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SCRIPPS E W CO 10-K 2011 Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-K
For the fiscal year ended December 31, 2010
OR
For the transition period from __________ to __________
Commission File Number 0-16914
THE E. W. SCRIPPS COMPANY
(Exact name of registrant as specified in its charter)
Registrant’s telephone number, including area code: (513) 977-3000
Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No þ
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 of Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained to the best of the registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definition of “large accelerated
filer”, “accelerated filer” and “smaller reporting company “in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o No þ
The aggregate market value of Class A Common shares of the registrant held by non-affiliates of the
registrant, based on the $7.43 per share closing price for such stock on June 30, 2010, was
approximately $261,326,000. All Class A Common shares beneficially held by executives and
directors of the registrant and The Edward W. Scripps Trust have been deemed, solely for the
purpose of the foregoing calculation, to be held by affiliates of the registrant. There is no
active market for our common voting shares.
As of February 18, 2011, there were 46,530,205 of the registrant’s Class A Common shares, $.01 par
value per share,
outstanding and 11,932,735 of the registrant’s Common Voting Shares, $.01 par value per share,
outstanding.
Certain information required for Part III of this report is incorporated herein by reference to the
proxy statement for the 2011
annual meeting of shareholders.
Index to The E. W. Scripps Company Annual Report
on Form 10-K for the Year Ended December 31, 2010
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As used in this Annual Report on Form 10-K, the terms “Scripps,” “we,” “our” or “us” may, depending
on the context, refer to The E. W. Scripps Company, to one or more of its consolidated subsidiary
companies, or to all of them taken as a whole.
Additional Information
Our Company Web site is www.scripps.com. Copies of all of our SEC filings filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of
charge on this Web site as soon as reasonably practicable after we electronically file the material
with, or furnish it to, the SEC. Our Web site also includes copies of the charters for our
Compensation, Nominating & Governance and Audit Committees, our Corporate Governance Principles,
our Insider Trading Policy, our Ethics Policy and our Code of Ethics for the CEO and Senior
Financial Officers. All of these documents are also available to shareholders in print upon
request or by request via E-Mail to secretaries@scripps.com.
Forward-Looking Statements
Our Annual Report on Form 10-K contains certain forward-looking statements related to our
businesses. We base our forward-looking statements on our current expectations. Forward-looking
statements are subject to certain risks, trends and uncertainties that could cause actual results
to differ materially from the expectations expressed in the forward-looking statements. Such
risks, trends and uncertainties, which in most instances are beyond our control, include changes in
advertising demand and other economic conditions; consumers’ tastes; newsprint prices; program
costs; labor relations; technological developments; competitive pressures; interest rates;
regulatory rulings; and reliance on third-party vendors for various products and services. The
words “believe,” “expect,” “anticipate,” “estimate,” “intend” and similar expressions identify
forward-looking statements. You should evaluate our forward-looking statements, which are as of
the date of this filing, with the understanding of their inherent uncertainty. We undertake no
obligation to update any forward-looking statements to reflect events or circumstances after the
date of the statement.
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PART I
We are a diverse, 132-year-old media enterprise with interests in television stations,
newspapers, and local news and information Web sites. Our portfolio of locally focused media
properties includes: 10 TV stations (six ABC affiliates, three NBC affiliates and one independent);
daily and community newspapers in 13 markets and the Washington, D.C.-based Scripps Media Center,
home of the Scripps Howard News Service; and United Media, the syndicator of news features and
comics. For a full listing of our media companies and their associated Web sites, visit
http://www.scripps.com.
In the fourth quarter of 2009 we began a review of our strategic options for United Media
Licensing, the character licensing operation of United Media. We sought bids from interested
parties during the first quarter 2010, completing a sale of United Media Licensing to Iconix Brand
Group for $175 million in cash in the second quarter of 2010. The sale also included certain
intellectual property including the rights to syndicate the Peanuts and Dilbert comic strips.
After an unsuccessful search for a buyer, we closed the Rocky Mountain News after it published
its final edition on February 27, 2009. Our Rocky Mountain News and MediaNews Group, Inc.’s (MNG)
Denver Post were partners in The Denver Newspaper Agency (the “Denver JOA”), a limited liability
partnership, which operated the sales, production and business operations of the Rocky Mountain
News prior to its closure. Each newspaper provided the Denver JOA with the independent editorial
content published in its newspaper. Under the terms of an agreement with MNG, we transferred our
interests in the Denver JOA to MNG in the third quarter of 2009. We recorded no gain or loss on
the transfer of our interest in the Denver JOA to MNG. In connection with the closure of the Rocky
Mountain News, we also transferred our 50% interest in Prairie Mountain Publishing (“PMP”) to MNG
in the third quarter of 2009.
On July 1, 2008, we completed the spin-off of Scripps Networks Interactive, Inc. (“SNI”)
through a tax-free dividend to our shareholders. The shareholders of record received one SNI Class
A Common Share for every Scripps Class A Common Share held as of the Record Date and one SNI Common
Voting Share for every Scripps Common Voting Share held as of the Record Date. For more
information regarding the spin-off of SNI, refer to Management’s Discussion & Analysis (MD&A) in
Item 7 and the Notes to our Consolidated Financial Statements of this Form 10-K report (Report).
We ceased publication of The Albuquerque Tribune on February 23, 2008, and The Cincinnati Post
on December 31, 2007.
Financial information for each of our business segments can be found under “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and the Notes to the
Consolidated Financial Statements of this Form 10-K.
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Television
Scripps has operated broadcast television stations since 1947 when it launched Ohio’s first
television station, WEWS in Cleveland. Our television station group today reaches approximately 10%
of the nation’s households, and includes six ABC affiliates, three NBC affiliates and one
independent station.
Our stations provide local news and a mix of network and syndicated programs. Our goal is to
provide programming that drives each market’s highest ratings. We believe that the most critical
component of that product mix is compelling news content. To pursue that level of quality, we have
trained all employees in our news departments to be multi-media journalists, allowing us to pursue
a “hyper-local” strategy by having more reporters covering local news for our over-the-air and
digital platforms.
In our non-news hours we currently offer locally produced programs in certain markets. In
coming years we will place a higher priority on producing more local programming in all of our
markets, particularly as we reduce our reliance on syndicated programming as a lead-in to
primetime.
Investing in digital
We successfully completed the transition to all-digital broadcasting on June 12, 2009, in
accordance with the deadline adopted by Congress, and we continue to invest in other platforms for
digital technology. In addition to a wide range of Web-based products, we have developed smartphone
and tablet applications for mobile delivery of our news and information content. We also are
working with the Mobile Content Venture, of which we are a charter member, to exploit the potential
in our markets of mobile broadcasting. Our stations in Detroit and West Palm Beach currently are
broadcasting a mobile signal from their towers, and we expect more markets to launch live mobile
broadcasting in 2011.
Information concerning our stations, their network affiliations and the markets in which they
operate is as follows:
All market and audience data is based on the November Nielsen survey.
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Revenue cycles and sources
Our television stations compete for advertising revenues with other sources of local media,
including competitors’ television stations in the same markets, radio stations, cable television
systems, newspapers, other Internet sites and direct mail. Pricing of advertising is based on
audience size and share, the demographics of our audiences on various platforms, and the demand for
our limited inventory of commercial time. The sale of local, national and political commercial
spots accounted for more than 90% of the television segment’s revenues in 2010.
Cyclical factors influence revenues from our core advertising categories. Some of the cycles
are periodic and known well in advance, such as election campaign seasons and special programming
events like the Olympics or the Super Bowl. For example, our three NBC affiliates in 2010 benefited
from incremental advertising demand concurrent with coverage of the Winter Olympics in February.
Economic cycles are less predictable and beyond our control. The global recession that began in
late 2008 significantly reduced our revenue performance in 2009. Many categories, particularly the
automotive category, showed substantial revenue improvement in 2010 compared with the previous
year, but still were lower than their 2008 levels.
Advertising revenues dramatically increase during even-numbered years, when local, state and
federal elections occur. Political revenue totaled $48 million in 2010 and $41 million in 2008.
Due to increased demand in the spring and holiday seasons, the second and fourth quarters
normally have higher advertising revenues than the first and third quarters.
In addition to selling commercials during our programming, we also offer additional marketing
opportunities for our business customers, including sponsorships, community events, and advertising
on our digital platforms. We offer our digital advertising customers additional reach through
various audience extension partnerships with local magazines and weekly publications. We were one
of the first broadcast groups to join Yahoo!’s content and advertising sharing partnership that
increases our access to local Web-focused advertising dollars. We offer our customers additional
marketing services, such as managing their search engine marketing campaigns.
Our nine network-affiliated stations historically received cash compensation from ABC and NBC
for our carriage of their programming, but affiliation agreements renewed in the past 12 months
have been consistent with the industry trend of discontinued network compensation. Under the new
agreements, we now pay the networks for the programming that is supplied to us in various dayparts.
Those costs are reported as programming expenses.
Scripps negotiates retransmission consent agreements with cable operators and satellite
carriers who pay us to offer our programming to their customers. The revenue we receive from these
retransmission consent agreements is currently lower than those realized by our peers because
multiple long-term agreements were executed before we spun off our cable networks in 2008. As a
consolidated company prior to the split, the rights to retransmit our broadcast signal were
included as consideration in negotiations between cable system operators and the Company’s cable
networks. As those contracts expire, we will negotiate standalone retransmission consent agreements
involving our stations and the local cable systems.
Expenses
Employee costs accounted for 50% of segment costs and expenses in 2010. The recession led us
in 2009 to adjust our employee expense structure by temporarily reducing the pay of most employees.
We have been centralizing functions that do not require a presence in the local markets at
company-owned hubs, enabling each of our stations to focus resources devoted to the creation of
content and revenue-producing activities.
Programming costs, which include syndicated programming, were 24% of total segment costs and
expenses in 2010. Significantly reducing our syndicated programming costs is a priority over the
next several years.
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Federal Regulation of Broadcasting — Broadcast television is subject to the jurisdiction of
the FCC pursuant to the Communications Act of 1934, as amended (“Communications Act”). The
Communications Act prohibits the operation of broadcast television stations except in accordance
with a license issued by the FCC and empowers the FCC to revoke, modify and renew broadcast
television licenses, approve the transfer of control of any entity holding such licenses, determine
the location of stations, regulate the equipment used by stations and adopt and enforce necessary
regulations. The FCC also exercises limited authority over broadcast programming by, among other
things, requiring certain children’s programming and limiting commercial content therein,
regulating the sale of political advertising, and restricting indecent programming.
Broadcast television licenses are granted for a term of up to eight years and are renewable
upon request, subject to FCC review of the licensee’s performance. While complaints about network
programming aired by some Company-owned stations during the last license term remain outstanding,
all the stations’ licenses have been renewed for the current license term. While there can be no
assurance regarding the renewal of our broadcast television licenses, we have never had a license
revoked, have never been denied a renewal, and all previous renewals have been for the maximum
term.
FCC regulations govern the multiple ownership of television stations and other media. Under
the FCC’s current rules (as modified by Congress with respect to national audience reach), a
license for a television station will generally not be granted or renewed if the grant of the
license would result in (i) the applicant owning more than one television station, or in some
markets under certain conditions, more than two television stations in the same market, or (ii) the
grant of the license would result in the applicant’s owning, operating, controlling, or having an
interest in television stations whose total national audience reach exceeds 39% of all television
households. The FCC also has generally prohibited “cross ownership” of a television station and a
daily newspaper in the same community, but the FCC in 2007 completed a Congressionally mandated
periodic review of its ownership rules and determined to relax this cross ownership ban in the
largest television markets. While this decision remains under appeal, the new rule has been
allowed to take effect. The FCC is currently initiating another periodic review of the ownership
rules.
The FCC has suggested that the transition to more efficient digital television broadcasting
may permit further reductions in the amount of spectrum allocated to over-the-air broadcasting. In
particular, in order to provide additional spectrum for mobile broadband services, the FCC has
urged Congress to authorize the conduct of spectrum auctions in which broadcasters would give up
spectrum in return for a share of the auction proceeds. The FCC has also initiated a broad
rulemaking to explore ways to implement such auctions and otherwise encourage innovative use of the
broadcast spectrum. Separately, the FCC has now issued rules to implement its order permitting the
non-broadcast use of broadcast spectrum in the “white spaces” between broadcast stations’ service
areas, and petitions for reconsideration of that order are now being considered. We cannot predict
the effect of these proceedings on our offering of digital television service or our business.
Broadcast television stations generally enjoy “must-carry” rights on any cable television
system defined as “local” with respect to the station. Stations may waive their must-carry rights
and instead negotiate retransmission consent agreements with local cable companies. Similarly,
satellite carriers, upon request, are required to carry the signal of those television stations
that request carriage and that are located in markets in which the satellite carrier chooses to
retransmit at least one local station, and satellite carriers cannot carry a broadcast station
without its consent. The Company has elected to negotiate retransmission consent agreements with
the major cable operators and satellite carriers for our network-affiliated stations. Some members
of Congress have expressed concern about cable subscribers occasionally losing television service
during retransmission consent negotiations, and the FCC has announced its intention to conduct a
rulemaking proceeding during 2011 to reexamine the process. In addition, Congress or the FCC may
reexamine other regulatory policies that support a television station’s ability to enjoy an
exclusive right to present particular programming in its local service area. We cannot predict the
outcome of any such proceedings or their possible impact on the Company.
During recent years, the FCC has substantially increased its scrutiny of broadcasters’
programming practices. In particular, it has heightened enforcement of the restrictions on
indecent programming. Congress’ decision to greatly increase the financial penalty for airing such
programming has at the same time increased the threat to broadcasters from such enforcement.
Litigation continues over the scope of the FCC’s authority to regulate indecency, and substantial
uncertainty remains concerning FCC indecency enforcement. In addition, the FCC in 2008 adopted new
regulations requiring broadcasters to maintain more detailed records of their public service
programming and to make such information more accessible to the public via their web sites.
