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5: EX-32.B Certification -- §906 - SOA'02 HTML 22K
11: R1 Cover Page HTML 77K
12: R2 Condensed Consolidated Balance Sheets (Unaudited) HTML 152K
13: R3 Condensed Consolidated Balance Sheets (Unaudited) HTML 45K
(Parenthetical)
14: R4 Condensed Consolidated Statements of Operations HTML 144K
(Unaudited)
15: R5 Condensed Consolidated Statements of Comprehensive HTML 42K
Income (Loss) (Unaudited)
16: R6 Condensed Consolidated Statements of Comprehensive HTML 24K
Income (Loss) (Unaudited) (Parenthetical)
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48: R38 Summary of Significant Accounting Policies - HTML 34K
Narrative (Details)
49: R39 Summary of Significant Accounting Policies - HTML 59K
Earnings Per Share (Details)
50: R40 Acquisitions - Acquisition Information (Details) HTML 79K
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Liabilities Assumed (Details)
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Other Intangible Assets (Details)
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Narrative (Details)
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(Exact name of registrant as specified in its charter)
iOhio
i31-1223339
(State
or other jurisdiction of incorporation or organization)
(IRS Employer Identification Number)
ii312
Walnut Street/
iCincinnati,
iOhio
i45202
(Address
of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (i513) i977-3000
Not applicable
(Former name, former
address and former fiscal year, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iClass
A Common Stock, par value $0.01 per share
iSSP
iNASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every
Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). iYes☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,”“accelerated filer,”“smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
iLarge
accelerated filer
☑
Accelerated filer
☐
Emerging growth company
i☐
Non-accelerated filer
☐
Smaller reporting company
i☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes i☐
No ☑
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of June 30, 2022, there were i71,482,546 of the registrant’s Class A Common shares, $0.01 par value per share, outstanding and i11,932,722
of the registrant’s Common Voting shares, $0.01 par value per share, outstanding.
Index to The E.W. Scripps Company Quarterly Report
As used in this Quarterly Report on Form 10-Q, the terms “Scripps,”“Company,”“we,”“our,” or “us” may, depending on the context, refer to The E.W. Scripps Company, to one or more of its consolidated subsidiary companies, or to all of them taken as a whole.
Item 1. Financial Statements
The information required by this item is filed as part of this Form 10-Q. See Index to Financial Information at page F-1 of this Form 10-Q.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The information required by this item is filed
as part of this Form 10-Q. See Index to Financial Information at page F-1 of this Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item is filed as part of this Form 10-Q. See Index to Financial Information at page F-1 of this Form 10-Q.
Item 4. Controls and Procedures
The information required by this item is filed as part of this Form 10-Q. See Index to Financial Information at page F-1 of this Form 10-Q.
PART II
Item 1. Legal Proceedings
We
are involved in litigation and regulatory proceedings arising in the ordinary course of business, such as defamation actions and governmental proceedings primarily relating to renewal of broadcast licenses, none of which is expected to result in material loss.
Item 1A. Risk Factors
Other than the risk factor set forth below, there have been no material changes to the risk factors disclosed in Item 1A. Risk Factors in our 2021 Annual Report on Form 10-K.
The loss of skilled employees or an inability to attract and retain skilled employees could adversely affect our business.
To execute our strategic plan and maintain business continuity, we must attract and retain personnel
with appropriate talent and skills. If we are unable to hire and retain employees capable of performing key functions in our business, or if measures we take to respond to a decrease in labor availability prove ineffective or have unintended negative consequences, our business could be adversely affected. We are experiencing an increasingly competitive labor market, and have had higher turnover rates and more open positions during the COVID-19 pandemic than during pre-pandemic years. Sustained labor shortages or increased turnover rates, whether caused by the pandemic, general macroeconomic factors or dynamics within our industry (including a shrinking pool of new talent interested in the media business), could lead to increased costs, such as increased wage rates to attract and retain employees, could negatively affect our revenue and profits and could have an impact on our operations and business continuity.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no sales of unregistered equity securities during the quarter ended June 30, 2022.
Item 3. Defaults Upon Senior Securities
There were no defaults upon senior securities during the quarter ended June 30, 2022.
The Company's unaudited Condensed Consolidated Financial Statements and related Notes for the three
and six months ended June 30, 2022 from this Quarterly Report on Form 10-Q, formatted in iXBRL (Inline eXtensible Business Reporting Language).*
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Accounts
receivable (less allowances — $i4,869 and $i4,256)
i580,747
i572,525
FCC
repack receivable
i253
i773
Miscellaneous
i56,170
i28,503
Total
current assets
i695,407
i702,281
Investments
i25,677
i21,632
Property
and equipment
i445,654
i456,945
Operating
lease right-of-use assets
i115,543
i124,821
Goodwill
i2,920,466
i2,913,384
Other
intangible assets
i1,870,194
i1,910,311
Programming
i443,117
i510,316
Miscellaneous
i19,612
i18,624
Total
Assets
$
i6,535,670
$
i6,658,314
Liabilities
and Equity
Current liabilities:
Accounts payable
$
i84,656
$
i83,931
Unearned
revenue
i23,767
i20,000
Current
portion of long-term debt
i18,612
i18,612
Accrued
liabilities:
Employee compensation and benefits
i43,364
i68,545
Programming
liability
i164,118
i180,269
Accrued
interest
i32,310
i34,973
Miscellaneous
i49,529
i50,667
Other
current liabilities
i54,624
i54,883
Total
current liabilities
i470,980
i511,880
Long-term
debt (less current portion)
i3,064,352
i3,129,393
Deferred
income taxes
i371,924
i356,777
Operating
lease liabilities
i104,238
i113,892
Other
liabilities (less current portion)
i504,562
i575,938
Equity:
Preferred
stock, $ii0.01/ par — authorized: ii25,000,000/
shares; iinone/ outstanding
i—
i—
Preferred
stock — Series A, $ii100,000/
par; ii6,000/ shares issued
and outstanding
i411,092
i409,939
Common
stock, $ii0.01/ par:
Class A
— authorized: ii240,000,000/ shares; issued
and outstanding: ii71,482,546/ and ii70,646,007/
shares
i715
i707
Voting
— authorized: ii60,000,000/ shares; issued and
outstanding: ii11,932,722/ and ii11,932,722/
shares
i119
i119
Total preferred
and common stock
i411,926
i410,765
Additional
paid-in capital
i1,435,867
i1,428,460
Retained
earnings
i244,070
i205,118
Accumulated
other comprehensive loss, net of income taxes
(i72,249)
(i73,909)
Total
equity
i2,019,614
i1,970,434
Total
Liabilities and Equity
$
i6,535,670
$
i6,658,314
See
notes to condensed consolidated financial statements.
F-2
The E.W. Scripps Company
Condensed Consolidated Statements of Operations (Unaudited)
Three
Months Ended June 30,
Six Months Ended June 30,
(in thousands, except per share data)
2022
2021
2022
2021
Operating Revenues:
Advertising
$
i414,147
$
i396,652
$
i812,628
$
i759,266
Retransmission
and carriage
i170,304
i156,421
i326,124
i312,918
Other
i10,016
i12,004
i21,421
i33,814
Total
operating revenues
i594,467
i565,077
i1,160,173
i1,105,998
Operating
Expenses:
Cost of revenues, excluding depreciation and amortization
i308,510
i268,683
i606,344
i533,078
Selling,
general and administrative expenses, excluding depreciation and amortization
i154,382
i144,113
i307,109
i288,139
Acquisition
and related integration costs
i—
i6,686
i1,642
i35,331
Restructuring
costs
i—
i514
i—
i7,564
Depreciation
i15,812
i14,245
i31,182
i28,370
Amortization
of intangible assets
i25,207
i26,506
i49,582
i51,888
Losses
(gains), net on disposal of property and equipment
i1,577
i75
i4,058
i155
Total
operating expenses
i505,488
i460,822
i999,917
i944,525
Operating
income
i88,979
i104,255
i160,256
i161,473
Interest
expense
(i36,011)
(i42,010)
(i72,510)
(i85,892)
Gain
(loss) on extinguishment of debt
i—
(i13,775)
i1,234
(i13,775)
Defined
benefit pension plan income
i662
i7
i1,325
i14
Gain
on sale of Triton business
i—
i—
i—
i81,784
Losses
on stock warrant
i—
(i31,874)
i—
(i99,118)
Miscellaneous,
net
i2,170
(i2,707)
i1,763
(i7,558)
Income
from continuing operations before income taxes
i55,800
i13,896
i92,068
i36,928
Provision
for income taxes
i14,060
i12,683
i27,963
i32,212
Income
from continuing operations, net of tax
i41,740
i1,213
i64,105
i4,716
Income
from discontinued operations, net of tax
i—
i4,431
i—
i6,495
Net
income
i41,740
i5,644
i64,105
i11,211
Preferred
stock dividends
(i12,577)
(i12,576)
(i25,153)
(i24,219)
Net
income (loss) attributable to the shareholders of The E.W. Scripps Company
$
i29,163
$
(i6,932)
$
i38,952
$
(i13,008)
Net
income (loss) per basic share of common stock attributable to the shareholders of The E.W. Scripps Company:
Income (loss) from continuing operations
$
i0.34
$
(i0.14)
$
i0.46
$
(i0.24)
Income
from discontinued operations
i—
i0.05
i—
i0.08
Net
income (loss) per basic share of common stock attributable to the shareholders of The E.W. Scripps Company:
$
i0.34
$
(i0.09)
$
i0.46
$
(i0.16)
Net
income (loss) per diluted share of common stock attributable to the shareholders of The E.W. Scripps Company:
Income (loss) from continuing operations
$
i0.32
$
(i0.14)
$
i0.42
$
(i0.24)
Income
from discontinued operations
i—
i0.05
i—
i0.08
Net
income (loss) per diluted share of common stock attributable to the shareholders of The E.W. Scripps Company:
$
i0.32
$
(i0.09)
$
i0.42
$
(i0.16)
See
notes to condensed consolidated financial statements.
The sum of net income (loss) per share from continuing and discontinued operations may not equal the reported total net income(loss) per share as each is calculated independently.
F-3
The E.W. Scripps Company
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
Three
Months Ended June 30,
Six Months Ended June 30,
(in thousands)
2022
2021
2022
2021
Net income
$
i41,740
$
i5,644
$
i64,105
$
i11,211
Changes
in defined benefit pension plans, net of tax of $i258, $i375,
$i515 and $i749
i827
i1,186
i1,654
i2,373
Other
i3
i20
i6
i38
Total
comprehensive income attributable to preferred and common stockholders
$
i42,570
$
i6,850
$
i65,765
$
i13,622
See
notes to condensed consolidated financial statements.
