Scripps Networks Interactive reports third quarter financial results *Revenues of $566 million, up 12 percent *Segment profit of $251 million, up 15 percent *Income from continuing operations of $0.78 per share, up 20 percent Business Wire KNOXVILLE, Tenn. -- November 01, 2012 Scripps Networks Interactive, Inc. (NYSE: SNI) today reported operating results for the third quarter 2012. Consolidated revenues for the quarter increased 12 percent to $566 million from the prior-year period. Results for the three-month period ended Sept. 30 reflect strong advertising revenue of $377 million, up 10 percent, and affiliate fee revenue of $175 million, up 18 percent year-over-year. Expenses for the quarter increased 11 percent from the prior-year period to $315 million. The increase was driven primarily by higher employee costs and investments in planned domestic and international growth initiatives. Also contributing to the increase was higher marketing and promotional expenses to drive viewership at all of the company’s lifestyle television networks. Total segment profit increased 15 percent to $251 million. (See note 2 for a definition of segment profit). Third quarter income from continuing operations attributable to Scripps Networks Interactive was $118 million, or $0.78 per diluted share, compared with $105 million, or $0.65 per diluted share, in the third quarter 2011. “Our positive third quarter results demonstrate in a powerful way the ubiquitous nature of our popular lifestyle brands,” said Kenneth W. Lowe, chairman, president and chief executive officer of Scripps Networks Interactive. “Our networks and related businesses engage millions of media consumers every day, not just on television, but on smart phones, tablets, newsstands and in thousands of retail outlets across America. We’ve established ourselves as clear leaders in our ability to influence consumer purchasing decisions in the home, food and travel categories. And in the process, we’ve created tremendous value for our shareholders,” Lowe said. Revenues by network were as follows: *Food Network was $199 million, up 11 percent. *HGTV was $195 million, up 8.1 percent. *Travel Channel was $68.9 million, up 10 percent. *DIY Network was $29.9 million, up 26 percent. *Cooking Channel was $21.6 million, up 31 percent. *Great American Country (GAC) was $6.9 million, up 15 percent. Revenue from the company’s digital businesses, which include its network-branded websites, was $27.7 million, up 12 percent. Conference call The senior management team of Scripps Networks Interactive will discuss the company’s third quarter results during a telephone conference call at 10 a.m. ET today. Scripps Networks Interactive will offer a live webcast of the conference call. To access the webcast, visit www.scrippsnetworksinteractive.com and follow the Investors link at the top of the page. The webcast link can be found next to the microphone icon on the investor relations landing page. To access the conference call by telephone, dial 800-230-1085 (U.S.) or 612-288-0337 (international) approximately ten minutes before the start of the call. Callers will need the name of the call, “SNI Third Quarter Earnings Call,” to be granted access. Callers also will be asked to provide their name and company affiliation. The media and general public are granted access to the conference call on a listen-only basis. A replay line will be open from 12:30 p.m. ET Nov. 1 until 11:59 p.m. ET Nov. 15. The domestic number to access the replay is 800-475-6701 and the international number is 320-365-3844. The access code for both numbers is 266000. A replay of the conference call also will be available online. To access the audio replay, visit www.scrippsnetworksinteractive.com approximately four hours after the call, choose Investors then follow the Audio Archives link on the top right side of the investor relations landing page. Forward-looking statements This press release 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. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. The company’s written policy on forward-looking statements can be found on page F-3 of its 2011 Form 10-K filed with the Securities and Exchange Commission. The company undertakes no obligation to publicly update any forward-looking statements to reflect events or circumstances after the date the statement is made. About Scripps Networks Interactive Scripps Networks Interactive is one of the leading developers of lifestyle-oriented content for television and the Internet, where on-air programming is complemented with online video, social media areas and e-commerce components on companion websites and broadband vertical channels. The company’s media portfolio includes popular lifestyle television and Internet brands Food Network, HGTV, Travel Channel, DIY Network, CookingChannel and country music network Great American Country. SCRIPPS NETWORKS INTERACTIVE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three months ended Nine months ended September 30, September 30, (in thousands, except per 2012 2011 Change 2012 2011 Change share data) Operating $ 566,186 $ 503,744 12.4 % $ 1,702,517 $ 1,518,559 12.1 % revenues Cost of services, excluding depreciation (156,297 ) (147,563 ) 5.9 % (444,981 ) (383,271 ) 16.1 % and amortization of intangible assets Selling, general and (158,823 ) (137,710 ) 15.3 % (482,554 ) (415,466 ) 16.1 % administrative Depreciation and amortization (28,978 ) (22,736 ) 27.5 % (79,432 ) (66,471 ) 19.5 % of intangible assets Gains (losses) on disposal of (16 ) 82 (102 ) 63 property and equipment Operating 222,072 195,817 13.4 % 695,448 653,414 6.4 % income Interest (12,518 ) (9,157 ) 36.7 % (37,945 ) (26,348 ) 44.0 % expense Equity in earnings of 11,240 7,035 59.8 % 46,267 29,717 55.7 % affiliates Miscellaneous, 1,667 (23,972 ) 12,689 (23,504 ) net Income from continuing operations 222,461 169,723 31.1 % 716,459 633,279 13.1 % before income taxes Provision for (65,653 ) (33,183 ) 97.9 % (211,277 ) (174,866 ) 20.8 % income taxes Income from continuing 156,808 136,540 14.8 % 505,182 458,413 10.2 % operations, net of tax Income (loss) from discontinued (6,552 ) (61,252 ) operations, net of tax Net income 156,808 129,988 20.6 % 505,182 397,161 27.2 % Net income attributable to (38,398 ) (31,385 ) 22.3 % (129,505 ) (120,604 ) 7.4 % noncontrolling interests Net income attributable $ 118,410 $ 98,603 20.1 % $ 375,677 $ 276,557 35.8 % to SNI Income from continuing operations attributable to SNI common $ 0.79 $ 0.65 $ 2.46 $ 2.03 shareholders per basic share of common stock Income from continuing operations attributable to SNI common $ 0.78 $ 0.65 $ 2.44 $ 2.02 shareholders per diluted share of common stock Weighted average basic 149,985 161,789 152,731 166,318 shares outstanding Weighted average 151,201 162,276 153,905 167,314 diluted shares outstanding Net income per share amounts may not foot since each is calculated independently. SCRIPPS NETWORKS INTERACTIVE, INC. CONSOLIDATED BALANCE SHEETS (unaudited) As of September 30, December 31, 2012 2011 (in thousands, except per share data) ASSETS Current assets: Cash and cash equivalents $ 439,238 $ 760,092 Accounts receivable (less allowances: 2012- 530,178 553,022 $5,344; 2011- $5,000) Programs and program licenses 392,141 336,305 Other current assets 71,203 66,549 Total current assets 1,432,760 1,715,968 Investments 477,551 455,267 Property and equipment, net 223,205 219,845 Goodwill 573,482 510,484 Other intangible assets, net 648,243 556,095 Programs and program licenses (less current 367,642 299,089 portion) Unamortized network distribution incentives 27,842 46,239 Other non-current assets 149,248 158,683 Total Assets $ 3,899,973 $ 3,961,670 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 9,422 $ 12,482 Program rights payable 42,422 50,402 Customer deposits and unearned revenue 38,276 52,814 Employee compensation and benefits 47,694 49,920 Accrued marketing and advertising costs 7,662 6,838 Other accrued liabilities 64,440 60,443 Total current liabilities 209,916 232,899 Deferred income taxes 65,935 100,002 Long-term debt 1,384,148 1,383,945 Other liabilities (less current portion) 209,964 148,429 Total liabilities 1,869,963 1,865,275 Redeemable noncontrolling interest 115,722 162,750 Equity: SNI shareholders' equity: Preferred stock, $.01 par - authorized: 25,000,000 shares; none outstanding Common stock, $.01 par: Class A - authorized: 240,000,000 shares; issued and outstanding: 2012 - 115,461,988 1,155 1,228 shares; 2011 - 122,828,359 shares Voting - authorized: 60,000,000 shares; issued and outstanding: 2012 - 34,317,173 343 343 shares; 2011 - 34,317,173 shares Total 1,498 1,571 Additional paid-in capital 1,381,362 1,346,429 Retained earnings 272,750 364,073 Accumulated other comprehensive income (loss) (24,701 ) (33,347 ) Total SNI shareholders' equity 1,630,909 1,678,726 Noncontrolling interest 283,379 254,919 Total equity 1,914,288 1,933,645 Total Liabilities and Equity $ 3,899,973 $ 3,961,670 SCRIPPS NETWORKS