SSP

Business Context and Reporting Period

Company: The E. W. Scripps Company
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Business Overview: A media company operating daily and community newspapers in 14 U.S. markets, 10 television stations, and a licensing/syndication division (United Media). The company completed the spin-off of Scripps Networks Interactive (SNI) on July 1, 2008, which is reported as discontinued operations.

Key Financial Metrics

Note: Q2 2008 figures are heavily impacted by a $779 million goodwill impairment charge and a $95 million write-down of newspaper partnership investments. YTD 2009 includes a $216 million goodwill impairment charge recorded in Q1.

Material Changes vs. Prior Period

• Revenue Decline: Total operating revenues decreased 22.7% in Q2 2009 and 21.3% YTD 2009 compared to the prior year, driven by the economic recession and secular declines in classified advertising.
• Return to Operating Profit: The company returned to operating profitability in Q2 2009 ($2.5 million) compared to a significant loss in Q2 2008, primarily due to aggressive cost-cutting measures and the absence of the massive impairment charges recorded in 2008.
• Cost Reductions: Employee compensation and benefits decreased by $32 million in Q2 2009 and $33 million YTD 2009. This was achieved through workforce reductions (approx. 14% aggregate reduction), pay cuts, bonus eliminations, and freezing pension accruals.
• Asset Impairments: In Q1 2009, the company recorded a $215 million non-cash charge for Television goodwill impairment and a $1 million charge for an FCC license. In Q2 2008, similar charges totaled $874 million for Newspapers and partnerships.
• Denver Newspaper Closure: The Rocky Mountain News ceased publication on February 27, 2009. The company plans to transfer its interests in the Denver Newspaper Agency and Prairie Mountain Publishing to MediaNews Group by the end of Q3 2009.

Guidance, Outlook, and Risks

• Liquidity and Credit Facility: On August 5, 2009, the company amended its revolving credit agreement, reducing the maximum availability from $200 million to $150 million. The facility is now secured by assets and subject to a borrowing base. Outstanding borrowings were $72 million as of June 30, 2009.
• Capital Allocation: The company suspended its quarterly dividend to conserve cash. Capital expenditures for 2009 are expected to be approximately $10 million (excluding the Naples production facility), a significant reduction from $48 million in 2008.
• Tax Outlook: The company expects to realize approximately $53 million of deferred tax assets in 2009 and 2010. It anticipates receiving a $28.5 million federal tax refund in Q3 2009.
• Risks: Continued economic recession impacting advertising demand (specifically retail, real estate, and automotive sectors); reliance on third-party vendors; and the need to maintain fixed charge coverage ratios under the new credit agreement if excess availability falls below $22.5 million.

Investor Verification Checklist

• Credit Covenant Compliance: Verify the company's ability to maintain the fixed charge coverage ratio of 1.1 to 1.0 under the new $150 million credit facility, especially given the borrowing base limitations.
• Goodwill Impairment Status: Confirm that the $215 million impairment charge recorded in Q1 2009 for the Television segment was finalized and no further adjustments are expected.
• Denver JOA Exit: Monitor the timeline and financial impact of transferring interests in the Denver Newspaper Agency and Prairie Mountain Publishing to MediaNews Group.
• Deferred Tax Asset Realization: Assess the likelihood of realizing the $53 million in deferred tax assets, as future taxable income estimates could require valuation allowances if economic conditions worsen.
• Segment Profitability: Review the segment profit reconciliation to understand the non-GAAP adjustments (e.g., pension curtailment losses, restructuring costs) impacting reported earnings.