Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 1.83M
2: EX-31.A Certification -- §302 - SOA'02 HTML 25K
3: EX-31.B Certification -- §302 - SOA'02 HTML 25K
4: EX-32.A Certification -- §906 - SOA'02 HTML 22K
5: EX-32.B Certification -- §906 - SOA'02 HTML 22K
11: R1 Cover Page HTML 77K
12: R2 Condensed Consolidated Balance Sheets (Unaudited) HTML 146K
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 25K
Income (Loss) (Unaudited) (Parenthetical)
17: R7 Condensed Consolidated Statements of Cash Flows HTML 145K
(Unaudited)
18: R8 Condensed Consolidated Statements of Equity HTML 57K
(Unaudited)
19: R9 Condensed Consolidated Statements of Equity HTML 29K
(Unaudited) (Parenthetical)
20: R10 Summary of Significant Accounting Policies HTML 65K
21: R11 Recently Adopted and Issued Accounting Standards HTML 37K
22: R12 Acquisitions HTML 58K
23: R13 Asset Write-Downs and Other Charges and Credits HTML 28K
24: R14 Income Taxes HTML 29K
25: R15 Restricted Cash HTML 24K
26: R16 Leases HTML 49K
27: R17 Goodwill and Other Intangible Assets HTML 58K
28: R18 Long-Term Debt HTML 56K
29: R19 Other Liabilities HTML 33K
30: R20 Supplemental Cash Flow Information HTML 36K
31: R21 Employee Benefit Plans HTML 49K
32: R22 Segment Information HTML 127K
33: R23 Capital Stock HTML 27K
34: R24 Accumulated Other Comprehensive Income (Loss) HTML 75K
35: R25 Assets Held for Sale and Discontinued Operations HTML 38K
36: R26 Summary of Significant Accounting Policies HTML 70K
(Policies)
37: R27 Summary of Significant Accounting Policies HTML 45K
(Tables)
38: R28 Acquisitions (Tables) HTML 57K
39: R29 Leases (Tables) HTML 52K
40: R30 Goodwill and Other Intangible Assets (Tables) HTML 82K
41: R31 Long-Term Debt (Tables) HTML 40K
42: R32 Other Liabilities (Tables) HTML 33K
43: R33 Supplemental Cash Flow Information (Tables) HTML 36K
44: R34 Employee Benefit Plans (Tables) HTML 44K
45: R35 Segment Information (Tables) HTML 122K
46: R36 Accumulated Other Comprehensive Income (Loss) HTML 75K
(Tables)
47: R37 Assets Held for Sale and Discontinued Operations HTML 39K
(Tables)
48: R38 Summary of Significant Accounting Policies - HTML 34K
Narrative (Details)
49: R39 Summary of Significant Accounting Policies - HTML 54K
Earnings Per Share (Details)
50: R40 Acquisitions - Acquisition Information (Details) HTML 79K
51: R41 Acquisitions - Acquisition Purchase Summary HTML 39K
(Details)
52: R42 Acquisitions - Schedule of Assets Acquired and HTML 82K
Liabilities Assumed (Details)
53: R43 Acquisitions - Pro Forma Information (Details) HTML 34K
54: R44 Asset Write-Downs and Other Charges and Credits HTML 68K
(Details)
55: R45 Income Taxes (Details) HTML 35K
56: R46 Restricted Cash (Details) HTML 24K
57: R47 Leases - Narrative (Details) HTML 37K
58: R48 Leases - Information Related to Operating Leases HTML 34K
(Details)
59: R49 Leases - Lease Cost Information (Details) HTML 26K
60: R50 Leases - Minimum Lease Payments (Details) HTML 40K
61: R51 Goodwill and Other Intangible Assets - Goodwill HTML 43K
(Details)
62: R52 Goodwill and Other Intangible Assets - Summary of HTML 44K
Other Intangible Assets (Details)
63: R53 Goodwill and Other Intangible Assets - Narrative HTML 37K
(Details)
64: R54 Long-Term Debt - Components of Long-Term Debt HTML 52K
(Details)
65: R55 Long-Term Debt - Narrative (Details) HTML 179K
66: R56 Other Liabilities (Details) HTML 37K
67: R57 Supplemental Cash Flow Information (Details) HTML 41K
68: R58 Employee Benefit Plans - Components of Expense HTML 42K
(Details)
69: R59 Employee Benefit Plans - Narrative (Details) HTML 31K
70: R60 Segment Information - Narrative (Details) HTML 45K
71: R61 Segment Information - Schedule of Business HTML 101K
Segments (Details)
72: R62 Segment Information - Disaggregation of Revenue HTML 36K
Generating Activities (Details)
73: R63 Capital Stock (Details) HTML 62K
74: R64 Accumulated Other Comprehensive Income (Loss) HTML 49K
(Details)
75: R65 Assets Held for Sale and Discontinued Operations - HTML 39K
Narrative (Details)
76: R66 Assets Held for Sale and Discontinued Operations - HTML 49K
Operating Results of Discontinued Operations
(Details)
79: XML IDEA XML File -- Filing Summary XML 145K
77: XML XBRL Instance -- ssp-20220930_htm XML 2.26M
78: EXCEL IDEA Workbook of Financial Reports XLSX 153K
7: EX-101.CAL XBRL Calculations -- ssp-20220930_cal XML 285K
8: EX-101.DEF XBRL Definitions -- ssp-20220930_def XML 749K
9: EX-101.LAB XBRL Labels -- ssp-20220930_lab XML 1.68M
10: EX-101.PRE XBRL Presentations -- ssp-20220930_pre XML 1.03M
6: EX-101.SCH XBRL Schema -- ssp-20220930 XSD 163K
80: JSON XBRL Instance as JSON Data -- MetaLinks 447± 664K
81: ZIP XBRL Zipped Folder -- 0000832428-22-000037-xbrl Zip 427K
(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 September 30, 2022, there were i71,558,717 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
Except as updated for the risk of attracting and retaining skilled employees in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2022, 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.
