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Discovery, Inc. Reports Second Quarter 2019 Results

SILVER SPRING, Md., Aug. 6, 2019 /PRNewswire/ -- Discovery, Inc. ("Discovery" or the "Company") (NASDAQ: DISCA, DISCB, DISCK) today reported financial results for the quarter ended June 30, 2019.

Second Quarter 2019 Highlights

  • No. 1 most watched TV portfolio for women 25-54 in the U.S. in June 2019(1);
  • Concluded a robust and record advertising Upfront, delivering pricing and volume increases across the portfolio;
  • Completed the UKTV Lifestyle Business joint venture unwind transaction in which the Company formally received control of lifestyle channels Really, Home and Good Food; and
  • Launched nine additional networks on YouTube TV in the U.S. and signed a multi-year live and on demand carriage agreement with fuboTV.

"We delivered another quarter of strong operating and financial performance, with the benefits of the Scripps Networks acquisition flowing through all areas of our global business, while also accelerating our pivot to digital and direct-to-consumer offerings with IP that powers people's passions," said David Zaslav, President and Chief Executive Officer of Discovery. "With an exceptional team in place, strong top-line performance and a healthy balance sheet, we are confident in our ability to continue executing on our strategic priorities to drive long-term growth and shareholder value."

Second Quarter 2019 Financial Results
Second quarter revenues of $2,885 million increased 1% compared with the prior year's quarter, as a 5% increase in U.S. Networks revenues was partially offset by a 3% decrease in International Networks revenues and a significant decrease in Other revenues due to the sale of the education business(2). Excluding the impact of foreign currency fluctuations(3), total Company revenues in the quarter increased 4% and International Networks revenues increased 3%.

Second quarter net income available to Discovery, Inc. was $947 million, or $1.33 per diluted share(4), compared with $216 million, or $0.30 per diluted share, in the prior year's quarter. The increase in net income was a result of higher operating results and a one-time, non-cash tax benefit recognized in the quarter. The Company carried out a number of internal restructurings across several jurisdictions within the International Networks segment. The net effect of these restructuring activities was a one-time, non-cash income tax benefit of $455 million from the recognition of a deferred tax asset.

Adjusted Operating Income Before Depreciation and Amortization ("Adjusted OIBDA")(5) of $1,281 million increased 5%, as a 15% increase in U.S. Networks Adjusted OIBDA was partially offset by a 15% decrease in International Networks Adjusted OIBDA. Excluding the impact of foreign currency fluctuations, total Adjusted AOIBDA increased 7% and International Networks Adjusted OIBDA decreased 7%.

Adjusted Earnings Per Share ("Adjusted EPS")(4,6), which excludes the impact of amortization of acquisition-related intangible assets, net of tax, was $1.61. Adjusted EPS excluding the previously mentioned tax benefit of $455 million, or a decrease of $0.64 per share, and, after-tax restructuring and other charges of $8 million, or $0.01 per share, was $0.98.

 

(1)

Source: Nielsen, June 2019 (5/27/19 – 6/30/19), Total Day Mon-Sun 6a-6a, Women 25-54, L+7, Duration-Weighted Delivery: "Most Watched", Among Total TV portfolios.

(2)

The Company sold a majority stake in the education business on April 30, 2018.

(3)

Refer to pages 5-6 for the methodology for calculating growth rates excluding the impact of currency effects for the International Networks segment and Total Company.

(4)

All per share amounts are calculated using net income. Refer to table on page 13 for the full EPS schedule.

(5)

See full definition of Adjusted OIBDA on page 5.

(6)

See full definition of Adjusted EPS on page 6.

 

Cash provided by operating activities increased 21% to $674 million compared with the prior year's quarter, primarily reflecting lower restructuring expenses and favorable working capital, partially offset by higher cash taxes due to the absence of acquisition-related charges. Capital expenditures increased $44 million to $78 million, primarily due to transformation projects related to technology infrastructure and software development, and expenses related to real estate consolidation. Free cash flow(1) for the second quarter increased 14% to $596 million.

SEGMENT RESULTS

 

Total Company






(dollars in millions)


Three Months Ended June 30,


Six Months Ended June 30,



2019


2018


Change


Ex-FX(2)


2019


2018


Change(3)


Ex-FX(2,3)

Revenues:

















U.S. Networks


$

1,863



$

1,780



5

%




$

3,615



$

2,954



22

%



International Networks


1,020



1,051



(3)

%


3

%


1,972



2,149



(8)

%


(1)

%

Other


2



14



(86)

%




5



49



(90)

%



Corporate and Inter-Segment
Eliminations






%








%



Total revenues


$

2,885



$

2,845



1

%


4

%


$

5,592



$

5,152



9

%


12

%


















Net income available to
Discovery, Inc.


