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Discovery, Inc. Reports Third Quarter 2019 Results

SILVER SPRING, Md., Nov. 7, 2019 /PRNewswire/ -- Discovery, Inc. ("Discovery" or the "Company") (NASDAQ: DISCA, DISCB, DISCK) today reported financial results for the quarter ended September 30, 2019.

David Zaslav, President and Chief Executive Officer of Discovery said, "Discovery once again delivered strong financial results across our portfolio, generating healthy revenue growth in the U.S. and internationally, and significant operational efficiencies from our ongoing transformation efforts. We also made progress in the buildout of our digital ecosystems that leverage our owned programming and brand strength. With a solid financial profile and strong balance sheet, we are able to invest meaningfully in our business and create additional value for shareholders."

Third Quarter 2019 Financial Highlights

  • Total Company revenues increased 3% to $2,678 million or increased 5% ex-FX(1).
  • Net income increased to $262 million and diluted EPS increased to $0.35 per share.
  • Adjusted OIBDA(2) increased 6% to $1,126 million or increased 9% ex-FX.
  • Adjusted EPS(3) was $0.87 per diluted share, excluding certain items.
  • Free cash flow(4) decreased 3% to $884 million.
  • The Company repurchased nearly 12 million shares for $300 million, at an average price of $25.93 per share.

 

Dollars in millions, except


Three Months Ended September 30,


Nine Months Ended September 30,

per share amounts


2019


2018


Change


Ex-FX(1)


2019


2018


Change(5)


Ex-FX(1,5)

Total Revenues


$

2,678



$

2,592



3

%


5

%


$

8,270



$

7,744



7

%


9

%

Net Income


$

262



$

117



NM




$

1,593



$

325



NM



U.S. Networks


1,005



901



12

%




3,192



2,536



26

%



International Networks


237



254



(7)

%


5

%


742



727



2

%


13

%

Total Adjusted OIBDA(6)


$

1,126



$

1,060



6

%


9

%


$

3,566



$

2,991



19

%


22

%

Diluted EPS


$

0.35



$

0.16



NM




$

2.21



$

0.47



NM



Adjusted EPS


$

0.87



$

0.79



10

%




$

2.70



$

2.10



29

%



Free Cash Flow


$

884



$

907



(3)

%




$

1,978



$

1,541



28

%



NM: Not meaningful

















Operational Highlights

  • Food Network Kitchen, a first-of-its-kind direct to consumer product with live, interactive cooking instruction, and a collaboration with Amazon, launched in the U.S.
  • Discovery was the No. 1 most-watched TV portfolio in the U.S. among women 25-54 for the last six months(7).
  • TLC delivered another record-breaking quarter as the No. 1 ad-supported cable network in primetime among women 25-54 and women 18-49, with delivery up 16% and 10%, respectively(8).
  • Share of viewing in the top-10 international markets increased 3% on average in the third quarter(9).

Third Quarter 2019 Consolidated Results

  • Revenues increased 3% to $2,678 million, or increased 5% excluding the impact of foreign currency fluctuations ("ex-FX")(1), compared with the prior year's quarter.
  • Net income increased to $262 million, or $0.35 per diluted share, primarily due to higher operating results, lower restructuring and other charges and to a lesser extent, lower interest expense, partially offset by the impact from a non-cash goodwill impairment charge in our Asia-Pacific region.
  • Adjusted Operating Income Before Depreciation and Amortization ("Adjusted OIBDA")(2) increased 6% to $1,126 million, as a 12% increase in U.S. Networks Adjusted OIBDA was partially offset by a 7% decrease in International Networks Adjusted OIBDA. Ex-FX, total Adjusted AOIBDA increased 9% and International Networks Adjusted OIBDA increased 5%.
  • Adjusted Earnings Per Diluted Share ("Adjusted EPS")(3) was $0.87. Adjusted EPS excludes the per share impact from amortization of acquisition-related intangible assets, net of tax of $0.29, an after-tax, non-cash impairment on goodwill of $0.21, and restructuring and other charges, net of tax, of $0.02.
  • Free cash flow(4) decreased 3% to $884 million due to an increase in digital investments and capital expenditures, partially offset by lower restructuring and other charges. Cash provided by operating activities increased 2% to $951 million reflecting an increase in net income due to higher operating results and lower restructuring and other charges. Capital expenditures increased $43 million to $67 million due to transformation projects related to technology infrastructure and software development, as well as expenses related to real estate consolidation.

