Attached files
EXHIBIT 99.2
UNAUDITED PRO FORMA FINANCIAL INFORMATION OF SNI
On December 15, 2009, SNI acquired a 65% controlling interest in the Travel Channel. The transaction was accounted for under the purchase method of accounting in accordance with the Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 805, formerly known as Statement of Financial Accounting Standards No. 141(R), “Business Combinations.” Under the purchase method of accounting, the total value of the transaction is allocated based upon the estimated fair value of Travel Channel’s tangible and intangible assets and liabilities. Management has made a preliminary allocation of the purchase price based on various estimates of the respective fair values. A final determination of these estimated fair values will be based on the actual tangible and intangible assets and liabilities of Travel Channel that existed as of the date of completion of the transaction.
The following tables present SNI’s unaudited pro forma combined financial information. The unaudited pro forma combined 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 combined results of operations data for the nine months ended September 30, 2009 and for the year ended December 31, 2008, give effect to the consummation of the transaction as if it occurred on January 1, 2008. The unaudited interim pro forma combined financial statements, 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 combined 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 combined financial information also should not be considered representative of SNI’s future financial position or results of operations.
Unaudited Pro Forma Combined Results of Operations Data for the Nine Months
Ended September 30, 2009
| (in thousands, except per share data) |
SNI | Travel Channel(1) |
Pro Forma Adjustments |
Pro Forma SNI |
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| Operating Revenues: |
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| Advertising |
$ | 726,606 | $ | 88,215 | $ | $ | 814,821 | |||||||||
| Network 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: |
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| Depreciation and amortization of intangible assets |
58,570 | 24,595 | 16,968 | (2) | 100,133 | |||||||||||
| Write-down of goodwill and other intangible assets |
492,458 | (492,458 | )(3) | |||||||||||||
| Losses on disposal of property, plant and equipment |
967 | 967 | ||||||||||||||
| Total depreciation, amortization, and losses |
59,537 | 517,053 | (475,490 | ) | 101,100 | |||||||||||
| Operating income (loss) |
390,093 | (471,919 | ) | 475,490 | 393,664 | |||||||||||
| Interest expense |
(1,021 | ) | (527 | ) | (24,599 | )(4) | (26,147 | ) | ||||||||
| Equity in earnings of affiliates |
12,834 | 12,834 | ||||||||||||||
| Miscellaneous, net |
(721 | ) | (721 | ) | ||||||||||||
| Income (loss) from continuing operations before income taxes |
401,185 | (472,446 | ) | 450,891 | 379,630 | |||||||||||
| Provision (benefit) for income taxes |
130,449 | (20,965 | ) | 15,586 | (5) | 125,070 | ||||||||||
| Income (loss) from continuing operations, net of tax |
270,736 | (451,481 | ) | 435,305 | 254,560 | |||||||||||
| Loss from discontinued operations, net of tax |
(1,885 | ) | (1,885 | ) | ||||||||||||
| Net income (loss) |
268,851 | (451,481 | ) | 435,305 | 252,675 | |||||||||||
| Less: net income (loss) attributable to noncontrolling interests |
63,879 | (7,544 | )(6) | 56,335 | ||||||||||||
| Net income (loss) attributable to SNI |
$ | 204,972 | $ | (451,481 | ) | $ | 442,849 | $ | 196,340 | |||||||
| Weighted average diluted shares outstanding |
164,760 | 164,760 | ||||||||||||||
| Net income attributable to SNI common shareholders |
$ | 1.24 | $ | 1.19 | ||||||||||||
Unaudited Pro Forma Combined Results of Operations Data for the Year
Ended December 31, 2008
| (in thousands, except per share data) |
SNI | Travel Channel(1) |
Pro Forma Adjustments |
Pro Forma SNI |
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| Operating Revenues: |
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| Advertising |
$ | 1,007,631 | $ | 118,061 | $ | $ | 1,125,692 | |||||||||
| Network 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: |
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| Depreciation and amortization of intangible assets |
66,337 | 21,140 | 28,617 | (2) | 116,094 | |||||||||||
| Write-down 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 | 28,617 | 360,582 | ||||||||||||
| Operating income (loss) |
334,590 | 48,472 | (28,617 | ) | 354,445 | |||||||||||
| Interest expense |
(14,207 | ) | (474 | ) | (32,798 | )(4) | (47,479 | ) | ||||||||
| Equity in earnings of affiliates |
15,498 | 15,498 | ||||||||||||||
| Losses on repurchases of debt |
(26,380 | ) | (26,380 | ) | ||||||||||||
| Miscellaneous, net |
804 | 804 | ||||||||||||||
| Income (loss) from continuing operations before income taxes |
310,305 | 47,998 | (61,415 | ) | 296,888 | |||||||||||
| Provision (benefit) for income taxes |
194,710 | 18,179 | (21,527 | )(5) | 191,362 | |||||||||||
| Income (loss) from continuing operations, net of tax |
115,595 | 29,819 | (39,888 | ) | 105,526 | |||||||||||
| Income from discontinued operations, net of tax |
353 | 353 | ||||||||||||||
| Net income (loss) |
115,948 | 29,819 | (39,888 | ) | 105,879 | |||||||||||
| Less: net income (loss) attributable to noncontrolling interests |
92,391 | (4,696 | )(6) | 87,695 | ||||||||||||
| Net income (loss) attributable to SNI |
$ | 23,557 | $ | 29,819 | $ | (35,192 | ) | $ | 18,184 | |||||||
| Weighted average diluted shares outstanding |
164,131 | 164,131 | ||||||||||||||
| Net income attributable to SNI common shareholders |
