UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q |
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2013
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-34177
Discovery Communications, Inc.
(Exact name of Registrant as specified in its charter)
Delaware | 35-2333914 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
One Discovery Place Silver Spring, Maryland | 20910 | |
(Address of principal executive offices) | (Zip Code) | |
(240) 662-2000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report.)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes ý No ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ý | Accelerated filer | ¨ |
Non-accelerated filer | o (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý
Total number of shares outstanding of each class of the Registrant’s common stock as of April 30, 2013:
Series A Common Stock, par value $0.01 per share | 145,988,772 | |
Series B Common Stock, par value $0.01 per share | 6,546,897 | |
Series C Common Stock, par value $0.01 per share | 92,179,415 | |
DISCOVERY COMMUNICATIONS, INC.
FORM 10-Q
TABLE OF CONTENTS
Page | |
3
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
DISCOVERY COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited; in millions, except per share amounts)
March 31, 2013 | December 31, 2012 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 2,360 | $ | 1,201 | ||||
Receivables, net | 1,148 | 1,130 | ||||||
Content rights, net | 127 | 122 | ||||||
Deferred income taxes | 74 | 74 | ||||||
Prepaid expenses and other current assets | 304 | 203 | ||||||
Total current assets | 4,013 | 2,730 | ||||||
Noncurrent content rights, net | 1,583 | 1,555 | ||||||
Property and equipment, net | 377 | 388 | ||||||
Goodwill | 6,501 | 6,399 | ||||||
Intangible assets, net | 680 | 611 | ||||||
Equity method investments | 1,105 | 1,095 | ||||||
Other noncurrent assets | 162 | 152 | ||||||
Total assets | $ | 14,421 | $ | 12,930 | ||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 67 | $ | 71 | ||||
Accrued expenses and other current liabilities | 912 | 721 | ||||||
Deferred revenues | 100 | 123 | ||||||
Current portion of long-term debt | 22 | 31 | ||||||
Total current liabilities | 1,101 | 946 | ||||||
Long-term debt | 6,407 | 5,212 | ||||||
Deferred income taxes | 428 | 272 | ||||||
Other noncurrent liabilities | 210 | 207 | ||||||
Total liabilities | 8,146 | 6,637 | ||||||
Commitments and contingencies (Note 15) | ||||||||
Redeemable noncontrolling interest | 33 | — | ||||||
Equity: | ||||||||
Discovery Communications, Inc. stockholders’ equity: | ||||||||
Series A convertible preferred stock: $0.01 par value; 75 shares authorized; 71 shares issued | 1 | 1 | ||||||
Series C convertible preferred stock: $0.01 par value; 75 shares authorized; 45 and 49 shares issued | 1 | 1 | ||||||
Series A common stock: $0.01 par value; 1,700 shares authorized; 148 and 147 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; 150 shares issued | 2 | 2 | ||||||
Additional paid-in capital | 6,716 | 6,689 | ||||||
Treasury stock, at cost | (2,482 | ) | (2,482 | ) | ||||
Retained earnings | 2,052 | 2,075 | ||||||
Accumulated other comprehensive (loss) income | (51 | ) | 4 | |||||
Total Discovery Communications, Inc. stockholders’ equity | 6,240 | 6,291 | ||||||
Noncontrolling interest | 2 | 2 | ||||||
Total equity | 6,242 | 6,293 | ||||||
Total liabilities and equity | $ | 14,421 | $ | 12,930 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
4
DISCOVERY COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited; in millions, except per share amounts)
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Revenues: | ||||||||
Distribution | $ | 583 | $ | 576 | ||||
Advertising | 508 | 453 | ||||||
Other | 65 | 56 | ||||||
Total revenues | 1,156 | 1,085 | ||||||
Costs and expenses: | ||||||||
Costs of revenues, excluding depreciation and amortization | 342 | 296 | ||||||
Selling, general and administrative | 367 | 311 | ||||||
Depreciation and amortization | 32 | 29 | ||||||
Restructuring charges | 1 | 1 | ||||||
Total costs and expenses | 742 | 637 | ||||||
Operating income | 414 | 448 | ||||||
Interest expense | (68 | ) | (55 | ) | ||||
Losses from equity investees, net | (2 | ) | (48 | ) | ||||
Other income (expense), net | 33 | (2 | ) | |||||
Income from continuing operations before income taxes | 377 | 343 | ||||||
Provision for income taxes | (146 | ) | (120 | ) | ||||
Income from continuing operations, net of taxes | 231 | 223 | ||||||
Loss from discontinued operations, net of taxes | — | (1 | ) | |||||
Net income | 231 | 222 | ||||||
Net income attributable to noncontrolling interests | — | (1 | ) | |||||
Net income available to Discovery Communications, Inc. stockholders | $ | 231 | $ | 221 | ||||
Basic earnings per share available to Discovery Communications, Inc. stockholders: | ||||||||
Continuing operations | $ | 0.64 | $ | 0.58 | ||||
Discontinued operations | $ | — | $ | — | ||||
Net income | $ | 0.64 | $ | 0.57 | ||||
Diluted earnings per share available to Discovery Communications, Inc. stockholders: | ||||||||
Continuing operations | $ | 0.63 | $ | 0.57 | ||||
Discontinued operations | $ | — | $ | — | ||||
Net income | $ | 0.63 | $ | 0.57 | ||||
Weighted average shares outstanding: | ||||||||
Basic | 363 | 386 | ||||||
Diluted | 367 | 390 | ||||||
Income per share amounts may not sum since each is calculated independently.
