks, John Lansing, Senior Vice President of Broadcast Television, and Lori Hickok, Vice President and Controller. Let me remind you that if you haven't received our first quarter earnings -- Tim, are you still open?

I'm sorry.

Thank you. Let me remind if you you haven't received our first quarter earnings press release, please call Crystal at 543-977-3841, she'll fax you a copy during the call. Also, we offer a live audio web cast if you prefer to listen on the web. Go to scripps.com and click on the link at the top of the page. An audio archive of the call will be available on scripps.com later today, and we'll leave it there for a few weeks so you can access it at your convenience.

A replay also will be available by telephone from 2:00 this afternoon until midnight Sunday, April 13th, by calling 800-475-6701. The international number is (320)365-3844 and the access code for the replay is 679775. Our discussion this morning will contain certain forward-looking statements, actual results may differ from those predicted. Some of the factors which may cause results to differ are set forth in our publicly filed documents, including our 2002 form 10-K. You'll also notice that we've added the term "segment profits" to our lexicon.

Segment profits are what we previously referred to as EBITDA or operating cash flow. We define segment profits as earnings before interest, taxes, depreciation and amortization. It also excludes any investment results and unusual items. Now, with that bit of housekeeping out of the way, here's Ken.

Thanks, Tim and good morning everyone. Let me just say at the outset how fortunate we feel here at Scripps to be reporting such positive operating results, especially during these extraordinary and very uncertain times. It appears that our national lifestyle networks have become a needed and welcomed diversion; but you know, as moments in history like these at Scripps that we shine as a journalistic enterprise. We have a dozen or so newspaper and television journalists traveling with our armed forces in the Middle East as we speak.

They're doing what Scripps journalists have done best for 125 years, and that's sending home thoughtful and compelling news coverage of the biggest story of the day. We look forward to the safe return of our colleagues and the safe return of all of those serving in the Gulf. It's in that tradition of editorial excellence that we're able this morning to congratulate the editorial staff of our newspaper in Denver, the Rocky Mountain News. The Rocky this week won its second Pulitzer Prize in three years for spot news photography.

This is a tremendous accomplishment, and how fitting as we celebrate our company's 125th anniversary. The Rocky's photo staff won the award for its exceptional coverage of last year's Colorado wildfires. Now if you get the chance, you might want to check out the winning photographs on the Rocky's website, that's rockymountainnews.com. It's an incredible body of work, take a look at it if you have a few minutes, and congratulations to all of our folks out at the Rocky Mountain News. The Rocky's commitment to excellence is a quality that can actually be found at all of our media businesses.

Here at Scripps we're dedicated to delivering news, information and entertainment content that our readers and viewers need and want. Our commitment to excellence, we believe, also is affirmed by the company's consistently strong operating performance. And the quarter just completed is no exception. Total segment profits were up a solid 15% during the period, driven by the continued growth of our Scripps Networks division.

Scripps Networks contributed 38% of the company's total segment profits during the first quarter, and that includes our continued investment to develop our newer programming services. Home & Garden television and the Food Network are leading the charge; both networks had a stellar first quarter, posting substantial increases in both revenue and segment profits.

The outstanding financial performance is directly attributable to the rapidly growing number of people who are tuning into these networks. HGTV had its best quarter ever. Prime time viewership was up 21% over last year. Steadily growing viewership translated into a 25% increase in ad revenues, and a whopping 53% increase in HGTV's contribution to segment profits. The Food Network posted impressive results also; prime time viewership is up 10% and revenues are up 35%, while contribution to segment profits nearly doubled.

It's clear that HGTV and Food have grown to become two of America's leading and most recognizable cable and satellite television brands. Our plan is to continue investing in the expansion of Scripps Networks, which includes strengthening the HGTV and Food brands and establishing our newer programming services -- DIY, the Do It Yourself Network, and Fine Living. Investing in these growing and valuable businesses, we believe, is an effective use of the company's capital and it offers shareholders the potential for a superior return.

Of course, central to the Scripps growth strategy is the strength of our local newspapers and broadcast television stations. At our newspapers, business is slowly improving. During the first quarter, total advertising revenues grew modestly, largely in healthy increases in the national and [INAUDIBLE] advertising categories [INAUDIBLE]. Classified advertising increased slightly, as strength in the real estate category offset continued weakness in help-wanted. The decline in help-wanted has slowed somewhat but we're waiting for the category to rebound.

In Denver, our share of profits from the joint newspaper operations improved slightly during the quarter compared to the same period last year. But weakness in the local economy held back profit growth. The Denver newspaper agency has done a great job of guiding the newspapers through the tough local economy, and it's in an excellent position to fully capitalize on recovery when it does come to Denver. Turning to our television station group, advertising revenue improved during the quarter, but segment profit growth was held back by increased costs related to news coverage of the war in Iraq, and production of a 10:00 p.m. news cast airing on Detroit's UPN, which is of course owned by Viacom.

