UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☑ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2020March 31, 2021
OR
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☐ | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| | For the transition period from to |
Commission File Number 001-10701
THE E.W. SCRIPPS COMPANY
(Exact name of registrant as specified in its charter)
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Ohio | | | 31-1223339 |
(State or other jurisdiction of incorporation or organization) | | | (IRS Employer Identification Number) |
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312 Walnut Street | | | |
Cincinnati, | Ohio | | 45202 |
(Address of principal executive offices) | | | (Zip Code) |
Registrant's telephone number, including area code: (513) 977-3000
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:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Class A Common Stock, par value $0.01 per share | SSP | NASDAQ 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. Yes ☑ 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). Yes ☑ 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.
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Large accelerated filer | ☑ | Accelerated filer | ☐ | Emerging growth company | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | | |
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 ☐ No ☑
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of June 30, 2020,March 31, 2021, there were 69,583,84070,349,196 of the registrant’s Class A Common shares, $0.01 par value per share, outstanding and 11,932,722 of the registrant’s Common Voting shares, $0.01 par value per share, outstanding.
Index to The E.W. Scripps Company Quarterly Report
on Form 10-Q for the Quarter Ended June 30, 2020March 31, 2021
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Item No. | | Page |
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1. Financial Statements | | |
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2. Management's Discussion and Analysis of Financial Condition and Results of Operations | | |
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3. Quantitative and Qualitative Disclosures About Market Risk | | |
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4. Controls and Procedures | | |
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PART II - Other Information | | |
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1. Legal Proceedings | | |
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1A. Risk Factors | | |
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3. Defaults Upon Senior Securities | | |
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4. Mine Safety Disclosures | | |
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5. Other Information | | |
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6. Exhibits | | |
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Signatures | | |
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PART I
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 impacts of the COVID-19 pandemic in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, thereThere have been no material changes to the risk factors disclosed in Item 1A. Risk Factors in our 20192020 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
ThereOn January 7, 2021, in connection with the ION transaction, we issued to Berkshire Hathaway, Inc. and certain of its subsidiaries 6,000 shares of series A preferred stock (the Preferred Shares) with a warrant to purchase approximately 23.1 million shares of Scripps Class A common stock at an exercise price of $13 (the Warrant) for $600 million. The Preferred Shares and the Warrant have not been registered under the Securities Act of 1933, as amended, and were no salesissued and sold in a private placement pursuant to Section 4(2) thereof. See Note 3. Acquisitions and Note 14. Capital Stock, in the Notes to Condensed Consolidated Financial Statements in Part I Item 1 of unregistered equity securities during the quarter ended June 30, 2020.this Form 10-Q for more information.
In November 2016, our Board of Directors authorized a repurchase program of up to $100 million of our Class A Common shares. We repurchased a total of $50.3 million of shares under the authorization prior to its expiration on March 1, 2020. In February 2020, our Board of Directors authorized a new share repurchase program of up to $100 million of our Class A Common shares through March 1, 2022. Shares can beNo shares have been repurchased under the authorization via open market purchases or privately negotiated transactions, including accelerated stock repurchase transactions, block trades, or pursuant to trades intending to comply with Rule 10b5-1authorization. Under the terms of the Securities Exchange Act of 1934. NoPreferred Shares, we are prohibited from repurchasing our common shares were repurchased during the second quarter of 2020.until all Preferred Shares are redeemed.
Item 3. Defaults Upon Senior Securities
There were no defaults upon senior securities during the quarter ended June 30, 2020.March 31, 2021.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
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Exhibit Number | | Exhibit Description |
31(a) | | |
31(b) | | |
32(a) | | |
32(b) | | |
101 | | The Company's unaudited Condensed Consolidated Financial Statements and related Notes for the quarter and six months ended June 30, 2020March 31, 2021 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). |
* - Filed herewith
Signatures
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.
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| THE E.W. SCRIPPS COMPANY | |
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Dated: August 7, 2020May 10, 2021 | By: | /s/ Douglas F. LyonsDaniel W. Perschke |
| | Douglas F. LyonsDaniel W. Perschke |
| | Senior Vice President, Controller and Treasurer |
| | (Principal Accounting Officer) |
The E.W. Scripps Company
Index to Financial Information (Unaudited)
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Notes to Condensed Consolidated Financial Statements | | |
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The E.W. Scripps Company
Condensed Consolidated Balance Sheets (Unaudited)
| (in thousands, except share data) | (in thousands, except share data) | | As of June 30, 2020 | | As of December 31, 2019 | (in thousands, except share data) | | As of March 31, 2021 | | As of December 31, 2020 |
| Assets | Assets | | Assets | |
Current assets: | Current assets: | | Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 98,933 | | | $ | 32,968 | | Cash and cash equivalents | | $ | 538,185 | | | $ | 576,021 | |
Cash restricted for pending acquisition | | Cash restricted for pending acquisition | | 0 | | | 1,050,000 | |
Accounts receivable (less allowances— $3,327 and $3,443) | | Accounts receivable (less allowances— $3,327 and $3,443) | | 495,895 | | | 429,017 | |
| Accounts receivable (less allowances— $3,236 and $3,346) | | 347,122 | | | 387,847 | | |
Programming | | — | | | 52,699 | | |
FCC repack receivable | FCC repack receivable | | 26,552 | | | 29,651 | | FCC repack receivable | | 7,559 | | | 12,363 | |
Miscellaneous | Miscellaneous | | 47,935 | | | 39,486 | | Miscellaneous | | 31,098 | | | 26,784 | |
Assets held for sale | | 96,035 | | | 101,266 | | |
| Total current assets | Total current assets | | 616,577 | | | 643,917 | | Total current assets | | 1,072,737 | | | 2,094,185 | |
Investments | Investments | | 13,357 | | | 8,375 | | Investments | | 15,555 | | | 14,404 | |
Property and equipment | Property and equipment | | 369,869 | | | 370,378 | | Property and equipment | | 397,858 | | | 343,920 | |
Operating lease right-of-use assets | Operating lease right-of-use assets | | 122,721 | | | 128,192 | | Operating lease right-of-use assets | | 128,217 | | | 51,471 | |
Goodwill | Goodwill | | 1,226,222 | | | 1,224,679 | | Goodwill | | 2,963,565 | | | 1,203,212 | |
Other intangible assets | Other intangible assets | | 1,033,334 | | | 1,060,675 | | Other intangible assets | | 1,997,712 | | | 975,444 | |
Programming (less current portion) | | 133,077 | | | 96,256 | | |
Deferred income taxes | | 13,334 | | | 12,306 | | |
Programming | | Programming | | 300,022 | | | 138,701 | |
| Miscellaneous | Miscellaneous | | 19,354 | | | 17,079 | | Miscellaneous | | 23,014 | | | 38,049 | |
| Total Assets | Total Assets | | $ | 3,547,845 | | | $ | 3,561,857 | | Total Assets | | $ | 6,898,680 | | | $ | 4,859,386 | |
| Liabilities and Equity | Liabilities and Equity | | Liabilities and Equity | |
Current liabilities: | Current liabilities: | | Current liabilities: | |
Accounts payable | Accounts payable | | $ | 49,053 | | | $ | 28,441 | | Accounts payable | | $ | 66,479 | | | $ | 68,139 | |
Unearned revenue | Unearned revenue | | 9,371 | | | 10,704 | | Unearned revenue | | 21,408 | | | 14,101 | |
Current portion of long-term debt | Current portion of long-term debt | | 10,612 | | | 10,612 | | Current portion of long-term debt | | 18,612 | | | 10,612 | |
| Accrued liabilities: | Accrued liabilities: | | Accrued liabilities: | |
Employee compensation and benefits | Employee compensation and benefits | | 36,701 | | | 43,259 | | Employee compensation and benefits | | 45,601 | | | 55,133 | |
Programming liability | Programming liability | | 92,940 | | | 96,682 | | Programming liability | | 144,641 | | | 72,743 | |
Accrued interest | Accrued interest | | 16,248 | | | 15,352 | | Accrued interest | | 24,201 | | | 16,514 | |
Miscellaneous | Miscellaneous | | 38,687 | | | 41,694 | | Miscellaneous | | 40,259 | | | 85,588 | |
Other current liabilities | Other current liabilities | | 18,908 | | | 42,561 | | Other current liabilities | | 70,609 | | | 35,626 | |
Liabilities held for sale | | 19,082 | | | 22,727 | | |
| Total current liabilities | Total current liabilities | | 291,602 | | | 312,032 | | Total current liabilities | | 431,810 | | | 358,456 | |
Long-term debt (less current portion) | Long-term debt (less current portion) | | 1,952,047 | | | 1,904,418 | | Long-term debt (less current portion) | | 3,690,284 | | | 2,923,359 | |
Deferred income taxes | Deferred income taxes | | 29,395 | | | 17,876 | | Deferred income taxes | | 347,347 | | | 85,844 | |
Operating lease liabilities | Operating lease liabilities | | 111,582 | | | 113,648 | | Operating lease liabilities | | 120,731 | | | 42,097 | |
Other liabilities (less current portion) | Other liabilities (less current portion) | | 299,605 | | | 315,948 | | Other liabilities (less current portion) | | 739,321 | | | 286,365 | |
| Equity: | Equity: | | | | | Equity: | | | | |
Preferred stock, $0.01 par — authorized: 25,000,000 shares; NaN outstanding | Preferred stock, $0.01 par — authorized: 25,000,000 shares; NaN outstanding | | — | | | — | | Preferred stock, $0.01 par — authorized: 25,000,000 shares; NaN outstanding | | 0 | | | 0 | |
Preferred stock — Series A, $100,000 par; 6,000 shares at March 31, 2021 | | Preferred stock — Series A, $100,000 par; 6,000 shares at March 31, 2021 | | 408,210 | | | 0 | |
Common stock, $0.01 par: | Common stock, $0.01 par: | | Common stock, $0.01 par: | |
Class A — authorized: 240,000,000 shares; issued and outstanding: 69,583,840 and 69,027,524 shares | | 696 | | | 691 | | |
Class A — authorized: 240,000,000 shares; issued and outstanding: 70,349,196 and 69,794,917 shares | | Class A — authorized: 240,000,000 shares; issued and outstanding: 70,349,196 and 69,794,917 shares | | 704 | | | 698 | |
Voting — authorized: 60,000,000 shares; issued and outstanding: 11,932,722 and 11,932,722 shares | Voting — authorized: 60,000,000 shares; issued and outstanding: 11,932,722 and 11,932,722 shares | | 119 | | | 119 | | Voting — authorized: 60,000,000 shares; issued and outstanding: 11,932,722 and 11,932,722 shares | | 119 | | | 119 | |
Total | | 815 | | | 810 | | |
Total preferred and common stock | | Total preferred and common stock | | 409,033 | | | 817 | |
Additional paid-in capital | Additional paid-in capital | | 1,123,067 | | | 1,117,095 | | Additional paid-in capital | | 1,133,366 | | | 1,130,789 | |
Accumulated deficit | | (163,092) | | | (120,981) | | |
Retained earnings | | Retained earnings | | 125,702 | | | 131,778 | |
Accumulated other comprehensive loss, net of income taxes | Accumulated other comprehensive loss, net of income taxes | | (97,176) | | | (98,989) | | Accumulated other comprehensive loss, net of income taxes | | (98,914) | | | (100,119) | |
| Total equity | Total equity | | 863,614 | | | 897,935 | | Total equity | | 1,569,187 | | | 1,163,265 | |
Total Liabilities and Equity | Total Liabilities and Equity | | $ | 3,547,845 | | | $ | 3,561,857 | | Total Liabilities and Equity | | $ | 6,898,680 | | | $ | 4,859,386 | |
See notes to condensed consolidated financial statements.
The E.W. Scripps Company
Condensed Consolidated Statements of Operations (Unaudited)
| | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | | | Three Months Ended March 31, |
(in thousands, except per share data) | (in thousands, except per share data) | | 2020 | | 2019 | | 2020 | | 2019 | (in thousands, except per share data) | | | 2021 | | 2020 |
| Operating Revenues: | Operating Revenues: | | Operating Revenues: | | |
Advertising | Advertising | | $ | 195,457 | | | $ | 208,651 | | | $ | 449,998 | | | $ | 379,448 | | Advertising | | | $ | 362,614 | | | $ | 254,541 | |
Retransmission and carriage | Retransmission and carriage | | 144,283 | | | 93,325 | | | 283,233 | | | 180,608 | | Retransmission and carriage | | | 156,497 | | | 138,950 | |
Other | Other | | 19,143 | | | 18,452 | | | 39,875 | | | 37,431 | | Other | | | 21,810 | | | 20,732 | |
Total operating revenues | Total operating revenues | | 358,883 | | | 320,428 | | | 773,106 | | | 597,487 | | Total operating revenues | | | 540,921 | | | 414,223 | |
Costs and Expenses: | | | | | | | | | |
Employee compensation and benefits | | 130,029 | | | 110,159 | | | 274,824 | | | 215,292 | | |
Programming | | 131,743 | | | 89,993 | | | 263,422 | | | 177,341 | | |
Other expenses | | 67,388 | | | 68,454 | | | 150,525 | | | 125,860 | | |
Operating Expenses: | | Operating Expenses: | | | | | |
Costs of revenues, excluding depreciation and amortization | | Costs of revenues, excluding depreciation and amortization | | | 264,395 | | | 231,900 | |
Selling, general and administrative expenses, excluding depreciation and amortization | | Selling, general and administrative expenses, excluding depreciation and amortization | | | 144,026 | | | 127,711 | |
Acquisition and related integration costs | Acquisition and related integration costs | | 221 | | | 2,788 | | | 5,131 | | | 6,268 | | Acquisition and related integration costs | | | 28,645 | | | 4,910 | |
Restructuring costs | Restructuring costs | | — | | | 957 | | | — | | | 1,895 | | Restructuring costs | | | 7,050 | | | 0 | |
Total costs and expenses | | 329,381 | | | 272,351 | | | 693,902 | | | 526,656 | | |
Depreciation, Amortization, and (Gains) Losses: | | | | | | | | | |
Depreciation | Depreciation | | 12,396 | | | 9,827 | | | 25,747 | | | 18,625 | | Depreciation | | | 14,125 | | | 13,351 | |
Amortization of intangible assets | Amortization of intangible assets | | 14,249 | | | 9,705 | | | 28,243 | | | 17,913 | | Amortization of intangible assets | | | 25,382 | | | 13,994 | |
| (Gains) losses, net on disposal of property and equipment | | 1,307 | | | 144 | | | 2,740 | | | 317 | | |
Net depreciation, amortization, and (gains) losses | | 27,952 | | | 19,676 | | | 56,730 | | | 36,855 | | |
Losses (gains), net on disposal of property and equipment | | Losses (gains), net on disposal of property and equipment | | | 80 | | | 1,433 | |
Total operating expenses | | Total operating expenses | | | 483,703 | | | 393,299 | |
Operating income | Operating income | | 1,550 | | | 28,401 | | | 22,474 | | | 33,976 | | Operating income | | | 57,218 | | | 20,924 | |
Interest expense | Interest expense | | (22,999) | | | (18,023) | | | (48,797) | | | (26,939) | | Interest expense | | | (43,882) | | | (25,798) | |
Defined benefit pension plan expense | | (1,026) | | | (1,564) | | | (2,052) | | | (3,136) | | |
Defined benefit pension plan income (expense) | | Defined benefit pension plan income (expense) | | | 7 | | | (1,026) | |
Gains on sale of business | | Gains on sale of business | | | 81,784 | | | 0 | |
Gains (losses) on stock warrants | | Gains (losses) on stock warrants | | | (67,244) | | | 0 | |
Miscellaneous, net | Miscellaneous, net | | (1,552) | | | 369 | | | (438) | | | (431) | | Miscellaneous, net | | | (4,851) | | | 1,114 | |
Income (loss) from continuing operations before income taxes | Income (loss) from continuing operations before income taxes | | (24,027) | | | 9,183 | | | (28,813) | | | 3,470 | | Income (loss) from continuing operations before income taxes | | | 23,032 | | | (4,786) | |
Provision (benefit) for income taxes | | (6,515) | | | 3,385 | | | (4,103) | | | 992 | | |
Provision for income taxes | | Provision for income taxes | | | 19,529 | | | 2,412 | |
Income (loss) from continuing operations, net of tax | Income (loss) from continuing operations, net of tax | | (17,512) | | | 5,798 | | | (24,710) | | | 2,478 | | Income (loss) from continuing operations, net of tax | | | 3,503 | | | (7,198) | |
Loss from discontinued operations, net of tax | | (4,531) | | | (6,164) | | | (9,142) | | | (9,658) | | |
Net loss | | $ | (22,043) | | | $ | (366) | | | $ | (33,852) | | | $ | (7,180) | | |
Income (loss) from discontinued operations, net of tax | | Income (loss) from discontinued operations, net of tax | | | 2,064 | | | (4,611) | |
Net income (loss) | | Net income (loss) | | | 5,567 | | | (11,809) | |
Preferred stock dividends | | Preferred stock dividends | | | (11,643) | | | 0 | |
| Net loss attributable to the shareholders of The E.W. Scripps Company | | Net loss attributable to the shareholders of The E.W. Scripps Company | | | $ | (6,076) | | | $ | (11,809) | |
| Net income (loss) per basic share of common stock: | Net income (loss) per basic share of common stock: | | Net income (loss) per basic share of common stock: | | |
Income (loss) from continuing operations | Income (loss) from continuing operations | | $ | (0.22) | | | $ | 0.07 | | | $ | (0.30) | | | $ | 0.03 | | Income (loss) from continuing operations | | | $ | (0.10) | | | $ | (0.09) | |
Loss from discontinued operations | | (0.06) | | | (0.07) | | | (0.11) | | | (0.12) | | |
Net loss per basic share of common stock: | | $ | (0.27) | | | $ | (0.01) | | | $ | (0.42) | | | $ | (0.09) | | |
Income (loss) from discontinued operations | | Income (loss) from discontinued operations | | | 0.02 | | | (0.06) | |
Net income (loss) per basic share of common stock: | | Net income (loss) per basic share of common stock: | | | $ | (0.07) | | | $ | (0.15) | |
| Net income (loss) per diluted share of common stock: | Net income (loss) per diluted share of common stock: | | Net income (loss) per diluted share of common stock: | | |
Income (loss) from continuing operations | Income (loss) from continuing operations | | $ | (0.22) | | | $ | 0.07 | | | $ | (0.30) | | | $ | 0.03 | | Income (loss) from continuing operations | | | $ | (0.10) | | | $ | (0.09) | |
Loss from discontinued operations | | (0.06) | | | (0.07) | | | (0.11) | | | (0.12) | | |
Net loss per diluted share of common stock: | | $ | (0.27) | | | $ | (0.01) | | | $ | (0.42) | | | $ | (0.09) | | |
Income (loss) from discontinued operations | | Income (loss) from discontinued operations | | | 0.02 | | | (0.06) | |
Net income (loss) per diluted share of common stock: | | Net income (loss) per diluted share of common stock: | | | $ | (0.07) | | | $ | (0.15) | |
See notes to condensed consolidated financial statements.
NetThe sum of net income (loss) per share amountsfrom continuing and discontinued operations may not foot sinceequal the reported total net income (loss) per share as each is calculated independently.
The E.W. Scripps Company
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
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| | Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
(in thousands) | | 2020 | | 2019 | | 2020 | | 2019 |
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Net loss | | $ | (22,043) | | | $ | (366) | | | $ | (33,852) | | | $ | (7,180) | |
Changes in defined benefit pension plans, net of tax of $288, $155, $574, $310 | | 899 | | | 461 | | | 1,801 | | | 921 | |
Other | | 6 | | | — | | | 12 | | | — | |
Total comprehensive income (loss) | | $ | (21,138) | | | $ | 95 | | | $ | (32,039) | | | $ | (6,259) | |
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| | | | Three Months Ended March 31, |
(in thousands) | | | | | | 2021 | | 2020 |
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Net income (loss) | | | | | | $ | 5,567 | | | $ | (11,809) | |
Changes in defined benefit pension plans, net of tax of $374 and $286 | | | | | | 1,187 | | | 902 | |
Other | | | | | | 18 | | | 6 | |
Total comprehensive income (loss) attributable to preferred and common stockholders | | | | | | $ | 6,772 | | | $ | (10,901) | |
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See notes to condensed consolidated financial statements.