The accompanying notes are an integral part of these consolidated financial statements.
5
DISCOVERY COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited; in millions)
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Net income | $ | 231 | $ | 222 | ||||
Other comprehensive (loss) income, net of tax: | ||||||||
Currency translation adjustments | (59 | ) | 11 | |||||
Derivative and market value adjustments | 4 | — | ||||||
Comprehensive income | 176 | 233 | ||||||
Comprehensive income attributable to noncontrolling interests | — | (1 | ) | |||||
Comprehensive income attributable to Discovery Communications, Inc. stockholders | $ | 176 | $ | 232 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
6
DISCOVERY COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in millions)
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Operating Activities | ||||||||
Net income | $ | 231 | $ | 222 | ||||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||||
Equity-based compensation expense | 60 | 41 | ||||||
Depreciation and amortization | 32 | 30 | ||||||
Content amortization and impairment expense | 231 | 207 | ||||||
Remeasurement gain on previously held equity interest | (92 | ) | — | |||||
Equity in losses and distributions from investee companies | 4 | 58 | ||||||
Deferred income tax expense (benefit) | 134 | (22 | ) | |||||
Other, net | 69 | 11 | ||||||
Changes in operating assets and liabilities: | ||||||||
Receivables, net | (20 | ) | (29 | ) | ||||
Content rights | (301 | ) | (226 | ) | ||||
Accounts payable and accrued liabilities | (70 | ) | (23 | ) | ||||
Equity-based compensation liabilities | (59 | ) | (24 | ) | ||||
Income tax receivable | (62 | ) | 20 | |||||
Other, net | (26 | ) | (17 | ) | ||||
Cash provided by operating activities | 131 | 248 | ||||||
Investing Activities | ||||||||
Purchases of property and equipment | (26 | ) | (21 | ) | ||||
Business acquisition, net of cash acquired | (60 | ) | — | |||||
Investments in foreign exchange contracts | (39 | ) | — | |||||
Distribution from equity method investee | — | 17 | ||||||
Investments in and advances to equity method investees | (25 | ) | (38 | ) | ||||
Cash used in investing activities | (150 | ) | (42 | ) | ||||
Financing Activities | ||||||||
Borrowings from long term debt, net of discount and issuance costs | 1,186 | — | ||||||
Principal repayments of capital lease obligations | (11 | ) | (10 | ) | ||||
Repurchases of common stock | — | (288 | ) | |||||
Tax settlements associated with equity-based plans | (22 | ) | (3 | ) | ||||
Proceeds from issuance of common stock in connection with equity-based plans | 16 | 58 | ||||||
Excess tax benefits from equity-based compensation | 13 | 30 | ||||||
Cash provided by (used in) financing activities | 1,182 | (213 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents | (4 | ) | 3 | |||||
Net change in cash and cash equivalents | 1,159 | (4 | ) | |||||
Cash and cash equivalents, beginning of period | 1,201 | 1,048 | ||||||
Cash and cash equivalents, end of period | $ | 2,360 | $ | 1,044 | ||||
Supplemental Cash Flow Information | ||||||||
Cash paid for taxes, net | $ | (63 | ) | $ | (38 | ) | ||
Cash paid for interest | $ | (29 | ) | $ | (16 | ) | ||
Noncash Investing and Financing Transactions | ||||||||
Investment in OWN | $ | — | $ | 6 | ||||
Repurchases of preferred stock | $ | 256 | — | $ | — | |||
The accompanying notes are an integral part of these consolidated financial statements.
7
DISCOVERY COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited; in millions)
Three Months Ended March 31, 2013 | Three Months Ended March 31, 2012 | |||||||||||||||||||||||
Discovery Stockholders | Noncontrolling Interests | Total Equity | Discovery Stockholders | Noncontrolling Interests | Total Equity | |||||||||||||||||||
Beginning balance | $ | 6,291 | $ | 2 | $ | 6,293 | $ | 6,517 | $ | 2 | $ | 6,519 | ||||||||||||
Comprehensive income | 176 | — | 176 | 232 | 1 | 233 | ||||||||||||||||||
Equity-based compensation | 20 | — | 20 | 18 | — | 18 | ||||||||||||||||||
Issuance of common stock in connection with equity-based plans | 16 | — | 16 | 59 | — | 59 | ||||||||||||||||||
Excess tax benefits from equity-based compensation | 13 | — | 13 | 30 | — | 30 | ||||||||||||||||||
Tax settlements associated with equity-based plans | (22 | ) | — | (22 | ) | (3 | ) | — | (3 | ) | ||||||||||||||
Repurchases of preferred and common stock | (256 | ) | — | (256 | ) | (288 | ) | — | (288 | ) | ||||||||||||||
Adjustment of redeemable noncontrolling interest to redemption value | 2 | — | 2 | — | — | — | ||||||||||||||||||
Ending balance | $ | 6,240 | $ | 2 | $ | 6,242 | $ | 6,565 | $ | 3 | $ | 6,568 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
8
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
Discovery Communications, Inc. (“Discovery” or the “Company”) is a global media company that provides content across distribution platforms, including through digital distribution arrangements. The Company also develops and sells curriculum-based education products and services. The Company classifies its operations in three segments: U.S. Networks, consisting principally of domestic television networks, websites, and digital distribution arrangements; International Networks, consisting principally of international television networks and websites; and Education, consisting of educational curriculum-based product and service offerings. Financial information for Discovery’s reportable segments is discussed in Note 16.
Basis of Presentation
The consolidated financial statements include the accounts of Discovery and its majority-owned subsidiaries in which a controlling interest is maintained. Inter-company accounts and transactions between consolidated entities have been eliminated in consolidation.
