Financial Release

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Scripps Networks Interactive reports first quarter financial results
  • Revenues of $535 million, up 11 percent
  • Segment profit of $239 million, up 5.3 percent
  • Net income attributable to SNI per fully diluted share of $0.73, up 24 percent

KNOXVILLE, Tenn.--(BUSINESS WIRE)--May. 3, 2012-- Scripps Networks Interactive Inc. (NYSE: SNI) today reported operating results for the first quarter 2012.

Consolidated revenues for the quarter increased to $535 million, up 11 percent from the prior-year period. Results for the three-month period ended March 31 reflect advertising revenue of $356 million, up 10 percent, and affiliate fee revenue of $168 million, up 16 percent year-over-year.

Consolidated expenses for the quarter increased 17 percent from the prior-year period to $296 million. The increase was driven primarily by higher programming expenses, and international and start-up costs for a number of planned growth initiatives.

Total segment profit increased 5.3 percent to $239 million. (See note 2 for a definition of segment profit).

Equity earnings in affiliates, which now includes the company’s share of earnings from the UKTV partnership, grew 44 percent to $13.9 million.

First quarter net income attributable to Scripps Networks Interactive was $115 million, or $0.73 per diluted share, compared with $101 million, or $0.59 per diluted share, in the first quarter 2011.

During the first quarter 2012, the company repurchased 5.5 million shares of its common stock for $250 million and has $250 million remaining under the current repurchase authorization. Under the current program, the company has repurchased 16.8 million shares of common stock for $750 million at an average price of $44.76.

“The tremendous popularity of our lifestyle television networks, and the strong relationships we’ve forged with media consumers, advertisers and content distributors, drove our excellent first-quarter operating results,” said Kenneth W. Lowe, chairman, president and chief executive officer for Scripps Networks Interactive. “The competitive advantage we’ve established for ourselves in the home, food and travel content categories underpins the company’s continued growth and the value we’re creating for our shareholders.”

Revenues by network are as follows:

  • Food Network was $199 million, up 14 percent.
  • HGTV was $186 million, up 8.4 percent.
  • Travel Channel was $66.6 million, up 7.4 percent.
  • DIY Network was $27.6 million, up 18 percent.
  • Cooking Channel was $19.8 million, up 30 percent.
  • Great American Country (GAC) was $5.0 million, down 23 percent.

Revenue from the company’s digital businesses, which includes its network-branded websites, was $22.4 million, up 16 percent.

Conference call

The senior management team of Scripps Networks Interactive will discuss the company’s first 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 Investor Relations link at the top of the page. The webcast link can be found next to the microphone icon.

To access the conference call by telephone, dial 800-288-8968 (U.S.) or 612-332-0335 (international) approximately ten minutes before the start of the call. Callers will need the name of the call, “SNI First 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 May 3 until 11:59 p.m. ET May 17. 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 245397. 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 Investor Relations and follow the Audio Archives link on the left side of the 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 HGTV, Food Network, Travel Channel, DIY Network, Cooking Channel and country music network Great American Country.

SCRIPPS NETWORKS INTERACTIVE, INC.            
CONSOLIDATED STATEMENTS OF OPERATIONS                        
(unaudited) Three months ended
March 31,
(in thousands, except per share data)               2012     2011   Change
 
Operating revenues $ 535,345 $ 480,831 11.3 %
Costs and expenses (296,110 ) (253,581 ) 16.8 %
Depreciation and amortization
of intangible assets (24,516 ) (21,561 ) 13.7 %
Gains (losses) on disposal of property and equipment               (59 )     (16 )    
 
Operating income 214,660 205,673 4.4 %
Interest expense (12,180 ) (8,615 ) 41.4 %
Equity in earnings of affiliates 13,913 9,658 44.1 %
Miscellaneous, net               7,154       47      
 
Income from continuing operations before income taxes 223,547 206,763 8.1 %
Provision for income taxes               (66,596 )     (62,211 )   7.0 %
 
 
Income from continuing operations, net of tax 156,951 144,552 8.6 %
Income (loss) from discontinued
operations, net of tax                     765      
 
Net income 156,951 145,317 8.0 %
Net income attributable to noncontrolling interests               (42,048 )     (44,792 )   (6.1 )%
Net income attributable to SNI             $ 114,903     $ 100,525     14.3 %
 
Income from continuing operations attributable to SNI common
shareholders per basic share of common stock             $ 0.74     $ 0.59      
 
Income from continuing operations attributable to SNI common
shareholders per diluted share of common stock             $ 0.73     $ 0.59      
 
Weighted average basic shares outstanding               156,118       168,426      
 
Weighted average diluted shares outstanding               157,068       169,694      
 
Net income per share amounts may not foot since each is calculated independently.
 