$

947



$

216



NM




$

1,331



$

208



NM




















Adjusted OIBDA:

















U.S. Networks


$

1,126



$

983



15

%




$

2,187



$

1,635



34

%



International Networks


286



336



(15)

%


(7)

%


505



473



7

%


18

%

Other


1





NM




2



3



(33)

%



Corporate and Inter-Segment
Eliminations


(132)



(97)



(36)

%




(254)



(180)



(41)

%



Total Adjusted OIBDA


$

1,281



$

1,222



5

%


7

%


$

2,440



$

1,931



26

%


29

%

 

 

U.S. Networks


(dollars in millions)


Three Months Ended June 30,


Six Months Ended June 30,



2019


2018


Change


2019


2018


Change(3)

Revenues:













Advertising


$

1,153



$

1,090



6

%


$

2,175



$

1,717



27

%

Distribution


688



654



5

%


1,385



1,168



19

%

Other


22



36



(39)

%


55



69



(20)

%

Total revenues


$

1,863



$

1,780



5

%


$

3,615



$

2,954



22

%














Adjusted OIBDA


$

1,126



$

983



15

%


$

2,187



$

1,635



34

%

 

U.S. Networks' revenues for the second quarter of 2019 increased 5% to $1,863 million compared with the prior year's quarter, as advertising revenues increased 6% and distribution revenues increased 5%, partially offset by a $14 million decrease in other revenues. The increase in advertising revenues was primarily driven by increases in pricing and, to a lesser extent, inventory, as well as the continued monetization of digital content offerings, partially offset by lower overall ratings and the impact of audience declines in the aggregate on our linear networks.

 

(1)

Free cash flow is defined as cash provided by operating activities less purchases of property and equipment.

(2)

Refer to pages 5-6 for the methodology for calculating growth rates excluding the impact of currency effects for the International Networks segment and Total Company.

(3)

The Company acquired Scripps Networks on March 6, 2018, resulting in material comparability differences for the six months ended periods.

NM: Not Meaningful

 

The increase in distribution revenues was primarily driven by increases in contractual affiliate rates and additional carriage on streaming platforms, partially offset by a decline in overall subscribers. Total portfolio subscribers for June 2019 were 3% lower than June 2018, while subscribers to our fully distributed networks were flat.

U.S. Networks' operating expenses decreased 8% to $737 million compared with the prior year's quarter, as costs of revenues decreased 10% and SG&A expenses decreased 4%. The decrease in costs of revenues was primarily attributable to content synergies related to the integration of Scripps Networks while the decrease in SG&A was primarily due to lower personnel costs from restructuring and the integration of Scripps Networks.

U.S. Networks' Adjusted OIBDA increased 15% to $1,126 million compared with $983 million in the prior year's quarter, driven by the previously mentioned increase in revenues combined with the decrease in operating expenses.

 

International Networks


(dollars in millions)


Three Months Ended June 30,


Six Months Ended June 30,



2019


2018


Change


Ex-FX(1)


2019


2018


Change(2)


Ex-FX(1,2)

Revenues:

















Advertising


$

466



$

473



(1)

%


5

%


$

859



$

858



%


8

%

Distribution


518



532



(3)

%


3

%


1,045



1,069



(2)

%


4

%

Other


36



46



(22)

%


(18)

%


68



222



(69)

%


(67)

%

Total revenues


$

1,020



$

1,051



(3)

%


3

%


$

1,972



$

2,149



(8)

%


(1)

%


















Adjusted OIBDA


$

286



$

336



(15)

%


(7)

%


$

505



$

473



7

%


18

%

 

International Networks' revenues for the second quarter of 2019 decreased 3% to $1,020 million compared with the prior year's quarter. Excluding the impact of foreign currency fluctuations, revenues increased 3%, as advertising revenues increased 5% and distribution revenues increased 3%, partially offset by an $8 million decrease in other revenues. The increase in advertising revenues was primarily driven by higher pricing in certain markets in Europe and to a lesser extent, the consolidation of the UKTV Lifestyle Business and expanded digital content offerings. The increase in distribution revenues was driven by growth in Latin America, primarily due to contractual price increases and subscriber growth related in part to new channel launches along with the timing of certain content licensing arrangements, and subscriber growth in certain European markets.

International Networks' operating expenses increased 3% to $734 million compared with the prior year's quarter. Excluding the impact of foreign currency fluctuations, operating expenses increased 8%. Costs of revenues increased 4%, primarily attributable to higher expenses associated with expanded digital content offerings and to a lesser extent, the consolidation of the UKTV Lifestyle Business. SG&A increased 16%, primarily due to higher professional service fees, technology costs and personnel expenses as a result of expanded digital content offerings.

International Networks' Adjusted OIBDA decreased 15% to $286 million compared with the prior year's quarter. Excluding the impact of foreign currency fluctuations, Adjusted OIBDA decreased 7%, primarily driven by the increase in total operating expenses.

