EX-99.1 2 a20180930-exhibit991pressr.htm PRESS RELEASE DATED NOVEMBER 8, 2018 Exhibit


image99.jpg

DISCOVERY, INC. REPORTS THIRD QUARTER 2018 RESULTS

Silver Spring, MD – November 8, 2018: Discovery, Inc. (“Discovery” or the “Company”) (NASDAQ: DISCA, DISCB, DISCK) today reported financial results for the third quarter ended September 30, 2018.

“Our solid third quarter results demonstrate the strength of our brands and unmatched multi-platform distribution network, as we continue to position our broad suite of IP to maximize value and extend our global presence,” said David Zaslav, President and Chief Executive Officer for Discovery. "We are very pleased with how far we've come in the eight months since we closed our merger with Scripps Networks, highlighted by the acceleration of synergy generation and strong Adjusted OIBDA growth in the third quarter. Additionally, we continue to drive organic growth opportunities across our diverse portfolio, further positioning us for continued cash flow generation and additional value creation. We remain increasingly optimistic about the roadmap ahead of us as we drive forward with our plan to transform our Company.”

Third Quarter 2018 Results
Third quarter revenues of $2,592 million increased 57% on a reported basis compared with the prior year quarter. Excluding the impact of foreign currency fluctuations and the Scripps Networks Interactive (“Scripps Networks”), Motor Trend Group, LLC (“MTG”) and the Oprah Winfrey Network (“OWN”) transactions (collectively, “the Transactions”)(1), revenues increased 1%, as a 3% increase in International Networks and a 2% increase in U.S. Networks were partially offset by a significant decrease in Education and Other revenues due to the sale of the education business(2) on April 30, 2018. On a pro forma(3) combined basis, excluding the impact of foreign currency fluctuations, total company third quarter revenues increased 2%, as International Networks revenues increased 2% and U.S. Networks revenues increased 4%, partially offset by the significant decrease in Education and Other revenues.

Third quarter Adjusted Operating Income Before Depreciation and Amortization (“Adjusted OIBDA”)(4) increased 82% to $1,044 million on a reported basis compared with the prior year quarter. Excluding the impact of the Transactions and foreign currency fluctuations, Adjusted OIBDA increased 9% compared with the prior year quarter, as International Networks increased 21% and U.S. Networks increased 6%. On a pro forma combined basis, excluding the impact of foreign currency fluctuations, third quarter Adjusted OIBDA increased 18%, as International Networks' Adjusted OIBDA increased 27% and U.S. Networks Adjusted OIBDA increased 13%.

Third quarter net income available to Discovery ("DCI Net Income") was $117 million, compared with $218 million in the prior year quarter, as improved operating results were more than offset by higher restructuring and other charges associated with the integration of Scripps Networks, higher tax expenses and higher interest expense. Diluted earnings per share(5) decreased to $0.16 due to lower DCI Net Income. Adjusted Earnings Per Diluted Share ("Adjusted EPS")(4),(5), which excludes the impact of amortization of acquisition-related intangible assets, net of tax was $0.52. Adjusted EPS excluding restructuring and other charges was $0.79, and included $190 million (or $0.27 per share) of after-tax restructuring and other charges.


(1)
The Transactions refer to the Company's acquisition of Scripps Networks on March 6, 2018, acquisition of a controlling interest in OWN on November 30, 2017 and the contribution of businesses from MTG on September 25, 2017.
(2)
The Company sold a majority stake in the education business on April 30, 2018.
(3)
Pro forma is defined as the results of the Company as if the Transactions had occurred on January 1, 2017. Refer to page 6 for the full list of pro forma adjustments and to page 11 for pro forma operating results.
(4)
See full definitions of Adjusted OIBDA and Adjusted EPS on page 5.
(5)
All per share amounts are calculated using DCI Net Income. Refer to table on page 21 for the full schedule.

1


Free cash flow(1) increased to $907 million for the third quarter of 2018 as cash flow from operations increased to $931 million while capital expenditures of $24 million were consistent with the prior year quarter. Third quarter cash flow from operations increased primarily due to higher operating results due to the Transactions offset by higher content costs, restructuring costs and interest expense.


THIRD QUARTER SEGMENT RESULTS

Total Company
(dollars in millions)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
Change
 
2018
 
2017
 
Change
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Networks
 
$
1,674

 
$
823

 
NM

 
$
4,628

 
$
2,542

 
82
 %
International Networks
 
916

 
796

 
15
 %
 
3,065

 
2,354

 
30
 %
Education and Other
 
3

 
32

 
(91
)%
 
52

 
113

 
(54
)%
Corporate and Inter-Segment Eliminations
 
(1
)
 
—

 
NM

 
(1
)
 
—

 
NM

Total revenues
 
$
2,592

 
$
1,651

 
57
 %
 
$
7,744

 
$
5,009

 
55
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted OIBDA:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Networks
 
$
901

 
$
480

 
88
 %
 
$
2,536

 
$
1,548

 
64
 %
International Networks
 
254

 
180

 
41
 %
 
727

 
610

 
19
 %
Education and Other
 
—

 
—

 
—
 %
 
3

 
(1
)
 
NM

Corporate and Inter-Segment Eliminations
 
(111
)
 
(85
)
 
(31
)%
 
(311
)
 
(262
)
 
(19
)%
Total Adjusted OIBDA
 
$
1,044

 
$
575

 
82
 %
 
$
2,955

 
$
1,895

 
56
 %

U.S. Networks
(dollars in millions)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
Change
 
2018
 
2017
 
Change
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
Distribution
 
$
644

 
$
402

 
60
%
 
$
1,812

 
$
1,210

 
50
%
Advertising
 
991

 
407

 
NM

 
2,708

 
1,284

 
NM

Other
 
39

 
14

 
NM

 
108

 
48

 
NM

Total revenues
 
$
1,674

 
$
823

 
NM

 
$
4,628

 
$
2,542

 
82
%
Adjusted OIBDA
 
$
901

 
$
480

 
88
%
 
$
2,536

 
$
1,548

 
64
%

U.S. Networks’ revenues for the third quarter of 2018 increased to $1,674 million on a reported basis compared with the prior year quarter. Excluding the impact of the Transactions, revenues increased 2%, as an 8% increase in advertising revenues was partially offset by a 2% decrease in distribution revenues and a 29% decrease in other revenues. On a pro forma combined basis, U.S. Networks' revenues for the third quarter increased 4%, as advertising revenues increased 5%, distribution revenues remained consistent and other revenues increased 18%.



(1)
Free cash flow is defined as cash provided by operating activities less purchases of property and equipment.
NM: Not Meaningful

2


The growth in third quarter pro forma advertising revenues was primarily driven by increases in pricing and to a lesser extent volume, as well as the continued monetization of digital content offerings, partially offset by the impact of audience declines on our linear networks. Pro forma distribution revenues remained consistent, as increases in contractual affiliate rates were offset by a decline in subscribers and lower contributions from content deliveries under licensing agreements. On a pro forma combined basis, total portfolio subscribers declined 5%, while subscribers to our fully distributed networks declined 2%.

Operating expenses for U.S. Networks on a reported basis increased to $773 million compared with operating expenses of $343 million in the prior year quarter. Excluding the impact of the Transactions, operating expenses decreased 3%, as costs of revenues decreased 4% and SG&A expenses decreased 1%. On a pro forma combined basis, total operating expenses decreased 6%, as costs of revenues decreased 6% and SG&A expenses decreased 4%. The decrease in pro forma combined operating expenses was primarily attributable to higher content impairment expense recorded by Scripps Networks during the three months ended September 30, 2017, lower personnel costs due to restructuring and the integration of Scripps Networks and decreased spending on marketing.

U.S. Networks' Adjusted OIBDA increased 88% to $901 million on a reported basis compared with the prior year quarter. Excluding the impact of the Transactions, U.S. Networks' Adjusted OIBDA increased 6%. On a pro forma combined basis, Adjusted OIBDA increased 13%, driven by increases in revenues and declines in operating expenses.

