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Press release from PR Newswire

Discovery Communications Reports First Quarter 2013 Results

Tuesday, May 07, 2013

Discovery Communications Reports First Quarter 2013 Results

07:00 EDT Tuesday, May 07, 2013

SILVER SPRING, Md., May 7, 2013 /PRNewswire/ --

First Quarter 2013 Financial Highlights:

  • Revenues increased 7% to $1,156 million
  • Adjusted OIBDA decreased to $498 million (up 8% excluding licensing agreements and foreign currency)
  • Net income increased 4% to $231 million

Discovery Communications, Inc. ("Discovery" or the "Company") (NASDAQ: DISCA, DISCB, DISCK) today reported financial results for the first quarter ended March 31, 2013.

David Zaslav, Discovery's President and Chief Executive Officer said, "The significant operating momentum Discovery generated throughout 2012 continued unabated in the first quarter with more and more audiences around the globe viewing our unique programming.  The sustained investment we have made in developing compelling content, along with the quality of our brands, translated into further market share gains, with record first quarter viewership at our domestic networks and 16% audience growth across our international portfolio. As we continue to invest in the organic growth opportunities our diverse distribution platform provides, we have also completed several strategic acquisitions which we expect will further broaden our asset mix around the world and bolster our long-term growth prospects.  2013 is off to a great start and with continued focus on strong operating execution, we anticipate building on the financial success we have achieved over the last several years while delivering significant shareholder value."

First Quarter Results

First quarter revenues of $1,156 million were up $71 million, or 7%, compared to the first quarter a year ago, led by 17% growth at International Networks and 1% growth at U.S. Networks which included the impact of additional licensing revenues in the prior year.  Adjusted Operating Income Before Depreciation and Amortization (1) ("OIBDA") declined by 2% to $498 million, as an 8% increase at International Networks was offset by a decrease of 5% at U.S. Networks due to the additional licensing revenue in last year's quarter.  Excluding the impact of licensing agreements and foreign currency, total company revenues increased 12% and Adjusted OIBDA increased 8%.

First quarter net income available to Discovery Communications, Inc. stockholders of $231 million ($0.63 per diluted share) increased $10 million compared to $221 million ($0.57 per diluted share) for the first quarter a year ago, primarily due to the strong underlying operating performance in the current year's quarter as well as a $92 million gain associated with the consolidation of Discovery Japan and $46 million of improved equity earnings, partially offset by higher taxes, increased mark-to-market equity-based compensation and $59 million of losses from hedging activities primarily associated with the acquisition of the SBS Nordic operations.

Free cash flow was $105 million for the first quarter, a decrease of $122 million from the first quarter of 2012, due to higher content investment as well as increased tax and long-term incentive compensation payments.  Free cash flow is defined as cash provided by operating activities less acquisitions of property and equipment. 

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

SEGMENT RESULTS

(dollars in millions)

Three Months Ended March 31,

2013

2012

Change

Revenues:

   U.S. Networks

$

686

$

681

1%

   International Networks

444

380

17%

   Education

27

24

13%

   Corporate and Eliminations

(1)

?

NM

Total Revenues

$

1,156

$

1,085

7%

Adjusted OIBDA:

   U.S. Networks

$

377

$

395

(5%)

   International Networks

184

171

8%

   Education

7

6

17%

   Corporate and Eliminations

(70)

(64)

(9%)

Total Adjusted OIBDA

$

498

$

508

(2%)

 

U.S. Networks

(dollars in millions)

Three Months Ended March 31,

2013

2012

Change

Revenues:

   Distribution

$

308

$

337

(9%)

   Advertising

356

329

8%

   Other

22

15

47%

Total Revenues

$

686

$

681

1%

Adjusted OIBDA

$

377

$

395

(5%)

Adjusted OIBDA Margin

55%

58%

First Quarter Results

U.S. Networks' revenues in the first quarter of 2013 increased 1% to $686 million, as advertising growth was mostly offset by a decline in distribution revenue. Advertising revenue increased 8% primarily as a result of higher delivery and increased pricing.  Distribution revenue decreased 9% as higher rates and subscriber growth primarily from networks carried on the digital tier were more than offset by additional revenues from licensing agreements in the first quarter of 2012.  Excluding the $45 million impact from licensing revenues, distribution revenues grew 6% and total revenues grew 8% compared with the first quarter a year ago.

Adjusted OIBDA decreased 5% to $377 million, primarily reflecting the impact of licensing agreements in the prior year as well as higher operating expenses, mainly due to increased content amortization and personnel costs.  Excluding the impact of licensing agreements, Adjusted OIBDA grew 6% over last year's first quarter.

