Business Context and Reporting Period
Company: The E. W. Scripps Company
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2009
Business Overview: Scripps operates local media businesses including daily and community newspapers in 13 U.S. markets, 10 television stations (ABC, NBC, and independent affiliates), and United Media, a licensing and syndication company (owner of "Peanuts" and "Dilbert"). The company completed the spin-off of Scripps Networks Interactive (SNI) on July 1, 2008, and ceased operations of the Rocky Mountain News in February 2009.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2008 |
|---|---|---|---|
| Total Operating Revenues | $186,401 | $584,927 | $736,768 |
| Net Loss (Continuing Ops) | $(3,541) | $(206,179) | $(547,798) |
| Net Loss (Total) | $(3,261) | $(221,855) | $(417,171) |
| Net Loss Attributable to Shareholders | $(3,261) | $(221,708) | $(463,972) |
| Cash and Cash Equivalents | $10,408 | $10,408 | $15,617 |
| Short-term Investments | $21,254 | $21,254 | $21,130 |
| Long-term Debt | $29,455 | $29,455 | $61,166 |
| Operating Cash Flow (Continuing) | N/A | $102,975 | $63,358 |
Segment Performance (Nine Months 2009):
- Newspapers: Revenue $338.0M (down 21.6%); Segment Profit $29.3M (down 50.1%).
- Television: Revenue $181.3M (down 22.3%); Segment Profit $5.5M (down 88.9%).
- Licensing & Other: Revenue $65.6M (down 8.4%); Segment Profit $8.2M (up 34.2%).
Material Changes vs. Prior Period
- Revenue Decline: Total operating revenues decreased 19.0% in Q3 and 20.6% year-to-date compared to 2008, driven by the economic recession and secular declines in classified advertising.
- Impairment Charges: The company recorded a $216.4 million non-cash impairment charge in Q1 2009 related to Television goodwill and FCC licenses. This compares to a $778.9 million impairment charge in 2008 related to Newspaper goodwill.
- Restructuring Costs: Separation and restructuring costs dropped significantly to $4.2 million year-to-date in 2009 from $31.6 million in 2008, as the SNI spin-off was completed in 2008.
- Debt Reduction: Long-term debt decreased from $61.2 million at year-end 2008 to $29.5 million at September 30, 2009, following the repayment of notes and the spin-off.
- Discontinued Operations: The company reported a loss of $15.7 million from discontinued operations (primarily the Rocky Mountain News closure) for the nine months ended September 30, 2009, compared to income of $130.6 million in the prior year period.
Guidance, Outlook, and Risks
Management Commentary:
- Cost Reductions: The company has reduced its workforce by approximately 14% in the past 12 months, implemented temporary pay reductions (up to 5% for exempt employees), eliminated bonuses, and suspended matching contributions to defined contribution plans.
- Pension Plans: Accrual of service credits under defined benefit pension plans was frozen as of June 30, 2009.
- Dividends: The quarterly dividend has been suspended to conserve cash.
- Liquidity: Management believes the low debt level and cash position ($32 million combined cash and short-term investments) provide flexibility to position businesses for growth post-recession.
Risks and Contingencies:
- Macroeconomic Factors: Continued recession impacts advertising demand, particularly in retail, real estate, employment, and automotive sectors.
- Debt Covenants: The amended Revolving Credit Agreement (reduced to $150 million capacity) includes a borrowing base limitation. If excess availability falls below $22.5 million, a fixed charge coverage ratio of 1.1 to 1.0 must be maintained.
- Tax Uncertainty: Approximately $150 million of the 2009 goodwill impairment is not tax-deductible, affecting the effective tax rate. The company remains severally liable for SNI's pre-spin-off federal taxes.
Investor Verification Checklist
- Goodwill Impairment: Verify the valuation methodology used for the $216 million Television goodwill impairment and the remaining carrying value of intangible assets.
- Debt Covenants: Confirm current excess availability under the $150 million Revolver and compliance with the fixed charge coverage ratio trigger.
- Pension Obligations: Review the impact of the pension plan freeze on future benefit costs and the $135.4 million pension liability on the balance sheet.
- Discontinued Operations: Assess the final settlement of liabilities related to the Rocky Mountain News closure and the transfer of Denver JOA interests.
- Deferred Tax Assets: Evaluate the realizability of the $101 million in deferred tax assets, particularly given the recent losses and non-deductible impairment charges.