Item 2. Unregistered
Sales of Equity Securities and Use of Proceeds
There were no sales of unregistered equity securities during the quarter ended September 30, 2022.
Item 3. Defaults Upon Senior Securities
There were no defaults upon senior securities during the quarter ended September 30, 2022.
The Company's unaudited Condensed Consolidated Financial Statements and related Notes for the three
and nine months ended September 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 — $i5,053 and $i4,256)
i559,602
i572,525
FCC
repack receivable
i146
i773
Miscellaneous
i54,876
i28,503
Total
current assets
i652,847
i702,281
Investments
i25,200
i21,632
Property
and equipment
i436,789
i456,945
Operating
lease right-of-use assets
i111,583
i124,821
Goodwill
i2,920,466
i2,913,384
Other
intangible assets
i1,845,508
i1,910,311
Programming
i413,733
i510,316
Miscellaneous
i19,098
i18,624
Total
Assets
$
i6,425,224
$
i6,658,314
Liabilities
and Equity
Current liabilities:
Accounts payable
$
i86,683
$
i83,931
Unearned
revenue
i32,837
i20,000
Current
portion of long-term debt
i18,612
i18,612
Accrued
liabilities:
Employee compensation and benefits
i56,518
i68,545
Programming
liability
i161,478
i180,269
Accrued
interest
i15,051
i34,973
Miscellaneous
i42,365
i50,667
Other
current liabilities
i53,932
i54,883
Total
current liabilities
i467,476
i511,880
Long-term
debt (less current portion)
i2,977,724
i3,129,393
Deferred
income taxes
i377,557
i356,777
Operating
lease liabilities
i100,082
i113,892
Other
liabilities (less current portion)
i443,174
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
i411,668
i409,939
Common
stock, $ii0.01/ par:
Class A
— authorized: ii240,000,000/ shares; issued
and outstanding: ii71,558,717/ and ii70,646,007/
shares
i716
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
i412,503
i410,765
Additional
paid-in capital
i1,440,399
i1,428,460
Retained
earnings
i277,742
i205,118
Accumulated
other comprehensive loss, net of income taxes
(i71,433)
(i73,909)
Total
equity
i2,059,211
i1,970,434
Total
Liabilities and Equity
$
i6,425,224
$
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 September 30,
Nine Months Ended September 30,
(in thousands, except per share data)
2022
2021
2022
2021
Operating Revenues:
Advertising
$
i436,779
$
i394,730
$
i1,249,407
$
i1,153,996
Retransmission
and carriage
i165,464
i151,828
i491,588
i464,746
Other
i9,858
i8,685
i31,279
i42,499
Total
operating revenues
i612,101
i555,243
i1,772,274
i1,661,241
Operating
Expenses:
Cost of revenues, excluding depreciation and amortization
i312,054
i285,775
i918,398
i818,853
Selling,
general and administrative expenses, excluding depreciation and amortization
i154,858
i140,745
i461,967
i428,884
Acquisition
and related integration costs
i—
i251
i1,642
i35,582
Restructuring
costs
i—
i1,872
i—
i9,436
Depreciation
i15,340
i14,939
i46,522
i43,309
Amortization
of intangible assets
i24,225
i27,147
i73,807
i79,035
Losses
(gains), net on disposal of property and equipment
i1,593
(i31,109)
i5,651
(i30,954)
Total
operating expenses
i508,070
i439,620
i1,507,987
i1,384,145
Operating
income
i104,031
i115,623
i264,287
i277,096
Interest
expense
(i41,917)
(i41,013)
(i114,427)
(i126,905)
Gain
(loss) on extinguishment of debt
i—
i—
i1,234
(i13,775)
Defined
benefit pension plan income (expense)
i683
(i264)
i2,008
(i250)
Gain
on sale of Triton business
i—
i—
i—
i81,784
Losses
on stock warrant
i—
i—
i—
(i99,118)
Miscellaneous,
net
(i494)
i674
i1,269
(i6,884)
Income
from continuing operations before income taxes
i62,303
i75,020
i154,371
i111,948
Provision
for income taxes
i16,055
i16,654
i44,018
i48,866
Income
from continuing operations, net of tax
i46,248
i58,366
i110,353
i63,082
Income
from discontinued operations, net of tax
i—
i332
i—
i6,827
Net
income
i46,248
i58,698
i110,353
i69,909
Preferred
stock dividends
(i12,576)
(i12,577)
(i37,729)
(i36,796)
Net
income attributable to the shareholders of The E.W. Scripps Company
$
i33,672
$
i46,121
$
i72,624
$
i33,113
Net
income per basic share of common stock attributable to the shareholders of The E.W. Scripps Company:
Income from continuing operations
$
i0.39
$
i0.54
$
i0.85
$
i0.31
Income
from discontinued operations
i—
i—
i—
i0.08
Net
income per basic share of common stock attributable to the shareholders of The E.W. Scripps Company
$
i0.39
$
i0.54
$
i0.85
$
i0.39
Net
income per diluted share of common stock attributable to the shareholders of The E.W. Scripps Company:
Income from continuing operations
$
i0.38
$
i0.49
$
i0.80
$
i0.29
Income
from discontinued operations
i—
i—
i—
i0.08
Net
income per diluted share of common stock attributable to the shareholders of The E.W. Scripps Company:
$
i0.38
$
i0.50
$
i0.80
$
i0.37