International Networks
(dollars in millions)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
Change
 
2018
 
2017
 
Change
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
Distribution
 
$
508

 
$
479

 
6
%
 
$
1,577

 
$
1,383

 
14
%
Advertising
 
374

 
298

 
26
%
 
1,232

 
913

 
35
%
Other
 
34

 
19

 
79
%
 
256

 
58

 
NM

Total revenues
 
$
916

 
$
796

 
15
%
 
$
3,065

 
$
2,354

 
30
%
Adjusted OIBDA
 
$
254

 
$
180

 
41
%
 
$
727

 
$
610

 
19
%

International Networks’ revenues for the third quarter of 2018 on a reported basis increased 15% to $916 million compared with the prior year quarter. Excluding the impact of the acquisition of Scripps Networks and foreign currency fluctuations, International Networks' revenues increased 3%, driven by a 3% increase in distribution revenues, while advertising revenues remained flat and other revenues decreased $1 million. On a pro forma combined basis, excluding the impact of foreign currency fluctuations, International Networks' revenues increased 2%, driven by a 3% increase in distribution revenues and a 2% increase in advertising revenues, slightly offset by a decrease in other revenues. Pro forma distribution revenue growth was primarily driven by increases in subscribers to our linear networks and digital subscription revenues in Europe and increases in pricing in Latin America, partially offset by pricing declines in Asia. Pro forma advertising revenue growth was primarily driven by increases in Europe, mostly due to higher pricing, partially offset by viewership declines in Europe.

Operating expenses for International Networks on a reported basis increased to $662 million compared with operating expenses of $616 million the prior year quarter. Excluding the impact of the acquisition of Scripps Networks and foreign currency fluctuations, operating expenses decreased 3%, as costs of revenues decreased 6% slightly offset by an increase in SG&A of 4%. On a pro forma combined basis, excluding currency effects, operating expenses decreased 5%, as costs of revenues decreased 7%, primarily attributable to content synergies following the acquisition of Scripps Networks while SG&A remained consistent, as cost savings from the integration of Scripps Networks offset increased personnel spending related to digital distribution offerings.



3


International Networks' Adjusted OIBDA increased 41% to $254 million on a reported basis compared with the prior year quarter. Excluding the impact of the acquisition of Scripps Networks and foreign currency fluctuations, International Networks' Adjusted OIBDA increased 21%. On a pro forma combined basis, excluding currency effects, Adjusted OIBDA increased 27%. The increase in pro forma combined Adjusted OIBDA was primarily driven by increases in revenues and decreases in costs of revenues.

Education and Other
(dollars in millions)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
Change
 
2018
 
2017
 
Change
Revenues
 
$
3

 
$
32

 
(91
)%
 
$
52

 
$
113

 
(54
)%
Adjusted OIBDA
 
$
—

 
$
—

 
—
 %
 
$
3

 
$
(1
)
 
NM


Education and Other revenues for the third quarter of 2018 decreased $29 million and Adjusted OIBDA was flat due to the sale of a majority stake in the education business resulting in deconsolidation on April 30, 2018. The Education and Other segment now only includes activities associated with inter-company sales of productions for the U.S. Networks segment.

Corporate and Inter-Segment Eliminations
Adjusted OIBDA for the third quarter of 2018 decreased 31% on a reported basis compared with the prior year quarter. Excluding the impact of the acquisition of Scripps Networks and foreign currency fluctuations, Adjusted OIBDA decreased 20%. On a pro forma combined basis, excluding the impact of foreign currency fluctuations, Adjusted OIBDA decreased 1% compared with the prior year quarter due to increased technology costs, partially offset by reductions in personnel costs as a result of the integration of Scripps Networks.


FULL YEAR 2018 OUTLOOK(1)
Discovery will provide forward-looking guidance in connection with this quarterly earnings announcement on its quarterly earnings conference call and webcast referenced hereafter.




















(1)
Discovery is unable to provide a reconciliation of the forward-looking guidance to GAAP measures as, at this time, Discovery cannot determine all of the adjustments that would be required.

4


NON-GAAP FINANCIAL MEASURES
In addition to the results prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) provided in this release, the Company has presented Adjusted OIBDA, Adjusted EPS and free cash flow. These non-GAAP measures should be considered in addition to, but not as a substitute for, operating income, net income, earnings per diluted share and other measures of financial performance reported in accordance with GAAP. Please review the supplemental financial schedules beginning on page 19 for reconciliations to the most comparable GAAP measures.

Adjusted OIBDA and Adjusted OIBDA Excluding the Impact of Currency Effects
The Company evaluates the operating performance of its segments based on financial measures such as revenues and Adjusted Operating Income Before Depreciation and Amortization (“Adjusted OIBDA”). Adjusted OIBDA is defined as operating income excluding: (i) mark-to-market share-based compensation, (ii) depreciation and amortization, (iii) restructuring and other charges, (iv) certain impairment charges, (v) gains and losses on business and asset dispositions, (vi) certain inter-segment eliminations related to production studios, and (vii) third-party transaction costs directly related to the acquisition and integration of Scripps Networks.

The Company uses Adjusted OIBDA to assess the operating results and performance of its segments, perform analytical comparisons, identify strategies to improve performance and allocate resources to each segment. The Company believes Adjusted OIBDA is relevant to investors because it allows them to analyze the operating performance of each segment using the same metric management uses. The Company excludes mark-to-market share-based compensation, restructuring and other charges, certain impairment charges, gains and losses on business and asset dispositions and Scripps Networks transaction and integration costs from the calculation of Adjusted OIBDA due to their impact on comparability between periods. The Company also excludes depreciation of fixed assets and amortization of intangible assets, as these amounts do not represent cash payments in the current reporting period. Certain corporate expenses are excluded from segment results to enable executive management to evaluate segment performance based upon the decisions of segment executives. Total Adjusted OIBDA should be considered in addition to, but not a substitute for, operating income, net income and other measures of financial performance reported in accordance with GAAP. Refer to the comments that follow for our methodology for calculating growth rates excluding the impact of currency effects.

Adjusted EPS and Adjusted EPS Excluding the Impact of Currency Effects
Adjusted EPS is defined as earnings excluding the impact of amortization of acquisition-related intangible assets per diluted share. The Company believes Adjusted EPS is relevant to investors because this metric allows them to evaluate the performance of the Company's operations exclusive of the non-cash amortization of acquisition-related intangible assets that impact the comparability of results from period to period. Refer to the comments that follow for our methodology for calculating growth rates excluding the impact of currency effects.

Methodology for Calculating Growth Rates Excluding the Impact of Currency Effects
In addition to the Transactions, the impact of exchange rates on our business is an important factor in understanding
period-to-period comparisons of our results. For example, our international revenues are favorably impacted as the U.S. dollar weakens relative to other foreign currencies, and unfavorably impacted as the U.S dollar strengthens relative to other foreign currencies. We believe the presentation of results on a constant currency basis (ex-FX), in addition to results reported in accordance with GAAP provides useful information about our operating performance because the presentation ex-FX excludes the effects of foreign currency volatility and highlights our core operating results. The presentation of results on a constant currency basis should be considered in addition to, but not a substitute for, measures of financial performance reported in accordance with GAAP.

The ex-FX change represents the percentage change on a period-over-period basis adjusted for foreign currency impacts. The ex-FX change is calculated as the difference between the current year amounts translated at a baseline rate, a spot rate for each of our currencies determined early in the fiscal year as part of our forecasting process (the “2018 Baseline Rate”), and the prior year amounts translated at the same 2018 Baseline Rate.


5


In addition, consistent with the assumption of a constant currency environment, our ex-FX results exclude the impact of our foreign currency hedging activities, as well as realized and unrealized foreign currency transaction gains and losses. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies.

Selling, General and Administrative Expense
Selling, general and administrative expense, as presented, excludes mark-to-market based compensation and Scripps Networks transaction and integration costs due to their impact on comparability between periods.

Free Cash Flow
The Company defines free cash flow as cash provided by operating activities less acquisitions of property and equipment. The Company uses free cash flow as it believes it is an important indicator for management and investors of the Company’s liquidity, including its ability to reduce debt, make strategic investments and return capital to stockholders.