 

Third Quarter 2019 Segment Results

U.S. Networks

Dollars in millions


Three Months Ended September 30,


Nine Months Ended September 30,



2019


2018


Change


2019


2018


Change(5)

Advertising


$

1,019



$

991



3

%


$

3,194



$

2,708



18

%

Distribution


681



644



6

%


2,066



1,812



14

%

Other


25



39



(36)

%


80



108



(26)

%

Total Revenues


$

1,725



$

1,674



3

%


$

5,340



$

4,628



15

%

Costs of Revenues, Excluding Depreciation & Amortization


434



486



(11)

%


1,297



1,297



%

Selling, General & Administrative


286



287



%


851



795



7

%

Adjusted OIBDA


$

1,005



$

901



12

%


$

3,192



$

2,536



26

%

 

  • Revenues increased 3% to $1,725 million.
  • Operating expenses decreased 7% to $720 million.
  • Adjusted OIBDA increased 12% to $1,005 million.

 

International Networks

Dollars in millions


Three Months Ended September 30,


Nine Months Ended September 30,



2019


2018


Change


Ex-FX(1)


2019


2018


Change(4)


Ex-FX(1,5)

Advertising


$

394



$

374



5

%


10

%


$

1,253



$

1,232



2

%


9

%

Distribution


520



508



2

%


8

%


1,565



1,577



(1)

%


5

%

Other


36



34



6

%


12

%


104



256



(59)

%


(56)

%

Total Revenues


$

950



$

916



4

%


9

%


$

2,922



$

3,065



(5)

%


2

%

Costs of Revenues, Excluding Depreciation & Amortization


479



449



7

%


8

%


1,483



1,675



(11)

%


(7)

%

Selling, General & Administrative


234



213



10

%


15

%


697



663



5

%


12

%

Adjusted OIBDA


$

237



$

254



(7)

%


5

%


$

742



$

727



2

%


13

%

 

  • Revenues increased 4% to $950 million. Ex-FX, revenues increased 9%.
  • Operating expenses increased 8% to $713 million. Ex-FX, operating expenses increased 10%.
  • Adjusted OIBDA decreased 7% to $237 million. Ex-FX, Adjusted OIBDA increased 5%.

Other
The Other segment's revenues of  $3 million and Adjusted OIBDA of $1 million were consistent with the prior year's quarter.

Corporate and Inter-Segment Eliminations
Corporate Adjusted OIBDA for the third quarter of 2019 decreased 23% compared with the prior year's quarter, primarily due to expenses associated with transformation projects related to technology infrastructure and software development, as well as facilities-related expenses due to real estate consolidation.

Other Items
Share Buyback
In April 2019, the Company's Board of Directors authorized additional common stock repurchases of up to $1 billion. Under the stock repurchase authorization, management is authorized to purchase shares from time to time through open market purchases at prevailing prices or privately negotiated purchases subject to market conditions and other factors. During the quarter, the Company, pursuant to its existing stock repurchase authorization, repurchased nearly 12 million shares of its Series C common stock for a total of $300 million, at an average price of $25.93 per share.

Full Year 2019 Outlook(10)
Discovery will provide forward-looking guidance in connection with this quarterly earnings announcement on its quarterly earnings conference call. Details on how to access the call and webcast are included below.

Conference Call Information
Discovery will host a conference call today, November 7, 2019 at 8:30 a.m. ET to discuss its third 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.

Cautionary Statement Concerning Forward-Looking Statements
This press release contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, forecasts and assumptions that involve risks and uncertainties and on information available to the Company as of the date hereof. 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 March 1, 2019 and Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, expected to be filed today.

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, statements regarding investing in the Company's programming, strategic growth initiatives, and the effects of the Scripps Networks acquisition and related transactions. 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.