See
notes to condensed consolidated financial statements.
The sum of net income per share from continuing and discontinued operations may not equal the reported total net income 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 September 30,
Nine Months Ended September 30,
(in thousands)
2022
2021
2022
2021
Net income
$
i46,248
$
i58,698
$
i110,353
$
i69,909
Changes
in defined benefit pension plans, net of tax of $i253, $i421,
$i768 and $i1,170
i813
i1,337
i2,467
i3,710
Other
i3
i19
i9
i57
Total
comprehensive income attributable to preferred and common stockholders
$
i47,064
$
i60,054
$
i112,829
$
i73,676
See
notes to condensed consolidated financial statements.
F-4
The E.W. Scripps Company
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30,
(in
thousands)
2022
2021
Cash Flows from Operating Activities:
Net income
$
i110,353
$
i69,909
Income
from discontinued operations, net of tax
i—
i6,827
Income
from continuing operations, net of tax
i110,353
i63,082
Adjustments
to reconcile net income from continuing operations to net cash flows from operating activities:
Depreciation and amortization
i120,329
i122,344
Losses
(gains), net on disposal of property and equipment
i5,651
(i30,954)
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
(i20,930)
(i53,811)
Restructuring
impairment charges
i—
i7,050
Deferred
income taxes
i18,213
i13,287
Stock
and deferred compensation plans
i14,530
i21,091
Pension
contributions, net of income/expense
(i27,805)
(i24,652)
Other
changes in certain working capital accounts, net
(i28,812)
(i13,109)
Miscellaneous,
net
i5,982
i15,038
Net
cash provided by operating activities from continuing operations
i196,277
i150,475
Net
cash provided by operating activities from discontinued operations
i—
i6,077
Net
operating activities
i196,277
i156,552
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
(i35,548)
(i45,026)
Purchase
of investments
(i6,387)
(i11,785)
Proceeds
from FCC repack
i2,650
i18,198
Miscellaneous,
net
(i2,101)
i33,686
Net
cash used in investing activities from continuing operations
(i55,183)
(i2,460,165)
Net
cash provided by investing activities from discontinued operations
i—
i10,000
Net
investing activities
(i55,183)
(i2,450,165)
Cash
Flows from Financing Activities:
Proceeds from issuance of long-term debt
i—
i800,000
Proceeds
from issuance of preferred stock
i—
i600,000
Payments
on long-term debt
(i158,503)
(i513,959)
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
(i36,000)
(i33,067)
Tax
payments related to shares withheld for vested stock and RSUs
(i8,507)
(i6,725)
Miscellaneous,
net
(i341)
i203
Net
cash provided by (used in) financing activities from continuing operations
(i203,351)
i774,077
Effect
of foreign exchange rates on cash, cash equivalents and restricted cash
i—
(i20)
Decrease
in cash, cash equivalents and restricted cash
(i62,257)
(i1,519,556)
Cash,
cash equivalents and restricted cash:
Beginning of year
i100,480
i1,626,021
End
of period
$
i38,223
$
i106,465
Supplemental
Cash Flow Disclosures
Interest paid
$
i123,788
$
i110,816
Income
taxes paid
$
i56,679
$
i74,345
Non-cash
investing information
Capital expenditures included in accounts payable
$
i2,676
$
i3,682
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 $i6,725 for the nine months ended September 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 $i5.1 million at September 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 $i32.8 million at September 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 $i13.8
million of revenue in the nine months ended September 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 $i3.9 million and $i3.6 million
for the third quarter of 2022 and 2021, respectively. Year-to-date share-based compensation costs totaled $i17.8 million and $i18.3 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 September 30,
Nine Months Ended September 30,
(in thousands)
2022
2021
2022
2021
Numerator
(for basic and diluted earnings per share)
Income from continuing operations, net of tax
$
i46,248
$
i58,366
$
i110,353
$
i63,082
Less
income allocated to RSUs
(ii885/)
(ii1,337/)
(ii1,831/)
(ii738/)
Less
preferred stock dividends
(i12,576)
(i12,577)
(i37,729)
(i36,796)
Numerator
for basic and diluted earnings per share
$
ii32,787/
$
ii44,452/
$
ii70,793/
$
ii25,548/
Denominator
Basic
weighted-average shares outstanding
i83,360
i82,482
i83,141
i82,258
Effect
of dilutive securities
i1,964
i7,649
i5,056
i4,644
Diluted
weighted-average shares outstanding
i85,324
i90,131
i88,197
i86,902
/
As
of September 30, 2022 and 2021, we had i0.2 million and less than i0.1 million
of outstanding RSUs that were anti-dilutive, respectively. 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.
