04 November 2010
  • Revenues of $509 million, up 40 percent; up 22 percent excluding Travel Channel
  • Income from continuing operations before tax of $191 million, up 52 percent
  • Net income attributable to SNI per fully diluted share of $0.61, up 56 percent; excluding adjustments, net income attributable to SNI of $0.59 per share

KNOXVILLE, Tenn., Nov 04, 2010 (BUSINESS WIRE) --

Scripps Networks Interactive Inc. (NYSE: SNI) today reported operating results for the third quarter 2010.

Consolidated revenues for the quarter increased 40 percent to $509 million from the prior-year period. Excluding Travel Channel, in which the company acquired a controlling interest on Dec. 15, 2009, consolidated revenue increased 22 percent to $445 million, year-over-year.

Results for the three-month period ended Sept. 30 reflect strong double-digit growth in advertising revenue of $319 million, up 34 percent, and affiliate fee revenue of $140 million, up 72 percent year-over-year. The growth was driven by strong performance from the company's Lifestyle Media business segment, which includes HGTV, Food Network and Travel Channel. Excluding the Travel Channel, advertising revenue increased 19 percent and affiliate fee revenue increased 40 percent.

Also contributing to improved consolidated results was a 7.2 percent increase in revenues from the company's Interactive Services segment, which includes Shopzilla's growing suite of shopping-related Web sites. The growth in Shopzilla revenues is attributable to the company's strong growth in its European properties and positive signs that the company's ongoing initiative to reposition the business in the U. S. is beginning to pay off.

Consolidated expenses for the quarter increased 29 percent from the prior-year period to $285 million. The increase in expenses was due primarily to the consolidation of Travel Channel results and the restoration of marketing budgets to support brand-building initiatives at all of the company's television networks.

Income from continuing operations before taxes increased 52 percent to $191 million from the prior-year period. For the third quarter 2010, total segment profit increased 55 percent to $224 million. (See note 2 for definition of segment profit).

Third-quarter net income attributable to Scripps Networks Interactive was $102 million, or $0.61 per share, compared with $65.3 million, or $0.39 per share, in the third quarter 2009. Excluding a favorable tax adjustment and the effect of transition costs related to the Travel Channel, net income attributable to Scripps Networks Interactive would be $98.8 million, or $0.59 per share.

"Scripps Networks Interactive had an outstanding third quarter, benefitting from robust affiliate revenue growth and continued strong advertising demand, particularly for our targeted lifestyle television networks," said Kenneth W. Lowe, chairman, president and chief executive officer of the company. "All of our networks and our online shopping related businesses contributed to double-digit revenue and earnings growth."

"At the Travel Channel, we've significantly expanded our growing list of national advertisers while simultaneously increasing the size of our audience," Lowe said. "We're successfully leveraging the popularity of Travel's stellar talent, including Adam Richman, Anthony Bourdain and Andrew Zimmern, and are deep into developing new programming concepts which you'll be seeing in the months ahead."

"The newly rebranded Cooking Channel is delivering positive results with audiences steadily increasing each month since the network's debut. Compared with Fine Living's footprint last September, total-day audiences have increased 43 percent and prime time has improved 15 percent," Lowe said. "Cooking Channel recently launched two new shows, one of which, Week in a Day with Rachael Ray is the network's highest rated series premiere yet."

"And, we've turned the corner at Shopzilla, where we've been working diligently to improve our position in the market with both consumers and advertisers to set the stage for renewed growth," Lowe said. "We view Shopzilla's positive results for the quarter as the inflection point in our efforts to restage this business and enhance its competitive position as one of the most influential players in online retail."

Here are third-quarter results by operating segment:

Lifestyle Media

Lifestyle Media revenue was $462 million, up 42 percent. Affiliate fee revenue grew 71 percent to $139 million. Advertising revenue was $316 million, up 34 percent. Excluding Travel Channel, Lifestyle Media revenue was up 23 percent, affiliate revenue increased 39 percent and advertising revenue was up 18 percent.

Total expenses increased 31 percent to $230 million.

Programming expenses increased 24 percent to $98.7 million. Programming expenses excluding Travel Channel were up 5.7 percent.

