Goodwill Burdens Scripps Balance Sheet

Just ask Dilbert: Intangible assets lose value in a stalled economy, and his media-giant syndicator takes a hit.
Marie LeoneAugust 13, 2008

No doubt Dilbert would have something to say about non-cash accounting charges. Nevertheless, the comic strip’s syndicator, E.W. Scripps, is taking a $874 million goodwill accounting charge for a loss in value of its intangible assets.

In its second quarter earnings announcement released on Monday, Scripps said that based on preliminary valuations it had taken two non-cash charges to reduce the carrying value of two asset groups: its newspaper reporting unit and its investment in the Denver Newspaper Agency and Prairie Mountain Publishing partnerships.

Specifically, the 130-year-old company took a $779 million impairment charge for the newspaper group, and a $95 million charge for the equity position it holds in the partnerships. The two-step goodwill impairment test that is required under FAS 142, has not yet been completed, so the company noted that the charges, as reported for the quarter ended June 30, remain an estimate.

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Scripps blames the dip in asset value on industry-wide sluggish advertising revenues, a drop in the company’s stock price after the spin-off of Scripps Networks Interactive on July 1, and a decrease in the per-share carrying value of the company’s remaining net assets. As of Dec. 31, Scripps total assets were $4 billion, with intangible assets reported at $2.1 billion.

The accounting rule calls for companies to perform annual valuation tests on goodwill assets, as well as other indefinite-lived assets, to see if internal events or general market conditions change the fair value of an asset. If the fair value of such assets is less than the carrying value, an impairment charge must be calculated and reported.

During the second quarter, advertising revenue at Scripps’ newspaper unit fell 13 percent, to $144 million, while ad revenue at the television station group was $89.5 million compared to $84.5 million over the same period last year. However, on a consolidated basis, Scripps second-quarter revenue increased 3.8 percent to $664 compared with a year ago.

The uptick in revenue reflected strong performances from HGTV, the Food Network, and Shopzilla, all part of the Scripps Networks group. Group revenue grew 13 percent to $349 million. However, this is the last time Scripps will consolidate the Networks group into its financial statements. The spun-off unit will report separately beginning in the third quarter. Scripps will report the group as a discontinued operation starting in the third quarter, as well.