F-9
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 $i33.4 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 nine 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 $i35.6
million in the first nine 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 $i9.4 million in the first nine months of 2021 due to 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 2021 were primarily attributed to employee severance, relocation costs and Nielsen contract costs.
We completed the building sale for our Denver KMGH television station in the third quarter of 2021. The sale resulted in recognition of a pre-tax gain totaling $i32.6 million.
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.
F-12
Related to our outstanding common stock warrant, we recognized non-cash charges totaling $i99.1
million for the year-to-date period of 2021. The warrant obligation was being marked-to-market each reporting period with the increase in our common stock price being the significant contributor to the higher valuation. Following an amendment to the common stock warrant agreement on May 14, 2021, the fair value of the warrant was reclassified to equity and no longer marked-to-market each reporting period.
5. iIncome
Taxes
We file a consolidated federal income tax return, consolidated unitary tax returns in certain states and other separate state income tax returns for our subsidiary companies.
The income tax provision for interim periods is generally determined based upon the expected effective income tax rate for the full year and the tax rate applicable to certain discrete transactions in the interim period. To determine the annual effective income tax rate, we must estimate both the total income (loss) before income tax for the full year and the jurisdictions in which that income (loss) is subject to tax. The actual effective income tax rate for the full year may differ from these estimates if income (loss) before income tax is greater than or less than what was estimated or if the allocation of income (loss) to jurisdictions
in which it is taxed is different from the estimated allocations. We review and adjust our estimated effective income tax rate for the full year each quarter based upon our most recent estimates of income (loss) before income tax for the full year and the jurisdictions in which we expect that income will be taxed.
The effective income tax rate for the nine months ended September 30, 2022 and 2021 was i29%
and i44%, respectively. Differences between our effective income tax rate and the U.S. federal statutory rate are the impact of state taxes, foreign taxes, non-deductible expenses, changes in reserves for uncertain tax positions, excess tax benefits or expense from the exercise and vesting of share-based compensation awards ($i1.0
million benefit in 2022 and $i1.8 million benefit in 2021), state deferred rate changes ($i4.0 million
expense in 2022) and state NOL valuation allowance changes ($i1.2 million benefit in 2021). Additionally, a non-deductible expense of $i102.6 million
was 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 September
30, 2022 and 2021 totaled $i6.6 million and $i6.1 million, including short-term lease costs of $i0.4
million and $i0.5 million, respectively. Year-to-date September 30, 2022 and 2021 costs totaled $i19.8
million and $i18.0 million, including short-term lease costs of $i1.1 million and $i1.4 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 $i23.5 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 September 30, 2022, we had ino borrowings under the Revolving Credit Facility. The weighted-average interest rate over the period during
which we had a drawn revolver balance in 2022 was i4.65%. As of September 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 September 30, 2022 and December 31, 2021, the interest rate on the 2024 term loan was i5.12% and i2.10%,
respectively. The weighted-average interest rate was i4.21% and i2.09% for the nine months ended September 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 September 30, 2022 and December 31, 2021, the interest rate on the 2026 term loan was i5.68% and i3.31%,
respectively. The weighted-average interest rate on the 2026 term loan was i4.77% and i3.31% for the nine months ended September 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 September 30, 2022 and December 31, 2021, the interest rate on the 2028 term loan was i5.87% and i3.75%,
respectively. The weighted-average interest rate on the 2028 term loan was i4.96% and i3.75% for the nine months ended September 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 September 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.
