Discovery Communications Reports Second Quarter 2011 Results and Announces $1 Billion Increase to Share Repurchase Program

Aug 04, 2011, 07:00 ET from Discovery Communications, Inc.

SILVER SPRING, Md., Aug. 4, 2011 /PRNewswire/ --

Second Quarter 2011 Financial Highlights:

  • Revenues increased 11% to $1,067 million
  • Adjusted OIBDA increased 12% to $510 million
  • Net income increased to $254 million (up 20% excluding one-time prior year items)
  • Free Cash Flow increased to $198 million
  • Repurchased 5.6 million shares for an aggregate purchase price of $210 million

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

(Logo:  http://photos.prnewswire.com/prnh/20080918/NETH035LOGO )

David Zaslav, Discovery's President and Chief Executive Officer said, "Discovery continues to deliver strong financial results, particularly across our unique international platform, as the depth and breadth of our content assets have enabled the company to capitalize on the sustained ad market strength worldwide as well as take advantage of the evolution of pay-tv across the globe.  Our growth this past quarter was achieved despite continued strategic investments to further our competitive advantage both domestically and internationally.  Bolstering our flagship networks, building additional growth assets across the company and leveraging the unparalleled distribution platform we built over the last 25 years remain our top priorities, and we are focused on doing so while delivering sustained financial results and returning additional capital to our shareholders."

Second quarter revenues of $1,067 million increased $104 million, or 11%, over the second quarter a year ago, led by 20% growth at International Networks and 6% growth at U.S. Networks.  Adjusted Operating Income Before Depreciation and Amortization (1) ("OIBDA") grew 12% to $510 million, driven by a 31% increase at International Networks and a 4% increase at U.S. Networks.  Adjusted OIBDA margin for the second quarter increased to 48% from 47% in the second quarter of 2010.

Second quarter net income from continuing operations available to Discovery Communications, Inc. stockholders of $254 million ($0.62 per diluted share) increased $148 million compared to $106 million ($0.25 per diluted share) for the second quarter a year ago.  The current quarter results reflect the strong operating performance, while the prior year's quarter includes losses from the early extinguishment of debt and termination of interest rate swaps.  Excluding these items, net income for the quarter increased $43 million (2).

Free cash flow was $198 million for the second quarter, an increase of $242 million from the second quarter of 2010, due to increased operating performance and lower tax and stock compensation payments as well as $138 million of payments in the prior year for the early extinguishment of debt and termination of interest rate swaps.  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.

(2) See net income reconciliation for one-time items on page 11.

SEGMENT RESULTS

(dollars in millions)

Three Months Ended June 30,

Six Months Ended June 30,

2011

2010

Change

2011

2010

Change

Revenues:

  U.S. Networks

$

660

$

620

6%

$

1,247

$

1,166

7%

  International Networks

368

306

20%

691

589

17%

  Education and Other

39

33

18%

80

70

14%

  Corporate and Eliminations

4

NM

7

NM

Total Revenues

$

1,067

$

963

11%

$

2,018

$

1,832

10%

Adjusted OIBDA:

  U.S. Networks

$

395

$

379

4%

$

729

$

672

8%

  International Networks

173

132

31%

317

254

25%

  Education and Other

5

1

500%

13

6

117%

  Corporate and Eliminations

(63)

(57)

(11%)

(122)

(112)

(9%)

Total Adjusted OIBDA

$

510

$

455

12%

$

937

$

820

14%

U.S. Networks

(dollars in millions)

Three Months Ended June 30,

Six Months Ended June 30,

2011

2010

Change

2011

2010

Change

Revenues:

  Distribution

$

273

$

263

4%

$

547

$

522

5%

  Advertising

361

329

10%

651

595

9%

  Other

26

28

(7%)

49

49

Total Revenues

$

660

$

620

6%

$

1,247

$

1,166

7%

Adjusted OIBDA

$

395

$

379

4%

$

729

$

672

8%

Adjusted OIBDA Margin

60%

61%

58%

58%

U.S. Networks' revenues in the second quarter of 2011 increased 6% to $660 million primarily driven by advertising and distribution revenue growth.  Advertising revenue increased 10% due to increased pricing and higher sellouts, as well as $8 million from non-recurring revenue items, partially offset by the absence of $17 million due to the removal of Discovery Health following its contribution into the OWN joint venture on January 1, 2011.  Distribution revenue grew 4% largely from higher rates and subscriber growth primarily from networks carried on the digital tier, partially offset by $3 million due to the absence of Discovery Health.  Excluding Discovery Health from the 2010 results and non-recurring revenue items, advertising revenues grew 13% and distribution revenues grew 6% compared with the second quarter a year ago.  