Pro Forma Adjustments
The discussion and tables beginning on page 11 compare our actual and pro forma combined results as if the Transactions occurred on January 1, 2017. Management believes reviewing our actual operating results in addition to combined pro forma results is useful in identifying trends in, or reaching conclusions regarding, the overall operating performance of our businesses. Our combined U.S. Networks, International Networks and Corporate and Inter-Segment Eliminations pro forma information is based on the historical operating results of the respective businesses as applicable to each segment and includes adjustments directly attributable to the Transactions as if they had occurred on January 1, 2017, such as:

1. The impact of the purchase price allocation to the fair value of assets, liabilities, and noncontrolling interests, such as intangible amortization;
2. Adjustments to remove items associated with the Transactions that will not have a continuing impact on the combined entity, such as transaction costs and the impact of employee retention agreements; and
3. Changes to align accounting policies.

Adjustments do not include costs related to integration activities, cost savings or synergies that have been or may be achieved by the combined businesses. Pro forma amounts are not necessarily indicative of what our results would have been had we operated the acquired businesses since January 1, 2017, and should not be taken as indicative of the Company's future consolidated results of operations.

Actual amounts for the three and nine months ended September 30, 2018 include the results of operations for the Discovery and Scripps Networks, OWN and MTG businesses for the period since each respective transaction. Scripps Networks was acquired on March 6, 2018, OWN was consolidated on November 30, 2017 and MTG was consolidated on September 25, 2017.

Conference Call Information
Discovery will host a conference call today, November 8, 2018 at 8:30 a.m. ET to discuss its third quarter results. To listen to the call, visit https://corporate.discovery.com or dial 1-844-452-2811 inside the U.S. and 1-574-990-9832 outside of the U.S., using conference ID: 8488208 and passcode: DISCA.


6


Cautionary Statement Concerning Forward-Looking Statements
This press release contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, forecasts and assumptions that involve risks and uncertainties and on information available to the Company as of the date hereof. The Company’s actual results could differ materially from those stated or implied, due to risks and uncertainties associated with its business, which include the risk factors disclosed in its Annual Report on Form 10-K filed with the SEC on February 28, 2018.

Forward-looking statements include statements regarding the Company’s expectations, beliefs, intentions or strategies regarding the future, and can be identified by forward-looking words such as “anticipate,” “believe,” “could,” “continue,” “estimate,” “expect,” “intend,” “may,” “should,” “will” and “would” or similar words. Forward-looking statements in this release include, without limitation, statements regarding investing in the Company's programming, strategic growth initiatives, and the timing and effects of the Scripps Networks acquisition and related transactions. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in the Company’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

About Discovery
Discovery, Inc. (Nasdaq: DISCA, DISCB, DISCK) is a global leader in real life entertainment, serving a passionate audience of superfans around the world with content that inspires, informs and entertains. Discovery delivers over 8,000 hours of original programming each year and has category leadership across deeply loved content genres around the world. Available in 220 countries and territories and in nearly 50 languages, Discovery is a platform innovator, reaching viewers on all screens, including TV Everywhere products such as the GO portfolio of apps and Discovery Kids Play; direct-to-consumer streaming services such as Eurosport Player and Motor Trend OnDemand; digital-first and social content from Group Nine Media and a strategic alliance with the PGA Tour to create the Global Home of Golf. Discovery’s portfolio of premium brands includes Discovery Channel, HGTV, Food Network, TLC, Investigation Discovery, Travel Channel, Turbo/Velocity, Animal Planet, and Science Channel, as well as OWN: Oprah Winfrey Network in the U.S., Discovery Kids in Latin America, and Eurosport, the leading provider of locally relevant, premium sports and Home of the Olympic Games across Europe. For more information, please visit https://corporate.discovery.com and follow @DiscoveryIncTV across social platforms.

Contacts
Media Contact
Investor Relations Contacts
Catherine Frymark (240) 662-2934
Andrew Slabin (212) 548-5544
catherine_frymark@discovery.com
andrew_slabin@discovery.com
 
 
 
Jackie Burka (212) 548-5642
 
jackie_burka@discovery.com

7


DISCOVERY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited; in millions, except per share amounts)

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
Distribution
 
$
1,152

 
$
881

 
$
3,389

 
$
2,593

Advertising
 
1,365

 
705

 
3,940

 
2,197

Other
 
75

 
65

 
415

 
219

Total revenues
 
2,592

 
1,651

 
7,744

 
5,009

Costs and expenses:
 
 
 
 
 
 
 
 
Costs of revenues, excluding depreciation and amortization
 
934

 
670

 
2,989

 
1,911

Selling, general and administrative
 
667

 
457

 
1,963

 
1,261

Depreciation and amortization
 
398

 
80

 
1,001

 
240

Restructuring and other charges
 
224

 
11

 
652

 
43

(Gain) loss on disposition
 
—

 
—

 
(84
)
 
4

Total costs and expenses
 
2,223

 
1,218

 
6,521

 
3,459

Operating income
 
369

 
433

 
1,223

 
1,550

Interest expense, net
 
(185
)
 
(136
)
 
(558
)
 
(318
)
Loss on extinguishment of debt
 
—

 
—

 
—

 
(54
)
Income (loss) from equity investees, net
 
9

 
(27
)
 
(53
)
 
(122
)
Other expense, net
 
(15
)
 
(106
)
 
(84
)
 
(143
)
Income before income taxes
 
178

 
164

 
528

 
913

Income tax (expense) benefit
 
(43
)
 
59

 
(146
)
 
(89
)
Net income
 
135

 
223

 
382

 
824

Net income attributable to noncontrolling interests
 
(13
)
 
—

 
(41
)
 
—

Net income attributable to redeemable noncontrolling interests
 
(5
)
 
(5
)
 
(16
)
 
(17
)
Net income available to Discovery, Inc.
 
$
117

 
$
218

 
$
325

 
$
807

 
 
 
 
 
 
 
 
 
Net income per share allocated to Discovery, Inc. Series A, B and C common stockholders:
 
 
 
 
 
 
 
 
Basic
 
$
0.16

 
$
0.38

 
$
0.47

 
$
1.40

Diluted(1)
 
$
0.16

 
$
0.38

 
$
0.47

 
$
1.39

 
 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
523

 
381

 
490

 
385

Diluted(1)
 
713

 
571

 
679

 
581













(1) Diluted shares adjust for the potential dilution that would occur if common stock equivalents, including convertible preferred stock and share-based awards, were converted into common stock or exercised.


8


DISCOVERY, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited; in millions, except par value)

 
 
September 30, 2018
 
December 31, 2017
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
531

 
$
7,309

Receivables, net
 
2,578

 
1,838

Content rights, net
 
349

 
410

Prepaid expenses and other current assets
 
456

 
434

Total current assets
 
3,914

 
9,991

 
 
 
 
 
Noncurrent content rights, net
 
3,115

 
2,213

Property and equipment, net
 
810

 
597

Goodwill, net
 
13,139

 
7,073

Intangible assets, net
 
10,040

 
1,770

Equity method investments, including note receivable
 
1,015

 
335

Other noncurrent assets
 
879

 
576

Total assets
 
$
32,912

 
$
22,555

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
280

 
$
277

Accrued liabilities
 
1,623

 
1,309

Deferred revenues
 
304

 
255

Current portion of debt
 
1,653

 
30

Total current liabilities
 
3,860

 
1,871

 
 
 
 
 
Noncurrent portion of debt
 
15,829

 
14,755

Deferred income taxes
 
1,901

 
319

Other noncurrent liabilities
 
1,089

 
587

Total liabilities
 
22,679

 
17,532

Redeemable noncontrolling interests
 
414

 
413

Equity:
 
 
 
 
Discovery, Inc. stockholders’ equity:
 
 
 
 
Series A-1 convertible preferred stock: $0.01 par value; 8 authorized; 8 shares issued
 
—

 
—

Series C-1 convertible preferred stock: $0.01 par value; 6 authorized; 6 shares issued
 
—

 
—

Series A common stock: $0.01 par value; 1,700 shares authorized; 159 and 157 shares issued
 
1

 
1

Series B convertible common stock: $0.01 par value; 100 shares authorized; 7 shares issued
 
—

 
—

Series C common stock: $0.01 par value; 2,000 shares authorized; 524 and 383 shares issued
 
5

 
4

Additional paid-in capital
 
10,627

 
7,295

Treasury stock, at cost
 
(6,737
)
 
(6,737
)
Retained earnings
 
4,984

 
4,632

Accumulated other comprehensive loss
 
(764
)
 