The E.W. Scripps Company
Condensed Consolidated Statements of Cash Flows (Unaudited)
| | | Six Months Ended June 30, | | | Three Months Ended March 31, |
(in thousands) | (in thousands) | | 2020 | | 2019 | (in thousands) | | 2021 | | 2020 |
| Cash Flows from Operating Activities: | Cash Flows from Operating Activities: | | Cash Flows from Operating Activities: | |
Net loss | | $ | (33,852) | | | $ | (7,180) | | |
Loss from discontinued operations, net of tax | | (9,142) | | | (9,658) | | |
Net income (loss) | | Net income (loss) | | $ | 5,567 | | | $ | (11,809) | |
Income (loss) from discontinued operations, net of tax | | Income (loss) from discontinued operations, net of tax | | 2,064 | | | (4,611) | |
Income (loss) from continuing operations, net of tax | Income (loss) from continuing operations, net of tax | | (24,710) | | | 2,478 | | Income (loss) from continuing operations, net of tax | | 3,503 | | | (7,198) | |
Adjustments to reconcile net income (loss) from continuing operations to net cash flows from operating activities: | Adjustments to reconcile net income (loss) from continuing operations to net cash flows from operating activities: | | Adjustments to reconcile net income (loss) from continuing operations to net cash flows from operating activities: | |
Depreciation and amortization | Depreciation and amortization | | 53,990 | | | 36,538 | | Depreciation and amortization | | 39,507 | | | 27,345 | |
| (Gains) losses, net on disposal of property and equipment | | 2,740 | | | 317 | | |
Losses (gains), net on disposal of property and equipment | | Losses (gains), net on disposal of property and equipment | | 80 | | | 1,433 | |
Gains on sale of business | | Gains on sale of business | | (81,784) | | | 0 | |
(Gains) losses on stock warrants | | (Gains) losses on stock warrants | | 67,244 | | | 0 | |
Programming assets and liabilities | Programming assets and liabilities | | (10,662) | | | 1,744 | | Programming assets and liabilities | | (37,042) | | | (28,289) | |
Restructuring impairment charges | | Restructuring impairment charges | | 7,050 | | | 0 | |
Deferred income taxes | Deferred income taxes | | 9,933 | | | 983 | | Deferred income taxes | | 6,951 | | | 16,305 | |
Stock and deferred compensation plans | Stock and deferred compensation plans | | 7,446 | | | 9,511 | | Stock and deferred compensation plans | | 11,092 | | | 2,143 | |
Pension expense, net of contributions | Pension expense, net of contributions | | (3,282) | | | (3,921) | | Pension expense, net of contributions | | (5,987) | | | (4,034) | |
Other changes in certain working capital accounts, net | Other changes in certain working capital accounts, net | | 37,740 | | | (28,287) | | Other changes in certain working capital accounts, net | | 41,045 | | | 8,806 | |
Miscellaneous, net | Miscellaneous, net | | 8,287 | | | 3,860 | | Miscellaneous, net | | (1,565) | | | 1,630 | |
Net cash provided by operating activities from continuing operations | Net cash provided by operating activities from continuing operations | | 81,482 | | | 23,223 | | Net cash provided by operating activities from continuing operations | | 50,094 | | | 18,141 | |
Net cash used in operating activities from discontinued operations | Net cash used in operating activities from discontinued operations | | (7,223) | | | (14,065) | | Net cash used in operating activities from discontinued operations | | 0 | | | (4,440) | |
Net operating activities | Net operating activities | | 74,259 | | | 9,158 | | Net operating activities | | 50,094 | | | 13,701 | |
Cash Flows from Investing Activities: | Cash Flows from Investing Activities: | | | | | Cash Flows from Investing Activities: | | | | |
Acquisitions, net of cash acquired | Acquisitions, net of cash acquired | | 2,500 | | | (608,273) | | Acquisitions, net of cash acquired | | (2,679,798) | | | 0 | |
Proceeds from sale of Triton Digital, net of cash disposed | | Proceeds from sale of Triton Digital, net of cash disposed | | 224,990 | | | 0 | |
Acquisition of intangible assets | Acquisition of intangible assets | | (1,041) | | | (24,073) | | Acquisition of intangible assets | | (430) | | | (525) | |
Additions to property and equipment | Additions to property and equipment | | (26,950) | | | (29,920) | | Additions to property and equipment | | (4,139) | | | (16,165) | |
Purchase of investments | Purchase of investments | | (5,361) | | | (615) | | Purchase of investments | | (1,263) | | | (3,087) | |
Proceeds from FCC repack | Proceeds from FCC repack | | 9,427 | | | 1,520 | | Proceeds from FCC repack | | 5,345 | | | 2,719 | |
| Miscellaneous, net | Miscellaneous, net | | 773 | | | 308 | | Miscellaneous, net | | 12 | | | 773 | |
Net cash used in investing activities from continuing operations | Net cash used in investing activities from continuing operations | | (20,652) | | | (661,053) | | Net cash used in investing activities from continuing operations | | (2,455,283) | | | (16,285) | |
Net cash used in investing activities from discontinued operations | Net cash used in investing activities from discontinued operations | | (333) | | | (74) | | Net cash used in investing activities from discontinued operations | | 0 | | | (45) | |
Net investing activities | Net investing activities | | (20,985) | | | (661,127) | | Net investing activities | | (2,455,283) | | | (16,330) | |
Cash Flows from Financing Activities: | Cash Flows from Financing Activities: | | | | | Cash Flows from Financing Activities: | | | | |
Net borrowings under revolving credit facility | Net borrowings under revolving credit facility | | 50,000 | | | 120,000 | | Net borrowings under revolving credit facility | | 0 | | | 175,000 | |
Proceeds from issuance of long-term debt | Proceeds from issuance of long-term debt | | — | | | 761,175 | | Proceeds from issuance of long-term debt | | 800,000 | | | 0 | |
Proceeds from issuance of preferred stock | | Proceeds from issuance of preferred stock | | 600,000 | | | 0 | |
Payments on long-term debt | Payments on long-term debt | | (5,306) | | | (3,413) | | Payments on long-term debt | | (4,653) | | | (2,653) | |
Deferred financing costs | | — | | | (20,550) | | |
Dividends paid | | (8,259) | | | (8,120) | | |
Repurchase of Class A Common shares | | — | | | (584) | | |
Payments on financing costs | | Payments on financing costs | | (50,597) | | | 0 | |
Payments for capitalized preferred stock issuance costs | | Payments for capitalized preferred stock issuance costs | | (11,526) | | | 0 | |
Dividends paid on common and preferred stock | | Dividends paid on common and preferred stock | | (9,067) | | | (4,108) | |
| | Tax payments related to shares withheld for vested stock and RSUs | Tax payments related to shares withheld for vested stock and RSUs | | (2,292) | | | (3,700) | | Tax payments related to shares withheld for vested stock and RSUs | | (6,369) | | | (2,266) | |
Miscellaneous, net | Miscellaneous, net | | (21,438) | | | (3,447) | | Miscellaneous, net | | (415) | | | (16,574) | |
Net cash provided by financing activities from continuing operations | Net cash provided by financing activities from continuing operations | | 12,705 | | | 841,361 | | Net cash provided by financing activities from continuing operations | | 1,317,373 | | | 149,399 | |
Effect of foreign exchange rates on cash and cash equivalents | Effect of foreign exchange rates on cash and cash equivalents | | (14) | | | 8 | | Effect of foreign exchange rates on cash and cash equivalents | | (20) | | | (111) | |
Increase in cash and cash equivalents | | 65,965 | | | 189,400 | | |
Increase (decrease) in cash and cash equivalents | | Increase (decrease) in cash and cash equivalents | | (1,087,836) | | | 146,659 | |
Cash and cash equivalents: | Cash and cash equivalents: | | Cash and cash equivalents: | |
Beginning of year | Beginning of year | | 32,968 | | | 107,114 | | Beginning of year | | 1,626,021 | | | 32,968 | |
End of period | End of period | | $ | 98,933 | | | $ | 296,514 | | End of period | | $ | 538,185 | | | $ | 179,627 | |
| Supplemental Cash Flow Disclosures | Supplemental Cash Flow Disclosures | | Supplemental Cash Flow Disclosures | |
Interest paid | Interest paid | | $ | 43,918 | | | $ | 24,439 | | Interest paid | | $ | 29,354 | | | $ | 24,833 | |
Income taxes paid | | $ | 124 | | | $ | 11,698 | | |
Income taxes refunded (paid) | | Income taxes refunded (paid) | | $ | 547 | | | $ | (12) | |
Non-cash investing information | Non-cash investing information | | | | | Non-cash investing information | | | | |
Capital expenditures included in accounts payable | Capital expenditures included in accounts payable | | $ | 2,512 | | | $ | 2,042 | | Capital expenditures included in accounts payable | | $ | 5,764 | | | $ | 1,187 | |
See notes to condensed consolidated financial statements.
The E.W. Scripps Company
Condensed Consolidated Statements of Equity (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended June 30, 2020 and 2019 (in thousands, except per share data) | | Common Stock | | Additional Paid-in Capital | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Income (Loss) ("AOCI") | | | | Total Equity |
| | | | | | | | | | | | |
As of March 31, 2020 | | $ | 814 | | | $ | 1,119,485 | | | $ | (136,898) | | | $ | (98,081) | | | | | $ | 885,320 | |
Comprehensive income (loss) | | — | | | — | | | (22,043) | | | 905 | | | | | (21,138) | |
Cash dividend: declared and paid - $0.05 per share | | — | | | — | | | (4,151) | | | — | | | | | (4,151) | |
| | | | | | | | | | | | |
Compensation plans:127,043 net shares issued * | | 1 | | | 3,582 | | | — | | | — | | | | | 3,583 | |
As of June 30, 2020 | | $ | 815 | | | $ | 1,123,067 | | | $ | (163,092) | | | $ | (97,176) | | | | | $ | 863,614 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2021 and 2020 (in thousands, except per share data) | | Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Income (Loss) ("AOCI") | | | | Total Equity |
As of December 31, 2020 | | $ | — | | | $ | 817 | | | $ | 1,130,789 | | | $ | 131,778 | | | $ | (100,119) | | | | | $ | 1,163,265 | |
Comprehensive income (loss) | | — | | | — | | | — | | | 5,567 | | | 1,205 | | | | | 6,772 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Issuance of preferred stock, net of discount and issuance costs | | 407,634 | | | — | | | — | | | — | | | — | | | | | 407,634 | |
Preferred stock dividends, $1,511 per share | | 576 | | | — | | | — | | | (11,643) | | | — | | | | | (11,067) | |
Compensation plans: 554,279 net shares issued * | | — | | | 6 | | | 2,577 | | | — | | | — | | | | | 2,583 | |
As of March 31, 2021 | | $ | 408,210 | | | $ | 823 | | | $ | 1,133,366 | | | $ | 125,702 | | | $ | (98,914) | | | | | $ | 1,569,187 | |
* Net of tax payments related to shares withheld for vested RSUs of $26$6,369 for the three months ended June 30, 2020.March 31, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As of March 31, 2019 | | $ | 808 | | | $ | 1,108,585 | | | $ | (97,083) | | | $ | (94,937) | | | $ | 917,373 | |
Comprehensive income (loss) | | — | | | — | | | (366) | | | 461 | | | 95 | |
Cash dividend: declared and paid - $0.05 per share | | — | | | — | | | (4,080) | | | — | | | (4,080) | |
| | | | | | | | | | |
Compensation plans: 86,805 net shares issued * | | 1 | | | 3,264 | | | — | | | — | | | 3,265 | |
As of June 30, 2019 | | $ | 809 | | | $ | 1,111,849 | | | $ | (101,529) | | | $ | (94,476) | | | $ | 916,653 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As of December 31, 2019 | | $ | — | | | $ | 810 | | | $ | 1,117,095 | | | $ | (120,981) | | | $ | (98,989) | | | | | $ | 897,935 | |
Comprehensive income (loss) | | — | | | — | | | — | | | (11,809) | | | 908 | | | | | (10,901) | |
Cash dividend: declared and paid - $0.05 per share | | — | | | — | | | — | | | (4,108) | | | — | | | | | (4,108) | |
| | | | | | | | | | | | | | |
Compensation plans: 429,273 net shares issued * | | — | | | 4 | | | 2,390 | | | — | | | — | | | | | 2,394 | |
As of March 31, 2020 | | $ | — | | | $ | 814 | | | $ | 1,119,485 | | | $ | (136,898) | | | $ | (98,081) | | | | | $ | 885,320 | |
* Net of tax payments related to shares withheld for vested RSUs of $51$2,266 for the three months ended June 30, 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Six Months Ended June 30, 2020 and 2019 (in thousands, except per share data) | | Common Stock | | Additional Paid-in Capital | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Income (Loss) ("AOCI") | | | | Total Equity |
As of December 31, 2019 | | $ | 810 | | | $ | 1,117,095 | | | $ | (120,981) | | | $ | (98,989) | | | | | $ | 897,935 | |
Comprehensive income (loss) | | — | | | — | | | (33,852) | | | 1,813 | | | | | (32,039) | |
Cash dividend: declared and paid - $0.10 per share | | — | | | — | | | (8,259) | | | — | | | | | (8,259) | |
| | | | | | | | | | | | |
Compensation plans: 556,316 net shares issued * | | 5 | | | 5,972 | | | — | | | — | | | | | 5,977 | |
As of June 30, 2020 | | $ | 815 | | | $ | 1,123,067 | | | $ | (163,092) | | | $ | (97,176) | | | | | $ | 863,614 | |
* Net of tax payments related to shares withheld for vested RSUs of $2,292 for the six months ended June 30,March 31, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As of December 31, 2018 | | $ | 807 | | | $ | 1,106,984 | | | $ | (86,229) | | | $ | (95,397) | | | | | $ | 926,165 | |
Comprehensive income (loss) | | — | | | — | | | (7,180) | | | 921 | | | | | (6,259) | |
Cash dividend: declared and paid - $0.10 per share | | — | | | — | | | (8,120) | | | — | | | | | (8,120) | |
Repurchase of 180,541 Class A Common shares | | (2) | | | (582) | | | — | | | — | | | | | (584) | |
Compensation plans: 383,936 net shares issued * | | 4 | | | 5,447 | | | — | | | — | | | | | 5,451 | |
As of June 30, 2019 | | $ | 809 | | | $ | 1,111,849 | | | $ | (101,529) | | | $ | (94,476) | | | | | $ | 916,653 | |
* Net of tax payments related to shares withheld for vested RSUs of $3,700 for the six months ended June 30, 2019.
See notes to condensed consolidated financial statements.
The E.W. Scripps Company
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Summary 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.
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 20192020 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. Additionally, certain
Expense amounts that were previously reported under the captions “Employee compensation and benefits,” “Programming,” and “Other expenses” in prior periodsour 2020 Condensed Consolidated Statements of Operations have been reclassified into line items captioned as either “Costs of revenues” or “Selling, general and administrative expenses.” Costs of revenues reflect the costs of providing our broadcast signals, programming and other content to conform torespective distribution platforms. The costs captured within the current period's presentation.costs of revenues caption include programming, content distribution, satellite transmission fees, production and operations and other direct costs. Selling, general and administrative expenses are primarily comprised of sales, marketing and advertising expenses, research costs, certain occupancy costs and other administrative costs.
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.
Nature of Operations — We are a diverse media enterprise, serving audiences and businesses through a portfolio of local television stations and national mediatelevision 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, National MediaScripps Networks and Other. Additional information for our business segments is presented in the Notes to Condensed Consolidated Financial Statements.
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.
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 air time,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 sales staff and national sales representative firms. Digital revenues are primarily 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 such as Hulu, YouTubeTV and AT&T Now. 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 National MediaScripps Networks segment offers subscription services for access to premium content to its customers. Our Triton business earns revenue from monthly fees charged to audio publishers for converting their content into digital audio streams and inserting digital advertising into those audio streams and providing statistical measurement information about their listening audience.
Refer to Note 12. Segment13.Segment Information for further information, including revenue by significant product and service offering.
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.
Other — Revenues generated by our Triton business are recognized on a ratable basis over the contract term as the monthly service is provided to the customer.
Transaction Price Allocated to Remaining Performance Obligations — As of June 30, 2020, we had an aggregate transaction price of $54.2 million allocated to unsatisfied performance obligations related to contracts within our Triton business, most of which is expected to be recognized into revenue over the next 24 months.
We did not disclose the value of unsatisfied performance obligations on any other contracts with customers because they are either (i) contracts with an original expected term of one year or less, (ii) contracts for which the sales- or usage-based royalty exception was applied, or (iii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
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 $3.2$3.3 million at June 30, 2020March 31, 2021 and $3.3$3.4 million at December 31, 2019.2020.
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 $9.4$21.4 million at June 30, 2020March 31, 2021 and is expected to be recognized within revenue over the next 12 months. Unearned revenue totaled $10.7$14.1 million at December 31, 2019.2020. We recorded $9.2$4.4 million of revenue in the sixthree months ended June 30, 2020March 31, 2021 that was included in unearned revenue at December 31, 2019.2020.
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.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 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.
Share-Based Compensation — We have a Long-Term Incentive Plan (the “Plan”) which is described more fully in our 20192020 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 $3.0$8.3 million and $2.8$4.2 million for the secondfirst quarter of 20202021 and 2019, respectively. Year-to-date share-based compensation totaled $7.2 million and $8.5 million in 2020, and 2019, respectively.
Earnings 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.
The following table presents information about basic and diluted weighted-average shares outstanding:
| | | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | | | Three Months Ended March 31, |
(in thousands) | (in thousands) | | 2020 | | 2019 | | 2020 | | 2019 | (in thousands) | | | 2021 | | 2020 |
| Numerator (for basic and diluted earnings per share) | Numerator (for basic and diluted earnings per share) | | Numerator (for basic and diluted earnings per share) | | | |
Income (loss) from continuing operations, net of tax | Income (loss) from continuing operations, net of tax | | $ | (17,512) | | | $ | 5,798 | | | $ | (24,710) | | | $ | 2,478 | | Income (loss) from continuing operations, net of tax | | | $ | 3,503 | | | $ | (7,198) | |
| Less income allocated to RSUs | | — | | | (98) | | | — | | | (37) | | |
Numerator for basic and diluted earnings per share from continuing operations | | $ | (17,512) | | | $ | 5,700 | | | $ | (24,710) | | | $ | 2,441 | | |
| Less preferred stock dividends | | Less preferred stock dividends | | | (11,643) | | | 0 | |
Numerator for basic and diluted earnings per share | | Numerator for basic and diluted earnings per share | | | $ | (8,140) | | | $ | (7,198) | |
Denominator | Denominator | | | | | | | | | Denominator | | | | | |
Basic weighted-average shares outstanding | Basic weighted-average shares outstanding | | 81,418 | | | 80,822 | | | 81,248 | | | 80,748 | | Basic weighted-average shares outstanding | | | 81,902 | | | 81,077 | |
Effect of dilutive securities: | Effect of dilutive securities: | | Effect of dilutive securities: | | | |
Restricted stock units | Restricted stock units | | — | | | 374 | | | — | | | 400 | | Restricted stock units | | | 0 | | | 0 | |
| Diluted weighted-average shares outstanding | Diluted weighted-average shares outstanding | | 81,418 | | | 81,196 | | | 81,248 | | | 81,148 | | Diluted weighted-average shares outstanding | | | 81,902 | | | 81,077 | |
For the three and six monthsmonth periods ended June 30,March 31, 2021 and 2020, we incurred a net loss and the inclusion of RSUs would have been anti-dilutive. Accordingly, theThe March 31, 2021 and 2020 diluted EPS calculation for the 2020 periods excludescalculations exclude the effect from 2.32.4 million and 2.2 million, respectively, of outstanding RSUs respectively.that were anti-dilutive. The basic and dilutive EPS calculations also exclude the impact of the common stock warrant as the effect would be anti-dilutive.
2. Recently Adopted and Issued Accounting Standards
Recently Adopted Accounting Standards — In December 2019, the Financial Accounting Standards Board ("FASB") issued new guidance that simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The guidance also clarifies and amends existing guidance in order to improve the consistent application of, and simplify GAAP for, other areas of Topic 740. It is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. We elected to early adopt this standard effective January 1, 2020, with no material impact on our condensed consolidated financial statements.