Also, we had some expected increases in employee health and pension benefit cost. Part of the expense of covering the war includes our decision to create a television news bureau that operates out of the Scripps Howard News Service offices in Washington DC. The bureau, supported by a Scripps television reporter and photo journalist reporting from Iraq, provides coverage to all of our Scripps television stations.

And finally, just a word about our newest business, Shop At Home. The transition that started when we acquired the business in October is going smoothly. We've already had some success adjusting the company's merchandising strategy to be more closely aligned with the Scripps Networks programming categories.

Looking at the first quarter, Shop At Home had solid gains in household distribution and revenue. However, results were negatively affected in the closing weeks of the quarter as the war in Iraq began. Now, that's a quick look at how the business has fared during the quarter. Now let me turn it over to Joe, who will talk to you about some of the numbers. Joe?

Thanks, Ken. I'm going to assume that everyone's seen the press release, so I won't spend time going over it line by line; but there are some non-cash and nonoperating items I'd like to bring to your attention; and then I'll touch very briefly on our guidance for the quarter -- for the second quarter. First, depreciation and amortization are higher in the quarter because of the acquisition of Shop At Home in the fourth quarter of last year. Capital spending was 21 1/2 million dollars in the first quarter, with the major of the spending dedicated to the newspaper plant project in Knoxville, Tennessee and the Treasure Coast of Florida.

Next, interest expense was up about $1.4 million in the quarter, which is the result of our decision last year to replace some of our commercial paper borrowings with more long-term debt. Debt at the end of the first quarter stood at about $700 million which is down from $725 million at the end of 2002. Our [INAUDIBLE] cost of debt at this point is just below 4%. Miscellaneous income while it's a small number is much higher this quarter.

This is where we record the interest income on the note receivable from Summit America, the former parental of Shop At Home. And looking ahead, we are offering the following guidance for the second quarter: Based on advanced advertising sales, the company currently anticipates a 25% increase in the advertising revenues at Scripps Networks during the second quarter, affiliate fee revenues for the networks is expected to be up about 12%, net of the amortization and launch fees.

Investments in the development of DIY and Fine Living are expected to reduce segment profits by about $10 million, and earnings per share about 8 cents in the quarter. At the newspapers, advertising revenues are expected to be up 2 to 4% over the prior year. Broadcast television station advertising revenues are expected to be up 3 to 5%. The company's continued investment in the Shop At Home network is expected to reduce second quarter segment profits by about $5 million, and earnings per share by about 4 cents.

Given the effect of the war on our business in the first quarter, we now expect full-year losses at Shop At Home to be near the higher end of our previously announced range of 10 to 15 cents per share. All in, second quarter earnings per share are expected to be between 73 and 83 cents, compared with 33 cents per share in the second quarter of 2002. Remember, the 2002 results included investment write-downs and other nonrecurring items; without those items, the second quarter 2002 earnings would have been about 76 cents per share.

It's important to remember that these projections represent the company's best estimate of our second quarter outlook at this point. Clearly, revenue could be negatively affected by an escalation of the war in the Middle East. That's all of our prepared comments. Moderator, we're ready to take any questions at this time.

Once again, if you have a question, please press 1 at this time. And if you're using a speaker phone, pick up your handset. Our first question is coming from the line of Doug Arthur from Morgan Stanley, Please go ahead.

Yeah, two questions: Any thoughts on EBITDA margin potential at Denver for this year? Is it still possible to get it into the double digit arena in '03? And the second question, really relates to changes in cable and satellite ownership.

Longer term, are you concerned at all that fairly rapid consolidation in distribution in cable and satellite could affect your bargaining power, could affect -- I mean, clearly, it's not an issue near term, but does it change your view of the value of your cable networks at all in terms of how they can negotiate and position themselves? Thanks.

Okay, Doug, let me first turn to Alan for the question about Denver, and then Frank Gardner will address changes in distribution on the cable side.

Well, Doug, as you know, the Denver economy has been hit by a whole series of things recently that are very temporary. But there's a perverse part to that, and that is because we're doing such a good job controlling expenses there, as the revenue becomes sort of stagnant, that allows the -- with expenses going down, that may actually increase the margin. But I'm not so sure that's what you really want to see in the short-term. I think what we all want to see is the growth in segment profit. And the margin will take care of itself over time. So I don't know if that answers your question, but if you want more detail, I'll be happy to supply it.

Well, I take that to mean double digit EBITDA margin in '03 is probably not likely?

No, I didn't say that. Double digit means 10%. So, you know, we're in the ballpark.

Okay, thanks.

