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8-K - FORM 8-K - Scripps Networks Interactive, Inc.d872865d8k.htm

Exhibit 99

 

 

LOGO

Scripps Networks Interactive reports full year and fourth quarter 2014 financial results

 

    Revenues of $2.7 billion, up 5.3 percent

 

    Segment profit of $1.1 billion, up 1.8 percent

 

    Net income attributable to SNI of $3.83 per share, up 13 percent

For immediate release

Feb. 12, 2015

KNOXVILLE, Tenn. — Scripps Networks Interactive, Inc. (NYSE: SNI) today reported full-year and fourth-quarter 2014 operating results.

Consolidated operating revenue in 2014 was $2.7 billion, up 5.3 percent from the prior year. Year-over-year advertising revenue was up 5.7 percent to $1.8 billion primarily due to pricing, and affiliate fee revenue was up 5.4 percent to $799 million primarily due to contractual rate increases.

Segment profit increased to $1.1 billion, up 1.8 percent from the prior year. This increase was due to revenue growth, partially offset by the fourth quarter restructuring expenses (see other credits and charges note) coupled with increases in programming and marketing expenses and international investments (see non-GAAP financial measures note for a definition of segment profit).

Full-year 2014 consolidated net income attributable to Scripps Networks Interactive was $545 million, or $3.83 per diluted share, including $0.06 per share for the restructuring charges, and the $0.07 per share second-quarter charge for early contract termination costs (see other charges and credits note). Full-year 2013 consolidated net income was $505 million, or $3.40 per diluted share, including the $0.17 write-down of goodwill in the fourth quarter of 2013.

“The strength of our lifestyle media brands and the connections they make with consumers and advertisers enabled the company to maintain its record of growth and creating shareholder value for the quarter and the full year,” said Kenneth W. Lowe, chairman, president and chief executive officer. “The company is in a great position to capitalize on the many opportunities in an ever changing media environment.”


Fourth-quarter Results

Consolidated revenues for the quarter increased 2.3 percent to $669 million from the prior-year period. Results for the three-month period ended Dec. 31 reflect advertising revenue of $454 million, up 0.7 percent, and affiliate fee revenue of $202 million, up 6.1 percent year over year.

Costs of services and selling, general and administrative expenses for the quarter increased 6.9 percent from the prior-year period to $407 million. The increase was driven primarily by the restructuring expenses of $14.4 million (see other charges and credits note) and higher programming amortization.

Total segment profit decreased 4.2 percent to $262 million reflecting the impact of the fourth-quarter restructuring costs (see non-GAAP financial measures note for a definition of segment profit).

Fourth-quarter net income attributable to Scripps Networks Interactive was $132 million, or $0.96 per diluted share, including the $0.06 per share charge related to operational restructuring. Fourth-quarter 2013 net income was $109 million, or $0.73 per diluted share, including a $0.17 per share write-down of goodwill.

Segment results

 

    

Three months ended

December 31,

         

Twelve months ended

December 31,

       

(in thousands)

   2014     2013     Change     2014     2013     Change  

Segment operating revenues:

            

Lifestyle media

   $ 641,868      $ 631,406        1.7    $ 2,575,376      $ 2,455,650        4.9 

Corporate and other

     27,284        23,072        18.3      90,290        75,798        19.1 

Intersegment eliminations

       (83       (210     (639  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating revenues

   $ 669,152      $ 654,395        2.3    $ 2,665,456      $ 2,530,809        5.3 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Segment profit (loss):

            

Lifestyle media

   $ 297,972      $ 295,034        1.0    $ 1,255,437      $ 1,202,356        4.4 

Corporate and other

     (36,193     (21,765     66.3      (133,676     (99,896     33.8 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total segment profit

   $ 261,779      $ 273,269        (4.2 )%    $ 1,121,761      $ 1,102,460        1.8 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Lifestyle media revenues in the fourth quarter of 2014 increased 1.7 percent to $642 million driven by affiliate fee revenue growth. Total advertising revenue for the lifestyle media segment grew 0.3 percent to $444 million reflecting softness in the advertising market and audience delivery at some of our networks. Affiliate fee revenue grew 6.1 percent to $191 million due to higher rates and the benefit of our online video distribution agreements.

