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Scripps Networks Interactive reports full year and fourth quarter 2017 operating results

Full Year 2017 Financial Highlights:

  • Record consolidated operating revenues of $3.6 billion, an increase of 4.7%;
  • Consolidated income from operations before income taxes of $1.3 billion, an increase of 2.6%;
  • Consolidated adjusted segment profit(1) of $1.5 billion, an increase of 2.2%;
  • Consolidated net income attributable to Scripps Networks Interactive of $623.9 million, a decrease of 7.4%; and
  • Consolidated adjusted net income(1) attributable to Scripps Networks Interactive of $752.6 million, an increase of 16.9%.

Fourth Quarter 2017 Financial Highlights:

  • Record consolidated operating revenues of $956.1 million, an increase of 7.6%;
  • Consolidated income from operations before income taxes of $325.9 million, an increase of 72.2%;
  • Consolidated adjusted segment profit(1) of $371.1 million, an increase of 9.0%;
  • Consolidated net income attributable to Scripps Networks Interactive of $65.9 million, an increase of 26.5%; and
  • Consolidated adjusted net income(1) attributable to Scripps Networks Interactive of $181.9 million, an increase of 46.2%.

KNOXVILLE, Tenn., Feb. 26, 2018 (GLOBE NEWSWIRE) -- Scripps Networks Interactive, Inc. (Nasdaq:SNI) today reported operating results for the full year and fourth quarter 2017.

In 2017, HGTV was ranked the No. 1 ad-supported cable network for upscale women 25-54 in sales prime for the eleventh consecutive year and was the No. 2 cable network for women 25-54. Food Network finished 2017 as the No. 8 cable network for women 25-54, and Travel Channel delivered a 5% improvement in its adult 25-54 sales prime ratings. TVN, a leading multi-platform media business in Poland, grew its share of audience by 5% for viewers 16-49 in 2017.

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

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

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

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

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

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

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

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

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

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

Fourth Quarter 2017 Segment Results

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

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

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

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

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

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

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

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

Forward-Looking Statements
This press release contains certain forward-looking statements related to the company’s businesses that are based on management’s current expectations. Forward-looking statements are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from the expectations expressed in forward-looking statements, including changes in advertising demand and other economic conditions as well as other reasons described in our Securities and Exchange Commission filings, including those set forth in the Risk Factors section and under the caption entitled “Forward-Looking Statements” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our most recently filed Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. The company undertakes no obligation to publicly update any forward-looking statements to reflect events or circumstances after the date the statement is made.

About Scripps Networks Interactive, Inc.
Scripps Networks Interactive, Inc. (Nasdaq:SNI) is one of the leading developers of engaging lifestyle content in the home, food and travel categories for television, the Internet and emerging platforms. The company's lifestyle media portfolio includes leading TV and entertainment brands HGTV, Food Network, Travel Channel, DIY Network, Cooking Channel and Great American Country. Its digital division Scripps Lifestyle Studios, creates compelling content for online, social and mobile platforms. International operations include TVN, Poland’s premier multi-platform media company; UKTV, an independent commercial joint venture with BBC Worldwide; Asian Food Channel, the first pan-regional TV food network in Asia; and lifestyle channel Fine Living Network. The company’s global networks and websites reach millions of consumers across North and South America, Asia-Pacific, Europe, the Middle East and Africa. Scripps Networks Interactive is headquartered in Knoxville, Tenn. For more information, please visit http://www.scrippsnetworksinteractive.com.

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

Participants in the Solicitation
Scripps and its directors and executive officers, and Discovery and its directors and executive officers, may be deemed to be participants in the solicitation of proxies from the holders of Scripps Class A common shares and common voting shares in respect of the proposed merger. Information about the directors and executive officers of Scripps is set forth in Scripps’ proxy statement for its 2017 annual meeting of shareholders, which was filed with the SEC on March 29, 2017. Information about the directors and executive officers of Discovery is set forth Discovery’s proxy statement for its 2017 annual meeting of shareholders, which was filed with the SEC on April 5, 2017. Investors may obtain additional information regarding the interest of such participants by reading the joint proxy statement/prospectus regarding the proposed merger.

Contact: Scripps Networks Interactive, Inc.
Investors: Mike Gallentine, 865-560-4473, MGallentine@scrippsnetworks.com;
Media: Dylan Jones, 865-560-5068, DJones@scrippsnetworks.com; or
Kristin Alm, 865-560-4316, KAlm@scrippsnetworks.com

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

SCRIPPS NETWORKS INTERACTIVE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and par value amounts)
December 31,
2017 2016
ASSETS
Current assets:
Cash and cash equivalents $130,357 $122,937
Accounts receivable, net of allowances: 2017 - $13,162; 2016 - $26,118 914,812 808,133
Programs and program licenses, net 634,588 591,378
Prepaid expenses and other current assets 68,763 135,651
Total current assets 1,748,520 1,658,099
Programs and program licenses, net (less current portion) 474,714 500,022
Investments 740,810 699,481
Property and equipment, net of accumulated depreciation: 2017 - $370,826; 2016 - $354,435 333,068 286,399
Goodwill, net 1,819,693 1,642,169
Intangible assets, net 1,109,672 1,092,682
Deferred income taxes 104,859 175,291
Other non-current assets 190,344 146,151
Total Assets $6,521,680 $6,200,294
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $48,149 $42,223
Accrued liabilities 189,656 152,480
Employee compensation and benefits 102,327 123,506
Program rights payable 85,004 70,403
Deferred revenue 148,134 77,987
Current portion of debt 249,932
Total current liabilities 573,270 716,531
Debt (less current portion) 2,522,005 2,952,454
Other non-current liabilities 315,217 302,881
Total liabilities 3,410,492 3,971,866
Commitments and contingencies (Note 20)
Shareholders' equity:
Scripps Networks Interactive ("SNI") shareholders’ equity:
Preferred stock, $0.01 par - authorized: 25,000,000 shares; none outstanding
Common stock, $0.01 par:
Class A Common Shares - authorized: 240,000,000 shares; issued and outstanding: 2017 - 96,204,627 shares; 2016 - 95,491,477 shares 962 954
Common Voting Shares - authorized: 60,000,000 shares; issued and outstanding: 2017 - 33,850,481 shares; 2016 - 33,850,481 shares 339 339
Total common stock 1,301 1,293
Additional paid-in capital 1,448,723 1,390,411
Retained earnings 1,341,974 871,766
Accumulated other comprehensive loss (13,809) (363,701)
SNI shareholders’ equity 2,778,189 1,899,769
Non-controlling interest (Note 17) 332,999 328,659
Total equity 3,111,188 2,228,428
Total Liabilities and Equity $6,521,680 $6,200,294

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

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

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

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

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

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

Consolidated segment profit (loss), consolidated adjusted segment profit (loss), adjusted net income (loss), adjusted net income (loss) per diluted share and free cash flow are non-GAAP measures and should be considered in addition to, but not as a substitute for, income (loss) from operations before income taxes, net income (loss), net income (loss) per diluted share, cash flow from operating activities and other measures of financial performance reported in accordance with GAAP. Since consolidated segment profit (loss), consolidated adjusted segment profit (loss), adjusted net income (loss), adjusted net income (loss) per diluted share and free cash flow are not measures of financial performance calculated in accordance with GAAP, these non-GAAP measures may not be comparable to similar measures with similar titles used by other companies. Supplemental schedules providing a reconciliation of the non-GAAP measure to its respective most comparable financial measure in accordance with GAAP are included within this press release on the following pages.

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

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

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

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

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

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

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

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

Source:Scripps Networks Interactive, Inc