Nov. 3, 2009 (PR Newswire) --
SILVER SPRING, Md., Nov. 3 /PRNewswire-FirstCall/ -- Discovery Communications, Inc. ("Discovery" or the "Company") (Nasdaq: DISCA, DISCB, DISCK) today reported financial results for the third quarter ended September 30, 2009. The discussion below assumes the transaction between Discovery Holding Company ("DHC"), Discovery Communications Holding, LLC ("DCH"), and Advance/Newhouse Programming Partnership that resulted in Discovery becoming a public company occurred on January 1, 2008 and as such includes 100% of Discovery's results.
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David Zaslav, Discovery's President and Chief Executive Officer, said, "Discovery continued to deliver strong operating results during the third quarter, growing Adjusted OIBDA 17% in a challenging global environment. We remain focused on strengthening our portfolio and programming while increasing our efficiency through targeted reductions in our overall cost structure. Our strategy has generated ratings momentum across our networks enabling us to grow market share and, along with our expanding distribution revenues and leaner cost structure, positions us for continued margin expansion as the economy strengthens."
Revenues of $854 million were up slightly compared with the third quarter a year ago as 5% growth at U.S. Networks was partially offset by a 2% decline at International Networks, primarily the result of a $22 million unfavorable impact from foreign currency fluctuations. Adjusted Operating Income Before Depreciation and Amortization (1) ("OIBDA") increased 17% to $364 million, driven by 18% growth at U.S. Networks and 7% growth at International Networks. Total Company Adjusted OIBDA margin increased to 43% for the third quarter from 37% for the same period a year ago.
Third quarter net income available to Discovery Communications, Inc., stockholders of $95 million ($0.22 per share) decreased $39 million compared to $134 million ($0.44 per share) for the third quarter a year ago. The decreased results primarily reflect the $53 million growth in Adjusted OIBDA and $39 million lower tax expense in the quarter, which were more than offset by a $91 million expense in the current year from the unrealized change in the fair value of the mark-to-market share-based compensation, compared with a benefit of $65 million in the third quarter a year ago.
Free cash flow was $29 million for the third quarter, a decrease of $170 million from the third quarter of 2008, primarily due to $81 million in cash taxes paid related to the sale of 50% of the Discovery Kids channel, as well as the timing of $59 million of additional tax payments related to prior periods. Excluding these taxes, free cash flow of $455 million for the nine months year-to-date increased $116 million compared to the same period in 2008. 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 Three Months Ended Nine Months Ended
millions) September 30, September 30,
2009 2008 Change 2009 2008 Change
Revenues:
U.S. Networks $522 $498 5% $1,588 $1,526 4%
International
Networks 293 300 (2%) 831 864 (4%)
Commerce, Education,
and Other 38 45 (16%) 127 126 1%
Corporate 1 2 (50%) 6 23 (74%)
Total Revenues $854 $845 1% $2,552 $2,539 1%
Adjusted OIBDA:
U.S. Networks $302 $257 18% $907 $811 12%
International
Networks 110 103 7% 298 280 6%
Commerce, Education,
and Other 2 5 (60%) 13 2 NM
Corporate (50) (54) 7% (144) (145) 1%
Total Adjusted OIBDA $364 $311 17% $1,074 $948 13%
U.S. Networks
(dollars in Three Months Ended Nine Months Ended
millions) September 30, September 30,
2009 2008 Change 2009 2008 Change
Revenues:
Distribution $242 $231 5% $737 $691 7%
Advertising 261 249 5% 795 776 2%
Other 19 18 6% 56 59 (5%)
Total Revenues $522 $498 5% $1,588 $1,526 4%
Adjusted OIBDA $302 $257 18% $907 $811 12%
Adjusted OIBDA Margin 58% 52% 57% 53%
U.S. Networks' revenues in the third quarter of 2009 increased 5% to $522 million primarily driven by distribution and advertising revenue growth. Distribution revenue grew 5% largely from higher rates and subscriber growth primarily from networks carried on the digital tier, offset by the absence of $10 million due to the removal of Discovery Kids from the consolidated results following the sale of 50% of the entity on May 22, 2009. Excluding Discovery Kids from 2008 results, distribution revenue in the current quarter grew 10% compared with the third quarter a year ago. Advertising revenue increased 5% as a result of increased ratings, partially offset by lower cash sellouts due to softness in the economy.
