Business News

Scripps Reports Third-Quarter Results

Friday 07. November 2008 - Board suspends dividend; restructuring announced at company's newspapers

The E.W. Scripps Company today reported third-quarter operating results for its television, newspaper, and licensing and syndication businesses. The operations that formerly comprised the company’s Scripps Networks and interactive media divisions, which were spun off into a separate publicly traded company on July 1, 2008, are reported in previous periods as discontinued operations.

Third-quarter results reflect continued weakness in advertising sales at the company’s newspapers and television stations. The company’s revenue decreased 9.0 percent to $230 million, compared with $253 million in the third quarter of 2007.

The company reported a loss from continuing operations of $21.0 million, or 39 cents per share, compared with income of $16.6 million, or 31 cents per share in the year-ago quarter. The per-share figures are adjusted for a 1-for-3 reverse stock split that was approved on July 15, 2008. The loss from continuing operations in the 2008 quarter was increased by costs related to the separation of the Scripps Networks and interactive media businesses totaling $22.0 million, as well as a $24.9 million non-cash charge to further write down the investment in our Denver newspaper partnership.

“Behind all the accounting noise related to the separation is a healthy company built upon a collection of solid media businesses in attractive local markets,” said Rich Boehne, president and CEO of Scripps. “Even through these challenging economic times, Scripps is fortunate to be able to focus on the opportunities ahead as local media markets adjust to the full impact of the Internet and other digital media platforms.

“To put Scripps in the best possible position to exploit opportunities and build value for shareholders during this period of economic uncertainty, we’ve made a series of decisions – including headcount reductions, suspension of the dividend and other expense reductions – that will keep our debt low and balance sheet healthy. These are unusual times, not without difficulty and peril. But we believe dedication to strong financial health in the short term will yield outsized returns over the long term for those in position to exploit the transformation of our industry.”

Now that Scripps is a standalone organization focused on local media, it will disclose results with the following reporting segments: 1) Newspapers (enterprises managed solely by Scripps), 2) Joint operating agreements (JOA) and newspaper partnerships (encompassing the JOA in Denver, and the newspaper partnerships in Colorado and New Mexico), 3) Television, and 4) Licensing and other media.

Third-quarter results by segment are as follows:

Newspapers


Year-over-year revenue from newspapers operated solely by Scripps fell 17 percent to $131 million. Advertising revenue was down 20 percent to $101 million.

Advertising revenue broken down by category was:
— Local, down 16 percent to $27.3 million
— Classified, down 28 percent to $33.6 million
— National, down 31 percent to $5.9 million
— Preprint and other, down 11 percent to $33.9 million
— Online, down 12 percent to $9.1 million




The decline in online ad revenue is attributable to the weakness in print classified advertised, to which most of the online advertising is tied. Revenue from pure-play advertisers who only purchase ads on the company’s newspaper Web sites rose 13.4 percent in the period.

Circulation revenue was $26.6 million, down 7.6 percent.

Due to significantly lower usage, newsprint expense declined 2.6 percent to $15.7 million, despite an increase in pricing of about 32 percent over the prior-year period.

Cash expenses for Scripps newspapers were down 6.7 percent from the prior year, including the favorable impact of a $3.0 million adjustment for self-insured health care and disability claims.

Segment profit at newspapers managed solely by the company was $14.0 million, compared with $32.7 million in the third quarter of 2007.

JOA / Newspaper Partnerships

The Scripps share of income from the Denver JOA and newspaper partnerships fell to $2.1 million in the third quarter, compared with $8.0 million in the prior-year period. JOA editorial costs and expenses fell 19 percent to $5.1 million.

The segment loss of $3.1 million compared with segment profit of $1.7 million in the 2007 quarter.

Television

Revenue from the company’s television stations was $76.9 million in the third quarter, an increase of 5.0 percent over the third quarter of 2007.

Revenue broken down by category was:
— Local, down 6.4 percent to $42.4 million
— National, down 14.6 percent to $19.5 million
— Political, $10.3 million compared with $700,000 in the 2007.




The company’s three NBC affiliates – in Kansas City, Mo., West Palm Beach, Fla., and Tulsa, Okla. – benefitted from Olympics-related programming in August. The three stations booked $4.7 million in revenue tied to the summer games, compared with $3.2 million during the Olympic period in 2004.

Cash expenses for the station group were $60.0 million, including a favorable adjustment of $1.2 million for self-insured health care and disability claims. In the 2007 quarter, cash expenses were $60.0 million.

Segment profit for the broadcast television division was $17.0 million in the third quarter, a 28 percent increase over the 2007 quarter.

Licensing and Other Media

Revenue was $22.2 million, compared with $21.2 million in the prior-year period. Cash expenses were flat year over year, resulting in segment profit that increased from $1.3 million to $1.5 million.

Year-To-Date Snapshot

Revenue from continuing operations through the first three quarters of the year was $737 million, compared with $797 million in 2007.

The year-to-date results reflect the impairment of goodwill and certain equity investments in the company’s newspaper segment, as mentioned in an Aug. 11, 2008, announcement. The non-cash charges totaled of $899 million.

Through the first nine months of the year, the company reported a loss from continuing operations of $621 million. Excluding the effects of the separation costs and impairment charges, income from continuing operations in the first three quarters would have been $26.8 million, or 48 cents per share, compared with $28.2 million, or 52 cents per share, in the same period a year ago.

Dividend

Management previously has indicated that 2009 will be a challenging year for the company, with broad economic uncertainty and advertising weakness projected to continue into next year, newsprint prices at historical highs, the relative lack of political advertising, and the final year of higher-than-normal capital expenditures to complete the newspaper production facility that will serve the high-growth markets of Naples and Bonita Springs, Fla.

To improve the company’s financial flexibility and position Scripps to seize potential opportunities during this period, the board of directors has suspended the company’s quarterly dividend.

On Sept. 10, 2008, the company paid a quarterly dividend of 15 cents per share.

Share Repurchases

During the third quarter, Scripps repurchased 790,500 shares of its Class A Common stock at an average price of $7.16. From Oct. 1 to Oct. 15 the company repurchased an additional 329,500 shares at an average price of $5.74, completing a share repurchase program initiated on Aug. 15 and exhausting the company’s current board authorization.

Newspaper restructuring

The company’s fourth-quarter operating income will include a one-time cash charge of approximately $5 million for severance and other expenses related to restructurings at the company’s newspapers. Scripps publishers notified affected employees yesterday.

The restructurings, sought by the publishers in a continuing effort to reduce costs in response to the rapidly changing business conditions in their local newspaper markets, will be completed in the fourth quarter. The workforce reduction affects approximately 400 employees, resulting in annual payroll and benefits savings of roughly $15 million.

“Our publishers were careful to maintain our commitment to a strong local news product, and they retain the ability to fully serve the needs of our advertisers,” said Boehne. “These restructurings will allow us to continue building audience and revenue in print, online and through niche products. We regret that this action was necessary, but our customers should view this announcement as a signal of our dedication to serving these markets for the long term.”

The employee population at newspapers owned solely by Scripps has been declining steadily in recent years. Since 2006, excluding the job reductions announced today, more than 625 employees, or 13 percent of the newspaper workforce, have exited Scripps newspapers, largely through attrition, voluntary separation packages and consolidation of functions. The employee count in the newspaper division at the end of 2008 will be under 4,000.

Outlook

Fast-changing economic conditions, which weigh heavily on the decisions of advertisers, complicate the forecasting of fourth-quarter performance. Management believes that the third-quarter revenue and expense trends will continue into the fourth quarter.