EX-99.3 5 exhibit993-ewsunaudite.htm EXHIBIT 99.3 Exhibit


Exhibit 99.3

THE E.W. SCRIPPS COMPANY
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
On May 1, 2019, Scripps acquired 15 television stations from Cordillera Communications, LLC ("Cordillera") pursuant to the purchase agreement dated as of October 27, 2018. Cordillera was a wholly owned subsidiary of EPI Preferred, LLC ("EPI") and comprised substantially all of the key operating assets of EPI. The following unaudited pro forma combined financial statements are based on our historical consolidated financial statements and the acquired stations historical consolidated financial statements as adjusted to give effect to the May 1, 2019 acquisition of the stations. The unaudited pro forma combined balance sheet data as of March 31, 2019, gives effect to the consummation of the transaction as if it had occurred on March 31, 2019. The unaudited pro forma combined results of operations data for the three months ended March 31, 2019 and for the year ended December 31, 2018, give effect to the consummation of the transaction as if it occurred on January 1, 2018.
Scripps and EPI have different fiscal years. Scripps’ fiscal year ends on December 31, whereas EPI’s fiscal year ended on September 30. The unaudited pro forma combined statement of operations for the year ended December 31, 2018 combines Scripps’ year ended December 31, 2018 with EPI’s year ended September 30, 2018. The unaudited pro forma combined statement of operations for the year end December 31, 2018 has been prepared utilizing period ends that differ by less than 93 days, as permitted by Rule 11-02 Regulation S-X. The unaudited pro forma combined balance sheet information combines Scripps’ unaudited March 31, 2019 balance sheet with EPI’s unaudited March 31, 2019 balance sheet. The historical financial information has been adjusted to give effect to matters that are (i) directly attributable to the merger transactions, (ii) factually supportable and (iii) with respect to the statement of operations, expected to have a continuing impact on the operating results of the combined company.
The unaudited pro forma combined statements of operations were prepared using the acquisition method of accounting in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, with Scripps considered as the accounting acquirer. Accordingly, consideration paid by Scripps to complete the acquisition has been allocated to identifiable assets and liabilities of the acquired Cordillera stations based on estimated fair values as of the closing date of the acquisition. Management made a preliminary allocation of the consideration transferred to the assets acquired and liabilities assumed based on the information available and management’s preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed. The finalization of the purchase accounting assessment may result in changes to the valuation of assets acquired and liabilities assumed, which could be material. Accordingly, the pro forma adjustments related to the allocation of consideration transferred are preliminary and have been presented solely for the purpose of providing unaudited pro forma combined financial information in the Current Report on Form 8-K/A. Management expects to finalize the accounting for the business combination as soon as practicable within the measurement period in accordance with ASC 805, but in no event later than one year from May 1, 2019.
The unaudited pro forma combined financial statements do not necessarily reflect what the combined company’s financial condition or results of operations would have been had the acquisition occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.





The E.W. Scripps Company
Unaudited Pro Forma Condensed Combined Balance Sheet
As of March 31, 2019
(In thousands, except per share data)
 
Scripps Historical (Note 1)
 
EPI Preferred Historical (Note 1)
 
Excluded EPI Tucson Station
 
Pro Forma Adjustments
 
Pro Forma Combined
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
14,402

 
$
3,687

 
$
(1
)
 
$
19,409

4(a)
$
37,497

Cash restricted for pending acquisition
 
—

 
—

 
—

 
240,000

4(a)
$
240,000

Accounts and notes receivable, less allowances
 
277,528

 
32,369

 
(4,565
)
 
(461
)
4(b)
304,871

Programming
 
51,120

 
1,526

 
(130
)
 
—

 
52,516

FCC repack receivable
 
23,762

 
656

 
—

 
—

 
24,418

Miscellaneous
 
30,687

 
2,937

 
(221
)
 
(1,005
)
4(b)
32,398

Total current assets
 
397,499

 
41,175

 
(4,917
)
 
257,943

 
691,700

Investments
 
7,276

 
—

 
—

 
—

 
7,276

Property and equipment
 
254,935

 
36,567

 
(3,987
)
 
18,222

4(b)
305,737

Operating lease right-of-use asset
 
43,608

 
—

 
—

 
4,667

4(c)
48,275

Goodwill
 
852,362

 
52,534

 
—

 
222,143

4(b)
1,127,039

Other intangible assets
 
495,440

 
87,756

 
(107
)
 
112,451

4(b)
695,540

Programming (less current portion)
 
