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8-K - 8-K_SNI 3Q 2017 EARNINGS RELEASE - Scripps Networks Interactive, Inc.sni-8k_20171101.htm

Exhibit 99

 

Scripps Networks Interactive reports third quarter 2017 operating results

 

 

Third Quarter 2017 Financial Highlights:

 

Consolidated operating revenues of $825.5 million;

 

Consolidated income from operations before income taxes of $233.5 million;

 

Consolidated adjusted segment profit(1) of $303.4 million;

 

Consolidated net income per diluted share attributable to SNI shareholders of $0.95; and

 

Consolidated adjusted net income(1) per diluted share attributable to SNI shareholders of $1.05.

 

KNOXVILLE, Tenn. — November 1, 2017 — Scripps Networks Interactive, Inc. (Nasdaq: SNI) today reported third quarter 2017 operating results.

 

For the third quarter of 2017 compared with the prior year period, HGTV maintained its No. 1 position among ad-supported cable networks for women 25-54 in sales prime and ranked 5th for adult 25-54 viewers. However, the network’s ratings declined 7% for adult 25-54 viewers in sales prime. Food Network finished the quarter ranked 11th for women 25-54 viewers, and its adult 25-54 sales prime ratings were down 7%. Travel Channel delivered a 5% improvement in its adult 25-54 sales prime ratings. TVN, a leading multi-platform media business in Poland, grew its ratings 3% for the urban 16-49 audience group in the quarter.

 

Scripps Lifestyle Studios continued its growth in the third quarter, generating nearly 5.3 billion global video views on various digital platforms compared with 1.3 billion in the third quarter of 2016. Current quarter video views include those from recently acquired Spoon University and the international networks. Additionally, Scripps Lifestyle Studios reached more than 460 million users, improving nearly 85% compared to the prior year quarter.

 

“At a time of rapid transformation in the media industry, we continue to execute on our strategic goals to strengthen the core business, expand our reach and monetize audiences. Our brands deliver the compelling content and programming that viewers love and trust, and with each passing quarter, we are building stronger community with consumers across a multitude of devices and platforms around the world,” said Kenneth W. Lowe, Chairman, President and Chief Executive Officer. “Scripps Lifestyle Studios delivered another record-breaking quarter, further solidifying our digital businesses as an increasingly important growth driver for the company. With the launch of Genius Kitchen, our newest food-focused digital brand, which offers more than 150 hours of immersive content, Scripps Lifestyle Studios is well-positioned to deliver even more impactful digital assets to our audiences.”

 

Lowe continued, “For 23 years Scripps Networks Interactive has been one of the most trusted and respected content producers in the media industry. We continue to be excited to merge with


 

Discovery Communications in an unmatched opportunity to satisfy consumers’ desires for new and innovative content and to offer more engaging experiences across the world and on emerging channels and platforms.”

 

Third Quarter 2017 Consolidated Results

Consolidated operating revenues for the third quarter of 2017 were $825.5 million, an increase of 2.8% over the prior year period. Advertising revenues were $567.4 million, an increase of 2.0%, and distribution revenues were $233.1 million, an increase of 5.1%, over the prior year period.

 

Consolidated income from operations before income taxes in the third quarter of 2017 was

$233.5 million, a decrease of 9.4% compared with the prior year period. Consolidated net income attributable to Scripps Networks Interactive in the third quarter of 2017 was $124.1 million, or $0.95 per diluted share, a decrease of 15.2% compared with the prior year period. The decrease in both consolidated income from operations before income taxes and consolidated net income attributable to Scripps Networks Interactive was primarily driven by merger related expenses and higher marketing costs, an increase in cost of services attributed to investments in programming and lower foreign currency transaction gains, partially offset by the growth in operating revenues and a decrease in interest expense.

 

Consolidated adjusted segment profit(1) in the third quarter of 2017 was $303.4 million, a decrease of 4.5% compared with the prior year period. Consolidated adjusted net income(1) attributable to Scripps Networks Interactive in the third quarter of 2017 was $136.7 million, or $1.05 per diluted share, a decrease of 12.5% compared with the prior year period. The decrease in both consolidated adjusted segment profit(1) and consolidated adjusted net income(1) attributable to Scripps Networks Interactive was primarily driven by the expected increase in programming and marketing costs, partially offset by the growth in operating revenues.

 

Third Quarter 2017 Segment Results

Segment Profit and Adjusted Segment Profit - Q3 2017 and 2016

 

 

U.S. Networks

 

International Networks

 

Corporate and Other

 

Consolidated

 

 

Three months ended

 

Three months ended

 

Three months ended

 

Three months ended

 

 

September 30,

 

September 30,

 

September 30,

 

September 30,

 

(in thousands)

2017

 

2016

 

2017

 

2016

 

2017

 

2016

 

2017

 

2016

 

Income (loss) from operations before income taxes

$

293,042

 

$

306,469

 

$

(5,879

)

$

22,985

 

$

(53,626

)

$

(71,570

)

$

233,537

 

$

257,884

 

Interest (expense) income, net

 

(119

)

 

(79

)

 

149

 

 

(6,755

)

 

(23,122

)

 

