Discovery Communications Reports Third Quarter 2011 Results

SILVER SPRING, Md., Nov. 1, 2011 /PRNewswire/ --

Third Quarter 2011 Financial Highlights:

  • Revenues increased 18% to $1,095 million
  • Adjusted OIBDA increased 15% to $479 million
  • Net income from continuing operations increased to $238 million
  • Repurchased 9.8 million shares at an average price of $36.30 per share for an aggregate purchase price of $355 million

Discovery Communications, Inc. ("Discovery" or the "Company") (NASDAQ: DISCA, DISCB, DISCK) today reported financial results for the third quarter ended September 30, 2011.  

David Zaslav, Discovery's President and Chief Executive Officer said, "The strength of Discovery's brands and the value of our content to consumers, distributors and advertisers alike were further demonstrated in our third quarter financial results.  The appeal of our programming allowed us to continue to take advantage of the sustained health of the global ad market and further leverage existing and emerging distribution platforms worldwide.  The breadth of our global distribution enables us to capitalize on the increasing penetration of traditional distribution models, while the diversity and appeal of our content allows us to strategically leverage evolving delivery methods.   We remain focused on generating sustained financial results while thoughtfully investing in our brands and platforms so that we can take advantage of new and existing distribution opportunities around the globe."

Third quarter revenues of $1,095 million increased $169 million, or 18%, over the third quarter a year ago, led by 19% growth at U.S. Networks and 19% growth at International Networks.  Adjusted Operating Income Before Depreciation and Amortization(1) ("OIBDA") grew 15% to $479 million, driven by a 9% increase at U.S. Networks and a 20% increase at International Networks.  The domestic results benefitted from significant additional licensing revenues under an extended and expanded licensing agreement.

Third quarter net income from continuing operations available to Discovery Communications, Inc. stockholders of $238 million ($0.59 per diluted share) increased $77 million compared to $161 million ($0.37 per diluted share) for the third quarter a year ago.  The current quarter results reflect the strong operating performance partially offset by higher taxes.

Free cash flow was $314 million for the third quarter, a decrease of $32 million from the third quarter of 2010, as the increased operating performance was more than offset by higher long-term incentive compensation and tax payments, as well as lower working capital.  Free cash flow is defined as cash provided by operating activities less acquisitions of property and equipment.  

(1) See the definition of Adjusted Operating Income Before Depreciation and Amortization on page 4.

SEGMENT RESULTS


(dollars in millions)

Three Months Ended September 30,


Nine Months Ended September 30,



2011



2010


Change



2011



2010


Change













Revenues:
















  U.S. Networks

$

695


$

585


19%


$

1,942


$

1,751


11%

  International Networks


363



304


19%



1,054



893


18%

  Education and Other


37



38


(3%)



117



108


8%

  Corporate and Eliminations




(1)


NM





6


NM

Total Revenues

$

1,095


$

926


18%


$

3,113


$

2,758


13%

















Adjusted OIBDA:
















  U.S. Networks

$

378


$

346


9%


$

1,107


$

1,018


9%

  International Networks


156



130


20%



473



384


23%

  Education and Other


3



1


200%



16



7


129%

  Corporate and Eliminations


(58)



(59)


2%



(180)



(171)


(5%)

Total Adjusted OIBDA

$

479


$

418


15%


$

1,416


$

1,238


14%




















U.S. Networks


(dollars in millions)

Three Months Ended September 30,


Nine Months Ended September 30,



2011



2010


Change



2011



2010


Change













Revenues:
















  Distribution

$

350


$

264


33%


$

898


$

790


14%

  Advertising


322



304


6%



973



899


8%

  Other


23



17


35%



71



62


15%

Total Revenues

$

695


$

585


19%


$

1,942


$

1,751


11%

















Adjusted OIBDA

$

378


$

346


9%


$

1,107


$

1,018


9%

















Adjusted OIBDA Margin


54%



59%





57%



58%






















U.S. Networks' revenues in the third quarter of 2011 increased 19% to $695 million primarily driven by distribution and advertising revenue growth.  Distribution revenue grew 33% largely from $77 million of additional licensing revenue driven by the delivery of selected library titles under an extended and expanded licensing agreement.  The current quarter results also included higher rates and subscriber growth primarily from networks carried on the digital tier, partially offset by $4 million due to the absence of Discovery Health following its contribution into the OWN joint venture on January 1, 2011. Advertising revenue increased 6% due to increased pricing and higher sellouts, partially offset by the absence of $15 million due to the removal of Discovery Health.  Excluding the additional revenue in the current year from the expanded licensing agreement, as well as Discovery Health from the 2010 results, advertising revenues grew 11% and distribution revenues grew 5% compared with the third quarter a year ago. 

