UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 20162017
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-34004
SCRIPPS NETWORKS INTERACTIVE, INC.
(Exact name of registrant as specified in its charter)
Ohio | 61-1551890 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
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9721 Sherrill Boulevard Knoxville, TN | 37932 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (865) 694-2700
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x☒ No o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definitionthe definitions of “large accelerated filer”,filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ⌧Accelerated filer ☐
Non-accelerated filer (Do not check if a smaller reporting company) ☐Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No x☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of July 29, 201631, 2017 there were 95,196,87095,962,256 of the Registrant’s Class A Common Shares outstanding and 33,850,481 of the Registrant’s Common Voting Shares outstanding.
SCRIPPS NETWORKS INTERACTIVE, INC.
PART I - FINANCIAL INFORMATION |
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Item 1. |
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Item 2. |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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SCRIPPS NETWORKS INTERACTIVE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share data and par value amounts)
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CONDENSED CONSOLIDATED BALANCE SHEETS ( UNAUDITED ) |
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(in thousands, except share and par value amounts) |
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| June 30, |
| December 31, |
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| 2017 |
| 2016 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
| $ | 131,557 |
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| $ | 122,937 |
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Accounts receivable, net of allowances: 2017 - $14,203; 2016 - $26,118 |
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| 912,018 |
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| 808,133 |
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Programs and program licenses, net |
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| 641,611 |
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| 591,378 |
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Prepaid expenses and other current assets |
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| 68,225 |
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| 135,651 |
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Total current assets |
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| 1,753,411 |
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| 1,658,099 |
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Programs and program licenses, net (less current portion) |
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| 500,256 |
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| 500,022 |
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Investments |
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| 723,740 |
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| 699,481 |
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Property and equipment, net of accumulated depreciation: 2017 - $356,939; 2016 - $354,435 |
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| 315,543 |
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| 286,399 |
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Goodwill, net |
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| 1,756,514 |
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| 1,642,169 |
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Intangible assets, net |
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| 1,122,323 |
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| 1,092,682 |
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Deferred income taxes |
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| 192,753 |
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| 175,291 |
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Other non-current assets |
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| 152,029 |
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| 146,151 |
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Total Assets |
| $ | 6,516,569 |
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| $ | 6,200,294 |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Accounts payable |
| $ | 25,728 |
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| $ | 42,223 |
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Accrued liabilities |
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| 134,371 |
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| 152,480 |
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Employee compensation and benefits |
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| 72,296 |
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| 123,506 |
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Program rights payable |
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| 69,959 |
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| 70,403 |
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Deferred revenue |
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| 119,977 |
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| 77,987 |
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Current portion of debt |
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| 249,932 |
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Total current liabilities |
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| 422,331 |
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| 716,531 |
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Debt (less current portion) |
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| 2,979,729 |
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| 2,952,454 |
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Other non-current liabilities |
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| 319,736 |
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| 302,881 |
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Total liabilities |
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| 3,721,796 |
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| 3,971,866 |
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Shareholders' equity: |
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Scripps Networks Interactive ("SNI") shareholders’ equity: |
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Preferred stock, $0.01 par - authorized: 25,000,000 shares; none outstanding |
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Common stock, $0.01 par: |
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Class A Common Shares - authorized: 240,000,000 shares; issued and outstanding: 2017 - 95,936,980 shares; 2016 - 95,491,477 shares |
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| 959 |
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| 954 |
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Common Voting Shares - authorized: 60,000,000 shares; issued and outstanding: 2017 - 33,850,481 shares; 2016 - 33,850,481 shares |
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| 339 |
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| 339 |
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Total common stock |
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| 1,298 |
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| 1,293 |
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Additional paid-in capital |
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| 1,425,611 |
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| 1,390,411 |
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Retained earnings |
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| 1,230,668 |
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| 871,766 |
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Accumulated other comprehensive loss |
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| (143,353 | ) |
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| (363,701 | ) |
SNI shareholders’ equity |
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| 2,514,224 |
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| 1,899,769 |
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Non-controlling interest (Note 13) |
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| 280,549 |
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| 328,659 |
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Total equity |
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| 2,794,773 |
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| 2,228,428 |
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Total Liabilities and Equity |
| $ | 6,516,569 |
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| $ | 6,200,294 |
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See notes to condensed consolidated financial statements. |
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| As of |
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| June 30, |
| December 31, |
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| 2016 |
| 2015 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
| $ | 185,923 |
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| $ | 223,444 |
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Accounts receivable, net of allowances: 2016 - $16,253; 2015 - $12,569 |
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| 835,644 |
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| 816,679 |
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Programs and program licenses |
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| 604,545 |
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| 588,999 |
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Other current assets |
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| 66,830 |
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| 98,759 |
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Total current assets |
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| 1,692,942 |
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| 1,727,881 |
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Investments |
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| 743,974 |
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| 807,630 |
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Property and equipment, net of accumulated depreciation: 2016 - $324,982; 2015 - $299,153 |
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| 279,620 |
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| 293,230 |
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Goodwill |
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| 1,785,349 |
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| 1,804,748 |
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Intangible assets, net |
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| 1,191,215 |
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| 1,262,664 |
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Programs and program licenses (less current portion) |
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| 525,090 |
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| 522,899 |
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Deferred income taxes |
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| 142,563 |
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| 91,954 |
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Other non-current assets |
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| 151,962 |
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| 161,308 |
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Total Assets |
| $ | 6,512,715 |
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| $ | 6,672,314 |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Accounts payable |
| $ | 61,464 |
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| $ | 35,308 |
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Current portion of debt |
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| 749,487 |
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| 499,174 |
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Program rights payable |
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| 57,446 |
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| 68,892 |
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Deferred revenue |
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| 101,408 |
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| 96,040 |
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Employee compensation and benefits |
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| 75,982 |
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| 115,266 |
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Other accrued liabilities |
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| 154,574 |
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| 159,969 |
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Total current liabilities |
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| 1,200,361 |
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| 974,649 |
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Debt (less current portion) |
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| 2,877,451 |
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| 3,511,098 |
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Other non-current liabilities |
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| 266,875 |
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| 250,391 |
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Total liabilities |
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| 4,344,687 |
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| 4,736,138 |
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Redeemable non-controlling interests (Note 14) |
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| 99,000 |
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Equity: |
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SNI shareholders’ equity: |
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Preferred stock, $0.01 par - authorized: 25,000,000 shares; none outstanding |
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Common stock, $0.01 par: |
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Class A Common Shares - authorized: 240,000,000 shares; issued and outstanding: 2016 - 95,170,859 shares; 2015 - 94,838,600 shares |
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| 951 |
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| 948 |
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Common Voting Shares - authorized: 60,000,000 shares; issued and outstanding: 2016 - 33,850,481 shares; 2015 - 33,850,481 shares |
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| 339 |
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| 339 |
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Total common stock |
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| 1,290 |
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| 1,287 |
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Additional paid-in capital |
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| 1,375,306 |
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| 1,347,491 |
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Retained earnings |
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| 718,292 |
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| 305,386 |
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Accumulated other comprehensive loss |
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| (210,334 | ) |
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| (130,233 | ) |
Total SNI shareholders’ equity |
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| 1,884,554 |
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| 1,523,931 |
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Non-controlling interest (Note 14) |
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| 283,474 |
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| 313,245 |
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Total equity |
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| 2,168,028 |
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| 1,837,176 |
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Total Liabilities and Equity |
| $ | 6,512,715 |
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| $ | 6,672,314 |
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ( UNAUDITED ) |
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(in thousands, except per share amounts) |
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| Three months ended June 30, |
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| Six months ended June 30, |
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| 2017 |
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| 2017 |
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| 2016 |
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Operating revenues: |
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Advertising | $ | 663,034 |
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| $ | 646,648 |
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| $ | 1,259,749 |
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| $ | 1,218,503 |
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Distribution |
| 239,685 |
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| 223,446 |
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| 478,065 |
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| 451,514 |
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Other |
| 22,327 |
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| 22,677 |
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| 42,352 |
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| 39,632 |
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Total operating revenues |
| 925,046 |
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| 892,771 |
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| 1,780,166 |
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| 1,709,649 |
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Operating expenses: |
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Cost of services, excluding depreciation and amortization |
| 299,851 |
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| 286,999 |
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| 578,890 |
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| 566,666 |
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Selling, general and administrative |
| 212,397 |
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| 191,133 |
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| 419,767 |
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| 389,954 |
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Depreciation |
| 13,660 |
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| 16,089 |
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| 28,620 |
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| 33,386 |
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Amortization |
| 25,058 |
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| 25,654 |
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| 49,255 |
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| 56,716 |
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Total operating expenses |
| 550,966 |
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| 519,875 |
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| 1,076,532 |
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| 1,046,722 |
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Operating income |
| 374,080 |
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| 372,896 |
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| 703,634 |
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| 662,927 |
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Interest expense, net |
| (24,203 | ) |
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| (33,175 | ) |
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| (48,455 | ) |
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| (66,920 | ) |
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Equity in earnings of affiliates |
| 20,974 |
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| 21,712 |
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| 41,423 |
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| 47,390 |
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(Loss) gain on derivatives |
| (3,672 | ) |
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| 8,267 |
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| (6,008 | ) |
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| 11,033 |
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Gain (loss) on sale of investments |
| 1,416 |
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| (16,373 | ) |
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| 1,416 |
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| 191,824 |
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Miscellaneous, net |
| 32,181 |
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| (21,672 | ) |
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| 59,721 |
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| (15,606 | ) |
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Income from operations before income taxes |
| 400,776 |
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| 331,655 |
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| 751,731 |
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| 830,648 |
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Provision for income taxes |
| 115,099 |
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| 98,303 |
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| 216,239 |
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| 257,350 |
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Net income |
| 285,677 |
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| 233,352 |
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| 535,492 |
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| 573,298 |
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Less: net income attributable to non-controlling interests |
| (51,602 | ) |
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| (48,744 | ) |
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| (101,517 | ) |
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| (97,793 | ) |
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Net income attributable to SNI | $ | 234,075 |
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| $ | 184,608 |
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| $ | 433,975 |
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| $ | 475,505 |
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Net income attributable to SNI Class A Common and Common Voting shareholders per share of common stock: |
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Basic | $ | 1.80 |
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| $ | 1.42 |
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| $ | 3.34 |
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| $ | 3.67 |
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Diluted | $ | 1.79 |
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| $ | 1.42 |
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| $ | 3.32 |
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| $ | 3.66 |
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Weighted average shares outstanding: |
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Basic |
| 130,233 |
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| 129,562 |
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| 130,079 |
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| 129,434 |
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Diluted |
| 130,884 |
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| 130,141 |
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| 130,790 |
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| 129,971 |
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See notes to condensed consolidated financial statements. |
See notes to condensed consolidated financial statements.
SCRIPPS NETWORKS INTERACTIVE, INC. |
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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ( UNAUDITED ) |
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(in thousands) |
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| Three months ended June 30, |
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| Six months ended June 30, |
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2017 |
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| 2016 |
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| 2017 |
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| 2016 |
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Net income |
| $ | 285,677 |
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| $ | 233,352 |
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| $ | 535,492 |
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| $ | 573,298 |
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Other comprehensive income (loss), net of tax: |
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Foreign currency translation adjustments, net of tax: 2017 - ($8) and ($3); 2016 - $2,306 and ($810) |
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| 151,644 |
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| (122,814 | ) |
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| 218,103 |
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| (81,231 | ) |
Pension Plan and SERP liability adjustments, net of tax: 2017 - $23 and ($476); 2016 - ($380) and ($760) |
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| 1,395 |
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| 666 |
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| 2,268 |
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| 1,332 |
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Comprehensive income |
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| 438,716 |
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| 111,204 |
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| 755,863 |
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| 493,399 |
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Less: comprehensive income attributable to non-controlling interests |
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| (51,623 | ) |
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| (48,181 | ) |
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| (101,540 | ) |
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| (97,995 | ) |
Comprehensive income attributable to SNI |
| $ | 387,093 |
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| $ | 63,023 |
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| $ | 654,323 |
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| $ | 395,404 |
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See notes to condensed consolidated financial statements. |
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SCRIPPS NETWORKS INTERACTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)
| Three months ended June 30, |
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| Six months ended June 30, |
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| 2016 |
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| 2015 |
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| 2016 |
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| 2015 |
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Operating revenues: |
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Advertising | $ |
| 646,648 |
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| $ |
| 502,891 |
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| $ |
| 1,218,503 |
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| $ |
| 938,159 |
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Distribution |
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| 223,446 |
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| 215,217 |
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| 451,514 |
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| 424,225 |
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Other |
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| 22,677 |
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| 13,994 |
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| 39,632 |
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| 27,968 |
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Total operating revenues |
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| 892,771 |
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| 732,102 |
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| 1,709,649 |
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| 1,390,352 |
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Operating expenses: |
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Cost of services, excluding depreciation and amortization |
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| 286,999 |
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| 195,087 |
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| 566,666 |
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| 394,234 |
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Selling, general and administrative |
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| 191,133 |
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| 178,498 |
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| 389,954 |
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| 380,685 |
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Depreciation |
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| 16,089 |
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| 14,798 |
|
|
|
| 33,628 |
|
|
|
| 31,693 |
|
Amortization |
|
| 25,654 |
|
|
|
| 11,640 |
|
|
|
| 56,716 |
|
|
|
| 23,335 |
|
Loss (gain) on disposal of property and equipment |
|
| - |
|
|
|
| 44 |
|
|
|
| (242 | ) |
|
|
| 2,560 |
|
Total operating expenses |
|
| 519,875 |
|
|
|
| 400,067 |
|
|
|
| 1,046,722 |
|
|
|
| 832,507 |
|
Operating income |
|
| 372,896 |
|
|
|
| 332,035 |
|
|
|
| 662,927 |
|
|
|
| 557,845 |
|
Interest expense, net |
|
| (33,175 | ) |
|
|
| (16,835 | ) |
|
|
| (66,920 | ) |
|
|
| (29,802 | ) |
Equity in earnings of affiliates |
|
| 21,712 |
|
|
|
| 27,290 |
|
|
|
| 47,390 |
|
|
|
| 46,235 |
|
Gain on derivatives |
|
| 8,267 |
|
|
|
| 37,198 |
|
|
|
| 11,033 |
|
|
|
| 43,131 |
|
(Loss) gain on sale of investments |
|
| (16,373 | ) |
|
|
| - |
|
|
|
| 191,824 |
|
|
|
| - |
|
Miscellaneous, net |
|
| (21,672 | ) |
|
|
| (13,194 | ) |
|
|
| (15,606 | ) |
|
|
| (13,596 | ) |
Income from operations before income taxes |
|
| 331,655 |
|
|
|
| 366,494 |
|
|
|
| 830,648 |
|
|
|
| 603,813 |
|
Provision for income taxes |
|
| 98,303 |
|
|
|
| 120,326 |
|
|
|
| 257,350 |
|
|
|
| 191,575 |
|
Net income |
|
| 233,352 |
|
|
|
| 246,168 |
|
|
|
| 573,298 |
|
|
|
| 412,238 |
|
Less: net income attributable to non-controlling interests |
|
| (48,744 | ) |
|
|
| (52,450 | ) |
|
|
| (97,793 | ) |
|
|
| (94,677 | ) |
Net income attributable to SNI | $ |
| 184,608 |
|
| $ |
| 193,718 |
|
| $ |
| 475,505 |
|
| $ |
| 317,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to SNI common shareholders per share of common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic | $ |
| 1.42 |
|
| $ |
| 1.50 |
|
| $ |
| 3.67 |
|
| $ |
| 2.44 |
|
Diluted | $ |
| 1.42 |
|
| $ |
| 1.49 |
|
| $ |
| 3.66 |
|
| $ |
| 2.43 |
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 129,562 |
|
|
|
| 129,225 |
|
|
|
| 129,434 |
|
|
|
| 130,237 |
|
Diluted |
|
| 130,141 |
|
|
|
| 129,868 |
|
|
|
| 129,971 |
|
|
|
| 130,898 |
|
See notes to condensed consolidated financial statements.
SCRIPPS NETWORKS INTERACTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)
| Three months ended June 30, |
|
| Six months ended June 30, |
| ||||||||||||||
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
| ||||||||
Net income | $ |
| 233,352 |
|
| $ |
| 246,168 |
|
| $ |
| 573,298 |
|
| $ |
| 412,238 |
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax: 2016 - $2,306 and ($810); 2015 - ($225) and $1,595 |
|
| (122,814 | ) |
|
|
| 29,636 |
|
|
|
| (81,231 | ) |
|
|
| 2,416 |
|
Pension Plan and SERP liability adjustments, net of tax: 2016 - ($380) and ($760); 2015 - ($444) and ($952) |
|
| 666 |
|
|
|
| 728 |
|
|
|
| 1,332 |
|
|
|
| 1,392 |
|
Comprehensive income |
|
| 111,204 |
|
|
|
| 276,532 |
|
|
|
| 493,399 |
|
|
|
| 416,046 |
|
Less: comprehensive income attributable to non-controlling interests |
|
| (48,181 | ) |
|
|
| (52,476 | ) |
|
|
| (97,995 | ) |
|
|
| (94,218 | ) |
Comprehensive income attributable to SNI | $ |
| 63,023 |
|
| $ |
| 224,056 |
|
| $ |
| 395,404 |
|
| $ |
| 321,828 |
|
See notes to condensed consolidated financial statements.
SCRIPPS NETWORKS INTERACTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
|
| Six months ended June 30, |
| |||||
|
| 2016 |
|
| 2015 |
| ||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
Net income |
| $ | 573,298 |
|
| $ | 412,238 |
|
Depreciation |
|
| 33,628 |
|
|
| 31,693 |
|
Amortization |
|
| 56,716 |
|
|
| 23,335 |
|
Program amortization |
|
| 441,608 |
|
|
| 322,268 |
|
Program payments |
|
| (477,132 | ) |
|
| (396,638 | ) |
Equity in earnings of affiliates |
|
| (47,390 | ) |
|
| (46,235 | ) |
Gain on derivatives |
|
| (11,033 | ) |
|
| (43,131 | ) |
Gain on sale of investments |
|
| (191,824 | ) |
|
| — |
|
Dividends received from equity investments |
|
| 38,247 |
|
|
| 44,019 |
|
Share-based compensation |
|
| 24,679 |
|
|
| 24,255 |
|
Deferred income taxes |
|
| (31,190 | ) |
|
| 2,686 |
|
Changes in working capital accounts (excluding the effects of acquisition): |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
| (23,533 | ) |
|
| (93,465 | ) |
Other assets |
|
| (9,356 | ) |
|
| (9,530 | ) |
Accounts payable |
|
| 26,985 |
|
|
| 13,246 |
|
Deferred revenue |
|
| 5,629 |
|
|
| 29,466 |
|
Accrued / refundable income taxes |
|
| 87,453 |
|
|
| 66,712 |
|
Other liabilities |
|
| (53,241 | ) |
|
| (13,698 | ) |
Other, net |
|
| 6,263 |
|
|
| 18,221 |
|
Cash provided by operating activities |
|
| 449,807 |
|
|
| 385,442 |
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
Additions to property and equipment |
|
| (24,297 | ) |
|
| (18,478 | ) |
Collections of note receivable |
|
| 2,135 |
|
|
| 2,322 |
|
Purchases of investments |
|
| (4,711 | ) |
|
| (30,000 | ) |
Sale of investments |
|
| 226,484 |
|
|
| — |
|
Investment in intangible |
|
| (11,634 | ) |
|
| — |
|
Foreign currency call option premium |
|
| — |
|
|
| (16,000 | ) |
Settlement of derivatives |
|
| 11,016 |
|
|
| 63,019 |
|
Restricted cash |
|
| — |
|
|
| (652,353 | ) |
Other, net |
|
| (8,443 | ) |
|
| (32,444 | ) |
Cash provided by (used in) investing activities |
|
| 190,550 |
|
|
| (683,934 | ) |
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
Proceeds from debt |
|
| — |
|
|
| 2,760,764 |
|
Repayments of debt |
|
| (390,000 | ) |
|
| (1,700,000 | ) |
Deferred loan costs |
|
| — |
|
|
| (13,963 | ) |
Purchase of non-controlling interests |
|
| (99,000 | ) |
|
| — |
|
Dividends paid |
|
| (64,695 | ) |
|
| (59,427 | ) |
Dividends paid to non-controlling interests |
|
| (125,604 | ) |
|
| (135,817 | ) |
Repurchases of Class A Common Shares |
|
| — |
|
|
| (288,502 | ) |
Proceeds from stock options |
|
| 6,246 |
|
|
| 7,894 |
|
Other, net |
|
| 1,754 |
|
|
| (7,016 | ) |
Cash (used in) provided by financing activities |
|
| (671,299 | ) |
|
| 563,933 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
| (6,579 | ) |
|
| (2,791 | ) |
(Decrease) increase in cash and cash equivalents |
|
| (37,521 | ) |
|
| 262,650 |
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
Beginning of period |
|
| 223,444 |
|
|
| 878,164 |
|
End of period |
| $ | 185,923 |
|
| $ | 1,140,814 |
|
Supplemental Cash Flow Disclosures: |
|
|
|
|
|
|
|
|
Interest paid, excluding amounts capitalized |
| $ | 52,147 |
|
| $ | 41,132 |
|
Income taxes paid |
| $ | 202,570 |
|
| $ | 113,921 |
|
See notes to condensed consolidated financial statements.
SCRIPPS NETWORKS INTERACTIVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)( UNAUDITED )
(in thousands, except per share data)
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common Stock |
|
| Additional Paid-in Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Loss |
|
| Non-controlling Interest |
|
| Total Equity |
|
| Redeemable Non-controlling Interests (Temporary Equity) |
| Common Stock |
|
| Additional Paid-in Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Loss |
|
| Non-controlling Interest |
|
| Total Equity |
|
| Redeemable Non-controlling Interests |
| ||||||||||||||
Balance as of December 31, 2014 | $ | 1,321 |
|
| $ | 1,359,023 |
|
| $ | 79,994 |
|
| $ | (57,891 | ) |
| $ | 302,140 |
|
| $ | 1,684,587 |
|
| $ | 96,251 |
| |||||||||||||||||||||||||||
Comprehensive income |
|
|
|
|
|
|
|
|
| 317,561 |
|
|
| 4,267 |
|
|
| 90,471 |
|
|
| 412,299 |
|
|
| 3,747 |
| |||||||||||||||||||||||||||
Redeemable non-controlling interest fair value adjustments |
|
|
|
|
|
|
|
|
| (1,081 | ) |
|
|
|
|
|
|
|
|
|
| (1,081 | ) |
|
| 1,081 |
| |||||||||||||||||||||||||||
Addition to non-controlling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
| 700 |
| |||||||||||||||||||||||||||
Dividends paid to non-controlling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (129,149 | ) |
|
| (129,149 | ) |
|
| (6,668 | ) | |||||||||||||||||||||||||||
Dividends declared and paid: $0.46 per share |
|
|
|
|
|
|
|
|
| (59,427 | ) |
|
|
|
|
|
|
|
|
|
| (59,427 | ) |
|
|
|
| |||||||||||||||||||||||||||
Repurchases of Class A Common Shares: 3,986,275 shares |
| (40 | ) |
|
| (43,677 | ) |
|
| (244,785 | ) |
|
|
|
|
|
|
|
|
|
| (288,502 | ) |
|
|
|
| |||||||||||||||||||||||||||
Share-based compensation |
|
|
|
|
| 24,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 24,255 |
|
|
|
|
| |||||||||||||||||||||||||||
Exercise of employee share options: 172,959 shares issued |
| 2 |
|
|
| 7,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 7,894 |
|
|
|
|
| |||||||||||||||||||||||||||
Other share-based compensation, net: 331,530 shares issued; 108,626 shares repurchased |
| 2 |
|
|
| (6,299 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (6,297 | ) |
|
|
|
| |||||||||||||||||||||||||||
Tax benefits of compensation plans |
|
|
|
|
| 1,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,131 |
|
|
|
|
| |||||||||||||||||||||||||||
Balance as of June 30, 2015 | $ | 1,285 |
|
| $ | 1,342,325 |
|
| $ | 92,262 |
|
| $ | (53,624 | ) |
| $ | 263,462 |
| �� | $ | 1,645,710 |
|
| $ | 95,111 |
| |||||||||||||||||||||||||||
Balance as of December 31, 2015 | $ | 1,287 |
|
| $ | 1,347,491 |
|
| $ | 305,386 |
|
| $ | (130,233 | ) |
| $ | 313,245 |
|
| $ | 1,837,176 |
|
| $ | 99,000 |
| |||||||||||||||||||||||||||
December 31, 2015 | $ | 1,287 |
|
| $ | 1,347,491 |
|
| $ | 305,386 |
|
| $ | (130,233 | ) |
| $ | 313,245 |
|
| $ | 1,837,176 |
|
| $ | 99,000 |
| |||||||||||||||||||||||||||
Comprehensive income |
|
|
|
|
|
|
|
|
| 475,505 |
|
|
| (80,101 | ) |
|
| 95,833 |
|
|
| 491,237 |
|
|
| 2,162 |
|
|
|
|
|
|
|
|
|
| 475,505 |
|
|
| (80,101 | ) |
|
| 95,833 |
|
|
| 491,237 |
|
|
| 2,162 |
|
Redeemable non-controlling interest fair value adjustments |
|
|
|
|
|
|
|
|
| 2,162 |
|
|
|
|
|
|
|
|
|
|
| 2,162 |
|
|
| (2,162 | ) |
|
|
|
|
|
|
|
|
| 2,162 |
|
|
|
|
|
|
|
|
|
|
| 2,162 |
|
|
| (2,162 | ) |
Purchase of non-controlling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
| (99,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
| (99,000 | ) |
Dividends paid to non-controlling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (125,604 | ) |
|
| (125,604 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (125,604 | ) |
|
| (125,604 | ) |
|
|
|
|
Dividends declared and paid: $0.50 per share |
|
|
|
|
|
|
|
|
| (64,695 | ) |
|
|
|
|
|
|
|
|
|
| (64,695 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| (64,695 | ) |
|
|
|
|
|
|
|
|
|
| (64,695 | ) |
|
|
|
|
Share-based compensation |
|
|
|
|
| 24,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 24,679 |
|
|
|
|
|
|
|
|
|
| 24,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 24,679 |
|
|
|
|
|
Exercise of employee share options: 169,775 shares issued |
| 1 |
|
|
| 6,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 6,246 |
|
|
|
|
|
| 1 |
|
|
| 6,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 6,246 |
|
|
|
|
|
Other share-based compensation, net: 230,094 shares issued; 67,610 shares repurchased |
| 2 |
|
|
| (2,768 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,766 | ) |
|
|
|
|
| 2 |
|
|
| (2,768 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,766 | ) |
|
|
|
|
Impact of implementation of ASC 718 |
|
|
|
|
| 66 |
|
|
| (66 | ) |
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
| |||||||||||||||||||||||||||
Tax expense of compensation plans |
|
|
|
|
| (407 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (407 | ) |
|
|
|
| |||||||||||||||||||||||||||
Balance as of June 30, 2016 | $ | 1,290 |
|
| $ | 1,375,306 |
|
| $ | 718,292 |
|
| $ | (210,334 | ) |
| $ | 283,474 |
|
| $ | 2,168,028 |
|
| $ | - |
| |||||||||||||||||||||||||||
Impact of ASC 718 implementation |
|
|
|
|
| 66 |
|
|
| (66 | ) |
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
| |||||||||||||||||||||||||||
Tax impact of compensation plans |
|
|
|
|
| (407 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (407 | ) |
|
|
|
| |||||||||||||||||||||||||||
June 30, 2016 | $ | 1,290 |
|
| $ | 1,375,306 |
|
| $ | 718,292 |
|
| $ | (210,334 | ) |
| $ | 283,474 |
|
| $ | 2,168,028 |
|
| $ | - |
| |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
December 31, 2016 | $ | 1,293 |
|
| $ | 1,390,411 |
|
| $ | 871,766 |
|
| $ | (363,701 | ) |
| $ | 328,659 |
|
| $ | 2,228,428 |
|
| $ | - |
| |||||||||||||||||||||||||||
Comprehensive income |
|
|
|
|
|
|
|
|
| 433,975 |
|
|
| 220,348 |
|
|
| 101,540 |
|
|
| 755,863 |
|
|
|
|
| |||||||||||||||||||||||||||
Tax impact of purchase of non-controlling interest |
|
|
|
|
|
|
|
|
| 3,194 |
|
|
|
|
|
|
|
|
|
|
| 3,194 |
|
|
|
|
| |||||||||||||||||||||||||||
Dividends paid to non-controlling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (149,650 | ) |
|
| (149,650 | ) |
|
|
|
| |||||||||||||||||||||||||||
Dividends declared and paid: $0.60 per share |
|
|
|
|
|
|
|
|
| (78,267 | ) |
|
|
|
|
|
|
|
|
|
| (78,267 | ) |
|
|
|
| |||||||||||||||||||||||||||
Share-based compensation |
|
|
|
|
| 27,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 27,598 |
|
|
|
|
| |||||||||||||||||||||||||||
Exercise of employee share options: 266,337 shares issued |
| 3 |
|
|
| 12,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 12,592 |
|
|
|
|
| |||||||||||||||||||||||||||
Other share-based compensation, net: 260,202 shares issued; 81,036 shares repurchased |
| 2 |
|
|
| (4,987 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (4,985 | ) |
|
|
|
| |||||||||||||||||||||||||||
June 30, 2017 | $ | 1,298 |
|
| $ | 1,425,611 |
|
| $ | 1,230,668 |
|
| $ | (143,353 | ) |
| $ | 280,549 |
|
| $ | 2,794,773 |
|
| $ | - |
|
See notes to condensed consolidated financial statements.
SCRIPPSSCRIPPS NETWORKS INTERACTIVE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. | Description of Business and Basis of Presentation |
As used in the notes to the condensed consolidated financial statements, the terms “SNI,” “Scripps,” “the Company,” “we,” “our,” “us” or similar terms may, depending on the context, refer to Scripps Networks Interactive, Inc., to one or more of its consolidated subsidiary companies or to all of them taken as a whole.
Description of Business
We operateSNI operates in the media industry and havehas interests in domestic and international television networks and internet-based media properties.
The Company has two reportable segments: U.S. Networks and International Networks.