(25,775

)

 

(23,092

)

 

(32,609

)

Equity in earnings of affiliates

 

3,912

 

 

4,202

 

 

4,846

 

 

4,271

 

 

-

 

 

-

 

 

8,758

 

 

8,473

 

(Loss) gain on derivatives

 

-

 

 

-

 

 

-

 

 

-

 

 

(3,446

)

 

2,827

 

 

(3,446

)

 

2,827

 

Loss on sale of investments

 

-

 

 

-

 

 

(1,942

)

 

-

 

 

(500

)

 

-

 

 

(2,442

)

 

-

 

Miscellaneous, net

 

2,309

 

 

3,538

 

 

(14,108

)

 

40,323

 

 

14,653

 

 

(22,585

)

 

2,854

 

 

21,276

 

Operating income (loss)

 

286,940

 

 

298,808

 

 

5,176

 

 

(14,854

)

 

(41,211

)

 

(26,037

)

 

250,905

 

 

257,917

 

Depreciation

 

10,946

 

 

17,103

 

 

3,136

 

 

3,010

 

 

654

 

 

257

 

 

14,736

 

 

20,370

 

Amortization

 

9,801

 

 

10,098

 

 

7,599

 

 

15,673

 

 

-

 

 

-

 

 

17,400

 

 

25,771

 

Segment profit (loss)

 

307,687

 

 

326,009

 

 

15,911

 

 

3,829

 

 

(40,557

)

 

(25,780

)

 

283,041

 

 

304,058

 

TVN transaction and integration expenses

 

-

 

 

-

 

 

-

 

 

11,168

 

 

-

 

 

851

 

 

-

 

 

12,019

 

Reorganization costs

 

-

 

 

1,267

 

 

-

 

 

-

 

 

-

 

 

237

 

 

-

 

 

1,504

 

Merger related expenses

 

907

 

 

-

 

 

-

 

 

-

 

 

19,454

 

 

-

 

 

20,361

 

 

-

 

Adjusted segment profit (loss)

$

308,594

 

$

327,276

 

$

15,911

 

$

14,997

 

$

(21,103

)

$

(24,692

)

$

303,402

 

$

317,581

 

 

U.S. Networks’ operating revenues for the third quarter of 2017 were $692.4 million, an increase of 0.9% over the prior year quarter. Advertising revenues were $474.8 million, a decrease of 0.6%


 

compared to the prior year quarter, reflecting lower advertising impressions delivered and an inventory mix shift in the quarter. U.S. Networks’ distribution revenues were $203.5 million, an increase of 4.7% compared with the prior year quarter, driven by negotiated annual rate increases and revenues generated from over-the-top distribution platforms, partially offset by subscriber declines.

 

U.S. Networks’ income from operations before income taxes in the third quarter of 2017 was $293.0 million, a decline of 4.4% compared with the prior year quarter. U.S. Networks’ adjusted segment profit(1) in the third quarter of 2017 was $308.6 million, a decrease of 5.7% compared with the prior year quarter. The decrease in both U.S. Networks’ income from operations before income taxes and adjusted segment profit(1) was primarily driven by the expected increase in programming and marketing costs, slightly offset by the growth in operating revenues.

 

International Networks’ operating revenues for the third quarter of 2017 were $139.4 million, an increase of 13.1% compared with the prior year quarter, driven by positive foreign currency effects and an increase in advertising revenues at TVN. Total revenues at TVN increased 4.0% in local currency for the quarter.

 

International Networks’ income from operations before income taxes in the third quarter of 2017 was a loss of $5.9 million compared with income of $23.0 million in the prior year quarter, primarily driven by foreign currency gains recognized in the third quarter of 2016. International networks’ adjusted segment profit(1) in the third quarter of 2017 was $15.9 million compared with $15.0 million in the prior year quarter.

 

(1) This earnings release contains several metrics, including consolidated segment profit (loss), consolidated adjusted segment profit (loss), adjusted net income (loss), adjusted net income (loss) per diluted share and free cash flow that are not calculated in accordance with Generally Accepted Accounting Principles in the United States of America ("GAAP"). Refer to the Non-GAAP Financial Measures section of this press release for discussion of consolidated segment profit (loss), consolidated adjusted segment profit (loss), adjusted net income (loss), adjusted net income (loss) per diluted share and free cash flow and a reconciliation to their respective most comparable financial measure calculated in accordance with GAAP.

 

Guidance

All guidance is based on current management expectations for consolidated company performance. Based on actual results experienced to date, excluding merger related expenses, the company is reiterating all of its previously issued guidance. For more information, refer to the full year guidance reconciliation table at the end of this press release.

 

Conference Call Information

Due to the pending merger with Discovery Communications, Scripps Networks Interactive will not hold a conference call for investors in connection with the issuance of this earnings release.