(585
)
Total Discovery, Inc. stockholders' equity
 
8,116

 
4,610

     Noncontrolling interests
 
1,703

 
—

Total equity
 
9,819

 
4,610

Total liabilities and equity
 
$
32,912

 
$
22,555


9


DISCOVERY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in millions)

 
Nine Months Ended September 30,
 
2018
 
2017
Operating Activities
 
 
 
Net income
$
382

 
$
824

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Share-based compensation expense
92

 
22

Depreciation and amortization
1,001

 
240

Content rights amortization and impairment
2,523

 
1,397

(Gain) loss on disposition
(84
)
 
4

Equity in losses of equity method investee companies, net of cash distributions
106

 
130

Deferred income taxes
(140
)
 
(167
)
Loss on extinguishment of debt
—

 
54

Realized loss from derivative instruments, net
—

 
98

Other, net
54

 
74

Changes in operating assets and liabilities, net of acquisitions and dispositions:
 
 
 
Receivables, net
(19
)
 
(138
)
Content rights and payables, net
(2,222
)
 
(1,400
)
Accounts payable and accrued liabilities
(123
)
 
23

Income taxes receivable and prepaid income taxes
(53
)
 
11

Foreign currency and other, net
130

 
(5
)
Cash provided by operating activities
1,647

 
1,167

Investing Activities
 
 
 
Business acquisitions, net of cash acquired
(8,565
)
 
(4
)
Payments for investments, net
(56
)
 
(387
)
Proceeds from dispositions, net of cash disposed
107

 
29

Proceeds from sale of assets previously held for sale
68

 
—

Purchases of property and equipment
(106
)
 
(103
)
Distributions from equity method investees
1

 
38

Payments for derivative instruments, net
(3
)
 
(99
)
Other investing activities, net
5

 
3

Cash used in investing activities
(8,549
)
 
(523
)
Financing Activities
 
 
 
Commercial paper borrowings (repayments), net
293

 
(48
)
Borrowings under revolving credit facility
—

 
350

Principal repayments of revolving credit facility
(100
)
 
(475
)
Borrowings under term loan facilities
2,000

 
—

Principal repayments of term loans
(2,000
)
 
—

Borrowings from debt, net of discount and including premiums
—

 
7,488

Principal repayments of debt, including discount payment and premiums to par value
—

 
(650
)
Payments for bridge financing commitment fees
—

 
(40
)
Principal repayments of capital lease obligations
(37
)
 
(26
)
Repurchases of stock
—

 
(603
)
Cash settlement of common stock repurchase contracts
—

 
58

Distributions to noncontrolling interests and redeemable noncontrolling interests
(59
)
 
(22
)
Share-based plan proceeds, net
44

 
15

Borrowings under program financing line of credit
23

 
—

Other financing activities, net
(16
)
 
(64
)
Cash provided by financing activities
148

 
5,983

Effect of exchange rate changes on cash and cash equivalents
(24
)
 
67

Net change in cash and cash equivalents
(6,778
)
 
6,694

Cash and cash equivalents, beginning of period
7,309

 
300

Cash and cash equivalents, end of period
$
531

 
$
6,994


10


DISCOVERY, INC.
SUPPLEMENTAL FINANCIAL DATA
UNAUDITED SELECTED PRO FORMA FINANCIALS(1) 
(unaudited; amounts in millions)


TOTAL COMPANY REPORTED AND PRO FORMA FINANCIAL RESULTS
 
 
Three Months Ended September 30,
 
 
 
 
 
 
 
 
 
 
2018
 
2017
 
Actual Change
 
Pro Forma Combined Change
 
Pro Forma Ex-FX(2)
 
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
$
%
 
$
%
 
%
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution
 
$
1,152

$
1

$
1,153

 
$
881

$
270

$
1,151

 
$
271

31
%
 
$
2

—
 %
 
2
 %
Advertising
 
1,365

—

1,365

 
705

623

1,328

 
660

94
%
 
37

3
 %
 
4
 %
Other
 
75

—

75

 
65

38

103

 
10

15
%
 
(28
)
(27
)%
 
(27
)%
Total revenues
 
2,592

1

2,593

 
1,651

931

2,582

 
941

57
%
 
11

—
 %
 
2
 %
Costs of revenues, excluding depreciation and amortization
 
934

(1
)
933

 
670

366

1,036

 
264

39
%
 
(103
)
(10
)%
 
(8
)%
Selling, general and administrative
 
614

1

615

 
406

245

651

 
208

51
%
 
(36
)
(6
)%
 
(4
)%
Adjusted OIBDA(3)
 
$
1,044

$
1

$
1,045

 
$
575

$
320

$
895

 
469

82
%
 
150

17
 %
 
18
 %


TOTAL COMPANY UNAUDITED RECONCILIATION OF REPORTED AND PRO FORMA OPERATING INCOME TO ADJUSTED OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION
 
 
Three Months Ended September 30,
 
 
 
 
 
 
 
 
2018
 
2017
 
Actual Change
 
Pro Forma Combined Change
 
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
$
%
 
$
%
Operating income
 
369

69

438

 
433

65

498

 
$
(64
)
(15
)%
 
$
(60
)
(12
)%
Restructuring and other charges
 
224

—

224

 
11

—

11

 
213

NM

 
213

NM

Depreciation and amortization
 
398

(70
)
328

 
80

311

391

 
318

NM

 
(63
)
(16
)%
Mark-to-market share-based compensation
 
27

1

28

 
(11
)
4

(7
)
 
38

NM

 
35

NM

Scripps Networks transaction and integration costs
 
26

—

26

 
62

(60
)
2

 
(36
)
(58
)%
 
24

NM

Inter-segment eliminations
 
—

1

1

 
—

—

—

 
—

NM

 
1

NM

Adjusted OIBDA(3)
 
$
1,044

$
1

$
1,045


$
575

$
320

$
895

 
469

82
 %
 
150

17
 %








(1) Pro forma is defined as the results of the Company as if the Transactions had occurred on January 1, 2017. Refer to page 6 for full list of adjustments to pro forma results.
(2) Refer to page 5 for our methodology for calculating growth rates excluding the impact of currency effects.
(3) See full definition of Adjusted OIBDA on page 5.
NM: Not Meaningful

11


DISCOVERY, INC.
SUPPLEMENTAL FINANCIAL DATA
UNAUDITED SELECTED PRO FORMA FINANCIALS(1) 
(unaudited; amounts in millions)


U.S. NETWORKS REPORTED AND PRO FORMA FINANCIAL RESULTS
 
 
Three Months Ended September 30,
 
 
 
 
 
 
 
 
2018
 
2017
 
Actual Change
 
Pro Forma Combined Change
 
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
$
%
 
$
%
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution
 
$
644

$
1

$
645

 
$
402

$
240

$
642

 
$
242

60
%
 
$
3

—
%
Advertising
 
991

(1
)
990

 
407

534

941

 
584

NM

 
49

5
%
Other
 
39

1

40

 
14

20

34

 
25

NM

 
6

18
%
Total revenues
 
1,674

1

1,675

 
823

794

1,617

 
851

NM

 
58

4
%
Costs of revenues, excluding depreciation and amortization
 
(486
)
—

(486
)
 
(226
)
(292
)
(518
)
 
(260
)
NM

 
32

6
%
Selling, general and administrative
 
(287
)
—

(287
)
 
(117
)
(183
)
(300
)
 
(170
)
NM

 
13

4
%
Adjusted OIBDA(2)
 
901

1

902

 
480

319

799

 
421

88
%
 
103

13
%


U.S. NETWORKS UNAUDITED RECONCILIATION OF REPORTED AND PRO FORMA OPERATING INCOME TO ADJUSTED OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION
 
 
Three Months Ended September 30,
 
 
 
 
 
 
 
 
2018
 
2017
 
Actual Change
 
Pro Forma Combined Change
 
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
$
%
 
$
%
Operating income
 
$
399

$
70

$
469

 
$
469

$
41

$
510

 
$
(70
)
(15
)%
 
$
(41
)
(8
)%
Depreciation and amortization
 
296

(69
)
227

 
7

284

291

 
289

NM

 
(64
)
(22
)%
Restructuring and other charges
 
206

—

206

 
2

—

2

 
204

NM

 
204

NM

Scripps Networks transaction and integration costs
 
3

—

3

 
—

—

—

 
3

NM

 
3

NM

Inter-segment eliminations
 
(3
)
—

(3
)
 
2

(6
)
(4
)
 
(5
)
NM

 
1

25
 %
Adjusted OIBDA(2)
 
901

1

902

 
480

319

799

 
421

88
 %
 
103

13
 %













(1) Pro forma is defined as the results of the Company as if the Transactions had occurred on January 1, 2017. Refer to page 6 for full list of adjustments to pro forma results.
(2) See full definition of Adjusted OIBDA on page 5.


