10-QPeriod: Q2 FY2009

Warner Bros. Discovery, Inc. Quarterly Report for Q2 Ended Jun 30, 2009

Filed August 4, 2009For Securities:WBD

Summary

Warner Bros. Discovery, Inc. (WBD) in its August 3, 2009, 10-Q filing for the period ending June 29, 2009, details its market risk exposures and management strategies. The company actively manages risks associated with interest rate fluctuations and foreign currency exchange rates through the use of derivative financial instruments, emphasizing that these are not for speculative trading. A significant portion of WBD's debt is at floating rates, making interest rate management crucial. While the company's primary focus in this filing is on market risk, it also confirms the effectiveness of its disclosure controls and procedures and reports no changes in internal control over financial reporting during the quarter. Routine litigation is ongoing but not expected to materially impact the company's financial condition. Investors should note that WBD is preparing for the Sarbanes-Oxley Act Section 404 compliance in the following year.

Financial Highlights

45 data points
Beta

Revenue

$865.00M

71.0% Gross Margin

Net Income

$179.00M

20.7% Net Margin

EPS (Diluted)

$0.42

Total Assets

$10.70B

Cash & Equivalents

$339.00M

Free Cash Flow

$173.00M

Financial Statements
Beta
Revenue$865.00M
Cost of Revenue$251.00M
Gross Profit$614.00M
SG&A Expenses$295.00M
Operating Expenses$368.00M
Operating Income$497.00M
Interest Expense-$60.00M
Net Income$179.00M
EPS (Basic)$0.42
EPS (Diluted)$0.42
Shares Outstanding (Diluted)424.00M

Key Highlights

  • 1WBD actively uses derivative financial instruments to manage exposure to interest rate and foreign currency fluctuations, not for speculative trading.
  • 2A substantial portion ($2.5 billion out of $3.4 billion) of WBD's debt was at floating rates as of June 30, 2009, highlighting the importance of interest rate hedging.
  • 3The company reports that its disclosure controls and procedures were effective as of the end of the reporting period.
  • 4No material changes were reported in the company's internal control over financial reporting during the quarter.
  • 5WBD had $30 million in investments with a 10% potential decline impacting fair value by approximately $3 million.
  • 6The company anticipates compliance with Sarbanes-Oxley Act Section 404 requirements (management certification and auditor attestation) by December 31, 2009.
  • 7Routine litigation is deemed unlikely to have a material adverse effect on the company's financial condition.

Frequently Asked Questions

WBD manages its exposure to interest rate changes primarily through the use of derivative financial instruments, such as variable-to-fixed and fixed-to-variable interest rate swaps. As of June 30, 2009, $2.5 billion of its $3.4 billion debt was floating rate, and the company utilized derivative instruments with a notional amount of $2.3 billion to mitigate this exposure. A significant portion of these derivatives ($2.3 billion) qualify as highly effective cash flow hedges.

WBD monitors its economic exposure to foreign currency exchange rates and may enter into foreign exchange agreements when appropriate. While substantially all foreign transactions are denominated in foreign currencies, the company states that these transactions generally do not result in significant foreign exchange gains or losses. However, fluctuations in exchange rates can affect the translation of foreign subsidiaries' financial statements into U.S. dollars. The notional amount of foreign exchange derivative contracts was significantly reduced to $3 million by June 30, 2009, from $75 million at the end of 2008, and these instruments did not receive hedge accounting treatment.

No, this filing indicates that management concluded that WBD's disclosure controls and procedures were effective as of the end of the reporting period. There were no changes to the company's internal control over financial reporting that materially affected it during the quarter. Furthermore, there have been no material changes to the risk factors previously disclosed in WBD's Annual Report on Form 10-K for the year ended December 31, 2008.

The primary financial risks highlighted in this report are exposure to changes in interest rates due to a significant portion of floating-rate debt, fluctuations in foreign currency exchange rates impacting the translation of foreign subsidiary results, and changes in the market value of its investments, which include equity instruments. The company uses derivative instruments to manage interest rate and foreign currency risks, and actively monitors its investment portfolio.