SNI Scripps Networks Interactive, (delisted)

Full Year 2017 Financial Highlights:

Scripps Networks Interactive, Inc. (Nasdaq:SNI) today reported operating results for the full year and fourth quarter 2017.

In 2017, HGTV was ranked the No. 1 ad-supported cable network for upscale women 25-54 in sales prime for the eleventh consecutive year and was the No. 2 cable network for women 25-54. Food Network finished 2017 as the No. 8 cable network for women 25-54, and 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 share of audience by 5% for viewers 16-49 in 2017.

In the fourth quarter of 2017, both HGTV and Food Network ranked in the top-10 for advertising supported cable networks for women 25-54 in sales prime, and Travel Channel delivered a 5% improvement in its adult 25-54 sales prime ratings. TVN was the No. 1 media company for the 16-49 demographic for the fourth quarter, growing its audience share by 2%.

Scripps Lifestyle Studios, the digital content division of Scripps Networks Interactive, delivered a record-breaking year, generating more than 19 billion global video views on various digital platforms, nearly three times more than the previous year. Video views benefited in part from the inclusion of millennial-targeted food content brand, Spoon University, the launch of the new food-focused digital brand, Genius Kitchen, and expansion of the Scripps Lifestyle Studios offering to international markets.

Kenneth W. Lowe, Chairman, President and Chief Executive Officer, said, “Scripps Networks Interactive finished a pivotal 2017 year with a strong fourth quarter, executing on our strategic objectives and delivering financially with record revenue and growing segment profit. We reached new consumers through the thousands of compelling experiences created by Scripps Lifestyle Studios. We invested in our core business as well as our fast-growing digital offerings, allowing us to capitalize on the popularity of our powerful lifestyle brands across the globe. And, of course, we announced our merger with Discovery Communications, creating an unmatched opportunity to deliver our real-life content to a greater number of audiences.”

Lowe continued, “We have great momentum as we head into 2018. Our incredible teams remain intently focused on doing what we do best: creating great lifestyle content that connects with audiences through ideas, information and inspiration. We are excited about the prospects for the combination with Discovery and are diligently working toward finalizing the transaction to bring these two great companies together.”

Full Year 2017 Consolidated ResultsConsolidated operating revenues for 2017 were $3.6 billion, an increase of 4.7% compared with the prior year. Advertising revenues were $2.5 billion, an increase of 3.7%, and distribution revenues were $955.4 million, an increase of 6.8% compared with the prior year.

Consolidated income from operations before income taxes for 2017 was $1.3 billion, an increase of 2.6% compared with the prior year. Consolidated adjusted segment profit(1) was $1.5 billion, an increase of 2.2% compared with the prior year. The improvement in consolidated income from operations before income taxes reflects an increase in operating revenues, higher foreign currency transaction gains, lower interest expense and a decline in goodwill and other intangible asset write-downs compared with the prior year. These favorable variances were partially offset by increased investments in programming, marketing and data as well as merger related expenses.

Consolidated net income attributable to Scripps Networks Interactive for 2017 decreased 7.4% to $623.9 million, or $4.76 per diluted share, compared with the prior year, primarily driven by the negative variances mentioned in the prior paragraph as well as a higher effective tax rate driven by the impact of tax law changes enacted in the U.S. and Poland. These unfavorable variances were partially offset by an increase in operating revenues, higher foreign currency transaction gains, lower interest expense and a decline in goodwill and other intangible asset write-downs. Consolidated adjusted net income(1) attributable to Scripps Networks Interactive increased 16.9% to $752.6 million, or $5.74 per diluted share, reflecting an increase in operating revenues, higher foreign currency transaction gains, and lower interest expense compared with the prior year. These favorable variances were partially offset by increased investments in programming, marketing and data.

Fourth Quarter 2017 Consolidated ResultsConsolidated operating revenues for the fourth quarter of 2017 were $956.1 million, an increase of 7.6% compared with the prior year period. Advertising revenues were $678.1 million, an increase of 5.7%, and distribution revenues were $244.3 million, an increase of 10.5% compared with the prior year period.

