10-QPeriod: Q2 FY2010

Warner Bros. Discovery, Inc. Quarterly Report for Q2 Ended Jun 30, 2010

Filed August 3, 2010For Securities:WBD

Summary

Warner Bros. Discovery, Inc. (WBD), operating as Discovery Communications, Inc. in this filing, reported total revenues of $963 million for the three months ended June 30, 2010, an increase of 11% year-over-year, and $1.832 billion for the six months ended June 30, 2010, up 10% year-over-year. This growth was primarily driven by increases in both distribution and advertising revenues across its U.S. Networks and International Networks segments. The company incurred a significant loss on extinguishment of debt of $136 million in the second quarter of 2010 related to refinancing a substantial portion of its outstanding debt. Despite this, net income attributable to Discovery Communications, Inc. stockholders was $107 million for the quarter, a decrease from $179 million in the prior year, largely due to the debt extinguishment charges and lower income before taxes. For the six-month period, net income attributable to stockholders was $276 million, down from $298 million in the prior year. Operating cash flow for the first six months of 2010 was $90 million, a substantial decrease from $337 million in the prior year, impacted by debt repayment premiums and increased payments for stock-based awards. The company ended the period with $713 million in cash and cash equivalents and maintains access to a $1.55 billion revolving credit facility.

Financial Highlights

48 data points
Beta

Revenue

$963.00M

73.6% Gross Margin

Net Income

$107.00M

11.1% Net Margin

EPS (Diluted)

$0.25

Total Assets

$11.07B

Cash & Equivalents

$713.00M

Free Cash Flow

-$44.00M

Financial Statements
Beta
Revenue$963.00M
Cost of Revenue$254.00M
Gross Profit$709.00M
SG&A Expenses$304.00M
Operating Expenses$591.00M
Operating Income$372.00M
Interest Expense$48.00M
Net Income$107.00M
EPS (Basic)$0.25
EPS (Diluted)$0.25
Shares Outstanding (Basic)426.00M
Shares Outstanding (Diluted)431.00M

Key Highlights

  • 1Total revenues grew 11% to $963 million for the quarter and 10% to $1.832 billion for the six months, driven by strong distribution and advertising revenue increases.
  • 2A substantial debt refinancing in June 2010 resulted in a $136 million loss on extinguishment of debt.
  • 3Net income available to Discovery Communications, Inc. stockholders decreased by 40% year-over-year to $106 million for the quarter, and by 7% to $275 million for the six months.
  • 4Operating cash flow decreased significantly to $90 million for the six months ended June 30, 2010, compared to $337 million in the prior year.
  • 5The company acquired an uplink facility in London for $35 million in February 2010.
  • 6Adjusted OIBDA (a non-GAAP measure) increased by 18% for the quarter and 13% for the six months, indicating improved operational performance before certain non-cash and non-recurring items.
  • 7The company ended the period with $713 million in cash and cash equivalents and an undrawn $1.55 billion revolving credit facility (expiring October 2010).

Frequently Asked Questions

Revenue growth was primarily driven by increases in both distribution fees and advertising sales across the U.S. Networks and International Networks segments. Distribution revenue benefited from contractual rate increases and subscriber growth, while advertising revenue saw improvements due to increased pricing, higher sell-out rates, and better ratings in some instances.

The company undertook a significant debt refinancing in June 2010, which resulted in a substantial loss on extinguishment of debt of $136 million. This loss, combined with other factors like reduced income before taxes, led to a decrease in net income available to stockholders for the quarter and the six-month period.

The company's liquidity is supported by cash on hand ($713 million as of June 30, 2010), operating cash flows, and a $1.55 billion revolving credit facility (expiring October 2010). Key uses of cash include content creation and acquisition, commitments to joint ventures, business acquisitions, and debt service. The company anticipates sufficient liquidity for the next twelve months.

Effective January 1, 2010, the company adopted new accounting guidance for VIEs. This resulted in the deconsolidation of the Oprah Winfrey Network (OWN) and Animal Planet Japan (APJ) joint ventures, which are now accounted for using the equity method. This change impacted the comparability of financial results between the periods presented, with the 2009 financial information being recast to reflect these changes.