And Doug, this is Frank Gardner. In regard to your question about changes in cable and satellite ownership and the rapid consolidation, thereof, obviously this kind of rapid consolidation doesn't make the process of bargaining with these folks any easier, and they were hard to deal with already.

But we have very good relationships in both those sectors. And at the end of the day, the real bottom line answer to your question is: We're not cavalier about what the difficulty will be going forward, but because we know the MSO's know and the satellite operators know had value their receiving from our particular channels and particularly with regard to local cable ad sales on the MSO side, they know what these networks are bringing in in pure, raw dollars to them just in the local avails that our networks offer them. And that money is real and it is very measurable against the local ad sales revenues that's generated at the MSO level by other cable networks.

And so we're confident that those numbers and those comparisons will look very good -- already do -- and in the future will look very good to the MSO's and they'll know what value they're receiving from us. The negotiations, yes, will be strenuous and difficult; but the other thing to keep in mind is that our affiliate fees, while they've always been very respectable, are nowhere near as stratospheric as some of the larger, more distributed general interest networks that are bound up with all sorts of exorbitant sports write fees.

And the real issue going forward in terms of content people negotiating with the distributors is more, I think, difficult on the general interest network side as it relates to huge sports write fees, and you know who those folks are. We don't have enormous fears about that difficulty going forward.

Thank you.

Doug, it's Ken, just to add one piece, if I may, the first distribution deal announced after the Comcast/AT&T merger, it was a distribution deal for DIY and Fine Living. So that's one piece of evidence that while to everything Frank said, it's not going to get easier, it's going to come down to quality services that the viewers want, we think.

Great, thanks.

Our next question comes from the line of Lauren Fine with Merrill Lynch. Go ahead.

Thank you, I've got a few questions. First on the newspaper side, for Alan, I'm wondering if you can just discuss the prospect of the March 1 price increase, of likelihood of when and how much it might go through, if you could discuss labor costs during the quarter in terms of the impact of higher, you know, pension and insurance costs. And then if you could break out, I know you said directionally that real estate was positive and help-wanted was down but I'm wonder to go you can give us the changes in all three categories of classified; and then I'll come back and ask another question.

Okay, Lauren, you've given me a full plate, I might forget one or two of them. You can talk faster than I can write, apparently. But let me start with the last one first. On classified revenue, we were about 10% plus in real estate, and we were flattish in auto, would have been up but for the last part of March, and we were up about 9% in -- or down about 9% -- in employment. So that gives you the round numbers there. You asked about the likelihood of the March 1 newsprint price increase sticking. It didn't stick, obviously, all that much in March, it probably will stick more in April, but it may or may not be rolled back. The the fundamentals, obviously, don't suggest the manufacturers are going to have a lot of luck getting that full price increase through in the near term.

The final question had to do with labor costs. And in the first quarter, let me just kind of break this down a little bit for you. Over all, our employee costs in the first quarter were up 4.9%. They were only up about 4% in March. So we're obviously starting to take some further control methods -- efforts. But, for example, payroll costs in March were only 1.6%, they were up 2.6% for the quarter. That's just strictly payroll, not including benefits. And the pension hit that we've had this year, we've talked about before and you know about, but pension costs for us in the quarter were up 58.7%. So it was material. I hope I've hit all the questions that you asked. Did I miss one?

No you haven't, and I'm curious if you could give us a sense of how April -- I know it's early in the month, but is April looking substantively different than March? Are you seeing any increase --

All the anecdotal evidence this week has been very positive. People are feeling pretty good out at the newspapers.

And switching gears, I guess, going to Shop At Home, you know,March obviously was down. I mean, wondering if you've seen an improvement there going into April? And I'm also wondering if you could give us a sense of what the depreciation and amortization was for that segment and whether you're going to provide it in the 10-Q for the other segments as well?

Hey, Lauren, it's Rich. Let me give you the background and then Joe will give you a look at the D&A there. Anybody else whose on the call, if you're sort of new to the Shop At Home story, we acquired Shop At Home in the fall. It was part of a very specific long-term strategy that we had to capture some of those commerce-related dollars in our categories that we could not capture through our traditional networks.

What we're creating is a different kind of TV retail experience, one that's focused on our categories, Home and Garden, Food, and also involves more product demonstration and works very closely with some of our large advertisers. So we have a very specific strategy that's moving along very much on plan. And we've been expanding our categories on Shop At Home during the first part of the year: cooking, cookware, home, which includes rugs and furniture, and things like that.

Just this week, you'll see an announcement, and I don't want to give you a name yet, but we signed our very fist talent contract with someone who is currently on one of the Scripps networks and will be moving over and taking advantage of the platform at Shop At Home. And we're pretty deep in discussions with large advertisers on helping them create opportunity for them on Shop At Home in ways they couldn't do on the networks.

