Business context and reporting period
The supplied filing is Discovery Communications, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2015. It describes a global media company with U.S. Networks, International Networks, and combined Education and Other operations. The filing is not a Warner Bros. Discovery filing; verify the issuer before attributing these results to that company.
Financial performance
Amounts are in millions of U.S. dollars, except per-share data and percentages.
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $1,654 | $1,610 | $3,191 | $3,021 |
| Operating income | $557 | $640 | $1,039 | $1,074 |
| Net income | $289 | $384 | $539 | $615 |
| Net income available to Discovery | $286 | $379 | $536 | $609 |
| Diluted EPS | $0.44 | $0.54 | $0.81 | $0.87 |
| Adjusted OIBDA | $680 | $694 | $1,248 | $1,219 |
| Cash from operations | — | $394 | $473 |
- Q2 revenue rose 3%; six-month revenue rose 6%. Distribution revenue increased 12% and 14%, respectively, while advertising revenue declined 4% and 2%.
- Q2 operating margin was approximately 33.7%, versus 39.8% a year earlier; six-month operating margin was 32.6%, versus 35.6%. Adjusted OIBDA margin was approximately 41.1% in Q2 and 39.1% for the six months.
- Q2 operating income fell 13%, and net income available to Discovery fell 25%. Six-month operating income declined 3% and net income available to Discovery declined 12%.
- At June 30, cash was $232; total debt was $7,274, including $323 of commercial paper. Current assets were $2,468 and current liabilities $1,712. The company reported $1,176 of unused capacity under its revolving credit facility and commercial paper program, net of outstanding commercial paper and letters of credit.
Material changes versus the prior comparable period
- Excluding Eurosport, consolidated revenue declined 2% and Adjusted OIBDA declined 2% in Q2; for the first half, revenue declined 1% while Adjusted OIBDA increased 2%. Eurosport contributed $133 million of Q2 revenue and $243 million for the first half.
- U.S. Networks’ six-month revenue grew 5% and Adjusted OIBDA grew 8%. International Networks’ reported revenue grew 5%, but Adjusted OIBDA fell 7%; excluding Eurosport and foreign-exchange effects, management reported growth in distribution and advertising revenue and Adjusted OIBDA.
- Cash from operations decreased by $79 million year over year, mainly reflecting higher tax payments and content investment and working-capital movements. Cash used in investing improved to $26 million from $303 million, largely because prior-year acquisition spending was higher.
- Cash used in financing increased to $487 million from $201 million. Six-month stock repurchases were $524 million, compared with $769 million in the prior year.
Outlook, management commentary, risks and unusual items
- Management expected cash on hand, operating cash flow, and revolving-credit availability to meet cash needs for the next 12 months. No specific revenue or earnings guidance is provided in the supplied filing text.
- Discovery committed €1.3 billion (approximately $1.4 billion at June 30, 2015) for exclusive European broadcast rights to four Olympic Games from 2018 through 2024, subject to stated country exclusions.
- After quarter-end, TF1 announced it intended to exercise its put right over its remaining 49% Eurosport interest for €491 million (approximately $547 million at June 30 exchange rates), with closing expected in Q4 2015. This is a significant prospective cash requirement.
- Q2 other expense included $55 million of foreign-currency losses; first-half other expense included $67 million of foreign-currency losses and an $11 million loss on derivative instruments. The filing links currency losses in part to euro debt and Venezuelan monetary assets. Content impairments included $21 million in restructuring and other charges related to cancellation of certain series following legal circumstances involving associated talent.
- Other material exposures include a former business partner’s asserted $116 million claim, for which the company recorded no accrual because it did not consider a loss probable or reasonably estimable; a $408 million balance of advances and note receivable from OWN; and currency-conversion and repatriation uncertainty in Venezuela. Management reported $22 million of Venezuelan bolivar-denominated assets at quarter-end.
- Russia’s advertising restrictions and foreign-ownership reduction law may adversely affect results; Russia represented less than 2% of consolidated revenue, and the company reported no Russian advertising revenue in the first half of 2015. The company also cited distributor concentration: U.S. top-ten distributors accounted for more than 90% of U.S. distribution revenue.
- The company reported compliance with debt and credit-facility covenants, no events of default, and effective disclosure controls. Its Moody’s and S&P ratings were Baa2 and BBB, respectively, both with stable outlooks.
Most important facts for investors to verify
- Confirm the issuer: the filing identifies Discovery Communications, Inc., not Warner Bros. Discovery, Inc.
- Check organic performance separately from Eurosport consolidation, foreign-exchange effects, and the Discovery Family consolidation.
- Verify the timing, final consideration, and funding for TF1’s announced Eurosport put, alongside the Olympic rights commitment and other cash uses.
- Assess whether weaker advertising, rising content costs, and lower operating cash flow persist, and review the assumptions behind Adjusted OIBDA.
- Review debt maturities, commercial-paper backstop capacity, currency exposures, and the status of the $116 million claim and Venezuelan balances.