 

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 that could cause actual results to differ materially


 

from the expectations expressed in forward-looking statements, including changes in advertising demand and other economic conditions as well as other reasons described in our Securities and Exchange Commission filings, including those set forth in the Risk Factors section and under the caption entitled “Forward-Looking Statements” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our most recently filed Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. 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. (Nasdaq: SNI) 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 includes leading TV and entertainment brands HGTV, Food Network, Travel Channel, DIY Network, Cooking Channel and Great American Country. Its digital division Scripps Lifestyle Studios, creates compelling content for online, social and mobile platforms. International operations include TVN, Poland’s premier multi-platform media company; UKTV, an independent commercial joint venture with BBC Worldwide; Asian Food Channel, the first pan-regional TV food network in Asia; and lifestyle channel Fine Living Network. The company’s global networks and websites reach millions of consumers across North and South America, Asia-Pacific, Europe, the Middle East and Africa. Scripps Networks Interactive is headquartered in Knoxville, Tenn. For more information, please visit http://www.scrippsnetworksinteractive.com.

 

Where to Find Additional Information

This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. This communication may be deemed to be solicitation material in respect of the proposed merger between Discovery Communications, Inc., “Discovery” and Scripps Networks Interactive, Inc., “Scripps”. In connection with the proposed merger, Discovery has filed a registration statement on Form S-4, containing a joint proxy statement/prospectus with the Securities and Exchange Commission (the “SEC”), which was declared effective by the SEC on October 19, 2017. INVESTORS AND SECURITY HOLDERS ARE ADVISED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS, BECAUSE IT CONTAINS IMPORTANT INFORMATION. Investors and security holders may obtain a free copy of the joint proxy statement/prospectus and other documents filed by Discovery and Scripps with the SEC at http://www.sec.gov. Free copies of the joint proxy statement/prospectus and each company’s other filings with the SEC may also be obtained from the respective companies. Free copies of documents filed with the SEC by Scripps will be made available free of charge on Scripps’ investor relations website at http://ir.scrippsnetworksinteractive.com. Free copies of documents filed with the SEC by Discovery will be made available free of charge on Discovery’s investor relations website at www.corporate.discovery.com.

 

Participants in the Solicitation

Scripps and its directors and executive officers, and Discovery and its directors and executive officers, may be deemed to be participants in the solicitation of proxies from the holders of Scripps Class A common shares and common voting shares in respect of the proposed merger. Information about the directors and executive officers of Scripps is set forth in Scripps’ proxy


 

statement for its 2017 annual meeting of shareholders, which was filed with the SEC on March 29, 2017. Information about the directors and executive officers of Discovery is set forth Discovery’s proxy statement for its 2017 annual meeting of shareholders, which was filed with the SEC on April 5, 2017. Investors may obtain additional information regarding the interest of such participants by reading the joint proxy statement/prospectus regarding the proposed merger.

 

# # #

 

Contact: Scripps Networks Interactive, Inc.

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

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

Kristin Alm, 865-560-4316, KAlm@scrippsnetworks.com

 



 

SCRIPPS NETWORKS INTERACTIVE, INC.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

(in thousands, except per share data)

 

 

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

2017

 

2016

 

% Change

Fav / (Unfav)

 

2017

 

2016

 

% Change

Fav / (Unfav)

 

Operating revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advertising

$

567,403

 

$

556,425

 

 

2.0

%

$

1,827,152

 

$

1,774,928

 

 

2.9

%

Distribution

 

233,064

 

 

221,702

 

 

5.1

%

 

711,129

 

 

673,216

 

 

5.6

%

Other

 

25,058

 

 

24,958

 

 

0.4

%

 

67,410

 

 

64,590

 

 

4.4

%

Total operating revenues

 

825,525

 

 

803,085

 

 

2.8

%

 

2,605,691

 

 

2,512,734

 

 

3.7

%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services, excluding depreciation and amortization

 

318,292

 

 

298,207

 

 

(6.7

)%

 

897,182

 

 

864,873

 

 

(3.7

)%

Selling, general and administrative

 

224,192

 

 

200,820

 

 

(11.6

)%

 

643,959

 

 

590,774

 

 

(9.0

)%

Depreciation

 

14,736

 

 

20,370

 

 

27.7

%

 

43,356

 

 

53,756

 

 

19.3

%

Amortization

 

17,400

 

 

25,771

 

 

32.5

%

 

66,655

 

 

82,487

 

 

19.2

%

Total operating expenses

 

574,620

 

 

545,168

 

 

(5.4

)%

 

1,651,152

 

 

1,591,890

 

 

(3.7

)%

Operating income

 

250,905

 

 

257,917

 

 

(2.7

)%

 

954,539

 

 

920,844

 

 

3.7

%

Interest expense, net

 

(23,092

)

 

(32,609

)

 

29.2

%

 

(71,547

)

 

(99,529

)

 

28.1

%

Equity in earnings of affiliates

 

8,758

 

 

8,473

 

 

3.4

%

 

50,181

 

 

55,863

 

 

(10.2

)%

(Loss) gain on derivatives

 

(3,446

)

 

2,827

 

 

(221.9

)%

 

(9,454

)

 

13,860

 

 

(168.2

)%

(Loss) gain  on sale of investments

 

(2,442

)

 

-

 

NM

 

 

(1,026

)

 

191,824

 

 

(100.5

)%

Miscellaneous, net

 

2,854

 

 

21,276

 

 

(86.6

)%

 

62,575

 

 

5,670

 