So strategically, it's moving along extremely well. Cross promotion is starting to crank up at Scripps Networks; and also, on the TV stations, we're experimenting with morning cut-ins from the news shows. Two weeks ago it was Cleveland, and we're going into some other markets, and more than anything, it's an experiment with how much we can drive business and drive eyeballs by doing the cut-ins from the highly rated morning news shows. And that's going real well. Also cranking up the subscribers, 46 million, that's up 24%.

So we're doing all the right things strategically. The war effect, this is the one business we have that you just almost see the money move instantly in and out. During the first seven days of the war, business dropped pretty sharply. Sharply being like maybe 20%. Business came back the second week and in this past weekend, the last weekend of the quarter, business was pretty soft. So the war effect to the degree the war continues is going to continue to show up there, but it's not a killer. The cost side, other than that, continues to be in pretty good shape.

Lauren, this is Joe. On the question of D&A, first quarter impact of D&A from the Shop At Home acquisition was $1.5 million roughly. We will in the queue, as we have historically done, provide D&A by segment, and so you'll see Shop At Home broken out there, as you will all the other segments. So it will be there in the queue.

One last question on the 10-K, you indicated that the losses for the year at the networks are going to be close to 50. I thought previously you indicated 40 to 45, and I'm wondering if I'm remembering correctly or if there's been some change in those businesses that would call for higher losses?

No, you're remembering correctly. In the K we included an estimate of what we might invest this year in Hispanic and the low 40's number we had been using, we tried to tell people, remind them, that this did not include any investment in Hispanic.

Is there any progress on the Hispanic side?

Yeah, Hey Lauren, it's Rich again. We have not announced a launch date yet, but we're working through and talking to distributors before we get out of the gate. And, you know, hopefully very soon we'll give you some sort of firm time line.

Great. Thank you.

Thanks, Lauren.

Our next question comes from the line of Carl Carter at Credit Suisse First Boston. Please go ahead.

Hi, just calling in for Bill. I wanted to ask on your broadcast projection if you were able to kind of provide the month-by-month pacings for your broadcast TV stations?

Hi, Carl, this is John. To be honest with you, the visibility beyond May would really be hard for me to put a lot of credibility in. As we go week to week, as advertising and media plans are unfolding, we are seeing optimism, we are feeling good about certain categories, particularly automotive.

For instance, we finished the first quarter automotive in the plus range of 6%, having gone down 12% in March. But we're already seeing the automotive for the second quarter coming in at a very good pace. So our optimism is based as much on our key categories in the business we're writing, the pacings support the optimism. I wouldn't -- I really wouldn't go as far as to go into June and estimate a pacing, but I feel very good about a 3 to 5% projection.

Thank you.

Our next question comes from the line of Craig Huber at Morgan Stanley. Go ahead.

Yes, I have a question on the TV ad pasting numbers. You can be specific about how April is tracking for TV. And my second question has to do with ratings on the Scripps Networks [INAUDIBLE] in recent months, please.

I prefer not to get into a specific pacing number for a specific month and I'll tell you why; really because it is such a moving target week-to-week. And we've seen the pacings change significantly over the last three weeks. And while things seem to be winding up in Iraq, they really, if you watch closely, there's still very much a developing story there and on any given day, in any given week, we could see a significant revenue shift going forward.

And as for the ratings issue on Scripps Networks, the story is quite good across the board. You've heard us for the last several quarterly reports talk about the growth in the ratings on the Food Network. And I'm happy to say that on the other side, on the HGTV side, the numbers have been steadily and solidly on the upswing. It's not unusual on any given night for us to be doing .7, .8, .9 and even one point and above for the average of prime time. One night a couple weeks ago, I think we averaged for a two or three hour period of prime 1.7 rating with some new shows that we [INAUDIBLE]. So it's quite good on both sides and on the upswing.

And then lastly, how would you categorize how your advertising went cable networks in the back half of March versus the first half, please?

In the back half of March for the networks versus the first half?

Yes, year-over-year, how different was that, I want to gauge the Iraq impact.

The bottom line on Iraq and the war is minimal; for us, it's almost negligible. We're not cavalier about any cancellations; we did get a handful, but we were able to resell a lot of that inventory. And so for us, because of the unique nature of our content and because we stayed on with business as usual and offered the advertisers and viewers a respite from incessant war viewing and coverage, we had negligible impact as a result of the war. Overall, our ad sales outlook is quite good. But as the year wears on, we'll be up against increasingly tougher year to year comps.

