Business Context and Reporting Period
Company: The E. W. Scripps Company (Scripps)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2009
Business Overview: Scripps is a diverse media company operating in newspaper publishing, broadcast television, and licensing/syndication (including "Peanuts" and "Dilbert"). The company spun off its cable television and interactive media business (Scripps Networks Interactive) in July 2008, which is now reported as discontinued operations.
Key Financial Metrics
| Metric (in thousands) | Q1 2009 | Q1 2008 |
|---|---|---|
| Total Operating Revenues | $205,368 | $255,694 |
| Net Income (Loss) Attributable to Shareholders | $(220,700) | $84,068 |
| Operating Income (Loss) | $(254,902) | $9,280 |
| Net Cash Provided by Operating Activities | $29,729 | $54,627 |
| Cash and Cash Equivalents (End of Period) | $9,958 | $13,251 |
| Long-Term Debt | $73,130 | $61,166 |
| Goodwill | $0 | $215,432 |
Per Share Data: Net loss per basic and diluted share was $(4.12) for Q1 2009, compared to net income of $1.55 per share in Q1 2008.
Material Changes vs. Prior Period
- Revenue Decline: Total operating revenues decreased 19.7% year-over-year. Advertising revenue dropped significantly across both Newspapers (-28.6%) and Television (-20.5%) segments due to weak economic conditions, particularly in real estate, automotive, and retail sectors.
- Goodwill Impairment: The company recorded a massive non-cash impairment charge of $216.4 million ($215 million for Television goodwill and $1 million for an FCC license). This charge reduced the Television segment's goodwill balance to zero.
- Segment Profitability:
- Newspapers: Segment profit fell 88.5% to $2.9 million.
- JOAs/Partnerships: Reported a loss of $21.1 million (vs. profit of $0.2 million in 2008) due to costs associated with closing the Rocky Mountain News in Denver.
- Television: Segment profit turned negative at $(2.4) million (vs. $14.2 million profit in 2008).
- Licensing: Segment profit increased 50.1% to $3.1 million.
- Cost Reductions: Total costs and expenses decreased slightly (1.7%) excluding separation costs, driven by workforce reductions, wage cuts, and lower newsprint consumption, despite higher newsprint prices.
Guidance, Outlook, and Risks
- Cost Cutting Initiatives: Management implemented pay reductions (3-5% for non-union employees), suspended 401(k) matching, eliminated performance-based bonuses, and froze pension benefit accruals. These measures are expected to reduce 2009 expenses by approximately $35 million.
- Dividend Suspension: The quarterly dividend was suspended in Q4 2008 and remains suspended.
- Capital Expenditures: Capital spending is expected to be significantly reduced to $10 million for 2009 (excluding the completion of the Naples production facility), down from $48 million in 2008.
- Liquidity and Debt:
- Net debt (borrowings less cash) was $28 million as of March 31, 2009.
- The company has a $200 million revolving credit facility with $72 million drawn. Borrowing capacity is limited to 3.0x Consolidated EBITDA; management projects this limit may be reduced below $200 million in the second half of 2009.
- Management expects cash flow from operations and available borrowings to be sufficient to meet needs, though waivers may be required if EBITDA projections are not met.
- Denver Exit: The company closed the Rocky Mountain News in February 2009. Approximately $12 million in severance and exit costs are expected to be paid in Q2 2009.
- Risks: Continued economic uncertainty, advertising weakness, and the potential inability to secure waivers for credit facility covenants if EBITDA declines further.
Investor Verification Checklist
- Goodwill Impairment Finalization: Verify the completion of Step 2 of the goodwill impairment analysis for the Television segment, expected in Q2 2009, to confirm if the $215 million preliminary charge requires adjustment.
- Credit Facility Covenants: Monitor Q2 and Q3 EBITDA performance to ensure compliance with the 3.0x leverage ratio covenant on the revolving credit facility.
- Denver Exit Costs: Confirm the timing and total amount of cash outflows related to the closure of the Rocky Mountain News and the transfer of JOA interests.
- Deferred Tax Assets: Assess the realizability of the $162 million in net deferred tax assets, particularly given the current loss position and potential future valuation allowances.
- Advertising Recovery: Track recovery trends in classified advertising (real estate, automotive, employment) which drove the majority of the revenue decline.