Reclassifications
Beginning January 1, 2013, the Company reclassified loss from equity method investees, net from other expense, net to a separate line on the consolidated statement of operations for all periods presented.
Unaudited Interim Financial Statements
These consolidated financial statements are unaudited; however, in the opinion of management, they reflect all adjustments consisting only of normal recurring adjustments necessary to state fairly the financial position, results of operations and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles (“GAAP”) applicable to interim periods. The results of operations for the interim periods presented are not necessarily indicative of results for the full year or future periods. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Amendment No. 1 to Discovery’s Annual Report on Form 10-K for the year ended December 31, 2012 (the “2012 Form 10-K”).
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates, judgments and assumptions that affect the amounts and disclosures reported in the consolidated financial statements and accompanying notes. Management continually re-evaluates its estimates, judgments and assumptions, and management’s assessments could change. Actual results may differ from those estimates.
Significant estimates inherent in the preparation of the consolidated financial statements include accounting for asset impairments, revenue recognition, allowances for doubtful accounts, content rights, depreciation and amortization, business combinations, equity-based compensation, income taxes, other financial instruments, contingencies, and the determination of whether the Company is the primary beneficiary of entities in which it holds variable interests.
Accounting and Reporting Pronouncements Adopted
Offsetting Assets and Liabilities
In January 2011, the Financial Accounting Standards Board (“FASB”) issued guidance expanding the disclosure requirements for financial instruments that are offset in the balance sheet or subject to a master netting arrangement or similar agreement. In January 2013, the FASB issued additional guidance clarifying that the scope of the guidance applies only to derivatives, repurchase agreements and reverse purchase agreements, and securities borrowing and securities lending transactions. The adoption of the new guidance, effective January 1, 2013, did not have a material impact on the Company's financial statements. (See Note 7.)
9
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Fair Value Measurements
In May 2011, the FASB and the International Accounting Standards Board (“IASB”) issued guidance that results in a consistent definition between GAAP and International Financial Reporting Standards (“IFRS”) of fair value and common requirements for measurement and disclosure of fair value. There are several changes under the new guidance. The highest and best use valuation concepts are relevant only when measuring the fair value of nonfinancial assets. The prohibition of the application of a blockage factor extends to all financial measurements. The Company must disclose quantitative information about unobservable inputs used to assess fair value and provide a qualitative discussion about the sensitivity of the measurements for recurring Level 3 fair value measurements. The Company prospectively adopted the new guidance effective January 1, 2012. The adoption of the new guidance did not have a material impact on the Company's financial statements.
Comprehensive Income
In January 2013, the FASB amended its guidance on the presentation of comprehensive income. Under the amended guidance, an entity must present information regarding reclassification adjustments from accumulated other comprehensive income in a single note or on the face of the financial statements. This is required for both annual and interim reporting. The Company retrospectively adopted the new guidance effective January 1, 2013 and elected to present reclassification adjustments from accumulated other comprehensive income in a single note. (See Note 9.)
In June 2011, the FASB issued guidance eliminating the option to report other comprehensive income and its components in the statement of changes in equity. Entities may elect to present items of net income and other comprehensive income in one continuous statement or in two separate, but consecutive, statements. Under the new guidance, each component of net income and each component of other comprehensive income, together with totals for comprehensive income and its two parts, net income and other comprehensive income, are required to be disclosed under either alternative. The Company retrospectively adopted the new guidance effective January 1, 2012 and elected to present comprehensive income in a separate statement.
Concentrations Risk
Customers
The Company has long-term contracts with distributors, including the largest distributors in the U.S. and major international distributors. For U.S. Networks, approximately 90% of the Company's distribution revenue comes from the segment's top 10 distributors. For International Networks, approximately 50% of the Company's distribution revenue comes from the segments's top 10 distributors. Agreements in place with with the major cable and satellite operators in the U.S. expire at various times beginning in 2013 through 2020. Failure to secure a renewal or a renewal on less favorable terms may have a material adverse effect on the Company’s financial condition and results of operations. Not only could the Company experience a reduction in affiliate revenue, but it could also experience a reduction in advertising revenue which is impacted by affiliate subscriber levels.
No individual customer accounted for more than 10% of total consolidated revenues for the three months ended March 31, 2013 or 2012. The Company’s trade receivables do not represent a significant concentration of credit risk as of March 31, 2013 or December 31, 2012 due to the wide variety of customers and global markets in which the Company operates and their dispersion across many geographic areas.
Financial Institutions
Cash and cash equivalents are maintained with several financial institutions. The Company has deposits held with banks that exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed on demand and are maintained with financial institutions of reputable credit and, therefore, bear minimal credit risk.
Lender Counterparties
There is a risk that the counterparties associated with the Company’s revolving credit facility will not be available to fund as obligated under the terms of the facility. If funding under the revolving credit facility is unavailable, the Company may have to acquire a replacement credit facility from different counterparties at a higher cost or may be unable to find a suitable replacement. Typically, the Company seeks to manage these exposures by contracting with experienced large financial institutions and monitoring the credit quality of its lenders. As of March 31, 2013, the Company did not anticipate nonperformance by any of its counterparties.
10
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 2. ACQUISITIONS AND DISPOSITIONS
Acquisitions
SBS Nordic
On April 9, 2013, the Company acquired certain television and radio business operations ("SBS Nordic") from Prosiebensat.1 Media AG for cash of approximately $1.8 billion (€1.4 billion) including closing purchase price adjustments. These operations are in Sweden, Norway, Denmark, Finland and England. The Company is currently evaluating the fair value of assets and liabilities acquired and assessing appropriate disclosures for the acquisition.
