EX-99.1 2 a20181231-exhibit991pressr.htm PRESS RELEASE DATED FEBRUARY 26, 2019 Exhibit


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DISCOVERY, INC. REPORTS FULL YEAR AND FOURTH QUARTER 2018 RESULTS

Silver Spring, MD – February 26, 2019: Discovery, Inc. (“Discovery” or the “Company”) (NASDAQ: DISCA, DISCB, DISCK) today reported financial results for the full year and fourth quarter ended December 31, 2018.

2018 Operational Highlights
•
Completed the acquisition and integration of Scripps Networks;
•
Successfully broadcast the first of four Olympic Games across Europe;
•
Announced a distinctive golf service in partnership with the PGA TOUR to become the new international home for golf;
•
Formed a new streaming partnership with broadcaster ProSieben in Germany; and
•
Secured additional, favorable U.S. streaming agreements with Hulu and Sling TV.

“2018 was a transformational year for Discovery, highlighted by our operational accomplishments, our strong progress in synergy generation and our overall solid financial performance, as we continued powering people's passions around the world,” said David Zaslav, President and Chief Executive Officer for Discovery. "Discovery is a differentiated global content company, and we are optimistic that we will continue to build on all of our operating momentum to drive additional shareholder value into the future.”

Full Year Financial Results
Full year revenues increased 54% to $10.6 billion on a reported basis compared with the prior year. Excluding the impact of foreign currency fluctuations(1) and the Scripps Networks Interactive, Inc. (“Scripps Networks”), MotorTrend Group, LLC (“MTG”) and Oprah Winfrey Network (“OWN”) transactions (collectively, “the Transactions”)(2), revenues increased 3%, as an 8% increase in International Networks and a 1% 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 on April 30, 2018. On a pro forma(3) combined basis, excluding the impact of foreign currency fluctuations, total company revenues increased 3%, as International Networks increased 8% and U.S. Networks increased 2%, partially offset by a significant decrease in Education and Other revenues due to the sale of the education business.

Full year Adjusted Operating Income Before Depreciation and Amortization (“Adjusted OIBDA”)(4) increased 64% to $4.1 billion on a reported basis compared with the prior year. Excluding the impact of the Transactions and foreign currency fluctuations, Adjusted OIBDA increased 1%, as U.S. Networks increased 3% and International Networks increased 2%, partially offset by a 16% decrease in Corporate and Other. On a pro forma combined basis, excluding the impact of foreign currency fluctuations, Adjusted OIBDA increased 8%, as U.S. Networks increased 8% and International Networks increased 7%.



(1
)
Refer to page 7 for our methodology for calculating growth rates excluding the impact of currency effects.
(2
)
The Transactions refer to the Company's acquisition of Scripps Networks on March 6, 2018, the acquisition of a controlling interest in OWN on November 30, 2017 and the contribution of businesses from MTG on September 25, 2017.
(3
)
Pro forma is defined as the results of the Company as if the Transactions had occurred on January 1, 2017. Refer to page 8 for the full list of pro forma adjustments and to pages 13-20 for pro forma operating results.
(4
)
See full definition of Adjusted OIBDA on page 7.


1


Full year net income available to Discovery increased to $594 million, compared with a $337 million loss in the prior year, due to higher operating results primarily due to the Transactions, partially offset by higher restructuring and other charges associated with the integration of Scripps Networks, higher tax expenses and higher interest expense. In addition, a non-cash goodwill impairment charge was recognized in the prior year. Diluted earnings per share(1) increased to $0.86, primarily due to higher net income. Adjusted Earnings Per Diluted Share ("Adjusted EPS")(1),(2), which excludes the impact of amortization of acquisition-related intangible assets, net of tax was $2.11. Adjusted EPS excluding $618 million (or $0.89 per share) of after-tax restructuring and other charges was $3.00.

Free cash flow(3) increased to $2.4 billion for the full year as cash flow from operations increased to $2.6 billion while capital expenditures of $147 million were slightly higher compared with the prior year primarily due to the integration of Scripps Networks. Full year cash flow from operations increased primarily as a result of higher operating results primarily due to the Transactions, partially offset by higher content and restructuring costs and higher interest expense.

Fourth Quarter 2018 Financial Results
Fourth quarter revenues of $2.8 billion increased 51% on a reported basis compared with the prior year quarter. Excluding the impact of the Transactions(4) and foreign currency fluctuations, revenues decreased 2% as a 1% increase in U.S. Networks and flat revenues in International Networks were more than offset by a significant decrease in Education and Other revenues due to the sale of the education business. On a pro forma combined basis, excluding the impact of foreign currency fluctuations, total company fourth quarter revenues decreased 1%, as a 2% increase in U.S. Networks and flat revenues in International Networks were more than offset by a significant decrease in Education and Other revenues due to the sale of the education business.

Fourth quarter Adjusted OIBDA increased 86% to $1.2 billion on a reported basis compared with the prior year quarter. Excluding the impact of the Transactions and foreign currency fluctuations, Adjusted OIBDA increased 5% compared with the prior year quarter, as International Networks increased 13% and U.S. Networks increased 6%, partially offset by a 29% decrease in Corporate and Other. On a pro forma combined basis, excluding the impact of foreign currency fluctuations, fourth quarter Adjusted OIBDA increased 16%, as U.S. Networks Adjusted OIBDA increased 17% and International Networks' Adjusted OIBDA increased 15%.

Fourth quarter net income available to Discovery was $269 million, compared with a loss of $1.1 billion in the prior year quarter, due to higher operating results, primarily due to the integration of Scripps Networks partially offset by higher restructuring and other charges, higher tax expenses and higher interest expense. In addition, a non-cash goodwill impairment charge was recognized in the prior year's quarter. Diluted earnings per share increased to $0.38 primarily due to higher DCI Net Income. Adjusted EPS, which excludes the impact of amortization of acquisition-related intangible assets, net of tax was $0.74. Adjusted EPS excluding $62 million (or $0.08 per share) of after-tax restructuring and other charges was $0.82.

Free cash flow increased to $888 million for the fourth quarter of 2018 as cash flow from operations increased to $929 million while capital expenditures of $41 million were slightly higher compared with the prior year quarter primarily due to the integration of Scripps Networks. Fourth quarter cash flow from operations increased as a result of higher operating results due to the integration of Scripps Networks, partially offset by higher content and restructuring costs and higher interest expense.



(1
)
All per share amounts are calculated using net income. Refer to table on page 25 for the full schedule.
(2
)
See full definition of Adjusted EPS on page 7.
(3
)
Free cash flow is defined as cash provided by operating activities less purchases of property and equipment.
(4
)
In the fourth quarter, the Transactions refer to just the Company's acquisition of Scripps Networks on March 6, 2018 and the acquisition of a controlling interest in OWN on November 30, 2017.


2


SEGMENT RESULTS

Total Company
(dollars in millions)
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
 
2018
 
2017
 
Change
 
Pro Forma Change(1)
 
2018
 
2017
 
Change
 
Pro Forma Change(1)
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Networks
 
$
1,722

 
$
892

 
93
%
 
2
%
 
$
6,350

 
$
3,434

 
85
%
 
2
%
International Networks
 
1,084

 
927

 
17
%
 
—
%
 
4,149

 
3,281

 
26
%
 
8
%
Education and Other
 
2

 
45

 
(96
)%
 
(96
)%
 
54

 
158

 
(66
)%
 
(66
)%
Corporate and Inter-Segment Eliminations
 
1

 
—

 
NM

 
NM

 
—

 
—

 
—
%
 
—
%
Total revenues
 
$
2,809

 
$
1,864

 
51
%
 
(1
)%
 
$
10,553

 
$
6,873

 
54
%
 
3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted OIBDA:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Networks
 
$
964

 
$
478

 
NM

 
17
%
 
$
3,500

 
$
2,026

 
73
%
 
8
%
International Networks
 
350

 
249

 
41
%
 
15
%
 
1,077

 
859

 
25
%
 
7
%
Education and Other
 
—

 
7

 
NM

 
NM

 
3

 
6

 
(50
)%
 
(50
)%
Corporate and Inter-Segment Eliminations
 
(130
)
 
