What changed in this filing

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Item 1A. Risk Factors

2021-02-26 compared with 2020-02-28 · 48 added, 27 removed, 152 unchanged (33% of the section changed)

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Risks Related to Our Businesses

The COVID-19 pandemic has materially affected how we, our vendors and our customers are operating, and the extent to which this pandemic will impact our future results of operations and overall financial condition remains uncertain.

The global spread of COVID-19 has created significant volatility, uncertainty and disruption in economies around the world.

The extent to which the coronavirus pandemic impacts our operations, financial results and financial condition will depend on numerous evolving factors that we may not be able to accurately predict, including:

governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic;

the impact of the pandemic on economic activity and actions taken in response;

the effect on our customers, including advertisers, and their demand for our services;

our ability to sell and provide our services, including as a result of travel restrictions and individuals working from home;

the ability of our customers to pay for our services;

and any closures of our offices and facilities or those of our vendors and our customers.

Customers may also slow down decision making, delay planned advertising or seek to modify or terminate existing agreements with us.

The duration of the pandemic and the extent of the impact on us and others depend on future developments out of our control that are unknown at this time, such as the severity and transmission rate of the virus, the extent and effectiveness of vaccination programs and containment actions, the pace of development of cures or vaccines, and the impact of these and other factors on our business, employees, vendors and customers.

Any of these factors could exacerbate other risks and uncertainties disclosed in and incorporated by reference into this offering memorandum and could materially adversely affect our business, financial condition and/or results of operations.

We expect to derive the majority of our revenues from advertising spending, which is affected by numerous factors.

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• Television stations have significant exposure to advertising in the automotive, retail and services industries.

Our national networks have significant exposure to advertising in the pharmaceutical, food and beverage, and retail industries.

Advertising within these industries may decline and we may not be able to secure replacement advertisers.

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If we are unable to respond to any or all of these factors, our advertising revenues could decline and affect our profitability.

We have made significant investments in our National Media businesses and expect to continue to make significant investments in those businesses in the coming years.

Investments we make in our National Media businesses may not perform as expected.

In recent years, we have acquired Triton, Katz, Stitcher and Newsy for an aggregate purchase price of almost $550 million.

Our National Media businesses are not mature businesses and will require additional capital to gain distribution and build audiences, or, in the case of Triton, build customer base.

The markets for these businesses may not develop as we expect, we may face greater competition than we anticipate, and our competition may have greater financial resources.

The success of these investments depends on a number of factors, including timely development and market acceptance of the products and services that these businesses offer.

The growth of direct content-to-consumer delivery channels may fragment our television audiences.

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These fees have been increasing from renewal to renewal over the past several years.

Katz has carriage agreements with local television broadcasters and cable and satellite providers to carry one or more of the Katz networks.

Through these agreements, each of the networks reaches approximately 90% or more of all U.S.

These contracts require Katz to make fixed fee payments and generally have three to five-year terms.

ION's broadcast stations are carried by cable and satellite operators in their local television markets pursuant to the FCC’s “must carry” rules.

Additionally, in certain of our markets, our national networks are carried by local television broadcasters and cable and satellite operators pursuant to negotiated carriage agreements.

These contracts typically require us to make fixed fee payments and generally have three to five-year terms.

There is no assurance that we will be able to reach network affiliation or carriage agreements in the future.

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In addition, loss of any of the "Big 4" network affiliations would result in materially lower retransmission revenue.

The loss of Katz carriage agreements would reduce our advertising revenues and affect our profitability.

The loss of carriage agreements for our national networks would reduce our advertising revenues and affect our profitability.

Our retransmission consent revenue may be adversely affected by renewals of retransmission consent agreements, by declines in the number of subscribers to multichannel video programming distributor ("MVPD") services, by new technologies for the distribution of video programming, or by revised government regulations.

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We cannot predict the outcome of these and other proceedings that address the use of new technologies to challenge traditional means of redistributing broadcast programming or their possible impact on our operations.

We make investments in television programming and podcast content rights (collectively "content") in advance of knowing whether that particular content will be popular enough for us to recoup our costs.

We make investments in television programming ("content") in advance of knowing whether that particular content will be popular enough for us to recoup our costs.