Because in the first quarter last year, of '02, I think we were up about 4% and in second quarter, we were up 14%. So as comps get difficult progressively, so [INAUDIBLE]. But scattered sales have been pacing for the last several months at a rate that gives us confidence in our second quarter guidance, which we have already articulated, up 25% for the year in ad revenue and up 12% for affiliate revenue. And we previously said we thought full year ad revenue for Scripps Networks would be up about 20%. And based on our current scatter and up front prospects, we may be a little better than that, but it's by no means clear what the full year will be, and we still have a full year ahead. It's still a lot of questions about the underlying economy.

Great, thank you.

And now we go to Bear Stearns to the line of Kevin Gruneich. Please go ahead.

Thanks. A few questions. I was wondering if you could speak specifically to the Denver performance in terms of revenue and segment profit change there. It's not clear to me why disclosure is being reduced there. Also, just a follow-up, a little broader, if you could talk, Alan, to non-newsprint cash costs and what they were up for the quarter, and maybe specifically with a you're doing in terms of limiting that cost growth going forward.

And finally, third, I think that it seems like you have pushed back a bit the potential launch of the Hispanic network from late '03 to '04. And I was wondering if that doesn't change that $50 million expectation in terms of losses for emerging networks?

Kevin, this is Alan. Let me try to take your second newspaper-related question first. And then we'll talk a little bit about Denver. The non-newsprint cash cost increases were -- let me find it here -- were up for the quarter 4.4%. For the month of March, they were up 4.2%. I've already told you what we've done with personnel costs. They were up just very slightly -- let me find it again here --

I've got these.

You've got it, okay. I've got it on the wrong page here. What we're doing is we're not filling positions that we don't have to fill. And so as turnover occurs, the number of FTE's goes down. Our FTE control has been strong for quite a long time. And continues to be strong. And we're down in the first quarter compared to the same period last year, about 1.5% in FTE's and that's in spite of trying to cover the war and the rest of it.

We're trying not to hit our sales, trying not to reduce our ability to sell, and especially in all the new revenue categories, and we're trying not to affect the quality of the editorial product. In that light, we accomplished all this, you said non-newsprint, but let me just tell you that to cover the war, we had to add space in our papers. We've added for the duration of the war about 5% to our daily news hole and 2% to our Sunday news hole, so we can adequately cover what's going on in the world, and we're very proud of that.

We think in the long-term it's an investment that we absolutely need to make. I don't know if that answers your question, but I mean, clearly, we're not going to spend anything we don't have to. But we're not going to sacrifice the quality of news coverage, nor are we going to penalize our advertisers and our new revenue streams.

That's helpful, thanks, Alan.

Okay, the Denver performance, we think it's -- let me let Joe take that and then I'll fill in the holes.

Okay. Maybe Alan will give you some anecdotes on Denver, but the reason we used to break out Denver as a separate line was not so much that we wanted to give lots of information on Denver, but rather results were not comparable without showing you what the effect on Denver was. Because a portion of 2001 was under our direct ownership and the latter portion was in the JOA, so we didn't have comparable numbers year on year.

Now we do have comparable numbers year on year, so Denver is included with the other JOA properties in its own line, and those, you can be assured that those numbers now are directly comparable. You'll be able to track performance of the entire group. Chances are, if there are large improvements in the number, you can sort of get some sense that a lot of that is going to be Denver. We will continue, you probably saw in the K, of course, in one of our footnotes we did give significantly enhanced disclosure on the Denver operation.

And it's something we will continue to do, obviously, as that operation continues to grow and become a more important piece of the business, or an ever increasing part of the business. The disclosure will be more annual and we'll handle questions like this as we go. But on the face of our financials, you won't see us break out Denver as a separate line, because those lines are now fully comparable.

Let me just add a little color, Kevin, to try to help you -- let me give you roughly three headlines that appeared in the Rocky Mountain News over the last couple of weeks. The retail sales in the metro Denver were down for the first time since 1987, that's in the '02. Bankruptcies in the first quarter in metro Denver were up 26%. Real estate foreclosures were up 38%. And in spite of that, and the fact that employment revenue was down 18% in the quarter, and national was off 12% in the quarter because of what's happened to telecom out there and travel with the United Airlines. In spite of that, the overall revenue performance was pretty impressive.

So you know, all I can say is what Ken said in his opening remarks, and I can't tell you how strongly I believe this. We are so poised when that market recovers, that we've done a great job; Kirk McDonald and his team at the Denver agency have done a fantastic job controlling costs and really getting the organization in shape. And it's really in shape. When that market comes back, and it will because it's an absolutely terrific market, and given the penetration our newspapers have there, the two newspapers have in Denver, we are really poised. So that's the bottom line.

Kevin, it's Rich. About Hispanic; you're correct, the timing of our Spanish language project would affect that $50 million estimate we put out there. And obviously it's likely to affect it positively, or we'd spend a little less money. But regardless of the launch date, we'll still spend some money ahead of the launch -- six, seven, eight, nine months ahead we'll start spending to get ready. So, you know, as soon as we sort of make a decision to go, we'll start building programming and things like that.

