ENGLEWOOD, Colo., Aug. 11 /PRNewswire-FirstCall/ -- On August 11, 2008,
Discovery Holding Company ('DHC') (Nasdaq: DISCA, DISCB) will file its Form
10-Q with the Securities and Exchange Commission for the quarter ended June
30, 2008. The following release is being provided to supplement the
information provided in the Form 10-Q.
DHC owns 100% of Ascent Media Group, LLC ('Ascent Media' or 'AMG'), 100%
of Ascent Media CANS, LLC (dba Accent Health) ('AccentHealth') and 66-2/3% of
Discovery Communications Holding, LLC ('Discovery'). Ascent Media provides
creative and network services to the media and entertainment industries.
AccentHealth operates one of the nation's largest advertising-supported
captive audience television networks serving doctor office waiting rooms
nationwide. Discovery is a global media and entertainment company that
provides cable and satellite television programming and online content in over
170 countries and territories.
Discovery
The presentation below includes information regarding 100% of Discovery's
revenue, adjusted operating income before depreciation and amortization
('adjusted OIBDA') and other selected financial metrics even though DHC only
owns 66-2/3% of the equity of Discovery and accounts for Discovery as an
equity affiliate. Please see page 8 for a discussion of why management
believes this presentation is meaningful to investors. Unless otherwise
stated, the financial results presented herein include the results of Travel
Channel through the time of its disposition which occurred on May 14, 2007.
Also, unless otherwise noted, all results herein exclude the results of the
Discovery Channel Stores, which ceased operations in the third quarter of 2007
and have been treated as discontinued operations for accounting purposes.
Discovery's operations are divided into three groups: U.S. networks,
international networks and commerce and education. Corporate expenses are
excluded from segment results to enable executive management to evaluate
business segment performance based upon decisions made directly by business
segment executives.
Discovery Communications Holding, LLC: Consolidated Highlights
In US$ Millions unless otherwise noted
2Q08 2Q07 Change
Consolidated Revenue 863 786 10%
Revenue excluding Travel Channel 863 764 13%
Adjusted OIBDA 315 264 19%
Adjusted OIBDA excluding Travel Channel 315 259 22%
Adjusted OIBDA Margin 37% 34%
Adjusted OIBDA Margin excluding Travel
Channel 37% 34%
Consolidated second quarter revenue, excluding Travel Channel's 2007
results, increased 13% to $863 million primarily driven by 11% growth at U.S.
Networks and 21% growth from International Networks. These consolidated
results, which include $17 million of favorable foreign currency fluctuation,
reflect an 18% increase in distribution revenue led by international
subscriber growth and higher rates and subscribers at U.S. Networks.
Additionally, advertising revenue increased 10%, the result of higher volume
and pricing at both U.S. and International Networks.
Second quarter consolidated adjusted OIBDA, excluding Travel Channel's
2007 results, increased 22% to $315 million led by 19% growth at U.S. Networks
and 55% growth from International Networks. These consolidated results
reflect the 13% revenue growth, partially offset by increased operating
expenses of 9%, primarily from higher marketing costs at U.S. Networks and
from increased programming and personnel costs at International Networks.
Additionally, the current quarter included operating costs for HowStuffWorks,
which was acquired in the fourth quarter of 2007 and therefore not included in
the prior year's second quarter.
Discovery Networks U.S.
Discovery Networks U.S.: Highlights
In US$ Millions unless otherwise noted
2Q08 2Q07 Change
Total Revenue 549 516 6%
Revenue excluding Travel Channel 549 494 11%
Adjusted OIBDA 285 245 16%
Adjusted OIBDA excluding Travel
Channel 285 240 19%
Adjusted OIBDA Margin 52% 47%
Adjusted OIBDA Margin excluding Travel
Channel 52% 49%
U.S. Networks' revenue in the second quarter of 2008, excluding Travel
Channel's 2007 results, increased 11% to $549 million primarily driven by
distribution and advertising revenue growth. Distribution revenue grew 14%
largely from higher rates across the fully-distributed networks and subscriber
growth at the emerging networks. The quarterly results also include $8
million of one-time revenue related to accruals in prior periods for certain
distributors. Advertising revenue increased 9% from higher sellouts and
pricing, partially offset by lower ratings, primarily at TLC. Additionally,
other revenue increased 8% reflecting Discovery's sales representation of
Travel Channel and an increase in digital revenue, primarily from the
inclusion of HowStuffWorks.