Adjusted OIBDA increased 9% to $378 million primarily reflecting the 19% revenue growth partially offset by 33% higher operating expenses, which included an additional $24 million of content impairments versus the third quarter a year ago and $11 million in expenses associated with the expanded licensing agreement.  Excluding the higher content impairment charges and expenses associated with the expanded licensing agreement in the current year, as well as Discovery Health from the 2010 results, Adjusted OIBDA was in-line with a year ago as the revenue growth was offset by increased operating expenses primarily due to higher content amortization and marketing costs.

International Networks


(dollars in millions)

Three Months Ended September 30,


Nine Months Ended September 30,



2011



2010


Change



2011



2010


Change













Revenues:
















  Distribution

$

230


$

192


20%


$

665


$

573


16%

  Advertising


120



98


22%



354



286


24%

  Other


13



14


(7%)



35



34


3%

Total Revenues

$

363


$

304


19%


$

1,054


$

893


18%

















Adjusted OIBDA

$

156


$

130


20%


$

473


$

384


23%

















Adjusted OIBDA Margin


43%



43%





45%



43%






















International Networks' revenues for the third quarter increased 19% to $363 million primarily led by distribution revenue growth of 20% and advertising revenue growth of 22%.  Excluding the impact of foreign currency fluctuations, revenues increased 12% led by 13% distribution revenue growth, mainly from increased subscribers across all regions.  Advertising revenue in local currency terms was up 16% during the third quarter primarily from higher pricing across all regions, as well as expansion of feeds across Western Europe, Asia-Pacific and CEEMEA.

Adjusted OIBDA increased 20% to $156 million reflecting the 19% revenue growth, partially offset by a 19% increase in operating expenses.  Excluding the impact of foreign currency, Adjusted OIBDA increased 20% as the 12% revenue growth was partially offset by a 7% increase in operating expenses primarily due to higher content amortization and sales commissions.

Education and Other


(dollars in millions)

Three Months Ended September 30,


Nine Months Ended September 30,



2011



2010


Change



2011



2010


Change













Revenues

$

37


$

38


(3%)


$

117


$

108


8%

















Adjusted OIBDA

$

3


$

1


200%


$

16


$

7


129%

















Adjusted OIBDA Margin


8%



3%





14%



6%






















Education and Other third quarter revenues decreased $1 million, as increased Education revenue from growth in corporate partnerships and higher streaming volumes was offset by lower revenue from the Creative Sounds Services business.  Adjusted OIBDA increased $2 million compared to the third quarter of 2010 from a decrease in content expense and sales commissions.    

STOCK REPURCHASE

During the quarter, the Company pursuant to its existing stock repurchase program repurchased 9.79 million shares of its Series C common stock at an average price of $36.30 per share for an aggregate purchase price of approximately $355 million.  

From October 1, 2011 through October 31, 2011, the Company repurchased 2.71 million shares of its Series C common stock for approximately $101 million.

The Company has repurchased 25.86 million shares of Series C common stock under its $2.0 billion stock repurchase plan to date at an aggregate price of approximately $938 million.  Under the stock repurchase program, management is authorized to purchase shares from time to time through open market purchases at prevailing prices or privately negotiated transactions, subject to market conditions and other factors.

OTHER ITEMS

The Company has expanded the components of distribution revenue reported in its financial statements to include content arrangements and other subscription services for content.  Accordingly, prior period financial information has been reclassified so that the basis of the presentation is consistent with that of the 2011 financial information.  