(98
)
 
(33
)%
 
(8
)%
 
(441
)
 
(360
)
 
(23
)%
 
(1
)%
Total Adjusted OIBDA
 
$
1,184

 
$
636

 
86
%
 
16
%
 
$
4,139

 
$
2,531

 
64
%
 
8
%

U.S. Networks
(dollars in millions)
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
 
2018
 
2017
 
Change
 
Pro Forma Change
 
2018
 
2017
 
Change
 
Pro Forma Change
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution
 
$
644

 
$
402

 
60
%
 
1
%
 
$
2,456

 
$
1,612

 
52
%
 
1
%
Advertising
 
1,041

 
456

 
NM

 
3
%
 
3,749

 
1,740

 
NM

 
3
%
Other
 
37

 
34

 
9
%
 
(16
)%
 
145

 
82

 
77
%
 
(2
)%
Total revenues
 
$
1,722

 
$
892

 
93
%
 
2
%
 
$
6,350

 
$
3,434

 
85
%
 
2
%
Adjusted OIBDA
 
$
964

 
$
478

 
NM

 
17
%
 
$
3,500

 
$
2,026

 
73
%
 
8
%

Full Year Financial Results
U.S. Networks’ revenues for the full year of 2018 increased 85% to $6.4 billion on a reported basis compared with the prior year. Excluding the impact of the Transactions, revenues increased 1%, as a 3% increase in advertising revenues and a 1% increase in distribution revenues were partially offset by a 27% decrease in Other revenues due to lower program and merchandising sales. On a pro forma combined basis, U.S. Networks' revenues for the full year increased 2%. Pro forma advertising revenues increased 3% primarily driven by the continued monetization of our digital content offerings and an increase in pricing, partially offset by the impact of audience declines on our linear networks. Pro forma distribution revenues increased 1%, reflecting increases in contractual affiliate rates, partially offset by a decline in subscribers and to a lesser extent, the timing of lower contributions from content deliveries under licensing agreements.

NM: Not Meaningful
(1)
Pro forma is defined as the results of the Company as if the Transactions had occurred on January 1, 2017. Pro forma change for Total Company and the International Networks segment excludes the impact from foreign currency fluctuations. Refer to page 8 for the full list of pro forma adjustments and to pages 13-20 for full detail on pro forma operating results.


3


Operating expenses for U.S. Networks increased to $2.9 billion on a reported basis compared with $1.4 billion in the prior year. Excluding the impact of the Transactions, operating expenses decreased 1%, as costs of revenues decreased 4% while SG&A expenses increased 4%. On a pro forma combined basis, total operating expenses decreased 4%, as costs of revenues decreased 5% and SG&A expenses decreased 3%. The decrease in pro forma combined operating expenses was primarily attributable to higher content impairment expenses recorded in the prior year, lower personnel costs due to restructuring as well as content synergies following the acquisition of Scripps Networks.

U.S. Networks' Adjusted OIBDA increased 73% to $3.5 billion on a reported basis compared with the prior year. Excluding the impact of the Transactions, U.S. Networks' Adjusted OIBDA increased 3%. On a pro forma combined basis, Adjusted OIBDA increased 8%, driven by an increase in revenues combined with a decrease in operating expenses.

Fourth Quarter Financial Results
U.S. Networks’ revenues for the fourth quarter of 2018 increased 93% to $1.7 billion on a reported basis compared with the prior year quarter. Excluding the impact of the Transactions, revenues increased 1%, as distribution revenues increased 3%, advertising revenues remained consistent and Other revenues decreased $9 million compared with the prior year quarter. On a pro forma combined basis, U.S. Networks' revenues for the fourth quarter increased 2%. Pro forma advertising revenues increased 3%, primarily driven by continued monetization of digital content offerings and an increase in pricing, partially offset by the impact of audience declines on our linear networks. Pro forma distribution revenues increased 1% primarily reflecting increases in contractual affiliate rates, partially offset by a decline in overall subscribers. On a pro forma combined basis, total portfolio subscribers for December 2018 were 4% lower than December 2017 and subscribers to our fully distributed networks were flat with the prior year, primarily due to additional carriage on streaming platforms toward the end of the year, which offset the overall trend of subscriber declines.

Operating expenses for U.S. Networks increased to $758 million on a reported basis compared with $414 million in the prior year quarter. Excluding the impact of the Transactions, operating expenses decreased 6%, as costs of revenues decreased 15% and SG&A expenses increased 11%. On a pro forma combined basis, total operating expenses decreased 13%, as costs of revenues decreased 18% and SG&A expenses decreased 4%. The decrease in pro forma combined operating expenses was primarily attributable to content synergies and higher impairments recorded in the prior year quarter along with lower personnel costs due to restructuring and the integration of Scripps Networks.

U.S. Networks' Adjusted OIBDA for the fourth quarter increased to $964 million on a reported basis compared with $478 million in 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 17%, driven by an increase in revenues combined with a decrease in operating expenses.

International Networks
(dollars in millions)
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
 
2018
 
2017
 
Change
 
Pro Forma Change(1)
 
2018
 
2017
 
Change
 
Pro Forma Change(1)
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distribution
 
$
505

 
$
479

 
5
%
 
2
 %
 
$
2,082

 
$
1,862

 
12
%
 
5
%
Advertising
 
533

 
419

 
27
%
 
—
 %
 
1,765

 
1,332

 
33
%
 
3
%
Other
 
46

 
29

 
59
%
 
(21
)%
 
302

 
87

 
NM

 
88
%
Total revenues
 
$
1,084

 
$
927

 
17
%
 
—
 %
 
$
4,149

 
$
3,281

 
26
%
 
8
%
Adjusted OIBDA
 
$
350

 
$
249

 
41
%
 
15
 %
 
$
1,077

 
$
859

 
25
%
 
7
%
NM: Not Meaningful
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Pro forma is defined as the results of the Company as if the Transactions had occurred on January 1, 2017. Pro forma change excludes the impact from foreign currency fluctuations. Refer to page 8 for the full list of pro forma adjustments and to pages 13-20 for full detail on pro forma operating results.



4


Full Year Financial Results
International Networks’ revenues for the full year of 2018 increased 26% to $4.1 billion on a reported basis compared with the prior year. Excluding the impact of the acquisition of Scripps Networks and foreign currency fluctuations, International Networks' revenues increased 8%, driven by a 5% increase in distribution revenues, a 2% increase in advertising revenues and a significant increase in Other revenues due to the sublicensing of the Olympic Games in the first quarter. On a pro forma combined basis, excluding the impact of foreign currency fluctuations, International Networks' revenues increased 8%, driven by a 5% increase in distribution revenues and a 3% increase in advertising revenues, and an 88% increase in other revenues due to the sublicensing of the Olympics. Pro forma distribution revenue growth was primarily driven by increases in subscribers to our linear networks and higher digital subscription revenues in Europe and increases in pricing in Latin America and Europe, partially offset by pricing declines in Asia. Pro forma advertising revenue growth was primarily attributable to revenues associated with the Olympics in the first quarter, strength in certain European markets, and to a lesser extent, continued monetization of our digital distribution offerings, partially offset by linear viewership declines in Latin America.

Operating expenses for International Networks increased to $3.1 billion compared with $2.4 billion on a reported basis in the prior year. Excluding the impact of the acquisition of Scripps Networks and foreign currency fluctuations, operating expenses increased 11%, as costs of revenues increased 12% and SG&A increased 7%. On a pro forma combined basis, excluding the impact of foreign currency fluctuations, operating expenses increased 8%. Costs of revenues increased 11%, primarily attributable to spending on the Olympics, partially offset by content synergies from the integration of Scripps Networks. SG&A increased 2%, due to increased marketing spend, particularly related to our digital distribution offerings, and Olympics-related expenses, partially offset by cost savings from the integration of Scripps Networks.