About Discovery, Inc.
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
September 30,


Nine Months Ended
September 30,



2019


2018


2019


2018

Revenues:









Advertising


$

1,413



$

1,365



$

4,447



$

3,940


Distribution


1,201



1,152



3,631



3,389


Other


64



75



192



415


Total revenues


2,678



2,592



8,270



7,744


Costs and expenses:









Costs of revenues, excluding depreciation and amortization


914



934



2,782



2,989


Selling, general and administrative


660



667



1,995



1,963


Depreciation and amortization


322



398



1,014



1,001


Impairment of goodwill


155





155




Restructuring and other charges


8



224



20



652


Gain on disposition








(84)


Total costs and expenses


2,059



2,223



5,966



6,521


Operating income


619



369



2,304



1,223


Interest expense, net


(163)



(185)



(515)



(558)


Loss on extinguishment of debt






(28)




(Loss) income from equity investees, net


(11)



9



(20)



(53)


Other expense, net


(1)



(15)



(10)



(84)


Income before income taxes


444



178



1,731



528


Income tax expense


(147)



(43)



(29)



(146)


Net income


297



135



1,702



382


Net income attributable to noncontrolling interests


(29)



(13)



(94)



(41)


Net income attributable to redeemable noncontrolling interests


(6)



(5)



(15)



(16)


Net income available to Discovery, Inc.


$

262



$

117



$

1,593



$

325


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









Basic


$

0.35



$

0.16



$

2.22



$

0.47


Diluted


$

0.35



$

0.16



$

2.21



$

0.47


Weighted average shares outstanding:









Basic


535



523



529



490


Diluted


713



713



714



679


 

 

DISCOVERY, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited; in millions, except par value)



September 30, 2019


December 31, 2018

ASSETS




Current assets:




Cash and cash equivalents

$

813



$

986


Receivables, net

2,695



2,620


Content rights, net

442



313


Prepaid expenses and other current assets

363



312


Total current assets

4,313



4,231


Noncurrent content rights, net

3,095



3,069


Property and equipment, net

856



800


Goodwill, net

12,977



13,006


Intangible assets, net

8,880



9,674


Equity method investments, including note receivable

529



935


Other noncurrent assets

2,175



835


Total assets

$

32,825



$

32,550


LIABILITIES AND EQUITY




Current liabilities:




Accounts payable

$

380



$

325


Accrued liabilities

1,462



1,604


Deferred revenues

384



249


Current portion of debt

611



1,819


Total current liabilities

2,837



3,997


Noncurrent portion of debt

14,757



14,974


Deferred income taxes

1,624



1,811


Other noncurrent liabilities

2,028



1,251


Total liabilities

21,246



22,033


Commitments and contingencies




Redeemable noncontrolling interests

446



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 5 and 6 shares 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 362 and 360 shares outstanding

5



5


Additional paid-in capital

10,718



10,647


Treasury stock, at cost: 178 and 167 shares

(7,037)



(6,737)


Retained earnings

6,859



5,254


Accumulated other comprehensive loss

(1,029)



(785)


Total Discovery, Inc. stockholders' equity

9,518



8,386


Noncontrolling interests

1,615



1,716


Total equity

11,133



10,102


Total liabilities and equity

$

32,825



$

32,550


 

 


DISCOVERY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited; in millions)



Nine Months Ended September 30,


2019


2018

Operating Activities




Net income

$

1,702



$

382


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




Content rights amortization and impairment

2,078



2,523


Depreciation and amortization

1,014



1,001


Deferred income taxes

(572)



(140)


Impairment of goodwill

155




Share-based compensation expense

82



92


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

61



106


Unrealized loss (gain) from derivative instruments, net

53



(2)


Loss on extinguishment of debt

28




Remeasurement gain on previously held equity interest

(14)




Realized gain from derivative instruments, net

(12)




Gain on disposition



(84)


Other, net

47



56


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




Receivables, net

(84)



(19)


Content rights and payables, net

(2,332)



(2,222)


Accounts payable and accrued liabilities

(21)



(123)


Prepaid income taxes and income taxes receivable

43



(53)


Foreign currency and other, net

(61)