In March 2019, the FASB issued new guidance to align the accounting for the costs of producing films and episodic television series in response to changes in production and distribution models in the media and entertainment industry. The new guidance amends the capitalization, amortization, impairment, presentation and disclosure requirements for entities that produce and own content, and also aligns the impairment guidance for licensed content to the owned content fair value model. This guidance applies to broadcasters and entities that produce and distribute films and episodic television series through both traditional mediums and digital mediums. We adopted the standard on January 1, 2020. Upon adoption in 2020, we began recording all licensed programming assets and programming assets produced by us as non-current assets in our condensed consolidated balance sheets. The adoption of the standard had no material impact on our condensed consolidated statements of operations.
In August 2018, the FASB issued new guidance to address a customer's accounting for implementation costs incurred in a cloud computing arrangement ("CCA") that is a service contract. The new guidance aligns the accounting for costs incurred to implement a CCA that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. We adopted the standard on January 1, 2020, with no material impact on our condensed consolidated financial statements.
In June 2016, the FASB issued new guidance that changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that will replace today’s “incurred loss” model, which generally will result in the earlier recognition of allowances for losses. We adopted the standard on January 1, 2020. Considering current and expected future economic and market conditions related to COVID-19, we increased our allowances for accounts receivable $0.7 million upon adoption in the first quarter of 2020. The adoption of the standard did not result in any other material impacts to our condensed consolidated financial statements and related disclosures.
Recently Issued Accounting Standards — 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.
In August 2018, the FASB issued new guidance to add, remove and clarify annual disclosure requirements related to defined benefit pension and other postretirement plans. The guidance is effective for fiscal years ending after December 15, 2020 with early adoption permitted, and it should be applied on a retrospective basis. We believe the main impact of this guidance will be to no longer disclose the amount in accumulated other comprehensive income that is expected to be recognized as part of net periodic benefit cost over the next year. Additionally, we will have to add a narrative description for any significant gains and losses affecting the benefit obligation for the period. We are currently evaluating the impact of this guidance on our disclosures.
3. Acquisitions
Television Stations AcquisitionsION Acquisition
On September 19, 2019,January 7, 2021, we closed oncompleted the acquisition of 8national broadcast network ION Media Networks, Inc. ("ION") for $2.65 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 100 million of U.S. homes through its over-the-air broadcast and pay TV platforms. With the acquisition of ION, we created a full-scale national television networks business by combining the ION network with the five Katz networks and national news network, Newsy.
The transaction was financed with a combination of cash, debt financing and preferred equity financing, including Berkshire Hathaway's $600 million preferred equity investment in seven markets fromScripps. Berkshire Hathaway also received a warrant to purchase up to 23.1 million Class A shares, at an exercise price of $13 per share.
To comply with ownership rules of the Nexstar Media Group, Inc. ("Nexstar") transaction with Tribune Media Company ("Tribune"). CashFederal Communications Commission, we simultaneously divested 23 of ION's television stations for a total consideration of $30 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.
The following table summarizes the net cash consideration for the transaction totaled $582 million. Seven of the stations were operated by Tribune, and its subsidiaries, and one was operated by Nexstar. Nexstar was required to divest these stations in order to complete its acquisition of Tribune.ION transaction.
| | | | | | | | |
(in thousands) | | |
| | |
Total purchase price | | $ | 2,650,000 | |
Plus: Cash acquired | | 14,493 | |
Plus: Working capital | | 59,798 | |
Total transaction gross cash consideration | | 2,724,291 | |
Less: Proceeds from ION stations divested | | (30,000) | |
Total transaction net cash consideration | | 2,694,291 | |
Less: Cash acquired | | (14,493) | |
Total consideration, net of cash acquired | | $ | 2,679,798 | |
On May 1, 2019, we acquired 15 television stations in 10 markets from Cordillera Communications, LLC ("Cordillera"), for $521 million in cash, plus a working capital adjustment of $23.9 million. In the second quarter of 2020, we received cash consideration and reduced the purchase price by $2.5 million related to an indemnification claim on certain acquired assets.
Effective January 1, 2019, we acquired 3 television stations owned by Raycom Media ("Raycom") — Waco, Texas ABC affiliate KXXV/KRHD and Tallahassee, Florida ABC affiliate WTXL — for $55 million in cash. These stations were divested as part of Gray Television's acquisition of Raycom.
The following table summarizes the preliminary fair values of the Raycom, Cordillera and Nexstar-TribuneION assets acquired and liabilities assumed at the closing dates. The allocation of purchase price for the Nexstar-Tribune acquisition reflects preliminary fair values.date.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Raycom | | Cordillera | | Nexstar- Tribune | | Total |
| | | | | | | | |
Accounts receivable | | $ | — | | | $ | 26,770 | | | $ | — | | | $ | 26,770 | |
Current portion of programming | | — | | | — | | | 11,997 | | | 11,997 | |
Other current assets | | — | | | 986 | | | 3,541 | | | 4,527 | |
Property and equipment | | 11,721 | | | 53,734 | | | 61,569 | | | 127,024 | |
Operating lease right-of-use assets | | 296 | | | 4,667 | | | 82,447 | | | 87,410 | |
Programming (less current portion) | | — | | | — | | | 9,830 | | | 9,830 | |
Goodwill | | 18,349 | | | 251,681 | | | 167,888 | | | 437,918 | |
Indefinite-lived intangible assets - FCC licenses | | 6,800 | | | 26,700 | | | 176,000 | | | 209,500 | |
Amortizable intangible assets: | | | | | | | | |
Television network affiliation relationships | | 17,400 | | | 169,400 | | | 181,000 | | | 367,800 | |
Advertiser relationships | | 700 | | | 5,900 | | | 7,100 | | | 13,700 | |
Other intangible assets | | — | | | 13,000 | | | — | | | 13,000 | |
Accounts payable | | — | | | (15) | | | — | | | (15) | |
Accrued expenses | | — | | | (5,750) | | | (4,580) | | | (10,330) | |
Current portion of programming liabilities | | — | | | — | | | (16,211) | | | (16,211) | |
Other current liabilities | | — | | | (280) | | | (3,185) | | | (3,465) | |
Operating lease liabilities | | (296) | | | (4,387) | | | (79,766) | | | (84,449) | |
Programming liabilities | | — | | | — | | | (15,305) | | | (15,305) | |
Net purchase price | | $ | 54,970 | | | $ | 542,406 | | | $ | 582,325 | | | $ | 1,179,701 | |
| | | | | | | | |
(in thousands) | | |
| | |
Accounts receivable | | $ | 133,559 | |
Other current assets | | 4,033 | |
Programming rights | | 169,027 | |
Property and equipment | | 63,073 | |
Operating lease right-of-use assets | | 72,717 | |
Other assets | | 4,513 | |
Goodwill | | 1,846,329 | |
Indefinite-lived intangible assets - FCC licenses | | 433,700 | |
Amortizable intangible assets: | | |
INYO affiliation agreement | | 433,000 | |
Other affiliation relationships | | 25,000 | |
Advertiser relationships | | 139,000 | |
Trade names | | 72,000 | |
Accounts payable | | (9,677) | |
Unearned revenue | | (13,043) | |
Accrued expenses | | (27,083) | |
Current portion of programming liabilities | | (92,721) | |
Other current liabilities | | (8,373) | |
Programming liabilities | | (191,837) | |
Deferred tax liabilities | | (266,389) | |
Operating lease liabilities | | (78,000) | |
Other long-term liabilities | | (29,030) | |
Total consideration, net of cash acquired | | $ | 2,679,798 | |
Of the value allocated to amortizable intangible assets, television networkthe INYO affiliation relationships haveagreement has an estimated amortization period of 20 years, advertiser relationships have an estimated amortization periodsperiod of 5-1010 years, other affiliation relationships have an estimated amortization period of 12 years and the value allocated to a shared services agreementtrade names has an estimated amortization period of 2010 years.
The goodwill of $438 million$1.8 billion arising from the transactions consists largely of synergies, economies of scale and other benefits of a larger national broadcast footprint.footprint and becoming the largest holder of broadcast spectrum. We allocated the goodwill to our Local MediaScripps Networks segment. We treatedThe transaction is accounted for as a stock acquisition which applies carryover tax basis to the transactions as asset acquisitions for income tax purposes resulting in a step-up in the assets and liabilities acquired. The goodwill is not deductible for income tax purposes.
Omny StudioFrom the January 7, 2021 acquisition date through March 31, 2021, revenues from ION's operations of $126 million have been included in the accompanying Condensed Consolidated Statements of Operations. Acquisition and integration costs related to the transaction, including legal and professional fees and severance costs, totaled $26.2 million for the three months ended March 31, 2021.
KCDO Television Station
On June 10, 2019,November 20, 2020, we completedclosed on the acquisition of Omny Studio ("Omny")the KCDO television station in the Denver, Colorado market. Included in the sale was KSBS-CD, a low power translator of KCDO. Total consideration for a cashthe transaction totaled $9.6 million. The preliminary purchase price of $8.3 million. Omny is a Melbourne, Australia-based podcasting software-as-a-service company operating as a part of Triton in our National Media segment. Omny is an audio-on-demand platform built specifically for professional audio publishers. The platform enables audio publishersallocated $6.9 million to seamlessly record, edit, distribute, monetize and analyze podcast content; replace static ads with dynamically inserted, highly targeted ads; and automates key aspects of campaign management, such as industry separation, frequency capping and volume normalization.
The final purchase price allocation assigned $5.3the acquired FCC license, $1.7 million to goodwill, $3.8$0.9 million to a developed technology intangible assetproperty and equipment and the remainder was allocated to various working capital and deferred tax liability accounts. The developed technology
intangible asset has an estimated amortization period of 10 years. The goodwill arising from the transaction consists largely of the fact that the addition of Omny's podcast and on-demand audio publishing platform to Triton's portfolio of streaming, advertising and measurement technologies provides audio publishers around the world with a full-stack enterprise solution to increase reach and revenue.
Pro forma results of operations
Pro forma results of operations, assuming the Cordillera and Nexstar-Tribune acquisitionsION acquisition had taken place at the beginning of 2019,2020, are presented in the following table. The pro forma results do not include Raycom or Omny Studio,KCDO, as the impact of these acquisitions,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 Cordillera and Nexstar-Tribune,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 exclude the $3.2 million of transaction related costs that were expensed in conjunction with the acquisitions and do not include efficiencies, cost reductions or synergies expected to result from the acquisitions. The unaudited pro forma financial information is not necessarily indicative of the results that actually would have occurred had the acquisitions been completed at the beginning of the period.
| | | | | | | | | | | | | | | | | Three Months Ended March 31, |
(in thousands, except per share data) (unaudited) | (in thousands, except per share data) (unaudited) | | Three Months Ended June 30, 2019 | | Six Months Ended June 30, 2019 | (in thousands, except per share data) (unaudited) | | 2021 | | 2020 |
| Operating revenues | Operating revenues | | $ | 396,410 | | | $ | 765,610 | | Operating revenues | | $ | 547,643 | | | $ | 559,436 | |
Loss from continuing operations, net of tax | | (3,113) | | | (19,549) | | |
Net loss per share from continuing operations: | | |
Net income (loss) attributable to Scripps shareholders | | Net income (loss) attributable to Scripps shareholders | | 13,009 | | | (15,146) | |
Net income (loss) per share: | | Net income (loss) per share: | |
Basic | Basic | | $ | (0.04) | | | $ | (0.24) | | Basic | | $ | 0.15 | | | $ | (0.19) | |
Diluted | Diluted | | (0.04) | | | (0.24) | | Diluted | | 0.15 | | | (0.19) | |
Pro forma results in 2020 include $35.6 million of non-recurring transaction related costs. The pro forma results in 2021 reflect a $26.2 million reversal of ION transaction costs incurred that are already being captured in the 2020 pro forma results.
4. Asset Write-Downs and Other Charges and Credits
Income (loss) from continuing operations before income taxes was affected by the following:
20202021 - Acquisition and related integration costs of $5.1$28.6 million in the first six monthsquarter of 2021 primarily reflect investment banking, legal fees and professional service costs incurred to complete and integrate the ION Media Networks, Inc. acquisition, which closed on January 7, 2021.
Restructuring costs totaled $7.1 million in the first quarter of 2021. In connection with the Newsy restructuring plan, we incurred charges for the write-downs of both capitalized carriage agreement payments and certain Newsy intangible assets.
During the first quarter of 2021, we completed the sale of our Triton business. The sale generated total net proceeds of $225 million and we recognized a pre-tax gain from disposition totaling $81.8 million.
The first quarter of 2021 includes a $67.2 million non-cash charge related to our outstanding common stock warrant. The warrant obligation is marked-to-market each reporting period with the increase in our common stock price being the significant contributor to a higher valuation.
2020 - Acquisition and related integration costs of $4.9 million in the first quarter of 2020 reflect contract termination costs and professional service costs incurred to integrate the Cordillera and Nexstar-Tribune television stations.
2019 - Acquisition and related integration costs of $2.8 million in the second quarter of 2019 and $6.3 million in the first six months of 2019 reflect professional service costs incurred to integrate Triton and the Raycom and Cordillera television stations, as well as costs related to the Nexstar-Tribune acquisition.
5. Income 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.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was enacted and signed into law. The CARES Act includes several provisions for corporations including increasing the amount of deductible interest, allowing companies to carryback certain net operating losses (“NOLs”) and increasing the amount of NOLs that corporations can use to offset income. The CARES Act did not materially affect our second quarter or year-to-date income tax provision. We do expect to receive an additional tax refund of $14.0 million from the carryback of NOLs to prior periods. We are currently
assessing the future implications of these provisions within the CARES Act on our condensed consolidated financial statements, but do not expect the impact to be material.
The effective income tax rate for the sixthree months ended June 30,March 31, 2021 and 2020 was 85% and 2019 was 14% and 29%(50)%, 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, and excess tax benefits or expense from the exercise and vesting of share-based compensation awards ($1.11.3 million benefit in 2021 and $1.0 million expense in 20202020), state deferred rate changes and $0.8state NOL valuation allowance changes ($1.2 million benefit in 2019)2021 and $4.0 million expense in 2020). Additionally, in 2020,the first quarter of 2021, we had a net discrete tax provision charge of $3.5$17.1 million related to state deferred rate changesa taxable gain on the sale of the Triton business, and state NOL valuation allowance reductions.a $1.0 million discrete tax provision charge related to nondeductible transaction costs for the ION acquisition. Finally, a non-deductible expense of $70.7 million was recorded in the first quarter of 2021 related to issuance costs and unrealized losses on mark-to-market adjustments recorded on the common stock warrants issued in connection with the ION acquisition.
Deferred tax assets totaled $13.3 million at June 30, 2020, which includes the tax effect of state NOL carryforwards. 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. Restricted Cash
At December 31, 2020, our cash and cash equivalents included $1.1 billion held in a restricted cash account for the ION Media Networks, Inc. ("ION") acquisition. The restricted balance represents the senior secured notes and senior unsecured notes proceeds that were segregated as financing for the January 7, 2021 closing of the ION acquisition. Refer to Note 9. Long-Term Debt and Note 3. Acquisitions for further information on the $550 million senior secured notes and $500 million senior unsecured notes that were issued on December 30, 2020. At March 31, 2021, 0 cash was held in a restricted cash account.
7. Leases
We have operating leases for office space, data centers and certain equipment. Our leases have remaining lease terms of 1 year to 20 years, some of which may include options to extend the leases for up to 5 years, and some of which may include options to terminate the leases within 1 year. Operating lease costs recognized in our condensed consolidated statementsCondensed Consolidated Statements of operationsOperations for the three months ended June 30,March 31, 2021 and 2020 and 2019 totaled $4.7$5.9 million and $3.0$4.9 million, including short-term lease costs of $0.1 million. Year-to-date June 30, 2020 and 2019 costs totaled $9.6$0.5 million and $5.8 million, including short-term lease costs of $0.3 million and $0.1$0.2 million, respectively.
Other information related to our operating leases was as follows:
| (in thousands, except lease term and discount rate) | (in thousands, except lease term and discount rate) | | As of June 30, 2020 | | As of December 31, 2019 | (in thousands, except lease term and discount rate) | | As of March 31, 2021 | | As of December 31, 2020 |
| Balance Sheet Information | Balance Sheet Information | | Balance Sheet Information | |
Right-of-use assets | Right-of-use assets | | $ | 122,721 | | | $ | 128,192 | | Right-of-use assets | | $ | 128,217 | | | $ | 51,471 | |
Other current liabilities | Other current liabilities | | 14,673 | | | 15,051 | | Other current liabilities | | 19,396 | | | 9,623 | |
Operating lease liabilities | Operating lease liabilities | | 111,582 | | | 113,648 | | Operating lease liabilities | | 120,731 | | | 42,097 | |
Weighted Average Remaining Lease Term | Weighted Average Remaining Lease Term | | Weighted Average Remaining Lease Term | |
Operating leases | Operating leases | | 12.36 years | | 12.59 years | Operating leases | | 8.82 years | | 7.64 years |
Weighted Average Discount Rate | Weighted Average Discount Rate | | Weighted Average Discount Rate | |
Operating leases | Operating leases | | 5.17 | % | | 5.19 | % | Operating leases | | 4.33 | % | | 5.96 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
(in thousands) | | 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | | |
Supplemental Cash Flows Information | | | | | | | | |
Cash paid for amounts included in the measurement of lease liabilities | | $ | 4,160 | | | $ | 2,925 | | | $ | 8,338 | | | $ | 5,748 | |
Right-of-use assets obtained in exchange for lease obligations | | 1,331 | | | 1,142 | | | 1,741 | | | 1,142 | |
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
(in thousands) | | | | | | 2021 | | 2020 |
| | | | | | | | |
Supplemental Cash Flows Information | | | | | | | | |
Cash paid for amounts included in the measurement of lease liabilities | | | | | | $ | 4,875 | | | $ | 4,178 | |
Right-of-use assets obtained in exchange for lease obligations | | | | | | 5,980 | | | 410 | |
Future minimum lease payments under non-cancellable operating leases as of June 30, 2020March 31, 2021 were as follows:
| (in thousands) | (in thousands) | | Operating Leases | (in thousands) | | Operating Leases |
| Remainder of 2020 | | $ | 11,920 | | |
2021 | | 11,629 | | |
Remainder of 2021 | | Remainder of 2021 | | $ | 23,470 | |
2022 | 2022 | | 14,995 | | 2022 | | 26,005 | |
2023 | 2023 | | 15,065 | | 2023 | | 21,735 | |
2024 | 2024 | | 13,792 | | 2024 | | 18,924 | |
2025 | | 2025 | | 14,917 | |
Thereafter | Thereafter | | 102,717 | | Thereafter | | 62,886 | |
Total future minimum lease payments | Total future minimum lease payments | | 170,118 | | Total future minimum lease payments | | 167,937 | |
Less: Imputed interest | Less: Imputed interest | | (43,863) | | Less: Imputed interest | | (27,810) | |
Total | Total | | $ | 126,255 | | Total | | $ | 140,127 | |
7.8. Goodwill and Other Intangible Assets
Goodwill consisted of the following:
| | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Local Media | | National Media | | Total |
| | | | | | |
Gross balance as of December 31, 2019 | | $ | 1,143,859 | | | $ | 318,734 | | | $ | 1,462,593 | |
Accumulated impairment losses | | (216,914) | | | (21,000) | | | (237,914) | |
Net balance as of December 31, 2019 | | $ | 926,945 | | | $ | 297,734 | | | $ | 1,224,679 | |
| | | | | | |
Gross balance as of June 30, 2020 | | $ | 1,145,418 | | | $ | 318,718 | | | $ | 1,464,136 | |
Accumulated impairment losses | | (216,914) | | | (21,000) | | | (237,914) | |
Net balance as of June 30, 2020 | | $ | 928,504 | | | $ | 297,718 | | | $ | 1,226,222 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Local Media | | Scripps Networks | | Other | | Total |
| | | | | | | | |
Gross balance as of December 31, 2020 | | $ | 1,122,408 | | | $ | 232,742 | | | $ | 85,976 | | | $ | 1,441,126 | |
Accumulated impairment losses | | (216,914) | | | (21,000) | | | 0 | | | (237,914) | |
Net balance as of December 31, 2020 | | $ | 905,494 | | | $ | 211,742 | | | $ | 85,976 | | | $ | 1,203,212 | |
| | | | | | | | |
Gross balance as of March 31, 2021 | | $ | 1,122,408 | | | $ | 2,079,071 | | | $ | 0 | | | $ | 3,201,479 | |
Accumulated impairment losses | | (216,914) | | | (21,000) | | | 0 | | | (237,914) | |
Net balance as of March 31, 2021 | | $ | 905,494 | | | $ | 2,058,071 | | | $ | 0 | | | $ | 2,963,565 | |
Other intangible assets consisted of the following:
| | | | | | | | | | | | | | |
(in thousands) | | As of June 30, 2020 | | As of December 31, 2019 |
| | | | |
Amortizable intangible assets: | | | | |
Carrying amount: | | | | |
Television network affiliation relationships | | $ | 616,244 | | | $ | 616,244 | |
Customer lists and advertiser relationships | | 104,300 | | | 104,300 | |
Other | | 103,597 | | | 102,956 | |
Total carrying amount | | 824,141 | | | 823,500 | |
Accumulated amortization: | | | | |
Television network affiliation relationships | | (98,565) | | | (82,917) | |
Customer lists and advertiser relationships | | (47,703) | | | (42,012) | |
Other | | (30,454) | | | (23,811) | |
Total accumulated amortization | | (176,722) | | | (148,740) | |
Net amortizable intangible assets | | 647,419 | | | 674,760 | |
Indefinite-lived intangible assets — FCC licenses | | 385,915 | | | 385,915 | |
Total other intangible assets | | $ | 1,033,334 | | | $ | 1,060,675 | |
| | | | | | | | | | | | | | |
(in thousands) | | As of March 31, 2021 | | As of December 31, 2020 |
| | | | |
Amortizable intangible assets: | | | | |
Carrying amount: | | | | |
Television affiliation relationships | | $ | 1,074,244 | | | $ | 616,244 | |
Customer lists and advertiser relationships | | 213,400 | | | 102,900 | |
Other | | 132,092 | | | 104,445 | |
Total carrying amount | | 1,419,736 | | | 823,589 | |
Accumulated amortization: | | | | |
Television affiliation relationships | | (127,490) | | | (113,950) | |
Customer lists and advertiser relationships | | (53,871) | | | (53,232) | |
Other | | (31,178) | | | (37,778) | |
Total accumulated amortization | | (212,539) | | | (204,960) | |
Net amortizable intangible assets | | 1,207,197 | | | 618,629 | |
Indefinite-lived intangible assets — FCC licenses | | 790,515 | | | 356,815 | |
Total other intangible assets | | $ | 1,997,712 | | | $ | 975,444 | |
On April 4, 2019, we acquired assets from an independent station in Stuart, Florida, for $23.6 million in cash. The value attributed to the acquired FCC license totaled $19.2 million and $4.1 million of value was attributed to an other intangible asset.