U.S. Networks includes our six domestic television networks: HGTV, Food Network, Travel Channel, DIY Network, Cooking Channel and Great American Country. Additionally, U.S. Networks includes websites associated with the aforementioned television brands and other internet and mobiledigital businesses serving home, food, travel and other lifestyle-related categories. U.S. Networks also includes our digital content studio, Scripps Networks Lifestyle Studio. We own 100.0 percent of each of our networks, with the exception of Food Network and Cooking Channel, of which we own 68.7 percent.
International Networks includes TVN S.A. (“TVN”), which operates a portfolio of free-to-air and pay-TV lifestyle and entertainment networks in Poland, including TVN, TVN24, TVN Style, TTV, TVN Turbo, TVN24 Biznes i Świat.Świat and HGTV. Also included in TVN is TVN Media, an advertising sales house. Additionally, International Networks includes the lifestyle-oriented networks available in the United Kingdom (“UK”), other European markets, the Middle East and Africa (“EMEA”), Asia Pacific (“APAC”), and Latin America and the Caribbean.
As a resultAmerica. International Networks also includes our 50.0 percent share of the changes to our reportable segmentsresults of UKTV, a general entertainment and lifestyle channel platform in 2015, certain prior period segment results have been recast to reflect the current presentation (see Note 17 – Segment Information).UK.
Basis of Presentation
The condensed consolidated financial statements include the accounts of SNI and its majority-owned or controlled subsidiaries after elimination of intercompany accounts and transactions. Investments in which the Company lacks control but has the ability to exercise significant influence over operating and financial policies are accounted for using the equity method of accounting. Investments in entities in which SNI has no control or significant influence over and is not the primary beneficiary are accounted for using the cost method of accounting.
The results of companies acquired or disposed of are included in the condensed consolidated financial statements from the effective date of acquisition or up to the date of disposal, respectively.
Unaudited Interim Financial Statements
The condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the instructions to Form 10-Q under the Securities Exchange Act of 1934, as amended. These unaudited condensed consolidated financial statements and the related notesfootnotes hereto should be read in conjunction with the audited consolidated financial statements and notesfootnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015.2016.
In the opinion of management, the accompanying condensed consolidated balance sheets and related interim condensed consolidated statements of operations, comprehensive income, cash flows and shareholders’ equity include all adjustments, consisting only of normal recurring adjustments necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (“GAAP”).GAAP. The year end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. Preparing
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates, judgments and assumptions that affect the amounts and related disclosures reported amountsin the condensed consolidated financial statements and accompanying footnotes, including the selection of assetsappropriate accounting principles that reflect the economic substance of the underlying transactions and liabilities and disclosurethe assumptions on which to base accounting estimates. In reaching such decisions, judgment is applied
based on analysis of contingent assets and liabilities, and revenues and expenses. We base our estimates onthe relevant circumstances, including historical experience, actuarial studies and on various other assumptions that we believe to be reasonable under the circumstances.assumptions. Actual results and outcomes maycould differ materially from management’s estimates and assumptions.estimates.
Interim results are not necessarily indicative of the results that may be expected for any future interim periods or for a full year.
Reclassifications
During the quarter, the Company adopted new guidance related to the accounting for employee share-based payments. This change resulted in a reclassification in 2016 of $0.1 million of the cumulative effect from 2015 and 2014 of forfeited share-based payments from retained earnings to additional paid-in capital on our condensed consolidated balance sheets and our condensed consolidated statements of shareholders’ equity.
|
|
Basic earnings per share (“EPS”) is calculated by dividing earnings available to common shareholders by the weighted average number of common shares outstanding, including participating securities outstanding. Diluted EPS is similar to basic EPS, but adjusts for the effect of the potential issuance of common shares. We include all unvested stock awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, in our basic and diluted EPS number of shares outstanding.
The following table presents information about basic and diluted weighted average shares outstanding:
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
( in thousands ) |
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
| ||||
Basic weighted average shares outstanding |
|
| 129,562 |
|
|
| 129,225 |
|
|
| 129,434 |
|
|
| 130,237 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested share units and shares held by employees |
|
| 230 |
|
|
| 183 |
|
|
| 212 |
|
|
| 168 |
|
Stock options held by employees and directors |
|
| 349 |
|
|
| 460 |
|
|
| 325 |
|
|
| 493 |
|
Diluted weighted average shares outstanding |
|
| 130,141 |
|
|
| 129,868 |
|
|
| 129,971 |
|
|
| 130,898 |
|
Anti-dilutive share awards |
|
| 881 |
|
|
| 727 |
|
|
| 1,296 |
|
|
| 532 |
|
For the three and six months ended June 30, 2016 and June 30, 2015, we had stock options that were anti-dilutive and, accordingly, were not included in the computation of diluted weighted average shares outstanding.
| Accounting Standards Updates |
Issued and Adopted
In March 2016,May 2017, the Financial Accounting Standards Board (“FASB”(the “FASB”) issued new accounting guidance related to share-based compensation, Improvements to Employee Share-Based Payment Accounting. The new guidance simplifies several aspectsthe scope of themodification accounting for equity awards, Compensation – Stock Compensation, which provides guidance about which changes to the terms or conditions of a share-based payments, including forfeitures, accounting for income taxes and statutory withholding requirements. Additionally, this guidance provides clarity around presentation of items within the statements of cash flows.payment award require an entity to apply modification accounting. The guidance is effective for us on January 1,December 15, 2017, and early adoption is permitted. We early adopted this guidance in the second quarter of 2016.2017. This implementation did not have a material effect on our condensed consolidated financial statements andor related disclosures.
In March 2017, the FASB issued new accounting guidance related to the presentation of net periodic pension costs and net periodic postretirement benefit costs, Compensation – Retirement Benefits, which requires that employers sponsoring postretirement benefit plans disaggregate the service cost component from the other components of net benefit cost. The standard also provides explicit guidance on how to present the service cost and other components of net benefit cost in the income statement and allows only the service cost component of net benefit cost to be eligible for capitalization. The guidance is effective December 15, 2017, and early adoption is permitted. We early adopted this guidance in the first quarter of 2017. This implementation did not have a material effect on our condensed consolidated financial statements or related disclosures.
In January 2017, the FASB issued new accounting guidance related to intangibles, Simplifying the Test for Goodwill Impairment, which eliminates step two from the goodwill impairment test and requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit to its carrying amount. The guidance also eliminates the requirement to perform a qualitative assessment for any reporting unit with a zero or negative carrying amount. The guidance is effective January 1, 2020, and early adoption is permitted. We early adopted this guidance in the first quarter of 2017. This implementation did not have an effect on our condensed consolidated financial statements or related disclosures.
In January 2017, the FASB issued new accounting guidance related to business combinations, Clarifying the Definition of a Business, which clarifies the definition of a business. The guidance, which impacts acquisitions, disposals, goodwill and consolidation, provides a framework to determine when an integrated set of assets and activities is considered a business. The guidance is effective December 15, 2017, and early adoption is permitted. We adopted this guidance in the first quarter of 2017. This implementation did not have an effect on our condensed consolidated financial statements or related disclosures.
Issued and Not Yet Adopted
In March 2016, the FASB issued new accounting guidance related to revenue recognition, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which is intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations within the new revenue recognition guidance by clarifying the indicators. This guidance updates the revenue recognition guidance issued in May 2015,2014, Revenue from Contracts with Customers. In May 2015,2014, the FASB issued new accounting guidance related to revenue recognition, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The guidance will replace most existing revenue recognition guidance in GAAP. The guidance is effective for us on January 1, 2018, and early adoption is permitted. We are currently evaluatinghave partially completed our assessment of the new guidance to determine the impact it will have on our condensed consolidated financial statements and related disclosures.
In March 2016,disclosures, including identifying new processes and controls to support our revenue recognition under the FASB issued new accounting guidanceguidance. As a result of our assessment, we are tentatively planning on applying the modified retrospective method of adoption for this guidance. We have completed our assessment of the distribution revenue stream related to investments, Investments – Equity Methodour top customers and Joint Ventures: Simplifyingconcluded that it will be treated primarily as a license of intellectual property. As a result, we do not expect a material impact on the Transition to the Equity Methodamount or timing of Accounting, which simplifies the accounting for a transition to equity method investment of accountingrevenue recognized as a result of an increase in levelthe adoption of ownership or degree of influence and eliminates the requirement to retroactively adjust the investment for all periods the investment was held. The amendments in the update require that an entity that has an available-for-sale equity security becomes qualified for the equity method of accounting if they recognize earnings through the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment qualifies for equity method treatment. The guidance is effective for us on January 1, 2017, and early adoption is permitted.this guidance. We do not expect the new guidanceremainder of our assessment and the resulting changes to have a material effect on our condensed consolidated financial statementsprocesses and related disclosures.controls to be completed by late 2017.
In February 2016, the FASB issued new accounting guidance related to leases, Leases, which requires the recognition of an asset and liability arising from leasing arrangements for leases extending beyond an initial period of twelve months. The guidance will increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The guidance is effective for us on January 1, 2019, and early adoption is permitted. We
permitted. We are currently evaluatinghave partially completed our evaluation of the new guidance to determine the impact it will have on our condensed consolidated financial statements and related disclosures.disclosures, including identifying new processes and controls to support our lease accounting under the new guidance. We expect the remainder of our assessment and the resulting changes to our processes and controls to be completed by late 2017.
In January
3.Earnings per Share
Basic earnings per share (“EPS”) is calculated by dividing net income attributable to SNI by the weighted average number of common shares outstanding, including participating securities outstanding. Diluted EPS is similar to basic EPS, but adjusts for the effect of the potential issuance of common shares. We include all unvested share-based awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, in the calculation of both basic and diluted EPS.
The following table presents information about basic and diluted weighted average shares outstanding:
|
| Three months ended June 30, |
|
| Six months ended June 30, |
| ||||||||||
( in thousands ) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Basic weighted average shares outstanding |
|
| 130,233 |
|
|
| 129,562 |
|
|
| 130,079 |
|
|
| 129,434 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested share units and shares held by employees |
|
| 319 |
|
|
| 230 |
|
|
| 299 |
|
|
| 212 |
|
Stock options held by employees and directors |
|
| 332 |
|
|
| 349 |
|
|
| 412 |
|
|
| 325 |
|
Diluted weighted average shares outstanding |
|
| 130,884 |
|
|
| 130,141 |
|
|
| 130,790 |
|
|
| 129,971 |
|
Anti-dilutive share awards |
|
| 694 |
|
|
| 881 |
|
|
| 486 |
|
|
| 1,296 |
|
For both the three and six months ended June 30, 2017 and June 30, 2016, the FASB issued new accounting guidance related to financial assets and liabilities, Recognition and Measurement of Financial Assets and Financial Liabilities, which requires equity investmentsanti-dilutive share-based awards were not accounted for under the equity method to be measured at fair value with changes recognized in net income. Additionally, the guidance simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairments, requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires an entity to present separately in other comprehensive income the portion of the total changeincluded in the fair valuecomputation of a liability resulting from a change in the instrument-specific credit risk when an entity has elected to measure the liability at fair value, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset either on the balance sheet or in the accompanying notes and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The guidance will reduce diversity in current practice. The guidance is effective for us on January 1, 2018, and early adoption is not permitted. We are currently evaluating the new guidance to determine the impact it will have on our condensed consolidated financial statements and related disclosures.diluted weighted average shares outstanding.
4. |
|
On July 1, 2015 (the “Acquisition Date”), the Company, through an indirect wholly-owned subsidiary, acquired 100.0 percent of the outstanding shares of N-Vision B.V., a Dutch limited liability company (“N-Vision”) that held a majority interest in TVN, for approximately €1,440.0 million, or $1,608.6 million, comprised of cash consideration of €584.0 million, or $652.4 million, and principal amounts of debt assumed of €856.0 million, or $956.2 million, including €556.0 million, or $621.1 million, of debt directly attributed to TVN (the “Acquisition”). The Acquisition was funded with a portion of the net proceeds from the Company’s $1,500.0 million debt offering executed in June 2015 (the “Financing”) (see Note 10 – Debt). The majority of the remaining debt proceeds were used to purchase the residual outstanding shares of TVN through a tender offer for approximately $831.5 million (the “Tender Offer”) and a subsequent squeeze-out for approximately $22.4 million (the “Squeeze-out”), which were both completed during the third quarter of 2015. Together, the Acquisition, Tender Offer and Squeeze-out are referred to herein as the “Transactions”. Total consideration for the Transactions was approximately $2,462.5 million.
The primary purpose of the Acquisition was to obtain N-Vision’s 52.7 percent controlling interest in the voting shares of TVN, a public media company listed on the Warsaw Stock Exchange (the “WSE”).
To minimize the volatility in the purchase price that may have resulted from Euro to U.S. Dollar (“USD”) currency exchange rate changes, we entered into a foreign currency option contract during the first quarter of 2015 that effectively set the USD cash consideration for the Acquisition. We paid a $16.0 million premium for a call option on €584.0 million at a cost of $625.0 million. The premium is reflected as both an expense in gain on derivatives within operating activities and as a cash outflow from foreign currency call option premium within investing activities in our condensed consolidated statements of cash flows for the six months ended June 30, 2015. The foreign currency option contract was settled during the second quarter of 2015, and the $31.9 million resulting gain is included as both a gain in gain on derivatives within operating activities and as a cash inflow from settlement of derivatives within investing activities in our condensed consolidated statements of cash flows for the six months ended June 30, 2015.
Additionally, we entered into and, in certain cases, settled a series of other derivative contracts related to the Transactions. The derivative contracts that were settled as of June 30, 2015, resulted in a net gain of $33.0 million, which is also included both as a gain in gain on derivatives within operating activities and as a cash inflow from settlement of derivatives within investing activities in our condensed consolidated statements of operations for the six months ended June 30, 2015.
The net impact of the various hedges entered into and settled related to the Transactions resulted in a $48.9 million gain, which is included within gain on derivatives in the condensed consolidated statements of operations for the three months ended June 30, 2015.
We also recognized $18.9 million of net losses in the three and six months ended June 30, 2015 related to the effects of foreign currency on cash balances held for the Acquisition and Tender Offer. These losses are included within miscellaneous, net in our condensed consolidated statements of operations.
Within three months of completing the Acquisition, the Company was required under Polish law to launch a mandatory public tender offer for a minimum ownership of 66.0 percent of TVN’s total voting shares outstanding. On July 6, 2015, the Company tendered for the remaining outstanding voting shares of TVN at a purchase price equal to 20.0 Zloty per share. Final cash consideration paid was approximately $853.9 million. The Tender Offer resulted in the acquisition of an additional 156.7 million shares, or a cumulative 98.8
percent ownership of TVN’s outstanding share capital. This enabled the Company to effectuate the Squeeze-out for the remaining unredeemed shares, which was completed on September 28, 2015, resulting in 100.0 percent ownership of TVN. The Company, through TVN, filed the documentation required under Polish law to effect the delisting of TVN shares from the WSE, which became effective December 3, 2015.
The incremental shares purchased through the Tender Offer and Squeeze-out were financed through a combination of cash on hand, including funds remaining from the Financing, borrowings under our $900.0 million amended revolving credit facility (the “Amended Revolving Credit Facility”) and net proceeds from our $250.0 million term loan (the “Term Loan”) (see Note 10 – Debt).
We incurred transaction and integration related expenses of $4.2 million and $14.4 million for the three and six months ended June 30, 2015, respectively, associated with the Acquisition. These transaction and integration expenses are included within selling, general and administrative expenses in our condensed consolidated statements of operations and reduced our net income attributable to SNI by $2.6 million and $8.9 million in the three and six months ended June 30, 2015, respectively.
On July 31, 2015, the Company paid €364.9 million to retire the €300.0 million Senior PIK Toggle Notes due 2021 (“the 2021 PIK Notes”), which was debt at the parent of TVN and included as a component of the debt assumed in the Acquisition purchase price.
On September 15, 2015, TVN executed a partial pre-payment of its 7.38% Senior Notes due 2020 (the “2020 TVN Notes”) totaling €45.1 million, comprised of principal of €43.0 million, accrued but unpaid interest of €0.8 million and premium of €1.3 million. Under the terms of the 2020 TVN Notes, TVN has the right to make a payment of 10.0 percent of the original principal amount in each rolling twelve month period prior to December 31, 2016 without an early pre-payment penalty.
On November 16, 2015, TVN Finance Corporation III AB (“TVN Finance Corp.”), an indirect wholly-owned subsidiary of the Company, executed a second partial pre-payment of the 2020 TVN Notes totaling €45.6 million, comprised of principal of €43.0 million, accrued but unpaid interest of €1.3 million and premium of €1.3 million.
On November 16, 2015, TVN Finance Corp. executed a full early redemption of its 7.88% Senior Notes due 2018 (the “2018 TVN Notes”) totaling €118.9 million, comprised of principal of €116.6 million, accrued but unpaid interest of a nominal amount and premium of €2.3 million.
The Acquisition was accounted for using the acquisition method of accounting, which requires, among other things, that we allocate the purchase price to the assets acquired and liabilities assumed based on their fair values as of the Acquisition Date. We have reported the results of operations for TVN in our condensed consolidated financial statements for the period beginning on the Acquisition Date.
The following table summarizes the final fair values of the assets acquired and liabilities assumed as of the Acquisition Date, which were allocated based on information available at the Acquisition Date.
(in thousands) |
|
|
|
|
Balance Sheet Classification |
| Fair Value at July 1, 2015 |
| |
Cash consideration transferred |
| $ | 652,365 |
|
Recognized amounts of identifiable assets acquired and liabilities assumed: |
|
|
|
|
Assets acquired: |
|
|
|
|
Cash and cash equivalents |
|
| 105,714 |
|
Restricted cash |
|
| 7,342 |
|
Accounts receivable |
|
| 110,387 |
|
Other current assets |
|
| 21,592 |
|
Investments |
|
| 354,719 |
|
Property and equipment |
|
| 92,133 |
|
Programs and program licenses |
|
| 79,211 |
|
Intangible assets |
|
| 760,636 |
|
Liabilities assumed: |
|
|
|
|
Accounts payable |
|
| (28,941 | ) |
Program rights payable (current portion) |
|
| (19,395 | ) |
Deferred revenue |
|
| (2,132 | ) |
Employee compensation and benefits |
|
| (27,896 | ) |
Other accrued liabilities |
|
| (64,767 | ) |
2018 TVN Notes |
|
| (128,577 | ) |
2020 TVN Notes |
|
| (528,205 | ) |
2021 PIK Notes |
|
| (409,549 | ) |
Term Loan |
|
| (18,178 | ) |
Deferred income taxes |
|
| (23,651 | ) |
Program rights payable (less current portion) |
|
| (3,492 | ) |
Other non-current liabilities |
|
| (5,624 | ) |
Non-controlling interest |
|
| (858,530 | ) |
Goodwill |
|
| 1,239,568 |
|
Net Assets acquired |
| $ | 652,365 |
|
The following table represents the fair value of identifiable intangible assets and their assumed estimated useful lives.
(in thousands) Intangible Asset Category |
| Type |
| Weighted Average Life in Years |
| Fair Value at July 1, 2015 |
| |
Copyrights and other tradenames |
| Amortizable |
| 23 |
| $ | 333,912 |
|
Broadcast licenses |
| Amortizable |
| 25 |
|
| 128,017 |
|
Advertiser lists |
| Amortizable |
| 7 |
|
| 106,681 |
|
Customer lists |
| Amortizable |
| 15 |
|
| 26,670 |
|
Acquired network distribution rights and other |
| Amortizable |
| 20 |
|
| 165,356 |
|
|
|
|
|
|
| $ | 760,636 |
|
As a result of the Acquisition, we recognized goodwill of $1,239.6 million. The purchase price was assigned to assets acquired and liabilities assumed based on their estimated fair values as of the Acquisition Date, and the excess was allocated to goodwill, as shown in the Balance Sheet Classification table above. Goodwill represents the value we expect to achieve through the Acquisition and is recorded in the International Networks segment. The fair value of this goodwill is not deductible for U.S. income tax purposes.
We utilized various valuation techniques to determine fair value, primarily discounted cash flow analyses and excess earnings valuation approaches, each of which use significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy (see Note 6 – Fair Value Measurement). Under these valuation approaches, we are required to make estimates and assumptions about sales, operating margins, growth rates and discount rates based on budgets, business plans, economic projections, anticipated future cash flows and marketplace data.
The following unaudited pro forma information presents the combined results of operations as if the Transactions had occurred at the beginning of fiscal year 2015, combining TVN’s pre-acquisition results with our historical results. The 2016 condensed consolidated financial statements include the results of TVN for the entire period. The pro forma results contained in the following table include adjustments for amortization of acquired intangibles, depreciation expense, transaction costs, interest expense as a result of the Financing and related income taxes. Any potential cost savings or other operational efficiencies that could result from the Transactions are not included in these pro forma results. These pro forma results do not necessarily reflect what would have occurred if the Acquisition had taken place January 1, 2015, nor do they represent the results that may occur in the future.
(in thousands) |
| Three months ended |
| Six months ended |
| ||
Pro Forma Results (unaudited) |
| June 30, 2015 |
| June 30, 2015 |
| ||
Pro forma revenues |
| $ | 852,626 |
| $ | 1,608,469 |
|
Pro forma net income attributable to SNI |
| $ | 155,826 |
| $ | 295,361 |
|
Pro forma net income attributable to SNI shareholders per share of common stock: |
|
|
|
|
|
|
|
Basic |
| $ | 1.21 |
| $ | 2.27 |
|
Diluted |
| $ | 1.20 |
| $ | 2.26 |
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
Basic |
|
| 129,225 |
|
| 130,237 |
|
Diluted |
|
| 129,868 |
|
| 130,898 |
|
We did not recognize any contingent consideration arising from the Transactions.
On June 16, 2016 we acquired a new network distribution right in Italy in the amount of €10.4 million, or approximately $11.6 million. We recorded the new distribution right as an intangible asset with a 4 year amortizable life. The acquisition of this asset is reflected as an investing activity within our condensed consolidated statement of cash flows.
|
|
Restructuring Plan
During the fourth quarter of 2014, we provided qualified employees with voluntary early retirement packages and notified employees of the elimination of certain positions within the Company (the “Restructuring Plan”). We also announced that we would be closing our Cincinnati office location in late 2015 and relocating certain positions to our Knoxville headquarters. Our operating results do not reflect any impact for the three months ended June 30, 2016 and include an expense of $5.8 million for severance, retention, benefits, relocation costs and accelerated depreciation incurred as a result of the Restructuring Plan during the three months ended June 30, 2015. As a result, net income attributable to SNI was not impacted for the three months ended June 30, 2016 and was reduced by $3.6 million for the three months ended June 30, 2015. Our operating results include a gain of $0.3 million and an expense of $11.2 million for severance, retention benefits, relocation costs and accelerated depreciation incurred as a result of the Restructuring Plan for the six months ended June 30, 2016 and June 30, 2015, respectively. As a result, net income attributable to SNI was increased by $0.2 million and reduced by $6.9 million for the six months ended June 30, 2016 and June 30, 2015, respectively. The Restructuring Plan was substantially completed as of December 31, 2015.
A rollforward of the liability related to the Restructuring charges by segment is as follows:
|
| Six months ended June 30, 2016 |
|
| ||||||||||||||
(in thousands) |
| U.S. Networks |
| International Networks |
| Corporate and Other |
| Total |
|
| ||||||||
Liability as of December 31, 2015 |
| $ |
| 605 |
| $ |
| - |
| $ |
| 5,314 |
| $ |
| 5,919 |
|
|
Net accruals |
|
|
| 5 |
|
|
| - |
|
|
| (315 | ) |
|
| (310 | ) |
|
Payments |
|
|
| (610 | ) |
|
| - |
|
|
| (4,315 | ) |
|
| (4,925 | ) |
|
Non-cash (a) |
|
|
| - |
|
|
| - |
|
|
| 333 |
|
|
| 333 |
|
|
Liability as of June 30, 2016 |
| $ |
| - |
| $ |
| - |
| $ |
| 1,017 |
| $ |
| 1,017 |
|
|
|
|
|
|
| ||||||||||||||
|
| Six months ended June 30, 2015 |
|
| ||||||||||||||
(in thousands) |
| U.S. Networks |
| International Networks |
| Corporate and Other |
| Total |
|
| ||||||||
Liability as of December 31, 2014 |
| $ |
| 12,041 |
|
|
| - |
|
|
| 2,031 |
| $ |
| 14,072 |
|
|
Net accruals |
|
|
| 5,261 |
|
|
| - |
|
|
| 5,914 |
|
|
| 11,175 |
|
|
Payments |
|
|
| (12,913 | ) |
|
| - |
|
|
| (1,569 | ) |
|
| (14,482 | ) |
|
Non-cash (a) |
|
|
| - |
|
|
| - |
|
|
| (946 | ) |
|
| (946 | ) |
|
Liability as of June 30, 2015 |
| $ |
| 4,389 |
| $ |
| - |
| $ |
| 5,430 |
| $ |
| 9,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Primarily represents the reclassification of current period charges for accelerated depreciation, pension payments made from the pension plan and share-based compensation. |
|
|
Reorganization
During the fourth quarter of 2015, we executed the reorganization (the “Reorganization”) and committed to undertaking activities intended to streamline and integrate the management of our domestic networks, creating a cohesive and holistic organization (the “Reorganization”). As part of the Reorganization, we announced we would be relocating certain employees during 2016.organization. Our operating results reflect a very small impact for the three and six months ended June 30, 2017 and include an expense of $3.9 million and $11.2 million for severance, retention, benefits and relocation costs incurred as a result of the Reorganization during the three and six months ended June 30, 2016, respectively. The $3.9 million of expense for the three months ended June 31, 2016 was classified as $2.6 million of selling, general and administrative and $1.3 million of cost of services, while the $11.2 million of expense for the six months ended June 31, 2016 was classified as $8.2 million of selling, general and administrative and $3.0 million of cost of services. As a result of the Reorganization, net income attributable to SNI was reduced by $2.4 million and $6.9 million for the three and six months ended June 30, 2016, respectively. We anticipate thatThe Reorganization was completed in the Reorganization will be completed by the endfirst quarter of 2016.2017.
A rollforward of the liability related to the Reorganization charges by segment is as follows:
|
| June 30, 2017 | |||||||||||||||||||||||||||||||||
(in thousands) |
| U.S. Networks | International Networks | Corporate and Other | Total | ||||||||||||||||||||||||||||||
Liability as of December 31, 2016 |
|
| $ | 1,955 |
|
| $ | - |
|
| $ | 1,585 |
|
| $ | 3,540 |
|
| |||||||||||||||||
Net accruals |
|
|
| (142 | ) |
|
| - |
|
|
| 39 |
|
|
| (103 | ) |
| |||||||||||||||||
Payments |
|
| (1,813 | ) |
|
| - |
|
|
| (1,624 | ) |
|
| (3,437 | ) |
| ||||||||||||||||||
Liability as of June 30, 2017 |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| ||||||||||||||||||
|
|
|
| ||||||||||||||||||||||||||||||||
|
| Six months ended June 30, 2016 |
|
| June 30, 2016 |
|
| ||||||||||||||||||||||||||||
(in thousands) |
| U.S. Networks |
| International Networks |
| Corporate and Other |
| Total |
|
| U.S. Networks |
| International Networks |
| Corporate and Other |
| Total |
|
| ||||||||||||||||
Liability as of December 31, 2015 |
| $ |
| 3,258 |
| $ |
| - |
| $ |
| 8 |
| $ |
| 3,266 |
|
|
| $ | 3,258 |
|
| $ | - |
|
| $ | 8 |
|
| $ | 3,266 |
|
|
Net accruals |
|
|
| 7,467 |
|
|
| - |
|
|
| 3,740 |
|
|
| 11,207 |
|
|
|
| 7,467 |
|
|
| - |
|
|
| 3,740 |
|
|
| 11,207 |
|
|
Payments |
|
| (8,537 | ) |
|
| - |
|
|
| (2,617 | ) |
|
| (11,154 | ) |
|
| (8,537 | ) |
|
| - |
|
|
| (2,617 | ) |
|
| (11,154 | ) |
| ||
Non-cash (b) |
|
|
| (422 | ) |
|
| - |
|
|
| (1,131 | ) |
|
| (1,553 | ) | ||||||||||||||||||
Non-cash (a ) |
|
| (422 | ) |
|
| - |
|
|
| (1,131 | ) |
|
| (1,553 | ) |
| ||||||||||||||||||
Liability as of June 30, 2016 |
| $ |
| 1,766 |
| $ |
| - |
| $ |
| - |
| $ |
| 1,766 |
|
| $ | 1,766 |
|
| $ | - |
|
| $ | - |
|
| $ | 1,766 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
(b) Primarily represents the reclassification of current period charges for share-based compensation. |
| ||||||||||||||||||||||||||||||||||
(a) Primarily represents the reclassification of current period charges for share-based compensation. | (a) Primarily represents the reclassification of current period charges for share-based compensation. |
|
|
The liability for both the Restructuring Plan and Reorganization is included within other accrued liabilities on our 2016 condensed consolidated balance sheets.
| Fair Value Measurement |
Fair value is an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets and liabilities carried at fair value are classified in one of three categories described below.
|
|
Level 1 — Quoted prices in active markets for identical assets or liabilities.
|
|
Level 2 — Inputs, other than quoted market prices in active markets, that are observable either directly or indirectly. Quoted prices for similar instruments in active markets or model driven valuations in which all significant inputs and significant value drivers are observable in active markets.
|
|
Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
There have been no transfers of assets or liabilities between the fair value measurement classifications during the six months ended June 30, 2016 and June 30, 2015.periods presented.