Adjusted OIBDA, excluding the Travel Channel's 2007 results, increased 19%
to $285 million reflecting the 11% revenue growth, partially offset by 4%
higher operating expenses. The increase in costs was primarily due to higher
marketing spending for original series on Discovery Channel and Animal Planet,
as well as initial costs associated with the launch of Planet Green. The
second quarter results also reflect continued investment in digital media,
including operating costs associated with HowStuffWorks. Programming costs
during the quarter declined versus a year ago primarily due to a $19 million
decrease in content amortization as a result of the content impairment charge
recorded in the fourth quarter of 2007.
Discovery Networks International
Discovery Networks International: Highlights
In US$ Millions unless otherwise noted
2Q08 2Q07 Change
Total Revenue 301 248 21%
Adjusted OIBDA 87 56 55%
Adjusted OIBDA Margin 29% 23%
International Networks' revenue for the second quarter increased 21% to
$301 million led by 23% distribution revenue growth primarily from subscriber
increases in EMEA (Europe (excluding U.K.), Middle East and Africa) and Latin
America. Additionally, advertising revenue grew 12% led by increased volume
and higher rates at EMEA and Latin America, partially offset by lower
advertising revenue in the UK. The quarter also included $17 million of
favorable foreign currency fluctuations, as well as 47% growth in other
revenue driven by the sale of Discovery programs in the U.K. and by Antenna
Audio's expanded client base.
Adjusted OIBDA increased 55% to $87 million reflecting the 21% revenue
growth, partially offset by 11% higher operating expenses primarily due to
foreign currency fluctuations and increases in programming and personnel
costs. Excluding the impact of foreign currency fluctuations, adjusted OIBDA
increased 36% versus the second quarter of 2007 led by total revenue growth of
14%, which included distribution revenue gains of 15%, advertising revenue
growth of 5% and increased other revenue of 46%, partially offset by operating
expense growth of 8%.
Commerce and Education
Discovery Commerce and Education: Highlights
In US$ Millions unless otherwise noted
2Q08 2Q07 Change
Total Revenue 20 33 (39)%
Adjusted OIBDA (3) 7 NM
Adjusted OIBDA Margin NM 21%
Commerce and education revenue for the second quarter decreased to $20
million from $33 million a year ago and the company recorded an adjusted OIBDA
loss of $3 million versus adjusted OIBDA of $7 million in the second quarter
of 2007. The adjusted OIBDA decline was primarily due to a decrease in
commerce revenue versus the prior year, which included strong DVD sales of
Planet Earth. The current quarter included the initial DVD sales of When We
Left Earth, which began shipping late in the quarter, as well as the launch of
DVD sales under the Blockbuster agreement announced on June 24, 2008.
Corporate and Eliminations
Corporate and Eliminations adjusted OIBDA loss increased $10 million to
$54 million in the second quarter, primarily due to spending related to the
formation of the OWN joint venture, expenses associated with the
Advance/Newhouse transaction, discussed below, and increased personnel costs.
Debt
Discovery's outstanding debt balance was $4.0 billion at the end of the
second quarter, in-line with the $4.1 billion at the end of the second quarter
in 2007.
DHC
DHC's consolidated revenue increased 10% or $17 million and consolidated
adjusted OIBDA increased 20% or $3 million. DHC's principal operating
subsidiary, Ascent Media, is comprised of two global operating divisions
-- Creative Services Group and Network Services Group. Creative Services
Group revenue is generated from fees for video and audio post production,
special effects and editorial services for the television, feature film and
advertising industries. Generally, these services pertain to the completion
of feature films, television programs and television commercials.
Additionally, the Creative Services Group provides owners of film libraries a
broad range of restoration, preservation, archiving, professional mastering
and duplication services. Network Services Group revenue consists of fees
relating to facilities and services necessary to assemble and transport
programming for cable and broadcast networks across the world via fiber,
satellite and the Internet. The group also generates revenue from systems
integration and field support services, technology consulting services, design
and implementation of advanced video systems, engineering project management,
technical help desk and field services. The AccentHealth business is
accounted for as part of the Network Services Group.