Consolidated income from operations before income taxes for the fourth quarter of 2017 was $325.9 million, an increase of 72.2% compared with the prior year period. Consolidated adjusted segment profit(1) was $371.1 million, an increase of 9.0% compared with the prior year period. The improvement in consolidated income from operations before income taxes reflects an increase in operating revenues, higher foreign currency transaction gains, lower interest expense and a decline in goodwill and other intangible asset write-downs compared with the prior year period. These favorable variances were partially offset by increased investments in programming, marketing and data as well as merger related expenses.

Consolidated net income attributable to Scripps Networks Interactive for the fourth quarter of 2017 increased 26.5% to $65.9 million, or $0.50 per diluted share, compared with the prior year period, primarily driven by an increase in operating revenues, higher foreign currency transaction gains, lower interest expense and a decline in goodwill and other intangible asset write-downs. These favorable variances were partially offset by increased investments in programming, marketing and data and merger related expenses as well as a higher effective tax rate driven by the impact of tax law changes enacted in the U.S. and Poland. Consolidated adjusted net income(1) attributable to Scripps Networks Interactive increased 46.2% to $181.9 million, or $1.38 per diluted share, reflecting an increase in operating revenues, higher foreign currency transaction gains and lower interest expense compared with the prior year period. These favorable variances were partially offset by increased investments in programming, marketing and data.

Fourth Quarter 2017 Segment Results

Segment Profit and Adjusted Segment Profit - Q4 2017 and 2016
	U.S. Networks						International Networks						Corporate and Other						Consolidated
	Three months ended						Three months ended						Three months ended						Three months ended
	December 31,						December 31,						December 31,						December 31,
(in thousands)	2017			2016			2017			2016			2017			2016			2017			2016
Income (loss) from operations before income taxes	$	323,173		$	308,023		$	56,569		$	(30,866	)	$	(53,800	)	$	(87,911	)	$	325,942		$	189,246
Interest (expense) income, net		(108	)		(67	)		114			(4,344	)		(21,618	)		(25,501	)		(21,612	)		(29,912	)
Equity in earnings of affiliates		3,291			2,995			6,286			12,524			-			-			9,577			15,519
(Loss) gain on derivatives		-			-			-			-			(1,848	)		4,008			(1,848	)		4,008
Miscellaneous, net		3,504			3,654			15,244			3,538			1,203			(35,312	)		19,951			(28,120	)
Operating income (loss)		316,486			301,441			34,925			(42,584	)		(31,537	)		(31,106	)		319,874			227,751
Depreciation		10,882			15,285			3,493			3,240			618			(722	)		14,993			17,803
Amortization		10,978			10,079			15,883			30,876			-			-			26,861			40,955
Goodwill write-down		-			-			505			57,878			-			-			505			57,878
Segment profit (loss)		338,346			326,805			54,806			49,410			(30,919	)		(31,828	)		362,233			344,387
Merger related expenses		504			-			2			-			8,402			-			8,908			-
TVN transaction and integration expenses		-			-			-			32			-			996			-			1,028
TVN purchase price accounting impact		-			-			-			(8,501	)		-			-			-			(8,501	)
Reorganization costs		-			1,779			-			-			-			1,815			-			3,594
Adjusted segment profit (loss)	$	338,850		$	328,584		$	54,808		$	40,941		$	(22,517	)	$	(29,017	)	$	371,141		$	340,508

U.S. Networks’ operating revenues for the fourth quarter of 2017 were $758.7 million, an increase of 3.8% compared with the prior year period. Advertising revenues were $529.9 million, an increase of 1.3% compared with the prior year period, reflecting the continued strength in pricing in the U.S. advertising market for our lifestyle brands, partially offset by lower impressions delivered. U.S. Networks’ distribution revenues were $213.6 million, an increase of 10.5% compared with the prior year period. This improvement was driven by annual rate increases and includes an adjustment related to a distribution agreement negotiated in the fourth quarter of 2017, which contributed 400 basis points of growth. Also contributing to the increase were revenues generated from over-the-top and non-linear distribution platforms, partially offset by subscriber declines.

U.S. Networks’ income from operations before income taxes for the fourth quarter of 2017 was $323.2 million, an increase of 4.9% compared with the prior year period. U.S. Networks’ adjusted segment profit(1) was $338.9 million, an increase of 3.1% compared with the prior year period. The improvement in both U.S. Networks’ income from operations before income taxes and adjusted segment profit(1) was primarily driven by an increase in operating revenues partially offset by increased investments in marketing and data compared with the prior year period.