International Networks' Adjusted OIBDA increased 25% to $1.1 billion on a reported basis compared with the prior year. Excluding the impact of the acquisition of Scripps Networks and foreign currency fluctuations, International Networks' Adjusted OIBDA increased 2%. On a pro forma combined basis, excluding the impact of foreign currency fluctuations, Adjusted OIBDA increased 7%. The increase in pro forma combined Adjusted OIBDA was primarily driven by the growth in revenues, which outpaced the increases in costs of revenues and SG&A expenses.

Fourth Quarter Financial Results
International Networks’ revenues for the fourth quarter of 2018 increased 17% to $1.1 billion 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' revenues were flat, driven by a 2% increase in distribution revenues, while advertising revenues were flat and Other revenues decreased 13%. On a pro forma combined basis, excluding the impact of foreign currency fluctuations, International Networks' revenues were flat, driven by a 2% increase in distribution revenues while advertising revenues were flat, offset by a 21% decrease in Other revenues due to the timing of certain content distribution and licensing revenues. Pro forma distribution revenue growth was primarily driven by increases in Europe, mostly due to higher pricing, and higher pricing and subscriber increases in Latin America, partially offset by pricing declines in Asia. Pro forma advertising revenues were flat, as increases in Europe, mostly due to higher pricing, were offset by viewership declines in Latin America.

Operating expenses for International Networks increased to $734 million compared with $678 million on a reported basis in the prior year quarter. Excluding the impact of the acquisition of Scripps Networks and foreign currency fluctuations, operating expenses decreased 5%, as costs of revenues decreased 9% partially offset by an increase in SG&A of 4%. On a pro forma combined basis, excluding currency effects, operating expenses decreased 6%, as costs of revenues decreased 9%, primarily attributable to content synergies following the acquisition of Scripps Networks, while SG&A was flat, primarily due to reductions in personnel costs from restructuring and the integration of Scripps Networks offset by increased personnel spending related to digital distribution offerings.


5


International Networks' Adjusted OIBDA increased 41% to $350 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 13%. On a pro forma combined basis, excluding currency effects, Adjusted OIBDA increased 15%. The increase in pro forma combined Adjusted OIBDA was primarily driven by the decrease in costs of revenues.

Education and Other
(dollars in millions)
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
 
2018
 
2017
 
Change
 
2018
 
2017
 
Change
Revenues
 
$
2

 
$
45

 
(96
)%
 
$
54

 
$
158

 
(66
)%
Adjusted OIBDA
 
$
—

 
$
7

 
NM

 
$
3

 
$
6

 
(50
)%
NM: Not Meaningful
 
 
 
 
 
 
 
 
 
 
 
 

Full Year Financial Results
Education and Other saw significant decreases in revenues and Adjusted OIBDA for the full year primarily due to the sale of the education business.

Fourth Quarter Financial Results
Education and Other saw significant decreases in revenues and Adjusted OIBDA for the fourth quarter primarily due to the sale of the education business.

Corporate and Inter-Segment Eliminations

Full Year Financial Results
Corporate and Inter-Segment Eliminations Adjusted OIBDA for the full year of 2018 decreased 23% on a reported basis compared with the prior year. Excluding the impact of the Transactions and foreign currency fluctuations, Adjusted OIBDA decreased 16%. On a pro forma combined basis, excluding the impact of foreign currency fluctuations, Adjusted OIBDA decreased 1% compared with the prior year primarily due to an increase in SG&A expenses driven by higher technology costs, tax advisory fees and share-based compensation, partially offset by a reduction in personnel costs as a result of restructuring and the integration of Scripps Networks.

Fourth Quarter Financial Results
Adjusted OIBDA for the fourth quarter of 2018 decreased 33% on a reported basis compared with the prior year quarter. Excluding the impact of the Transactions and foreign currency fluctuations, Adjusted OIBDA decreased 29%. On a pro forma combined basis, excluding the impact of foreign currency fluctuations, Adjusted OIBDA decreased 8% compared with the prior year quarter primarily due to the timing of compensation expense and professional service fees and lower inter-company allocations to operating segments offsetting lower personnel costs as a result of restructuring and the integration of Scripps Networks.

FULL YEAR 2019 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.

6


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 21 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 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 this measure 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.

Effective January 1, 2019, our definition of Adjusted OIBDA was modified to exclude all share-based compensation, whereas only mark-to-market share-based compensation is excluded for each of the periods presented herein. See pages 23-24 for Adjusted OIBDA as historically reported and under the revised definition.

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
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.



7


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, which is 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. 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, currently excludes mark-to-market share-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 13 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 twelve months ended December 31, 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, February 26, 2019 at 8:30 a.m. ET to discuss its fourth 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 passcode: DISCA.



8


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 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; direct-to-consumer streaming services such as Eurosport Player and MotorTrend OnDemand; digital-first and social content from Group Nine Media and a strategic alliance with PGA TOUR to create the international home of golf. Discovery’s portfolio of premium brands includes Discovery Channel, HGTV, Food Network, TLC, Investigation Discovery, Travel Channel, MotorTrend, 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

9


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

 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
Distribution
 
$
1,149

 
$
881

 
$
4,538

 
$
3,474

Advertising
 
1,574

 
876

 
5,514

 
3,073

Other
 
86

 
107

 
501

 
326

Total revenues
 
2,809

 
1,864

 
10,553

 
6,873

Costs and expenses:
 
 
 
 
 
 
 
 
Costs of revenues, excluding depreciation and amortization
 
946

 
745

 
3,935

 
2,656

Selling, general and administrative
 
657

 
507

 
2,620

 
1,768

Impairment of goodwill
 
—

 
1,327

 
—

 
1,327

Depreciation and amortization
 
397

 
90

 
1,398

 
330

Restructuring and other charges
 
98

 
32

 
750

 
75

(Gain) loss on disposition
 
—

 
—

 
(84
)
 
4

Total costs and expenses
 
2,098

 
2,701

 
8,619

 
6,160

Operating income (loss)
 
711

 
(837
)
 
1,934

 
713

Interest expense, net
 
(171
)
 
(157
)
 
(729
)
 
(475
)
Loss on extinguishment of debt
 
—

 
—

 
—

 
(54
)
Loss from equity investees, net
 
(10
)
 
(89
)
 
(63
)
 
(211
)
Other (expense) income, net
 
(36
)
 
33

 
(120
)
 
(110
)
Income (loss) before income taxes
 
494

 
(1,050
)
 
1,022

 
(137
)
Income tax expense
 
(195
)
 
(87
)
 
(341
)
 
(176
)
Net income (loss)
 
299

 
(1,137
)
 
681

 
(313
)
Net income attributable to noncontrolling interests
 
(26
)
 
—

 
(67
)
 
—

Net income attributable to redeemable noncontrolling interests
 
(4
)
 
(7
)
 
(20
)
 
(24
)
Net income (loss) available to Discovery, Inc.
 
$
269

 
$
(1,144
)
 
$
594

 
$
(337
)
Net income (loss) per share available to Discovery, Inc. Series A, B and C common stockholders:
 
 
 
 
 
 
 
 
Basic
 
$
0.38

 
$
(1.99
)
 
$
0.86

 
$
(0.59
)
Diluted(1)
 
$
0.38

 
$
(1.99
)
 
$
0.86

 
$
(0.59
)
Weighted average shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
524

 
381

 
498

 
384

Diluted(1)
 
715

 
568

 
688

 
576














(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.



