The E. W. Scripps Company — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. The filing also reports fourth-quarter results; figures below are in U.S. dollars unless otherwise stated.
Business context and reporting period
Scripps operated television stations and newspapers, with syndication and other activities. Its portfolio included 19 television stations and newspapers in 13 markets. On December 30, 2011, the company acquired McGraw-Hill Broadcasting’s four ABC- and five Azteca-affiliated stations for $212 million, plus an estimated $4.4 million working-capital adjustment. The acquisition contributed no significant 2011 operating results because it closed two days before year-end.
Financial performance and liquidity
| Metric | 2011 | 2010 |
|---|---|---|
| Operating revenue | $728.7 million | $776.9 million |
| Operating income (loss) | $(23.4) million | $31.6 million |
| Continuing-operations income (loss), net of tax | $(15.7) million | $28.9 million |
| Net income (loss) attributable to Scripps shareholders | $(15.5) million | $130.5 million |
| Diluted earnings (loss) per share | $(0.27) | $2.03 |
| Cash from continuing operating activities | $14.8 million | $59.3 million |
| Capital expenditures | $12.2 million | $18.2 million |
The 2010 net income included a $161.9 million pre-tax gain on the sale of United Media Licensing; continuing-operations income is more comparable between years. In 2011, revenue declined 6.2%, while advertising revenue fell to $550.3 million from $601.4 million. The company attributed the decline mainly to weaker newspaper print advertising and lower political advertising in a non-election year. A $9 million non-cash impairment charge and $9.9 million of restructuring costs also affected 2011 results.
Television revenue was $300.6 million, down 6.4%, and segment profit was $49.6 million, down from $74.9 million. Newspaper revenue was $414.3 million, down 4.8%, and segment profit was $21.5 million, down from $52.5 million. These segment-profit figures are company-defined measures, not operating income. Daily newspaper circulation declined to 627,000 from 654,000; Sunday circulation fell to 805,000 from 816,000.
In the fourth quarter, revenue was $197.4 million versus $220.2 million in the prior-year quarter. Net income attributable to shareholders was $6.3 million versus $25.6 million. Scripps reported no cash dividends in 2011 or 2010.
At year-end, cash and cash equivalents were $127.9 million, restricted cash was $10.0 million, and total assets were $970.5 million. Debt was $212 million, including $15.9 million current and $196.1 million long-term; the $100 million revolving facility was undrawn. The $212 million term loan had a five-year term, was secured by company assets, and carried a 6.25% rate at year-end; the filing states the rate became based on LIBOR plus a margin from 3.5% to 4.0% beginning January 6, 2012. Scripps reported compliance with debt covenants. Current assets were $325.4 million and current liabilities $125.0 million. Management said cash, short-term investments, and operating cash flow should cover operating and capital needs for the next 12 months.
Material changes versus prior period
- Television results benefited from higher retransmission revenue, which increased 34.5% to $15.7 million, and stronger local advertising, but were weighed down by the absence of 2010 political advertising and network compensation.
- Newspaper print advertising declined 7.1%; classified revenue fell 8.1%. Newsprint prices rose 9.4% while consumption was flat, increasing newsprint costs by $4.0 million.
- Cash from continuing operations fell $44 million year over year. Management cited a $42 million working-capital impact, including timing of network-affiliation fees and tax payments. The company paid $70 million into defined-benefit pension plans in 2010; it expected $2.4 million of pension contributions in 2012.
- Share repurchases totaled $51 million in 2011 under a $75 million authorization, leaving $24 million available through December 31, 2012. The company repurchased 6.2 million shares during the year.
Outlook, risks, contingencies, and unusual items
- Management expected newspaper restructuring and common systems implementation to continue through 2013. It also planned to replace Wheel of Fortune and Jeopardy with Scripps-owned programming in seven markets in 2012 and expand Right This Minute to six additional markets.
- Key risks include dependence on advertising demand and local economic conditions; secular audience and circulation declines; lower digital advertising rates; newsprint price and supply volatility; and integration and performance risks related to the McGraw-Hill acquisition.
- Television risks include renewal and terms of network-affiliation and retransmission-consent agreements, FCC license renewal and regulation, and possible spectrum-policy changes. Two major cable retransmission agreements expire in December 2015 and December 2019.
- At year-end, defined-benefit plan obligations exceeded plan assets by approximately $79.1 million. Pension expense and funding needs are sensitive to discount rates, investment returns, and market conditions. The company also disclosed $16.7 million of reserves for uncertain income-tax positions.
- The filing reports ordinary-course litigation and governmental proceedings, none expected to result in material loss. No material off-balance-sheet arrangements were identified. The independent auditor issued an unqualified opinion; management and the auditor reported effective internal control, but McGraw-Hill was excluded from the 2011 control assessment because it was acquired on December 30.
- Forward-looking statements are subject to uncertainty, and Scripps undertook no obligation to update them. The filing does not provide a specific numerical revenue or earnings forecast.
Important facts for investors to verify
- Whether the McGraw-Hill stations deliver expected revenue, cost savings, and synergies, and whether the purchase-price allocation remains consistent with the preliminary valuation.
- Whether operating cash flow recovers from its 2011 decline and remains sufficient for scheduled debt payments, capital needs, and pension contributions.
- Whether newspaper advertising and circulation declines stabilize, and whether restructuring produces durable cost savings without impairing revenue generation.
- How political advertising, retransmission renewals, programming costs, and digital monetization affect television performance.
- Whether pension assumptions, funding requirements, and the $9 million newspaper impairment indicate further balance-sheet or earnings exposure.