Estimated amortization expense of intangible assets for each of the next five years is $28.6$67.7 million for the remainder of 2020, $55.4 million in 2021, $49.9$88.6 million in 2022, $44.6$83.5 million in 2023, $42.9$82.1 million in 2024, $40.0$80.4 million in 2025, $77.4 million in 2026 and $386.0$727.5 million in later years.
Goodwill and other indefinite-lived intangible assets are tested for impairment annually and any time events occur or changes in circumstances indicate it is more likely than not the fair value of a reporting unit, or respective indefinite-lived intangible asset, is below its carrying value. Our reporting units are Local Media, Katz, Triton, Stitcher and Newsy. Such events or changes in circumstances include, but are not limited to, changes in business climate, declines in the price of our stock, or other factors resulting in lower cash flow related to such assets. If the carrying amount exceeds its fair value, then an impairment loss is recognized.
Weakness in economic conditions toward the end of the first quarter, reflecting the impact of the COVID-19 pandemic, and declines in our stock price, created indications of fair value declines for our reporting units as of March 31, 2020. Accordingly, during the first quarter, we considered impacts to the estimated fair values for each of our reporting units to determine if it was more likely than not that fair value had declined below carrying value. Our analysis primarily relied upon market data and discounted cash flow analyses. The use of a discounted cash flow approach requires significant judgment to estimate future cash flows of the business and the period of time over which those cash flows will occur, as well as to determine an appropriate discount rate. While we believe the estimates and judgments used in the discounted cash flow analyses for our reporting units were appropriate, different assumptions with respect to future cash flows, long-term growth rates and discount rates, could produce different estimates of value. During the second quarter of 2020, we continued to evaluate changes in facts and circumstances and market impacts resulting from the COVID-19 pandemic, including their impact on operating results and whether it was more likely than not that fair values of our reporting units had declined below carrying value.
We concluded that it was not more likely than not that the carrying value for any of our reporting units exceeded its fair value. However, the discounted cash flow values for each of our reporting units are lower than the values determined during our 2019 annual impairment test. In 2019, the fair value for our Local Media reporting unit exceeded its carrying value by approximately 25% and our other reporting units exceeded their carrying values by over 30%. The Local Media reporting unit has $0.9 billion of goodwill or 76% of the consolidated total for the Company.
We have also concluded that it was not more likely than not that the carrying value of any of our FCC licenses exceeded their fair values. Our FCC licenses are indefinite-lived assets that are not subject to amortization. The value of a FCC license is estimated using an income approach, which requires multiple assumptions relating to the future prospects of each individual FCC license. While we believe the estimates and judgments used in determining that it was not more likely than not that the carrying values of the FCC licenses exceeded fair values were appropriate, different assumptions with respect to the income approach could produce different estimates of value. For example, as it relates to our 2019 annual impairment test, a 50-basis point increase in discount rates would reduce the aggregate fair value of the FCC licenses by approximately $65 million.
8.9. Long-Term Debt
Long-term debt consisted of the following:
| (in thousands) | (in thousands) | | As of June 30, 2020 | | As of December 31, 2019 | (in thousands) | | As of March 31, 2021 | | As of December 31, 2020 |
| Revolving credit facility | Revolving credit facility | | $ | 50,000 | | | $ | — | | Revolving credit facility | | $ | 0 | | | $ | 0 | |
Senior secured notes, due in 2029 | | Senior secured notes, due in 2029 | | 550,000 | | | 550,000 | |
Senior unsecured notes, due in 2025 | Senior unsecured notes, due in 2025 | | 400,000 | | | 400,000 | | Senior unsecured notes, due in 2025 | | 400,000 | | | 400,000 | |
Senior unsecured notes, due in 2027 | Senior unsecured notes, due in 2027 | | 500,000 | | | 500,000 | | Senior unsecured notes, due in 2027 | | 500,000 | | | 500,000 | |
Senior unsecured notes, due in 2031 | | Senior unsecured notes, due in 2031 | | 500,000 | | | 500,000 | |
Term loan, due in 2024 | Term loan, due in 2024 | | 291,750 | | | 293,250 | | Term loan, due in 2024 | | 289,500 | | | 290,250 | |
Term loan, due in 2026 | Term loan, due in 2026 | | 755,466 | | | 759,272 | | Term loan, due in 2026 | | 749,757 | | | 751,660 | |
Term loan, due in 2028 | | Term loan, due in 2028 | | 798,000 | | | 0 | |
| Total outstanding principal | Total outstanding principal | | 1,997,216 | | | 1,952,522 | | Total outstanding principal | | 3,787,257 | | | 2,991,910 | |
Less: Debt issuance costs and issuance discounts | Less: Debt issuance costs and issuance discounts | | (34,557) | | | (37,492) | | Less: Debt issuance costs and issuance discounts | | (78,361) | | | (57,939) | |
Less: Current portion | Less: Current portion | | (10,612) | | | (10,612) | | Less: Current portion | | (18,612) | | | (10,612) | |
Net carrying value of long-term debt | Net carrying value of long-term debt | | $ | 1,952,047 | | | $ | 1,904,418 | | Net carrying value of long-term debt | | $ | 3,690,284 | | | $ | 2,923,359 | |
Fair value of long-term debt * | Fair value of long-term debt * | | $ | 1,899,320 | | | $ | 1,991,164 | | Fair value of long-term debt * | | $ | 3,797,121 | | | $ | 3,064,194 | |
* Fair values of the 2025, 2027, 2029 and 20272031 Senior Notes are estimated based on quoted private market transactions and are classified as Level 1 in the fair value hierarchy. The fair values of the term loans are based on observable estimates provided by third party financial professionals, and as such, are classified within Level 2 of the fair value hierarchy.
2025 Senior Unsecured Notes
On April 28, 2017, we issued $400 million senior unsecured notes ("the 2025 Senior Notes"), which bear interest at a rate of 5.125% per annum and mature on May 15, 2025. The 2025 Senior Notes were priced at 100% of par value and interest is payable semi-annually on May 15 and November 15. If we sell certain of our assets or have a change of control, the holders of the 2025 Senior Notes may require us to repurchase some or all of the notes. The 2025 Senior Notes are also guaranteed by us and the majority of our subsidiaries. The 2025 Senior Notes contain covenants that, among other things, limit the ability to incur additional debt, make certain restricted payments, and/or create liens, that are typical for borrowing transactions of this nature.
We incurred approximately $7.0 million of deferred financing costs in connection with the issuance of the 2025 Senior Notes, which are being amortized over the life of the notes.
2027 Senior Unsecured Notes
On July 26, 2019, our wholly-owned subsidiary, Scripps Escrow, Inc. ("Scripps Escrow"), issued $500 million of senior unsecured notes, which bear interest at a rate of 5.875% per annum and mature on July 15, 2027 ("the 2027 Senior Notes"). The 2027 Senior Notes were priced at 100% of par value and interest is payable semi-annually on July 15 and January 15, commencing on January 15, 2020. Prior to July 15, 2022, we may redeem up to 40% of the aggregate principal amount of the 2027 Senior Notes at a redemption price of 105.875% 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 notes before 2022 at a redemption price of 100% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date. 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 that, among other things, limit the ability to incur additional debt, make certain restricted payments, and/or create liens, that are typical for borrowing transactions of this nature. There are no registration rights associated with the 2027 Senior Notes.
We incurred approximately $10.7 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.
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, the capacity of our Revolving Credit Facility was increased from $210 million to $400 million. Additionally, the Sixth Amendment extended the facility's maturity date to 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. Commitment fees of 0.30% to 0.50% 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 1.75% to 2.50%. As of March 31, 2021, we had 0 borrowings under the Revolving Credit Facility. As of March 31, 2021 and December 31, 2020, we had outstanding letters of credit totaling $6.8 million and $6.0 million, respectively, under the Revolving Credit Facility.
On October 2, 2017, we issued a $300 million term loan B which matures in October 2024 ("2024 term loan"). We amended the term loan on April 4, 2018, reducing the interest rate by 25 basis points. Following the amendment, interestInterest is currently payable on the 2024 term loan at a rate based on LIBOR, plus a fixed margin of 2.00%. Interest will reduce to a rate of LIBOR plus a fixed margin of 1.75% if the Company’s total net leverage, as defined by the amended agreement, is below 2.75. The 2024 term loan requires annual principal payments of $3 million.
As of June 30, 2020March 31, 2021 and December 31, 2019,2020, the interest rate on the 2024 term loan was 2.18%2.11% and 3.80%2.15%, respectively. The weighted-average interest rate was 2.51%2.13% and 4.47%3.67% for the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, respectively.
On May 1, 2019, we entered into a Fourth Amendment to the Third Amended and Restated Credit Agreement ("Fourth Amendment"). Under the Fourth Amendment, we issued a $765 million term loan B ("2026 term loan") that matures in May 2026 with interest payable at rates based on LIBOR, plus a fixed margin of 2.75%. We amended this term loan on December 18, 2019, reducing the interest rate by 25 basis points. Following the amendment, interest2026. Interest is currently payable on the 2026 term loan at a rate based on LIBOR, plus a fixed margin of 2.50%2.56%. The 2026 term loan requires annual principal payments of $7.6 million. Deferred financing costs and original issuance discount totaled approximately $23.0 million with this term loan, which are being amortized over the life of the loan.
As of June 30, 2020March 31, 2021 and December 31, 2019,2020, the interest rate on the 2026 term loan was 2.68%3.31% and 4.30%2.65%, respectively. The weighted-average interest rate on the term loan was 3.01%3.26% and 4.17% for the sixthree months ended June 30, 2020.March 31, 2021 and 2020, respectively.
Under the Sixth Amendment, we also issued an $800 million term loan B 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 3.00%. Additionally, the Sixth Amendment provided that the LIBOR rate could not be less than 0.75% for our term loans that mature in 2026 and 2028. The 2028 term loan requires annual principal payments of $8.0 million. We incurred deferred financing costs totaling $23.4 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 March 31, 2021, the interest rate on the 2028 term loan was 3.75%. The weighted-average interest rate on the term loan was 5.21%3.75% for the twothree months it was outstanding during 2019.
We have a $210 million revolving credit facility ("Revolving Credit Facility") that expires in April 2022. Commitment fees of 0.30% to 0.50% 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 1.75% to 2.50%. As of June 30, 2020, we had $50 million outstanding under the Revolving Credit Facility with an interest rate of 2.43%. The weighted-average interest rate over the period during which we had a drawn revolver balance in 2020 was 2.67%. As of June 30, 2020 and Decemberended March 31, 2019, we had outstanding letters of credit totaling $6.0 million under the Revolving Credit Facility.2021.
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 4.54.75 to 1.0 when we have outstanding borrowings on the facility. As of June 30, 2020,March 31, 2021, we were in compliance with our financial covenants.
2029 Senior Secured Notes
9.
On December 30, 2020, we issued $550 million of senior secured notes (the "2029 Senior Notes"), which bear interest at a rate of 3.875% 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 100% 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 40% of the aggregate principal amount of the 2029 Senior Notes at a redemption price of 103.875% 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 100% 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 $13.8 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.
2025 Senior Unsecured Notes
On April 28, 2017, we issued $400 million of senior unsecured notes (the "2025 Senior Notes"), which bear interest at a rate of 5.125% per annum and mature on May 15, 2025. The 2025 Senior Notes were priced at 100% of par value and interest is payable semi-annually on May 15 and November 15. On or after May 15, 2020 and before May 15, 2023, we may redeem the notes, in whole or in part, at applicable redemption prices noted in the indenture agreement. If we sell certain assets or have a change of control, the holders of the 2025 Senior Notes may require us to repurchase some or all of the notes. The 2025 Senior Notes are also guaranteed by us and the majority our subsidiaries. The 2025 Senior Notes contain covenants with which we must comply that are typical for borrowing transactions of this nature.
We incurred approximately $7.0 million of deferred financing costs in connection with the issuance of the 2025 Senior Notes, which are being amortized over the life of the notes.
On April 15, 2021, we announced our intention to redeem the 2025 Senior Notes on May 15, 2021. The redemption price of the notes will be equal to 102.563% of the aggregate principal amount plus accrued and unpaid interest up to the redemption date. The notes will be redeemed with cash on hand.
2027 Senior Unsecured Notes
On July 26, 2019, we issued $500 million of senior unsecured notes, which bear interest at a rate of 5.875% per annum and mature on July 15, 2027 ("the 2027 Senior Notes"). The 2027 Senior Notes were priced at 100% of par value and interest is payable semi-annually on July 15 and January 15. Prior to July 15, 2022, we may redeem up to 40% of the aggregate principal amount of the 2027 Senior Notes at a redemption price of 105.875% 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 notes before July 15, 2022 at a redemption price of 100% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date plus a "make whole" premium. On or after July 15, 2022 and before July 15, 2025, 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 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 $10.7 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 $500 million of senior unsecured notes (the "2031 Senior Notes"), which bear interest at a rate of 5.375% 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 100% 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 40% of the aggregate principal amount of the 2031 Senior Notes at a redemption price of 105.375% 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 100% 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 $12.5 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 November 2020, our Board of Directors authorized a debt repurchase program 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, and the additional indebtedness incurred with the closing of the ION acquisition. The authorization permits an aggregate principal amount reduction of up to $500 million and expires on March 1, 2023.
10. Other Liabilities
Other liabilities consisted of the following:
| (in thousands) | (in thousands) | | As of June 30, 2020 | | As of December 31, 2019 | (in thousands) | | As of March 31, 2021 | | As of December 31, 2020 |
| Employee compensation and benefits | Employee compensation and benefits | | $ | 21,981 | | | $ | 21,403 | | Employee compensation and benefits | | $ | 36,614 | | | $ | 34,020 | |
Deferred FCC repack income | Deferred FCC repack income | | 42,197 | | | 36,770 | | Deferred FCC repack income | | 44,442 | | | 44,945 | |
Programming liability | Programming liability | | 34,493 | | | 57,291 | | Programming liability | | 207,093 | | | 33,481 | |
Liability for pension benefits | Liability for pension benefits | | 184,390 | | | 190,219 | | Liability for pension benefits | | 154,212 | | | 161,845 | |
| Liabilities for uncertain tax positions | | Liabilities for uncertain tax positions | | 21,760 | | | 2,332 | |
Liability for common stock warrants | | Liability for common stock warrants | | 248,084 | | | 0 | |
Other | Other | | 16,544 | | | 10,265 | | Other | | 27,116 | | | 9,742 | |
Other liabilities (less current portion) | Other liabilities (less current portion) | | $ | 299,605 | | | $ | 315,948 | | Other liabilities (less current portion) | | $ | 739,321 | | | $ | 286,365 | |
F-16In connection with the acquisition of ION, we assumed $19.3 million of uncertain tax position liabilities. Approximately $15.1 million of the liability is attributed to disallowed domestic production activities deductions (DPAD). We currently expect this DPAD liability will be resolved through settlement, amendments and/or payment within the next twelve months.
With the Preferred Shares issuance, Berkshire Hathaway also received a warrant to purchase up to 23.1 million Class A shares, at an exercise price of $13 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 has 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 must be recognized for the fair value of the warrant. The valuation model, classified within Level 3 of the fair value hierarchy, includes 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 $181 million. The fair value of the warrant is remeasured each reporting period and totaled $248 million at March 31, 2021. The increase in our stock price during 2021 was the primary contributor to the increase in the fair value of the warrant. Change in the fair value of the warrant during each reporting period is captured in the gains/ losses on stock warrants caption in the Condensed Consolidated Statements of Operations.
10.
11. Supplemental Cash Flow Information
The following table presents additional information about the change in certain working capital accounts:
| | | Six Months Ended June 30, | | | Three Months Ended March 31, |
(in thousands) | (in thousands) | | 2020 | | 2019 | (in thousands) | | 2021 | | 2020 |
| Accounts receivable | Accounts receivable | | $ | 41,231 | | | $ | (13,756) | | Accounts receivable | | $ | 43,559 | | | $ | 8,850 | |
| Other current assets | Other current assets | | (8,435) | | | 3,799 | | Other current assets | | 1,851 | | | (11,969) | |
Accounts payable | Accounts payable | | 19,083 | | | 15,054 | | Accounts payable | | 6,342 | | | 14,034 | |
Accrued employee compensation and benefits | Accrued employee compensation and benefits | | (6,575) | | | (9,191) | | Accrued employee compensation and benefits | | (19,387) | | | (13,711) | |
Accrued interest | Accrued interest | | 896 | | | 329 | | Accrued interest | | 7,687 | | | (1,172) | |
Other accrued liabilities | Other accrued liabilities | | (7,533) | | | (4,231) | | Other accrued liabilities | | (16,151) | | | 15,041 | |
Unearned revenue | Unearned revenue | | (1,333) | | | (4,835) | | Unearned revenue | | (5,672) | | | (3,130) | |
Other, net | Other, net | | 406 | | | (15,456) | | Other, net | | 22,816 | | | 863 | |
Total | Total | | $ | 37,740 | | | $ | (28,287) | | Total | | $ | 41,045 | | | $ | 8,806 | |
11.
