SSP

Business Context and Reporting Period

Company: The E. W. Scripps Company
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
Business Overview: A diverse media enterprise operating 10 television stations (6 ABC, 3 NBC, 1 Independent), daily and community newspapers in 13 markets, and United Media (licensing/syndication of "Peanuts," "Dilbert," and other features).
Key Events:

• Closed the Rocky Mountain News on February 27, 2009, after an unsuccessful search for a buyer.
• Completed the spin-off of Scripps Networks Interactive (SNI) in July 2008; SNI results are reported as discontinued operations.
• Initiated "Scripps 3.0," a restructuring of the newspaper division to centralize functions and manage vertically by function.

Key Financial Metrics (2009)

Note: Segment Profit excludes interest, taxes, depreciation, amortization, and impairment charges.

Material Changes vs. Prior Period

• Revenue Decline: Total operating revenues decreased 20% to $802.4 million, driven by a 20% drop in newspaper revenues and a 22% drop in television revenues due to the economic recession and secular declines in classified advertising.
• Impairment Charges: Recorded a non-cash impairment charge of $216.4 million in 2009 (primarily Television goodwill and FCC licenses), compared to $810.0 million in 2008.
• Profitability Improvement: Despite the revenue decline, the Net Loss attributable to shareholders improved significantly from $(476.6) million in 2008 to $(209.6) million in 2009, largely due to lower impairment charges and restructuring costs in 2009.
• Cost Reductions: Costs and expenses (excluding restructuring) declined $136.3 million. Employee compensation and benefits decreased $70.3 million due to workforce reductions (approx. 18% fewer employees) and pay/benefit cuts.
• Debt Reduction: Long-term debt decreased to $35.9 million from $61.2 million as the company paid down $25 million under credit facilities.

Guidance, Outlook, and Risks

Management Commentary & Outlook:

• Management expects cash flow from operations and available borrowings to be sufficient to meet needs for the next 12 months.
• Anticipates receiving tax refunds of at least $45 million from carryback claims related to 2009 losses.
• Capital expenditures for 2010 are expected to be approximately $18 million.
• Exploring strategic options for United Media Licensing, including a potential sale or joint venture.

• Advertising Demand: Heavy reliance on advertising (71% of revenue) makes the company sensitive to economic conditions, particularly in retail, real estate, and automotive sectors.
• Network Affiliations: Affiliation agreements with ABC and NBC expire in 2010; networks are seeking to eliminate compensation and share programming costs, which could impact profitability.
• Pension Obligations: Pension plans are underfunded by $115 million. Future contributions could be significant if market volatility continues or discount rates decrease.
• Strategic Transformation: The "Scripps 3.0" restructuring of the newspaper division carries execution risk; failure could have a material adverse financial impact.

Investor Verification Checklist

• Impairment Methodology: Verify the assumptions used for the $216.4 million impairment charge, specifically regarding the fair value of television goodwill and FCC licenses.
• Network Renewal Terms: Monitor the outcome of 2010 negotiations with ABC and NBC regarding affiliation fees and cost-sharing arrangements.
• Pension Funding: Track actual cash contributions required for 2010 against the estimated $4.2 million minimum and potential voluntary contributions.
• United Media Strategy: Confirm the final decision regarding the strategic options (sale, joint venture, or retention) for United Media Licensing.
• Classified Advertising Trends: Assess the rate of migration of classified advertising to digital platforms and the company's ability to monetize online traffic at rates comparable to print.