Lifestyle media segment profit increased 1.0 percent to $298 million reflecting the revenue growth, partially offset by the restructuring expenses and higher program amortization.

Corporate and other includes the results of the lifestyle-oriented channels operated internationally. Corporate and other revenues increased 18 percent to $27.3 million, driven by the expanding international operations.

Corporate and other segment loss increased to $36.2 million from $21.8 million, driven primarily by the restructuring expenses and continued investments in international operations.


Share repurchase program

For the quarter ended Dec. 31, the company repurchased 5.1 million shares at an aggregate purchase price of $399 million. For the full year 2014, 15.4 million shares were repurchased at an aggregate purchase price of $1.2 billion. As of Dec. 31, $448 million remained available for repurchase under the company’s share repurchase program.

2015 Full-year Guidance

The company provided the following outlook for 2015. All guidance is based on total company performance and excludes restructuring expenses:

 

    Total revenue is expected to increase about 4 percent.

 

    Cost of services is expected to increase between 8 percent and 10 percent.

 

    Selling, general and administrative expenses are expected to be down 2 percent to flat.

Other items:

 

    Depreciation and amortization, between $100 million and $110 million.

 

    Interest expense of approximately $55 million.

 

    Effective tax rate, between 30 percent and 32 percent.

 

    Noncontrolling share of net income, between $175 million and $185 million.

 

    Capital expenditures, between $50 million and $60 million.

Conference call

The senior management team of Scripps Networks Interactive will discuss the company’s fourth quarter results during a telephone conference call at 10 a.m. ET today. Scripps Networks Interactive will offer a live webcast of the conference call. To access the webcast, visit www.scrippsnetworksinteractive.com and follow the Investors link at the top of the page. The webcast link can be found next to the microphone icon on the investor relations landing page.

To access the conference call by telephone, dial (800) 553-0288 (U.S.) or (612) 332-0725 (international) approximately ten minutes before the start of the call. Callers will need the name of the call, “SNI Fourth 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 12:15 p.m. on Feb. 12 until 11:59 p.m. ET on Feb. 26. 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 350372.

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 the Investors page, then follow the Audio Archives link at the top of the Investor Relations 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 2013 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 engaging lifestyle content in the home, food and travel categories for television, the Internet and emerging platforms. The company’s lifestyle media portfolio comprises popular television and Internet brands HGTV, DIY Network, Food Network, Cooking Channel, Travel Channel and Great American Country, which collectively reach more than 190 million consumers each month. Companion websites complement on-air programming with video and social media that inform and inspire. The company’s global networks reach millions of consumers across North and South America, Asia, Europe, the Middle East and Africa. Scripps Networks Interactive is headquartered in Knoxville, Tenn. For more information, please visit http://www.scrippsnetworksinteractive.com.

# # #

Contact: Scripps Networks Interactive, Inc.

Investors: Mike Gallentine, 865-560-4473, mgallentine@scrippsnetworks.com

Media: Dylan Jones, 865-560-5068, DJones@scrippsnetworks.com, or

Lee Hall, 865-560-3853, LHall@scrippsnetworks.com


SCRIPPS NETWORKS INTERACTIVE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

(unaudited)    Three months ended           Twelve months ended        
     December 31,           December 31,        

(in thousands, except per share data)

   2014     2013     Change     2014     2013     Change  

Operating revenues

   $ 669,152      $ 654,395        2.3   $ 2,665,456      $ 2,530,809        5.3

Cost of services, excluding depreciation and amortization of intangible assets

     (200,478     (188,645     6.3     (778,896     (699,294     11.4

Selling, general and administrative

     (206,895     (192,481     7.5     (764,799     (729,055     4.9

Depreciation and amortization of intangible assets

     (31,498     (31,812     (1.0 )%      (128,582     (117,580     9.4

Write-down of goodwill

       (24,723         (24,723  

Gains (losses) on disposal of property and equipment

     177        (111       (870     (1,681  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     230,458        216,623        6.4     992,309        958,476        3.5

Interest expense

     (15,789     (12,031     31.2     (52,687     (48,710     8.2

Equity in earnings of affiliates

     18,521        18,472        0.3     85,631        79,644        7.5

Miscellaneous, net

     727        1,585          2,598        1,241     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations before income taxes