International Networks

(dollars in millions)

Three Months Ended March 31,

2013

2012

Change

Revenues:

   Distribution

$

275

$

239

15%

   Advertising

152

124

23%

   Other

17

17

0%

Total Revenues

$

444

$

380

17%

Adjusted OIBDA

$

184

$

171

8%

Adjusted OIBDA Margin

41%

45%

First Quarter Results

International Networks' revenues for the first quarter increased 17% to $444 million primarily led by advertising revenue growth of 23% and distribution revenue growth of 15%.  Excluding foreign currency fluctuations, total revenues were up 18%.  Distribution revenue in local currency terms grew 16% mainly from increased subscribers across a majority of international regions, most notably Latin America, as well as from additional contributions due to the consolidation of Discovery Japan. Advertising revenue excluding foreign currency was up 25% primarily due to higher pricing and increased viewership across most international markets as well as from contributions from newly acquired networks in Western Europe.

Adjusted OIBDA increased 8% to $184 million, reflecting the 17% revenue growth partially offset by a 24% increase in operating expenses.  The higher operating expenses were primarily due to increased content amortization and personnel costs as well as expenses associated with consolidating Discovery Japan and the acquisition of new networks in Western Europe.  Excluding foreign currency, Adjusted OIBDA was up 13% over the prior year's quarter.

Education

(dollars in millions)

Three Months Ended March 31,

2013

2012

Change

Revenues

$

27

$

24

13%

Adjusted OIBDA

$

7

$

6

17%

Adjusted OIBDA Margin

26%

25%

First Quarter Results

Education revenues increased $3 million and Adjusted OIBDA increased $1 million from the first quarter of 2012, mainly reflecting increased streaming volumes as well as higher digital textbook sales.

Corporate and Eliminations

For the first quarter of 2013 Adjusted OIBDA decreased $6 million, primarily due to increased compensation expense and additional costs associated with the acquisition of the SBS Nordic operations.

OTHER ITEMS

In March 2013, Discovery Communications, LLC, a subsidiary of the Company, completed the issuance of $350 million 3.250% Senior Notes due 2023 and $850 million 4.875% Senior Notes due 2043, for total net proceeds of $1.2 billion.  The Company intends to use the net proceeds for general corporate purposes.

On April 9, 2013 the Company completed the previously announced acquisition of the SBS Nordic operations from ProSiebenSat.1 Group for approximately $1.8 billion.

STOCK REPURCHASE

Following the quarter, from April 1, 2013 through May 1, 2013 the Company, pursuant to its existing stock repurchase program, repurchased 2.25 million shares of its Series C common stock at an average price of $70.80 per share for an aggregate purchase price of approximately $159 million.  Additionally, the Company repurchased 4 million shares of Series C convertible preferred stock for $256 million, or $64.10 per share, from Advance Programming Holdings, LLC on April 5, 2013.

The Company has repurchased 58.94 million shares of Series C common stock and 1.99 million shares of its Series A common stock under its $4.0 billion stock repurchase program to date at an aggregate purchase price of approximately $2.64 billion.  In aggregate, including the 17.73 million preferred shares acquired outside of the stock repurchase program from Advance/Newhouse and Advance Programming, LLC, the Company has repurchased 18% of the shares outstanding since buyback activity was authorized in 2010.

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.

FULL YEAR 2013 OUTLOOK

For the full year ending December 31, 2013, Discovery Communications, Inc. expects total revenue between $5.575 billion and $5.700 billion, Adjusted OIBDA between $2.425 billion and $2.525 billion, and net income available to Discovery Communications, Inc. stockholders of $1.200 billion to $1.300 billion. Our updated outlook incorporates the later closing of the SBS transaction, current foreign exchange rates for revenues and expenses and the current share price for mark-to-market equity-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 equity-based compensation, (ii) depreciation and amortization, (iii) amortization of deferred launch incentives, (iv) exit and restructuring charges, (v) certain impairment charges, and (vi) gains and 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. The Company excludes mark-to-market equity-based compensation, exit and restructuring charges, certain impairment charges, and gains and losses on business and asset dispositions from the calculation of Adjusted OIBDA due to their volatility. The Company also excludes depreciation of fixed assets and amortization of intangible assets and deferred launch incentives, 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 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. ET to discuss its first quarter results.  To listen to the call, visit http://www.discoverycommunications.com or dial 1-800-510-0219 inside the U.S. and 1-617-614-3451 outside of the U.S., using the following passcode: 64541599.