Creative Services revenue decreased $4 million and adjusted OIBDA
decreased $1 million. Revenue decreased due to (i) a slowdown in television
post production services worldwide driven primarily by the continued impact of
the Writers' Guild strike in the U.S. and declines in broadcast work in the
U.K. and (ii) a decrease in media services driven by lower lab, DVD and
digital services. These decreases were partially offset by an increase in
feature revenue driven by increased titles for post production and audio
services. Operating expenses declined 3% due to the decreased workload caused
by the writers' strike. Network Services revenue increased 29% or $21 million
and adjusted OIBDA increased 48% or $5 million. The increase in revenue was
due to (i) increased system integration services revenue due to the number of
larger projects, (ii) an increase in content distribution revenue primarily in
the U.K. and (iii) growth in the digital network at AccentHealth. Operating
expenses increased for the quarter due to the higher volume of system
integration services, which have a higher percentage of equipment costs. DHC
corporate expenses also increased as a result of legal and accounting costs
related to the Advance/Newhouse Transaction and Ascent Spin-Off, discussed
below.
Discovery Communications Holding, LLC was formed in the second quarter of
2007 as part of a restructuring completed by Discovery Communications, Inc.
('DCI'). DCI became a wholly-owned subsidiary of Discovery, and Discovery is
the successor reporting entity to DCI. Also during the second quarter of
2007, Discovery and Cox Communications Holdings, Inc. ('Cox') completed an
exchange of Cox's 25% ownership interest in Discovery for all of the capital
stock of a subsidiary of Discovery that held Travel Channel, travelchannel.com
and approximately $1.3 billion in cash. Upon completion of the transaction,
DHC owns a 66-2/3% interest in Discovery and Advance/Newhouse Communications
('Advance/Newhouse') owns a 33-1/3% interest.
On June 4, 2008, DHC and Advance/Newhouse entered into a Transaction
Agreement under which they will combine their respective interests in
Discovery. The Transaction Agreement contemplates the following steps: (i)
DHC will spin-off to its shareholders a wholly-owned subsidiary holding
substantially all of DHC's cash, AccentHealth and Ascent Media, except for
those businesses of Ascent Media that provide sound, music, mixing, sound
effects and other related post-production audio services under brand names
such as Sound One, POP Sound, Soundelux and Todd A-O (the 'Ascent Media Spin
Off'), (ii) immediately following the Ascent Media Spin Off, DHC will combine
with a new holding company ('New DHC'), and DHC's existing shareholders will
receive shares of common stock of New DHC, and (iii) as part of this
transaction, Advance/Newhouse will contribute its interests in Discovery and
Animal Planet to New DHC in exchange for preferred stock of New DHC that,
immediately after the closing of the transactions, will be convertible at any
time into shares initially representing one-third of the outstanding shares of
common stock of New DHC on an as-converted basis. The preferred stock held by
Advance/Newhouse will entitle it to elect three members to New DHC's board of
directors and to exercise approval rights with respect to the taking of
specified actions by New DHC and Discovery.
The DHC shareholder meeting is expected to be held on September 16, 2008.
Although no assurance can be given, consummation of this transaction is
expected to occur subsequent to the shareholder meeting. The Ascent Media
Spin Off was approved by DHC's board of directors in connection with the
agreement between DHC and Advance/Newhouse, and it is a condition of the
Ascent Media Spin Off that the agreement between DHC and Advance/Newhouse be
in effect and that all conditions precedent to that transaction (other than
the Ascent Media Spin Off) shall have been satisfied. The Ascent Media Spin
Off will not occur unless DHC's shareholders approve proposals relating to the
transactions contemplated by the Transaction Agreement.
NOTES
As a supplement to DHC's consolidated statements of operations included in
its 10-Q, the preceding is a presentation of financial information on a stand
alone basis for Discovery and for the consolidated results of DHC for the
three months ended June 30, 2008.