12


DISCOVERY, INC.
SUPPLEMENTAL FINANCIAL DATA
UNAUDITED SELECTED PRO FORMA FINANCIALS(1) 
(unaudited; amounts in millions)


INTERNATIONAL NETWORKS REPORTED AND PRO FORMA FINANCIAL RESULTS
 
 
Three Months Ended September 30,
 
 
 
 
 
 
 
 
 
 
2018
 
2017
 
Actual Change
 
Pro Forma Combined Change
 
Pro Forma Ex-FX(2)
 
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
$
%
 
$
%
 
%
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution
 
$
508

$
—

$
508

 
$
479

$
30

$
509

 
$
29

6
 %
 
$
(1
)
—
 %
 
3
 %
Advertising
 
374

1

375

 
298

89

387

 
76

26
 %
 
(12
)
(3
)%
 
2
 %
Other
 
34

(1
)
33

 
19

18

37

 
15

79
 %
 
(4
)
(11
)%
 
(11
)%
Total revenues
 
916

—

916

 
796

137

933

 
120

15
 %
 
(17
)
(2
)%
 
2
 %
Costs of revenues, excluding depreciation and amortization
 
(449
)
1

(448
)
 
(433
)
(73
)
(506
)
 
(16
)
(4
)%
 
58

11
 %
 
7
 %
Selling, general and administrative
 
(213
)
(1
)
(214
)
 
(183
)
(38
)
(221
)
 
(30
)
(16
)%
 
7

3
 %
 
—
 %
Adjusted OIBDA(3)
 
254

—

254

 
180

26

206

 
74

41
 %
 
48

23
 %
 
27
 %


INTERNATIONAL NETWORKS UNAUDITED RECONCILIATION OF OPERATING INCOME TO PRO FORMA ADJUSTED OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION
 
 
Three Months Ended September 30,
 
 
 
 
 
 
 
 
2018
 
2017
 
Actual Change
 
Pro Forma Combined Change
 
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
$
%
 
$
%
Operating income
 
$
146

$
—

$
146

 
$
117

$
(9
)
$
108

 
$
29

25
%
 
$
38

35
 %
Depreciation and amortization
 
82

—

82

 
56

26

82

 
26

46
%
 
—

—
 %
Restructuring and other charges
 
16

—

16

 
7

—

7

 
9

NM

 
9

NM

Scripps Networks transaction and integration costs
 
3

—

3

 
—

—

—

 
3

NM

 
3

NM

Inter-segment eliminations
 
7

—

7

 
—

9

9

 
7

NM

 
(2
)
(22
)%
Adjusted OIBDA(3)
 
254

—

254

 
180

26

206

 
74

41
%
 
48

23
 %












(1) Pro forma is defined as the results of the Company as if the Transactions had occurred on January 1, 2017. Refer to page 6 for full list of adjustments to pro forma results.
(2) Refer to page 5 for our methodology for calculating growth rates excluding the impact of currency effects.
(3) See full definition of Adjusted OIBDA on page 5.


13


DISCOVERY, INC.
SUPPLEMENTAL FINANCIAL DATA
UNAUDITED SELECTED PRO FORMA FINANCIALS(1) 
(unaudited; amounts in millions)


CORPORATE AND INTER-SEGMENT ELIMINATIONS REPORTED AND PRO FORMA FINANCIAL RESULTS
 
 
Three Months Ended September 30,
 
 
 
 
 
 
 
 
2018
 
2017
 
Actual Change
 
Pro Forma Combined Change
 
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
$
%
 
$
%
Revenues:
 
$
(1
)
$
—

$
(1
)
 
$
—

$
—

$
—

 
$
(1
)
NM

 
$
(1
)
NM

Costs of revenues, excluding depreciation and amortization
 
1

—

$
1

 
—

(1
)
(1
)
 
1

NM

 
2

NM

Selling, general and administrative
 
(111
)
—

(111
)
 
(85
)
(24
)
(109
)
 
(26
)
(31
)%
 
(2
)
(2
)%
Adjusted OIBDA(2)
 
(111
)
—

(111
)
 
(85
)
(25
)
(110
)
 
(26
)
(31
)%
 
(1
)
(1
)%


CORPORATE AND INTER-SEGMENT ELIMINATIONS UNAUDITED RECONCILIATION OF OPERATING INCOME TO PRO FORMA ADJUSTED OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION
 
 
Three Months Ended September 30,
 
 
 
 
 
 
 
 
2018
 
2017
 
Actual Change
 
Pro Forma Combined Change
 
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
$
%
 
$
%
Operating (loss)
 
$
(177
)
$
(1
)
$
(178
)
 
$
(151
)
$
33

$
(118
)
 
$
(26
)
(17
)%
 
$
(60
)
(51
)%
Mark-to-market share-based compensation

27

1

28

 
(11
)
4

(7
)

38

NM

 
35

NM

Depreciation and amortization
 
20

(1
)
19

 
15

1

16

 
5

33
 %
 
3

19
 %
Restructuring and other charges
 
2

—

2

 
—

—

—

 
2

NM

 
2

NM

Scripps Networks transaction and integration costs
 
20

—

20

 
62

(60
)
2

 
(42
)
(68
)%
 
18

NM

Inter-segment eliminations

(3
)
1

(2
)
 
—

(3
)
(3
)

(3
)
NM

 
1

33
 %
Adjusted OIBDA(2)
 
(111
)
—

(111
)
 
(85
)
(25
)
(110
)
 
(26
)
(31
)%
 
(1
)
(1
)%














(1) Pro forma is defined as the results of the Company as if the Transactions had occurred on January 1, 2017. Refer to page 6 for full list of adjustments to pro forma results.
(2) See full definition of Adjusted OIBDA on page 5.



14


DISCOVERY, INC.
SUPPLEMENTAL FINANCIAL DATA
UNAUDITED SELECTED PRO FORMA FINANCIALS(1) 
(unaudited; amounts in millions)


TOTAL COMPANY REPORTED AND PRO FORMA FINANCIAL RESULTS(2) 
 
 
Nine Months Ended September 30,
 
 
 
 
 
 
 
 
 
 
2018
 
2017
 
Actual Change
 
Pro Forma Combined Change
 
Pro Forma Ex-FX(3)
 
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
$
%
 
$
%
 
%
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution
 
$
3,389

$
178

$
3,567

 
$
2,593

$
825

$
3,418

 
$
796

31
%
 
$
149

4
 %
 
3
 %
Advertising
 
3,940

426

4,366

 
$
2,197

1,980

4,177

 
1,743

79
%
 
189

5
 %
 
3
 %
Other
 
415

19

434

 
219

106

325

 
196

89
%
 
109

34
 %
 
30
 %
Total revenues
 
7,744

623

8,367

 
5,009

2,911

7,920

 
2,735

55
%
 
447

6
 %
 
4
 %
Costs of revenues, excluding depreciation and amortization
 
2,989

204

3,193

 
1,911

1,008

2,919

 
1,078

56
%
 
274

9
 %
 
8
 %
Selling, general and administrative
 
1,800

160

1,960

 
1,203

769

1,972

 
597

50
%
 
(12
)
(1
)%
 
(3
)%
Adjusted OIBDA(4)
 
2,955

259

3,214


1,895

1,134

3,029

 
1,060

56
%
 
185

6
 %
 
6
 %


TOTAL COMPANY UNAUDITED RECONCILIATION OF REPORTED AND PRO FORMA OPERATING INCOME TO ADJUSTED OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION
 
 
Nine Months Ended September 30,
 
 
 
 
 
 
 
 
2018
 
2017
 
Actual Change
 
Pro Forma Combined Change
 
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
$
%
 
$
%
Operating income
 
1,223

282

1,505


1,550

256

1,806

 
(327
)
(21
)%
 
(301
)
(17
)%
Restructuring and other charges
 
652

10

662


43

—

43

 
609

NM

 
619

NM

Depreciation and amortization
 
1,001

(6
)
995

 
240

933

1,173

 
761

NM

 
(178
)
(15
)%
Mark-to-market share-based compensation
 
56

1

57

 
(4
)
5

1

 
60

NM

 
56

NM

Scripps Networks transaction and integration costs
 
107

(28
)
79

 
62

(60
)
2

 
45

73
 %
 
77

NM

(Gain) loss on disposition
 
(84
)
—

(84
)
 
4

—

4

 
(88
)
NM

 
(88
)
NM

Adjusted OIBDA(4)
 
2,955

259

3,214

 
1,895

1,134

3,029

 
1,060

56
 %
 
185

6
 %




(1) Pro forma is defined as the results of the Company as if the Transactions had occurred on January 1, 2017. Refer to page 6 for full list of adjustments to pro forma results.
(2) Certain updates were made to previously disclosed pro forma adjustments as a result of further information identified after May 10, 2018, the date our March 31, 2018 quarterly report was filed. These changes impact the costs of revenue, depreciation and amortization, and restructuring and other charges line items. The pro forma adjustments disclosed above are inclusive of these updates and therefore many not reconcile to previously disclosed amounts.
(3) Refer to page 5 for our methodology for calculating growth rates excluding the impact of currency effects.
(4) See full definition of Adjusted OIBDA on page 5.


15


DISCOVERY, INC.
SUPPLEMENTAL FINANCIAL DATA
UNAUDITED SELECTED PRO FORMA FINANCIALS(1) 
(unaudited; amounts in millions)


U.S. NETWORKS REPORTED AND PRO FORMA FINANCIAL RESULTS(2)
 
 
Nine Months Ended September 30,
 
 
 
 
 
 
 
 
2018
 
2017
 
Actual Change
 
Pro Forma Combined Change
 
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
$
%
 
$
%
Revenues:
 



 



 
 
 
 
 
 
Distribution
 
$
1,812

$
156

$
1,968

 
$
1,210

$
740

$
1,950

 
$
602

50
 %
 
$
18

1
 %
Advertising
 
2,708

356

3,064

 
1,284

1,702

2,986

 
1,424

NM

 
78

3
 %
Other
 
108

7

115

 
48

63

111

 
60

NM

 
4

4
 %
Total revenues
 
4,628

519

5,147

 
2,542

2,505

5,047

 
2,086

82
 %
 
100

2
 %
Costs of revenues, excluding depreciation and amortization
 
(1,297
)
(152
)
(1,449
)
 
(652
)
(802
)
(1,454
)
 
(645
)
(99
)%
 
5

—
 %
Selling, general and administrative
 
(795
)
(111
)
(906
)
 
(342
)
(587
)
(929
)
 
(453
)
NM

 
23

2
 %
Adjusted OIBDA(3)
 
2,536

256

2,792

 
1,548

1,116

2,664

 
988

64
 %
 
128

5
 %


U.S. NETWORKS UNAUDITED RECONCILIATION OF REPORTED AND PRO FORMA OPERATING INCOME TO ADJUSTED OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION
 
 
Nine Months Ended September 30,
 
 
 
 
 
 
 
 
2018
 
2017
 
Actual Change
 
Pro Forma Combined Change
 
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
$
%
 
$
%
Operating income
 
$
1,581

$
279

$
1,860

 
$
1,511

$
287

$
1,798

 
$
70

5
%
 
$
62

3
 %
Mark-to-market share-based compensation
 
—

—

—

 
—

(2
)
(2
)
 
—

NM

 
2

NM

Depreciation and amortization
 
691

(25
)
666

 
21

852

873

 
670

NM

 
(207
)
(24
)%
Restructuring and other charges
 
259

6

265

 
6

—

6

 
253

NM

 
259

NM

Scripps Networks transaction and integration costs
 
7

—

7

 
—

—

—

 
7

NM

 
7

NM

Inter-segment eliminations
 
(2
)
(4
)
(6
)
 
10

(21
)
(11
)
 
(12
)
NM

 
5

45
 %
Adjusted OIBDA(3)
 
2,536

256

2,792

 
1,548

1,116

2,664

 
988

64
%
 
128

5
 %






(1) Pro forma is defined as the results of the Company as if the Transactions had occurred on January 1, 2017. Refer to page 6 for full list of adjustments to pro forma results.
(2) Certain updates were made to previously disclosed pro forma adjustments as a result of further information identified after May 10, 2018, the date our March 31, 2018 quarterly report was filed. These changes impact the costs of revenue, depreciation and amortization, and restructuring and other charges line items. The pro forma adjustments disclosed above are inclusive of these updates and therefore many not reconcile to previously disclosed amounts.
(3) See full definition of Adjusted OIBDA on page 5.


16


DISCOVERY, INC.
SUPPLEMENTAL FINANCIAL DATA
UNAUDITED SELECTED PRO FORMA FINANCIALS(1) 
(unaudited; amounts in millions)


INTERNATIONAL NETWORKS REPORTED AND PRO FORMA FINANCIAL RESULTS(2)
 
 
Nine Months Ended September 30,
 
 
 
 
 
 
 
 
 
 
2018
 
2017
 
Actual Change
 
Pro Forma Combined Change
 
Pro Forma Ex-FX(3)
 
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
$
%
 
$
%
 
%
Revenues:
 




 




 




 




 
 
Distribution
 
$
1,577

$
22

$
1,599

 
$
1,383

$
85

$
1,468

 
$
194

14
 %
 
$
131

9
 %
 
6
 %
Advertising
 
1,232

70

1,302

 
913

278

1,191

 
319

35
 %
 
111

9
 %
 
5
 %
Other
 
256

12

268

 
58

43

101

 
198

NM

 
167

NM

 
NM

Total revenues
 
3,065

104

3,169

 
2,354

406

2,760

 
711

30
 %
 
409

15
 %
 
11
 %
Costs of revenues, excluding depreciation and amortization
 
(1,675
)
(52
)
(1,727
)
 
(1,214
)
(205
)
(1,419
)
 
(461
)
(38
)%
 
(308
)
(22
)%
 
(18
)%
Selling, general and administrative
 
(663
)
(27
)
(690
)
 
(530
)
(107
)
(637
)
 
(133
)
(25
)%
 
(53
)
(8
)%
 
(2
)%
Adjusted OIBDA(4)
 
727

25

752

 
610

94

704

 
117

19
 %
 
48

7
 %
 
5
 %


INTERNATIONAL NETWORKS UNAUDITED RECONCILIATION OF OPERATING INCOME TO PRO FORMA ADJUSTED OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION
 
 
Nine Months Ended September 30,
 
 
 
 
 
 
 
 
2018
 
2017
 
Actual Change
 
Pro Forma Combined Change
 
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
$
%
 
$
%
Operating income
 
$
217

$
1

$
218

 
$
417

$
(6
)
$
411

 
$
(200
)
(48
)%
 
$
(193
)
(47
)%
Depreciation and amortization
 
232

19

251

 
165

79

244

 
67

41
 %
 
7

3
 %
Restructuring and other charges
 
262

2

264

 
28

—

28

 
234

NM

 
236

NM

Scripps Networks transaction and integration costs
 
3

—

3

 
—

—

—

 
3

NM

 
3

NM

Inter-segment eliminations
 
13

3

16

 
—

21

21

 
13

NM

 
(5
)
(24
)%
Adjusted OIBDA(4)
 
727

25

752

 
610

94

704

 
117

19
 %
 
48

7
 %







(1) Pro forma is defined as the results of the Company as if the Transactions had occurred on January 1, 2017. Refer to page 6 for full list of adjustments to pro forma results.
(2) Certain updates were made to previously disclosed pro forma adjustments as a result of further information identified after May 10, 2018, the date our March 31, 2018 quarterly report was filed. These changes impact the costs of revenue, depreciation and amortization, and restructuring and other charges line items. The pro forma adjustments disclosed above are inclusive of these updates and therefore many not reconcile to previously disclosed amounts.
(3) Refer to page 5 for our methodology for calculating growth rates excluding the impact of currency effects.
(4) See full definition of Adjusted OIBDA on page 5.