Non-programming costs increased 38 percent to $131 million, due to:

  • The consolidation of Travel Channel operating results.
  • The restoration of marketing budgets to support brand-building initiatives at all of the company's television networks. Marketing budgets were held back significantly in 2009 in response to the economic recession.

During the third quarter, Lifestyle Media segment profit was up 55 percent to $232 million compared with $150 million in the prior-year period. Lifestyle Media segment profit margin was 50 percent, up from 46 percent in the prior-year third quarter.

Revenue at HGTV was $174 million, up 14 percent. HGTV now reaches 100 million U.S. households, up more than 800,000 from the end of third quarter 2009.

Revenue at Food Network was $160 million, up 35 percent. Food Network reaches 100 million U.S. households, up from 99 million at the end of the third quarter 2009.

Revenue at Travel Channel increased 14 percent to $62.3 million, on a pro-forma basis. Travel Channel reaches 96 million U.S. households, up from 95 million at the end of the third quarter 2009.

Revenue at DIY Network was up 29 percent to $22.8 million. DIY can be seen in 54 million U.S. households, up 1.9 million households from a year ago.

Revenue at Cooking Channel (formerly Fine Living Network) was $12.2 million, up 9.3 percent. These results include a $3.0 million increase in amortization for distribution incentives related to the rebranding of the Fine Living Network to the Cooking Channel. Excluding this item, revenue at the Cooking Channel was $15.2 million, up 36 percent from the prior-year quarter. The company completed its rebranding of Fine Living Network to the Cooking Channel on May 31. Cooking Channel reaches 58 million U.S. households vs. 56 million that Fine Living reached during the same timeframe last year.

Revenue at Great American Country (GAC) increased 18 percent to $7.6 million. GAC can be seen in 60 million U.S. households compared with 57 million homes at the end of the third quarter 2009.

Revenue from the Lifestyle Media segment's digital businesses, which includes its network-branded Web sites, was $21.5 million, up 23 percent.

Interactive Services

Revenue increased 7.2 percent to $41.8 million compared with the year-ago quarter.

Segment expenses increased 6.4 percent to $34.7 million.

Segment profit increased 11 percent to $7.1 million compared with the year-ago quarter.

The improved results are attributable to the significant expansion of Shopzilla's share in Europe and to the company's ongoing efforts to enhance the competitive position of its U. S. online comparison shopping Web sites, which includes BizRate.com, Beso, Tada.com and Shopzilla.com.

Shopzilla's U.S. business is poised for growth after undertaking significant efforts to restage the business in response to changing market dynamics. Helping to drive growth is the improved utilization of the 80 million monetized product search results now under management. Further adding to the expected improvement in results is increased visitation as a result of better search indexing and broadening of the product portfolio to include Beso.com, a leader in product discovery for taste-based products.

Redirects per user session were up 17 percent year-over-year during the quarter. The growth in redirects per session is a positive indication that the Web sites are helping consumers more effectively find what they are looking for and producing more qualified leads for Shopzilla's advertising partners.

2010, Full-year Guidance

The company provided the following outlook for 2010.

Lifestyle Media

  • Affiliate revenue is now expected to be approximately $550 million, with about $100 million attributable to Travel Channel.
  • Programming expenses are expected to be $380 million to $400 million as previously forecast. Travel Channel programming expenses are expected to account for about $50 million of the total.
  • Non-programming expenses are expected to be $550 million to $560 million. The forecast includes transition expenses related to the acquisition of the controlling interest in the Travel Channel. The company expects Travel Channel transition costs for the year to be nearer the lower end of its forecasted range of $30 million to $40 million. Also included in non-programming expenses for the year are $11 million in marketing and legal expenses incurred during the first quarter to support the company's affiliate renewal negotiations.

Interactive Services

The full-year segment profit forecast for the company's Shopzilla comparison shopping business also is unchanged. Shopzilla segment profit is expected to be $33 million to $35 million for the year.

International

International operating losses for the full-year are now expected to be $10 million to $12 million. International operating losses for the first nine months ended September 30, 2010 were $7.4 million.

Other items

  • Capital expenditures are now expected to be $80 million to $85 million. That includes $25 million in non-recurring spending for the company's facility expansion in Knoxville, Tenn., and $5 million to facilitate the Travel Channel transition.
  • Effective tax rate, approximately 30 percent.
  • Depreciation and amortization, $130 million to $135 million.
  • Interest expense, $33 million to $35 million.
  • Strong operating results at the Food Network are expected to result in a higher share of net income by noncontrolling interests than previously forecast. Noncontrolling share of net income is now expected to be between $135 million and $140 million for the year.