Adjusted OIBDA increased 18% to $302 million in the current quarter, reflecting the 5% revenue growth and a 9% decline in operating expenses from lower marketing, selling and administrative costs, as well as from a decrease in programming costs. The decline in programming primarily reflects a content impairment charge of $17 million at TLC in the third quarter of 2008. Operating expenses would have decreased 4% excluding this content impairment charge and $4 million of increased costs related to OWN incurred in the current quarter.
International Networks
(dollars in Three Months Ended Nine Months Ended
millions) September 30, September 30,
2009 2008 Change 2009 2008 Change
Revenues:
Distribution $184 $188 (2%) $540 $548 (1%)
Advertising 80 83 (4%) 215 238 (10%)
Other 29 29 0% 76 78 (3%)
Total Revenues $293 $300 (2%) $831 $864 (4%)
Adjusted OIBDA $110 $103 7% $298 $280 6%
Adjusted OIBDA Margin 38% 34% 36% 32%
International Networks' revenues for the third quarter decreased 2% to $293 million due to a $22 million unfavorable impact from foreign currency fluctuations. Excluding the impact of foreign currency fluctuations, revenues for the current quarter increased 6% driven by 9% advertising revenue growth, primarily at EMEA from higher viewership and an increased subscriber base, as well as 5% affiliate revenue growth led by Latin America and Asia-Pacific from increased subscribers.
Adjusted OIBDA, which included a $2 million unfavorable impact related to foreign exchange rates, increased 7% to $110 million as the 2% revenue decline was more than offset by an 8% decrease in operating expenses. Excluding the impact of foreign currency, Adjusted OIBDA increased 10% reflecting the 6% revenue growth partially offset by 3% higher operating expenses as increased programming expenses were mostly offset by lower marketing and personnel costs.
Commerce, Education, and Other
(dollars in Three Months Ended Nine Months Ended
millions) September 30, September 30,
2009 2008 Change 2009 2008 Change
Revenues $38 $45 (16%) $127 $126 1%
Adjusted OIBDA $2 $5 (60%) $13 $2 NM
Commerce, Education and Other third quarter revenues of $38 million declined $7 million from the third quarter of 2008, primarily from lower commerce revenues as a result of the transition to a new licensing model and a decline in sound services, partially offset by increased educational revenues from higher streaming volumes. Adjusted OIBDA decreased $3 million primarily from lower results in sound services, partially offset by cost reductions from the transition of our commerce business to a licensing model.
Corporate
Adjusted OIBDA increased $4 million when compared to the third quarter a year ago due primarily to lower consulting costs.
FULL YEAR 2009 OUTLOOK
For the full year ended December 31, 2009, Discovery Communications, Inc., expects total revenue between $3,450 million and $3,500 million, Adjusted OIBDA between $1,430 million and $1,460 million, and net income available to Discovery Communications, Inc. stockholders of $525 million to $550 million. Our outlook incorporates current foreign exchange rates for revenues and expenses, the removal of Discovery Kids from our consolidated operations, current share price for mark-to-market share-based compensation calculations and the impact of OWN.
NON-GAAP FINANCIAL MEASURES
Adjusted OIBDA and Free Cash Flow
In addition to the results prepared in accordance with 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 share-based compensation, (ii) depreciation and amortization, (iii) amortization of deferred launch incentives, (iv) exit and restructuring charges, (v) impairment charges, and (vi) gains (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.
