Scripps Networks Interactive Reports Third Quarter Financial Results

• Press Release
• Source: Scripps Networks Interactive Inc.
• On 7:30 am EST, Friday November 6, 2009

CINCINNATI--(BUSINESS WIRE)--Scripps Networks Interactive Inc. (NYSE: SNI - News) today reported operating results for the third quarter 2009.

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Results for the three-month period ended Sept. 30 reflect strong affiliate fee revenue growth and improved advertising sales at the company’s flagship cable television networks, Food Network and HGTV.

Consolidated revenue for the quarter was flat relative to the prior year period at $364 million. Total revenue from the company’s portfolio of Lifestyle Media television networks, Web sites and other related businesses was up 4.3 percent for the period compared with last year.

Consolidated expenses for the quarter decreased 4.5 percent year over year.

Third quarter net income attributable to Scripps Networks Interactive was $65.3 million, or 39 cents per share, compared with $57.3 million, or 35 cents, in the third quarter 2008. In the third quarter 2008, net income was reduced by 3 cents per share due to a $4.5 million charge that resulted from a re-measurement of the company’s deferred tax liabilities. The re-measurement was related to the company’s spinoff from its former parent.

In the third quarter 2009, consolidated segment profit was up 7.9 percent to $144 million from $134 million in the prior-year period. (See Note 2 for a definition of segment profit). The company generated $157 million in cash from continuing operations.

Led by HGTV and Food Network, revenue at the company’s Lifestyle Media business segment grew 4.3 percent to $326 million. Lifestyle Media advertising revenue grew slightly while affiliate fee revenue was up 16 percent on higher rates for HGTV and expanding distribution of all of the company’s television networks.

Other television networks operated by Scripps Networks Interactive include DIY Network, Great American Country (GAC) and Fine Living Network (FLN). The company announced in October that it is rebranding FLN to the new Cooking Channel. The rebranding is expected to be completed sometime during the third quarter of 2010.

Non-programming expenses at the Lifestyle Media segment were down 3.3 percent, while programming amortization costs were up 7.0 percent. Total expenses for the segment were up 1.2 percent for the quarter. The company has said that it expects programming amortization expenses to increase by 9 to 11 percent for the full year. Non-programming costs are expected to be flat to down slightly for the year.

Lifestyle Media segment profit during the third quarter grew 8.3 percent to $150 million from the prior year period.

Revenue from the company’s Interactive Services business segment, which includes online comparison shopping services Shopzilla and BizRate, was $39.0 million during the third quarter compared with $52.1 million during the same period in 2008. The company’s initiatives to reposition and differentiate Shopzilla’s products continue to show positive trends. The number of product offers available to consumers has nearly doubled since the last holiday season, and leads to Shopzilla merchant partners in the quarter grew 19 percent year over year. The lead volume metric is important because it measures the value Shopzilla is delivering to its direct merchant partners, as well as the level of engagement that consumers are having with the core content on its branded comparison shopping Web sites at BizRate.com and Shopzilla.com.

Interactive Services expenses were down 20 percent as a result of actions the company has taken to establish a lower cost structure for the business.

Interactive Services segment profit was $6.4 million in the third quarter compared with $11.5 million during the same period a year earlier. The company expects Shopzilla segment profit to be above $30 million for the full year.

“Scripps Networks Interactive had a solid third quarter, delivering revenue and segment profit growth in the midst of the challenging macro-economic environment,” said Kenneth W. Lowe, chairman, president and chief executive officer. “An improving advertising market for cable television networks and double-digit growth in affiliate fee revenue drove the company’s consolidated results.

“At our Lifestyle Media businesses, Food Network and HGTV continued to perform exceptionally well, attracting ever-growing numbers of engaged viewers and solidifying their competitive positions as television’s leading destinations for food- and home-oriented lifestyle content,” Lowe said. “Audience growth has been particularly robust at Food Network, which for the first time in its history ranked among the Top-10 U.S. cable networks.

“At our Interactive Services businesses, BizRate and Shopzilla generated segment profit in line with our expectations in large part due to the lower cost structure we’ve achieved. Initiatives under way to improve the online shopping experience for both consumers and merchants also are driving positive trends, including an increase in the number of qualified leads we’re sending to our merchant partners.”

The reporting of quarterly financial results comes a day after the company announced it will enter into a joint venture with Cox Communications Inc., by which it will acquire a controlling interest in the Travel Channel. The two companies Thursday signed a definitive agreement that, upon completion, will result in Scripps Networks Interactive owning 65 percent of the Travel Channel and Cox Communications retaining a 35 percent stake in the network.

The Travel Channel transaction, which will be structured as a leveraged joint venture, is expected to be completed by or before January 2010.

Here are third-quarter results by operating segment:

Lifestyle Media

Total Lifestyle Media revenue was $326 million, up 4.3 percent. Affiliate fee revenue grew 16 percent to $81.1 million. Advertising revenue was $237 million, up 0.5 percent.

Total expenses increased 1.2 percent. Programming expenses increased 7.0 percent to $79.8 million. Non-programming costs decreased 3.3 percent to $95.3 million.

Lifestyle Media segment profit was $150 million compared with $139 million in the prior-year period.

Operating revenue at HGTV was $153 million, up 6.4 percent. HGTV now reaches 99 million subscribers compared with about 97 million at the end of the third quarter 2008.