Implementation of these new FCC regulations continues to be delayed while the FCC considers
imposing more specific obligations with respect to broadcasters’ programming service to their local
communities. In 2009, the FCC initiated a new proceeding to explore how the evolution of digital
media is affecting children, including whether commercial television broadcasters are adequately
addressing children’s educational needs and whether steps should be taken to better protect
children from exposure to potentially harmful media content, including harmful advertising
messages. In 2010, the FCC initiated a broad examination of modern media that includes questioning
whether broadcasters’ public interest programming obligations should be revised. We cannot predict
the outcome of these proceedings or their possible impact on the Company.
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Newspapers
We have operated newspapers for 132 years, when our founder, Edward W. Scripps, began
publishing the Penny Press in Cleveland, Ohio. Today, the Scripps newspaper division operates
daily newspapers, news and information Web sites, mobile news applications, community newspapers,
niche publications and other advertiser-supported local media in 13 markets across the United
States. We believe that compelling news content and a diverse portfolio of product offerings are
critical components to garnering the highest share of local advertising dollars in our markets.
We believe all of our newspapers have an excellent reputation for journalistic quality and
content. They were recognized during 2010 by numerous regional and national journalism
organizations for high-quality reporting across multiple platforms, including print, Web and
mobile. Much of this recognition came from print-focused journalism organizations, but video-based
crime reporting from our newspaper in Knoxville, Tenn., earned a prestigious Edward R. Murrow
Award, an honor historically bestowed on television stations. Our ability to cover our communities
across multiple media allows us to expand our audiences beyond our traditional print boundaries.
Our Internet sites offer comprehensive local news and information, user-generated content,
advertising, e-commerce and other services. We continue to enhance our online services, using
features such as streaming video and audio to deliver our news and information content. Many of
our journalists routinely produce videos for consumption through our Web sites and use an array of
social media sites such as Facebook, YouTube and Twitter to interest our audiences. We have
embraced mobile technology by offering our products on e-readers as well as apps available on both
the Apple and Android platforms.
We also offer our advertising customers additional digital advertising opportunities through
our audience-extension partnerships. We were a founding member of a newspaper consortium that
joined Yahoo! in an advertising and content sharing partnership that increases our access to local
Web-focused advertising dollars. We have a similar arrangement with Zillow, the leading Internet
real estate company. In 2010, Yahoo! sold its HotJobs recruitment site to Monster.com. Monster
assumed in its entirety the HotJobs contractual relationship we had with Yahoo! We retained our
relationship with Yahoo! in the areas of content, search and display advertising. We also offer
our local advertising customers additional marketing services, such as managing their search engine
marketing campaigns.
Over the years we have supplemented our daily newspapers with an array of niche products,
including direct-mail advertising, total market coverage publications, zoned editions, specialty
publications, and event-based publications. These product offerings, including approximately 100
niche publications with a combined monthly average audience of 900,000, allow existing advertisers
to reach their target audiences in multiple ways, while giving us a portfolio of products with
which to acquire new clients, particularly small- and mid-sized advertisers.
The markets and audiences that we serve are as follows:
Daily circulation (includes print and E-edition)
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Circulation information for the Sunday edition of our newspapers is as follows:
Restructuring to take advantage of scale
We began a restructuring of the newspaper division in 2009. Our newspaper operations were
previously organized and managed solely by geography. Under the restructuring project, known as
Scripps 3.0, we are now organized functionally with divisional executives leading content, sales,
finance, operations, information technology and human resources across the geographies. We believe
this reorganization enables us to take advantage of scale and consolidate functions that do not
require a presence in our local markets. The focus in each local market is on content, sales and
distribution of our products.
We also seek to take advantage of scale by providing services for other publishers. For
example, we have created distribution and/or commercial printing arrangements with a number of
other publishers in our markets and have made decisions to rationalize our production functions.
We will continue to pursue similar opportunities into the future.
Product offerings
We derive revenue from two principal sources: readers and advertisers.
Circulation
Approximately 28% of our total revenue comes from subscribers who pay us to deliver a print or a
print/electronic product on a regular basis (home delivery) or consumers who purchase our print
products from a retail store or vending machine (single copy). Home delivery copies account for
more than 90% of our total daily circulation.
Daily and Sunday circulation has declined over the past five years as readers consume more news and
information online or over mobile devices. We have implemented strategies to reduce unprofitable
circulation and have implemented circulation price increases, which have contributed to the
declines. However, as our total subscriber base has declined we have seen a decrease in the churn
of our subscribers. In 2011, we will implement marketing and pricing strategies with the intent of
stabilizing our circulation base.
Advertising
Advertising provided approximately 68% of newspaper segment operating revenues in 2010. Our
range of products and audience reach gives us the ability to deliver the specific audiences desired
by our advertisers. While many advertisers want the broad reach delivered by our daily newspaper,
others want to target their message by demographics, geography, buying habits or customer behavior.
We develop advertising campaigns that combine products within our portfolio that best reach the
advertiser’s targeted audience with the appropriate frequency.
We sell advertising based upon audience size, demographics, price and effectiveness.
Advertising rates and revenues vary among our newspapers depending on circulation, type of
advertising, local market conditions and competition. Each of our newspapers operates in highly
competitive local media marketplaces, where advertisers and media consumers can choose from a
wide range of alternatives, including other news publications, radio, broadcast and cable
television, magazines, Internet sites, outdoor advertising, directories and direct-mail products.
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Print
Print advertising includes Run-of-Press (“ROP”) advertising, preprinted inserts, advertising
on our Internet sites, advertising in niche publications, and direct mail. ROP advertisements,
located throughout the newspaper, include local, classified and national advertising. Local ROP
refers to any advertising purchased by in-market advertisers that is not included in the paper’s
classified section. Classified ROP includes all auto, real estate and help-wanted advertising and
other ads listed together in sequence by the nature of the ads. National ROP refers to any
advertising purchased by businesses outside our local market. National advertisers typically
procure advertising from numerous newspapers using advertising agency services. Preprinted inserts
are stand-alone, multi-page fliers inserted into and distributed with the daily newspaper.
Digital
We sell advertising across all of our digital platforms. We also utilize a variety of
audience-extension programs to enhance the reach of our Web sites and to garner larger shares of
local ad dollars that are spent online.
Expenses
Our newspaper franchises are characterized as having high fixed costs with much of our expense base
dedicated to employees and production/distribution capabilities.
Employees - Employee costs accounted for approximately 50% of segment costs and expenses in
2010. Our workforce is comprised of a combination of non-union and union employees. See
“Employees.” During the past three years, we have reduced our workforce from 4,800 employees to
roughly 3,000.
Newsprint - We consumed approximately 56,000 metric tons of newsprint in 2010. Newsprint is a
basic commodity and its price is sensitive to changes in the balance of worldwide supply and
demand. Mill closures and industry consolidation have decreased overall newsprint production
capacity and increased the likelihood of future price increases. We purchase newsprint from
various suppliers, many of which are Canadian. Based on our expected newsprint consumption, we
believe that our supply sources are sufficient.
Capital expenditures - During the past several years, our newspaper businesses have consumed
—with the exception of our Naples plant project—a historically low level of capital for ongoing
operations. We will continue to make necessary investments to maintain the physical operations and
to ensure employee safety. We will focus additional capital on projects that expand our ability to
deliver news and improve sales, which will likely include software development and technological
capabilities that improve audience or revenue growth directly.
Syndication and Other Media
Syndication and other media primarily include syndication of news features and comics. Under
the trade name United Media, we distribute news columns, comics and other features for the
newspaper industry. Newspapers typically pay a weekly fee for their use of the features.
Upon the completion of the sale of United Media Licensing we continued to sell and service the
syndication of the Peanuts and Dilbert comic strips on behalf of Iconix. We received a percentage
of the revenues for those services, which was less than $1 million in 2010. Iconix has provided
notice that the sales and servicing arrangements will be terminated in 2011.
In February 2011, we outsourced syndication services to Universal Uclick for the news features
and comics of United Media. Universal Uclick will provide editorial and production services, sales
and marketing, sales support and customer service, and distribution and fulfillment for all the
news features and comics of United Media. We will continue to own certain copyrights and control
the licenses for those properties, and will manage the business relationships with the creative
talent that produces those comics and features.
Employees
As of December 31, 2010, we had approximately 4,600 full-time equivalent employees, of whom
approximately 1,400 were with television, 3,000 with newspapers, and 100 with syndication and other
media. Various labor unions represent approximately 600 employees, 500 of which are in newspapers
and 100 in television. We have not experienced any work stoppages at our current operations since
1985. We consider our relationships with our employees to be generally satisfactory.
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For an enterprise as large and complex as ours, a wide range of factors could materially
affect future developments and performance. The most significant factors affecting our operations
include the following:
We derive the majority of our revenues from marketing and advertising spending by businesses, which
is affected by numerous factors. Declines in advertising revenues will adversely affect the
profitability of our business.
The demand for advertising in our newspapers or on our television stations is sensitive to a
number of factors, both nationally and locally, including the following:
If we are unable to respond to any or all these factors our advertising revenues could
decline which would affect our profitability.
Our local media businesses operate in a changing and increasingly competitive environment. We
must continually invest in new business initiatives and to modify strategies to maintain our
competitive position. Investment in new business strategies and initiatives could disrupt our
ongoing business and present risks not originally contemplated.
The profile of our newspaper and television audience has shifted dramatically in recent
years as readers and viewers access news and other content online or through mobile devices and
as they spend more discretionary time with social media. While slow and steady declines in
audiences have been offset by a growing online viewership, online advertising rates are much
lower than print and broadcast advertising rates on a cost-per-thousand basis. This audience
shift results in lower profit margins. To remain competitive we must adjust business strategies
and invest in new business initiatives, particularly within digital media. Development of new
products and services may require significant costs. The success of these initiatives depends
on a number of factors, including timely development and market acceptance. Investments we make
in new strategies and initiatives may not perform as expected.
We
are undergoing a strategic restructuring in our newspaper business
that, if unsuccessful, could
have a material adverse financial impact.
We are undergoing a significant restructuring in our Newspaper business. This transformation
includes, among other things, the reorganization of our management structure, alignment of our
operating costs with secular declines in newspaper revenues, the standardization and
centralization of systems and processes, the outsourcing of certain financial processes and the
implementation of new software for our circulation, advertising and editorial systems. As a
result, we are in a transformational period in which we have made, and will continue to make,
changes that, if unsuccessful, could have a material adverse financial impact on our operations.
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A significant portion of our operating cost for the newspaper segment is newsprint, so an
increase in price or reduction in supplies may adversely affect our operating results.
Newsprint is a significant component of the operating cost of our newspaper operations,
comprising 9% of costs in 2010. The price of newsprint has historically been volatile, and
increases in the price of newsprint could materially reduce our operating results. In addition,
the continued reduction in the capacity of newsprint producers increases the risk that supplies
of newsprint could be limited in the future.
The loss of affiliation agreements could adversely affect our television stations’ operating
results.
We own and operate ten television stations. Six of our stations have affiliations with the
ABC television network and three have affiliations with the NBC television network. These
television networks produce and distribute programming in exchange for each of our stations’
commitment to air the programming at specified times and for commercial announcement time during
the programming.
The non-renewal or termination of either of our network affiliation agreements, which
expire in 2015, would prevent us from being able to carry programming of the relevant network.
This loss of programming would require us to obtain replacement programming, which may involve
higher costs and which may not be as attractive to our target audiences, resulting in lower
revenues.
Our television stations are subject to government regulations which, if revised, could
adversely affect our operating results.
Sustained increases in costs of employee health and welfare plans and funding requirements of
our pension obligations may reduce the cash available for our business.
Employee compensation and benefits account for approximately 50% of our total operating
expenses. In recent years, we have experienced significant increases in employee benefit costs.
At least some of these factors may continue to put upward pressure on the cost of providing medical
benefits. Although we have actively sought to control increases in these costs, there can be no
assurance that we will succeed in limiting cost increases, and continued upward pressure could
reduce the profitability of our businesses.
The projected benefit obligations of our pension plans exceed plan assets by $48 million at
December 31, 2010. Our pension plans invest in a variety of equity and debt securities, many of
which were affected by the disruption in the credit and capital markets in 2008 and 2009. Future
volatility and disruption in the stock and bond markets could cause further declines in the asset
values of our pension plans. In addition, a decrease in the discount rate used to determine
minimum funding requirements could
result in increased future contributions. If either occurs, we may need to make additional
pension contributions above what is currently estimated, which could reduce the cash available for
our businesses.
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The Edward W. Scripps Trust principally holds our Common Voting shares; such ownership could
inhibit potential changes of control.
We have two classes of stock: Common Voting shares and Class A Common shares. Holders of
Class A Common shares are entitled to elect one-third of the Board of Directors, but are not
permitted to vote on any other matters except as required by Ohio law. Holders of Common Voting
shares are entitled to elect the remainder of the Board and to vote on all other matters. Our
Common Voting shares are principally held by The Edward W. Scripps Trust, which holds 90% of the
Common Voting shares. As a result, the trust has the ability to elect two-thirds of the Board of
Directors and to direct the outcome of any matter that does not require a vote of the Class A
Common shares. Because this concentrated control could discourage others from initiating any
potential merger, takeover or other change of control transaction, the market price of our Class A
Common shares could be adversely affected.
None.
We own substantially all of the facilities and equipment used in our newspaper operations.
We own substantially all of the facilities and equipment used by our television stations.
We own, or co-own with other broadcast television stations, the towers used to transmit our
television signals.
We are involved in litigation arising in the ordinary course of business, such as
defamation actions, and governmental proceedings primarily relating to renewal of broadcast
licenses, none of which is expected to result in material loss.