Recurring Measurements
|
| As of June 30, 2016 |
|
| June 30, 2017 |
| ||||||||||||||||||||||||||
(in thousands) |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
| $ | 5,412 |
|
| $ | 5,412 |
|
| $ | - |
|
| $ | - |
|
| $ | 19,637 |
|
| $ | 19,637 |
|
| $ | - |
|
| $ | - |
|
Derivative asset |
|
| 632 |
|
|
| - |
|
| $ | 632 |
|
|
| - |
| ||||||||||||||||
Total assets measured at fair value on a recurring basis |
| $ | 6,044 |
|
| $ | 5,412 |
|
| $ | 632 |
|
| $ | - |
| ||||||||||||||||
Total |
| $ | 19,637 |
|
| $ | 19,637 |
|
| $ | - |
|
| $ | - |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporary equity - Redeemable non-controlling interests |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
| ||||||||||||||||
|
| December 31, 2016 |
| |||||||||||||||||||||||||||||
(in thousands) |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Cash equivalents |
| $ | 658 |
|
| $ | 658 |
|
| $ | - |
|
| $ | - |
| ||||||||||||||||
Total |
| $ | 658 |
|
| $ | 658 |
|
| $ | - |
|
| $ | - |
|
|
| As of December 31, 2015 |
| |||||||||||||
(in thousands) |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
| $ | 80,944 |
|
| $ | 80,944 |
|
| $ | - |
|
| $ | - |
|
Derivative asset |
|
| 615 |
|
|
| - |
|
|
| 615 |
|
|
| - |
|
Total assets measured at fair value on a recurring basis |
| $ | 81,559 |
|
| $ | 80,944 |
|
| $ | 615 |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporary equity - Redeemable non-controlling interests |
| $ | 99,000 |
|
| $ | - |
|
| $ | - |
|
| $ | 99,000 |
|
Derivatives include free-standing foreign currency forward contracts which are marked to market at each reporting period. We classify our foreign currency forward contracts as Level 2, as the valuation inputs are based on quoted prices and market observable data of similar instruments.
At December 31, 2015, we determined the fair value of our redeemable non-controlling interest in Travel Channel using a combination of a discounted cash flow valuation model and a market approach that applies revenues and EBITDA estimates against the calculated multiples of comparable companies. Operating revenues and EBITDA are key assumptions utilized in both the discounted cash flow valuation model and the market approach. The selected discount rate of approximately 10.5 percent is also a key assumption in our discounted cash flow valuation model. On February 25, 2016, we agreed to pay the non-controlling interest owner $99.0 million to acquire the remaining 35.0 percent interest in Travel Channel, resulting in our 100.0 percent ownership (see Note 14 – Redeemable Non-controlling Interest and Non-controlling Interest).
The following table summarizes the activity for account balances whose fair value measurements are estimated utilizing Level 3 inputs:
Redeemable Non-controlling Interests |
|
|
| |||||
|
| As of |
| |||||
(in thousands) |
| June 30, 2016 |
|
| December 31, 2015 |
| ||
Beginning period balance |
| $ | 99,000 |
|
| $ | 96,251 |
|
Net income (loss) |
|
| 2,162 |
|
|
| (2,760 | ) |
Fair value adjustments |
|
| (2,162 | ) |
|
| 17,794 |
|
Dividends paid to non-controlling interests |
|
| - |
|
|
| (12,985 | ) |
Additions to non-controlling interests |
|
| - |
|
|
| 700 |
|
Purchase of non-controlling interest |
|
| (99,000 | ) |
|
| - |
|
Ending period balance |
| $ | - |
|
| $ | 99,000 |
|
The net income amounts reflected in the table above are reported within net income attributable to non-controlling interests in our condensed consolidated statements of operations.
Other Financial Instruments
The carrying values of our financial instruments do not materially differ from their estimated fair values as of June 30, 20162017 and December 31, 20152016, except for debt, which is disclosed in Note 10 -9 – Debt., and certain mutual funds held as part of our executive deferred compensation plan, which are disclosed in Note 10 – Employee Benefit Plans.
Non-Recurring Measurements
The majority of the Company’s non-financial instruments, which include goodwill, other intangible assets and property and equipment, are not required to be carried at fair value on a recurring basis. However, if certain triggering events occur, or at least annually for goodwill, such that a non-financial instrument is required to be evaluated for impairment, a resulting asset impairment would require that the non-financial instrument be recorded at the lower of costcarrying value or fair value.
| Investments and Acquisitions |
Investments
Investments consisted of the following:
|
| As of |
| |||||
(in thousands) |
| June 30, 2016 |
|
| December 31, 2015 |
| ||
Equity method investments |
| $ | 691,319 |
|
| $ | 741,823 |
|
Cost method investments |
|
| 52,655 |
|
|
| 65,807 |
|
Total investments |
| $ | 743,974 |
|
| $ | 807,630 |
|
Investments accounted for using the equity method include the following: |
| As of |
| |||||
|
| June 30, 2016 |
|
| December 31, 2015 |
| ||
UKTV |
|
| 50.0% |
|
|
| 50.0% |
|
HGTV Magazine JV |
|
| 50.0% |
|
|
| 50.0% |
|
Food Network Magazine JV |
|
| 50.0% |
|
|
| 50.0% |
|
* Everytap |
|
| 40.0% |
|
|
| 40.0% |
|
HGTV Canada |
|
| 33.0% |
|
|
| 33.0% |
|
* nC+ |
|
| 32.0% |
|
|
| 32.0% |
|
Food Canada |
|
| 29.0% |
|
|
| 29.0% |
|
* Onet |
|
| 25.0% |
|
|
| 25.0% |
|
Fox-BRV Southern Sports Holdings |
| - |
|
|
| 7.3% |
| |
* Acquired as a part of the Acquisition |
|
|
|
|
|
|
|
|
(in thousands) |
| June 30, 2017 |
|
| December 31, 2016 |
| ||
Equity method investments |
| $ | 647,139 |
|
| $ | 641,327 |
|
Cost method investments |
|
| 76,601 |
|
|
| 58,154 |
|
Total investments |
| $ | 723,740 |
|
| $ | 699,481 |
|
Investments accounted for using the equity method include the following:
|
| June 30, 2017 |
|
| December 31, 2016 |
| ||
UKTV |
|
| 50.0% |
|
|
| 50.0% |
|
HGTV Magazine |
|
| 50.0% |
|
|
| 50.0% |
|
Food Network Magazine |
|
| 50.0% |
|
|
| 50.0% |
|
Everytap |
|
| 40.0% |
|
|
| 40.0% |
|
HGTV Canada |
|
| 33.0% |
|
|
| 33.0% |
|
nC+ |
|
| 32.0% |
|
|
| 32.0% |
|
Food Canada |
|
| 29.0% |
|
|
| 29.0% |
|
Cooking Channel Canada |
|
| 29.0% |
|
|
| 29.0% |
|
Onet |
| - |
|
|
| 25.0% |
|
UKTV
UKTV receives financing through a loan (the “UKTV Loan”) provided by us. The loan, totaling $101.5 million and $112.1 million at June 30, 2016 and December 31, 2015, respectively,UKTV Loan is reported within other non-current assets on our condensed consolidated balance sheets and effectively actstotaled $98.6 million and $93.9 million as a revolving credit facility for UKTV.of June 30, 2017 and December 31, 2016, respectively. As a result of this financing arrangement and the level of equity investment at risk, we have determined that UKTV is a variable interest entity (“VIE”). SNI and its partner, BBC Worldwide Limited (the “BBC”), in the venture share equally in the profits of the entity, have equal representation on UKTV’s board of directors and share voting control in such matters as approving annual budgets, initiating financing arrangements and changing the scope of the business. However, our partnerBBC maintains control over certain operational aspects of the business related to programming content, scheduling and the editorial and creative development of UKTV. Additionally, certain key management personnel of UKTV are employees of our partner.BBC. Since we do not control these activities that are critical to UKTV’s operating performance, we have determined that we are not the primary beneficiary of the entity and, therefore, account for the investment under the equity method of accounting. As of June 30, 2016 and December 31, 2015, theThe Company’s investment in UKTV was $319.1totaled $311.3 million and $353.4$305.1 million as of June 30, 2017 and December 31, 2016, respectively.
A portion of the purchase price from our 50.0 percent investment in UKTV was attributed to amortizable intangible assets, which are included in the carrying value of our UKTV investment. Amortization expense attributed to intangible assets recognized upon acquiring our interest in UKTV reduces the equity in earnings we recognize from our UKTV investment. Accordingly, equity in earnings of affiliates includes our $13.1$9.3 million and $12.9$13.1 million proportionate share of UKTV’s results for the three months ended June 30, 20162017 and June 30, 2015,2016, respectively, which were reduced by amortization of $3.4$3.0 million and $4.2$3.4 million for the three months ended June 30, 20162017 and June 30, 2015,2016, respectively. Equity in earnings of affiliates includes our $24.0$21.5 million and $24.0 million proportionate share of UKTV’s results for the six months ended June 30, 20162017 and June 30, 2015,2016, respectively, which were reduced by amortization of $6.8$6.0 million and $8.4$6.8 million for the six months ended June 30, 20162017 and June 30, 2015,2016, respectively. The table below summarizes estimated amortization
Amortization that we expect to reducereduces the Company’s equity in UKTV’s earnings for future periods:periods is expected to be as follows:
( in thousands ) |
|
|
| Estimated Amortization** |
|
|
|
| Estimated Amortization* |
| ||
Remainder of 2016 |
| $ | 5,756 |
| ||||||||
2017 |
| $ | 12,700 |
| ||||||||
Remainder of 2017 | Remainder of 2017 |
| $ | 6,302 |
| |||||||
2018 | 2018 |
| $ | 12,795 |
| 2018 |
| $ | 12,700 |
| ||
2019 | 2019 |
| $ | 12,891 |
| 2019 |
| $ | 12,891 |
| ||
2020 | 2020 |
| $ | 12,986 |
| 2020 |
| $ | 12,986 |
| ||
2021 | 2021 |
| $ | 11,865 |
| |||||||
Thereafter | Thereafter |
| $ | 94,740 |
| Thereafter |
| $ | 82,875 |
| ||
** The functional currency of UKTV is the Great British Pound ("GBP"), so these amounts are subject to change as the GBP to USD exchange rates fluctuate. |
| |||||||||||
* The functional currency of UKTV is the British Pound ("GBP"), so these amounts are subject to change as the GBP to U.S. Dollar ("USD") exchange rate fluctuates. | * The functional currency of UKTV is the British Pound ("GBP"), so these amounts are subject to change as the GBP to U.S. Dollar ("USD") exchange rate fluctuates. |
|
nC+
The Company, through its ownership of TVN, has an investment in nC+, which is managed under the terms of a shareholders’ agreement. The nC+ shareholders’ agreement contains various standard provisions with regards to the management of the business and related matters, as well as terms regarding disposition of ownership by either party.. A portion of the purchase price from our 32.0 percent investment in nC+ was attributed to amortizable intangible assets, which are included in the carrying value of our nC+ investment. Amortization expense attributed to intangible assets recognized upon acquiring our interest in nC+ reduces the equity in earnings we recognize from our nC+ investment. The table below summarizes estimated amortizationAccordingly, equity in earnings of affiliates includes our $5.7 million and $2.3 million proportionate share of nC+’s results for the three months ended June 30, 2017 and June 30, 2016, respectively.
Amortization that we expect to reducereduces the Company’s equity in nC+’s earnings for future periods:periods is expected to be as follows:
( in thousands ) |
|
|
| Estimated Amortization** |
|
|
|
| Estimated Amortization* |
| ||
Remainder of 2016 |
| $ | 1,848 |
| ||||||||
2017 |
| $ | 3,817 |
| ||||||||
Remainder of 2017 | Remainder of 2017 |
| $ | 2,186 |
| |||||||
2018 | 2018 |
| $ | 3,817 |
| 2018 |
| $ | 4,122 |
| ||
2019 | 2019 |
| $ | 3,807 |
| 2019 |
| $ | 4,122 |
| ||
2020 | 2020 |
| $ | 3,788 |
| 2020 |
| $ | 4,122 |
| ||
2021 | 2021 |
| $ | 4,122 |
| |||||||
Thereafter | Thereafter |
| $ | 25,518 |
| Thereafter |
| $ | 23,644 |
| ||
** The functional currency of nC+ is the Polish Zloty ("PLN"), so these amounts are subject to change as the PLN to USD exchange rates fluctuate. |
| |||||||||||
* The functional currency of nC+ is the Polish Zloty ("PLN"), so these amounts are subject to change as the PLN to USD exchange rate fluctuates. | * The functional currency of nC+ is the Polish Zloty ("PLN"), so these amounts are subject to change as the PLN to USD exchange rate fluctuates. |
|
Fox-BRV Southern Sports Holdings
TheIn May 2017, the Company exercised significant control over Fox-BRV Southern Sports Holdings (“Fox Sports South”) through board positions heldinvested $7.0 million in Philo, a cutting-edge campus television solution providing access to students on devices that expand beyond traditional cable systems. In June 2017, the Company invested $10.0 million in fuboTV, Inc., a sports-centric internet television streaming service with popular live sports and therefore,entertainment content providing access via multiple devices. These investments were both accounted for this investment usingunder the equitycost method of accounting. On
In February 24, 2016, the Company sold its 7.3 percent equity interest in Fox-BRV Southern Sports Holdings (“Fox Sports South South”) to the controlling interest holder for a sale price of $225.0 million upon the exercise of
the Company’s put right. The sale of this ownership interest resulted in a gain of $208.2 million for the six months ended June 30, 2016, which is recorded in gain (loss) gain on sale of investments in our condensed consolidated statements of operations and as both a gain on sale of investments within operating activities and as ain our condensed consolidated statements of cash inflowflows. The $225.0 million of cash received from the sale of Fox Sports is included in sale of investments within investing activities in our condensed consolidated statements of cash flows. Further, the gain on sale resulted in tax expense of approximately $73.6$73.7 million for the six months ended June 30, 2016.
In April 2017, we completed the exercise of our put right and sold our 25.0 percent interest in Onet to the controlling interest holder for PLN 185.0 million. The sale of this ownership interest resulted in a gain of $1.4 million for the three and six months ended June 30, 2016.
On June 12, 2016, an investment which the Company accounted for using the cost method was sold. The proceeds from the sale totaled $1.5 million and resulted in a $16.4 million loss recognized for the three and six months ended June 30, 2016,2017, which is recorded in gain (loss) gain on sale of investments in our condensed consolidated statements of operations and as a gain on sale of investments within operating activities andin our condensed consolidated statements of cash flows. The $48.2 million of cash received from the sale of Onet is included in sale of investments within investing activities in our condensed consolidated statements of cash flows.
Acquisitions
In May 2017, we acquired Spoon Media, Inc (“Spoon”)., a campus-oriented food resource for millennials, for $11.5 million in cash, which is included in purchase of subsidiary companies, net of cash acquired within investing activities in our condensed consolidated statements of cash flows. As a result of the acquisition we recorded $10.3 million of goodwill.
| Goodwill and Intangible Assets |
Goodwill and intangible assets consisted of the following:
|
| As of |
| |||||
( in thousands ) |
| June 30, 2016 |
|
| December 31, 2015 |
| ||
Goodwill, net |
| $ | 1,785,349 |
|
| $ | 1,804,748 |
|
Intangible assets: |
|
|
|
|
|
|
|
|
Carrying amount: |
|
|
|
|
|
|
|
|
Acquired network distribution rights |
| $ | 746,320 |
|
| $ | 744,962 |
|
Customer and advertiser lists |
|
| 219,417 |
|
|
| 223,726 |
|
Copyrights and other tradenames |
|
| 379,696 |
|
|
| 390,111 |
|
Broadcast licenses |
|
| 120,191 |
|
|
| 124,030 |
|
Acquired rights and other |
|
| 119,870 |
|
|
| 120,267 |
|
Total carrying amount |
|
| 1,585,494 |
|
|
| 1,603,096 |
|
Accumulated amortization: |
|
|
|
|
|
|
|
|
Acquired network distribution rights |
|
| (215,607 | ) |
|
| (195,678 | ) |
Customer and advertiser lists |
|
| (90,221 | ) |
|
| (81,892 | ) |
Copyrights and other tradenames |
|
| (50,297 | ) |
|
| (30,875 | ) |
Broadcast licenses |
|
| (5,337 | ) |
|
| (2,524 | ) |
Acquired rights and other |
|
| (32,817 | ) |
|
| (29,463 | ) |
Total accumulated amortization |
|
| (394,279 | ) |
|
| (340,432 | ) |
Total intangible assets, net |
| $ | 1,191,215 |
|
| $ | 1,262,664 |
|
|
|
| June 30, 2017 |
| |||||||
(in thousands) | Gross |
| Accumulated Impairments (1) |
| Net |
| |||
Goodwill | $ | 1,858,778 |
| $ | (102,264 | ) | $ | 1,756,514 |
|
(1) All accumulated impairments to goodwill are within International Networks. |
| ||||||||
| December 31, 2016 |
| |||||||
(in thousands) | Gross |
| Accumulated Impairments (1) |
| Net |
| |||
Goodwill | $ | 1,744,433 |
| $ | (102,264 | ) | $ | 1,642,169 |
|
(1) All accumulated impairments to goodwill are within International Networks. |
|
Amortization expense associated with intangible assets for each of the next five years is expected to be as follows:
( in thousands ) |
| Estimated Amortization ** |
| |
Remainder of 2016 |
| $ | 46,338 |
|
2017 |
| $ | 100,437 |
|
2018 |
| $ | 98,976 |
|
2019 |
| $ | 98,115 |
|
2020 |
| $ | 86,935 |
|
Thereafter |
| $ | 760,414 |
|
|
|
|
|
|
** The functional currency of certain foreign subsidiaries differs from the U.S. Dollar, so these amounts are subject to change as exchange rates fluctuate. |
|
Activity related to goodwill by business segment consisted of the following:
(in thousands) |
| U.S. Networks |
|
| International Networks |
|
| Corporate and Other |
|
| Total |
| ||||||||
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015 |
| $ |
| 510,484 |
|
| $ |
| 1,294,264 |
|
| $ |
| - |
|
| $ |
| 1,804,748 |
|
Update to purchase price allocation during the measurement period |
|
|
| - |
|
|
|
| (19,879 | ) |
|
|
| - |
|
|
|
| (19,879 | ) |
Foreign currency translation adjustment |
|
|
| - |
|
|
|
| 480 |
|
|
|
| - |
|
|
|
| 480 |
|
Balance as of June 30, 2016 |
| $ |
| 510,484 |
|
| $ |
| 1,274,865 |
|
| $ |
| - |
|
| $ |
| 1,785,349 |
|
(in thousands) Goodwill | U.S. Networks |
| International Networks |
| Corporate and Other |
| Total |
| ||||||||
December 31, 2016 | $ |
| 510,484 |
| $ |
| 1,131,685 |
| $ |
| - |
| $ |
| 1,642,169 |
|
Additions - business acquisitions |
|
| 10,320 |
|
|
| - |
|
|
| - |
|
|
| 10,320 |
|
Foreign currency translation adjustment |
|
| - |
|
|
| 104,025 |
|
|
| - |
|
|
| 104,025 |
|
June 30, 2017 | $ |
| 520,804 |
| $ |
| 1,235,710 |
| $ |
| - |
| $ |
| 1,756,514 |
|
Intangible assets consisted of the following:
(in thousands) | June 30, 2017 |
| |||||||
Intangible assets | Gross |
| Accumulated Amortization |
| Net |
| |||
Acquired network distribution rights | $ | 739,868 |
| $ | (256,978 | ) | $ | 482,890 |
|
Customer and advertiser lists |
| 224,804 |
|
| (104,938 | ) |
| 119,866 |
|
Copyrights and other tradenames |
| 400,816 |
|
| (79,824 | ) |
| 320,992 |
|
Broadcast licenses |
| 129,570 |
|
| (11,986 | ) |
| 117,584 |
|
Acquired rights and other |
| 120,550 |
|
| (39,559 | ) |
| 80,991 |
|
Total | $ | 1,615,608 |
| $ | (493,285 | ) | $ | 1,122,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) | December 31, 2016 |
| |||||||
Intangible assets | Gross |
| Accumulated Amortization |
| Net |
| |||
Acquired network distribution rights | $ | 717,834 |
| $ | (232,856 | ) | $ | 484,978 |
|
Customer and advertiser lists |
| 209,314 |
|
| (93,232 | ) |
| 116,082 |
|
Copyrights and other tradenames |
| 362,236 |
|
| (61,286 | ) |
| 300,950 |
|
Broadcast licenses |
| 114,832 |
|
| (7,861 | ) |
| 106,971 |
|
Acquired rights and other |
| 119,885 |
|
| (36,184 | ) |
| 83,701 |
|
Total | $ | 1,524,101 |
| $ | (431,419 | ) | $ | 1,092,682 |
|
Amortization expense associated with intangible assets for future periods is expected to be as follows:
( in thousands ) | Estimated Amortization * |
| |
Remainder of 2017 | $ | 52,003 |
|
2018 | $ | 95,774 |
|
2019 | $ | 92,109 |
|
2020 | $ | 88,339 |
|
2021 | $ | 85,713 |
|
Thereafter | $ | 708,385 |
|
|
|
|
|
* The functional currency of certain foreign subsidiaries differs from the USD, so these amounts are subject to change as exchange rates fluctuate. |
|
|
|
The following table outlinesAccrued liabilities consisted of the details within other accrued liabilities:following:
|
| As of |
| |||||
(in thousands) |
| June 30, 2016 |
|
| December 31, 2015 |
| ||
Accrued rent |
| $ | 19,795 |
|
| $ | 21,736 |
|
Accrued advertising rebates |
|
| 17,752 |
|
|
| 20,808 |
|
Accrued marketing and advertising |
|
| 9,147 |
|
|
| 11,437 |
|
Accrued interest |
|
| 8,407 |
|
|
| 8,400 |
|
Accrued taxes |
|
| 27,272 |
|
|
| 2,029 |
|
Accrued other expenses |
|
| 72,201 |
|
|
| 95,559 |
|
Total |
| $ | 154,574 |
|
| $ | 159,969 |
|
|
|
|
| |||||
(in thousands) |
| June 30, 2017 |
|
| December 31, 2016 |
| ||
Rent |
| $ | 17,523 |
|
| $ | 19,899 |
|
Advertising rebates |
|
| 17,609 |
|
|
| 15,966 |
|
Marketing and advertising |
|
| 14,311 |
|
|
| 14,385 |
|
Interest |
|
| 6,528 |
|
|
| 6,644 |
|
Taxes payable |
|
| 4,425 |
|
|
| 456 |
|
Other accrued expenses |
|
| 73,975 |
|
|
| 95,130 |
|
Total accrued liabilities |
| $ | 134,371 |
|
| $ | 152,480 |
|
| Debt |
Debt consisted of the following:
|
|
| As of |
|
|
| June 30, 2017 |
| ||||||||||||||
(in thousands) | Maturity |
| June 30, 2016 |
|
| December 31, 2015 |
| Maturity |
| Gross |
|
| Unamortized Debt Issuance Costs |
|
| Net Carrying Amount |
| |||||
Amended Revolving Credit Facility | 2019 - 2020 | $ |
| - |
| $ |
| 389,170 |
| 2019 - 2020 |
|
| 500,000 |
|
| $ | - |
|
|
| 500,000 |
|
Term Loan | 2017 |
|
| 249,863 |
|
|
| 249,129 |
| |||||||||||||
2.70% Senior Notes | 2016 |
|
| 499,624 |
|
|
| 499,174 |
| |||||||||||||
2.75% Senior Notes | 2019 |
|
| 496,302 |
|
|
| 495,750 |
| 2019 |
|
| 499,157 |
|
|
| (1,750 | ) |
|
| 497,407 |
|
TVN 7.38% Senior Notes | 2020 |
|
| 402,273 |
|
|
| 399,986 |
| |||||||||||||
2.80% Senior Notes | 2020 |
|
| 594,524 |
|
|
| 593,796 |
| 2020 |
|
| 598,807 |
|
|
| (2,884 | ) |
|
| 595,923 |
|
3.50% Senior Notes | 2022 |
|
| 395,703 |
|
|
| 395,309 |
| 2022 |
|
| 399,129 |
|
|
| (2,700 | ) |
|
| 396,429 |
|
3.90% Senior Notes | 2024 |
|
| 493,593 |
|
|
| 493,210 |
| 2024 |
|
| 497,292 |
|
|
| (2,933 | ) |
|
| 494,359 |
|
3.95% Senior Notes | 2025 |
|
| 495,056 |
|
|
| 494,748 |
| 2025 |
|
| 499,248 |
|
|
| (3,637 | ) |
|
| 495,611 |
|
Total debt |
| $ |
| 3,626,938 |
| $ |
| 4,010,272 |
|
|
|
| 2,993,633 |
|
|
| (13,904 | ) |
|
| 2,979,729 |
|
Current portion of debt |
|
|
| (749,487 | ) |
|
| (499,174 | ) |
|
|
| - |
|
|
| - |
|
|
| - |
|
Debt (less current portion) |
| $ |
| 2,877,451 |
| $ |
| 3,511,098 |
|
|
| $ | 2,993,633 |
|
| $ | (13,904 | ) |
| $ | 2,979,729 |
|
Fair value of debt * |
| $ |
| 3,747,594 |
| $ |
| 3,977,985 |
|
|
|
|
|
|
|
|
|
|
| $ | 3,057,709 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
|
|
| December 31, 2016 |
| ||||||||||||||||||
(in thousands) | Maturity |
| Gross |
|
| Unamortized Debt Issuance Costs |
|
| Net Carrying Amount |
| ||||||||||||
Amended Revolving Credit Facility | 2019 - 2020 |
|
| 475,000 |
|
| $ | - |
|
|
| 475,000 |
| |||||||||
Term Loan | 2017 |
|
| 250,000 |
|
|
| (68 | ) |
|
| 249,932 |
| |||||||||
2.75% Senior Notes | 2019 |
|
| 498,979 |
|
|
| (2,124 | ) |
|
| 496,855 |
| |||||||||
2.80% Senior Notes | 2020 |
|
| 598,602 |
|
|
| (3,378 | ) |
|
| 595,224 |
| |||||||||
3.50% Senior Notes | 2022 |
|
| 399,040 |
|
|
| (2,975 | ) |
|
| 396,065 |
| |||||||||
3.90% Senior Notes | 2024 |
|
| 497,110 |
|
|
| (3,133 | ) |
|
| 493,977 |
| |||||||||
3.95% Senior Notes | 2025 |
|
| 499,200 |
|
|
| (3,867 | ) |
|
| 495,333 |
| |||||||||
Total debt |
|
|
| 3,217,931 |
|
|
| (15,545 | ) |
|
| 3,202,386 |
| |||||||||
Current portion of debt |
|
|
| (250,000 | ) |
|
| 68 |
|
|
| (249,932 | ) | |||||||||
Debt (less current portion) |
|
| $ | 2,967,931 |
|
| $ | (15,477 | ) |
| $ | 2,952,454 |
| |||||||||
Fair value of debt * |
|
|
|
|
|
|
|
|
|
| $ | 3,254,862 |
| |||||||||
*The fair value of the Senior Notes was estimated using Level 2 inputs comprised of quoted prices in active markets, market indices and interest rate measurements for debt with similar remaining maturity. | *The fair value of the Senior Notes was estimated using Level 2 inputs comprised of quoted prices in active markets, market indices and interest rate measurements for debt with similar remaining maturity. |
|
*The fair value of the Senior Notes was estimated using Level 2 inputs comprised of quoted prices in active markets, market indices and interest rate measurements for debt with similar remaining maturity. |
|
Revolving Credit FacilitiesFacility
In March 2014, we entered into a five-year revolving credit facility (the “Facility”) that permitted $650.0 million in aggregate borrowings with an expiration date of March 2019. In May 2015, we entered into the Amended Revolving Credit Facility to amend the Facility.(the “Amended Revolving Credit Facility”). The Amended Revolving Credit Facility provides $250.0 million additional revolving loan capacity, which increased permittedpermits borrowings up to an aggregate principal amount of $900.0 million, andwhich may be increased to $1,150.0 million at our option. Additionally, theThe Amended Revolving Credit Facility extended the maturity date of the Facility tomatures in March 2020, with the exception of $32.5 million, which remains scheduled to maturematures in March 2019.
Borrowings under the Amended Revolving Credit Facility incur interest charges based on the Company’s credit rating, with drawn amounts incurring interest at LIBOR plus a range of 69 to 130 basis points and a facility fee ranging from 6 to 20 basis points, also subject to the Company’s credit ratings.
The Company had no outstanding borrowings under the Amended Credit Facility of $500.0 million and $475.0 million as of June 30, 2017 and December 31, 2016, and average borrowings outstanding of $29.4 million incurring interestrespectively. Interest was calculated at a rate of approximately 2.15% and 1.54% for the three months ended June 30, 2016.2017 and June 30, 2016, respectively. Interest was calculated at a rate of approximately 2.01% and 1.53% for the six months ended June 30, 2017 and June 30, 2016, respectively. Outstanding letters of credit totaled $0.9 million under the Amended Revolving Credit Facility attotaled $0.8 million and $0.8 million as of June 30, 2016. There were outstanding borrowings of $389.2 million2017 and outstanding letters of credit of $1.1 million under the Amended Revolving Credit Facility at December 31, 2015.2016, respectively.
Term Loan
In June 2015, we entered into a $250.0 million senior unsecured Term Loan (the “Term Loan”) agreement. The Term Loan hashad a maturity date inof June 2017, with outstanding borrowings incurring interest at LIBOR plus a range of 62.5 to 137.5 basis points, subject to the Company’s credit ratings. The weighted average interest rate on the Term Loan was 2.09% and 1.53% for the three months ended June 30, 2017 and June 30, 2016, respectively. The weighted average interest rate on the Term Loan was 1.98% and 1.52% for the six months ended June 30, 2017 and June 30, 2016, respectively. The Term Loan was repaid in accordance with its terms in the second quarter of 2016. The Term Loan2017 and is classified within current portion of debt on our 2016 condensed consolidated balance sheets.sheet.
Senior Notes
Our $500.0 million aggregate principal amount of 2.70% Senior Notes mature in December 2016 (the “2016 Notes”). Interest is paid on the 2016 Notes on June 15th and December 15th of each year. The balance outstanding on the 2016 Notes is classified within current portion of debt on our condensed consolidated balance sheets.Debt Issuance Costs
Amounts capitalized and included as a reduction against debt on our condensed consolidated balance sheets included $17.5$13.9 million and $15.5 million of debt issuance costs related to the Term Loanas of June 30, 2017 and the remaining Senior Notes issued in 2015, allDecember 31, 2016, respectively. Debt issuance costs of which were undertaken to finance the Transactions. The debt issuance costs$0.9 million and $1.1 million related to the Amended Revolving Credit Facility are included within other non-current assets on our condensed consolidated balance sheets.sheets as of June 30, 2017 and December 31, 2016, respectively. We amortized $1.9$1.3 million and $1.0$2.5 million of debt issuance costs for the three months ended June 30, 2016 and June 30, 2015, respectively,debt discount costs within interest expense net in our condensed consolidated statements of operations.operations for the three and six months ended June 30, 2017, respectively. We amortized $3.6$ 1.9 million and $1.8$3.6 million of debt issuance and debt discount costs within interest expense in our condensed consolidated statements of operations for the three and six months ended June 30, 2016, and June 30, 2015, respectively, within interest expense, net in our condensed consolidated statements of operations.respectively.