10


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

 
 
December 31, 2018
 
December 31, 2017
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
986

 
$
7,309

Receivables, net
 
2,620

 
1,838

Content rights, net
 
313

 
410

Prepaid expenses and other current assets
 
312

 
434

Total current assets
 
4,231

 
9,991

Noncurrent content rights, net
 
3,069

 
2,213

Property and equipment, net
 
800

 
597

Goodwill
 
13,006

 
7,073

Intangible assets, net
 
9,674

 
1,770

Equity method investments, including note receivable
 
935

 
335

Other noncurrent assets
 
835

 
576

Total assets
 
$
32,550

 
$
22,555

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
325

 
$
277

Accrued liabilities
 
1,563

 
1,309

Deferred revenues
 
249

 
255

Current portion of debt
 
1,860

 
30

Total current liabilities
 
3,997

 
1,871

Noncurrent portion of debt
 
15,185

 
14,755

Deferred income taxes
 
1,811

 
319

Other noncurrent liabilities
 
1,040

 
587

Total liabilities
 
22,033

 
17,532

Commitments and contingencies
 
 
 
 
Redeemable noncontrolling interests
 
415

 
413

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

 
—

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

 
—

Series A common stock: $0.01 par value; 1,700 shares authorized; 160 and 157 shares issued; and 157 and 154 shares outstanding
 
2

 
1

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

 
—

Series C common stock: $0.01 par value; 2,000 shares authorized; 524 and 383 shares issued; and 360 and 219 shares outstanding
 
5

 
4

Additional paid-in capital
 
10,647

 
7,295

Treasury stock, at cost: 167 shares
 
(6,737
)
 
(6,737
)
Retained earnings
 
5,254

 
4,632

Accumulated other comprehensive loss
 
(785
)
 
(585
)
Total Discovery, Inc. stockholders’ equity
 
8,386

 
4,610

   Noncontrolling interests
 
1,716

 
—

Total equity
 
10,102

 
4,610

Total liabilities and equity
 
$
32,550

 
$
22,555


11


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

 
 
Year Ended December 31,
 
 
2018
 
2017
Operating Activities
 
 
 
 
Net income (loss)
 
$
681

 
$
(313
)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
 
 
 
 
Share-based compensation expense
 
80

 
39

Depreciation and amortization
 
1,398

 
330

Content rights amortization and impairment
 
3,288

 
1,910

Impairment of goodwill
 
—

 
1,327

(Gain) loss on disposition
 
(84
)
 
4

Remeasurement gain on previously held equity interests
 
—

 
(34
)
Equity in earnings and distributions from equity method investee companies
 
138

 
223

Deferred income taxes
 
(131
)
 
(199
)
Loss on extinguishment of debt
 
—

 
54

Realized loss from derivative instruments, net
 
—

 
98

Other, net
 
141

 
85

Changes in operating assets and liabilities, net of acquisitions and dispositions:
 
 
 
 
Receivables, net
 
(84
)
 
(258
)
Content rights and payables, net
 
(2,883
)
 
(1,947
)
Accounts payable and accrued liabilities
 
(74
)
 
265

Prepaid income taxes and income taxes receivable
 
57

 
20

Foreign currency and other, net
 
49

 
25

Cash provided by operating activities
 
2,576

 
1,629

Investing Activities
 
 
 
 
Business acquisitions, net of cash acquired
 
(8,565
)
 
(60
)
Payments for investments, net
 
(61
)
 
(444
)
Proceeds from dispositions, net of cash disposed
 
107

 
29

Proceeds from sale of assets
 
68

 
—

Purchases of property and equipment
 
(147
)
 
(135
)
Distributions from equity method investees
 
1

 
77

Payments for derivative instruments, net
 
(2
)
 
(101
)
Other investing activities, net
 
6

 
1

Cash used in investing activities
 
(8,593
)
 
(633
)
Financing Activities
 
 
 
 
Commercial paper repayments, net
 
(5
)
 
(48
)
Borrowings under revolving credit facility
 
—

 
350

Principal repayments of revolving credit facility
 
(200
)
 
(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
 
(16
)
 
(650
)
Payments for bridge financing commitment fees
 
—

 
(40
)
Principal repayments of capital lease obligations
 
(50
)
 
(33
)
Repurchases of stock
 
—

 
(603
)
Cash settlement (prepayments) of common stock repurchase contracts
 
—

 
58

Distributions to noncontrolling interests and redeemable noncontrolling interests
 
(76
)
 
(30
)
Share-based plan proceeds, net
 
54

 
16

Borrowings under program financing line of credit
 
22

 
—

Other financing activities, net
 
(12
)
 
(82
)
Cash (used in) provided by financing activities
 
$
(283
)
 
$
5,951

Effect of exchange rate changes on cash and cash equivalents
 
(23
)
 
62

Net change in cash and cash equivalents
 
(6,323
)
 
7,009

Cash and cash equivalents, beginning of period
 
7,309

 
300

Cash and cash equivalents, end of period
 
986

 
7,309


12


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 December 31,
 
 
 
 
 
 
 
 
 
 
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
 
$
1,149

$
—

$
1,149

 
$
881

$
265

$
1,146

 
$
268

30
 %
 
$
3

—
 %
 
1
 %
Advertising
 
1,574

(1
)
1,573

 
876

697

1,573

 
698

80
 %
 
—

—
 %
 
2
 %
Other
 
86

1

87

 
107

44

151

 
(21
)
(20
)%
 
(64
)
(42
)%
 
(41
)%
Total revenues
 
2,809

—

2,809

 
1,864

1,006

2,870

 
945

51
 %
 
(61
)
(2
)%
 
(1
)%
Costs of revenues, excluding depreciation and amortization
 
946

1

947

 
745

383

1,128

 
201

27
 %
 
(181
)
(16
)%
 
(14
)%
Selling, general and administrative
 
679

(1
)
678

 
483

237

720

 
196

41
 %
 
(42
)
(6
)%
 
(3
)%
Adjusted OIBDA(3)
 
$
1,184

$
—

$
1,184

 
$
636

$
386

$
1,022

 
548

86
 %
 
162

16
 %
 
16
 %


TOTAL COMPANY RECONCILIATION OF REPORTED AND PRO FORMA OPERATING INCOME TO ADJUSTED OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION
 
 
Three Months Ended December 31,
 
 
 
 
 
 
 
 
2018
 
2017
 
Actual Change
 
Pro Forma Combined Change
 
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
$
%
 
$
%
Operating income (loss)
 
711

70

781

 
(837
)
83

(754
)
 
$
1,548

NM

 
$
1,535

NM

Restructuring and other charges
 
98

—

98

 
32

—

32

 
66

NM

 
66

NM

Depreciation and amortization
 
397

(70
)
327

 
90

308

398

 
307

NM

 
(71
)
(18
)%
Impairment of goodwill
 
—

—

—

 
1,327

—

1,327

 
(1,327
)
NM

 
(1,327
)
NM

Mark-to-market share-based compensation
 
(25
)
—

(25
)
 
7

3

10

 
(32
)
NM

 
(35
)
NM

Scripps Networks transaction and integration costs
 
3

—

3

 
17

(8
)
9

 
(14
)
(82
%)
 
(6
)
(67
)%
Adjusted OIBDA(3)
 
$
1,184

$
—

$
1,184


$
636

$
386

$
1,022

 
548

86
%
 
162

16
 %





(1)
Pro forma is defined as the results of the Company as if the Transactions had occurred on January 1, 2017. Refer to page 8 for full list of adjustments to pro forma results.
(2)
Refer to page 7 for our methodology for calculating growth rates excluding the impact of currency effects.
(3)
See full definition of Adjusted OIBDA on page 7.
NM: Not Meaningful



13


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 December 31,
 
 
 
 
 
 
 
 
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

$
—

$
644

 
$
402

$
234

$
636

 
$
242

60
 %
 
$
8

1
 %
Advertising
 
1,041

—

1,041

 
456

559

1,015

 
585

NM

 
26

3
 %
Other
 
37

—

37

 
34

10

44

 
3

9
 %
 
(7
)
(16
)%
Total revenues
 
1,722

—

1,722

 
892

803

1,695

 
830

93
 %
 
27

2
 %
Costs of revenues, excluding depreciation and amortization
 
(451
)
(1
)
(452
)
 
(265
)
(285
)
(550
)
 
(186
)
(70
)%
 
98

18
 %
Selling, general and administrative
 
(307
)
—

(307
)
 
(149
)
(171
)
(320
)
 
(158
)
NM

 
13

4
 %
Adjusted OIBDA(2)
 
964

(1
)
963


478

347

825

 
486

NM

 
138

17
 %


U.S. NETWORKS RECONCILIATION OF REPORTED AND PRO FORMA OPERATING INCOME TO ADJUSTED OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION
 