     233,917        224,649        4.1     1,027,851        990,651        3.8

Provision for income taxes

     (55,868     (73,621     (24.1 )%      (301,043     (307,623     (2.1 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     178,049        151,028        17.9     726,808        683,028        6.4

Net income attributable to noncontrolling interests

     (46,203     (42,509     8.7 %     (181,533     (177,958     2.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to SNI

   $ 131,846      $ 108,519        21.5 %   $ 545,275      $ 505,070        8.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to SNI common shareholders per basic share of common stock

   $ 0.96      $ 0.74        $ 3.86      $ 3.43     
  

 

 

   

 

 

     

 

 

   

 

 

   

Net income attributable to SNI common shareholders per diluted share of common stock

   $ 0.96      $ 0.73        $ 3.83      $ 3.40     
  

 

 

   

 

 

     

 

 

   

 

 

   

Weighted average basic shares outstanding

     136,876        146,813          141,297        147,326     
  

 

 

   

 

 

     

 

 

   

 

 

   

Weighted average diluted shares outstanding

     137,708        148,076          142,193        148,502     
  

 

 

   

 

 

     

 

 

   

 

 

   


SCRIPPS NETWORKS INTERACTIVE, INC.

CONSOLIDATED BALANCE SHEETS

 

(unaudited)    As of  
     December 31,     December 31,  

(in thousands, except share and par value amounts)

   2014     2013  

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 878,164      $ 686,371   

Accounts receivable (less allowances: 2014 - $7,889; 2013 - $6,853)

     629,775        619,619   

Programs and program licenses

     477,575        423,949   

Deferred income taxes

     41,831        41,140   

Other current assets

     110,816        90,231   
  

 

 

   

 

 

 

Total current assets

     2,138,161        1,861,310   

Investments

     463,344        488,198   

Property and equipment, net

     226,246        246,350   

Goodwill

     573,119        574,582   

Other intangible assets, net

     595,881        655,009   

Programs and program licenses (less current portion)

     469,083        413,057   

Deferred income taxes

     37,265        39,075   

Other non-current assets

     164,533        160,866   
  

 

 

   

 

 

 

Total Assets

   $ 4,667,632      $ 4,438,447   
  

 

 

   

 

 

 

LIABILITIES AND EQUITY

    

Current liabilities:

    

Accounts payable

   $ 21,499      $ 18,278   

Current portion of debt

     884,994     

Program rights payable

     36,138        30,412   

Customer deposits and unearned revenue

     47,929        70,427   

Employee compensation and benefits

     73,185        67,188   

Accrued marketing and advertising costs

     3,765        11,053   

Other accrued liabilities

     90,444        81,341   
  

 

 

   

 

 

 

Total current liabilities

     1,157,954        278,699   

Debt (less current portion)

     1,494,411        1,384,488   

Other liabilities (less current portion)

     234,429        223,368   
  

 

 

   

 

 

 

Total liabilities

     2,886,794        1,886,555   
  

 

 

   

 

 

 

Redeemable noncontrolling interest

     96,251        133,000   
  

 

 

   

 

 

 

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: 2014 - 97,789,910 shares; 2013 - 111,891,667 shares

     978        1,119   

Voting - authorized: 60,000,000 shares; issued and outstanding: 2014 - 34,317,171 shares; 2013 - 34,317,171 shares

     343        343   
  

 

 

   

 

 

 

Total

     1,321        1,462   

Additional paid-in capital

     1,359,023        1,447,496   

Retained earnings

     79,994        662,574   

Accumulated other comprehensive income (loss)

     (57,891     (12,529
  

 

 

   

 

 

 

Total SNI shareholders’ equity

     1,382,447        2,099,003   

Noncontrolling interest

     302,140        319,889   
  

 

 

   

 

 

 

Total equity

     1,684,587        2,418,892   
  

 

 

   

 

 

 

Total Liabilities and Equity

   $ 4,667,632      $ 4,438,447   
  

 

 

   

 

 

 


SCRIPPS NETWORKS INTERACTIVE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(unaudited)    Twelve months ended  
     December 31,  

(in thousands)

   2014     2013  

Cash Flows from Operating Activities:

    

Net income

   $ 726,808      $ 683,028   

Depreciation and amortization of intangible assets

     128,582        117,580   

Write-down of goodwill

       24,723   

Amortization of network distribution costs

     7,004        7,024   

Program amortization

     621,210        556,694   

Equity in earnings of affiliates

     (85,631     (79,644

Program payments

     (725,582     (627,591

Dividends received from equity investments

     104,185        83,912   

Deferred income taxes

     7,175        79,336   

Stock and deferred compensation plans

     39,375        46,810   

Changes in certain working capital accounts:

    

Accounts receivable

     (10,932     (52,691

Other assets

     (2,188     1,255   

Accounts payable

     3,593        5,001   

Accrued employee compensation and benefits

     6,848        9,709   

Accrued / refundable income taxes

     (18,947     (31,573

Other liabilities

     (16,558     35,303   

Other, net

     (7,368     18,318   
  

 

 

   

 

 

 

Cash provided by (used in) operating activities

     777,574        877,194   
  

 

 

   

 

 

 

Cash Flows from Investing Activities:

    

Additions to property and equipment

     (53,775     (72,990

Collections (funds advanced) on note receivable

     4,481        12,939   

Purchase of long-term investments

     (17,042     (171

Purchase of subsidiary companies, net of cash acquired

       (64,412

Other, net

     (12,001     (43,339
  

 

 

   

 

 

 

Cash provided by (used in) investing activities

     (78,337     (167,973
  

 

 

   

 

 

 

Cash Flows from Financing Activities:

    

Proceeds from debt

     1,189,555     

Payments on debt

     (195,000  

Dividends paid

     (112,943     (88,400

Dividends paid to noncontrolling interests

     (216,860     (160,493

Repurchase of Class A common stock

     (1,198,962     (253,203

Proceeds from stock options

     39,605        42,976   

Deferred loan costs

     (9,026  

Other, net

     (1,361     (1,762
  

 

 

   

 

 

 

Cash provided by (used in) financing activities

     (504,992     (460,882
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (2,452     507   
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     191,793        248,846   

Cash and cash equivalents:

    

Beginning of year

     686,371        437,525   
  

 

 

   

 

 

 

End of period

   $ 878,164      $ 686,371   
  

 

 

   

 

 

 

Supplemental Cash Flow Disclosures:

    

Interest paid, excluding amounts capitalized

   $ 45,917      $ 45,436   

Income taxes paid

     309,519        229,966   
  

 

 

   

 

 

 


OTHER CHARGES AND CREDITS

Voluntary early retirement program and employee termination costs – During the fourth quarter of 2014, we provided qualified employees voluntary early retirement packages and notified employees of the elimination of certain positions within the Company. We also announced that the Company will be closing our Cincinnati office location later in 2015 and will be relocating certain employees to our Knoxville, Tennessee headquarters. Our 2014 operating results include a $14.4 million charge for severance, retention, and related retirement benefit costs that were incurred following the initiation of these programs. Net income attributable to SNI was reduced by $8.9 million, $.06 per share.

Contract termination costs – During the second quarter of 2014, we reached an agreement to terminate the master services agreement and sales agency agreement related to services provided for our Food Network and Fine Living operations in Europe, the Middle East and Africa. We also entered into an arrangement that establishes a transition plan for us to assume the activities associated with these provided services. Our 2014 operating results include a $9.7 million charge for the early termination of these agreements that reduced net income attributable to SNI $9.7 million, $.07 per share.

Asset write-down – In connection with our annual impairment test for goodwill, we recorded a $24.7 million non-cash charge in the fourth quarter of 2013 to write-down the goodwill associated with our Travel Channel International business. The charge reduced 2013 net income attributable to SNI by $24.7 million, $.17 per share.

NON-GAAP FINANCIAL MEASURES

Our chief operating decision maker evaluates the operating performance of our business segments and makes decisions about the allocation of resources to our business segments using a measure we call segment profit. Segment profit excludes interest, income taxes, depreciation and amortization, divested operating units, 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”).

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.