Additionally, if costs to acquire this content increase or this content becomes more difficult to obtain, our operating results may be adversely affected.

We incur significant costs for the purchase of television programming and podcast content rights.

We incur significant costs for the purchase of television programming.

We may have to purchase content several years in advance or enter into multi-year agreements, resulting in the commitment of significant costs in advance of knowing whether the content will be popular with its audience.

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• Pursuant to FCC rules, local television stations must elect every three years to either (1) require cable operators and/or direct broadcast satellite carriers to carry the stations’ over-the-air signals or (2) enter into retransmission consent negotiations for carriage.

At present, all but one of our stations have retransmission consent agreements with cable operators and satellite carriers.

At present, all but two of our stations have retransmission consent agreements with cable operators and satellite carriers.

If our retransmission consent agreements are terminated or not renewed, or if our broadcast signals are distributed on less-favorable terms, our ability to compete effectively may be adversely affected.

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If the FCC renews a license with substantial conditions or modifications (including renewing the license for a term of fewer than eight years), it could have a material adverse effect on the affected station’s revenue potential.

As discussed under Federal Regulation of Broadcasting, the FCC in 2017 completed an auction in which some television licensees voluntarily auctioned away their spectrum rights and 84 MHz of broadcast spectrum was reallocated to other uses.

As a result, many television stations, including 27 Company-owned full-power and Class A stations, were required to change their operating frequencies, and the FCC is setting tight deadlines for the completion of these facility changes in order to make the reallocated spectrum promptly available to the wireless service buyers.

Depending on factors such as the availability of specialized technical assistance and custom-made equipment, weather issues, and, for stations near international borders, the cooperation of foreign governments, some stations could confront substantial costs and difficulty in completing these relocations within the allotted time, adversely affecting these stations’ over-the-air service.

Scripps has received construction permits to complete the required changes for its stations and is expeditiously pursuing the steps necessary to complete this process.

As of February 28, 2020, 18 of the 27 affected Scripps stations were licensed on their new channels.

We cannot predict whether unforeseen circumstances might delay implementation and have a material adverse effect on one or more of the remaining stations' revenue potential.

• As also discussed under Federal Regulation of Broadcasting, the FCC has adopted broadcasters’ proposal to permit the voluntary use of a new digital television transmission standard, ATSC 3.0, that is incompatible with the existing standard.

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Acquisitions involve risks and, if said risks are not managed effectively, our operating results could be negatively affected.

During 2019, we acquired 27 television stations through multiple transactions for total cash consideration of $1.2 billion .

During 2019, we acquired 27 television stations through multiple transactions for total cash consideration of $1.2 billion and we acquired the ION national television network on January 7, 2021 for cash consideration of $2.65 billion.

Acquisitions involve inherent risks, such as increasing leverage and debt service requirements and combining company cultures, facilities and systems, which could have a material adverse effect on our results of operations.

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Acquisitions can result in unexpected liabilities and potentially divert management’s attention from the operation of our business.

We intend to continue to evaluate strategic acquisitions, and there are various risks associated with an acquisition strategy.

We have pursued and intend to selectively continue to pursue strategic acquisitions, subject to market conditions, our liquidity, and the availability of attractive acquisition candidates, with the goal of improving our business.

We may evaluate strategic acquisitions in the future, and there are various risks associated with an acquisition strategy.

We have pursued and may selectively continue to pursue strategic acquisitions, subject to market conditions, our liquidity, and the availability of attractive acquisition candidates, with the goal of improving our business.

We may not be able to identify other attractive acquisition targets or some of our competitors may have greater financial or managerial resources with which to pursue acquisition targets we may pursue.

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These events, or our failure to employ new technologies, revise processes and invest in people to sustain our ability to defend against cyber threats, could create financial liability, regulatory sanction, or a loss of confidence in our ability to protect information, and adversely affect our revenue by causing the loss of current or potential clients.

We issued $600 million in preferred shares as part of our financing of the January 7, 2021 ION acquisition, the terms of which restrict us from undertaking certain actions while such preferred shares are outstanding.

Berkshire Hathaway Inc.