 
Three Months Ended December 31,
 
 
 
 
 
 
 
 
2018
 
2017
 
Actual Change
 
Pro Forma Combined Change
 
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
$
%
 
$
%
Operating income
 
$
601

$
71

$
672

 
$
450

$
72

$
522

 
$
151

34
%
 
$
150

29
 %
Restructuring and other charges
 
63

(1
)
62

 
12

—

12

 
51

NM

 
50

NM

Depreciation and amortization
 
294

(70
)
224

 
14

280

294

 
280

NM

 
(70
)
(24
)%
Mark-to-market share-based compensation
 
(1
)
—

(1
)
 
—

1

1

 
(1
)
NM

 
(2
)
NM

Scripps Networks transaction and integration costs
 
7

—

7

 
—

—

—

 
7

NM

 
7

NM

Inter-segment eliminations
 
—

(1
)
(1
)
 
2

(6
)
(4
)
 
(2
)
NM

 
3

75
 %
Adjusted OIBDA(2)
 
964

(1
)
963


478

347

825

 
486

NM

 
138

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 8 for full list of adjustments to pro forma results.
(2
)
See full definition of Adjusted OIBDA on page 7.
NM: Not Meaningful




14


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 December 31,
 
 
 
 
 
 
 
 
 
 
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
 
$
505

$
—

$
505

 
$
479

$
31

$
510

 
$
26

5
 %
 
$
(5
)
(1
)%
 
2
 %
Advertising
 
533

(1
)
532

 
419

138

557

 
114

27
 %
 
(25
)
(4
)%
 
—
 %
Other
 
46

1

47

 
29

34

63

 
17

59
 %
 
(16
)
(25
)%
 
(21
)%
Total revenues
 
1,084

—

1,084


927

203

1,130

 
157

17
 %
 
(46
)
(4
)%
 
—
 %
Costs of revenues, excluding depreciation and amortization
 
(494
)
—

(494
)
 
(463
)
(99
)
(562
)
 
(31
)
(7
)%
 
68

12
 %
 
9
 %
Selling, general and administrative
 
(240
)
—

(240
)
 
(215
)
(43
)
(258
)
 
(25
)
(12
)%
 
18

7
 %
 
—
 %
Adjusted OIBDA(3)
 
350

—

350


249

61

310

 
101

41
 %
 
40

13
 %
 
15
 %


INTERNATIONAL NETWORKS RECONCILIATION OF OPERATING INCOME TO PRO FORMA ADJUSTED OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION
 
 
Three Months Ended December 31,
 
 
 
 
 
 
 
 
2018
 
2017
 
Actual Change
 
Pro Forma Combined Change
 
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
$
%
 
$
%
Operating income (loss)
 
$
217

$
(1
)
$
216

 
$
(311
)
$
27

$
(284
)
 
$
528

NM

 
$
500

NM

Restructuring and other charges
 
45

—

45

 
14

—

14

 
31

NM

 
31

NM

Depreciation and amortization
 
83

—

83

 
57

28

85

 
26

46
%
 
(2
)
(2
)%
Impairment of goodwill
 
—

—

—

 
489

—

489

 
(489
)
NM

 
(489
)
NM

Inter-segment eliminations
 
5

1

6

 
—

6

6

 
5

NM

 
—

—
 %
Adjusted OIBDA(3)
 
350

—

350

 
249

61

310

 
101

41
%
 
40

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 8 for full list of adjustments to pro forma results.
(2
)
Refer to page 7 for our methodology for calculating growth rates excluding the impact of currency effects.
(3
)
See full definition of Adjusted OIBDA on page 7.
NM: Not Meaningful



15


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 December 31,
 
 
 
 
 
 
 
 
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

Selling, general and administrative
 
(130
)
1

(129
)
 
(97
)
(23
)
(120
)
 
(33
)
(34
)%
 
(9
)
(8
)%
Adjusted OIBDA(2)
 
(130
)
1

(129
)

(98
)
(22
)
(120
)
 
(32
)
(33
)%
 
(9
)
(8
)%


CORPORATE AND INTER-SEGMENT ELIMINATIONS RECONCILIATION OF OPERATING INCOME TO PRO FORMA ADJUSTED OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION
 
 
Three Months Ended December 31,
 
 
 
 
 
 
 
 
2018
 
2017
 
Actual Change
 
Pro Forma Combined Change
 
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
$
%
 
$
%
Operating loss
 
$
(113
)
$
—

$
(113
)
 
$
(984
)
$
(16
)
$
(1,000
)
 
$
871

89
 %
 
$
887

89
 %
Restructuring and other charges
 
(10
)
1

(9
)
 
6

—

6

 
(16
)
NM

 
(15
)
NM

Depreciation and amortization
 
21

—

21

 
18

—

18

 
3

17
 %
 
3

17
 %
Impairment of goodwill
 
—

—

—

 
838

—

838

 
(838
)
NM

 
(838
)
NM

Mark-to-market share-based compensation

(24
)
—

(24
)
 
7

2

9


(31
)
NM

 
(33
)
NM

Scripps Networks transaction and integration costs
 
(4
)
—

(4
)
 
17

(8
)
9

 
(21
)
NM

 
(13
)
NM

Loss on business disposition
 
1

—

1

 
—

—

—

 
1

NM

 
1

NM

Inter-segment eliminations

(1
)
—

(1
)
 
—

—

—


(1
)
NM

 
(1
)
NM

Adjusted OIBDA(2)
 
(130
)
1

(129
)
 
(98
)
(22
)
(120
)
 
(32
)
(33
)%
 
(9
)
(8
)%










(1
)
Pro forma is defined as the results of the Company as if the Transactions had occurred on January 1, 2017. Refer to page 8 for full list of adjustments to pro forma results.
(2
)
See full definition of Adjusted OIBDA on page 7.
NM: Not Meaningful



16


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


TOTAL COMPANY REPORTED AND PRO FORMA FINANCIAL RESULTS(2) 
 
 
Twelve Months Ended December 31,
 
 
 
 
 
 
 
 
 
 
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
 
$
4,538

$
178

$
4,716

 
$
3,474

$
1,090

$
4,564

 
$
1,064

31
%
 
$
152

3
 %
 
3
 %
Advertising
 
5,514

425

5,939

 
$
3,073

2,677

5,750

 
2,441

79
%
 
189

3
 %
 
3
 %
Other
 
501

20

521

 
326

150

476

 
175

54
%
 
45

9
 %
 
8
 %
Total revenues
 
10,553

623

11,176


6,873

3,917

10,790

 
3,680

54
%
 
386

4
 %
 
3
 %
Costs of revenues, excluding depreciation and amortization
 
3,935

205

4,140

 
2,656

1,391

4,047

 
1,279

48
%
 
93

2
 %
 
2
 %
Selling, general and administrative
 
2,479

159

2,638

 
1,686

1,006

2,692

 
793

47
%
 
(54
)
(2
)%
 
(3
)%
Adjusted OIBDA(4)
 
4,139

259

4,398


2,531

1,520

4,051

 
1,608

64
%
 
347

9
 %
 
8
 %


TOTAL COMPANY RECONCILIATION OF REPORTED AND PRO FORMA OPERATING INCOME TO ADJUSTED OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION
 
 
Twelve Months Ended December 31,
 
 
 
 
 
 
 
 
2018
 
2017
 
Actual Change
 
Pro Forma Combined Change
 
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
$
%
 
$
%
Operating income
 
1,934

352

2,286

 
713

339

1,052

 
1,221

NM

 
1,234

NM

Restructuring and other charges
 
750

10

760

 
75

—

75

 
675

NM

 
685

NM

Depreciation and amortization
 
1,398

(76
)
1,322

 
330

1,241

1,571

 
1,068

NM

 
(249
)
(16
)%
Impairment of goodwill
 
—

—

—

 
1,327

—

1,327

 
(1,327
)
NM

 
(1,327
)
NM

Mark-to-market share-based compensation
 
31

1

32

 
3

8

11

 
28

NM

 
21

NM

Scripps Networks transaction and integration costs
 
110

(28
)
82

 
79

(68
)
11

 
31

39
%
 
71

NM

(Gain) loss on disposition
 
(84
)
—

(84
)
 