 

Other


(dollars in millions)


Three Months Ended June 30,


Six Months Ended June 30,



2019


2018


Change


2019


2018


Change

Revenues


$

2



$

14



(86)

%


$

5



$

49



(90)

%

Adjusted OIBDA


$

1



$



NM


$

2



$

3



(33)

%

 

(1)

Refer to pages 5-6 for the methodology for calculating growth rates excluding the impact of currency effects for the International Networks segment.

(2)

The Company acquired Scripps Networks on March 6, 2018, resulting in material comparability differences for the six months ended periods.

 

The Other segment saw a significant decrease in revenues for the second quarter of 2019 primarily due to the sale of the education business. Adjusted OIBDA was consistent with the prior year quarter.

Corporate and Inter-Segment Eliminations
Adjusted OIBDA for the second quarter of 2019 decreased 36% compared with the prior year's quarter, primarily due to higher technology costs and professional service fees.

OTHER ITEMS

Share Buyback Authorization and Transactions
In April 2019, the Company's Board of Directors authorized additional common stock repurchases of up to $1 billion. In May 2019, the Company made an upfront cash payment of $96 million to enter into two prepaid common stock repurchase contracts for the Company's Series C common stock. Under these contracts, if the price of Discovery's Series C common stock is below the strike price at expiration, the Company will receive a fixed number of shares of its Series C common stock. If the price of Discovery's Series C common stock is above the strike price at expiration, the Company can elect to receive $50 million of cash per contract or that number of shares of Series C common stock at the then-current market price equal to $50 million. The first contract settled in cash for $50 million during the period of June 26 to June 28, 2019 as the price of Discovery's Series C common stock during that period was above the strike price. The second contract is scheduled to settle during the quarter ending September 30, 2019. The contracts are accounted for as equity transactions.

Debt - Senior Notes
In May 2019, Discovery Communications, LLC ("DCL"), a wholly-owned subsidiary of the Company, issued $750 million aggregate principal amount of 4.125% Senior Notes due 2029 and $750 million aggregate principal amount of 5.300% Senior Notes due 2049. Net proceeds to DCL were $1.48 billion, net of underwriting discounts, debt issuance costs and other expenses. DCL used the proceeds from the offering to redeem or repurchase approximately $1.3 billion aggregate principal amount of DCL's 2.750% Senior Notes due 2019 and 5.050% Senior Notes due 2020 and to pay accrued and unpaid interest, premiums, fees and expenses in connection with the redemptions.

UKTV Lifestyle Business
In June 2019, the Company and BBC dissolved their 50/50 joint venture, UKTV, a British multi-channel broadcaster, with the Company taking full control of UKTV's three lifestyle channels and BBC taking full control of UKTV's seven entertainment channels.

FULL YEAR 2019 OUTLOOK(1)
Discovery will provide forward-looking guidance in connection with this quarterly earnings announcement on its quarterly earnings conference call and webcast referenced below.

CONFERENCE CALL INFORMATION
Discovery will host a conference call today, August 6, 2019 at 8:30 a.m. ET to discuss its second quarter results. To listen to the call, visit https://corporate.discovery.com or dial 1-844-452-2811 inside the U.S. and 1-574-990-9832 outside of the U.S., using conference passcode: DISCA.

 

(1)

Discovery does not expect to be able to provide a reconciliation of the non-GAAP forward-looking guidance to comparable GAAP measures as, at this time, the Company cannot determine the occurrence or impact of the adjustments, such as the effect of future changes in foreign currency exchange rates or future acquisitions or divestitures that would be excluded from such GAAP measures.

 

NON-GAAP FINANCIAL MEASURES
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, Adjusted EPS and free cash flow. These non-GAAP measures should be considered in addition to, but not as a substitute for, operating income, net income, earnings per diluted share and other measures of financial performance reported in accordance with GAAP.  Please review the supplemental financial schedules beginning on page 11 for reconciliations to the most comparable GAAP measures.

Adjusted OIBDA and Adjusted OIBDA Excluding the Impact of Currency Effects
The Company evaluates the operating performance of its segments based on financial measures such as revenues and Adjusted OIBDA. Adjusted OIBDA is defined as operating income excluding: (i) share-based compensation, (ii) depreciation and amortization, (iii) restructuring and other charges, (iv) certain impairment charges, (v) gains and losses on business and asset dispositions, (vi) certain inter-segment eliminations related to production studios, (vii) third-party transaction costs directly related to the acquisition and integration of Scripps Networks, and (viii) other items impacting comparability, such as the non-cash settlement of a withholding tax claim.

