The E.W. Scripps Company — 2017 Form 10-K
Business context and reporting period. Fiscal year ended December 31, 2017; the filing also reports fourth-quarter results. Scripps operates local television stations and digital businesses, alongside national media brands including Katz, Midroll and Newsy. At year-end, it reported 33 television stations in 24 markets. Radio was classified as held for sale and discontinued operations.
Financial performance
| Metric | 2017 | 2016 |
|---|---|---|
| Operating revenue | $864.8 million | $868.8 million |
| Operating income (loss) | $(1.9) million | $128.2 million |
| Income (loss) from continuing operations | $(12.0) million | $59.9 million |
| Net income (loss) attributable to Scripps shareholders | $(13.1) million | $67.2 million |
| Cash from continuing operating activities | $30.2 million | $135.9 million |
| Cash and cash equivalents | $148.7 million | $134.4 million |
| Long-term debt, including current portion | $701.9 million | $395.8 million |
| Total assets | $2.13 billion | $1.74 billion |
Revenue was nearly flat, but operating performance declined sharply: operating margin was approximately negative 0.2%, versus 14.8% in 2016. The 2017 operating loss included $35.7 million of goodwill and intangible impairment and $4.4 million of restructuring costs. The filing reports no 2017 dividends; in February 2018, Scripps announced a planned quarterly dividend of $0.05 per share.
Fourth quarter: revenue was $257.0 million, compared with $253.0 million in fourth-quarter 2016. Continuing operations generated $11.5 million of net income in the quarter, while the company reported a $6.0 million loss from discontinued operations. Net income attributable to Scripps shareholders was $7.0 million.
Changes versus the prior year
- Local Media revenue fell 6.8% to $779.2 million, primarily because political revenue declined $92 million in a non-election year. Core advertising decreased 1.3%.
- Retransmission revenue increased 17.6% to $259.5 million, or about $39 million, on contractual rate increases; the company also began observing subscriber declines.
- Local Media segment profit fell to $156.9 million from $243.3 million. National Media revenue rose to $80.2 million from $27.9 million, including $41.0 million from Katz after its October acquisition; National Media remained loss-making, with a $9.3 million segment loss.
- Employee compensation and benefits rose 7.0%, and programming costs rose 29.6%, including higher network affiliation fees and costs associated with Katz.
- Cash from continuing operating activities fell by about $105.7 million. Management cited lower segment profit, working-capital changes, higher pension contributions and Newsy carriage payments.
Liquidity, debt and capital commitments
- Year-end debt was approximately $701.9 million: $400 million of 5.125% senior notes due 2025, $299.3 million outstanding on Term Loan B due 2024, and $2.7 million of subordinated notes. The Term Loan B rate was LIBOR plus 2.25% (3.82% at year-end).
- The revolving credit facility was expanded to $125 million and matures in April 2022; it had no borrowings at year-end. Scripps reported compliance with its financial covenants and expected cash and operating cash flows to cover operating and capital needs for the next 12 months.
- Management estimated about $55 million of television spectrum-repacking spending through 2020, including $16 million in 2018, and expected $45–$50 million of FCC reimbursement. Reimbursement is not assured.
- Management expected approximately $24 million of pension contributions in 2018. The defined-benefit plans’ projected obligations exceeded plan assets by approximately $190 million at year-end.
Outlook, risks and unusual items
- Management began restructuring and realigning Local and National Media at year-end, and initiated a process to sell the radio business. The filing gives no numerical earnings or revenue guidance.
- Scripps acquired Katz for approximately $292 million, financed with a new $300 million Term Loan B. National Media businesses are growth investments requiring continued spending, and their ability to build audiences and monetize them remains uncertain.
- A $29 million non-cash goodwill impairment and $6.3 million intangible impairment were recorded for Cracked, reflecting slower development and a revised, smaller operating model. Radio also recorded an $8 million goodwill impairment upon classification as held for sale.
- Advertising demand is exposed to economic cycles, audience fragmentation, digital pricing pressure and election-year variability. Other risks include retransmission renewals, rising network fees, FCC license and spectrum-repacking requirements, variable-rate debt, pension funding, cybersecurity and substantial debt obligations.
- The Tax Cuts and Jobs Act reduced the federal corporate rate to 21%; Scripps recorded a provisional $4.2 million tax benefit. The reported effective tax rate was 62.5%, affected by tax items and non-deductible expenses.
- Deloitte issued unqualified opinions on the financial statements and internal controls. The company and auditor excluded Katz from the 2017 internal-control assessment; Katz represented about 20% of year-end assets and 5% of 2017 revenue.
Key facts investors should verify
- Whether Local Media advertising and segment profit stabilize, and whether retransmission growth can offset subscriber declines and weaker political revenue.
- Whether Katz, Midroll and Newsy achieve audience growth and profitability without further impairments or sustained cash demands.
- Progress and proceeds from the radio sale, including final sale accounting and any related liabilities.
- Debt-service capacity, covenant headroom and exposure to LIBOR increases, alongside planned pension and repacking outlays and expected FCC reimbursements.
- The final accounting effects of the tax-law transition and the effect of the announced dividend on capital allocation.