4

—

4

 
(88
)
NM

 
(88
)
NM

Adjusted OIBDA(4)
 
4,139

259

4,398


2,531

1,520

4,051

 
1,608

64
%
 
347

9
 %

(1
)
Pro forma is defined as the results of the Company as if the Transactions had occurred on January 1, 2017. Refer to page 8 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 7 for our methodology for calculating growth rates excluding the impact of currency effects.
(4
)
See full definition of Adjusted OIBDA on page 7.
NM: Not Meaningful



17


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)
 
 
Twelve Months Ended December 31,
 
 
 
 
 
 
 
 
2018
 
2017
 
Actual Change
 
Pro Forma Combined Change
 
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
$
%
 
$
%
Revenues:
 



 



 
 
 
 
 
 
Distribution
 
$
2,456

$
156

$
2,612

 
$
1,612

$
974

$
2,586

 
$
844

52
 %
 
$
26

1
 %
Advertising
 
3,749

356

4,105

 
1,740

2,261

4,001

 
2,009

NM

 
104

3
 %
Other
 
145

7

152

 
82

73

155

 
63

77
 %
 
(3
)
(2
)%
Total revenues
 
6,350

519

6,869


3,434

3,308

6,742

 
2,916

85
 %
 
127

2
 %
Costs of revenues, excluding depreciation and amortization
 
(1,748
)
(153
)
(1,901
)
 
(917
)
(1,087
)
(2,004
)
 
(831
)
(91
)%
 
103

5
 %
Selling, general and administrative
 
(1,102
)
(111
)
(1,213
)
 
(491
)
(758
)
(1,249
)
 
(611
)
NM

 
36

3
 %
Adjusted OIBDA(3)
 
3,500

255

3,755


2,026

1,463

3,489

 
1,474

73
 %
 
266

8
 %


U.S. NETWORKS RECONCILIATION OF REPORTED AND PRO FORMA OPERATING INCOME TO ADJUSTED OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION
 
 
Twelve Months Ended December 31,
 
 
 
 
 
 
 
 
2018
 
2017
 
Actual Change
 
Pro Forma Combined Change
 
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
$
%
 
$
%
Operating income
 
$
2,182

$
350

$
2,532

 
$
1,961

$
359

$
2,320

 
$
221

11
%
 
$
212

9
 %
Restructuring and other charges
 
322

5

327

 
18

—

18

 
304

NM

 
309

NM

Depreciation and amortization
 
985

(95
)
890

 
35

1,132

1,167

 
950

NM

 
(277
)
(24
)%
Mark-to-market share-based compensation
 
(1
)
—

(1
)
 
—

(1
)
(1
)
 
(1
)
NM

 
—

—
 %
Scripps Networks transaction and integration costs
 
14

—

14

 
—

—

—

 
14

NM

 
14

NM

Inter-segment eliminations
 
(2
)
(5
)
(7
)
 
12

(27
)
(15
)
 
(14
)
NM

 
8

53
 %
Adjusted OIBDA(3)
 
3,500

255

3,755


2,026

1,463

3,489

 
1,474

73
%
 
266

8
 %




(1
)
Pro forma is defined as the results of the Company as if the Transactions had occurred on January 1, 2017. Refer to page 8 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 7.
NM: Not Meaningful




18


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


INTERNATIONAL NETWORKS REPORTED AND PRO FORMA FINANCIAL RESULTS(2)
 
 
Twelve Months Ended December 31,
 
 
 
 
 
 
 
 
 
 
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
 
$
2,082

$
22

$
2,104

 
$
1,862

$
116

$
1,978

 
$
220

12
 %
 
$
126

6
 %
 
5
 %
Advertising
 
1,765

69

1,834

 
1,332

416

1,748

 
433

33
 %
 
86

5
 %
 
3
 %
Other
 
302

13

315

 
87

77

164

 
215

NM

 
151

92
 %
 
88
 %
Total revenues
 
4,149

104

4,253


3,281

609

3,890

 
868

26
 %
 
363

9
 %
 
8
 %
Costs of revenues, excluding depreciation and amortization
 
(2,169
)
(52
)
(2,221
)
 
(1,677
)
(304
)
(1,981
)
 
(492
)
(29
)%
 
(240
)
(12
)%
 
(11
)%
Selling, general and administrative
 
(903
)
(27
)
(930
)
 
(745
)
(150
)
(895
)
 
(158
)
(21
)%
 
(35
)
(4
)%
 
(2
)%
Adjusted OIBDA(4)
 
1,077

25

1,102


859

155

1,014

 
218

25
 %
 
88

9
 %
 
7
 %


INTERNATIONAL NETWORKS RECONCILIATION OF OPERATING INCOME TO PRO FORMA ADJUSTED OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION
 
 
Twelve Months Ended December 31,
 
 
 
 
 
 
 
 
2018
 
2017
 
Actual Change
 
Pro Forma Combined Change
 
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
$
%
 
$
%
Operating income
 
$
434

$
—

$
434

 
$
106

$
21

$
127

 
$
328

NM

 
$
307

NM

Restructuring and other charges
 
307

2

309

 
42

—

42

 
265

NM

 
267

NM

Depreciation and amortization
 
315

19

334

 
222

107

329

 
93

42
%
 
5

2
 %
Impairment of goodwill
 
—

—

—

 
489

—

489

 
(489
)
NM

 
(489
)
NM

Scripps Networks transaction and integration costs
 
3

—

3

 
—

—

—

 
3

NM

 
3

NM

Inter-segment eliminations
 
18

4

22

 
—

27

27

 
18

NM

 
(5
)
(19
)%
Adjusted OIBDA(4)
 
1,077

25

1,102


859

155

1,014

 
218

25
%
 
88

9
 %



(1
)
Pro forma is defined as the results of the Company as if the Transactions had occurred on January 1, 2017. Refer to page 8 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 7 for our methodology for calculating growth rates excluding the impact of currency effects.
(4
)
See full definition of Adjusted OIBDA on page 7.
NM: Not Meaningful




19


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) 
 
 
Twelve Months Ended December 31,
 
 
 
 
 
 
 
 
2018
 
2017
 
Actual Change
 
Pro Forma Combined Change
 
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
$
%
 
$
%
Revenues:
 
$
—

$
—

$
—

 
$
—

$
—

$
—

 
—

—
 %
 
—

—
 %
Costs of revenues, excluding depreciation and amortization
 
(1
)
—

(1
)
 
(2
)
—

(2
)
 
1

50
 %
 
1

50
 %
Selling, general and administrative
 
(440
)
(21
)
(461
)
 
(358
)
(98
)
(456
)
 
(82
)
(23
)%
 
(5
)
(1
)%
Adjusted OIBDA(3)
 
(441
)
(21
)
(462
)
 
(360
)
(98
)
(458
)
 
(81
)
(23
)%
 
(4
)
(1
)%


CORPORATE AND INTER-SEGMENT ELIMINATIONS RECONCILIATION OF OPERATING INCOME TO PRO FORMA ADJUSTED OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION
 
 
Twelve Months Ended December 31,
 
 
 
 
 
 
 
 
2018
 
2017
 
Actual Change
 
Pro Forma Combined Change
 
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
Actual
Pro Forma Adjustments
Pro Forma Combined
 
$
%
 
$
%
Operating loss
 
$
(779
)
$
2

$
(777
)
 
$
(1,360
)
$
(41
)
$
(1,401
)
 
$
581

43
 %
 
$
624

45
 %
Restructuring and other charges
 
120

3

123

 
12

—

12

 
108

NM

 
111

NM

Depreciation and amortization
 
96

—

96

 
68

2

70

 
28

41
 %
 
26

37
 %
Impairment of goodwill
 
—

—

—

 
838

—

838

 
(838
)
NM

 
(838
)
NM

Mark-to-market share-based compensation
 
32

1

33

 
3

9

12

 
29

NM

 
21

NM

Scripps Networks transaction and integration costs
 
93

(28
)
65

 
79

(68
)
11

 
14

18
 %
 
54

NM

Loss on disposition
 
1

—

1

 
—

—

—

 
1

NM

 
1

NM

Inter-segment eliminations
 
(4
)
1

(3
)
 
—

—

—

 
(4
)
NM

 
(3
)
NM

Adjusted OIBDA(3)
 
(441
)
(21
)
(462
)
 
(360
)
(98
)
(458
)
 
(81
)
(23
)%
 
(4
)
(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 8 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 7.
NM: Not Meaningful



20


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

 
 
Three Months Ended December 31, 2018
 
 
U.S. Networks
 
International Networks
 
Education and Other
 
Corporate and Inter-Segment Eliminations
 
Total
Net income available to Discovery, Inc.
 