The Company uses this measure to assess the 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. The Company excludes share-based compensation, restructuring and other charges, certain impairment charges, gains and losses on business and asset dispositions and Scripps Networks transaction and integration costs from the calculation of Adjusted OIBDA due to their impact on comparability between periods. The Company also excludes depreciation of fixed assets and amortization of intangible assets, as these amounts do not represent cash payments in the current reporting period. Certain corporate expenses are excluded from segment results to enable executive management to evaluate segment performance based upon the decisions of segment executives. Adjusted OIBDA should be considered in addition to, but not a substitute for, operating income, net income and other measures of financial performance reported in accordance with GAAP.  Refer to the comments that follow for the methodology to calculate growth rates excluding foreign currency effects.

Effective January 1, 2019, our definition of Adjusted OIBDA was modified to exclude all share-based compensation, whereas only mark-to-market share-based compensation was excluded previously. Over time, the Company has moved to a higher percentage of equity-classified awards (in lieu of liability-classified awards, which require mark-to-market accounting) under its stock incentive plans and expects to continue this action in future periods. Since most equity classified awards are non-cash expenses not entirely under management control, the Company has elected to exclude all share-based compensation from Adjusted OIBDA beginning in 2019. The revised definition of Adjusted OIBDA will be used by our chief operating decision maker in evaluating segment performance in 2019. Accordingly, prior period amounts have been recast to reflect the current definition.

Methodology for Calculating Growth Rates Excluding the Impact of Currency Effects
The impact of exchange rates on our business is an important factor in understanding period-to-period comparisons of our results. For example, our international revenues are favorably impacted as the U.S. dollar weakens relative to other foreign currencies, and unfavorably impacted as the U.S. dollar strengthens relative to other foreign currencies. We believe the presentation of results on a constant currency basis (ex-FX), in addition to results reported in accordance with GAAP, provides useful information about our operating performance because the presentation ex-FX excludes the effects of foreign currency volatility and highlights our core operating results. The presentation of results on a constant currency basis should be considered in addition to, but not a substitute for, measures of financial performance reported in accordance with GAAP.

The ex-FX change represents the percentage change on a period-over-period basis adjusted for foreign currency impacts. The ex-FX change is calculated as the difference between the current year amounts translated at a baseline rate, which is a spot rate for each of our currencies determined early in the fiscal year as part of our forecasting process (the "2019 Baseline Rate"), and the prior year amounts translated at the same 2019 Baseline Rate.

In addition, consistent with the assumption of a constant currency environment, our ex-FX results exclude the impact of our foreign currency hedging activities, as well as realized and unrealized foreign currency transaction gains and losses. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies.

Selling, General and Administrative Expense
Selling, general and administrative expenses, as defined for Adjusted OIBDA, excludes share-based compensation and Scripps Networks transaction and integration costs due to their impact on comparability between periods.

Adjusted EPS
Adjusted EPS is defined as earnings excluding the impact of amortization of acquisition-related intangible assets per diluted share. The Company believes Adjusted EPS is relevant to investors because this metric allows them to evaluate the performance of the Company's operations exclusive of the non-cash amortization of acquisition-related intangible assets that impact the comparability of results from period to period.

Free Cash Flow
The Company defines free cash flow as cash flow from operations 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.

CAUTIONARY STATEMENT CONCERNING FORWARD_LOOKING STATEMENTS
Certain statements in this press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our business, marketing and operating strategies, integration of acquired businesses, new service offerings, financial prospects, and anticipated sources and uses of capital. Words such as "anticipates," "estimates," "expects," "projects," "intends," "plans," "believes," and terms of similar substance used in connection with any discussion of future operating or financial performance identify forward-looking statements. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be accomplished. The following is a list of some, but not all, of the factors that could cause actual results or events to differ materially from those anticipated:

  • Changes in the distribution and viewing of television programming, including the expanded deployment of personal video recorders, subscription video on demand ("SVOD"), internet protocol television, mobile personal devices and personal tablets and their impact on television advertising revenue;
  • Uncertainties associated with product and service development and market acceptance, including the development and provision of programming for new television and telecommunications technologies;
  • Continued consolidation of distribution customers and production studios;
  • A failure to secure affiliate agreements or renewal of such agreements on less favorable terms;
  • Rapid technological changes;
  • The inability of advertisers or affiliates to remit payment to us in a timely manner or at all;
  • General economic and business conditions;
  • Industry trends, including the timing of, and spending on, feature film, television and television commercial production;
  • Spending on domestic and foreign television advertising;
  • Disagreements with our distributors or other business partners over contract interpretation;
  • Fluctuations in foreign currency exchange rates, political unrest and regulatory changes in international markets;
  • Market demand for foreign first-run and existing content libraries;
  • The regulatory and competitive environment of the industries in which we, and the entities in which we have interests, operate;
  • Uncertainties inherent in the development of new business lines and business strategies;
  • Uncertainties regarding the financial performance of our equity method investees;
  • Our ability to complete, integrate and obtain the anticipated benefits and synergies from our proposed business combinations and acquisitions, including our acquisition of Scripps Networks Interactive, Inc., on a timely basis or at all;
  • Future financial performance, including availability, terms, and deployment of capital;
  • The ability of suppliers and vendors to deliver products, equipment, software, and services;
  • Our ability to achieve the efficiencies, savings and other benefits anticipated from our cost-reduction initiatives;
  • The outcome of any pending or threatened litigation;
  • Availability of qualified personnel;
  • The possibility or duration of an industry-wide strike or other job action affecting a major entertainment industry union;
  • Changes in, or failure or inability to comply with, government regulations, including, without limitation, regulations of the Federal Communications Commission and adverse outcomes from regulatory proceedings;
  • Changes in income taxes due to regulatory changes or changes in our corporate structure;
  • Changes in the nature of key strategic relationships with partners, distributors and equity method investee partners;
  • Competitor responses to our products and services and the products and services of the entities in which we have interests;
  • Threatened terrorist attacks and military action;
  • Our level of debt;
  • Reduced access to capital markets or significant increases in costs to borrow; and
  • A reduction of advertising revenue associated with unexpected reductions in the number of subscribers.