F-4
The E.W. Scripps Company
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30,
(in
thousands)
2022
2021
Cash Flows from Operating Activities:
Net income
$
i64,105
$
i11,211
Income
from discontinued operations, net of tax
i—
i6,495
Income
from continuing operations, net of tax
i64,105
i4,716
Adjustments
to reconcile net income from continuing operations to net cash flows from operating activities:
Depreciation and amortization
i80,764
i80,258
Losses
(gains), net on disposal of property and equipment
i4,058
i155
Loss
(gain) on extinguishment of debt
(i1,234)
i13,775
Gain
on sale of Triton business
i—
(i81,784)
Losses
on stock warrant
i—
i99,118
Programming
assets and liabilities
(i11,724)
(i47,490)
Restructuring
impairment charges
i—
i7,050
Deferred
income taxes
i12,833
i7,437
Stock
and deferred compensation plans
i11,612
i18,384
Pension
contributions, net of income/expense
(i1,860)
(i12,597)
Other
changes in certain working capital accounts, net
(i53,516)
(i3,029)
Miscellaneous,
net
i1,547
i6,185
Net
cash provided by operating activities from continuing operations
i106,585
i92,178
Net
cash provided by (used in) operating activities from discontinued operations
i—
(i1,935)
Net
operating activities
i106,585
i90,243
Cash
Flows from Investing Activities:
Acquisitions, net of cash acquired
(i13,797)
(i2,679,798)
Proceeds
from sale of Triton Digital, net of cash disposed
i—
i224,990
Acquisition
of intangible assets
i—
(i430)
Additions
to property and equipment
(i27,456)
(i27,984)
Purchase
of investments
(i5,281)
(i1,431)
Proceeds
from FCC repack
i1,742
i14,190
Miscellaneous,
net
(i2,451)
i44
Net
cash used in investing activities from continuing operations
(i47,243)
(i2,470,419)
Net
cash provided by (used in) investing activities from discontinued operations
i—
i—
Net
investing activities
(i47,243)
(i2,470,419)
Cash
Flows from Financing Activities:
Net borrowings under revolving credit facility
i60,000
i—
Proceeds
from issuance of long-term debt
i—
i800,000
Proceeds
from issuance of preferred stock
i—
i600,000
Payments
on long-term debt
(i128,850)
(i459,306)
Premium
paid on debt extinguishment
i—
(i10,252)
Payments
on financing costs
i—
(i50,597)
Payments
for capitalized preferred stock issuance costs
i—
(i11,526)
Dividends
paid on common and preferred stock
(i24,000)
(i21,067)
Tax
payments related to shares withheld for vested stock and RSUs
(i8,468)
(i6,604)
Miscellaneous,
net
(i267)
(i517)
Net
cash provided by (used in) financing activities from continuing operations
(i101,585)
i840,131
Effect
of foreign exchange rates on cash, cash equivalents and restricted cash
i—
(i20)
Decrease
in cash, cash equivalents and restricted cash
(i42,243)
(i1,540,065)
Cash,
cash equivalents and restricted cash:
Beginning of year
i100,480
i1,626,021
End
of period
$
i58,237
$
i85,956
Supplemental
Cash Flow Disclosures
Interest paid
$
i68,177
$
i54,928
Income
taxes paid
$
i46,949
$
i54,215
Non-cash
investing information
Capital expenditures included in accounts payable
$
i1,644
$
i2,067
See
notes to condensed consolidated financial statements.
F-5
The E.W. Scripps Company
Condensed Consolidated Statements of Equity (Unaudited)
*
Net of tax payments related to shares withheld for vested RSUs of $i6,604 for the six months ended June 30, 2021.
See notes to condensed consolidated financial statements.
F-6
The
E.W. Scripps Company
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. iSummary of Significant Accounting Policies
As used in the Notes to Condensed Consolidated Financial Statements, the terms “Scripps,”“Company,”“we,”“our,” or “us” may, depending on the
context, refer to The E.W. Scripps Company, to one or more of its consolidated subsidiary companies, or to all of them taken as a whole.
i
Basis of Presentation — The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The interim financial statements should be read in conjunction with the audited consolidated financial statements, including the notes thereto
included in our 2021 Annual Report on Form 10-K. In management's opinion, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the interim periods have been made.
Results of operations are not necessarily indicative of the results that may be expected for future interim periods or for the full year.
i
Principles of Consolidation — The consolidated financial statements include our accounts and those of our wholly-owned and majority-owned subsidiaries
and variable interest entities (VIEs) for which we are the primary beneficiary. We are the primary beneficiary of a VIE when we have the power to direct the activities of the VIE that most significantly impact the economic performance of the VIE and have the obligation to absorb losses or the right to receive returns that would be significant to the VIE. Noncontrolling interest represents an owner’s share of the equity in certain of our consolidated entities. All intercompany transactions and account balances have been eliminated in consolidation.
Investments in entities over which we have significant influence but not control are accounted for using the equity method of accounting. Income from equity method investments represents our proportionate share of net income generated by equity method investees.
iNature
of Operations — We are a diverse media enterprise, serving audiences and businesses through a portfolio of local television stations and national media brands. All of our businesses provide content and services via digital platforms, including the Internet, smartphones and tablets. Our media businesses are organized into the following reportable business segments: Local Media, Scripps Networks and Other. Additional information for our business segments is presented in Note 13. Segment Information.
i
Use of Estimates — Preparing financial statements in accordance
with accounting principles generally accepted in the United States of America requires us to make a variety of decisions that affect the reported amounts and the related disclosures. Such decisions include the selection of accounting principles that reflect the economic substance of the underlying transactions and the assumptions on which to base accounting estimates. In reaching such decisions, we apply judgment based on our understanding and analysis of the relevant circumstances, including our historical experience, actuarial studies and other assumptions.
Our financial statements include estimates and assumptions used in accounting for our defined benefit pension plans; the periods over which long-lived assets are depreciated or amortized; the fair value of long-lived assets, goodwill and indefinite lived assets; the liability for uncertain tax positions and valuation allowances against deferred
income tax assets; the fair value of assets acquired and liabilities assumed in business combinations; and self-insured risks.
While we re-evaluate our estimates and assumptions on an ongoing basis, actual results could differ from those estimated at the time of preparation of the financial statements.
i
Nature of Products and Services — The following is a description of principal activities from which we generate revenue.
Core
Advertising—Core advertising is comprised of sales to local and national customers. The advertising includes a combination of broadcast airtime, as well as digital advertising. Pricing of advertising time is based on audience size and share, the demographic of our audiences and the demand for our limited inventory of commercial time. Advertising time is sold through a combination of local and national sales staff and national sales representative firms. Digital revenues are primarily
F-7
generated from the sale of advertising to local and national customers on our local television websites,
smartphone apps, tablet apps and other platforms.
Political Advertising— Political advertising is generally sold through our Washington D.C. sales office. Advertising is sold to presidential, gubernatorial, Senate and House of Representative candidates, as well as for state and local issues. It is also sold to political action groups (PACs) or other advocacy groups.
Retransmission Revenues— We earn revenue from retransmission consent agreements with multi-channel video programming distributors (“MVPDs”) in our markets. The MVPDs are cable operators and satellite carriers who pay us to offer our programming to their customers. We also receive fees from over-the-top virtual MVPDs. The fees we receive are typically based on the number
of subscribers in our local market and the contracted rate per subscriber.
Other Products and Services —We derive revenue from sponsorships and community events through our Local Media segment. Our Scripps Networks segment offers subscription services for access to premium content to its customers.
Refer to Note 13. Segment Information for further information, including revenue by significant product and service offering.
i
Revenue
Recognition — Revenue is measured based on the consideration we expect to be entitled to in exchange for promised goods or services provided to customers, and excludes any amounts collected on behalf of third parties. Revenue is recognized upon transfer of control of promised products or services to customers.
Advertising — Advertising revenue is recognized, net of agency commissions, over time primarily as ads are aired or impressions are delivered and any contracted audience guarantees are met. We apply the practical expedient to recognize revenue at the amount we have the right to invoice, which corresponds directly to the value a customer has received relative to our performance. For advertising sold based on audience guarantees, audience deficiency may result in an obligation to deliver additional advertisements to the customer. To the extent that
we do not satisfy contracted audience ratings, we record deferred revenue until such time that the audience guarantee has been satisfied.
Retransmission — Retransmission revenues are considered licenses of functional intellectual property and are recognized at the point in time the content is transferred to the customer. MVPDs report their subscriber numbers to us generally on a 30- to 90-day lag. Prior to receiving the MVPD reporting, we record revenue based on estimates of the number of subscribers, utilizing historical levels and trends of subscribers for each MVPD.
i
Contract
Balances — Timing of revenue recognition may differ from the timing of invoicing to customers. We record a receivable when revenue is recognized prior to invoicing, or unearned revenue when revenue is recognized subsequent to invoicing.
Payment terms may vary by contract type, although our terms generally include a requirement of payment within 30 to 90 days. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts do not include a significant financing component. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our products and services, not to receive financing from our customers.
The
allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We estimate the allowance based on expected credit losses, including our historical experience of actual losses and known troubled accounts. The allowance for doubtful accounts totaled $i4.9 million at June 30, 2022 and $i4.3
million at December 31, 2021.
We record unearned revenue when cash payments are received in advance of our performance. We generally require amounts payable under advertising contracts with political advertising customers to be paid in advance. Unearned revenue totaled $i23.8 million at June 30, 2022 and is expected to be
recognized within revenue over the next 12 months. Unearned revenue totaled $i20.0 million at December 31, 2021. We recorded $i9.2
million of revenue in the six months ended June 30, 2022 that was included in unearned revenue at December 31, 2021.
i
Leases — We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities and operating lease liabilities in our Condensed Consolidated Balance Sheets.
ROU
assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the implicit rate is not readily determinable for most of our leases, we use our incremental borrowing rate when determining the present value of lease payments. The incremental
F-8
borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of the lease. The operating lease ROU asset also includes any payments made at or before commencement
and is reduced by any lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
iShare-Based Compensation — We have a Long-Term Incentive Plan (the “Plan”) which is described more fully in our 2021 Annual Report on Form 10-K. The Plan provides for the award of incentive and nonqualified stock options, stock appreciation rights, restricted stock
units (RSUs) and unrestricted Class A Common shares and performance units to key employees and non-employee directors.