12. Employee 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.
The components of the employee benefit plansplan expense consisted of the following:
| | | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | | | Three Months Ended March 31, |
(in thousands) | (in thousands) | | 2020 | | 2019 | | 2020 | | 2019 | (in thousands) | | | 2021 | | 2020 |
| | Interest cost | Interest cost | | $ | 4,918 | | | $ | 5,800 | | | $ | 9,835 | | | $ | 11,600 | | Interest cost | | | $ | 4,103 | | | $ | 4,917 | |
Expected return on plan assets, net of expenses | Expected return on plan assets, net of expenses | | (5,256) | | | (5,058) | | | (10,512) | | | (10,116) | | Expected return on plan assets, net of expenses | | | (5,820) | | | (5,256) | |
| Amortization of actuarial loss and prior service cost | Amortization of actuarial loss and prior service cost | | 1,124 | | | 572 | | | 2,249 | | | 1,144 | | Amortization of actuarial loss and prior service cost | | | 1,487 | | | 1,125 | |
| Total for defined benefit pension plan | Total for defined benefit pension plan | | 786 | | | 1,314 | | | 1,572 | | | 2,628 | | Total for defined benefit pension plan | | | (230) | | | 786 | |
Multi-employer plans | Multi-employer plans | | 52 | | | 58 | | | 61 | | | 99 | | Multi-employer plans | | | 0 | | | 9 | |
SERPs | SERPs | | 240 | | | 250 | | | 480 | | | 508 | | SERPs | | | 223 | | | 240 | |
Defined contribution plan | Defined contribution plan | | 3,702 | | | 1,695 | | | 7,481 | | | 4,690 | | Defined contribution plan | | | 3,978 | | | 3,779 | |
Net periodic benefit cost | Net periodic benefit cost | | 4,780 | | | 3,317 | | | 9,594 | | | 7,925 | | Net periodic benefit cost | | | 3,971 | | | 4,814 | |
Allocated to discontinued operations | Allocated to discontinued operations | | (121) | | | (84) | | | (326) | | | (190) | | Allocated to discontinued operations | | | 0 | | | (205) | |
Net periodic benefit cost — continuing operations | Net periodic benefit cost — continuing operations | | $ | 4,659 | | | $ | 3,233 | | | $ | 9,268 | | | $ | 7,735 | | Net periodic benefit cost — continuing operations | | | $ | 3,971 | | | $ | 4,609 | |
We contributed $0.5$0.3 million to fund current benefit payments for our SERPs and $4.8$5.7 million for our defined benefit pension plan during the sixthree months ended June 30, 2020.March 31, 2021. During the remainder of 2020,2021, we anticipate contributing an additional $0.7$1.1 million to fund the SERPs' benefit payments. We are required to contribute an additional $27.0$18.7 million to fund our qualified defined benefit pension plan in order to meet our 20202021 funding requirements under the provisions of the Pension Funding Equity Act of 2004 and the Pension Protection Act of 2006. In response to COVID-19, President Donald Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The CARES Act provides a provision to defer 2020 pension contributions until January 1, 2021. Currently, we do not anticipate delaying the payment of 2020 pension contributions with respect to this permitted CARES Act provision.
12.13. Segment 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. We report
Effective with the January 7, 2021 close of the ION acquisition, we realigned our financial performance based oninternal reporting structure and changed the following segments:reporting of our businesses’ operating results to reflect this new structure. Under the new structure, our operating results are reported under Local Media, National Media, Other.Scripps Networks and Other segment captions.
Our Local Media segment includes our 6061 local broadcast stations and their related digital operations. It is comprised of 18 ABC affiliates, 11 NBC affiliates, 9 CBS affiliates and 4 FOX affiliates. We also have 1312 CW affiliates - 54 on full power stations and 8 on multicast; 2 MyNetworkTV affiliates; 23 independent stations and 910 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 and satellite carriers. We also receive retransmission fees from over-the-top virtual MVPDs such as Hulu, YouTubeTV and AT&T Now.
Our National MediaScripps Networks segment includes our collectionis comprised of the ION national brands. Ournetwork, the Katz multicast networks and the Newsy national brands include Katz, Newsy, Triton and other national brands.news network. These operations earn revenue primarily through the sale of advertising.
The operating results of our recently sold Triton business, and the other national businesses that were previously reported in our National Media segment, are aggregated with our remaining business activities in the Other segment caption.
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 information technology, certain employee benefits and shared services to our business segments. TheThese intercompany agreements and allocations are generally amounts agreed upon by management, which may differ from an arms-length amount.
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 expense,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.
Information regarding our business segments is as follows:
| | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | | Three Months Ended March 31, |
(in thousands) | (in thousands) | | 2020 | | 2019 | | 2020 | | 2019 | (in thousands) | | | 2021 | | 2020 |
| Segment operating revenues: | Segment operating revenues: | | Segment operating revenues: | | | |
Local Media | Local Media | | $ | 276,747 | | | $ | 236,715 | | | $ | 598,551 | | | $ | 440,102 | | Local Media | | | $ | 312,581 | | | $ | 324,933 | |
National Media | | 80,503 | | | 81,439 | | | 171,422 | | | 153,652 | | |
Scripps Networks | | Scripps Networks | | | 213,660 | | | 76,755 | |
Other | Other | | 1,633 | | | 2,274 | | | 3,133 | | | 3,733 | | Other | | | 18,121 | | | 15,664 | |
Intersegment eliminations | | Intersegment eliminations | | | (3,441) | | | (3,129) | |
Total operating revenues | Total operating revenues | | $ | 358,883 | | | $ | 320,428 | | | $ | 773,106 | | | $ | 597,487 | | Total operating revenues | | | $ | 540,921 | | | $ | 414,223 | |
Segment profit (loss): | Segment profit (loss): | | | | | | | | | Segment profit (loss): | | | | | |
Local Media | Local Media | | $ | 32,260 | | | $ | 54,329 | | | $ | 88,237 | | | $ | 88,502 | | Local Media | | | $ | 55,937 | | | $ | 59,106 | |
National Media | | 10,282 | | | 12,097 | | | 27,741 | | | 21,687 | | |
Scripps Networks | | Scripps Networks | | | 92,203 | | | 9,969 | |
Other | Other | | 104 | | | (1,485) | | | (66) | | | (1,918) | | Other | | | 3,281 | | | 4,191 | |
Shared services and corporate | Shared services and corporate | | (12,923) | | | (13,119) | | | (31,577) | | | (29,277) | | Shared services and corporate | | | (18,921) | | | (18,654) | |
Acquisition and related integration costs | Acquisition and related integration costs | | (221) | | | (2,788) | | | (5,131) | | | (6,268) | | Acquisition and related integration costs | | | (28,645) | | | (4,910) | |
Restructuring costs | Restructuring costs | | — | | | (957) | | | — | | | (1,895) | | Restructuring costs | | | (7,050) | | | 0 | |
Depreciation and amortization of intangible assets | Depreciation and amortization of intangible assets | | (26,645) | | | (19,532) | | | (53,990) | | | (36,538) | | Depreciation and amortization of intangible assets | | | (39,507) | | | (27,345) | |
| Gains (losses), net on disposal of property and equipment | Gains (losses), net on disposal of property and equipment | | (1,307) | | | (144) | | | (2,740) | | | (317) | | Gains (losses), net on disposal of property and equipment | | | (80) | | | (1,433) | |
Interest expense | Interest expense | | (22,999) | | | (18,023) | | | (48,797) | | | (26,939) | | Interest expense | | | (43,882) | | | (25,798) | |
Defined benefit pension plan expense | | (1,026) | | | (1,564) | | | (2,052) | | | (3,136) | | |
Defined benefit pension plan income (expense) | | Defined benefit pension plan income (expense) | | | 7 | | | (1,026) | |
Gains on sale of business | | Gains on sale of business | | | 81,784 | | | 0 | |
Gains (losses) on stock warrants | | Gains (losses) on stock warrants | | | (67,244) | | | 0 | |
Miscellaneous, net | Miscellaneous, net | | (1,552) | | | 369 | | | (438) | | | (431) | | Miscellaneous, net | | | (4,851) | | | 1,114 | |
Income (loss) from continuing operations before income taxes | Income (loss) from continuing operations before income taxes | | $ | (24,027) | | | $ | 9,183 | | | $ | (28,813) | | | $ | 3,470 | | Income (loss) from continuing operations before income taxes | | | $ | 23,032 | | | $ | (4,786) | |
Depreciation: | Depreciation: | | | | | | | | | Depreciation: | | | | | |
Local Media | Local Media | | $ | 10,774 | | | $ | 8,391 | | | $ | 22,264 | | | $ | 15,982 | | Local Media | | | $ | 9,685 | | | $ | 11,490 | |
National Media | | 1,194 | | | 1,030 | | | 2,637 | | | 1,857 | | |
Scripps Networks | | Scripps Networks | | | 3,835 | | | 1,295 | |
Other | Other | | 41 | | | 39 | | | 78 | | | 77 | | Other | | | 249 | | | 185 | |
Shared services and corporate | Shared services and corporate | | 387 | | | 367 | | | 768 | | | 709 | | Shared services and corporate | | | 356 | | | 381 | |
Total depreciation | Total depreciation | | $ | 12,396 | | | $ | 9,827 | | | $ | 25,747 | | | $ | 18,625 | | Total depreciation | | | $ | 14,125 | | | $ | 13,351 | |
Amortization of intangible assets: | Amortization of intangible assets: | | | | | | | | | Amortization of intangible assets: | | | | | |
Local Media | Local Media | | $ | 9,399 | | | $ | 5,468 | | | $ | 19,320 | | | $ | 9,426 | | Local Media | | | $ | 9,597 | | | $ | 9,921 | |
National Media | | 4,512 | | | 3,898 | | | 8,247 | | | 7,810 | | |
Scripps Networks | | Scripps Networks | | | 13,117 | | | 1,835 | |
Other | | Other | | | 2,147 | | | 1,900 | |
Shared services and corporate | Shared services and corporate | | 338 | | | 339 | | | 676 | | | 677 | | Shared services and corporate | | | 521 | | | 338 | |
Total amortization of intangible assets | Total amortization of intangible assets | | $ | 14,249 | | | $ | 9,705 | | | $ | 28,243 | | | $ | 17,913 | | Total amortization of intangible assets | | | $ | 25,382 | | | $ | 13,994 | |
Additions to property and equipment: | Additions to property and equipment: | | | | | | | | | Additions to property and equipment: | | | | | |
Local Media | Local Media | | $ | 11,776 | | | $ | 12,411 | | | $ | 26,217 | | | $ | 21,891 | | Local Media | | | $ | 5,454 | | | $ | 14,441 | |
National Media | | 232 | | | 4,279 | | | 2,041 | | | 8,562 | | |
Scripps Networks | | Scripps Networks | | | 1,489 | | | 1,591 | |
Other | Other | | — | | | 179 | | | 5 | | | 210 | | Other | | | 430 | | | 223 | |
Shared services and corporate | Shared services and corporate | | 102 | | | 195 | | | 216 | | | 606 | | Shared services and corporate | | | 19 | | | 114 | |
Total additions to property and equipment | Total additions to property and equipment | | $ | 12,110 | | | $ | 17,064 | | | $ | 28,479 | | | $ | 31,269 | | Total additions to property and equipment | | | $ | 7,392 | | | $ | 16,369 | |
A disaggregation of the principal activities from which we generate revenue is as follows:
| | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | | Three Months Ended March 31, |
(in thousands) | (in thousands) | | 2020 | | 2019 | | 2020 | | 2019 | (in thousands) | | | 2021 | | 2020 |
| Operating revenues: | Operating revenues: | | Operating revenues: | | | |
Core advertising | Core advertising | | $ | 182,089 | | | $ | 206,535 | | | $ | 417,910 | | | $ | 376,452 | | Core advertising | | | $ | 361,303 | | | $ | 235,821 | |
Political | Political | | 13,368 | | | 2,116 | | | 32,088 | | | 2,996 | | Political | | | 1,311 | | | 18,720 | |
Retransmission and carriage | | 144,283 | | | 93,325 | | | 283,233 | | | 180,608 | | |
Retransmission and carriage fees | | Retransmission and carriage fees | | | 156,497 | | | 138,950 | |
Other | Other | | 19,143 | | | 18,452 | | | 39,875 | | | 37,431 | | Other | | | 21,810 | | | 20,732 | |
Total operating revenues | Total operating revenues | | $ | 358,883 | | | $ | 320,428 | | | $ | 773,106 | | | $ | 597,487 | | Total operating revenues | | | $ | 540,921 | | | $ | 414,223 | |
13.14. Capital Stock
Capital Stock — We have 2 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 3 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 $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). As long as the Company 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 remaining period of time that the Preferred Shares are outstanding. Preferred stock dividends, effective through March 15, 2021, were paid in the first quarter totaling $9.1 million.
Share Repurchase Plan — Shares may be repurchased from time to time at management's discretion. Shares can be repurchased under an authorization via open market purchases or privately negotiated transactions, including accelerated stock repurchase transactions, block trades, or pursuant to trades intending to comply with Rule 10b5-1 of the Securities Exchange Act of 1934. In November 2016, our Board of Directors authorized a repurchase program of up to $100 million of our Class A Common shares. We repurchased a total of $50.3 million of shares under this authorization prior to its expiration on March 1, 2020. In February 2020, our Board of Directors authorized a new share repurchase program of up to $100 million of our Class A Common shares through March 1, 2022. NaN shares were repurchased under either authorization during the sixthree months ended June 30, 2020. DuringMarch 31, 2021. Under the six months ended June 30, 2019,terms of the Preferred Shares, we repurchased $0.6 million ofare prohibited from paying dividends on and repurchasing our common shares at prices ranging from $15.54 to $18.72 per share.until all Preferred Shares are redeemed.
14.15. Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) ("AOCI") by component, including items reclassified out of AOCI, were as follows:
| | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended June 30, 2020 | | | | |
(in thousands) | | | | Defined Benefit Pension Items | | Other | | Total |
| | | | | | | | |
Beginning balance, March 31, 2020 | | | | $ | (97,832) | | | $ | (249) | | | $ | (98,081) | |
Other comprehensive income (loss) before reclassifications | | | | — | | | — | | | — | |
Amounts reclassified from AOCI, net of tax of $288(a) | | | | 899 | | | 6 | | | 905 | |
Net current-period other comprehensive income (loss) | | | | 899 | | | 6 | | | 905 | |
Ending balance, June 30, 2020 | | | | $ | (96,933) | | | $ | (243) | | | $ | (97,176) | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended June 30, 2019 | | | | |
(in thousands) | | | | Defined Benefit Pension Items | | Other | | Total |
| | | | | | | | |
Beginning balance, March 31, 2019 | | | | $ | (94,905) | | | $ | (32) | | | $ | (94,937) | |
Other comprehensive income (loss) before reclassifications | | | | — | | | — | | | — | |
Amounts reclassified from AOCI, net of tax of $155(a) | | | | 461 | | | — | | | 461 | |
Net current-period other comprehensive income (loss) | | | | 461 | | | — | | | 461 | |
Ending balance, June 30, 2019 | | | | $ | (94,444) | | | $ | (32) | | | $ | (94,476) | |
| | | | Six Months Ended June 30, 2020 | | | | Three Months Ended March 31, 2021 |
(in thousands) | (in thousands) | | | Defined Benefit Pension Items | | Other | | Total | (in thousands) | | | Defined Benefit Pension Items | | Other | | Total |
| Beginning balance, December 31, 2019 | | | $ | (98,734) | | | $ | (255) | | | $ | (98,989) | | |
Beginning balance, December 31, 2020 | | Beginning balance, December 31, 2020 | | | $ | (99,789) | | | $ | (330) | | | $ | (100,119) | |
Other comprehensive income (loss) before reclassifications | Other comprehensive income (loss) before reclassifications | | | — | | | — | | | — | | Other comprehensive income (loss) before reclassifications | | | 0 | | | 0 | | | 0 | |
Amounts reclassified from AOCI, net of tax of $574(a) | | | 1,801 | | | 12 | | | 1,813 | | |
Amounts reclassified from AOCI, net of tax of $374(a) | | Amounts reclassified from AOCI, net of tax of $374(a) | | | 1,187 | | | 18 | | | 1,205 | |
| Net current-period other comprehensive income (loss) | Net current-period other comprehensive income (loss) | | | 1,801 | | | 12 | | | 1,813 | | Net current-period other comprehensive income (loss) | | | 1,187 | | | 18 | | | 1,205 | |
Ending balance, June 30, 2020 | | | $ | (96,933) | | | $ | (243) | | | $ | (97,176) | | |
Ending balance, March 31, 2021 | | Ending balance, March 31, 2021 | | | $ | (98,602) | | | $ | (312) | | | $ | (98,914) | |
| | | | Six Months Ended June 30, 2019 | | | | Three Months Ended March 31, 2020 |
(in thousands) | (in thousands) | | | Defined Benefit Pension Items | | Other | | Total | (in thousands) | | | Defined Benefit Pension Items | | Other | | Total |
| Beginning balance, December 31, 2018 | | | $ | (95,365) | | | $ | (32) | | | $ | (95,397) | | |
Beginning balance, December 31, 2019 | | Beginning balance, December 31, 2019 | | | $ | (98,734) | | | $ | (255) | | | $ | (98,989) | |
Other comprehensive income (loss) before reclassifications | Other comprehensive income (loss) before reclassifications | | | — | | | — | | | — | | Other comprehensive income (loss) before reclassifications | | | 0 | | | 0 | | | 0 | |
Amounts reclassified from AOCI, net of tax of $310(a) | | | 921 | | | — | | | 921 | | |
Amounts reclassified from AOCI, net of tax of $286(a) | | Amounts reclassified from AOCI, net of tax of $286(a) | | | 902 | | | 6 | | | 908 | |
Net current-period other comprehensive income (loss) | Net current-period other comprehensive income (loss) | | | 921 | | | — | | | 921 | | Net current-period other comprehensive income (loss) | | | 902 | | | 6 | | | 908 | |
Ending balance, June 30, 2019 | | | $ | (94,444) | | | $ | (32) | | | $ | (94,476) | | |
Ending balance, March 31, 2020 | | Ending balance, March 31, 2020 | | | $ | (97,832) | | | $ | (249) | | | $ | (98,081) | |
(a) Actuarial gain (loss) is included in defined benefit pension plan expense in the condensed consolidated statementsCondensed Consolidated Statements of operationsOperations
15.16. Assets Held for Sale and Discontinued Operations
Stitcher
During the second quarter of 2020, our Board of Directors approved the sale of our Stitcher podcasting business. On July 10, 2020, we signed a definitive agreement to sell the business for $325 million, with $265 million of cash upfront; earnout of up to $30 million based on 2020 financial results and paid in 2021; and earnout of up to $30 million based on 2021 financial results and paid in 2022. The transaction is expected to close in the third quarter of 2020 upon satisfaction of normal and customary closing conditions and regulatory approval.closed on October 16, 2020.
Beginning in the second quarter of 2020, we haveStitcher was classified Stitcher as held for sale in our condensed consolidated balance sheets and reported its results as discontinued operations in our condensed consolidated financial statements of operations for all periods presented.
Operating results of our discontinued Stitcher operations were as follows:
| | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | Three Months Ended March 31, |
(in thousands) | (in thousands) | | 2020 | | 2019 | | 2020 | | 2019 | (in thousands) | | 2021 | | | 2020 |
| Operating revenues | Operating revenues | | $ | 16,568 | | | $ | 17,067 | | | $ | 33,696 | | | $ | 32,171 | | Operating revenues | | $ | 0 | | | | $ | 17,128 | |
Total costs and expenses | Total costs and expenses | | (22,261) | | | (22,591) | | | (45,063) | | | (42,344) | | Total costs and expenses | | — | | | | (22,802) | |
Depreciation and amortization of intangible assets | Depreciation and amortization of intangible assets | | (587) | | | (705) | | | (1,157) | | | (1,491) | | Depreciation and amortization of intangible assets | | — | | | | (570) | |
Other, net | Other, net | | (106) | | | — | | | (106) | | | — | | Other, net | | 2,686 | | | | — | |
Loss from discontinued operations before income taxes | | (6,386) | | | (6,229) | | | (12,630) | | | (11,664) | | |
Income (loss) from discontinued operations before income taxes | | Income (loss) from discontinued operations before income taxes | | 2,686 | | | | (6,244) | |
Provision (benefit) for income taxes | Provision (benefit) for income taxes | | (1,855) | | | (65) | | | (3,488) | | | (2,006) | | Provision (benefit) for income taxes | | 622 | | | | (1,633) | |
Net loss from discontinued operations | | $ | (4,531) | | | $ | (6,164) | | | $ | (9,142) | | | $ | (9,658) | | |
Net income (loss) from discontinued operations | | Net income (loss) from discontinued operations | | $ | 2,064 | | | | $ | (4,611) | |
During the first quarter of 2021, the estimate for the contingent earnout consideration was increased by $2.7 million. The current fair value estimate for the contingent earnout consideration is $12.7 million.