International Networks’ operating revenues for the fourth quarter of 2017 were $203.7 million, an increase of 23.2% compared with the prior year period, reflecting positive foreign currency effects and an increase in operating revenues. Operating revenues at TVN increased 11.7% in local currency compared with the prior year period.

International Networks’ income from operations before income taxes for the fourth quarter of 2017 was $56.6 million compared with a loss of $30.9 million in the prior year period. The improvement in International Networks’ income from operations before income taxes was primarily driven by an increase in operating revenues, higher foreign currency gains and a decline in goodwill and other intangible asset write-downs, partially offset by an increase in operating expenses compared with the prior year period. International networks’ adjusted segment profit(1) was $54.8 million, an increase of 33.9% compared with the prior year period. The improvement in International Networks’ adjusted segment profit(1) was primarily driven by an increase in operating revenues and higher foreign currency gains, partially offset by an increase in operating expenses compared with the prior year period.

(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.

GuidanceDue to the pending merger with Discovery Communications, Scripps Networks Interactive will not issue full year 2018 guidance.

Conference Call InformationDue 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 StatementsThis 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, Inc. 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 and 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 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 SolicitationScripps 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; orKristin Alm, 865-560-4316, KAlm@scrippsnetworks.com

SCRIPPS NETWORKS INTERACTIVE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
	Three months ended December 31,									Year ended December 31,
							% Change									% Change
	2017			2016			Fav / (Unfav)			2017			2016			Fav / (Unfav)
Operating revenues:
Advertising	$	678,105		$	641,475			5.7	%	$	2,505,257		$	2,416,403			3.7	%
Distribution		244,275			221,151			10.5	%		955,404			894,367			6.8	%
Other		33,736			26,075			29.4	%		101,146			90,665			11.6	%
Total operating revenues		956,116			888,701			7.6	%		3,561,807			3,401,435			4.7	%
Operating expenses:
Cost of services, excluding depreciation and amortization		356,812			328,355			(8.7	)%		1,253,994			1,193,228			(5.1	)%
Selling, general and administrative		237,071			215,959			(9.8	)%		881,030			806,733			(9.2	)%
Depreciation		14,993			17,803			15.8	%		58,349			71,559			18.5	%
Amortization		26,861			40,955			34.4	%		93,516			123,442			24.2	%
Goodwill write-down		505			57,878			99.1	%		505			57,878			99.1	%
Total operating expenses		636,242			660,950			3.7	%		2,287,394			2,252,840			(1.5	)%
Operating income		319,874			227,751			40.4	%		1,274,413			1,148,595			11.0	%
Interest expense, net		(21,612	)		(29,912	)		27.7	%		(93,159	)		(129,441	)		28.0	%
Equity in earnings of affiliates		9,577			15,519			(38.3	)%		59,758			71,382			(16.3	)%
(Loss) gain on derivatives		(1,848	)		4,008			(146.1	)%		(11,302	)		17,868			(163.3	)%
(Loss) gain on sale of investments		-			-		NM				(1,026	)		191,824			(100.5	)%
Miscellaneous, net		19,951			(28,120	)		170.9	%		82,526			(22,450	)		467.6	%
Income from operations before income taxes		325,942			189,246			72.2	%		1,311,210			1,277,778			2.6	%
Provision for income taxes		210,166			96,937			(116.8	)%		496,859			430,330			(15.5	)%
Net income		115,776			92,309			25.4	%		814,351			847,448			(3.9	)%
Less: net income attributable to non-controlling interests		(49,904	)		(40,216	)		(24.1	)%		(190,416	)		(173,853	)		(9.5	)%
Net income attributable to SNI	$	65,872		$	52,093			26.5	%	$	623,935		$	673,595			(7.4	)%
Net income attributable to SNI Class A Common and Common Voting shareholders per share of common stock:
Basic	$	0.51		$	0.40			27.5	%	$	4.79		$	5.20			(7.9	)%
Diluted	$	0.50		$	0.40			25.0	%	$	4.76		$	5.18			(8.1	)%
Weighted average shares outstanding:
Basic		130,392			129,661						130,217			129,529
Diluted		131,353			130,350						131,063			130,104

 