Discovery Japan
On January 10, 2013, the Company purchased an additional 30% of Discovery Japan for $49 million, net of cash acquired. Discovery Japan operates Discovery Channel and Animal Planet in Japan. As of December 31, 2012, Discovery and Jupiter Telecommunications Co., Ltd ("JCOM") each owned a 50% interest in Discovery Japan, and Discovery accounted for its 50% interest using the equity method of accounting. Discovery consolidated Discovery Japan on January 10, 2013 and recognized a gain of $92 million to account for the difference between the carrying value and the fair value of the previously held 50% equity interest. The gain is included in other income (expense), net in the Company's consolidated statements of operations (see Note 13). The Company used a combination of a discounted cash flow ("DCF") analysis and market-based valuation methodologies, which represent Level 3 fair value measurements, to measure the fair value of Discovery Japan and to perform its preliminary purchase price allocation.
The table below presents the details of cash paid for Discovery Japan and the preliminary allocation of the purchase price to the assets and liabilities acquired (in millions).
January 10, 2013 | ||||
Goodwill | $ | 112 | ||
Intangible assets | 86 | |||
Other assets acquired | 25 | |||
Currency translation adjustment | 6 | |||
Cash | 4 | |||
Remeasurement gain on previously held equity interest | (92 | ) | ||
Liabilities assumed | (50 | ) | ||
Redeemable noncontrolling interest | (35 | ) | ||
Carrying value of previously held equity interest | (3 | ) | ||
Cash paid | $ | 53 | ||
The terms of the agreement provide JCOM with a right to put its 20% noncontrolling interest to Discovery for cash at any time and Discovery with the right to call JCOM's 20% noncontolling interest beginning January 2018. As JCOM's put right is outside the control of the Company, JCOM's 20% noncontrolling interest is presented as redeemable noncontrolling interest outside of stockholders' equity on the Company's consolidated balance sheets (see Note 8).
Switchover Media and Other
On December 28, 2012, the Company acquired Switchover Media, a group of five Italian television channels with children's and entertainment programming. In 2012, the Company also purchased a digital media company in the U.S., a television channel in Dubai, and certain affiliate agreements in Latin America. Total consideration for these businesses was $173 million, net of cash acquired, including $11 million paid in 2013. Contingent consideration of up to $13 million may be paid if certain performance targets are achieved. The Company recorded $70 million and $108 million of intangible assets and goodwill, respectively, in connection with these acquisitions. These business combinations have been included in the Company’s operating results since their acquisition date.
11
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Dispositions
Postproduction Audio Business
On September 17, 2012, the Company sold its postproduction audio business, CSS Studios, LLC and the results of the postproduction audio business have been reflected in loss from discontinued operations, net of taxes, in the consolidated statements of operations. The postproduction audio business was an operating segment combined with Education as a reportable segment.
NOTE 3. VARIABLE INTEREST ENTITIES
In the normal course of business, the Company makes investments that support its underlying business strategy and enable it to enter new markets and develop programming. In certain instances, an investment may qualify as a variable interest entity (“VIE”). As of March 31, 2013 and December 31, 2012, the Company’s VIEs primarily consisted of Hub Television Networks LLC and OWN LLC, which operate pay-television networks.
The Company accounts for its interests in VIEs using the equity method. The aggregate carrying values of these equity method investments were $836 million and $825 million as of March 31, 2013 and December 31, 2012, respectively. The Company recognized losses in the consolidated statements of operations of $1 million and $48 million, during the three months ended March 31, 2013 and 2012, respectively, for its portion of net losses generated by VIEs.
As of March 31, 2013, the Company’s estimated risk of loss for investment carrying values, unfunded contractual commitments and guarantees made on behalf of equity method investees was approximately $887 million. The estimated risk of loss excludes the Company’s expected non-contractual funding of OWN and its operating performance guarantee for Hub Television Networks LLC, which is disclosed below.
Hub Television Networks LLC
Hub Television Networks LLC operates The Hub, which is a pay-television network that provides children’s and family entertainment and educational programming. The Company is obligated to provide The Hub with funding up to $15 million; the Company has not provided funding as of March 31, 2013. The Company also provides The Hub distribution, sales and administrative support services for a fee (see Note 14).
Based upon the level of equity investment at risk, The Hub is a VIE. Discovery and its partner, Hasbro Inc. (“Hasbro”), share equally in voting control and jointly consent to decisions about programming and marketing strategy and thereby direct the activities of The Hub that most significantly impact its economic performance. Neither has special governance rights, and both are equally represented on the board of The Hub. The partners also share equally in the profits, losses and funding of The Hub. The Company has determined that it is not the primary beneficiary of The Hub. Accordingly, the Company accounts for its investment in The Hub using the equity method.
Through December 31, 2015, the Company has guaranteed the performance of The Hub and is required to compensate Hasbro to the extent that distribution metrics decline versus levels historically achieved by the Discovery Kids channel. This guarantee extends on a declining basis through the period of guarantee. Upon inception of The Hub on May 22, 2009, the maximum amount potentially due under this guarantee was $300 million. As of March 31, 2013, the maximum amount potentially due under this guarantee was less than $100 million. The exposure to loss is expected to decline to zero during 2014. As The Hub’s distribution is obtained under long-term contracts with stable subscriber levels, the Company believes the likelihood is remote that the guaranteed performance levels will not be achieved and, therefore, believes the performance guarantee is unlikely to have an adverse impact on the Company.