INTERACTIVE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Nine months ended September 30, (in thousands) 2012 2011 Cash Flows from Operating Activities: Net income $ 505,182 $ 397,161 Loss (income) from discontinued operations 61,252 Income from continuing operations, net of tax 505,182 458,413 Depreciation and amortization of intangible assets 79,432 66,471 Amortization of network distribution costs 18,397 31,634 Program amortization 355,850 313,349 Equity in earnings of affiliates (46,267 ) (29,717 ) Program payments (478,931 ) (375,485 ) Capitalized network distribution incentives (2,948 ) (6,752 ) Dividends received from equity investments 45,096 28,299 Deferred income taxes (53,164 ) (1,357 ) Stock and deferred compensation plans 30,838 19,347 Changes in certain working capital accounts: Accounts receivable 30,837 (9,090 ) Other assets (10,619 ) (1,643 ) Accounts payable (5,381 ) (1,104 ) Accrued employee compensation and benefits 417 (5,271 ) Accrued income taxes (11,660 ) 25,221 Other liabilities (19,727 ) 12,077 Other, net (3,755 ) 7,800 Cash provided by (used in) continuing operating 433,597 532,192 activities Cash provided by (used in) discontinued operating 13,253 activities Cash provided by (used in) operating activities 433,597 545,445 Cash Flows from Investing Activities: Additions to property and equipment (34,058 ) (37,355 ) Purchase of long-term investments (410,759 ) Purchase of note receivable due from UKTV (134,077 ) Collections (funds advanced) on note receivable 13,613 Purchase of subsidiary companies, net of cash (119,036 ) acquired Purchase of noncontrolling interest (3,400 ) Other, net (15,777 ) 2,854 Cash provided by (used in) continuing investing (155,258 ) (582,737 ) activities Cash provided by (used in) discontinued investing 10,000 141,786 activities Cash provided by (used in) investing activities (145,258 ) (440,951 ) Cash Flows from Financing Activities: Increase in long-term debt 100,000 Dividends paid (55,032 ) (45,778 ) Dividends paid to noncontrolling interests (148,181 ) (58,676 ) Noncontrolling interest capital contribution 52,804 Repurchase of Class A common stock (500,251 ) (400,000 ) Proceeds from stock options 89,019 18,667 Other, net 5,190 (6,505 ) Cash provided by (used in) financing activities (609,255 ) (339,488 ) Effect of exchange rate changes on cash and cash 62 399 equivalents Increase (decrease) in cash and cash equivalents (320,854 ) (234,595 ) Cash and cash equivalents: Beginning of year 760,092 549,897 End of period $ 439,238 $ 315,302 Supplemental Cash Flow Disclosures: Interest paid, excluding amounts capitalized $ 39,599 $ 32,689 Income taxes paid 254,746 137,382 Notes to Results of Operations 1. OTHER CHARGES AND CREDITS In August 2011, the Company announced that SNI would be acquiring a 50-percent equity interest in UKTV for £239million and £100million to acquire the outstanding preferred stock and debt due to Virgin Media, Inc. from UKTV. To minimize the cash flow volatility resulting from British Pound to U.S. dollar currency exchange rate changes, we subsequently entered into foreign currency forward contracts that effectively set the U.S. dollar value for the transaction. We settled these foreign currency exchange forward contracts around the September 30, 2011 closing of the transaction and recognized losses from the contracts totaling $25.3 million. These losses reported within the “Miscellaneous” caption in our consolidated statements of operations reduced net income attributed to SNI $15.7 million, $.10 per share. Our tax provision in the third quarter of 2011 includes favorable adjustments attributed to reaching agreements with certain tax authorities for positions taken in prior period returns and adjustments to foreign income items, state apportionment factors and credits reflected in our filed tax returns. Net income attributable to SNI was increased $14.5million, $.09 per share. During the second quarter of 2011, our Board of Directors approved the sale of our Shopzilla business and its related online comparison shopping brands. We received consideration totaling approximately $160 million upon finalizing the sale of the business on May31, 2011. The results of operations for this business have been retrospectively presented as discontinued operations within our consolidated financial statements for all periods. Discontinued operations in the second quarter of 2011 reflect a loss on divestiture of $53.3 million related to the sale of the Shopzilla business. No income