These risks have the potential to impact the recoverability of the assets recorded on our balance sheets, including goodwill or other intangibles. For additional risk factors, refer to the "Risk Factors" section in our 2018 Annual Report on Form 10-K and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019. These forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Press Release, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based.

ABOUT DISCOVERY
Discovery, Inc. (Nasdaq: DISCA, DISCB, DISCK) is a global leader in real life entertainment, serving a passionate audience of superfans around the world with content that inspires, informs and entertains. Discovery delivers over 8,000 hours of original programming each year and has category leadership across deeply loved content genres around the world. Available in 220 countries and territories and in nearly 50 languages, Discovery is a platform innovator, reaching viewers on all screens, including TV Everywhere products such as the GO portfolio of apps; direct-to-consumer streaming services such as Eurosport Player and MotorTrend OnDemand; digital-first and social content from Group Nine Media; a landmark natural history and factual content partnership with the BBC; and a strategic alliance with PGA TOUR to create the international home of golf. Discovery's portfolio of premium brands includes Discovery Channel, HGTV, Food Network, TLC, Investigation Discovery, Travel Channel, MotorTrend, Animal Planet, and Science Channel, as well as OWN: Oprah Winfrey Network in the U.S., Discovery Kids in Latin America, and Eurosport, the leading provider of locally relevant, premium sports and Home of the Olympic Games across Europe. For more information, please visit https://corporate.discovery.com and follow @DiscoveryIncTV across social platforms.

 

DISCOVERY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited; in millions, except per share amounts)




Three Months Ended June 30,


Six Months Ended June 30,



2019


2018


2019


2018

Revenues:









Advertising


$

1,619



$

1,563



$

3,034



$

2,575


Distribution


1,206



1,186



2,430



2,237


Other


60



96



128



340


Total revenues


2,885



2,845



5,592



5,152


Costs and expenses:









Costs of revenues, excluding depreciation and amortization


938



995



1,868



2,055


Selling, general and administrative


709



687



1,335



1,296


Depreciation and amortization


320



410



692



603


Restructuring and other charges


7



187



12



428


Gain on disposition




(84)





(84)


Total costs and expenses


1,974



2,195



3,907



4,298


Operating income


911



650



1,685



854


Interest expense, net


(161)



(196)



(343)



(373)


Loss on extinguishment of debt


(23)





(28)




Loss from equity investees, net


(20)



(40)



(9)



(62)


Other income (expense), net


9



(47)



(18)



(69)


Income before income taxes


716



367



1,287



350


Income tax benefit (expense)


271



(123)



118



(103)


Net income


987



244



1,405



247


Net income attributable to noncontrolling interests


(36)



(23)



(65)



(28)


Net income attributable to redeemable noncontrolling interests


(4)



(5)



(9)



(11)


Net income available to Discovery, Inc.


$

947



$

216



$

1,331



$

208


Net income per share allocated to Discovery, Inc. Series A, B and C
common stockholders:









Basic


$

1.33



$

0.30



$

1.86



$

0.31


Diluted(1)


$

1.33



$

0.30



$

1.86



$

0.31


Weighted average shares outstanding:









Basic


528



523



526



473


Diluted(1)


716



712



715



661


 

(1)


Diluted shares adjust for the potential dilution that would occur if common stock equivalents, including convertible preferred stock and share-based awards, were converted into common stock or exercised.

