Discovery Communications Reports First Quarter 2011 Results

Discovery Communications Reports First Quarter 2011 Results

SILVER SPRING, Md., April 28, 2011 /PRNewswire/ --

First Quarter 2011 Financial Highlights:

-- Revenues increased 9% to $951 million
-- Adjusted OIBDA increased 17% to $427 million
-- Net income increased to $305 million (up 20% excluding one-time items)
-- Free Cash Flow increased 81% to $206 million
-- Repurchased 4.7 million shares for an aggregate purchase price of $167
million

Discovery Communications, Inc. ("Discovery" or the "Company") (NASDAQ: DISCA, DISCB, DISCK) today reported financial results for the first quarter ended March 31, 2011.

(Logo: http://photos.prnewswire.com/prnh/20080918/NETH035LOGO )

David Zaslav, Discovery's President and Chief Executive Officer said, "Discovery's strong first quarter results reflect the operating momentum we are generating across our global portfolio in a continued favorable economic climate. Our consistent investment in content over the past four years, along with a drive to expand our subscriber base domestically and internationally, has enabled Discovery to grow our audiences across the globe. Once again this quarter, we recognized the value of our increased viewership through double digit advertising gains that further built upon the strength we demonstrated throughout 2010. Moving forward, with advertising revenues expanding and predictable distribution revenues continuing to grow, we remain focused on delivering sustained operating leverage and free cash flow growth, while also continuing to invest in Discovery's diverse set of brands and platforms around the world."

First quarter revenues of $951 million increased $82 million, or 9%, over the first quarter a year ago, led by 8% growth at U.S. Networks and 14% growth at International Networks. Adjusted Operating Income Before Depreciation and Amortization (1) ("OIBDA") grew 17% to $427 million, driven by a 14% increase at U.S. Networks and an 18% increase at International Networks. Adjusted OIBDA margin for the first quarter increased to 45% from 42% in the first quarter of 2010.

First quarter net income from continuing operations available to Discovery Communications, Inc. stockholders of $305 million ($0.74 per diluted share) increased $136 million compared to $169 million ($0.39 per diluted share) for the first quarter a year ago. The current quarter results reflect the strong operating performance, as well as a gain of $102 million, net of tax, as a result of contributing the domestic Discovery Health network to the OWN: Oprah Winfrey Network ("OWN") joint venture, partially offset by an increased provision for income taxes.

Free cash flow was $206 million for the first quarter, an increase of $92 million from the first quarter of 2010, due to increased operating performance and lower taxes and interest 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 Three Months Ended March
millions) 31,
-------------------------
2011 2010(a) Change
---- ------- ------

Revenues:
U.S. Networks $587 $546 8%
International
Networks 323 283 14%
Education and Other 41 37 11%
Corporate and
Eliminations - 3 NM
--- ---
Total Revenues $951 $869 9%
==== ====

Adjusted OIBDA:
U.S. Networks $334 $293 14%
International
Networks 144 122 18%
Education and Other 8 5 60%
Corporate and
Eliminations (59) (55) (7%)
--- ---
Total Adjusted OIBDA $427 $365 17%
==== ====

(a) The 2010 financial information has been recast so that the
basis of presentation is consistent with that of the 2011 financial
information. See Other Items on page 4 for additional detail.

U.S. Networks
-------------

(dollars in
millions) Three Months Ended March 31,
----------------------------
2011 2010 Change
---- ---- ------

Revenues:
Distribution $274 $259 6%
Advertising 290 266 9%
Other 23 21 10%
--- ---
Total Revenues $587 $546 8%
==== ====

Adjusted OIBDA $334 $293 14%

Adjusted OIBDA
Margin 57% 54%

U.S. Networks' revenues in the first quarter of 2011 increased 8% to $587 million primarily driven by advertising and distribution revenue growth. Advertising revenue increased 9% due to increased pricing as well as higher sellouts, partially offset by the absence of $14 million due to the removal of Discovery Health following its contribution into the OWN joint venture on January 1, 2011. Distribution revenue grew 6% largely from higher rates and subscriber growth primarily from networks carried on the digital tier, partially offset by $4 million due to the absence of Discovery Health. Excluding Discovery Health from the 2010 results, advertising revenues grew 15% and distribution revenues grew 7% compared with the first quarter a year ago.

