E.W. Scripps Company — 2014 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2014. The filing also reports unaudited fourth-quarter results. Unless stated otherwise, amounts are in U.S. dollars.
Business context
Scripps operated television stations, newspapers in 13 markets, and digital and syndication businesses. At year-end it owned 21 local television stations and had acquired two Granite stations during 2014. It also acquired digital video provider Newsy for $35 million and weather-app business WeatherSphere for $4 million.
A major strategic transaction with Journal Communications was pending at filing: Scripps planned to acquire Journal’s broadcast business and spin off the combined newspaper operations. Shareholders approved the transaction on March 11, 2015; closing was scheduled for April 1, 2015.
Key financial metrics
| Metric | 2014 | 2013 |
|---|---|---|
| Operating revenue | $869.1 million | $816.9 million |
| Operating income | $29.1 million | $13.6 million |
| Operating margin | 3.4% | 1.7% |
| Income (loss) attributable to Scripps shareholders | $10.5 million | $(0.5) million |
| Diluted earnings (loss) per share | $0.18 | $(0.01) |
| Cash from operating activities | $102.1 million | $33.5 million |
| Capital expenditures | $19.0 million | $20.5 million |
| Cash and cash equivalents at year-end | $158.5 million | $221.3 million |
| Long-term debt, including current portion | $198.0 million | $200.0 million |
Annual television revenue rose 15.0% to $486.3 million and segment profit rose 35.2% to $134.9 million. Newspaper revenue fell 3.7% to $370.3 million and segment profit fell 25.7% to $20.8 million. Segment profit is a company-defined measure and is not equivalent to operating income or net income.
Fourth-quarter revenue was $245.7 million, versus $220.8 million in 2013. Net income attributable to Scripps shareholders was $15.7 million, compared with $7.9 million a year earlier; diluted EPS was $0.27 versus $0.13. Fourth-quarter 2014 miscellaneous expense included $7.3 million, primarily from a non-cash investment write-down.
Year-end current assets were $328.7 million and current liabilities were $134.5 million. The $75 million revolving credit facility was undrawn; the company reported compliance with financial covenants. Its term loan carried a 3.25% interest rate at year-end and matures in 2020. Operating cash flow increased substantially year over year, partly reflecting working-capital timing and higher segment profit; acquisitions drove $149.3 million of investing cash outflow.
Material changes versus prior periods
- Revenue increased 6.4% year over year, including the acquired Granite stations. On a same-station basis, television revenue increased 12%.
- Television benefited from nearly $53 million more political advertising on a same-station basis and approximately 30% higher retransmission revenue. Political advertising is cyclical and the 2013 comparison was an off-election year.
- Newspaper advertising and marketing-services revenue declined 7.1%; subscription revenue rose 3.2%, supported by bundled print-and-digital offerings and pricing. Daily circulation fell to 502,000 from 541,000.
- Annual operating income improved, but reported results included $14.0 million of acquisition and transaction-related costs. Net income also reflected tax items and a non-cash investment charge.
- Cash declined by $62.8 million during 2014, principally in the context of acquisitions and other cash flows. Pension-related accumulated other comprehensive loss increased; the pension obligation was sensitive to discount rates and updated longevity assumptions.
Outlook, risks and contingencies
- Management expected a substantial increase in 2015 retransmission revenue following contract renewals. It estimated a further increase of about $6 million per quarter if proposed cable-system transactions were completed as described; this was conditional, not assured.
- For the Journal transaction, Scripps anticipated a $60 million special cash dividend, $25–$30 million in transaction costs, and a $200 million increase to its term loan B. It expected a $398 million term loan B after closing and expected to assume Journal liabilities, including employee-benefit obligations reported at $95 million at December 31, 2014. These were transaction estimates, not completed results at year-end.
- Management said available cash, short-term investments and operating cash flow were expected to cover operating and capital needs for the next 12 months. It expected to contribute $1.0 million to pension plans in 2015, primarily for SERP benefits.
- Principal risks include dependence on advertising and political cycles; secular newspaper circulation and print-ad declines; lower digital advertising rates; retransmission and network-affiliation renewals; audience fragmentation and automated ad buying; newsprint prices; pension funding and benefit costs; and FCC licensing, spectrum-auction and other regulatory changes.
- A federal putative class action filed in January 2015 challenged the Journal transaction and sought damages and injunctive relief. The company said it believed the claims lacked merit; an adverse injunction could delay or prevent the transaction. The filing also disclosed ordinary-course litigation and proceedings not expected to result in material loss.
- The company recorded a $4.1 million present-value liability related to withdrawal from the GCIU multi-employer pension fund; final payment terms were not yet agreed. It also disclosed potential sensitivity of pension obligations to assumptions and market conditions.
Important facts for investors to verify
- Whether the Journal transaction closed on schedule, and the final consideration, costs, debt, assumed liabilities and spin-off terms.
- Actual 2015 retransmission revenue growth and the outcome and timing of cable-system mergers, divestitures and contract renewals.
- Whether television political-advertising gains and internal programming initiatives can offset softer local and national advertising.
- Progress in newspaper subscription revenue and cost alignment against continuing circulation and print-ad declines.
- Post-transaction leverage, liquidity, covenant headroom, interest-rate exposure and pension funding requirements.
- Resolution of the Journal-related litigation and any material developments in FCC licensing, spectrum repacking or other regulatory matters.