Business News

Scripps Reports Second-Quarter Results

Tuesday 11. August 2009 - Amended credit agreement enhances financial flexibility

The E.W. Scripps Company (NYSE:SSP) today reported second-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 (now Scripps Networks Interactive Inc.) on July 1, 2008, are reported in previous periods as discontinued operations.

Consolidated revenues were $194 million, a 23 percent decrease from $251 million in the second quarter of 2008. Net income from continuing operations, was $2.3 million, or 4 cents per share, compared with a net loss from continuing operations of $608 million, or $11.20 per share, in the 2008 quarter. Results in the year-ago quarter were reduced by a non-cash, after-tax charge of 1) $525 million to reduce the carrying value of goodwill in the company’s newspaper businesses, and 2) $58 million to reduce the carrying value of investments in newspaper partnerships in Colorado.

The company maintained its solid balance sheet during the quarter. On June 30, 2009, the company’s net debt was $31.2 million, reflecting long-term debt of $73.1 million and cash and short-term investments of $41.9 million.

“Thanks to disciplined operating decisions and modest debt, Scripps has been able to protect its financial health and look ahead with optimism despite an economic crisis that has throttled the flow of marketing dollars across this country,” said Rich Boehne, president and chief executive officer. “In the near term, we are seeing some slight improvement in the flow of advertising in our markets, particularly at the television stations, which have increased their revenue projections — albeit very modestly — during each of the past seven weeks.

“We remain most focused during this period of rapid media transformation on the longer-term opportunities to increase our shares of local audiences and advertising revenues through a dedication to high-quality content and outstanding public service. Thanks to our stable financial position, we’ve been able to shift resources during this period to those areas that have the best long-term return — news and information content and the development of new revenue streams.”

Second-quarter results by segment are as follows:

Television



Revenue from the company’s television stations was $61.1 million in the second quarter, a decrease of 24 percent from the second quarter of 2008.

Revenue broken down by category was:

— Local, down 26 percent to $37.3 million
— National, down 29 percent to $16.9 million
— Other, which includes fees for carriage of the stations on cable
systems, rose 41 percent to $6.5 million

— Political was $333,000, compared to $1.6 million in the 2008 quarter



The decrease in the local and national revenue was largely attributable to reduced spending by advertisers in the automotive, financial services and retail categories. As is common for this stage of the election cycle, there was virtually no political spending in the second quarter of 2009, compared with the year-ago period that included primaries at the local, state and national levels.

Cash expenses for the station group decreased 10 percent to $56.2 million, compared with $62.2 million a year ago. Programming costs were 14 percent higher due to contractual increases for syndicated programming in several key markets, but they were more than offset by reduced employee costs and expenses for production and distribution.

The television division, which had reported a segment loss in the first quarter of 2009, reported segment profit of $4.8 million in the second quarter, compared with $18.3 million in segment profit in the year-ago quarter.

Newspapers

Year-over-year revenue from newspapers managed solely by Scripps fell 22 percent to $113 million. Advertising revenue was down 29 percent to $79.4 million.

Advertising revenue broken down by category was:

— Local, down 28 percent to $23.6 million
— Classified, down 39 percent to $24.1 million
— National, down 25 percent to $5.0 million
— Preprint and other, down 17 percent to $19.3 million

— Online, down 25 percent to $7.3 million



The decline in online advertising revenue is attributable to the weakness in print classified advertising, to which roughly half of the online advertising is tied. Revenue from online-only ad sales rose 19 percent to $3.6 million.

Circulation revenue rose 2.1 percent to $28.6 million.

Cash expenses for Scripps newspapers were down 23 percent from the prior year to $97.1 million. Year-over-year employee costs declined 23 percent in the quarter due to a workforce reduction in late 2008 and this year’s decision to adjust compensation programs. Newsprint and ink expense in the second quarter declined 37 percent due to a 34 percent decrease in volume and 6.4 percent decrease in the average price per ton.

Segment profit at newspapers managed solely by the company was $15.4 million, compared with $19.1 million in the second quarter of 2008.

JOAs and newspaper partnerships

There no longer is any operating activity in the joint operating agreements (JOAs) and newspaper partnerships segment. The company reported a loss of $900,000 for this segment reflecting final costs for shutting down the Rocky Mountain News. In February, the company closed the Rocky after an unsuccessful search for a buyer. As part of the process of exiting the Denver market, Scripps expects to transfer by the end of the third quarter its 50 percent interest in the Denver Newspaper Agency (DNA), which published the Rocky Mountain News and The Denver Post under a joint operating agreement and Prairie Mountain Publishing (PMP), a Colorado newspaper partnership, to MediaNews Group, which was the company’s partner in PMP as well as DNA.

Licensing and Other Media

Worldwide economic conditions continued to affect our licensing revenues as reduced consumer spending results in lower sales of licensed retail merchandise. Revenue in the second quarter was $20.3 million, a 22 percent decrease from the prior-year period. Costs and expenses, including royalty payments, declined 21 percent to $18.4 million, resulting in segment profit of $1.9 million, compared with $2.5 million in the prior-year period.

Year-To-Date Results

Revenue from continuing operations through the first half of the year was $399 million, compared with $507 million in the year-ago period.

The company reported a net loss from continuing operations in the first six months of 2009 of $219 million, or $4.08 per share. The net loss from continuing operations in the first six months of 2008 was $600 million, or $11.06 per share, including charges related to the separation of Scripps Networks Interactive and the impairment of goodwill and equity investments in the company’s newspaper segment.

The year-to-date 2009 results reflect three non-recurring items from the first-quarter, net of taxes: 1) an impairment charge of $192 million to write down the carrying value of goodwill and other intangible assets at the Scripps television stations, 2) operating losses and wind-down costs at the company’s newspapers operated under JOAs and newspaper partnerships (as mentioned above) of $13.9 million in 2009, and 3) a non-cash curtailment charge of $1.9 million related to the company’s decision to freeze its pension plan on June 30, 2009.

Amended Credit Agreement

On Aug. 5, 2009, the company entered into an Amended and Restated Revolving Credit Agreement (2009 Agreement), which expires June 30, 2013. This agreement revises the company’s existing $200 million revolver and reduces the maximum amount of availability under the facility to $150 million. The credit facility is now secured by mortgages on certain of the company’s real property, pledges of the company’s equity interests in its subsidiaries and security interests in substantially all other personal property, including cash, accounts receivables, inventories and equipment. Borrowings are limited to a borrowing base as defined in the agreement.

The existing credit agreement was unsecured and borrowings were limited to three times EBITDA, adjusted for certain non-cash expenses, for the previous four quarters.

“While we were in compliance with our existing credit facility, it was clear we needed to amend our bank agreement to give us more room to maneuver,” said Tim Stautberg, senior vice president and chief financial officer for Scripps. “This new arrangement removes the earnings-based leverage covenant and provides the flexibility to undertake the organizational changes necessary to prosper on the other side of this economic cycle.”

The company now is paying 300 basis points over LIBOR (London Interbank Offered Rate) for borrowings under the amended credit agreement.