Scripps Networks Interactive, Inc. - FORM 8-K - EX-99.1

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8-K - FORM 8-K - Scripps Networks Interactive, Inc.	y02695e8vk.htm

Exhibit 99.1

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF SNI

The following tables present SNI’s unaudited pro forma consolidated and combined financial information and should be read in conjunction with the material captioned “Management’s Discussion and Analysis of Results of Operations and Financial Condition” in SNI’s quarterly report on Form 10-Q for the quarterly period ended September 30, 2009 and in SNI’s current report on Form 8-K filed December 3, 2009, and SNI’s historical combined financial statements and the related notes thereto.

The unaudited pro forma consolidated balance sheet data as of September 30, 2009, gives effect to the consummation of the Transaction as if it had occurred on September 30, 2009. The unaudited pro forma consolidated and combined results of operations data for the nine months ended September 30, 2009 and for the year ended December 31, 2008, gives effect to the consummation of the Transaction as if it occurred on January 1, 2008. The unaudited interim pro forma consolidated financial statements have been prepared on a basis consistent with the audited combined financial statements and, in the opinion of management, include all adjustments (including normal recurring adjustments) necessary for a fair presentation of such data. The results for the interim periods are not necessarily indicative of results for a full year.

The unaudited pro forma consolidated information is for illustrative and informational purposes only and is not intended to represent, or be indicative of, what SNI’s results of operations or financial position would have been had the Transaction occurred on the dates indicated. The unaudited pro forma condensed combined financial information also should not be considered representative of SNI’s future financial position or results of operations.

Unaudited Pro Forma Consolidated and Combined Results of Operations Data for the Nine Months Ended September 30, 2009


				Travel			Pro Forma
	SNI(10)			Channel(1)			Adjustments			Pro Forma SNI
	(In thousands, except per share data)

Operating Revenues:
Advertising	$	726,606		$	88,215		$	—		$	814,821
Affiliate fees, net		240,174			69,981			—			310,155
Referral fees		120,627			—			—			120,627
Other		24,102			4,808			—			28,910

Total operating revenues		1,111,509			163,004			—			1,274,513

Operating Expenses:
Employee compensation and benefits		185,374			18,980			—			204,354
Program and program licenses		229,043			34,549			—			263,592
Marketing and advertising		100,915			19,320			—			120,235
Other costs and expenses		146,547			45,021			—			191,568

Total costs and expenses		661,879			117,870			—			779,749

Depreciation, Amortization and Losses:
Depreciation and amortization of intangible assets		58,570			24,595			5,122	(2)		88,287
Impairment of goodwill and other intangible assets		—			304,764			(304,764	)(3)		—
Losses on disposal of property, plant and equipment		967			—			—			967

Total depreciation, amortization and losses		59,537			329,359			(299,642	)		89,254

Operating Income (loss)		390,093			(284,225	)		299,642			405,510
Interest expense		(1,021	)		(527	)		(26,025	)(4)		(27,573	)
Equity in earnings of affiliates		12,834			—			—			12,834
Miscellaneous, net		(721	)		—			—			(721	)

Income (loss) from continuing operations before income taxes		401,185			(284,752	)		273,617			390,050
Provision (benefit) for income taxes		130,449			2,940			(5,725	)(5)		127,664

Income (loss) from continuing operations, net of tax		270,736			(287,692	)		279,342			262,386
Loss from discontinued operations, net of tax		(1,885	)		—			—			(1,885	)

Net income (loss)		268,851			(287,692	)		279,342			260,501
Less: net income (loss) attributable to noncontrolling interests		63,879			—			(3,897	)(6)		59,982

Net income (loss) attributable to SNI	$	204,972		$	(287,692	)	$	283,239		$	200,519

Weighted-average diluted shares outstanding		164,760			—			—			164,760
Net income per diluted share	$	1.24		$	—		$	—		$	1.22

See notes to unaudited pro forma consolidated and combined financial statements.

