09 August 2010

CINCINNATI, Aug 09, 2010 (BUSINESS WIRE) -- Scripps Networks Interactive Inc. (NYSE: SNI) today reported operating results for the second quarter 2010.

Results for the three-month period ended June 30 reflect strong, double-digit growth in advertising and affiliate fee revenue at the company's Lifestyle Media business segment, which includes HGTV, Food Network and Travel Channel.

Consolidated revenue for the quarter increased 32 percent to $516 million from the prior-year period. Excluding Travel Channel, in which the company acquired a controlling interest on Dec. 15, 2009, consolidated revenue increased 16 percent to $454 million year-over-year.

Total revenue from the company's Lifestyle Media business segment was $475 million, up 36 percent from the second-quarter 2009. Excluding Travel Channel, Lifestyle Media total revenue was $413 million, up 18 percent year-over-year.

Consolidated expenses for the quarter increased 28 percent from the prior-year period to $288 million. The increase in expenses was due to:

  • The consolidation of Travel Channel operating results.
  • $8.6 million in costs incurred to facilitate the Travel Channel transition.
  • The restoration of marketing budgets to support brand-building initiatives at all of the company's television networks.
  • Accelerated programming amortization costs related to the rebranding of Fine Living Network to the Cooking Channel.

Second-quarter net income attributable to Scripps Networks Interactive was $106 million, or 63 cents per share, compared with $79.5 million, or 48 cents per share, in the second quarter 2009. Net income in the second quarter 2010 included a 6-cent tax benefit in discontinued operations. Excluding the tax benefit and Travel Channel transition costs, second quarter 2010 earnings per share would have been 59 cents.

Total segment profit for the company was up 37 percent to $228 million in the second quarter compared with $166 million in the prior-year period. (See Note 2 for a definition of segment profit).

"Scripps Networks Interactive had an outstanding second quarter, benefiting from robust affiliate revenue growth and the strong advertising marketplace, particularly for our targeted lifestyle television networks," said Kenneth W. Lowe, chairman, president and chief executive officer of the company. "Food Network, HGTV and Travel Channel all contributed to the solid quarter, delivering growing and engaged audiences thanks to standout programming hits like Next Food Network Star, HGTV Design Star and Man v. Food."

"Our newly rebranded Cooking Channel, launched May 31, is off to a positive start, delivering a considerably larger audience and higher ad revenues than Fine Living Network was at this time last year," Lowe said. "The wisdom of launching a flanker network targeting the popular television food genre is evident in the solid operating results the brand has achieved since going on the air."

"Scripps Networks Interactive is delivering on its promise to be a leading provider of lifestyle content in the home, food and travel categories, as well as being the leader in country music television programming," Lowe said. "Our networks consistently distinguish themselves with their ability to deliver engaged audiences and provide valuable marketing platforms for our advertising and distribution customers."

"Internationally, we're aggregating a growing cadre of Food Network fans in the United Kingdom and are successfully exporting our brand of lifestyle television content across other European markets as well as the Middle East, Africa and Asia," Lowe said. "At Shopzilla our initiatives to create online comparison shopping sites that are consumer friendly and of increasing value to participating retailers are beginning to bear fruit."

Here are second-quarter results by operating segment:

Lifestyle Media

Lifestyle Media revenue was $475 million, up 36 percent. Affiliate fee revenue grew 73 percent to $139 million. Advertising revenue was $331 million, up 27 percent. Excluding Travel Channel, affiliate revenue increased 42 percent and advertising revenue was up 13 percent.

Total expenses increased 34 percent to $238 million.

Programming expenses increased 32 percent to $103 million. Programming expenses excluding Travel Channel were up about 15 percent. The year-over-year increase in programming costs was due in part to accelerated amortization of Fine Living Network programming related to the Cooking Channel rebranding.

Non-programming costs increased 35 percent to $135 million, due to:

  • The consolidation of Travel Channel operating results.
  • Travel transition costs.
  • 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 second quarter, Lifestyle Media segment profit was up 38 percent to $237 million compared with $172 million in the prior-year period.

Operating revenue at HGTV was $174 million, up 6.2 percent. HGTV now reaches 99 million U.S. subscribers compared with about 98 million at the end of the second quarter 2009.

Food Network operating revenue was $173 million, up 35 percent. Food Network reaches about 100 million U.S. subscribers, up from about 98 million at the end of the second quarter 2009.

Operating revenue at Travel Channel increased 13 percent to $61 million. Travel Channel reaches 96 million U.S. subscribers, up from about 94 million at the end of the second quarter 2009.

Revenue at DIY Network was up 26 percent to $22.8 million. DIY can be seen in about 54 million U.S. households, up from about 51 million households a year ago.

