The E.W. Scripps Company — Q1 2015 Form 10-Q
Business context and reporting period. The filing covers the three months ended March 31, 2015; comparative figures are for Q1 2014. Results include Scripps’ television, newspaper, and syndication businesses before the April 1, 2015 newspaper spin-off and Journal broadcast merger. Accordingly, the quarter’s results are not a like-for-like picture of the post-transaction company.
Key financial results
| Metric | Q1 2015 | Q1 2014 | Change / context |
|---|---|---|---|
| Operating revenue | $214.5 million | $203.8 million | Up 5.3% |
| Operating income (loss) | $(4.5) million | $1.9 million | Operating margin approximately (2.1%) versus 1.0% |
| Net loss | $(5.1) million | $(0.6) million | Loss per share was $(0.09), versus $(0.01) |
| Operating cash flow | $(0.02) million | $29.5 million | Near break-even; working-capital movements were a major factor |
| Cash and cash equivalents | $159.5 million at March 31 | $158.5 million at December 31, 2014 | Restricted cash of $6.8 million is separate |
| Long-term debt, including current portion | $197.5 million | $198.0 million at December 31, 2014 | No borrowings on the revolving facility at quarter-end |
Current assets were $336.2 million and current liabilities were $138.1 million at March 31. The company reported total assets of $1.03 billion and total equity of $517.0 million. Net interest expense was $2.1 million. The company reported a $2.7 million income tax benefit.
Revenue and segment performance
- Television: Revenue was $119.5 million, up 17%; segment profit was $22.2 million, up 5.9%. Retransmission revenue rose 123.8% to $27.9 million, reflecting renewed agreements and rate increases; the quarter also included $1.6 million of prior-year retransmission revenue. Acquired Granite stations contributed to growth.
- Newspapers: Revenue was $91.5 million, down 7.1%, as advertising and marketing services fell 8.0% and subscriptions fell 3.2%. Segment profit increased 6.2% to $9.1 million as costs declined faster than revenue.
- Syndication and other: Revenue was $3.5 million, up 10.2%; segment loss was $0.2 million, compared with $0.2 million of profit a year earlier.
Material changes, outlook, and risks
- Operating results worsened to a loss despite higher revenue. Costs included $6.1 million of acquisition and integration expenses related to the newspaper spin-off and Journal broadcast combination, versus $0.3 million in Q1 2014. Program and license costs rose 63%, primarily from higher network fees; pension expense also increased.
- Management said cash, operating cash flow, and available borrowing capacity should be sufficient for operating and capital needs over the next 12 months. It expected total transaction costs of $30–$35 million, with approximately $16 million incurred through March 31. No specific revenue or earnings guidance was provided.
- Effective April 1, Scripps spun off its newspapers into Journal Media Group and merged Journal’s broadcast operations into Scripps. Scripps shareholders also received a $60 million special cash dividend. The post-quarter financing added a $200 million term loan and increased the revolving facility to $100 million; proceeds funded the dividend, refinanced Journal debt, and covered transaction expenses. The company also assumed Journal liabilities, including employee benefit obligations reported at $95 million as of December 31, 2014.
- The company’s preliminary analysis indicated a possible noncash newspaper disposal impairment of up to $30 million as of April 1; any charge would be recorded in discontinued operations after the spin-off, not in Q1 results.
- Key business risks include dependence on advertising demand and cyclical political advertising, audience fragmentation and lower digital ad rates, retransmission and network-affiliation negotiations, broadcast regulation, pension funding and benefit costs, cybersecurity, and integration of acquired businesses. The filing also describes uncertain indemnification obligations between Scripps and Journal Media Group.
- A putative class action related to the Journal transaction remained pending in federal court; Scripps said it considered the claims without merit and intended to defend them. The filing states ordinary-course litigation and broadcast-license proceedings were not expected to result in material loss.
Most important facts for investors to verify
- Post-merger debt, liquidity, leverage, and compliance with financing covenants after the April 1 borrowing, dividend, and assumed Journal obligations.
- The final Journal purchase-price allocation, acquired broadcast results, and realized transaction and integration costs.
- Whether the newspaper spin-off resulted in an impairment charge and how discontinued operations affect reported comparisons.
- Whether retransmission revenue growth is sustainable as agreements renew, and whether advertising weakness in newspapers continues.
- Cash generation after the quarter: Q1 operating cash flow was nearly zero, with working-capital timing materially affecting the comparison.
- Pension obligations and the potential scale and collectability of transaction-related indemnification claims.