SCRIPPS NETWORKS INTERACTIVE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and par value amounts)
	December 31,
	2017				2016
ASSETS
Current assets:
Cash and cash equivalents		$	130,357			$	122,937
Accounts receivable, net of allowances: 2017 - $13,162; 2016 - $26,118			914,812				808,133
Programs and program licenses, net			634,588				591,378
Prepaid expenses and other current assets			68,763				135,651
Total current assets			1,748,520				1,658,099
Programs and program licenses, net (less current portion)			474,714				500,022
Investments			740,810				699,481
Property and equipment, net of accumulated depreciation: 2017 - $370,826; 2016 - $354,435			333,068				286,399
Goodwill, net			1,819,693				1,642,169
Intangible assets, net			1,109,672				1,092,682
Deferred income taxes			104,859				175,291
Other non-current assets			190,344				146,151
Total Assets		$	6,521,680			$	6,200,294
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	48,149			$	42,223
Accrued liabilities			189,656				152,480
Employee compensation and benefits			102,327				123,506
Program rights payable			85,004				70,403
Deferred revenue			148,134				77,987
Current portion of debt			—				249,932
Total current liabilities			573,270				716,531
Debt (less current portion)			2,522,005				2,952,454
Other non-current liabilities			315,217				302,881
Total liabilities			3,410,492				3,971,866
Commitments and contingencies (Note 20)
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 - 96,204,627 shares; 2016 - 95,491,477 shares			962				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			1,301				1,293
Additional paid-in capital			1,448,723				1,390,411
Retained earnings			1,341,974				871,766
Accumulated other comprehensive loss			(13,809	)			(363,701	)
SNI shareholders’ equity			2,778,189				1,899,769
Non-controlling interest (Note 17)			332,999				328,659
Total equity			3,111,188				2,228,428
Total Liabilities and Equity		$	6,521,680			$	6,200,294

 

SCRIPPS NETWORKS INTERACTIVE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
		Year ended December 31,
		2017				2016				2015
Operating Activities:
Net income		$	814,351			$	847,448			$	778,473
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation			58,349				71,559				73,112
Amortization			93,516				123,442				68,647
Goodwill write-down			505				57,878				—
Investment write-down			—				10,701				—
Program amortization			997,862				934,419				783,456
Program payments			(993,420	)			(915,486	)			(875,554	)
Equity in earnings of affiliates			(59,758	)			(71,382	)			(80,916	)
Share-based compensation			40,219				35,198				29,568
Loss (gain) on derivatives			11,302				(17,868	)			(50,256	)
Loss (gain) on sale of investments			1,026				(191,824	)			—
(Gain) loss on foreign currency transactions			(86,690	)			16,137				22,430
Dividends received from equity investments			77,780				65,277				93,624
Deferred income taxes			67,854				(10,427	)			(24,678	)
Changes in working capital accounts:
Accounts receivable, net			(86,022	)			(2,462	)			(79,070	)
Other assets			8,962				(17,657	)			(12,702	)
Accounts payable			1,926				8,887				(1,501	)
Deferred revenue			70,252				(17,150	)			44,040
Accrued / refundable income taxes			94,371				29,480				41,201
Other liabilities			(32,304	)			11,790				32,360
Other, net			(24,287	)			(19,134	)			(29,250	)
Cash provided by operating activities			1,055,794				948,826				812,984
Investing Activities:
Additions to property and equipment			(75,641	)			(74,406	)			(52,480	)
Collections of note receivable			4,547				4,073				4,655
Purchase of investments			(21,112	)			(15,916	)			(35,023	)
Sale of investments			46,733				226,484				—
Purchase of subsidiary companies, net of cash acquired			(10,320	)			(450	)			(539,309	)
Investment in intangible			—				(11,634	)			—
Foreign currency call option premium			—				—				(16,000	)
Settlements of derivatives			(11,302	)			18,482				65,824
Other, net			2,079				(5,902	)			(32,167	)
Cash (used in) provided by investing activities			(65,016	)			140,731				(604,500	)
Financing Activities:
Proceeds from debt			630,000				475,000				3,180,764
Repayments of debt			(1,315,000	)			(890,000	)			(1,930,000	)
Debt issuance costs			—				—				(14,491	)
Early extinguishment of debt			—				(380,648	)			(652,104	)
Purchases of non-controlling interests			(15	)			(103,500	)			(853,853	)
Dividends paid to non-controlling interests			(186,116	)			(157,687	)			(189,539	)
Dividends paid			(156,684	)			(129,725	)			(118,857	)
Repurchases of Class A Common Shares			—				—				(288,502	)
Proceeds from stock options			23,662				15,110				9,207
Other, net			1,070				(3,993	)			(18,368	)
Cash used in financing activities			(1,003,083	)			(1,175,443	)			(875,743	)
Effect of exchange rate changes on cash and cash equivalents			19,725				(14,621	)			12,539
Increase (decrease) in cash and cash equivalents			7,420				(100,507	)			(654,720	)
Cash and cash equivalents - beginning of period			122,937				223,444				878,164
Cash and cash equivalents - end of period		$	130,357			$	122,937			$	223,444
Supplemental Cash Flow Disclosures:
Interest paid, excluding amounts capitalized		$	93,472			$	131,158			$	95,336
Income taxes paid		$	341,801			$	408,275			$	318,920

