10-KPeriod: FY2017

Warner Bros. Discovery, Inc. Annual Report, Year Ended Dec 31, 2017

Filed February 28, 2018For Securities:WBD

Summary

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 billion, 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 billion) 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.

Financial Highlights

49 data points
Beta

Revenue

$6.87B

61.4% Gross Margin

Net Income

-$337.00M

-4.9% Net Margin

Total Assets

$22.55B

Cash & Equivalents

$7.31B

Free Cash Flow

$1.49B

Financial Statements
Beta
Revenue$6.87B
Cost of Revenue$2.66B
Gross Profit$4.22B
SG&A Expenses$1.77B
Operating Expenses$6.16B
Operating Income$713.00M
Interest Expense$475.00M
Net Income-$337.00M

Key Highlights

  • 1The company is in the process of acquiring Scripps Networks Interactive for $12.0 billion, a significant expansion strategy to bolster its lifestyle content portfolio.
  • 2Total revenues increased by 6% to $6.87 billion in 2017, driven by growth in both Distribution (+8%) and Advertising (+3%) revenues.
  • 3A 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.
  • 4The U.S. Networks segment remains the largest contributor, generating 50% of total revenues and 80% of Adjusted OIBDA in 2017.
  • 5International Networks saw an 8% revenue increase, with distribution revenue up 11% driven by increased contractual rates in Europe.
  • 6The 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.
  • 7Subscriber numbers for U.S. Networks portfolio declined by 5% in 2017, indicating a trend towards cord-cutting that the company is navigating.

Frequently Asked Questions

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.

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.

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.

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.