 

1003.5

%

Income from operations before income taxes

 

233,537

 

 

257,884

 

 

(9.4

)%

 

985,268

 

 

1,088,532

 

 

(9.5

)%

Provision for income taxes

 

70,454

 

 

76,043

 

 

7.3

%

 

286,693

 

 

333,393

 

 

14.0

%

Net income

 

163,083

 

 

181,841

 

 

(10.3

)%

 

698,575

 

 

755,139

 

 

(7.5

)%

Less: net income attributable to non-controlling interests

 

(38,995

)

 

(35,844

)

 

(8.8

)%

 

(140,512

)

 

(133,637

)

 

(5.1

)%

Net income attributable to SNI

$

124,088

 

$

145,997

 

 

(15.0

)%

$

558,063

 

$

621,502

 

 

(10.2

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to SNI Class A Common and Common Voting shareholders per share of common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.95

 

$

1.13

 

 

(15.9

)%

$

4.29

 

$

4.80

 

 

(10.6

)%

Diluted

$

0.95

 

$

1.12

 

 

(15.2

)%

$

4.26

 

$

4.78

 

 

(10.9

)%

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

130,313

 

 

129,586

 

 

 

 

 

130,158

 

 

129,485

 

 

 

 

Diluted

 

131,262

 

 

130,124

 

 

 

 

 

130,949

 

 

130,022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

SCRIPPS NETWORKS INTERACTIVE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS ( UNAUDITED )

(in thousands, except share and par value amounts)

 

September 30,

 

December 31,

 

 

2017

 

2016

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

114,729

 

 

$

122,937

 

Accounts receivable, net of allowances: 2017 - $16,891; 2016 - $26,118

 

 

815,116

 

 

 

808,133

 

Programs and program licenses, net

 

 

651,997

 

 

 

591,378

 

Prepaid expenses and other current assets

 

 

74,567

 

 

 

135,651

 

Total current assets

 

 

1,656,409

 

 

 

1,658,099

 

Programs and program licenses, net (less current portion)

 

 

484,468

 

 

 

500,022

 

Investments

 

 

730,562

 

 

 

699,481

 

Property and equipment, net of accumulated depreciation: 2017 - $362,072; 2016 - $354,435

 

 

318,875

 

 

 

286,399

 

Goodwill, net

 

 

1,788,794

 

 

 

1,642,169

 

Intangible assets, net

 

 

1,102,208

 

 

 

1,092,682

 

Deferred income taxes

 

 

208,543

 

 

 

175,291

 

Other non-current assets

 

 

186,555

 

 

 

146,151

 

Total Assets

 

$

6,476,414

 

 

$

6,200,294

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

40,797

 

 

$

42,223

 

Accrued liabilities

 

 

165,147

 

 

 

152,480

 

Employee compensation and benefits

 

 

90,294

 

 

 

123,506

 

Program rights payable

 

 

73,564

 

 

 

70,403

 

Deferred revenue

 

 

150,247

 

 

 

77,987

 

Current portion of debt

 

 

-

 

 

 

249,932

 

Total current liabilities

 

 

520,049

 

 

 

716,531

 

Debt (less current portion)

 

 

2,665,867

 

 

 

2,952,454

 

Other non-current liabilities

 

 

318,541

 

 

 

302,881

 

Total liabilities

 

 

3,504,457

 

 

 

3,971,866

 

Shareholders' equity:

 

 

 

 

 

 

 

 

Scripps Networks Interactive ("SNI") shareholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par - authorized: 25,000,000 shares; none outstanding

 

 

 

 

 

 

Common stock, $0.01 par:

 

 

 

 

 

 

 

 

Class A Common Shares - authorized: 240,000,000 shares; issued and outstanding: 2017 - 96,060,044 shares; 2016 - 95,491,477 shares

 

 

961

 

 

 

954

 

Common Voting Shares - authorized: 60,000,000 shares; issued and outstanding: 2017 - 33,850,481 shares; 2016 - 33,850,481 shares

 

 

339

 

 

 

339

 

Total common stock

 

 

1,300

 

 

 

1,293

 

Additional paid-in capital

 

 

1,438,724

 

 

 

1,390,411

 

Retained earnings

 

 

1,315,549

 

 

 

871,766

 

Accumulated other comprehensive loss

 

 

(86,000

)

 

 

(363,701

)

SNI shareholders’ equity

 

 

2,669,573

 

 

 

1,899,769

 

Non-controlling interest  (Note 14)

 

 

302,384

 

 

 

328,659

 

Total equity

 

 

2,971,957

 

 

 

2,228,428

 

Total Liabilities and Equity

 

$

6,476,414

 

 

$

6,200,294

 



 

SCRIPPS NETWORKS INTERACTIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ( UNAUDITED )

(in thousands)

 

 

Nine months ended September 30,

 

 

 

2017

 

 

2016

 

Operating Activities:

 

 

 

 

 

 

 

 

Net income

 

$

698,575

 

 

$

755,139

 

Adjustments to reconcile net income to cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

43,356

 

 

 

53,756

 

Amortization

 

 

66,655

 

 

 

82,487

 

Program amortization

 

 