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Executive Officers of the Company — Executive officers serve at the pleasure of the Board of
Directors.
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PART II
Our Class A Common shares are traded on the New York Stock Exchange (“NYSE”) under the symbol
“SSP.” As of December 31, 2010, there were approximately 8,000 owners of our Class A Common
shares, based on security position listings, and 19 owners of our Common Voting shares (which do
not have a public market). Due to current economic conditions and their effect on our operating
results, in the fourth quarter of 2008 we suspended our cash dividends.
The range of market prices of our Class A Common shares, which represents the high and low
sales prices for each full quarterly period, and quarterly cash dividends are as follows:
There were no sales of unregistered equity securities during the quarter for which this report
is filed.
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Performance Graph — Set forth below is a line graph comparing the cumulative return on the
Company’s Class A Common shares, assuming an initial investment of $100 as of January 1, 2006, and
based on the market prices at the end of each year and assuming dividend reinvestment, with the
cumulative return of the Standard & Poor’s Composite-500 Stock Index and an Index based on a peer
group of media companies. The spin-off of SNI at July 1, 2008 is treated as a reinvestment of a
special dividend pursuant to SEC rules.
The following graph compares the return on the Company’s Class A Common shares with that of the
indices noted above for the period of July 1, 2008 (date of spin-off) through December 31, 2010.
The graph assumes an investment of $100 in our Class A Common shares, the S&P 500 Index, and our
peer group index on July 1, 2008 and that all dividends were reinvested.
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We continually evaluate and revise our peer group index as necessary so that it is reflective of
our Company’s portfolio of businesses. The companies that comprise our current peer group are
Belo Corporation, Gannett Company, Gray Television, Inc., Journal Communications, Inc., Lee
Enterprises, Inc., LIN TV Corporation, McClatchy Company, Media General, Meredith Corporation, New
York Times Company, and Sinclair Broadcast GP. The peer group index is weighted based on market
capitalization.
The Selected Financial Data required by this item is filed as part of this Form 10-K. See Index to
Consolidated Financial Statement Information at page F-2 of this Form 10-K.
Management’s Discussion and Analysis of Financial Condition and Results of Operations required by
this item is filed as part of this Form 10-K. See Index to Consolidated Financial Statement
Information at page F-1 of this Form 10-K.
The market risk information required by this item is filed as part of this Form 10-K. See Index to
Consolidated Financial Statement Information at page F-1 of this Form 10-K.
The Financial Statements and Supplementary Data required by this item are filed as part of this
Form 10-K. See Index to Consolidated Financial Statement Information at page F-1 of this Form
10-K.
None.
The Controls and Procedures required by this item are filed as part of this Form 10-K. See Index
to Consolidated Financial Statement Information at page F-1 of this Form 10-K.
None.
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PART III
Information regarding executive officers is included in Part I of this Form 10-K as permitted
by General Instruction G(3).
Information required by Item 10 of Form 10-K relating to directors is incorporated by
reference to the material captioned “Election of Directors” in our definitive proxy statement for
the Annual Meeting of Shareholders (“Proxy Statement”). Information regarding Section 16(a)
compliance is incorporated by reference to the material captioned “Report on Section 16(a)
Beneficial Ownership Compliance” in the Proxy Statement.
We have adopted a code of ethics that applies to all employees, officers and directors of
Scripps. We also have a code of ethics for the CEO and Senior Financial Officers. This code of
ethics meets the requirements defined by Item 406 of Regulation S-K and the requirement of a code
of business conduct and ethics under NYSE listing standards. Copies of our codes of ethics are
posted on our Web site at www.scripps.com.
Information regarding our audit committee financial expert is incorporated by reference to the
material captioned “Corporate Governance” in the Proxy Statement.
The Proxy Statement will be filed with the Securities and Exchange Commission in connection
with our 2011 Annual Meeting of Stockholders.
The information required by Item 11 of Form 10-K is incorporated by reference to the material
captioned “Compensation Discussion and Analysis” and “Compensation Tables” in the Proxy Statement.
The information required by Item 12 of Form 10-K is incorporated by reference to the material
captioned “Report on the Security Ownership of Certain Beneficial Owners”, “Report on the Security
Ownership of Management” and “Equity Compensation Plan Information” in the Proxy Statement.
The information required by Item 13 of Form 10-K is incorporated by reference to the materials
captioned “Corporate Governance” and “Report on Related Party Transactions” in the Proxy Statement.
The information required by Item 14 of Form 10-K is incorporated by reference to the material
captioned “Report of the Audit Committee of the Board of Directors” in the Proxy Statement.
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PART IV
Financial Statements and Supplemental Schedule
The reports of Deloitte & Touche LLP, an Independent Registered Public Accounting Firm, dated
March 2, 2011, are filed as part of this Form 10-K. See Index to Consolidated Financial
Statement Information at page F-1.
Exhibits
The information required by this item appears at page E-1 of this Form 10-K.
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Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below
by the following persons on behalf of the registrant in the
capacities indicated, on March 2, 2011.
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The E. W. Scripps Company
Index to Consolidated Financial Statement Information
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Selected Financial Data
Five-Year Financial Highlights
Certain amounts may not foot since each is rounded independently.
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Notes to Selected Financial Data
As used herein and in Management’s Discussion and Analysis of Financial Condition and Results of
Operations, the terms “Scripps,” “we,” “our,” or “us” may, depending on the context, refer to The
E. W. Scripps Company, to one or more of its consolidated subsidiary companies, or to all of them
taken as a whole.
The statement of operations and cash flow data for the five years ended December 31, 2010, and the
balance sheet data as of the same dates have been derived from our audited consolidated financial
statements. All per-share amounts are presented on a diluted basis. The five-year financial data
should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and the consolidated financial statements and notes thereto included
elsewhere herein.
Operating revenues and segment profit (loss) represent the revenues and the profitability measures
used to evaluate the operating performance of our business segments in accordance with GAAP.
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Management’s Discussion and Analysis of
Financial Condition and Results of Operations The consolidated financial statements and notes to the consolidated financial statements are the
basis for our discussion and analysis of financial condition and results of operations. You should
read this discussion in conjunction with those financial statements.
Forward-Looking Statements
Certain forward-looking statements related to our businesses are included in this discussion.
Those forward-looking statements reflect our current expectations. Forward-looking statements are
subject to certain risks, trends and uncertainties that could cause actual results to differ
materially from the expectations expressed in the forward-looking statements. Such risks, trends
and uncertainties, which in most instances are beyond our control, include changes in advertising
demand and other economic conditions; consumers’ tastes; newsprint prices; program costs; labor
relations; technological developments; competitive pressures; interest rates; regulatory rulings;
and reliance on third-party vendors for various products and services. The words “believe,”
“expect,” “anticipate,” “estimate,” “intend” and similar expressions identify forward-looking
statements. You should evaluate our forward-looking statements, which are as of the date of this
filing, with the understanding of their inherent uncertainty. We undertake no obligation to update
any forward-looking statements to reflect events or circumstances after the date the statement is
made.
Executive Overview
The E. W. Scripps Company (“Scripps”) is a diverse media company with interests in television
stations and newspaper publishing. The company’s portfolio of media properties includes: 10
television stations, including six ABC-affiliated stations, three NBC affiliates and one
independent station: daily and community newspapers in 13 markets and the Washington-based Scripps
Media Center, home to the Scripps Howard News Service.
We closed the sale of United Feature Syndicate, Inc.’s (“UFS”) character licensing business
(“UML”) in the second quarter of 2010 for $175 million in cash. The operations of the character
licensing business and the $162 million pre-tax gain on the sale are classified as discontinued
operations for all periods presented. In June 2010, we used $65 million of the proceeds from the
sale of UML to make a contribution to our defined benefit pension plans.
On October 20, 2010, we amended our secured revolving credit agreement (2010 Amendment) to
provide us with the flexibility to return capital to shareholders and/or invest in acquisitions up
to a combined total of $200 million through June 2013. The amendment lowered the amount of the
facility from $150 million to $100 million and reduced commitment fees.
In October 2010, concurrent with amending the credit agreement, the board of directors
authorized the repurchase of up to $75 million of the company’s Class A Common Shares by the end of
2012. Details of the 2010 Amendment are included in the Notes to our Consolidated Financial
Statements. At December 31, 2010, we had borrowing capacity of $83 million under our credit
agreement.
As the flow of advertising dollars improved in our television markets and we began to see a
moderation in the decline in advertising revenue at our newspapers, we restored certain pay and
benefit programs and increased marketing and promotional spending. We continue to invest in our
digital operations, including expanding our digital advertising sales force.
Our programs to restructure our television and newspaper operations continue. We have
invested in technology to automate our television station newsrooms and are installing common
advertising, circulation and editorial systems in our newspapers. We are standardizing processes
within our operating divisions and are centralizing or outsourcing processes that do not require a
presence in the local market. Costs related to these efforts totaled $12.7 million in 2010. The
restructuring program and installation of common newspaper systems is expected to continue through
2012.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with accounting principles generally accepted
in the United States of America (“GAAP”) requires us to make a variety of decisions which affect
reported amounts and related disclosures, including the selection of appropriate accounting
principles and the assumptions on which to base accounting estimates. In reaching such decisions,
we apply judgment based on our understanding and analysis of the relevant circumstances, including
our historical experience, actuarial studies and other assumptions. We are committed to
incorporating accounting principles, assumptions and estimates that promote the representational
faithfulness, verifiability, neutrality and transparency of the accounting information included in
the financial statements.
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Note 1 to the Consolidated Financial Statements describes the significant accounting policies
we have selected for use in the preparation of our financial statements and related disclosures.
We believe the following to be the most critical accounting policies, estimates and assumptions
affecting our reported amounts and related disclosures.
Income Taxes — The accounting for uncertain tax positions and the application of income tax law is
inherently complex. As such, we are required to make many assumptions and judgments regarding our
income tax positions and the likelihood whether such tax positions would be sustained if
challenged. Interpretations and guidance surrounding income tax laws and regulations change over
time. As such, changes in our assumptions and judgments can materially affect amounts recognized
in the consolidated financial statements.
We have a significant deferred tax asset balance included in our consolidated balance sheet.
We are required to assess the likelihood that our deferred tax assets, which include our net
operating loss carryforwards and temporary differences that are expected to be deductible in future
years, will be recoverable from the carryback to prior years, carryforward to future years or
through other prudent and feasible tax planning strategies. If recovery is not likely, we have to
provide a valuation allowance based on our estimates of future taxable income in the various taxing
jurisdictions, and the amount of deferred taxes that are ultimately realizable. The provision for
current and deferred taxes involves evaluations and judgments of uncertainties in the
interpretation of complex tax regulations by various taxing authorities. Actual results could
differ from our estimates and if we determine the deferred tax asset we would realize would be
greater or less than the net amount recorded, an adjustment would be made to the tax provision in
that period.
Pension Plans — We sponsor various noncontributory defined benefit pension plans covering
substantially all full-time employees, including a SERP, which covers certain executive employees.
Pension expense for continuing operations for those plans was $7.3 million in 2010, $26.2 million
in 2009, and $15.5 million in 2008.
The measurement of our pension obligation and related expense is dependent on a variety of
estimates, including: discount rates; expected long-term rate of return on plan assets; expected
increase in compensation levels; and employee turnover, mortality and retirement ages. We review
these assumptions on an annual basis and make modifications to the assumptions based on current
rates and trends when appropriate. In accordance with accounting principles generally accepted in
the United States of America, we record the effects of these modifications currently or amortize
them over future periods. We consider the most critical of our pension estimates to be our
discount rate and the expected long-term rate of return on plan assets.
The discount rate used to determine our future pension obligations is based upon a dedicated
bond portfolio approach that includes securities rated Aa or better with maturities matching our
expected benefit payments from the plans. The rate is determined each year at the plan measurement
date and affects the succeeding year’s pension cost. The weighted average discount rate was 5.85%
and 5.97% at December 31, 2010 and 2009, respectively. Discount rates can change from year to year
based on economic conditions that impact corporate bond yields. A decrease in the discount rate
increases pension obligations and decreases pension expense. An increase in the discount rate
decreases pension obligations and increases pension expense. A 0.5% change in the discount rate as
of December 31, 2010, to either 5.35% or 6.35%, would increase or decrease our projected pension
obligations as of December 31, 2010, by approximately $30 million. The same 50 basis point change
in the discount rate would decrease or increase 2011 pension expense by less than $0.5 million as
the effects of the change in the rate are offset by the change in the pension obligation.
We have changed our target asset allocations to invest a greater percentage of plan assets in
securities that better match the timing of the payment of plan obligations. As a result,
approximately 70% of plan assets invested in a portfolio of fixed income securities with a duration
approximately that of the projected benefit obligations. The remaining 30% of plan assets are
invested in equity securities and other return-seeking assets. The expected long-term rate of
return on plan assets is based primarily upon the target asset allocation for plan assets and
capital markets forecasts for each asset class employed. Our expected rate of return on plan
assets also considers our historical compound rate of return on plan assets for 10 and 15 year
periods. At December 31, 2010, the expected long-term rate of return on plan assets was 5.7%, down
from 7.6% at December 31, 2009, primarily due to the change in the target asset allocation. A
decrease in the expected rate of return on plan assets increases pension expense. A 0.5% change in
the expected long-term rate of return on plan assets, to either 5.2% or 6.2%, would increase or
decrease our 2011 pension expense by approximately $2.0 million.
We had cumulative unrecognized actuarial losses for our pension plans of $130 million at
December 31, 2010. Unrealized actuarial gains and losses result from deferred recognition of
differences between our actuarial assumptions and actual results. In 2010, we had an actuarial
gain of $11 million. The cumulative unrecognized net loss is primarily due to declines in
corporate bond yields and the unfavorable performance of the equity markets between 2000 and 2002,
and in 2008. Based on our current assumptions, we anticipate that 2011 pension expense will
include $3 million in amortization of unrecognized actuarial losses.
