E.W. Scripps Company — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012. Financial figures below are in millions of dollars unless otherwise noted. Scripps operates television stations, newspapers, and a syndication and other business.
Financial performance and liquidity
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Revenue | $207.1 | $180.4 |
| Operating loss | $(4.2) | $(10.5) |
| Net loss | $(4.4) | $(8.9) |
| Basic and diluted loss per share | $(0.08) | $(0.15) |
| Cash from operating activities | $20.6 | $(7.8) |
- Revenue increased 14.8% year over year; excluding the McGraw-Hill acquisition, it increased 2.3%. Operating margin improved to approximately -2.0% from -5.8%; net margin improved to approximately -2.1% from -4.9%.
- Television revenue was $99.6 million, up 44.4% reported and 11.7% excluding the acquisition; segment profit rose to $17.9 million from $6.8 million. Newspaper revenue declined 1.7% to $104.4 million, while segment profit increased to $7.2 million from $6.4 million. Syndication and other revenue was $3.2 million, and segment profit was $0.8 million.
- Cash and cash equivalents were $140.0 million at March 31, up from $127.9 million at year-end. Restricted cash was $10.0 million. Total debt was $208.0 million, down from $212.0 million; cash less debt was approximately $(68.0) million. The $100 million revolving facility was undrawn. Current assets were $330.7 million and current liabilities $125.9 million.
- Operating cash flow improved by $28.4 million year over year, which management attributed mainly to stronger segment profit and collections of accounts receivable. Capital expenditures were $1.1 million.
Material changes and notable items
- The December 2011 acquisition of McGraw-Hill’s television stations materially increased reported television revenue and costs. Q1 2012 included $5.8 million in acquisition and integration costs, including a $5.7 million noncash charge for terminating the acquired stations’ national representation agreement; the new representative agreed to pay the termination fee.
- Interest expense increased to $3.2 million from $0.4 million, reflecting acquisition-related borrowing. The term loan carried a 4.25% rate at quarter-end; a $75 million interest-rate swap fixed the LIBOR component on that portion through March 2016.
- Television retransmission revenue rose 37% excluding the acquired stations. Newspaper revenue declines moderated, but print advertising remained weak, particularly national, automotive classified, and large-retailer advertising. Circulation revenue was nearly flat.
- Q1 included $4.7 million of political television advertising, approximately $4.0 million more than in the prior-year quarter. Political advertising is typically more significant in the third and fourth quarters of even-numbered years.
- The company repurchased 610,678 Class A shares for $5.7 million during the quarter. Approximately $18 million remained under the $75 million authorization, which expires December 31, 2012.
Outlook, risks, and contingencies
- Management expected 2012 capital expenditures of $20–$25 million and anticipated $1.2 million of contributions to defined benefit pension plans during the year. It stated that cash and operating cash flow should be sufficient for operating and capital needs over the next 12 months.
- Management described plans to reduce television programming costs, pursue higher retransmission-consent rates as agreements renew, stabilize newspaper profitability through restructuring and pricing/sales initiatives, and consolidate digital initiatives. It provided no specific revenue or earnings guidance.
- Key stated risks include advertising demand and economic conditions, consumer tastes, newsprint and program costs, labor relations, technology, competition, interest rates, regulation, and reliance on third-party vendors. Management reported compliance with debt covenants and no required excess-cash-flow debt repayment at quarter-end.
- Litigation in the ordinary course, including defamation claims and broadcast-license proceedings, was not expected to result in material loss. No material changes to the 2011 Form 10-K risk factors were reported. Management said disclosure controls were effective and reported no materially affecting changes to internal control over financial reporting.
Most important facts for investors to verify
- How much of television’s revenue and profit growth is attributable to the acquisition, political advertising, and recurring organic growth.
- Whether newspaper advertising declines continue to moderate and whether cost reductions can offset ongoing print-revenue weakness.
- The terms, renewal timing, and expected economics of retransmission-consent agreements, particularly those with Time Warner and Comcast.
- Debt repayment requirements, covenant headroom, and the effect of variable interest rates despite the $75 million swap.
- Whether operating cash flow remains strong after considering working-capital movements, planned capital spending, pension funding, and share repurchases.