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. EDT 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 800-230-1085 (U.S.) or 612-288-0337 (international) approximately ten minutes before the start of the call. Callers will need the name of the call, "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. EDT Nov. 4 until 11:59 p.m. EDT Nov. 18. 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 173668. 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 2009 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 Web sites and broadband vertical channels. The company's media portfolio includes Lifestyle Media, which is comprised of popular lifestyle television and Internet brands HGTV, Food Network, Travel Channel, DIY Network, Cooking Channel and country music network Great American Country; and Interactive Services, with leading online search and comparison shopping services BizRate, Beso and Shopzilla.

SCRIPPS NETWORKS INTERACTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited) Three months ended Nine months ended
September 30, September 30,

(in thousands, except per share data)

2010 2009 Change 2010 2009 Change
Operating revenues $ 508,687 $ 364,461 39.6 % $ 1,494,121 $ 1,111,509 34.4 %
Costs and expenses (284,870) (220,197) 29.4 % (867,259) (661,879) 31.0 %
Depreciation and amortization
of intangible assets (30,274) (20,666) 46.5 % (94,888) (58,570) 62.0 %
Gains (losses) on disposal of PP&E 36 (898) (1,284) (967) 32.8 %
Operating income 193,579 122,700 57.8 % 530,690 390,093 36.0 %
Interest expense (8,774) (285) (26,546) (1,021)
Equity in earnings of affiliates 6,940 4,873 42.4 % 21,482 12,834 67.4 %
Miscellaneous, net (319) (1,321) (75.9)% (1,164) (721) 61.4 %
Income from continuing operations
before income taxes 191,426 125,967 52.0 % 524,462 401,185 30.7 %
Provision for income taxes (55,289) (41,544) 33.1 % (160,867) (130,449)

23.3 %

Income from continuing
operations, net of tax 136,137 84,423 61.3 % 363,595 270,736 34.3 %
Income (loss) from discontinued
operations, net of tax 676 10,029 (1,885)
Net income 136,137 85,099 60.0 % 373,624 268,851 39.0 %
Net income attributable to
noncontrolling interests (34,444) (19,779) 74.1 % (93,265) (63,879) 46.0 %
Net income attributable to SNI $ 101,693 $ 65,320 55.7 % $ 280,359 $ 204,972 36.8 %
Diluted income per share:
Income from continuing
operations attributable to
SNI common shareholders $ 0.61 $ 0.39 $ 1.61 $ 1.26
Income (loss) from discontinued
operations attributable to
SNI common shareholders 0.00 0.00 0.06 (0.01)
Net income attributable to
SNI common shareholders $ 0.61 $ 0.39 $ 1.67 $ 1.24
Weighted average
diluted shares outstanding 167,791 165,736 167,583 164,760
Amounts attributable to SNI:
Income from

continuing operations

$

101,693

$

64,644

$

270,330

$

206,857

Income (loss) from
discontinued operations 676 10,029 (1,885)
Net income attributable to SNI $ 101,693 $ 65,320 $ 280,359 $ 204,972
Net income per share amounts may not foot since each is calculated independently.
See notes to results of operations.
SCRIPPS NETWORKS INTERACTIVE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of

