E.W. SCRIPPS Co annual report, FY2013

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

Metric20132012
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.