In 2014, we made changes to our management reporting structure related to the operating results of our businesses located in the Caribbean and certain of our digital businesses. In conjunction with these changes in our reporting structure, we now report the results of our Caribbean businesses within our international operating segment, included within our corporate and other caption for segment reporting purposes, rather than the lifestyle media reportable segment. The impacted digital businesses are now reported within our lifestyle media reportable segment, rather than our corporate and other caption for segment reporting purposes. For comparability purposes, prior year segment results have also been reclassified to reflect the impact of these management reporting changes. These reclassifications only affect our segment reporting, and do not change our consolidated operating revenues, operating income, or net income.


A reconciliation of segment profit to operating income determined in accordance with GAAP for each business segment is as follows:

 

    

Three months ended

December 31,

    

Twelve months ended

December 31,

 

(in thousands)

   2014     2013      2014     2013  

Operating income

   $ 230,458      $ 216,623       $ 992,309      $ 958,476   

Depreciation and amortization of intangible assets:

         

Lifestyle media

     27,932        27,173         111,497        104,214   

Corporate and other

     3,566        4,639         17,085        13,366   

Write-down of goodwill

       24,723           24,723   

Losses (gains) on disposal of property and equipment:

         

Lifestyle media

     (238     106         1,311        1,606   

Corporate and other

     61        5         (441     75   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total segment profit

   $ 261,779      $ 273,269       $ 1,121,761      $ 1,102,460  
  

 

 

   

 

 

    

 

 

   

 

 

 

We define free cash flow as cash provided by operating activities less dividends paid to noncontrolling interests and acquisitions of property and equipment. We measure free cash flow as we believe it is an important indicator for management and investors as to our liquidity, including our ability to reduce debt, make strategic investments and return capital to shareholders. A reconciliation of free cash flow is as follows:

 

     Three months ended     Twelve months ended  
     December 31,     December 31,  

(in thousands)

   2014     2013     2014     2013  

Segment profit

   $ 261,779      $ 273,269      $ 1,121,761      $ 1,102,460   

Income taxes paid

     (81,335     (74,734     (309,519     (229,966

Interest paid

     (6,971     (6,776     (45,917     (45,436

Working capital and other

     23,923        2,072        11,249        50,136   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash provided by operating activities

     197,396        193,831        777,574        877,194   

Dividends paid to noncontrolling interests

     (22,004     (13,846     (216,860     (160,493

Additions to property and equipment

     (11,991     (25,596     (53,775     (72,990
  

 

 

   

 

 

   

 

 

   

 

 

 

Free cash flow

   $ 163,401      $ 154,389      $ 506,939      $ 643,711   
  

 

 

   

 

 

   

 

 

   

 

 

 

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.


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 distributors and telecommunication service providers that carry our network programming, the licensing of our content to third parties, the licensing of our brands for consumer products such as books and kitchenware, and from the sale of advertising on our lifestyle media affiliated websites.

Supplemental information for lifestyle media is as follows:

 

     Three months ended           Twelve months ended        
     December 31,           December 31,        

(in thousands)

   2014     2013     Change     2014     2013     Change  

Operating revenues by brand:

            

HGTV

   $ 231,131      $ 221,398        4.4   $ 938,475      $ 876,051        7.1

Food Network

     219,707        222,113        (1.1 )%      888,533        854,936        3.9

Travel Channel

     75,718        77,983        (2.9 )%      314,199        315,773        (0.5 )% 

DIY Network

     36,816        34,420        7.0     152,094        138,663        9.7

Cooking Channel

     31,829        29,001        9.8     120,835        110,244        9.6

Great American Country

     7,532        7,735        (2.6 )%      30,154        27,717        8.8

Digital Businesses

     37,841        36,330        4.2     122,062        120,510        1.3

Other

     3,471        3,310        4.9     14,566        14,454        0.8

Intrasegment eliminations

     (2,177     (884       (5,542     (2,698  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total segment operating revenues

   $ 641,868      $ 631,406        1.7   $ 2,575,376      $ 2,455,650        4.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating revenues by type:

            

Advertising

   $ 443,648      $ 442,276        0.3   $ 1,787,647      $ 1,697,170        5.3

Network affiliate fees, net

     190,891        179,984        6.1     755,950        720,547        4.9

Other

     7,329        9,146        (19.9 )%      31,779        37,933        (16.2 )%