SILVER SPRING, Md., Aug. 5, 2020 /PRNewswire/ -- Discovery, Inc. ("Discovery" or the "Company") (NASDAQ: DISCA, DISCB, DISCK) today reported financial results for the quarter ended June 30, 2020.

David Zaslav, President and Chief Executive Officer of Discovery said, "Our top priority is the health and safety of our employees as global economies and our offices begin to reopen. I want to thank all of our teams for the exceptional focus and dedication even during these turbulent times that continued to drive outstanding progress for our business, including renewals with four of our largest distribution partners and meaningful cost containment. We generated significant free cash flows in Q2, demonstrating the durability of our business, especially against the backdrop of a historic disruption to the global advertising market due to the impacts of the pandemic. With our significant liquidity cushion and the initial signs of stabilization that we're seeing in many of our key markets around the world, we are pleased to announce our intention to resume returning capital to shareholders through share repurchases. We are cautiously optimistic about the global outlook for the rest of the year and firmly believe that the long-term prospects for Discovery remain as vibrant as ever."

Second-Quarter 2020 Financial Highlights

  • Total revenues of $2,541 million decreased 12% compared to the prior year quarter, or decreased 11% ex-FX.(1)
    • U.S. distribution revenues  increased 7%, or increased 2% excluding certain non-recurring items, and advertising revenues decreased 14%; and
    • International distribution revenues decreased 2% and advertising revenues decreased 37%, ex-FX.
  • Net income available to Discovery was $271 million and diluted EPS was $0.40 per share.
  • Total Adjusted OIBDA(2) decreased 12% to $1,127 million, or decreased 11% ex-FX.
  • Adjusted EPS(3) was $0.77 per diluted share.
  • Free cash flow(4) was $879 million.

 



Three Months Ended June 30,


Six Months Ended June 30,

Dollars in millions, except per share amounts


2020


2019


%
Change

Ex-FX(1)


2020


2019


%
Change

Ex-FX(1)

Total revenue


$

2,541



$

2,885



(12)

%

(11)

%


$

5,224



$

5,592



(7)

%

(5)

%

Net income available to Discovery, Inc.


$

271



$

947



(71)

%



$

648



$

1,331



(51)

%


U.S. Networks Adjusted OIBDA


1,062



1,126



(6)

%



2,078



2,187



(5)

%


International Networks Adjusted OIBDA


193



286



(33)

%

(29)

%


400



505



(21)

%

(18)

%

Total Adjusted OIBDA(5)


$

1,127



$

1,281



(12)

%

(11)

%


$

2,240



$

2,440



(8)

%

(7)

%

Diluted EPS


$

0.40



$

1.33



(70)

%



$

0.95



$

1.86



(49)

%


Adjusted EPS


$

0.77



$

0.98



(21)

%



$

1.64



$

1.83



(10)

%


Free cash flow


$

879



$

596



47

%



$

1,109



$

1,094



1

%


 

Operational Highlights

  • Total share of viewing across the international portfolio in the second quarter of 2020 improved 4% on average, with strong share growth in India, UK and Italy.(6)
  • In the second quarter, Discovery's portfolio of networks in the U.S. gained more share in primetime than any other TV portfolio in each of our target demos.(7)
  • TLC delivered its best quarter in network history and was the top network across all of TV on Sunday nights among W25-54, P25-54 and W18-49, driven by the performance of the '90 Day Fiancé' franchise. The network also continues to be the No. 1 destination for women on cable TV in 2020.(8)

 

Segment Results
U.S. Networks



Three Months Ended June 30,


Six Months Ended June 30,

Dollars in millions

2020


2019


% Change


2020


2019


% Change

Advertising

$

997



$

1,153



(14)

%


$

2,023



$

2,175



(7)

%

Distribution

739



688



7

%


1,447



1,385



4

%

Other

20



22



(9)

%


42



55



(24)

%

Total revenues

$

1,756



$

1,863



(6)

%


$

3,512



$

3,615



(3)