FULL YEAR 2011 OUTLOOK

For the full year ending December 31, 2011, Discovery Communications, Inc. expects total revenue between $4,175 million and $4,250 million, Adjusted OIBDA between $1,925 million and $1,975 million, and net income available to Discovery Communications, Inc. stockholders of $1,025 million to $1,075 million.  Our outlook incorporates current foreign exchange rates for revenues and expenses and the current share price for mark-to-market stock-based compensation calculations.

NON-GAAP FINANCIAL MEASURES

Adjusted OIBDA and Free Cash Flow

In addition to the results prepared in accordance with U.S. generally accepted accounting principles ("GAAP") provided in this release, the Company has presented Adjusted OIBDA and free cash flow.  The Company evaluates the operating performance of its segments based on financial measures such as revenues and adjusted operating income before depreciation and amortization ("Adjusted OIBDA"). Adjusted OIBDA is defined as revenues less costs of revenues and selling, general and administrative expenses excluding: (i) mark-to-market stock-based compensation, (ii) depreciation and amortization, (iii) amortization of deferred launch incentives, (iv) exit and restructuring charges, (v) certain impairment charges, and (vi) gains (losses) on business and asset dispositions. The Company uses this measure to assess operating results and performance of its segments, perform analytical comparisons, identify strategies to improve performance and allocate resources to each segment.  The Company believes Adjusted OIBDA is relevant to investors because it allows them to analyze the operating performance of each segment using the same metric management uses and also provides investors a measure to analyze the operating performance of each segment against historical data. The Company excludes mark-to-market stock-based compensation, exit and restructuring charges, certain impairment charges, and gains (losses) on business and asset dispositions from the calculation of Adjusted OIBDA due to their volatility or non-recurring nature. The Company also excludes depreciation of fixed assets and amortization of intangible assets and deferred launch incentive, as these amounts do not represent cash payments in the current reporting period.

The Company defines free cash flow as cash provided by operating activities less acquisitions of property and equipment.  The Company uses free cash flow as it believes it is an important indicator for management and investors of the Company's liquidity, including its ability to reduce debt, make strategic investments and return capital to stockholders.

Adjusted OIBDA and free cash flow are non-GAAP measures, and should be considered in addition to, but not as a substitute for, operating income, net income, cash flows provided by operating activities and other measures of financial performance reported in accordance with GAAP. Please review the supplemental financial schedules beginning on page 9 for reconciliations to GAAP measures.

Conference Call Information

Discovery Communications, Inc. will host a conference call today at 4:30 p.m. ET to discuss its third quarter results.  To listen to the call, visit http://www.discoverycommunications.com or dial 1-866-713-8565 inside the U.S. and 1-617-597-5324 outside of the U.S., using the following passcode: 30540780.

Cautionary Statement Concerning Forward-Looking Statements

This press release contains certain forward-looking statements based on current expectations, forecasts and assumptions that involve risks and uncertainties.  These statements are based on information available to the Company as of the date hereof, and the Company's actual results could differ materially from those stated or implied, due to risks and uncertainties associated with its business, which include the risk factors disclosed in its Annual Report on Form 10-K filed with the SEC on February 18, 2011. Forward-looking statements include statements regarding the Company's expectations, beliefs, intentions or strategies regarding the future, and can be identified by forward-looking words such as "anticipate," "believe," "could," "continue," "estimate," "expect," "intend," "may," "should," "will" and "would" or similar words.  Forward-looking statements in this release include, without limitation, the full year 2011 outlook and plans for stock repurchases.   The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

DISCOVERY COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited; in millions, except per share amounts)



Three Months Ended


Nine Months Ended


September 30,


September 30,



2011



2010



2011



2010













Revenues:












Distribution

$

580


$

456


$

1,563


$

1,363

Advertising


442



402



1,328



1,185

Other


73



68



222



210

Total revenues


1,095



926



3,113



2,758













Costs and expenses:












   Costs of revenues, excluding depreciation and amortization


342



261



903



782

   Selling, general and administrative


295



306



864



894

   Depreciation and amortization


30



32



90



98

   Restructuring and impairment charges


2



15



7



18

   Gains on dispositions






(129)



Total costs and expenses


669



614



1,735



1,792













Operating income


426



312



1,378



966













Interest expense, net


(56)



(49)



(154)



(155)

Loss on extinguishment of debt








(136)

Other expense, net


(5)



(16)



(10)



(57)













Income before income taxes


365



247



1,214



618

Provision for income taxes


(127)



(83)



(417)



(171)













Income from continuing operations, net of taxes


238



164



797



447

(Loss) income from discontinued operations, net of taxes


(1)



25



(1)



25













Net income


237



189



796



472

Net income attributable to noncontrolling interests




(3)





(10)

Net income attributable to Discovery Communications, Inc.


