Business News

Scripps Reports First-Quarter Results

Monday 10. May 2010 - The E.W. Scripps Company (NYSE:SSP) reported operating results for the first quarter of 2010 that reflect substantially improved performance from the television division and an improving business climate for newspapers.

Consolidated revenues were $199 million, a 3.1 percent decrease from $205 million in the first quarter of 2009. Expenses, excluding restructuring costs, were reduced 13 percent to $182 million from $209 million in the year-ago period.

The loss from continuing operations in the first quarter of 2010, net of tax, was $900,000, or 2 cents per share, compared with a net loss from continuing operations of $206 million, or $3.84 cents per share, in the 2009 quarter.

The 2010 quarter included after-tax restructuring costs of $2.1 million, or 4 cents per share, for the continued rationalization of functions and centralization of processes in its newspaper division and the consolidation of certain functions at its television stations. The 2009 quarter included after-tax costs totaling $194 million, or $3.61 per share, reflecting a non-cash impairment charge to write down the carrying value of the goodwill and other intangible assets at the Scripps television stations, a non-cash curtailment charge related to the company’s decision to freeze its pension plan in 2009, and charges for the restructuring of the newspaper division and certain functions in finance and accounting.

Excluding the items mentioned above, net income from continuing operations would have been $1.2 million, or 2 cents per share, in the first quarter of 2010, compared with a net loss of $12.4 million, or 23 cents per share, in the year-ago period.

“We’re seeing steady improvement in the flow of advertising to television stations, with an expected boost from spending around political races later in the year,” said Rich Boehne, Scripps president and chief executive officer. “TV advertising is much stronger than last year, and that strength is continuing.

“In the newspaper division, print advertising declines are moderating but remain persistent, especially in the classified categories. In response, we are well down the road in redesigning our newspaper operations through Scripps 3.0, a project that puts a strong focus on building and monetizing audiences across multiple platforms.

“In both television and newspapers, exclusive revenue from Internet and other digital platforms is growing rapidly. These new formats for news and information are gaining consumers and advertisers, and are a key part of the reset of our businesses.

“Scripps also has the benefit of looking ahead and embracing opportunity backed by a strong balance sheet with essentially no bank debt. Our financial flexibility will receive an additional boost in the coming weeks when we complete the sale of United Media Licensing for $175 million.”

The financial results of the joint operating agreement (JOA) that included the Rocky Mountain News, the company’s newspaper in Denver that was closed in February 2009, are reported in previous periods as discontinued operations. 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 “Miscellaneous, net.”

First-quarter results by segment are as follows:

Television



Revenue from the company’s television stations was $66.8 million in the first quarter, an increase of 11 percent over the first quarter of 2009.

Advertising revenue broken down by category was:

— Local, up 12 percent to $39.7 million
— National, up 10 percent to $20.2 million
— Political was $840,000, compared with less than $200,000 in the 2009
quarter



The increase in revenue from local and national advertisers was largely attributable to improved spending by advertisers in key business categories. Automotive advertising rose 65 percent in the quarter, with the retail and food service categories also up by double-digit percentages.

Total revenue improved throughout the quarter, with revenues up 9 percent in January, 10 percent in February and 13 percent in March.

Revenue from the national broadcast networks was less than $800,000, compared with $2.1 million in the year-ago quarter. The company’s affiliation agreements with ABC, which include six Scripps stations, expired on January 31, 2010. The Scripps stations have continued to operate as ABC affiliates under short-term extensions while Scripps and ABC negotiate a long-term affiliation agreement.

Revenues from retransmission consent agreements increased 35 percent in the quarter to $2.7 million dollars, and Internet revenues increased 23 percent to $1.6 million.

Segment expenses for the station group decreased 4.2 percent to $60.2 million, compared with $62.8 million a year ago. Year-over-year employee costs decreased 16 percent, while year-over-year programming costs rose 12 percent in the first quarter.

The television division reported segment profit of $6.6 million in the first quarter, compared with a segment loss of $2.4 million in the year-ago quarter. (See Note 2 in the attached financial statements for a definition of segment profit.)

Newspapers

Year-over-year revenue from Scripps newspapers fell 7.6 percent to $113 million. Advertising revenue was down 12 percent to $75.2 million. Both figures reflect an improvement in the rate of decline from the fourth quarter of 2009, when total year-over-year revenues declined 15 percent, and ad revenues were down 20 percent.

Advertising revenue broken down by category was:

— Local, down 11 percent to $23.8 million
— Classified, down 18 percent to $21.8 million
— National, down 16 percent to $5.0 million
— Preprint and other, down 7.3 percent to $17.9 million
— Online, down 8.1 percent to $6.7 million



In the fourth quarter of 2009, the year-over-year declines in local, classified and national advertising were between 24 and 26 percent.

The decline in online advertising revenue is attributable to the weakness in print classified advertising, to which approximately 40 percent of the online advertising is tied. Revenue from online-only ad sales rose 23 percent to $4.1 million.

Reported circulation revenue in the first quarter was $32.1 million, a 4.9 percent increase compared to the year-ago period. A change in the nature of the business relationship between the company and certain newspaper distributors in select markets caused the increase in circulation revenue. 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 first quarter would have been down $443,000, or 1.5 percent.

Year-over-year employee costs declined 23 percent in the quarter due to attrition and the decision to adjust compensation programs early in 2009.

Newsprint and ink expense in the first quarter declined 39 percent due to decreases in volume and newsprint prices. The average price per ton declined 26 percent in the quarter.

Total segment expenses for Scripps newspapers were down 19 percent from the prior-year period to $96.0 million.

Segment profit in the newspaper division increased to $16.6 million, compared with $2.9 million in the first quarter of 2009.

Licensing and other media

First-quarter revenues from the licensing and syndication businesses decreased 15 percent to $19.6 million, similar to the reported year-over-year decrease in the fourth quarter of 2009. Costs and expenses declined 8.9 percent to $18.2 million, resulting in segment profit of $1.4 million, compared with $3.1 million in the prior-year period.

On April 27, 2010, Scripps announced that it had agreed to sell United Media’s licensing operations to Iconix Brand Group for $175 million in an all-cash transaction that is expected to close during the second quarter.

Results from United Media’s licensing business for the current and previous periods will be reported as discontinued operations starting with the second quarter of 2010.

Revenues from United Media’s remaining syndication business are approximately $2.7 million per quarter.

Looking ahead

At this point, management believes the generally improving business trends reported in the first quarter of 2010 will continue in the second quarter. The year-over-year growth in television ad revenues is expected to be in the mid-teens, and the declines in newspaper ad revenue are expected to moderate slightly.

Year-over-year operating costs in the first quarter benefited from significant cost reduction initiatives undertaken late in the first quarter of 2009. Cost comparisons in the second and later quarters will be more difficult as subsequent quarters of 2009 included the benefit of those cost reduction initiatives. During the second quarter, total newspaper expenses are expected to be slightly below last year, and total television expenses are expected to increase about 10 percent, year over year. Corporate and shared expenses in the second quarter are expected to be about $8 million, an increase from $6.2 million in the second quarter of 2009, which benefited from adjustments of loss reserves for self-insured claims and revenue from Scripps Networks Interactive for transition services.