 
 
 
 
 
 
 
 
$
269

Net income attributable to redeemable noncontrolling interests
 
 
 
 
 
 
 
 
 
4

Net income attributable to noncontrolling interests
 
 
 
 
 
 
 
 
 
26

Income tax expense
 
 
 
 
 
 
 
 
 
195

Other expense, net
 
 
 
 
 
 
 
 
 
36

Loss from equity investees, net
 
 
 
 
 
 
 
 
 
10

Interest expense, net
 
 
 
 
 
 
 
 
 
171

Operating income
 
601

 
217

 
6

 
(113
)
 
711

Restructuring and other charges
 
63

 
45

 
—

 
(10
)
 
98

Depreciation and amortization
 
294

 
83

 
(1
)
 
21

 
397

Mark-to-market share-based compensation
 
(1
)
 
—

 
—

 
(24
)
 
(25
)
Scripps Networks transaction and integration costs
 
7

 
—

 
—

 
(4
)
 
3

(Gain) loss on disposition
 
—

 
—

 
(1
)
 
1

 
—

   Inter-segment eliminations
 
—

 
5

 
(4
)
 
(1
)
 
—

Total Adjusted OIBDA
 
$
964

 
$
350

 
$
—

 
$
(130
)
 
$
1,184



 
 
Three Months Ended December 31, 2017
 
 
U.S. Networks
 
International Networks
 
Education and Other
 
Corporate and Inter-Segment Eliminations
 
Total
Net loss available to Discovery, Inc.
 
 
 
 
 
 
 
 
 
$
(1,144
)
Net income attributable to redeemable noncontrolling interests
 
 
 
 
 
 
 
 
 
7

Net income attributable to noncontrolling interests
 
 
 
 
 
 
 
 
 
—

Income tax expense
 
 
 
 
 
 
 
 
 
87

Other (income), net
 
 
 
 
 
 
 
 
 
(33
)
Loss from equity investees, net
 
 
 
 
 
 
 
 
 
89

Loss on extinguishment of debt
 
 
 
 
 
 
 
 
 
—

Interest expense, net
 
 
 
 
 
 
 
 
 
157

Operating income
 
450

 
(311
)
 
8

 
(984
)
 
(837
)
Restructuring and other charges
 
12

 
14

 
—

 
6

 
32

Depreciation and amortization
 
14

 
57

 
1

 
18

 
90

Impairment of goodwill
 
—

 
489

 
—

 
838

 
1,327

Mark-to-market share-based compensation
 
—

 
—

 
—

 
7

 
7

Scripps Networks transaction and integration costs
 
—

 
—

 
—

 
17

 
17

   Inter-segment eliminations
 
2

 
—

 
(2
)
 
—

 
—

Total Adjusted OIBDA
 
$
478

 
$
249

 
$
7

 
$
(98
)
 
$
636


21


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

 
 
Twelve Months Ended December 31, 2018
 
 
U.S. Networks
 
International Networks
 
Education and Other
 
Corporate and Inter-Segment Eliminations
 
Total
Net income available to Discovery, Inc.
 
 
 
 
 
 
 
 
 
$
594

Net income attributable to redeemable noncontrolling interests
 
 
 
 
 
 
 
 
 
20

Net income attributable to noncontrolling interests
 
 
 
 
 
 
 
 
 
67

Income tax expense
 
 
 
 
 
 
 
 
 
341

Other expense, net
 
 
 
 
 
 
 
 
 
120

Loss from equity investees, net
 
 
 
 
 
 
 
 
 
63

Interest expense, net
 
 
 
 
 
 
 
 
 
729

Operating income
 
2,182

 
434

 
97

 
(779
)
 
1,934

Restructuring and other charges
 
322

 
307

 
1

 
120

 
750

Depreciation and amortization
 
985

 
315

 
2

 
96

 
1,398

Mark-to-market share-based compensation
 
(1
)
 
—

 
—

 
32

 
31

Scripps Networks transaction and integration costs
 
14

 
3

 
—

 
93

 
110

(Gain) loss on disposition
 
—

 
—

 
(85
)
 
1

 
(84
)
   Inter-segment eliminations
 
(2
)
 
18

 
$
(12
)
 
(4
)
 
—

Total Adjusted OIBDA
 
$
3,500

 
$
1,077

 
$
3

 
$
(441
)
 
$
4,139



 
 
Twelve Months Ended December 31, 2017
 
 
U.S. Networks
 
International Networks
 
Education and Other
 
Corporate and Inter-Segment Eliminations
 
Total
Net loss available to Discovery, Inc.
 
 
 
 
 
 
 
 
 
$
(337
)
Net income attributable to redeemable noncontrolling interests
 
 
 
 
 
 
 
 
 
24

Net income attributable to noncontrolling interests
 
 
 
 
 
 
 
 
 
—

Income tax expense
 
 
 
 
 
 
 
 
 
176

Other expense, net
 
 
 
 
 
 
 
 
 
110

Loss from equity investees, net
 
 
 
 
 
 
 
 
 
211

Loss on extinguishment of debt
 
 
 
 
 
 
 
 
 
54

Interest expense, net
 
 
 
 
 
 
 
 
 
475

Operating income
 
1,961

 
106

 
6

 
(1,360
)
 
713

Restructuring and other charges
 
18

 
42

 
3

 
12

 
75

Depreciation and amortization
 
35

 
222

 
5

 
68

 
330

Impairment of goodwill
 
—

 
489

 
—

 
838

 
1,327

Mark-to-market share-based compensation
 
—

 
—

 
—

 
3

 
3

Scripps Networks transaction and integration costs
 
—

 
—

 
—

 
79

 
79

Loss on disposition
 
—

 
—

 
4

 
—

 
4

   Inter-segment eliminations
 
12

 
—

 
(12
)
 
—

 
—

Total Adjusted OIBDA
 
$
2,026

 
$
859

 
$
6

 
$
(360
)
 
$
2,531



22


DISCOVERY, INC.
SUPPLEMENTAL FINANCIAL DATA
RECONCILIATION OF NET INCOME TO
ADJUSTED OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION - HISTORICALLY REPORTED AND UNDER THE REVISED DEFINITION
(unaudited; in millions)

 
 
U.S. Networks
 
International Networks
 
Education and Other
 
Corporate and Inter-Segment Eliminations
 
Total
Year Ended December 31, 2018
 
 
 
 
 
 
 
 
 
 
Adjusted OIBDA, as reported
 
$
3,500

 
$
1,077

 
$
3

 
$
(441
)
 
$
4,139

Deduct: Mark-to-market share-based compensation
 
(1
)
 
—

 
—

 
32

 
31

Add: Total share-based compensation
 
(1
)
 
—

 
—

 
81

 
80

Adjusted OIBDA, as revised
 
3,500

 
1,077

 
3

 
(392
)
 
$
4,188

 
 
 
 
 
 
 
 
 
 
 
Year Ended December 31, 2017
 
 
 
 
 
 
 
 
 
 
Adjusted OIBDA, as reported
 
$
2,026

 
$
859

 
$
6

 
$
(360
)
 