Share-based compensation costs totaled $i4.6 million and $i6.4 million
for the second quarter of 2022 and 2021, respectively. Year-to-date share-based compensation costs totaled $i13.9 million and $i14.7 million in 2022 and 2021, respectively.
iEarnings
Per Share (“EPS”) — Unvested awards of share-based payments with rights to receive dividends or dividend equivalents, such as our RSUs, are considered participating securities for purposes of calculating EPS. Under the two-class method, we allocate a portion of net income to these participating securities and, therefore, exclude that income from the calculation of EPS for common stock. We do not allocate losses to the participating securities.
i
The following table presents information
about basic and diluted weighted-average shares outstanding:
Three Months Ended June 30,
Six Months Ended June 30,
(in thousands)
2022
2021
2022
2021
Numerator
(for basic and diluted earnings per share)
Income from continuing operations, net of tax
$
i41,740
$
i1,213
$
i64,105
$
i4,716
Less
income allocated to RSUs
(ii872/)
ii—/
(ii1,105/)
ii—/
Less
preferred stock dividends
(i12,577)
(i12,576)
(i25,153)
(i24,219)
Numerator
for basic and diluted earnings per share
$
ii28,291/
$
(ii11,363/)
$
ii37,847/
$
(ii19,503/)
Denominator
Basic
weighted-average shares outstanding
i83,270
i82,381
i83,030
i82,143
Effect
of dilutive securities:
Restricted stock units
i235
i—
i424
i—
Common
stock warrant
i4,315
i—
i6,594
i—
Diluted
weighted-average shares outstanding
i87,820
i82,381
i90,048
i82,143
/
For
the three and six month periods ended June 30, 2021, we incurred a net loss and the inclusion of RSUs would have been anti-dilutive. The June 30, 2021 diluted EPS calculation excludes the effect from i2.5 million of outstanding RSUs that were anti-dilutive. On May 14, 2021, we amended our common stock warrant agreement
with Berkshire Hathaway. Prior to the May 14, 2021 amendment of the common stock warrant agreement, the basic and dilutive EPS calculations excluded the impact of the common stock warrant as the effect would have been anti-dilutive. Following the amendment date, the EPS calculations include the dilutive impact of the common stock warrant. As of June 30, 2022, we had i1.8 million
of outstanding RSUs that were anti-dilutive.
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2. iRecently Adopted and Issued Accounting Standards
i
Recently
Adopted Accounting Standards — In October 2021, the Financial Accounting Standards Board ("FASB") issued new guidance requiring entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with the revenue from contracts with customers accounting standard. The guidance will generally result in an entity recognizing contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before
the acquisition date rather than at fair value. The guidance is effective on a prospective basis for fiscal years beginning after December 15, 2022, with early adoption permitted. We adopted the new guidance effective January 1, 2022. The adoption of the guidance did not have an impact on our condensed consolidated financial statements.
In May 2021, the FASB issued new guidance that clarifies an issuer's accounting for certain modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. Specifically, the guidance provides a "principles-based framework to determine whether an issuer should recognize the modification or exchange as an adjustment to equity or an expense." The guidance is effective for all entities
with fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. We adopted the new guidance effective January 1, 2022. The adoption of the guidance did not have an impact on our condensed consolidated financial statements.
Recently Issued Accounting Standards — In November 2021, the FASB issued new guidance for entities to provide certain disclosures for material government assistance transactions that are accounted for by applying a grant or contribution accounting model by analogy. The guidance is effective for our 2022 annual reporting period and we do not expect adoption of the guidance to have a material impact on our annual consolidated financial statements and related disclosures.
In
March 2020, the FASB issued new guidance that provides optional expedients and exceptions to certain accounting requirements to facilitate the transition away from the use of the London Interbank Offered Rate (LIBOR) and other interbank offered rates. The guidance is effective as of March 12, 2020 and will apply through December 31, 2022 to all entities, subject to meeting certain criteria, that have contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. We will evaluate transactions or contract modifications occurring as a result of reference rate reform to determine whether to apply
the optional guidance on an ongoing basis.
3. iAcquisitions
Nuvyyo Acquisition
On January 5, 2022, we acquired Nuvyyo for net cash consideration totaling $i13.8 million.
Nuvyyo provides consumers DVR product solutions to watch and record free over-the-air HDTV on connected devices. The preliminary purchase price allocation assigned $i7.2 million to intangible assets with useful lives ranging from three to ifive
years, $i7.1 million to goodwill and the remainder was allocated to various working capital and deferred tax liability accounts. The estimated goodwill, which is not tax deductible, reflects the synergies and increased market penetration expected from combining the operations of Nuvyyo with Scripps. We allocated the goodwill to our Other segment.
ION Acquisition
On January 7, 2021, we completed the acquisition of national broadcast
network ION Media Networks, Inc. ("ION") for $i2.65 billion. ION is a national network of broadcast stations and is the largest holder of U.S. broadcast television spectrum. The business distributes its programming through owned Federal Communications Commission-licensed television stations as well as affiliated TV stations, reaching i100 million
of U.S. homes through its over-the-air broadcast and pay TV platforms. The acquisition of ION enabled us to create a full-scale national television networks business by combining the ION network with our other news and entertainment networks.
The transaction was financed with a combination of cash, debt financing and preferred equity financing, including Berkshire Hathaway's $i600 million
preferred equity investment in Scripps. Berkshire Hathaway also received a warrant to purchase up to i23.1 million Class A shares, at an exercise price of $i13
per share.
To comply with ownership rules of the Federal Communications Commission, we simultaneously divested i23 of ION's television stations for a total consideration of $i30 million,
which were purchased by INYO Broadcast Holdings, LLC upon completion of the acquisition. These divested stations became independent affiliates of ION pursuant to long-term affiliation agreements.
F-10
i
The following table summarizes the net cash consideration for the ION transaction.
(in
thousands)
Total purchase price
$
i2,650,000
Plus: Cash acquired
i14,493
Plus:
Working capital
i57,755
Total transaction gross cash consideration
i2,722,248
Less:
Proceeds from ION stations divested
(i30,000)
Total transaction net cash consideration
i2,692,248
Less:
Cash acquired
(i14,493)
Total consideration, net of cash acquired
$
i2,677,755
/
i
The
following table summarizes the final fair values of the ION assets acquired and liabilities assumed at the closing date.
(in thousands)
Accounts receivable
$
i135,006
Other
current assets
i25,353
Programming rights
i169,027
Property
and equipment
i122,520
Operating lease right-of-use assets
i72,717
Other
assets
i2,295
Goodwill
i1,796,148
Indefinite-lived
intangible assets - FCC licenses
i424,200
Amortizable intangible assets:
INYO affiliation agreement
i422,000
Other
affiliation relationships
i22,000
Advertiser relationships
i143,000
Trade
names
i72,000
Accounts payable
(i9,674)
Unearned
revenue
(i13,043)
Accrued expenses
(i15,814)
Current
portion of programming liabilities
(i92,721)
Other current liabilities
(i24,810)
Programming
liabilities
(i191,837)
Deferred tax liabilities
(i265,291)
Operating
lease liabilities
(i78,438)
Other long-term liabilities
(i36,883)
Total
consideration, net of cash acquired
$
i2,677,755
/
Of
the value allocated to amortizable intangible assets, the INYO affiliation agreement has an estimated amortization period of i20 years, advertiser relationships have an estimated amortization period of i7 years, other affiliation relationships have an estimated
amortization period of i10 years and the value allocated to trade names has an estimated amortization period of i10 years.
The goodwill of $i1.8 billion
arising from the transactions consists largely of synergies, economies of scale and other benefits of a larger national broadcast footprint and becoming the largest holder of broadcast spectrum. We allocated the goodwill to our Scripps Networks segment. The transaction is accounted for as a stock acquisition which applies carryover tax basis to the assets and liabilities acquired. The goodwill is not deductible for income tax purposes.
F-11
Pro forma results of operations
i
Pro
forma results of operations, assuming the ION acquisition had taken place at the beginning of 2020, are presented in the following table. The pro forma results do not include Nuvyyo, as the impact of this acquisition, individually or in the aggregate, is not material to prior year results of operations. The pro forma information includes the historical results of operations of Scripps and ION (excluding the results of the divested stations sold to INYO), as well as adjustments for additional depreciation and amortization of the assets acquired, additional interest expense related to the financing of the transactions and other transactional adjustments. The pro forma results do not include efficiencies, cost reductions or synergies expected to result from the acquisition, or retrospective fair value adjustments to the warrant. The unaudited pro forma financial information is not necessarily indicative of the results that actually would have occurred had the acquisition
been completed at the beginning of the period.
The
pro forma results in 2021 reflect a $i32.8 million reversal of ION transaction costs incurred that were already captured in the 2020 pro forma results.
4. iAsset
Write-Downs and Other Charges and Credits
Income from continuing operations before income taxes was affected by the following:
2022 - Acquisition and related integration costs of $i1.6 million in the first six months of 2022 primarily reflect professional service costs associated with the ION acquisition.
During
the first quarter of 2022, we redeemed $i42.2 million of the 2027 Senior Notes, $i26.6 million of the 2029 Senior Notes and $i54.5 million
of the 2031 Senior Notes. The redemptions resulted in a gain on extinguishment of debt of $i1.2 million as the notes were redeemed for total consideration below par value of the notes.
2021 - Acquisition and related integration costs of $i35.3
million in the first six months of 2021 primarily reflect investment banking, legal and professional service costs incurred to complete and integrate the ION Media Networks, Inc. acquisition, which closed on January 7, 2021.
Restructuring costs totaled $i7.6 million in the first six months of 2021. In connection with the Newsy restructuring plan, we incurred charges in the first quarter of 2021 totaling $i7.1 million
for the write-downs of both capitalized carriage agreement payments and certain Newsy intangible assets. The additional restructuring charges in the second quarter were primarily attributed to employee severance and relocation costs.
We redeemed the outstanding principal amount of our 2025 Senior Notes during the second quarter of 2021. The redemption resulted in a loss on extinguishment of debt of $i13.8 million, representing the premium paid to
retire the notes and write-off of unamortized debt financing costs.
During the first quarter of 2021, we completed the sale of our Triton business. The sale generated total net proceeds of $i225 million and we recognized a pre-tax gain from disposition totaling $i81.8 million.
Related
to our outstanding common stock warrant, we recognized non-cash charges totaling $i31.9 million in the second quarter of 2021 and $i99.1 million for
the year-to-date period in 2021. The warrant obligation was being marked-to-market each reporting period with the increase in our common stock price being the significant contributor to the higher valuation. Following an amendment to the common stock warrant agreement on May 14, 2021, the fair value of the warrant was reclassified to equity and no longer marked-to-market each reporting period.
F-12
5. iIncome
Taxes
We file a consolidated federal income tax return, consolidated unitary tax returns in certain states and other separate state income tax returns for our subsidiary companies.
The income tax provision for interim periods is generally determined based upon the expected effective income tax rate for the full year and the tax rate applicable to certain discrete transactions in the interim period. To determine the annual effective income tax rate, we must estimate both the total income (loss) before income tax for the full year and the jurisdictions in which that income (loss) is subject to tax. The actual effective income tax rate for the full year may differ from these estimates if income (loss) before income tax is greater than or less than what was estimated or if the allocation of income (loss) to jurisdictions
in which it is taxed is different from the estimated allocations. We review and adjust our estimated effective income tax rate for the full year each quarter based upon our most recent estimates of income (loss) before income tax for the full year and the jurisdictions in which we expect that income will be taxed.
