01—Abstract
Summary
Summary of the 10-K filed February 28, 2018. Cited figures are marked; the original filing is the authoritative source.
Warner Bros.
Discovery, Inc. (formerly Discovery Communications, Inc.) is a global media company focused on providing compelling content across linear and digital platforms. The company operates two main segments: U.S. Networks and International Networks, with a diverse portfolio of popular brands including Discovery Channel, TLC, Animal Planet, and Investigation Discovery. In 2017, the company was heavily focused on its planned acquisition of Scripps Networks Interactive for $12 billiona, a significant strategic move aimed at expanding its lifestyle-oriented content offerings.
This acquisition, alongside operational performance, shaped the company's financial activities and outlook during the reporting period. The company's financial performance in 2017 showed a revenue increase driven by distribution and advertising growth, particularly in the U.S. Networks segment. However, significant goodwill impairment charges ($1.3 billionb) related to its European operations impacted net income, resulting in a net loss for the year.
Despite these challenges, the company maintained a strong cash position, partly due to proceeds from debt issuances related to the Scripps acquisition, and continued to invest in content development. The report also highlights evolving consumer behavior, the competitive media landscape, and the potential impacts of global economic and political factors like Brexit.
02—Key points
Key Highlights
- The company is in the process of acquiring Scripps Networks Interactive for $12.0 billion, a significant expansion strategy to bolster its lifestyle content portfolio.
- Total revenues increased by 6% to $6.87 billion in 2017, driven by growth in both Distribution (+8%) and Advertising (+3%) revenues.
- A substantial goodwill impairment charge of $1.3 billion was recognized in 2017, primarily impacting the European reporting unit, which contributed to a net loss of $313 million for the year.
- The U.S. Networks segment remains the largest contributor, generating 50% of total revenues and 80% of Adjusted OIBDA in 2017.
- International Networks saw an 8% revenue increase, with distribution revenue up 11% driven by increased contractual rates in Europe.
- The company held $7.3 billion in cash and cash equivalents as of December 31, 2017, partly reflecting proceeds from debt issued to fund the Scripps acquisition.
- Subscriber numbers for U.S. Networks portfolio declined by 5% in 2017, indicating a trend towards cord-cutting that the company is navigating.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2017, Warner Bros. Discovery, Inc. lost $0.05.
- Revenue$6.87B100.0%
- Cost of revenue−$2.66B38.6%
- Gross profit$4.22B61.4%
- Operating costs−$3.50B51.0%
- Operating income$713.0M10.4%
- Interest, other & tax−$1.05B15.3%
- Net income−$337.0M4.9%
Where FY2017 revenue went
$6.87B- Cost of revenue: $2.66B, 39% of revenue
- SG&A: $1.77B, 26% of revenue
- Other operating costs: $1.74B, 25% of revenue
- Operating income: $713.0M, 10% of revenue
Kept 10% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 28, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $6.87B$6.50B | +5.8% |
| Cost of Revenue | $2.66B$2.43B | +9.2% |
| Gross Profit | $4.22B$4.07B | +3.7% |
| SG&A Expenses | $1.77B$1.69B | +4.6% |
| Operating Expenses | $6.16B$4.44B | +38.8% |
| Operating Income | $713.00M$2.06B | −65.4% |
| Interest Expense | $475.00M$353.00M | +34.6% |
| Net Income | -$337.00M$1.19B | −128.2% |
05—Questions
Frequently Asked Questions
What is the status of the Scripps Networks acquisition, and what is its financial impact?
The company announced on February 26, 2018, that the U.S. Department of Justice had closed its investigation into the planned merger with Scripps Networks. The acquisition is valued at approximately $12.0 billion, consisting of $8.4 billion in cash and $3.6 billion in stock, and includes assuming approximately $2.7 billion of Scripps' net debt. The transaction was expected to close in early 2018. The company incurred $79 million in transaction and integration costs related to this acquisition in 2017.
How did the company's revenue performance fare in 2017?
Total revenues increased by 6% to $6.87 billion in 2017, up from $6.50 billion in 2016. This growth was primarily driven by an 8% increase in distribution revenue and a 3% increase in advertising revenue. The U.S. Networks segment revenue grew 5% to $3.43 billion, while International Networks revenue increased 8% to $3.28 billion.
What caused the significant net loss in 2017?
The company reported a net loss of $313 million in 2017, a sharp decline from a net income of $1.22 billion in 2016. The primary driver for this loss was a goodwill impairment charge of $1.3 billion recognized in 2017, predominantly related to the European reporting unit, due to moderating revenue expectations and increased content investment.
How is the company managing subscriber declines in its U.S. Networks segment?
The company is experiencing subscriber declines, with its U.S. Networks portfolio subscribers down 5% and fully distributed networks subscribers down 3% in 2017. To counter this trend and adapt to evolving consumer behavior, the company is extending content distribution across new platforms, including brand-aligned websites, online streaming, mobile devices, and over-the-top services, and is also working to monetize its 'GO' platform.
06—Continue