 

 

DISCOVERY, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited; in millions, except par value)



June 30, 2019


December 31, 2018

ASSETS




Current assets:




Cash and cash equivalents

$

1,321



$

986


Receivables, net

2,854



2,620


Content rights, net

330



313


Prepaid expenses and other current assets

427



312


Total current assets

4,932



4,231


Noncurrent content rights, net

3,258



3,069


Property and equipment, net

828



800


Goodwill, net

13,222



13,006


Intangible assets, net

9,172



9,674


Equity method investments, including note receivable

542



935


Other noncurrent assets

1,891



835


Total assets

$

33,845



$

32,550


LIABILITIES AND EQUITY




Current liabilities:




Accounts payable

$

325



$

325


Accrued liabilities

1,570



1,604


Deferred revenues

293



249


Current portion of debt

1,686



1,819


Total current liabilities

3,874



3,997


Noncurrent portion of debt

14,823



14,974


Deferred income taxes

1,656



1,811


Other noncurrent liabilities

1,827



1,251


Total liabilities

22,180



22,033


Commitments and contingencies




Redeemable noncontrolling interests

444



415


Equity:




Discovery, Inc. stockholders' equity:




Series A-1 convertible preferred stock: $0.01 par value; 8 shares authorized, issued and
outstanding




Series C-1 convertible preferred stock: $0.01 par value; 6 shares authorized; 5 and 6
shares issued and outstanding




Series A common stock: $0.01 par value; 1,700 shares authorized; 161 and 160 shares
issued; and 158 and 157 shares outstanding

2



2


Series B convertible common stock: $0.01 par value; 100 shares authorized; 7 shares
issued and outstanding




Series C common stock: $0.01 par value; 2,000 shares authorized; 537 and 524 shares
issued; and 373 and 360 shares outstanding

5



5


Additional paid-in capital

10,648



10,647


Treasury stock, at cost: 167 shares

(6,737)



(6,737)


Retained earnings

6,616



5,254


Accumulated other comprehensive loss

(913)



(785)


Total Discovery, Inc. stockholders' equity

9,621



8,386


Noncontrolling interests

1,600



1,716


Total equity

11,221



10,102


Total liabilities and equity

$

33,845



$

32,550


 

 

DISCOVERY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited; in millions)



Six Months Ended June 30,


2019


2018

Operating Activities




Net income

$

1,405



$

247


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




Share-based compensation expense

69



49


Depreciation and amortization

692



603


Content rights amortization and impairment

1,378



1,660


Gain on disposition



(84)


Remeasurement gain on previously held equity interest

(14)




Equity in earnings of equity method investee companies, net of cash distributions

37



95


Deferred income taxes

(554)



(80)


Loss on extinguishment of debt

28




Other, net

50



25


Changes in operating assets and liabilities, net of acquisitions and dispositions:




Receivables, net

(231)



(176)


Content rights and payables, net

(1,570)



(1,583)


Accounts payable and accrued liabilities

(132)



(68)


Prepaid income taxes and income taxes receivable

(3)



(42)


Foreign currency and other, net

61



70


Cash provided by operating activities

1,216



716


Investing Activities




Business acquisitions, net of cash acquired

(60)



(8,565)


Investments in and advances to equity investments

(147)



(48)


Proceeds from dispositions, net of cash disposed



107


Proceeds from dissolution of joint venture

105




Purchases of property and equipment

(122)



(82)


Other investing activities, net

4



5


Cash used in investing activities

(220)



(8,583)


Financing Activities




Commercial paper borrowings, net

173



579


Principal repayments of revolving credit facility

(225)



(50)


Borrowings under term loan facilities



2,000


Principal repayments of term loans



(1,500)


Borrowings from debt, net of discount and including premiums

1,482




Principal repayments of debt, including discount payment

(1,740)




Principal repayments of finance lease obligations

(26)



(25)


Cash prepayments for common stock repurchase contracts, net

(79)




Distributions to noncontrolling interests and redeemable noncontrolling interests

(191)



(59)


Share-based plan (payments) proceeds, net

(11)



26


(Repayments) borrowings under program financing line of credit, net

(6)



23


Payments for hedging instruments

(18)




Other financing activities, net

(2)



(17)


Cash (used in) provided by financing activities

(643)



977


Effect of exchange rate changes on cash and cash equivalents

(18)



(27)


Net change in cash and cash equivalents

335



(6,917)


Cash and cash equivalents, beginning of period

986



7,309


Cash and cash equivalents, end of period

$

1,321



$

392


 

 

DISCOVERY, INC.

SUPPLEMENTAL FINANCIAL DATA

RECONCILIATION OF NET INCOME TO

ADJUSTED OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION

(unaudited; in millions)



Three Months Ended June 30, 2019


U.S.
Networks


International
Networks


Other


Corporate
and Inter-
Segment
Eliminations


Total

Net income available to Discovery, Inc.









