Business Context and Reporting Period
Company: The E. W. Scripps Company
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2006
Business Overview: A diverse media company operating in national television networks (Scripps Networks), newspaper publishing, broadcast television, interactive media (Shopzilla, uSwitch), and licensing/syndication.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2006 | Six Months Ended June 30, 2006 |
|---|---|---|
| Total Operating Revenues | $641.9 million | $1,231.6 million |
| Operating Income | $189.2 million | $334.8 million |
| Net Income | $71.1 million | $146.2 million |
| Diluted EPS (Net Income) | $0.43 | $0.89 |
| Cash and Cash Equivalents | $33.7 million | $33.7 million (Balance Sheet) |
| Long-Term Debt | $1,042.4 million | $1,042.4 million (Balance Sheet) |
| Operating Cash Flow (YTD) | N/A | $255.6 million |
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased 18.8% year-over-year for the quarter and 20.4% year-to-date. Growth was driven by Scripps Networks (advertising and affiliate fees) and the inclusion of Shopzilla and uSwitch in the interactive media segment.
- Profitability: Net income decreased 27.1% for the quarter ($71.1M vs. $97.6M) and 12.8% year-to-date ($146.2M vs. $167.6M). This decline is primarily due to a significant loss from discontinued operations (Shop At Home divestiture) and increased stock-based compensation expenses following the adoption of FAS 123-R.
- Discontinued Operations: The company recorded a net loss of $33.7 million for the quarter and $40.1 million year-to-date from discontinued operations, largely due to the sale of Shop At Home assets and associated termination costs.
- Acquisitions: Completed the acquisition of uSwitch Ltd. in March 2006 for approximately $383 million and Shopzilla in June 2005. These acquisitions significantly increased intangible assets and goodwill.
- Debt Levels: Long-term debt increased to $1.04 billion from $825.8 million at year-end 2005, reflecting borrowings to fund acquisitions.
Guidance, Outlook, and Management Commentary
- Segment Outlook:
- Scripps Networks: Expected to continue double-digit revenue and profit growth. Advertising revenues expected to increase 13-15% in Q3 2006.
- Interactive Media: Expected to generate segment profits of approximately $8 million in Q3 2006 and $65 million for the full year.
- Newspapers: Total operating revenues expected to increase 2-4% in Q3 2006.
- Broadcast Television: Revenues expected to increase 10-14% in Q3 2006, aided by political advertising.
- Capital Allocation: The company continues to repurchase Class A Common Shares to offset dilution from stock compensation. As of June 30, 2006, 3.5 million shares remained available under the repurchase program.
- Liquidity: Entered into a new 5-Year Competitive Advance and Revolving Credit Facility in June 2006, permitting aggregate borrowings of $750 million, replacing prior facilities.
- Risks: Key risks include advertising demand fluctuations, newsprint price volatility, and the integration of recent acquisitions. The company is also seeking a buyer for five Shop At Home-affiliated broadcast stations.
Investor Verification Checklist
- Discontinued Operations Impact: Verify the extent to which the Shop At Home divestiture loss ($52.5M pre-tax loss for the quarter) obscures the underlying performance of continuing operations.
- Stock-Based Compensation: Confirm the impact of the new FAS 123-R standard, which reduced income from continuing operations by $2.7 million in Q2 and $8.0 million year-to-date.
- Debt Servicing: Review the increased interest expense ($15.5M in Q2 vs. $7.6M in Q2 2005) resulting from higher debt levels used to finance acquisitions.
- JOA Performance: Monitor the Denver Newspaper Agency (DNA) equity earnings, which were reduced by $3.1 million in Q2 due to accelerated depreciation from facility consolidation.
- Acquisition Integration: Assess the pro-forma contribution of uSwitch and Shopzilla to future revenue streams and the associated amortization of intangible assets.