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 that are 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/A filed with the SEC on February 19, 2013. 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 2013 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

March 31,

2013

2012

Revenues:

Distribution

$

583

$

576

Advertising

508

453

Other

65

56

Total revenues

1,156

1,085

Costs and expenses:

    Costs of revenues, excluding depreciation and amortization

342

296

    Selling, general and administrative

367

311

    Depreciation and amortization

32

29

    Restructuring charges

1

1

Total costs and expenses

742

637

Operating income

414

448

Interest expense

(68)

(55)

Losses from equity investees, net

(2)

(48)

Other income (expense), net

33

(2)

Income from continuing operations before income taxes

377

343

Provision for income taxes

(146)

(120)

Income from continuing operations, net of taxes

231

223

Loss from discontinued operations, net of taxes

-

(1)

Net income

231

222

Net income attributable to noncontrolling interests

-

(1)

Net income available to Discovery Communications, Inc.

stockholders

$

231

$

221

Basic earnings per share available to Discovery

Communications, Inc. stockholders:

Continuing operations

$

0.64

$

0.58

Net Income

$

0.64

$

0.57

Diluted earnings per share available to Discovery

Communications, Inc. stockholders:

Continuing operations

$

0.63

$

0.57

Net Income

$

0.63

$

0.57

 

Weighted average shares outstanding:

Basic

363

386

Diluted

367

390

 

DISCOVERY COMMUNICATIONS, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited; in millions)

March 31,

December 31,

2013

2012

ASSETS

Current assets:

Cash and cash equivalents

$

2,360

$

1,201

Receivables, net

1,148

1,130

Content rights, net

127

122

Deferred income taxes

74

74

Prepaid expenses and other current assets

304

203

Total current assets

4,013

2,730

Noncurrent content rights, net

1,583

1,555

Property and equipment, net

377

388

Goodwill

6,501

6,399

Intangible assets, net

680

611

Equity method investments

1,105

1,095

Other noncurrent assets

162

152

Total assets

$

14,421

$

12,930

LIABILITIES AND EQUITY

Current liabilities:

Accounts payable

$

67

$

71

Accrued expenses and other current liabilities

912

721

Deferred revenues

100

123

Current portion of long-term debt

22

31

Total current liabilities

1,101

946

Long-term debt

6,407

5,212

Deferred income taxes

428

272

Other noncurrent liabilities

210

207

Total liabilities

8,146

6,637

Redeemable noncontrolling interest

33

-

 

Equity:

Preferred stock

2

2

Common stock

3

3

Additional paid-in capital

6,716

6,689

Treasury stock, at cost

(2,482)

(2,482)

Retained earnings

2,052

2,075

Accumulated other comprehensive (loss) income

(51)

4

    Total Discovery Communications, Inc. stockholders' equity                        

6,240

6,291

    Noncontrolling interest

2

2

Total equity

6,242

6,293

Total liabilities and equity

$

14,421

$

12,930

 

DISCOVERY COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited; in millions)

Three Months Ended March 31,

2013

2012

OPERATING ACTIVITIES

Net income

$

231

$

222

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

Equity-based compensation expense

60

41

Depreciation and amortization

32

30

Content amortization and impairment expense

231

207

Remeasurement gain on previously held equity interest

(92)

-

Equity in losses and distributions from investee companies

4

58

Deferred income tax expense (benefit)

134

(22)

Other, net

69

11

    Changes in operating assets and liabilities:

   Receivables, net

(20)

(29)

   Content rights

(301)

(226)

   Accounts payable and accrued liabilities

(70)

(23)

   Equity-based compensation liabilities

(59)

(24)

   Income tax receivable

(62)

20

   Other, net

(26)

(17)

Cash provided by operating activities

131

248

INVESTING ACTIVITIES

Purchases of property and equipment

(26)

(21)

Business acquisition, net of cash acquired

(60)

-

Investments in foreign exchange contracts

(39)

-

Distribution from equity method investee

-

17

Investments in and advances to equity method investees

(25)

(38)

Cash used in investing activities

(150)

(42)

FINANCING ACTIVITIES

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

1,186

-

Principal repayments of capital lease obligations

(11)

(10)

Repurchases of common stock

-

(288)

Tax settlements associated with equity-based plans

(22)

(3)

Proceeds from issuance of common stock in connection with equity-based plans

16

58

Excess tax benefits from equity-based compensation

13

30

Cash provided by (used in) financing activities

1,182

(213)

Effect of exchange rate changes on cash and cash equivalents

(4)

3

NET CHANGE IN CASH AND CASH EQUIVALENTS

1,159

(4)

 Cash and cash equivalents, beginning of period

1,201

1,048

CASH AND CASH EQUIVALENTS, END OF PERIOD

$

2,360

$

1,044

 

DISCOVERY COMMUNICATIONS, INC.