Adjusted OIBDA increased 14% to $334 million primarily reflecting the 8% revenue growth. Excluding Discovery Health from the 2010 results, Adjusted OIBDA increased 17%. Operating expenses for the quarter were flat as higher sales commissions were offset by lower selling, general and administrative expense due to a decrease in marketing costs. Excluding $18 million of higher content impairment charges in the first quarter of 2010, operating expenses would have increased 8% compared to a year ago.

International Networks
----------------------

(dollars in
millions) Three Months Ended March 31,
----------------------------
2011 2010 Change
---- ---- ------

Revenues:
Distribution $206 $186 11%
Advertising 102 82 24%
Other 15 15 -
--- ---
Total Revenues $323 $283 14%
==== ====

Adjusted OIBDA $144 $122 18%

Adjusted OIBDA
Margin 45% 43%

International Networks' revenues for the first quarter increased 14% to $323 million primarily led by advertising revenue growth of 24% and distribution revenue growth of 11%. Excluding the impact of foreign currency fluctuations, revenues increased 11% led by 19% advertising revenue growth, primarily from higher pricing and sellouts in Western Europe as well as increased sellouts and viewership in Asia-Pacific and Latin America. Distribution revenue in local currency terms was up 8% during the first quarter mainly from increased subscribers and higher rates in Latin America and CEEMEA (Central and Eastern Europe, Middle East and Africa).

Adjusted OIBDA increased 18% to $144 million reflecting the 14% revenue growth partially offset by a 12% increase in operating expenses. Excluding the impact of foreign currency, Adjusted OIBDA increased 20% as the 11% revenue growth was partially offset by a 6% increase in operating expenses primarily due to higher programming costs as well as marketing spending on new channel launches. The first quarter a year ago included a $4 million one-time charge in cost of revenues related to the acquisition of a production facility in the U.K.

Education and Other
-------------------

(dollars in
millions) Three Months Ended March 31,
----------------------------
2011 2010 Change
---- ---- ------

Revenues $41 $37 11%

Adjusted OIBDA $8 $5 60%

Adjusted OIBDA
Margin 20% 14%

Education and Other first quarter revenues increased 11% to $41 million, primarily reflecting increased Education revenue from higher streaming volumes. Adjusted OIBDA increased $3 million compared to the first quarter of 2010 as the Education revenue and Adjusted OIBDA growth was partially offset by higher personnel costs.

Corporate and Eliminations

For the first quarter Adjusted OIBDA decreased by $4 million primarily due to increased stock-based compensation expense.

STOCK REPURCHASE

During the quarter, the Company, pursuant to its existing stock repurchase program repurchased 4.73 million shares of its Series C common stock at an average price of $35.20 per share for an aggregate purchase price of approximately $167 million.

From April 1, 2011 through April 27, 2011, the Company repurchased 1.35 million shares of its Series C common stock for approximately $48 million.

The Company has repurchased 9.07 million shares of Series C common stock under its $1.0 billion stock repurchase plan to date at an aggregate price of approximately $320 million. 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.

OTHER ITEMS

The 2010 financial information has been recast so that the basis of presentation is consistent with that of the 2011 financial information. This recast reflects the classification of results of operations of our Antenna Audio business as discontinued operations.