The effective income tax rate for the six months ended June 30, 2022 and 2021 was i30%
and i87%, respectively. Differences between our effective income tax rate and the U.S. federal statutory rate are the impact of state taxes, foreign taxes, non-deductible expenses, changes in reserves for uncertain tax positions, excess tax benefits or expense from the exercise and vesting of share-based compensation awards ($i1.0
million benefit in 2022 and $i1.7 million benefit in 2021), state deferred rate changes ($i4.3 million
expense in 2022) and state NOL valuation allowance changes ($i1.2 million benefit in 2021). Additionally, in the first quarter of 2021, the income tax provision was impacted by a net discrete tax provision charge of $i17.1 million
related to a taxable gain on the sale of the Triton business and a $i1.0 million discrete tax provision charge related to nondeductible transaction costs for the ION acquisition. Finally, a non-deductible expense of $i102.6 million
recorded in 2021 related to issuance costs and unrealized losses on mark-to-market adjustments recorded on the common stock warrant issued in connection with the ION acquisition.
We recognize state NOL carryforwards as deferred tax assets, subject to valuation allowances. At each balance sheet date, we estimate the amount of carryforwards that are not expected to be used prior to expiration of the carryforward period. The tax effect of the carryforwards that are not expected to be used prior to their expiration is included in the valuation allowance.
6. iRestricted
Cash
At December 31, 2021, we had restricted cash of $i34.3 million. The balance reflected restricted cash held in escrow from the KMGH Denver television station building sale, which was received in January 2022.
F-13
7.
iLeases
We have operating leases for office space, data centers and certain equipment. Our leases have remaining lease terms of i1 year to i30
years, some of which may include options to extend the leases for up to i5 years, and some of which may include options to terminate the leases within i1 year. Operating lease costs recognized in our Condensed Consolidated Statements of Operations for the three months ended June
30, 2022 and 2021 totaled $i6.7 million and $i6.0 million, including short-term lease costs of $i0.3
million and $i0.4 million, respectively. Year-to-date June 30, 2022 and 2021 costs totaled $i13.2
million and $i11.9 million, including short-term lease costs of $i0.7 million and $i0.9 million,
respectively.
i
Other information related to our operating leases was as follows:
(in thousands, except lease term and discount rate)
Estimated
amortization expense of intangible assets for each of the next five years is $i48.2 million for the remainder of 2022, $i94.0
million in 2023, $i92.6 million in 2024, $i89.5 million
in 2025, $i86.0 million in 2026, $i83.2 million in 2027
and $i595.7 million in later years.
* The
fair values of debt are estimated based on either quoted private market transactions or observable estimates provided by third party financial professionals, and as such, are classified within Level 2 of the fair value hierarchy.
/
Scripps Senior Secured Credit Agreement
On January 7, 2021, we entered into the Sixth Amendment to the Third Amended Restated Credit Agreement ("Sixth Amendment"). Under the Sixth Amendment, we have a $i400 million
revolving credit facility ("Revolving Credit Facility") that matures on the earlier of January 2026 or i91 days prior to the stated maturity date for any of our existing loans and our existing unsecured notes that mature within the facility's term. Commitment fees of i0.30%
to i0.50% per annum, based on our leverage ratio, of the total unused commitment are payable under the Revolving Credit Facility. Interest is payable on the Revolving Credit Facility at rates based on LIBOR, plus a margin based on our leverage ratio, ranging from i1.75%
to i2.50%. As of June 30, 2022, we had $i60 million outstanding under the Revolving Credit Facility with an interest rate of i4.17%.
The weighted-average interest rate over the period during which we had a drawn revolver balance in 2022 was i3.49%. As of June 30, 2022 and December 31, 2021, we had outstanding letters of credit totaling $i7.1
million and $i6.9 million, respectively, under the Revolving Credit Facility.
On October 2, 2017, we issued a $i300
million term loan B which matures in October 2024 ("2024 term loan"). Interest is currently payable on the 2024 term loan at a rate based on LIBOR, plus a fixed margin of i2.00%. Interest will reduce to a rate of LIBOR plus a fixed margin of i1.75%
if the Company’s total net leverage, as defined by the amended agreement, is below i2.75. The 2024 term loan requires annual principal payments of $i3
million.
As of June 30, 2022 and December 31, 2021, the interest rate on the 2024 term loan was i3.67% and i2.10%,
respectively. The weighted-average interest rate was i2.77% and i2.10% for the six months ended June 30, 2022 and 2021,
respectively.
On May 1, 2019, we issued a $i765 million term loan B ("2026 term loan") that matures in May 2026. Interest is currently payable on the 2026 term loan at a rate based on LIBOR, plus a fixed margin of i2.56%.
The 2026 term loan requires annual principal payments of $i7.6 million. Deferred financing costs and original issuance discount totaled approximately $i23.0
million with this term loan, which are being amortized over the life of the loan.
As of June 30, 2022 and December 31, 2021, the interest rate on the 2026 term loan was i4.23% and i3.31%,
respectively. The weighted-average interest rate on the 2026 term loan was i3.43% and i3.31% for the six months ended June 30, 2022 and 2021,
respectively.
Under the Sixth Amendment, we also issued an $i800 million term loan B ("2028 term loan") that contributed to the financing of the ION acquisition. The term loan matures in 2028 with interest payable at rates based on LIBOR, plus a fixed margin of i3.00%.
Additionally, the Sixth Amendment provided that the LIBOR rate could not be less than ii0.75/%
for our term loans that mature in 2026 and 2028. The 2028 term loan requires annual principal payments of $i8.0 million. We incurred deferred financing costs totaling $i23.4 million
related to this term loan and the amendment to the Revolving Credit Facility, which are being amortized over the life of the term loan.
As of June 30, 2022 and December 31, 2021, the interest rate on the 2028 term loan was i4.42% and i3.75%,
respectively. The weighted-average interest rate on the 2028 term loan was i3.70% and i3.75% for the six months ended June 30, 2022 and 2021,
respectively.
The Senior Secured Credit Agreement contains covenants that limit our ability to incur additional debt and provides for restrictions on certain payments (dividends and share repurchases). Additionally, we must be in compliance with certain leverage ratios in order to proceed with acquisitions. Our credit agreement also includes a provision that in certain circumstances we must use a portion of excess cash flow to repay debt. We granted the lenders pledges of our equity interests in our subsidiaries and security interests in substantially all other personal property including cash, accounts receivables and equipment. In addition, the Revolving Credit Facility contains a covenant to comply with a maximum first lien net leverage ratio of i4.75
to 1.0 when we have outstanding borrowings on the facility. As of June 30, 2022, we were in compliance with our financial covenants.
2029 Senior Secured Notes
On December 30, 2020, we issued $i550 million of senior secured notes (the "2029 Senior Notes"), which bear interest at a rate of i3.875%
per annum and mature on January 15, 2029. The proceeds of the 2029 Senior Notes were deposited into a segregated escrow account. The escrow account was subsequently released on January 7, 2021 and used toward the financing of the ION acquisition (See Note 3). The 2029 Senior Notes were priced at i100% of par value and interest is payable semi-annually on January 15 and July 15, commencing on July 15, 2021. Prior to January
15, 2024 we may redeem up to i40% of the aggregate principal amount of the 2029 Senior Notes at a redemption price of i103.875%
of the principal amount plus accrued and unpaid interest, if any, to the date of redemption. We may also redeem some or all of the 2029 Senior Notes before January 15, 2024 at a redemption price of i100% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date plus a "make whole" premium. On or after January 15, 2024 and before January 15, 2026, we may redeem the notes, in whole or in
part, at applicable redemption prices noted in the indenture agreement. If we sell certain of our assets or have a change of control, the holders of the 2029 Senior Notes may require us to repurchase some or all of the notes. Our credit agreement also includes a provision that in certain circumstances we must use a portion of excess cash flow to repay debt. The 2029 Senior Notes are guaranteed by us and the majority our subsidiaries and are secured on equal footing with the obligations under the Senior Secured Credit Agreement. Following the release of the proceeds from escrow on January 7, 2021, the notes became secured, on a first lien basis, from pledges of equity interests in our subsidiaries
and by substantially all of the existing and future assets of Scripps. The 2029 Senior Notes contain covenants with which we must comply that are typical for borrowing transactions of this nature.
We incurred approximately $i13.8 million of deferred financing costs in connection with the issuance of the 2029 Senior Notes, which are being amortized over the life of the notes.
2027 Senior
Unsecured Notes
On July 26, 2019, we issued $i500 million of senior unsecured notes, which bear interest at a rate of i5.875%
per annum and mature on July 15, 2027 ("the 2027 Senior Notes"). The 2027 Senior Notes were priced at i100% of par value and interest is payable semi-annually on July 15 and January 15. We may redeem the notes before July 15, 2025, in whole or in part, at applicable redemption prices noted in the indenture agreement. If we sell certain of our assets or have a change of control,
the holders of the 2027 Senior Notes may require us to repurchase some or all of the notes. The 2027 Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by certain of our existing and future domestic restricted subsidiaries. The 2027 Senior Notes contain covenants with which we must comply that are typical for borrowing transactions of this nature. There are no registration rights associated with the 2027 Senior Notes.
We incurred approximately $i10.7 million
of deferred financing costs in connection with the issuance of the 2027 Senior Notes, which are being amortized over the life of the notes.
2031 Senior Unsecured Notes
On December 30, 2020, we issued $i500 million of senior unsecured notes (the "2031 Senior Notes"), which bear interest at a rate of i5.375%
per annum and mature on January 15, 2031. The proceeds of the 2031 Senior Notes were deposited into a segregated escrow account. The escrow account was subsequently released on January 7, 2021 and used toward the financing of the ION acquisition (See Note 3). The 2031 Senior Notes were priced at i100% of par value and interest is payable semi-annually on January 15 and July 15, commencing on July 15, 2021. Prior to January
15, 2024 we may redeem up to i40% of the aggregate principal amount of the 2031 Senior Notes at a redemption price of i105.375%
of the principal amount plus accrued and unpaid interest, if any, to the date of redemption. We may also redeem some or all of the 2031 Senior Notes before January 15, 2026 at a redemption price of i100% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date plus a "make whole" premium. On or after January 15, 2026 and before January 15, 2029, we may redeem the notes, in whole or in
part, at applicable redemption prices noted in the indenture agreement. If we sell certain of our assets or have a change of control, the holders of the 2031 Senior Notes may require us to repurchase some or all of the notes. The 2031 Senior Notes are also guaranteed by us and the majority our subsidiaries. The 2031 Senior Notes contain covenants with which we must comply that are typical for borrowing transactions of this nature.
We incurred approximately $i12.5 million
of deferred financing costs in connection with the issuance of the 2031 Senior Notes, which are being amortized over the life of the notes.
Debt Repurchase Authorization
In May 2021, our Board of Directors provided additional debt repurchase program authorization pursuant to which we may reduce, through redemptions or open market purchases and retirement, a combination of the outstanding principal balance of our senior secured and senior unsecured notes. The authorization currently permits an aggregate principal amount reduction of up to $i439.3 million
and expires on March 1, 2023.
