E.W. Scripps Company — 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. This is an annual filing, not a standalone fourth-quarter report. Scripps operated television stations, newspapers and digital media businesses, with 19 local television stations and newspapers in 13 markets.
Financial performance
| Metric | 2013 | 2012 |
|---|---|---|
| Operating revenue | $816.9 million | $903.5 million |
| Operating income | $13.6 million | $73.9 million |
| Net income (loss) attributable to Scripps shareholders | $(0.5) million | $40.2 million |
| Diluted earnings (loss) per share | $(0.01) | $0.69 |
| Cash from operating activities | $33.5 million | $172.6 million |
| Capital expenditures | $20.5 million | $30.2 million |
| Cash and cash equivalents at year-end | $221.3 million | $242.6 million |
| Long-term debt, including current portion | $200.0 million | $196.1 million |
Operating margin was approximately 1.7%, down from 8.2% in 2012. The company reported a $7.8 million income tax benefit in 2013; the effective tax rate was unusually volatile because pretax results were small and tax settlements and uncertain-tax-position adjustments affected results.
For the fourth quarter, revenue was $220.8 million, compared with $259.8 million in the prior-year quarter. Net income attributable to Scripps shareholders was $7.9 million, or $0.14 per diluted share, versus $27.2 million, or $0.47 per diluted share.
Material changes and segment results
- Revenue fell 9.6% year over year. Television revenue declined 14.4% to $422.8 million, principally because 2012 included $106.7 million of political advertising and Olympics-related revenue. Political advertising was $4.3 million in 2013.
- Television segment profit fell 37.6% to $99.8 million. Retransmission revenue rose 37.7% to $42.5 million, and digital television revenue increased 12.0% to $16.8 million.
- Newspaper revenue declined 3.7% to $384.5 million as print advertising continued to weaken. Newspaper segment profit edged up 1.3% to $28.0 million as cost reductions offset much of the revenue decline. Daily circulation decreased to 541,000 from 580,000.
- Consolidated advertising revenue declined to $613.1 million from $711.1 million; subscription revenue was essentially flat at $117.8 million.
- Operating cash flow dropped by $139.1 million, reflecting lower segment profit and working-capital differences. 2012 benefited from $25 million in tax refunds and unusually favorable working-capital movements.
Liquidity, debt and other financial matters
Year-end cash exceeded reported debt by approximately $21.3 million. Current assets were $402.1 million and current liabilities were $113.1 million. Scripps refinanced its borrowings in November 2013 with a $200 million term loan due in 2020 and a $75 million revolving facility due in 2018; there were no revolver borrowings at year-end. The term-loan rate was 3.25%, and the company reported compliance with its financial covenants.
The company repurchased $74.2 million of shares during 2013 under its $100 million authorization; approximately $26 million remained available through December 2014. No cash dividends were paid in 2013 or 2012.
Defined-benefit plans were underfunded by approximately $48.0 million, excluding the separate $14.9 million SERP obligation. Management expected 2014 pension contributions of approximately $0.9 million. Contractual obligations totaled $549.7 million, including debt principal and interest, programming, compensation, leases, pension funding and other commitments.
Outlook, risks and unusual items
- Management forecast 2014 retransmission revenue above $50 million and expected it to nearly double in 2015 from the 2014 amount, based on estimated renewal rates. Renewals covering approximately 5.6 million subscribers were due in 2014; actual outcomes depend on negotiations, competition, regulation and industry consolidation.
- Management expected 2014 capital expenditures of $20 million to $25 million and stated that cash, short-term investments and operating cash flow should meet operating and capital needs over the next 12 months.
- The company completed its rollout of bundled print-and-digital newspaper subscriptions in 2013. Management expected future benefits as subscriptions renewed and digital-only subscriptions grew. It hired 107 digital-only sales professionals in 2013 and expected to hire 50 more in 2014.
- After year-end, Scripps acquired Newsy for $35 million in cash on January 1, 2014, and agreed in February to acquire two television stations for $110 million, with closing expected in the first half of 2014.
- Key risks include dependence on advertising and economic conditions; secular declines in newspaper circulation and print advertising; lower digital advertising rates; exposure to automotive advertising; newsprint costs; television affiliation and retransmission renewals; FCC regulation, spectrum changes and disputes over online redistribution of broadcast programming; pension funding and benefit costs; and execution and integration risks from acquisitions.
- 2013 unusual charges included a $4.5 million noncash investment loss, a $4.6 million noncash write-off of deferred loan fees following refinancing, and $4.9 million of restructuring costs. The company reported no impairment charge in 2013. Deloitte & Touche issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether retransmission renewals deliver the projected revenue growth, and how the proposed Comcast–Time Warner Cable combination affects later-period negotiations.
- Whether newspaper subscription bundling and digital sales growth can offset continuing print-advertising and circulation declines.
- Whether operating cash flow recovers from the 2013 decline, particularly given working-capital volatility and lower political advertising in non-election years.
- Acquisition closing, financing and integration outcomes for Newsy and the Granite stations, including the effects on leverage and returns.
- Pension funding exposure, interest-rate sensitivity, and the consequences of FCC or legal decisions affecting station licenses, spectrum and retransmission rights.