See notes to results of operations.
SCRIPPS NETWORKS INTERACTIVE, INC.
CONSOLIDATED BALANCE SHEETS
    As of
March 31,   December 31,
2012 2011
(in thousands, except per share data)       (unaudited)  
 
ASSETS
Current assets:
Cash and cash equivalents $ 645,530 $ 760,092
Accounts and notes receivable (less allowances: 2012- $4,638; 2011- $5,000) 512,799 553,022
Programs and program licenses 355,224 336,305
Other current assets       44,384     66,549
Total current assets 1,557,937 1,715,968
Investments 473,600 455,267
Property and equipment, net 224,440 219,845
Goodwill 532,035 510,484
Other intangible assets, net 545,364 556,095
Programs and program licenses (less current portion) 320,522 299,089
Unamortized network distribution incentives 39,686 46,239
Other non-current assets       155,298     158,683
Total Assets   $   3,848,882   $ 3,961,670
 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 9,904 $ 12,482
Program rights payable 35,918 50,402
Customer deposits and unearned revenue 45,222 52,814
Employee compensation and benefits 30,206 49,920
Accrued marketing and advertising costs 6,549 6,838
Other accrued liabilities       87,755     60,443
Total current liabilities 215,554 232,899
Deferred income taxes 114,628 100,002
Long-term debt 1,384,013 1,383,945
Other liabilities (less current portion)       166,485     148,429
Total liabilities       1,880,680     1,865,275
Redeemable noncontrolling interests       166,265     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 - 117,919,313 shares; 2011 - 122,828,359 shares

1,179 1,228

 

Voting - authorized: 60,000,000 shares; issued and outstanding: 2012 - 34,317,173 shares; 2011 - 34,317,173 shares

      343     343
Total 1,522 1,571
Additional paid-in capital 1,324,903 1,346,429
Retained earnings 257,528 364,073
Accumulated other comprehensive income (loss)       (27,721)     (33,347)
Total SNI shareholders' equity 1,556,232 1,678,726
Noncontrolling interest       245,705     254,919
Total equity       1,801,937     1,933,645
Total Liabilities and Equity   $   3,848,882   $ 3,961,670
SCRIPPS NETWORKS INTERACTIVE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)     Three months ended
March 31,
(in thousands)       2012     2011
 
Cash Flows from Operating Activities:
Net income $ 156,951 $ 145,317
Loss (income) from discontinued operations             (765)
 
Income from continuing operations, net of tax 156,951 144,552
Depreciation and amortization of intangible assets 24,516 21,561
Amortization of network distribution costs 6,554 10,193
Program amortization 111,328 90,301
Equity in earnings of affiliates (13,913) (9,658)
Program payments (165,993) (115,384)
Capitalized network distribution incentives (93) (3,237)
Dividends received from equity investments 9,017 5,845
Deferred income taxes 10,458 (3,944)
Stock and deferred compensation plans 14,042 8,741
Changes in certain working capital accounts:
Accounts receivable 42,475 37,807
Other assets 1,037 (2,626)
Accounts payable (2,658) 361
Accrued employee compensation and benefits (19,027) (22,196)
Accrued income taxes 46,290 57,792
Other liabilities (13,626) (13,724)
Other, net       811     6,166
Cash provided by (used in) continuing operating activities 208,169 212,550
Cash provided by (used in) discontinued operating activities             13,313
Cash provided by (used in) operating activities       208,169     225,863
 
Cash Flows from Investing Activities:
Additions to property and equipment (7,314) (11,189)
Collections (funds advanced) on note receivable 7,012
Purchase of subsidiary company, net of cash acquired (19,569)
Other, net       619     20
Cash provided by (used in) continuing investing activities (19,252) (11,169)
Cash provided by (used in) discontinued investing activities             (4,241)
Cash provided by (used in) investing activities       (19,252)     (15,410)
 