tax benefit related to the capital losses attributed to the sale was recognized. Year-to-date net income attributable to SNI was decreased $.31per share. In August 2010, we contributed the Cooking Channel to the Food Network Partnership (the “Partnership”). At the close of our 2010 fiscal year, the noncontrolling owner had not made a required pro-rata capital contribution to the Partnership and as a result its ownership interest was diluted from 31 percent to 25 percent. Accordingly, following the Cooking Channel contribution, profits from the partnership were allocated to the noncontrolling owner at its reduced ownership percentage. In February 2011, the noncontrolling owner made the pro-rata contribution to the Partnership and its ownership interest was returned to the pre-dilution percentage as if the contribution had been made as of the date of the Cooking Channel contribution. The retroactive impact of restoring the noncontrolling owner’s interest in the Partnership increased net income attributed to noncontrolling interest $8.0million in the first quarter of 2011. Year-to-date net income attributable to SNI was decreased $4.7 million, $.03per share. 2. SEGMENT INFORMATION We determine our business segments based upon our management and internal reporting structure. We manage our operations through one reportable operating segment, Lifestyle Media. Lifestyle Media includes our national television networks, Food Network, HGTV, Travel Channel, DIY Network, Cooking Channel and Great American Country (“GAC”). Lifestyle Media also includes websites that are associated with the aforementioned television brands and other Internet-based businesses serving food, home and travel related categories. The Food Network and Cooking Channel are included in the Food Network Partnership of which we own approximately 69%. We also own 65% of Travel Channel. Each of our networks is distributed by cable and satellite distributors and telecommunication service providers. The results of businesses not separately identified as reportable segments are included within our corporate and other caption. Corporate and other includes the results of the lifestyle-oriented channels we operate in Europe, the Middle East, Africa and Asia, operating results from the international licensing of our national networks’ programming, and other interactive and digital business initiatives that are not associated with our Lifestyle Media or international businesses. 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 we call segment profit. Segment profit excludes interest, income taxes, depreciation and amortization, divested operating units, restructuring activities, investment results and certain other items that are included in net income determined in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Refer to Note 4—Non-GAAP Financial Measures, for reconciliations to GAAP measures. 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. Financing, tax structure and divestiture decisions are generally made by corporate executives. Excluding these items from our business segment performance measure enables us to evaluate business segment operating performance for the current period based upon current economic conditions and decisions made by the managers of those business segments in the current period. Information regarding the operating performance of our business segments and a reconciliation to our results of operations is as follows: (in thousands) Three months ended Nine months ended September 30, September 30, 2012 2011 Change 2012 2011 Change Segment operating revenues: Lifestyle $ 551,917 $ 496,257 11.2 % $ 1,671,516 $ 1,497,163 11.6 % Media Corporate and other / 14,269 7,487 90.6 % 31,001 21,396 44.9 % intersegment eliminations Total operating $ 566,186 $ 503,744 12.4 % $ 1,702,517 $ 1,518,559 12.1 % revenues Segment profit (loss): Lifestyle $ 273,033 $ 235,741 15.8 % $ 848,089 $ 769,205 10.3 % Media Corporate and (21,967 ) (17,270 ) 27.2 % (73,107 ) (49,383 ) 48.0 % other Total segment 251,066 218,471 14.9 % 774,982 719,822 7.7 % profit Depreciation and amortization (28,978 ) (22,736 ) 27.5 % (79,432 ) (66,471 ) 19.5 % of intangible assets Gains (losses) on disposal of (16 ) 82 (102 ) 63 property and equipment Interest (12,518 ) (9,157 ) 36.7 % (37,945 ) (26,348 ) 44.0 % expense Equity in earnings of 11,240 7,035 59.8 % 46,267 29,717 55.7 % affiliates Miscellaneous, 1,667 (23,972 ) 12,689 (23,504 ) net Income from continuing operations $ 222,461 $ 169,723 31.1 % $ 716,459 $ 633,279 13.1 % before income taxes Operating results from our international operations and the costs associated with other interactive and digital business initiatives increased the segment loss at corporate and other by $5.4million in the third quarter of 2012 and $17.2 million for the year-to-date period of 2012 compared with $2.1 million in the third quarter of 2011 and $4.3 million for the year-to-date period of 2011. 