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New Accounting Pronouncements
In June 2009, the FASB issued new accounting guidance which amended the consolidation guidance
applicable to variable interest entities and was effective for us on January 1, 2010. The adoption
of this standard did not have a material impact on our financial condition or results of
operations.
In October 2009, the FASB issued amendments to the accounting and disclosure guidance for
revenue recognition. These amendments, effective for fiscal years beginning on or after June 15,
2010 (early adoption is permitted), modify the criteria for recognizing revenue in multiple element
arrangements and the scope of what constitutes a non-software deliverable. This new standard is
effective for us January 1, 2011. We do not expect that the adoption of this new standard will
have a material impact on our results of operations or financial position.
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Results of Operations
The trends and underlying economic conditions affecting the operating performance and future
prospects differ for each of our business segments. Accordingly, you should read the following
discussion of our consolidated results of operations in conjunction with the discussion of the
operating performance of our business segments that follows.
Consolidated Results of Operations — Consolidated results of operations were as follows:
Continuing Operations
2010 compared with 2009
Operating results include a number of items that affect the comparisons of 2010 to 2009. The
most significant of these items are as follows:
The business climate improved through 2010, resulting in a moderation in the rate of decline
of our newspaper advertising revenues and higher advertising rates in all of our television
markets. Strong political advertising and a strong rebound in automotive advertising at our
television stations also bolstered 2010 revenues.
Excluding $3.1 million in costs associated with freezing the accrual of pension benefits
recorded in 2009, and the restructuring costs for 2010 and 2009, total costs and expenses declined
by $2.0 million for 2010 compared with 2009.
Employee compensation and benefit costs decreased by $11.9 million compared with 2009,
excluding costs associated with freezing our defined benefit pension plans. We reduced the number
of employees in our newspaper and television divisions by approximately 7% in 2010 compared with
2009. Late in the first quarter of 2009, we took actions to reduce employee pay and benefits,
including suspending employer matching contributions to our defined contribution plan, suspending
our annual incentive plan and temporary and permanent pay reductions. We reinstated an annual
incentive plan in 2010 and reinstated matching contributions to our defined contribution plan in
the second half of 2010.
Programs and program licenses increased in 2010 compared with 2009 primarily due to network
affiliation fees we are required to pay to ABC.
Newsprint and press supplies decreased by $6.3 million compared with 2009, primarily due to
decreased newsprint costs. Newsprint costs in 2010 declined by $4.5 million as compared with 2009
due to a 12% decrease in consumption and an 11% decrease in average newsprint prices.
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Other costs and expenses increased by $8.8 million in 2010 compared with 2009 mainly due to an
increase in newspaper distribution costs and the restoration of marketing and promotional spending
in most of our television markets. The increase in newspaper distribution costs was a result of
the new circulation model which we discuss further in the newspaper section.
Interest expense in 2010 increased compared with 2009 since we are no longer capitalizing
interest for the construction of our production facility in Naples.
The effective income tax rate for continuing operations was 2.9% and 14.0% for 2010 and 2009,
respectively. The primary difference between the effective rate of 2.9% for 2010 and the U.S.
Federal statutory rate of 35% is the impact of state taxes, the reversal of accruals of taxes and
interest for uncertain tax positions and non-deductible expenses. The primary difference in the
effective rate of 14.0% for 2009 and the U.S. Federal statutory rate was the write-down to the
carrying value of Television goodwill which included $150 million of goodwill that was not
deductible for income taxes.
2009 compared with 2008
Operating results include a number of items that affect the comparisons of 2009 to 2008. The
most significant of these items are as follows:
The U.S. economic recession affected operating revenues in 2009, leading to lower advertising
volumes and rate weakness in all of our local markets. Our local media businesses derive much of
their advertising revenues from the retail, real estate, employment and automotive categories,
sectors that have been particularly weak during this recession.
Excluding $3.1 million in costs associated with freezing the accrual of pension benefits, and
the separation and restructuring costs for 2009 and 2008, costs and expenses declined by $129.4
million compared with 2008.
Employee
compensation and benefit costs decreased by $72.6 million compared with 2008,
excluding costs associated with freezing our defined benefit pension plans. We reduced the number
of employees in our newspaper and television divisions by approximately 18% compared with 2008.
The reduction was due to both attrition and a fourth quarter 2008 reduction-in-force at our
newspaper division. We also took actions to reduce employee pay and benefits in 2009.
Program and program licenses increased by $4.2 million compared with 2008 due primarily to
higher costs for syndicated programs in certain of our markets under the terms of long-term
licensing arrangements.
Newsprint and press supplies decreased by $29.5 million compared with 2008, primarily due to
decreased newsprint costs. Newsprint costs declined by $23.5 million in 2009 as consumption
decreased by 31% and the average price per ton decreased by 12%.
Other costs and expenses decreased in 2009 compared with 2008 due to cost reduction
initiatives in response to the recession, including reductions in marketing and promotional
spending.
Lower borrowings following the distribution of SNI led to the decline in interest expense. We
ceased capitalization of interest upon completion of the construction of our Naples, Fla.,
newspaper facility in the third quarter of 2009.
The effective income tax rate was 14.0% and 32.2% for 2009 and 2008, respectively.
Non-deductible charges related to the distribution of SNI and non-deductible goodwill impairment
charges are the primary factors in the changes in the effective income tax rate and for the
difference in the expected Federal rate of 35% compared with the actual effective rates.
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Business Segment Results — As discussed in the notes to the Consolidated Financial Statements, our
chief operating decision maker evaluates the operating performance of our business segments using a
measure called segment profit. Segment profit excludes interest, income taxes, depreciation and
amortization, impairment charges, divested operating units, restructuring activities, investment
results and certain other items that are included in net income (loss) determined in accordance
with accounting principles generally accepted in the United States of America.
Items excluded from segment profit generally result from decisions made in prior periods or
from decisions made by corporate executives rather than the managers of the business segments.
Depreciation and amortization charges are the result of decisions made in prior periods regarding
the allocation of resources and are therefore excluded from the measure. Generally our corporate
executives make financing, tax structure and divestiture decisions. Excluding these items from
measurement of our business segment performance enables us to evaluate business segment operating
performance based upon current economic conditions and decisions made by the managers of those
business segments in the current period.
Information regarding the operating performance of our business segments and a reconciliation
of such information to the consolidated financial statements is as follows:
Certain items required to reconcile segment profitability to consolidated results of
operations determined in accordance with accounting principles generally accepted in the United
States of America are attributed to particular business segments. Significant reconciling items
attributable to each business segment are as follows:
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Television —Television includes six ABC-affiliated stations, three NBC-affiliated stations and
one independent station. Our television stations reach approximately 10% of the nation’s
households. Our television stations earn revenue primarily from the sale of advertising time
to local and national advertisers.
National television networks offer affiliates a variety of programs and sell the majority
of advertising within those programs. Through 2009 we received compensation from the networks
for carrying their programming. In the fourth quarter of 2010 and first quarter of 2011 we
completed the renewal of our affiliation agreements with ABC and NBC. Under the renewal with
ABC and NBC we will pay for network programming and will no longer receive any network
compensation. In addition to network programs, we broadcast locally produced programs,
syndicated programs, sporting events, and other programs of interest in each station’s market.
News is the primary focus of our locally produced programming.
The operating performance of our television group is most affected by the health of the
national and local economies, particularly conditions within the automotive, services and
retail categories, and by the volume of advertising time purchased by campaigns for elective
office and political issues. The demand for political advertising is significantly higher in
the third and fourth quarters of even-numbered years.
Operating results for television were as follows:
2010 compared with 2009
Revenues
We experienced an improvement in the flow of advertising in all of our markets, and key
television revenue categories have shown year-over-year growth. The rate of improvement in
advertising revenues increased throughout 2010, with local and national time sales up 11% in the
year, led by a 58% increase in automotive advertising. Automotive advertising revenues in 2009
were affected by the weakened financial condition of the large automotive manufacturers. Revenues
in our television division also were bolstered by strong political spending in the third and fourth
quarters of 2010.
Network compensation revenue decreased in 2010 compared with 2009 due to the expiration of our
ABC network affiliation agreement in January 2010. Under the renewal of the long-term network
affiliation agreement with ABC we no longer receive compensation revenue from ABC.
Other revenues include retransmission fees received from cable television systems and Scripps
Networks Interactive as well as online advertising revenue from our web sites. The increase in
other revenues is primarily due to the increase in retransmission revenue in 2010 compared with
2009.
Cost and expenses
Changes in pension costs affect year-over-year comparisons of employee compensation and
benefits. Pension costs decreased by $4.9 million in 2010 due to freezing the accrual of service
credits in plans covering a majority of our television employees effective July 1, 2009. Pension
costs in 2009 also include $1.1 million in curtailment charges related to the benefit accrual
freeze. Excluding pension costs, 2010 employee compensation and benefits increased by 3% compared
with 2009. The 2009 year includes the effects of temporary pay reductions, which since have been
restored, and the elimination of bonus programs, which were partially restored in 2010.
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Programs and program licenses increased in 2010 primarily due to network affiliation fees
we now pay under a new affiliation agreement with ABC.
Other costs and expenses increased primarily due to the cost associated with transitioning
to a new national representation contract, increases in promotional spending during 2010 and
additional spending to support our digital platforms. These increases were partially offset by
lower bad debt expense.
2009 compared with 2008
Revenues
The decrease in the local and national revenues in 2009 was largely attributable to reduced
spending by advertisers in the automotive, financial services and retail categories. There was
only minor political spending in 2009, compared with 2008.
Other revenues increased in 2009 compared with 2008 due equally to retransmission fees
received from cable television systems and Scripps Networks Interactive as well as online
advertising revenue from our web sites.
Cost and expenses
Changes in pension costs affect 2009 to 2008 year-over-year comparisons of employee
compensation and benefits. Pension costs increased by $0.7 million for 2009. Pension costs for
2009 include $1.1 million in curtailment charges related to the benefit accrual freeze in plans
covering a majority of our television employees. Excluding pension costs, employee compensation
and benefits decreased by 6% in 2009. During 2009, we eliminated bonuses and reduced employee pay,
including temporary pay reductions for certain exempt employees of up to 5% during the second and
third quarters.
The cost of programs and program licenses increased due primarily to higher costs for
syndicated programs in certain of our markets under the terms of long-term licensing arrangements.
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Newspapers — We operate daily and community newspapers in 13 markets in the U.S. Our
newspapers earn revenue primarily from the sale of advertising to local and national advertisers
and from the sale of newspapers to readers. Our newspapers operate in mid-size markets, focusing
on news coverage within their local markets. Advertising and circulation revenues provide
substantially all of each newspaper’s operating revenues, and employee, distribution and newsprint
costs are the primary expenses at each newspaper. The operating performance of our newspapers is
most affected by local and national economic conditions, particularly within the retail, labor,
housing and automotive markets, as well as newsprint prices.
Operating results for our newspaper business were as follows:
2010 compared with 2009
Revenues
The U.S. economic recession and secular changes in the demand for newspaper advertising
affected operating revenues in 2010 and 2009, leading to lower advertising volumes and rate
weakness in all of our local markets. As 2010 progressed, we saw a moderation in the rate of
decline in our advertising revenues. Our newspaper business derives much of its advertising
revenues from the retail, real estate, employment and automotive categories, sectors that have been
particularly weak during this recession.
Real estate, employment and automotive advertising, which have historically been our largest
sources of classified advertising, have also been impacted over the past several years by increased
competition from digital platforms. Digital advertising revenues fell as declines in “upsells”
tied to print classified advertising offset gains in “pure-play” advertising. Pure play online
advertising revenue (advertising which is not tied to print advertising) rose 14% in 2010 to $17.6
million and now makes up approximately 63% of total digital advertising revenue.
Our 2010 circulation revenues increased by approximately $5.4 million compared with 2009. In
certain markets, we have made changes to the business model under which we operate with our
newspaper distributors. We have transitioned to a model in which we pay most independent
distributors on a per-unit basis. Under this model, we recognize revenue at higher retail rates
and record the per-unit cost as a charge to distribution expense. The change in the business model
increased reported circulation revenue by $7.3 million in the 2010 and $5.4 million in 2009.
Adjusting for the change in the business model, circulation revenue decreased by 2% in 2010.
The decline in preprint and other revenues in 2010 is due to the overall economic conditions
and reductions in the number of inserts by certain large national retailers. Preprint and other
products include niche publications such as community newspapers, lifestyle magazines, publications
focused on the classified advertising categories of real estate, employment and auto, and other
publications aimed at younger readers.
Other operating revenues represent revenue earned on ancillary services offered by our
newspapers, including commercial printing and distribution services.
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Costs and expenses
Changes in pension costs affect year-over-year comparisons of employee compensation and
benefits. Pension costs decreased by $12.5 million in 2010 due to freezing the accrual of service
credits in plans covering the majority of our newspaper employees in 2009. Pension costs in 2009
include $2.4 million in curtailment charges related to the benefit accrual freeze. Excluding
pension costs, employee compensation and benefits decreased by 4% in 2010 primarily due to a 9%
reduction in the number of employees. The effects of reduced head count were offset by the partial
restoration of bonus programs in 2010.
Newsprint and press supplies decreased by $6.3 million in 2010 primarily due to a $4.5 million
decrease in newsprint cost. The decrease in newsprint costs was due to a 12% decline in
consumption and an 11% decrease in newsprint prices.
Distribution service costs increased in 2010 primarily as a result of the change in the
business model we operate with our distributors in certain markets.
Other costs and expenses decreased in 2010 due to lower bad debt expenses as well as cost
controls resulting in reductions in other expense categories.
