Business context and reporting period
The E.W. Scripps Company’s Form 10-K covers the fiscal year ended December 31, 2018; it is an annual report, not a standalone fourth-quarter filing. Scripps operates local television stations and national media businesses, including Katz networks, Stitcher, Newsy and Triton. Radio operations were sold during 2018 and are reported as discontinued operations.
Financial performance and liquidity
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Operating revenue | $1,208.4 million | $877.0 million |
| Operating income (loss) | $130.0 million | $(1.9) million |
| Operating margin | 10.8% | Approximately (0.2)% |
| Income (loss) from continuing operations, net of tax | $56.1 million | $(12.0) million |
| Net income (loss) attributable to Scripps shareholders | $20.4 million | $(13.1) million |
| Cash from continuing operating activities | $130.2 million | $30.2 million |
| Cash and cash equivalents at year-end | $107.1 million | $148.7 million |
| Outstanding debt principal | $696.3 million | $701.9 million |
FY 2018 revenue rose 37.8%, principally reflecting higher political and retransmission revenue and a full year of Katz results. Operating margin is calculated from reported operating income and revenue. Fourth-quarter 2018 revenue was $368.1 million and income from continuing operations was $36.0 million; the filing’s quarterly table reports net income attributable to shareholders of $22.0 million.
Local Media revenue increased 17.9% to $917.5 million and segment profit increased 60.1% to $251.1 million. Political revenue was $139.6 million versus $8.7 million in 2017; retransmission revenue increased 16.2% to $301.4 million, while core advertising declined 5.6% to $465.3 million. National Media revenue increased to $286.2 million from $93.1 million, and segment profit improved to $13.9 million from a $9.3 million loss; acquisitions substantially affect comparability.
Continuing investing activities used $206.7 million, including $149.5 million for acquisitions and $53.3 million for property and equipment. The company paid $16.4 million in dividends and repurchased $32.3 million of shares. Current assets were $471.0 million and current liabilities $198.1 million at year-end. The $125 million revolving facility had no borrowings; it matures in April 2022. Debt included $400 million of 5.125% senior notes due 2025 and a $296.3 million variable-rate term loan B due 2024.
Material changes, outlook and risks
- Management reported completion of a cost-reduction plan targeting $30 million in annualized savings; restructuring charges totaled $13.3 million since the third quarter of 2017.
- Scripps sold all 34 radio stations for total consideration of $83.5 million. Discontinued operations included a $36.3 million net loss in 2018, including $25.9 million of non-cash radio goodwill impairment and a disposal loss.
- The company acquired Triton on November 30, 2018, for approximately $160 million gross cash consideration ($150 million net of cash acquired). Triton contributed $3.3 million of December revenue. Scripps also acquired two ABC-affiliated stations for $55 million on January 1, 2019, and expected to close a $521 million acquisition of 15 Cordillera stations in the second quarter of 2019, subject to FCC consent and other conditions. Incremental term-loan financing was underwritten for Cordillera.
- Unusual charges included an $8.9 million non-cash impairment of the Pickler & Ben programming asset, $8.9 million of restructuring costs, and $11.7 million of non-cash pension settlement expense. The company also recorded $4.1 million of acquisition and integration costs.
- Management expected cash and operating cash flows to meet operating and capital needs over the next 12 months, and expected approximately $20 million of 2019 pension contributions. No formal earnings or revenue guidance was provided. Future dividends remain at the Board’s discretion.
- Key risks include reliance on advertising, political revenue cyclicality, audience fragmentation and OTT competition, retransmission renewals and rising network affiliation fees, execution and financing of acquisitions, and FCC spectrum-repacking and ownership regulation. Debt covenants and variable interest rates also constrain flexibility; management estimated a 1 percentage-point LIBOR increase would raise annual interest payments by about $3 million.
- The company reported effective internal control over financial reporting and unqualified audit opinions. Triton, acquired late in 2018 and representing about 9% of assets, was excluded from management’s internal-control assessment.
Important facts for investors to verify
- Whether Cordillera closed on schedule and at the announced price, and the resulting debt, leverage and integration costs.
- Whether Local Media retransmission growth can offset declining core advertising, and how political revenue normalizes after the 2018 election cycle.
- Whether National Media growth, especially Triton and Katz, translates into sustained segment profitability and cash generation.
- The cash-flow and covenant impact of debt service, pension funding, programming commitments and planned capital expenditures.
- Progress and reimbursement of FCC repacking costs: Scripps estimated approximately $55 million of spending through 2020 and had received $1.5 million of $8.5 million in claims submitted by year-end 2018.