Business Context and Reporting Period
Company: The E. W. Scripps Company
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three months ended March 31, 2010
Business Overview: A diverse media company operating daily and community newspapers in 13 U.S. markets, 10 television stations (ABC, NBC, and independent affiliates), and a licensing/syndication division (United Media) featuring properties such as "Peanuts" and "Dilbert."
Key Financial Metrics
| Metric (in thousands) | Q1 2010 | Q1 2009 |
|---|---|---|
| Total Operating Revenues | $199,015 | $205,349 |
| Operating Income (Loss) | $1,072 | $(233,802) |
| Net Loss | $(880) | $(220,847) |
| Net Loss Per Share (Basic & Diluted) | $(0.02) | $(4.12) |
| Cash and Cash Equivalents | $5,968 | $9,958 |
| Short-term Investments | $22,872 | $12,180 |
| Total Current Assets | $250,461 | $258,175 |
| Long-term Debt | $11,376 | $35,916 |
| Net Cash Provided by Operating Activities | $31,589 | $29,729 |
Material Changes vs. Prior Period
- Profitability Improvement: The company reported a net loss of $0.9 million in Q1 2010, a significant improvement from the $220.8 million net loss in Q1 2009. The 2009 loss was heavily impacted by a $216.4 million non-cash impairment charge on television goodwill and FCC licenses, which did not recur in 2010.
- Revenue Trends: Total operating revenues declined 3.1% year-over-year.
- Television: Revenues increased 10.6% to $66.8 million, driven by growth in local and national advertising.
- Newspapers: Revenues decreased 7.6% to $112.6 million, though the rate of decline in advertising revenue is moderating.
- Licensing: Revenues decreased 15.4% to $19.6 million, primarily due to declines in apparel sales in European markets.
- Cost Reductions: Total costs and expenses (excluding separation costs) declined 13.1% year-over-year. Employee compensation and benefits dropped $19.4 million due to workforce reductions (approx. 11% decrease in headcount), pay cuts, and the freezing of pension accruals in 2009. Newsprint costs fell $5.7 million due to lower consumption and prices.
- Debt Reduction: Long-term debt decreased by approximately $24.5 million as the company paid down its revolving credit facility. Outstanding borrowings were $10.4 million as of March 31, 2010.
Guidance, Outlook, and Risks
- Outlook: Management remains cautiously optimistic about the improving business climate. They expect year-over-year television revenue growth in the mid-teens for Q2 2010 and a slight moderation in newspaper ad revenue declines. Total newspaper expenses are expected to be slightly below last year's levels, while television expenses are expected to increase by about 10%.
- Strategic Transaction: On April 26, 2010, the company agreed to sell its character licensing business (United Feature Syndicate) to Iconix Brand Group, Inc. for $175 million in cash. The transaction is expected to close in Q2 2010, and the business will be reported as discontinued operations thereafter.
- Liquidity: The company expects cash flow from operations, tax refunds (estimated at least $45 million from 2009 loss carrybacks), and proceeds from the licensing sale to be sufficient to meet operating, pension funding, and capital needs for the next 12 months. Capital expenditures for the remainder of 2010 are projected at approximately $15 million.
- Risks:
- Network Affiliations: The company is negotiating renewals with ABC and NBC. New agreements may require the company to pay for network programming rather than receiving compensation, potentially impacting future margins.
- Economic Sensitivity: Advertising revenues remain sensitive to economic conditions, particularly in retail, real estate, employment, and automotive sectors.
- Pension Obligations: The projected benefit obligation for defined benefit pension plans exceeded plan assets by $109 million as of December 31, 2009.
Investor Verification Checklist
- Licensing Sale Closure: Verify the closing date and final terms of the $175 million sale of the United Feature Syndicate business to Iconix Brand Group.
- Network Contract Terms: Monitor the outcome of affiliation negotiations with ABC and NBC, specifically regarding the shift from network compensation to affiliate payments for programming.
- Cost Structure Sustainability: Assess whether the significant cost reductions achieved in 2009 (pay cuts, headcount reductions) are sustainable or if they will normalize in future periods.
- Pension Funding: Track voluntary contributions to defined benefit pension plans, as the company anticipates contributing an additional $4.1 million to the SERP and potentially $20 million or more to other plans in 2010.
- Debt Covenants: Review the fixed charge coverage ratio requirements under the revolving credit facility, which are triggered if excess availability falls below $22.5 million.