Debt Repurchase Transactions
During the first quarter of 2022, we redeemed $i42.2 million of our 2027 Senior Notes, $i26.6 million
of our 2029 Senior Notes and $i54.5 million of our 2031 Senior Notes. The redemptions resulted in a gain on extinguishment of debt of $i1.2 million
as the notes were redeemed for total consideration below par value of the notes.
On May 15, 2021, we redeemed the $i400 million outstanding principal amount of our senior unsecured notes that were due to mature in 2025. The redemption price was equal to i102.563%
of the aggregate principal amount plus accrued and unpaid interest. The redemption resulted in a loss on extinguishment of debt of $i13.8 million, representing the premium paid to retire the notes and write-off of unamortized debt financing costs. The notes were redeemed with cash on hand.
During the fourth quarter of 2021, we redeemed $i15.4 million
of our 2027 Senior Notes and $i22.0 million of our 2031 Senior Notes.
During the full year of 2021, we made additional principal payments on the 2028 term loan totaling $i125 million.
The following table presents additional information about the change in certain working capital accounts:
Six
Months Ended June 30,
(in thousands)
2022
2021
Accounts receivable
$
(i7,524)
$
i15,223
Other
current assets
(i24,321)
(i19,155)
Accounts
payable
i4,299
i12,591
Accrued
employee compensation and benefits
(i26,024)
(i11,392)
Accrued
interest
(i2,663)
i19,404
Other
accrued liabilities
i1,169
(i15,379)
Unearned
revenue
i2,469
(i4,187)
Other,
net
(i921)
(i134)
Total
$
(i53,516)
$
(i3,029)
/
12.
iEmployee Benefit Plans
We sponsor a noncontributory defined benefit pension plan and non-qualified Supplemental Executive Retirement Plans ("SERPs"). The accrual for future benefits has been frozen in our defined benefit pension plan and SERPs.
We sponsor a defined contribution plan covering substantially all non-union and certain union employees. We match
a portion of employees' voluntary contributions to this plan.
Other union-represented employees are covered by defined benefit pension plans jointly sponsored by us and the union, or by union-sponsored multi-employer plans.
i
The components of the employee benefit plan expense consisted of the following:
Three
Months Ended June 30,
Six Months Ended June 30,
(in thousands)
2022
2021
2022
2021
Interest
cost
$
i4,333
$
i4,103
$
i8,666
$
i8,206
Expected
return on plan assets, net of expenses
(i6,224)
(i5,820)
(i12,448)
(i11,640)
Amortization
of actuarial loss and prior service cost
i1,015
i1,486
i2,029
i2,973
Total
for defined benefit pension plan
(i876)
(i231)
(i1,753)
(i461)
SERPs
i214
i224
i428
i447
Defined
contribution plan
i3,871
i3,702
i8,324
i7,680
Net
periodic benefit cost
$
i3,209
$
i3,695
$
i6,999
$
i7,666
/
We
contributed $i0.5 million to fund current benefit payments for our SERPs during the six months ended June 30, 2022. During the remainder of 2022, we anticipate contributing an additional $i1.3
million to fund the SERPs' benefit payments. We have met our 2022 funding requirements under the provisions of the Pension Funding Equity Act of 2004 and the Pension Protection Act of 2006.
F-17
13. iSegment Information
We
determine our business segments based upon our management and internal reporting structures, as well as the basis on which our chief operating decision maker makes resource-allocation decisions.
Our Local Media segment includes our i61 local broadcast stations and their related digital operations. It is comprised of i18
ABC affiliates, i11 NBC affiliates, inine CBS affiliates and ifour
FOX affiliates. We also have i12 CW affiliates - ifour on full power stations and ieight
on multicast; ifive independent stations and i10 additional low power stations. Our Local Media segment earns revenue primarily from the sale of advertising to local, national and political advertisers and retransmission
fees received from cable operators, telecommunications companies, satellite carriers and over-the-top virtual MVPDs.
Our Scripps Networks segment is comprised of inine national television networks that reach nearly every U.S. television home through free over-the-air broadcast, cable/satellite, connected TV and digital distribution. These operations earn revenue primarily through the sale of advertising.
Our respective business segment results reflect the impact
of intercompany carriage agreements between our local broadcast television stations and our national networks. We also allocate a portion of certain corporate costs and expenses, including accounting, procurement, human resources, employee benefit and information technology to our business segments. These intercompany agreements and allocations are generally amounts agreed upon by management, which may differ from an arms-length amount.
The other segment caption aggregates our operating segments that are too small to report separately. Costs for centrally provided services and certain corporate costs that are not allocated to the business segments are included in shared services and corporate costs. These unallocated corporate costs would also include the costs associated with being a public company. Corporate assets are primarily cash and cash equivalents, restricted cash, property and equipment primarily used for corporate
purposes and deferred income taxes.
Our chief operating decision maker evaluates the operating performance of our business segments and makes decisions about the allocation of resources to our business segments using a measure called segment profit. Segment profit excludes interest, defined benefit pension plan amounts, income taxes, depreciation and amortization, impairment charges, divested operating units, restructuring activities, investment results and certain other items that are included in net income (loss) determined in accordance with accounting principles generally accepted in the United States of America.
F-18
i
Information
regarding our business segments is as follows:
Three Months Ended June 30,
Six Months Ended June 30,
(in thousands)
2022
2021
2022
2021
Segment
operating revenues:
Local Media
$
i355,819
$
i324,837
$
i682,480
$
i637,418
Scripps
Networks
i238,929
i238,735
i477,997
i452,395
Other
i3,893
i5,050
i8,044
i23,171
Intersegment
eliminations
(i4,174)
(i3,545)
(i8,348)
(i6,986)
Total
operating revenues
$
i594,467
$
i565,077
$
i1,160,173
$
i1,105,998
Segment
profit (loss):
Local Media
$
i80,742
$
i64,643
$
i135,135
$
i120,580
Scripps
Networks
i73,297
i107,317
i158,373
i199,520
Other
(i4,349)
(i541)
(i5,462)
i2,740
Shared
services and corporate
(i18,115)
(i19,138)
(i41,326)
(i38,059)
Acquisition
and related integration costs
i—
(i6,686)
(i1,642)
(i35,331)
Restructuring
costs
i—
(i514)
i—
(i7,564)
Depreciation
and amortization of intangible assets
(i41,019)
(i40,751)
(i80,764)
(i80,258)
Gains
(losses), net on disposal of property and equipment
(i1,577)
(i75)
(i4,058)
(i155)
Interest
expense
(i36,011)
(i42,010)
(i72,510)
(i85,892)
Gain
(loss) on extinguishment of debt
i—
(i13,775)
i1,234
(i13,775)
Defined
benefit pension plan income
i662
i7
i1,325
i14
Gain
on sale of Triton business
i—
i—
i—
i81,784
Losses
on stock warrant
i—
(i31,874)
i—
(i99,118)
Miscellaneous,
net
i2,170
(i2,707)
i1,763
(i7,558)
Income
from continuing operations before income taxes
$
i55,800
$
i13,896
$
i92,068
$
i36,928
Depreciation:
Local
Media
$
i10,526
$
i9,854
$
i20,668
$
i19,539
Scripps
Networks
i4,830
i3,983
i9,615
i7,818
Other
i44
i45
i88
i294
Shared
services and corporate
i412
i363
i811
i719
Total
depreciation
$
i15,812
$
i14,245
$
i31,182
$
i28,370
Amortization
of intangible assets:
Local Media
$
i8,981
$
i9,085
$
i17,961
$
i18,682
Scripps
Networks
i14,209
i16,770
i28,418
i29,887
Other
i471
i—
i952
i2,147
Shared
services and corporate
i1,546
i651
i2,251
i1,172
Total
amortization of intangible assets
$
i25,207
$
i26,506
$
i49,582
$
i51,888
Additions
to property and equipment:
Local Media
$
i6,901
$
i13,295
$
i16,214
$
i18,749
Scripps
Networks
i5,227
i8,923
i8,436
i10,412
Other
i36
i—
i45
i430
Shared
services and corporate
i204
i441
i260
i460
Total
additions to property and equipment
$
i12,368
$
i22,659
$
i24,955
$
i30,051
/
F-19
i
A
disaggregation of the principal activities from which we generate revenue is as follows:
Three Months Ended June 30,
Six Months Ended June 30,
(in thousands)
2022
2021
2022
2021
Operating
revenues:
Core advertising
$
i389,261
$
i393,459
$
i781,796
$
i754,762
Political
i24,886
i3,193
i30,832
i4,504
Retransmission
and carriage fees
i170,304
i156,421
i326,124
i312,918
Other
i10,016
i12,004
i21,421
i33,814
Total
operating revenues
$
i594,467
$
i565,077
$
i1,160,173
$
i1,105,998
/
14.
iCapital Stock
Capital Stock — We have itwo classes of common shares, Common Voting shares
and Class A Common shares. The Class A Common shares are only entitled to vote on the election of the greater of ithree or one-third of the directors and other matters as required by Ohio law.
In connection with the January 7, 2021 closing of the ION acquisition, we entered into a Securities Purchase Agreement with Berkshire Hathaway Inc., ("Berkshire Hathaway"),
pursuant to which Berkshire Hathaway provided $i600 million of financing in exchange for i6,000
Series A Preferred Shares of the Company. The Preferred Shares, having a face value of $i100,000 per share, are perpetual and will be redeemable at the option of the Company beginning on the fifth anniversary of issuance, and redeemable at the option of the holders in the event of a Change of Control (as defined in the terms of the Preferred Shares), in each case at a redemption price of i105%
of the face value, plus accrued and unpaid dividends (whether or not declared). As long as the Company pays quarterly dividends in cash on the Preferred Shares, the dividend rate will be i8% per annum. If dividends on the Preferred Shares, which compound quarterly, are not paid in full in cash, the rate will increase to i9%
per annum for the remaining period of time that the Preferred Shares are outstanding. Preferred stock dividends were $i24.0 million and $i21.1 million in 2022 and 2021, respectively.
Under the terms of the Preferred Shares, we are prohibited from paying dividends on and repurchasing our common shares until all Preferred Shares are redeemed.
Class A Common Shares Stock Warrant — In connection with the Preferred Shares issuance, Berkshire Hathaway also received a warrant to purchases up to i23.1 million Class A shares, at an exercise price of $i13
per share. The warrant is exercisable at the holder's option at any time or from time to time, in whole or in part, until the first anniversary of the date on which no Preferred Shares remain outstanding. Since the holder had the option to settle the warrant through cash payment of the exercise price and/or through surrendering portions of their Preferred Shares for the stated par value, a liability was recognized for the fair value of the warrant. The valuation model, classified within Level 3 of the fair value hierarchy, included inputs for the estimated term of the warrant, the historical volatility rate of Scripps common stock and the exercise price for the warrant. At time of issuance, the fair value of the warrant totaled $i181 million
and was being remeasured each reporting period with the changes in fair value of the warrant captured in the gains/losses on stock warrants caption in the Condensed Consolidated Statements of Operations.