Debt Covenants
The Amended Revolving Credit Facility the Term Loan,and all of our Senior Notes and the 2020 TVN Notes all include certain affirmative and negative covenants, including limitations on the incurrence of additional indebtedness and maintenance of a maximum leverage ratio.
| Employee Benefit Plans |
We sponsor the Pension Plan, which covers certain of our U.S.-based employees. Expense recognized in relation to the Pension Plan is based upon actuarial valuations. Inherent in those valuations are key assumptions including discount rates and, where applicable, expected returns on assets and projected future salary rates. The Company offers various post-retirement benefits to its employees, including a defined benefit pension plan (the “Pension Plan”)discount rates used in the valuation of the Pension Plan are evaluated annually based on current market conditions. Benefits are generally based on the employee’s compensation and years of service.
We also have a non-qualified supplemental employee retirement plan (the “SERP”Supplemental Executive Retirement Plan (“SERP”). The SERP, which is unfunded, provides defined pension benefits, in addition to what is provided under the Pension Plan, to eligible executives based on average earnings, years of service and estimated age at retirement.
In 2009, we amended the Pension Plan was amended whereby no additional service benefits willcan be earned by participants after December 31, 2009. The amount of eligible compensation that is used to calculate a plan participant’s pension benefit will continue to include any compensation earned by the employee through December 31, 2019, after which time all plan participants will have a frozen pension benefit.
The components ofmeasurement date used for the Pension Plan and SERP is December 31. The expense components consisted of the following:
|
| Pension Plan |
|
| SERP |
|
| Pension Plan |
|
| SERP |
| ||||||||||||||||||||
|
| Six months ended June 30, |
|
| Six months ended June 30, |
|
| Three months ended June 30, |
|
| Three months ended June 30, |
| ||||||||||||||||||||
(in thousands) |
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||||||
Interest cost |
| $ | 1,552 |
|
| $ | 1,464 |
|
| $ | 866 |
|
| $ | 670 |
|
| $ | 827 |
|
| $ | 776 |
|
| $ | 409 |
|
| $ | 433 |
|
Expected return on plan assets, net of expenses |
|
| (1,644 | ) |
|
| (1,898 | ) |
|
| - |
|
|
| - |
|
|
| (1,002 | ) |
|
| (822 | ) |
|
| - |
|
|
| - |
|
Special termination benefits |
|
| - |
|
|
| 831 |
|
|
| - |
|
|
| 293 |
| ||||||||||||||||
Amortization of net loss |
|
| 1,060 |
|
|
| 1,136 |
|
|
| 1,032 |
|
|
| 1,208 |
|
|
| 765 |
|
|
| 530 |
|
|
| 607 |
|
|
| 516 |
|
Settlement charges |
|
|
|
|
|
| 1,958 |
|
|
|
|
|
|
| - |
| ||||||||||||||||
Total |
| $ | 968 |
|
| $ | 3,491 |
|
| $ | 1,898 |
|
| $ | 2,171 |
|
| $ | 590 |
|
| $ | 484 |
|
| $ | 1,016 |
|
| $ | 949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pension Plan |
|
| SERP |
|
| Pension Plan |
|
| SERP |
| ||||||||||||||||||||
|
| Three months ended June 30, |
|
| Three months ended June 30, |
|
| Six months ended June 30, |
|
| Six months ended June 30, |
| ||||||||||||||||||||
(in thousands) |
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||||||
Interest cost |
| $ | 776 |
|
| $ | 732 |
|
| $ | 433 |
|
| $ | 335 |
|
| $ | 1,654 |
|
| $ | 1,552 |
|
| $ | 818 |
|
| $ | 866 |
|
Expected return on plan assets, net of expenses |
|
| (822 | ) |
|
| (949 | ) |
|
| - |
|
|
| - |
|
|
| (2,004 | ) |
|
| (1,644 | ) |
|
| - |
|
|
| - |
|
Special termination benefits |
|
| - |
|
|
| 248 |
|
|
| - |
|
|
| 127 |
| ||||||||||||||||
Amortization of net loss |
|
| 530 |
|
|
| 568 |
|
|
| 516 |
|
|
| 604 |
|
|
| 1,530 |
|
|
| 1,060 |
|
|
| 1,215 |
|
|
| 1,032 |
|
Settlement charges |
|
| - |
|
|
| 1,958 |
|
|
| - |
|
|
| - |
| ||||||||||||||||
Total |
| $ | 484 |
|
| $ | 2,557 |
|
| $ | 949 |
|
| $ | 1,066 |
|
| $ | 1,180 |
|
| $ | 968 |
|
| $ | 2,033 |
|
| $ | 1,898 |
|
In the fourth quarter of 2014, we announced the Restructuring Plan, providing each affected employee the benefit of an additional three years of credited service related to the applicable Pension Plan and SERP for which they qualify (see Note 5 – Employee Termination Programs). The special termination charge represents the cost of providing these additional benefits to the employees retiring under the terms of the Restructuring Plan.
We did not make anymade contributions of $0.5 million to fund the Pension Plan during the three months ended June 30, 2016 or2017 and did not make any contributions during the three months ended June 30, 2015.2016. We made a contributioncontributions of $0.5 million and $10.0 million to fund the Pension Plan during the six months ended June 30, 2017 and June 30, 2016, and did not make any contributionsrespectively We anticipate contributing $1.0 million to fund the Pension Plan during the six months ended June 30, 2015.remainder of 2017.
We made $0.1 million and $0.7$0.1 million in SERP benefit payments for the three months ended June 30, 20162017 and June 30, 2015,2016 respectively. We made $0.4 million and $1.8 million and $0.8 millionin SERP benefit payments for the six months ended June 30, 20162017 and June 30, 2015,2016 respectively. We anticipate making an additional $6.9$6.1 million in SERP benefit payments during the remainder of 2016.2017.
Executive Deferred Compensation Plan
We have an unqualified executive deferred compensation plan (“Deferred Compensation Plan”) that is available to certain management level employees and directors of the Company. Under the Deferred Compensation Plan, participants may elect to defer receipt of a portion of their annual compensation.base compensation and/or bonus. The Deferred Compensation Plan is intended to be an unfunded plan maintained primarily for the purpose of providing deferred compensation benefits. We use corporate-owned life insurance contracts held in a rabbi trust to support the plan. We had investments within this rabbi trust valued at $43.6$48.7 million as of June 30, 2017, including $27.4$36.8 million of cash surrender value of Company-owned life insurance contracts and $16.2$11.9 million held in mutual funds, at June 30, 2016.funds. We had investments within this rabbi trust valued at $42.8$45.0 million as of December 31, 2016, including $27.0$34.4 million of cash surrender value of Company-owned life insurance contracts and $15.8$10.6 million held in mutual funds, at December 31, 2015.funds. These mutual funds are valued using Level 1 and Level 2 inputs. These instruments are included within other non-current assets on our condensed consolidated balance sheets. Gains or losses related to these insurance contracts and mutual fund investments are included within miscellaneous, net in our condensed consolidated statements of operations. The unsecured obligation to pay the deferred compensation including deferred director’s fees, adjusted to reflect the positive or negative performance of investment measurement options selected by each participant, totaled $44.6$62.1 million and $42.0$48.7 million atas of June 30, 20162017 and December 31, 2015,2016, respectively. The long-term portion of the unsecured obligation totaled $59.8 million and $47.0 million as of June 30, 2017 and December 31, 2016, respectively, and is included within other non-current liabilities on our condensed consolidated balance sheets. The short-term portion of the unsecured obligation to pay totaled $2.3 million and $1.7 million as of June 30, 2017 and December 31, 2016, respectively, and is included within accrued liabilities on our condensed consolidated balance sheets.
| Other Non-Current Liabilities |
The following table outlinesOther non-current liabilities consisted of the details within other liabilities:following:
|
| As of |
| |||||
(in thousands) |
| June 30, 2017 |
|
| December 31, 2016 |
| ||
Pension and post-employment benefits |
| $ | 82,615 |
|
| $ | 82,734 |
|
Deferred compensation |
|
| 59,798 |
|
|
| 47,008 |
|
Uncertain tax positions |
|
| 159,365 |
|
|
| 151,821 |
|
Other |
|
| 17,958 |
|
|
| 21,318 |
|
Other non-current liabilities |
| $ | 319,736 |
|
| $ | 302,881 |
|
|
| As of |
| |||||
(in thousands) |
| June 30, 2016 |
|
| December 31, 2015 |
| ||
Pension and post-employment benefits |
| $ | 73,341 |
|
| $ | 73,683 |
|
Deferred compensation |
|
| 44,564 |
|
|
| 41,992 |
|
Uncertain tax positions |
|
| 123,793 |
|
|
| 101,908 |
|
Other |
|
| 25,177 |
|
|
| 32,808 |
|
Other non-current liabilities |
| $ | 266,875 |
|
| $ | 250,391 |
|
|
|
In order to minimize earnings and cash flow volatility resulting from currency exchange rate changes, on occasion we may enter into derivative instruments, principally forward and option foreign currency contracts. These contracts are designed to hedge anticipated foreign currency transactions and changes in the value of specific assets, liabilities and probable commitments. We do not enter into currency exchange rate derivative instruments for speculative trading purposes.
The free-standing derivative forward contracts are used to offset our exposure to the change in value of specific foreign currency denominated assets and liabilities. These derivatives are not designated as hedges. Changes in the value of these contracts are recognized in earnings, thereby offsetting the current earnings effect of the related change in functional currency value of foreign currency denominated assets and liabilities. The gross notional amount of these contracts outstanding was $107.4 million and $118.6 million atzero as of June 30, 20162017 and December 31, 2015,2016, respectively. The cash flow settlements from these derivative contracts are primarily reported within investing activities in the condensed consolidated statements of cash flows.
We recognized $8.2$3.7 million and $37.2$6.0 million of gainsnet losses from these forward contractsderivatives for the three and six months ended June 30, 20162017, respectively, and June 30, 2015, respectively,$8.2 million and $11.0 million and $43.1 million of net gains from these forward contractsderivatives for the three and six months ended June 30, 2016, and June 30, 2015, respectively, which are included within (loss) gain on derivatives in the condensed consolidated statements of operations. Additionally, we haverecorded foreign exchangecurrency transaction net gains of $31.3 million and $61.0 million for the three and six months ended June 30, 2017, respectively, and foreign currency transaction net losses of $23.3 million and $12.9$14.4 million for the three months ended June 30, 2016 and June 30, 2015, respectively, and foreign exchange transaction losses of $14.4 million and $18.3 million for the six months ended June 30, 2016, and June 30, 2015, respectively, which are included within miscellaneous, net in our condensed consolidated statements of operations.
| Redeemable Non-controlling Interests and Non-controlling Interest |
Redeemable Non-controlling Interests
A non-controlling owner previously held a 35.0 percent residual interest in the Travel Channel. The owner of the non-controlling interest had a put option requiring us to purchase their interest, and we had a call option to acquire their interest. WeIn February 2016, we exercised our call option and executed a contract on February 25, 2016, for an agreed upon price of $99.0 million. We now own 100.0 percent of Travel Channel.
A non-controlling owner previously held a 30.0 percent interest in Food Network Latin America (“FNLA”). In December 2016, we purchased the remaining interest in FNLA from the non-controlling interest holders for $4.5 million.
The following table summarizes the activity for account balances whose fair value measurements are estimated utilizing Level 3 inputs:
|
| June 30, |
| ||||
(in thousands) |
| 2017 |
| 2016 |
| ||
Beginning period balance |
| $ | - |
| $ | 99,000 |
|
Net income |
|
| - |
|
| 2,162 |
|
Fair value adjustments |
|
| - |
|
| (2,162 | ) |
Purchase of non-controlling interest |
|
| - |
|
| (99,000 | ) |
Ending period balance |
| $ | - |
| $ | - |
|
The net income amounts reflected in the table above are reported within net income attributable to non-controlling interests in our condensed consolidated statements of operations.
Non-controlling Interest
The Food Network and Cooking Channel are operated and organized under the terms of a general partnership (the “Partnership”). The Company and a non-controlling owner hold interests in the Partnership. During the fourth quarter of 2014,2016, the Partnership agreement was extended and specifies a dissolution date of December 31, 2016.2020. If the term of the Partnership is not extended prior to that date, the Partnership agreement permits the Company, as holder of 80.0 percent of the applicable votes, to reconstitute the Partnership and continue its business. If for some reason the Partnership is not continued, it will be required to limit its activities to winding up, settling debts, liquidating assets and distributing proceeds to the partners in proportion to their partnership interests.
| Shareholders’ Equity |
Capital Stock
SNI’s capital structure includes Common Voting Shares and Class A Common Shares. Our Amended and Restated Articles of Incorporation provide that the holders of Class A Common Shares, who are not entitled to vote on any other matters except as required
by Ohio law, are entitled to elect the greater of three or one-third of the directors. The Common Voting Shares and Class A Common Shares have equal dividend distribution rights.
Incentive Plans
The Scripps Networks Interactive, Inc.SNI 2015 Amended Long-Term Incentive Plan (the “2015 Amended LTI Plan”) provides for long-term equity incentive compensation for key employees and members of the Company’s Board of Directors (the “Board”). The 2015 Amended LTI Plan authorizes the grant of equity-based compensation todiscretionary awards for employees and non-employee directors officers and other key employees in the form of incentive or non-qualified stock options, stock appreciation rights, restricted shares, restricted stock units (“RSUs”), performance shares, performanceperformance-based restricted stock units (“PBRSUs”) and other share-based awards and dividend equivalents. The Company has reserved 8.0 million Class A Common Shares for issuance under the 2015 Amended LTI Plan.
The 2015 Amended LTI Plan will remain in effect until February 2025, unless terminated sooner by the Board. Termination will not affect outstanding grants and awards. The 2015 Amended LTI Plan replaced the Scripps Networks Interactive, Inc.SNI 2008 Long-Term Incentive Plan (the “Prior LTI Plan”), and no further awards will be made under the Prior LTI Plan. However, awards granted under the Prior LTI Plan remain outstanding in accordance with their terms.
We satisfy stock option exercises and vested stock awards with newly-issued shares. Shares available for future share compensation grants totaled 6.96.3 million at June 30, 2016.2017.
During the six months ended June 30, 2017, the Company granted 0.4 million RSUs, including PBRSUs, under the 2015 Amended LTI Plan. During the six months ended June 30, 2016, the Company granted 0.6 million stock options and less than 0.4 million RSUs, including performance-based restricted stock units (“PBRSUs”) under the 2015 LTI Plan. During the six months ended June 30, 2015, the Company granted 0.4 million stock options and 0.3 million RSUs, including PBRSUs. The number of shares ultimately issued for PBRSUs will depend upon performance compared to specified metrics. The fair values for stock options are estimated on the grant date using a lattice-based binomial model. Assumptions utilized in the model are evaluated and revised, as necessary, to reflect market conditions and experience.
Share-based compensation costs totaled $7.0 million and $7.1 million for the three months ended June 30, 2016 and June 30, 2015, respectively, and $24.7 million and $24.3 million for the six months ended June 30, 2016 and June 30, 2015, respectively.was as follows:
|
| Three months ended June 30, |
|
| Six months ended June 30, |
|
| ||||||||||
(in thousands) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| ||||
Stock options |
| $ | 324 |
|
| $ | 1,540 |
|
| $ | 604 |
|
| $ | 6,335 |
|
|
RSUs and PBRSUs |
|
| 7,162 |
|
|
| 5,430 |
|
|
| 26,994 |
|
|
| 18,344 |
|
|
Total share-based compensation |
| $ | 7,486 |
|
| $ | 6,970 |
|
| $ | 27,598 |
|
| $ | 24,679 |
|
|
As of June 30, 2016, unrecognizedUnrecognized share-based compensation expense was as follows:follows as of June 30, 2017:
|
|
|
|
|
|
| ||||||
(in thousands) |
| Amount |
|
| Weighted-Average Period | Amount |
|
| Weighted-Average Period |
| ||
Stock options |
| $ | 2,921 |
|
| 2.4 years | $ | 1,002 |
|
| 1.1 years |
|
RSUs and PBRSUs |
|
| 21,780 |
|
| 1.8 years |
| 30,676 |
|
| 2.0 years |
|
Total unrecognized share-based compensation |
| $ | 24,701 |
|
|
| $ | 31,678 |
|
|
|
|
Share Repurchase Programs
We have share repurchase programs (“Repurchase Programs”) authorized by the Board that permit us to acquire the Company’s Class A Common Shares. We did not repurchase any shares during the three months ended June 30, 2016 and June 30, 2015, respectively. We did not repurchase any shares for the six months ended June 30, 2016. During the six months ended2017 and June 30, 2015, we repurchased 4.0 million shares for approximately $289.5 million, including 3.0 million shares repurchased for approximately $216.8 million from Scripps family members.2016, respectively.
As of June 30, 2016,2017, $1,512.5 million in authorization remains available for repurchase under the Repurchase Programs. All shares repurchased under the Repurchase Programs are retired and returned to authorized and unissued shares. There is no expiration date for the Repurchase Programs, and we are under no commitment or obligation to repurchase any particular amount of Class A Common Shares under the Repurchase Programs.
| Comprehensive Income |
Changes in the accumulated other comprehensive income or loss (“AOCI”) balance by component consisted of the following:
|
| Three months ended June 30, |
|
| |||||||||||||
|
| 2016 |
|
| 2015 |
|
| ||||||||||
(in thousands) |
| Currency Translation |
|
| Pension Plan and SERP Liability |
|
| Currency Translation |
|
| Pension Plan and SERP Liability |
|
| ||||
AOCI beginning period balance |
| $ | (57,421 | ) |
| $ | (31,328 | ) |
| $ | (51,857 | ) |
| $ | (32,105 | ) |
|
Other comprehensive income (loss) before reclassifications |
|
| (122,251 | ) |
|
| — |
|
|
| 29,610 |
|
|
| — |
|
|
Amounts reclassified from AOCI |
|
| — |
|
|
| 666 |
|
|
| — |
|
|
| 728 |
|
|
Net current-period other comprehensive income (loss) |
|
| (122,251 | ) |
|
| 666 |
|
|
| 29,610 |
|
|
| 728 |
|
|
AOCI end of period balance |
| $ | (179,672 | ) |
| $ | (30,662 | ) |
| $ | (22,247 | ) |
| $ | (31,377 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six months ended June 30, | |||||||||||||||
|
| 2016 |
|
| 2015 |
|
| ||||||||||
(in thousands) |
| Currency Translation |
|
| Pension Plan and SERP Liability |
|
| Currency Translation |
|
| Pension Plan and SERP Liability |
|
| ||||
AOCI beginning period balance |
| $ | (98,239 | ) |
| $ | (31,994 | ) |
| $ | (25,122 | ) |
| $ | (32,769 | ) |
|
Other comprehensive income (loss) before reclassifications |
|
| (81,433 | ) |
|
| — |
|
|
| 2,875 |
|
|
| — |
|
|
Amounts reclassified from AOCI |
|
| — |
|
|
| 1,332 |
|
|
| — |
|
|
| 1,392 |
|
|
Net current-period other comprehensive income (loss) |
|
| (81,433 | ) |
|
| 1,332 |
|
|
| 2,875 |
|
|
| 1,392 |
|
|
AOCI end of period balance |
| $ | (179,672 | ) |
| $ | (30,662 | ) |
| $ | (22,247 | ) |
| $ | (31,377 | ) |
|
|
| Three months ended June 30, 2017 |
|
| Three months ended June 30, 2016 |
| ||||||||||||||
(in thousands) |
| Foreign Currency Translation |
| Pension Plan and SERP Liability |
| Total Accumulated Other Comprehensive (Loss) Income |
|
| Foreign Currency Translation |
| Pension Plan and SERP Liability |
| Total Accumulated Other Comprehensive (Loss) Income |
| ||||||
Beginning period balance |
| $ | (258,251 | ) | $ | (38,120 | ) | $ | (296,371 | ) |
| $ | (57,421 | ) | $ | (31,328 | ) | $ | (88,749 | ) |
Other comprehensive (loss) before reclassifications |
|
| 151,623 |
|
| — |
|
| 151,623 |
|
|
| (122,251 | ) |
| — |
|
| (122,251 | ) |
Amounts reclassified from AOCI |
|
| — |
|
| 1,395 |
|
| 1,395 |
|
|
| — |
|
| 666 |
|
| 666 |
|
Net current-period other comprehensive (loss) |
|
| 151,623 |
|
| 1,395 |
|
| 153,018 |
|
|
| (122,251 | ) |
| 666 |
|
| (121,585 | ) |
Ending period balance |
| $ | (106,628 | ) | $ | (36,725 | ) | $ | (143,353 | ) |
| $ | (179,672 | ) | $ | (30,662 | ) | $ | (210,334 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six months ended June 30, 2017 |
|
| Six months ended June 30, 2016 |
| ||||||||||||||
(in thousands) |
| Foreign Currency Translation |
| Pension Plan and SERP Liability |
| Total Accumulated Other Comprehensive (Loss) Income |
|
| Foreign Currency Translation |
| Pension Plan and SERP Liability |
| Total Accumulated Other Comprehensive (Loss) Income |
| ||||||
Beginning period balance |
| $ | (324,708 | ) | $ | (38,993 | ) | $ | (363,701 | ) |
| $ | (98,239 | ) | $ | (31,994 | ) | $ | (130,233 | ) |
Other comprehensive (loss) income before reclassifications |
|
| 218,080 |
|
| — |
|
| 218,080 |
|
|
| (81,433 | ) |
| — |
|
| (81,433 | ) |
Amounts reclassified from AOCI |
|
| — |
|
| 2,268 |
|
| 2,268 |
|
|
| — |
|
| 1,332 |
|
| 1,332 |
|
Net current-period other comprehensive (loss) income |
|
| 218,080 |
|
| 2,268 |
|
| 220,348 |
|
|
| (81,433 | ) |
| 1,332 |
|
| (80,101 | ) |
Ending period balance |
| $ | (106,628 | ) | $ | (36,725 | ) | $ | (143,353 | ) |
| $ | (179,672 | ) | $ | (30,662 | ) | $ | (210,334 | ) |
Amounts reported in the table above are net of income tax.
Amounts reclassified to net earnings for Pension Plan and SERP liability adjustments relate to the amortization of actuarial losses. These amounts are included within selling, general and administrative in our condensed consolidated statements of operations and totaled $1.0$1.4 million and $1.2$2.8 million for the three and six months ended June 30, 20162017, respectively and June 30, 2015, respectively,$1.0 million and $2.0 million and $2.4 million for the three and six months ended June 30, 2016, and June 30, 2015, respectively (see Note 1110 - Employee Benefit Plans).
| Segment Information |
The Company’s operating segmentsCompany has two reportable segments: U.S. Networks and International Networks which are determined based uponon our management and internal reporting structure.
As a result of the Transactions (see Note 4 – Acquisitions), the international operating segment that was previously not significant, has become significant. Therefore, the Company now has two reportable segments: U.S. Networks, previously referred to as Lifestyle Media, and International Networks. As a result, certain prior period segment results have been recast to reflect the current presentation.
U.S. Networks includes our six domestic television networks: HGTV, Food Network, Travel Channel, DIY Network, Cooking Channel and Great American Country. Additionally, U.S. Networks also includes websites associated with the aforementioned television brands and other internet and mobiledigital businesses serving home, food, travel and other lifestyle-related categories. U.S. Networks also includes our digital content studio, Scripps Networks Lifestyle Studio. TheStudios. We own 100.0 percent of each of our networks, with the exception of Food Network and Cooking Channel, are included in the Partnership, of which we own 68.7 percent. Each of our networks is distributed by cable and satellite distributors,operators, telecommunication service providerssuppliers and certain non-linearother digital providers, such as those providing streaming or on-demand services. U.S. Networks earns revenuegenerates revenues primarily from the sale of advertising timesales and from distribution fees paid by distributors ofearned from the right to distribute our programming content. U.S. Networks also earns revenuerevenues from licensing of content to third parties and of brands for consumer products, such as videos, books, kitchenware and tools.products.
International Networks includes the TVN portfolio of networks and other lifestyle-oriented networks as well as those available in the UK, EMEA, APAC and Latin America. International Networks also includes our 50.0 percent share of the results of UKTV, a general entertainment and lifestyle channel platform in the UK.
Corporate and Other includes the results of businesses not separately identified as reportable segments for external financial reporting purposes and will continue to be disclosed separately from the results of U.S. Networks and International Networks. The Company generally does not allocate employee-related corporate overhead costs to its reportable segments, but rather classifies these expenses within Corporate and Other. However, certain corporate costs, including information technology, pension and other employee benefits and other shared service functions, are allocated to our reportable segments. These allocations are generally amounts agreed upon by management, which may differ from amounts that would be incurred if such services were purchased separately by the reportable segments.
Intersegment revenue eliminations are included in Corporate and Other and totaled $6.5$7.3 million and $5.1$14.5 million for the three months ended June 30, 2016 and June 30, 2015, respectively, and $13.1 million and $9.8 million for the six months ended June 30, 20162017, respectively, and $6.5 million and $13.1 million for the three and six months ended June 30, 2015,2016, respectively.
Our Chief Operating Decision Maker (“CODM”), whom we have identified as our Chief Executive Officer (“CEO”), evaluates the operating performance of our businesses and makes decisions about the allocation of resources to the businesses using a measure we refer to as segment profit.profit (loss). Segment profit excludes interest,(loss) is defined as income (loss) from operations before income taxes excluding depreciation, amortization, goodwill write-downs, interest expense, equity in earnings of affiliates, gain (loss) on derivatives, gain (loss) on sale of investments and amortization, divested operating units, investment results and certain other itemsmiscellaneous non-operating expenses which are included in net income (loss) determined in accordance with GAAP.
