Scripps Networks Interactive Reports Third Quarter Financial Results

Scripps Networks Interactive, Inc. (NYSE: SNI) today reported operating results for the third quarter 2013.

“Scripps Networks Interactive delivered another strong quarter of growth during the third quarter, driven by the tremendous popularity of our lifestyle television networks,” said Kenneth W. Lowe, chairman, president and chief executive officer. “We’ve created a valuable portfolio of lifestyle networks — as well as industry-leading websites and apps — that attract a highly engaged and upscale audience of food, home and travel enthusiasts.”

Consolidated revenues for the quarter increased 9.0 percent to $617 million from the prior-year period. Results for the three-month period ended Sept. 30 reflect advertising revenue of $410 million, up 8.7 percent, and affiliate fee revenue of $191 million, up 9.0 percent year over year.

Expenses for the quarter increased 13 percent from the prior-year period to $355 million. The increase was driven by higher program amortization expense reflecting the company’s investments to drive viewership at all of its lifestyle television networks. Also contributing to the expense growth were increased investments in international and digital growth initiatives.

Total segment profit increased 4.4 percent to $262 million. (See reconciliation of non-GAAP financial measures for a definition of segment profit.)

Equity in earnings of affiliates increased 35 percent to $15.2 million, due to increased contributions from our investments in HGTV Canada and Food Network Canada, and improved performance from HGTV and Food Network magazines.

Third quarter net income attributable to Scripps Networks Interactive was $129 million, or $0.87 per diluted share, compared with $118 million, or $0.78 per diluted share, in the third quarter 2012.
 

Segment results
(in thousands)   Three months ended     Nine months ended  
September 30, September 30,
    2013   2012   Change   2013   2012   Change
   
Segment operating revenues:
Lifestyle Media $ 594,941 $ 551,917 7.8 % $ 1,823,103 $ 1,671,516 9.1 %
Corporate and other 23,184 14,269 62.5 % 54,535 31,011 75.9 %

Intersegment eliminations
    (1,224 )               (1,224 )     (10 )    
 
Total operating revenues   $ 616,901     $ 566,186     9.0 %   $ 1,876,414     $ 1,702,517     10.2 %
 
Segment profit (loss):
Lifestyle Media $ 291,340 $ 273,033 6.7 % $ 921,370 $ 848,089 8.6 %
Corporate and other     (29,304 )     (21,967 )   33.4 %     (92,179 )     (73,107 )   26.1 %
 
Total segment profit   $ 262,036     $ 251,066     4.4 %   $ 829,191     $ 774,982     7.0 %
 

Lifestyle media revenues in the third quarter of 2013 increased 7.8 percent to $595 million driven by advertising and affiliate fee revenue growth. On-air television advertising revenue increased 9.2 percent, partially offset by a decrease in digital advertising. Total advertising revenue for the lifestyle media segment grew 7.5 percent to $403 million. The decrease in digital advertising was due in part to a planned organizational restructuring to better align digital sales with technology platforms and lifestyle categories. Affiliate fee revenue grew 8.9 percent to $183 million due to higher rates, a reduction of launch fee amortization and the benefit of online video distribution arrangements.

Lifestyle media segment profit increased 6.7 percent to $291 million reflecting the revenue growth, partially offset by higher program amortization expense.

Corporate and other revenues, which are primarily international operations, increased 63 percent to $23.2 million. This increase was largely due to the April 12, 2013, acquisition of Asian Food Channel, the growth in the existing international operations, and the launch of uLive.com.

Corporate and other segment loss increased 33 percent to $29.3 million. This increase was driven primarily by continued investments in international operations and digital business initiatives.

Share repurchase program

For the quarter ended Sept. 30, the company repurchased 46,000 shares under its stock repurchase program, for an aggregate purchase price of $3.1 million. As of Sept. 30, the company had $647 million remaining in its $1 billion stock repurchase authorization.

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 877-209-9920 (U.S.) or 612-332-1210 (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. 7 until 11:59 p.m. ET Nov. 21. 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 305254. 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 2012 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 (NYSE: SNI) is one of the leading developers of engaging lifestyle content in the home, food and travel categories for television, the Internet and emerging platforms. The company's lifestyle media portfolio comprises popular television and Internet brands HGTV, DIY Network, Food Network, Cooking Channel, Travel Channel and Great American Country, which collectively reach more than 170 million consumers each month. Companion websites complement on-air programming with video and social media that inform and inspire. Scripps’ global networks reach millions of consumers across Asia, Europe, the Middle East and Africa. Scripps Networks Interactive is headquartered in Knoxville, Tenn. For more information, please visit http://www.scrippsnetworksinteractive.com.
SCRIPPS NETWORKS INTERACTIVE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)   Three months ended   Nine months ended  
September 30,   September 30,
(in thousands, except per share data)   2013   2012   Change   2013   2012   Change
   
