Business Context and Reporting Period
Company: The E. W. Scripps Company
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2010
Business Overview: A 132-year-old media enterprise operating 10 television stations (6 ABC, 3 NBC, 1 Independent) and daily/community newspapers in 13 U.S. markets. The company also operates the Scripps Media Center and United Media syndication services.
Key Financial Metrics
| Metric | 2010 | 2009 |
|---|---|---|
| Total Operating Revenues | $776.9 million | $732.4 million |
| Net Income (Attributable to Shareholders) | $130.5 million | ($209.6 million) Loss |
| Income from Continuing Operations | $28.9 million | ($199.0 million) Loss |
| Income from Discontinued Operations | $101.5 million | ($10.7 million) Loss |
| Operating Cash Flow (Continuing) | $59.3 million | $87.2 million |
| Capital Expenditures | $18.2 million | $39.5 million |
| Total Assets | $827.5 million | $786.3 million |
| Long-Term Debt | $0.9 million | $35.9 million |
| Shareholders' Equity | $588.9 million | $429.9 million |
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased 6.1% to $776.9 million, driven primarily by a 25.8% surge in Television revenues ($321.1 million) due to strong political advertising ($48.1 million) and a rebound in automotive advertising. Newspaper revenues declined 4.4% to $435.0 million.
- Profitability Turnaround: The company returned to profitability with a net income of $130.5 million, compared to a net loss of $209.6 million in 2009. This was significantly aided by a $162 million pre-tax gain from the sale of United Media Licensing (discontinued operations).
- Debt Reduction: Long-term debt decreased from $35.9 million to $0.9 million as the company paid down its revolving credit facility. Borrowing capacity under the amended credit agreement stands at $83 million.
- Cost Management: Employee compensation and benefits decreased 4.1% to $351.8 million, aided by a 7% reduction in workforce and the freezing of pension accruals in 2009. Restructuring costs increased to $12.7 million from $9.9 million.
Guidance, Outlook, and Risks
- Strategic Restructuring: The "Scripps 3.0" restructuring program continues through 2012, focusing on centralizing functions, standardizing systems, and reducing reliance on syndicated programming.
- Capital Allocation: In October 2010, the Board authorized a $75 million share repurchase program (expires 2012) and amended the credit facility to allow up to $200 million in acquisitions or capital returns through 2013.
- Dividends: Cash dividends remain suspended as of the fourth quarter of 2008.
- Key Risks:
- Advertising Sensitivity: Revenues are heavily dependent on local economic conditions, particularly in automotive, retail, and real estate sectors.
- Regulatory Environment: FCC rules regarding retransmission consent, spectrum auctions, and ownership limits pose ongoing risks.
- Pension Obligations: Projected benefit obligations exceed plan assets by $48 million. Future funding requirements depend on market volatility and discount rates.
- Competition: Intensifying competition from digital media platforms and fragmentation of television audiences.
Investor Verification Checklist
- Discontinued Operations Impact: Verify the sustainability of earnings excluding the $101.5 million gain from the sale of United Media Licensing.
- Television Revenue Quality: Assess the portion of TV revenue derived from political advertising ($48.1 million), which is cyclical and not present in odd-numbered years.
- Pension Funding: Monitor the $48 million underfunded pension status and potential future cash contributions required.
- Share Repurchase Execution: Track the utilization of the $75 million share buyback authorization.
- Network Affiliation Costs: Confirm the impact of new network affiliation agreements where Scripps now pays for programming rather than receiving compensation.