E.W. Scripps Company — FY 2015 Form 10-K
Reporting period: Year ended December 31, 2015. The filing is an annual report, not a standalone fourth-quarter report; selected Q4 results are noted below. Amounts are in U.S. dollars.
Business context
Scripps is a television, radio and digital media company. On April 1, 2015, it combined broadcast operations with Journal Communications and spun off its newspaper business into Journal Media Group. The transaction added 12 television stations and 34 radio stations; results include acquired businesses only from their acquisition dates. Scripps acquired podcast company Midroll Media in July 2015 for $50 million cash plus an earnout provision.
Financial performance and liquidity
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Operating revenue | $715.7 million | $498.8 million |
| Operating income (loss) | $(82.9) million | $25.5 million |
| Continuing operations net income (loss) | $(66.6) million | $9.5 million |
| Net income (loss), including discontinued operations | $(82.5) million | $10.5 million |
| Cash from operating activities | $8.9 million | $102.1 million |
| Capital expenditures | $23.1 million | $16.3 million |
| Cash and cash equivalents at year-end | $108.1 million | $158.5 million |
| Long-term debt, including current portion | $399.1 million | $196.4 million |
- Revenue rose 43.5%, but acquired operations contributed $217 million of the increase. For stations owned throughout both years, lower political advertising was largely offset by higher retransmission revenue.
- Operating margin was approximately negative 11.6%, versus positive 5.1% in 2014. Television segment profit was $139.8 million on $609.6 million revenue; radio segment profit was $12.8 million on $58.9 million revenue. Digital revenue grew 70.1% to $38.9 million, while the segment loss narrowed to $17.1 million from $22.8 million.
- Liquidity included $302.6 million of current assets and $119.8 million of current liabilities at year-end. Management said cash, short-term investments and operating cash flows should meet operating and capital needs for the next 12 months.
- The company had a $100 million revolving credit facility, with no borrowings at year-end, and reported compliance with financing covenants. Term-loan interest was 3.50% at year-end; a 1% LIBOR increase was estimated to add about $4 million to annual interest payments.
Q4 2015: Revenue was $204.8 million; continuing-operations net loss was $21.1 million and total net loss was $21.5 million. Q4 2014 revenue was $150.6 million and total net income was $15.7 million.
Material changes and unusual items
- The Journal broadcast merger and newspaper spin-off substantially changed the company’s scale and mix. The 2015 comparison is not directly comparable with 2014 because of acquisitions, the spin-off and partial-year inclusion of acquired businesses.
- Operating results included $38.0 million of acquisition and integration costs, $24.6 million of non-cash goodwill and intangible impairment charges, and $58.7 million of defined-benefit pension expense. Pension expense included a $45.7 million non-cash settlement charge related to lump-sum benefit payments.
- The newspaper spin-off was reported as discontinued operations. It generated a $15.8 million net loss for 2015, including a $30 million non-cash impairment loss on disposal.
- Continuing operating cash flow fell to $8.8 million from $78.3 million, reflecting working-capital changes, transaction costs and tax benefits that management said would not produce cash until future years.
- At year-end, pension obligations exceeded plan assets by approximately $203 million. The company expected to contribute $6 million to $11 million to pension plans in 2016.
Outlook, risks and contingencies
- Management expected the Time Warner Cable agreement effective January 2016, covering approximately 3 million households, to increase retransmission revenue by about 60% in 2016 compared with 2015.
- Management anticipated continued investment in Newsy’s OTT distribution and expansion. Newsy’s slower-than-expected revenue model and need for additional investment led to impairment charges; further impairment remains possible if expected cash flows weaken.
- Key risks include advertising cyclicality and economic weakness, audience fragmentation and lower digital advertising rates, retransmission-consent renewals, network affiliation costs or loss, FCC regulation and spectrum repacking, pension funding needs, cybersecurity, and integration or performance of acquisitions.
- Retransmission agreements covering approximately 4 million subscribers were due to expire in 2016, 2 million in 2017, 6 million in 2018 and 7 million in 2019. Renewal rates and terms are uncertain.
- Ordinary-course litigation and broadcast-license proceedings were not expected to result in material losses. Potential indemnification obligations related to the Journal transactions were not quantifiable in the filing.
- Deloitte & Touche issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- How much of revenue and profit growth reflects acquired operations rather than comparable-station performance, and whether the expected 2016 retransmission increase materialized.
- Whether operating cash flow recovers from the sharp 2015 decline and whether working-capital movements and transaction costs recur.
- Debt repayment capacity, covenant headroom, interest-rate exposure and the effect of scheduled 2020 term-loan maturity.
- Progress and profitability of digital businesses, particularly Newsy and Midroll, and whether further impairment charges are required.
- Pension funding requirements and assumptions, including the effect of asset returns and discount-rate changes.
- Costs and operational effects of spectrum repacking, retransmission negotiations and other regulatory changes.