237



186



796



462

Stock dividends to preferred interests








(1)













Net income available to Discovery Communications, Inc. stockholders

$

237


$

186


$

796


$

461













Income per share from continuing operations available to Discovery Communications, Inc. stockholders:












Basic

$

0.60


$

0.38


$

1.97


$

1.03

Diluted

$

0.59


$

0.37


$

1.95


$

1.01













(Loss) income per share from discontinued operations available to Discovery Communications, Inc. stockholders:












Basic

$

0.00


$

0.06


$

0.00


$

0.06

Diluted

$

0.00


$

0.06


$

0.00


$

0.06













Net income per share available to Discovery Communications, Inc. stockholders:












Basic

$

0.60


$

0.44


$

1.97


$

1.08

Diluted

$

0.59


$

0.43


$

1.95


$

1.07

Weighted average shares outstanding:












Basic


398



426



404



425

Diluted


401



431



408



431




DISCOVERY COMMUNICATIONS, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited; in millions)







September 30,


December 31,


2011


2010






ASSETS






Current assets:






Cash and cash equivalents

$

1,032


$

466

Receivables, net


976



880

Content rights, net


83



83

Deferred income taxes


53



81

Prepaid expenses and other current assets


155



225

Total current assets


2,299



1,735







Noncurrent content rights, net


1,293



1,245

Property and equipment, net


371



399

Goodwill


6,299



6,434

Intangible assets, net


577



605

Investments


816



455

Other noncurrent assets


146



146

Total assets

$

11,801


$

11,019







LIABILITIES AND EQUITY






Current liabilities:






Accounts payable

$

48


$

87

Accrued liabilities


438



393

Deferred revenues


123



114

Current portion of stock-based compensation liabilities


40



118

Current portion of long-term debt


20



20

Other current liabilities


38



53

Total current liabilities


707



785







Long-term debt


4,229



3,598

Deferred income taxes


354



304

Other noncurrent liabilities


108



99

Total liabilities


5,398



4,786

Commitments and contingencies












Equity:






Preferred stock


2



2

Common stock


3



3

Additional paid-in capital


6,460



6,358

Treasury stock, at cost: 23 and 3 Series C common shares at 2011 and 2010, respectively


(837)



(105)

Retained earnings


796



               —

Accumulated other comprehensive loss


(22)



(33)

   Total Discovery Communications, Inc. stockholders' equity


6,402



6,225

   Noncontrolling interests


1



8

Total equity


6,403



6,233

Total liabilities and equity

$

11,801


$

11,019




DISCOVERY COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited; in millions)



Nine Months Ended September 30,



2011



2010







OPERATING ACTIVITIES






Net income

$

796


$

472

Adjustments to reconcile net income to cash provided by operating activities:






Content expense


623



526

Intangible impairment charges




11

Stock-based compensation


70



153

Depreciation and amortization


90



100

Gains on dispositions


(129)



(12)

Deferred income tax expense (benefit)


71



(89)

Noncash portion of loss on extinguishment of debt




12

Other noncash expenses, net


48



46

   Changes in operating assets and liabilities:






  Receivables, net


(127)



(41)

  Content rights


(653)



(558)

  Accounts payable and accrued liabilities


8



(8)

  Stock-based compensation liabilities


(107)



(128)

  Income tax receivable


91



(11)

  Other, net


(21)



(28)

Cash provided by operating activities


760



445







INVESTING ACTIVITIES






Purchases of property and equipment


(42)



(29)

Proceeds from dispositions, net




24

Business acquisitions, net of cash acquired




(38)

Investments in and advances to equity method investees


(93)