The carrying value of the Company’s investment in The Hub was $321 million and $322 million as of March 31, 2013 and December 31, 2012, respectively. The value of the investment may decline if future results vary negatively from the current long range plan. The Company continues to monitor the valuation of its investment in accordance with GAAP, which requires an impairment charge when there is an other-than-temporary decline in the investment’s value. No impairment was recorded during the three months ended March 31, 2013.
12
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
OWN LLC
OWN LLC operates OWN, which is a pay-television network and website that provides adult lifestyle content focused on self-discovery and self-improvement. Based upon the level of equity investment at risk, OWN is a VIE. While the Company and Harpo Inc. ("Harpo") are partners who share equally in voting control, power is not shared because certain activities that significantly impact OWN’s economic performance are directed by Harpo. Harpo holds operational rights related to programming and marketing, as well as selection and retention of key management personnel. Accordingly, the Company has determined that it is not the primary beneficiary of OWN and accounts for its investment in OWN using the equity method. However, the Company provides OWN funding, content licenses, and distribution, sales and administrative support services for a fee (see Note 14).
The Company's combined advances to and note receivable from OWN were $505 million and $482 million, as of March 31, 2013 and December 31, 2012, respectively. During the three months ended March 31, 2013 and 2012, the Company provided OWN with funding of $14 million and $40 million and accrued interest earned on the note receivable of $9 million and $6 million, respectively. The note receivable is secured by the net assets of OWN. While the Company has no further funding commitments, the Company expects to provide additional funding to OWN and to recoup amounts funded. The funding to OWN accrues interest at 7.5% compounded annually. There can be no event of default on the borrowing until 2023. However, borrowings are scheduled for repayment four years after the borrowing date to the extent that OWN has excess cash to repay the borrowings then due. Following such repayment, OWN’s subsequent cash distributions will be shared equally between the Company and Harpo.
In accordance with the venture agreement, losses generated by OWN are generally allocated to both investors based on their proportionate ownership interests. However, the Company has recorded its portion of OWN’s losses based upon accounting policies for equity method investments. Prior to the launch of OWN on January 1, 2011, the Company recognized $104 million or 100% of OWN’s net losses. During the three months ended March 31, 2012, accumulated operating losses at OWN exceeded the equity contributed to OWN, and Discovery began to record 100% of OWN’s net losses. The Company will continue to record 100% of OWN's operating losses as long as Discovery provides all funding to OWN and OWN’s accumulated losses continue to exceed the equity contributed. All of OWN's future net income will initially be recorded by the Company until Discovery recovers losses absorbed in excess of Discovery’s equity ownership interest.
The carrying value of the Company’s investment in OWN, including its equity method investment and note receivable balance, was $480 million and $469 million as of March 31, 2013 and December 31, 2012, respectively. Given that the early results of OWN’s operations have been below its initial business plan, there is a possibility that the results of OWN’s future operations will fall below the revised long-term projections. The Company continues to monitor the financial results of OWN along with other relevant business information to assess the recoverability of the OWN note receivable and determine whether there is impairment of the Company's investment in OWN. No impairment was recorded during the three months ended March 31, 2013.
Harpo has the right to require the Company to purchase all or part of Harpo’s interest in OWN at fair market value up to a maximum put amount every two and one half years commencing January 1, 2016. The maximum put amount ranges from $100 million on the first put exercise date up to $400 million on the fourth put exercise date. The Company has recorded no amounts for the put right.
NOTE 4. FAIR VALUE MEASUREMENTS
Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants. Assets and liabilities carried at fair value are classified in the following three categories:
Level 1 | – | Quoted prices for identical instruments in active markets. |
Level 2 | – | Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. |
Level 3 | – | Valuations derived from techniques in which one or more significant inputs are unobservable. |
13
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The table below presents assets and liabilities measured at fair value on a recurring basis (in millions).
March 31, 2013 | ||||||||||||||||||
Category | Balance Sheet Location | Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||||
Trading securities: | ||||||||||||||||||
Mutual funds | Prepaid expenses and other current assets | $ | 114 | $ | — | $ | — | $ | 114 | |||||||||
Available-for-sale securities: | ||||||||||||||||||
Money market mutual funds | Cash and cash equivalents | 1,827 | — | — | 1,827 | |||||||||||||
Derivatives: | ||||||||||||||||||
Foreign exchange | Prepaid expenses and other current assets | — | 3 | — | 3 | |||||||||||||
Foreign exchange | Other noncurrent assets | — | 7 | — | 7 | |||||||||||||
Total assets | $ | 1,941 | $ | 10 | $ | — | $ | 1,951 | ||||||||||
Liabilities: | ||||||||||||||||||
Deferred compensation plan | Accrued expenses and other current liabilities | $ | 114 | $ | — | $ | — | $ | 114 | |||||||||
TF1 put right | Other noncurrent liabilities | — | — | 14 | 14 | |||||||||||||
Derivatives: | ||||||||||||||||||
Foreign exchange | Accrued expenses and other current liabilities | — | 22 | — | 22 | |||||||||||||
Total liabilities | $ | 114 | $ | 22 | $ | 14 | $ | 150 | ||||||||||
December 31, 2012 | ||||||||||||||||||
Category | Balance Sheet Location | Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||||
Trading securities: | ||||||||||||||||||
Mutual funds | Prepaid expenses and other current assets | $ | 96 | $ | — | $ | — | $ | 96 | |||||||||
Available-for-sale securities: | ||||||||||||||||||
Money market mutual funds | Cash and cash equivalents | 475 | — | — | 475 | |||||||||||||
Total assets | $ | 571 | $ | — | $ | — | $ | 571 | ||||||||||
Liabilities: | ||||||||||||||||||
Deferred compensation plan | Accrued expenses and other current liabilities | $ | 96 | $ | — | $ | — | $ | 96 | |||||||||
Derivatives: | ||||||||||||||||||
Foreign exchange | Accrued expenses and other current liabilities | — | 2 | — | 2 | |||||||||||||
Total liabilities | $ | 96 | $ | 2 | $ | — | $ | 98 | ||||||||||
Trading securities are comprised of investments in mutual funds held in a separate trust which are owned as part of the Company’s deferred compensation plan. The fair value of Level 1 trading securities was determined by reference to the quoted market price per unit in active markets multiplied by the number of units held without consideration of transaction costs. The fair value of the related deferred compensation plan liability was determined based on the fair value of the related investments elected by employees.