September 30,

December 31,
2010 2009
(in thousands, except per share data) (unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 416,795 $ 254,370
Accounts and notes receivable (less allowances: 2010- $4,490; 2009- $5,587) 471,258 430,410
Programs and program licenses 274,309 271,773
Other current assets 53,392 25,716
Total current assets 1,215,754 982,269
Investments 45,333 46,395
Property, plant and equipment, net 237,413 239,644
Goodwill 666,502 670,494
Other intangible assets, net 648,062 681,312
Programs and program licenses (less current portion) 255,966 255,839
Unamortized network distribution incentives 91,010 71,266
Other non-current assets 13,326 15,843
Total Assets $ 3,173,366 $ 2,963,062
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 12,527 $ 27,538
Program rights payable 27,748 20,350
Customer deposits and unearned revenue 18,631 16,865
Employee compensation and benefits 45,635 43,377
Accrued marketing and advertising costs 15,701 13,477
Other accrued liabilities 59,422 89,101
Total current liabilities 179,664 210,708
Deferred income taxes 81,013 119,515
Long-term debt 884,357 884,239
Other liabilities (less current portion) 117,912 99,662
Total liabilities 1,262,946 1,314,124
Redeemable noncontrolling interests 130,671 113,886
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: 2010 - 130,230,514 shares; 2009 - 129,443,195 shares 1,303 1,295
Voting - authorized: 60,000,000 shares; issued and
outstanding: 2010 - 36,218,226 shares; 2009 - 36,338,226 shares 362 363
Total 1,665 1,658
Additional paid-in capital 1,306,546 1,271,209
Retained earnings 322,793 113,853
Accumulated other comprehensive income (loss) (2,938 ) (3,004 )
Total SNI shareholders' equity 1,628,066 1,383,716
Noncontrolling interest 151,683 151,336
Total equity 1,779,749 1,535,052
Total Liabilities and Equity $ 3,173,366 $ 2,963,062
SCRIPPS NETWORKS INTERACTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) Nine months ended
September 30,
(in thousands) 2010 2009
Cash Flows from Operating Activities:
Net income $ 373,624 $ 268,851
Loss (income) from discontinued operations (10,029 ) 1,885
Income from continuing operations, net of tax 363,595 270,736
Depreciation and intangible assets amortization 94,888 58,570
Amortization of network distribution costs 24,579 28,305
Programs and program licenses costs 292,409 229,043
Equity in earnings of affiliates (21,482 ) (12,834 )
Program payments (288,782 ) (211,500 )
Capitalized network distribution incentives (45,147 ) (5,571 )
Dividends received from equity investments 22,660 17,098
Deferred income taxes (36,149 ) (4,616 )
Stock and deferred compensation plans 15,891 15,557
Changes in certain working capital accounts:
Accounts receivable (41,779 ) 36,970
Other assets (2,065 ) (297 )
Accounts payable (14,216 ) (6,517 )
Accrued employee compensation and benefits 2,372 (1,334 )
Accrued income taxes (41,281 ) 2,371
Other liabilities (9,446 ) (25,106 )
Other, net 19,427 14,234
Net cash provided by (used in) continuing operating activities 335,474 405,109
Net cash provided by (used in) discontinued operating activities 10,029 (4,302 )
Net operating activities 345,503 400,807
Cash Flows from Investing Activities:
Additions to property, plant and equipment (52,020 ) (57,852 )
Increase in short-term investments (159,762 )
Purchase of subsidiary companies and noncontrolling interests (14,400 )
Other, net 68 (5,087 )
Net cash provided by (used in) continuing investing activities (66,352 ) (222,701 )
Net cash provided by (used in) discontinued investing activities (858 )
Net investing activities (66,352 ) (223,559 )
Cash Flows from Financing Activities:
Payments on long-term debt (80,000 )
Dividends paid (37,481 ) (37,006 )
Dividends paid to noncontrolling interest (96,656 ) (79,482 )
Proceeds from stock options 23,087 22,819
Other, net (6,062 ) (2,490 )
Net financing activities from continuing operations (117,112 ) (176,159 )
Effect of exchange rate changes on cash and cash equivalents 386 61
Increase (decrease) in cash and cash equivalents 162,425 1,150
Cash and cash equivalents:
Beginning of year 254,370 9,970
End of period $ 416,795 $ 11,120
Supplemental Cash Flow Disclosures:
Interest paid, excluding amounts capitalized $ 19,755 $ 729
Income taxes paid 214,706 125,575

Notes to Results of Operations

1. OTHER CHARGES AND CREDITS

Our third quarter 2010 income tax provision includes favorable adjustments attributed to changes in both estimated foreign tax credits and state apportionment factors reflected in our filed tax returns. Net income was increased by $4.3 million, $.03 per share.

Operating results in the third quarter of 2010 include $3.5 million of transition costs following our acquisition of a controlling interest in the Travel Channel in December of 2009. Net income attributable to SNI for the third quarter of 2010 was reduced $1.4 million, $.01 per share.