Unaudited Pro Forma Consolidated and Combined Results of Operations Data for the Year Ended December 31, 2008


				Travel			Pro Forma
	SNI(10)			Channel(1)			Adjustments			Pro Forma SNI
	(In thousands, except per share data)

Operating Revenues:
Advertising	$	1,007,631		$	118,061		$	—		$	1,125,692
Affiliate fees, net		277,370			85,029			—			362,399
Referral fees		235,097			—			—			235,097
Other		30,601			6,791			—			37,392

Total operating revenues		1,550,699			209,881			—			1,760,580

Operating Expenses:
Employee compensation and benefits		254,839			23,446			—			278,285
Program and program licenses		279,767			36,007			—			315,774
Marketing and advertising		174,246			20,250			—			194,496
Other costs and expenses		196,432			60,566			—			256,998

Total costs and expenses		905,284			140,269			—			1,045,553

Depreciation, Amortization and Losses:
Depreciation and amortization of intangible assets		66,337			21,140			12,859	(2)		100,336
Impairment of goodwill and other intangible assets		243,700			—			—			243,700
Losses on disposal of property, plant and equipment		788			—			—			788

Total depreciation, amortization and losses		310,825			21,140			12,859			344,824

Operating Income		334,590			48,472			(12,859	)		370,203
Interest expense		(14,207	)		(474	)		(34,700	)(4)		(49,381	)
Equity in earnings of affiliates		15,498			—			—			15,498
Losses on repurchases of debt		(26,380	)		—			—			(26,380	)
Miscellaneous, net		804			—			—			804

Income from continuing operations before income taxes		310,305			47,998			(47,559	)		310,744
Provision for income taxes		194,710			18,179			(18,230	)(5)		194,659

Income from continuing operations, net of tax		115,595			29,819			(29,329	)		116,085
Income from discontinued operations, net of tax		353			—			—			353

Net income		115,948			29,819			(29,329	)		116,438
Less: net income attributable to noncontrolling interests		92,391			—			154	(6)		92,545

Net income attributable to SNI	$	23,557		$	29,819		$	(29,483	)	$	23,893

Weighted-average diluted shares outstanding		164,131			—			—			164,131
Net income per diluted share	$	.14		$	—		$	—		$	.15

See notes to unaudited pro forma consolidated and combined financial statements.

Unaudited Pro Forma Consolidated Balance Sheet Data as of September 30, 2009


			Travel			Pro Forma
	SNI(10)		Channel(1)			Adjustments			Pro Forma SNI
	(In thousands)

ASSETS
Current assets:
Cash and cash equivalents	$	11,120	$	—		$	7,500	(11)	$	18,620
							(7,300	)(7)
Short-term investments		162,883		—			(21,000	)(8)		134,583
Accounts and notes receivable		331,689		47,760			—			379,449
Programs and program licenses		236,443		3,279			—			239,722
Assets of discontinued operations		23,256		—			—			23,256
Other current assets		15,697		1,187			—			16,884

Total current assets		781,088		52,226			(20,800	)		812,514

Investments		43,222		—			—			43,222
Property, plant and equipment, net		207,072		33,507			—			240,579
							(406,389	) (9e)
Goodwill		424,213		406,389			457,763	(9f)		881,976
Other intangible assets, net		90,017		571,905			(71,905	)(9c)		590,017
Programs and program licenses (less current portion)		222,172		101,942			—			324,114
Unamortized network distribution incentives		80,283		—			—			80,283
Other non-current assets		17,794		631			7,300	(7)		25,725

Total Assets	$	1,865,861	$	1,166,600		$	(34,031	)	$	2,998,430


LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	6,720	$	9,170		$	—		$	15,890
Program rights payable		17,111		8,107			—			25,218
Customer deposits and unearned revenue		14,682		2,902			—			17,584
Accrued liabilities:
Employee compensation and benefits liability		33,996		7,938			(5,594	)(9b)		36,340
Accrued marketing and advertising costs		10,133		217			—			10,350
Liabilities of discontinued operations		8,464		—			—			8,464
Other accrued liabilities		49,844		8,000			—			57,844