%

Costs of revenues, excluding depreciation & amortization

442



441



%


889



863



3

%

Selling, general & administrative(9)

252



296



(15)

%


545



565



(4)

%

Adjusted OIBDA

$

1,062



$

1,126



(6)

%


$

2,078



$

2,187



(5)

%

Second-Quarter 2020 Highlights

  • Revenues of $1,756 million decreased 6% compared to the prior year quarter.
    • Advertising decreased 14%, primarily driven by a decline in demand stemming from the COVID-19 pandemic and, to a lesser extent, secular declines in the pay-TV ecosystem and lower inventory, partially offset by higher overall ratings and pricing.
    • Distribution increased 7%, primarily driven by increases in contractual affiliate rates and certain non-recurring items, partially offset by a decline in linear subscribers. Excluding the non-recurring items, distribution revenue increased 2%.
    • At June 30, 2020, subscribers to our fully distributed networks were 5% lower than the prior year. Total portfolio subscribers, excluding the one-time benefit of free previews provided during the pandemic, were 7% lower than at June 30, 2019.
  • Total operating expenses of $694 million decreased 6%.
    • Costs of revenues were consistent with the prior year quarter, primarily due to investments in content to support our next generation initiatives, offset by a non-recurring reserve release established in purchase accounting and a reduction in production projects as a result of the COVID-19 pandemic.
    • SG&A expenses decreased 15% primarily due to lower marketing-related expenses and, as a result of COVID-19, a reduction in travel costs.
  • Adjusted OIBDA decreased 6% to $1,062 million.

 

International Networks



Three Months Ended June 30,


Six Months Ended June 30,

Dollars in millions

2020


2019


%
Change

Ex-FX


2020


2019


%
Change

Ex-FX

Advertising

$

276



$

466



(41)

%

(37)

%


$

652



$

859



(24)

%

(20)

%

Distribution

486



518



(6)

%

(2)

%


1,001



1,045



(4)

%

(1)

%

Other

21



36



(42)

%

(43)

%


53



68



(22)

%

(22)

%

Total revenues

$

783



$

1,020



(23)

%

(20)

%


$

1,706



$

1,972



(13)

%

(10)

%

Costs of revenues, excluding
depreciation & amortization

365



497



(27)

%

(23)

%


835



1,004



(17)

%

(14)

%

Selling, general & administrative(9)

225



237



(5)

%

(1)

%


471



463



2

%

6

%

Adjusted OIBDA

$

193



$

286



(33)

%

(29)

%


$

400



$

505



(21)

%

(18)

%

Second-Quarter 2020 Highlights

  • Revenues of $783 million decreased 23%, or decreased 20% ex-FX, compared to the prior year quarter.
    • Ex-FX, advertising decreased 37%, primarily driven by a decline in demand stemming from the COVID-19 pandemic and, to a lesser extent, the discontinuation of certain pay-TV distribution in the Nordics.
    • Ex-FX, distribution decreased 2%, primarily driven by the impact on sporting events due to COVID-19, the discontinuation of certain pay-TV distribution in some European markets, and lower contractual rates, partially offset by increases in digital distribution.
  • Total operating expenses of $590 million decreased 20%, or decreased 16% ex-FX.
    • Ex-FX, costs of revenues decreased 23% primarily due to the timing of sporting events in Europe due to COVID-19.
    • Ex-FX, SG&A was relatively consistent with the prior year quarter.
  • Adjusted OIBDA of $193 million decreased 33%, or decreased 29% ex-FX.

Corporate, Inter-segment Eliminations, and Other

  • For the second quarter of 2020, Corporate Adjusted OIBDA improved by $3 million compared to the prior year quarter.

Free Cash Flow

  • Cash provided by operating activities increased to $991 million from $674 million in the prior year quarter. Free cash flow increased to $879 million from $596 million, primarily due to the timing of working capital, partially offset by higher capital expenditures. Capital expenditures increased due to investments in technology infrastructure, software development, and facilities.

Other Items
Share Buyback
In February 2020, the Company's Board of Directors authorized common stock repurchases of up to $2 billion. Under the stock repurchase authorization, management is authorized to purchase shares from time to time through open market purchases at prevailing prices or privately negotiated purchases subject to market conditions and other factors.

During the three months ended June 30, 2020, the Company did not repurchase any shares under its $2 billion repurchase authorization, which has $1.8 billion remaining. We expect to resume repurchasing shares in the open market once the blackout period ends on August 6, 2020.

2020 Outlook(10)
Discovery may provide forward-looking commentary in connection with this earnings announcement on its quarterly earnings conference call. Details on how to access the audio webcast are included below.

Conference Call Information
Discovery will host a conference call today, August 5, 2020 at 8:00 a.m. ET to discuss its second quarter 2020 results. To listen to the audio webcast of the call, please visit https://corporate.discovery.com.

Cautionary Statement Concerning Forward-Looking Statements
This press release contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, forecasts and assumptions that involve risks and uncertainties and on information available to the Company as of the date hereof. 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 27, 2020 and its Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, expected to be filed today.

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, statements regarding investing in the Company's programming, strategic growth initiatives, changes in the pay TV ecosystem, and the impact of COVID-19. 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.

About Discovery
Discovery, Inc. (Nasdaq: DISCA, DISCB, DISCK) is a global leader in real life entertainment, serving a passionate audience of superfans around the world with content that inspires, informs and entertains. Discovery delivers over 8,000 hours of original programming each year and has category leadership across deeply loved content genres around the world. Available in 220 countries and territories and in nearly 50 languages, Discovery is a platform innovator, reaching viewers on all screens, including TV Everywhere products such as the GO portfolio of apps; direct-to-consumer streaming services such as Eurosport Player, Food Network Kitchen and MotorTrend OnDemand; digital-first and social content from Group Nine Media; a landmark natural history and factual content partnership with the BBC; and a strategic alliance with PGA TOUR to create the international home of golf. Discovery's portfolio of premium brands includes Discovery Channel, HGTV, Food Network, TLC, Investigation Discovery, Travel Channel, MotorTrend, Animal Planet, Science Channel, and the forthcoming multi-platform JV with Chip and Joanna Gaines, Magnolia, as well as OWN: Oprah Winfrey Network in the U.S., Discovery Kids in Latin America, and Eurosport, the leading provider of locally relevant, premium sports and Home of the Olympic Games across Europe. For more information, please visit corporate.discovery.com and follow @DiscoveryIncTV across social platforms.

 

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



Three Months Ended June 30,


Six Months Ended June 30,


2020


2019


2020


2019

Revenues:








Advertising

$

1,273



$

1,619



$

2,675



$

3,034


Distribution

1,225



1,206



2,448



2,430


Other

43



60



101



128


Total revenues

2,541



2,885



5,224



5,592


Costs and expenses:








Costs of revenues, excluding depreciation and amortization

810



938



1,728



1,868


Selling, general and administrative

635



709



1,280



1,335


Depreciation and amortization

334



320



660



692


Impairment of goodwill and other intangible assets

38





38




Restructuring and other charges

7



7



22



12


Total costs and expenses

1,824



1,974



3,728



3,907


Operating income

717



911



1,496



1,685


Interest expense, net

(161)



(161)



(324)



(343)


Loss on extinguishment of debt

(71)



(23)



(71)



(28)


Loss from equity investees, net

(23)



(20)



(44)



(9)


Other (expense) income, net

(6)



9



(64)



(18)


Income before income taxes

456



716



993



1,287


Income tax (expense) benefit

(156)



271



(286)



118


Net income

300



987



707



1,405


Net income attributable to noncontrolling interests

(25)



(36)



(53)



(65)


Net income attributable to redeemable noncontrolling interests

(4)



(4)



(6)



(9)


Net income available to Discovery, Inc.

$

271



$

947



$

648



$

1,331


Net income per share allocated to Discovery, Inc. Series A, B
        and C common stockholders:








Basic

$

0.40



$

1.33



$

0.96



$

1.86


Diluted

$

0.40



$

1.33



$

0.95



$

1.86


Weighted average shares outstanding:








Basic

508



528



513



526


Diluted

674



716



680



715


 

DISCOVERY, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited; in millions, except par value)



June 30, 2020


December 31, 2019

ASSETS




Current assets:




Cash and cash equivalents

$

1,683



$

1,552


Receivables, net

2,473



2,633


Content rights and prepaid license fees, net

113



579


Prepaid expenses and other current assets

448



453


Total current assets

4,717



5,217


Noncurrent content rights, net

3,540



3,129


Property and equipment, net

1,088



951


Goodwill

12,987



13,050


Intangible assets, net

8,091



8,667


Equity method investments

530



568


Other noncurrent assets

2,136



2,153


Total assets

$

33,089



$

33,735


LIABILITIES AND EQUITY




Current liabilities:




Accounts payable

$

367



$

463


Accrued liabilities

1,607



1,678


Deferred revenues

263



489


Current portion of debt

339



609


Total current liabilities

2,576



3,239


Noncurrent portion of debt

14,944



14,810


Deferred income taxes

1,463



1,691


Other noncurrent liabilities

2,306



2,029


Total liabilities

21,289



21,769


Commitments and contingencies




Redeemable noncontrolling interests

442



442


Equity:




Discovery, Inc. stockholders' equity:




Series A-1 convertible preferred stock: $0.01 par value; 8 shares authorized, issued and
outstanding




Series C-1 convertible preferred stock: $0.01 par value; 6 shares authorized; 5 shares
issued and outstanding




Series A common stock: $0.01 par value; 1,700 shares authorized; 163 and 161 shares
issued; and 160 and 158 shares outstanding

2



2


Series B convertible common stock: $0.01 par value; 100 shares authorized; 7 shares
issued and outstanding




Series C common stock: $0.01 par value; 2,000 shares authorized; 546 and 547 shares
issued; and 340 and 360 shares outstanding

5



5


Additional paid-in capital

10,798



10,747


Treasury stock, at cost: 209 and 190 shares

(7,897)



(7,374)


Retained earnings

7,980



7,333


Accumulated other comprehensive loss

(1,021)



(822)


Total Discovery, Inc. stockholders' equity

9,867



9,891


Noncontrolling interests

1,491



1,633


Total equity

11,358



11,524


Total liabilities and equity

$

33,089



$

33,735


 

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



Six Months Ended June 30,


2020


2019

Operating Activities




Net income

707



1,405


Adjustments to reconcile net income to cash provided by operating activities:




Content rights amortization and impairment

1,355



1,378


Depreciation and amortization

660



692


Deferred income taxes

(188)



(554)


Impairment of goodwill and other intangible assets

38




Share-based compensation expense

30



69


Equity in losses of equity method investee companies, including cash distributions

71



37


Unrealized loss from derivative instruments, net

22




Loss on extinguishment of debt

71



28


Remeasurement gain on previously held equity interest



(14)


Realized gain from derivative instruments, net

(21)




Other, net

41



50


Changes in operating assets and liabilities, net of acquisitions and dispositions:




Receivables, net

122



(231)


Content rights and payables, net

(1,386)



(1,570)


Accounts payable, accrued and other liabilities

(174)



(132)


Foreign currency, prepaid expenses and other assets, net

(22)



58


Cash provided by operating activities

1,326



1,216


Investing Activities




Investments in and advances to equity investments

(81)



(147)


Purchases of property and equipment

(217)



(122)


Proceeds from dissolution of joint venture

65



105


Business acquisitions, net of cash acquired



(60)


Other investing activities, net

79



4


Cash used in investing activities

(154)



(220)


Financing Activities




Principal repayments of debt, including discount payment

(2,164)



(1,740)


Borrowings from debt, net of discount and issuance costs

1,979



1,482


Repurchases of stock

(527)




Distributions to noncontrolling interests and redeemable noncontrolling interests

(202)



(191)


Principal repayments of revolving credit facility

(500)



(225)


Borrowings under revolving credit facility

500




Commercial paper borrowings, net



173


Other financing activities, net

(84)



(142)


Cash used in financing activities

(998)



(643)


Effect of exchange rate changes on cash, cash equivalents, and restricted cash

12



(18)


Net change in cash, cash equivalents, and restricted cash

186



335


Cash, cash equivalents, and restricted cash, beginning of period

1,552



986


Cash, cash equivalents, and restricted cash, end of period

$

1,738



$

1,321










 

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



Three Months Ended June 30, 2020


U.S. Networks


International
Networks


Corporate, Inter-
segment
Eliminations, and
Other


Total

Net income available to Discovery, Inc.







$

271


Net income attributable to redeemable noncontrolling
interests







4


Net income attributable to noncontrolling interests







25


Income tax expense







156


Other expense, net







6


Loss on extinguishment of debt







71


Loss from equity investees, net







23


Interest expense, net







161


Operating income (loss)

$

836



$

68



$

(187)



$

717


Depreciation and amortization

225



84



25



334


Impairment of goodwill and other intangible assets



38





38


Restructuring and other charges



3



4



7


Employee share-based compensation





31



31


Inter-segment eliminations

1





(1)




Total Adjusted OIBDA

$

1,062



$

193



$

(128)



$

1,127


 


Three Months Ended June 30, 2019


U.S. Networks


International
Networks


Corporate, Inter-
segment
Eliminations, and
Other


Total

Net income available to Discovery, Inc.







$

947


Net income attributable to redeemable noncontrolling
interests







4


Net income attributable to noncontrolling interests







36


Income tax (benefit)







(271)


Other (income), net







(9)


Loss from equity investees, net







20


Loss on extinguishment of debt







23


Interest expense, net







161


Operating income (loss)

$

898



$

180



$

(167)



$

911


Depreciation and amortization

222



82



16



320


Restructuring and other charges

3



6



(2)



7


Transaction and integration costs





4



4


Employee share-based compensation





39



39


Inter-segment eliminations

3



18



(21)




Total Adjusted OIBDA

$

1,126



$

286



$

(131)



$

1,281


 

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



Six Months Ended June 30, 2020


U.S. Networks


International
Networks


Corporate, Inter-
segment
Eliminations, and
Other


Total

Net income available to Discovery, Inc.







$

648


Net income attributable to redeemable noncontrolling
interests







6


Net income attributable to noncontrolling interests







53


Income tax expense







286


Other expense, net







64


Loss on extinguishment of debt







71


Loss from equity investees, net







44


Interest expense, net







324


Operating income (loss)

$

1,613



$

192



$

(309)



$

1,496


Depreciation and amortization

451



166



43



660


Impairment of goodwill and other intangible assets



38





38


Restructuring and other charges

12



4



6



22


Employee share-based compensation





24



24


Inter-segment eliminations

2





(2)




Total Adjusted OIBDA

$

2,078



$

400



$

(238)



$

2,240


 


Six Months Ended June 30, 2019


U.S. Networks


International
Networks


Corporate, Inter-
segment
Eliminations, and
Other


Total

Net income available to Discovery, Inc.







$

1,331


Net income attributable to redeemable noncontrolling
interests







9


Net income attributable to noncontrolling interests







65


Income tax (benefit)







(118)


Other expense, net







18


Loss on extinguishment of debt







28


Loss from equity investees, net







9


Interest expense, net







343


Operating income (loss)

$

1,685



$

339



$

(339)



$

1,685


Depreciation and amortization

495



164



33



692


Restructuring and other charges

7



10



(5)



12


Transaction and integration costs





11



11


Employee share-based compensation





69



69


Inter-segment eliminations



21



(21)




Settlement of a withholding tax claim



(29)





(29)


Total Adjusted OIBDA

$

2,187



$

505



$

(252)



$

2,440


 

DISCOVERY, INC.
SUPPLEMENTAL FINANCIAL DATA
SELECTED FINANCIAL DETAIL
(unaudited; in millions, except per share amounts)
CALCULATION OF ADJUSTED EARNINGS PER DILUTED SHARE



Three Months Ended June 30,


Six Months Ended June 30,


2020


2019


$ Change

%
Change


2020


2019


$ Change

%
Change

Diluted net income per share allocated to
Discovery, Inc. Series A, B and C
common stockholders:

$

0.40



$

1.33



$

(0.93)


(70)

%


$

0.95



$

1.86



$

(0.91)


(49)

%

Per share impacts, net of tax:














Amortization of acquisition-related
intangible assets

0.30



0.28



0.02


7

%


0.60



0.62



(0.02)


(3)

%

Restructuring and other charges

0.01



0.01




%


0.03



0.02



0.01


50

%

Impairment of goodwill and other
intangible assets

0.06





0.06


NM


0.06





0.06


NM

Legal entity restructuring, deferred tax
impact



(0.64)



0.64


NM




(0.64)



0.64


NM

Settlement of a withholding tax claim






NM




(0.03)



0.03


NM

Adjusted earnings per diluted share

$

0.77



$

0.98



$

(0.21)


(21)

%


$

1.64



$

1.83



$

(0.19)


(10)

%

 

CALCULATION OF FREE CASH FLOW



Three Months Ended June 30,


Six Months Ended June 30,


2020


2019


$ Change

%
Change


2020


2019


$ Change

%
Change

Cash provided by operating activities

$

991



$

674



$

317


47

%


$

1,326



$

1,216



$

110


9

%

Purchases of property and equipment

(112)



(78)



(34)


44

%


(217)



(122)



(95)


(78)

%

Free cash flow

$

879



$

596



$

283


47

%


$

1,109



$

1,094



$

15


1

%


NM: Not Meaningful

 

Impact of COVID-19
On March 11, 2020, the World Health Organization declared the coronavirus disease 2019 ("COVID-19") outbreak to be a global pandemic. COVID-19 continues to spread throughout the world, and the duration and severity of its effects and associated economic disruption remain uncertain. Restrictions on social and commercial activity in an effort to contain the virus have had, and are expected to continue to have, a significant adverse impact upon many sectors of the U.S. and global economy, including the media industry. We continue to closely monitor the impact of COVID-19 on all aspects of our business and geographies, including how it will impact our customers, employees, suppliers, vendors, distribution and advertising partners, production facilities, and various third parties.

Demand for our advertising products and services has been reduced by the pandemic, particularly in the second quarter of 2020 when the economic disruptions from limitations on social and commercial activity increased. Also, our third-party production partners remained shut down during most of the second quarter of 2020 due to COVID-19 restrictions. Our advertising revenues, which represented 54% of our consolidated revenues in 2019, have declined during the first half of 2020 and may continue to decline significantly throughout the remainder of 2020 if our advertising partners in certain sectors (such as travel) reduce or fail to resume their advertising spending or if we continue to be limited in our ability to create and air new content due to prolonged production shutdowns and delays. Additionally, certain sporting events that the Company has rights to have been cancelled or postponed, thereby eliminating or deferring the related revenues and expenses, including the Tokyo 2020 Olympic Games were postponed to 2021. We expect that the postponement of the Olympic Games will shift Olympic-related revenues and defer significant expenses from fiscal year 2020 to fiscal year 2021.

In response to these impacts of the pandemic, we continued to employ innovative production and programming strategies, including producing content filmed by our on-air talent and seeking viewer feedback on which content to air. We also pursued a number of cost savings initiatives during the second quarter of 2020 that we believe will offset a portion of anticipated revenue losses and deferrals, through the implementation of travel, marketing, production and other operating cost reductions and will continue to do so for the remainder of 2020. We also implemented remote work arrangements effective mid-March 2020 and to date, these arrangements have not materially affected our ability to operate our business. Throughout the second quarter of 2020 and beyond, we began the process of re-opening office locations across the globe on a case-by-case basis, after careful consideration of the number of COVID-19 cases in each respective area, rate of infection growth, recovery and mortality rates, local environment, governmental restrictions, health recommendations, benchmarking and overall business need and impact. We are monitoring these locations closely and remain agile and flexible as needed. We expect to continue this process throughout the remainder of 2020 and beyond as conditions warrant.

We are unable to predict the full impact that COVID-19 will have on our financial position, operating results, and cash flows in the mid- to long-term due to numerous uncertainties. The extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and the actions to contain the virus or treat its impact, among others. Our consolidated financial statements presented herein reflect the latest estimates and assumptions made by management that affect the reported amounts of assets and liabilities and related disclosures as of the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented. Actual results may differ significantly from these estimates and assumptions.

In addition, we have implemented several measures to preserve sufficient liquidity in the near term. During the second quarter of 2020, we entered into an amendment to our revolving credit facility, which increased flexibility under our financial covenants and issued $1.0 billion aggregate principal amount of Senior Notes due May 2030 and $1.0 billion aggregate principal amount of Senior Notes due May 2050. The proceeds from the notes were used to fund a tender offer for $1.5 billion of certain Senior Notes with maturities ranging from 2021 through 2023 and to repay $500 million that had been drawn down under our revolving credit facility.

In light of the impact of COVID-19, we assessed goodwill, other intangibles, deferred tax assets, programming assets, and accounts receivable for recoverability based upon latest estimates and judgments with respect to expected future operating results, ultimate usage of content and latest expectations with respect to expected credit losses. We recorded a goodwill impairment charge of $36 million for our Asia-Pacific reporting unit during the three months ended June 30, 2020. Asset impairments of $2 million were recorded as of June 30, 2020, as the carrying value of such assets exceeded their fair value. Adjustments to reflect increased expected credit losses were not material. Further, hedged transactions were assessed, and we have concluded such transactions remain probable of occurrence.

Due to significant uncertainty surrounding the impact of COVID-19, management's judgments could change in the future. The effects of the pandemic may have further negative impacts on the Company's financial position, results of operations, and cash flows. However, the current level of uncertainty over the economic and operational impacts of COVID-19 means the related financial impact cannot be reasonably and fully estimated at this time.

The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted on March 27, 2020 in the United States. As of June 30, 2020, we do not expect the CARES Act to have a material effect on our financial position and results of operations. We continue to monitor other relief measures taken by the U.S. and other governments around the world.

Non-GAAP Financial Measures
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, Adjusted EPS and free cash flow. These non-GAAP measures should be considered in addition to, but not as a substitute for, operating income, net income, earnings per diluted share and other measures of financial performance reported in accordance with GAAP.  Please review the supplemental financial schedules for reconciliations to the most comparable GAAP measures.

Definitions and Sources
(1) Methodology for Calculating Growth Rates Excluding the Impact of Currency Effects: The impact of exchange rates on our business is an important factor in understanding period-to-period comparisons of our results. For example, our international revenues are favorably impacted as the U.S. dollar weakens relative to other foreign currencies, and unfavorably impacted as the U.S. dollar strengthens relative to other foreign currencies. We believe the presentation of results on a constant currency basis ("ex-FX"), in addition to results reported in accordance with GAAP, provides useful information about our operating performance because the presentation ex-FX excludes the effects of foreign currency volatility and highlights our core operating results. The presentation of results on a constant currency basis should be considered in addition to, but not a substitute for, measures of financial performance reported in accordance with GAAP.

The ex-FX change represents the percentage change on a period-over-period basis adjusted for foreign currency impacts. The ex-FX change is calculated as the difference between the current year amounts translated at a baseline rate, which is a spot rate for each of our currencies determined early in the fiscal year as part of our forecasting process (the "2020 Baseline Rate"), and the prior year amounts translated at the same 2020 Baseline Rate.

In addition, consistent with the assumption of a constant currency environment, our ex-FX results exclude the impact of our foreign currency hedging activities, as well as realized and unrealized foreign currency transaction gains and losses. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies.

(2) Adjusted OIBDA and Adjusted OIBDA Excluding the Impact of Currency Effects: The Company evaluates the operating performance of its segments based on financial measures such as revenues and Adjusted OIBDA. Adjusted OIBDA is defined as operating income excluding: (i) employee share-based compensation, (ii) depreciation and amortization, (iii) restructuring and other charges, (iv) certain impairment charges, (v) gains and losses on business and asset dispositions, (vi) certain inter-segment eliminations related to production studios, (vii) third-party transaction costs directly related to the acquisition and integration of Scripps Networks and other transactions, and (viii) other items impacting comparability, such as the non-cash settlement of a withholding tax claim.

The Company uses this measure to assess the 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 share-based compensation, restructuring and other charges, certain impairment charges, gains and losses on business and asset dispositions and acquisition and integration costs from the calculation of Adjusted OIBDA due to their impact on comparability between periods. The Company also excludes depreciation of fixed assets and amortization of intangible assets, as these amounts do not represent cash payments in the current reporting period. Certain corporate expenses are excluded from segment results to enable executive management to evaluate segment performance based upon the decisions of segment executives. Total Adjusted OIBDA should be considered in addition to, but not a substitute for, operating income, net income, and other measures of financial performance reported in accordance with GAAP. Refer to the comments in footnote 1 for the methodology used to calculate growth rates excluding foreign currency effects.

(3) Adjusted EPS: The Company defines Adjusted EPS as earnings excluding the impact of amortization of acquisition-related intangible assets and meaningful one-time items, per diluted share. The Company believes Adjusted EPS is relevant to investors because this metric allows them to evaluate the performance of the Company's operations exclusive of the non-cash amortization of acquisition-related intangible assets and meaningful one-time items that impact the comparability of results from period to period.

(4) Free Cash Flow: The Company defines free cash flow as cash flow from operations less acquisitions of property and equipment. The Company believes free cash flow 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.

(5) Financial Highlights Table: This table presents a selection of the Company's financial results. Because the table as shown excludes the "Corporate, Inter-segment Eliminations, and Other" operating segment, Total Adjusted OIBDA will not foot as presented in the table.

(6) Source: Total Audience Measurement among all individuals. Share of viewing percent is defined as the share of viewing to all TV channels in a market, except in the Nordics business unit. In the Nordics, share percent is defined as the share of viewing for commercial channels only. Due to a change in methodology, Russia and Japan are excluded from totals. Change in share percent is calculated by adjusting the prior year to include any newly acquired channels.

(7) Source: Nielsen, Q2 2020 (3/30/2020-6/28/2020) vs. Q2 2019 (4/1/19-6/30/19) for Primetime. Primetime is 8pm-11pm. Live+7-day. Target demos include: adults, men, and women aged 25-54; adults, men and women aged 18-49; and adults, men and women aged 18-34. Tied with FOX for Total TV among M25-54 for share gain.

(8) Source: Nielsen, Q2 2020 (3/30/2020-6/28/2020) and YTD (12/30/2019-6/28/2020) for Primetime and Sunday nights. Primetime is 8pm-11pm. Data based on program based daypart (000s). Live+3-day.

(9) SG&A Expenses: Selling, general and administrative expenses exclude employee share-based compensation, third-party transaction and integration costs related to the acquisition of Scripps Networks and other transactions, and for 2019, exclude the settlement of a withholding tax claim.

(10) 2020 Outlook: Discovery does not expect to be able to provide a reconciliation of the non-GAAP forward-looking commentary to comparable GAAP measures as, at this time, the Company cannot determine the occurrence or impact of the adjustments, such as the effect of future changes in foreign currency exchange rates or future acquisitions or divestitures that would be excluded from such GAAP measures.

 

Cision View original content:http://www.prnewswire.com/news-releases/discovery-inc-reports-second-quarter-2020-results-301106516.html

SOURCE Discovery Communications

Copyright 2020 PR Newswire

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