Thank you.

Thanks, Kevin.

The next question comes -- comes from George Smith at Davenport. Please go ahead.

Good morning. I'm wonder to go you guys could talk briefly about your [INAUDIBLE] or your expectations for the up-front market, given the ratings gains that you have posted. What are you hoping for? Do you expect to, I guess, sell a similar amount of inventory as compared to last year? And I know it's kind of a broad question, but I'm just wondering kind of what you're thinking.

Yeah, all indications right now are that there's considerable pressure in the up-front marketplace, that will put us up comfortably ahead of last year. We're in the midst, as you, I'm sure you know, the actual negotiations haven't started, we're in the first two or three weeks of the initial presentation in that process. And all signals so far have been very positive, and give us the assurance that up-front will be comfortably up over last year.

And on the inventory side, I guess it would be poor strategically for you to discuss what you plan on doing, but do you expect something similar to last year in terms of what you're going to hold or sell?

I'm sorry, you're talking about how much inventory are we going to allocate to --

Right.

We don't say specifically what this is for the obvious strategic reasons, but all I can say is that that inventory that we do allocate to up-front will be comfortably up over last year.

All right. Thank you.

And next we go to the line of Gary McCam at McCam and Company.

Good morning, this is an easy one. I could not hear the reasons given for the guidance for second quarter being lower than expected. If you could just go over the reasons, say what you said again, please, I'd appreciate it.

I don't remember that we talked about that specifically but I'll tell you that we did not issue any guidance on the second quarter.

You did not issue any guidance on the second quarter?

We had not previously, prior to today we had not issued any guidance on the second quarter.

Right, I'm aware of that.

Right. So we're not really guiding our own guidance down here. We are aware that the consensus was higher than what we are issuing. But we have been consistent in our view of the quarter.

All right. Let me make sure -- you did not issue guidance on the second quarter this morning?

I did this morning, but prior to this morning, we had not.

Okay, well, what were your reasons for your guidance this morning, then? I could not hear, you weren't speaking loudly enough.

Okay. You mean you didn't hear when I was reading the guidance? I'm happy to do that again, if you like.

I did not hear that. I'm reading on one of your press releases that you say -- that you expect second quarter to be 73 cents to 83 cents, but I did not hear you say it because I could not hear you say it, I'm asking you to say again what you said about second quarter guidance, please.

Okay. All I said was and I'll repeat exactly, second quarter earnings per share are expected to be between 73 and 83 cents compared to 33 cents per share in the second quarter of '02. The '02 results included investment write-downs and other nonrecurring items. Without those items, second quarter '02 earnings would have been about 76 cents per share. That's all I said with respect to second quarter EPS.

All right. So what I didn't hear then was referring to '02 quarter?

Right.

Okay. You did not say anything about '03 second quarter, other than just those numbers?

Correct.

Okay. Thank you.

Sure.

We go to the line of William Byrd at Salomon Smith Barney. Please go ahead.

Yeah, hi. You mentioned that you've at least started to sign up some of your network talent to use on Shop At Home. Just wondering how soon they will actually be on the air? Could you give us some sense of other milestones we should look at going forward for Shop At Home? And I was wondering if you could also comment on your distribution goals and some of the economics of distribution for your newer networks and how important is your free video on demand strategy to gaining distribution? Thanks.

Bill, it's Rich talking about Shop At Home talent. You know, we could have very quickly taken talent and moved it over to Shop At Home and just, you know, put some of those people on as ornaments. But that really wasn't what we wanted to do. We wanted to make sure it was arrangements that would work very well for them and also for Shop At Home, so we've been cautious, doing a lot of testing and trying to make sure that we create the environments that work very well for the specific talent, and also for the products or advertisers that they represent.

So I think it will be over the next couple of months you'll start to see some folks show up in some very different kind of formats than you've seen in the past on any kind of TV retailing. But it will be somewhat late in the year before you see it to any large degree. We're trying to go like we did with the Food Network, be real cautious, make sure we experiment with some hours before we take and change a whole lineup and disrupt the revenue to any large degree. So I would just start to watch for more broad promotion, more cross-promotion, and start to see some of the talent and the advertisers pop up more in the second half of the year.

Frank, do you want to handle --

Bill, with regards to distribution for our newer networks, it's sort of proceeding right on plan, right where we sort of thought we would be all along in terms of the growth of the distribution. And we see that continuing to proceed according to plan. DIY, right now, just to refresh your memory, is 15 million subs and Fine Living is at 14 million. And yet, VOD has become a present surprise in terms of offering us essentially a new currency with which to leverage further distribution of our networks.