709,046

 

 

 

673,797

 

Program payments

 

 

(749,353

)

 

 

(703,123

)

Equity in earnings of affiliates

 

 

(50,181

)

 

 

(55,863

)

Share-based compensation

 

 

34,276

 

 

 

29,352

 

Loss (gain) on derivatives

 

 

9,454

 

 

 

(13,860

)

Loss (gain) on sale of investments

 

 

1,026

 

 

 

(191,824

)

Dividends received from equity investments

 

 

56,102

 

 

 

52,090

 

Deferred income taxes

 

 

(30,994

)

 

 

(44,656

)

Changes in working capital accounts:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

7,278

 

 

 

36,974

 

Other assets

 

 

8,343

 

 

 

(9,043

)

Accounts payable

 

 

(4,294

)

 

 

(6,808

)

Deferred revenue

 

 

72,554

 

 

 

6,851

 

Accrued / refundable income taxes

 

 

70,901

 

 

 

72,354

 

Other liabilities

 

 

(27,775

)

 

 

(9,854

)

Other, net

 

 

(81,604

)

 

 

(5,101

)

Cash provided by operating activities

 

 

833,365

 

 

 

722,668

 

Investing Activities:

 

 

 

 

 

 

 

 

Additions to property and equipment

 

 

(60,150

)

 

 

(47,909

)

Collections of note receivable

 

 

3,545

 

 

 

3,134

 

Purchase of investments

 

 

(18,738

)

 

 

(10,211

)

Sale of investments

 

 

51,082

 

 

 

226,484

 

Purchase of subsidiary companies, net of cash acquired

 

 

(5,658

)

 

 

(450

)

Investment in intangible

 

 

 

 

 

(11,634

)

Settlements of derivatives

 

 

(9,454

)

 

 

14,474

 

Other, net

 

 

(8,483

)

 

 

(8,228

)

Cash (used in) provided by investing activities

 

 

(47,856

)

 

 

165,660

 

Financing Activities:

 

 

 

 

 

 

 

 

Proceeds from debt

 

 

450,000

 

 

 

 

Repayments of debt

 

 

(990,000

)

 

 

(390,000

)

Early extinguishment of debt

 

 

 

 

 

(52,864

)

Purchases of non-controlling interests

 

 

 

 

 

(99,000

)

Dividends paid to non-controlling interests

 

 

(166,836

)

 

 

(143,557

)

Dividends paid

 

 

(117,474

)

 

 

(97,092

)

Proceeds from stock options

 

 

18,671

 

 

 

6,900

 

Other, net

 

 

(11,482

)

 

 

(4,783

)

Cash used in financing activities

 

 

(817,121

)

 

 

(780,396

)

Effect of exchange rate changes on cash and cash equivalents

 

 

23,404

 

 

 

(1,803

)

(Decrease) increase in cash and cash equivalents

 

 

(8,208

)

 

 

106,129

 

Cash and cash equivalents - beginning of period

 

 

122,937

 

 

 

223,444

 

Cash and cash equivalents - end of period

 

$

114,729

 

 

$

329,573

 

Supplemental Cash Flow Disclosures:

 

 

 

 

 

 

 

 

Interest paid, excluding amounts capitalized

 

$

50,859

 

 

$

54,090

 

Income taxes paid

 

$

250,745

 

 

$

309,536

 



 

Non-GAAP Financial Measures

In addition to results prepared in accordance with GAAP provided in this press release, the company has also presented consolidated segment profit (loss), consolidated adjusted segment profit (loss), adjusted net income (loss), adjusted net income (loss) per diluted share and free cash flow.

 

The company evaluates the operating performance of its businesses and uses a financial measure referred to as segment profit (loss). Consolidated segment profit (loss) is the aggregate of the segment profit for each of our two reportable segments. Segment profit (loss) is defined as income (loss) from operations before income taxes, excluding depreciation, amortization, goodwill write-downs, interest expense (income), equity in earnings of affiliates, gain (loss) on derivatives, gain (loss) on sale of investments, other miscellaneous non-operating expenses and income taxes, which are included in net income (loss) determined in accordance with GAAP.

 

The company uses segment profit (loss) to assess the operating results and performance of its businesses and makes decisions about the allocation of resources to businesses using this financial measure. The company believes segment profit (loss) is relevant to investors because it allows them to analyze and evaluate the operating performance of its segments consistent with management. Depreciation and amortization charges are a result of decisions made in prior periods regarding the allocation of resources and are, therefore, excluded from segment profit (loss). Also excluded from segment profit (loss) are financing, tax structuring and acquisition and divestiture decisions, which are generally made by corporate executives. Excluding these items from the performance measure of our businesses enables management to evaluate operating performance based on current economic conditions and decisions made by the managers of the businesses in the current period.

 

The company defines consolidated adjusted segment profit (loss) and adjusted net income (loss) as segment profit (loss) and net income (loss), respectively, excluding the impact of items not routine in nature and defines adjusted net income (loss) per diluted share as net income (loss) per diluted share, excluding the impact of items not routine in nature. The company believes consolidated adjusted segment profit (loss), adjusted net income (loss) and adjusted net income (loss) per diluted share are relevant to investors because it allows them to analyze the performance of segments excluding the impact of items not routine in nature or core to regular business operations.