Unless otherwise noted, the foregoing discussion compares financial
information for the three months ended June 30, 2008, to the same periods in
2007. Please see page 8 of this press release for the definition of adjusted
OIBDA and a discussion of management's use of this performance measure.
Schedule 1 to this press release provides a reconciliation of DHC's
consolidated segment adjusted OIBDA for its operating segments to consolidated
earnings before income taxes. Schedule 2 to this press release provides a
reconciliation of the adjusted OIBDA for DHC and Discovery to that entity's
operating income (loss) for the same period, as determined under GAAP.
Certain prior period amounts have been reclassified for comparability with the
2008 presentation.
OUTSTANDING SHARES AND LIQUIDITY
At June 30, 2008, there were approximately 281.0 million outstanding
shares of DISCA and DISCB and 4.1 million shares of DISCA and DISCB reserved
for issuance pursuant to employee stock options. At June 30, 2008, there were
2,734,071 options that had a strike price that was lower than the closing
stock price. Exercise of these options would result in aggregate cash
proceeds to DHC of approximately $48 million. At June 30, 2008, DHC had $226
million of cash and liquid investments and no debt.
Certain statements in this press release may constitute 'forward-looking
statements' within the meaning of the Private Securities Litigation Reform Act
of 1995, such as trend information in the discussion of Discovery's and Ascent
Media's revenue, expenses and operating cash flow. Such forward-looking
statements involve known and unknown risks, uncertainties and other important
factors that could cause the actual results, performance or achievements of
the operating businesses of DHC included herein or industry results, to differ
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such risks, uncertainties and
other factors include, among others: the risks and factors described in the
publicly filed documents of DHC, including the most recently filed Form 10-K
of DHC; general economic and business conditions and industry trends including
in the advertising and retail markets; spending on domestic and foreign
advertising; the continued strength of the industries in which such businesses
operate; continued consolidation of the broadband distribution and movie
studio industries; uncertainties inherent in proposed business strategies and
development plans; changes in distribution and viewing of television
programming, including the expanded deployment of personal video recorders and
IP television and their impact on television advertising revenue; rapid
technological changes; future financial performance, including availability,
terms and deployment of capital; availability of qualified personnel; the
development and provision of programming for new television and
telecommunications technologies; changes in, or the failure or the inability
to comply with, government regulation, including, without limitation,
regulations of the Federal Communications Commission, and adverse outcomes
from regulatory proceedings; adverse outcomes in pending litigation; changes
in the nature of key strategic relationships with partners and joint ventures;
competitor responses to such operating businesses' products and services, and
the overall market acceptance of such products and services, including
acceptance of the pricing of such products and services; and threatened
terrorist attacks and ongoing military action, including armed conflict in the
Middle East and other parts of the world. These forward-looking statements
speak only as of the date of this Release. DHC expressly disclaims any
obligation or undertaking to disseminate any updates or revisions to any
forward-looking statement contained herein to reflect any change in DHC's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
Additional Information
Nothing in this release shall constitute a solicitation to buy or an offer
to sell shares of the new holding company to be formed in connection with the
transaction between DHC and Advance/Newhouse described in this release. The
offer and sale of such shares in the proposed transaction will only be made
pursuant to an effective registration statement. DHC stockholders and other
investors are urged to read the registration statement, including the proxy
statement/prospectus contained therein, filed with the SEC, because it will
contain important information about the transactions. A copy of the
registration statement and the proxy statement/prospectus is available free of
charge at the SEC's website (http://www.sec.gov). Copies of the proxy
statement/prospectus and the filings with the SEC that are incorporated by
reference in the proxy statement/prospectus can also be obtained, without
charge, by directing a request to Discovery Holding Company, 12300 Liberty
Boulevard, Englewood, Colorado 80112, Attention: Investor Relations,
Telephone: (720) 875-5408.
Participants in Solicitation
The directors and executive officers of DHC and other persons may be
deemed to be participants in the solicitation of proxies in respect of
proposals to approve the transaction. Information regarding DHC's (and the new
holding company's) directors and executive officers and other participants in
the proxy solicitation and a description of their direct and indirect
interests, by security holdings or otherwise, is available in the proxy
materials to be filed with the SEC.
