Financial Release

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Scripps Networks Interactive Reports Second Quarter Financial Results
  • Revenues of $665 million, up 11 percent
  • Segment profit of $320 million, up 12 percent
  • Net income attributable to SNI of $1.08 per share, up 16 percent

KNOXVILLE, Tenn.--(BUSINESS WIRE)--Aug. 8, 2013-- Scripps Networks Interactive, Inc. (NYSE: SNI) today reported operating results for the second quarter 2013.

“The growth story at Scripps Networks Interactive continued during the second quarter, driven by the tremendous popularity of our lifestyle television networks with media consumers, advertisers and content distributors,” said Kenneth W. Lowe, chairman, president and chief executive officer. “We’ve succeeded in creating a valuable portfolio of networks — as well as industry-leading websites and apps — that attract a highly engaged audience of food, home and travel enthusiasts. Those distinctly unique attributes drive our company’s consistently solid operating results.”

Consolidated revenues for the quarter increased 11 percent to $665 million from the prior-year period. Results for the three-month period ended June 30 reflect strong advertising revenue of $462 million, up 11 percent, and affiliate fee revenue of $189 million, up 11 percent year over year.

Expenses for the quarter increased 9.2 percent from the prior-year period to $345 million. The increase was driven by program amortization expenses as the company invests to drive viewership at all of its lifestyle television networks. Also contributing to the increase were increased investments in international growth initiatives.

Total segment profit increased 12 percent to $320 million. (See reconciliation of non-GAAP financial measures for a definition of segment profit.)

Second quarter net income attributable to Scripps Networks Interactive was $160 million, or $1.08 per diluted share, compared with $142 million, or $0.93 per diluted share, in the second quarter 2012.

                 

Segment results

                         
(in thousands)

Three months ended

Six months ended

June 30, June 30,
        2013     2012           2013     2012     Change
       
Segment operating revenues:
Lifestyle Media $ 647,117 $ 591,016 9.5 % $ 1,228,162 $ 1,119,599 9.7 %

Corporate and other / intersegment eliminations

        18,011         9,970       80.7 %       31,351         16,732       87.4 %
 
Total operating revenues       $ 665,128       $ 600,986       10.7 %     $ 1,259,513       $ 1,136,331       10.8 %
 
Segment profit (loss):
Lifestyle Media $ 347,895 $ 310,419 12.1 % $ 630,030 $ 575,056 9.6 %
Corporate and other         (28,214 )       (25,738 )     9.6 %       (62,875 )       (51,140 )     22.9 %
 
Total segment profit       $ 319,681       $ 284,681       12.3 %     $ 567,155       $ 523,916       8.3 %
 

Lifestyle media revenues in the second quarter of 2013 increased 9.5 percent to $647 million driven by advertising and affiliate fee revenue growth. Advertising revenue increased 10 percent to $456 million primarily as a result of the strong advertising market. Affiliate fee revenue grew 9.5 percent to $182 million due to higher rates, a reduction of launch fee amortization and the benefit of digital distribution arrangements.

Lifestyle media segment profit increased 12 percent to $348 million reflecting 9.5 percent revenue growth, partially offset by higher program amortization expense.

Corporate and other revenues, which are primarily international operations, increased 81 percent to $18.0 million. This increase was largely due to the April 30, 2012, acquisition of Travel Channel International and the April 12, 2013, acquisition of Asian Food Channel.

Corporate and other segment loss increased 9.6 percent to $28.2 million. This increase was driven primarily by continued investments in international operations and digital business initiatives.

2013 Full-year Guidance

The company also updated 2013 full-year guidance for the following items:

  • Total revenue is now expected to increase 9 percent to 10 percent due to ongoing strength in the advertising market. The previous range was 7 percent to 9 percent.
  • Selling, general and administrative expenses are now expected to increase 9 percent to 11 percent due to acquisition of the Asian Food Channel and other international investments. The previous range was 7 percent to 9 percent.

The company reiterated all other guidance:

  • Cost of services are expected to increase 12 percent to 14 percent.
  • Depreciation and amortization, $115 million to $125 million.
  • Interest expense, $50 million to $55 million.
  • Effective tax rate, 28 percent to 30 percent.
  • Noncontrolling share of net income, $175 million to $185 million.
  • Capital expenditures, $65 million to $70 million.

Share repurchase program

For the quarter ended June 30, the company repurchased 1.5 million shares under its stock repurchase program, for an aggregate purchase price of $100 million. As of June 30, the company had $650 million remaining in the $1 billion stock repurchase program.

Conference call

The senior management team of Scripps Networks Interactive will discuss the company’s second 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 800-288-9626 (U.S.) or 612-332-0634 (international) approximately ten minutes before the start of the call. Callers will need the name of the call, “SNI Second 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 Aug. 8 until 11:59 p.m. ET Aug. 22. 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 297234. 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 is one of the world’s leading developers of lifestyle-oriented content for television and the Internet, generating more than 2,000 hours a year of original on-air programming. The company’s television programming can be seen in 170 countries across all seven continents. Its media portfolio includes popular lifestyle and Internet brands HGTV, Food Network, Travel Channel, DIY Network, Cooking Channel and Great American Country.