130


Cash provided by operating activities

2,167



1,647


Investing Activities




Business acquisitions, net of cash acquired

(60)



(8,565)


Investments in and advances to equity investments

(215)



(56)


Purchases of property and equipment

(189)



(106)


Proceeds from dissolution of joint venture and sale of investments

117




Proceeds from (payments for) derivative instruments, net

52



(3)


Proceeds from dispositions, net of cash disposed



107


Proceeds from sale of assets



68


Other investing activities, net

4



6


Cash used in investing activities

(291)



(8,549)


Financing Activities




Principal repayments of debt, including discount payment

(2,652)




Borrowings from debt, net of discount and issuance costs

1,479




Repurchases of stock

(300)




Distributions to noncontrolling interests and redeemable noncontrolling interests

(227)



(59)


Principal repayments of revolving credit facility

(225)



(100)


Principal repayments of finance lease obligations

(35)



(37)


Payments for hedging instruments

(18)




Share-based plan (payments) proceeds, net

(9)



44


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

(8)



23


Borrowings under term loan facilities



2,000


Principal repayments of term loans



(2,000)


Commercial paper borrowings, net



293


Other financing activities, net

3



(16)


Cash (used in) provided by financing activities

(1,992)



148


Effect of exchange rate changes on cash and cash equivalents

(57)



(24)


Net change in cash and cash equivalents

(173)



(6,778)


Cash and cash equivalents, beginning of period

986



7,309


Cash and cash equivalents, end of period

$

813



$

531


 

 

DISCOVERY, INC.

SUPPLEMENTAL FINANCIAL DATA

RECONCILIATION OF NET INCOME TO

ADJUSTED OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION

(unaudited; in millions)



Three Months Ended September 30, 2019


U.S.
Networks


International
Networks


Other


Corporate
and Inter-
Segment
Eliminations


Total

Net income available to Discovery, Inc.









$

262


Net income attributable to redeemable noncontrolling
interests









6


Net income attributable to noncontrolling interests









29


Income tax expense









147


Other expense, net









1


Loss from equity investees, net









11


Interest expense, net









163


Operating income (loss)

$

771



$



$

3



$

(155)



$

619


Restructuring and other charges

4



5





(1)



8


Impairment of goodwill



155







155


Depreciation and amortization

228



77





17



322


Employee share-based compensation







11



11


Transaction and integration costs







11



11


   Inter-segment eliminations

2





(2)






Total Adjusted OIBDA

$

1,005



$

237



$

1



$

(117)



$

1,126


 

 


Three Months Ended September 30, 2018


U.S.
Networks


International
Networks


Other


Corporate
and Inter-
Segment
Eliminations


Total

Net income available to Discovery, Inc.









$

117


Net income attributable to redeemable noncontrolling
interests









5


Net income attributable to noncontrolling
interests









13


Income tax expense









43


Other expense, net









15


(Income) from equity investees, net









(9)


Interest expense, net









185


Operating income (loss)

$

399



$

146



$

1



$

(177)



$

369


Restructuring and other charges

206



16





2



224


Depreciation and amortization

296



82





20



398


Employee share-based compensation







43



43


Transaction and integration costs

3



3





20



26


   Inter-segment eliminations

(3)



7



(1)



(3)




Total Adjusted OIBDA

$

901



$

254



$



$

(95)



$

1,060


 

 

DISCOVERY, INC.

SUPPLEMENTAL FINANCIAL DATA

RECONCILIATION OF NET INCOME TO

ADJUSTED OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION

(unaudited; in millions)



Nine Months Ended September 30, 2019


U.S.
Networks


International
Networks


Other


Corporate
and Inter-
Segment
Eliminations


Total

Net income available to Discovery, Inc.