SUPPLEMENTAL INFORMATION
Please see page 8 for the definition of adjusted operating income before
depreciation and amortization ('adjusted OIBDA') and Schedule 2 at the end of
this document for reconciliations for the applicable periods in 2008 and 2007
of adjusted OIBDA to operating income (loss), as determined under GAAP, for
each identified entity.
The selected information for Discovery included herein presents 100% of
the revenue, adjusted OIBDA, operating income and other selected financial
metrics for Discovery even though DHC owns only 66-2/3% of Discovery and
accounts for it as an equity affiliate. This presentation is designed to
reflect the manner in which DHC's management reviews the operating performance
of its investment in Discovery. It should be noted, however, that the
presentation is not in accordance with GAAP since the results of operations of
equity method investments are required to be reported on a net basis.
Further, DHC could not, among other things, cause Discovery to distribute to
DHC our proportionate share of the revenue or adjusted OIBDA of Discovery.
The selected financial information presented for Discovery was obtained
directly from Discovery. DHC does not control the decision-making processes
or business management practices of Discovery. The above discussion and
following analysis of Discovery's operations and financial position have been
prepared based on information that DHC receives from Discovery and represents
DHC's views and understanding of Discovery's operating performance and
financial position based on such information. Discovery is not a separately
traded public company, and DHC does not have the ability to cause Discovery's
management to prepare their own management's discussion and analysis for our
purposes. Accordingly, we note that the material presented in this
publication might be different if Discovery's management had prepared it. DHC
is not aware, however, of any errors in or possible misstatements of the
financial information provided to it by Discovery that would have a material
effect on DHC's consolidated financial statements.
QUARTERLY SUMMARY
(amounts in millions) 2Q08 1Q08 4Q07 3Q07 2Q07
DISCOVERY HOLDING COMPANY (100%)
Revenue 194 189 178 178 177
Adjusted OIBDA 18 10 21 16 15
Operating Income (Loss) 1 (8) (162) (2) (3)
DISCOVERY COMMUNICATIONS
HOLDING, LLC (66.7%) (1)
Adjusted Revenue - U.S. Networks (2) 549 491 504 475 494
add: Revenue - Divestiture (2) - - - - 22
Revenue - U.S. Networks (3) 549 491 504 475 516
Revenue - International Networks
(4), (5) 301 267 309 259 248
Revenue - Commerce, Education & Other
(6) 20 25 74 20 33
Revenue - Corporate and Eliminations
(7) (7) 12 (1) (9) (11)
Revenue - Total 863 795 886 745 786
Adjusted Revenue - Total (2) 863 795 886 745 764
Adjusted OIBDA - U.S. Networks (2) 285 247 226 222 240
add: Adjusted OIBDA -
Divestitures (2) - - - - 5
less: Adjusted OIBDA - Content
Impairment (8) - - (129) - -
Adjusted OIBDA - U.S. Networks (3) 285 247 97 222 245
Adjusted OIBDA - International
Networks (4), (5) 87 69 72 55 56
Adjusted OIBDA - Commerce &
Education (2) - - 9 (1) 7
less: Adjusted OIBDA - Content
Impairment (8) - - (10) - -
Adjusted OIBDA - Commerce, Education
& Other (6) (3) - (1) (1) 7
Adjusted OIBDA - Corporate and
Eliminations (7) (54) (30) (47) (45) (44)
Adjusted OIBDA - Total 315 286 121 231 264
Adjusted OIBDA - Total (2) 315 286 260 231 259
Operating Income 218 284 68 152 267
(1) Discovery -- Certain prior period amounts have been reclassified to
conform to the current period presentation.
(2) Discovery -- Revenue and Adjusted OIBDA amounts exclude the
previously disclosed disposal of Travel Channel on May 14, 2007, and
fourth quarter 2007 impairment charges. Discovery believes these
indicators to be important in order to facilitate comparability of
results.
(3) Discovery -- U.S. Networks: Discovery Channel, TLC, Animal Planet,
Discovery Health, Discovery Kids, Science Channel, Investigation
Discovery, Planet Green (formerly Discovery Home through June 4,
2008), Military Channel, HD Theater, Fit TV, Travel Channel
Representation, BBC America Representation, BBC World Representation,
HowStuffWorks and other initiatives. Discovery Channel, TLC, Animal
Planet, Science Channel and Planet Green are also simulcast in HD.