Information regarding our segments is as follows:
|
| Three months ended June 30, |
|
| Six months ended June 30, |
| ||||||||||
(in thousands) |
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
| ||||
Segment operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Networks |
| $ | 752,321 |
|
| $ | 715,100 |
|
| $ | 1,454,516 |
|
| $ | 1,354,004 |
|
International Networks |
|
| 147,044 |
|
|
| 22,088 |
|
|
| 268,382 |
|
|
| 46,153 |
|
Corporate and Other |
|
| (6,594 | ) |
|
| (5,086 | ) |
|
| (13,249 | ) |
|
| (9,805 | ) |
Total operating revenues |
| $ | 892,771 |
|
| $ | 732,102 |
|
| $ | 1,709,649 |
|
| $ | 1,390,352 |
|
Cost of services, excluding depreciation and amortization |
|
| 286,999 |
|
|
| 195,087 |
|
|
| 566,666 |
|
|
| 394,234 |
|
Selling, general and administrative |
|
| 191,133 |
|
|
| 178,498 |
|
|
| 389,954 |
|
|
| 380,685 |
|
Total segment profit |
| $ | 414,639 |
|
| $ | 358,517 |
|
| $ | 753,029 |
|
| $ | 615,433 |
|
Depreciation |
|
| 16,089 |
|
|
| 14,798 |
|
|
| 33,628 |
|
|
| 31,693 |
|
Amortization |
|
| 25,654 |
|
|
| 11,640 |
|
|
| 56,716 |
|
|
| 23,335 |
|
Loss (gain) on disposal of property and equipment |
|
| - |
|
|
| 44 |
|
|
| (242 | ) |
|
| 2,560 |
|
Total operating income |
|
| 372,896 |
|
|
| 332,035 |
|
|
| 662,927 |
|
|
| 557,845 |
|
Interest expense, net |
|
| (33,175 | ) |
|
| (16,835 | ) |
|
| (66,920 | ) |
|
| (29,802 | ) |
Equity in earnings of affiliates |
|
| 21,712 |
|
|
| 27,290 |
|
|
| 47,390 |
|
|
| 46,235 |
|
Gain on derivatives |
|
| 8,267 |
|
|
| 37,198 |
|
|
| 11,033 |
|
|
| 43,131 |
|
(Loss) gain on sale of investments |
|
| (16,373 | ) |
|
| - |
|
|
| 191,824 |
|
|
| - |
|
Miscellaneous, net |
|
| (21,672 | ) |
|
| (13,194 | ) |
|
| (15,606 | ) |
|
| (13,596 | ) |
Income from operations before income taxes |
| $ | 331,655 |
|
| $ | 366,494 |
|
| $ | 830,648 |
|
| $ | 603,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Networks |
| $ | 401,139 |
|
| $ | 397,332 |
|
| $ | 760,636 |
|
| $ | 697,836 |
|
International Networks |
|
| 37,369 |
|
|
| (10,495 | ) |
|
| 47,158 |
|
|
| (16,374 | ) |
Corporate and Other |
|
| (23,869 | ) |
|
| (28,320 | ) |
|
| (54,765 | ) |
|
| (66,029 | ) |
Total segment profit |
| $ | 414,639 |
|
| $ | 358,517 |
|
| $ | 753,029 |
|
| $ | 615,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Networks |
| $ | 12,716 |
|
| $ | 12,848 |
|
| $ | 26,869 |
|
| $ | 27,560 |
|
International Networks |
|
| 3,114 |
|
|
| 949 |
|
|
| 6,239 |
|
|
| 2,078 |
|
Corporate and Other |
|
| 259 |
|
|
| 1,001 |
|
|
| 520 |
|
|
| 2,055 |
|
Total depreciation |
| $ | 16,089 |
|
| $ | 14,798 |
|
| $ | 33,628 |
|
| $ | 31,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Networks |
| $ | 10,022 |
|
| $ | 10,021 |
|
| $ | 20,043 |
|
| $ | 19,961 |
|
International Networks |
|
| 15,632 |
|
|
| 1,619 |
|
|
| 36,673 |
|
|
| 3,374 |
|
Corporate and Other |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total amortization |
| $ | 25,654 |
|
| $ | 11,640 |
|
| $ | 56,716 |
|
| $ | 23,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) on disposal of property and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Networks |
| $ | - |
|
| $ | 34 |
|
| $ | 42 |
|
| $ | 3,581 |
|
International Networks |
|
| - |
|
|
| 9 |
|
|
| (284 | ) |
|
| 9 |
|
Corporate and Other |
|
| - |
|
|
| 1 |
|
|
| - |
|
|
| (1,030 | ) |
Total loss (gain) on disposal of property and equipment |
| $ | - |
|
| $ | 44 |
|
| $ | (242 | ) |
| $ | 2,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of affiliates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Networks |
| $ | 9,014 |
|
| $ | 14,486 |
|
| $ | 16,746 |
|
| $ | 24,507 |
|
International Networks |
|
| 12,698 |
|
|
| 12,804 |
|
|
| 30,644 |
|
|
| 21,728 |
|
Corporate and Other |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total equity in earnings of affiliates |
| $ | 21,712 |
|
| $ | 27,290 |
|
| $ | 47,390 |
|
| $ | 46,235 |
|
|
| Three months ended June 30, 2017 |
| |||||||||||||
(in thousands) |
| U.S. Networks |
|
| International Networks |
|
| Corporate and Other |
|
| Consolidated |
| ||||
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising |
| $ | 552,652 |
|
| $ | 110,382 |
|
| $ | — |
|
| $ | 663,034 |
|
Distribution |
|
| 211,902 |
|
|
| 27,783 |
|
|
| — |
|
|
| 239,685 |
|
Other |
|
| 14,489 |
|
|
| 15,097 |
|
|
| (7,259 | ) |
|
| 22,327 |
|
Total operating revenues |
|
| 779,043 |
|
|
| 153,262 |
|
|
| (7,259 | ) |
|
| 925,046 |
|
Cost of services, excluding depreciation and amortization |
|
| 222,790 |
|
|
| 83,335 |
|
|
| (6,274 | ) |
|
| 299,851 |
|
Selling, general and administrative |
|
| 157,531 |
|
|
| 31,147 |
|
|
| 23,719 |
|
|
| 212,397 |
|
Segment profit (loss) |
|
| 398,722 |
|
|
| 38,780 |
|
|
| (24,704 | ) |
|
| 412,798 |
|
Depreciation |
|
| 9,961 |
|
|
| 3,045 |
|
|
| 654 |
|
|
| 13,660 |
|
Amortization |
|
| 9,994 |
|
|
| 15,064 |
|
|
| — |
|
|
| 25,058 |
|
Operating income (loss) |
|
| 378,767 |
|
|
| 20,671 |
|
|
| (25,358 | ) |
|
| 374,080 |
|
Interest (expense) income, net |
|
| (144 | ) |
|
| 206 |
|
|
| (24,265 | ) |
|
| (24,203 | ) |
Equity in earnings of affiliates |
|
| 7,846 |
|
|
| 13,128 |
|
|
| — |
|
|
| 20,974 |
|
Loss on derivatives |
|
| — |
|
|
| — |
|
|
| (3,672 | ) |
|
| (3,672 | ) |
Gain on sale of investments |
|
| — |
|
|
| 1,416 |
|
|
| — |
|
|
| 1,416 |
|
Miscellaneous, net |
|
| 3,481 |
|
|
| 7,896 |
|
|
| 20,804 |
|
|
| 32,181 |
|
Income (loss) from operations before income taxes |
| $ | 389,950 |
|
| $ | 43,317 |
|
| $ | (32,491 | ) |
| $ | 400,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property and equipment: |
| $ | 13,212 |
|
| $ | 7,100 |
|
| $ | — |
|
| $ | 20,312 |
|
| Three months ended June 30, |
| Six months ended June 30, |
| ||||||||||
(in thousands) | 2016 |
| 2015 |
|
| 2016 |
|
| 2015 |
| ||||
Additions to property and equipment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Networks | $ | 8,567 |
| $ | 8,582 |
|
| $ | 17,238 |
|
| $ | 16,251 |
|
International Networks |
| 4,385 |
|
| 496 |
|
|
| 7,059 |
|
|
| 776 |
|
Corporate and Other |
| - |
|
| 1 |
|
|
| - |
|
|
| 1,451 |
|
Total additions to property and equipment | $ | 12,952 |
| $ | 9,079 |
|
| $ | 24,297 |
|
| $ | 18,478 |
|
Operating revenues by geographic location: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States | $ | 755,427 |
| $ | 717,081 |
|
| $ | 1,457,315 |
|
| $ | 1,359,886 |
|
Poland |
| 120,095 |
| $ | - |
|
|
| 217,853 |
|
|
| - |
|
Other International |
| 17,249 |
| $ | 15,021 |
|
|
| 34,481 |
|
|
| 30,466 |
|
Total operating revenues | $ | 892,771 |
| $ | 732,102 |
|
| $ | 1,709,649 |
|
| $ | 1,390,352 |
|
|
|
|
| As of |
| |||||||||
|
|
|
|
|
|
|
| June 30, 2016 |
|
| December 31, 2015 |
| ||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Networks |
|
|
|
|
|
|
| $ | 2,903,981 |
|
| $ | 2,937,428 |
|
International Networks |
|
|
|
|
|
|
|
| 3,165,665 |
|
|
| 3,276,989 |
|
Corporate and Other |
|
|
|
|
|
|
|
| 443,069 |
|
|
| 457,897 |
|
Total assets |
|
|
|
|
|
|
| $ | 6,512,715 |
|
| $ | 6,672,314 |
|
Long-lived assets by geographic location: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
|
|
|
|
| $ | 1,862,190 |
|
| $ | 1,903,918 |
|
Poland |
|
|
|
|
|
|
|
| 2,333,333 |
|
|
| 2,406,842 |
|
Other International |
|
|
|
|
|
|
|
| 481,687 |
|
|
| 541,719 |
|
Total long-lived assets |
|
|
|
|
|
|
| $ | 4,677,210 |
|
| $ | 4,852,479 |
|
|
| Three months ended June 30, 2016 |
| |||||||||||||
(in thousands) |
| U.S. Networks |
|
| International Networks |
|
| Corporate and Other |
|
| Consolidated |
| ||||
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising |
| $ | 540,979 |
|
| $ | 105,669 |
|
| $ | — |
|
| $ | 646,648 |
|
Distribution |
|
| 196,073 |
|
|
| 27,378 |
|
|
| (5 | ) |
|
| 223,446 |
|
Other |
|
| 15,269 |
|
|
| 13,997 |
|
|
| (6,589 | ) |
|
| 22,677 |
|
Total operating revenues |
|
| 752,321 |
|
|
| 147,044 |
|
|
| (6,594 | ) |
|
| 892,771 |
|
Cost of services, excluding depreciation and amortization |
|
| 211,040 |
|
|
| 80,666 |
|
|
| (4,707 | ) |
|
| 286,999 |
|
Selling, general and administrative |
|
| 140,142 |
|
|
| 29,009 |
|
|
| 21,982 |
|
|
| 191,133 |
|
Segment profit (loss) |
|
| 401,139 |
|
|
| 37,369 |
|
|
| (23,869 | ) |
|
| 414,639 |
|
Depreciation |
|
| 12,716 |
|
|
| 3,114 |
|
|
| 259 |
|
|
| 16,089 |
|
Amortization |
|
| 10,022 |
|
|
| 15,632 |
|
|
| — |
|
|
| 25,654 |
|
Operating income (loss) |
|
| 378,401 |
|
|
| 18,623 |
|
|
| (24,128 | ) |
|
| 372,896 |
|
Interest expense, net |
|
| (69 | ) |
|
| (7,076 | ) |
|
| (26,030 | ) |
|
| (33,175 | ) |
Equity in earnings of affiliates |
|
| 9,014 |
|
|
| 12,698 |
|
|
| — |
|
|
| 21,712 |
|
Gain on derivatives |
|
| — |
|
|
| — |
|
|
| 8,267 |
|
|
| 8,267 |
|
Loss on sale of investments |
|
| (16,373 | ) |
|
| — |
|
|
| — |
|
|
| (16,373 | ) |
Miscellaneous, net |
|
| 18,952 |
|
|
| 23,823 |
|
|
| (64,447 | ) |
|
| (21,672 | ) |
Income (loss) from operations before income taxes |
| $ | 389,925 |
|
| $ | 48,068 |
|
| $ | (106,338 | ) |
| $ | 331,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property and equipment: |
| $ | 8,567 |
|
| $ | 4,385 |
|
| $ | — |
|
| $ | 12,952 |
|
|
| Six months ended June 30, 2017 |
| |||||||||||||
(in thousands) |
| U.S. Networks |
|
| International Networks |
|
| Corporate and Other |
|
| Consolidated |
| ||||
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising |
| $ | 1,064,707 |
|
| $ | 195,042 |
|
| $ | — |
|
| $ | 1,259,749 |
|
Distribution |
|
| 423,042 |
|
|
| 55,023 |
|
|
| — |
|
|
| 478,065 |
|
Other |
|
| 28,183 |
|
|
| 28,722 |
|
|
| (14,553 | ) |
|
| 42,352 |
|
Total operating revenues |
|
| 1,515,932 |
|
|
| 278,787 |
|
|
| (14,553 | ) |
|
| 1,780,166 |
|
Cost of services, excluding depreciation and amortization |
|
| 428,112 |
|
|
| 162,669 |
|
|
| (11,891 | ) |
|
| 578,890 |
|
Selling, general and administrative |
|
| 305,524 |
|
|
| 61,828 |
|
|
| 52,415 |
|
|
| 419,767 |
|
Segment profit (loss) |
|
| 782,296 |
|
|
| 54,290 |
|
|
| (55,077 | ) |
|
| 781,509 |
|
Depreciation |
|
| 21,460 |
|
|
| 5,917 |
|
|
| 1,243 |
|
|
| 28,620 |
|
Amortization |
|
| 19,912 |
|
|
| 29,343 |
|
|
| — |
|
|
| 49,255 |
|
Operating income (loss) |
|
| 740,924 |
|
|
| 19,030 |
|
|
| (56,320 | ) |
|
| 703,634 |
|
Interest (expense) income, net |
|
| (264 | ) |
|
| 353 |
|
|
| (48,544 | ) |
|
| (48,455 | ) |
Equity in earnings of affiliates |
|
| 13,089 |
|
|
| 28,334 |
|
|
| — |
|
|
| 41,423 |
|
Loss on derivatives |
|
| — |
|
|
| — |
|
|
| (6,008 | ) |
|
| (6,008 | ) |
Gain on sale of investments |
|
| — |
|
|
| 1,416 |
|
|
| — |
|
|
| 1,416 |
|
Miscellaneous, net |
|
| 5,964 |
|
|
| 27,799 |
|
|
| 25,958 |
|
|
| 59,721 |
|
Income (loss) from operations before income taxes |
| $ | 759,713 |
|
| $ | 76,932 |
|
| $ | (84,914 | ) |
| $ | 751,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property and equipment: |
| $ | 25,468 |
|
| $ | 14,447 |
|
| $ | 5,844 |
|
| $ | 45,759 |
|
|
| Six months ended June 30, 2016 |
| |||||||||||||
(in thousands) |
| U.S. Networks |
|
| International Networks |
|
| Corporate and Other |
|
| Consolidated |
| ||||
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising |
| $ | 1,028,264 |
|
| $ | 190,239 |
|
| $ | — |
|
| $ | 1,218,503 |
|
Distribution |
|
| 398,169 |
|
|
| 53,350 |
|
|
| (5 | ) |
|
| 451,514 |
|
Other |
|
| 28,083 |
|
|
| 24,793 |
|
|
| (13,244 | ) |
|
| 39,632 |
|
Total operating revenues |
|
| 1,454,516 |
|
|
| 268,382 |
|
|
| (13,249 | ) |
|
| 1,709,649 |
|
Cost of services, excluding depreciation and amortization |
|
| 414,399 |
|
|
| 161,724 |
|
|
| (9,457 | ) |
|
| 566,666 |
|
Selling, general and administrative |
|
| 279,481 |
|
|
| 59,500 |
|
|
| 50,973 |
|
|
| 389,954 |
|
Segment profit (loss) |
|
| 760,636 |
|
|
| 47,158 |
|
|
| (54,765 | ) |
|
| 753,029 |
|
Depreciation |
|
| 26,911 |
|
|
| 5,955 |
|
|
| 520 |
|
|
| 33,386 |
|
Amortization |
|
| 20,043 |
|
|
| 36,673 |
|
|
| — |
|
|
| 56,716 |
|
Operating income (loss) |
|
| 713,682 |
|
|
| 4,530 |
|
|
| (55,285 | ) |
|
| 662,927 |
|
Interest expense, net |
|
| (86 | ) |
|
| (13,943 | ) |
|
| (52,891 | ) |
|
| (66,920 | ) |
Equity in earnings of affiliates |
|
| 16,746 |
|
|
| 30,644 |
|
|
| — |
|
|
| 47,390 |
|
Gain on derivatives |
|
| — |
|
|
| — |
|
|
| 11,033 |
|
|
| 11,033 |
|
Gain on sale of investments |
|
| 191,824 |
|
|
| — |
|
|
| — |
|
|
| 191,824 |
|
Miscellaneous, net |
|
| 22,440 |
|
|
| 54,880 |
|
|
| (92,926 | ) |
|
| (15,606 | ) |
Income (loss) from operations before income taxes |
| $ | 944,606 |
|
| $ | 76,111 |
|
| $ | (190,069 | ) |
| $ | 830,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property and equipment: |
| $ | 17,238 |
|
| $ | 7,059 |
|
| $ | — |
|
| $ | 24,297 |
|
|
| Three months ended June 30, |
| |||||
(in thousands) |
| 2017 |
|
| 2016 |
| ||
Operating revenues by geographic location: |
|
|
|
|
|
|
|
|
United States |
| $ | 782,550 |
|
| $ | 755,427 |
|
Poland |
|
| 123,938 |
|
|
| 120,095 |
|
Other International |
|
| 18,558 |
|
|
| 17,249 |
|
Total operating revenues |
| $ | 925,046 |
|
| $ | 892,771 |
|
|
|
|
|
|
|
|
|
|
|
| Six months ended June 30, |
| |||||
(in thousands) |
| 2017 |
|
| 2016 |
| ||
Operating revenues by geographic location: |
|
|
|
|
|
|
|
|
United States |
| $ | 1,520,644 |
|
| $ | 1,457,315 |
|
Poland |
|
| 223,222 |
|
|
| 217,853 |
|
Other International |
|
| 36,300 |
|
|
| 34,481 |
|
Total operating revenues |
| $ | 1,780,166 |
|
| $ | 1,709,649 |
|
|
|
|
|
|
|
|
|
|
(in thousands) |
| June 30, 2017 |
|
| December 31, 2016 |
| ||
Long-lived assets by geographic location: |
|
|
|
|
|
|
|
|
United States |
| $ | 1,821,665 |
|
| $ | 1,809,919 |
|
Poland |
|
| 2,359,587 |
|
|
| 2,172,743 |
|
Other International |
|
| 389,153 |
|
|
| 384,242 |
|
Total long-lived assets |
| $ | 4,570,405 |
|
| $ | 4,366,904 |
|
|
|
|
|
|
|
|
|
|
(in thousands) |
| June 30, 2017 |
|
| December 31, 2016 |
| ||
Assets by segment: |
|
|
|
|
|
|
|
|
U.S. Networks |
| $ | 2,904,340 |
|
| $ | 2,800,137 |
|
International Networks |
|
| 3,257,923 |
|
|
| 2,991,607 |
|
Corporate and Other |
|
| 354,306 |
|
|
| 408,550 |
|
Total assets |
| $ | 6,516,569 |
|
| $ | 6,200,294 |
|
|
|
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No single customer provides more than 10.0 percent of our revenues.
Assets held by our businesses and physically located outside of the United States totaled $3,104.0$3,224.1 million and $3,238.2$2,955.8 million at June 30, 20162017 and December 31, 2015,2016, respectively.
17. Subsequent Events
On July 30, 2017, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Discovery Communications, Inc., (“Discovery”) and Skylight Merger Sub, Inc., a wholly-owned subsidiary of Discovery (“Merger Sub”) pursuant to which Merger Sub will merge with and into the Company with the Company surviving as a wholly-owned subsidiary of Discovery (the “Merger”). The transaction reflects a total enterprise value for the Company of approximately $14.6 billion.
Subject to the terms and conditions set forth in the Merger Agreement, including the collar mechanism described below, holders of the Company’s Class A Common Shares and Common Voting Shares, collectively the “SNI Shares” will receive $63.00 in cash and $27.00 (based on Discovery’s July 21, 2017 closing price) in Discovery’s Series C Common Shares (“Series C Shares”) for each SNI Share, (the “Merger Consideration”).
The stock portion of the Merger Consideration will be subject to a collar based on the volume weighted average price of Discovery’s Series C Shares measured cumulatively over the 15 trading days ending on the third trading day prior to closing (the “Average Discovery Price”). Holders of SNI Shares will receive 1.2096 Series C Shares if the Average Discovery Price is less than $22.32, and 0.9408 Series C Shares if the Average Discovery Price is greater than $28.70. If the Average Discovery Price is greater than or equal to $22.32 but less than or equal to $28.70, holders of SNI Shares will receive a number of Series C Shares between 1.2096 and 0.9408 equal to $27.00 in value. If the Average Discovery Price is between $22.32 and $25.51, Discovery has the option to pay additional cash instead of issuing more shares.
The Merger was approved unanimously by the Board of Directors of SNI and unanimously among those voting by the Board of Directors of Discovery and is subject to review by regulatory authorities in the U.S. and other jurisdictions. The transaction is expected to close in the first quarter of 2018. The full terms of the agreement are included in the Merger Agreement dated July 30, 2017, which was included as Exhibit 2.1 to the Form 8-K filed with the SEC on July 31, 2017.
In connection with the Merger Agreement, we have made certain representations, warranties and covenants, including, among other things, customary covenants to conduct business in the ordinary course consistent with past practice and to refrain from taking specified actions without Discovery’s consent during the period prior to closing.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis of financial condition and results of operations is based on the condensed consolidated financial statements and the notes to the condensed consolidated financial statements.thereto. This discussion and analysis should be read in conjunction with those condensed consolidated financial statements.
FORWARD-LOOKING STATEMENTS
This discussion and the information contained in the notes to the condensed consolidated financial statements and notes thereto contain certain forward-looking statements that are based on our current expectations. Forward-looking statements are subject to certain risks, trends and uncertainties that could cause actual results to differ materially and include, without limitation, statements relating to future cash flow from operating activities, the payment of future dividends and the anticipated timing of the completion of the Reorganization as well as statements expressing general views about our future operating results from the expectations expressed in the forward-looking statements. Such risks, trends and uncertainties, which in most instances are beyond our control, include without limitation, changes in advertising demand and other economic conditions; changing consumers’ tastes;tastes and viewing habits; program costs; labor relations; technological developments; risks related to the integration of TVN and international operations; competitive pressures; industry consolidation; interest rates; regulatory rulings; reliance on third-party vendors for various products and services; and other risk factors describedrisks, trends and uncertainties disclosed in our annual report on Form 10-K for the year ended December 31, 20152016 (the “2015“2016 Form 10-K”) and other filings with the Securities and Exchange Commission. The words “believe,” “expect,” “anticipate,” “estimate,” “intend” and similar expressions identify forward-looking statements. All forward-looking statements, which are as of the date of this filing, should be evaluated with the understanding of their inherent uncertainty. We undertake no obligation to publicly update any forward-looking statements to reflect events or circumstances after the date as of which the statement is made.
OVERVIEW
We operate in theare a global media industrycompany with respected high-profile brands and are one of thea leading developersdeveloper of lifestyle-oriented content, for linearproviding primarily home, food, travel and other lifestyle-related programming. Our content is distributed via multiple methods, including television, the internet, digital platforms including television and licensing arrangements. The SNI portfolio of networks includes HGTV, Food Network, Travel Channel, DIY Network, Cooking Channel and Great American Country within and outside the internet,United States, with respected, high-profile brands.the exception of Great American Country, which is only distributed in the United States, and Fine Living, Asian Food Channel (“AFC”) and TVN’s portfolio of networks outside the United States. Additionally, outside the United States, we participate in UKTV, a joint venture with the BBC. Our businesses engage audiences and efficiently serve advertisers by producing and delivering entertaining and highly-useful content that focuses on specifically-defined topics of interest.
We seek to engage audiences that are highly desirable to advertisers with entertaining and informative lifestyle content that is produced for television, the worldwide internet and alternative media platforms. We intend to expand and enhance our lifestyle brands by: creatinggrowing our brands through the creation of popular new programming and content; reaching additional demographics; extending distribution on various platforms, such as over-the-top services, utilizing mobile phones and tablets; licensing of content to third parties and of brands for consumer products;digital entrants providing streaming and/or on-demand services; and increasing our international footprint. We have a large library of content which we produced and own the rights to indefinitely, enabling us to exploit original programming quickly and/or repackage content in a cost-effective manner.
We are focused on strengthening our networks and expanding reach, including in both the digital arena and international market. As part of our effort to expand in the digital arena, we launched Scripps Lifestyle Studios in the fourth quarter of 2015.
The Company has two reportable segments: U.S. Networks and International Networks.
The Company’s focus is on strengthening our linear networks and expanding reach, including both in digital and within international.
As part of our effort to expand in the digital market, we launched Scripps Networks Lifestyle Studio, which is included in U.S. Networks.
The growth of our international business, through acquisition and joint ventures, as well as organically, has been and continues to be, a strategic priority for the Company. In the second quarter of 2017, we launched Food Network as a free-to-air channel in Italy. In the first quarter of 2017, we launched HGTV in Poland, expanding the reach of our brand internationally. During the fourth quarter of 2016, Cooking Channel launched in Canada in partnership with Corus Entertainment, marking the first time this network was made available outside the United States and Caribbean. Also in the fourth quarter of 2016, we launched HGTV in the Middle East and North Africa. In the second quarter of 2016, HGTV launched as a free-to-air channel in New Zealand as a first of its kind offering in the region.partnership with Top TV and Blue Ant Media. During 2015, we completed the acquisition ofacquired TVN, S.A., a Polish media company, which operates a portfolio of 13 free-to-air and pay-TV lifestyle and entertainment networks; launchednetworks. Also in 2015, we expanded distribution of Travel Channel as a 24/7 free-to-air channel in the UK; expanded distribution of Food Network across Latin America and HGTV in Asia-Pacific;APAC; launched Food Network in Australia in partnership with Special Broadcasting Service (“SBS”);SBS; and secured a large volume output deal with Nine in Australia to launch Food Network and HGTV-branded programming blocks on newly-launched 9LIFE, Australia’s first free-to-air lifestyle network.
Consolidated operating revenues increased $160.7$32.3 million, or 21.93.6 percent, while consolidated operating income from operations before income taxes increased $40.9$69.1 million, or 12.320.8 percent, for the three months ended June 30, 20162017 compared with the same period in 2015, both driven by the inclusion of TVN. Consolidated income from operations before income taxes decreased $34.8 million, or 9.5 percent, for the three months ended June 30, 2016, compared with the same period in 2015,primarily driven by a reduction$54.6 million increase in gain on derivatives this year primarilyforeign currency transaction net gains, which are included in miscellaneous, net, a $9.0
million decrease in interest expense, net, as a result of exercising our call optiondebt repayment in 2016 and a $1.4 million gain on €584 million to fund the Acquisition last year, incremental debt service costs this year associated with the Financingsale of investments in the second quarter of 2015 for the Transactions as well as the assumed debt of TVN,2017 compared with a $16.4 million loss on sale of investments this year and additional foreign currency losses reflected in miscellaneous, net, this year.the second quarter of 2016.
Consolidated operating revenues increased $319.3$70.5 million, or 23.04.1 percent, while consolidated operating income increased $105.1from operations before income taxes decreased $78.9 million, or 18.89.5 percent, for the six months ended June 30, 20162017 compared with the same period in 2015, both driven by the inclusion of TVN. Consolidated income from operations before income taxes increased $226.8 million, or 37.6 percent, for the six months ended June 30, 2016, compared with the same period in 2015, primarily driven by the $208.2$191.8 million gain recognized on the sale of our 7.3 percent equity interestinvestments in Fox Sports South in the first quarter of 2016, partially offset by the aforementioned increase in consolidated operating revenues, a loss of $16.4$75.4 million on the sale of a cost investmentincrease in the second quarter of 2016. Thisforeign currency transaction net increase was partially offset by a reductiongains, which are included within other miscellaneous, net and an $18.5 million decrease in gain on derivatives this year primarilyinterest expense, net, as a result of exercising our call option on €584 million to fund the Acquisition last year and incremental debt service costs this year associated with the Financing obtainedrepayments in the second quarter of 2015 for the Transaction, as well as the assumed debt of TVN.2016.
Although the international business experienced growth primarily through the acquisition of TVN as noted above, U.S. Networks continues to account for the majority of the Company’s performance. U.S. Networks generated operating revenues of $779.0 million, representing 84.2 percent of consolidated operating revenues, for the three months ended June 30, 2017 compared with $752.3 million, representing 84.3 percent of consolidated operating revenues, for the three months ended June 30, 2016 compared with $715.12016. U.S. Networks generated operating revenues of $1,515.9 million, representing 97.785.2 percent of consolidated operating revenues, for the threesix months ended June 30, 2015. U.S. Networks generated operating revenues of2017 compared with $1,454.5 million, representing 85.1 percent of consolidated operating revenues, for the six months ended June 30, 2016 compared with $1,354.02016.
International Networks generated operating revenues of $153.3 million, representing 97.416.6 percent of consolidated operating revenues, for the sixthree months ended June 30, 2015. The reduced contribution of U.S. Networks’ revenues as a percentage of consolidated revenues for both the three and six months ended June 30, 20162017 compared to the same period in 2015 was primarily as a result of the inclusion of TVN in the current year.
International Networks generated operating revenues ofwith $147.0 million, representing 16.5 percent of consolidated operating revenues, for the three months ended June 30, 2016 compared with $22.12016. International Networks generated operating revenues of $278.8 million, representing 3.015.7 percent of consolidated operating revenues, for the threesix months ended June 30, 2015. International Networks generated operating revenues of2017 compared with $268.4 million, representing 15.7 percent of consolidated operating revenues, for the six months ended June 30, 2016 compared with $46.2 million, representing 3.3 percent of consolidated operating revenues, for the six months ended June 30, 2015. The year-over-year increase for both the three and six months ended June 30, 2016 compared with the same period in 2015 was primarily driven by the inclusion of TVN in the current year.2016.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in accordance with GAAP requires usmanagement to make a variety of decisions whichestimates, judgments and assumptions that affect reported amounts and related disclosures reported in the condensed consolidated financial statements and accompanying footnotes, including the selection of appropriate accounting principles that reflect the economic substance of the underlying transactions and the assumptions on which to base accounting estimates. In reaching such decisions, we apply judgment is applied based on our understanding and analysis of the relevant circumstances, including our historical experience, actuarial studies and other assumptions. We are committed to incorporating accounting principles, assumptions and estimates that promote the representational faithfulness, verifiability, neutrality and transparency of the accounting information included in theour condensed consolidated financial statements.
Note 22- Summary of Significant Accounting Policies to the Consolidated Financial Statementsconsolidated financial statements included in the 20152016 Form 10-K describes the significant accounting policies we have selected for use in the preparation of our condensed consolidated financial statements and related disclosures. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made and if different estimates that reasonably could have been used could materially change the financial statements. We believe the accounting for programs and program licenses, acquisitions, goodwill, finite-lived intangible assets, income taxes and revenue recognition to be our most critical accounting policies and estimates. A detailed description of these accounting policies is included in the Critical Accounting Policies and Estimates section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 20152016 Form 10-K. We adopted onefour accounting standard updates during the six months ended June 30, 2016 related to the accounting for share-based compensation2017 (see Note 32 – Accounting Standards UpdatesUpdates)).
RESULTS OF OPERATIONS
The competitive landscape in our business is affected by multiple media platforms competing for consumers and advertising dollars. We strive to create popular programming that resonates with viewers across a variety of demographic groups by developing relatable content through strong brands that engage audiences.
