Results for the three-month period ended March 31 reflect strong affiliate fee revenue growth and effective cost controls at the company's lifestyle television networks, offset by lower advertising revenue and a challenging economic and competitive environment for the company's online comparison shopping services.
Consolidated revenue for the quarter decreased 7.0 percent year over year to $361 million, with the decline attributable primarily to less favorable operating results at the company's Shopzilla and uSwitch comparison shopping subsidiaries. During the first quarter the company disclosed that consolidated results for the period would be affected by a competitive repositioning at Shopzilla.
Total first-quarter expenses decreased 5.4 percent year over year.
Consolidated net income attributable to Scripps Networks Interactive for the first quarter was $60.1 million, or 37 cents per share compared with $66.5 million, or 41 cents in the first quarter 2008. Net income reported for the first quarter 2008 includes an estimate of corporate expenses based on amounts reported by the former parent company of Scripps Networks Interactive. Scripps Networks Interactive was spun off from The E. W. Scripps Company on July 1, 2008. Corporate expenses for the current period include about $3.7 million in one-time costs related to the spin-off.
Total segment profit for the company during the three-month period was $139 million compared with $154 million in the prior-year period. (See Note 1 for a definition of segment profit). During the first quarter 2009 the company generated $163 million in cash from operating activities and $91.9 million in free cash flow.
From the company's Lifestyle Media business segment, which includes HGTV and Food Network, total revenue for the period was $311 million, which was even with the prior-year quarter. Affiliate fee revenue increased 17 percent year over year on improved rates for HGTV and expanding distribution of all of the company's television networks. Other television brands operated by the company include DIY Network, Fine Living Network (FLN) and Great American Country (GAC). For the full year, the company now expects affiliate fee revenue to increase 12 to 14 percent.
Advertising revenue from the Lifestyle Media segment decreased 4.6 percent in the first quarter, reflecting weaker pricing in the scatter advertising marketplace relative to strong growth in the prior year. The company expects advertising revenue to continue to be under pressure at least through the first half due to the ongoing effects of the current economic recession.
The company reduced segment expenses even as it continued to invest in new, original programming during the period to build viewership and increase audience market share at all of its networks. Total Lifestyle Media expenses for the quarter declined 1.7 percent as a result of a general hiring freeze initiated during the fourth quarter 2008; reduced spending on marketing and promotions during the first quarter of 2009; and other expense controls initiated by the company.
Lifestyle Media segment profit increased 1.9 percent during the first quarter to $146 million compared with $143 million during the prior year.
Revenue from the company's Interactive Services business segment, which includes Shopzilla and uSwitch, was $50.6 million during the first quarter compared with $77.5 million during the same period in 2008.
In addition to the competitive repositioning at Shopzilla, Interactive Services results were held back by lower consumer demand for retail products; an unfavorable foreign exchange environment; and the effects of a less-favorable sponsored-link revenue-sharing agreement with Google. Reduced energy rates in the United Kingdom during the quarter also led to lower energy-switching activity at uSwitch.
Interactive Services expenses declined 23 percent during the first quarter as the company continued to scale the businesses to match market conditions.
Interactive Services segment profit was $7.0 million in the first quarter compared with $21.0 million during the same period a year earlier. The company expects Interactive Services segment profit to be about $35 million for the full year.
"The company's operating performance during the first quarter demonstrates the durability and recession-resistant nature of cable and satellite television networks and, in particular, the strength and popularity of our unique lifestyle brands," said Kenneth W. Lowe, chairman, president and chief executive officer of Scripps Networks Interactive. "In the midst of the most challenging economic environment in a generation, our leading lifestyle networks are performing solidly, with growing audiences, expanding distribution and financial results that defy some daunting headwinds.
"At our Interactive Services businesses, we're making progress repositioning Shopzilla as a consumer-centric service that also provides great value for online merchants," Lowe said. "We're focusing on consumer satisfaction, enhancing the comprehensiveness of search results and providing a measurable return on investment for retailers who pay us for leads. Our deliberate decision to put Shopzilla on a firmer competitive footing, however, means we'll be sacrificing margin in the near term in exchange for longer-term sustainability of the business.