$
2,531

Deduct: Mark-to-market share-based compensation
 
—

 
—

 
—

 
3

 
3

Add: Total share-based compensation
 
—

 
—

 
—

 
39

 
39

Adjusted OIBDA, as revised
 
2,026

 
859

 
6

 
(324
)
 
$
2,567

 
 
 
 
 
 
 
 
 
 
 
Year Ended December 31, 2016
 
 
 
 
 
 
 
 
 
 
Adjusted OIBDA, as reported
 
$
1,922

 
$
835

 
$
(10
)
 
$
(334
)
 
$
2,413

Deduct: Mark-to-market share-based compensation
 
—

 
—

 
—

 
38

 
38

Add: Total share-based compensation
 
—

 
—

 
—

 
69

 
69

Adjusted OIBDA, as revised
 
1,922

 
835

 
(10
)
 
(303
)
 
$
2,444




23


DISCOVERY, INC.
SUPPLEMENTAL FINANCIAL DATA
RECONCILIATION OF NET INCOME TO
ADJUSTED OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION - HISTORICALLY REPORTED AND UNDER THE REVISED DEFINITION
(unaudited; in millions)

 
 
U.S. Networks
 
International Networks
 
Education and Other
 
Corporate and Inter-Segment Eliminations
 
Total
Three Months Ended March 31, 2018
 
 
 
 
 
 
 
 
 
 
Adjusted OIBDA, as reported
 
$
652

 
$
137

 
$
3

 
$
(95
)
 
$
697

Deduct: Mark-to-market share-based compensation
 
—

 
—

 
 
 
3

 
$
3

Add: Total share-based compensation
 
—

 
—

 
—

 
15

 
$
15

Adjusted OIBDA, as revised
 
652

 
137

 
3

 
(83
)
 
$
709

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
Adjusted OIBDA, as reported
 
$
983

 
$
336

 
$
—

 
$
(105
)
 
$
1,214

Deduct: Mark-to-market share-based compensation
 
—

 
—

 
—

 
26

 
26

Add: Total share-based compensation
 
—

 
—

 
—

 
34

 
34

Adjusted OIBDA, as revised
 
983

 
336

 
—

 
(97
)
 
$
1,222

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
Adjusted OIBDA, as reported
 
$
901

 
$
254

 
$
—

 
$
(111
)
 
$
1,044

Deduct: Mark-to-market share-based compensation
 
—

 
—

 
—

 
27

 
27

Add: Total share-based compensation
 
—

 
—

 
—

 
43

 
43

Adjusted OIBDA, as revised
 
901

 
254

 
—

 
(95
)
 
$
1,060

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended December 31, 2018
 
 
 
 
 
 
 
 
 
 
Adjusted OIBDA, as reported
 
$
964

 
$
350

 
$
—

 
$
(130
)
 
$
1,184

Deduct: Mark-to-market share-based compensation
 
(1
)
 
—

 
—

 
(24
)
 
(25
)
Add: Total share-based compensation
 
(1
)
 
—

 
—

 
(11
)
 
(12
)
Adjusted OIBDA, as revised
 
964

 
350

 
—

 
(117
)
 
$
1,197







24


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


EARNINGS PER SHARE
 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
 
2018
 
2017
 
2018
 
2017
Numerator:
 
 
 
 
 
 
 
 
Net income (loss)
 
$
299

 
$
(1,137
)
 
$
681

 
$
(313
)
Less:
 
 
 
 
 
 
 
 
Allocation of undistributed income to Series A-1 convertible preferred stock
 
(27
)
 
142

 
(60
)
 
41

Net income attributable to noncontrolling interests
 
(26
)
 

 
(67
)
 
—

Net income attributable to redeemable noncontrolling interests
 
(4
)
 
(7
)
 
(20
)
 
(24
)
Redeemable noncontrolling interest adjustments to redemption value
 
1

 
—

 
(5
)
 
—

Net income (loss) available to Discovery, Inc. Series A, B and C common and Series C-1 convertible preferred stockholders for basic net income per share
 
$
243

 
$
(1,002
)
 
$
529

 
$
(296
)
Allocation of net income (loss) available 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
 
199

 
(767
)
 
429

 
(225
)
Series C-1 convertible preferred stockholders
 
44

 
(235
)
 
100

 
(71
)
       Total
 
243

 
(1,002
)
 
529

 
(296
)
Add:
 
 
 
 
 
 
 
 
Allocation of undistributed income to Series A-1 convertible preferred stockholders
 
27

 
(142
)
 
60

 
(41
)
Net income (loss) available to Discovery, Inc. Series A, B and C common stockholders for diluted net income per share
 
$
270

 
$
(1,144
)
 
$
589

 
$
(337
)
 
 
 
 
 
 
 
 
 
Denominator — weighted average:
 
 
 
 
 
 
 
 
Series A, B and C common shares outstanding — basic
 
524

 
381

 
498

 
384

Impact of assumed preferred stock conversion
 
187

 
187

 
187

 
192

Dilutive effect of share-based awards
 
4

 
—

 
3

 
—

Series A, B and C common shares outstanding — diluted
 
715

 
568

 
688

 
576

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

 
6

 
6

 
6

 
 
 
 
 
 
 
 
 
Basic net income (loss) per share available to Discovery, Inc. Series A, B and C common and Series C-1 convertible preferred stockholders:
 
 
 
 
 
 
 
 
     Series A, B and C common stockholders
 
$
0.38

 
$
(1.99
)
 
$
0.86

 
$
(0.59
)
     Series C-1 convertible preferred stockholders
 
$
7.36

 
$
(39.02
)
 
$
16.65

 
$
(11.33
)
 
 
 
 
 
 
 
 
 
Diluted net income (loss) per share available to Discovery, Inc. Series A, B and C common and Series C-1 convertible preferred stockholders:
 
 
 
 
 
 
 
 
     Series A, B and C common stockholders
 
$
0.38

 
$
(1.99
)
 
$
0.86

 
$
(0.59
)
     Series C-1 convertible preferred stockholders
 
$
7.32

 
$
(39.02
)
 
$
16.58

 
$
(11.33
)


25


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 December 31,
 
Twelve Months Ended December 31,
 
 
2018
 
2017
 
Change
 
2018
 
2017
 
Change
Diluted net income per share available to Discovery, Inc. Series A, B and C common stockholders
 
$
0.38

 
$
(1.99
)
 
$
2.37

 
$
0.86

 
$
(0.59
)
 
$
1.45

Per share impact of amortization of acquisition-related intangible assets, net of tax
 
0.36

 
0.05

 
0.31

 
1.25

 
0.19

 
1.06

Adjusted earnings per diluted share
 
$
0.74

 
$
(1.94
)
 
$
2.68

 
$
2.11

 
$
(0.40
)
 
$
2.51



CALCULATION OF FREE CASH FLOW
 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
 
2018
 
2017
 
Change
 
% Change
 
2018
 
2017
 
Change
 
% Change
Cash provided by operating activities
 
$
929

 
$
462

 
$
467

 
NM

 
$
2,576

 
$
1,629

 
$
947

 
58
 %
Purchases of property and equipment
 
(41
)
 
(32
)
 
(9
)
 
(28
)%
 
(147
)
 
(135
)
 
(12
)
 
(9
)%
Free cash flow
 
$
888

 
$
430

 
$
458

 
NM

 
$
2,429

 
$
1,494

 
$
935

 
63
 %








26


DISCOVERY, INC.
SUPPLEMENTAL FINANCIAL DATA
SELECTED FINANCIAL DETAIL
(unaudited; in millions)


BORROWINGS
 
December 31, 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
344

 
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
1,185

 
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
507

 
538

3.900% Senior notes, semi-annual interest, due November 2024
497

 
—

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
688

 
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
225

 
425

Program financing line of credit
22

 
—

Capital lease obligations
252

 
225

Total debt
17,170

 
14,913

Unamortized discount, premium and debt issuance costs, net
(125
)
 
(128
)
Debt, net of unamortized discount, premium and debt issuance costs
17,045

 
14,785

Current portion of debt
(1,860
)
 
(30
)
Noncurrent portion of debt
$
15,185

 
$
14,755





27