The financial results presented herein include the results of Travel
Channel up to May 14, 2007, due to the disposal of Travel Channel in
the transaction in which Discovery and Cox Communications Holdings,
Inc. ('Cox') completed an exchange of Cox's 25% ownership interest in
Discovery for all of the capital stock of a subsidiary of Discovery
that held Travel Channel, travelchannel.com and approximately $1.3
billion in cash.
Adjusted OIBDA for the first and second quarters of 2008 were
positively impacted by a temporary decrease in content amortization
expense of $18 million and $19 million respectively, due to the
effect of the $129 million fourth quarter 2007 content impairment
charge, which recognized the lessened value of some content assets
deemed by management to be no longer appropriate for its new branded
programming strategies. This lower-than-year-before level of content
amortization expense is expected to continue through the third
quarter of 2008 with levels beginning to increase in the second half
of 2008 due to the commissioning of new programming and a return to a
regular amortization cycle for most networks.
(4) Discovery -- International Networks: Discovery Channels in UK,
Europe, Latin America, Asia, India, Africa, Middle East; Discovery
Kids in Latin America; Discovery Travel & Living in UK, Europe, Latin
America, Asia, India, Middle East; Discovery Home & Health in UK,
Latin America, Asia; Discovery Real Time in UK, Europe, Asia;
Discovery Civilisation in Lain America; Discovery Knowledge in UK;
Discovery World in Europe, Middle East; Discovery Science in UK,
Europe, Latin America, Asia, Middle East; Animal Planet in UK,
Germany, Italy; Discovery en Espanol in U.S., Discovery Familia in
U.S.; Discovery Geschichte in Germany; Discovery HD in UK, Europe,
Asia; DMAX in Germany, UK; Discovery Turbo in UK, Latin America,
Spain, Portugal; consolidated BBC/Discovery joint venture networks
(Animal Planet networks in Europe, Latin America, Japan, Asia,
Africa; Middle East; People + Arts in Latin America, Spain,
Portugal); and Antenna Audio, which designs, sources and manages
portable digital information systems and audio productions.
Discovery Networks International Joint Ventures -- Consolidated
Discovery Networks International joint venture networks (Animal
Planet networks in Europe, Latin America, Japan, Asia, Africa, Middle
East; People + Arts in Latin America, Spain and Portugal) are
composed of joint ventures with British Broadcasting Corporation.
These ventures are controlled by Discovery and consolidated into the
results of Discovery Networks International. The equity in the
assets of these joint ventures is predominantly held 50/50 by
Discovery and BBC. Exceptions involve participants related to the
local market in which a specific network operates.
(5) Discovery -- Discovery Networks International -- Equity Affiliates:
Discovery accounts for its interests in joint ventures it does not
control as equity method investments. The operating results of joint
ventures that Discovery does not control, including Discovery Channel
Canada, Discovery Channel Japan, Discovery HD Japan, Discovery Kids
Canada, Discovery Health Canada, Discovery Civilization Canada,
Discovery HD Canada, Animal Planet Canada and Discovery Historia
Poland, are not consolidated and are not reflected in the results
presented above.
(6) Discovery -- Commerce & Education: Commerce & Education is comprised
of a mail-order catalog business, an on-line shopping site, a
licensing and strategic partnerships business, and an educational
business that reaches many students in the U.S. through the sale of
supplemental hardcopy products and the delivery of streaming
video-on-demand through its digital internet enabled platforms.
On May 17, 2007, Discovery announced that it would close its 103
mall-based and stand-alone Discovery Channel stores, which closures
were completed in the third quarter of 2007. These stores had been
part of Discovery's commerce business. As a result of the store
closures, the above financial results of Discovery have been prepared
to reflect the retail store business as discontinued operations.
Accordingly, the revenue, costs and expenses of the retail store
business have been excluded from the respective financial results
included in this press release.
(7) Discovery -- Corporate: Corporate expenses consist of corporate
functions, executive management, administrative support and JV
Programs, LLC.