"Looking ahead, we're optimistic, but cautious about the future," Lowe said. "We expect macro-economic issues to continue weighing on all of our businesses, but are encouraged by early signs of improvement. In the meantime, we're going to be investing in the health and vitality of our core brands, advancing our various growth strategies and keeping a tight rein on expenses. We're confident that when the economy recovers, our Lifestyle Media brands will be stronger than ever and that our Interactive Services businesses will be competitively viable and poised for growth."
Here are first-quarter results by operating segment:
Lifestyle Media affiliate fee revenue grew 17 percent to $79.1 million. Advertising revenue was $225 million, down 4.6 percent.
Total expenses were down 1.7 percent. Programming expenses increased 9.5 percent to $71.2 million. Non-programming costs decreased 8.8 percent to $93.4 million.
Lifestyle Media segment profit was $146 million compared with $143 million in the prior-year period.
Operating revenue at HGTV was $144 million, up 1.7 percent. HGTV now reaches 98 million subscribers compared with about 96 million at the end of the first quarter 2008.
Food Network operating revenue was $116 million, down 2.5 percent. Food Network reaches 98 million subscribers, up from about 96 million at the end of the first quarter 2008.
Revenue at DIY Network was up 8.1 percent to $15.3 million. DIY can be seen in about 51 million households, up from about 47 million households a year ago.
Fine Living Network (FLN) revenue was $11.7 million, down 6.7 percent. Fine Living reaches 55 million households vs. 50 million households last year.
Revenue at Great American Country (GAC) increased 6.1 percent to $6.1 million. Great American Country can be seen in about 56 million homes compared with about 53 million homes a year ago.
Revenue from the Lifestyle Media segment's interactive businesses (SN-Digital) was $15.7 million, down 6.2 percent.
Interactive Services revenue was $50.6 million compared with $77.5 million.
Interactive Services expenses decreased 23 percent to 43.5 million.
Segment profit was $7.0 million compared with $21.0 million.
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. 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 1-800-230-1092 (U.S.) or 612-288-0340 (international) approximately ten minutes before the start of the call. Callers will need the name of the call, "first quarter earnings report," 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. EDT May 8 until 11:59 p.m. EDT May 15. The domestic number to access the replay is 1-800-475-6701 and the international number is 1-320-365-3844. The access code for both numbers is 996741. 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.
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 the leading developer 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, Shopzilla and uSwitch.
Contact: Mark Kroeger, Scripps Networks Interactive Inc., 513-824-3227 E-mail: email@example.com
SCRIPPS NETWORKS INTERACTIVE, INC. CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS (unaudited) Three months ended March 31, (in thousands, except per share data) 2009 2008 Change Operating revenues $361,217 $388,332 (7.0)% Costs and expenses (221,942) (234,678) (5.4)% Depreciation and amortization of intangible assets (19,942) (17,710) 12.6 % Losses on disposal of PP&E (71) (764) (90.7)% Operating income 119,262 135,180 (11.8)% Interest expense (330) (5,821) (94.3)% Equity in earnings of affiliates 2,093 3,676 (43.1)% Miscellaneous, net (713) (1,143) (37.6)% Income from operations before income taxes 120,312 131,892 (8.8)% Provision for income taxes (40,413) (43,120) (6.3)% Net income 79,899 88,772 (10.0)% Less: net income attributable to noncontrolling interests (19,771) (22,267) (11.2)% Net income attributable to SNI common shareholders $60,128 $66,505 (9.6)% Net income attributable to SNI common shareholders per diluted share of common stock $0.37 $0.41 Weighted average basic shares outstanding (1) 163,516 163,466 Weighted average diluted shares outstanding (1) 163,907 163,466 For comparison purposes, first quarter 2008 results include estimates of Scripps Networks Interactive's portion of The E. W. Scripps Company's corporate expenses for those periods. Such estimates are not representative of our costs as a stand-alone company. (1) For the quarter periods of 2008, diluted EPS was computed using the number of common shares outstanding on the spin-off-date. 