Consolidated Results of Operations
| Three months ended June 30, |
| Six months ended June 30, |
| ||||||||||||||
( in thousands) | 2016 |
| 2015 |
| % Change |
| 2016 |
| 2015 |
| % Change |
| ||||||
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising | $ | 646,648 |
| $ | 502,891 |
|
| 28.6 | % | $ | 1,218,503 |
| $ | 938,159 |
|
| 29.9 | % |
Distribution |
| 223,446 |
|
| 215,217 |
|
| 3.8 | % |
| 451,514 |
|
| 424,225 |
|
| 6.4 | % |
Other |
| 22,677 |
|
| 13,994 |
|
| 62.0 | % |
| 39,632 |
|
| 27,968 |
|
| 41.7 | % |
Total operating revenues |
| 892,771 |
|
| 732,102 |
|
| 21.9 | % |
| 1,709,649 |
|
| 1,390,352 |
|
| 23.0 | % |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services, excluding depreciation and amortization |
| 286,999 |
|
| 195,087 |
|
| 47.1 | % |
| 566,666 |
|
| 394,234 |
|
| 43.7 | % |
Selling, general and administrative |
| 191,133 |
|
| 178,498 |
|
| 7.1 | % |
| 389,954 |
|
| 380,685 |
|
| 2.4 | % |
Depreciation |
| 16,089 |
|
| 14,798 |
|
| 8.7 | % |
| 33,628 |
|
| 31,693 |
|
| 6.1 | % |
Amortization |
| 25,654 |
|
| 11,640 |
|
| 120.4 | % |
| 56,716 |
|
| 23,335 |
|
| 143.1 | % |
Loss (gain) on disposal of property and equipment |
| - |
|
| 44 |
|
| (100.0 | )% |
| (242 | ) |
| 2,560 |
|
| (109.5 | )% |
Total operating expenses |
| 519,875 |
|
| 400,067 |
|
| 29.9 | % |
| 1,046,722 |
|
| 832,507 |
|
| 25.7 | % |
Operating income |
| 372,896 |
|
| 332,035 |
|
| 12.3 | % |
| 662,927 |
|
| 557,845 |
|
| 18.8 | % |
Interest expense, net |
| (33,175 | ) |
| (16,835 | ) |
| 97.1 | % |
| (66,920 | ) |
| (29,802 | ) |
| 124.5 | % |
Equity in earnings of affiliates |
| 21,712 |
|
| 27,290 |
|
| (20.4 | )% |
| 47,390 |
|
| 46,235 |
|
| 2.5 | % |
Gain on derivatives |
| 8,267 |
|
| 37,198 |
|
| (77.8 | )% |
| 11,033 |
|
| 43,131 |
|
| (74.4 | )% |
(Loss) gain on sale of investment |
| (16,373 | ) |
| - |
| NM |
|
| 191,824 |
|
| - |
| NM |
| ||
Miscellaneous, net |
| (21,672 | ) |
| (13,194 | ) |
| 64.3 | % |
| (15,606 | ) |
| (13,596 | ) |
| 14.8 | % |
Income from operations before income taxes |
| 331,655 |
|
| 366,494 |
|
| (9.5 | )% |
| 830,648 |
|
| 603,813 |
|
| 37.6 | % |
Provision for income taxes |
| 98,303 |
|
| 120,326 |
|
| (18.3 | )% |
| 257,350 |
|
| 191,575 |
|
| 34.3 | % |
Net income |
| 233,352 |
|
| 246,168 |
|
| (5.2 | )% |
| 573,298 |
|
| 412,238 |
|
| 39.1 | % |
Less: net income attributable to non-controlling interests |
| (48,744 | ) |
| (52,450 | ) |
| (7.1 | )% |
| (97,793 | ) |
| (94,677 | ) |
| 3.3 | % |
Net income attributable to SNI | $ | 184,608 |
| $ | 193,718 |
|
| (4.7 | )% | $ | 475,505 |
| $ | 317,561 |
|
| 49.7 | % |
*NM designates the change is not meaningful
Three Months Ended June 30, 20162017 Compared to the Three Months Ended June 30, 20152016
| Three months ended June 30, |
| |||||||||||||
( in thousands) | 2017 |
|
| 2016 |
|
| $ Change Fav / (Unfav) |
|
| % Change Fav / (Unfav) |
| ||||
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising | $ | 663,034 |
|
| $ | 646,648 |
|
| $ | 16,386 |
|
|
| 2.5 | % |
Distribution |
| 239,685 |
|
|
| 223,446 |
|
|
| 16,239 |
|
|
| 7.3 | % |
Other |
| 22,327 |
|
|
| 22,677 |
|
|
| (350 | ) |
|
| (1.5 | )% |
Total operating revenues |
| 925,046 |
|
|
| 892,771 |
|
|
| 32,275 |
|
|
| 3.6 | % |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services, excluding depreciation and amortization |
| 299,851 |
|
|
| 286,999 |
|
|
| (12,852 | ) |
|
| (4.5 | )% |
Selling, general and administrative |
| 212,397 |
|
|
| 191,133 |
|
|
| (21,264 | ) |
|
| (11.1 | )% |
Depreciation |
| 13,660 |
|
|
| 16,089 |
|
|
| 2,429 |
|
|
| 15.1 | % |
Amortization |
| 25,058 |
|
|
| 25,654 |
|
|
| 596 |
|
|
| 2.3 | % |
Total operating expenses |
| 550,966 |
|
|
| 519,875 |
|
|
| (31,091 | ) |
|
| (6.0 | )% |
Operating income |
| 374,080 |
|
|
| 372,896 |
|
|
| 1,184 |
|
|
| 0.3 | % |
Interest expense, net |
| (24,203 | ) |
|
| (33,175 | ) |
|
| 8,972 |
|
|
| 27.0 | % |
Equity in earnings of affiliates |
| 20,974 |
|
|
| 21,712 |
|
|
| (738 | ) |
|
| (3.4 | )% |
(Loss) gain on derivatives |
| (3,672 | ) |
|
| 8,267 |
|
|
| (11,939 | ) |
|
| (144.4 | )% |
Gain (loss) on sale of investments |
| 1,416 |
|
|
| (16,373 | ) |
|
| 17,789 |
|
|
| 108.6 | % |
Miscellaneous, net |
| 32,181 |
|
|
| (21,672 | ) |
|
| 53,853 |
|
|
| 248.5 | % |
Income from operations before income taxes |
| 400,776 |
|
|
| 331,655 |
|
|
| 69,121 |
|
|
| 20.8 | % |
Provision for income taxes |
| 115,099 |
|
|
| 98,303 |
|
|
| (16,796 | ) |
|
| (17.1 | )% |
Net income |
| 285,677 |
|
|
| 233,352 |
|
|
| 52,325 |
|
|
| 22.4 | % |
Less: net income attributable to non-controlling interests |
| (51,602 | ) |
|
| (48,744 | ) |
|
| (2,858 | ) |
|
| (5.9 | )% |
Net income attributable to SNI | $ | 234,075 |
|
| $ | 184,608 |
|
| $ | 49,467 |
|
|
| 26.8 | % |
Consolidated total operating revenues increased $160.7$32.3 million, or 21.93.6 percent, for the three months ended June 30, 20162017 compared with the same period in 2015,2016, with growth in both advertising sales and distribution revenues. Advertising revenues grew $143.8fees.
Consolidated advertising sales increased $16.4 million, or 28.6 percent, while distribution revenues increased $8.2 million, or 3.82.5 percent, for the three months ended June 30, 20162017 compared with the samerespective period in 2015.
Advertising revenues for the three months ended June 30, 2016, increased over the same periodprimarily driven by strong pricing in the prior year drivenU.S. market, partially offset by the inclusion of TVN, strong pricing and improved ratings at U.S. Networks during the quarter.impressions delivered. Advertising revenuessales are affected by the strength of advertising markets and general economic conditions and fluctuate based on the success of our programming, as measured by viewership, and seasonality. The amount of advertising revenuesales we earn is a function of pricing negotiated with advertisers, number of advertising spots sold and audience impressions delivered. Consolidated advertising sales represented 71.7 percent and 72.4 percent of consolidated total operating revenues during the three months ended June 30, 2017 and June 30, 2016, respectively.
Distribution revenuesConsolidated advertising sales growth was supplemented by a $16.2 million, or 7.3 percent, increase in consolidated distribution fees for the three months ended June 30, 2016 improved over2017 compared with the samerespective period in the prior year2016, primarily driven by the inclusion of TVN, negotiated contractual rate increases, and, to a lesser extent, revenues generated from newby over-the-top and non-linear entrants, such as those providing streaming or on-demand services,distribution platforms, partially offset by a one-time rate equalization due todecrease in the consolidationnumber of certain distributor agreements.subscribers receiving our networks. Distribution agreements with cable and satellite distributors and telecommunication service providers require distributors to pay us fees over the terms of the agreements in exchange for certain rights to distribute our content. The amount of revenuerevenues earned from our distribution agreements is dependentdepend on the rates negotiated in the agreements and the number of subscribers that receive our networks. Consolidated distribution fees represented 25.9 percent and 25.0 percent of consolidated total operating revenues during the three months ended June 30, 2017 and June 30, 2016, respectively.
Cost of services, which consists of program amortization and the costs associated with distributing our content, increased $91.9$12.9 million, or 47.14.5 percent, for the three months ended June 30, 20162017 compared with the respective period in 2015, primarily driven by the inclusion of TVN.2016. Program amortization, which represents the largest expense and is the primary driver of fluctuations in cost of services, increased $63.1$14.6 million, or 39.56.6 percent, for the three months ended June 30, 20162017 compared with the same period in 2015, reflecting our continued investment in the improved quality2016 and varietyrepresented 43.1 percent and 42.8 percent of programming on our networks as well as the inclusion of TVN. Cost of services also included $1.3 million of Reorganization costsconsolidated total operating expenses during the three months ended June 30, 2017 and June 30, 2016, and $0.9respectively. Cost of services included $1.3 million of Reorganization costs related to the Restructuring Planincurred during the same period in 2015.three months ended June 30, 2016.
Selling, general and administrative, which primarily consists of employee costs, marketing and advertising expenses, administrative costs and costs of facilities, increased $12.6$21.3 million, or 7.111.1 percent, for the three months ended June 30, 20162017 compared with the samerespective period in 2015. The year-over-year increase was2016, primarily driven by the inclusion of TVN,marketing and technology expenses. Selling, general and administrative included $2.6 million of Reorganization costs and $0.8 million of TVN transaction and integration related expenses, partially offset by the timing of certain marketing programs as well as $4.4 million of costs related to the Restructuring Plan and $4.2 million of TVN transaction and integration related expenses incurred during the three months ended June 30, 2015.
Amortization of intangible assets reflects the expense associated with intangible assets primarily identified through business acquisitions. Amortization of intangible assets increased $14.0 million, or 120.4 percent, for the three months ended June 30, 2016 compared with the same period of 2015, primarily driven by the Acquisition.2016.
Interest expense, net primarily reflects the interest incurred on our outstanding borrowings. Interest expense, net increased $16.3decreased $9.0 million, or 97.127.0 percent, for the three months ended June 30, 20162017 compared with the same period in the prior year, reflecting additional2016 driven by less debt outstanding borrowings associated with the Financing obtained in the second quarter of 2015 for the Transactions as well as the assumed debt of TVN.
At June 30, 2015, we had the 2016 Notes, the 2019 Notes and the 2024 Notes outstanding. Additionally, we increased our borrowing activity in the second quarter of 2015 to generate funds necessary to complete the Transactions. The additional activity resulted in incremental debt as of June 30, 2016, including2017. Our debt outstanding as of June 30, 2017, included $1,500.0 million of Senior Notes issued in June 2015, comprised of the$600.0 million aggregate principal amount of 2.80% Senior Notes due 2020 (the “2020 Notes”), $400.0 million aggregate principal amount of 3.50% Senior Notes thedue 2022 (the “2022 Notes”) and $500.0 million aggregate principal amount of 3.95% Senior Notes due 2025 (the “2025 Notes”). Also outstanding as of June 30, 2017, were $500.0 million aggregate principal amount of 2.75% Senior Notes due 2019 (the “2019 Notes”) and the 2025$500.0 million aggregate principal amount of 3.90% Senior Notes due 2024 (the “2024 Notes”), as well as $500.0 million drawn on the $250.0Amended Revolving Credit Facility. In addition to what was outstanding as of June 30, 2017, we had $500.0 million aggregate principal amount of Senior Notes due 2016 (the “2016 Notes”), the 7.85% TVN Senior Notes due 2020 (the “2020 TVN Notes”) and the Term Loan. We also assumed debtLoan outstanding as part of the Acquisition, including the 2020 TVN Notes that remain outstanding (See Note 10 – Debt)June 30, 2016. Interest expense, net also includes interest income of $1.3$1.2 million and $1.4$1.3 million primarily related to the UKTV noteLoan for the three months ended June 30, 20162017 and 2015,2016, respectively.
EquityGain (loss) on sale of investments increased $17.8 million for the three months ended June 30, 2017 compared with the same period in earnings2016, primarily driven by a $16.4 million loss recognized on the sale of affiliates,our interest in a cost method investment in the second quarter of 2016.
Miscellaneous, net includes foreign currency transaction gains and losses, which represents the proportionate sharetotaled $31.3 million of net gains and $23.3 million of net losses for the three months ended June 30, 2017 and June 30, 2016, respectively.
Our effective income or loss from each of our equity method investments, decreased $5.6 million, or 20.4tax rate was 28.7 percent for the three months ended June 30, 2017 compared with 29.6 percent for the three months ended June 30, 2016, primarily driven by an increase in tax benefits resulting from differences in the U.S. statutory rate and that of foreign jurisdictions as well as recognition of tax benefits related to certain investments in foreign jurisdictions, partially offset by changes in uncertain tax positions.
Consolidated Results of Operations
Six Months Ended June 30, 2017 Compared to the Six Months Ended June 30, 2016
| Six months ended June 30, |
| |||||||||||||
( in thousands) | 2017 |
|
| 2016 |
|
| $ Change Fav / (Unfav) |
|
| % Change Fav / (Unfav) |
| ||||
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising | $ | 1,259,749 |
|
| $ | 1,218,503 |
|
| $ | 41,246 |
|
|
| 3.4 | % |
Distribution |
| 478,065 |
|
|
| 451,514 |
|
|
| 26,551 |
|
|
| 5.9 | % |
Other |
| 42,352 |
|
|
| 39,632 |
|
|
| 2,720 |
|
|
| 6.9 | % |
Total operating revenues |
| 1,780,166 |
|
|
| 1,709,649 |
|
|
| 70,517 |
|
|
| 4.1 | % |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services, excluding depreciation and amortization |
| 578,890 |
|
|
| 566,666 |
|
|
| (12,224 | ) |
|
| (2.2 | )% |
Selling, general and administrative |
| 419,767 |
|
|
| 389,954 |
|
|
| (29,813 | ) |
|
| (7.6 | )% |
Depreciation |
| 28,620 |
|
|
| 33,386 |
|
|
| 4,766 |
|
|
| 14.3 | % |
Amortization |
| 49,255 |
|
|
| 56,716 |
|
|
| 7,461 |
|
|
| 13.2 | % |
Total operating expenses |
| 1,076,532 |
|
|
| 1,046,722 |
|
|
| (29,810 | ) |
|
| (2.8 | )% |
Operating income |
| 703,634 |
|
|
| 662,927 |
|
|
| 40,707 |
|
|
| 6.1 | % |
Interest expense, net |
| (48,455 | ) |
|
| (66,920 | ) |
|
| 18,465 |
|
|
| 27.6 | % |
Equity in earnings of affiliates |
| 41,423 |
|
|
| 47,390 |
|
|
| (5,967 | ) |
|
| (12.6 | )% |
(Loss) gain on derivatives |
| (6,008 | ) |
|
| 11,033 |
|
|
| (17,041 | ) |
|
| (154.5 | )% |
Gain on sale of investments |
| 1,416 |
|
|
| 191,824 |
|
|
| (190,408 | ) |
|
| (99.3 | )% |
Miscellaneous, net |
| 59,721 |
|
|
| (15,606 | ) |
|
| 75,327 |
|
|
| 482.7 | % |
Income from operations before income taxes |
| 751,731 |
|
|
| 830,648 |
|
|
| (78,917 | ) |
|
| (9.5 | )% |
Provision for income taxes |
| 216,239 |
|
|
| 257,350 |
|
|
| 41,111 |
|
|
| 16.0 | % |
Net income |
| 535,492 |
|
|
| 573,298 |
|
|
| (37,806 | ) |
|
| (6.6 | )% |
Less: net income attributable to non-controlling interests | �� | (101,517 | ) |
|
| (97,793 | ) |
|
| (3,724 | ) |
|
| (3.8 | )% |
Net income attributable to SNI | $ | 433,975 |
|
| $ | 475,505 |
|
| $ | (41,530 | ) |
|
| (8.7 | )% |
Consolidated total operating revenues increased $70.5 million, or 4.1 percent, for the six months ended June 30, 2017 compared with the same period in 2015,2016, with growth in both advertising sales and distribution fees.
Consolidated advertising sales increased $41.2 million, or 3.4 percent, for the six months ended June 30, 2017 compared with the respective period in 2016, primarily driven by strong pricing in the U.S. market, partially offset by impressions delivered. Consolidated advertising sales represented 70.8 percent and 71.3 percent of consolidated total operating revenues during the six months ended June 30, 2017 and June 30, 2016, respectively.
Consolidated advertising sales growth was supplemented by a $26.6 million, or 5.9 percent, increase in consolidated distribution fees for the six months ended June 30, 2017 compared with the respective period in 2016, primarily driven by negotiated contractual rate increases, and, to a lesser extent, revenues generated by over-the-top and non-linear distribution platforms, partially offset by a decrease in the number of subscribers receiving our networks. Consolidated distribution fees represented 26.9 percent and 26.4 percent of consolidated total operating revenues during the six months ended June 30, 2017 and June 30, 2016, respectively.
Cost of services, increased $12.2 million, or 2.2 percent, for the six months ended June 30, 2017 compared with the respective period in 2016. Program amortization increased $12.3 million, or 2.8 percent, for the six months ended June 30, 2017 compared with the same period in 2016 and represented 42.2 percent and 42.2 percent of consolidated total operating expenses during the six months ended June 30, 2017 and June 30, 2016, respectively. Cost of services included $3.0 million of Reorganization costs incurred during the six months ended June 30, 2016.
Selling, general and administrative increased $29.8 million, or 7.6 percent, for the six months ended June 30, 2017 compared with the respective period in 2016, primarily driven by marketing and technology expenses. Selling, general and administrative included $8.3 million of Reorganization costs and $2.1 million of TVN transaction and integration expenses incurred during the six months ended June 30, 2016.
Interest expense, net primarily reflects the interest incurred on our outstanding borrowings. Interest expense, net decreased $18.5 million, or 27.6 percent, for the six months ended June 30, 2017 compared with the same period in 2016 driven by less debt outstanding as of June 30, 2017. Our debt outstanding as of June 30, 2017, included the 2020 Notes, the 2022 Notes and the 2025 Notes. Also outstanding as of June 30, 2017, were the 2019 Notes and the 2024 Notes, as well as $500.0 million drawn on the Amended Revolving Credit Facility. In addition to what was outstanding as of June 30, 2017, we had the 2016 Notes, the 2020 TVN Notes and the Term Loan outstanding as of June 30, 2016. Interest expense, net also includes interest income of $2.3 million and $2.6 million related to the UKTV Loan for the six months ended June 30, 2017 and 2016, respectively.
Gain on sale of investments decreased $190.4 million for the six months ended June 30, 2017 compared with the same period in 2016 primarily due to the sale of our 7.3 percent equity interest in Fox Sports South in the first quarter of 2016. Included in equity in earnings
Miscellaneous, net includes foreign currency transaction gains and losses, which totaled $61.0 million of affiliates, representing a significant componentnet gains and $14.4 million of the balance, is our 50.0 percent proportionate share of results from UKTV. Amortization expense attributed to intangible assets recognized upon acquiring our interest in UKTV reduces the equity in earnings we recognize from our UKTV investment. Accordingly, equity in earnings of affiliates includes our $13.1 million and $12.9 million proportionate share of UKTV’s resultsnet losses for the threesix months ended June 30, 20162017 and June 30, 2015, respectively, which were reduced by amortization of $3.4 million and $4.2 million for the three months ended June 30, 2016, and June 30, 2015, respectively.
Loss (gain) on sale of investments totaled $16.4 million for the three months ended June 30, 2016 due to the sale of a cost method investment.
Miscellaneous, net increased by $8.5 million, or 64.3 percent, primarily driven by an increase of $10.4 million in foreign currency losses during the three months ended June 30, 2016 compared with the same period in 2015.
Our effective income tax rate was 29.6 percent for the second quarter of 2016 compared with 32.8 percent for the second quarter of 2015. The favorable variance in the year-over-year tax rate was primarily driven by an overall decrease in the foreign losses for which tax benefits were not recognized for the three months ended June 30, 2016, as well as the impact of certain non-deductible expenses related to the Transactions in 2015.
Six months Ended June 30, 2016 Compared to the Six months Ended June 30, 2015
Consolidated operating revenues increased $319.3 million, or 23.028.8 percent for the six months ended June 30, 20162017 compared with the same period in 2015, with growth in both advertising and distribution revenues. Advertising revenues grew $280.3 million, or 29.9 percent, while distribution revenues increased $27.3 million, or 6.4 percent, for the six months ended June 30, 2016 compared with the same period in 2015.
Advertising revenues for the six months ended June 30, 2016 increased over the same period in the prior year driven by the inclusion of TVN, strong pricing and improved ratings at U.S. Networks during the quarter.
Distribution revenues for the six months ended June 30, 2016 improved over the same period in the prior year driven by the inclusion of TVN, negotiated contractual rate increases and revenues generated from new over-the-top and non-linear entrants, such as those providing streaming or on-demand services, partially offset by a one-time rate equalization due to the consolidation of certain distributor agreements.
Cost of services increased $172.4 million, or 43.7 percent, for the six months ended June 30, 2016 compared with the respective period in 2015, primarily driven by the inclusion of TVN. Program amortization, which represents the largest expense and is the primary driver of fluctuations in cost of services, increased $119.3 million, or 37.0 percent, for the six months ended June 30, 2016 compared with the same period in 2015, reflecting our continued investment in the improved quality and variety of programming on our networks as well as the inclusion of TVN. Cost of services also included $3.0 million of Reorganization costs during the six months ended June 30, 2016 and $2.4 million of costs related to the Restructuring Plan during the same period in 2015.
Selling, general and administrative increased $9.3 million, or 2.4 percent, for the six months ended June 30, 2016 compared with the same period in 2015. The year-over-year increase was driven by the inclusion of TVN, $8.3 million of Reorganization costs and $2.1 million of TVN transaction and integration related expenses, partially offset by the timing of certain marketing programs as well as $14.4 million of TVN transaction and integration related expenses and $7.9 million of costs related to the Restructuring Plan incurred during the six months ended June 30, 2015.
Amortization of intangible assets increased $33.4 million, or 143.1 percent, for the six months ended June 30, 2016 compared with the same period of 2015, primarily driven by the Acquisition.
Interest expense, net increased $37.1 million, or 124.5 percent, for the six months ended June 30, 2016 compared with the same period in the prior year, reflecting additional outstanding borrowings associated with the Financing obtained in the second quarter of 2015 for the Transactions as well as the assumed debt of TVN.
At June 30, 2015, we had the 2016 Notes, the 2019 Notes and the 2024 Notes outstanding. Additionally, we increased our borrowing activity in the second quarter of 2015 to generate funds necessary to complete the Transactions. The additional activity resulted in incremental debt as of June 30, 2016, including $1,500.0 million of Senior Notes issued in June 2015, comprised of the 2020 Notes, the 2022 Notes and the 2025 Notes, as well as the $250.0 million Term Loan. We also assumed debt as part of the Acquisition, including the 2020 TVN Notes that remain outstanding (See Note 10 – Debt). Interest expense, net also includes interest income of $2.6 million and $2.8 million related to the UKTV note for the six months ended June 30, 2016 and 2015, respectively.
Equity in earnings of affiliates increased $1.2 million, or 2.5 percent, for the six months ended June 30, 2016 compared with the same period in 2015, primarily due to the inclusion of TVN’s equity investment results, partially offset by the exclusion of our share of Fox Sports South’s financial results for a portion of the six months ended June 30, 2016. Equity in earnings of affiliates includes our $24.0 million and $24.0 million proportionate share of UKTV’s results for the six months ended June 30, 2016 and June 30, 2015, respectively, which were reduced by amortization of $6.8 million and $8.4 million for the six months ended June 30, 2016 and June 30, 2015, respectively.
(Loss) gain on sale of investments totaled $191.8 million for the six months ended June 30, 2016, with $208.2 million driven by the sale of our 7.3 percent equity interest in Fox Sports South in the first quarter of 2016, partially offset by a $16.4 million loss incurred on the sale of a cost method investment in the second quarter of 2016.
Miscellaneous, net increased by $2.0 million, or 14.8 percent, primarily driven by a decrease of $3.9 million in foreign currency losses during the six months ended June 30, 2016 compared with the same period in 2015, partially offset by the release of a contingent liability during the six months ended June 30, 2015.
Our effective income tax rate was 31.0 percent for the six months ended June 30, 2016, compared with 31.7 percent for the same period of 2015. The year-over-year variance was primarily driven by an increase in the tax benefits resulting from differences in the U.S. statutory rate and that of foreign jurisdictions in 2016 as well as a decrease in the foreign losses for whichrecognition of tax benefits were not recognized for the six months ended June 30, 2016. These items were primarilyrelated to certain investments in foreign jurisdictions, partially offset by a reductionchanges in theuncertain tax benefit attributable to income allocated to our non-controlling interests.positions.
Business Segment Results
As discussed in Note 1716 - Segment Information to the condensed consolidated financial statements, our CODM evaluates the operating performance of our businesses and makes decisions about the allocation of resources to the businesses using a non-GAAP measure we callrefer to as segment profit.profit (loss). Segment profit excludes interest,(loss) is defined as income (loss) from operations before income taxes, excluding depreciation, amortization, goodwill write-downs, interest expense, equity in earnings of affiliates, gain (loss) on derivatives, gain (loss) on sale of investments, other miscellaneous non-operating expenses and amortization, divested operating units, investment results and certain other itemsincome taxes, which are included in net income (loss) determined in accordance with GAAP.
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.
TotalConsolidated segment profit (loss) is the aggregate of the segment profit for each of our two reportable segments. TotalConsolidated segment profit (loss) is a non-GAAP financial measure andthat is not intended to replace operating income (loss) from operations before income taxes, the most directly comparable GAAP financial measure. Our management believes that total segment profit (loss) is a useful measure of the operating profitability of our business since the measure allows for an evaluation of the performance of our segments without regard to the effect of interest, depreciation and
amortization and certain other items. For this reason, operating performance measures, such as totalconsolidated segment profit (loss), are used by analysts and investors in our industry. TotalConsolidated segment profit (loss) is not a measure of consolidated operating results under U.S. GAAP and should not be considered superior to, as a substitute for or as an alternative to, operating income (loss) from operations before income taxes or any other measure of consolidated operating results under U.S. GAAP.
Items excluded from segment profit generally result from decisions made in prior periods or by corporate executives rather than the managers of the segments. 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. Also excluded from segment profit are financing, tax structuring and divestiture decisions, which are generally made by corporate executives. Excluding these items from the performance measures of our segments enables management to evaluate operating performance based on current economic conditions and decisions made by segment managers in the current period.