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 following table presentssale generated total net proceeds of $225 million and we recognized a summary of the Stitcher assets held for sale included in our condensed consolidated balance sheets.
| | | | | | | | | | | | | | |
(in thousands) | | As of June 30, 2020 | | As of December 31, 2019 |
| | | | |
Assets: | | | | |
Total current assets | | $ | 28,865 | | | $ | 34,793 | |
Investments | | 159 | | | 178 | |
Property and equipment | | 5,488 | | | 5,526 | |
Goodwill and intangible assets | | 47,507 | | | 48,292 | |
Operating lease right-of-use assets | | 10,041 | | | 10,448 | |
Other assets | | 3,975 | | | 2,029 | |
Total assets included in the disposal group | | 96,035 | | | 101,266 | |
Liabilities: | | | | |
Total current liabilities | | 9,917 | | | 10,175 | |
Other liabilities | | 9,165 | | | 12,552 | |
Total liabilities included in the disposal group | | 19,082 | | | 22,727 | |
Net assets included in the disposal group | | $ | 76,953 | | | $ | 78,539 | |
pre-tax gain from disposition totaling $81.8 million.
WPIX
When we acquired the Nexstar-Tribune television stations in 2019, we granted Nexstar the option to repurchase WPIX, the CW-affiliated station in New York City. The option was exercisable from March 31, 2020, through the end of 2021, and was assignable by Nexstar to a third party. In July 2020, Nexstar assigned their option to repurchase WPIX to Mission Broadcasting, Inc., and Mission immediately exercised the option. The option price iswas $75 million plus accrued interest, to be calculated on the period between September 19, 2019, the purchase date of WPIX, and the option sale closing date. Pending FCC approval,The transaction closed on December 30, 2020 for cash consideration of $83.7 million. Including interest income of $7.6 million, we recognized gains from the transaction is expected to close later in 2020. WPIX assets and liabilities will be classified as held for sale beginningdisposition totaling $6.5 million in the thirdfourth quarter of 2020.
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, serving audiences and businesses through a portfolio of local and national media brands. We are one of the fourth-largestnation's largest independent ownerowners of local television stations, with 6061 stations in 4241 markets that reach about 31%25% of U.S. television households. We have affiliations with all of the “Big Four” television networks as well as the CW and MyNetworkTV networks. In our National MediaScripps Networks division, we operate national brands including next-generationthe ION national news network, Newsy; five national multicast networks - Bounce, Grit, Laff, Court TV and Court TV Mystery, - that make upand the Katz Networks; and Triton, a global leader in digital audio technology and measurement services. next-generation national news network Newsy. 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.
We completed the acquisition of ION Media Networks, Inc. (“ION”) on January 7, 2021, for $2.65 billion. ION is a national broadcast television network that delivers popular crime and justice procedural programming to more than 100 million U.S. homes through its over-the-air broadcast and pay TV platforms. To comply with ownership rules of the Federal Communications Commission, we simultaneously divested 23 of ION's television stations, 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. As a result of the acquisition and related divestitures, ION's programming is delivered through 48 owned and operated stations and 63 independent ION affiliated stations.
The acquisition of ION enables us to create a full-scale national television networks business. By combining ION with the Katz networks and Newsy, Scripps Networks reaches nearly every American through free over-the-air broadcast, cable/satellite, over-the-top and digital distribution, with multiple advertising-supported programming streams. The ION network airs on primary channels in its owned and operated markets and on digital subchannels in its affiliates’ markets. Our five Katz networks air on digital subchannels on our and other broadcast stations.
The ION transaction was financed with a combination of cash, debt financing and preferred equity financing, including Berkshire Hathaway's $600 million preferred equity investment in Scripps. Berkshire Hathaway did not receive any board seats or other governance rights with the preferred equity investment. Berkshire Hathaway also received a warrant to purchase up to 23.1 million Class A shares, at an exercise price of $13 per share.
We also announced plans to launch two new national television networks later in 2021. The two networks, which will be distributed for free to viewers over-the-air, will be demo-specific and reality-based and are expected to be available in at least 75% of U.S. television homes on their July 1, 2021 launch. One of the networks will target women in the 25-54 demographic and will feature off-network shows such as "Storage Wars," "Married at First Sight," "Hoarders," and "Little Women: LA." The other network will target men ages 25-54 and its programming will include off-network series such as "Pawn Stars," "Forged in Fire," "American Pickers," and "The Curse of Oak Island."
During the first quarter of 2020, an outbreak2021, the Company began notifying MVPDs carrying Newsy of our intent to exit cable and satellite distribution of the coronavirus that causes the disease COVID-19 was declared a pandemic by the World Health Organization. As the United States began to combat the crisis, the Company identified three priorities to guide its actions: maintaining the health and well-being of its employees; serving its audiences and communities; and maintaining business continuity. By mid-March,network later this year. In April 2021, we had transitioned nearly all of our employees out of our workplaces without the interruption of news programming or other media delivery.
The full impact of COVID-19 is unknown and continues to evolve rapidly. The outbreak and any preventative or protective actions that the Company, its vendors or its customers may take in respect of this virus may result in a period of disruption that could potentially impact our operations, financial results and financial condition. Beginning with stay at home and similar orders, we began to see cancellations late in the first quarter, which we believe reduced our first quarter consolidated advertising revenue by about $10 million. Second quarter results were significantly impacted by the economic downturn caused by the outbreak, with the greatest impact in April. We saw improvements in advertising revenues from April to May and from May to June. The extent to which COVID-19 impacts our results and financial condition in future periods depends on future developments that we cannot predict, including new information that may emerge concerning the severity of COVID-19 and the actions to contain the virus or treat its impact, among others. As media had been designated an essential business, we implemented work from home procedures, including for newscast production, and continued our operations without disruption. In order to preserve liquidity in response to this changing environment, we also have undertaken a number of cost saving initiatives through reductions in capital expenses, hiring freezes, freezes on 2020 merit pay raises, reduced executive pay and Board of Directors’ fees, and other general expense reductions in areas of travel, entertainment and marketing. These initiatives are expected to provide cash savings from our continuing operations of $75 millionannounced plans for the full year, approximately $40 million of whichover-the-top national news network to launch on over the air television stations as well. At its planned launch in October, we anticipate that Newsy will be in the second half of the year. We will continue to evaluate and quantify the impact of COVID-19 on our consolidated financial statements.
In response to COVID-19, President Donald Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) on March 27, 2020. The CARES Act provides a number of provisions intended to support the economy and business operations, including the deferral of 2020 pension contributions to 2021, the temporary suspension of certain payment requirements for the employer portion of Social Security taxes, temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, technical
corrections from prior tax legislationavailable over-the-air in all major markets and in at least 80% of U.S. television homes. The network will be headquartered in Atlanta and will be carried primarily on the Scripps-owned ION stations and select Scripps local television stations and those of other station groups. In connection with this Newsy restructuring plan, we expect to incur costs related to relocating certain employees, exiting certain contractual agreements and writing down assets associated with existing cable and satellite provider relationships. We incurred a $7.1 million restructuring charge in the first quarter of 2021 for tax depreciationthe write-downs of both capitalized carriage agreement payments and certain qualified improvement property and the creation of certain refundable employee retention credits. We anticipate benefiting from deferring $17 million of Social Security tax payments beyond 2020 and receiving an additional tax refund of $14.0 million from the carryback of net operating losses to prior periods. Currently, we do not anticipate delaying the payment of 2020 pension contributions with respect to the permitted CARES Act provision.Newsy intangible assets.
Based upon expected financial results,During the first quarter of 2021, our costs saving initiatives,Board of Directors approved the stimulus provisions under the CARES Act, as well as $154 millionsale of availability under our $210 million revolving credit facility, we currently anticipate having sufficient liquidity for navigating the next 12 months. Our term loansTriton business and unsecured notes do not have maintenance covenants, and our revolving credit facility has a leverage ratio covenant, that only applies when there are outstanding borrowings under the facility. While we believe we currently have sufficient liquidity and will remain in compliance with our revolving credit covenant, in the event of any prolonged periods of economic weakness there are additional cost saving initiatives we could undertake that would further enhance our liquidity.
On July 10, 2020, we signed a definitive agreement to sell our Stitcher podcastthe business for $325 million, with $265 million of cash upfront; earnout of up to $30 million based on 2020 financial results and paid in 2021; and earnout of up to $30 million based on 2021 financial results and paid in 2022.February 16, 2021. The transaction is expected to close in the third quarterclosed on March 31, 2021 for total net proceeds of 2020 upon satisfaction of normal and customary closing conditions and regulatory approval.$225 million.
In July 2020, the purchase option was exercised for the CW-affiliated station in New York City we acquired in our 2019 transaction with Nexstar. The option price for the station is $75 million plus accrued interest, to be calculated on the period between September 19, 2019, purchase date of WPIX, and the option sale closing date. Pending FCC approval, the transaction is expected to close later in 2020.
On July 25, 2020, the contract extension on our retransmission consent agreement with DISH Network expired. Pending the negotiation of contract renewal terms, the local television stations we operate in 42 markets are currently no longer accessible to this customer.
Results of Operations
The trends and underlying economic conditions affecting the operating performance and future prospects differ for each of our business segments. Accordingly, you should read the following discussion of our consolidated results of operations in conjunction with the discussion of the operating performance of our business segments that follows.
Consolidated Results of Operations
Consolidated results of operations were as follows:
| | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | | Three Months Ended March 31, |
(in thousands) | (in thousands) | | 2020 | | Change | | 2019 | | 2020 | | Change | | 2019 | (in thousands) | | | 2021 | | Change | | 2020 |
| Operating revenues | Operating revenues | | $ | 358,883 | | | 12.0 | % | | $ | 320,428 | | | $ | 773,106 | | | 29.4 | % | | $ | 597,487 | | Operating revenues | | | $ | 540,921 | | | 30.6 | % | | $ | 414,223 | |
Employee compensation and benefits | | (130,029) | | | 18.0 | % | | (110,159) | | | (274,824) | | | 27.7 | % | | (215,292) | | |
Programming | | (131,743) | | | 46.4 | % | | (89,993) | | | (263,422) | | | 48.5 | % | | (177,341) | | |
Other expenses | | (67,388) | | | (1.6) | % | | (68,454) | | | (150,525) | | | 19.6 | % | | (125,860) | | |
Cost of revenues, excluding depreciation and amortization | | Cost of revenues, excluding depreciation and amortization | | | (264,395) | | | 14.0 | % | | (231,900) | |
Selling, general and administrative expenses, excluding depreciation and amortization | | Selling, general and administrative expenses, excluding depreciation and amortization | | | (144,026) | | | 12.8 | % | | (127,711) | |
| Acquisition and related integration costs | Acquisition and related integration costs | | (221) | | | | | (2,788) | | | (5,131) | | | | | (6,268) | | Acquisition and related integration costs | | | (28,645) | | | (4,910) | |
Restructuring costs | Restructuring costs | | — | | | | | (957) | | | — | | | | | (1,895) | | Restructuring costs | | | (7,050) | | | — | |
Depreciation and amortization of intangible assets | Depreciation and amortization of intangible assets | | (26,645) | | | | | (19,532) | | | (53,990) | | | | | (36,538) | | Depreciation and amortization of intangible assets | | | (39,507) | | | (27,345) | |
| Gains (losses), net on disposal of property and equipment | Gains (losses), net on disposal of property and equipment | | (1,307) | | | | | (144) | | | (2,740) | | | | | (317) | | Gains (losses), net on disposal of property and equipment | | | (80) | | | (1,433) | |
Operating income | Operating income | | 1,550 | | | | | 28,401 | | | 22,474 | | | | | 33,976 | | Operating income | | | 57,218 | | | 20,924 | |
Interest expense | Interest expense | | (22,999) | | | | | (18,023) | | | (48,797) | | | | | (26,939) | | Interest expense | | | (43,882) | | | (25,798) | |
Defined benefit pension plan expense | | (1,026) | | | | | (1,564) | | | (2,052) | | | | | (3,136) | | |
Defined benefit pension plan income (expense) | | Defined benefit pension plan income (expense) | | | 7 | | | (1,026) | |
Gains on sale of business | | Gains on sale of business | | | 81,784 | | | — | |
Gains (losses) on stock warrants | | Gains (losses) on stock warrants | | | (67,244) | | | — | |
Miscellaneous, net | Miscellaneous, net | | (1,552) | | | | | 369 | | | (438) | | | | | (431) | | Miscellaneous, net | | | (4,851) | | | 1,114 | |
Income (loss) from continuing operations before income taxes | Income (loss) from continuing operations before income taxes | | (24,027) | | | | | 9,183 | | | (28,813) | | | | | 3,470 | | Income (loss) from continuing operations before income taxes | | | 23,032 | | | (4,786) | |
(Provision) benefit for income taxes | | 6,515 | | | | | (3,385) | | | 4,103 | | | | | (992) | | |
Provision for income taxes | | Provision for income taxes | | | (19,529) | | | (2,412) | |
Income (loss) from continuing operations, net of tax | Income (loss) from continuing operations, net of tax | | (17,512) | | | | | 5,798 | | | (24,710) | | | | | 2,478 | | Income (loss) from continuing operations, net of tax | | | 3,503 | | | (7,198) | |
Loss from discontinued operations, net of tax | | (4,531) | | | (6,164) | | | (9,142) | | | (9,658) | | |
Net loss | | $ | (22,043) | | | $ | (366) | | | $ | (33,852) | | | | | $ | (7,180) | | |
Income (loss) from discontinued operations, net of tax | | Income (loss) from discontinued operations, net of tax | | | 2,064 | | | (4,611) | |
Net income (loss) | | Net income (loss) | | | $ | 5,567 | | | $ | (11,809) | |
|
On September 19, 2019,January 7, 2021, we acquired eight television stations from the Nexstar-Tribune transaction, and on May 1, 2019, we acquired 15 television stations from Cordillera. These stations are referred to as the "acquired stations" in the discussion that follows.national broadcast network ION. The inclusion of operating results from these stationsthis business for the periods subsequent to theirthe acquisition impacts the comparability of our consolidated and segment operating results.
Operating revenues increased $38.5$127 million or 12% in the second quarter of 2020 and $176 million or 29%31% for the first sixthree months of 20202021 when compared to the prior periods.year quarter. Excluding the acquired stations, operating revenues decreased 5.9% and increased 4.2% in the quarter and year-to-date periods, respectively. Weakness in economic conditions that began toward the endimpact of the first quarter, reflectingION, as well as the impact of the COVID-19 pandemic, negatively affected spending from our advertisers. We began to see cancellations lateWPIX television station that was sold in the firstfourth quarter which we believe reduced our first quarter consolidated advertisingof 2020, operating revenues by about $10 million. Second quarter results were significantly impacted by the economic downturn, with the greatest impact in April. We saw improvements in advertisingincreased 5.0% year-over-year. Higher retransmission revenues from April to May and from May to June. For the quarter-to-date period, increases in political advertising revenue and retransmission revenue were not able to offset the decrease in core advertising revenue within our Local Media group. For the year-to-date period, higher political advertising revenue and retransmission revenue in our Local Media group and overall growth withinin our National Media businesseslegacy Scripps Networks operations contributed to the remainderyear-over-year increase. These revenue increases were partially offset by a decline in same-station political revenue of the increase$16.6 million in the period.this non-election year.
While we face a periodCosts of uncertainty regarding the durationrevenues, which are comprised of the pandemicprogramming costs and the extent of the impact oncosts associated with distributing our operations, we do expect that core revenue will continue to be under pressurecontent, increased $32.5 million or 14% for the remainderfirst three months of 2020. Retransmission revenue has also been affected by declines in subscriber levels at2021 when compared to the MVPDs, as customers adjust their spending habits. However, we do not expect revenue from political advertising to be impacted by the economic downturn.
prior year quarter. Programming costs,
Employee compensationwhich represent the primary driver of fluctuation in costs of revenues, increased $37.0 million in the first quarter of 2021 compared to the prior year quarter. Excluding the impacts of the ION acquisition and benefitsthe WPIX disposition, programming costs increased $19.9$15.9 million or 18% in the second quarter of 2020 and $59.5 million or 28% for the first six months of 2020 when compared to prior periods. Excluding the acquired stations, employee compensation and benefits decreased 1.8% and increased 2.2% in the quarter and year-to-date periods, respectively. The quarter-to-date decrease is due to a decrease in commissions and bonuses12% year-over-year as a result of lower advertising revenue. The year-to-date increase in employee compensation and benefits is due to the annual merit increase that occurred in March 2019, as well as expansion of our National Media group throughout 2019.
Programming expense increased $41.8 million or 46% in the second quarter of 2020 and $86.1 million or 49% for the first six months of 2020 when compared to prior periods. Excluding the acquired stations, programming expense increased 23% and 21% in the quarter and year-to-date periods, respectively, due to higher network affiliation fees at our Local Media and Scripps Networks stations, reflecting contractual rate increases, as well as an increase in programming costs associated with our National Media business, Katz.legacy Scripps Networks operations.
OtherSelling, general and administrative expenses decreased $1.1are primarily comprised of sales, marketing and advertising expenses, research costs and costs related to corporate administrative functions. Selling, general and administrative expenses increased $16.3 million or 1.6% in the second quarter of 2020 and increased $24.7 million or 20%13% for the first sixthree months of 20202021 when compared to the prior periods. Excluding the acquired stations, other expenses decreased 19% and 3.6% in theyear quarter, and year-to-date periods, respectively, primarily driven by a decrease inattributed to incremental costs during the current quarter. In responseincurred related to the weakened economic conditions created by COVID-19, we implemented various cost saving initiatives through general expense reductions in the areas of travel, entertainmentION acquisition, as well as higher marketing and marketing.advertising costs for our legacy Scripps Networks businesses.
Acquisition and related integration costs of $5.1$28.6 million incurred duringin the first sixthree months of 20202021 primarily reflect contract termination costsinvestment banking, legal fees and professional service costs incurred to complete and integrate the Cordillera and Nexstar-Tribune television stations.ION acquisition, which closed on January 7, 2021.
ForRestructuring costs of $7.1 million incurred in the first three months of 2021 reflect charges incurred for the write-downs of both capitalized carriage agreement payments and six months ended 2019, restructuring costs were $1.0 million and $1.9 million, respectively. These restructuring charges reflect severance, outside consulting fees and other costs associated with our previously announced changes in management and operating structure.certain Newsy intangible assets.
Depreciation and amortization of intangible assets increased from $36.5 million in 2019 to $54.0$27.3 million in 2020 to $39.5 million in 2021 primarily due to the acquired stations.acquisition of ION.
Interest expense increased in 2020the first three months of 2021 due to the issuance of a $765new debt to finance the ION acquisition, which included $550 million term loan B in May 2019 and issuance of senior secured notes, $500 million of senior unsecured notes and an $800 million term loan issued upon the close of the acquisition.
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 quarter of 2021 includes a $67.2 million non-cash charge related to our outstanding common stock warrant. The warrant obligation is marked-to-market each reporting period with the increase in July 2019 in orderour common stock price being the significant contributor to fund the Cordillera and Nexstar-Tribune acquisitions.a higher valuation.
The effective income tax rate was 14%85% and 29%(50)% for the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, respectively. Other 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, and excess tax benefits or expense from the exercise and vesting of share-based compensation awards ($1.11.3 million benefit in 2021 and $1.0 million expense in 20202020), state deferred rate changes and $0.8state NOL valuation allowance changes ($1.2 million benefit in 2019)2021 and $4 million expense in 2020). Additionally, in 2020,the first quarter of 2021, we had a net discrete tax provision charge of $3.5$17.1 million related to state deferred rate changesa taxable gain on the sale of our Triton business, and state net operating loss valuation allowance reductions.a $1.0 million discrete tax provision charge related to nondeductible transaction costs for the ION acquisition. Finally, a non-deductible expense of $70.7 million was recorded in the first quarter of 2021 related to issuance costs and unrealized losses on mark-to-market adjustments recorded on the common stock warrants issued in connection with the ION acquisition.
Discontinued Operations
Discontinued operations reflect the historical results of our Stitcher operations. During the second quarter of 2020, our Board of Directors approved the sale of our Stitcher podcasting business and we signed a definitive agreement for its sale on July 10, 2020. The transaction is expected to close in the third quarter of 2020 upon satisfaction of normal and customary closing conditions and regulatory approval. Stitcher was previously included in our National Media segment results.closed on October 16, 2020.
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 expense,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 information technology, certain employee benefits and shared services to our business segments. TheThese intercompany agreements and allocations are generally amounts agreed upon by management, which may differ from an arms-length amount. Corporate assets are primarily cash and cash equivalents, restricted cash, property and equipment primarily used for corporate purposes and deferred income taxes.