We're literally giving that VOD material to the MSO's for free, but in return, we're getting a value far greater than anything we might have gotten had we been, in fact, charging for the VOD. So it turned out to be a happy gratuitous event in terms of offering us a new method of leverage for launching networks that otherwise we might not have had.

Bill, it's Ken.

Just to further give some background on VOD for us, I think you'll recall that we own over 15,000 hours, and "own" is a very important word here, of content from these networks that we're finding to be very valuable on the MSO side regarding VOD and the downloading of content. And while on the short-term we are in agreement that with the MSO's that there should be high usage and not a charge, over the long-term this is either coming out as substitution for launch fees, and/or the revenue stream at some point.

But it's way too early to tell in the VOD world and the SVOD world. But if you go back to the original premise of these networks, owning the content, owning the information that's valuable, is now proving to be valuable. Back to Doug Arthur's questions about the changes in distribution, and you've seen what's going on with set top boxes and the direction that both the MSO's and DBS guys are going with the new sophisticated boxes. We're very comfortable now in our previous investment in owning the content, subsequently owning a big chunk of VOD.

Thank you.

Our next question comes from the line of Kevin Solomon at Lehman Brothers. Go ahead.

Hi, good morning. Can you break down or provide a little more color on the higher costs in the broadcasting division in the quarter? If I'm doing my math right, cash expenses look like they're up about 10%. How much that have comes from the new news bureau for the war? And is that a permanent structure or just something that's going to be there while the war news is still heavy?

Sure, happy to do it, Kevin. The expenses on the war itself for us totaled out at about 310, $320,000 in setting up that bureau temporarily. And to answer your last question first, we haven't decided whether we'll continue that throughout the year. It's on a month-to-month basis. But it's set up so that we're in a position to close it down; it's not at this point in any way permanent.

And so we'll be watching that as it goes. Our other expenses, the largest piece of our expenses for the quarter is payroll and benefit. That's 8% up over a years ago, and a big increase in benefits is part of that cost. Of course, the cost of the UPN in Detroit brings with it additional revenue as well. It is a project that I think won't be fully felt in terms of its positive impact until we get through a full year.

There are start-up costs involved, as well as itself having its own increased expenses due to war coverage. So all in all, the expenses, if you broke out the war, the increase at UPN, the UPN increases in our plan and expected, the war expenses were outside our plan. The total impact of the war, we haven't talked about this yet on the call in terms of the broadcast division, was a $2 million hit on revenue in the month of March. So the net -- I should say the net impact is 2 million. The revenue impact was 1.7 million, and the expenses were the 300,000.

So if $2 million would be worked in -- in other words, if the war hadn't occurred, the $2 million would have come straight to the bottom line.

Very helpful, thank you very much.

The next question comes from the line of Brian Shipman at UBS Warburg. Go ahead.

Thanks, good morning. A couple questions.

First on the TV broadcast side, how are the six ABC affiliates performing relative to the other core stations? And then with regards to the Shop At Home and slightly higher dilution this year than expected, what kind of goals in terms of timing what's your goal or a run rate of break even on Shop At Home? Thanks.

Sure, I'll start with Detroit, since we left off on that subject. Even with the added costs inventory of UPN, our Detroit ABC affiliate is up 4.1% on segment profit. On an increase in revenue, up 12.4%. So you can see the effect of having the extra news cast on the UPN has been a positive for that particular unit. Our Tampa station has had an extraordinary quarter in terms of operating cash flow.

Of course, they had the Super Bowl Champion Tampa Bay Buckaneers, and they did an extraordinary job selling those opportunities that were well beyond the inventory we received, and local programming in association with that. And the percentage increase year over year is actually 82% in segment profit. And that's on a revenue increase in Tampa of 26.7%. Phoenix has added expenses in an attempt to jump-start our efforts there and increase our ratings performance And while the revenue performance has been very good at plus 16%, we had taken an expense hit there that we planned on taking, in terms of beefing up our news effort, so the operating -- the segment profit for Phoenix was down 14%.

Cincinnati had a very good quarter, segment profit up almost 19%. Again, terrific top line revenue growth of 8 1/2% and great expense management. And what did I miss? Baltimore is also having a good quarter compared to prior year, with revenue up 3 1/2% over the prior year and with good expense management. They were able to increase their segment profit versus last year, 31%.

Hey, it's Rich talking about Shop At Home. You know, if you really look at the change in the guidance, it's just all related to the war over the short-term. And really all we did is say we look like we're a little closer to the higher end of the range.

You know, as far as the break even, we really haven't given any break even at this point. Like Food Network or any of our start up networks, this is a several-year project and our aspirations are much beyond just trying to get to a quick break even. So you'll be able, you know, like all of our businesses, we'll give you a lot of disclosure and we'll break it out and you'll sort of see along the way.