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-down, interest expense, net, 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 - Q4 2017 and 2016
	U.S. Networks						International Networks						Corporate and Other						Consolidated
	Three months ended						Three months ended						Three months ended						Three months ended
	December 31,						December 31,						December 31,						December 31,
(in thousands)	2017			2016			2017			2016			2017			2016			2017			2016
Income (loss) from operations before income taxes	$	323,173		$	308,023		$	56,569		$	(30,866	)	$	(53,800	)	$	(87,911	)	$	325,942		$	189,246
Interest (expense) income, net		(108	)		(67	)		114			(4,344	)		(21,618	)		(25,501	)		(21,612	)		(29,912	)
Equity in earnings of affiliates		3,291			2,995			6,286			12,524			-			-			9,577			15,519
(Loss) gain on derivatives		-			-			-			-			(1,848	)		4,008			(1,848	)		4,008
Miscellaneous, net		3,504			3,654			15,244			3,538			1,203			(35,312	)		19,951			(28,120	)
Operating income (loss)		316,486			301,441			34,925			(42,584	)		(31,537	)		(31,106	)		319,874			227,751
Depreciation		10,882			15,285			3,493			3,240			618			(722	)		14,993			17,803
Amortization		10,978			10,079			15,883			30,876			-			-			26,861			40,955
Goodwill write-down		-			-			505			57,878			-			-			505			57,878
Segment profit (loss)		338,346			326,805			54,806			49,410			(30,919	)		(31,828	)		362,233			344,387
Merger related expenses		504			-			2			-			8,402			-			8,908			-
TVN transaction and integration expenses		-			-			-			32			-			996			-			1,028
TVN purchase price accounting impact		-			-			-			(8,501	)		-			-			-			(8,501	)
Reorganization costs		-			1,779			-			-			-			1,815			-			3,594
Adjusted segment profit (loss)	$	338,850		$	328,584		$	54,808		$	40,941		$	(22,517	)	$	(29,017	)	$	371,141		$	340,508

 

Segment Profit and Adjusted Segment Profit - Year-to-Date 2017 and 2016
	U.S. Networks						International Networks						Corporate and Other						Consolidated
	Year ended						Year ended						Year ended						Year ended
	December 31,						December 31,						December 31,						December 31,
(in thousands)	2017			2016			2017			2016			2017			2016			2017			2016
Income (loss) from operations before income taxes	$	1,375,928		$	1,559,099		$	127,622		$	68,229		$	(192,340	)	$	(349,550	)	$	1,311,210		$	1,277,778
Interest (expense) income, net		(491	)		(232	)		616			(25,042	)		(93,284	)		(104,167	)		(93,159	)		(129,441	)
Equity in earnings of affiliates		20,292			23,943			39,466			47,439			-			-			59,758			71,382
(Loss) gain on derivatives		-			-			-			-			(11,302	)		17,868			(11,302	)		17,868
Gain (loss) on sale of investments		-			208,197			(526	)		-			(500	)		(16,373	)		(1,026	)		191,824
Miscellaneous, net		11,777			13,259			28,935			98,740			41,814			(134,449	)		82,526			(22,450	)
Operating income (loss)		1,344,350			1,313,932			59,131			(52,908	)		(129,068	)		(112,429	)		1,274,413			1,148,595
Depreciation		43,288			59,298			12,546			12,205			2,515			56			58,349			71,559
Amortization		40,691			40,220			52,825			83,222			-			-			93,516			123,442
Goodwill write-down		-			-			505			57,878			-			-			505			57,878
Segment profit (loss)		1,428,329			1,413,450			125,007			100,397			(126,553	)		(112,373	)		1,426,783			1,401,474
Merger related expenses		1,411			-			2			-			27,856			-			29,269			-
TVN transaction and integration expenses		-			17			-			11,168			-			3,953			-			15,138
TVN purchase price accounting impact		-			-			-			(8,501	)		-			-			-			(8,501	)
Restructuring costs		-			(29	)		-			-			-			(281	)		-			(310	)
Reorganization costs		-			10,565			-			-			-			5,784			-			16,349
Adjusted segment profit (loss)	$	1,429,740		$	1,424,003		$	125,009		$	103,064		$	(98,697	)	$	(102,917	)	$	1,456,052		$	1,424,150