(“Berkshire Hathaway”) provided $600 million of financing for the ION acquisition in exchange for Series A Preferred Shares of the Company.

The preferred shares are redeemable at the option of Scripps 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).

As long as Scripps pays quarterly dividends in cash on the preferred shares, the dividend rate will be 8% per annum.

If dividends on the preferred shares, which compound quarterly, are not paid in full in cash, the rate will increase to 9% per annum for the rest of time that the preferred shares are outstanding.

Under the terms of the preferred shares, Scripps will be subject to certain restrictions, including being prohibited from paying dividends on and purchasing its common shares until all preferred shares are redeemed.

While the preferred shares are outstanding, we may also not issue any additional preferred shares or any shares of any other series of preferred without the consent of the holders of a majority of the preferred shares.

These restrictions may limit our flexibility to pursue other strategic opportunities.

Risks Related to the Ownership of Scripps Class A Common Shares

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The principal and interest payment obligations on such debt may restrict our future operations and impair our ability to meet our long-term obligations.

As of December 31, 2019 , we and the guarantors had approximately $1.95 billion in aggregate principal amount of outstanding indebtedness (excluding intercompany debt), approximately $900 million of which constituted senior debt (including the Senior Notes), and none of which was secured.

We have the ability to incur up to $210 million of indebtedness under our Credit Agreement all of which is secured indebtedness, effectively ranking senior to the Senior Notes to the extent of the value of the assets securing such indebtedness.

Our Credit Agreement matures in April 2022.

Our outstanding debt may have important consequences to you.

For instance, it could:

As of December 31, 2020, we and the guarantors had approximately $2.99 billion in aggregate principal amount of outstanding indebtedness (excluding intercompany debt), approximately $1.4 billion of which constituted senior unsecured debt (including the Senior Notes), and $1.59 billion of which constituted senior secured debt (including the senior secured notes, and $1.04 billion aggregate principal amount of term loans under our Credit Agreement).

We have the ability to incur up to $210 million of indebtedness under our Credit Agreement all of which is secured indebtedness, effectively ranking senior to the unsecured senior notes to the extent of the value of the assets securing such indebtedness.

Our outstanding debt could have the following consequences:

• require us to dedicate a substantial portion of any cash flow from operations to the payment of interest and principal due under our debt, which would reduce funds available for other business purposes, including capital expenditures and acquisitions;

• place us at a competitive disadvantage compared to some of our competitors that may have less debt and better access to capital resources;

• make us more vulnerable to economic downturns and adverse industry conditions and limit our flexibility to plan for, or react to, changes in our business or industry;

• limit our ability to obtain additional financing required to fund acquisitions, working capital and capital expenditures and for other general corporate purposes;

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Borrowings under our Credit Agreement are at variable rates of interest and expose us to interest rate risk.

Interest rates may increase in the future.

If the London Interbank Offered Rate were to increase, our debt service obligations on our variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income and cash available to service our obligations, including making payments on the notes, would decrease.

Additionally, upon the incurrence of certain indebtedness under our Credit Agreement, the interest rates on our existing term loans would increase.

The phase-out of LIBOR could affect interest rates under our Senior Secured Credit Facilities.

On July 27, 2017, the United Kingdom’s Financial Conduct Authority announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021.

It is unclear if LIBOR will cease to exist at that time, if a new method of calculating LIBOR will be established, or if an alternative reference rate will be established.

The Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee, which identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative to U.S.

dollar LIBOR in derivatives and other financial contracts.

We are not able to predict when LIBOR will cease to be available or if SOFR, or another alternative reference rate, attains market traction as a LIBOR replacement.

LIBOR is used as the reference rate for Euro currency borrowings under our Credit Agreement.

If LIBOR ceases to exist, the administration agent under our Credit Agreement has the authority to select a benchmark replacement index and adjustment margins and, as such, the interest rate on Euro currency borrowings under our Credit Agreement may change.

The new rate may not be as favorable as those in effect prior to any LIBOR phase-out.

Furthermore, the transition process may result in delays in funding, higher interest expense, additional expenses, and increased volatility in markets for instruments that currently rely on LIBOR, all of which could negatively impact our interest expense, results of operations, and cash flow.

Unresolved Staff Comments

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors