Discovery Communications Reports First Quarter 2012 Results And Announces $1 Billion Increase To Share Repurchase Program

Discovery Communications Reports First Quarter 2012 Results And Announces $1 Billion Increase To Share Repurchase Program

SILVER SPRING, Md., May 8, 2012 /PRNewswire/ --

First Quarter 2012 Financial Highlights:


-- Revenues increased 16% to $1,103 million
-- Adjusted OIBDA increased 19% to $507 million
-- Net income decreased to $222 million (up 9% excluding one-time prior
year item)
-- Free cash flow increased 10% to $227 million
-- Repurchased 6.9 million shares for an aggregate purchase price of $288
million
Discovery Communications, Inc. ("Discovery" or the "Company") (NASDAQ: DISCA, DISCB, DISCK) today reported financial results for the first quarter ended March 31, 2012.

David Zaslav, Discovery's President and Chief Executive Officer said, "Discovery is off to a great start in 2012 with strong first quarter results that built upon the consistent financial and operating momentum we generated throughout 2011. Viewers around the world are spending more time with our networks than ever before, and we are leveraging the demand for our programming across a worldwide ad market that remains healthy. The universal appeal of our content is also providing us further opportunities to capitalize on developing distribution systems and an evolving global pay-tv landscape. Investing in our brands to maximize the potential of our unique distribution platform, as well as emerging opportunities, remains a priority, and we are focused on doing so while delivering sustained growth and returning capital to shareholders."

First Quarter Results

First quarter revenues of $1,103 million increased $152 million, or 16%, over the first quarter a year ago, led by 16% growth at U.S. Networks and 18% growth at International Networks. Adjusted Operating Income Before Depreciation and Amortization ((1)) ("OIBDA") grew 19% to $507 million, driven by an 18% increase at U.S. Networks and a 19% increase at International Networks. Adjusted OIBDA margin for the first quarter increased to 46% from 45% in the first quarter of 2011.

First quarter net income from continuing operations available to Discovery Communications, Inc. stockholders of $221 million ($0.57 per diluted share) decreased $84 million compared to $305 million ($0.74 per diluted share) for the first quarter a year ago as strong operating performance in the current year was more than offset by a gain of $102 million, net of tax, in the first quarter of 2011 from the contribution of the Discovery Health network to the OWN: Oprah Winfrey Network joint venture. Current quarter results also reflect that during the quarter the Company began recording 100% of OWN's net losses in Other expense, net, as accumulated operating losses at OWN exceeded the equity contributed to OWN.

Free cash flow was $227 million for the first quarter, an increase of $21 million from the first quarter of 2011, due to increased operating performance and lower long-term incentive compensation payments, partially offset by higher cash tax payments. Free cash flow is defined as cash provided by operating activities less acquisitions of property and equipment.







SEGMENT RESULTS




(dollars in millions) Three Months Ended March 31,
----------------------------
2012 2011 Change
---- ---- ------

Revenues:
U.S. Networks $681 $587 16%
International Networks 380 323 18%
Education and Other 42 41 2%
Corporate and
Eliminations - - NM
--- ---
Total Revenues $1,103 $951 16%
====== ====

Adjusted OIBDA:
U.S. Networks $395 $334 18%
International Networks 171 144 19%
Education and Other 5 8 (38%)
Corporate and
Eliminations (64) (59) (8%)
--- ---
Total Adjusted OIBDA $507 $427 19%
==== ====
U.S. Networks




(dollars in millions) Three Months Ended March 31,
----------------------------
2012 2011 Change
---- ---- ------

Revenues:
Distribution $337 $274 23%
Advertising 329 290 13%
Other 15 23 (35%)
--- ---
Total Revenues $681 $587 16%
==== ====

Adjusted OIBDA $395 $334 18%

Adjusted OIBDA Margin 58% 57%
First Quarter Results

U.S. Networks' revenues in the first quarter of 2012 increased 16% to $681 million primarily driven by distribution and advertising revenue growth. Distribution revenue grew 23% largely from increased licensing revenue of $50 million driven by the delivery of selected library titles under new and existing licensing agreements. The current quarter also included higher rates and subscriber growth primarily from networks carried on the digital tier. Excluding the new and existing licensing agreements, distribution revenues grew 5% compared with the first quarter a year ago. Advertising revenue increased 13% due to higher pricing, increased ratings, and higher sellouts. Other revenue decreased $8 million due to lower revenue from services provided to unconsolidated equity method investees.

Adjusted OIBDA increased 18% to $395 million primarily reflecting the 16% revenue growth partially offset by 13% higher operating expenses. Current quarter expenses included additional costs associated with the new and existing licensing agreements, partially offset by expense reductions associated with services provided to unconsolidated equity method investees. Excluding the impact associated with the new and existing licensing agreements, Adjusted OIBDA increased 6% as the revenue growth was partially offset by higher operating expenses primarily due to increased content amortization, marketing and personnel costs.

International Networks




(dollars in millions) Three Months Ended March 31,
----------------------------
2012 2011 Change
---- ---- ------

Revenues:
Distribution $239 $210 14%
Advertising 124 102 22%
Other 17 11 55%
--- ---
Total Revenues $380 $323 18%
==== ====

Adjusted OIBDA $171 $144 19%

Adjusted OIBDA Margin 45% 45%
First Quarter Results

International Networks' revenues for the first quarter increased 18% to $380 million primarily led by distribution revenue growth of 14% and advertising revenue growth of 22%. Excluding the impact of foreign currency fluctuations, total revenues increased 20%. Distribution revenue, excluding foreign currency fluctuations as well as lower launch support amortization, grew 11% mainly from increased subscribers across all regions. Advertising revenue in local currency terms was up 25% during the first quarter, primarily from higher pricing and increased viewership at new and rebranded networks. Other revenue was $6 million higher primarily due to revenue from a production company acquired in the fourth quarter of 2011.

Adjusted OIBDA increased 19% to $171 million reflecting the 18% revenue growth, partially offset by an 11% increase in operating expenses. Excluding the impact of foreign currency, Adjusted OIBDA grew 20% as the 20% revenue growth was partially offset by higher operating expenses primarily due to increased content, distribution and personnel costs.

Education and Other




(dollars in millions) Three Months Ended March 31,
----------------------------
2012 2011 Change
---- ---- ------

Revenues $42 $41 2%

Adjusted OIBDA $5 $8 (38%)

Adjusted OIBDA Margin 12% 20%
First Quarter Results

Education and Other Adjusted OIBDA decreased $3 million compared to the first quarter of 2011 as slight revenue growth from higher school streaming volumes and assessment services for our education business was more than offset primarily by costs associated with digital textbook initiatives and higher personnel costs.

Corporate and Eliminations

For the first quarter of 2012 Adjusted OIBDA decreased $5 million, primarily due to increased equity-based compensation.



STOCK REPURCHASE

During the quarter, the Company, pursuant to its existing stock repurchase program, repurchased 6.90 million shares of its Series C common stock at an average price of $41.74 per share for an aggregate purchase price of approximately $288 million.

From April 1, 2012 through May 3, 2012, the Company repurchased 2.71 million shares of its Series C common stock for approximately $130 million.

The Company has repurchased 39.76 million shares of Series C common stock under its $2.0 billion stock repurchase program to date at an aggregate purchase price of approximately $1.52 billion. In aggregate, including the 13.73 million preferred shares acquired from Advance/Newhouse Programming Partnership, the Company has repurchased 13% of the shares outstanding since buyback activity was authorized in 2010.

The Company's Board of Directors has approved a $1.0 billion increase to the existing stock repurchase program, to $3.0 billion. 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

During the third quarter of 2011, the Company expanded the components of distribution revenue reported in its financial statements to include content arrangements and other subscription services for content. Accordingly, prior period financial information has been reclassified so that the basis of the presentation is consistent with that of the 2012 financial information.

FULL YEAR 2012 OUTLOOK

For the full year ending December 31, 2012, Discovery Communications, Inc. expects total revenue between $4.550 billion and $4.650 billion, Adjusted OIBDA between $2.125 billion and $2.200 billion, and net income available to Discovery Communications, Inc. stockholders of $1.000 billion to $1.100 billion. Our outlook incorporates 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 1-866-770-7146 inside the U.S. and 1-617-213-8068 outside of the U.S., using the following passcode: 87431568.



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 17, 2012. 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 2012 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.

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








DISCOVERY COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited; in millions, except per share amounts)

Three Months Ended
March 31,
---------
2012 2011
---- ----

Revenues:
Distribution $576 $484
Advertising 453 392
Other 74 75
--- ---
Total revenues 1,103 951
----- ---

Costs and expenses:
Costs of revenues,
excluding depreciation
and amortization 311 273
Selling, general and
administrative 315 269
Depreciation and
amortization 30 30
Restructuring charges 1 1
Gain on disposition - (129)
--- ----
Total costs and expenses 657 444
--- ---

Operating income 446 507

Interest expense (55) (49)
Other expense, net (50) (7)
--- ---

Income before income
taxes 341 451
Provision for income
taxes (119) (146)
---- ----

Net income 222 305
Net income attributable
to noncontrolling
interests (1) -
--- ---
Net income available to
Discovery
Communications, Inc.
stockholders $221 $305
==== ====

Net income per share
available to Discovery
Communications, Inc.
stockholders:
Basic $0.57 $0.75
===== =====
Diluted $0.57 $0.74
===== =====
Weighted average shares
outstanding:
Basic 386 409
=== ===
Diluted 390 414
=== ===







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

March 31, December 31,
2012 2011
---- ----

ASSETS
Current
assets:
Cash and cash
equivalents $1,044 $1,048
Receivables,
net 1,062 1,042
Content
rights, net 99 93
Deferred
income taxes 72 73
Prepaid
expenses and
other
current
assets 174 175
--- ---
Total current
assets 2,451 2,431

Noncurrent
content
rights, net 1,334 1,302
Property and
equipment,
net 374 379
Goodwill 6,294 6,291
Intangible
assets, net 567 571
Equity method
investments 778 807
Other
noncurrent
assets 137 132
--- ---
Total assets $11,935 $11,913
======= =======

LIABILITIES
AND EQUITY
Current
liabilities:
Accounts
payable $63 $53
Accrued
expenses and
other
current
liabilities 567 554
Deferred
revenues 91 113
Current
portion of
long-term
debt 19 26
--- ---
Total current
liabilities 740 746

Long-term
debt 4,218 4,219
Deferred
income taxes 321 337
Other
noncurrent
liabilities 88 92
--- ---
Total
liabilities 5,367 5,394


Equity:
Preferred
stock 2 2
Common stock 3 3
Additional
paid-in
capital 6,609 6,505
Treasury
stock, at
cost: 37 and
30 Series C
common
shares (1,390) (1,102)
Retained
earnings 1,353 1,132
Accumulated
other
comprehensive
loss (12) (23)
--- ---
Total
Discovery
Communications,
Inc.
stockholders'
equity 6,565 6,517
Noncontrolling
interests 3 2
--- ---
Total equity 6,568 6,519
----- -----
Total
liabilities
and equity $11,935 $11,913
======= =======







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

Three Months Ended March
31,
-------------------------
2012 2011
---- ----

OPERATING
ACTIVITIES
Net
income $222 $305
Adjustments
to
reconcile
net
income
to cash
provided
by
operating
activities:
Equity-
based
compensation
expense 41 17
Depreciation
and
amortization 30 30
Content
amortization
and
impairment
expense 207 185
Gain on
disposition - (129)
Equity in
losses
and
distributions
from
investee
companies 58 13
Other,
net (11) 52
Changes
in
operating
assets
and
liabilities:
Receivables,
net (29) 14
Content
rights (226) (208)
Accounts
payable
and
accrued
liabilities (23) (69)
Equity-
based
compensation
liabilities (24) (66)
Income
tax
receivable 20 110
Other,
net (17) (37)
Cash
provided
by
operating
activities 248 217

INVESTING
ACTIVITIES
Purchases
of
property
and
equipment (21) (11)
Distribution
from
equity
method
investees 17 -
Investments
in and
advances
to
equity
method
investees (38) (57)
Other
investing
activities,
net - (2)
--- ---
Cash used
in
investing
activities (42) (70)

FINANCING
ACTIVITIES
Principal
repayments
of
capital
lease
obligations (10) (10)
Repurchases
of
common
stock (288) (167)
Cash
distributions
to
noncontrolling
interests - (5)
Proceeds
from
stock
option
exercises 57 10
Excess
tax
benefits
from
equity-
based
compensation 30 4
Other
financing
activities,
net (2) -
--- ---
Cash used
in
financing
activities (213) (168)

Effect of
exchange
rate
changes
on cash
and cash
equivalents 3 8
--- ---

NET
CHANGE
IN CASH
AND CASH
EQUIVALENTS (4) (13)
Cash and
cash
equivalents,
beginning
of
period 1,048 466
----- ---
CASH AND
CASH
EQUIVALENTS,
END OF
PERIOD $1,044 $453
====== ====







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

Three Months Ended March 31, 2012
---------------------------------
Adjusted Depreciation Amortization of Mark-to-Market Other (a) Operating
Operating and Deferred Launch Equity-Based Income
Income Before Amortization Incentives Compensation
Depreciation and
Amortization
------------

U.S. Networks $395 $(3) $(2) $ - $(1) $389
International
Networks 171 (11) (3) - - 157
Education and
Other 5 (1) - - - 4
Corporate and
Eliminations (64) (15) - (25) - (104)
--- --- --- --- --- ----
Total $507 $(30) $(5) $(25) $(1) $446
==== ==== === ==== === ====



Three Months Ended March 31, 2011
---------------------------------
Adjusted Amortization of Mark-to-Market Other (a) Operating
Operating Deferred Launch Equity-Based Income
Income Before Depreciation Incentives Compensation
Depreciation and and
Amortization Amortization
------------ ------------

U.S. Networks $334 $(4) $(2) $ - $128 $456
International
Networks 144 (10) (12) - - 122
Education and
Other 8 (2) - - - 6
Corporate and
Eliminations (59) (14) - (4) - (77)
--- --- --- --- --- ---
Total $427 $(30) $(14) $(4) $128 $507
==== ==== ==== === ==== ====

(a) For the three months ended March 31, 2012, amount represents restructuring charges of $1 million. For the
three months ended March 31, 2011, amount represents restructuring charges of $1 million and a pre-tax gain
of $129 million as a result of contributing Discovery Health to the OWN joint venture.







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

CALCULATION OF FREE CASH FLOW

Three Months Ended March 31,
----------------------------
2012 2011 Change
---- ---- ------


Cash provided by operating activities $248 $217 $31
Acquisition of property and equipment (21) (11) (10)
--- --- ---
Free cash flow $227 $206 $21
==== ==== ===







RECONCILIATION OF 2012 OUTLOOK TO GAAP MEASURES

Full Year 2012
--------------
Net income available to Discovery
Communications, Inc. stockholders $1,000 To $1,100
Interest expense, net 235 To 225
Depreciation and amortization 115 To 105
Other expense, including amortization of
deferred launch incentives, mark-to-
market equity-based 775 To 770
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
Adjusted OIBDA $2,125 To $2,200
====== ======





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

BORROWINGS
March 31,
2012
----------
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
6.35% Senior Notes, semi-annual
interest, due June 2040 850
Capital lease obligations 97
---
Total long-term debt 4,247
Unamortized discount (10)
---
Long-term debt, net 4,237
Current portion of long-term debt (19)
---
Noncurrent portion of long-term debt $4,218
======



EQUITY-BASED COMPENSATION
March 31, 2012
--------------
Total Units Weighted Vested Units Weighted
Long-Term Outstanding Average Outstanding Average
Incentive Plans (in millions) Grant Price (in millions) Grant Price
--------------- ------------ ----------- ------------ -----------

Discovery Appreciation Plan 3.7 $31.91 0.1 $19.44

Stock Appreciation Rights 1.8 40.97 -- --

Stock Options 10.0 26.78 4.2 20.51

Performance-based Restricted Stock Units 2.1 39.20 -- --

Service-based Restricted Stock Units 0.8 39.99 -- --
--- ---
Total Equity-based Compensation Plans 18.4 $31.19 4.3 $20.49
---- ---



SHARE COUNT ROLL FORWARD Common Preferred Total
------------------------ ------ --------- -----
(Basic shares, in millions)
Total shares outstanding as of December 31, 2011 260.37 127.46 387.83
Shares repurchased (6.90) -- (6.90)
Shares issued - equity-based compensation 3.59 -- 3.59
---- --- ----
Total shares outstanding as of March 31, 2012 257.06 127.46 384.52


SOURCE Discovery Communications, Inc.

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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