2009 compared with 2008
Revenues
The U.S. economic recession affected operating revenues in 2009 and 2008, leading to lower
advertising volumes and rate weakness in all of our local markets. The decline in digital ad
revenue is attributable to the weakness in print classified advertising, to which most of the
online advertising is tied. Pure play online advertising revenue makes up approximately 52% and
33% of total online advertising revenue for 2009 and 2008, respectively. Pure play online
advertising revenue rose 26% in 2009 to $15.3 million due to new initiatives put in place during
2009.
Our 2009 circulation revenues increased by approximately $2.5 million. In certain markets, we
have made changes to the business model under which we operate with our newspaper distributors. We
have transitioned to a model in which we pay most independent distributors on a per-unit basis.
The change in the business model increased reported circulation revenue by $5.4 million in the
2009. Adjusting for the change in the business model, circulation revenue decreased by 3% in 2009.
The decline in preprint and other revenues in 2009 is due to the overall economic conditions.
Preprint products include niche publications such as community newspapers, lifestyle magazines,
publications focused on the classified advertising categories of real estate, employment and auto,
and other publications aimed at younger readers.
Other operating revenues represent revenue earned on ancillary services offered by our
newspapers, including commercial printing and distribution services.
Costs and expense
Changes in pension costs affect year-over-year comparisons of employee compensation and
benefits. Pension costs increased by $7.7 million in 2009. Pension costs in 2009 include $2.4
million in curtailment charges related to the benefit accrual freeze in plans covering a majority
of our newspaper employees. Excluding pension costs, employee compensation and benefits decreased
by 21% in 2009. Attrition and the reduction-in-force implemented in the fourth quarter of 2008
resulted in an approximate 21% decrease in employees in 2009, year-over-year. In addition, during
2009, we eliminated bonuses and reduced employee pay. Employee compensation and benefit costs in
2008 include a $5.0 million charge for employee severance in the fourth quarter related to
workforce reductions.
Newsprint and press supplies decreased by $29.5 million in 2009 primarily due to a $23.5
million decrease in newsprint cost. The decrease in newsprint costs was due to a 31% decline in
consumption and a 12% decrease in newsprint prices.
Capital expenditures include costs of $31 and $51 million in 2009 and in 2008, respectively
for the construction of a new production facility at our Naples, Florida newspaper.
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Discontinued Operations — Discontinued operations include United Media Licensing, SNI, and DNA (See Note 3 to the Consolidated Financial Statements). The
results of businesses held for sale or that have ceased operations are presented as discontinued
operations.
Operating results for our discontinued operations were as follows:
Liquidity and Capital Resources
Our primary source of liquidity is our cash flow from operations and available borrowings under our
credit facility.
We completed the sale of United Media Licensing in the second quarter of 2010, receiving $163
million in cash, net of expenses on the sale.
Cash flow from continuing operating activities decreased in 2010 by $28 million compared with
2009, primarily as a result of $70 million in contributions we made to our defined benefit pension
plans. In 2010, we received net tax refunds of $30 million, including $6.7 million in tax
reimbursements from SNI for periods prior to the spin-off. Refunds resulting from the carryback of
2009 net operating losses and overpayments on our 2008 federal income tax refund totaled $60
million. Estimated payments on our 2010 tax liabilities in 2010 were $39 million. In 2009, net
tax refunds totaled $31 million and we received $16 million in tax reimbursements from SNI.
Capital expenditures in 2010 were $18 million, down from $39 million in the prior year.
Capital expenditures in 2009 primarily related to the construction of our Naples, Fla., newspaper
facility. We completed the construction of this facility in the third quarter of 2009. Capital
expenditures in 2011 are expected to be approximately $18 million.
We have met our funding requirements for our defined benefit pension plans under the
provisions of the Pension Funding Equity Act of 2004 and the Pension Protection Act of 2006. In
2010, we made a $65 million voluntary contribution to our defined benefit pension plans. We expect
to contribute $1.6 million in 2011 to fund SERP benefits.
On October 20, 2010, we entered into the First Amendment to Credit Agreement (2010 Amendment)
of our Credit Agreement dated August 5, 2009. We entered into the 2010 Amendment to give us more
financial flexibility to make acquisitions and return capital to shareholders. The 2010 Amendment
reduces the maximum amount of availability under the Credit Agreement from $150 million to $100
million. The Credit Agreement maintains its original maturity date of June 30, 2013. As of
December 31, 2010, we had no outstanding borrowings under the Credit Agreement. Borrowing capacity
under the facility was $83 million. The 2010 Amendment will allow us to make acquisitions or
return capital of up to $150 million, respectively, over the remaining term of the Credit Facility,
up to a maximum aggregate of $200 million.
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In October 2010, concurrent with amending the credit agreement, the board of directors
authorized the repurchase of up to $75 million of our Class A Common Shares. The shares may be
repurchased from time to time at management’s discretion, either in the open market, through
pre-arranged trading plans or in privately negotiated block transactions. The authorization
expires December 31, 2012. We did not repurchase any shares under this program in 2010.
We expect that our cash and short-term investments and cash flow from operating activities
will be sufficient to meet our operating and capital needs over the next 12 months.
We continually evaluate our assets to determine if they remain a strategic fit and, given our
business and the financial performance outlook, make sense to continue to be part of our portfolio.
Off-Balance Sheet Arrangements and Contractual
Obligations
Off-Balance Sheet Arrangements
Off-balance sheet arrangements include the following four categories: obligations under certain
guarantees or contracts; retained or contingent interests in assets transferred to an
unconsolidated entity or similar arrangements; obligations under certain derivative arrangements;
and obligations under material variable interests.
We may use derivative financial instruments to manage exposure to newsprint prices, interest
rate and foreign exchange rate fluctuations. In October 2008, we entered into a 2-year $30 million
notional interest rate swap that expired in October 2010. Under this agreement we received
payments based on 3-month LIBOR rate and made payments based on a fixed rate of 3.2%. We held no
newsprint or foreign currency derivative financial instruments at December 31, 2010.
We have not entered into any material arrangements which would fall under any of these four
categories and which would be reasonably likely to have a current or future material effect on our
results of operations, liquidity or financial condition, other than the interest swap previously
discussed.
As of December 31, 2010 and 2009, we had outstanding letters of credit totaling $10.4 million
and $9.7 million, respectively.
Contractual Obligations
A summary of our contractual cash commitments, as of December 31, 2010, is as follows:
In the ordinary course of business we enter into long-term contracts to license or produce
programming, to secure on-air talent, to lease office space and equipment, and to purchase other
goods and services.
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Programming — Program licenses generally require payments over the terms of the licenses.
Licensed programming includes both programs that have been delivered and are available for telecast
and programs that have not yet been produced. If the programs are not produced, our commitments
would generally expire without obligation. Fixed fee amounts payable under our network affiliation
agreements are also included. Variable amounts to the networks that could become payable
throughout the life of the contracts are excluded.
We expect to enter into additional program licenses and production contracts to meet our
future programming needs.
Talent Contracts — We secure on-air talent for our television stations through multi-year talent
agreements. Certain agreements may be terminated under certain circumstances or at certain dates
prior to expiration. We expect our employment and talent contracts will be renewed or replaced
with similar agreements upon their expiration. Amounts due under the contracts, assuming the
contracts are not terminated prior to their expiration, are included in the contractual commitments
table. Also included in the table are contracts with columnists and artists whose work is
syndicated by United Media. Columnists and artists may receive fixed minimum payments plus amounts
based upon a percentage of net syndication revenues resulting from the exploitation of their work.
Contingent amounts based upon net revenues are not included in the table of contractual
commitments.
Operating Leases — We obtain certain office space under multi-year lease agreements. Leases for
office space are generally not cancelable prior to their expiration.
Leases for operating and office equipment are generally cancelable by either party on 30 to 90
day notice. However, we expect such contracts will remain in force throughout the terms of the
leases. The amounts included in the table above represent the amounts due under the agreements
assuming the agreements are not canceled prior to their expiration.
We expect our operating leases will be renewed or replaced with similar agreements upon their
expiration.
Pension Funding — We sponsor qualified defined benefit pension plans that cover substantially all
non-union and certain union-represented employees. We also have a non-qualified Supplemental
Executive Retirement Plan (“SERP”).
Contractual commitments summarized in the contractual obligations table include payments to
meet minimum funding requirements of our defined benefit pension plans and estimated benefit
payments for our unfunded SERP. Estimated payments for the SERP plan have been estimated over a
ten-year period. Accordingly, the amounts in the “over 5 years” column include estimated payments
for the periods of 2016-2020. While benefit payments under these plans are expected to continue
beyond 2020, we believe it is not practicable to estimate payments beyond this period.
Income Tax Obligations — The Contractual Obligations table does not include any reserves for income
taxes recognized because we are unable to reasonably predict the ultimate amount or timing of
settlement of our reserves for income taxes. As of December 31, 2010, our reserves for income
taxes totaled $16.2 million, which is reflected as a long-term liability in our consolidated
balance sheet.
Purchase Commitments — We obtain audience ratings, market research and certain other services
under multi-year agreements. These agreements are generally not cancelable prior to expiration of
the service agreement. We expect such agreements will be renewed or replaced with similar
agreements upon their expiration.
We may also enter into contracts with certain vendors and suppliers, including most of our
newsprint vendors. These contracts typically do not require the purchase of fixed or minimum
quantities and generally may be terminated at any time without penalty. Included in the table of
contractual commitments are purchase orders placed as of December 31, 2010. Purchase orders placed
with vendors, including those with whom we maintain contractual relationships, are generally
cancelable prior to shipment. While these vendor agreements do not require us to purchase a
minimum quantity of goods or services, and we may generally cancel orders prior to shipment, we
expect expenditures for goods and services in future periods will approximate those in prior years.
Quantitative and Qualitative Disclosures about Market Risk
Earnings and cash flow can be affected by, among other things, economic conditions, interest rate
changes and changes in the price of newsprint. We are also exposed to changes in the market value
of our investments.
Our objectives in managing interest rate risk are to limit the impact of interest rate changes
on our earnings and cash flows, and to reduce overall borrowing costs. We manage interest rate
risk primarily by maintaining a mix of fixed-rate and variable-rate debt.
We also may use forward contracts to reduce the risk of changes in the price of newsprint on
anticipated newsprint purchases. We held no newsprint derivative financial instruments at December
31, 2010.
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The following table presents additional information about market-risk-sensitive financial
instruments:
In October 2008, we entered into a 2-year $30 million notional interest rate swap, which
expired in October 2010. Under this agreement we received payments based on the 3-month LIBOR and
made payments based on a fixed rate of 3.2%. This swap was not designated as a hedge in accordance
with generally accepted accounting standards and changes in fair value were recorded in
miscellaneous-net with a corresponding adjustment to other long-term liabilities. The fair value
at December 31, 2009 was a liability of $0.8 million, which is included in other liabilities.
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Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The effectiveness of the design and operation of our disclosure controls and procedures (as defined
in Rule 13a-15(e) under the Securities Exchange Act of 1934) was evaluated as of the date of the
financial statements. This evaluation was carried out under the supervision of and with the
participation of management, including the Chief Executive Officer and the Chief Financial Officer.
Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded
that the design and operation of these disclosure controls and procedures are effective. There
were no changes to the Company’s internal controls over financial reporting (as defined in Exchange
Act Rule 13a-15(f)) during the period covered by this report that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over financial reporting.
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Management’s Report on Internal Control Over Financial Reporting
Scripps’ management is responsible for establishing and maintaining adequate internal controls
designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for
external purposes in accordance with accounting principles generally accepted in the United States
of America (“GAAP”).
The company’s internal control over financial reporting includes those policies and procedures
that:
All internal control systems, no matter how well designed, have inherent limitations, including the
possibility of human error,
collusion and the improper overriding of controls by management. Accordingly, even effective
internal control can only
provide reasonable but not absolute assurance with respect to financial statement preparation.
Further, because of changes
in conditions, the effectiveness of internal control may vary over time.
As required by Section 404 of the Sarbanes Oxley Act of 2002, management assessed the effectiveness
of The E. W. Scripps Company and subsidiaries (the “Company”) internal control over financial
reporting as of December 31, 2010. Management’s
assessment is based on the criteria established in the Internal Control — Integrated Framework
issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based upon our assessment, management
believes that the Company maintained effective internal control over financial reporting as of
December 31, 2010.
The company’s independent registered public accounting firm has issued an attestation report on our
internal control over financial reporting as of December 31, 2010. This report appears on page F-20.
Date: March 2, 2011
BY:
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders,
The E.W. Scripps Company We have audited the internal control over financial reporting of The E.W. Scripps Company and
subsidiaries (the “Company”) as of December 31, 2010, based on criteria established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. The Company’s management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the
supervision of, the company’s principal executive and principal financial officers, or persons
performing similar functions, and effected by the company’s board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including
the possibility of collusion or improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2010, based on the criteria established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements and financial statement
schedule as of and for the year ended December 31, 2010, of the Company and our report dated March
2, 2011 expressed an unqualified opinion on those financial statements and the financial statement
schedule.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders,
The E.W. Scripps Company We have audited the accompanying consolidated balance sheets of The E.W. Scripps Company and
subsidiaries (the “Company”) as of December 31, 2010 and 2009, and the related consolidated
statements of operations, cash flows and equity for each of the three years in the period ended
December 31, 2010. Our audits also included the financial statement schedule listed in the Index at
Item 15. These financial statements and financial statement schedule are the responsibility of the
Company’s management. Our responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of The E.W. Scripps Company and subsidiaries as of December 31,
2010 and 2009, and the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2010, in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements
taken as a whole, presents
fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company’s internal control over financial reporting as of
December 31, 2010, based on the criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
March 2, 2011 expressed an unqualified opinion on the Company’s internal control over financial
reporting.
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Consolidated Balance Sheets
See notes to consolidated financial statements.
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Consolidated Statements of Operations
Net income (loss) per share amounts may not foot since each is calculated independently.