Operating revenues $ 616,901 $ 566,186 9.0 % $ 1,876,414 $ 1,702,517 10.2 %

Cost of services, excluding depreciation and amortization of intangible assets
(178,221 ) (156,297 ) 14.0 % (510,649 ) (444,981 ) 14.8 %
Selling, general and administrative (176,644 ) (158,823 ) 11.2 % (536,574 ) (482,554 ) 11.2 %

Depreciation and amortization of intangible assets
(29,514 ) (28,978 ) 1.8 % (85,768 ) (79,432 ) 8.0 %
Gains (losses) on disposal of property and equipment     (95 )     (16 )         (1,570 )     (102 )    
 
Operating income 232,427 222,072 4.7 % 741,853 695,448 6.7 %
Interest expense (12,337 ) (12,518 ) (1.4 )% (36,679 ) (37,945 ) (3.3 )%
Equity in earnings of affiliates 15,180 11,240 35.1 % 61,172 46,267 32.2 %
Miscellaneous, net     (626 )     1,667           (344 )     12,689      
 
Income from operations before income taxes 234,644 222,461 5.5 % 766,002 716,459 6.9 %
Provision for income taxes     (64,174 )     (65,653 )   (2.3 )%     (234,002 )     (211,277 )   10.8 %
 
Net income 170,470 156,808 8.7 % 532,000 505,182 5.3 %

Net income attributable to noncontrolling interests
    (41,467 )     (38,398 )   8.0 %     (135,449 )     (129,505 )   4.6 %
 
Net income attributable to SNI   $ 129,003     $ 118,410     8.9 %   $ 396,551     $ 375,677     5.6 %
 

Net income attributable to SNI common shareholders per basic share of common stock
  $ 0.88     $ 0.79         $ 2.69     $ 2.46      
 

Net income attributable to SNI common shareholders per diluted share of common stock
  $ 0.87     $ 0.78         $ 2.67     $ 2.44      
 
Weighted average basic shares outstanding     146,578       149,985           147,499       152,731      
 
Weighted average diluted shares outstanding     147,802       151,201           148,646       153,905      
 
 
SCRIPPS NETWORKS INTERACTIVE, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)   As of
September 30, December 31,

 
2013 2012
(in thousands, except share and par value amounts)          
 
ASSETS
Current assets:
Cash and cash equivalents $ 556,574 $ 437,525
Accounts receivable (less allowances: 2013- $6,557; 2012- $5,514) 575,041 565,298
Programs and program licenses 424,207 395,017
Deferred income taxes 28,311 26,338
Other current assets     66,869     60,098  
Total current assets 1,651,002 1,484,276
Investments 486,571 489,703
Property and equipment, net 238,403 237,308
Goodwill 597,306 551,821
Other intangible assets, net 662,316 678,500
Programs and program licenses (less current portion) 415,674 371,856
Deferred income taxes 79,117 148,501
Other non-current assets     155,271     176,833  
Total Assets   $ 4,285,660   $ 4,138,798  
 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 14,993 $ 12,633
Program rights payable 37,676 36,274
Customer deposits and unearned revenue 68,275 44,903
Employee compensation and benefits 58,840 56,553
Accrued marketing and advertising costs 8,288 10,689
Other accrued liabilities     75,835     91,577  
Total current liabilities 263,907 252,629
Long-term debt 1,384,420 1,384,216
Other liabilities (less current portion)     238,628     237,402  
Total liabilities     1,886,955     1,874,247  
Redeemable noncontrolling interest     140,705     136,500  
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: 2013 - 111,731,919 shares; 2012 - 114,570,332 shares
1,118 1,146

Voting - authorized: 60,000,000 shares; issued and outstanding: 2013 - 34,317,171 shares; 2012 - 34,317,173 shares
343 343
Total 1,461 1,489
Additional paid-in capital 1,434,791 1,405,699
Retained earnings 568,155 452,598
Accumulated other comprehensive income (loss)     (37,999 )   (38,862 )
Total SNI shareholders' equity 1,966,408 1,820,924
Noncontrolling interest     291,592     307,127  
Total equity     2,258,000     2,128,051  
Total Liabilities and Equity   $ 4,285,660   $ 4,138,798  
 
SCRIPPS NETWORKS INTERACTIVE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)   Nine months ended
September 30,
2013 2012
(in thousands)          
 
Cash Flows from Operating Activities:
Net income $ 532,000 $ 505,182
Depreciation and amortization of intangible assets 85,768 79,432
Amortization of network distribution costs 5,299 18,397
Program amortization 404,636 355,850
Equity in earnings of affiliates (61,172 ) (46,267 )
Program payments (470,454 ) (478,931 )
Dividends received from equity investments 60,035 45,096
Deferred income taxes 61,869 (53,164 )
Stock and deferred compensation plans 38,624 30,838
Changes in certain working capital accounts:
Accounts receivable (8,265 ) 30,837
Other assets (2,218 ) (10,619 )
Accounts payable 1,756 (5,381 )
Accrued employee compensation and benefits 2,019 417
Accrued / refundable income taxes (5,320 ) (11,660 )
Other liabilities 26,065 (19,727 )
Other, net     12,721     (6,703 )
Cash provided by (used in) operating activities     683,363     433,597  
 