Total current liabilities		140,950		36,334			(5,594	)		171,690

Deferred income taxes		123,544		217,059			(92,297	)(9d)		248,306
Long-term debt		—		—			885,000	(4)		885,000
Other liabilities (less current portion)		119,420		15,567			—			134,987

Total liabilities		383,914		268,960			787,109			1,439,983

Redeemable noncontrolling interest		5,200		—			97,500			102,700

Equity:
SNI shareholders’ equity:
Preferred stock, $.01 par — authorized: 25,000,000 shares; none outstanding
Common stock, $.01 par:
Class A		1,293		—			—			1,293
Voting		363		—			—			363

Total		1,656		—			—			1,656
Additional paid-in capital		1,257,919		1,140,334			(1,140,334	)(9a)		1,257,919
							(21,000	)(8)
Retained earnings (deficit)		47,192		(242,694	)		242,694	(9a)		26,192
Accumulated other comprehensive income		36,916		—			—			36,916

Total SNI shareholders’ equity		1,343,683		897,640			(918,640	)		1,322,683
Noncontrolling interests		133,064		—			—			133,064

Total equity		1,476,747		897,640			(918,640	)		1,455,747

Total Liabilities and Equity	$	1,865,861	$	1,166,600		$	(34,031	)	$	2,998,430

See the notes to SNI’s consolidated financial statements.


(1)		See the notes to Travel Channel’s combined financial statements. Certain reclassifications have been made to the presentation of the historical Travel Channel combined financial statements to conform to the presentation used in the unaudited pro forma financial information.

(2)		Represents an incremental increase in intangible asset amortization expense resulting from the fair value adjustments to Travel Channel’s intangible assets (see note 9) and the conforming of intangible asset amortization accounting policies.

(3)		Represents the reversal of the goodwill impairment charge recorded in Travel Channel’s historical financial statements because historical goodwill will be eliminated during the allocation of the consideration (see note 9).

(4)		Represents the issuance of the notes offered hereby and the related estimated interest expense. Interest expense was calculated assuming a 3.75% interest rate on the notes and $7.3 million of issuance costs amortizing over the 5-year term of the notes.

(5)		Income tax effects of the pro forma adjustments are reflected at SNI’s best estimate of statutory income tax rates for all tax jurisdictions.

(6)		Represents CCI’s 35% interest of both Travel Channel’s historical operations and the related pro forma adjustments.

(7)		Represents estimated debt issuance costs.

(8)		Represents estimated transaction and other closing/financing costs associated with the Transaction. These costs have not been included in the pro forma results of operations as they are non-recurring in nature.

(9)		SNI has not completed an assessment of the fair value of assets and liabilities of Travel Channel and the related business integration plans. The table below represents a preliminary allocation of the total consideration to Travel Channel’s tangible and intangible assets and liabilities based on management’s preliminary estimate of their respective fair value as of the date of the Transaction.




	(In thousands)

Travel Channel historical capital	$	897,640		9a
LTIP liability not assumed		5,594		9b
Adjustment to fair value of identifiable intangible assets		(71,905	)	9c
Deferred tax impact of purchase accounting treatment		92,297		9d
Elimination of Travel Channel historical goodwill		(406,389	)	9e
Residual goodwill created from the Transaction		457,763		9f

Total Transaction value	$	975,000


		Upon completion of the fair value assessment, SNI anticipates that the ultimate purchase price allocation may differ from the preliminary assessment outlined above. Any changes to the initial estimates of the fair value of the assets and liabilities will be allocated to goodwill.


(10)		See the notes to SNI’s consolidated and combined financial statements.

(11)		Represents the assumed amount of indebtedness ($885 million) less the cash to be distributed to Cox TMI ($877.5 million).

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