Adjusted OIBDA increased 4% to $395 million primarily reflecting the 6% revenue growth.  Excluding Discovery Health from the 2010 results, Adjusted OIBDA increased 7%.  Operating expenses for the quarter increased 10% primarily due to higher content amortization.  

International Networks

(dollars in millions)

Three Months Ended June 30,

Six Months Ended June 30,

2011

2010

Change

2011

2010

Change

Revenues:

  Distribution

$

220

$

186

18%

$

426

$

372

15%

  Advertising

132

106

25%

234

188

24%

  Other

16

14

14%

31

29

7%

Total Revenues

$

368

$

306

20%

$

691

$

589

17%

Adjusted OIBDA

$

173

$

132

31%

$

317

$

254

25%

Adjusted OIBDA Margin

47%

43%

46%

43%

International Networks' revenues for the second quarter increased 20% to $368 million primarily led by distribution revenue growth of 18% and advertising revenue growth of 25%.  Excluding the impact of foreign currency fluctuations, revenues increased 14% led by 12% distribution revenue growth, mainly from increased subscribers globally and higher rates and subscribers in Latin America.  Advertising revenue in local currency terms was up 17% during the second quarter primarily from higher pricing and sellouts across all regions.

Adjusted OIBDA increased 31% to $173 million reflecting the 20% revenue growth partially offset by a 13% increase in operating expenses.  Excluding the impact of foreign currency, Adjusted OIBDA increased 17% as the 14% revenue growth was partially offset by a 12% increase in operating expenses primarily due to higher content amortization and sales commissions as well as increased personnel costs.  

Education and Other

(dollars in millions)

Three Months Ended June 30,

Six Months Ended June 30,

2011

2010

Change

2011

2010

Change

Revenues

$

39

$

33

18%

$

80

$

70

14%

Adjusted OIBDA

$

5

$

1

500%

$

13

$

6

117%

Adjusted OIBDA Margin

13%

3%

16%

9%

Education and Other second quarter revenues increased 18% to $39 million, mainly reflecting increased Education revenue from higher streaming volumes.  Adjusted OIBDA increased $4 million compared to the second quarter of 2010 primarily from a revenue increase at Education.  

Corporate and Eliminations

Adjusted OIBDA decreased $6 million when compared to the second quarter a year ago primarily due to increased stock-based compensation expense.

STOCK REPURCHASE

During the quarter, the Company, pursuant to its existing stock repurchase program repurchased 5.64 million shares of its Series C common stock at an average price of $37.27 per share for an aggregate purchase price of approximately $210 million.  

From July 1, 2011 through August 3, 2011, the Company repurchased 3.45 million shares of its Series C common stock for approximately $127 million.

The Company has repurchased 16.81 million shares of Series C common stock under its $1.0 billion stock repurchase plan to date at an aggregate price of approximately $609 million.  Additionally, the Company's Board of Directors has approved a $1.0 billion increase to the existing stock repurchase program.  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

In June 2011, the Company completed the issuance of $650 million 4.375% Senior Notes due June 2021.  The Company intends to use the net proceeds for general corporate purposes.

FULL YEAR 2011 OUTLOOK

For the full year ending December 31, 2011, Discovery Communications, Inc. expects total revenue between $4,075 million and $4,175 million, Adjusted OIBDA between $1,875 million and $1,950 million, and net income available to Discovery Communications, Inc. stockholders of $1,000 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 8:30 a.m. EDT to discuss its second quarter results.  To listen to the call, visit http://www.discoverycommunications.com or dial 1-888-873-4896 inside the U.S. and 1-617-213-8850 outside of the U.S., using the following passcode: 56019852.

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

Six Months Ended

June 30,

June 30,

2011

2010

2011

2010

Revenues:

Distribution

$

493

$

449

$

973

$

894

Advertising

494

435

886

783

Other

80

79

159

155

Total revenues

1,067

963

2,018

1,832

Costs of revenues, excluding depreciation and amortization

288

254

561

521

Selling, general and administrative

300

304

569

588

Depreciation and amortization

30

33

60

66

Restructuring charges

4

5

3

Gains on dispositions

(129)

622

591

1,066

1,178

Operating income

445

372

952

654

Interest expense, net

(49)

(48)

(98)

(106)

Loss on extinguishment of debt

(136)

(136)

Other income (expense), net

2

(37)

(5)

(41)

Income before income taxes

398

151

849

371

Provision for income taxes

(144)

(41)

(290)

(88)

Net income

254

110

559

283

Less net income attributable to noncontrolling interests

(3)

(7)

Net income attributable to Discovery Communications, Inc.