(71)

Cash used in investing activities


(135)



(114)







FINANCING ACTIVITIES






Borrowings from long term debt, net of discounts and issuance costs


639



2,970

Principal repayments of long-term debt




(2,883)

Principal repayments of capital lease obligations


(16)



(8)

Repurchases of common stock


(732)



(38)

Cash distributions to noncontrolling interests


(7)



(21)

Proceeds from stock option exercises


43



27

Excess tax benefits from stock-based compensation


18



9

Cash (used in) provided by financing activities


(55)



56







Effect of exchange rate changes on cash and cash equivalents


(4)



6







NET CHANGE IN CASH AND CASH EQUIVALENTS


566



393

Cash and cash equivalents, beginning of period


466



623

CASH AND CASH EQUIVALENTS, END OF PERIOD

$

1,032


$

1,016




DISCOVERY COMMUNICATIONS, INC.

SUPPLEMENTAL FINANCIAL DATA

RECONCILIATION OF ADJUSTED OPERATING INCOME BEFORE

DEPRECIATION AND AMORTIZATION

(unaudited; in millions)



Three Months Ended September 30, 2011


Adjusted

Operating

Income Before

Depreciation and

Amortization

Depreciation

and

Amortization

Amortization of

Deferred Launch
Incentives

Mark-to-Market

Stock-Based

Compensation

Other (a)

Operating

Income








U.S. Networks

$   378

$    (4)

$    (3)

$      —

$      —

$   371

International Networks

156

(11)

(10)

135

Education and Other

3

(1)

2

Corporate and Eliminations

(58)

(14)

(8)

(2)

(82)

      Total

$   479

$  (30)

$  (13)

$    (8)

$    (2)

$   426






Three Months Ended September 30, 2010


Adjusted

Operating

Income Before

Depreciation and

Amortization



Depreciation

and

Amortization

Amortization of

Deferred Launch
Incentives

Mark-to-Market

Stock-Based

Compensation

Other (a)

Operating

Income








U.S. Networks

$   346

$    (5)

$    (2)

$      —

$      —

$   339

International Networks

130

(10)

(9)

(3)

108

Education and Other

1

(2)

(11)

(12)

Corporate and Eliminations

(59)

(15)

(48)

(1)

(123)

      Total

$   418

$  (32)

$  (11)

$    (48)

$    (15)

$   312


(a)  For the three months ended September 30, 2011, amount represents restructuring charges of $2 million. For the three months ended
September 30, 2010, amounts represent asset impairments of $11 million and restructuring charges of $4 million.  



DISCOVERY COMMUNICATIONS, INC.

SUPPLEMENTAL FINANCIAL DATA

RECONCILIATION OF ADJUSTED OPERATING INCOME BEFORE

DEPRECIATION AND AMORTIZATION

(unaudited; in millions)



Nine Months Ended September 30, 2011


Adjusted

Operating

Income Before

Depreciation and

Amortization

Depreciation

and

Amortization

Amortization of

Deferred Launch
Incentives

Mark-to-Market

Stock-Based

Compensation

Other (a)

Operating

Income








U.S. Networks

$  1,107

$  (12)

$     (7)

$     —

$  126

$  1,214

International Networks

473

(33)

(32)

(2)

406

Education and Other

16

(4)

12

Corporate and Eliminations

(180)

(41)

(31)

(2)

(254)

      Total

$  1,416

$  (90)

$  (39)

$  (31)

$  122

$  1,378






Nine Months Ended September 30, 2010


Adjusted

Operating

Income Before

Depreciation and

Amortization



Depreciation

and

Amortization

Amortization of

Deferred Launch
Incentives

Mark-to-Market

Stock-Based

Compensation

Other (a)

Operating

Income








U.S. Networks

$  1,018

$  (16)

$     (6)

$     —

$      —

$     996

International Networks

384

(29)

(26)

(6)

323

Education and Other

7

(5)

(11)

(9)

Corporate and Eliminations

(171)

(48)

(124)

(1)

(344)

      Total

$  1,238

$  (98)

$  (32)

$  (124)

$  (18)

$     966


(a)  For the nine months ended September 30, 2011 amounts represent a pre-tax gain of $129 million as a result of contributing Discovery
Health to the OWN joint venture and restructuring charges of $7 million.  For the nine months ended September 30, 2010 amounts
represent asset impairments of $11 million and restructuring charges of $7 million.