Cash Flows from Investing Activities:
Additions to property and equipment (47,394 ) (34,058 )
Collections (funds advanced) on note receivable 11,689 13,613
Purchase of subsidiary companies, net of cash acquired (64,412 ) (119,036 )
Other, net     (32,123 )   (15,777 )
Cash provided by (used in) continuing investing activities     (132,240 )   (155,258 )
Cash provided by (used in) discontinued investing activities         10,000  
Cash provided by (used in) investing activities     (132,240 )   (145,258 )
 
Cash Flows from Financing Activities:
Dividends paid (66,367 ) (55,032 )
Dividends paid to noncontrolling interests (146,647 ) (148,181 )
Repurchase of Class A common stock (253,203 ) (500,251 )
Proceeds from stock options 36,500 89,019
Other, net     (2,539 )   5,190  
Cash provided by (used in) financing activities     (432,256 )   (609,255 )
Effect of exchange rate changes on cash and cash equivalents     182     62  
Increase (decrease) in cash and cash equivalents 119,049 (320,854 )
Cash and cash equivalents:
Beginning of year     437,525     760,092  
End of period   $ 556,574   $ 439,238  
 
Supplemental Cash Flow Disclosures:
Interest paid, excluding amounts capitalized $ 38,660 $ 39,599
Income taxes paid     155,232     254,746  
 

NON-GAAP FINANCIAL MEASURES

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”).

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.

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,
    2013   2012   2013   2012
   
Operating income $ 232,427 $ 222,072 $ 741,853 $ 695,448
Depreciation and amortization of intangible assets:
Lifestyle Media 25,178 26,602 73,959 73,919
Corporate and other 4,336 2,376 11,809 5,513
 
Losses (gains) on disposal of property and equipment:
Lifestyle Media 95 17 1,500 103
Corporate and other           (1 )     70     (1 )
 
Total segment profit   $ 262,036   $ 251,066     $ 829,191   $ 774,982  
 

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,
    2013   2012   2013   2012
   
 
Segment profit $ 262,036 $ 251,066 $ 829,191 $ 774,982
Income taxes paid (57,605 ) (100,154 ) (155,232 ) (254,746 )
Interest paid (16,035 ) (15,154 ) (38,660 ) (39,599 )
Working capital and other     66,909       51,544       48,064       (47,040 )
 
Cash provided by operating activities 255,305 187,302 683,363 433,597
Dividends paid to noncontrolling interests (19,423 ) (15,341 ) (146,647 ) (148,181 )
Additions to property and equipment     (11,322 )     (14,968 )     (47,394 )     (34,058 )
 
Free cash flow   $ 224,560     $ 156,993     $ 489,322     $ 251,358  
 

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.

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 our content to third parties, the licensing of our 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 thousands)   Three months ended   Nine months ended  
September 30, September 30,
    2013   2012   Change   2013   2012   Change
   
Operating revenues by brand:
 
Food Network $ 202,359 $ 198,872 1.8 % $ 635,150 $ 616,162 3.1 %
HGTV 219,082 195,363 12.1 % 656,843 586,073 12.1 %
Travel Channel 77,325 68,893 12.2 % 237,851 209,254 13.7 %
DIY Network 33,967 29,852 13.8 % 104,526 91,221 14.6 %
Cooking Channel 26,684 21,643 23.3 % 81,592 63,863 27.8 %
Great American Country 6,563 6,945 (5.5 )% 19,982 16,927 18.0 %
Digital Businesses 25,933 27,726 (6.5 )% 77,161 78,446 (1.6 )%
Other 3,044 2,623 16.1 % 11,144 9,767 14.1 %
Intrasegment eliminations     (16 )               (1,146 )     (197 )    
 
Total segment operating revenues   $ 594,941     $ 551,917   7.8 %   $ 1,823,103     $ 1,671,516     9.1 %
 
Operating revenues by type:
 
Advertising $ 402,708 $ 374,583 7.5 % $ 1,250,125 $ 1,145,017 9.2 %
Network affiliate fees, net 183,334 168,353 8.9 % 545,773 500,816 9.0 %
Other     8,899       8,981   (0.9 )%     27,205       25,683     5.9 %
 

Revenues for digital businesses in 2012 include business operations that are now captured within our corporate and other segment caption in 2013. The revenues from these business operations, previously captured in our lifestyle media segment, totaled $0.9 million in the third quarter of 2012 and $2.9 million for the year-to-date period of 2012.

Copyright Business Wire 2010

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