On May 14, 2021, the warrant agreement was amended to only permit settlement of the warrant through cash payment of the exercise price. Following the warrant amendment, the warrant is no longer accounted for as a liability award where mark-to-market changes in the fair value of the warrant are captured as gains or losses in our operating results. The fair value of the warrant was remeasured on May 14, 2021 at $i280 million.
The increase in our stock price during 2021 was the primary contributor to the increase in the fair value of the warrant. The value of the liability on the amendment date was reclassified to equity within the caption Additional Paid-in Capital.
F-20
15. iAccumulated Other Comprehensive
Income (Loss)
i
Changes in accumulated other comprehensive income (loss) ("AOCI") by component, including items reclassified out of AOCI, were as follows:
(a)
Actuarial gain (loss) is included in defined benefit pension plan expense in the Condensed Consolidated Statements of Operations
/
F-21
16. iAssets
Held for Sale and Discontinued Operations
Stitcher
On October 16, 2020, we closed on the sale of our Stitcher podcasting business. Stitcher is classified as discontinued operations in our condensed consolidated financial statements.
i
Operating
results for the discontinued Stitcher business were as follows:
Depreciation
and amortization of intangible assets
—
—
Other, net
—
—
Loss from operations
(i600)
(i600)
Pretax
gain on disposal
i6,366
i9,052
Gain
from discontinued operations before income taxes
i5,766
i8,452
Provision
for income taxes
i1,335
i1,957
Income
from discontinued operations, net of tax
$
i4,431
$
i6,495
/
During
the first six months of 2021, the estimate for the contingent earnout consideration was increased by $i9.1 million. The fair value estimate for the contingent earnout consideration was $i19.1 million
as of June 30, 2021.
Triton Digital
During the first quarter of 2021, our Board of Directors approved the sale of our Triton Digital business. On February 16, 2021, we signed a definitive agreement to sell the business and the transaction closed on March 31, 2021. The sale generated total net proceeds of $i225 million
and we recognized a pre-tax gain from disposition totaling $i81.8 million.
F-22
Management’s Discussion and Analysis of Financial Condition and Results of Operations
This
discussion and analysis of financial condition and results of operations is based upon the Condensed Consolidated Financial Statements and the Notes to Condensed Consolidated Financial Statements. You should read this discussion in conjunction with those financial statements.
Forward-Looking Statements
This document contains certain forward-looking statements related to the Company's businesses that are based on management’s current expectations. Forward-looking statements are subject to certain risks, trends and uncertainties, including changes in advertising demand and other economic conditions that could cause actual results to differ materially from the expectations expressed in forward-looking statements. Such forward-looking statements are made
as of the date of this document and should be evaluated with the understanding of their inherent uncertainty. A detailed discussion of principal risks and uncertainties that may cause actual results and events to differ materially from such forward-looking statements is included in the section titled “Risk Factors.” Such Risk Factors include the potential materially adverse impact of the COVID-19 pandemic on the Company’s financial results or condition as a result of financial market volatility, government and regulatory actions, and disruptions to the Company’s businesses. The Company undertakes no obligation to publicly update any forward-looking statements to reflect events or circumstances after the date the
statement is made.
Executive Overview
The E.W. Scripps Company (“Scripps”) is a diverse media enterprise that serves audiences and businesses through a portfolio of 61 local television stations in 41 markets and nine national news and entertainment networks. Our local stations have programming agreements with ABC, NBC, CBS, FOX and the CW. Our nine Scripps Networks – ION, Bounce, Court TV, Defy TV, Grit, ION Mystery, Laff, Newsy and TrueReal – each reaches well over 90% of U.S. television households over the air.We also operate an award-winning investigative reporting newsroom in Washington, D.C., and serve as the longtime steward of one of the nation's largest, most successful and longest-running educational programs, the Scripps National Spelling Bee.
Scripps
is a leader in free, ad-supported television. All of our local stations and national networks reach consumers over the air, and many of our television brands can also be found on free streaming platforms. During 2022, we plan to continue to expand in the fast-growing connected television marketplace as well as continuing to leverage our leadership position in the growing over-the-air marketplace. Currently, one in three non pay-TV homes is watching television over the air alongside their subscription services, and industry data shows the use of free television over antenna is expected to surpass 50 million households in 2025. Scripps has launched a major national consumer marketing campaign to broaden antenna use even more, as well as working with key partners in retail, manufacturing and antenna installation, to help television owners understand the quality and quantity of programming available over the air and the ease of antenna use. In the first six months of 2022,
we incurred $3.1 million of costs related to this advertising campaign.
During the first quarter of 2022, we redeemed $42.2 million of the 2027 Senior Notes at a weighted-average redemption price equal to 100.61% of the aggregate principal amount plus accrued and unpaid interest, we redeemed $26.6 million of the 2029 Senior Notes at a weighted-average redemption price equal to 93.59% of the aggregate principal amount plus accrued and unpaid interest and we redeemed $54.5 million of the 2031 Senior Notes at a weighted-average redemption price equal to 95.64% of the aggregate principal amount plus accrued and unpaid interest. The redemptions resulted in a gain on extinguishment of debt of $1.2 million as the notes were redeemed for total consideration below par value of the notes. The notes were redeemed with cash on hand.
Preferred
stock dividends paid in the first six months of 2022 totaled $24.0 million. Under the terms of Berkshire Hathaway's preferred equity investment in Scripps, we are prohibited from paying dividends on and repurchasing our common shares until all preferred shares are redeemed.
F-23
Results of Operations
The trends and underlying economic conditions affecting the operating performance and future prospects differ for each of our business segments. Accordingly, you should read the following discussion of our consolidated results of operations in conjunction with the discussion of the operating
performance of our business segments that follows.
Consolidated Results of Operations
Consolidated results of operations were as follows:
Three
Months Ended June 30,
Six Months Ended June 30,
(in thousands)
2022
Change
2021
2022
Change
2021
Operating
revenues
$
594,467
5.2
%
$
565,077
$
1,160,173
4.9
%
$
1,105,998
Cost of revenues, excluding depreciation and amortization
(308,510)
14.8
%
(268,683)
(606,344)
13.7
%
(533,078)
Selling,
general and administrative expenses, excluding depreciation and amortization
(154,382)
7.1
%
(144,113)
(307,109)
6.6
%
(288,139)
Acquisition
and related integration costs
—
(6,686)
(1,642)
(35,331)
Restructuring costs
—
(514)
—
(7,564)
Depreciation
and amortization of intangible assets
(41,019)
(40,751)
(80,764)
(80,258)
Gains
(losses), net on disposal of property and equipment
(1,577)
(75)
(4,058)
(155)
Operating income
88,979
104,255
160,256
161,473
Interest
expense
(36,011)
(42,010)
(72,510)
(85,892)
Gain (loss) on extinguishment of debt
—
(13,775)
1,234
(13,775)
Defined
benefit pension plan income
662
7
1,325
14
Gain on sale of Triton business
—
—
—
81,784
Losses
on stock warrant
—
(31,874)
—
(99,118)
Miscellaneous, net
2,170
(2,707)
1,763
(7,558)
Income
from continuing operations before income taxes
55,800
13,896
92,068
36,928
Provision for income taxes
(14,060)
(12,683)
(27,963)
(32,212)
Income
from continuing operations, net of tax
41,740
1,213
64,105
4,716
Income from discontinued operations, net of tax
—
4,431
—
6,495
Net
income
$
41,740
$
5,644
$
64,105
$
11,211
Operating
revenues increased $29.4 million or 5.2% in the second quarter of 2022 and increased $54.2 million or 4.9% for the first six months of 2022 when compared to prior periods. Quarterly revenues benefited from higher political and retransmission revenues in our Local Media group, while Scripps Networks revenue remained flat. Year-to-date revenues benefited from higher core, political and retransmission revenues in our Local Media group and overall growth in our Scripps Networks operations.
Cost of revenues, which is comprised of programming costs and costs associated with distributing our content, increased $39.8 million or 15% in the second quarter of 2022 and increased $73.3 million or 14% for the first six months of 2022 when compared to prior periods. Programming costs, the primary driver of fluctuations in cost of revenues, increased $31.8 million in the second quarter of 2022 and $59.7
million for the first six months of 2022 when compared to prior periods, attributed to higher network affiliation fees at our Local Media stations and Scripps Networks, reflecting contractual rate increases. Additionally, syndicated programming expense increased at Scripps Networks attributed to the new networks launched in 2021 and continued investment in new series programming for the networks.
Selling, general and administrative expenses are primarily comprised of sales, marketing and advertising expenses, research costs and costs related to corporate administrative functions. Selling, general and administrative expenses increased $10.3 million or 7.1% in the second quarter of 2022 and increased $19.0 million or 6.6% for the first six months of 2022 when compared to prior periods. The quarter and year-to-date increases reflect higher business costs across various categories as
F-24
employees
have returned to our station and office locations and resumed more normal operating procedures. Additionally, the year-to-date increase is also driven by higher costs tied to revenue growth at Scripps Networks.
Acquisition and related integration costs of $1.6 million incurred in the first six months of 2022 primarily reflect professional service costs associated with the ION acquisition, which closed on January 7, 2021. The acquisition and related integration costs of $35.3 million in 2021 primarily reflect investment banking, legal and professional service costs incurred to complete and integrate the ION acquisition.
During the first six months of 2021, in connection with the Newsy restructuring plan, we incurred charges totaling $7.6 million. We incurred charges
in the first quarter of 2021 totaling $7.1 million for the write-downs of both capitalized carriage agreement payments and certain Newsy intangible assets. The additional restructuring charges in the second quarter of 2021 were primarily attributed to employee severance and relocation costs.
Depreciation and amortization of intangible assets remained relatively flat at $80.8 million in 2022 compared to $80.3 million in 2021.
Interest expense decreased in the first six months of 2022 due to the additional term loan B payments and bond repurchases made during the second half of 2021 and first quarter of 2022.
During the first quarter of 2022, we redeemed $42.2 million of the 2027 Senior Notes, $26.6 million of the 2029 Senior Notes
and $54.5 million of the 2031 Senior Notes. The redemptions resulted in a gain on extinguishment of debt of $1.2 million as the notes were redeemed for total consideration below par value of the notes. We redeemed the outstanding principal amount of our 2025 Senior Notes during the second quarter of 2021. The redemption resulted in a loss on extinguishment of debt of $13.8 million, representing the premium paid to retire the notes and write-off of unamortized debt financing costs.
In the first quarter of 2021, we recognized an $81.8 million pre-tax gain from the disposition of the Triton business. The transaction closed on March 31, 2021 for total net proceeds of $225 million.