95,947

 
—

 
—

 
—

 
95,947

Deferred income taxes
 
9,857

 
—

 
—

 
—

 
9,857

Miscellaneous
 
16,992

 
24

 
(5
)
 
—

 
17,011

Total Assets
 
$
2,173,916

 
$
218,056

 
$
(9,016
)
 
$
615,426

 
$
2,998,382

Liabilities and Equity
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$
32,230

 
$
2,057

 
$
(120
)
 
$
(532
)
4(b)
$
33,635

Unearned revenue
 
8,120

 
—

 
—

 
—

 
8,120

Current portion of long-term debt
 
3,000

 
2,500

 
—

 
5,150

4(d)
10,650

Accrued liabilities:
 
 
 
 
 
 
 
 
 


Employee compensation and benefits
 
22,529

 
4,722

 
(594
)
 
(3,593
)
4(b)
23,064

Income taxes payable
 
—

 
3,977

 
—

 
(3,977
)
4(b)
—

Programming liability
 
60,043

 
1,532

 
(130
)
 
—

 
61,445

Miscellaneous
 
42,913

 
14,625

 
(1,350
)
 
(7,442
)
4(b)
48,746

Other current liabilities
 
29,081

 
—

 
—

 
280

4(c)
29,361

Total current liabilities
 
197,916


29,413


(2,194
)

(10,114
)

215,021

Long-term debt (less current portion)
 
685,317

 
45,332

 
—

 
757,642

4(d)
1,488,291

Deferred income taxes
 
22,061

 
19,527

 
—

 
(19,527
)
4(b)
22,061

Operating lease liabilities
 
37,294

 
—

 
—

 
4,387

4(c)
41,681

Other liabilities (less current portion)
 
313,955

 
—

 
—

 
—

 
313,955

Total Liabilities
 
1,256,543


94,272


(2,194
)

732,388

 
2,081,009

Equity:
 
 
 
 
 
 
 
 
 
 
Preferred stock
 
 
 
 
 
 
 
 
 
 
Common stock:
 
 
 
 
 
 
 
 
 
 
Class A
 
689

 
 
 
 
 
 
 
689

Voting
 
119

 
 
 
 
 
 
 
119

Total common stock
 
808

 
—

 
—

 
—

 
808

Additional paid-in capital
 
1,108,585

 
 
 
 
 
 
 
1,108,585

Accumulated deficit
 
(97,083
)
 
 
 
 
 
 
 
(97,083
)
Accumulated other comprehensive loss, net
 
(94,937
)
 
 
 
 
 
 
 
(94,937
)
Total equity attributable to E.W. Scripps
 
917,373

 
29,953

 
(6,822
)
 
(23,131
)
4(b)
917,373

Noncontrolling interest
 
—

 
93,831

 
—

 
(93,831
)
4(b)
—

Total equity
 
917,373


123,784


(6,822
)

(116,962
)
4(b)
917,373

Total Liabilities and Equity
 
$
2,173,916


$
218,056


$
(9,016
)

$
615,426


$
2,998,382





The E.W. Scripps Company
Unaudited Pro Forma Combined Statements of Operations
For the Year Ended December 31, 2018

(in thousands, except per share data)
 
Scripps Historical (Note 1)
 
EPI Preferred Historical (Note 1)
 
Excluded EPI Tucson Station
 
Pro Forma Adjustments
 
 
 
Pro Forma Combined
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
Advertising
 
$
836,049

 
$
133,271

 
$
(15,543
)
 
$
—

 
 
 
$
953,777

Retransmission and carriage
 
304,402

 
46,256

 
(7,227
)
 
(2,000
)
 
3(a)
 
341,431

Other
 
67,974

 
2,033

 
(103
)
 
—

 
 
 
69,904

Total operating revenues
 
1,208,425

 
181,560

 
(22,873
)
 
(2,000
)
 
 
 
1,365,112

Costs and Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Employee compensation and benefits
 
394,029

 
69,042

 
(7,886
)
 
—

 
 
 
455,185

Programming
 
350,753

 
30,908

 
(4,431
)
 
—

 
 
 
377,230

Impairment of programming assets
 
8,920

 
—

 
—

 
—

 
 
 
8,920

Other expenses
 
246,487

 
29,262

 
(3,257
)
 
—

 
 
 
272,492

Acquisition and related integration costs
 
4,124

 
—

 
—

 
(1,277
)
 
3(b)
 
2,847

Restructuring costs
 
8,911

 
—

 
—

 
—

 
 
 
8,911

Total costs and expenses
 
1,013,224


129,212


(15,574
)

(1,277
)
 