Revenue at Cooking Channel (formerly Fine Living Network) was $13.6 million, up 24 percent. Cooking Channel reaches 57 million U.S. households vs. 55 million that Fine Living reached during the same timeframe last year. The company completed its rebranding of Fine Living Network to the Cooking Channel on May 31.

Revenue at Great American Country (GAC) increased 26 percent to $8.5 million. Great American Country can be seen in about 59 million U.S. homes compared with about 57 million homes a year ago.

Revenue from the Lifestyle Media segment's digital businesses, which includes its network-branded Web sites, was $21.4 million, up 2.8 percent.

Interactive Services

Interactive Services revenue was $37.3 million compared with $40.8 million in the year-ago quarter.

Segment expenses decreased 6.3 percent to $31.3 million.

Segment profit was $6.0 million compared with $7.3 million.

Direct leads to Shopzilla merchant partners increased 20 percent year-over-year during the quarter. The lead volume metric measures the value Shopzilla delivers to its merchant partners, as well as the level of engagement consumers have with its branded comparison shopping Web sites, BizRate.com, Beso and Shopzilla.com.

2010, Full-year Guidance

The company provided the following outlook for 2010.

Lifestyle Media

  • Affiliate revenue is now expected to be $540 million to $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 near the lower end of the previously forecasted range of $545 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 expected to be $11 million to $16 million. International operating losses for the first half of the year were $5.0 million.

Other items

  • Capital expenditures are now expected to be $90 million to $95 million. That includes $35 million in non-recurring spending for the company's facility expansion in Knoxville, Tenn., and $8 million to facilitate the Travel Channel transition.
  • Effective tax rate, 31 to 33 percent.
  • The company lowered its full-year guidance for depreciation and amortization, which is now expected to be $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 non controlling interests than previously forecast. Non controlling share of net income is now expected to be between $130 million and $135 million for the year.

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. EDT today. Scripps Networks Interactive will offer a live webcast of the conference call. To access the webcast, visit http://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 800-230-1093 (U.S.) or 612-332-0107 (international) approximately ten minutes before the start of the call. Callers will need the name of the call, "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. EDT Aug. 9 until 11:59 p.m. EDT Aug. 23. 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 165971. A replay of the conference call will also be available online. To access the audio replay, visit http://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 Six months ended
June 30, June 30,
(in thousands, except per share data) 2010 2009 Change 2010 2009 Change
Operating revenues $ 516,041 $ 391,272 31.9 % $ 985,434 $ 747,048 31.9 %
Costs and expenses (288,150 ) (225,129 ) 28.0 % (582,389 ) (441,682 ) 31.9 %
Depreciation and amortization
of intangible assets (33,167 ) (19,503 ) 70.1 % (64,614 ) (37,904 ) 70.5 %
Gains (losses) on disposal of PP&E (1,172 ) 2 (1,320 ) (69 )
Operating income 193,552 146,642 32.0 % 337,111 267,393 26.1 %
Interest expense (9,291 ) (399 ) (17,772 ) (736 )
Equity in earnings of affiliates 8,366 5,868 42.6 % 14,542 7,961 82.7 %
Miscellaneous, net (248 ) 240 (845 ) 600
Income from continuing operations
before income taxes 192,379 152,351 26.3 % 333,036 275,218 21.0 %
Provision for income taxes (60,703 ) (47,504 ) 27.8 % (105,578 ) (88,905 ) 18.8 %
Income from continuing
operations, net of tax 131,676 104,847 25.6 % 227,458 186,313 22.1 %
Income (loss) from discontinued
operations, net of tax 10,029 (994 ) 10,029 (2,561 )
Net income 141,705 103,853 36.4 % 237,487 183,752 29.2 %
Net income attributable to
noncontrolling interests (35,497 ) (24,329 ) 45.9 % (58,821 ) (44,100 ) 33.4 %
Net income attributable to SNI $ 106,208 $ 79,524 33.6 % $ 178,666 $ 139,652 27.9 %
Diluted income per share:
Income from continuing
operations attributable to
SNI common shareholders $ 0.57 $ 0.49 $ 1.01 $ 0.87
Income (loss) from discontinued
operations attributable to
SNI common shareholders 0.06 (0.01 ) 0.06 (0.02 )
Net income attributable to
SNI common shareholders $ 0.63 $ 0.48 $ 1.07 $ 0.85
Weighted average
diluted shares outstanding 167,802 164,396 167,446 164,159
Amounts attributable to SNI:
Income from continuing operations $ 96,179 $ 80,518 $ 168,637 $ 142,213
Income (loss) from
discontinued operations 10,029 (994 ) 10,029 (2,561 )
Net income attributable to SNI $ 106,208 $ 79,524 $ 178,666 $ 139,652
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

