E.W. Scripps Company — 2012 Form 10-K Summary
Business context and period. This annual report covers the fiscal year ended December 31, 2012; it was filed March 6, 2013. Scripps operated 19 television stations, newspapers in 13 markets, and syndication and other businesses. The December 2011 McGraw-Hill station acquisition added four ABC stations and five Azteca affiliates, shifting the company’s mix toward television.
Financial performance
| Metric | 2012 | 2011 |
|---|---|---|
| Operating revenue | $903.5 million | $728.7 million |
| Operating income (loss) | $73.9 million | ($23.4 million) |
| Net income (loss) attributable to Scripps shareholders | $40.2 million | ($15.5 million) |
| Diluted earnings (loss) per share | $0.69 | ($0.27) |
| Cash from continuing operating activities | $172.6 million | $14.8 million |
| Capital expenditures | $30.2 million | $12.2 million |
| Cash and cash equivalents at year-end | $242.6 million | $127.9 million |
| Long-term debt, including current portion | $196.1 million | $212.0 million |
Operating margin was approximately 8.2%, versus negative 3.2% in 2011; net margin was approximately 4.4%. The reported revenue increase of 24% included the acquired stations; same-station revenue rose 8.7%. Operating cash flow less capital expenditures was approximately $142.4 million, though working-capital changes contributed $60.6 million to operating cash flow. Year-end cash exceeded debt by about $46.5 million, before considering restricted cash.
- Television: Revenue was $493.9 million, up 64.3% as reported, and segment profit was $159.9 million, up from $52.0 million. Political advertising reached $106.7 million, compared with $6.9 million in 2011; retransmission revenue also increased.
- Newspapers: Revenue declined 3.7% to $399.1 million, while segment profit rose 4.5% to $27.6 million as costs fell. Daily circulation was 580,000, down from 627,000; paid circulation levels declined about 5% in 2012.
- Fourth quarter: Revenue was $259.8 million and net income attributable to shareholders was $27.2 million, compared with $197.4 million and $6.3 million, respectively, in fourth-quarter 2011.
Material changes, outlook, and risks
- Results benefited from the full-year contribution of McGraw-Hill stations and unusually strong election-year political advertising. The acquired stations’ results were included only after their December 30, 2011 acquisition in the prior-year comparison.
- Management expected about $25 million of 2013 capital expenditures, $1.6 million of pension contributions, and approximately $22 million of unallocated digital content and sales-force costs. These are expectations, not earnings guidance. Management planned to expand digital sales resources and introduce bundled print-and-digital subscriptions across newspaper markets in 2013.
- Management cited higher retransmission rates under renewed agreements and internally produced programming replacing more costly syndicated content as potential contributors to television performance. New shows had launched in seven markets, with further rollout dependent on existing programming commitments.
- Key risks include advertising cyclicality and economic weakness, political-advertising volatility, secular newspaper circulation and print-advertising declines, lower digital advertising rates, newsprint cost or supply changes, and television competition and audience fragmentation. FCC license renewals, spectrum repacking, retransmission-consent rules, and disputes over online redistribution of broadcast programming could affect operations.
- Defined-benefit pension obligations exceeded plan assets by approximately $97.8 million for the defined-benefit plans, plus a $15.9 million unfunded SERP obligation. Pension valuations are sensitive to discount rates and asset returns. The company disclosed a $5.7 million noncash charge related to terminating the acquired stations’ national representation agreement, $9.3 million of restructuring costs, and a $1.4 million investment write-down. A $5.5 million tax benefit from lapses of statutes of limitations reduced the 2012 tax rate.
- Debt was $196.1 million under a five-year financing agreement, with a $100 million revolving facility and no revolver borrowings at year-end. The term loan carried a 3.72% year-end rate; a $75 million interest-rate swap fixed the LIBOR component on part of the debt. The company reported compliance with debt covenants. A new share-repurchase authorization allows up to $100 million through December 2014; no purchases had been made under it by year-end.
Important facts for investors to verify
- How much of 2012’s television growth and operating cash flow is sustainable without election-year political advertising and working-capital effects.
- Whether newspaper revenue and circulation declines can be offset by cost reductions, pricing, digital subscriptions, and digital advertising growth.
- The actual pace and returns of planned 2013 digital investment, including the expected $22 million of unallocated costs.
- Debt repayment, covenant headroom, interest-rate exposure, and the cash impact of share repurchases and pension funding.
- Developments in FCC licensing, spectrum policy, retransmission negotiations, and online distribution disputes.
- The filing reports no litigation expected to cause a material loss; Deloitte & Touche issued unqualified opinions on the financial statements and internal controls.