3. SUPPLEMENTAL FINANCIAL INFORMATION Our Lifestyle Media division earns revenue primarily from the sale of advertising time on our national television networks, affiliate fees paid by cable and satellite television operators that carry our network programming, the licensing of its content to third parties, the licensing of its brands for consumer products such as books and kitchenware, and from the sale of advertising on our Lifestyle Media affiliated websites. Supplemental information for Lifestyle Media is as follows: (in Three months ended Nine months ended thousands) September 30, September 30, 2012 2011 Change 2012 2011 Change Operating revenues by brand: Food Network $ 198,872 $ 180,008 10.5 % $ 616,162 $ 541,539 13.8 % HGTV 195,363 180,663 8.1 % 586,073 541,193 8.3 % Travel 68,893 62,579 10.1 % 209,254 194,881 7.4 % Channel DIY Network 29,852 23,693 26.0 % 91,221 76,080 19.9 % Cooking 21,643 16,580 30.5 % 63,863 47,781 33.7 % Channel GAC 6,945 6,063 14.5 % 16,927 18,423 (8.1 )% Digital 27,726 24,695 12.3 % 78,446 71,470 9.8 % Businesses Other 2,623 2,081 26.0 % 9,767 6,512 50.0 % Intrasegment (105 ) (197 ) (716 ) eliminations Operating revenues by type: Advertising $ 374,583 $ 342,876 9.2 % $ 1,145,017 $ 1,037,529 10.4 % Network affiliate 168,353 146,411 15.0 % 500,816 436,817 14.7 % fees, net Other 8,981 6,970 28.9 % 25,683 22,817 12.6 % Subscribers (1): Food Network 99,100 99,400 (0.3 )% HGTV 98,400 98,600 (0.2 )% Travel 94,200 94,600 (0.4 )% Channel DIY Network 57,100 53,500 6.7 % Cooking 59,200 57,400 3.1 % Channel GAC 61,700 59,200 4.2 % (1) Subscriber counts are according to the Nielsen Homevideo Index of homes that receive cable networks. 4. NON-GAAP FINANCIAL MEASURES In addition to the results prepared in accordance with GAAP provided in this release, the Company has presented segment profit. A reconciliation of segment profit to operating income determined in accordance with GAAP for each business segment is as follows: (in thousands) Three months ended Nine months ended September 30, September 30, 2012 2011 2012 2011 Operating income $ 222,072 $ 195,817 $ 695,448 $ 653,414 Depreciation and amortization of intangible assets: Lifestyle Media 26,602 22,226 73,919 64,931 Corporate and other 2,376 510 5,513 1,540 Losses (gains) on disposal of property and equipment: Lifestyle Media 17 (82 ) 103 (63 ) Corporate and other (1 ) (1 ) Total segment profit $ 251,066 $ 218,471 $ 774,982 $ 719,822 The Company defines free cash flow as cash provided by operating activities less dividends paid to noncontrolling interests and acquisitions of property and equipment. The Company measures free cash flow as it believes it is an important indicator for management and investors as to the Company’s liquidity, including its ability to reduce debt, make strategic investments and return capital to shareholders. A reconciliation of free cash flow is as follows: (in thousands) Three months ended Nine months ended September 30, September 30, 2012 2011 2012 2011 Segment profit $ 251,066 $ 218,471 $ 774,982 $ 719,822 Income taxes paid (100,154 ) (54,689 ) (254,746 ) (137,382 ) Interest paid (15,154 ) (16,503 ) (39,599 ) (32,689 ) Working capital 51,544 32,618 (47,040 ) (17,559 ) and other Cash provided by continuing 187,302 179,897 433,597 532,192 operating activities Dividends paid to noncontrolling (15,341 ) (13,996 ) (148,181 ) (58,676 ) interests Additions to property and (14,968 ) (12,480 ) (34,058 ) (37,355 ) equipment Free cash flow $ 156,993 $ 153,421 $ 251,358 $ 436,161 Since segment profit and free cash flow are non-GAAP measures, they should be considered in addition to, but not as a substitute for, operating income, net income, cash flow provided by operating activities and other measures of financial performance reported in accordance with GAAP. Contact: Scripps Networks Interactive, Inc. Mark Kroeger, 865-560-5007 firstname.lastname@example.org or Mike Gallentine, 865-560-4473 email@example.com
Scripps Networks Interactive reports third quarter financial results
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