June 30, December 31,
2010 2009
(in thousands, except per share data) (unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 331,011 $ 254,370
Accounts and notes receivable (less allowances: 2010- $4,201; 2009- $5,587) 472,370 430,410
Programs and program licenses 279,230 271,773
Other current assets 49,543 25,716
Total current assets 1,132,154 982,269
Investments 51,092 46,395
Property, plant and equipment, net 234,017 239,644
Goodwill 666,502 670,494
Other intangible assets, net 663,433 681,312
Programs and program licenses (less current portion) 253,608 255,839
Unamortized network distribution incentives 99,313 71,266
Other non-current assets 16,395 15,843
Total Assets$ 3,116,514 $ 2,963,062
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 18,121 $ 27,538
Program rights payable 35,662 20,350
Customer deposits and unearned revenue 19,158 16,865
Employee compensation and benefits 38,141 43,377
Accrued marketing and advertising costs 15,786 13,477
Other accrued liabilities 109,319 89,101
Total current liabilities 236,187 210,708
Deferred income taxes 86,827 119,515
Long-term debt 884,320 884,239
Other liabilities (less current portion) 117,117 99,662
Total liabilities 1,324,451 1,314,124
Redeemable noncontrolling interests 117,027 113,886
Equity:
SNI shareholders' equity:
Preferred stock, $.01 par - authorized: 25,000,000 shares; none outstanding
Common stock, $.01 par:
Class A - authorized: 240,000,000 shares; issued and
outstanding: 2010 - 130,075,110 shares; 2009 - 129,443,195 shares 1,301 1,295
Voting - authorized: 60,000,000 shares; issued and
outstanding: 2010 - 36,218,226 shares; 2009 - 36,338,226 shares 362 363
Total 1,663 1,658
Additional paid-in capital 1,296,190 1,271,209
Retained earnings 245,458 113,853
Accumulated other comprehensive income (loss) (3,893 ) (3,004 )
Total SNI shareholders' equity 1,539,418 1,383,716
Noncontrolling interest 135,618 151,336
Total equity 1,675,036 1,535,052
Total Liabilities and Equity$ 3,116,514 $ 2,963,062
SCRIPPS NETWORKS INTERACTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) Six months ended
June 30,
(in thousands) 2010 2009
Cash Flows from Operating Activities:
Net income $ 237,487 $ 183,752
Loss (income) from discontinued operations (10,029 ) 2,561
Income from continuing operations, net of tax 227,458 186,313
Depreciation and intangible assets amortization 64,614 37,904
Amortization of network distribution costs 15,169 19,134
Programs and program licenses costs 193,407 149,276
Equity in earnings of affiliates (14,542 ) (7,961 )
Program payments (183,568 ) (138,231 )
Capitalized network distribution incentives (5,737 ) (3,676 )
Dividends received from equity investments 9,470 9,909
Deferred income taxes (31,793 ) 11,692
Stock and deferred compensation plans 11,293 10,352
Changes in certain working capital accounts:
Accounts receivable (42,313 ) 19,873
Other assets (5,612 ) 62
Accounts payable (8,534 ) (3,645 )
Accrued employee compensation and benefits (5,010 ) (5,872 )
Accrued income taxes (22,872 ) (13,857 )
Other liabilities 2,379 (32,311 )
Other, net 13,440 8,949
Net cash provided by (used in) continuing operating activities 217,249 247,911
Net cash provided by (used in) discontinued operating activities (2,520 )
Net operating activities 217,249 245,391
Cash Flows from Investing Activities:
Additions to property, plant and equipment (33,837 ) (40,411 )
Increase in short-term investments (38,697 )
Purchase of subsidiary companies and noncontrolling interests (14,400 )
Other, net (1,214 ) (1,933 )
Net cash provided by (used in) continuing investing activities (49,451 ) (81,041 )
Net cash provided by (used in) discontinued investing activities (677 )
Net investing activities (49,451 ) (81,718 )
Cash Flows from Financing Activities:
Payments on long-term debt (80,000 )
Dividends paid (24,976 ) (24,621 )
Dividends paid to noncontrolling interest (79,853 ) (69,811 )
Proceeds from stock options 18,034 13,300
Other, net (5,064 ) (2,758 )
Net financing activities from continuing operations (91,859 ) (163,890 )
Effect of exchange rate changes on cash and cash equivalents 702 (35 )
Increase (decrease) in cash and cash equivalents 76,641 (252 )
Cash and cash equivalents:
Beginning of year 254,370 9,970
End of period $ 331,011 $ 9,718
Supplemental Cash Flow Disclosures:
Interest paid, excluding amounts capitalized $ 664 $ 543
Income taxes paid 139,936 85,681

Notes to Results of Operations

1. OTHER CHARGES AND CREDITS

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. Net income attributable to SNI was increased $.06 per share.

Operating results in the second quarter of 2010 include $8.6 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 second quarter of 2010 was reduced $3.4 million, $.02 per share.