 

Adjusted Net Income - Q4 2017
	Three months ended December 31, 2017
(in thousands, except per share data)	Cost of services, excluding depreciation and amortization			Selling, general and administrative			Depreciation and amortization			Loss on derivatives			Loss on sale of investments			Miscellaneous, net			Provision for income taxes			Net income attributable to SNI (A)			Earnings per diluted share
GAAP measure
As reported	$	356,812		$	237,071		$	41,854		$	(1,848	)	$	-		$	19,951		$	210,166		$	65,872		$	0.50
Merger related expenses		(193	)		(8,715	)		-			-			-			-			-			5,523			0.04
Tax law changes impact		-			-			-			-			-			-			(110,493	)		110,493			0.84
As adjusted	$	356,619		$	228,356		$	41,854		$	(1,848	)	$	-		$	19,951		$	99,673		$	181,888		$	1.38
(A) Merger related expenses tax effected at 38% statutory tax rate.

 

Adjusted Net Income - Q4 2016
	Three months ended December 31, 2016
(in thousands, except per share data)	Cost of services, excluding depreciation and amortization			Selling, general and administrative			Depreciation and amortization			Goodwill write-down			Gain on derivatives			Gain on sale of investments			Miscellaneous, net			Net income attributable to SNI (A)			Earnings per diluted share
GAAP measure
As reported	$	328,355		$	215,959		$	58,758		$	57,878		$	4,008		$	-		$	(28,120	)	$	52,093		$	0.40
Goodwill write-down		-			-			-			(57,878	)		-			-			-			57,878			0.44
Intangible assets write-down		-			-			(15,943	)		-			-			-			-			13,233			0.10
Investments write-down		-			-			-			-			-			-			10,701			8,668			0.07
TVN transaction and integration expenses		-			(1,028	)		-			-			-			-			-			637			-
Reorganization costs		(1,568	)		(2,026	)		-			-			-			-			-			2,228			0.02
Gain on extinguishment of debt		-			-			-			-			-			-			(4,254	)		(3,446	)		(0.03	)
TVN purchase price accounting impact		8,501			-			-			-			-			-			-			(6,886	)		(0.05	)
As adjusted	$	335,288		$	212,905		$	42,815		$	-		$	4,008		$	-		$	(21,673	)	$	124,406		$	0.95
(A) Items tax effected at 38% statutory tax rate, with the exception of the following: $57.9 million goodwill write-down, which has a 0% effective tax rate; $15.9 million intangible assets write-down, which has a 17% effective tax rate; and $4.3 million gain on extinguishment of debt, $10.7 million investments write-down and $8.5 million TVN purchase price accounting impact, which have a 19% effective tax rate.

 

Adjusted Net Income - Year-to-Date 2017
	Year ended December 31, 2017
(in thousands, except per share data)	Cost of services, excluding depreciation and amortization			Selling, general and administrative			Depreciation and amortization			Loss on derivatives			Loss on sale of investments			Miscellaneous, net			Provision for income taxes			Net income attributable to SNI (A)			Earnings per diluted share
GAAP measure
As reported	$	1,253,994		$	881,030		$	151,865		$	(11,302	)	$	(1,026	)	$	82,526		$	496,859		$	623,935		$	4.76
Merger related expenses		(428	)		(28,841	)		-			-			-			-			-			18,147			0.14
Tax law changes impact		-			-			-			-			-			-			(110,493	)		110,493			0.84
As adjusted	$	1,253,566		$	852,189		$	151,865		$	(11,302	)	$	(1,026	)	$	82,526		$	386,366		$	752,575		$	5.74
(A) Merger related expenses tax effected at 38% statutory tax rate.