NON-GAAP FINANCIAL MEASURES
This press release includes a presentation of adjusted OIBDA, which is a
non-GAAP financial measure, for DHC on a consolidated basis and Discovery on a
stand alone basis together with a reconciliation of that non-GAAP measure to
such entity's operating income, determined under GAAP. DHC defines adjusted
OIBDA as revenue less cost of sales, operating expenses, and selling, general
and administrative expenses (excluding stock and other equity-based
compensation and accretion expense on asset retirement obligations). Adjusted
OIBDA, as defined by DHC, excludes depreciation and amortization, stock and
other equity-based compensation, accretion expense on asset retirement
obligations and restructuring and impairment charges that are included in the
measurement of operating income pursuant to GAAP.
DHC believes adjusted OIBDA is an important indicator of the operational
strength and performance of its businesses, including the ability to service
debt and fund capital expenditures. In addition, this measure allows
management to view operating results and perform analytical comparisons and
benchmarking between businesses and identify strategies to improve
performance. Because adjusted OIBDA is used as a measure of operating
performance, DHC views operating income as the most directly comparable GAAP
measure. Adjusted OIBDA is not meant to replace or supercede operating income
or any other GAAP measure, but rather to supplement the information to present
investors with the same information as DHC's management considers in assessing
the results of operations and performance of its assets. Please see the
attached schedules for a reconciliation of consolidated segment adjusted OIBDA
to consolidated earnings before income taxes (Schedule 1) and a reconciliation
of each identified entity's adjusted OIBDA to its operating income (loss)
calculated in accordance with GAAP (Schedule 2).
DISCOVERY HOLDING COMPANY
SCHEDULE 1
The following table provides a reconciliation of consolidated segment
adjusted OIBDA to earnings before income taxes for the quarters ended June 30,
2008 and 2007, respectively.
(amounts in millions) 2Q08 2Q07
Consolidated segment adjusted OIBDA $18 15
Stock-based compensation (1) --
Depreciation and amortization (16) (17)
Share of earnings of Discovery 75 126
Other, net -- 1
Earnings before income taxes $76 125
SCHEDULE 2
The following tables provide reconciliation of adjusted OIBDA to operating
income (loss) calculated in accordance with GAAP for the three months ended
June 30, 2007, September 30, 2007, December 31, 2007, March 31, 2008 and June
30, 2008, respectively.
Discovery's Long Term Incentive Plan (LTIP) shown in Schedule 2 tracks the
performance of DISCA shares. Discovery accounts for the LTIP in accordance
with FAS 133, Accounting for Derivative Financial Instruments, and EITF 02-08,
Accounting for Options Granted to Employees in Unrestricted, Publicly Traded
Shares of an Unrelated Entity, as the value of units in the LTIP is indexed to
the value of DHC Series A common stock. Changes in value of the LTIP impacted
Operating Income by $53 million in the second quarter of 2008 versus $73
million in the year ago quarter. This change was driven by stock appreciation
during the prior year quarter. While carried as part of Operating Income,
these fluctuations in the value of the LTIP have not been included as part of
adjusted OIBDA due to their significant volatility.
(amounts in millions) 2Q08 1Q08 4Q07 3Q07 2Q07
DISCOVERY HOLDING COMPANY (100%)
Adjusted OIBDA $18 10 21 16 15
Depreciation and Amortization (16) (17) (18) (17) (17)
Stock-Based Compensation Expense (1) -- -- (1) --
Impairment of Goodwill -- -- (165) -- --
Other -- (1) -- -- (1)
Operating Income (Loss) $1 (8) (162) (2) (3)
DISCOVERY COMMUNICATIONS
HOLDING, LLC (66.7%)
Adjusted OIBDA $315 286 121 231 264
Depreciation and Amortization (40) (38) (36) (31) (32)
Long-Term Incentive Plan (53) 36 (12) (44) (73)
Restructuring Charge (4) -- (5) (4) (1)
Asset Impairment -- -- -- -- (26)
Gain on Sale of Operating Assets -- -- -- -- 135
Operating Income $218 284 68 152 267
SOURCE Discovery Holding Company