 
 
1,125,585

Depreciation, Amortization, and (Gains) Losses:
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation
 
34,641

 
5,978

 
(534
)
 
2,365

 
3(c)
 
42,450

Amortization of intangible assets
 
29,346

 
155

 
(10
)
 
9,515

 
3(d)
 
39,006

Losses (gains), net on disposal of property, plant and equipment
 
1,255

 
—

 
—

 
—

 
 
 
1,255

Net depreciation, amortization, and losses (gains)
 
65,242

 
6,133

 
(544
)
 
11,880

 
 
 
82,711

Operating income
 
129,959

 
46,215


(6,755
)
 
(12,603
)
 
 
 
156,816

Interest expense
 
(36,184
)
 
(1,850
)
 
—

 
(40,750
)
 
3(e)
 
(78,784
)
Defined benefit plan expense
 
(19,752
)
 
—

 
—

 
—

 
 
 
(19,752
)
Miscellaneous, net
 
152

 
(378
)
 
—

 
(1,157
)
 
3(f)
 
(1,383
)
Income from continuing operations before income taxes
 
74,175

 
43,987


(6,755
)
 
(54,510
)
 
 
 
56,897

Provision (benefit) for income taxes
 
18,098

 
(7,443
)
 
(1,723
)
 
4,800

 
3(g)
 
13,732

Income from continuing operations, net of tax
 
56,077

 
51,430


(5,032
)
 
(59,310
)
 
 
 
43,165

Loss from discontinued operations, net of tax
 
(36,328
)
 
—

 
—

 
—

 
 
 
(36,328
)
Net income (loss) attributable to noncontrolling interest
 
(632
)
 
40,541

 
(4,000
)
 
(36,541
)
 
 
 
(632
)
Net income (loss) attributable to Scripps shareholders
 
$
20,381


$
10,889


$
(1,032
)

$
(22,769
)
 
 

$
7,469

Income from continuing operations per share of common stock:
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.69

 
 
 
 
 
 
 
 
 
$
0.54

Diluted
 
$
0.68

 
 
 
 
 
 
 
 
 
$
0.53

 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
81,369

 
 
 
 
 
 
 
 
 
81,369

Diluted
 
81,927

 
 
 
 
 
 
 
 
 
81,927






The E.W. Scripps Company
Unaudited Pro Forma Condensed Combined Statements of Operations
For the Three Months Ended March 31, 2019
(in thousands, except per share data)
 
Scripps Historical (Note 1)
 
EPI Preferred Historical (Note 1)
 
Excluded EPI Tucson Station
 
Pro Forma Adjustments
 
 
 
Pro Forma Combined
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
Advertising
 
$
174,241

 
$
26,558

 
$
(3,068
)
 
$
—

 
 
 
$
197,731

Retransmission and carriage
 
87,283

 
13,541

 
(2,038
)
 
(750
)
 
3(a)
 
98,036

Other
 
30,639

 
514

 
(26
)
 
—

 
 
 
31,127

Total operating revenues
 
292,163

 
40,613

 
(5,132
)
 
(750
)
 
 
 
326,894

Costs and Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Employee compensation and benefits
 
110,203

 
16,559

 
(1,982
)
 
—

 
 
 
124,780

Programming
 
97,995

 
9,317

 
(1,306
)
 
—

 
 
 
106,006

Other expenses
 
61,442

 
6,906

 
(698
)
 
—

 
 
 
67,650

Acquisition and related integration costs
 
3,480

 
—

 
—

 
(185
)
 
3(b)
 
3,295

Restructuring costs
 
938

 
—

 
—

 
—

 
 
 
938

Total costs and expenses
 
274,058

 
32,782

 
(3,986
)
 
(185
)
 
 
 
302,669

Depreciation, Amortization, and (Gains) Losses:
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation
 
8,975

 
1,654

 
(132
)
 
591

 
3(c)
 
11,088

Amortization of intangible assets
 
8,817

 
17

 
(1
)
 
2,399

 
3(d)
 
11,232

Losses (gains), net on disposal of property, plant and equipment
 
173

 
—

 
—

 
—

 
 
 
173

Net depreciation, amortization, and losses (gains)
 
17,965

 
1,671

 
(133
)
 
2,990

 
 
 
22,493

Operating income
 
140

 
6,160

 
(1,013
)
 
(3,555
)
 
 
 
1,732

Interest expense
 
(8,916
)
 
(985
)
 
—

 
(10,515
)
 
3(e)
 
(20,416
)
Defined benefit plan expense
 
(1,572
)
 