Available-for-sale securities represent investments in highly liquid instruments with original maturities of 90 days or less. The fair value of Level 1 available-for-sale securities was determined by reference to the quoted market price per unit in active markets multiplied by the number of units held without consideration of transaction costs.
Derivative financial instruments are comprised of foreign exchange contracts used by the Company to modify its exposure to market risks from foreign exchange rates. The fair value of Level 2 derivative financial instruments was determined using a market-based approach.
On December 21, 2012, the Company acquired 20% equity ownership interests in Eurosport, a European sports satellite and cable network, and in a portfolio of pay television networks from a French media company, TF1, for $264 million, including transaction costs. TF1 has the right to require the Company to purchase its remaining shares at various dates should Discovery acquire a controlling interest in Eurosport. Written puts that do not qualify for equity classification are reported at fair value and subsequently marked to fair value through earnings regardless of associated contingencies.
14
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The fair value measurement of the TF1 put was determined through the use of a Monte Carlo simulation model. The Monte Carlo model simulates the various sources of uncertainty impacting the value of a financial instrument and uses those simulations to develop an estimated fair value for the instrument. The valuation methodology for the TF1 put is based on unobservable estimates and judgments, and therefore represents a Level 3 fair value measurement. At March 31, 2013 and December 31, 2012, the fair value of the TF1 put was determined to be $14 million. During the three months ended March 31, 2013, there were no changes to the valuation methodology used to estimate the fair value of the put. (See Note 15.)
In addition to the financial instruments listed in the tables above, the Company holds other financial instruments, including cash deposits, accounts receivable, accounts payable and debt. The carrying values for cash, accounts receivable and accounts payable approximated their fair values. The estimated fair value of the Company’s outstanding senior notes using quoted prices from over the counter markets, considered Level 2 inputs, was $7.0 billion and $5.9 billion as of March 31, 2013 and December 31, 2012, respectively.
NOTE 5. CONTENT RIGHTS
The table below presents the components of content rights (in millions).
March 31, 2013 | December 31, 2012 | |||||||
Produced content rights: | ||||||||
Completed | $ | 2,821 | $ | 2,724 | ||||
In-production | 328 | 308 | ||||||
Coproduced content rights: | ||||||||
Completed | 578 | 566 | ||||||
In-production | 77 | 76 | ||||||
Licensed content rights: | ||||||||
Acquired | 487 | 483 | ||||||
Prepaid | 16 | 17 | ||||||
Content rights, at cost | 4,307 | 4,174 | ||||||
Accumulated amortization | (2,597 | ) | (2,497 | ) | ||||
Total content rights, net | 1,710 | 1,677 | ||||||
Current portion | (127 | ) | (122 | ) | ||||
Noncurrent portion | $ | 1,583 | $ | 1,555 | ||||
Content expense consists of content amortization, impairments and other production charges and is included in cost of revenues in the consolidated statements of operations. Content expense was $256 million and $228 million for the three months ended March 31, 2013 and 2012, respectively. Content impairments were $4 million and $3 million for the three months ended March 31, 2013 and 2012, respectively.
15
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 6. DEBT
The table below presents the components of outstanding debt (in millions).
March 31, 2013 | December 31, 2012 | |||||||
3.70% Senior Notes, semi-annual interest, due June 2015 | $ | 850 | $ | 850 | ||||
5.625% Senior Notes, semi-annual interest, due August 2019 | 500 | 500 | ||||||
5.05% Senior Notes, semi-annual interest, due June 2020 | 1,300 | 1,300 | ||||||
4.375% Senior Notes, semi-annual interest, due June 2021 | 650 | 650 | ||||||
3.30% Senior Notes, semi-annual interest, due May 2022 | 500 | 500 | ||||||
3.25% Senior Notes, semi-annual interest, due April 2023 | 350 | — | ||||||
6.35% Senior Notes, semi-annual interest, due June 2040 | 850 | 850 | ||||||
4.95% Senior Notes, semi-annual interest, due May 2042 | 500 | 500 | ||||||
4.875% Senior Notes, semi-annual interest, due April 2043 | 850 | — | ||||||
Capital lease obligations | 97 | 110 | ||||||
Total long-term debt | 6,447 | 5,260 | ||||||
Unamortized discount | (18 | ) | (17 | ) | ||||
Long-term debt, net | 6,429 | 5,243 | ||||||
Current portion of long-term debt | (22 | ) | (31 | ) | ||||
Noncurrent portion of long-term debt | $ | 6,407 | $ | 5,212 | ||||
On March 19, 2013, Discovery Communications, LLC ("DCL"), a wholly-owned subsidiary of the Company, issued $1.2 billion aggregate principal amount of senior notes consisting of $350 million aggregate principal amount of 3.25% Senior Notes due April 1, 2023 and $850 million aggregate principal amount of 4.875% Senior Notes due April 1, 2043 (the "2023 and 2043 Notes"). The proceeds received by DCL from the offering were net of a $2 million issuance discount and $12 million of deferred financing costs.