During the third quarter of 2022, we made an additional principal payment on the 2028 term loan totaling $i25 million and wrote off $i0.5 million
of deferred financing costs related to this term loan to interest expense.
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:
Nine
Months Ended September 30,
(in thousands)
2022
2021
Accounts receivable
$
i13,621
$
i16,473
Other
current assets
(i23,620)
i11,777
Accounts
payable
i10,141
i7,840
Accrued
employee compensation and benefits
(i12,959)
(i2,378)
Accrued
interest
(i19,922)
(i121)
Other
accrued liabilities
(i5,534)
(i19,269)
Unearned
revenue
i11,539
(i5,224)
Other,
net
(i2,078)
(i22,207)
Total
$
(i28,812)
$
(i13,109)
/
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.
F-17
i
The components of the employee benefit plan expense consisted of the following:
Three
Months Ended September 30,
Nine Months Ended September 30,
(in thousands)
2022
2021
2022
2021
Interest
cost
$
i4,333
$
i4,143
$
i12,999
$
i12,349
Expected
return on plan assets, net of expenses
(i6,227)
(i5,786)
(i18,675)
(i17,426)
Amortization
of actuarial loss and prior service cost
i997
i1,684
i3,026
i4,657
Total
for defined benefit pension plan
(i897)
i41
(i2,650)
(i420)
SERPs
i214
i223
i642
i670
Defined
contribution plan
i3,258
i3,197
i11,582
i10,877
Net
periodic benefit cost
$
i2,575
$
i3,461
$
i9,574
$
i11,127
/
We
contributed $i0.8 million to fund current benefit payments for our SERPs and provided a $i25 million
discretionary contribution to our defined benefit pension plan during the nine months ended September 30, 2022. During the remainder of 2022, we anticipate contributing an additional $i1.1 million to fund the SERPs' benefit payments and do not expect any additional contributions to our defined pension plan.
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 September 30,
Nine Months Ended September 30,
(in thousands)
2022
2021
2022
2021
Segment
operating revenues:
Local Media
$
i378,438
$
i331,316
$
i1,060,918
$
i968,734
Scripps
Networks
i235,401
i226,550
i713,398
i678,945
Other
i2,594
i1,207
i10,638
i24,378
Intersegment
eliminations
(i4,332)
(i3,830)
(i12,680)
(i10,816)
Total
operating revenues
$
i612,101
$
i555,243
$
i1,772,274
$
i1,661,241
Segment
profit (loss):
Local Media
$
i99,607
$
i65,391
$
i234,742
$
i185,971
Scripps
Networks
i71,984
i83,327
i230,357
i282,847
Other
(i6,791)
(i2,227)
(i12,253)
i513
Shared
services and corporate
(i19,611)
(i17,768)
(i60,937)
(i55,827)
Acquisition
and related integration costs
i—
(i251)
(i1,642)
(i35,582)
Restructuring
costs
i—
(i1,872)
i—
(i9,436)
Depreciation
and amortization of intangible assets
(i39,565)
(i42,086)
(i120,329)
(i122,344)
Gains
(losses), net on disposal of property and equipment
(i1,593)
i31,109
(i5,651)
i30,954
Interest
expense
(i41,917)
(i41,013)
(i114,427)
(i126,905)
Gain
(loss) on extinguishment of debt
i—
i—
i1,234
(i13,775)
Defined
benefit pension plan income (expense)
i683
(i264)
i2,008
(i250)
Gain
on sale of Triton business
i—
i—
i—
i81,784
Losses
on stock warrant
i—
i—
i—
(i99,118)
Miscellaneous,
net
(i494)
i674
i1,269
(i6,884)
Income
from continuing operations before income taxes
$
i62,303
$
i75,020
$
i154,371
$
i111,948
Depreciation:
Local
Media
$
i9,997
$
i9,877
$
i30,665
$
i29,416
Scripps
Networks
i4,889
i4,645
i14,504
i12,463
Other
i45
i44
i133
i338
Shared
services and corporate
i409
i373
i1,220
i1,092
Total
depreciation
$
i15,340
$
i14,939
$
i46,522
$
i43,309
Amortization
of intangible assets:
Local Media
$
i8,520
$
i12,016
$
i26,481
$
i30,698
Scripps
Networks
i14,209
i14,503
i42,627
i44,390
Other
i471
i—
i1,423
i2,147
Shared
services and corporate
i1,025
i628
i3,276
i1,800
Total
amortization of intangible assets
$
i24,225
$
i27,147
$
i73,807
$
i79,035
Additions
to property and equipment:
Local Media
$
i6,803
$
i8,317
$
i23,017
$
i27,066
Scripps
Networks
i2,241
i6,960
i10,677
i17,372
Other
i9
i—
i54
i430
Shared
services and corporate
i71
i869
i331
i1,329
Total
additions to property and equipment
$
i9,124
$
i16,146
$
i34,079
$
i46,197
/
F-19
i
A
disaggregation of the principal activities from which we generate revenue is as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
(in
thousands)
2022
2021
2022
2021
Operating revenues:
Core
advertising
$
i371,064
$
i387,643
$
i1,152,860
$
i1,142,405
Political
i65,715
i7,087
i96,547
i11,591
Retransmission
and carriage fees
i165,464
i151,828
i491,588
i464,746
Other
i9,858
i8,685
i31,279
i42,499
Total
operating revenues
$
i612,101
$
i555,243
$
i1,772,274
$
i1,661,241
/
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 $i36.0 million and $i33.1 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)
Pretax
gain on disposal
i520
i9,572
Gain
from discontinued operations before income taxes
i520
i8,972
Provision
for income taxes
i188
i2,145
Income
from discontinued operations, net of tax
$
i332
$
i6,827
/
During
the first nine months of 2021, the estimate for the contingent earnout consideration was increased by $i9.1 million. In the third quarter of 2021, we received payment of $i19.1 million
for the 2020 earnout period. No value was assigned to the 2021 contingent earnout consideration.