254

107

559

276

Stock dividends to preferred interests

(1)

(1)

Net income available to Discovery Communications, Inc. stockholders

$

254

$

106

$

559

$

275

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

Basic

$

0.63

$

0.25

$

1.37

$

0.65

Diluted

$

0.62

$

0.25

$

1.36

$

0.64

Weighted average shares outstanding:

Basic

406

426

407

425

Diluted

410

431

412

430

DISCOVERY COMMUNICATIONS, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited; in millions)

June 30,

December 31,

2011

2010

ASSETS

Current assets:

Cash and cash equivalents

$

1,095

$

466

Receivables, net

908

880

Content rights, net

93

83

Deferred income taxes

65

81

Prepaid expenses and other current assets

160

225

Total current assets

2,321

1,735

Noncurrent content rights, net

1,310

1,245

Property and equipment, net

382

399

Goodwill

6,302

6.434

Intangible assets, net

584

605

Investments

806

455

Other noncurrent assets

131

146

Total assets

$

11,836

$

11,019

LIABILITIES AND EQUITY

Current liabilities:

Accounts payable

$

48

$

87

Accrued liabilities

364

393

Deferred revenues

98

114

Current portion of stock-based compensation liabilities

52

118

Current portion of long-term debt

22

20

Other current liabilities

30

53

Total current liabilities

614

785

Long-term debt

4,235

3,598

Deferred income taxes

373

304

Other noncurrent liabilities

100

99

Total liabilities

5,322

4,786

Commitments and contingencies

Equity:

Preferred stock

2

2

Common stock

3

3

Additional paid-in capital

6,441

6,358

Treasury stock, at cost: 13 and 3 Series C common shares at 2011 and 2010,      respectively

(482)

(105)

Retained earnings

559

Accumulated other comprehensive loss

(10)

(33)

   Total Discovery Communications, Inc. stockholders' equity

6,513

6,225

   Noncontrolling interests

1

8

Total equity

6,514

6,233

Total liabilities and equity

$

11,836

$

11,019

DISCOVERY COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited; in millions)

Six Months Ended June 30,

2011

2010

OPERATING ACTIVITIES

Net income

$

559

$

283

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

Content expense

381

350

Stock-based compensation

49

94

Depreciation and amortization

60

67

Gains on dispositions

(129)

Deferred income tax expense (benefit)

71

(44)

Noncash portion of loss on extinguishment

12

Other noncash expenses, net

30

43

   Changes in operating assets and liabilities:

  Receivables, net

(31)

(31)

  Content rights

(430)

(370)

  Accounts payable and accrued liabilities

(116)

(159)

  Stock-based compensation liabilities

(92)

(123)

  Income tax receivable

94

(11)

  Other, net

(15)

(21)

Cash provided by operating activities

431

90

INVESTING ACTIVITIES

Purchases of property and equipment

(27)

(20)

Business acquisitions, net of cash acquired

(38)

Investments in and advances to equity investees

(82)

(41)

Cash used in investing activities

(109)

(99)

FINANCING ACTIVITIES

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

641

2,970

Principal repayments of long-term debt

(2,883)

Principal repayments of capital lease obligations

(13)

(5)

Repurchases of common stock

(377)

Cash distributions to noncontrolling interests

(7)

(2)

Proceeds from stock option exercises

38

15

Excess tax benefits from stock-based compensation

17

4

Cash provided by financing activities

299

99

Effect of exchange rate changes on cash and cash equivalents

8

NET CHANGE IN CASH AND CASH EQUIVALENTS

629

90

Cash and cash equivalents, beginning of period

466

623

CASH AND CASH EQUIVALENTS, END OF PERIOD

$

1,095

$

713

DISCOVERY COMMUNICATIONS, INC.