FULL YEAR 2011 OUTLOOK

For the full year ending December 31, 2011, Discovery Communications, Inc. expects total revenue between $4,025 million and $4,125 million, Adjusted OIBDA between $1,850 million and $1,925 million, and net income available to Discovery Communications, Inc. stockholders of $1,000 million to $1,075 million. Our outlook incorporates current foreign exchange rates for revenues and expenses and the current share price for mark-to-market stock-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 stock-based compensation, (ii) depreciation and amortization, (iii) amortization of deferred launch incentives, (iv) exit and restructuring charges, (v) certain 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. 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 and also provides investors a measure to analyze the operating performance of each segment against historical data. The Company excludes mark-to-market stock-based compensation, exit and restructuring charges, certain impairment charges, and gains (losses) on business and asset dispositions from the calculation of Adjusted OIBDA due to their volatility or non-recurring nature. The Company also excludes depreciation of fixed assets and amortization of intangible assets and deferred launch incentive 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, cash flows provided by operating activities 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 10:00 a.m. EDT to discuss its first quarter results. To listen to the call, visit http://www.discoverycommunications.com or dial 1-866-730-5763 inside the U.S. and 1-857-350-1587 outside of the U.S., using the following passcode: 71154748.

Cautionary Statement Concerning Forward-Looking Statements

This press release contains certain forward-looking statements 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 filed with the SEC on February 18, 2011. 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 2011 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.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited; amounts in millions, except per share amounts)

Three Months Ended
March 31,
---------
2011 2010(a)
---- -------
(recast)
Revenues:
Distribution $480 $445
Advertising 392 348
Other 79 76
--- ---
Total revenues 951 869
--- ---

Cost of revenues, excluding
depreciation and
amortization listed below 273 267
Selling, general and
administrative 269 284
Depreciation and amortization 30 33
Restructuring charges 1 3
Gains on dispositions (129) -
---- ---
444 587
--- ---

Operating income 507 282

Interest expense, net (49) (58)
Other expense, net (7) (4)
--- ---

Income before income taxes 451 220
Provision for income taxes (146) (47)
---- ---

Net income 305 173
Less net income attributable
to noncontrolling interests - (4)
--- ---

Net income available to
Discovery Communications,
Inc. stockholders $305 $169
==== ====

Net income per share
available to Discovery
Communications, Inc.
stockholders:
Basic $0.75 $0.40
===== =====
Diluted $0.74 $0.39
===== =====
Weighted average shares
outstanding:
Basic 409 425
=== ===
Diluted 414 429
=== ===

(a) The 2010 financial information has been recast so that the
basis of presentation is consistent with that of the 2011 financial
information. See Other Items on page 4 for additional detail.

DISCOVERY COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited; in millions)

As of As of
March 31, December 31,
2011 2010
---- ----

ASSETS
Current assets:
Cash and cash equivalents $453 $466
Receivables, net 866 880
Content rights, net 84 83
Deferred income taxes 76 81
Prepaid expenses and other
current assets 150 225
--- ---
Total current assets 1,629 1,735

Noncurrent content rights, net 1,280 1,245
Property and equipment, net 389 399
Goodwill 6,301 6,434
Intangible assets, net 592 605
Investments 781 455
Other noncurrent assets 136 146
--- ---
Total assets $11,108 $11,019
======= =======

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $62 $87
Accrued liabilities 356 393
Deferred revenues 113 114
Current portion of stock-based
compensation liabilities 60 118
Current portion of long-term
debt 21 20
Other current liabilities 42 53
--- ---
Total current liabilities 654 785

Long-term debt 3,591 3,598
Deferred income taxes 352 304
Other noncurrent liabilities 100 99
--- ---
Total liabilities 4,697 4,786
Commitments and contingencies

Equity:
Preferred stock 2 2
Common stock 3 3
Additional paid-in capital 6,386 6,358
Treasury stock, at cost: 8 and 3
Series C common shares at 2011
and 2010, respectively (272) (105)
Retained earnings 305 -
Accumulated other comprehensive
loss (16) (33)
--- ---
Total Discovery Communications,
Inc. stockholders' equity 6,408 6,225
Noncontrolling interests 3 8
--- ---
Total equity 6,411 6,233
----- -----
Total liabilities and equity $11,108 $11,019
======= =======

DISCOVERY COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in millions)