What are your prospects for new distribution agreements with Shop At Home beyond the existing distribution you got with the acquisition?

They're pretty good, and we've been taking distribution up but we're trying to also help them and bring in the expertise that we had at Scripps Networks and help them include the quality of the distribution we have which means focus a little bit more on markets that produce more revenue per home, more 24/7 carriage and better channel position. So it's not really just in the gross number of subs, you may not see that head up dramatically quickly, but we'll try to improve the quality of the distribution base at the same time.

Thanks, Rich.

Our next question comes from the line of Steven Barlow at Prudential Securities.

Hi, just a quick one here. Could you give us Food Network advertising revenue over the quarter; and secondly, your 3 to 5% TV revenue seems a little bit light. What would need to happen to get that to the 6 to 7% area? Thanks.

Food advertising revenue for the quarter, I don't think we've -- Steve, I don't think we've given that number. And --.

HGTV.

Well, we just don't break that out.

Okay. How about the increase in ad revenues, at Food? Because you gave it for HGTV.

The increase in -- the percentage increase in revenue for HGTV?

Advertising revenue.

Food. Advertising at food.

Oh, okay. You're talking about increase in advertising revenue for the quarter?

Yes.

Why doesn't John answer his question while we --

I'll tell you what, Steven, let's take the second question first on the 3 to 5% increase for the TV group. John, you take that while Frank digs out the Food.

Happy to do it. Listen, it's an argument certainly that can be made, and we've had the discussion. It relates mostly to the lack of visibility beyond May and into June. And if you recall, last year, in June, we had an extraordinary month, based in large part on the success of the Detroit Red Wings. And that represented a significant increase for our quarter last year.

And so we do have -- the potential for a sports opportunity like that does exist again this year, that's a variable that we're not planning on. If it were to come to pass that the Red Wings were as successful this year as they were last year, that would have a positive impact on our projection. There's also the belief that we have that the automotive category is coming back and coming back in a strong way the next 60 days.

And we believe that, but we haven't bought 100% into that inside our projection, because we want to leave room for conservatism and based on what's going on with inventory, what's going on with our own local news coverage of the war, when oftentimes commercials, inventory is limited, or we drop certain breaks in order to cover certain events, such as yesterday when the Saddam Hussein statue came down. So those are the variables -- the automotive category, the inventory, the coverage of the developing events, the unknown about sports, that causes us to feel 3 to 5 is a good conservative projection. But it does have the upside of a couple of percentage points, if those things happen.

And Steve, the food revenue number that you were looking for is up 35%.

Thanks, Frank and John.

Our -- is your question through, sir?

Yes.

Our final question is coming from the line of Barton Crockett at J.P. Morgan. Please go ahead.

Okay, great. Thanks for getting me on. The -- I wanted to get a little bit more color on what's happening in Denver. You gave us some color in terms of help wanted and national being down. Can you tell us overall, the Denver revenues, were they up or down? And then secondly, can you give us a sense of what's happening in terms of ad rate increases in Denver. Are you still leveraging the JOA to do above industry trend ad rate hikes out there?

Yeah, let me, in the first quarter, ad revenue -- total ad revenue -- was down about 1 1/2 million dollars. And that's in spite of the major declines, as you heard earlier in employment and national. So that's a pretty good accomplishment. Circulation revenue was up markedly. And the -- I think it's worth noting that we started some initiatives and still managed to control costs. We now have final additions going all the way from Fort Collins down through Colorado Springs, which will enable us to include, I hope in the future, some good revenue stories coming out of these later additions and what it allows us to do on the sale side. Now, Barton, what was the rest of your question?

Ad rate hikes, in terms of, can you give us a sense of what we're seeing in Denver?

We obviously have made a lot -- to get where we are, given what's happened to employment and national in the short-term, I think we've obviously made an awful lot of progress on the rate side. I mean, clearly, the environment, the economy, makes it difficult to push rates to aggressively. But we've made good progress because the rates were so low to begin with and because the advertisers are getting value from us.

We -- our penetration is great, the papers are extremely well-read, and advertisers are getting good response to their ads in the papers. And, therefore, we have, in partnering with them, we have gotten long-term contracts with most of them, who have substantial rate increases over each year for a period of several years. And I think that answers the question.

Well, I just -- can you be any more specific in terms of putting broad parameters around the --

I really don't want to, I mean, I could but I don't think it's helpful because that picture changes from time to time, depending on which categories are hot and not, and I think suffice it to say we're obviously going to push rates where we can, but we're going to partner with our advertisers so that it's a win-win for all of us.

But is it still safe to assume that Denver's getting rate hikes that would be sort of above the industry trends?

Yes.

Okay. Great. Thank you.

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