     
SCRIPPS NETWORKS INTERACTIVE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS        
(unaudited) Three months ended         Six months ended    
June 30, June 30,
(in thousands, except per share data)       2013     2012     Change     2013     2012     Change
       
Operating revenues $ 665,128 $ 600,986 10.7 % $ 1,259,513 $ 1,136,331 10.8 %

Cost of services, excluding depreciation and amortization of intangible assets

(168,677 ) (150,903 ) 11.8 % (332,428 ) (288,684 ) 15.2 %
Selling, general and administrative (176,770 ) (165,402 ) 6.9 % (359,930 ) (323,731 ) 11.2 %

Depreciation and amortization of intangible assets

(29,554 ) (25,938 ) 13.9 % (56,254 ) (50,454 ) 11.5 %
Gains (losses) on disposal of property and equipment         (499 )       (27 )             (1,475 )       (86 )      
 
Operating income 289,628 258,716 11.9 % 509,426 473,376 7.6 %
Interest expense (12,197 ) (13,247 ) (7.9 )% (24,342 ) (25,427 ) (4.3 )%
Equity in earnings of affiliates 25,410 21,114 20.3 % 45,992 35,027 31.3 %
Miscellaneous, net         3,643         3,868       (5.8 )%       282         11,022        
 
Income from operations before income taxes 306,484 270,451 13.3 % 531,358 493,998 7.6 %
Provision for income taxes         (96,141 )       (79,028 )     21.7 %       (169,828 )       (145,624 )     16.6 %
 
Net income 210,343 191,423 9.9 % 361,530 348,374 3.8 %
Net income attributable to noncontrolling interests         (50,614 )       (49,059 )     3.2 %       (93,982 )       (91,107 )     3.2 %
Net income attributable to SNI       $ 159,729       $ 142,364       12.2 %     $ 267,548       $ 257,267       4.0 %
 

Net income attributable to SNI common shareholders per basic share of common stock

      $ 1.09       $ 0.94             $ 1.81       $ 1.67        
 

Net income attributable to SNI common shareholders per diluted share of common stock

      $ 1.08       $ 0.93             $ 1.79       $ 1.66        
 
Weighted average basic shares outstanding         147,132         152,086               147,967         154,102        
 
Weighted average diluted shares outstanding         148,259         153,438               149,069         155,247        
 
         
SCRIPPS NETWORKS INTERACTIVE, INC.
CONSOLIDATED BALANCE SHEETS              
(unaudited)

As of

June 30, December 31,
2013 2012
(in thousands, except share and par value amounts)              
 
ASSETS
Current assets:
Cash and cash equivalents $ 347,461 $ 437,525
Accounts receivable (less allowances: 2013- $5,388; 2012- $5,514) 614,753 565,298
Programs and program licenses 405,554 395,017
Deferred income taxes 26,086 26,338
Other current assets         86,378         60,098  
Total current assets 1,480,232 1,484,276
Investments 470,303 489,703
Property and equipment, net 242,622 237,308
Goodwill 594,915 551,821
Other intangible assets, net 673,483 678,500
Programs and program licenses (less current portion) 397,951 371,856
Deferred income taxes 65,167 148,501
Other non-current assets         151,819         176,833  
Total Assets       $ 4,076,492       $ 4,138,798  
 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 17,167 $ 12,633
Program rights payable 31,814 36,274
Customer deposits and unearned revenue 49,822 44,903
Employee compensation and benefits 39,724 56,553
Accrued marketing and advertising costs 7,363 10,689
Other accrued liabilities         66,891         91,577  
Total current liabilities 212,781 252,629
Long-term debt 1,384,352 1,384,216
Other liabilities (less current portion)         244,631         237,402  
Total liabilities         1,841,764         1,874,247  
Redeemable noncontrolling interest         141,253         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 - 111,586,274 shares; 2012 - 114,570,332 shares

1,116 1,146

Voting - authorized: 60,000,000 shares; issued and outstanding: 2013 - 34,317,171 shares; 2012 - 34,317,173 shares

        343         343  
Total 1,459 1,489
Additional paid-in capital 1,421,529 1,405,699
Retained earnings 463,801 452,598
Accumulated other comprehensive income (loss)         (62,272 )       (38,862 )
Total SNI shareholders' equity 1,824,517 1,820,924
Noncontrolling interest         268,958         307,127  
Total equity         2,093,475         2,128,051  
Total Liabilities and Equity       $ 4,076,492       $ 4,138,798  
 
         
SCRIPPS NETWORKS INTERACTIVE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS              
(unaudited) Six months ended
June 30,
2013 2012
(in thousands)              
 