—

 
—

 
—

 
 
 
(1,572
)
Miscellaneous, net
 
(800
)
 
(442
)
 
2

 
—

 
 
 
(1,240
)
Income from continuing operations before income taxes
 
(11,148
)
 
4,733

 
(1,011
)
 
(14,070
)
 
 
 
(21,496
)
Provision (benefit) for income taxes
 
(4,334
)
 
132

 
(258
)
 
(2,500
)
 
3(g)
 
(6,960
)
Income from continuing operations, net of tax
 
(6,814
)
 
4,601

 
(753
)
 
(11,570
)
 
 
 
(14,536
)
Net income (loss) attributable to noncontrolling interest
 
—

 
4,069

 
(700
)
 
(3,369
)
 
 
 
—

Net income (loss) attributable to Scripps shareholders
 
$
(6,814
)
 
$
532

 
$
(53
)
 
$
(8,201
)
 
 
 
$
(14,536
)
Income from continuing operations per share of common stock:
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
$
(0.08
)
 
 
 
 
 
 
 
 
 
$
(0.18
)
Diluted
 
$
(0.08
)
 
 
 
 
 
 
 
 
 
$
(0.18
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
80,673

 
 
 
 
 
 
 
 
 
80,673

Diluted
 
80,673

 
 
 
 
 
 
 
 
 
80,673






The E.W. Scripps Company
Notes to the Unaudited Pro Forma Condensed Combined Financial Statements

Note 1. Basis of Presentation
The unaudited pro forma combined financial statements have been derived from the historical consolidated financial statements of Scripps and the acquired Cordillera television stations (reported within the parent entity, EPI Preferred, LLC ). The unaudited pro forma combined balance sheet as of March 31, 2019 gives effect to the acquisition as if it had occurred on March 31, 2019. The unaudited pro forma combined statement of operations for the three months ended March 31, 2019 and for the year ended December 31, 2018 gives effect to the acquisition as if it had occurred on January 1, 2018.
The historical consolidated financial statements have been adjusted in the unaudited pro forma combined statements of operations to give effect to pro forma events that are (1) directly attributable to the business combination, (2) factually supportable, and (3) with respect to the unaudited pro forma combined statements of operations, expected to have a continuing impact on the combined results following the business combination.
Scripps has a different fiscal year end than EPI. Because the difference between Scripps’ and EPI’s fiscal year end dates is less than 93 days, the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2018 was prepared using Scripps’ audited consolidated statement of operations for the year ended December 31, 2018 and EPI’s audited consolidated statement of operations for the year ended September 30, 2018, as permitted under Rule 11-02 of Regulation S-X.
The unaudited pro forma combined statement of operations are based on a preliminary purchase price allocation, provided for illustrative purposes only, and do not purport to represent what the combined company’s results of operations would have been had the acquisition occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of operations of the combined company. The actual results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. In addition, the unaudited pro forma combined statement of operations do not reflect any future planned cost savings initiatives following the completion of the business combination.
Certain reclassifications have been made to the presentation of the historical EPI consolidated financial statements to conform to the presentation used in the unaudited pro forma financial information contained herein.

Note 2. Preliminary Purchase Price Allocation
On May 1, 2019, Scripps completed the acquisition of 15 television stations from Cordillera for cash consideration of $521 million, plus an estimated working capital adjustment of $26.5 million. The transaction was financed with a $765 million term loan B, of which $240 million of the proceeds were segregated for financing a portion of the television stations that are being acquired from Nexstar Media Group, Inc.
The unaudited pro forma combined financial information includes various assumptions, including those related to the preliminary purchase price allocation of the assets acquired and liabilities assumed for the acquired stations based on management’s best estimates of fair value. The final purchase price allocation may vary based on final appraisals, valuations and analyses of the fair value of the acquired assets and assumed liabilities.




The following table summarizes the preliminary fair values of the television stations assets acquired and liabilities assumed at the closing date.

Accounts receivable
$
27,343

Other current assets
3,763

Property and equipment
50,802

Operating lease right-of-use assets
4,667

Other assets
19

Fair value of acquired intangible assets
200,100

Residual goodwill from the transaction
274,677

Accounts payable
(1,405
)
Accrued expenses
(7,770
)
Other current liabilities
(280
)
Operating lease liabilities
(4,387
)
Net purchase price
$
547,529


Note 3. Adjustments to the Unaudited Pro Forma Combined Statements of Operations
(a)
Reflects the adjustments to reduce retransmission revenue, primarily from CW affiliates, under Scripps' retransmission agreements in effect during each period.
(b)
Reflects the adjustments to reverse incurred and non-recurring transaction costs, which were recorded in Scripps’ acquisition and related integration costs. These transaction costs totaled $1.3 million for the year ended 2018 and $0.2 million for the three months ended March 31, 2019.

