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.