$ | .14 | $ | .11 | ||||||||||||
Unaudited Pro Forma Combined Balance Sheet Data as of September 30, 2009
| (in thousands, except per share data) |
SNI | Travel Channel(1) |
Pro Forma Adjustments |
Pro Forma SNI | ||||||||||
| ASSETS |
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| Current assets: |
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| Cash and cash equivalents |
$ | 11,120 | $ | $ | (242 | )(9) | $ | 10,878 | ||||||
| Short-term investments |
162,883 | (22,296 | )(8) | 140,587 | ||||||||||
| Accounts and notes receivable |
331,689 | 47,760 | 379,449 | |||||||||||
| 45,874 | (11) | |||||||||||||
| Programs and program licenses |
236,443 | 3,279 | (9,641 | )(10d) | 275,955 | |||||||||
| Assets of discontinued operations |
23,256 | 23,256 | ||||||||||||
| Other current assets |
15,697 | 1,187 | 16,884 | |||||||||||
| Total current assets |
781,088 | 52,226 | 13,695 | 847,009 | ||||||||||
| Investments |
43,222 | 43,222 | ||||||||||||
| Property, plant and equipment, net |
207,072 | 33,507 | (16,696 | )(10b) | 223,883 | |||||||||
| (276,277 | )(10h) | |||||||||||||
| Goodwill |
424,213 | 276,277 | 252,038 | (10i) | 676,251 | |||||||||
| Other intangible assets, net |
90,017 | 514,323 | 83,934 | (10c) | 688,274 | |||||||||
| (45,874 | )(11) | |||||||||||||
| Programs and program licenses (less current portion) |
222,172 | 101,942 | (7,338 | )(10d) | 270,902 | |||||||||
| Unamortized network distribution incentives |
80,283 | 80,283 | ||||||||||||
| Other non-current assets |
17,794 | 631 | 6,981 | (7) | 25,406 | |||||||||
| Total Assets |
$ | 1,865,861 | $ | 978,906 | $ | 10,463 | $ | 2,855,230 | ||||||
| LIABILITIES AND EQUITY |
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| Current liabilities: |
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| 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 | |||||||||||
| Employee compensation and benefits liability |
33,996 | 7,938 | (5,594 | )(10e) | 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 | (1,716 | )(10g) | 56,128 | |||||||||
| Total current liabilities |
140,950 | 36,334 | (7,310 | ) | 169,974 | |||||||||
| Deferred income taxes |
123,544 | 193,154 | (193,154 | )(10f) | 123,544 | |||||||||
| Long-term debt |
884,239 | (4) | 884,239 | |||||||||||
| Other liabilities (less current portion) |
119,420 | 15,567 | (14,665 | )(10g) | 120,322 | |||||||||
| Total liabilities |
383,914 | 245,055 | 669,110 | 1,298,079 | ||||||||||
| Redeemable noncontrolling interests |
5,200 | 97,500 | 102,700 | |||||||||||
| Equity: |
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| SNI shareholders’ equity: |
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| Preferred stock, $.01 par |
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| 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 | )(10a) | 1,257,919 | |||||||||
| (22,296 | )(8) | |||||||||||||
| Retained earnings (deficit) |
47,192 | (406,483 | ) | 406,483 | (10a) | 24,896 | ||||||||
| Accumulated other comprehensive income |
36,916 | 36,916 | ||||||||||||
| Total SNI shareholders’ equity |
1,343,683 | 733,851 | (756,147 | ) | 1,321,387 | |||||||||
| Noncontrolling interests |
133,064 | 133,064 | ||||||||||||
| Total equity |
1,476,747 | 733,851 | (756,147 | ) | 1,454,451 | |||||||||
| Total Liabilities and Equity |
$ | 1,865,861 | $ | 978,906 | $ | 10,463 | $ | 2,855,230 | ||||||
| (1) | 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 contained herein. |
| (2) | Represents an incremental increase in intangible asset amortization expense resulting from the fair value adjustments to Travel’s intangible assets (see note 10) 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 10). |
| (4) | Represents the issuance of 3.55% Senior Notes due 2015 at a price equal to 99.914% of the principal amount and the related interest expense. Interest expense was calculated using the 3.55% interest rate payable on the notes and $7.0 million of debt 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 Cox TMI’s 35% interest of both Travel Channel’s historical operations and the related pro forma adjustments. |
| (7) | Represents debt issuance costs incurred upon the issuance of the Senior Notes (see note 4). |
| (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) | Represents the net cash impact from the issuance of the Senior Notes ($884.2 million) less the cash distributed to Cox ($877.5 million) less cash withheld for the payment of underwriter fees ($5.3 million) and additional cash paid for debt issuance costs ($1.7 million). |
| (10) | The table below represents a preliminary allocation of the total consideration to Travel Channel’s tangible and intangible assets and liabilities based on SNI management’s preliminary estimate of the respective fair value as of the September 30, 2009 pro forma balance sheet date (in thousands). |
| Travel Channel historical capital |
$ | 733,851 | 10a | |||
| Reclassification of capital lease asset to operating lease |
(16,696 | ) | 10b | |||
| Adjustment of identifiable intangible assets to fair value |
83,934 | 10c | ||||
| Adjustment of programs and program licenses to fair value |
(16,979 | ) | 10d | |||
| Long-term incentive plan liability not assumed |
5,594 | 10e | ||||
| Deferred tax impact of purchase accounting treatment |
193,154 | 10f | ||||
| Reclassification of capital lease obligation to operating lease |
16,381 | 10g | ||||
| Elimination of Travel Channel historical goodwill |
(276,277 | ) | 10h | |||
| Residual goodwill created from the transaction |
252,038 | 10i | ||||
| 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.
| (11) | Represents the conforming of accounting policies related to the current/non-current presentation of program assets. |