See notes to consolidated financial statements.
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Consolidated Statements of Cash Flows
See notes to consolidated financial statements.
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Consolidated Statements of Equity
See notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
As used in the Notes to Consolidated Financial Statements, the terms “we,” “our,” “us” or “Scripps”
may, depending on the context, refer to The E. W. Scripps Company, to one or more of its
consolidated subsidiary companies or to all of them taken as a whole.
Nature of Operations — We are a diverse media concern with interests in television and newspaper
publishing. All of our media businesses provide content and advertising services via the Internet.
Our media businesses are organized into the following reportable business segments: Television,
Newspapers, JOAs and newspaper partnerships, and Syndication and other. Note 16 provides
additional information regarding our business segments.
Concentration Risks — We have geographically dispersed operations and a diverse customer base. We
believe bad debt losses resulting from default by a single customer, or defaults by customers in
any depressed region or business sector, would not have a material effect on our financial
position, results of operations or cash flows.
We derive approximately 77% of our operating revenues from marketing services, including
advertising. Changes in the demand for such services both nationally and in individual markets can
affect operating results.
Use of Estimates — The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires us to make a variety of
decisions that affect the reported amounts and the related disclosures. Such decisions include the
selection of accounting principles that reflect the economic substance of the underlying
transactions and the assumptions on which to base accounting estimates. In reaching such
decisions, we apply judgment based on our understanding and analysis of the relevant circumstances,
including our historical experience, actuarial studies and other assumptions.
Our financial statements include estimates and assumptions used in accounting for our defined
benefit pension plans; the periods over which long-lived assets are depreciated or amortized; the
liability for uncertain tax positions and valuation allowances against deferred income tax assets;
and self-insured risks.
While we re-evaluate our estimates and assumptions on an ongoing basis, actual results could
differ from those estimated at the time of preparation of the financial statements.
Consolidation — The consolidated financial statements include the accounts of The E. W. Scripps
Company and its majority-owned subsidiary companies. Investments in 20%-to-50%-owned companies and
in all 50%-or-less-owned partnerships are accounted for using the equity method. We do not hold
any interests in variable interest entities. All significant intercompany transactions have been
eliminated.
Income (loss) attributable to noncontrolling interests in subsidiary companies are included in
net income (loss) attributable to noncontrolling interest in the Consolidated Statements of
Operations.
Revenue Recognition — We recognize revenue when persuasive evidence of a sales arrangement exists,
delivery occurs or services are rendered, the sales price is fixed or determinable and
collectability is reasonably assured. When a sales arrangement contains multiple elements, such as
the sale of advertising and other services, we allocate revenue to each element based upon its
relative fair value. Revenue recognition may be ceased on delinquent accounts depending upon a
number of factors, including the customer’s credit history, number of days past due, and the terms
of any agreements with the customer. Revenue recognition on such accounts resumes when the
customer has taken actions to remove their accounts from delinquent status, at which time we
recognize any associated deferred revenues. We report revenue net of sales and other taxes
collected from our customers.
Our primary sources of revenue are from the sale of print, broadcast and Internet advertising and
the sale of newspapers.
Revenue recognition policies for each source of revenue are as follows.
Advertising. Print and broadcast advertising revenue is recognized, net of agency
commissions, when the advertisements are displayed. Internet advertising includes fixed duration
campaigns whereby a banner, text or other advertisement appears for a specified period of time for
a fee, impression-based campaigns where the fee is based upon the number of times the advertisement
appears in Web pages viewed by a user, and click-through based campaigns where the fee is based
upon the number of users who click on an advertisement and are directed to the advertisers’ Web
site. Advertising revenue from fixed duration campaigns are recognized over the period in which
the advertising appears. Internet advertising that is based upon the number of impressions delivered or the number of click-throughs is recognized as impressions are delivered or
click-throughs occur.
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Advertising contracts, which generally have a term of one year or less, may provide rebates,
discounts and bonus advertisements based upon the volume of advertising purchased during the terms
of the contracts. This requires us to make certain estimates regarding future advertising volumes.
We base our estimates on various factors including our historical experience and advertising sales
trends. Estimated rebates, discounts and bonus advertisements are recorded as a reduction of
revenue in the period the advertisement is displayed. We revise our estimates as necessary based
on actual volume realized.
Broadcast advertising contracts may guarantee the advertiser a minimum audience for the
programs in which their advertisements are broadcast over the contract term. We provide the
advertiser with additional advertising time if we do not deliver the guaranteed audience size. The
amount of additional advertising time is generally based upon the percentage shortfall in audience
size. If we determine we have not delivered the guaranteed audience, we record an accrual for
“make-good” advertisements as a reduction of revenue. The estimated make-good accrual is adjusted
throughout the term of the advertising contracts.
Newspaper Subscriptions. Newspaper subscription revenue is recognized based upon the
publication date of the newspaper. Revenues from prepaid newspaper subscriptions are deferred and
are included in circulation revenue on a pro-rata basis over the term of the subscription.
Circulation revenue for newspapers sold directly to subscribers is based upon the retail rate.
Circulation revenue for newspapers sold to independent newspaper distributors, which are subject to
returns, is based upon the wholesale rate. Estimated returns are recognized as a reduction in
circulation revenue at the time the newspaper is published. Returns are estimated based upon
historical return rates and are adjusted based on the actual returns.
Cash Equivalents and Short-term Investments — Cash-equivalents represent highly liquid
investments with an original maturity of less than three months. Short-term investments
represent excess cash invested in securities not meeting the criteria to be classified as cash
equivalents. Short-term investments are carried at cost plus accrued income, which approximates
fair value.
Inventories — Inventories are stated at the lower of cost or market. The cost of inventories are
determined using the first in, first out (“FIFO”) method.
Trade Receivables — We extend credit to customers based upon our assessment of the customer’s
financial condition. Collateral is generally not required from customers. Allowances for credit
losses are generally based upon trends, economic conditions, review of aging categories, specific
identification of customers at risk of default and historical experience.
Investments — We may have investments in both public and private companies. Investment securities
can be impacted by various market risks, including interest rate risk, credit risk and overall
market volatility. Due to the level of risk associated with certain investment securities, it is
reasonably possible that changes in the values of investment securities will occur in the near
term. Such changes could materially affect the amounts reported in our financial statements.
Investments in private companies are recorded at cost, net of impairment write-downs, because
no readily determinable market price is available. All other securities, except those accounted
for under the equity method, are classified as available for sale and are carried at fair value.
Fair value is determined using quoted market prices. The difference between cost basis and fair
value, net of related tax effects, is recorded in the accumulated other comprehensive income (loss)
component of equity.
We regularly review our investments to determine if there has been any other-than-temporary
decline in value. These reviews require management judgments that often include estimating the
outcome of future events and determining whether factors exist that indicate impairment has
occurred. We evaluate, among other factors, the extent to which cost exceeds fair value; the
duration of the decline in fair value below cost; and the current cash position, earnings and cash
forecasts and near term prospects of the investee. The cost basis is reduced when a decline in
fair value below cost is determined to be other than temporary, with the resulting adjustment
charged against earnings.
Property, Plant and Equipment — Property, plant and equipment, which includes internal use
software and web-site development cost, is carried at cost less depreciation. Costs incurred in
the preliminary project stage to develop or acquire internal use software or Internet sites are
expensed as incurred. Upon completion of the preliminary project stage and upon management
authorization of the project, costs to acquire or develop internal use software, which primarily
include coding, designing system interfaces, and installation and testing, are capitalized if it is probable the project will be completed and the
software will be used for its intended function. Costs incurred after implementation, such as
maintenance and training, are expensed as incurred.
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Depreciation is computed using the straight-line method over estimated useful lives as follows:
Programs and Program Licenses — Includes the cost of national television network programming,
programming produced by us or for us by independent production companies and programs licensed
under agreements with independent producers.
Our current network affiliation agreements require the payment of affiliation fees to the network.
Network affiliation fees include both pre-determined fixed fees and variable payments based on
other factors. Fixed fee payments are expensed on a straight-line basis over the term of the
affiliation agreement. Variable fees are expensed as incurred.
Costs of programs produced by us or for us include capitalizable direct costs, production
overhead, development costs and acquired production costs. Costs to produce live programming that
is not expected to be rebroadcast are expensed as incurred. Production costs for programs produced
by us or for us are capitalized. Production costs for television series are charged to expense
over estimated useful lives based upon expected future cash flows. We periodically review revenue
estimates and planned usage and revise our assumptions if necessary. If actual demand or market
conditions are less favorable than projected, a write-down to fair value may be required.
Development costs for programs that we have determined will not be produced are written off.
Program licenses generally have fixed terms, limit the number of times we can air the programs
and require payments over the terms of the licenses. Licensed program assets and liabilities are
recorded when the programs become available for broadcast. Program licenses are not discounted for
imputed interest. Program licenses are amortized based upon expected cash flows over the term of
the license agreement.
The net realizable value of programs and program licenses is reviewed for impairment using a
day-part methodology, whereby programs broadcast during a particular time period (such as prime
time) are evaluated on an aggregate basis.
The portion of the unamortized balance expected to be amortized within one year is classified
as a current asset.
Program rights liabilities payable within the next twelve months are included in accounts
payable. Noncurrent program rights liabilities are included in other noncurrent liabilities.
Goodwill and Other Indefinite-Lived Intangible Assets — Goodwill represents the cost of
acquisitions in excess of the acquired businesses’ tangible assets and identifiable intangible
assets.
FCC licenses represent the value assigned to the broadcast licenses of acquired broadcast
television stations. Broadcast television stations are subject to the jurisdiction of the Federal
Communications Commission (“FCC”) which prohibits the operation of stations except in accordance
with an FCC license. FCC licenses stipulate each station’s operating parameters as defined by
channels, effective radiated power and antenna height. FCC licenses are granted for a term of up
to eight years, and are renewable upon request. We have never had a renewal request denied, and
all previous renewals have been for the maximum term.
Other indefinite-lived intangible assets are not amortized, but are reviewed for impairment at
least annually. We perform our annual impairment review during the fourth quarter of each year in
conjunction with our annual planning cycle. We also assess, at least annually, whether assets
classified as indefinite-lived intangible assets continue to have indefinite lives.
Amortizable Intangible Assets — Television network affiliation represents the value assigned to an
acquired broadcast television station’s relationship with a national television network.
Television stations affiliated with national television networks typically have greater profit
margins than independent television stations, primarily due to audience recognition of the
television station as a network affiliate. These network affiliation relationships are amortized
on a straight-line basis over estimated useful lives of 20 to 25 years.
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Customer lists and other intangible assets are amortized in relation to their expected future
cash flows over estimated useful lives of up to 20 years.
Impairment of Long-Lived Assets — We review long-lived assets (primarily property, plant and
equipment and amortizable intangible assets) for impairment whenever events or circumstances
indicate the carrying amounts of the assets may not be recoverable. Recoverability is determined
by comparing the forecasted undiscounted cash flows of the operation to which the assets relate to
the carrying amount of the assets. If the undiscounted cash flow is less than the carrying amount
of the assets, then amortizable intangible assets are written down first, followed by other
long-lived assets, to fair value. Fair value is determined based on discounted cash flows or
appraisals. Long-lived assets to be disposed of are reported at the lower of carrying amount or
fair value less costs to sell.
Self-Insured Risks — We are self-insured, up to certain limits, for general and automobile
liability, employee health, disability and workers’ compensation claims and certain other risks.
Estimated liabilities for unpaid claims, which totaled $22.1 million and $20.5 million at December
31, 2010 and 2009, respectively, are based on our historical claims experience and are developed
from actuarial valuations. While we re-evaluate our assumptions and review our claims experience on
an ongoing basis, actual claims paid could vary significantly from estimated claims, which would
require adjustments to expense.
Income Taxes — We recognize deferred income taxes for temporary differences between the tax basis
and reported amounts of assets and liabilities that will result in taxable or deductible amounts in
future years. We establish a valuation allowance if we believe that if it is more likely than
not that some or all of the deferred tax assets will not be realized.
We record a liability for unrecognized tax benefits resulting from uncertain tax positions
taken or expected to be taken in a tax return. Interest and penalties associated with such tax
positions are included in the tax provision. The liability for additional taxes and interest is
included in Other Liabilities.
Newsprint and press supplies — Newsprint and press supplies costs include costs incurred to print
and produce our newspapers and other publications to readers. These costs are expensed as
incurred.
Risk Management Contracts — We do not hold derivative financial instruments for trading or
speculative purposes and we do not hold leveraged contracts. From time to time we may use
derivative financial instruments to limit the impact of newsprint and interest rate fluctuations on
our earnings and cash flows.
Stock-Based Compensation — We have a Long-Term Incentive Plan (the “Plan”) which is described more
fully in Note 19. The Plan provides for the award of incentive and nonqualified stock options,
stock appreciation rights, restricted stock units, restricted and unrestricted Class A Common
shares and performance units to key employees and non-employee directors.
We recognize compensation cost based on the grant-date fair value of the award. We determine
the fair value of awards that grant the employee the right to the appreciation of the underlying
shares, such as stock options, using a binomial lattice model. The fair value of awards that grant
the employee the underlying shares is measured by the fair value of a Class A Common share.
Certain awards of Class A Common shares have performance conditions under which the number of
shares granted is determined by the extent to which such performance conditions are met
(“Performance Shares”). Compensation costs for such awards are measured by the grant-date fair
value of a Class A Common share and the number of shares earned. In periods prior to completion of
the performance period, compensation costs are based upon estimates of the number of shares that
will be earned.
Compensation costs, net of estimated forfeitures due to termination of employment or failure
to meet performance targets, are recognized on a straight-line basis over the requisite service
period of the award. The requisite service period is generally the vesting period stated in the
award. Grants to retirement-eligible employees are expensed immediately and grants to employees
who will become retirement eligible prior to the end of the stated vesting period are expensed over
such shorter period because stock compensation grants vest upon the retirement of the employee.