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 (unaudited) As of March 31, December 31, (in thousands, except per share data) 2009 2008 ASSETS Current assets: Cash and cash equivalents $8,641 $9,970 Short-term investments 3,587 2,703 Accounts and notes receivable (less allowances: 2009- $4,842; 2008- $5,480) 330,747 372,736 Programs and program licenses 241,899 238,319 Other current assets 15,067 14,296 Total current assets 599,941 638,024 Investments 39,966 40,279 Property, plant and equipment, net 205,104 201,512 Goodwill 424,213 424,213 Other intangible assets, net 105,032 110,810 Programs and program licenses (less current portion) 224,542 235,967 Unamortized network distribution incentives 98,544 107,796 Other non-current assets 17,586 14,607 Total Assets $1,714,928 $1,773,208 LIABILITIES AND EQUITY Current liabilities: Accounts payable $17,648 $14,960 Program rights payable 14,706 15,240 Customer deposits and unearned revenue 11,818 11,045 Employee compensation and benefits liabilities 19,014 35,451 Accrued marketing and advertising costs 13,919 18,671 Other accrued liabilities 90,998 70,927 Total current liabilities 168,103 166,294 Deferred income taxes 129,381 134,261 Long-term debt 80,000 Other liabilities (less current portion) 109,590 104,239 Total liabilities 407,074 484,794 Redeemable noncontrolling interest 9,400 9,400 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: 2009 - 127,485,838 shares; 2008 - 127,184,107 shares 1,275 1,272 Voting - authorized: 60,000,000 shares; issued and outstanding: 2009 - 36,398,226 shares; 2008 - 36,568,226 shares 364 366 Total 1,639 1,638 Additional paid-in capital 1,225,082 1,219,930 Retained earnings (deficit) (72,942) (120,774) Accumulated other comprehensive income 30,642 31,487 Total SNI shareholders' equity 1,184,421 1,132,281 Noncontrolling interests 114,033 146,733 Total equity 1,298,454 1,279,014 Total Liabilities and Equity $1,714,928 $1,773,208
SCRIPPS NETWORKS INTERACTIVE, INC. CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (unaudited) March 31, (in thousands) 2009 2008 Cash Flows from Operating Activities: Net income $79,899 $88,772 Depreciation and intangible assets amortization 19,942 17,710 Programs and program licenses costs 71,179 62,600 Program payments (63,868) (74,053) Amortization of network distribution costs 9,342 8,257 Capitalized network distribution incentives (1,764) (1,678) Equity in earnings of affiliates (2,093) (3,676) Dividends received from equity investments 3,263 1,668 Stock and deferred compensation plans 4,807 4,744 Deferred income taxes 5,190 10,847 Prepaid and accrued pension expense 2,229 2,156 Changes in certain working capital accounts Accounts receivable 41,861 (10,192) Other assets (781) (3,384) Accounts payable 2,736 6,075 Accrued employee compensation and benefits (16,038) (16,382) Accrued income taxes 31,548 (6,250) Other liabilities (26,864) (1,345) Other, net 1,951 6,773 Net operating activities 162,539 92,642 Cash Flows from Investing Activities: Acquisitions of property, plant and equipment (17,929) (11,865) Increase in short-term investments (942) Purchase of subsidiary companies, noncontrolling Interest, and long-term investments (85) Other, net (9) (102) Net investing activities (18,947) (11,967) Cash Flows from Financing Activities: Increase in long-term debt 8,941 Payments on long-term debt (80,000) (40,000) Dividends paid (12,296) Dividends paid to noncontrolling interest (52,724) (56,183) Change in parent company investment, net 40,897 Proceeds from employee stock options 2,695 Other, net (2,132) (2,855) Net financing activities (144,457) (49,200) Effect of exchange rate changes on cash and cash equivalents (464) 166 Increase (decrease) in cash and cash equivalents (1,329) 31,641 Cash and cash equivalents: Beginning of year 9,970 12,532 End of year $8,641 $44,173 Supplemental Cash Flow Disclosures: Interest paid, excluding amounts capitalized $234 $5,640 Income taxes paid 397 43,105
Notes to Results of Operations
1. 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 five national television networks, Internet businesses and other electronic content services primarily in the United States. Our networks also operate domestically and internationally through licensing agreements and joint ventures with other entities. We own approximately 69% of Food Network and approximately 94% of Fine Living ("FLN").