Information regarding the operating performance of our business segments, andincluding a reconciliation of such informationconsolidated segment profit to the condensed consolidated financial statementsincome from operations before income taxes in accordance with GAAP, is as follows:
Consolidated Results of Operations
Three months Ended June 30, 2017 Compared to the Three Months Ended June 30, 2016
| Three months ended June 30, |
| Six months ended June 30, |
| Three months ended June 30, |
| ||||||||||||||||||||||||
(in thousands) | 2016 |
| 2015 |
| % Change |
| 2016 |
| 2015 |
| % Change |
| 2017 |
| 2016 |
| $ Change Fav / (Unfav) |
| % Change Fav / (Unfav) |
| ||||||||||
Segment operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
U.S. Networks | $ | 752,321 |
| $ | 715,100 |
| 5.2 | % | $ | 1,454,516 |
| $ | 1,354,004 |
| 7.4 | % | $ | 779,043 |
| $ | 752,321 |
| $ | 26,722 |
| 3.6 | % | |||
International Networks |
| 147,044 |
| 22,088 |
| 565.7 | % |
| 268,382 |
| 46,153 |
| 481.5 | % |
| 153,262 |
| 147,044 |
| 6,218 |
| 4.2 | % | |||||||
Corporate and Other |
| (6,594 | ) |
| (5,086 | ) |
| 29.7 | % |
| (13,249 | ) |
| (9,805 | ) |
| 35.1 | % |
| (7,259 | ) |
| (6,594 | ) |
| (665 | ) |
| (10.1 | )% |
Total operating revenues | $ | 892,771 |
| $ | 732,102 |
|
| 21.9 | % | $ | 1,709,649 |
| $ | 1,390,352 |
|
| 23.0 | % | ||||||||||||
Operating revenues |
| 925,046 |
|
| 892,771 |
|
| 32,275 |
|
| 3.6 | % | ||||||||||||||||||
Cost of services, excluding depreciation and amortization |
| 286,999 |
|
| 195,087 |
|
| 47.1 | % |
| 566,666 |
|
| 394,234 |
|
| 43.7 | % |
| 299,851 |
| 286,999 |
| (12,852 | ) |
| (4.5 | )% | ||
Selling, general and administrative |
| 191,133 |
|
| 178,498 |
|
| 7.1 | % |
| 389,954 |
|
| 380,685 |
|
| 2.4 | % |
| 212,397 |
|
| 191,133 |
|
| (21,264 | ) |
| (11.1 | )% |
Total segment profit |
| 414,639 |
|
| 358,517 |
|
| 15.7 | % |
| 753,029 |
|
| 615,433 |
|
| 22.4 | % |
| 412,798 |
|
| 414,639 |
|
| (1,841 | ) |
| (0.4 | )% |
Depreciation |
| 16,089 |
| 14,798 |
| 8.7 | % |
| 33,628 |
| 31,693 |
| 6.1 | % |
| 13,660 |
| 16,089 |
| 2,429 |
| 15.1 | % | |||||||
Amortization |
| 25,654 |
| 11,640 |
| 120.4 | % |
| 56,716 |
| 23,335 |
| 143.1 | % |
| 25,058 |
|
| 25,654 |
|
| 596 |
|
| 2.3 | % | ||||
Loss (gain) on disposal of property and equipment |
| - |
|
| 44 |
|
| (100.0 | )% |
| (242 | ) |
| 2,560 |
|
| (109.5 | )% | ||||||||||||
Operating income |
| 372,896 |
|
| 332,035 |
|
| 12.3 | % |
| 662,927 |
|
| 557,845 |
|
| 18.8 | % | ||||||||||||
Total operating income |
| 374,080 |
|
| 372,896 |
|
| 1,184 |
|
| 0.3 | % | ||||||||||||||||||
Interest expense, net |
| (33,175 | ) |
| (16,835 | ) |
| 97.1 | % |
| (66,920 | ) |
| (29,802 | ) |
| 124.5 | % |
| (24,203 | ) |
| (33,175 | ) |
| 8,972 |
| 27.0 | % | |
Equity in earnings of affiliates |
| 21,712 |
| 27,290 |
| (20.4 | )% |
| 47,390 |
| 46,235 |
| 2.5 | % |
| 20,974 |
| 21,712 |
| (738 | ) |
| (3.4 | )% | ||||||
Gain on derivatives |
| 8,267 |
| 37,198 |
| (77.8 | )% |
| 11,033 |
| 43,131 |
| (74.4 | )% | ||||||||||||||||
Gain on sale of investment |
| (16,373 | ) |
| - |
| NM |
| 191,824 |
| - |
| NM |
| ||||||||||||||||
(Loss) gain on derivatives |
| (3,672 | ) |
| 8,267 |
| (11,939 | ) |
| (144.4 | )% | |||||||||||||||||||
Gain (loss) on sale of investments |
| 1,416 |
| (16,373 | ) |
| 17,789 |
| 108.6 | % | ||||||||||||||||||||
Miscellaneous, net |
| (21,672 | ) |
| (13,194 | ) |
| 64.3 | % |
| (15,606 | ) |
| (13,596 | ) |
| 14.8 | % |
| 32,181 |
|
| (21,672 | ) |
| 53,853 |
|
| 248.5 | % |
Income from operations before income taxes | $ | 331,655 |
| $ | 366,494 |
|
| (9.5 | )% | $ | 830,648 |
| $ | 603,813 |
|
| 37.6 | % | $ | 400,776 |
| $ | 331,655 |
| $ | 69,121 |
|
| 20.8 | % |
Segment profit (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Networks | $ | 401,139 |
| $ | 397,332 |
| 1.0 | % | $ | 760,636 |
| $ | 697,836 |
| 9.0 | % | $ | 398,722 |
| $ | 401,139 |
| $ | (2,417 | ) |
| (0.6 | )% | ||
International Networks |
| 37,369 |
| (10,495 | ) |
| (456.1 | )% |
| 47,158 |
| (16,374 | ) |
| (388.0 | )% |
| 38,780 |
| 37,369 |
| 1,411 |
| 3.8 | % | |||||
Corporate and Other |
| (23,869 | ) |
| (28,320 | ) |
| (15.7 | )% |
| (54,765 | ) |
| (66,029 | ) |
| (17.1 | )% |
| (24,704 | ) |
| (23,869 | ) |
| (835 | ) |
| (3.5 | )% |
Total segment profit |
| 414,639 |
|
| 358,517 |
|
| 15.7 | % |
| 753,029 |
|
| 615,433 |
|
| 22.4 | % | $ | 412,798 |
| $ | 414,639 |
| $ | (1,841 | ) |
| (0.4 | )% |
* NM designatesConsolidated Results of Operations
Six months Ended June 30, 2017 Compared to the change is not meaningfulSix Months Ended June 30, 2016
| Six months ended June 30, |
| ||||||||||
(in thousands) | 2017 |
| 2016 |
| $ Change Fav / (Unfav) |
| % Change Fav / (Unfav) |
| ||||
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Networks | $ | 1,515,932 |
| $ | 1,454,516 |
| $ | 61,416 |
|
| 4.2 | % |
International Networks |
| 278,787 |
|
| 268,382 |
|
| 10,405 |
|
| 3.9 | % |
Corporate and Other |
| (14,553 | ) |
| (13,249 | ) |
| (1,304 | ) |
| (9.8 | )% |
Total operating revenues |
| 1,780,166 |
|
| 1,709,649 |
|
| 70,517 |
|
| 4.1 | % |
Cost of services, excluding depreciation and amortization |
| 578,890 |
|
| 566,666 |
|
| (12,224 | ) |
| (2.2 | )% |
Selling, general and administrative |
| 419,767 |
|
| 389,954 |
|
| (29,813 | ) |
| (7.6 | )% |
Total segment profit |
| 781,509 |
|
| 753,029 |
|
| 28,480 |
|
| 3.8 | % |
Depreciation |
| 28,620 |
|
| 33,386 |
|
| 4,766 |
|
| 14.3 | % |
Amortization |
| 49,255 |
|
| 56,716 |
|
| 7,461 |
|
| 13.2 | % |
Operating income |
| 703,634 |
|
| 662,927 |
|
| 40,707 |
|
| 6.1 | % |
Interest expense, net |
| (48,455 | ) |
| (66,920 | ) |
| 18,465 |
|
| 27.6 | % |
Equity in earnings of affiliates |
| 41,423 |
|
| 47,390 |
|
| (5,967 | ) |
| (12.6 | )% |
(Loss) gain on derivatives |
| (6,008 | ) |
| 11,033 |
|
| (17,041 | ) |
| (154.5 | )% |
Gain on sale of investments |
| 1,416 |
|
| 191,824 |
|
| (190,408 | ) |
| (99.3 | )% |
Miscellaneous, net |
| 59,721 |
|
| (15,606 | ) |
| 75,327 |
|
| 482.7 | % |
Income from operations before income taxes | $ | 751,731 |
| $ | 830,648 |
| $ | (78,917 | ) |
| (9.5 | )% |
Segment profit (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Networks | $ | 782,296 |
| $ | 760,636 |
| $ | 21,660 |
|
| 2.8 | % |
International Networks |
| 54,290 |
|
| 47,158 |
|
| 7,132 |
|
| 15.1 | % |
Corporate and Other |
| (55,077 | ) |
| (54,765 | ) |
| (312 | ) |
| (0.6 | )% |
Total segment profit | $ | 781,509 |
| $ | 753,029 |
| $ | 28,480 |
|
| 3.8 | % |
U.S. Networks includes our six national television networks: HGTV, Food Network, Travel Channel, DIY Network, Cooking Channel and Great American Country. Additionally, U.S. Networks includes websites associated with the aforementioned television brands and other internet and mobiledigital businesses serving home, food, travel and other lifestyle-related categories. U.S. Networks also includes our digital content studio, Scripps Networks Lifestyle Studios. We own 100.0 percent of each network,of our networks, with the exception of Food Network and Cooking Channel, of which we own 68.7 percent. Each of our networks is distributed by cable and satellite distributors, telecommunication service providers and certain non-linear providers, such as those providing streaming or on-demand services. U.S. Networks earns revenue primarily from the sale of advertising time and from distribution fees paid by distributors of our content. U.S. Networks also earns revenue from licensing of content to third parties and of brands for consumer products.
Programming expenses, employee costs and marketing and advertising expenses are the primary operating costs of U.S. Networks.
U.S. Networks’ Results of Operations
| Three months ended June 30, |
|
| Six months ended June 30, |
| ||||||||||||||
(in thousands) | 2016 |
| 2015 |
| % Change |
|
| 2016 |
| 2015 |
| % Change |
| ||||||
Segment operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising | $ | 540,979 |
| $ | 496,879 |
|
| 8.9 | % |
| $ | 1,028,264 |
| $ | 925,430 |
|
| 11.1 | % |
Distribution |
| 196,073 |
|
| 203,444 |
|
| (3.6 | )% |
|
| 398,169 |
|
| 401,271 |
|
| (0.8 | )% |
Other |
| 15,269 |
|
| 14,777 |
|
| 3.3 | % |
|
| 28,083 |
|
| 27,303 |
|
| 2.9 | % |
Segment operating revenues |
| 752,321 |
|
| 715,100 |
|
| 5.2 | % |
|
| 1,454,516 |
|
| 1,354,004 |
|
| 7.4 | % |
Segment operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services, excluding depreciation and amortization |
| 211,040 |
|
| 179,050 |
|
| 17.9 | % |
|
| 414,399 |
|
| 363,289 |
|
| 14.1 | % |
Selling, general and administrative |
| 140,142 |
|
| 138,718 |
|
| 1.0 | % |
|
| 279,481 |
|
| 292,879 |
|
| (4.6 | )% |
Segment profit | $ | 401,139 |
| $ | 397,332 |
|
| 1.0 | % |
| $ | 760,636 |
| $ | 697,836 |
|
| 9.0 | % |
Depreciation |
| 12,716 |
|
| 12,848 |
|
| (1.0 | )% |
|
| 26,869 |
|
| 27,560 |
|
| (2.5 | )% |
Amortization |
| 10,022 |
|
| 10,021 |
|
| 0.0 | % |
|
| 20,043 |
|
| 19,961 |
|
| 0.4 | % |
Loss (gain) on disposal of property and equipment |
| - |
|
| 34 |
|
| (100.0 | )% |
|
| 42 |
|
| 3,581 |
|
| (98.8 | )% |
Segment operating income | $ | 378,401 |
| $ | 374,429 |
|
| 1.1 | % |
| $ | 713,682 |
| $ | 646,734 |
|
| 10.4 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental segment information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of affiliates | $ | 9,014 |
| $ | 14,486 |
|
| (37.8 | )% |
| $ | 16,746 |
| $ | 24,507 |
|
| (31.7 | )% |
Program amortization | $ | 185,780 |
| $ | 155,139 |
|
| 19.8 | % |
| $ | 364,856 |
| $ | 314,190 |
|
| 16.1 | % |
Program payments | $ | 193,503 |
| $ | 157,430 |
|
| 22.9 | % |
| $ | 390,258 |
| $ | 353,116 |
|
| 10.5 | % |
Capital expenditures | $ | 8,567 |
| $ | 8,582 |
|
| (0.2 | )% |
| $ | 17,238 |
| $ | 16,251 |
|
| 6.1 | % |
Three Months Ended June 30, 20162017 Compared to the Three Months Ended June 30, 20152016
| Three months ended June 30, |
| ||||||||||
(in thousands) | 2017 |
| 2016 |
| $ Change Fav / (Unfav) |
| % Change Fav / (Unfav) |
| ||||
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Advertising | $ | 552,652 |
| $ | 540,979 |
| $ | 11,673 |
|
| 2.2 | % |
Distribution |
| 211,902 |
|
| 196,073 |
|
| 15,829 |
|
| 8.1 | % |
Other |
| 14,489 |
|
| 15,269 |
|
| (780 | ) |
| (5.1 | )% |
Operating revenues |
| 779,043 |
|
| 752,321 |
|
| 26,722 |
|
| 3.6 | % |
Cost of services, excluding depreciation and amortization |
| 222,790 |
|
| 211,040 |
|
| (11,750 | ) |
| (5.6 | )% |
Selling, general and administrative |
| 157,531 |
|
| 140,142 |
|
| (17,389 | ) |
| (12.4 | )% |
Segment profit |
| 398,722 |
|
| 401,139 |
|
| (2,417 | ) |
| (0.6 | )% |
Depreciation |
| 9,961 |
|
| 12,716 |
|
| 2,755 |
|
| 21.7 | % |
Amortization |
| 9,994 |
|
| 10,022 |
|
| 28 |
|
| 0.3 | % |
Operating income |
| 378,767 |
|
| 378,401 |
|
| 366 |
|
| 0.1 | % |
Interest expense, net |
| (144 | ) |
| (69 | ) |
| (75 | ) |
| (108.7 | )% |
Equity in earnings of affiliates |
| 7,846 |
|
| 9,014 |
|
| (1,168 | ) |
| (13.0 | )% |
Loss on sale of investments |
| — |
|
| (16,373 | ) |
| 16,373 |
|
| 100.0 | % |
Miscellaneous, net |
| 3,481 |
|
| 18,952 |
|
| (15,471 | ) |
| (81.6 | )% |
Income from operations before income taxes | $ | 389,950 |
| $ | 389,925 |
| $ | 25 |
|
| 0.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information: |
|
|
|
|
|
|
|
|
|
|
|
|
Program amortization | $ | 198,135 |
| $ | 185,780 |
| $ | (12,355 | ) |
| (6.7 | )% |
Program payments | $ | 202,443 |
| $ | 193,503 |
| $ | (8,940 | ) |
| (4.6 | )% |
Capital expenditures | $ | 13,212 |
| $ | 8,567 |
| $ | (4,645 | ) |
| (54.2 | )% |
U.S. Networks generated operating revenues of approximately $752.3$779.0 million, and $715.1an increase of $26.7 million, or 3.6 percent, for the three months ended June 30, 2017 compared with the same period in 2016, with growth in both advertising sales and distribution fees.
U.S. Networks operating revenues included a $11.7 million, or 2.2 percent, increase in advertising sales for the three months ended June 30, 2015, respectively, representing 84.32017 compared with the respective period in 2016, primarily driven by strong pricing, partially offset by impressions delivered. U.S. Networks’ advertising sales represented 70.9 percent and 97.771.9 percent of consolidated operating revenues in the respective periods and a $37.2 million, or 5.2 percent, increase year-over-year. Despite the 5.2 percent growth in U.S. Networks’ total operating revenues during the three months ended June 30, 2017 and June 30, 2016, compared with the same period in 2015, the U.S. Networks’ contribution of operating revenues to consolidated operating revenues decreased onrespectively.
Advertising sales growth was supplemented by a percentage basis, primarily driven by the inclusion of TVN, thereby increasing International Networks’ contribution of operating revenues to consolidated operating revenues.
The year-over-year$15.8 million, or 8.1 percent, increase in U.S. Networks’ operating revenues included a $44.1 million, or 8.9 percent, growth in advertising revenues, primarily driven by positive pricing, reflecting strength in the advertising market for our lifestyle brands, coupled with ratings growth at the majority of our networks. Advertising revenues represented 71.9 percent and 69.5 percent of total operating revenues for U.S. Networksdistribution fees for the three months ended June 30, 2016 and 2015, respectively.
Advertising revenue growth was partially offset by a $7.4 million, or 3.6 percent, decrease2017 compared with the respective period in distribution revenues,2016, primarily driven by a one-time rate equalization due to the consolidation of certain distribution agreements, partially offset by negotiated contractual rate increases, and, to a lesser extent, revenues generated from new over-the-top and non-linear entrants, such as those providing streaming or on-demand services.distribution platforms, partially offset by a decrease in the number of subscribers receiving our networks. U.S. Networks’ distribution fees represented 27.2 percent and 26.1 percent of U.S. Networks’ total operating revenues during the three months ended June 30, 2017 and June 30, 2016, respectively.
Cost of services increased $32.0$11.8 million, or 17.95.6 percent, for the three months ended June 30, 20162017 compared with the samerespective period in 2015, reflecting our continued investment2016, primarily driven by investments in the improved quality and variety of programming on our networks.programming. Program amortization represented 52.9 percent and 48.8 percent of U.S. Networks’ operating expenses for the three months ended June 30, 2016 and June 30, 2015, respectively. Cost of services also included $1.3 million of Reorganization costs during the three months ended June 30, 2016 and $0.9 million of costs related to the Restructuring Plan during the same period in 2015.
Selling, general and administrative increased $1.4$12.4 million, or 1.06.7 percent for the three months ended June 30, 2017 compared with the same period in 2016 and represented 49.5 percent and 49.7 percent of U.S. Networks’ total operating expenses during the three months ended June 30, 2017 and June 30, 2016, respectively. Cost of services included $1.3 million of Reorganization costs incurred during the three months ended June 30, 2016.
Selling, general and administrative increased $17.4 million, or 12.4 percent, for the three months ended June 30, 2017 compared with the respective period in 2015. Included in selling,2016, primarily driven by marketing and technology expenses. Selling, general and administrative included $2.4 million of Reorganization costs incurred during the three months ended June 30, 2016.
Loss on sale of investments increased $16.4 million for the three months ended June 30, 2017 compared with the same period in 2016 due to the sale of our interest in a cost method investment in the second quarter of 2016 were $2.4 million of Reorganization costs, partially offset by the timing of certain marketing programs, while $2.2 million of costs related to the Restructuring Plan were incurred in the second quarter of 2015.2016.
U.S. Networks’ Results of Operations
Six monthsMonths Ended June 30, 20162017 Compared to the Six monthsMonths Ended June 30, 20152016
| Six months ended June 30, |
| ||||||||||
(in thousands) | 2017 |
| 2016 |
| $ Change Fav / (Unfav) |
| % Change Fav / (Unfav) |
| ||||
Segment operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Advertising | $ | 1,064,707 |
| $ | 1,028,264 |
| $ | 36,443 |
|
| 3.5 | % |
Distribution |
| 423,042 |
|
| 398,169 |
|
| 24,873 |
|
| 6.2 | % |
Other |
| 28,183 |
|
| 28,083 |
|
| 100 |
|
| 0.4 | % |
Segment operating revenues |
| 1,515,932 |
|
| 1,454,516 |
|
| 61,416 |
|
| 4.2 | % |
Cost of services, excluding depreciation and amortization |
| 428,112 |
|
| 414,399 |
|
| (13,713 | ) |
| (3.3 | )% |
Selling, general and administrative |
| 305,524 |
|
| 279,481 |
|
| (26,043 | ) |
| (9.3 | )% |
Segment profit |
| 782,296 |
|
| 760,636 |
|
| 21,660 |
|
| 2.8 | % |
Depreciation |
| 21,460 |
|
| 26,911 |
|
| 5,451 |
|
| 20.3 | % |
Amortization |
| 19,912 |
|
| 20,043 |
|
| 131 |
|
| 0.7 | % |
Segment operating income |
| 740,924 |
|
| 713,682 |
|
| 27,242 |
|
| 3.8 | % |
Interest expense, net |
| (264 | ) |
| (86 | ) |
| (178 | ) |
| (207.0 | )% |
Equity in earnings of affiliates |
| 13,089 |
|
| 16,746 |
|
| (3,657 | ) |
| (21.8 | )% |
Gain on sale of investments |
| — |
|
| 191,824 |
|
| (191,824 | ) |
| (100.0 | )% |
Miscellaneous, net |
| 5,964 |
|
| 22,440 |
|
| (16,476 | ) |
| (73.4 | )% |
Income from operations before income taxes | $ | 759,713 |
| $ | 944,606 |
| $ | (184,893 | ) |
| (19.6 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental segment information: |
|
|
|
|
|
|
|
|
|
|
|
|
Program amortization | $ | 377,502 |
| $ | 364,856 |
| $ | (12,646 | ) |
| (3.5 | )% |
Program payments | $ | 397,363 |
| $ | 390,258 |
| $ | (7,105 | ) |
| (1.8 | )% |
Capital expenditures | $ | 25,468 |
| $ | 17,238 |
| $ | (8,230 | ) |
| (47.7 | )% |
U.S. Networks generated operating revenues of approximately $1,454.5$1,515.9 million, and $1,354.0an increase of $61.4 million, or 4.2 percent, for the six months ended June 30, 2017 compared with the same period in 2016, with growth in both advertising sales and distribution fees.
U.S. Networks operating revenues included a $36.4 million, or 3.5 percent, increase in advertising sales for the six months ended June 30, 2015, respectively, representing 85.12017 compared with the respective period in 2016, primarily driven by strong pricing, partially offset by impressions delivered. U.S. Networks’ advertising sales represented 70.2 percent and 97.470.7 percent of consolidated operating revenues in the respective periods and a $100.5 million, or 7.4 percent, increase year-over-year. Despite the 7.4 percent growth in U.S. Networks’ total operating revenues during the six months ended June 30, 2017 and June 30, 2016, compared with the same period in 2015, the U.S. Networks’ contribution of operating revenues to consolidated operating revenues decreased onrespectively.
Advertising sales growth was supplemented by a percentage basis, primarily driven by the inclusion of TVN, thereby increasing International Networks’ contribution of operating revenues to consolidated operating revenues.
The year-over-year$24.9 million, or 6.2 percent, increase in U.S. Networks’ operating revenues included a $102.8 million, or 11.1 percent, growth in advertising revenues, primarily driven by positive pricing, reflecting strength in the advertising market for our lifestyle brands, coupled with ratings growth at the majority of our networks. Advertising revenues represented 70.7 percent and 68.3 percent of total operating revenues for U.S. Networksdistribution fees for the six months ended June 30, 2016 and 2015, respectively.
Advertising revenue growth was partially offset by a $3.1 million, or 0.8 percent, decrease2017 compared with the respective period in distribution revenues,2016, primarily driven by a one-time rate equalization due to the consolidation of certain distribution agreements, partially offset by negotiated contractual rate increases, and, to a lesser extent, revenues generated from new over-the-top and non-linear entrants, such as those providing streaming or on-demand services.distribution platforms, partially offset by a decrease in the number of subscribers receiving our networks. U.S. Networks’ distribution fees represented 27.9 percent and 27.4 percent of U.S. Networks’ total operating revenues during the six months ended June 30, 2017 and June 30, 2016, respectively.
Cost of services increased $51.1$13.7 million, or 14.13.3 percent, for the six months ended June 30, 20162017 compared with the samerespective period in 2015, reflecting our continued investment2016, primarily driven by investments in the improved quality and variety of programming on our networks.programming. Program amortization represented 52.6 percent and 47.9 percent of U.S. Networks’ operating expenses for the six months ended June 30, 2016 and June 30, 2015, respectively. Cost of services also included $3.0 million of Reorganization costs during the six months ended June 30, 2016 and $2.4 million of costs related to the Restructuring Plan during the same period in 2015.
Selling, general and administrative decreased $13.4increased $12.6 million, or 4.63.5 percent for the six months ended June 30, 20162017 compared with the respectivesame period in 2015, primarily driven by2016 and represented 48.7 percent and 49.2 percent of U.S. Networks’ total operating expenses during the timingsix months ended June 30, 2017 and June 30, 2016, respectively. Cost of certain marketing programs and $4.0services included $3.0 million of Reorganization costs related to the Restructuring Plan incurred during the six months ended June 30, 2015, partially offset2016.
Selling, general and administrative increased $26.0 million, or 9.3 percent, for the six months ended June 30, 2017 compared with the respective period in 2016, primarily driven by marketing and technology expenses. Selling, general and administrative included $4.5 million of Reorganization costs incurred during the six months ended June 30, 2016.
Gain on sale of investments decreased $191.8 million for the six months ended June 30, 2017 compared with the same period in 2016 primarily due to the sale of our 7.3 percent equity interest in Fox Sports South in the first quarter of 2016 and the sale of a cost method investment in the second quarter of 2016.
U.S. Networks’ Supplemental Information
Three Months Ended June 30, 2017 Compared to the Three Months Ended June 30, 2016
|
| Three months ended June 30, |
|
| Six months ended June 30, |
|
| Three months ended June 30, |
|
| |||||||||||||||||||||||||||||||
(in thousands) |
| 2016 |
|
| 2015 |
|
| % Change |
|
| 2016 |
|
| 2015 |
|
| % Change |
|
| 2017 |
|
| 2016 |
|
| $ Change Fav / (Unfav) |
|
| % Change Fav / (Unfav) |
|
| ||||||||||
Operating revenues by network: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HGTV |
| $ | 282,753 |
|
| $ | 271,784 |
|
|
| 4.0 | % |
| $ | 554,468 |
|
| $ | 509,085 |
|
|
| 8.9 | % |
| $ | 302,064 |
|
| $ | 282,753 |
|
| $ | 19,311 |
|
|
| 6.8 | % |
|
Food Network |
|
| 240,902 |
|
|
| 228,069 |
|
|
| 5.6 | % |
|
| 470,200 |
|
|
| 445,367 |
|
|
| 5.6 | % |
|
| 245,510 |
|
|
| 240,902 |
|
|
| 4,608 |
|
|
| 1.9 | % |
|
Travel Channel |
|
| 85,884 |
|
|
| 81,729 |
|
|
| 5.1 | % |
|
| 166,651 |
|
|
| 157,646 |
|
|
| 5.7 | % |
|
| 85,447 |
|
|
| 85,884 |
|
|
| (437 | ) |
|
| (0.5 | )% |
|
DIY Network |
|
| 46,996 |
|
|
| 47,984 |
|
|
| (2.1 | )% |
|
| 88,509 |
|
|
| 86,374 |
|
|
| 2.5 | % |
|
| 43,883 |
|
|
| 46,996 |
|
|
| (3,113 | ) |
|
| (6.6 | )% |
|
Cooking Channel |
|
| 36,823 |
|
|
| 35,102 |
|
|
| 4.9 | % |
|
| 69,792 |
|
|
| 65,725 |
|
|
| 6.2 | % |
|
| 37,926 |
|
|
| 36,823 |
|
|
| 1,103 |
|
|
| 3.0 | % |
|
Great American Country |
|
| 8,234 |
|
|
| 8,111 |
|
|
| 1.5 | % |
|
| 15,520 |
|
|
| 15,465 |
|
|
| 0.4 | % |
|
| 7,248 |
|
|
| 8,234 |
|
|
| (986 | ) |
|
| (12.0 | )% |
|
Digital Businesses |
|
| 40,916 |
|
|
| 34,336 |
|
|
| 19.2 | % |
|
| 69,888 |
|
|
| 58,710 |
|
|
| 19.0 | % |
|
| 46,680 |
|
|
| 40,916 |
|
|
| 5,764 |
|
|
| 14.1 | % |
|
Other |
|
| 9,943 |
|
|
| 9,220 |
|
|
| 7.8 | % |
|
| 20,103 |
|
|
| 17,372 |
|
|
| 15.7 | % |
|
| 10,414 |
|
|
| 9,943 |
|
|
| 471 |
|
|
| 4.7 | % |
|
Intrasegment eliminations |
|
| (130 | ) |
|
| (1,235 | ) |
|
| (89.5 | )% |
|
| (615 | ) |
|
| (1,740 | ) |
|
| (64.7 | )% |
|
| (129 | ) |
|
| (130 | ) |
|
| 1 |
|
|
| 0.8 | % |
|
Total segment operating revenues |
| $ | 752,321 |
|
| $ | 715,100 |
|
|
| 5.2 | % |
| $ | 1,454,516 |
|
| $ | 1,354,004 |
|
|
| 7.4 | % |
| $ | 779,043 |
|
| $ | 752,321 |
|
| $ | 26,722 |
|
|
| 3.6 | % |
|
U.S. Networks’ Supplemental Information
Six Months Ended June 30, 2017 Compared to the Six Months Ended June 30, 2016
|
| Six months ended June 30, |
| |||||||||||||
(in thousands) |
| 2017 |
|
| 2016 |
|
| $ Change Fav / (Unfav) |
|
| % Change Fav / (Unfav) |
| ||||
Operating revenues by network: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HGTV |
| $ | 588,140 |
|
| $ | 554,468 |
|
| $ | 33,672 |
|
|
| 6.1 | % |
Food Network |
|
| 488,873 |
|
|
| 470,200 |
|
|
| 18,673 |
|
|
| 4.0 | % |
Travel Channel |
|
| 167,712 |
|
|
| 166,651 |
|
|
| 1,061 |
|
|
| 0.6 | % |
DIY Network |
|
| 84,363 |
|
|
| 88,509 |
|
|
| (4,146 | ) |
|
| (4.7 | )% |
Cooking Channel |
|
| 74,516 |
|
|
| 69,792 |
|
|
| 4,724 |
|
|
| 6.8 | % |
Great American Country |
|
| 14,431 |
|
|
| 15,520 |
|
|
| (1,089 | ) |
|
| (7.0 | )% |
Digital |
|
| 76,911 |
|
|
| 69,888 |
|
|
| 7,023 |
|
|
| 10.0 | % |
Other |
|
| 21,615 |
|
|
| 20,103 |
|
|
| 1,512 |
|
|
| 7.5 | % |
Intrasegment eliminations |
|
| (629 | ) |
|
| (615 | ) |
|
| (14 | ) |
|
| (2.3 | )% |
Total segment operating revenues |
| $ | 1,515,932 |
|
| $ | 1,454,516 |
|
| $ | 61,416 |
|
|
| 4.2 | % |
InternationalInternational Networks
International Networks includes the TVN which operates a portfolio of free-to-airnetworks and pay-TV lifestyle and entertainment networks, including TVN, TVN24, TVN Style, TTV, TVN Turbo, TVN24 Biznes i Świat. Also included in TVN is TVN Media, an advertising sales house. Additionally, International Networks includes theother lifestyle-oriented networks available in the UK, EMEA, APAC and Latin America and the Caribbean.
We currently distribute HGTV, DIY, Food Network, AFC, Cooking Channel, Fine Living and Travel Channel brands, as well as the TVN network portfolio, in more than 175 countries and territories around the world. Our networks are broadcast in 29 languages via 36 unique channel feeds reaching approximately 300 million cumulative subscribers. In addition to the broadcast networks, we also license a portion of our programming to other broadcasters around the world.
International Networks earns revenue primarily from the sale of advertising time and from distribution fees paid by distributors of our content.America. International Networks also earns revenue from licensingincludes our 50.0 percent share of content to third parties, commissions on ad salesthe results of UKTV, a general entertainment and sales of merchandise inventory.lifestyle platform in the UK.
Satellite transmission fees, programming expenses, employee costs and marketing and advertising expenses are the primary operating costs of International Networks.