(c)
Reflects the depreciation expense adjustment resulting from the fair value adjustments to the acquired Cordillera stations' property and equipment:
 
Year Ended
 
Three Months Ended
 
December 31, 2018
 
March 31, 2019
Depreciation expense for fair value adjustment to property and equipment
$
2,365

 
$
591


(d)
Reflects the incremental increase in intangible asset amortization expense resulting from the fair value adjustments to the acquired Cordillera stations' intangible assets:
 
Year Ended
 
Three Months Ended
 
December 31, 2018
 
March 31, 2019
Reversal of EPI's historical intangible asset amortization
$
(145
)
 
$
(16
)
Amortization of purchased identifiable intangible assets
9,660

 
2,415

Total intangible assets amortization expense adjustment
$
9,515

 
$
2,399






(e)
Reflects the adjustments to reverse interest expense associated with the EPI’s debt not assumed and the recognition of interest expense associated with Scripps’ new debt financing:
 
Year Ended
 
Three Months Ended
 
December 31, 2018
 
March 31, 2019
Reversal of EPI's historical interest expense
$
(1,850
)
 
$
(985
)
Interest expense on new debt financing
42,600

 
11,500

Total interest expense adjustment
$
40,750

 
$
10,515


(f)
Reflects the adjustments to reverse the gains and losses recognized from interest rate swaps that were in place on EPI’s outstanding debt. EPI’s statement of operations included a gain on derivative instruments of $1.2 million for the year ended 2018.

(g)
Reflects the income tax effect of applying the estimated blended federal and state statutory rate of 25.2% for the year ended December 31, 2018 and the three months ended March 31, 2019 to EPI's pre-tax income and to the pro forma adjustments.

Note 4. Adjustments to the Unaudited Pro Forma Combined Balance Sheet
(a)
Represents adjustments to the combined company cash balance. Estimated transaction and other closing/ financing costs associated with the transaction are not included in the pro forma results of operations as they are non-recurring in nature.
 
(in thousands)
Cash consideration for the acquisition of the Cordillera stations
$
(547,529
)
Borrowings from revolving credit facility
70,000

Issuance of new debt, net of issuance discount
761,175

Cash withheld for debt issuance costs
(20,551
)
Cash not acquired from EPI
(3,686
)
Total cash adjustments
259,409

Less: Cash restricted for pending acquisition
(240,000
)
Total cash and cash equivalents adjustments
$
19,409

The cash restricted for pending acquisition reflects cash that has been segregated for financing a portion of the television stations being acquired from Nexstar Media Group, Inc.





(b)
Reflects the acquisition method of accounting based on the estimated fair value of assets acquired and liabilities assumed at the closing date.
 
(in thousands)
Cash not acquired
$
(3,686
)
Accounts receivable not acquired
(461
)
Other current assets not acquired
(1,005
)
Adjustment of property and equipment to fair value
18,222

Residual goodwill created from acquisition
222,143

Adjustment of identifiable intangible assets to fair value
112,451

Accounts payable amounts not assumed
532

Accrued employee compensation and benefits not assumed
3,593

Income taxes payable not assumed
3,977

Other accrued expenses not assumed
7,442

EPI debt (including current portion) not assumed
47,832

Deferred tax impact of purchase accounting treatment
19,527

Elimination of the acquired Cordillera stations historical equity balances
116,962

Total transaction values
$
547,529


(c)
Represents the impact of EPI adopting the new lease standard that requires the recognition of right-of-use assets and lease liabilities on the balance sheet.
 
(in thousands)
Operating lease right-of-use assets
$
4,667
 
Other current liabilities
280
 
Operating lease liabilities
4,387
 

(d)
To record the issuance of Scripps’ long-term debt and related debt issuance costs and eliminate the EPI historical debt not assumed in the acquisition.
 
(in thousands)
EPI debt not assumed
$
(2,500
)
Establish current portion of debt from issuance of Term Loan B
7,650

Total current portion of long-term debt adjustment
$
5,150

 
(in thousands)
EPI debt not assumed
$
(45,332
)
Borrowings from revolving credit facility
70,000

Additional long-term debt from issuance of Term Loan B, net of issuance discount
753,525

Debt issuance costs on long-term debt
(20,551
)
Total long-term debt adjustment
$
757,642