For the year-to-date period of 2010, these Travel Channel transition costs were $27.6 million. Year-to-date operating results in 2010 also include $11.0 million of marketing and legal expenses incurred to support the company's affiliate agreement renewal negotiations for Food Network and HGTV. These items reduced year-to-date net income attributable to SNI $16.9 million, $.10 per share.

During the second quarter of 2010, we reduced the valuation allowance on the deferred tax asset resulting from the uSwitch sale inDecember of 2009. The reduction in the valuation allowance reflects the utilization of the uSwitch capital loss against capital gains that were generated in periods prior to the separation from The E. W. Scripps Company (" E. W. Scripps"). In accordance with the tax allocation agreement with E. W. Scripps, we were notifiedin the second quarter that these capital gains were available for use by SNI. Accordingly, results for our discontinued operations in 2010 reflect an income tax benefit of $9.3 million. Year-to-date net income attributable to SNI was increased $.06 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, Travel Channel, DIY Network, Cooking Channel (previously branded as Fine Living Network ("FLN")), and Great American Country ("GAC"). Lifestyle Media also includes Web sites that are associated with the aforementioned television brands and other Internet-based businesses serving food, home, and travel related categories such as HGTVPro.com and FrontDoor.com. 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.

Interactive Services includes our online comparison shopping service, Shopzilla, and its related online comparison shopping brands, BizRate and Beso. Our product comparison shopping services help consumers find products offered for sale on the Web by online retailers. Shopzilla also operates a Web-based consumer feedback network within the BizRate brand that collects consumer reviews of stores and products.

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 ("GAAP"). Refer to Note 5--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 Nine months ended
September 30, September 30,
2010 2009 Change 2010 2009 Change
Segment operating revenues:
Lifestyle Media $ 462,490 $ 325,511 42.1 % $ 1,366,247 $ 986,727 38.5 %
Interactive Services 41,802 38,983 7.2 % 116,719 124,885 (6.5 )%
Corporate 4,405 11,211
Intersegment eliminations (10 ) (33 ) (69.7 )% (56 ) (103 ) (45.6 )%
Total operating revenues $ 508,687 $ 364,461 39.6 % $ 1,494,121 $ 1,111,509 34.4 %
Segment profit (loss):
Lifestyle Media $ 232,482 $ 150,461 54.5 % $ 655,684 $ 468,902 39.8 %
Interactive Services 7,098 6,376 11.3 % 17,940 20,675 (13.2 )%
Corporate (15,763 ) (12,573 ) 25.4 % (46,762 ) (39,947 ) 17.1 %
Total segment profit 223,817 144,264 55.1 % 626,862 449,630 39.4 %
Depreciation and amortization
of intangible assets (30,274 ) (20,666 ) 46.5 % (94,888 ) (58,570 ) 62.0 %
Gains (losses) on disposal of PP&E 36 (898 ) (1,284 ) (967 ) 32.8 %
Interest expense (8,774 ) (285 ) (26,546 ) (1,021 )
Equity in earnings of affiliates 6,940 4,873 42.4 % 21,482 12,834 67.4 %
Miscellaneous, net (319 ) (1,321 ) (75.9 )% (1,164 ) (721 ) 61.4 %
Income from continuing
operations before income taxes $ 191,426 $ 125,967 52.0 % $ 524,462 $ 401,185 30.7 %

Corporate includes the operating results of the venture we formed with Chello Zone Media in the fourth quarter of 2009, operating results from the international licensing of our national networks' programming, and the costs associated with our international expansion initiatives. The venture with Chello Zone Media, of which we own 89%, was formed to launch new lifestyle-oriented channels in Europe, the Middle East and Africa.

Our continued investment in international expansion initiatives increased the third quarter 2010 segment loss at corporate by $2.4 million and increased the 2010 year-to-date segment loss by $7.4 million.

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 Web sites.