DISCOVERY COMMUNICATIONS, INC.

SUPPLEMENTAL FINANCIAL DATA

(unaudited; in millions)



CALCULATION OF FREE CASH FLOW



Three Months Ended September 30,


Nine Months Ended September 30,


2011


2010


Change


2011


2010


Change



































Cash provided by operating activities

$

329


$

355


$

(26)


$

760


$

445


$

315

Acquisition of property and equipment


(15)



(9)



(6)



(42)



(29)



(13)

Free cash flow

$

314


$

346


$

(32)


$

718


$

416


$

302




RECONCILIATION OF 2011 OUTLOOK TO GAAP MEASURES




Full Year 2011

Net income available to Discovery Communications, Inc. stockholders


$

1,025

To

$

1,075

Interest expense, net



210

To


205

Depreciation and amortization



125

To


115

Other expense, including amortization of deferred launch incentives, mark-to-market stock-based
compensation, asset impairment, exit and restructuring costs, gains (losses) on business
disposition, gains (losses) on sale of securities, equity earnings (losses) in unconsolidated
affiliates, unrealized and realized gains (losses) from derivatives, income tax expense, net loss
(income) attributable to noncontrolling interests, and stock dividends to preferred interests



565

To


580

Adjusted OIBDA


$

1,925

To

$

1,975




NET INCOME AVAILABLE TO DISCOVERY COMMUNICATIONS, INC. STOCKHOLDERS



Three Months
Ended September 30,

Nine Months

Ended September 30,


2011

2010

2011

2010






Income from continuing operations, net of taxes

$                     238

$                     164

$                      797

$                 447

Net income attributable to noncontrolling interests

(3)

(10)

Stock dividends to preferred interests

(1)






Net income from continuing operations available to Discovery Communications, Inc. stockholders

238

161

797

436

(Loss) income from discontinued operations, net of taxes

(1)

25

(1)

25






Net income available to Discovery Communications, Inc. stockholders

$                     237

$                     186

$                      796

$                 461









DISCOVERY COMMUNICATIONS, INC.

SUPPLEMENTAL FINANCIAL DATA

SELECTED FINANCIAL DETAIL

(unaudited; in millions)


BORROWINGS



September 30, 2011

3.70% Senior Notes, semi-annual interest, due June 2015

$

850

5.625% Senior Notes, semi-annual interest, due August 2019


500

5.05% Senior Notes, semi-annual interest, due June 2020


1,300

4.375% Senior Notes, semi-annual interest, due June 2021


650

6.35% Senior Notes, semi-annual interest, due June 2040


850

Capital lease obligations


110

Total long-term debt


4,260

Unamortized discount


(11)

Long-term debt, net


4,249

Current portion of long-term debt


(20)

Noncurrent portion of long-term debt

$

4,229





STOCK-BASED COMPENSATION



September 30, 2011


Long-Term

Incentive Plans


Total Units
Outstanding
(in millions)


Weighted

Average

Grant Price


Vested Units
Outstanding
(in millions)


Weighted

Average

Grant Price












Discovery Appreciation Plan


6.8


$

30.28


0.1


$

23.08












Stock Appreciation Rights


0.1



26.84


——  



——












Stock Options


13.4



21.41


4.3



17.15












Performance-based Restricted Stock Units


1.6



35.31


——



——












Service-based Restricted Stock Units


0.8



35.16


——  



——

     Total Stock-based Compensation Plans


22.7


$

25.56


4.4


$

17.28



























SHARE COUNT ROLL FORWARD


Common


Preferred


Total

(Basic shares, in millions)







Total shares outstanding as of December 31, 2010


283.76


127.46


411.22

 Shares repurchased


(20.16)


——


(20.16)

 Shares issued – stock option exercises


2.60


——


2.60

Total shares outstanding as of September 30, 2011


266.20


127.46


393.66




SOURCE Discovery Communications



RELATED LINKS
http://www.discovery.com

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