Scripps Networks Interactive, Inc. : Scripps Networks Interactive reports first quarter financial results
05/03/2012| 07:05am US/Eastern
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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
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.comand 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
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.
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