Business News

Scripps Reports Fourth-Quarter Results

Wednesday 24. February 2010 - Strategic options weighed for United Media

The E.W. Scripps Company (NYSE:SSP) reported operating results for the fourth quarter of 2009 that reflect disciplined expense management and an improving business climate.

Consolidated revenues were $217 million, an 18 percent decrease from $265 million in the fourth quarter of 2008. Compared with the third quarter, the year-over-year rate of revenue decline in the fourth quarter improved for both the television and newspaper divisions.

Expenses, excluding restructuring costs, were reduced 17 percent to $185 million from $223 million in the year-ago period.

Income from continuing operations in the fourth quarter of 2009, net of tax, was $14.1 million, or 22 cents per share, compared with a net loss from continuing operations of $3.6 million, or 6 cents per share, in the 2008 quarter.

The 2009 quarter included after-tax restructuring costs of $3.6 million, or 6 cents per share, for the consolidation of certain functions at its television stations and the continued rationalization of functions and centralization of processes in its newspaper division. The 2008 quarter included after-tax costs totaling $36.9 million, or 69 cents per share, reflecting severance costs in the newspaper division, the write-down of certain assets in the television division, the write-down of a newspaper investment, and costs related to the spin-off of Scripps Networks Interactive.

“Local and national advertising revenue at the TV stations bounced back nicely in the fourth quarter, and that upward trend continues in the early part of this year,” said Rich Boehne, president and chief executive officer of Scripps. “Newspaper advertising declines are moderating, and we’re well down the road toward restructuring our operations for success on a smaller – but still attractive – base of local print and online advertising.

“We entered 2010 as a financially strong company with minimal debt, committed to building value by providing high-quality content, marketplaces and public service to communities across the country,” Boehne said. “The discipline and focus demonstrated by our talented employees in 2009 now affords us the opportunity to look ahead and build for the future.”

The operations that formerly comprised the company’s Scripps Networks and interactive media divisions, which were spun off into Scripps Networks Interactive on July 1, 2008, are reported in previous periods as discontinued operations, as is the joint operating agreement (JOA) that included the Rocky Mountain News, the company’s newspaper in Denver that was closed in February 2009.

As part of the wind-down of the JOA in Denver, Scripps also transferred to its partner in August 2009 the company’s 50-percent partnership interest in Prairie Mountain Publishing (PMP). The results for PMP are reflected in the attached financial tables under “Equity in earnings of JOAs and other joint ventures.”

Fourth-quarter results by segment are as follows:

Television



Revenue from the company’s television stations was $73.9 million in the fourth quarter, a decrease of 20.8 percent from the fourth quarter of 2008, which benefited from $26 million of political advertising. Excluding political advertising from both periods, revenue increased 5.4 percent in the 2009 quarter.

Advertising revenue broken down by category was:

— Local, up 2.9 percent to $42.7 million
— National, up 7.2 percent to $22.2 million
— Political was $2.9 million, compared with $26.0 million in the 2008
quarter




The increase in revenue from local and national advertisers was largely attributable to improved spending by advertisers in the retail and services categories, which experienced double-digit year-over-year increases. Automotive advertising, the largest category at a typical television station, was flat in the fourth quarter, but was up 12 percent year-over-year in December. Total advertising revenue in the month of December was up 11 percent compared with the prior-year period.

Revenues from retransmission consent agreements more than doubled in the fourth quarter to $2.0 million.

Segment expenses for the station group decreased 4.8 percent to $59.3 million, compared with $62.3 million a year ago. Year-over-year programming costs, which were 11 percent higher in the third quarter, were flat in the fourth quarter. Year-over-year employee costs decreased 5.3 percent.

The television division reported segment profit of $14.7 million in the fourth quarter, which was a strong sequential improvement from $3.1 million in the third quarter. Segment profit in the fourth quarter of 2008, which benefited from heavy political advertising, was $31.1 million. (See Note 2 in the attached financial statements for a definition of segment profit.)

Newspapers

Year-over-year revenue from Scripps newspapers fell 15 percent to $117 million. Advertising revenue was down 20 percent to $83.4 million, an improvement in the rate of decline from the third quarter of 2009, when year-over-year ad revenue declined 27 percent.

Advertising revenue broken down by category was:

— Local, down 24 percent to $25.7 million
— Classified, down 26 percent to $21.1 million
— National, down 26 percent to $5.6 million
— Preprint and other, down 14 percent to $23.4 million
— Online, down 5 percent to $7.5 million




The decline in online advertising revenue, which was down 20 percent year-over-year in the third quarter, 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 21 percent to $4.4 million.