Effective with the January 7, 2021 close of the ION acquisition, we realigned our internal reporting structure and changed the reporting of our businesses’ operating results to reflect this new structure. Under the new structure, our operating results are reported under Local Media, Scripps Networks and Other segment captions. The Scripps Networks segment is comprised of the ION national network, the Katz multicast networks and the Newsy national news network. The operating results of our recently sold Triton business, and the other national businesses that were previously reported in our National Media segment, are aggregated with our remaining business activities in the Other segment caption.
Information regarding the operating performance of our business segments and a reconciliation of such information to the condensed consolidated financial statements is as follows:
| | | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | | | Three Months Ended March 31, |
(in thousands) | (in thousands) | | 2020 | | Change | | 2019 | | 2020 | | Change | | 2019 | (in thousands) | | | 2021 | | Change | | 2020 |
| Segment operating revenues: | Segment operating revenues: | | Segment operating revenues: | | | |
Local Media | Local Media | | $ | 276,747 | | | 16.9 | % | | $ | 236,715 | | | $ | 598,551 | | | 36.0 | % | | $ | 440,102 | | Local Media | | | $ | 312,581 | | | (3.8) | % | | $ | 324,933 | |
National Media | | 80,503 | | | (1.1) | % | | 81,439 | | | 171,422 | | | 11.6 | % | | 153,652 | | |
Scripps Networks | | Scripps Networks | | | 213,660 | | | 76,755 | |
Other | Other | | 1,633 | | | (28.2) | % | | 2,274 | | | 3,133 | | | (16.1) | % | | 3,733 | | Other | | | 18,121 | | | 15.7 | % | | 15,664 | |
Intersegment eliminations | | Intersegment eliminations | | | (3,441) | | | 10.0 | % | | (3,129) | |
Total operating revenues | Total operating revenues | | $ | 358,883 | | | 12.0 | % | | $ | 320,428 | | | $ | 773,106 | | | 29.4 | % | | $ | 597,487 | | Total operating revenues | | | $ | 540,921 | | | 30.6 | % | | $ | 414,223 | |
Segment profit (loss): | Segment profit (loss): | | | | | | | | | | | Segment profit (loss): | | | | | |
Local Media | Local Media | | $ | 32,260 | | | (40.6) | % | | $ | 54,329 | | | $ | 88,237 | | | (0.3) | % | | $ | 88,502 | | Local Media | | | $ | 55,937 | | | (5.4) | % | | $ | 59,106 | |
National Media | | 10,282 | | | (15.0) | % | | 12,097 | | | 27,741 | | | 27.9 | % | | 21,687 | | |
Scripps Networks | | Scripps Networks | | | 92,203 | | | 9,969 | |
Other | Other | | 104 | | | | | (1,485) | | | (66) | | | (96.6) | % | | (1,918) | | Other | | | 3,281 | | | (21.7) | % | | 4,191 | |
Shared services and corporate | Shared services and corporate | | (12,923) | | | (1.5) | % | | (13,119) | | | (31,577) | | | 7.9 | % | | (29,277) | | Shared services and corporate | | | (18,921) | | | 1.4 | % | | (18,654) | |
Acquisition and related integration costs | Acquisition and related integration costs | | (221) | | | (2,788) | | | (5,131) | | | (6,268) | | Acquisition and related integration costs | | | (28,645) | | | (4,910) | |
Restructuring costs | Restructuring costs | | — | | | (957) | | | — | | | (1,895) | | Restructuring costs | | | (7,050) | | | — | |
Depreciation and amortization of intangible assets | Depreciation and amortization of intangible assets | | (26,645) | | | (19,532) | | | (53,990) | | | (36,538) | | Depreciation and amortization of intangible assets | | | (39,507) | | | (27,345) | |
| Gains (losses), net on disposal of property and equipment | Gains (losses), net on disposal of property and equipment | | (1,307) | | | (144) | | | (2,740) | | | (317) | | Gains (losses), net on disposal of property and equipment | | | (80) | | | (1,433) | |
Interest expense | Interest expense | | (22,999) | | | (18,023) | | | (48,797) | | | (26,939) | | Interest expense | | | (43,882) | | | (25,798) | |
Defined benefit pension plan expense | | (1,026) | | | (1,564) | | | (2,052) | | | (3,136) | | |
Defined benefit pension plan income (expense) | | Defined benefit pension plan income (expense) | | | 7 | | | (1,026) | |
Gains on sale of business | | Gains on sale of business | | | 81,784 | | | — | |
Gains (losses) on stock warrants | | Gains (losses) on stock warrants | | | (67,244) | | | — | |
Miscellaneous, net | Miscellaneous, net | | (1,552) | | | 369 | | | (438) | | | (431) | | Miscellaneous, net | | | (4,851) | | | 1,114 | |
Income (loss) from continuing operations before income taxes | Income (loss) from continuing operations before income taxes | | $ | (24,027) | | | $ | 9,183 | | | $ | (28,813) | | | | | $ | 3,470 | | Income (loss) from continuing operations before income taxes | | | $ | 23,032 | | | | | $ | (4,786) | |
Local Media — Our Local Media segment includes our 6061 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 1312 CW affiliates - fivefour on full power stations and eight on multicast; two MyNetworkTV affiliates; twothree independent stations and nine10 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 and satellite carriers. We also receive retransmission fees from over-the-top virtual MVPDs such as Hulu, YouTubeTV and AT&T Now.
National television networks offer affiliates a variety of programs and sell the majority of advertising within those programs. In addition to network programs, we broadcast internally produced local and national programs, syndicated programs, sporting events and other programs of interest in each station's market. News is the primary focus of our locally produced programming.
The operating performance of our Local Media group is most affected by local and national economic conditions, particularly conditions within the automotive and services categories, and by the volume of advertising purchased by campaigns for elective office and political issues. The demand for political advertising is significantly higher in the third and fourth quarters of even-numbered years.
Operating results for our Local Media segment were as follows:
| | | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | | | Three Months Ended March 31, |
(in thousands) | (in thousands) | | 2020 | | Change | | 2019 | | 2020 | | Change | | 2019 | (in thousands) | | | 2021 | | Change | | 2020 |
| Segment operating revenues: | Segment operating revenues: | | | | | | | Segment operating revenues: | | | | | | | |
Core advertising | Core advertising | | $ | 116,749 | | | (16.5) | % | | $ | 139,738 | | | $ | 277,271 | | | 9.5 | % | | $ | 253,142 | | Core advertising | | | $ | 152,138 | | | (5.2) | % | | $ | 160,522 | |
Political | Political | | 13,368 | | | | | 2,115 | | | 32,088 | | | 2,995 | | Political | | | 1,311 | | | 18,720 | |
Retransmission | | 142,268 | | | 55.5 | % | | 91,464 | | | 279,466 | | | 58.0 | % | | 176,841 | | |
Retransmission and carriage fees | | Retransmission and carriage fees | | | 155,659 | | | 10.9 | % | | 140,327 | |
Other | Other | | 4,362 | | | 28.4 | % | | 3,398 | | | 9,726 | | | 36.5 | % | | 7,124 | | Other | | | 3,473 | | | (35.3) | % | | 5,364 | |
Total operating revenues | Total operating revenues | | 276,747 | | | 16.9 | % | | 236,715 | | | 598,551 | | | 36.0 | % | | 440,102 | | Total operating revenues | | | 312,581 | | | (3.8) | % | | 324,933 | |
Segment costs and expenses: | Segment costs and expenses: | | | | | | | | | | | Segment costs and expenses: | | | | | |
Employee compensation and benefits | Employee compensation and benefits | | 102,924 | | | 24.3 | % | | 82,790 | | | 214,520 | | | 36.0 | % | | 157,701 | | Employee compensation and benefits | | | 106,828 | | | (4.3) | % | | 111,596 | |
Programming | Programming | | 101,250 | | | 64.0 | % | | 61,756 | | | 203,523 | | | 66.2 | % | | 122,473 | | Programming | | | 110,330 | | | 7.9 | % | | 102,273 | |
Other expenses | Other expenses | | 40,313 | | | 6.5 | % | | 37,840 | | | 92,271 | | | 29.2 | % | | 71,426 | | Other expenses | | | 39,486 | | | (24.0) | % | | 51,958 | |
Total costs and expenses | Total costs and expenses | | 244,487 | | | 34.0 | % | | 182,386 | | | 510,314 | | | 45.1 | % | | 351,600 | | Total costs and expenses | | | 256,644 | | | (3.5) | % | | 265,827 | |
Segment profit | Segment profit | | $ | 32,260 | | | (40.6) | % | | $ | 54,329 | | | $ | 88,237 | | | (0.3) | % | | $ | 88,502 | | Segment profit | | | $ | 55,937 | | | (5.4) | % | | $ | 59,106 | |
On September 19, 2019,December 30, 2020, we acquired eightcompleted the sale of our WPIX television stations fromstation. The exclusion of the Nexstar-Tribune transaction, and on May 1, 2019, we acquired 15 television stations from Cordillera. These stations are referred to as the "acquired stations" in the discussion that follows. The inclusion ofstation's operating results from these stations for the periods subsequent to their acquisitionthe disposition impacts the comparability of our Local Media segment operating results.
Revenues
Total Local Media revenues increased $40.0decreased $12.4 million or 17% in the second quarter of 2020 and $158 million or 36%3.8% for the first sixthree months of 20202021 when compared to the prior periods.year quarter. Excluding the acquired stations, Local Media revenues decreased 7.4% and increased 1.7% in the quarter and year-to-date periods, respectively. Core advertising revenue decreased 36% and 22% in the quarter and year-to-date periods, respectively. Weakness in economic conditions that began toward the end of the first quarter, reflecting the impact of the COVID-19 pandemic, negatively affected spending from our advertisers. We began to see cancellations late in the first quarter, which we believe reduced our first quarter advertising revenues atWPIX disposition, Local Media revenues increased $9.9 million or 3.3% year-over-year. Increases in retransmission revenues on a same-station basis of $23.2 million were partially offset by at least $8 million. Second quarter results were significantly impacted by the economic downturn, with the greatest impact in April. Core advertising revenues decreased 40% in April 2020 from March 2020, but we saw core advertising revenue improve over 18% from April 2020 to May 2020 and 19% from May 2020 to June 2020.
In both the quarter and year-to-date periods, there was an increasedecreases in political revenues due to an election year and an increase in retransmission revenue.during this non-election year. While retransmission revenues have been affected by an acceleration of subscriber losses atby the MVPDs, particularly among satellite providers, rate increases have more than offset those subscriber declines. DuringCore advertising revenues on a same-station basis increased $3.4 million or 2.3% when compared to the second quarter,prior year quarter; however, we completedestimate that the secondimpact of three key distributor negotiations for this year, which means during 2020 we have
renegotiated retransmission consent contracts covering more than 30% of our subscriber households. In addition, on December 31, 2019, our agreement with Comcast reset, and for those stations we owned prior to 2019, we began to receive retransmission fees for which we had historically received little to no compensation. Retransmission consent agreements with DISH Network, covering an additional 10% of our subscribers, expired at the beginning of March 2020. We continued to provide our signal at prior rates under short-term extensions that expired on July 25, 2020. Pending the negotiation of contract renewal terms, the local television stations we operate in 42 markets are currently no longer accessible to this customer.
Our Local Media revenues are being impacted due to weakened economic conditions resulting from the COVID-19 pandemic primarily our core advertising revenues. A number of factors will ultimately have an impact onreduced our core advertising revenues throughoutby at least $8 million in the restfirst quarter of the year, including the pace of businesses re-opening and consumer spending rebounding across our markets. Retransmission revenue has also been affected by declines in subscriber levels at the MVPDs, as customers adjust their spending habits. We do not expect our political advertising revenues to be impacted by the economic effects of the pandemic.2020.
Costs and expenses
Employee compensation and benefits increased $20.1decreased $4.8 million or 24% in the second quarter of 2020 and $56.8 million or 36%4.3% for the first sixthree months of 20202021 when compared to the prior periods.year quarter. Excluding the acquired stations,impact of the expense decreased 2.0%WPIX disposition, employee compensation and benefits increased 1.3% in the quarter and year-to-date periods, respectively.$3.7 million or 3.6%. The quarter-to-date decrease is due to a decrease in commissions as a result of lower advertising revenue. The year-to-date increase in employee compensation and benefits is dueprimarily attributed to the annual merit increase that occurred in March 2019.higher bonus compensation year-over-year.
Programming expense increased $39.5$8.1 million or 64% in the second quarter of 2020 and $81.1 million or 66%7.9% for the first sixthree months of 20202021 when compared to the prior periods.year quarter. Excluding the acquired stations, programmingimpact of the WPIX disposition, the expense increased 31% and 27% in$10.9 million or 11% reflecting the quarter and year-to-date periods, respectively, primarily due toimpact of higher network affiliation fees. 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, and we expect that they may continue to increase over the next several years.agreements.
OtherExcluding the impact of the WPIX disposition, other expenses increased $2.5decreased $7.2 million or 6.5%15% in the second quarter of 2020 and $20.8 million or 29% for the first sixthree months of 20202021 when compared to the prior periods. Excluding the acquired stations, other expenses decreased 25% and 12% in the quarter and year-to-date periods, respectively.year quarter. In response to the weakened economic conditions created by COVID-19, we implemented various cost saving initiatives through reductions in capital expenses and other general expense reductions in areas of travel, entertainment and marketing.marketing toward the end of the first quarter of 2020.
National MediaScripps Networks — Our National MediaScripps Networks segment is comprised of the operations of our national media businesses, including fivesix national broadcast networks the Katz networks; - ION, Bounce, Grit, Laff, Court TV and Court TV Mystery and next-generation national news network, Newsy; a global leader in digital audio technology and measurement services, Triton; and other national brands.Newsy. Our National MediaScripps Networks group earns revenue primarily through the sale of advertising.
Operating results for our National MediaScripps Networks segment were as follows:
| | | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | | | Three Months Ended March 31, |
(in thousands) | (in thousands) | | 2020 | | Change | | 2019 | | 2020 | | Change | | 2019 | (in thousands) | | | 2021 | | Change | | 2020 |
| Segment operating revenues: | | | | |
Katz | | $ | 55,793 | | | (1.3) | % | | $ | 56,505 | | | $ | 121,684 | | | 13.8 | % | | $ | 106,900 | | |
| Newsy | | 10,859 | | | (4.7) | % | | 11,395 | | | 21,723 | | | 9.9 | % | | 19,773 | | |
Triton | | 10,455 | | | 5.6 | % | | 9,902 | | | 20,802 | | | 2.2 | % | | 20,364 | | |
Other | | 3,396 | | | (6.6) | % | | 3,637 | | | 7,213 | | | 9.0 | % | | 6,615 | | |
| Total operating revenues | Total operating revenues | | 80,503 | | | (1.1) | % | | 81,439 | | | 171,422 | | | 11.6 | % | | 153,652 | | Total operating revenues | | | $ | 213,660 | | | $ | 76,755 | |
Segment costs and expenses: | Segment costs and expenses: | | | | | | | | | | | Segment costs and expenses: | | | | | |
Employee compensation and benefits | Employee compensation and benefits | | 16,057 | | | (0.1) | % | | 16,066 | | | 33,753 | | | 7.1 | % | | 31,521 | | Employee compensation and benefits | | | 23,637 | | | 74.6 | % | | 13,536 | |
Programming | Programming | | 30,493 | | | 8.0 | % | | 28,237 | | | 59,899 | | | 8.9 | % | | 55,008 | | Programming | | | 61,627 | | | 90.3 | % | | 32,392 | |
Other expenses | Other expenses | | 23,671 | | | (5.5) | % | | 25,039 | | | 50,029 | | | 10.1 | % | | 45,436 | | Other expenses | | | 36,193 | | | 73.5 | % | | 20,858 | |
Total costs and expenses | Total costs and expenses | | 70,221 | | | 1.3 | % | | 69,342 | | | 143,681 | | | 8.9 | % | | 131,965 | | Total costs and expenses | | | 121,457 | | | 81.9 | % | | 66,786 | |
Segment profit | Segment profit | | $ | 10,282 | | | (15.0) | % | | $ | 12,097 | | | $ | 27,741 | | | 27.9 | % | | $ | 21,687 | | Segment profit | | | $ | 92,203 | | | $ | 9,969 | |
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
National MediaScripps Networks revenues, decreased $0.9which are primarily comprised of advertising revenues, increased $137 million or 1.1% in the second quarter of 2020 and increased $17.8 million or 12% for the first sixthree months of 20202021 when compared to the prior periods. Katz's revenues decreased $0.7 million or 1.3%year quarter. 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. The impact of the ION acquisition and an overall high-teens percentage increase in year-over-year direct response adverting rates for our legacy Scripps Networks businesses were the primary drivers of the increase in revenues. Advertising rates in the second quarter of 2020 and increased $14.8 million or 14% for the first six months of 2020 when compared to prior periods. Newsy's revenues decreased $0.5 million or 4.7% in the second quarter of 2020 and increased $2.0 million or 10% for the first six months of 2020 when compared to prior periods. The decrease in revenue at Katz and Newsy for the quarter-to-date period was due to a reduction in advertising demand and rates, as well as cancellations, as a resultlatter half of the economic conditions created2020 first quarter were impacted by the COVID-19 pandemic. Katz's increase in revenue in the year-to-date period was driven by growth at its networks, specifically Grit, Laff and CourtTV, which launched in May 2019. Newsy's revenue increase in the year-to-date period was driven by growth of advertising on over-the-top platforms. Triton experienced revenue growth in both the quarter and year-to-date periods as a result of growth in content delivery and ad serving.
Weakness in economic conditions that began toward the end of the first quarter, reflecting the impact of the COVID-19 pandemic, negatively affected spending from our advertisers. We began to see cancellations late in the first quarter, which we believe reduced our first quarter National Media revenues by approximately $1.3 million. Second quarter results were significantly impacted by the economic downturn, with the greatest impact in April. We saw improvements in advertising revenues from April to May and from May to June.
Costs and expenses
Employee compensation and benefits remained flat inincreased $10.1 million or 75% for the secondfirst three months of 2021 when compared to the prior year quarter. Full-time equivalent employees increased over 70% when compared to the first quarter of 2020, reflecting the impact of the ION acquisition and increased $2.2 million or 7.1% incontinued investment to support the first six monthsgrowth of 2020 when comparedour legacy Scripps Networks' businesses. Higher year-over-year bonus compensation also contributed to prior periods. The year-to-datethe increase in employee compensation and benefits is due to increased hiring at Katz and Newsy throughout 2019.benefits.
Programming expense increased $2.3$29.2 million or 8.0% in the second quarter of 2020 and $4.9 million or 8.9%90% for the first sixthree months of 20202021 when compared to the prior periods. Programming expense includesyear quarter. Costs attributed to acquired ION programming and ION affiliation fees totaled $23.9 million for the amortization and distributionfirst quarter of programming for Katz and other programming costs.2021. The overallremaining increase is attributable to the continual investment in Katz programming,primarily driven by higher affiliate fees reflecting both contractual rate increases and increased distribution across the legacy Scripps Networks' businesses.
Other expenses increased $15.3 million or 74% for the first three months of 2021 when compared to the prior year quarter. The increase primarily reflects incremental occupancy, marketing and other administrative costs related to the increased distributionION acquisition and $2.8 million of all the Katz networkshigher marketing, advertising and the annualization of affiliate fees tiedrating services costs attributed to increased distribution at CourtTV.our legacy Scripps Networks’ businesses.
Other expenses decreased $1.4 million or 5.5% in the second quarter of 2020 and increased $4.6 million or 10% for the first six months of 2020 when compared to prior periods. In response to the weakened economic conditions created by the COVID-19 pandemic, we implemented various general expense reductions in areas of travel, entertainment and marketing, which drove the quarter-to-date decrease in other expenses. Year-to-date expenses increased at Newsy, Katz and Triton. Newsy had increases in ratings expense, news service and coverage costs, research and consulting, inducement expense and rent. Katz had higher rating expenses due to contractual increases and the addition of Court TV ratings. Triton had an increase in software licensing and information technology related costs.
Shared services and corporate
We centrally provide certain services to our business segments. Such services include accounting, tax, cash management, procurement, human resources, employee benefits and information technology. The business segments are allocated costs for such services at amounts agreed upon by management. Such allocated costs may differ from amounts that might be negotiated at arms-length. Costs for such services that are not allocated to the business segments are included in shared services and corporate costs. Shared services and corporate also includes unallocated corporate costs, such as costs associated with being a public company.
