The E.W. Scripps Company — FY 2020 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2020; the filing also reports fourth-quarter results. Scripps operates local television stations and national media businesses, including Katz networks, Newsy and Triton. Its 61 stations served 41 markets and reached about 25% of U.S. television households. Results include acquired television stations for only the periods after their 2019 acquisition dates.
Key financial results
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Operating revenue | $1,857.5 million | $1,351.4 million |
| Operating income | $303.5 million | $87.4 million |
| Income (loss) from continuing operations, net | $153.6 million | $(1.9) million |
| Net income (loss) | $269.3 million | $(18.4) million |
| Cash from continuing operating activities | $355.3 million | $(4.5) million |
| Capital expenditures | $44.9 million | $60.9 million |
| Long-term debt, including current portion | $2,991.9 million | $1,952.5 million |
Operating margin was approximately 16.3%, compared with 6.5% in 2019. At year-end, unrestricted cash was $576.0 million, with another $1.05 billion restricted in escrow for the pending ION acquisition; Scripps also reported $204 million of available revolver capacity. Total assets were $4.86 billion and equity was $1.16 billion. The annual dividend was $0.20 per share, but the ION preferred-share terms subsequently prohibit common dividends and repurchases while those preferred shares remain outstanding.
Fourth quarter: revenue was $591.1 million and net income was $244.7 million. The quarter included $130.4 million of after-tax income from discontinued operations, principally reflecting the Stitcher sale; quarterly earnings therefore should not be viewed as representative of recurring operating performance.
Material changes versus the prior comparable period
- Revenue rose 37.4%; excluding acquired television stations, management reported growth of 21%. The increase reflected political advertising, higher retransmission revenue and National Media growth.
- Local Media revenue increased 44.2% to $1,475.4 million and segment profit rose 98.0% to $431.4 million. Political revenue was $266.7 million and retransmission revenue was $581.5 million. Excluding acquired stations, core advertising declined 14%, as COVID-19-related weakness and political-ad displacement outweighed other factors.
- National Media revenue increased 16.9% to $378.2 million and segment profit increased 44.9% to $62.5 million. Management attributed revenue growth to Katz, Newsy and Triton.
- Operating income increased to $303.5 million. Costs also grew: programming expense increased 33.3%, employee compensation and benefits 20.0%, and depreciation and amortization rose to $107.2 million, partly reflecting acquisitions.
- Continuing-operations operating cash flow improved by about $360 million year over year. Management attributed the change to higher segment profit and working-capital movements; cash interest paid increased to $82.5 million from $61.3 million.
- Net income included a $115.8 million after-tax contribution from discontinued operations. Stitcher was sold in October 2020; the sale generated a $139 million pretax gain, including an estimated $10 million fair value for contingent earnout consideration, and the discontinued results included a $12 million contract termination charge.
Outlook, transactions and risks
- Management expected advertising markets to continue recovering, but said local-market spending in 2020 was below 2019 levels and was expected to remain below them into 2021. It expected National Media revenue growth to remain below the pre-pandemic year-over-year rate of 30%. These are qualitative expectations, not formal numerical guidance.
- COVID-19 disrupted advertiser demand, especially in the second quarter. Management reported cancellations beginning late in the first quarter and subsequent improvement as economies reopened; the pandemic’s duration and financial effects remained uncertain.
- Scripps completed the $2.65 billion ION acquisition on January 7, 2021, after year-end. Financing included $1.85 billion of secured and unsecured debt and $600 million of Berkshire Hathaway preferred equity. The preferred shares carry an 8% annual cash dividend, rising to 9% if dividends are not paid in cash, and restrict common dividends and repurchases until redemption. Berkshire Hathaway also received a warrant for up to 23.1 million Class A shares at $13 per share.
- In February 2021, Scripps agreed to sell Triton for $230 million, subject to customary closing conditions and regulatory approval; closing was expected in the second quarter of 2021.
- Key risks include advertising cyclicality and audience fragmentation, declining MVPD subscribers and retransmission negotiations, rising network affiliation and programming costs, FCC ownership and licensing rules, acquisition integration and leverage, variable-rate interest exposure, and cybersecurity. A 100-basis-point increase in LIBOR was estimated to increase annual interest expense by about $10.4 million.
- At December 31, 2020, the company reported compliance with financial covenants and expected to remain within the revolving-facility leverage covenant based on its outlook. It also disclosed $5.26 billion of contractual cash obligations, including debt principal and interest, programming commitments, employee obligations and leases.
Important facts for investors to verify
- Separate recurring operating performance from political-election revenue and the Stitcher disposal gain; review the full discontinued-operations and quarterly disclosures.
- Assess post-acquisition debt, interest costs, covenant headroom and available liquidity after the ION transaction, including the new $800 million term loan and expanded $400 million revolver.
- Track the preferred shares’ dividend and redemption terms, common-dividend and repurchase restrictions, and potential dilution from Berkshire Hathaway’s warrant.
- Monitor core advertising recovery, retransmission renewals and subscriber trends, network affiliation costs, and whether National Media growth meets management’s stated expectations.
- Confirm completion and proceeds from the Triton sale and the timing and amount of Stitcher earnout payments.
- Review the assumptions supporting goodwill and FCC-license valuations. The 2020 impairment tests found fair value above carrying value, but management noted sensitivity to projected cash flows, growth and discount rates.