A change in the nature of the business relationship between the company and certain newspaper distributors in select markets caused an increase in circulation revenue to $29.4 million from $28.3 million in the year-ago period. The company is continuing a transition to pay most independent distributors on a per-unit basis, recording circulation revenue after the transition at a higher retail basis and recording the per-unit delivery cost as distribution expense. Excluding the effects of that change, which does not affect segment profit, circulation revenue in the fourth quarter would have been down $544,000, or less than 2.0 percent.

Year-over-year employee costs declined 23 percent in the quarter due to an 18 percent reduction in the number of employees compared with the fourth quarter of 2008, and the decision to adjust compensation programs early in 2009. In the fourth quarter of 2008, employee expenses were affected by severance costs of $5.4 million. Excluding severance in the prior-year period, employee costs in the fourth quarter of 2009 were down 16 percent.

Newsprint and ink expense in the fourth quarter declined 49 percent due to decreases in volume and newsprint prices. The average price per tonne declined 35 percent in the quarter.

Total segment expenses for Scripps newspapers were down 22 percent from the prior-year period to $97.1 million.

Segment profit in the newspaper division rose 56 percent to $20.0 million, compared with $12.9 million in the fourth quarter of 2008.

Licensing and other media

Fourth-quarter revenues from the licensing and syndication businesses decreased 15 percent to $26.4 million. Revenue in the fourth quarter of 2008 benefited from a payment from MetLife related to a renegotiated contract and the pick-up by ABC of additional Peanuts specials. The 2009 quarter was affected by lower apparel licensing, particularly in Europe, and lower syndicate and Web revenue. Costs and expenses, including royalty payments, declined 12 percent to $23.3 million, resulting in segment profit of $3.1 million, compared with $4.3 million in the prior-year period.

Full-year results

Revenues from continuing operations for the full year 2009 were $802 million, compared with $1.0 billion in 2008.

The company reported a net loss from continuing operations in 2009 of $192 million, or $3.56 per share. The net loss included restructuring charges and a charge for the impairment of goodwill and other intangible assets in the company’s television segment totaling $196 million after taxes, or $3.64 cents per share. The company reported a net loss from continuing operations in 2008 of $551 million, or $10.19 per share. The net loss included a charge for the impairment of newspaper goodwill, the write-down of certain long-lived assets in the television division, the write-down of an investment in a Colorado newspaper partnership, charges related to the spin-off of Scripps Networks Interactive, and a loss that resulted from the repurchase of previously issued debt from bondholders ahead of scheduled maturity dates. Those items totaled $604 million after taxes, or $11.16 cents per share.

Financial flexibility

Long-term debt at the end of the fourth quarter was $35.9 million, up from $29.5 million at the end of the third quarter. Contributing to the increase in debt was the company’s decision during the fourth quarter to voluntarily make a $20 million contribution to the company’s defined benefit pension plans.

At the end of 2009 the value of the company’s pension plan assets was approximately $115 million less than the value of the company’s accumulated benefit obligations, a decrease in the unfunded liability of $30 million from the end of 2008. Although the company is not required to make any contributions to its defined benefit plans during 2010, the company will likely make voluntary contributions to its plans in the coming year.

Cash, cash equivalents and short-term investments totaled $26.6 million at the end of the fourth quarter, down from $31.7 million at the end of the third quarter.

Strategic options explored for United Media

The company also announced today that it is exploring strategic options for United Media Licensing, the wholly owned character licensing operation of United Media. Among the possible outcomes of the exploratory process are a sale or joint venture involving all or part of United Media Licensing. Another option is to keep operating the business if the exploratory process leads management to determine that more long-term value can be created for company shareholders by retaining the property.

“Scripps is proud to have United Media Licensing in its portfolio, but the recent interest and activity in the market for character-based properties make this an appropriate time to determine if more long-term value will be created for our shareholders by continuing to operate the business or finding another alternative,” said Boehne. “We recognize that ‘exploring strategic options’ often is a euphemism for ‘sale,’ but this truly is an exercise to determine if these properties would be more valuable with another owner. If not, we’ll continue to nurture the characters as we have for decades.”

Looking ahead

Forecasting first-quarter performance is complicated by the effect of economic uncertainty on the decisions of advertisers. At this point, management believes the generally improving business trends reported in the fourth quarter of 2009 will continue in the first quarter of 2010.

During the coming year, the company will continue to implement the restructuring of certain functions and the standardization and centralization of key systems and processes in the newspaper division. This pursuit of operational efficiencies could result in restructuring charges of up to $22 million during the course of 2010.

For the full year 2010, capital expenditures are expected to be approximately $20 million, and depreciation and amortization will be approximately $45 million. Full-year corporate expenses are expected to be approximately $32 million.

The company expects to receive at least $45 million in Federal tax refunds in 2010.