 

The company defines free cash flow as cash provided by operating activities less dividends paid to non-controlling interests and additions to property and equipment. The company measures free cash flow as believes it is an important indicator for management and investors as to its liquidity, including the ability to reduce debt, make strategic investments and return capital to shareholders.

 

Consolidated segment profit (loss), consolidated adjusted segment profit (loss), adjusted net income (loss), adjusted net income (loss) per diluted share and free cash flow are non-GAAP measures and should be considered in addition to, but not as a substitute for, income (loss) from operations before income taxes, net income (loss), net income (loss) per diluted share, cash flow from operating activities and other measures of financial performance reported in accordance with GAAP. Since consolidated segment profit (loss), consolidated adjusted segment profit (loss),


 

adjusted net income (loss), adjusted net income (loss) per diluted share and free cash flow are not measures of financial performance calculated in accordance with GAAP, these non-GAAP measures may not be comparable to similar measures with similar titles used by other companies. Supplemental schedules providing a reconciliation of the non-GAAP measure to its respective most comparable financial measure in accordance with GAAP are included within this press release on the following pages.

 

Segment Profit and Adjusted Segment Profit - Q3 2017 and 2016

 

 

U.S. Networks

 

International Networks

 

Corporate and Other

 

Consolidated

 

 

Three months ended

 

Three months ended

 

Three months ended

 

Three months ended

 

 

September 30,

 

September 30,

 

September 30,

 

September 30,

 

(in thousands)

2017

 

2016

 

2017

 

2016

 

2017

 

2016

 

2017

 

2016

 

Income (loss) from operations before income taxes

$

293,042

 

$

306,469

 

$

(5,879

)

$

22,985

 

$

(53,626

)

$

(71,570

)

$

233,537

 

$

257,884

 

Interest (expense) income, net

 

(119

)

 

(79

)

 

149

 

 

(6,755

)

 

(23,122

)

 

(25,775

)

 

(23,092

)

 

(32,609

)

Equity in earnings of affiliates

 

3,912

 

 

4,202

 

 

4,846

 

 

4,271

 

 

-

 

 

-

 

 

8,758

 

 

8,473

 

(Loss) gain on derivatives

 

-

 

 

-

 

 

-

 

 

-

 

 

(3,446

)

 

2,827

 

 

(3,446

)

 

2,827

 

Loss on sale of investments

 

-

 

 

-

 

 

(1,942

)

 

-

 

 

(500

)

 

-

 

 

(2,442

)

 

-

 

Miscellaneous, net

 

2,309

 

 

3,538

 

 

(14,108

)

 

40,323

 

 

14,653

 

 

(22,585

)

 

2,854

 

 

21,276

 

Operating income (loss)

 

286,940

 

 

298,808

 

 

5,176

 

 

(14,854

)

 

(41,211

)

 

(26,037

)

 

250,905

 

 

257,917

 

Depreciation

 

10,946

 

 

17,103

 

 

3,136

 

 

3,010

 

 

654

 

 

257

 

 

14,736

 

 

20,370

 

Amortization

 

9,801

 

 

10,098

 

 

7,599

 

 

15,673

 

 

-

 

 

-

 

 

17,400

 

 

25,771

 

Segment profit (loss)

 

307,687

 

 

326,009

 

 

15,911

 

 

3,829

 

 

(40,557

)

 

(25,780

)

 

283,041

 

 

304,058

 

TVN transaction and integration expenses

 

-

 

 

-

 

 

-

 

 

11,168

 

 

-

 

 

851

 

 

-

 

 

12,019

 

Reorganization costs

 

-

 

 

1,267

 

 

-

 

 

-

 

 

-

 

 

237

 

 

-

 

 

1,504

 

Merger related expenses

 

907

 

 

-

 

 

-

 

 

-

 

 

19,454

 

 

-

 

 

20,361

 

 

-

 

Adjusted segment profit (loss)

$

308,594

 

$

327,276

 

$

15,911

 

$

14,997

 

$

(21,103

)

$

(24,692

)

$

303,402

 

$

317,581

 

 

Segment Profit and Adjusted Segment Profit - Year-to-Date 2017 and 2016

 

 

U.S. Networks

 

International Networks

 

Corporate and Other

 

Consolidated

 

 

Nine months ended

 

Nine months ended

 

Nine months ended

 

Nine months ended

 

 

September 30,

 

September 30,

 

September 30,

 

September 30,

 

(in thousands)

2017

 

2016

 

2017

 

2016

 

2017

 

2016

 

2017

 

2016

 

Income (loss) from operations before income taxes

$

1,052,755

 

$

1,251,075

 

$

71,053

 

$

99,095

 

$

(138,540

)

$

(261,638

)

$

985,268

 

$

1,088,532

 

Interest (expense) income, net

 

(383

)

 

(165

)

 

502

 

 

(20,698

)

 

(71,666

)

 

(78,666

)

 

(71,547

)

 

(99,529

)

Equity in earnings of affiliates

 

17,001

 

 

20,948

 

 