 

Adjusted Net Income - Year-to-Date 2016
	Year ended December 31, 2016
(in thousands, except per share data)	Cost of services, excluding depreciation and amortization			Selling, general and administrative			Depreciation and amortization			Goodwill write-down			Gain on derivatives			Gain on sale of investments			Miscellaneous, net			Net income attributable to SNI (A)			Earnings per diluted share
GAAP measure
As reported	$	1,193,228		$	806,733		$	195,001		$	57,878		$	17,868		$	191,824		$	(22,450	)	$	673,595		$	5.18
Goodwill write-down		-			-			-			(57,878	)		-			-			-			57,878			0.44
Intangible assets write-down		-			-			(15,943	)		-			-			-			-			13,233			0.10
Investments write-down		-			-			-			-			-			-			10,701			8,668			0.07
TVN transaction and integration expenses		(17	)		(15,121	)		-			-			-			-			-			11,505			0.09
Restructuring costs		-			310			-			-			-			-			-			(192	)		-
Reorganization costs		(5,546	)		(10,803	)		-			-			-			-			-			10,136			0.08
Gain on extinguishment of debt		-			-			-			-			-			-			(6,650	)		(5,387	)		(0.04	)
TVN purchase price accounting impact		8,501			-			-			-			-			-			-			(6,886	)		(0.05	)
Sale of investments		-			-			-			-			-			(191,824	)		-			(118,931	)		(0.91	)
As adjusted	$	1,196,166		$	781,119		$	179,058		$	-		$	17,868		$	-		$	(18,399	)	$	643,619		$	4.96
(A) Items tax effected at 38% statutory tax rate, with the exception of the following: $57.9 million goodwill write-down, which has a 0% effective tax rate; $15.9 million intangible assets write-down, which has a 17% effective tax rate; and $11.2 million TVN transaction and integration expenses, $6.7 million gain on extinguishment of debt, $10.7 million investments write-down and $8.5 million TVN purchase price accounting impact, which have a 19% effective tax rate.

 

Free Cash Flow - 2017 and 2016
	Year ended December 31,
(in thousands)		2017			2016
Cash provided by operating activities	$	1,055,794		$	948,826
Dividends paid to non-controlling interests		(186,116	)		(157,687	)
Additions to property and equipment		(75,641	)		(74,406	)
Free cash flow	$	794,037		$	716,733

 

U.S Networks Segment Operating Revenues by Network – 2017 and 2016
	Three months ended December 31									Year ended December 31,
(in thousands)	2017			2016			% Change			2017			2016			% Change
Network
HGTV	$	280,854		$	269,390			4.3	%	$	1,138,107		$	1,089,616			4.5	%
Food Network		257,030			245,034			4.9	%		965,567			932,617			3.5	%
Travel Channel		79,783			78,968			1.0	%		325,617			321,209			1.4	%
DIY Network		38,914			39,344			(1.1	)%		162,035			167,944			(3.5	)%
Cooking Channel		37,086			37,004			0.2	%		144,812			141,218			2.5	%
Great American Country		6,537			6,857			(4.7	)%		27,546			29,496			(6.6	)%
Digital		48,659			43,424			12.1	%		163,922			149,815			9.4	%
Other		10,455			10,797			(3.2	)%		41,601			41,259			0.8	%
Intrasegment eliminations		(575	)		(173	)		(232.4	)%		(2,165	)		(1,750	)		(23.7	)%
Segment operating revenues	$	758,743		$	730,645			3.8	%	$	2,967,042		$	2,871,424			3.3	%
Type
Advertising	$	529,919		$	523,330			1.3	%	$	2,069,422		$	2,029,095			2.0	%
Distribution		213,637			193,404			10.5	%		840,175			785,849			6.9	%
Other		15,187			13,911			9.2	%		57,445			56,480			1.7	%
Segment operating revenues	$	758,743		$	730,645			3.8	%	$	2,967,042		$	2,871,424			3.3	%