17


DISCOVERY, INC.
SUPPLEMENTAL FINANCIAL DATA
UNAUDITED SELECTED PRO FORMA FINANCIALS(1) 
(unaudited; amounts in millions)


CORPORATE AND INTER-SEGMENT ELIMINATIONS REPORTED AND PRO FORMA FINANCIAL RESULTS(2) 
 
 
Nine Months Ended September 30,
 
 
 
 
 
 
 
 
2018
 
2017
 
Actual Change
 
Pro Forma Combined Change
 
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
$
%
 
$
%
Revenues:
 
$
(1
)
$
—

$
(1
)
 
$
—

$
—

$
—

 
(1
)
NM

 
(1
)
NM

Costs of revenues, excluding depreciation and amortization
 
—

—

—

 
(1
)
(1
)
(2
)
 
1

NM

 
2

NM

Selling, general and administrative
 
(310
)
(22
)
(332
)
 
(261
)
(75
)
(336
)
 
(49
)
(19
)%
 
4

1
%
Adjusted OIBDA(3)
 
(311
)
(22
)
(333
)
 
(262
)
(76
)
(338
)
 
(49
)
(19
)%
 
5

1
%


CORPORATE AND INTER-SEGMENT ELIMINATIONS UNAUDITED RECONCILIATION OF OPERATING INCOME TO PRO FORMA ADJUSTED OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION
 
 
Nine Months Ended September 30,
 
 
 
 
 
 
 
 
2018
 
2017
 
Actual Change
 
Pro Forma Combined Change
 
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
$
%
 
$
%
Operating (loss)
 
$
(666
)
$
2

$
(664
)
 
$
(376
)
$
(25
)
$
(401
)
 
$
(290
)
(77
)%
 
$
(263
)
(66
)%
Mark-to-market share-based compensation
 
56

1

57

 
(4
)
7

3

 
60

NM

 
54

NM

Depreciation and amortization
 
75

—

75

 
50

2

52

 
25

50
 %
 
23

44
 %
Restructuring and other charges
 
130

2

132

 
6

—

6

 
124

NM

 
126

NM

Scripps Networks transaction and integration costs
 
97

(28
)
69

 
62

(60
)
2

 
35

56
 %
 
67

NM

Inter-segment eliminations
 
(3
)
1

(2
)
 
—

—

—

 
(3
)
NM

 
(2
)
NM

Adjusted OIBDA(3)
 
(311
)
(22
)
(333
)
 
(262
)
(76
)
(338
)
 
(49
)
(19
)%
 
5

1
 %










(1) Pro forma is defined as the results of the Company as if the Transactions had occurred on January 1, 2017. Refer to page 6 for full list of adjustments to pro forma results.
(2) Certain updates were made to previously disclosed pro forma adjustments as a result of further information identified after May 10, 2018, the date our March 31, 2018 quarterly report was filed. These changes impact the costs of revenue, depreciation and amortization, and restructuring and other charges line items. The pro forma adjustments disclosed above are inclusive of these updates and therefore many not reconcile to previously disclosed amounts.
(3) See full definition of Adjusted OIBDA on page 5.



18


DISCOVERY, INC.
SUPPLEMENTAL FINANCIAL DATA
RECONCILIATION OF NET INCOME TO
ADJUSTED OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION
(unaudited; in millions)

 
 
Three Months Ended September 30, 2018
 
 
U.S. Networks
 
International Networks
 
Education and Other
 
Corporate and Inter-Segment Eliminations
 
Total
Net income available to Discovery, Inc.
 
 
 
 
 
 
 
 
 
$
117

Net income attributable to redeemable noncontrolling interests
 
 
 
 
 
 
 
 
 
5

Net income attributable to noncontrolling interests
 
 
 
 
 
 
 
 
 
13

Income tax expense
 
 
 
 
 
 
 
 
 
43

Other expense, net
 
 
 
 
 
 
 
 
 
15

(Income) from equity investees, net
 
 
 
 
 
 
 
 
 
(9
)
Interest expense, net
 
 
 
 
 
 
 
 
 
185

Operating income
 
399

 
146

 
1

 
(177
)
 
369

Restructuring and other charges
 
206

 
16

 
—

 
2

 
224

Depreciation and amortization
 
296

 
82

 
—

 
20

 
398

Mark-to-market share-based compensation
 
—

 
—

 
—

 
27

 
27

Scripps Networks transaction and integration costs
 
3

 
3

 
—

 
20

 
26

   Inter-segment eliminations
 
(3
)
 
7

 
(1
)
 
(3
)
 
—

Total Adjusted OIBDA
 
901

 
254

 
$
—

 
(111
)
 
$
1,044



 
 
Three Months Ended September 30, 2017
 
 
U.S. Networks
 
International Networks
 
Education and Other
 
Corporate and Inter-Segment Eliminations
 
Total
Net income available to Discovery, Inc.
 
 
 
 
 
 
 
 
 
$
218

Net income attributable to redeemable noncontrolling interests
 
 
 
 
 
 
 
 
 
5

Income tax (benefit)
 
 
 
 
 
 
 
 
 
(59
)
Other expense, net
 
 
 
 
 
 
 
 
 
106

Loss from equity investees, net
 
 
 
 
 
 
 
 
 
27

Interest expense, net
 
 
 
 
 
 
 
 
 
136

Operating income
 
469

 
117

 
(2
)
 
(151
)
 
433

Restructuring and other charges
 
2

 
7

 
2

 
—

 
11

Depreciation and amortization
 
7

 
56

 
2

 
15

 
80

Mark-to-market share-based compensation
 
—

 
—

 
—

 
(11
)
 
(11
)
Scripps Networks transaction and integration costs
 
—

 
—

 
—

 
62

 
62

   Inter-segment eliminations
 
2

 
—

 
(2
)
 
—

 
—

Total Adjusted OIBDA
 
480

 
180

 
—

 
(85
)
 
$
575


19


DISCOVERY, INC.
SUPPLEMENTAL FINANCIAL DATA
RECONCILIATION OF NET INCOME TO
ADJUSTED OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION
(unaudited; in millions)

 
 
Nine Months Ended September 30, 2018
 
 
U.S. Networks
 
International Networks
 
Education and Other
 
Corporate and Inter-Segment Eliminations
 
Total
Net income available to Discovery, Inc.
 
 
 
 
 
 
 
 
 
$
325

Net income attributable to redeemable noncontrolling interests
 
 
 
 
 
 
 
 
 
16

Net income attributable to noncontrolling interests
 
 
 
 
 
 
 
 
 
41

Income tax expense
 
 
 
 
 
 
 
 
 
146

Other expense, net
 
 
 
 
 
 
 
 
 
84

Loss from equity investees, net
 
 
 
 
 
 
 
 
 
53

Interest expense
 
 
 
 
 
 
 
 
 
558

Operating income
 
1,581

 
217

 
91

 
(666
)
 
1,223

Restructuring and other charges
 
259

 
262

 
1

 
130

 
652

Depreciation and amortization
 
691

 
232

 
3

 
75

 
1,001

Mark-to-market share-based compensation
 
—

 
—

 
—

 
56

 
56

Scripps Networks transaction and integration costs
 
7

 
3

 
—

 
97

 
107

(Gain) on disposition
 
—

 
—

 
(84
)
 
—

 
(84
)
   Inter-segment eliminations
 
(2
)
 
13

 
$
(8
)
 
(3
)
 
—

Total Adjusted OIBDA
 
2,536

 
727

 
$
3

 
(311
)
 
$
2,955



 
 
Nine Months Ended September 30, 2017
 
 
U.S. Networks
 
International Networks
 
Education and Other
 
Corporate and Inter-Segment Eliminations
 
Total
Net income available to Discovery, Inc.
 
 
 
 
 
 
 
 
 
$
807

Net income attributable to redeemable noncontrolling interests
 
 
 
 
 
 
 
 
 
17

Net income attributable to noncontrolling interests
 
 
 
 
 
 
 
 
 
—

Income tax expense
 
 
 
 
 
 
 
 
 
89

Other expense, net
 
 
 
 
 
 
 
 
 
143

Loss from equity investees, net
 
 
 
 
 
 
 
 
 
122

Loss on extinguishment of debt
 
 
 
 
 
 
 
 
 
54

Interest expense
 
 
 
 
 
 
 
 
 
318

Operating income
 
1,511

 
417

 
(2
)
 
(376
)
 
1,550

Restructuring and other charges
 
6

 
28

 
3

 
6

 
43

Depreciation and amortization
 
21

 
165

 
4

 
50

 
240

Mark-to-market share-based compensation
 
—

 
—

 
—

 
(4
)
 
(4
)
Scripps Networks transaction and integration costs
 
—

 
—

 
—

 
62

 
62

Loss on disposition
 
—

 
—

 
4

 
—

 
4

   Inter-segment eliminations
 
10

 
—

 
(10
)
 
—

 
—

Total Adjusted OIBDA
 
1,548

 
610

 
(1
)
 
$
(262
)
 
$
1,895


20


DISCOVERY, INC.
SUPPLEMENTAL FINANCIAL DATA
SELECTED FINANCIAL DETAIL
(unaudited; in millions, except per share amounts)


EARNINGS PER SHARE
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Numerator:
 
 
 
 
 
 
 
 
Net income
 
$
135

 
$
223

 
$
382

 
$
824

Less:
 
 
 
 
 
 
 
 
Allocation of undistributed income to Series A-1 convertible preferred stock
 
(12
)
 
(27
)
 
(34
)
 
(99
)
Net income attributable to noncontrolling interests
 
(13
)
 
—

 
(41
)
 
—

Net income attributable to redeemable noncontrolling interests
 
(5
)
 
(5
)
 
(16
)
 
(17
)
Redeemable noncontrolling interest adjustments to redemption value
 
—

 
—

 
(6
)
 
—

Net income allocated to Discovery, Inc. Series A, B and C common and Series C-1 convertible preferred stockholders for basic net income per share
 
$
105

 
$
191

 
$
285

 
$
708

Allocation of net income to Discovery, Inc. Series A, B and C common stockholders and Series C-1 convertible preferred stockholders for basic net income per share:
 
 
 
 
 
 
 
 
Series A, B and C common stockholders
 
86

 
146

 
231

 
539

Series C-1 convertible preferred stockholders
 
19

 
45

 
54

 
169

Total
 
105

 
191

 
285

 
708

Add:
 
 
 
 
 
 
 
 
Allocation of undistributed income to Series A-1 convertible preferred stockholders
 
12

 
27

 
34

 
99

Net income allocated to Discovery, Inc. Series A, B and C common stockholders for diluted net income per share
 
$
117

 
$
218

 
$
319

 
$
807

 
 
 
 
 
 
 
 
 
Denominator — weighted average:
 
 
 
 
 
 
 
 
Series A, B and C common shares outstanding — basic
 
523

 
381

 
490

 
385

Impact of assumed preferred stock conversion
 
187

 
189

 
187

 
194

Dilutive effect of share-based awards
 
3

 
1

 
2

 
2

Series A, B and C common shares outstanding — diluted
 
713

 
571

 
679

 
581

Series C-1 convertible preferred stock outstanding — basic and diluted
 
6

 
6

 
6

 
6

 
 
 
 
 
 
 
 
 
Basic net income per share allocated to Discovery, Inc. Series A, B and C common and Series C-1 convertible preferred stockholders:
 
 
 
 
 
 
 
 
Series A, B and C common stockholders
 
$
0.16

 
$
0.38

 
$
0.47

 
$
1.40

Series C-1 convertible preferred stockholders
 
$
3.19

 
$
7.41

 
$
9.13

 
$
27.06

 
 
 
 
 
 
 
 
 
Diluted net income per share allocated to Discovery, Inc. Series A, B and C common and Series C-1 convertible preferred stockholders:
 
 
 
 
 
 
 
 
Series A, B and C common stockholders
 
$
0.16

 
$
0.38

 
$
0.47

 
$
1.39

Series C-1 convertible preferred stockholders
 
$
3.18

 
$
7.40

 
$
9.10

 
$
26.96



21


DISCOVERY, INC.
SUPPLEMENTAL FINANCIAL DATA
SELECTED FINANCIAL DETAIL
(unaudited; in millions, except per share amounts)


CALCULATION OF ADJUSTED EARNINGS PER DILUTED SHARE
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
Change
 
2018
 
2017
 
Change
Diluted net income per share available to Discovery, Inc. Series A, B and C common stockholders
 
$
0.16

 
$
0.38

 
$
(0.22
)
 
$
0.47

 
$
1.39

 
$
(0.92
)
Per share impact of amortization of acquisition-related intangible assets, net of tax
 
0.36

 
0.05

 
0.31

 
0.89

 
0.13

 
0.76

Adjusted earnings per diluted share
 
$
0.52

 
$
0.43

 
$
0.09

 
$
1.36

 
$
1.52

 
$
(0.16
)


CALCULATION OF FREE CASH FLOW
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
Change
 
% Change
 
2018
 
2017
 
Change
 
% Change
Cash provided by operating activities
 
931

 
$
724

 
$
207

 
29
%
 
$
1,647

 
$
1,167

 
$
480

 
41
 %
Purchases of property and equipment
 
(24
)
 
(25
)
 
1

 
4
%
 
(106
)
 
(103
)
 
(3
)
 
(3
)%
Free cash flow
 
$
907

 
$
699

 
$
208

 
30
%
 
$
1,541

 
$
1,064

 
$
477

 
45
 %








22


DISCOVERY, INC.
SUPPLEMENTAL FINANCIAL DATA
SELECTED FINANCIAL DETAIL
(unaudited; in millions, except per share amounts)


BORROWINGS
 
September 30, 2018
 
December 31, 2017
5.625% Senior notes, semi-annual interest, due August 2019
$
411

 
$
411

2.200% Senior notes, semi-annual interest, due September 2019
500

 
500

Floating rate notes, quarterly interest, due September 2019
400

 
400

2.750% Senior notes, semi-annual interest, due November 2019
500

 
—

2.800% Senior notes, semi-annual interest, due June 2020
600

 
—

5.050% Senior notes, semi-annual interest, due June 2020
789

 
789

4.375% Senior notes, semi-annual interest, due June 2021
650

 
650

2.375% Senior notes, euro denominated, annual interest, due March 2022
350

 
358

3.300% Senior notes, semi-annual interest, due May 2022
500

 
500

3.500% Senior notes, semi-annual interest, due June 2022
400

 
—

2.950% Senior notes, semi-annual interest, due March 2023
1,200

 
1,200

3.250% Senior notes, semi-annual interest, due April 2023
350

 
350

3.800% Senior notes, semi-annual interest, due March 2024
450

 
450

2.500% Senior notes, sterling denominated, annual interest, due September 2024
525

 
538

3.900% Senior notes, semi-annual interest, due November 2024
500

 
—

3.450% Senior notes, semi-annual interest, due March 2025
300

 
300

3.950% Senior notes, semi-annual interest, due June 2025
500

 
—

4.900% Senior notes, semi-annual interest, due March 2026
700

 
700

1.900% Senior notes, euro denominated, annual interest, due March 2027
700

 
717

3.950% Senior notes, semi-annual interest, due March 2028
1,700

 
1,700

5.000% Senior notes, semi-annual interest, due September 2037
1,250

 
1,250

6.350% Senior notes, semi-annual interest, due June 2040
850

 
850

4.950% Senior notes, semi-annual interest, due May 2042
500

 
500

4.875% Senior notes, semi-annual interest, due April 2043
850

 
850

5.200% Senior notes, semi-annual interest, due September 2047
1,250

 
1,250

Revolving credit facility
325

 
425

Commercial paper
297

 
—

Program financing line of credit
23

 
—

Capital lease obligations
245

 
225

Total debt
17,615

 
14,913

Unamortized discount, premium and debt issuance costs, net
(133
)
 
(128
)
Debt, net of unamortized discount, premium and debt issuance costs
17,482

 
14,785

Current portion of debt
(1,653
)
 
(30
)
Noncurrent portion of debt
$
15,829

 
$
14,755





23