Interactive Services includes our online comparison shopping services, Shopzilla, BizRate and uSwitch. 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. uSwitch operates an online service that helps consumers compare prices and arrange for the purchase of a range of essential home services including gas, electricity, home phone, broadband providers and personal finance products, primarily in the United Kingdom.
Our chief operating decision maker (as defined by FAS No. 131, "Segment Reporting") 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 3--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 in accordance with FAS 131 and reconciliation to our results of operations is as follows:
(in thousands) Three months ended March 31, 2009 2008 Change Segment operating revenues: Lifestyle Media $310,685 $310,836 Interactive Services 50,573 77,496 (34.7)% Intersegment eliminations (41) Total operating revenues $361,217 $388,332 (7.0)% Segment profit (loss): Lifestyle Media $146,076 $143,372 1.9 % Interactive Services 7,033 20,985 (66.5)% Corporate (13,834) (10,703) 29.3 % Total segment profit 139,275 153,654 (9.4)% Depreciation and amortization of intangible assets (19,942) (17,710) 12.6 % Losses on disposal of PP&E (71) (764) (90.7)% Interest expense (330) (5,821) (94.3)% Equity in earnings of affiliates 2,093 3,676 (43.1)% Miscellaneous, net (713) (1,143) (37.6)% Income from operations before income taxes $120,312 $131,892 (8.8)%
Corporate costs for the first three months of 2008 reflect an estimate of SNI's portion of The E. W. Scripps Company's corporate expenses. Corporate expenses for the current period include about $3.7 million in one-time costs related to the spin-off.
2. 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:
(in thousands) Three months ended March 31, 2009 2008 Change Operating revenues by brand: HGTV $143,863 $141,499 1.7 % Food Network 116,256 119,264 (2.5)% DIY 15,328 14,180 8.1 % FLN 11,711 12,547 (6.7)% GAC 6,083 5,735 6.1 % SN Digital 15,661 16,695 (6.2)% Other/intersegment eliminations 1,783 916 94.6 % Operating revenues by type: Advertising $224,575 $235,493 (4.6)% Affiliate fees, net 79,075 67,430 17.3 % Other 7,035 7,913 (11.1)% Subscribers (1): HGTV 98,000 95,800 2.3 % Food Network 98,300 95,500 2.9 % DIY 50,700 47,100 7.6 % FLN 55,300 49,700 11.3 % GAC 56,000 52,700 6.3 % (1) Subscriber counts are according to the Nielsen Homevideo Index of homes that receive cable networks, with the exception of FLN in 2008, which was not yet rated by Nielsen and represented comparable amounts calculated by us.
3. 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:
(in thousands) Three months ended March 31, 2009 2008 Operating income $119,262 $135,180 Depreciation and amortization of intangible assets: Lifestyle Media 8,569 6,791 Interactive Services 11,255 10,884 Corporate 118 35 Losses on disposal of PP&E: Lifestyle Media 55 764 Interactive Services 16 Total segment profit $139,275 $153,654
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 March 31, 2009 2008 Segment profit $139,275 $153,654 Income taxes paid (397) (43,105) Interest paid (234) (5,640) Working capital and other 23,895 (12,267) Cash provided by operating activities 162,539 92,642 Dividends paid to noncontrolling interest (52,724) (56,183) Acquisitions of property, plant and equipment (17,929) (11,865) Free cash flow $91,886 $24,594
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.