Three Months Ended March 31,
----------------------------
2011 2010
---- ----

OPERATING ACTIVITIES
Net income $305 $173
Adjustments to reconcile net
income to cash provided by
operating activities:
Content expense 185 185
Stock-based compensation 17 44
Depreciation and amortization 30 34
Gains on dispositions (129) -
Deferred income taxes 44 (16)
Other noncash expenses, net 19 17
Changes in operating assets
and liabilities:
Receivables, net 14 42
Content rights (208) (170)
Accounts payable and accrued
liabilities (69) (100)
Stock-based compensation
liabilities (66) (49)
Other, net 75 (34)
--- ---
Cash provided by operating
activities 217 126

INVESTING ACTIVITIES
Purchases of property and
equipment (11) (12)
Business acquisitions, net of
cash acquired - (38)
Investments in and advances
to equity investees (57) (15)
Other investing activities,
net (2) -
--- ---
Cash used in by investing
activities (70) (65)

FINANCING ACTIVITIES
Principal repayments of long-
term debt - (5)
Principal repayments of
capital lease obligations (10) (3)
Repurchases of common stock (167) -
Cash distributions to
noncontrolling interests (5) (2)
Proceeds from stock option
exercises 10 9
Excess tax benefits from
stock-based compensation 4 1
Other financing activities,
net - 1
--- ---
Cash (used in) provided by
financing activities (168) 1

Effect of exchange rate
changes on cash and cash
equivalents 8 6
--- ---

NET CHANGE IN CASH AND CASH
EQUIVALENTS (13) 68
Cash and cash equivalents,
beginning of period 466 623
--- ---
CASH AND CASH EQUIVALENTS,
END OF PERIOD $453 $691
==== ====

DISCOVERY COMMUNICATIONS, INC.
SUPPLEMENTAL FINANCIAL DATA
RECONCILIATION OF ADJUSTED OPERATING INCOME BEFORE
DEPRECIATION AND AMORTIZATION
(unaudited; in millions)

Three Months Ended March 31, 2011
---------------------------------
Amortization
Adjusted Depreciation of
-------- ------------ -------------
Deferred
Launch
Operating and Incentives
--------- --- -----------
Income Before Amortization
------------- ------------
Depreciation
and
-------------
Amortization
------------

U.S. Networks $334 $(4) $(2)
International
Networks 144 (10) (12)
Education and Other 8 (2) -
Corporate and
Eliminations (59) (14) -
--- --- ---
Total $427 $(30) $(14)
==== ==== ====

Three Months Ended March 31, 2011
---------------------------------
Mark-to- Other
Market (a) Operating
--------- ------ ---------
Stock-Based Income
----------- ------
Compensation
------------

U.S. Networks $- $128 $456
International
Networks - - 122
Education and Other - - 6
Corporate and
Eliminations (4) - (77)
--- --- ---
Total $(4) $128 $507
=== ==== ====

Three Months Ended March 31, 2010(b)(recast)
--------------------------------------------
Amortization
Adjusted of
-------- -------------
Deferred
Launch
Operating Incentives
--------- -----------
Income Before Depreciation
------------- ------------
Depreciation
and and
------------- ---
Amortization Amortization
------------ ------------

U.S. Networks $293 $(6) $(2)
International
Networks 122 (8) (9)
Education and Other 5 (1) -
Corporate and
Eliminations (55) (18) -
--- --- ---
Total $365 $(33) $(11)
==== ==== ====

Three Months Ended March 31, 2010(b)(recast)
--------------------------------------------
Mark-to- Other
Market (a) Operating
--------- ------ ---------
Stock-Based Income
----------- ------
Compensation
------------

U.S. Networks $- $- $285
International
Networks - (3) 102
Education and Other - - 4
Corporate and
Eliminations (36) - (109)
--- --- ----
Total $(36) $(3) $282
==== === ====

(a) For the three months ended March 31, 2011, amounts primarily
represent a pre-tax gain of $129 million as a result of
contributing Discovery Health to the OWN joint venture. For the
three months ended March 31, 2010, amounts represent exit and
restructuring charges of $3 million.
(b) The 2010 financial information has been recast so that the basis
of presentation is consistent with that of the 2011 financial
information. See Other Items on page 4 for additional detail.