Earnings Per Share (“EPS”) — Unvested awards of share-based payments with rights to receive
dividends or dividend equivalents, such as our restricted stock and restricted stock units (RSUs),
are considered participating securities for purposes of calculating EPS. Under the two-class
method, we allocate a portion of net income to these participating securities and therefore exclude
that income from the calculation of EPS for common stock. We do not allocate losses to the
participating securities.
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The following table presents information about basic and diluted weighted-average shares
outstanding:
For 2010, in the determination of dilutive securities, the inclusion of RSUs and restricted
stock as participating securities is more dilutive, and therefore, the dilutive EPS calculation
excludes them. For 2009 and 2008, we incurred a net loss and the inclusion of unvested restricted
stock, RSUs and stock options held by employees and directors were anti-dilutive, and accordingly
the diluted EPS calculation excludes those common share equivalents.
2. Accounting Changes and Recently Issued Accounting Standards
Accounting Changes
In December 2007, the FASB issued new accounting guidance which established accounting and
reporting standards for the noncontrolling interest in a subsidiary, the deconsolidation of a
subsidiary, and accounting for noncontrolling interests as equity in the consolidated financial
statements at fair value. We adopted this standard as of January 1, 2009. Upon adoption of this
standard, we reclassified our noncontrolling interest in subsidiary companies to a separate
component of equity and changed the presentation of our statement of operations and statement of
cash flows. We have retroactively reclassified all periods presented.
In December 2008, the FASB issued new accounting guidance on disclosures about plan assets of
our defined benefit plans. We adopted this standard on December 31, 2009.
In April 2009, the FASB issued a staff position which changes the method for determining
whether an other-than-temporary impairment exists for debt securities and the amount of the
impairment to be recorded in earnings. The guidance is effective for interim and annual periods
ending after June 15, 2009. The implementation of this guidance did not have a material impact on
our consolidated financial position and results of operations.
In June 2009, the FASB issued new accounting guidance which amended the consolidation guidance
applicable to variable interest entities and was effective for us on January 1, 2010. The adoption
of this standard did not have a material impact on our financial condition or results of
operations.
New Accounting Pronouncements
In October 2009, the FASB issued amendments to the accounting and disclosure for revenue
recognition. These amendments, effective for fiscal years beginning on or after June 15, 2010
(early adoption is permitted), modify the criteria for recognizing revenue in multiple element
arrangements and the scope of what constitutes a non-software deliverable. We do not expect this
standard to have a material impact on our financial condition or results of operations.
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3. Discontinued Operations
Sale of Licensing
On June 3, 2010, the Company and its wholly owned subsidiary, United Feature Syndicate, Inc.
(“UFS”) completed the sale of its character licensing business (“UML”) to Iconix Brand Group. The
sale also included certain intellectual property including the rights to syndicate the Peanuts and
Dilbert comic strips. The aggregate cash sale price was $175 million resulting in a pre-tax gain
of $162 million. The results of operations of UML and the gain on sale are presented as
discontinued operations in our financial statements for all periods.
In connection with the sale, Iconix assumed UFS’s real estate lease, which expires in February
2016. We were not released from our obligations as guarantor of that lease by the lessor. Total
remaining lease payments at December 31, 2010 are approximately $8.3 million. We believe that the
likelihood of incurring future costs for this guarantee to be remote, and therefore we have not
recorded a related liability.
Closure of Rocky Mountain News
After an unsuccessful search for a buyer, we closed the Rocky Mountain News after it published
its final edition on February 27, 2009.
Our Rocky Mountain News and Media News Group, Inc.’s (MNG) Denver Post were partners in The
Denver Newspaper Agency (the “Denver JOA”), a limited liability partnership, which operated the
sales, production and business operations of the Rocky Mountain News prior to its closure. Each
newspaper owned 50% of the Denver JOA and received a 50% share of the profits. Each newspaper
provided the Denver JOA with the independent editorial content published in its newspaper.
Under the terms of an agreement with MNG, we transferred our interests in the Denver JOA to
MNG in the third quarter of 2009. We recorded no gain or loss on the transfer of our interest in
the Denver JOA to MNG.
The results of the operations of the Rocky Mountain News and the earnings from our interest in
the Denver JOA are presented as discontinued operations in our financial statements for all
periods.
Due primarily to the negative effects of the economy on the advertising revenues of the Denver
JOA we determined that indications of impairment of our investment existed in 2008 and we recorded
a non-cash charge of $110 million to reduce the carrying value of our investment to zero, our share
of the estimated fair value of their net assets.
Spin-Off of Scripps Networks Interactive
On October 16, 2007, the Company announced that its Board of Directors had authorized
management to pursue a plan to separate E. W. Scripps (“Scripps” or “EWS”) into two independent,
publicly-traded companies (the “Separation”) through the spin-off of Scripps Networks Interactive,
Inc. (“SNI”) to Scripps shareholders. To effect the Separation, SNI was formed on October 23,
2007, as a wholly owned subsidiary of Scripps and the assets and liabilities of the Scripps
Networks and Interactive Media businesses of Scripps were transferred to SNI.
The distribution of all of the shares of SNI was made on July 1, 2008 to the shareholders of
record as of the close of business on June 16, 2008 (the “Record Date”). The shareholders of
record received one SNI Class A Common Share for every Scripps Class A Common Share held as the
Record Date and one SNI Common Voting Share for every Scripps Common Voting Share held as of the
Record Date.
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The following table presents summary information of the net assets distributed on July 1,
2008.
During 2010 and 2009, the Company made adjustments of $7.9 million and $0.6 million,
respectively, to the net assets distributed. The adjustment primarily related to the allocation
and settlement of tax accounts and employee benefit plans.
The spin-off of SNI is presented as discontinued operations in our financial statements for
all periods presented.
In connection with the Separation, the following agreements between Scripps and SNI became
effective:
Separation and Distribution Agreement
The Separation and Distribution Agreement contains the key provisions relating to the
separation of SNI from EWS and the distribution of SNI common shares to EWS shareholders. The
agreement also identifies the assets to be transferred to and the liabilities and contracts to be
assumed by SNI or retained by EWS in the distribution and when and
how the transfers will occur.
Transition Services Agreement
The Transition Services Agreement provides for EWS and SNI to provide services to each other
on a compensated basis for a period of up to two years. Compensation will be on an arms-length
basis. EWS will provide services or support to SNI, including information technology, human
resources, accounting and finance, and facilities. SNI will provide information technology support
and services. We were paid $2.9 million and $2.8 million from SNI and we paid SNI $0.5 million and
$1.6 million under these agreements in 2009 and 2008, respectively.
Employee Matters Agreement
The Employee Matters Agreement provides for the allocation of the liabilities and
responsibilities relating to employee compensation and benefit plans and programs, including the
treatment of outstanding incentive awards, deferred compensation obligations and retirement and
welfare benefit obligations between EWS and SNI.
Tax Allocation Agreement
The Tax Allocation Agreement sets forth the allocations and responsibilities of EWS and SNI
with respect to liabilities for federal, state, local and foreign income taxes for periods before
and after the spin-off, tax deductions related to compensation arrangements, preparation of income
tax returns, disputes with taxing authorities and indemnification of income taxes that would become
due if the spin-off were taxable. Generally EWS and SNI will be responsible for income taxes for
periods before the spin-off for their respective businesses.
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SNI reimbursed us $6.7 million in 2010 and $16 million in 2009 for its share of estimated
taxes prior to the spin-off under the Tax Allocation Agreement.
SNI paid $3.7 million in 2010 to settle audits of certain combined state and local tax
returns for periods prior to the spin-off. We reimbursed SNI $0.8 million for our share of the
audit settlements.
During 2010, we filed a carryback claim for $9.3 million of capital losses incurred by SNI
subsequent to the spin-off. Under the terms of the Tax Allocation Agreement, these capital
losses were carried back to our consolidated federal income tax returns for periods prior to the
spin-off. We paid SNI for the loss carryback when the refund claim
was received from the Internal Revenue Service (“IRS”).
At December 31, 2010 and 2009, we owed SNI $7.5 million and $3.6 million, respectively, for
its share of tax refund claims for prior years. The amounts will be paid to SNI when the tax
refunds to which they relate are received from the tax authorities.
The results of businesses held for sale, that were spun off, or that have ceased operations
are presented as discontinued operations within our results of operations. The results of
operations of these businesses are excluded from segment results for all periods presented.
Operating results of our discontinued operations were as follows:
The Company incurred certain non-recurring costs directly related to the spin-off of SNI
of $48.2 million in 2008. Investment banking fees, legal, accounting and other professional and
consulting fees of $14.7 million were allocated to discontinued operations in the Consolidated
Statements of Operations. All remaining amounts ($33.5 million) are recorded in continuing
operations.
4. Asset Write-Downs and Other Charges and Credits
Income (loss) from continuing operations was affected by the following:
2010 —Restructuring costs at our television and newspaper operations totaled $12.7 million.
2009 —Separation costs and costs to restructure our operations were $9.9 million.
In the first quarter we recorded a $215 million, non-cash charge to reduce the carrying value of
our goodwill for our Television division.
We also recorded a $1 million non-cash charge to reduce the carrying value of the FCC license for
our Lawrence, Kansas, television station.
2008 — Separation and restructuring costs, including costs to reduce our newspaper workforce by
350 employees, increased the loss from continuing operations by $38.5 million for the year.
During the year we recorded a $779 million, non-cash charge to reduce the carrying value of
goodwill, an $11.4 million charge to reduce the carrying value of our FCC license and a $19.6
million charge to write-down the carrying value of long-lived assets, primarily a television
network affiliation agreement. We also recorded a non-cash charge of $20.9 million to reduce the
carrying value of our investment in the Prairie Mountain Publishing newspaper partnership to our
share of the estimated fair value of their net assets. The impairment charges increased loss from
continuing operations by $830.9 million in the year.
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We redeemed the remaining balances of our outstanding notes and recorded a $26.4 million loss
on the extinguishment of debt.
Investment results, reported in the caption “Miscellaneous, net” in our Consolidated Statements of
Operations, include realized gains from the sale of certain investments of $7.6 million.
5. Income Taxes
We file a consolidated federal income tax return, consolidated unitary returns in certain states,
and other separate state income tax returns for certain of our subsidiary companies.
The provision for income taxes consisted of the following:
The difference between the statutory rate for federal income tax and the effective income tax
rate was as follows:
We believe adequate provision has been made for all open tax years.
The approximate effect of the temporary differences giving rise to deferred income tax
(liabilities) assets were as follows:
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Total state operating loss carryforwards were $170 million at December 31, 2010. Our state tax
loss carryforwards expire between 2011 and 2028. Because separate state income tax returns are
filed for certain of our subsidiary companies, we are not able to use state tax losses of a
subsidiary company to offset state taxable income of another subsidiary company.
Deferred tax assets totaled $39.8 million at December 31, 2010. Almost all of our deferred tax
assets reverse in 2011. We can use any tax losses resulting from the deferred tax assets reversing
in 2011 to claim refunds of taxes paid in prior periods. Management believes that it is more
likely than not that we will realize the benefits of our Federal deferred tax assets and therefore
has not recorded a valuation allowance for our deferred tax assets. If economic conditions worsen,
future estimates of taxable income could be lower than our current estimates, which may require
valuation allowances to be recorded in future reporting periods.
State carryforwards are recognized as deferred tax assets, subject to valuation allowances.
At each balance sheet date, we estimate the amount of carryforwards that are not expected to be
used prior to expiration of the carryforward period. The tax effect of the carryforwards that are
not expected to be used prior to their expiration is included in the valuation allowance.
A reconciliation of the beginning and ending balances of the total amounts of gross
unrecognized tax benefits is as follows:
The total amount of net unrecognized tax benefits that, if recognized, would affect the
effective tax rate was $14.5 million at December 31, 2010. We accrue interest and penalties related
to unrecognized tax benefits in our provision for income taxes. At December 31, 2010 and 2009, we
had accrued interest related to unrecognized tax benefits of $2.6 million and $8.5 million,
respectively.
We file income tax returns in the U.S. and in various state, local and foreign jurisdictions.
We are routinely examined by tax authorities in these jurisdictions. During 2010, we settled the
examinations of several state and local tax returns for periods through 2008. Our tax provision
was reduced by $14.0 million due to the realization of previously unrecognized tax benefits for
settlement of issues for state and local jurisdictions.
In 2009, we reached an agreement with the Internal Revenue Service (“IRS”) to settle the
examination of our 2005 and 2006 federal income tax returns. Our tax benefit in 2009 was increased
by $0.9 million due to the realization of previously unrecognized tax benefits.
The Internal Revenue Service (“IRS”) is currently examining our 2007 to 2009 consolidated
federal income tax returns. Due to the potential for resolution of Federal and state examinations,
and the expiration of various statutes of limitation, it is reasonably possible that our gross
unrecognized tax benefits balance may change within the next twelve months by as much as $5.0
million.
6. Joint Operating Agreements and Partnerships
In connection with the closure of the Rocky Mountain News, we also transferred our 50%
interest in Prairie Mountain Publishing (“PMP”) a newspaper partnership with a subsidiary of MNG that operated certain of both
companies’ other newspapers in Colorado, to MNG. Under the terms of the agreement we received a $5
million secured promissory note from MNG, which we have recorded at $4.4 million, the carrying
value of the assets we gave up. We recorded no gain or loss on the transfer of our interest. In
2008, we recorded a non-cash charge of $20.9 million to reduce the carrying value in PMP to its
estimated fair value.
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7. Investments
Investments consisted of the following:
Our investments do not trade in public markets, so they do not have readily determinable
fair values. We estimate the fair values of the investments to approximate their carrying values at
December 31, 2010 and 2009. There can be no assurance we would realize the carrying values of
these securities upon their sale.
8. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
In 2009 and 2008, $0.5 million and $1.9 million, respectively, of interest was capitalized for
a long-term construction project.
9. Goodwill and Other Intangible Assets
Goodwill and other intangible assets consisted of the following:
Other indefinite-lived assets are tested for impairment annually and if an event or
conditions change that would more likely than not reduce the fair value of a reporting unit below
its carrying value. Such indicators of impairment include, but are not limited to, changes in
business climate and operating or cash flow losses related to such assets.
Due primarily to increases in the cost of capital for local media businesses and declines in
our stock price and that of other publicly traded television companies during the first quarter of
2009, we determined that indications of impairment existed for our Television goodwill as of March 31, 2009. We concluded the fair value of our television
reporting unit did not exceed the carrying value of our television net assets as of March 31, 2009,
and we recorded a $215 million, non-cash charge in the first quarter of 2009, to reduce the
carrying value of goodwill to zero. We also recorded a $1 million non-cash charge to reduce the
carrying value of the FCC license for our Lawrence, Kansas, television station to its estimated
fair value in the first quarter of 2009.
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In 2008, due primarily to the continuing negative effects of the economy on our advertising
revenues and those of other publishing companies, and the difference between our stock price
following the spin-off of SNI to shareholders and the per share carrying value of our remaining net
assets, we determined that indications of impairment existed as of June 30, 2008. We concluded the
fair value of our newspaper reporting unit did not exceed the carrying value of our newspaper net
assets as of June 30, 2008. We recorded a $779 million, non-cash charge in the quarter ended June
30, 2008 to reduce the carrying value to zero.
In connection with our 2008 annual impairment test for indefinite lived assets we determined
that the carrying value of the FCC license for our Lawrence, Kansas, television station exceeded
its fair value. We recorded an $11.4 million non-cash charge to write-down the FCC license to fair
value.
We also determined that we had indicators of impairment in the fourth quarter of 2008 for the
long-lived assets of our Baltimore television station and recorded an $18 million charge to
write-down the carrying value of the network affiliation agreement to fair value.
Management must make significant judgments to determine fair values, including the valuation
methodology and the underlying financial information used in the valuation. These judgments
include, but are not limited to, long-term projections of future financial performance and the
selection of appropriate discount rates used to determine the present value of future cash flows.
Changes in such estimates or the application of alternative assumptions could produce significantly
different results.
Estimated amortization expense of intangible assets for each of the next five years is $1.2
million in 2011, $1.0 million in 2012, $0.9 million in 2013, $0.7 million in 2014, $0.7 million in
2015, and $5.4 million in later years.
10. Long-Term Debt
Long-term debt consisted of the following:
On October 20, 2010, we amended our Amended and Restated Revolving Credit Agreement
(Agreement), which expires June 30, 2013. Under the amended agreement, the maximum amount of
availability under the facility is $100 million. Borrowings under the Agreement are limited to a
borrowing base, as follows:
At December 31, 2010, we had borrowing capacity of $83 million under our credit agreement.
Under the terms of the Agreement we granted the lenders mortgages on certain of our real
property, pledges of our equity interests in our subsidiaries and security interests in
substantially all other personal property, including cash, accounts receivables, inventories and
equipment. If at any time, the amount of excess availability (defined as the amount by which the
borrowing base exceeds the aggregate borrowings and letters of credit under the Agreement) is equal
to or less than $30 million, we must then maintain a fixed charge coverage ratio (as defined
therein) of at least 1.1 to 1.0.
The 2010 Amendment allows us to make acquisitions or return capital of up to $150 million,
respectively, over the remaining term of the Credit Facility, up to a maximum aggregate of $200
million.
Borrowings under the Agreement bear interest at variable interest rates based on either LIBOR
or a base rate, in either case plus an applicable margin that varies depending upon average excess
availability. The margin for LIBOR based loans ranges from 2.75% to 3.25% per annum. The margin for base rate loans ranges from 1.75% to 2.25% per
annum. The weighted-average interest rate on borrowings under the Revolver was 3.0% at December 31,
2010 and 2009, respectively.
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Commitment fees of 0.50% per annum of the total unused commitment are payable under the credit
facility.
As of December 31, 2010 and 2009, we had outstanding letters of credit totaling $10.4 million
and $9.7 million, respectively.
In June 2008, we redeemed the remaining balance of our 4.25% notes, our 4.3% notes, and our
5.75% notes prior to maturity resulting in a loss on extinguishment of $26 million.
In October 2008, we entered into a 2-year $30 million notional interest rate swap which
expired in October 2010. Under this agreement we received payments based on the 3-month LIBOR and
made payments based on a fixed rate of 3.2%. This swap was not designated as a hedge in accordance
with generally accepted accounting principles and changes in fair value were recorded in
miscellaneous-net with a corresponding adjustment to other long-term liabilities. The fair value
at December 31, 2009 was $0.8 million liability. For the year ended December 31, 2010, $0.8
million gain was recorded in other income (expense). For the year ended December 31, 2009, no gain
or loss was recorded while $0.8 million loss was recorded for the year ended December 31, 2008.
11. Other Liabilities
Other liabilities consisted of the following:
12. Fair Value Measurement
Fair value is determined as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date.
The fair value hierarchy, which prioritizes the inputs used in measuring fair value, falls into
three broad levels as follows:
The following table sets forth our assets and liabilities that are measured at fair value on a
recurring basis at December 31, 2009:
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13. Noncontrolling Interests
Individuals and other entities own a 4% noncontrolling interest in the capital stock of the
subsidiary company that publishes our Memphis newspaper and a 6% noncontrolling interest in the
capital stock of the subsidiary company that publishes our Evansville newspaper. We are not
required to redeem the noncontrolling interests in these subsidiary companies.
Noncontrolling interest from discontinued operations included a 10% interest in Fine Living
and a 30% interest in the Food Network.
A summary of the components of net income (loss) attributable to The E.W. Scripps Company
shareholders is as follows:
14. Supplemental Cash Flow Information
The following table presents additional information about the change in certain working capital
accounts:
Information regarding supplemental cash flow disclosures is as follows:
In 2010 we entered into a $2.2 million capital lease obligation for the purchase of
computer software.
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15. Employee Benefit Plans
We sponsor defined benefit pension plans that cover substantially all non-union and certain
union-represented employees. Benefits earned by employees are generally based upon employee
compensation and years of service credits.
We also have a non-qualified Supplemental Executive Retirement Plan (“SERP”). The SERP, which
is unfunded, provides defined pension benefits in addition to the defined benefit pension plan to
eligible participants based on average earnings, years of service and age at retirement.
Effective June 30, 2009, we froze the accrual of service credits under certain of our defined
benefit pension plans that cover a majority of our employees, including our SERP. The freeze
resulted in the recognition of a curtailment loss of $4.2 million in the first quarter of 2009 and
a gain of $1.1 million in the second quarter of 2009. We also recognized a curtailment loss of
$0.9 million in 2009 related to the closure of our Denver newspaper.
We sponsor a defined contribution plan covering substantially all non-union and certain union
employees. We historically matched a portion of employees’ voluntary contributions to this plan.
We suspended our matching contributions in the second quarter of 2009. Our matching contributions
were reinstated in July 2010.
Other union-represented employees are covered by defined benefit pension plans jointly
sponsored by us and the union, or by union-sponsored multi-employer plans.
We use a December 31 measurement date for our retirement plans. Retirement plans expense is
based on valuations as of the beginning of each fiscal year. The components of the expense
consisted of the following:
Pursuant to the Employees Matters Agreement, employees of SNI continued to participate in our
pension plans for the period July 1, 2008 (spin-off) until December 31, 2008. Pension expense for
SNI for the first half of 2008 is included in discontinued operations.
Other changes in plan assets and benefit obligations recognized in other comprehensive income
(loss) were as follows:
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In addition to the amounts summarized above, amortization of actuarial losses of $1.4
million and $0.5 million were recorded through other comprehensive income in 2010 and 2009 and $1.2
million of estimated prior service credits were recorded through other comprehensive income in
2009, related to our SERP plan. A current year actuarial loss of $0.6 million and a current year
actuarial gain of $3.2 million was recognized in 2010 and 2009, respectively, related to our SERP
plan. In 2010, a settlement loss of $0.6 million was recorded through other comprehensive income
related to our SERP plan.
Assumptions used in determining the annual retirement plans expense were as follows:
The discount rate used to determine our future pension obligations is based on a dedicated
bond portfolio approach that includes securities rated Aa or better with maturities matching our
expected benefit payments from the plans. The increase in compensation levels assumption is based
on actual past experience and the near-term outlook.
The expected long-term rate of return on plan assets is based upon the weighted-average
expected rate of return and capital market forecasts for each asset class employed. Our expected
rate of return on plan assets also considers our historical compounded return on plan assets for 10
and 15 year periods.
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Obligations and Funded Status — Defined benefit plans pension obligations and funded status is
actuarially valued as of the end of each year. The following table presents information about our
employee benefit plan assets and obligations:
In 2011, for our defined benefit pension plans, we expect to recognize amortization of
actuarial loss from accumulated other comprehensive loss into net periodic benefit costs of $2.9
million (including $0.2 million for the SERP).
Information for pension plans with an accumulated benefit obligation in excess of plan assets was
as follows:
Information for pension plans with a projected benefit obligation in excess of plan assets was
as follows:
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Assumptions used to determine the defined benefit plans benefit obligations were as follows:
We expect to contribute $1.6 million in 2011 to fund SERP benefits. We have met the minimum
funding requirements for our qualified defined benefit pension plans and do not expect to make
contributions in 2011.
Estimated future benefit payments expected to be paid for the next ten years are $20.4 million
in 2011, $20.8 million in 2012, $21.7 million in 2013, $22.8 million in 2014, $24.1 million in 2015
and a total of $139 million for the five years ending 2020.
Plan Assets and Investment Strategy
Our long-term investment strategy for pension assets is to earn a rate of return over time that
minimizes future contributions to the plan while reducing the volatility of pension assets relative
to pension liabilities. The strategy reflects the fact that we have frozen the accrual of service
credits for certain of our defined benefit plans covering the majority of employees. Asset
allocation target ranges for equity, fixed income and other investments are evaluated annually.
Actual asset allocations are monitored monthly and adjusted as necessary. Risk is controlled
through diversification among multiple asset classes, managers and styles. Risk is further
monitored both at the manager and asset class level by evaluating performance against appropriate
benchmarks.
Information related to our pension plan asset allocations by asset category were as follows:
U.S. equity securities include common stocks of large, medium, and small capitalization
companies, which are predominantly U.S. based. Non-U.S. equity securities include companies
domiciled outside the U.S. and American depository receipts. Fixed-income securities include
securities issued or guaranteed by the U.S. government, mortgage backed securities and corporate
debt obligations. Other investments include hedge funds and real estate funds.
The company transitioned the defined benefit plan assets from a more traditional 65/35%
equity/fixed income allocation to a “liability-driven investing” (LDI) approach in 2010. The
rationale for this change is to better align the returns and duration of plan assets with the
duration and behavior of plan liabilities. This approach will ultimately reduce volatility in the
funded status of the plan. Volatility in the funded status is caused by differences in the discount
rate used to value plan liabilities and returns on plan assets. We intend to institute this change
gradually based upon the funding level of plan assets relative to ERISA’s Funding Target (“Funding
Target Attainment Percentage”). At the end of the process, approximately 75% of plan assets will
be invested in long duration fixed income products and 25% in return-seeking assets.
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The following table presents our plan assets using the fair value hierarchy as of December 31, 2010
and 2009:
Equity securities-common/collective trust funds and fixed income-common/collective trust funds
are comprised of shares or units in commingled funds that are not publically traded. The
underlying assets in these funds (equity securities and fixed income securities) are publically
traded on exchanges and price quotes for the assets held by these funds are readily available.
Real estate pertains to an investment in a real estate fund which invests in limited partnerships,
limited liability corporations, real estate investment trusts, other funds and insurance company
group annuity contracts. The valuations for these holdings are based on property appraisals using
cash flow analysis and market transactions.
The following table presents a reconciliation of Level 3 assets held during 2010 and 2009:
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16. Segment Information
We determine our business segments based upon our management and internal reporting structure. Our
reportable segments are strategic businesses that offer different products and services.
Television includes six ABC-affiliated stations, three NBC-affiliated stations and one
independent station. Our television stations reach approximately 10% of the nation’s television
households. Television stations earn revenue primarily from the sale of advertising time to local
and national advertisers.
Our newspaper business segment includes daily and community newspapers in 13 markets in the
U.S. Newspapers earn revenue primarily from the sale of advertising space to local and national
advertisers and from the sale of newspapers to readers.
Prior to ceasing publication, our Albuquerque newspaper operated pursuant to the terms of a
joint operating agreement. The newspaper maintained an independent editorial operation and received
a share of the operating profits of the combined newspaper operations. We continue to maintain our
ownership interest in the Albuquerque partnership; however, we do not include the equity earnings
of the partnership in segment profit after publication of the newspaper ceased in 2008.
Syndication and other media primarily include syndication of news features and comics and
other features for the newspaper industry.
We allocate a portion of certain corporate costs and expenses, including information
technology, pensions and other employee benefits, and other shared services, to our business
segments. The allocations are generally amounts agreed upon by management, which may differ from an
arms-length amount. Corporate assets are primarily cash, cash equivalents and other short-term
investments, property and equipment primarily used for corporate purposes, and deferred income
taxes.
Our chief operating decision maker evaluates the operating performance of our business
segments and makes decisions about the allocation of resources to our business segments using a
measure called segment profit. Segment profit excludes interest, income taxes, depreciation and
amortization, divested operating units, restructuring activities, investment results and certain
other items that are included in net income (loss) determined in accordance with accounting
principles generally accepted in the United States of America.
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Information regarding our business segments is as follows:
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