$

947


Net income attributable to redeemable noncontrolling
interests









4


Net income attributable to noncontrolling interests









36


Income tax (benefit)









(271)


Other (income), net









(9)


Loss from equity investees, net









20


Loss on extinguishment of debt









23


Interest expense, net









161


Operating income (loss)

$

898



$

180



$

5



$

(172)



$

911


Restructuring and other charges

3



6





(2)



7


Depreciation and amortization

222



82





16



320


Share-based compensation







39



39


Scripps Networks transaction and integration costs







4



4


   Inter-segment eliminations

3



18



(4)



(17)




Total Adjusted OIBDA

$

1,126



$

286



$

1



$

(132)



$

1,281









Three Months Ended June 30, 2018


U.S.
Networks


International
Networks


Other


Corporate
and Inter-
Segment
Eliminations


Total

Net income available to Discovery, Inc.









$

216


Net income attributable to redeemable noncontrolling
interests









5


Net income attributable to noncontrolling interests









23


Income tax expense









123


Other expense, net









47


Loss from equity investees, net









40


Interest expense, net









196


Operating income (loss)

$

667



$

102



$

85



$

(204)



$

650


Restructuring and other charges

19



146



1



21



187


Depreciation and amortization

295



83



1



31



410


Share-based compensation







34



34


Scripps Networks transaction and integration costs

4







21



25


Gain on disposition





(84)





(84)


   Inter-segment eliminations

(2)



5



(3)






Total Adjusted OIBDA

$

983



$

336



$



$

(97)



$

1,222


 

 

DISCOVERY, INC.

SUPPLEMENTAL FINANCIAL DATA

RECONCILIATION OF NET INCOME TO

ADJUSTED OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION

(unaudited; in millions)



Six Months Ended June 30, 2019


U.S.
Networks


International
Networks


Other


Corporate
and Inter-
Segment
Eliminations


Total

Net income available to Discovery, Inc.









$

1,331


Net income attributable to redeemable noncontrolling
interests









9


Net income attributable to noncontrolling interests









65


Income tax (benefit)









(118)


Other expense, net









18


Loss from equity investees, net









9


Loss on extinguishment of debt









28


Interest expense, net









343


Operating income

$

1,685



$

339



$

8



$

(347)



$

1,685


Restructuring and other charges

7



10





(5)



12


Depreciation and amortization

495



164





33



692


Share-based compensation







69



69


Scripps Networks transaction and integration costs







11



11


Settlement of a withholding tax claim



(29)







(29)


Inter-segment eliminations



21



(6)



(15)




Total Adjusted OIBDA

$

2,187



$

505



$

2



$

(254)



$

2,440









Six Months Ended June 30, 2018


U.S.
Networks


International
Networks


Other


Corporate
and Inter-
Segment
Eliminations


Total

Net income available to Discovery, Inc.









$

208


Net income attributable to redeemable noncontrolling
interests









11


Net income attributable to noncontrolling interests









28


Income tax expense









103


Other expense, net









69


Loss from equity investees, net









62


Interest expense, net









373


Operating income

$

1,182



$

71



$

90



$

(489)



$

854


Restructuring and other charges

53



246



1



128



428


Depreciation and amortization

395



150



3



55



603


Share-based compensation







49



49


Scripps Networks transaction and integration costs

4







77



81


Gain on disposition





(84)





(84)


Inter-segment eliminations

1



6



(7)






Total Adjusted OIBDA

$

1,635



$

473



$

3



$

(180)



$

1,931


 

 

DISCOVERY, INC.

SUPPLEMENTAL FINANCIAL DATA

SELECTED FINANCIAL DETAIL

(unaudited; in millions, except per share amounts)


EARNINGS PER SHARE




Three Months Ended June 30,


Six Months Ended June 30,



2019


2018


2019


2018

Numerator:









Net income


987



244



1,405



247


Less:









Allocation of undistributed income to Series A-1 convertible
preferred stock


(94)



(21)



(132)



(22)


Net income attributable to noncontrolling interests


(36)



(23)



(65)



(28)


Net income attributable to redeemable noncontrolling interests


(4)



(5)



(9)



(11)


Redeemable noncontrolling interest adjustments to redemption value


1



(6)



(4)



(6)


Net income allocated to Discovery, Inc. Series A, B and C common
and Series C-1 convertible preferred stockholders for basic net income
per share


854



189



1,195



180











Allocation of net income to Discovery, Inc. Series A, B and C
common stockholders and Series C-1 convertible preferred
stockholders for basic net income per share:









Series A, B and C common stockholders


702



155



980



145


Series C-1 convertible preferred stockholders


152



34



215



35


Total


854



189



1,195



180


Add:









Allocation of undistributed income to Series A-1 convertible 
     preferred stockholders


94



21



132



22


Net income allocated to Discovery, Inc. Series A, B and C common 
     stockholders for diluted net income per share


$

948



$

210



$

1,327



$

202











Denominator — weighted average:









Series A, B and C common shares outstanding — basic


528



523



526



473


Impact of assumed preferred stock conversion


185



187



186



187


Dilutive effect of share-based awards


3



2



3



1


Series A, B and C common shares outstanding — diluted


716



712



715



661


Series C-1 convertible preferred stock outstanding — basic and diluted


6



6



6



6











Basic net income per share allocated to Discovery, Inc. Series A, B
and C common and Series C-1 convertible preferred stockholders:









Series A, B and C common stockholders


$

1.33



$

0.30



$

1.86



$

0.31


Series C-1 convertible preferred stockholders


$

25.76



$

5.73



$

36.08



$

5.93











Diluted net income per share allocated to Discovery, Inc. Series A, B
and C common and Series C-1 convertible preferred stockholders:









Series A, B and C common stockholders


$

1.33



$

0.30



$

1.86



$

0.31


Series C-1 convertible preferred stockholders


$

25.67



$

5.72



$

35.95



$

5.92


 

 

DISCOVERY, INC.

SUPPLEMENTAL FINANCIAL DATA

SELECTED FINANCIAL DETAIL

(unaudited; in millions, except per share amounts)


CALCULATION OF ADJUSTED EARNINGS PER DILUTED SHARE




Three Months Ended June 30,


Six Months Ended June 30,



2019


2018


Change


2019


2018


Change

Diluted net income per share allocated to
Discovery, Inc. Series A, B and C common
and Series C-1 convertible preferred
stockholders:


$

1.33



$

0.30



$

1.03



$

1.86



$

0.31



$

1.55


Per share impact of amortization of
acquisition-related intangible assets, net
of tax


0.28



0.36



(0.08)



0.62



0.53



0.09


Adjusted earnings per diluted share


$

1.61



$

0.66



$

0.95



$

2.48



$

0.84



$

1.64


 

 

CALCULATION OF FREE CASH FLOW




Three Months Ended June 30,


Six Months Ended June 30,



2019


2018


Change


% Change


2019


2018


Change


% Change

Cash provided by operating
activities


$

674



$

556



$

118



21

%


$

1,216



$

716



$

500



70

%

Purchases of property and
equipment


(78)



(34)



(44)



NM


(122)



(82)



(40)



(49)

%

Free cash flow


$

596



$

522



$

74



14

%


$

1,094



$

634



$

460



73

%

 

 

DISCOVERY, INC.

SUPPLEMENTAL FINANCIAL DATA

SELECTED FINANCIAL DETAIL

(unaudited; in millions)


BORROWINGS



June 30, 2019


December 31, 2018

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

$



$

411


2.200% Senior notes, semi-annual interest, due September 2019

500



500


Floating rate notes, quarterly interest, due September 2019

400



400


2.750% Senior notes, semi-annual interest, due November 2019



500


2.800% Senior notes, semi-annual interest, due June 2020

600



600


5.050% Senior notes, semi-annual interest, due June 2020



789


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

640



650


2.375% Senior notes, euro denominated, annual interest, due March 2022

341



344


3.300% Senior notes, semi-annual interest, due May 2022

496



500


3.500% Senior notes, semi-annual interest, due June 2022

400



400


2.950% Senior notes, semi-annual interest, due March 2023

1,185



1,185


3.250% Senior notes, semi-annual interest, due April 2023

350



350


3.800% Senior notes, semi-annual interest, due March 2024

450



450


2.500% Senior notes, sterling denominated, annual interest, due September 2024

508



507


3.900% Senior notes, semi-annual interest, due November 2024

497



497


3.450% Senior notes, semi-annual interest, due March 2025

300



300


3.950% Senior notes, semi-annual interest, due June 2025

500



500


4.900% Senior notes, semi-annual interest, due March 2026

700



700


1.900% Senior notes, euro denominated, annual interest, due March 2027

682



688


3.950% Senior notes, semi-annual interest, due March 2028

1,700



1,700


4.125% Senior notes, semi-annual interest, due May 2029

750




5.000% Senior notes, semi-annual interest, due September 2037

1,250



1,250


6.350% Senior notes, semi-annual interest, due June 2040

850



850


4.950% Senior notes, semi-annual interest, due May 2042

500



500


4.875% Senior notes, semi-annual interest, due April 2043

850



850


5.200% Senior notes, semi-annual interest, due September 2047

1,250



1,250


5.300% Senior notes, semi-annual interest, due May 2049

750




Revolving credit facility



225


Program financing line of credit

16



22


Commercial paper

176




Total debt(1)

16,641



16,918


Unamortized discount, premium and debt issuance costs, net

(132)



(125)


Debt, net of unamortized discount, premium and debt issuance costs

16,509



16,793


Current portion of debt

(1,686)



(1,819)


Noncurrent portion of debt

$

14,823



$

14,974


 

(1)

As a result of the adoption of ASU 2016-02, capital lease obligations totaling $252 million as of December 31, 2018 (known as finance lease liabilities effective January 1, 2019) were reclassified to components of "Accrued liabilities" and "Other noncurrent liabilities" on the consolidated balance sheet to conform with the new presentation.

 

 

Cision

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