10-QPeriod: Q1 FY2012

Warner Bros. Discovery, Inc. Quarterly Report for Q1 Ended Mar 31, 2012

Filed May 8, 2012For Securities:WBD

Summary

Warner Bros. Discovery, Inc. (WBD), operating as Discovery Communications, Inc. in this filing, reported total revenues of $1.103 billion for the first quarter ended March 31, 2012, a 16% increase compared to the same period in 2011. This growth was primarily driven by a 19% increase in distribution revenue and a 16% increase in advertising revenue. Net income available to stockholders was $221 million, down from $305 million in the prior year, resulting in diluted EPS of $0.57 compared to $0.74. The company also continued its aggressive share repurchase program, spending $288 million in the quarter. The company's financial health remains solid, with $1.044 billion in cash and cash equivalents and $1 billion available under its revolving credit facility as of March 31, 2012. Significant investments in content remain a priority, with content rights increasing to $1.433 billion net. While the company is managing its debt effectively, its equity method investments, particularly OWN LLC, represent a notable area of ongoing investment and potential risk, with the company having to recognize 100% of OWN's net losses during the quarter.

Financial Highlights

50 data points
Beta

Revenue

$1.08B

72.7% Gross Margin

Net Income

$222.00M

20.5% Net Margin

EPS (Diluted)

$0.57

Total Assets

$11.94B

Cash & Equivalents

$1.04B

Free Cash Flow

$227.00M

Financial Statements
Beta
Revenue$1.08B
Cost of Revenue$296.00M
Gross Profit$789.00M
SG&A Expenses$311.00M
Operating Expenses$637.00M
Operating Income$448.00M
Interest Expense$55.00M
Net Income$222.00M
EPS (Basic)$0.57
EPS (Diluted)$0.57
Shares Outstanding (Basic)386.00M
Shares Outstanding (Diluted)390.00M

Key Highlights

  • 1Total revenues increased by 16% year-over-year to $1.103 billion, driven by strong performance in distribution and advertising segments.
  • 2Distribution revenue grew by 19% to $576 million, boosted by expanded licensing agreements for library content and contractual rate increases.
  • 3Advertising revenue saw a 16% increase to $453 million, attributed to improved pricing, higher ratings, and increased sellouts.
  • 4Net income available to Discovery Communications, Inc. stockholders decreased by 28% to $221 million ($0.57 per diluted share), compared to $305 million ($0.74 per diluted share) in the prior year.
  • 5The company repurchased $288 million of its Series C common stock during the quarter as part of its ongoing share repurchase program.
  • 6Consolidated operating income declined by 12% to $446 million, impacted by increased selling, general, and administrative expenses, notably a $20 million rise in equity-based compensation.
  • 7As of March 31, 2012, the company held $1.044 billion in cash and cash equivalents and had $1.0 billion available under its revolving credit facility.

Frequently Asked Questions

The primary driver of revenue growth was a strong performance in both the distribution and advertising segments. Distribution revenue increased by 19% to $576 million, fueled by expanded licensing of library content and contractual rate increases. Advertising revenue grew by 16% to $453 million due to improved pricing, higher ratings, and increased sellouts across the company's networks.

Net income available to Discovery Communications, Inc. stockholders decreased by 28% to $221 million in Q1 2012 compared to $305 million in Q1 2011. This decline was primarily due to a significant increase in 'Other expense, net,' which rose from $7 million to $50 million. This increase was largely driven by the company having to recognize 100% of the net losses from its equity method investee, OWN LLC, during the quarter, compared to recognizing only 50% in the prior year. Additionally, selling, general and administrative expenses increased by 17%, partly due to a $20 million rise in equity-based compensation costs.

The company maintains a solid financial position with $1.044 billion in cash and cash equivalents and $1.0 billion in available capacity under its revolving credit facility as of March 31, 2012. It continues to actively engage in share repurchases, spending $288 million in the first quarter, and has an additional $1.0 billion authorization for its stock repurchase program. The company anticipates that its current cash on hand and operating cash flows will meet its needs for at least the next twelve months.

The company's equity method investments, including OWN LLC, represent an area of ongoing investment and financial exposure. During the first quarter of 2012, the company began recognizing 100% of OWN's net losses, a significant change from the prior year when it recognized 50%. The carrying value of the investment in OWN, including the note receivable, was $412 million as of March 31, 2012. While the company expects to continue funding OWN, it also anticipates recouping amounts funded over time.