33,180

 

 

34,915

 

 

-

 

 

-

 

 

50,181

 

 

55,863

 

(Loss) gain on derivatives

 

-

 

 

-

 

 

-

 

 

-

 

 

(9,454

)

 

13,860

 

 

(9,454

)

 

13,860

 

Gain (loss) on sale of investments

 

-

 

 

208,197

 

 

(526

)

 

-

 

 

(500

)

 

(16,373

)

 

(1,026

)

 

191,824

 

Miscellaneous, net

 

8,273

 

 

9,605

 

 

13,691

 

 

95,202

 

 

40,611

 

 

(99,137

)

 

62,575

 

 

5,670

 

Operating income (loss)

 

1,027,864

 

 

1,012,490

 

 

24,206

 

 

(10,324

)

 

(97,531

)

 

(81,322

)

 

954,539

 

 

920,844

 

Depreciation

 

32,406

 

 

44,014

 

 

9,053

 

 

8,965

 

 

1,897

 

 

777

 

 

43,356

 

 

53,756

 

Amortization

 

29,713

 

 

30,141

 

 

36,942

 

 

52,346

 

 

-

 

 

-

 

 

66,655

 

 

82,487

 

Segment profit (loss)

 

1,089,983

 

 

1,086,645

 

 

70,201

 

 

50,987

 

 

(95,634

)

 

(80,545

)

 

1,064,550

 

 

1,057,087

 

TVN transaction and integration expenses

 

-

 

 

17

 

 

-

 

 

11,136

 

 

-

 

 

2,956

 

 

-

 

 

14,109

 

Restructuring costs

 

-

 

 

(29

)

 

-

 

 

-

 

 

-

 

 

(281

)

 

-

 

 

(310

)

Reorganization costs

 

-

 

 

8,786

 

 

-

 

 

-

 

 

-

 

 

3,969

 

 

-

 

 

12,755

 

Merger related expenses

 

907

 

 

-

 

 

-

 

 

-

 

 

19,454

 

 

-

 

 

20,361

 

 

-

 

Adjusted segment profit (loss)

$

1,090,890

 

$

1,095,419

 

$

70,201

 

$

62,123

 

$

(76,180

)

$

(73,901

)

$

1,084,911

 

$

1,083,641

 

 


 

Adjusted Net Income - Q3 2017

 

(in thousands, except per share data)

Three months ended September 30, 2017

 

GAAP measure

Cost of services, excluding depreciation and amortization

 

Selling, general and administrative

 

Depreciation and amortization

 

Loss on derivatives

 

Loss on sale of investments

 

Miscellaneous, net

 

Net income attributable to SNI (A)

 

Earnings per diluted share

 

As reported

$

318,292

 

$

224,192

 

$

32,136

 

$

(3,446

)

$

(2,442

)

$

2,854

 

$

124,088

 

$

0.95

 

Merger related expenses

 

(235

)

 

(20,126

)

 

-

 

 

-

 

 

-

 

 

-

 

 

12,624

 

$

0.10

 

As adjusted

$

318,057

 

$

204,066

 

$

32,136

 

$

(3,446

)

$

(2,442

)

$

2,854

 

$

136,712

 

$

1.05

 

(A) Items tax effected at 38% statutory tax rate.

 

 

Adjusted Net Income - Q3 2016

 

(in thousands, except per share data)

Three months ended September 30, 2016

 

GAAP measure

Cost of services, excluding depreciation and amortization

 

Selling, general and administrative

 

Depreciation and amortization

 

Gain on derivatives

 

Gain on sale of investments

 

Miscellaneous, net

 

Net income attributable to SNI (A)

 

Earnings per diluted share

 

As reported

$

298,207

 

$

200,820

 

$

46,141

 

$

2,827

 

$

-

 

$

21,276

 

$

145,997

 

$

1.12

 

TVN transaction and integration expenses

 

-

 

 

(12,019

)

 

-

 

 

-

 

 

-

 

 

-

 

 

9,571

 

 

0.07

 

Reorganization costs

 

(981

)

 

(523

)

 

-

 

 

-

 

 

-

 

 

-

 

 

932

 

 

0.01

 

As adjusted

$

297,226

 

$

188,278

 

$

46,141

 

$

2,827

 

$

-

 

$

21,276

 

$

156,500

 

$

1.20

 

(A) Items tax effected at 38% statutory tax rate, with the exception of $11.2 million of TVN transaction and integration expenses, which has a 19% effective tax rate.

 

 

Adjusted Net Income - Year-to-Date 2017

 

(in thousands, except per share data)

Nine months ended September 30, 2017

 

GAAP measure

Cost of services, excluding depreciation and amortization

 

Selling, general and administrative

 

Depreciation and amortization

 

Loss on derivatives

 

Loss on sale of investments

 

Miscellaneous, net

 

Net income attributable to SNI (A)

 

Earnings per diluted share

 

As reported

$

897,182

 

$

643,959

 

$

110,011

 

$

(9,454

)

$

(1,026

)

$

62,575

 

$

558,063

 

$

4.26

 

Merger related expenses

 

(235

)

 

(20,126

)

 

-

 

 

-

 

 

-

 

 

-

 

 

12,624

 

 

0.10

 

As adjusted

$

896,947

 

$

623,833

 

$

110,011

 

$

(9,454

)

$

(1,026

)

$

62,575

 

$

570,687

 

$

4.36

 

(A) Items tax effected at 38% statutory tax rate.