International Networks’ Results of Operations
|
| Three months ended June 30, |
|
| Six months ended June 30, |
| ||||||||||||||||||
(in thousands) |
| 2016 |
|
| 2015 |
|
| $ Change |
|
| 2016 |
|
| 2015 |
|
| $ Change |
| ||||||
Segment operating revenues: |
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|
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Advertising |
| $ | 105,669 |
|
| $ | 6,012 |
|
| $ | 99,657 |
|
| $ | 190,239 |
|
| $ | 12,729 |
|
| $ | 177,510 |
|
Distribution |
|
| 27,378 |
|
|
| 11,773 |
|
|
| 15,605 |
|
|
| 53,350 |
|
|
| 22,954 |
|
|
| 30,396 |
|
Other |
|
| 13,997 |
|
|
| 4,303 |
|
|
| 9,694 |
|
|
| 24,793 |
|
|
| 10,470 |
|
|
| 14,323 |
|
Segment operating revenues |
|
| 147,044 |
|
|
| 22,088 |
|
|
| 124,956 |
|
|
| 268,382 |
|
|
| 46,153 |
|
|
| 222,229 |
|
Segment operating expenses: |
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|
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Cost of services, excluding depreciation and amortization |
|
| 80,666 |
|
|
| 18,734 |
|
|
| 61,932 |
|
|
| 161,724 |
|
|
| 36,089 |
|
|
| 125,635 |
|
Selling, general and administrative |
|
| 29,009 |
|
|
| 13,849 |
|
|
| 15,160 |
|
|
| 59,500 |
|
|
| 26,438 |
|
|
| 33,062 |
|
Segment profit (loss) |
| $ | 37,369 |
|
| $ | (10,495 | ) |
| $ | 47,864 |
|
| $ | 47,158 |
|
| $ | (16,374 | ) |
| $ | 63,532 |
|
Depreciation |
|
| 3,114 |
|
|
| 949 |
|
|
| 2,165 |
|
|
| 6,239 |
|
|
| 2,078 |
|
|
| 4,161 |
|
Amortization |
|
| 15,632 |
|
|
| 1,619 |
|
|
| 14,013 |
|
|
| 36,673 |
|
|
| 3,374 |
|
|
| 33,299 |
|
Loss (gain) on disposal of property and equipment |
|
| - |
|
|
| 9 |
|
|
| (9 | ) |
|
| (284 | ) |
|
| 9 |
|
|
| (293 | ) |
Segment operating income (loss) |
| $ | 18,623 |
|
| $ | (13,072 | ) |
| $ | 31,695 |
|
| $ | 4,530 |
|
| $ | (21,835 | ) |
| $ | 26,365 |
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Supplemental segment information: |
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Equity in earnings of affiliates |
| $ | 12,698 |
|
| $ | 12,804 |
|
| $ | (106 | ) |
| $ | 30,644 |
|
| $ | 21,728 |
|
| $ | 8,916 |
|
Program amortization |
| $ | 41,335 |
|
| $ | 7,111 |
|
| $ | 34,224 |
|
| $ | 85,721 |
|
| $ | 13,082 |
|
| $ | 72,639 |
|
Program payments |
| $ | 37,875 |
|
| $ | 38,656 |
|
| $ | (781 | ) |
| $ | 86,874 |
|
| $ | 43,522 |
|
| $ | 43,352 |
|
Capital expenditures |
| $ | 4,385 |
|
| $ | 496 |
|
| $ | 3,889 |
|
| $ | 7,059 |
|
| $ | 776 |
|
| $ | 6,283 |
|
Three Months Ended June 30, 20162017 Compared to the Three Months Ended June 30, 20152016
| Three months ended June 30, |
|
| ||||||||||
(in thousands) | 2017 |
| 2016 |
| $ Change Fav / (Unfav) |
| % Change Fav / (Unfav) |
|
| ||||
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising | $ | 110,382 |
| $ | 105,669 |
| $ | 4,713 |
|
| 4.5 | % |
|
Distribution |
| 27,783 |
|
| 27,378 |
|
| 405 |
|
| 1.5 | % |
|
Other |
| 15,097 |
|
| 13,997 |
|
| 1,100 |
|
| 7.9 | % |
|
Operating revenues |
| 153,262 |
|
| 147,044 |
|
| 6,218 |
|
| 4.2 | % |
|
Cost of services, excluding depreciation and amortization |
| 83,335 |
|
| 80,666 |
|
| (2,669 | ) |
| (3.3 | )% |
|
Selling, general and administrative |
| 31,147 |
|
| 29,009 |
|
| (2,138 | ) |
| (7.4 | )% |
|
Segment profit |
| 38,780 |
|
| 37,369 |
|
| 1,411 |
|
| 3.8 | % |
|
Depreciation |
| 3,045 |
|
| 3,114 |
|
| 69 |
|
| 2.2 | % |
|
Amortization |
| 15,064 |
|
| 15,632 |
|
| 568 |
|
| 3.6 | % |
|
Operating income |
| 20,671 |
|
| 18,623 |
|
| 2,048 |
|
| 11.0 | % |
|
Interest income (expense), net |
| 206 |
|
| (7,076 | ) |
| 7,282 |
|
| 102.9 | % |
|
Equity in earnings of affiliates |
| 13,128 |
|
| 12,698 |
|
| 430 |
|
| 3.4 | % |
|
Gain on sale of investments |
| 1,416 |
|
| — |
|
| 1,416 |
| NM |
|
| |
Miscellaneous, net |
| 7,896 |
|
| 23,823 |
|
| (15,927 | ) |
| (66.9 | )% |
|
Income from operations before income taxes | $ | 43,317 |
| $ | 48,068 |
| $ | (4,751 | ) |
| (9.9 | )% |
|
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|
Supplemental information: |
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Program amortization | $ | 44,993 |
| $ | 41,335 |
| $ | (3,658 | ) |
| (8.8 | )% |
|
Program payments | $ | 55,484 |
| $ | 37,875 |
| $ | (17,609 | ) |
| (46.5 | )% |
|
Capital expenditures | $ | 7,100 |
| $ | 4,385 |
| $ | (2,715 | ) |
| (61.9 | )% |
|
International Networks generated operating revenues of approximately $147.0$153.3 million, and $22.1an increase of $6.2 million, or 4.2 percent, for the three months ended June 30, 2017 compared with the same period in 2016, with growth in both advertising sales and June 30, 2015, respectively, representing 16.5 percent and 3.0 percent of consolidatedother revenues.
International Networks’ operating revenues in the respective periods andincluded a $125.0$4.7 million, increase year-over-year, primarily driven by the inclusion of TVN. Theor 4.5 percent, increase in International Networks’ contribution of operating revenues to consolidated operating revenues on a percentage basisadvertising sales for the three months ended June 30, 20162017 compared with the samerespective period in 2015 is primarily driven by the inclusion of TVN, thereby increasing2016. International Networks’ contribution of operating revenues to consolidated operating revenues.
The year-over-year increase in International Networks’ operating revenues included a $99.7 million increase in advertising revenues, primarily driven by the inclusion of TVNsales represented 72.0 percent and positive pricing. Advertising revenues represented 71.9 percent and 27.2 percent of International Networks’ total operating revenues for during the three months ended June 30, 2017 and June 30, 2016, respectively.
International NetworksNetworks’ distribution fees represented 18.1 percent and 18.6 percent of International Networks’ total operating revenues during the three months ended June 30, 2017 and June 30, 2016, respectively.
Advertising sales growth was supplemented by a $1.1 million, or 7.9 percent, increase in other revenues for the three months ended June 30, 2016 and 2015, respectively.
Advertising revenue growth was supplemented by a $15.6 million increase2017 compared with the respective period in distribution revenues, also2016, primarily driven by the inclusion of TVN.program licensing and production revenues.
Cost of services increased $61.9$2.7 million, or 3.3 percent, for the three months ended June 30, 20162017 compared with the respective period in 2015, primarily due to the inclusion of TVN.2016. Program amortization represented 37.7increased $3.7 million, or 8.8 percent, and 21.8 percent of International Networks’ operating expenses for the three months ended June 30, 2017 compared with the respective period in 2016 and represented 33.9 percent and 32.2 percent of International Networks’ total operating expenses during the three months ended June 30, 2017 and June 30, 2015,2016, respectively.
Selling, general and administrative increased $15.2$2.1 million, or 7.4 percent, for the three months ended June 30, 20162017 compared with the respective period in 2015, primarily driven by the inclusion2016.
International Networks’ Results of TVN.
Amortization of intangible assets increased $14.0 million for the three months ended June 30, 2016 compared with the same period of 2015, primarily driven by the Acquisition.
Equity in earnings of affiliates decreased $0.1 million for the three months ended June 30, 2016 compared with the respective period in 2015, primarily driven by the inclusion of TVN’s equity investment results.Operations
Six monthsMonths Ended June 30, 20162017 Compared to the Six monthsMonths Ended June 30, 20152016
| Six months ended June 30, |
|
| ||||||||||
(in thousands) | 2017 |
| 2016 |
| $ Change Fav / (Unfav) |
| % Change Fav / (Unfav) |
|
| ||||
Segment operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising | $ | 195,042 |
| $ | 190,239 |
| $ | 4,803 |
|
| 2.5 | % |
|
Distribution |
| 55,023 |
|
| 53,350 |
|
| 1,673 |
|
| 3.1 | % |
|
Other |
| 28,722 |
|
| 24,793 |
|
| 3,929 |
|
| 15.8 | % |
|
Segment operating revenues |
| 278,787 |
|
| 268,382 |
|
| 10,405 |
|
| 3.9 | % |
|
Cost of services, excluding depreciation and amortization |
| 162,669 |
|
| 161,724 |
|
| (945 | ) |
| (0.6 | )% |
|
Selling, general and administrative |
| 61,828 |
|
| 59,500 |
|
| (2,328 | ) |
| (3.9 | )% |
|
Segment profit |
| 54,290 |
|
| 47,158 |
|
| 7,132 |
|
| 15.1 | % |
|
Depreciation |
| 5,917 |
|
| 5,955 |
|
| 38 |
|
| 0.6 | % |
|
Amortization |
| 29,343 |
|
| 36,673 |
|
| 7,330 |
|
| 20.0 | % |
|
Operating income |
| 19,030 |
|
| 4,530 |
|
| 14,500 |
|
| 320.1 | % |
|
Interest income (expense), net |
| 353 |
|
| (13,943 | ) |
| 14,296 |
|
| 102.5 | % |
|
Equity in earnings of affiliates |
| 28,334 |
|
| 30,644 |
|
| (2,310 | ) |
| (7.5 | )% |
|
Gain on sale of investments |
| 1,416 |
|
| — |
|
| 1,416 |
| NM |
|
| |
Miscellaneous, net |
| 27,799 |
|
| 54,880 |
|
| (27,081 | ) |
| (49.3 | )% |
|
Income from operations before income taxes | $ | 76,932 |
| $ | 76,111 |
| $ | 821 |
|
| 1.1 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental segment information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Program amortization | $ | 87,468 |
| $ | 85,721 |
| $ | (1,747 | ) |
| (2.0 | )% |
|
Program payments | $ | 103,858 |
| $ | 86,874 |
| $ | (16,984 | ) |
| (19.6 | )% |
|
Capital expenditures | $ | 14,447 |
| $ | 7,059 |
| $ | (7,388 | ) |
| (104.7 | )% |
|
International Networks generated operating revenues of approximately $268.4$278.8 million, and $46.2an increase of $10.4 million, or 3.9 percent, for the six months ended June 30, 2017 compared with the same period in 2016, with growth in advertising sales, distribution fees and June 30, 2015, respectively, representing 15.7 percent and 3.3 percent of consolidatedother revenues.
International Networks’ operating revenues in the respective periods andincluded a $222.2$4.8 million, increase year-over-year, primarily driven by the inclusion of TVN. Theor 2.5 percent, increase in International Networks’ contribution of operating revenues to consolidated operating revenues on a percentage basisadvertising sales for the six months ended June 30, 20162017 compared with the samerespective period in 2015 is primarily driven by the inclusion of TVN, thereby increasing2016. International Networks’ contribution of operating revenues to consolidated operating revenues.
The year-over-year increase in International Networks’ operating revenues included a $177.5 million increase in advertising revenues, primarily driven by the inclusion of TVNsales represented 70.0 percent and positive pricing. Advertising revenues represented 70.9 percent and 27.6 percent of International Networks’ total operating revenues for International Networksduring the six months ended June 30, 2017 and June 30, 2016, respectively.
Advertising sales growth was supplemented by a $1.7 million, or 3.1 percent, increase in distribution fees for the six months ended June 30, 20162017 compared with the respective period in 2016. International Networks’ distribution fees represented 19.7 percent and 2015,19.9 percent of International Networks’ total operating revenues during the six months ended June 30, 2017 and June 30, 2016, respectively.
Advertising revenuesales and distribution fees growth was further supplemented by a $30.4$3.9 million, or 15.8 percent, increase in distribution fees, also primarily driven by the inclusion of TVN.
Cost of services increased $125.6 millionother revenues for the six months ended June 30, 20162017 compared with the respective period in 2015,2016, primarily due to the inclusiondriven by program licensing and production revenues.
Cost of TVN. Program amortization represented 38.7services increased $0.9 million, or 0.6 percent, and 20.9 percent of International Networks’ operating expenses for the six months ended June 30, 2017 compared with the respective period in 2016. Program amortization increased $1.7 million, or 2.0 percent, for the six months ended June 30, 2017 compared with the respective period in 2016 and represented 33.7 percent and 32.5 percent of International Networks’ total operating expenses during the six months ended June 30, 2017 and June 30, 2015,2016, respectively.
Selling, general and administrative increased $33.1$2.3 million, or 3.9 percent, for the six months ended June 30, 20162017 compared with the respective period in 2015, primarily driven by the inclusion of TVN.
Amortization of intangible assets increased $33.3 million for the six months ended June 30, 2016 compared with the same period in 2015, primarily driven by the inclusion of TVN in 2016.
Equity in earnings of affiliates increased $8.9 million for the six months ended June 30, 2016 compared with the respective period in 2015, primarily driven by the inclusion of TVN’s equity investment results.
Corporate and Other
Corporate and Other includes the results of businesses not separately identified as reportable segments for external financial reporting purposes and will continue to be disclosed separately from the results of U.S. Networks and International Networks. The Company generally does not allocate employee payrollemployee-related corporate overhead costs to its reportable segments, but rather classifies these expenses within Corporate and Other. However, certain corporate costs, including information technology, pension and other employee benefits and other shared service functions, are allocated to our businesses. These allocations are generally amounts agreed upon by management, which may differ from amounts that would be incurred if such services were purchased separately by the businesses.
The Corporate and Other loss includesincluded $0.7 million of TVN transaction and integration expenses and $0.2 million of Reorganization costs incurred during the three months ended June 30, 2016 and $3.7 million of TVN transaction and integration related expenses and $2.2 million of expenses related to the Restructuring Plan during the three months ended June 30, 2015. 2016.
The Corporate and Other loss includesincluded $3.7 million of Reorganization costs and $2.1 million of TVN transaction and integration related expenses incurred during the six months ended June 30, 2016 and $13.9 million of TVN transaction and integration related expenses and $3.9 million of expenses related to the Restructuring Plan during the six months ended June 30, 2015.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Our primary sources of liquidity are cash and cash equivalents on hand, cash flows from operations, available borrowing capacity under our Amended Revolving Credit Facility and access to capital markets. Advertising revenues provided approximatelybetween 70.8 percent and 71.3 percent of consolidated total operating revenues for the year-to-date period,periods of 2017 and 2016, respectively, so cash flow from operating activities can be adversely affected during recessionary periods. Our cash and cash equivalents totaled $185.9$131.6 million at June 30, 20162017 and $223.4$122.9 million at December 31, 2015.2016. Our Amended Revolving Credit Facility permits $900.0 million in aggregate borrowings, with the option to increase up to $1,150.0 million, and expires in March 2020, with the exception of $32.5 million, which expires in March 2019. There were no$500.0 million of outstanding borrowings outstanding under the Amended Revolving Credit Facility atas of June 30, 2016. In the fourth quarter of 2014, we issued $1,000.0 million
aggregate principal amount of Senior Notes whose funds were primarily used to repay the $885.0 million Senior Notes that matured in January 2015. In the second quarter of 2015, we issued $1,500.0 million aggregate principal amount of Senior Notes, whose net proceeds were primarily used to fund the Transactions, and also entered into the $250.0 million Term Loan agreement. 2017.
We were in compliance with all financial covenants as of June 30, 2016.2017.
Our cash flow year-to-date has primarily been used to fund acquisitions and investments, develop new businesses, pay dividends on our common stock and repay debt. We expect cash flow from operating activities in 2016 will2017 to provide sufficient liquidity to fund our normal operations, including repayment of the 2016 Notes.operations.
Cash Flows
A summary of cash sources and uses was as follows:
|
| Six months ended June 30, |
| |||||||||||||
(in thousands) |
| 2017 |
|
| 2016 |
|
| $ Change Fav / (Unfav) |
|
| % Change Fav / (Unfav) |
| ||||
Cash provided by operating activities |
| $ | 502,250 |
|
| $ | 449,807 |
|
| $ | 52,443 |
|
|
| 11.7 | % |
Cash (used in) provided by investing activities |
|
| (38,710 | ) |
|
| 190,550 |
|
|
| (229,260 | ) |
|
| (120.3 | )% |
Cash used in financing activities |
|
| (466,157 | ) |
|
| (671,299 | ) |
|
| 205,142 |
|
|
| 30.6 | % |
Effect of exchange rate of cash and cash equivalents |
|
| 11,237 |
|
|
| (6,579 | ) |
|
| 17,816 |
|
|
| 270.8 | % |
Increase (decrease) in cash and cash equivalents |
|
| 8,620 |
|
|
| (37,521 | ) |
|
| 46,141 |
|
|
| 123.0 | % |
Cash and cash equivalents - beginning of period |
|
| 122,937 |
|
|
| 223,444 |
|
|
| (100,507 | ) |
|
| (45.0 | )% |
Cash and cash equivalents - end of period |
| $ | 131,557 |
|
| $ | 185,923 |
|
| $ | (54,366 | ) |
|
| (29.2 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents decreased $37.5increased $8.6 million forduring the six months ended June 30, 20162017 and increased $262.7decreased $37.5 million during the six months ended June 30, 2015, respectively.2016. Components of these changes are discussed below in more detail.
Operating Activities
Cash provided by operating activities totaled $449.8 million and $385.4$502.3 million for the six months ended June 30, 20162017 and June 30, 2015, respectively.
Net income totaled $573.3$449.8 million for the six months ended June 30, 20162016.
Operating income totaled $703.6 million and $412.2$662.9 million for the six months ended June 30, 2015. Contributing to2017 and June 30, 2016, respectively, with the increase in net income were increased revenues and reduced marketing expenses, partially offset by a $119.3$40.7 million increase in program amortization.primarily driven by operating revenues.
Program payments exceeded program amortization by $47.3 million and $35.5 million for the six months ended June 30, 20162017 and $74.4 million for the six months ended June 30, 2015,2016, respectively, reducing cash provided by operating activities for these periods. Cash provided by operating activities is also impacted by income tax payments and refunds forand interest payments. During the six months ended June 30, 2017, we made income taxestax payments of $161.2 million and interest payments for interest. Duringof $48.7 million, and during the six months ended June 30, 2016, we made income tax payments of $202.6 million and paid interest payments of $52.1 million. During
Investing Activities
Cash used in investing activities totaled $38.7 million for the six months ended June 30, 2015, we made income tax payments of $113.9 million2017, and paid interest of $41.1 million.
Investing Activities
Cashcash provided by investing activities totaled $190.6 million for the six months ended June 30, 2016,2016. Capital expenditures totaled $44.2 million and cash used by investing activities totaled $683.9$24.3 million for the six months ended June 30, 2015. Capital2017 and June 30, 2016, respectively. The increase in capital expenditures totaled $24.3 million and $18.5 million foryear-over-year was driven by investments in technology. During the six months ended June 30, 20162017, we made cost investments in Fubo and June 30, 2015, respectively.Philo, both
of which are over-the-top distribution platforms. During the six months ended June 30, 2016, we received $225.0 million of cash from the sale ofsold our 7.3 percent equity interest in Fox Sports South. During the six months ended June 30, 2015, we placed $652.4 millionSouth and received cash proceeds of cash in escrow to fund the Acquisition. Additionally, during the six months ended June 30, 2015, we received $63.0 million of settlements of derivatives, which were partially offset by a cash outflow of $16.0 million for the premium paid for a call option on Euros to fund the Acquisition.$225.0 million.
Financing Activities
Cash used in financing activities totaled $466.2 million for the six months ended June 30, 2017 and $671.3 million for the six months ended June 30, 2016, and cash provided by financing activities totaled $563.9 million for2016.
During the six months ended June 30, 2015.
In June 2015,2017, we issued $1,500.0borrowed $410.0 million aggregate principal amountand made $385.0 million of Senior Notes comprised of $600.0 million aggregate principal amount of the 2020 Notes, $400.0 million aggregate principal amount of the 2022 Notes and $500.0 million aggregate principal amount of the 2025 Notes. During the second quarter of 2015, we also entered into the $250.0 million Term Loan agreement that matures in 2017.
Therepayments on our Amended Revolving Credit Facility permits $900.0and paid off the Term Loan with a $250.0 million in aggregate borrowings and expires in March 2020, with the exception of $32.5 million which expires March 2019.payment. During the six months ended June 30, 2016, we did not borrow any additional funds, but made repayments totaling $390.0 millionincur borrowings under the Amended Revolving Credit Facility, resulting in no borrowings outstanding under the Amended Revolving Credit Facility at June 30, 2016. During the six months ended June 30 2015, we borrowed $1,015.0but made $390.0 million under the Facility and made repayments of $815.0 million.
As a result of the Acquisition, we assumed the 2020 TVN Notes.
In November 2014, we issued $1,000.0 million aggregate principal amount of Senior Notes comprised of $500.0 million aggregate principal amount of the 2019 Notes and $500.0 million aggregate principal amount of the 2024 Notes. Net proceeds from these Senior Notes were utilized for general corporate purposes including, but not limited to, the repayment of our $885.0 million 3.55% Senior Notes that matured in January 2015. We also have $500.0 million aggregate principal amount of the 2016 Notes.
We have share Repurchase Programs authorized by the Board that permit us to acquire the Company’s Class A Common Shares. During the six months ended June 30, 2016, we did not repurchase any shares. During the six months ended June 30, 2015, we repurchased 4.0 million shares for $288.5 million, including 3.0 million shares repurchased for $216.8 million from Scripps family members. As of June 30, 2016, $1,512.5 million in authorization remains available for repurchase under the Repurchase Programs. All shares repurchased under the Repurchase Programs are retired and returned to authorized and unissued shares. There is no expiration date for the Repurchase Programs, and we are under no commitment or obligation to repurchase any particular amount of Class A Common Shares under the Repurchase Programs.repayments.
We have paid quarterly dividends since our inception as a public company onin July 1, 2008. During the first quarter of 2016,2017, the Board approved an increase in the quarterly dividend rate to $0.25$0.30 per share from $0.23$0.25 per share. Total dividend payments to holders of our Class A Common Shares and Common Voting Shares were $64.7totaled $78.3 million and $59.4$64.7 million for the six months ended June 30, 20162017 and June 30, 2015,2016, respectively. We currently expect that quarterly cash dividends will continue to be paid in the future. However, future dividends are not guaranteed and are subject to our earnings, financial condition and capital requirements.
A non-controlling owner held a 35.0 percent residual interest in the Travel Channel as of December 31, 2015. OnIn February 25, 2016, we acquired the residual interest for cash consideration of $99.0 million.
Pursuant to the terms of the Food Network Partnership agreement, the Partnership is required to distribute available cash to the general partners. Cash distributions to Food Network’s non-controlling interest partner were $125.6$149.7 million and $129.1$125.6 million for the six months ended June 30, 20162017 and June 30, 2015, respectively. We did not have any cash distributions to Travel Channel’s non-controlling interest holder during the six months ended June 30, 2016, and had $6.7 million for the six months ended June 30, 2015, respectively. We expect cash distributions to non-controlling interest owners to approximate $165.0$185.0 million in 2016.total for 2017.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk related to interest rates and foreign currency exchange rates. We use, or expect to use, derivative financial instruments to modifyreduce exposure to risks from fluctuations in interest rates and foreign currency exchange rates.rates and to limit the impact of our earnings and cash flows. In accordance with our policy, we do not use derivative instruments unless there is an underlying exposure, and we do not hold or enter into financial instruments for speculative trading purposes.
Our objectives in managing interest rate risk are to limit the impact of interest rate changes on our commitments, earnings and cash flows, and to reduce overall borrowing costs.
We are subject to interest rate risk associated with our Amended Revolving Credit Facility as borrowings bear interest at LIBOR plus a spread that is determined relative toby our Company’s debt rating. Accordingly, the interest we pay on these borrowings is dependent on interest rate conditions and the timing of our financing needs. The Company issued $1,500.0Aggregate principal amounts of outstanding debt at June 30, 2017 included $1,488.0 million aggregate principal amount of Senior Notes issued in June 2015, $1,000.0which includes the 2020 Notes, the 2022 Notes and the 2025 Notes, and $991.8 million aggregate principal amount of Senior Notes issued in November 2014, which includes the 2019 Notes and $500.0 million aggregate principal amount of Senior Notes in December 2011. We also have the TVN 2020 Notes outstanding.2024 Notes. A 100 basis point increase or decrease in the blended level of interest raterates, respectively, would decrease or increase the total aggregate fair value of the aggregate principal amount of our total combinedall outstanding Senior Notes by approximately $153.6$113.5 million whereas a 100 basis point decrease in the interest rate would increase the fair value of the aggregate principal amount of our total combined Senior Notes by approximately $134.6 million.and $111.8 million, respectively.
The following table presents additional information about market-risk-sensitive financial instruments:
|
| As of June 30, 2016 |
|
| As of December 31, 2015 |
| ||||||||||
(in thousands) |
| Cost |
|
| Fair Value |
|
| Cost |
|
| Fair Value |
| ||||
Financial instruments subject to interest rate risk: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amended Revolving Credit Facility |
| $ | - |
|
| $ | - |
|
| $ | 389,170 |
|
| $ | 389,170 |
|
Term Loan |
|
| 249,863 |
|
|
| 249,863 |
|
|
| 249,129 |
|
|
| 249,129 |
|
2.70% Senior Notes due 2016 |
|
| 499,624 |
|
|
| 503,765 |
|
|
| 499,174 |
|
|
| 504,415 |
|
2.75% Senior Notes due 2019 |
|
| 496,302 |
|
|
| 511,150 |
|
|
| 495,750 |
|
|
| 494,290 |
|
TVN 7.38% Senior Notes due 2020 |
|
| 402,273 |
|
|
| 404,554 |
|
|
| 399,986 |
|
|
| 408,110 |
|
2.80% Senior Notes due 2020 |
|
| 594,524 |
|
|
| 609,858 |
|
|
| 593,796 |
|
|
| 585,558 |
|
3.50% Senior Notes due 2022 |
|
| 395,703 |
|
|
| 414,124 |
|
|
| 395,309 |
|
|
| 388,348 |
|
3.90% Senior Notes due 2024 |
|
| 493,593 |
|
|
| 526,595 |
|
|
| 493,210 |
|
|
| 480,490 |
|
3.95% Senior Notes due 2025 |
|
| 495,056 |
|
|
| 527,685 |
|
|
| 494,748 |
|
|
| 478,475 |
|
Total debt |
| $ | 3,626,938 |
|
| $ | 3,747,594 |
|
| $ | 4,010,272 |
|
| $ | 3,977,985 |
|
|
|
| June 30, 2017 |
|
| December 31, 2016 |
| ||||||||||
(in thousands) | Maturity |
| Net Carrying Amount |
|
| Fair Value |
|
| Net Carrying Amount |
|
| Fair Value |
| ||||
Financial instruments subject to interest rate risk: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amended Revolving Credit Facility | 2019-2020 |
| $ | 500,000 |
|
| $ | 500,000 |
|
| $ | 475,000 |
|
| $ | 475,000 |
|
Term Loan | 2017 |
|
| - |
|
|
| - |
|
|
| 249,932 |
|
|
| 249,932 |
|
2.75% Senior Notes | 2019 |
|
| 497,407 |
|
|
| 505,830 |
|
|
| 496,855 |
|
|
| 506,575 |
|
2.80% Senior Notes | 2020 |
|
| 595,923 |
|
|
| 607,008 |
|
|
| 595,224 |
|
|
| 602,946 |
|
3.50% Senior Notes | 2022 |
|
| 396,429 |
|
|
| 412,216 |
|
|
| 396,065 |
|
|
| 404,784 |
|
3.90% Senior Notes | 2024 |
|
| 494,359 |
|
|
| 518,515 |
|
|
| 493,977 |
|
|
| 507,470 |
|
3.95% Senior Notes | 2025 |
|
| 495,611 |
|
|
| 514,140 |
|
|
| 495,333 |
|
|
| 508,155 |
|
Total debt |
|
| $ | 2,979,729 |
|
| $ | 3,057,709 |
|
| $ | 3,202,386 |
|
| $ | 3,254,862 |
|
We are also subject to interest rate risk associated with the notes receivable acquired in the UKTV investment (see Note 76 – Investments). The notes accrueUKTV Loan, totaling $98.6 million at June 30, 2017 and $93.9 million at December 31, 2016, accrues interest at variable rates related to either the spread over LIBOR or other identified market indices. Because interest on the note receivable is variable, the carrying amount of such note receivable is believed to approximate fair value.
We conduct business in various countries outside the United States, resulting in exposure to movements in foreign currency exchange rates when translating from the local currency to the functional currency (see Note 13-12 - Foreign Exchange Risk ManagementDerivative Financial Instruments).
The Company’s management is responsible for establishing and maintaining adequate internal controls designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. The company’s internal control over financial reporting includes those policies and procedures that:
| 1. | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
| 2. | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and the directors of the Company; and |
| 3. | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error, collusion and the improper overriding of controls by management. Accordingly, even effective internal control can only provide reasonable but not absolute assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal control may vary over time.
The effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) was evaluated as of June 30, 2016.2017. This evaluation was carried out under the supervision of and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures are effective as of June 30, 2016.
There were no changes to the Company’s internal controls over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the three months ended June 30, 2016 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. In making our assessment of changes in internal control over financial reporting, we excluded TVN, as we are currently assessing TVN’s control environment. TVN’s operating revenues for the three and six months ended June 30, 2016 were $120.1 million and $217.9 million, respectively, representing approximately 13.5 percent and 12.7 percent, respectively, of our consolidated operating revenues for the three and six months ended June 30, 2016. TVN’s assets totaled $2,562.1 million, representing approximately 39.3 percent of our consolidated assets at June 30, 2016. 2017.
We are involved in litigation arising in the ordinary course of business, none of which is expected to result in material loss.
A wide range of risks may affect our business and financial results, now and in the future; however, we consider the risks described in our 20152016 Form 10-K to be the most significant.
There were no sales of unregistered equity securities during the quarter for which this report is filed.
We have share Repurchase Programs authorized by the Board that permit us to acquire the Company’s Class A Common Shares.
As of June 30, 2016,2017, $1,512.5 million in authorization remains available for repurchase under the Repurchase Programs. There is no expiration date for the Repurchase Programs, and we are under no commitment or obligation to repurchase any particular amount of Class A Common Shares under the Repurchase Programs.
The following table provides information about Company purchases of We did not purchase any equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act during the quarter ended June 30, 2016:2017.
Period |
| Total Number of Shares Purchased |
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
| ||||
4/1/16 - 4/30/16 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | 1,512,536,943 |
|
5/1/16 - 5/31/16 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,512,536,943 |
|
6/1/16 - 6/30/16 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,512,536,943 |
|
Total |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | 1,512,536,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no defaults upon senior securities during the quarter for which this report is filed.
Not applicable.
None.
The information required by this item is filed as part of this Form 10-Q. See Index of Exhibits to this Form 10-Q.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| SCRIPPS NETWORKS INTERACTIVE, INC. | ||
|
|
|
|
|
Dated: August |
| BY: |
| /s/ Lori A. Hickok |
|
| Lori A. Hickok | ||
|
| Executive Vice President, Chief Financial Officer and Chief | ||
|
| (Principal Financial and Accounting Officer) |
Number and Description of Exhibit
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| |
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| |
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| |
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| |
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31(a) |
| |
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31(b) |
| |
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|
32(a) |
| |
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32(b) |
| |
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|
101.INS |
| XBRL Instance Document |
|
|
|
101.SCH |
| XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB |
| XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase Document |
* | Indicates management contract or compensatory plan, contract or arrangement. |
** | This exhibit is furnished herewith but will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934. |
† | Incorporated by reference to the Scripps Networks Interactive, Inc. Quarterly Report on Form 10-Q, filed May 5, 2017 |
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