Cash Flows from Financing Activities:
Dividends paid (18,741) (12,633)
Dividends paid to noncontrolling interest (47,808) (15,227)
Noncontrolling interest capital contribution 52,804
Repurchase of Class A common stock (250,110)
Proceeds from stock options 13,014 10,745
Other, net       566     (2,083)
Cash provided by (used in) financing activities       (303,079)     33,606
Effect of exchange rate changes on cash and cash equivalents       (400)     (292)
Increase (decrease) in cash and cash equivalents (114,562) 243,767
 
Cash and cash equivalents:
Beginning of year       760,092     549,897
 
End of period     $ 645,530   $ 793,664
 
Supplemental Cash Flow Disclosures:
Interest paid, excluding amounts capitalized $ 15,908 $ 15,965
Income taxes paid       1,311     1,293

Notes to Results of Operations

1. OTHER CHARGES AND CREDITS

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 $8.0 million in the first quarter of 2011. Net income attributable to SNI in 2011 was decreased $4.7 million, $.03 per 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, HGTV, Food Network, 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 caption. Corporate 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
March 31,    
                2012     2011     Change
 
Segment operating revenues:
Lifestyle Media $ 528,583 $ 473,553 11.6 %
Corporate/intersegment eliminations               6,762       7,278       (7.1 )%
Total operating revenues             $ 535,345     $ 480,831       11.3 %
 
Segment profit (loss):
Lifestyle Media $ 264,637 $ 244,605 8.2 %
Corporate               (25,402 )     (17,355 )     46.4 %
 
Total segment profit 239,235 227,250 5.3 %

 

Depreciation and amortization of intangible assets

(24,516 ) (21,561 ) 13.7 %

Gains (losses) on disposal of property and equipment

(59 ) (16 )
Interest expense (12,180 ) (8,615 ) 41.4 %
Equity in earnings of affiliates 13,913 9,658 44.1 %
Miscellaneous, net               7,154       47        
 

 

Income from continuing operations before income taxes

            $ 223,547     $ 206,763       8.1 %

Operating results from our international operations and the costs associated with other interactive and digital business initiatives increased the segment loss at corporate by $4.4 million in the first quarter of 2012 compared with $1.9 million in the first quarter 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 thousands)             Three months ended  
March 31,
                2012     2011   Change
 
Operating revenues by brand:
 
Food Network $ 198,823 $ 174,045 14.2 %
HGTV 185,735 171,364 8.4 %
Travel Channel 66,590 61,999 7.4 %
DIY 27,624 23,345 18.3 %
Cooking Channel 19,812 15,267 29.8 %
GAC 4,994 6,464 (22.7)%
Digital Businesses 22,395 19,381 15.6 %
Other 2,647 2,223 19.1 %
Intrasegment eliminations               (37)     (535)    
 
Operating revenues by type:
 
Advertising $ 355,341 $ 321,759 10.4 %
Network affiliate fees, net 166,401 144,088 15.5 %
Other               6,841     7,706   (11.2)%
 
Subscribers (1):
 
Food Network 99,700 100,400 (0.7)%
HGTV 98,900 99,800 (0.9)%
Travel Channel 94,800 96,000 (1.3)%
DIY 56,800 54,000 5.2 %
Cooking Channel 58,400 57,500 1.6 %
GAC               62,100     59,800   3.8 %

(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
March 31,
      2012     2011
 
Operating income $ 214,660 $ 205,673
Depreciation and amortization
of intangible assets:
Lifestyle Media 23,129 21,049
Corporate 1,387 512
Losses (gains) on disposal of property and equipment:
Lifestyle Media     59     16
 
Total segment profit   $ 239,235   $ 227,250

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
March 31,
                2012     2011
 
 
Segment profit $ 239,235 $ 227,250
Income taxes paid (1,311) (1,293)
Interest paid (15,908) (15,965)
Working capital and other               (13,847)     2,558
 
Cash provided by continuing operating activities 208,169 212,550
Dividends paid to noncontrolling interest (47,808) (15,227)
Additions to property and equipment             (7,314)     (11,189)
 
Free cash flow             $ 153,047   $ 186,134

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.

Source: Scripps Networks Interactive Inc.

Scripps Networks Interactive Inc.
Mark Kroeger, 865-560-5007
mark.kroeger@scrippsnetworks.com
or
Mike Gallentine, 865-560-4473
m.gallentine@scrippsnetworks.com

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SNI (Class A Common Shares)
ExchangeNYSE (US Dollar)
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