The first six months of 2021 included a $99.1 million non-cash charge related
to our outstanding common stock warrant. The warrant obligation was being marked-to-market each reporting period with an increase in our common stock price being the significant contributor to a higher valuation. Following an amendment to the common stock warrant agreement on May 14, 2021, the fair value of the warrant was reclassified to equity and no longer marked-to-market each reporting period.
The effective income tax rate was 30% and 87% for the six months ended June 30, 2022 and 2021, respectively. Differences between our effective income tax rate and the U.S. federal statutory rate are the impact of state taxes, foreign taxes, non-deductible expenses, changes in reserves for uncertain tax positions, excess tax benefits or expense
from the exercise and vesting of share-based compensation awards ($1.0 million benefit in 2022 and $1.7 million benefit in 2021), state deferred rate changes ($4.3 million expense in 2022) and state NOL valuation allowance changes ($1.2 million benefit in 2021). Additionally, in the first quarter of 2021, the income tax provision was impacted by a net discrete tax provision charge of $17.1 million related to a taxable gain on the sale of the Triton business, a $1.0 million discrete tax provision charge related to nondeductible transaction costs for the ION acquisition and a non-deductible expense of $102.6 million related to issuance costs and unrealized losses on mark-to-market adjustments recorded on the common stock warrant issued in connection with the ION acquisition.
F-25
Business
Segment Results — As discussed in the Notes to Condensed Consolidated Financial Statements, our chief operating decision maker evaluates the operating performance of our business segments using a measure called segment profit. Segment profit excludes interest, defined benefit pension plan amounts, income taxes, depreciation and amortization, impairment charges, divested operating units, restructuring activities, investment results and certain other items that are included in net income (loss) determined in accordance with accounting principles generally accepted in the United States of America.
Items excluded from segment profit generally result from decisions made in prior periods or from decisions made by corporate executives rather than the managers of the business segments. Depreciation and amortization charges are the result of decisions made in prior periods regarding the allocation of resources
and are, therefore, excluded from the measure. Generally, our corporate executives make financing, tax structure and divestiture decisions. Excluding these items from measurement of our business segment performance enables us to evaluate business segment operating performance based upon current economic conditions and decisions made by the managers of those business segments in the current period.
Our respective business segment results reflect the impact of intercompany carriage agreements between our local broadcast television stations and our national networks. We also allocate a portion of certain corporate costs and expenses, including accounting, procurement, human resources, employee benefit and information technology to our business segments. These intercompany agreements and allocations are generally amounts agreed upon by management, which may differ from an arms-length amount.
The
other segment caption aggregates our operating segments that are too small to report separately. Costs for centrally provided services and certain corporate costs that are not allocated to the business segments are included in shared services and corporate costs. These unallocated corporate costs would also include the costs associated with being a public company. Corporate assets are primarily cash and cash equivalents, restricted cash, property and equipment primarily used for corporate purposes and deferred income taxes.
Information regarding the operating performance of our business segments and a reconciliation of such information to the condensed consolidated financial statements is as follows:
Three
Months Ended June 30,
Six Months Ended June 30,
(in thousands)
2022
Change
2021
2022
Change
2021
Segment
operating revenues:
Local Media
$
355,819
9.5
%
$
324,837
$
682,480
7.1
%
$
637,418
Scripps
Networks
238,929
0.1
%
238,735
477,997
5.7
%
452,395
Other
3,893
(22.9)
%
5,050
8,044
(65.3)
%
23,171
Intersegment
eliminations
(4,174)
17.7
%
(3,545)
(8,348)
19.5
%
(6,986)
Total operating revenues
$
594,467
5.2
%
$
565,077
$
1,160,173
4.9
%
$
1,105,998
Segment
profit (loss):
Local Media
$
80,742
24.9
%
$
64,643
$
135,135
12.1
%
$
120,580
Scripps
Networks
73,297
(31.7)
%
107,317
158,373
(20.6)
%
199,520
Other
(4,349)
(541)
(5,462)
2,740
Shared
services and corporate
(18,115)
(5.3)
%
(19,138)
(41,326)
8.6
%
(38,059)
Acquisition and related integration costs
—
(6,686)
(1,642)
(35,331)
Restructuring
costs
—
(514)
—
(7,564)
Depreciation and amortization of intangible assets
(41,019)
(40,751)
(80,764)
(80,258)
Gains
(losses), net on disposal of property and equipment
(1,577)
(75)
(4,058)
(155)
Interest expense
(36,011)
(42,010)
(72,510)
(85,892)
Gain
(loss) on extinguishment of debt
—
(13,775)
1,234
(13,775)
Defined benefit pension plan income
662
7
1,325
14
Gain
on sale of Triton business
—
—
—
81,784
Losses on stock warrant
—
(31,874)
—
(99,118)
Miscellaneous,
net
2,170
(2,707)
1,763
(7,558)
Income from continuing operations before income taxes
$
55,800
$
13,896
$
92,068
$
36,928
F-26
Local
Media — Our Local Media segment includes our 61 local broadcast stations and their related digital operations. It is comprised of 18 ABC affiliates, 11 NBC affiliates, nine CBS affiliates and four FOX affiliates. We also have 12 CW affiliates - four on full power stations and eight on multicast; five independent stations and 10 additional low power stations. Our Local Media segment earns revenue primarily from the sale of advertising to local, national and political advertisers and retransmission fees received from cable operators, telecommunications companies, satellite carriers and over-the-top virtual MVPDs.
National television networks offer affiliates a variety of programming and sell the majority of advertising within those programs. In addition to network programs, we broadcast internally produced local and national programs, syndicated programs, sporting events and other
programs of interest in each station's market. News is the primary focus of our locally produced programming.
The operating performance of our Local Media group is most affected by local and national economic conditions, particularly conditions within the automotive and services categories, and by the volume of advertising purchased by campaigns for elective office and political issues. The demand for political advertising is significantly higher in the third and fourth quarters of even-numbered years.
Operating results for our Local Media segment were as follows:
Three
Months Ended June 30,
Six Months Ended June 30,
(in thousands)
2022
Change
2021
2022
Change
2021
Segment
operating revenues:
Core advertising
$
157,671
(2.0)
%
$
160,956
$
315,008
0.6
%
$
313,094
Political
24,009
3,193
29,777
4,504
Retransmission
and carriage fees
171,126
9.4
%
156,361
330,708
6.0
%
312,020
Other
3,013
(30.4)
%
4,327
6,987
(10.4)
%
7,800
Total
operating revenues
355,819
9.5
%
324,837
682,480
7.1
%
637,418
Segment costs and expenses:
Employee
compensation and benefits
105,254
(2.1)
%
107,461
209,970
(2.0)
%
214,289
Programming
118,847
8.4
%
109,598
237,450
8.0
%
219,928
Other
expenses
50,976
18.2
%
43,135
99,925
20.9
%
82,621
Total costs and expenses
275,077
5.7
%
260,194
547,345
5.9
%
516,838
Segment
profit
$
80,742
24.9
%
$
64,643
$
135,135
12.1
%
$
120,580
Revenues
Total
Local Media revenues increased $31.0 million or 9.5% in the second quarter of 2022 and $45.1 million or 7.1% for the first six months of 2022 when compared to prior periods. Core advertising revenues decreased $3.3 million in the second quarter of 2022 but increased $1.9 million for the first six months of 2022 when compared to prior periods. Strong core performance in the first quarter of 2022 was offset by softness in the second quarter of 2022 reflecting the impact of macroeconomic conditions. Political revenues in this election year increased $20.8 million in the second quarter of 2022 and $25.3 million for the first six months of 2022 when compared to prior periods. Retransmission revenues increased $14.8 million in the second quarter of 2022 and $18.7 million for the first six months of 2022 when compared to prior periods. While retransmission revenues have been affected by subscriber losses from traditional MVPDs, rate increases have more than offset those subscriber
declines.
Costs and expenses
Employee compensation and benefits decreased $2.2 million or 2.1% in the second quarter of 2022 and $4.3 million or 2.0% for the first six months of 2022 when compared to prior periods reflecting lower employee benefit costs.
Programming expense increased $9.2 million or 8.4% in the second quarter of 2022 and $17.5 million or 8.0% for the first six months of 2022 when compared to prior periods. Network affiliation fees have been increasing industry-wide due to higher rates on renewals, as well as contractual rate increases during the terms of the affiliation agreements.
F-27
Other
expenses increased $7.8 million or 18% in the second quarter of 2022 and $17.3 million or 21% for the first six months of 2022 when compared to prior periods. The increase for the quarter and year-to-date periods reflects increased business costs across various categories as employees have returned to our station locations and resumed more normal operating procedures.
Scripps Networks — Our Scripps Networks segment is comprised of nine national television networks - ION, Bounce, Court TV, Defy TV, Grit, ION Mystery, Laff, Newsy and TrueReal. The networks reach nearly every U.S. television home through free over-the-air broadcast, cable/satellite, connected TV and digital distribution. Our Scripps Networks group earns revenue primarily through the sale of advertising. The advertising received by our national networks can be subject to seasonal and cyclical variations and
is most impacted by national economic conditions.
Operating results for our Scripps Networks segment were as follows:
Three
Months Ended June 30,
Six Months Ended June 30,
(in thousands)
2022
Change
2021
2022
Change
2021
Segment
operating revenues:
Total
operating revenues
$
238,929
0.1
%
$
238,735
$
477,997
5.7
%
$
452,395
Segment costs and expenses:
Employee
compensation and benefits
29,827
28.8
%
23,162
59,442
27.0
%
46,799
Programming
87,779
35.8
%
64,651
169,778
34.4
%
126,278
Other
expenses
48,026
10.1
%
43,605
90,404
13.3
%
79,798
Total costs and expenses
165,632
26.0
%
131,418
319,624
26.4
%
252,875
Segment
profit
$
73,297
(31.7)
%
$
107,317
$
158,373
(20.6)
%
$
199,520
On January
7, 2021, we acquired the national broadcast network ION. The inclusion of operating results from this business for the periods subsequent to the acquisition impacts the comparability of our consolidated and segment operating results.
Revenues
Scripps Networks revenues, which are primarily comprised of advertising revenues, remained flat in the second quarter of 2022 and increased $25.6 million or 5.7% for the first six months of 2022 when compared to prior periods. The amount of advertising revenue we earn is a function of the pricing negotiated with advertisers, the number of advertising spots sold and the audience impressions delivered. During 2022, our Scripps Networks brands have experienced softness within the national advertising marketplace as macroeconomic challenges, such as cost inflation and supply chain disruptions, have
impacted advertiser budgets. Scripps Networks revenues for the quarter and year-to-date periods reflect the benefits of incremental revenues earned from the July 2021 launch of Defy TV and TrueReal networks, year-over-year increases in advertising spots sold and higher overall pricing in general market advertising, offset by the impacts of lower ratings in our key monetized demographics and a decline in direct response advertising rates that reflects the softness in the national advertising marketplace. Year-to-date revenues in 2022 also reflect the benefit of incremental revenues earned from the acquisition of ION, which closed on January 7, 2021.