 

 

Adjusted Net Income - Year-to-Date 2016

 

(in thousands, except per share data)

Nine months ended September 30, 2016

 

GAAP measure

Cost of services, excluding depreciation and amortization

 

Selling, general and administrative

 

Depreciation and amortization

 

Gain on derivatives

 

Gain on sale of investments

 

Miscellaneous, net

 

Net income attributable to SNI (A)

 

Earnings per diluted share

 

As reported

$

864,873

 

$

590,774

 

$

136,243

 

$

13,860

 

$

191,824

 

$

5,670

 

$

621,502

 

$

4.78

 

TVN transaction and integration expenses

 

(17

)

 

(14,092

)

 

-

 

 

-

 

 

-

 

 

-

 

 

10,867

 

 

0.08

 

Restructuring costs

 

-

 

 

310

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(192

)

 

-

 

Reorganization costs

 

(3,978

)

 

(8,777

)

 

-

 

 

-

 

 

-

 

 

-

 

 

7,908

 

 

0.06

 

Sale of investments

 

-

 

 

-

 

 

-

 

 

-

 

 

(191,824

)

 

-

 

 

(118,931

)

 

(0.91

)

As adjusted

$

860,878

 

$

568,215

 

$

136,243

 

$

13,860

 

$

-

 

$

5,670

 

$

521,154

 

$

4.01

 

(A) Items tax effected at 38% statutory tax rate, with the exception of $11.2 million of TVN transaction and integration expenses, which has a 19% effective tax rate.

 

 


 

Free Cash Flow - 2017 and 2016

 

 

 

 

 

 

 

Nine months ended September 30,

 

(in thousands)

 

2017

 

 

2016

 

Cash provided by operating activities

$

833,365

 

$

722,668

 

Dividends paid to non-controlling interests

 

(166,836

)

 

(143,557

)

Additions to property and equipment

 

(60,150

)

 

(47,909

)

Free cash flow

$

606,379

 

$

531,202

 

 

 

 

 

 

 

 

 

Operating Revenues by Network – 2017 and 2016

Three months ended September 30,

 

Nine months ended September 30,

 

(in thousands)

2017

 

2016

 

% Change

 

2017

 

2016

 

% Change

 

Network

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HGTV

$

269,113

 

$

265,758

 

 

1.3

%

$

857,253

 

$

820,226

 

 

4.5

%

Food Network

 

219,664

 

 

217,383

 

 

1.0

%

 

708,537

 

 

687,583

 

 

3.0

%

Travel Channel

 

78,122

 

 

75,590

 

 

3.3

%

 

245,834

 

 

242,241

 

 

1.5

%

DIY Network

 

38,758

 

 

40,091

 

 

(3.3

)%

 

123,121

 

 

128,600

 

 

(4.3

)%

Cooking Channel

 

33,210

 

 

34,422

 

 

(3.5

)%

 

107,726

 

 

104,214

 

 

3.4

%

Great American Country

 

6,578

 

 

7,119

 

 

(7.6

)%

 

21,009

 

 

22,639

 

 

(7.2

)%

Digital

 

38,352

 

 

36,503

 

 

5.1

%

 

115,263

 

 

106,391

 

 

8.3

%

Other

 

9,531

 

 

10,359

 

 

(8.0

)%

 

31,146

 

 

30,462

 

 

2.2

%

Intrasegment eliminations

 

(961

)

 

(962

)

 

0.1

%

 

(1,590

)

 

(1,577

)

 

(0.8

)%

Total segment operating revenues

$

692,367

 

$

686,263

 

 

0.9

%

$

2,208,299

 

$

2,140,779

 

 

3.2

%

Type

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advertising

$

474,796

 

$

477,501

 

 

(0.6

)%

$

1,539,503

 

$

1,505,765

 

 

2.2

%

Distribution

 

203,496

 

 

194,276

 

 

4.7

%

 

626,538

 

 

592,445

 

 

5.8

%

Other

 

14,075

 

 

14,486

 

 

(2.8

)%

 

42,258

 

 

42,569

 

 

(0.7

)%

 

$

692,367

 

$

686,263

 

 

0.9

%

$

2,208,299

 

$

2,140,779

 

 

3.2

%

 

Full Year Guidance - 2017

 

 

 

Estimated Guidance

 

Year ending

(in thousands)

December 31, 2017

Income from operations before income taxes

$

1,277,000 – $1,295,000

Interest expense, net

 

(95,000) – (100,000)

Equity in earnings of affiliates

 

55,000 – 65,000

Loss on derivatives

 

(5,000) – (10,000)

Gain on sale of investments

 

2,000 – 5,000

Miscellaneous, net

 

55,000 – 65,000

Operating income

 

1,265,000 – 1,270,000

Depreciation & amortization

 

155,000 – 160,000

Segment profit

$

1,420,000 – $1,430,000