Liquidity and Capital Resources
Our primary source of liquidity is our available cash and borrowing capacity under our revolving credit facility. Our primary source of cash is generated from our ongoing operations. Cash from operations can be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic. At the end of June 2020,March 31, 2021, we had approximately $100$538 million of cash on hand and about $154$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 during this economic downturn to meet the Company’s operating needs for the next 12 months. In addition, the Company’s liquidity is enhanced through the federal government’s stimulus measures, including the deferral of social security taxes; tax relief on the use of net operating losses and interest expense limitations; and a few other provisions that either bring in cash this year or push out cash payments to 2021 and beyond. Additionally, we expect to receive total gross cash proceeds of approximately $345 million during 2020 related to the announced sales of our Stitcher business and WPIX television station. While we currently do not anticipate liquidity constraints, in the event of a prolonged period of economic weakness there are additional measures we could take to further control cost, slow our working capital needs and generate cash.
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 4.54.75 times the two-year average earnings before interest, taxes, depreciation and amortization (EBITDA) as defined by our credit agreement, through second quarter of 2021,2022, at which point it steps down to 4.254.5 times. Based upon our current outlook, we expect to be in compliance with that covenant.
Cash Flows - Operating Activities
Cash flows from operating activities for the sixthree months ended June 30March 31 are as follows:
| | | Six Months Ended June 30, | | | Three Months Ended March 31, |
(in thousands) | (in thousands) | | 2020 | | 2019 | (in thousands) | | 2021 | | 2020 |
| Cash Flows from Operating Activities: | Cash Flows from Operating Activities: | | Cash Flows from Operating Activities: | |
Income (loss) from continuing operations, net of tax | Income (loss) from continuing operations, net of tax | | $ | (24,710) | | | $ | 2,478 | | Income (loss) from continuing operations, net of tax | | $ | 3,503 | | | $ | (7,198) | |
Adjustments to reconcile net income (loss) from continuing operations to net cash flows from operating activities: | Adjustments to reconcile net income (loss) from continuing operations to net cash flows from operating activities: | | Adjustments to reconcile net income (loss) from continuing operations to net cash flows from operating activities: | |
Depreciation and amortization | Depreciation and amortization | | 53,990 | | | 36,538 | | Depreciation and amortization | | 39,507 | | | 27,345 | |
| (Gains) losses, net on disposal of property and equipment | | 2,740 | | | 317 | | |
Losses (gains), net on disposal of property and equipment | | Losses (gains), net on disposal of property and equipment | | 80 | | | 1,433 | |
Gains on sale of business | | Gains on sale of business | | (81,784) | | | — | |
(Gains) losses on stock warrants | | (Gains) losses on stock warrants | | 67,244 | | | — | |
Programming assets and liabilities | Programming assets and liabilities | | (10,662) | | | 1,744 | | Programming assets and liabilities | | (37,042) | | | (28,289) | |
Restructuring impairment charges | | Restructuring impairment charges | | 7,050 | | | — | |
Deferred income taxes | Deferred income taxes | | 9,933 | | | 983 | | Deferred income taxes | | 6,951 | | | 16,305 | |
Stock and deferred compensation plans | Stock and deferred compensation plans | | 7,446 | | | 9,511 | | Stock and deferred compensation plans | | 11,092 | | | 2,143 | |
Pension expense, net of contributions | Pension expense, net of contributions | | (3,282) | | | (3,921) | | Pension expense, net of contributions | | (5,987) | | | (4,034) | |
Other changes in certain working capital accounts, net | Other changes in certain working capital accounts, net | | 37,740 | | | (28,287) | | Other changes in certain working capital accounts, net | | 41,045 | | | 8,806 | |
Miscellaneous, net | Miscellaneous, net | | 8,287 | | | 3,860 | | Miscellaneous, net | | (1,565) | | | 1,630 | |
Net cash provided by operating activities from continuing operations | Net cash provided by operating activities from continuing operations | | 81,482 | | | 23,223 | | Net cash provided by operating activities from continuing operations | | 50,094 | | | 18,141 | |
Net cash used in operating activities from discontinued operations | Net cash used in operating activities from discontinued operations | | (7,223) | | | (14,065) | | Net cash used in operating activities from discontinued operations | | — | | | (4,440) | |
Net operating activities | Net operating activities | | $ | 74,259 | | | $ | 9,158 | | Net operating activities | | $ | 50,094 | | | $ | 13,701 | |
In 20202021 and 2019,2020, cash provided by operating activities from continuing operations was $81.5$50.1 million and $23.2$18.1 million, respectively. The $58$32 million increase in cash provided by operating activities from continuing operations was attributable to a $5$78 million year-over-year increase in segment profit combined with a $66 million year-over-yearprofit. This increase in cash provided from changes in certain working capital accounts. Additionally, in the second quarter of 2019, we paid nearly $12 million in cash taxes, primarily related to the sale of radio. These increases in cash flow werewas partially offset by a $19$5 million increase in interest paid and year-over-year cash outlay increase of $12$9 million for programming investments in excess of programming amortization. InterestThe increase in interest payments increased due toreflects the issuanceimpact of a $765the $800 million term loan B issued in May 2019 and issuance of $500 million of senior unsecured notes in July 2019 in order to fund the Cordillera and Nexstar-Tribune acquisitions.
The primary factors affecting changes in certain working capital accounts are described below:
•Year-over-year cash provided from changes in accounts receivable increased $55 million in 2020 compared to 2019. This is partially due to political advertising revenue recognized during an election year, which is paid in advance and displaces traditional local and national advertising. Additionally, we did not acquire working capital in the Nexstar-Tribune acquisition, and as advertisers tend to pay on a 60- to 90-day lag, fourth quarter 2019 revenue resulted in growth of the accounts receivable balance. In 2020, we received $37 million from NexstarJanuary 2021 related to cash they collected on our December 31, 2019 receivables. The last factor for receivables was a softness in core advertising revenue in the second quarter of 2020 as a result of COVID-19, which had a direct impact to trade receivables.
•Timing of payments made on other current liabilities increased the year-over-year cash provided from working capital by $16 million, mainly attributable to the slower timing of payments made to our vendors in order to control liquidity during the current economic conditions.ION acquisition.
Cash Flows - Investing Activities
Cash flows from investing activities for the sixthree months ended June 30March 31 are as follows:
| | | Six Months Ended June 30, | | | Three Months Ended March 31, |
(in thousands) | (in thousands) | | 2020 | | 2019 | (in thousands) | | 2021 | | 2020 |
| Cash Flows from Investing Activities: | Cash Flows from Investing Activities: | | Cash Flows from Investing Activities: | |
Acquisitions, net of cash acquired | Acquisitions, net of cash acquired | | $ | 2,500 | | | $ | (608,273) | | Acquisitions, net of cash acquired | | $ | (2,679,798) | | | $ | — | |
Proceeds from sale of Triton Digital, net of cash disposed | | Proceeds from sale of Triton Digital, net of cash disposed | | 224,990 | | | — | |
Acquisition of intangible assets | Acquisition of intangible assets | | (1,041) | | | (24,073) | | Acquisition of intangible assets | | (430) | | | (525) | |
Additions to property and equipment | Additions to property and equipment | | (26,950) | | | (29,920) | | Additions to property and equipment | | (4,139) | | | (16,165) | |
Purchase of investments | Purchase of investments | | (5,361) | | | (615) | | Purchase of investments | | (1,263) | | | (3,087) | |
Proceeds from FCC repack | Proceeds from FCC repack | | 9,427 | | | 1,520 | | Proceeds from FCC repack | | 5,345 | | | 2,719 | |
| Miscellaneous, net | Miscellaneous, net | | 773 | | | 308 | | Miscellaneous, net | | 12 | | | 773 | |
Net cash used in investing activities from continuing operations | Net cash used in investing activities from continuing operations | | (20,652) | | | (661,053) | | Net cash used in investing activities from continuing operations | | (2,455,283) | | | (16,285) | |
Net cash used in investing activities from discontinued operations | Net cash used in investing activities from discontinued operations | | (333) | | | (74) | | Net cash used in investing activities from discontinued operations | | — | | | (45) | |
Net investing activities | Net investing activities | | $ | (20,985) | | | $ | (661,127) | | Net investing activities | | $ | (2,455,283) | | | $ | (16,330) | |
In 20202021 and 2019,2020, we used $20.7 million$2.5 billion and $661$16.3 million, respectively, in cash for investing activities from continuing operations. The primary factors affecting these cash flows for the periods presented are described below.
•In 2021, we acquired ION for $2.7 billion, net of cash acquired.
•In March 2021, we completed the second quartersale of 2020, we received cash consideration and reduced the Cordillera purchase price by $2.5 million related to an indemnification claim on certain acquired assets.our Triton business for a total net proceeds of $225 million.
•Capital expenditures decreased $3.0$12 million year-over-year. In order to preserve liquidity in response to this changing environment, we have undertaken a numberreflecting both the year-over-year impacts of cost saving initiatives, including a reduction inreduced FCC repack expenditures and timing of capital expenses.expenditure spend.
•In 2020,2021, we contributed $5.4$1.3 million in cash to our investments.
•In 20202021 and 2019,2020, we received $9.4$5.3 million and $1.5$2.7 million, respectively, in reimbursement proceeds from the FCC.
•In January of 2019, we acquired three television stations owned by Raycom Media for $55 million in cash.
•In April of 2019, we acquired assets from an independent station in Stuart, Florida, for $23.6 million in cash, the majority of which were intangible assets.
•In May of 2019, we acquired 15 television stations owned by Cordillera Communications, LLC for $521 million in cash, plus an estimated working capital adjustment of $23.9 million.
•In June of 2019, we completed the acquisition of Omny Studio for a cash purchase price of $8.5 million.FCC repacking process.
In the repacking process associated with the incentive spectrum auction conducted by the FCC in 2017, the FCC has reassigned some stations to new post-auction channels. We do not expect reassignment to new channels to have a material impact on our stations' broadcast signals as viewed in their markets. Twenty-seven of our current full power stations (including nine from recent acquisitions) have been assigned to new channels. The legislation authorizing the incentive auction and repack provides the FCC with up to a $2.75 billion fund to reimburse reasonable costs incurred by stations that are reassigned to new channels in the repack. We expect the FCC fund will be sufficient to cover the costs we would expect to incur for the repack and that our only potential funding risks would be limited to any disagreements with the FCC over reimbursement of expenditures incurred. Reimbursements provided by the FCC are recognized as the cash is received.
We have spent $43.8$49.1 million to date on FCC repack. As of early July 2020, all full power stations were operating on their reassigned channels. We will incur incremental costs through the remainder of 20202021 to complete work delayed by the COVID-19 pandemic. We have received total reimbursement proceeds from the FCC of $17.9$5.3 million of which $9.4 million was received during the sixthree months ended June 30, 2020.March 31, 2021 and have a remaining FCC repack receivable balance of $7.6 million as of March 31, 2021.
Cash Flows - Financing Activities
Cash flows from financing activities for the sixthree months ended June 30March 31 are as follows:
| | | Six Months Ended June 30, | | | Three Months Ended March 31, |
(in thousands) | (in thousands) | | 2020 | | 2019 | (in thousands) | | 2021 | | 2020 |
| Cash Flows from Financing Activities: | Cash Flows from Financing Activities: | | Cash Flows from Financing Activities: | |
Net borrowings under revolving credit facility | Net borrowings under revolving credit facility | | $ | 50,000 | | | $ | 120,000 | | Net borrowings under revolving credit facility | | $ | — | | | $ | 175,000 | |
Proceeds from issuance of long-term debt | Proceeds from issuance of long-term debt | | — | | | 761,175 | | Proceeds from issuance of long-term debt | | 800,000 | | | — | |
Proceeds from issuance of preferred stock | | Proceeds from issuance of preferred stock | | 600,000 | | | — | |
Payments on long-term debt | Payments on long-term debt | | (5,306) | | | (3,413) | | Payments on long-term debt | | (4,653) | | | (2,653) | |
Deferred financing costs | | — | | | (20,550) | | |
Dividends paid | | (8,259) | | | (8,120) | | |
Repurchase of Class A Common shares | | — | | | (584) | | |
Payments on financing costs | | Payments on financing costs | | (50,597) | | | — | |
Payments for capitalized preferred stock issuance costs | | Payments for capitalized preferred stock issuance costs | | (11,526) | | | — | |
Dividends paid on common and preferred stock | | Dividends paid on common and preferred stock | | (9,067) | | | (4,108) | |
| | Tax payments related to shares withheld for vested stock and RSUs | Tax payments related to shares withheld for vested stock and RSUs | | (2,292) | | | (3,700) | | Tax payments related to shares withheld for vested stock and RSUs | | (6,369) | | | (2,266) | |
Miscellaneous, net | Miscellaneous, net | | (21,438) | | | (3,447) | | Miscellaneous, net | | (415) | | | (16,574) | |
Net cash provided by financing activities from continuing operations | Net cash provided by financing activities from continuing operations | | $ | 12,705 | | | $ | 841,361 | | Net cash provided by financing activities from continuing operations | | $ | 1,317,373 | | | $ | 149,399 | |
In 20202021 and 2019,2020, cash provided by financing activities from continuing operations was $12.7 million$1.3 billion and $841$149 million, respectively. As of June 30, 2020,March 31, 2021, we have $50 million drawnhad no outstanding borrowings under our revolving credit facility. Other factors impacting our cash flows from financing activities from continuing operations are described below.
We have $900On January 7, 2021, we issued an $800 million term loan B, maturing in 2028, in connection with the closing of the ION acquisition. Additionally, we entered into a Securities Purchase Agreement with Berkshire Hathaway Inc., ("Berkshire Hathaway"), pursuant to which Berkshire Hathaway provided $600 million of unsecuredfinancing 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 March 15, 2021, were paid in the first quarter totaling $9.1 million.
As of March 31, 2021, we have $1.95 billion of senior notes and $1.0$1.84 billion outstanding balance on our term loans. The outstanding balance on our term loans reflect the $765 million term loan B, issued on May 1, 2019, for financing on the Cordillera and Nexstar/Tribune television station acquisitions. Our debt hadhas required annual principal payments of $5.3 million in the first half of 2020 and will have required payments of $5.3 million for the remainder of 2020.$18.6 million.
We paid quarterly dividendsIn November 2020, our Board of 5 cents per share, totaling $8.3Directors authorized a debt repurchase program 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, and the additional indebtedness incurred with the closing of the ION acquisition. The authorization permits an aggregate principal amount reduction of up to $500 million and $8.1 million in 2020 and 2019, respectively.expires on March 1, 2023.
In November 2016, our Board of Directors authorized a share repurchase program of up to $100 million of our Class A Common shares, which expired on March 1, 2020. In February 2020, our Board of Directors authorized a new share repurchase program of up to $100 million of our Class A Common shares through March 1, 2022. Shares can be repurchased under the authorization via open market purchases or privately negotiated transactions, including accelerated stock repurchase transactions, block trades, or pursuant to trades intended to comply with Rule 10b5-1 of the Securities Exchange Act of 1934. No shares were repurchased under either authorization during the first sixthree months of 2020 as2021 and 2020. Under the Company has temporarily suspended share buybacks. Duringterms of the first six months of 2019,Preferred Shares, we repurchased $0.6 million of shares.are prohibited from paying dividends on and repurchasing our common shares until all Preferred Shares are redeemed.
Other
We are requiredexpect to contribute an additional $27approximately $19.8 million during the remainder of 2021 to fund our qualified defined benefit pension plan and our SERPs in order to meet our 2020 funding requirements under the provisions of the Pension Funding Equity Act of 2004 and the Pension Protection Act of 2006. In response to the COVID-19 pandemic, President Donald Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The CARES Act provides a provision to defer 2020 pension contributions until January 1, 2021. Currently, we do not anticipate delaying the payment of 2020 pension contributions with respect to this permitted CARES Act provision.
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 20192020 Annual Report on Form 10-K.
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 20192020 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 20192020 Annual Report on Form 10-K.
Recent Accounting Guidance
Refer to Note 2 –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.
Quantitative and Qualitative Disclosures About Market Risk
Earnings and cash flow can be affected by, among other things, economic conditions and interest rate changes. We are also exposed to changes in the market value of our investments.
Our objectives in managing interest rate risk are to limit the impact of interest rate changes on our earnings and cash flows and to reduce overall borrowing costs. We may use derivative financial instruments to modify exposure to risks from fluctuations in interest rates. In accordance with our policy, we do not use derivative instruments unless there is an underlying exposure, and we do not hold or enter into financial instruments for speculative trading purposes.
We are subject to interest rate risk associated with our credit agreement, as borrowings bear interest at LIBOR plus respective fixed margin spreads or spreads determined relative to our Company’s leverage ratio. Accordingly, the interest we pay on our borrowings is dependent on interest rate conditions and the timing of our financing needs. With consideration for the LIBOR floor that is present in our term loans due in 2026 and 2028, a 100 basis point increase in LIBOR would increase annual interest expense on our variable rate borrowings by approximately $8.4 million.
The following table presents additional information about market-risk-sensitive financial instruments:
| | | | As of June 30, 2020 | | | As of December 31, 2019 | | | | As of March 31, 2021 | | As of December 31, 2020 |
(in thousands) | (in thousands) | | Cost Basis | | Fair Value | | Cost Basis | | Fair Value | (in thousands) | | Cost Basis | | Fair Value | | Cost Basis | | Fair Value |
| Financial instruments subject to interest rate risk: | Financial instruments subject to interest rate risk: | | | | | | | | | Financial instruments subject to interest rate risk: | | | | | | | | |
Revolving credit facility | Revolving credit facility | | $ | 50,000 | | | $ | 50,000 | | | $ | — | | | $ | — | | Revolving credit facility | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Senior secured notes, due in 2029 | | Senior secured notes, due in 2029 | | 550,000 | | | 541,063 | | | 550,000 | | | 573,375 | |
Senior unsecured notes, due in 2025 | Senior unsecured notes, due in 2025 | | 400,000 | | | 385,000 | | | 400,000 | | | 409,000 | | Senior unsecured notes, due in 2025 | | 400,000 | | | 409,000 | | | 400,000 | | | 409,000 | |
Senior unsecured notes, due in 2027 | Senior unsecured notes, due in 2027 | | 500,000 | | | 475,000 | | | 500,000 | | | 525,000 | | Senior unsecured notes, due in 2027 | | 500,000 | | | 516,875 | | | 500,000 | | | 522,500 | |
Senior unsecured notes, due in 2031 | | Senior unsecured notes, due in 2031 | | 500,000 | | | 498,125 | | | 500,000 | | | 525,800 | |
Term loan, due in 2024 | Term loan, due in 2024 | | 291,750 | | | 273,516 | | | 293,250 | | | 293,617 | | Term loan, due in 2024 | | 289,500 | | | 289,138 | | | 290,250 | | | 288,436 | |
Term loan, due in 2026 | Term loan, due in 2026 | | 755,466 | | | 715,804 | | | 759,272 | | | 763,547 | | Term loan, due in 2026 | | 749,757 | | | 747,414 | | | 751,660 | | | 745,083 | |
Term loan, due in 2028 | | Term loan, due in 2028 | | 798,000 | | | 795,506 | | | — | | | — | |
| Long-term debt, including current portion | Long-term debt, including current portion | | $ | 1,997,216 | | | $ | 1,899,320 | | | $ | 1,952,522 | | | $ | 1,991,164 | | Long-term debt, including current portion | | $ | 3,787,257 | | | $ | 3,797,121 | | | $ | 2,991,910 | | | $ | 3,064,194 | |
| Financial instruments subject to market value risk: | Financial instruments subject to market value risk: | | | | | | | | | Financial instruments subject to market value risk: | | | | | | | | |
Investments held at cost | Investments held at cost | | $ | 4,616 | | | (a) | | $ | 4,405 | | | (a) | Investments held at cost | | $ | 4,745 | | | (a) | | $ | 4,564 | | | (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. | (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. | | (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. |
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:
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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; |
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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 |
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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. We acquired eight television stations fromOn January 7, 2021, we completed the Nexstaracquisition of the ION Media Group,Networks, Inc. transaction with Tribune Media Company on September 19, 2019,, and have excluded these stationsthe business from management's reporting on internal control over financial reporting, as permitted by SEC guidance, for the quarter ended June 30, 2020. The acquired operations haveMarch 31, 2021. ION has total assets of approximately $689 million,$3.3 billion, or 19%49% of our total assets as of June 30, 2020,March 31, 2021, and revenues of $109$126 million, or 14%23% of our total revenues for the sixthree months ended June 30, 2020.
March 31, 2021.