For the year-to-date period of 2010, these Travel Channel transition costs were $24.1 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 $15.5 million, $.09 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. We own approximately 69% of Food Network and 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 Six months ended
June 30, June 30,
2010 2009 Change 2010 2009 Change
Segment operating revenues:
Lifestyle Media $ 475,193 $ 350,531 35.6 % $ 903,757 $ 661,216 36.7 %
Interactive Services 37,311 40,770 (8.5 )% 74,917 85,902 (12.8 )%
Corporate 3,556 6,806
Intersegment eliminations (19 ) (29 ) (34.5 )% (46 ) (70 ) (34.3 )%
Total operating revenues $ 516,041 $ 391,272 31.9 % $ 985,434 $ 747,048 31.9 %
Segment profit (loss):
Lifestyle Media $ 237,003 $ 172,365 37.5 % $ 423,202 $ 318,441 32.9 %
Interactive Services 5,967 7,318 (18.5 )% 10,842 14,299 (24.2 )%
Corporate (15,079 ) (13,540 ) 11.4 % (30,999 ) (27,374 ) 13.2 %
Total segment profit 227,891 166,143 37.2 % 403,045 305,366 32.0 %
Depreciation and amortization
of intangible assets (33,167 ) (19,503 ) 70.1 % (64,614 ) (37,904 ) 70.5 %
Gains (losses) on disposal of PP&E (1,172 ) 2 (1,320 ) (69 )
Interest expense (9,291 ) (399 ) (17,772 ) (736 )
Equity in earnings of affiliates 8,366 5,868 42.6 % 14,542 7,961 82.7 %
Miscellaneous, net (248 ) 240 (845 ) 600
Income from continuing
operations before income taxes $ 192,379 $ 152,351 26.3 % $ 333,036 $ 275,218 21.0 %

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 80%, was formed to launch new lifestyle-oriented channels in Europe, the Middle East and Africa.

Our continued investment in international expansion initiatives increased the 2010 year-to-date segment loss at corporate by $5.0 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 Six months ended
June 30, June 30,
2010 2009 Change 2010 2009 Change
Operating revenues by brand:
HGTV $ 173,701 $ 163,515 6.2 % $ 335,318 $ 307,378 9.1 %
Food Network 173,220 128,371 34.9 % 325,152 244,627 32.9 %
Travel Channel 61,188 118,084
DIY 22,816 18,121 25.9 % 41,464 33,449 24.0 %
Cooking Channel/FLN (1) 13,615 10,992 23.9 % 27,399 22,703 20.7 %
GAC 8,496 6,742 26.0 % 14,902 12,825 16.2 %
Digital Businesses 21,407 20,822 2.8 % 39,450 36,483 8.1 %
Other 1,705 2,162 (21.1 )% 3,531 4,025 (12.3 )%
Intrasegment eliminations (955 ) (194 ) (1,543 ) (274 )
Operating revenues by type:
Advertising $ 331,465 $ 261,004 27.0 % $ 618,734 $ 485,579 27.4 %
Network affiliate fees, net 138,554 80,044 73.1 % 274,457 159,119 72.5 %
Other 5,174 9,483 (45.4 )% 10,566 16,518 (36.0 )%
Subscribers (2):
HGTV 99,000 98,000 1.0 %
Food Network 99,900 98,300 1.6 %
Travel Channel 96,200 94,200 2.1 %
DIY 53,500 51,200 4.5 %
Cooking Channel/FLN (1) 57,400 54,900 4.6 %
GAC 58,500 56,500 3.5 %
(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 Six months ended
June 30, June 30,
2010 2009 2010 2009
Operating income $ 193,552 $ 146,642 $ 337,111 $ 267,393
Depreciation and amortization
of intangible assets:
Lifestyle Media 24,325 9,042 46,940 17,611
Interactive Services 8,377 10,227 16,771 19,941
Corporate 465 234 903 352
Losses (gains) on disposal of PP&E:
Lifestyle Media 1,171 1,292 55
Interactive Services 1 (2 ) 28 14
Total segment profit $ 227,891 $ 166,143 $ 403,045 $ 305,366

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 Six months ended
June 30, June 30,
2010 2009 2010 2009
Segment profit $ 227,891 $ 166,143 $ 403,045 $ 305,366
Income taxes paid (120,624 ) (83,048 ) (139,936 ) (85,681 )
Interest paid (497 ) (302 ) (664 ) (543 )
Working capital and other (48,573 ) (358 ) (45,196 ) 28,769
Cash provided by continuing operating activities 58,197 82,435 217,249 247,911
Dividends paid to noncontrolling interest (24,211 ) (17,087 ) (79,853 ) (69,811 )
Acquisitions of property, plant and equipment (17,525 ) (23,046 ) (33,837 ) (40,411 )
Free cash flow $ 16,461 $ 42,302 $ 103,559 $ 137,689

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

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