DCL has the option to redeem some or all of the 2023 and 2043 Notes at any time prior to their maturity by paying a make-whole premium plus accrued and unpaid interest, if any, through the date of repurchase. Interest on the 2023 and 2043 Notes is payable on April 1 and October 1 of each year. The 2023 and 2043 Notes are unsecured and rank equally in right of payment with all of DCL's other unsecured senior indebtedness and are fully and unconditionally guaranteed on an unsecured and unsubordinated basis by Discovery.
In addition to the debt instruments listed in the table above, the Company also has access to a $1.0 billion revolving credit facility. There were no amounts drawn under the revolving credit facility as of March 31, 2013 or December 31, 2012. If the Company were to draw on the revolving credit facility, outstanding balances would bear interest at a variable rate determined pursuant to the lending agreement. Balances outstanding under the revolving credit facility would be due on the expiration date which is October 12, 2017.
The revolving credit facility contains affirmative and negative covenants, including an interest coverage ratio and leverage ratio, events of default and other customary provisions. The Company was in compliance with all covenants and there were no events of default as of March 31, 2013 and December 31, 2012.
NOTE 7. DERIVATIVE FINANCIAL INSTRUMENTS
The Company may use derivative financial instruments to modify its exposure to market risks from changes in interest rates and foreign exchange rates. The Company does not enter into or hold derivative financial instruments for speculative trading purposes. The Company may enter into spot, forward and option contracts that change in value as foreign currency exchange rates change. These contracts hedge forecasted foreign currency transactions in order to mitigate fluctuations in the Company's earnings and cash flows. For its fixed rate debt, the Company may enter into variable interest rate swaps effectively converting fixed rate borrowings to variable rate borrowings indexed to LIBOR in order to reduce the amount of interest paid.
During the three months ended March 31, 2013, the Company used hedges for various purposes. The Company entered into foreign exchange contracts in connection with forecasted business combinations (see Note 2). These derivatives, which economically hedged the Company's exposure to fluctuations in certain foreign currency exchange rates, did not qualify for hedge accounting and realized and unrealized losses resulting thereon were reflected in the consolidated statements of
16
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
operations. The Company designated foreign currency forward contracts used to hedge anticipated distribution revenue as cash flow hedges. Gains and losses on the effective portion of designated cash flow hedges are initially recorded in accumulated other comprehensive (loss) income on the consolidated balance sheet and reclassified to the statement of operations when the hedged item is recognized. The Company also entered into interest rate contracts to hedge the pricing for senior notes issued in 2013 and 2012 (see Note 6). The derivatives qualified for hedge accounting and unrealized gains and losses from changes in fair value were recorded as a component of other comprehensive (loss) income and will be amortized into income over the life of the notes. There were no unsettled interest rate contracts held by the Company as of March 31, 2013 and December 31, 2012.
The Company records all derivative contracts at fair value (see Note 4); derivatives in an asset position are classified as assets, and derivatives in a liability position are classified as liabilities on the consolidated balance sheet. The Company's master netting agreements allow the Company to settle derivative contracts denominated in the same currency with a single counterparty on the same day on a net basis. There were no amounts able to be offset under master netting agreements as of March 31, 2013 and December 31, 2012.
The following table summarizes the notional amount and fair value of the Company's derivative positions as of March 31, 2013 and December 31, 2012 (in millions).
Balance Sheet Location | March 31, 2013 | December 31, 2012 | ||||||||||||||||
Notional | Fair Value | Notional | Fair Value | |||||||||||||||
Derivatives designated as hedges: | ||||||||||||||||||
Foreign exchange | Prepaid expenses and other current assets | $ | 55 | $ | 3 | $ | — | $ | — | |||||||||
Foreign exchange | Other noncurrent assets | $ | 47 | $ | 7 | $ | — | $ | — | |||||||||
Derivatives not designated as hedges: | ||||||||||||||||||
Foreign exchange | Prepaid expenses and other current assets | $ | — | $ | — | $ | 661 | $ | — | |||||||||
Foreign exchange | Other current liabilities | $ | 1,649 | $ | (22 | ) | $ | 56 | $ | (2 | ) | |||||||
The following table presents the impact of derivative instruments on income and other comprehensive (loss) income (in millions).
Three Months Ended March 31, | ||||||||||
Instrument Type | 2013 | 2012 | ||||||||
Derivatives designated as hedges: | ||||||||||
Amount recognized in other comprehensive (loss) income, gross of tax | Foreign exchange | $ | 5 | $ | — | |||||
Derivatives not designated as hedges: | ||||||||||
Amount recognized in other expense, net | Foreign exchange | $ | (59 | ) | $ | — | ||||
NOTE 8. REDEEMABLE NONCONTROLLING INTEREST
In connection with the acquisition of Discovery Japan on January 10, 2013, the Company recognized $35 million for the fair value of JCOM's noncontrolling interest (see Note 2). The terms of the agreement provide JCOM with a right to put all, but not less than all, of its 20% noncontrolling interest to Discovery at any time for cash. For the first four years, the settlement value is the acquisition date fair value denominated in Japanese yen; thereafter, the redemption value is the greater of the then current fair value or acquisition date fair value. Because JCOM's put right is outside the Company's control, JCOM's 20% noncontrolling interest is presented as redeemable noncontrolling interest outside of stockholders' equity on the Company's consolidated balance sheet.