Costs and expenses
Employee compensation and benefits increased $6.7 million or 29% in the second quarter of 2022 and $12.6 million
or 27% for the first six months of 2022 when compared to prior periods, reflecting additional hiring to support recent network launches.
Programming expense increased $23.1 million or 36% in the second quarter of 2022 and $43.5 million or 34% for the first six months of 2022 when compared to prior periods. The increase is driven by the launch of two new networks in July 2021, continued investment in new series programming for the networks and higher affiliate fees reflecting both contractual rate increases and increased distribution across the Scripps Networks' businesses.
F-28
Other expenses increased $4.4 million or 10% in the second quarter of
2022 and $10.6 million or 13% for the first six months of 2022 when compared to prior periods. The quarter and year-to-date increases include higher rating services costs, reflecting the addition of new networks in 2021 as well as increases from the contractual fees that are tied to our revenues, and the incurrence of higher costs supporting the growth of our Scripps Networks' businesses and the return of more normal business operating procedures. The year-to-date increase is also driven by higher national representation commission costs tied to revenue growth.
Liquidity and Capital Resources
Our primary source of liquidity is our available cash and borrowing capacity under our revolving credit facility.
Our primary source of cash is generated from our ongoing operations. Cash from operations can be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic. At the end of June 30, 2022, we had approximately $58.2 million of cash on hand and $333 million of additional borrowing capacity under our revolving credit facility. Based on our current business plan, we believe our cash flow from operations will provide sufficient liquidity to meet the Company’s operating needs for the next 12 months.
Cash Flows
Six
Months Ended June 30,
(in thousands)
2022
2021
Net cash provided by operating activities
$
106,585
$
90,243
Net
cash used in investing activities
(47,243)
(2,470,419)
Net cash provided by (used in) financing activities
(101,585)
840,131
Effect of foreign exchange rates on cash, cash equivalents and restricted cash
—
(20)
Decrease
in cash, cash equivalents and restricted cash
$
(42,243)
$
(1,540,065)
Cash flows from operating activities
Cash provided by operating activities increased $16.3 million in 2022 compared to 2021. Year-over-year change in cash provided by operating activities was favorably impacted from a $33.7 million decrease in acquisition and integration costs and cash outlay decrease of $35.8 million for programming investments in excess of programming amortization. These favorable operating cash impacts were partially offset by a $38.1 million year-over-year decrease
in segment profit and a $13.2 million increase in interest paid. In January 2022, all three of our senior notes had interest payments due versus only one having a payment due in January 2021.
Cash flows from investing activities
Cash used in investing activities was $47.2 million in 2022 compared to $2.5 billion in 2021. Investing activities in 2022 reflect the $13.8 million acquisition of Nuvyyo. Investing activities in 2021 reflect the $2.7 billion acquisition of ION and $225 million of net proceeds from the sale of our Triton business. Capital expenditures were $27.5 million in 2022 and $28.0 million in 2021.
Cash flows from financing activities
Cash used in financing activities was $102 million
in 2022 compared to cash provided by financing activities of $840 million in 2021. During the first quarter of 2022, we redeemed $42.2 million of our 2027 Senior Notes, $26.6 million of our 2029 Senior Notes and $54.5 million of our 2031 Senior Notes. During the first half of 2022, we also had net debt proceeds of $60 million, reflecting borrowings on our Revolving Credit Facility. On January 7, 2021, we issued an $800 million term loan B and $600 million of preferred equity shares to Berkshire Hathaway in connection with the closing of the ION acquisition. During the second quarter of 2021, we redeemed the $400 million outstanding principal amount of our 2025 Senior Notes and we made an additional principal payment on the 2028 term loan totaling $50 million. Preferred stock dividends were $24.0 million and $21.1 million in the first six months of 2022 and 2021, respectively.
F-29
Debt
On
January 7, 2021, we entered into the Sixth Amendment to the Third Amended Restated Credit Agreement ("Sixth Amendment"). Under the Sixth Amendment, we have a $400 million Revolving Credit Facility that matures on the earlier of January 2026 or 91 days prior to the stated maturity date for any of our existing loans and our existing unsecured notes that mature within the facility’s term. In connection with our credit agreement, we also have $1.7 billion of outstanding balance on our term loans. The annual required principal payments on these term loans total $18.6 million and the earliest maturity date for any of the loans is October of 2024.
As of June 30, 2022, we also have $1.4 billion of senior notes outstanding. Senior secured notes totaling $523 million bear interest at a
rate of 3.875% per annum and mature on January 15, 2029. Senior unsecured notes have a total outstanding principal balance of $866 million. The senior notes that mature on July 15, 2027 bear interest at 5.875% per annum and the senior notes that mature on January 15, 2031 bear interest at a rate of 5.375% per annum. Additionally, as of June 30, 2022, we had $60 million outstanding under the Revolving Credit Facility with an interest rate of 4.17%.
Debt Covenants
Our term loans and our unsecured notes do not have maintenance covenants. The earliest maturity of our term loans and unsecured notes is the fourth quarter of 2024. Our revolving credit facility
permits maximum leverage of 4.75 times the two-year average earnings before interest, taxes, depreciation and amortization (EBITDA) as defined by our credit agreement, through second quarter of 2022, at which point it steps down to 4.5 times. Based upon our current outlook, we expect to be in compliance with that covenant.
Debt Repurchase Program
In May 2021, our Board of Directors provided additional debt repurchase program authorization pursuant to which we may reduce, through redemptions or open market purchases and retirement, a combination of the outstanding principal balance of our senior secured and senior unsecured notes. The authorization currently permits an aggregate principal amount reduction of up to $439.3 million and expires on March 1, 2023.
Equity
With the closing of the ION acquisition, we entered into a Securities Purchase Agreement with Berkshire Hathaway Inc., ("Berkshire Hathaway"), pursuant to which Berkshire Hathaway provided $600 million of financing in exchange for 6,000 Series A Preferred Shares of the Company. The Preferred Shares, having a face value of $100,000 per share, are perpetual and will be redeemable at the option of the Company beginning on the fifth anniversary of issuance, and redeemable at the option of the holders in the event of a Change of Control (as defined in the terms of the Preferred Shares), in each case at a redemption price of 105% of the face value, plus accrued and unpaid dividends (whether or not declared). Preferred stock dividends, effective through June
15, 2022, were paid in the first six months of 2022 totaling $24.0 million. Berkshire Hathaway also received a warrant to purchase up to 23.1 million Class A shares, at an exercise price of $13 per share.
Under the terms of the Preferred Shares, we are prohibited from paying dividends on and repurchasing our common shares until all Preferred Shares are redeemed.
Other
During the remainder of 2022, we anticipate contributing an additional $1.3 million to fund the SERPs' benefit payments. We have met our 2022 funding requirements under the provisions of the Pension Funding Equity Act of 2004 and the Pension Protection Act of 2006.
Off-Balance Sheet Arrangements and Contractual Obligations
Off-Balance
Sheet Arrangements
There have been no material changes to the off-balance sheet arrangements disclosed in our 2021 Annual Report on Form 10-K.
F-30
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) requires us to make a variety of decisions that affect reported amounts and related disclosures, including the selection of appropriate accounting principles and the assumptions on which
to base accounting estimates. In reaching such decisions, we apply judgment based on our understanding and analysis of the relevant circumstances, including our historical experience, actuarial studies and other assumptions. We are committed to incorporating accounting principles, assumptions and estimates that promote the representational faithfulness, verifiability, neutrality and transparency of the accounting information included in the financial statements.
Note 1 to the Consolidated Financial Statements included in our 2021 Annual Report on Form 10-K describes the significant accounting policies we have selected for use in the preparation of our financial statements and related disclosures. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made and if different
estimates that reasonably could have been used or changes in estimates that are likely to occur could materially change the financial statements. We believe the accounting for acquisitions, goodwill and indefinite-lived intangible assets and pension plans to be our most critical accounting policies and estimates. A detailed description of these accounting policies is included in the Critical Accounting Policies section of Management's Discussion and Analysis of Financial Condition and Results of Operations included in our 2021 Annual Report on Form 10-K.
Recent Accounting Guidance
Refer to Note 2. Recently Adopted and Issued Accounting Standards of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for further discussion.
F-31
Quantitative
and Qualitative Disclosures About Market Risk
Earnings and cash flow can be affected by, among other things, economic conditions and interest rate changes. We are also exposed to changes in the market value of our investments.
Our objectives in managing interest rate risk are to limit the impact of interest rate changes on our earnings and cash flows and to reduce overall borrowing costs. We may use derivative financial instruments to modify exposure to risks from fluctuations in interest rates. In accordance with our policy, we do not use derivative instruments unless there is an underlying exposure, and we do not hold or enter into financial instruments for speculative trading purposes.
We are subject to interest rate risk associated with our credit agreement, as borrowings bear interest at LIBOR plus respective fixed margin spreads
or spreads determined relative to our Company’s leverage ratio. Accordingly, the interest we pay on our borrowings is dependent on interest rate conditions and the timing of our financing needs. With consideration for the LIBOR floor that is present in our term loans due in 2026 and 2028, a 100 basis point increase in LIBOR would increase annual interest expense on our variable rate borrowings by approximately $16.9 million.
The following table presents additional information about market-risk-sensitive financial instruments:
Financial
instruments subject to interest rate risk:
Revolving credit facility
$
60,000
$
60,000
$
—
$
—
Senior
secured notes, due in 2029
523,356
434,386
550,000
553,377
Senior unsecured notes, due in 2027
442,473
388,270
484,655
508,282
Senior
unsecured notes, due in 2031
423,463
338,770
477,958
488,712
Term loan, due in 2024
285,750
281,285
287,250
286,999
Term
loan, due in 2026
740,243
710,633
744,049
744,168
Term loan, due in 2028
663,000
629,021
667,000
667,740
Long-term
debt, including current portion
$
3,138,285
$
2,842,365
$
3,210,912
$
3,249,278
Financial
instruments subject to market value risk:
Investments held at cost
$
20,631
(a)
$
15,431
(a)
(a) Includes
securities that do not trade in public markets, thus the securities do not have readily determinable fair values. We estimate the fair value of these securities approximates their carrying value.
F-32
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Scripps management is responsible for establishing and maintaining adequate internal controls designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Company’s internal control over financial reporting includes those policies and procedures that:
1.
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
2.
provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and the directors of the Company; and
3.
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that
could have a material effect on the financial statements.
All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error, collusion and the improper overriding of controls by management. Accordingly, even effective internal control can only provide reasonable but not absolute assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal control may vary over time.
The effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) was evaluated as of the date of the financial statements. This evaluation was carried out under the supervision of and with the participation of management, including the Chief Executive Officer and the Chief Financial
Officer. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures are effective.
There were no changes to the Company's internal controls over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
F-33
Dates Referenced Herein and Documents Incorporated by Reference
