E.W. SCRIPPS Co annual report, FY2017

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

Metric20172016
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.