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 have continued to expand in the fast-growing connected television marketplace as well as continued 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 nine months of 2022,
we incurred $8.5 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. During the third quarter of 2022, we made an additional principal
payment on the 2028 term loan totaling $25 million.
Preferred stock dividends paid in the first nine months of 2022 totaled $36.0 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 September 30,
Nine Months Ended September 30,
(in thousands)
2022
Change
2021
2022
Change
2021
Operating
revenues
$
612,101
10.2
%
$
555,243
$
1,772,274
6.7
%
$
1,661,241
Cost of revenues, excluding depreciation and amortization
(312,054)
9.2
%
(285,775)
(918,398)
12.2
%
(818,853)
Selling,
general and administrative expenses, excluding depreciation and amortization
(154,858)
10.0
%
(140,745)
(461,967)
7.7
%
(428,884)
Acquisition
and related integration costs
—
(251)
(1,642)
(35,582)
Restructuring costs
—
(1,872)
—
(9,436)
Depreciation
and amortization of intangible assets
(39,565)
(42,086)
(120,329)
(122,344)
Gains
(losses), net on disposal of property and equipment
(1,593)
31,109
(5,651)
30,954
Operating income
104,031
115,623
264,287
277,096
Interest
expense
(41,917)
(41,013)
(114,427)
(126,905)
Gain (loss) on extinguishment of debt
—
—
1,234
(13,775)
Defined
benefit pension plan income (expense)
683
(264)
2,008
(250)
Gain on sale of Triton business
—
—
—
81,784
Losses
on stock warrant
—
—
—
(99,118)
Miscellaneous, net
(494)
674
1,269
(6,884)
Income
from continuing operations before income taxes
62,303
75,020
154,371
111,948
Provision for income taxes
(16,055)
(16,654)
(44,018)
(48,866)
Income
from continuing operations, net of tax
46,248
58,366
110,353
63,082
Income from discontinued operations, net of tax
—
332
—
6,827
Net
income
$
46,248
$
58,698
$
110,353
$
69,909
Operating
revenues increased $56.9 million or 10% in the third quarter of 2022 and increased $111 million or 6.7% for the first nine months of 2022 when compared to prior periods. Quarterly and year-to-date revenues benefited from higher political and retransmission revenues in our Local Media group and growth in our Scripps Networks operations.
Cost of revenues, which is comprised of programming costs and costs associated with distributing our content, increased $26.3 million or 9.2% in the third quarter of 2022 and increased $99.5 million or 12% for the first nine months of 2022 when compared to prior periods. Programming costs, the primary driver of fluctuations in cost of revenues, increased $21.3 million in the third quarter of 2022 and $81.0 million for the first nine 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, continued investment in new series programming for the networks and an increase in production of our original programming.
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 $14.1 million or 10% in the third quarter of 2022 and increased $33.1 million or 7.7% for the first nine months of 2022 when compared to prior periods. The quarter and year-to-date increases reflect higher business costs across various categories as 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.
F-24
Acquisition and related integration costs of $1.6 million incurred in the first nine 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 $35.6 million in 2021 primarily reflect investment banking, legal and professional service costs incurred to complete and integrate the ION acquisition.
During the first nine months of 2021, in connection with the Newsy restructuring plan, we incurred
charges totaling $9.4 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 2021 were primarily attributed to employee severance, relocation costs and Nielson contract costs.
Depreciation and amortization of intangible assets remained relatively flat at $120 million in 2022 compared to $122 million in 2021.
Gains from the disposal of property and equipment in the third quarter of 2021 reflected a $32.6 million gain from the sale of our KMGH Denver station's building.