SUPPLEMENTAL FINANCIAL DATA

RECONCILIATION OF ADJUSTED OPERATING INCOME BEFORE

DEPRECIATION AND AMORTIZATION

(unaudited; in millions)

Three Months Ended March 31, 2013

Adjusted

Operating

Income Before

Depreciation and

Amortization

Depreciation

and

Amortization

Amortization of

Deferred Launch

Incentives

Mark-to-Market

Equity-Based

Compensation

Other (a)

Operating

Income

U.S. Networks

$   377

$    (3)

$    (2)

$       ?

$    (1)

$   371

International Networks

184

(15)

(3)

?

?

166

Education

7

(1)

?

?

?

6

Corporate and Eliminations

(70)

(13)

?

(46)

?

(129)

       Total

$   498

$  (32)

$    (5)

$    (46)

$    (1)

$   414

 

Three Months Ended March 31, 2012

Adjusted

Operating

Income Before

Depreciation and

Amortization

 

 

Depreciation

and

Amortization

Amortization of

Deferred Launch

Incentives

Mark-to-Market

Equity-Based

Compensation

Other (a)

Operating

Income

U.S. Networks

$   395

$    (3)

$    (2)

$       ?

$    (1)

$   389

International Networks

171

(11)

(3)

?

?

157

Education

6

?

?

?

?

6

Corporate and Eliminations

(64)

(15)

?

(25)

?

(104)

       Total

$   508

$  (29)

$    (5)

$    (25)

$    (1)

$   448

(a)   For the three months ended March 31, 2013 and for the three months ended March 31, 2012, amount represents

        restructuring charges of $1 million.

 

DISCOVERY COMMUNICATIONS, INC.

SUPPLEMENTAL FINANCIAL DATA

(unaudited; in millions)

CALCULATION OF FREE CASH FLOW

Three Months Ended March 31,

2013

2012

Change

Cash provided by operating activities

$

131

$

248

$

(117)

Acquisition of property and equipment

(26)

(21)

(5)

Free cash flow

$

105

$

227

$

(122)

 

RECONCILIATION OF 2013 OUTLOOK TO GAAP MEASURES

Full Year 2013

Net income available to Discovery Communications, Inc. stockholders

$

1,200

To

$

1,300

Interest expense, net

310

To

300

Depreciation and amortization

135

To

125

Other expense, including amortization of deferred launch incentives, mark-to-market equity-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

780

To

800

Adjusted OIBDA

$

2,425

To

$

2,525

 

DISCOVERY COMMUNICATIONS, INC.

SUPPLEMENTAL FINANCIAL DATA

SELECTED FINANCIAL DETAIL

(unaudited; in millions)

BORROWINGS

March 31, 2013

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

3.30% Senior Notes, semi-annual interest, due May 2022

500

3.25% Senior Notes, semi-annual interest, due April 2023

350

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

850

4.95% Senior Notes, semi-annual interest, due May 2042

500

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

850

Capital lease obligations

97

Total long-term debt

6,447

Unamortized discount

(18)

Long-term debt, net

6,429

Current portion of long-term debt

(22)

Noncurrent portion of long-term debt

$

6,407

 

EQUITY-BASED COMPENSATION

March 31, 2013

 

Long-Term

Incentive Plans

Total Units

Outstanding

(in millions)

Weighted

Average

Grant Price

Vested Units

Outstanding

(in millions)

Weighted

Average

Grant Price

Unit Awards

1.7

$

37.90

-

$

-

Stock Appreciation Rights

3.3

55.10

-

-

Stock Options

9.4

32.92

5.7

22.25

Performance-based Restricted Stock Units

1.7

43.57

0.3

32.39

Service-based Restricted Stock Units

0.8

51.40

-

-

      Total Equity-based Compensation Plans

16.9

$

39.70

6.0

$

22.76

 

SHARE COUNT ROLL FORWARD

Common

Preferred

Total

(Basic shares, in millions)

Total shares outstanding as of December 31, 2012                       

245.17

119.05

364.22

Shares issued ? equity-based compensation

0.83

-

0.83

Total shares outstanding as of March 31, 2013

246.00

119.05

365.05

 

SOURCE Discovery Communications, Inc.

For further information: Corporate Communications: Michelle Russo (240) 662-2901, michelle_russo@discovery.com; Investor Relations: Craig Felenstein (212) 548-5109, craig_felenstein@discovery.com

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