DISCOVERY COMMUNICATIONS, INC.
SUPPLEMENTAL FINANCIAL DATA
(unaudited; in millions)

CALCULATION OF FREE CASH FLOW

Three Months Ended March 31,
----------------------------
2011 2010 Change
---- ---- ------

Cash provided by operating
activities $217 $126 $91
Acquisition of property and
equipment (11) (12) 1
--- --- ---
Free cash flow $206 $114 $92
==== ==== ===

RECONCILIATION OF 2011 OUTLOOK TO GAAP MEASURES

Full Year 2011
--------------
Net income available to Discovery
Communications, Inc. stockholders $1,000 To $1,075
Interest expense, net 200 To 190
Depreciation and amortization 125 To 115
Other expense, including amortization
of deferred launch incentives, mark-
to-market stock-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 525 To 545
Adjusted OIBDA $1,850 To $1,925
====== ======

NET INCOME AVAILABLE TO DISCOVERY COMMUNICATIONS, INC. STOCKHOLDERS

Three Months
------------
Ended March 31,
---------------
2011 2010(a)
---- -------
(recast)
Net income available to Discovery
Communications, Inc. stockholders,
excluding one-time items $203 $169
Gain, net of taxes, from contribution of
Discovery Health 102 -
--- ---

Net income available to Discovery
Communications, Inc. stockholders $305 $169
==== ====

(a) The 2010 financial information has been recast so that the
basis of presentation is consistent with that of the 2011 financial
information. See Other Items on page 4 for additional detail.

DISCOVERY COMMUNICATIONS, INC.
SUPPLEMENTAL FINANCIAL DATA
SELECTED FINANCIAL DETAIL
(unaudited; in millions)

BORROWINGS
As of
-----
March 31, 2011
--------------
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
6.35% Senior Notes, semi-annual interest, due
June 2040 850
Capital lease and other obligations 120
---
Total long-term debt 3,620
Unamortized discount (8)
---
Long-term debt, net 3,612
Less current portion of long-term debt 21
---
Noncurrent portion of long-term debt $3,591
======

STOCK-BASED COMPENSATION

As of March 31, 2011
--------------------
Total Units
Outstanding Weighted
------------ --------
(in
Long-Term millions) Average
--------- ---------- -------
Grant
Incentive Plans Price
--------------- ------

Discovery Appreciation Plan 8.4 $28.20

Stock Appreciation Rights 0.1 23.94

Stock Options 16.0 20.65

Performance-based
Restricted Stock Units 1.7 35.26

Service-based Restricted
Stock Units 0.8 34.88
---
Total Stock-based
Compensation Plans 27.0 $24.35
----

As of March 31, 2011
--------------------
Vested
Units
Outstanding Weighted
------------ --------
(in
Long-Term millions) Average
--------- --------- -------
Grant
Incentive Plans Price
--------------- ------

Discovery Appreciation Plan 0.9 $19.36

Stock Appreciation Rights -- --

Stock Options 5.7 16.79

Performance-based
Restricted Stock Units -- --

Service-based Restricted
Stock Units -- --
---
Total Stock-based
Compensation Plans 6.6 $17.14
---

SHARE COUNT ROLL FORWARD Common Preferred Total
------------------------ ------ --------- -----
(Basic shares, in millions)
Total shares outstanding as of December 31,
2010 283.76 127.46 411.22
Shares repurchased (4.73) -- (4.73)
Shares issued - stock option exercises 0.61 -- 0.61
---- --- ----
Total shares outstanding as of March 31,
2011 279.64 127.46 407.10

SOURCE Discovery Communications, Inc.

Photo:http://photos.prnewswire.com/prnh/20080918/NETH035LOGO
http://photoarchive.ap.org/
Discovery Communications, Inc.

CONTACT: Corporate Communications, Michelle Russo, +1-240-662-2901, michelle_russo@discovery.com; Investor Relations, Craig Felenstein, +1-212-548-5109, craig_felenstein@discovery.com

Web Site: http://www.discoverycommunications.com

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