SUPPLEMENTAL FINANCIAL DATA

RECONCILIATION OF ADJUSTED OPERATING INCOME BEFORE

DEPRECIATION AND AMORTIZATION

(unaudited; in millions)

Three Months Ended June 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

$  395

$    (4)

$    (2)

$      —

$   (2)

$   387

International Networks

173

(12)

(10)

(2)

149

Education and Other

5

(1)

4

Corporate and Eliminations

(63)

(13)

(19)

(95)

      Total

$  510

$ (30)

$ (12)

$  (19)

$  (4)

$  445

Three Months Ended June 30, 2010

Adjusted

Operating

Income Before

Depreciation and

Amortization

Depreciation

and

Amortization

Amortization of

Deferred Launch

Incentives

Mark-to-Market

Stock-Based

Compensation

Other

Operating

Income

U.S. Networks

$  379

$    (5)

$    (2)

$      —

$   —

$    372

International Networks

132

(11)

(8)

113

Education and Other

1

(2)

(1)

Corporate and Eliminations

(57)

(15)

(40)

(112)

      Total

$  455

$ (33)

$ (10)

$  (40)

$  —

$    372

(a) For the three months ended June 30, 2011, amounts represent restructuring charges of $4 million.  

DISCOVERY COMMUNICATIONS, INC.

SUPPLEMENTAL FINANCIAL DATA

RECONCILIATION OF ADJUSTED OPERATING INCOME BEFORE

DEPRECIATION AND AMORTIZATION

(unaudited; amounts in millions)

Six Months Ended June 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

$   729

$   (8)

$    (4)

$    —

$   126

$   843

International Networks

317

(22)

(22)

(2)

271

Education and Other

13

(3)

10

Corporate and Eliminations

(122)

(27)

(23)

(172)

      Total

$   937

$ (60)

$ (26)

$ (23)

$  124

$   952

Six Months Ended June 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

$   672

$   (11)

$    (4)

$    —

$     —

$   657

International Networks

254

(19)

(17)

(3)

215

Education and Other

6

(3)

3

Corporate and Eliminations

(112)

(33)

(76)

(221)

      Total

$   820

$ (66)

$ (21)

$ (76)

$   (3)

$   654

(a) For the six months ended June 30, 2011 amount represents a pre-tax gain of $129 million as a result of contributing Discovery Health to the OWN joint venture and restructuring charges of $5 million.  For the six months ended June 30, 2010, amounts represent restructuring charges of $3 million.

DISCOVERY COMMUNICATIONS, INC.

SUPPLEMENTAL FINANCIAL DATA

(unaudited; in millions)

CALCULATION OF FREE CASH FLOW

Three Months Ended June 30,

Six Months Ended June 30,

2011

2010

Change

2011

2010

Change

Cash provided by (used in) operating activities

$

214

$

(36)

$

250

$

431

$

90

$

341

Acquisition of property and equipment

(16)

(8)

(8)

(27)

(20)

(7)

Free cash flow

$

198

$

(44)

$

242

$

404

$

70

$

334

RECONCILIATION OF 2011 OUTLOOK TO GAAP MEASURES

Full Year 2011

Net income available to Discovery Communications, Inc. stockholders

$

1,000

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

540

To

555

Adjusted OIBDA

$

1,875

To

$

1,950

NET INCOME RECONCILIATION FOR ONE-TIME ITEMS

Three Months

Ended June 30,

2011

2010

Net income available to Discovery Communications, Inc. stockholders,

$

254

$

106

Loss on early extinguishment of debt, net of tax

90

Loss on early termination of interest rate swaps, net of tax

15

Net income available to Discovery Communications, Inc. stockholders excluding one-time items

$

254

$

211

DISCOVERY COMMUNICATIONS, INC.

SUPPLEMENTAL FINANCIAL DATA

SELECTED FINANCIAL DETAIL

(unaudited; in millions)

BORROWINGS

June 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 and other obligations

118

Total long-term debt

4,268

Unamortized discount

(11)

Long-term debt, net

4,257

Less current portion of long-term debt

(22)

Noncurrent portion of long-term debt

$

4,235

STOCK-BASED COMPENSATION

June 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

7.3

$

29.54

0.5

$

21.77

Stock Appreciation Rights

0.1

26.00

——

——

Stock Options

14.2

21.27

4.1

17.16

Performance-based Restricted Stock Units

1.7

35.31

——

——

Service-based Restricted Stock Units

0.8

35.08

——

——

     Total Stock-based Compensation Plans

24.1

$

25.24

4.6

$

17.66

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

(10.37)

——

(10.37)

 Shares issued – stock option exercises

2.34

——

2.34

Total shares outstanding as of June 30, 2011

275.73

127.46

403.19

SOURCE Discovery Communications, Inc.