Food Network operating revenue was $119 million, up 5.1 percent. Food Network reaches 99 million subscribers, up from about 97 million at the end of the third quarter 2008.

Revenue at DIY Network was up 11 percent to $17.7 million. DIY can be seen in about 52 million households, up from about 48 million households a year ago.

Fine Living Network (FLN) revenue was $11.2 million, down 13 percent, reflecting lower-than-anticipated audience levels since becoming a rated network at the beginning of the year. Fine Living reaches 56 million households vs. 52 million households last year.

Revenue at Great American Country (GAC) increased 9.5 percent to $6.4 million. Great American Country can be seen in about 57 million homes compared with about 54 million homes a year ago.

Revenue from the Lifestyle Media segment’s interactive businesses (SN Digital) was $17.5 million, down 8.4 percent.

Interactive Services

Interactive Services revenue was $39.0 million compared with $52.1 million.

Segment expenses decreased 20 percent to $32.6 million.

Segment profit was $6.4 million compared with $11.5 million.

Conference call

The senior management team of Scripps Networks Interactive will discuss the company’s third quarter results and proposed Travel Channel acquisition 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 1-800-288-8976 (U.S.) or 612-332-0342 (international) approximately ten minutes before the start of the call. Callers will need the name of the call, “Scripps Networks Interactive,” 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 p.m. ET Nov. 6 until 11:59 p.m. ET Nov. 13. 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 122842. A replay of the conference call will also be available online. To access the audio replay, visit www.scrippsnetworksinteractive.com approximately four hours after the call, choose Investor Relations, then 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 2008 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 Inc. 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 Web sites and broadband vertical channels. The company’s media portfolio includes: Lifestyle Media, with popular lifestyle television and Internet brands HGTV, Food Network, DIY Network, Fine Living Network (FLN) and country music network Great American Country (GAC); and Interactive Services, with leading online search and comparison shopping services BizRate and Shopzilla.

Notes to Results of Operations

1. OTHER CHARGES AND CREDITS

As a result of the distribution of Scripps Networks Interactive, Inc. to the shareholders of The E. W. Scripps Company, SNI employees holding share-based equity awards, including share options and restricted shares, have received modified awards in our Company’s stock. Under share-based payment accounting principles, the adjustment to the outstanding share based equity awards is considered a modification and incremental share-based compensation expense is recognized to the extent that the fair value of the awards immediately prior to the modification is less than the fair value of the awards immediately after the modification. Our third quarter 2008 results include a non-cash charge of $4.9 million related to the modification of these stock-based awards. Net income was reduced by $3.2 million.

In connection with the separation of the Company from E. W. Scripps, our deferred tax balances were re-measured to reflect the enacted state tax rates applicable to our tax jurisdictions as a stand-alone company. The re-measurement of our deferred tax liability balances resulted in a one-time charge to our tax provision in the third quarter of 2008 that reduced net income by $4.5 million and increased our quarterly effective tax rate by 3.7 percent.

In the second quarter of 2008, E. W. Scripps redeemed their outstanding notes which were previously allocated to us in our combined financial statements. The associated loss on extinguishment from such redemption, which was not expected to be deductible for income tax purposes, was allocated to us in our statement of operations resulting in a reduction to year-to-date net income of $26.4 million, $.16 per share.

2. SEGMENT INFORMATION

We determine our business segments based upon our management and internal reporting structure. Our reportable segments are strategic businesses that offer different products and services.

Lifestyle Media includes our national television networks, HGTV, Food Network, DIY, FLN, and SN Digital which includes Web sites that are associated with the aforementioned television brands and other Internet-based businesses serving food or shelter related categories such as RecipeZaar.com, HGTVPro.com, and FrontDoor.com. Our networks also operate domestically and internationally through licensing agreements with other entities. We own approximately 69% of Food Network and approximately 94% of Fine Living Network (“FLN”). Each of our networks is distributed by cable, telecommunications, and satellite distributors.

Interactive Services includes our online comparison shopping service, Shopzilla, and its related online comparison shopping brand, BizRate. Shopzilla and BizRate are product comparison shopping services that help consumers find products offered for sale on the Web by online retailers. Shopzilla and BizRate also operate a Web-based consumer feedback network which collects millions of consumer reviews of stores and products each year.

Our chief operating decision maker evaluates the operating performance of 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. 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 determined and reconciliation to our results of operations is as follows:

Corporate costs for the first six months of 2008 reflect an estimate of SNI’s portion of The E. W. Scripps Company’s corporate expenses. Included in Corporate expenses are one-time costs related to the separation that totaled $7.2 million in the third quarter of 2008, $0.8 million in the third quarter of 2009, and $6.5 million for the year-to-date period of 2009.

3. SUPPLEMENTAL FINANCIAL INFORMATION

Our Lifestyle Media division earns revenue primarily from the sale of advertising time in our national television networks’ programming, 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 Web sites (SN Digital).

Supplemental information for Lifestyle Media is as follows:

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 and free cash flow. A reconciliation of segment profit to operating income determined in accordance with accounting principles generally accepted in the United States of America for each business segment is as follows:

The Company defines free cash flow as cash provided by operating activities less dividends paid to noncontrolling interests and acquisitions of property, plant 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:

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.

Scripps Networks Interactive Inc.
Mark Kroeger, 513-824-3227
E-mail: mark.kroeger@scrippsnetworks.com