Interest
expense increased $0.9 million in the third quarter of 2022 when compared to the prior year quarter due to rising interest rates during 2022. Interest expense decreased $12.5 million for the first nine months of 2022 when compared to the prior year due to the additional term loan B payments and bond repurchases made during the second half of 2021 and first three quarters 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 nine 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 29% and 44% for the nine months ended September 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 $1.8 million benefit in 2021), state deferred rate changes ($4.0 million expense in 2022) and state NOL valuation allowance changes ($1.2 million benefit in 2021). Additionally, a non-deductible expense of $102.6 million was 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.
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 September 30,
Nine Months Ended September 30,
(in thousands)
2022
Change
2021
2022
Change
2021
Segment
operating revenues:
Local Media
$
378,438
14.2
%
$
331,316
$
1,060,918
9.5
%
$
968,734
Scripps
Networks
235,401
3.9
%
226,550
713,398
5.1
%
678,945
Other
2,594
1,207
10,638
(56.4)
%
24,378
Intersegment
eliminations
(4,332)
13.1
%
(3,830)
(12,680)
17.2
%
(10,816)
Total operating revenues
$
612,101
10.2
%
$
555,243
$
1,772,274
6.7
%
$
1,661,241
Segment
profit (loss):
Local Media
$
99,607
52.3
%
$
65,391
$
234,742
26.2
%
$
185,971
Scripps
Networks
71,984
(13.6)
%
83,327
230,357
(18.6)
%
282,847
Other
(6,791)
(2,227)
(12,253)
513
Shared
services and corporate
(19,611)
10.4
%
(17,768)
(60,937)
9.2
%
(55,827)
Acquisition and related integration costs
—
(251)
(1,642)
(35,582)
Restructuring
costs
—
(1,872)
—
(9,436)
Depreciation and amortization of intangible assets
(39,565)
(42,086)
(120,329)
(122,344)
Gains
(losses), net on disposal of property and equipment
(1,593)
31,109
(5,651)
30,954
Interest expense
(41,917)
(41,013)
(114,427)
(126,905)
Gain
(loss) on extinguishment of debt
—
—
1,234
(13,775)
Defined benefit pension plan income (expense)
683
(264)
2,008
(250)
Gain
on sale of Triton business
—
—
—
81,784
Losses on stock warrant
—
—
—
(99,118)
Miscellaneous,
net
(494)
674
1,269
(6,884)
Income from continuing operations before income taxes
$
62,303
$
75,020
$
154,371
$
111,948
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 September 30,
Nine Months Ended September 30,
(in thousands)
2022
Change
2021
2022
Change
2021
Segment
operating revenues:
Core advertising
$
146,899
(12.2)
%
$
167,294
$
461,907
(3.8)
%
$
480,388
Political
63,183
7,087
92,960
11,591
Retransmission
and carriage fees
164,742
7.3
%
153,466
495,450
6.4
%
465,486
Other
3,614
4.2
%
3,469
10,601
(5.9)
%
11,269
Total
operating revenues
378,438
14.2
%
331,316
1,060,918
9.5
%
968,734
Segment costs and expenses:
Employee
compensation and benefits
106,341
(2.9)
%
109,557
316,311
(2.3)
%
323,846
Programming
123,983
12.3
%
110,376
361,433
9.4
%
330,304
Other
expenses
48,507
5.5
%
45,992
148,432
15.4
%
128,613
Total costs and expenses
278,831
4.9
%
265,925
826,176
5.5
%
782,763
Segment
profit
$
99,607
52.3
%
$
65,391
$
234,742
26.2
%
$
185,971
Revenues
Total
Local Media revenues increased $47.1 million or 14% in the third quarter of 2022 and $92.2 million or 9.5% for the first nine months of 2022 when compared to prior periods. Retransmission revenues increased $11.3 million in the third quarter of 2022 and $30.0 million for the first nine 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. Political revenues in this election year increased $56.1 million in the third quarter of 2022 and $81.4 million for the first nine months of 2022 when compared to prior periods. Core advertising revenues decreased $20.4 million or 12% in the third quarter of 2022 and $18.5 million or 3.8% for the first nine months of 2022 when compared to prior periods. Strong core performance in the first quarter of 2022 was offset by softness during the second and third quarters of 2022, reflecting
the impact of macroeconomic conditions and the displacement of spots from political advertisements.
Costs and expenses
Employee compensation and benefits decreased $3.2 million or 2.9% in the third quarter of 2022 and $7.5 million or 2.3% for the first nine months of 2022 when compared to prior periods reflecting lower bonus, stock compensation and employee benefit costs.