Cash Flows from Operating Activities:
Net income $ 361,530 $ 348,374
Depreciation and amortization of intangible assets 56,254 50,454
Amortization of network distribution costs 3,536 13,108
Program amortization 260,846 231,027
Equity in earnings of affiliates (45,992 ) (35,027 )
Program payments (296,864 ) (312,684 )
Dividends received from equity investments 39,603 23,119
Deferred income taxes 78,790 (45,099 )
Stock and deferred compensation plans 30,439 23,597
Changes in certain working capital accounts:
Accounts receivable (48,568 ) (32,081 )
Other assets (6,109 ) (5,761 )
Accounts payable 3,381 (4,116 )
Accrued employee compensation and benefits (16,872 ) (13,420 )
Accrued / refundable income taxes (21,968 ) 18,045
Other liabilities 8,082 (8,298 )
Other, net         21,970         (4,943 )
Cash provided by (used in) operating activities         428,058         246,295  
 
Cash Flows from Investing Activities:
Additions to property and equipment (36,072 ) (19,090 )
Collections (funds advanced) on note receivable 9,228 6,030
Purchase of subsidiary companies, net of cash acquired (63,912 ) (119,036 )
Other, net         (31,278 )       (15,675 )
Cash provided by (used in) investing activities         (122,034 )       (147,771 )
Cash provided by (used in) discontinued investing activities               10,000  
Cash provided by (used in) investing activities         (122,034 )       (137,771 )
 
Cash Flows from Financing Activities:
Dividends paid (44,379 ) (37,003 )
Dividends paid to noncontrolling interests (127,224 ) (132,840 )
Repurchase of Class A common stock (250,078 ) (500,251 )
Proceeds from stock options 29,707 62,145
Other, net         (3,182 )       1,044  
Cash provided by (used in) financing activities         (395,156 )       (606,905 )
Effect of exchange rate changes on cash and cash equivalents         (932 )       62  
Increase (decrease) in cash and cash equivalents (90,064 ) (498,319 )
 
Cash and cash equivalents:
Beginning of year         437,525         760,092  
 
End of period       $ 347,461       $ 261,773  
 
Supplemental Cash Flow Disclosures:
Interest paid, excluding amounts capitalized $ 22,625 $ 24,445
Income taxes paid         97,627         154,592  
 

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 generally accepted accounting principles 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

    Six months ended
June 30, June 30,
        2013     2012     2013     2012
       
Operating income $ 289,628 $ 258,716 $ 509,426 $ 473,376
Depreciation and amortization of intangible assets:
Lifestyle Media 25,465 24,188 48,781 47,317
Corporate and other 4,089 1,750 7,473 3,137
Losses (gains) on disposal of property and equipment -
Lifestyle Media 429 27 1,405 86
Corporate and other         70             70      
 
Total segment profit       $ 319,681     $ 284,681     $ 567,155     $ 523,916
 

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     Six months ended
June 30, June 30,
        2013     2012     2013     2012
       
 
Segment profit 319,681 284,681 $ 567,155 $ 523,916
Income taxes paid (130,134 ) (153,281 ) (97,627 ) (154,592 )
Interest paid (6,871 ) (8,537 ) (22,625 ) (24,445 )
Working capital and other       (22,687 )     (84,737 )       (18,845 )       (98,584 )
 
Cash provided by operating activities 159,989 38,126 428,058 246,295
Dividends paid to noncontrolling interests (37,359 ) (85,032 ) (127,224 ) (132,840 )
Additions to property and equipment       (18,567 )     (11,776 )       (36,072 )       (19,090 )
 
Free cash flow       104,063       (58,682 )     $ 264,762       $ 94,365  
 

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 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     Six months ended
June 30,     June 30,    
        2013     2012     Change     2013     2012     Change
       
Operating revenues by brand:
 
Food Network $ 224,516 $ 218,467 2.8 % $ 432,791 $ 417,290 3.7 %
HGTV 231,739 204,975 13.1 % 437,761 390,710 12.0 %
Travel Channel 83,879 73,771 13.7 % 160,526 140,361 14.4 %
DIY Network 38,673 33,745 14.6 % 70,559 61,369 15.0 %
Cooking Channel 28,612 22,408 27.7 % 54,908 42,220 30.1 %
GAC 7,016 4,988 40.7 % 13,419 9,982 34.4 %
Digital Businesses 28,633 28,325 1.1 % 51,228 50,720 1.0 %
Other 4,204 4,497 (6.5 )% 8,100 7,144 13.4 %
Intrasegment eliminations         (155 )       (160 )             (1,130 )       (197 )      
 
Total segment operating revenues       $ 647,117       $ 591,016       9.5 %     $ 1,228,162       $ 1,119,599       9.7 %
 
Operating revenues by type:
 
Advertising $ 456,206 $ 415,093 9.9 % $ 847,417 $ 770,434 10.0 %
Network affiliate fees, net 181,913 166,062 9.5 % 362,439 332,463 9.0 %
Other         8,998         9,861       (8.8 )%       18,306         16,702       9.6 %
 

Source: Scripps Networks Interactive, Inc.

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

Stock Quote

SNI (Class A Common Shares)
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