$

1,593


Net income attributable to redeemable noncontrolling
interests









15


Net income attributable to noncontrolling interests









94


Income tax expense









29


Other expense, net









10


Loss from equity investees, net









20


Loss on extinguishment of debt









28


Interest expense, net









515


Operating income (loss)

$

2,456



$

339



$

11



$

(502)



$

2,304


Restructuring and other charges

11



15





(6)



20


Impairment of goodwill



155







155


Depreciation and amortization

723



241





50



1,014


Employee share-based compensation







80



80


Transaction and integration costs







22



22


Settlement of a withholding tax claim



(29)







(29)


Inter-segment eliminations

2



21



(8)



(15)




Total Adjusted OIBDA

$

3,192



$

742



$

3



$

(371)



$

3,566


 

 



Nine Months Ended September 30, 2018


U.S.
Networks


International
Networks


Other


Corporate
and Inter-
Segment
Eliminations


Total

Net income available to Discovery, Inc.









$

325


Net income attributable to redeemable noncontrolling
interests









16


Net income attributable to noncontrolling
interests









41


Income tax expense









146


Other expense, net









84


Loss from equity investees, net









53


Interest expense, net









558


Operating income (loss)

$

1,581



$

217



$

91



$

(666)



$

1,223


Gain on disposition





(84)





(84)


Restructuring and other charges

259



262



1



130



652


Depreciation and amortization

691



232



3



75



1,001


Employee share-based compensation







92



92


Transaction and integration costs

7



3





97



107


Inter-segment eliminations

(2)



13



(8)



(3)




Total Adjusted OIBDA

$

2,536



$

727



$

3



$

(275)



$

2,991


 

 

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 September 30,


Nine Months Ended September 30,



2019


2018


Change


2019


2018


Change

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


$

0.35



$

0.16



$

0.19



$

2.21



$

0.47



$

1.74


Per share impacts, net of tax:













Amortization of acquisition-related
intangible assets


0.29



0.36



(0.07)



0.91



0.89



0.02


Impairment of goodwill


0.21





0.21



0.21





0.21


Restructuring and other charges


0.02



0.27



(0.25)



0.04



0.83



(0.79)


Legal entity restructuring, deferred tax
impact








(0.64)





(0.64)


Settlement of a withholding tax claim








(0.03)





(0.03)


Gain on sale of Education business










(0.09)



0.09


Adjusted earnings per diluted share


$

0.87



$

0.79



$

0.08



$

2.70



$

2.10



$

0.60


 

 

CALCULATION OF FREE CASH FLOW




Three Months Ended September 30,


Nine Months Ended September 30,



2019


2018


Change


% Change


2019


2018


Change


% Change

Cash provided by operating activities


$

951



$

931



$

20



2

%


$

2,167



$

1,647



$

520



32

%

Purchases of property and
equipment


(67)



(24)



(43)



NM


(189)



(106)



(83)



(78)

%

Free cash flow


$

884



$

907



$

(23)



(3)

%


$

1,978



$

1,541



$

437



28

%

 

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 for reconciliations to the most comparable GAAP measures.

Definitions and Sources
(1) 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.

(2) 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) employee 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 other transactions, and (viii) other items impacting comparability.

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 the Scripps Networks transaction and integration costs from selling, general and administrative expenses for 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 above 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 employee 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.

(3) Adjusted EPS: The Company defines Adjusted EPS as earnings excluding the impact of amortization of acquisition-related intangible assets and meaningful one-time items, 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 and meaningful one-time items that impact the comparability of results from period to period.

(4) 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.

(5) Year to Date Comparability: The Company acquired Scripps Networks on March 6, 2018, resulting in material comparability differences for the nine months ended periods.

(6) Financial Highlights Table: This table presents a selection of the Company's financial results. Because the table excludes the "Other" and "Corporate and Inter-Segment Eliminations" business segments, total Adjusted OIBDA will not foot as presented.

(7) Source: Nielsen, 4/1/19 - 9/29/19, Total Day (Mon-Sun 6a-6a), Women 25-54, Live+7-day, Duration-Weighted Delivery: "Most Watched", among total TV portfolios.

(8) Source: Nielsen, 7/1/19 - 9/29/19, Primetime (Mon-Sun 8p-11p), Women 25-54 and Women 18-49, Live+3-day.

(9) Source: Total Audience Measurement among all individuals for the top-ten markets as ranked by advertising revenues. Share percent is defined as the share of viewing to all TV channels in a market, unless Nordics region, then share of viewing for commercial channels only.

(10) Outlook: 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.



Cision

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