Programming expense increased $13.6 million or 12% in the third quarter of 2022 and $31.1 million or 9.4% for the first nine 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 $2.5 million or 5.5% in the third quarter of 2022 and $19.8 million or 15% for the first nine months of 2022 when compared to prior periods. The increases for the quarter and year-to-date periods reflect 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 September 30,
Nine Months Ended September 30,
(in thousands)
2022
Change
2021
2022
Change
2021
Segment
operating revenues:
Total
operating revenues
$
235,401
3.9
%
$
226,550
$
713,398
5.1
%
$
678,945
Segment costs and expenses:
Employee
compensation and benefits
30,227
14.7
%
26,361
89,669
22.6
%
73,160
Programming
84,562
10.7
%
76,398
254,340
25.5
%
202,676
Other
expenses
48,628
20.2
%
40,464
139,032
15.6
%
120,262
Total costs and expenses
163,417
14.1
%
143,223
483,041
21.9
%
396,098
Segment
profit
$
71,984
(13.6)
%
$
83,327
$
230,357
(18.6)
%
$
282,847
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, increased $8.9 million or 3.9% in the third quarter of 2022 and $34.5 million or 5.1% for the first nine 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 year-over-year increases in advertising spots available for sale, the expanded distribution of our networks on Connected TV platforms 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 July 2021 launch of the Defy TV and TrueReal networks and the acquisition of ION, which closed on January 7, 2021.
Costs and expenses
Employee compensation and benefits increased
$3.9 million or 15% in the third quarter of 2022 and $16.5 million or 23% for the first nine months of 2022 when compared to prior periods, reflecting additional hiring to support recent network launches.
Programming expense increased $8.2 million or 11% in the third quarter of 2022 and $51.7 million or 25% for the first nine 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 and additional seasons of programming for the networks, increased production of original programming and higher affiliate fees reflecting both contractual rate increases and increased distribution across the Scripps Networks' businesses.
F-28
Other
expenses increased $8.2 million or 20% in the third quarter of 2022 and $18.8 million or 16% for the first nine months of 2022 when compared to prior periods. The quarter and year-to-date increases include higher rating services costs, reflecting increases from the contractual fees that are tied to our revenues, an increase in advertising and promotion costs 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 the addition of new networks in 2021, as well as, 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 September 30, 2022, we had approximately $38.2 million of cash on hand and $393 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
Nine
Months Ended September 30,
(in thousands)
2022
2021
Net cash provided by operating activities
$
196,277
$
156,552
Net
cash used in investing activities
(55,183)
(2,450,165)
Net cash provided by (used in) financing activities
(203,351)
774,077
Effect of foreign exchange rates on cash, cash equivalents and restricted cash
—
(20)
Decrease
in cash, cash equivalents and restricted cash
$
(62,257)
$
(1,519,556)
Cash flows from operating activities
Cash provided by operating activities increased $39.7 million in 2022 compared to 2021. Year-over-year change in cash provided by operating activities was favorably impacted from a $33.9 million decrease in acquisition and related integration costs and cash outlay decrease of $32.9 million for programming investments in excess of programming amortization. These favorable operating cash impacts were partially offset by a $21.6 million year-over-year
decrease in segment profit and a $13.0 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 $55.2 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, $225 million of net proceeds from the sale of our Triton business and $34.3 million of proceeds for the sale of our Denver KMGH television station's building. Capital expenditures were $35.5 million in 2022 and $45.0 million in 2021.
Cash flows from financing activities
Cash
used in financing activities was $203 million in 2022 compared to cash provided by financing activities of $774 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 third quarter of 2022, we made an additional principal payment on the 2028 term loan totaling $25 million. 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 2021, we redeemed the $400 million outstanding principal amount of our 2025 Senior Notes and we made additional principal payments on the 2028 term loan totaling $100 million. Preferred stock dividends were $36.0 million and $33.1 million in the first nine 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 September 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.
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 4.5 times the two-year average earnings before interest, taxes, depreciation and amortization (EBITDA) as defined by our credit
agreement. 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 September 15, 2022, were paid in the first nine months of 2022 totaling
$36.0 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 $1.1 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. A 100 basis point increase in LIBOR would increase annual interest expense on our variable rate borrowings by approximately $16.6 million.
The following table presents additional information about market-risk-sensitive financial instruments:
Financial
instruments subject to interest rate risk:
Revolving credit facility
$
—
$
—
$
—
$
—
Senior
secured notes, due in 2029
523,356
418,685
550,000
553,377
Senior unsecured notes, due in 2027
442,473
386,058
484,655
508,282
Senior
unsecured notes, due in 2031
423,463
323,949
477,958
488,712
Term loan, due in 2024
285,000
281,972
287,250
286,999
Term
loan, due in 2026
738,340
715,731
744,049
744,168
Term loan, due in 2028
636,000
616,920
667,000
667,740
Long-term
debt, including current portion
$
3,048,632
$
2,743,315
$
3,210,912
$
3,249,278
Financial
instruments subject to market value risk:
Investments held at cost
$
20,736
(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