Supplemental information for Lifestyle Media is as follows:

(in thousands) Three months ended Nine months ended
September 30, September 30,
2010 2009 Change 2010 2009 Change
Operating revenues by brand:
HGTV $ 173,584 $ 152,547 13.8 % $ 508,902 $ 459,925 10.6 %
Food Network 160,421 118,591 35.3 % 485,573 363,218 33.7 %
Travel Channel 62,324 180,408
DIY 22,837 17,684 29.1 % 64,301 51,133 25.8 %
Cooking Channel/FLN (1) 12,226 11,185 9.3 % 39,625 33,888 16.9 %
GAC 7,630 6,449 18.3 % 22,532 19,274 16.9 %
Digital Businesses 21,543 17,529 22.9 % 60,993 54,012 12.9 %
Other 1,781 2,132 (16.5 )% 5,312 6,157 (13.7 )%
Intrasegment eliminations 144 (606 ) (1,399 ) (880 ) 59.0 %
Operating revenues by type:
Advertising $ 316,418 $ 236,598 33.7 % $ 935,152 $ 722,177 29.5 %
Network affiliate fees, net 138,960 81,055 71.4 % 413,417 240,174 72.1 %
Other 7,112 7,858 (9.5 )% 17,678 24,376 (27.5 )%
Subscribers (2):
HGTV 99,600 98,800 0.8 %
Food Network 100,400 99,300 1.1 %
Travel Channel 96,100 95,300 0.8 %
DIY 54,000 52,100 3.6 %
Cooking Channel/FLN (1) 58,100 55,700 4.3 %
GAC 59,600 57,200 4.2 %

(1) The Cooking Channel, a replacement for FLN, premiered on May 31, 2010.

(2) Subscriber counts are according to the Nielsen Homevideo Index of homes that receive cable networks.

4. TRAVEL CHANNEL

On December 15, 2009 we acquired a 65 percent controlling interest in the Travel Channel (the "Travel Channel Acquisition").

The following table summarizes Travel Channel's quarterly financial information for 2009.

(in thousands)
Operating Segment
2009 Revenues Profit
First quarter $ 52,788 $ 10,089
Second quarter 54,704 21,415
Third quarter 55,512 14,285
Fourth quarter 65,348 22,659
Total $ 228,352 $ 68,448

Prior to December 15, 2009, the Travel Channel was owned and operated by Cox TMI Inc., a wholly owned subsidiary of Cox Communications, Inc. ("Cox"). The summarized results above reflect the historical combined results of operations for the Travel Channel and were prepared on a basis of accounting that was in accordance with GAAP, but the amounts are not necessarily indicative of Travel Channel's actual results had they been operating as a separate, stand-alone company for the periods presented. The amounts summarized above include allocations for certain corporate overhead expenses that were based on Cox management's best estimate of amounts attributable to the Travel Channel. Additionally, the Travel Channel had a number of service agreements with a third party covering affiliate sales, advertising sales and transmission and quality control/library services. The costs of these services are included in the quarterly results summarized above. These services have been transitioned to SNI. Costs allocated to Travel Channel for such services following transition could differ from the amounts included in the historical results above.

The fourth quarter 2009 amounts include both the periods prior to and subsequent to the Travel Channel Acquisition.

5. 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 Nine months ended
September 30, September 30,
2010 2009 2010 2009
Operating income $ 193,579 $ 122,700 $ 530,690 $ 390,093
Depreciation and amortization
of intangible assets:
Lifestyle Media 21,296 9,821 68,236 27,432
Interactive Services 8,513 10,489 25,284 30,430
Corporate 465 356 1,368 708
Equity in earnings of affiliates
Losses (gains) on disposal of PP&E:
Lifestyle Media (31 ) 516 1,261 571
Interactive Services (5 ) 382 23 396
Total segment profit $ 223,817 $ 144,264 $ 626,862 $ 449,630

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:

(in thousands) Three months ended Nine months ended
September 30, September 30,
2010 2009 2010 2009
Segment profit $ 223,817 $ 144,264 $ 626,862 $ 449,630
Income taxes paid (74,770 ) (39,894 ) (214,706 ) (125,575 )
Interest paid (19,091 ) (186 ) (19,755 ) (729 )
Working capital and other (11,731 ) 53,014 (56,927 ) 81,783
Cash provided by continuing operating activities 118,225 157,198 335,474 405,109
Dividends paid to noncontrolling interest (16,803 ) (9,671 ) (96,656 ) (79,482 )
Acquisitions of property, plant and equipment (18,183 ) (17,441 ) (52,020 ) (57,852 )
Free cash flow $ 83,239 $ 130,086 $ 186,798 $ 267,775

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, 513-824-3227
mark.kroeger@scrippsnetworks.com
or
Mike Gallentine, 865-560-4473
mike.gallentine@scrippsnetworks.com
<< Back