Redeemable noncontrolling interest reflected as of the balance sheet date is the greater of the calculated redemption value at the period end foreign exchange rate or the noncontrolling interest balance adjusted for comprehensive income attributable to noncontrolling interest. Adjustments to the carrying amount of redeemable noncontrolling interest to redemption value are recorded to retained earnings.
17
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The table below presents the reconciliation of changes in the redeemable noncontrolling interest (in millions).
Redeemable Noncontrolling Interest | ||||
Balance, January 10, 2013 | $ | 35 | ||
Adjustment of noncontrolling interest to redemption value | (2 | ) | ||
Balance, March 31, 2013 | $ | 33 | ||
NOTE 9. EQUITY
Stock Repurchase Program
Under the stock repurchase program, management is authorized to purchase shares through open market transactions or privately negotiated transactions at prevailing prices as permitted by securities laws and other legal requirements and subject to stock price, business conditions, market conditions and other factors. The total authorization under the stock repurchase program is $4.0 billion. As of March 31, 2013, the Company had remaining authorization of $1.5 billion for future repurchases of its common stock under the stock repurchase program, of which $518 million and $1.0 billion will expire on April 25, 2014 and December 11, 2014, respectively.
Repurchased stock is recorded in treasury stock on the consolidated balance sheet. The Company made no stock repurchases during the three months ended March 31, 2013. During the three months ended March 31, 2012 the Company repurchased 6.9 million Series C common shares for $288 million through open market transactions using cash on hand. As of March 31, 2013, the Company had repurchased 2.0 million and 56.7 million shares of Series A and Series C common stock over the life of the program for the aggregate purchase price of $109 million and $2.4 billion, respectively.
Preferred Stock Repurchase
On March 6, 2013, the Company agreed to repurchase and retire 4 million shares of its Series C convertible preferred stock from Advance Programming Holdings, LLC for an aggregate purchase price of $256 million. The repurchase was made outside of the Company's publicly announced stock repurchase program. The $256 million aggregate purchase price was recorded as a decrease of par value of preferred stock and retained earnings. The share repurchase was completed on April 5, 2013 using cash on hand. As of March 31, 2013, a share repurchase liability was recorded in accrued expenses and other current liabilities on the consolidated balance sheets.
Other Comprehensive (Loss) Income
The table below presents the tax effects related to each component of other comprehensive (loss) income and reclassifications made into the consolidated statements of operations (in millions).
Three Months Ended March 31, 2013 | Three Months Ended March 31, 2012 | ||||||||||||||||||||||
Pretax | Tax Benefit (Provision) | Net-of-tax | Pretax | Tax Benefit (Provision) | Net-of-tax | ||||||||||||||||||
Currency translation adjustments: | |||||||||||||||||||||||
Unrealized (losses)/gains | $ | (64 | ) | $ | 11 | $ | (53 | ) | $ | 18 | $ | (7 | ) | $ | 11 | ||||||||
Reclassification of cumulative translation adjustments to other income (expense), net | (9 | ) | 3 | (6 | ) | — | — | — | |||||||||||||||
Derivative and market value adjustments: | |||||||||||||||||||||||
Unrealized gains | 7 | (3 | ) | 4 | — | — | — | ||||||||||||||||
Other comprehensive (loss) income | $ | (66 | ) | $ | 11 | $ | (55 | ) | $ | 18 | $ | (7 | ) | $ | 11 | ||||||||
18
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Accumulated Other Comprehensive (Loss) Income
The table below presents the changes in the components of accumulated other comprehensive (loss) income, net of taxes (in millions).
Three Months Ended March 31, 2013 | Three Months Ended March 31, 2012 | ||||||||||||||||||||||
Currency Translation Adjustments | Derivative and Market Value Adjustments | Accumulated Other Comprehensive Income (Loss) | Currency Translation Adjustments | Derivative and Market Value Adjustments | Accumulated Other Comprehensive Loss | ||||||||||||||||||
Beginning balance | $ | (1 | ) | $ | 5 | $ | 4 | $ | (29 | ) | $ | 6 | $ | (23 | ) | ||||||||
Other comprehensive (loss) income before reclassifications | (53 | ) | 4 | (49 | ) | 11 | — | 11 | |||||||||||||||
Amount reclassified from accumulated other comprehensive income | (6 | ) | — | (6 | ) | — | — | — | |||||||||||||||
Other comprehensive (loss) income | (59 | ) | 4 | (55 | ) | 11 | — | 11 | |||||||||||||||
Ending balance | $ | (60 | ) | $ | 9 | $ | (51 | ) | $ | (18 | ) | $ | 6 | $ | (12 | ) | |||||||
NOTE 10. EQUITY-BASED COMPENSATION
The Company has various incentive plans under which unit awards, stock options, performance based restricted stock units (“PRSUs”), time based restricted stock units (“RSUs”) and stock appreciation rights (“SARs”) have been issued. During the three months ended March 31, 2013, the vesting and service requirements of equity-based awards granted were consistent with the arrangements disclosed in the 2012 Form 10-K.
Equity-Based Compensation Expense
The table below presents the components of equity-based compensation expense (in millions).
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Unit awards | $ | 24 | $ | 20 | ||||
SARs | 16 | 3 | ||||||
PRSUs and RSUs | 12 | 7 | ||||||
Stock options | 8 | 11 | ||||||
Total equity-based compensation expense | $ | 60 | $ | 41 | ||||
Tax benefit recognized | $ | 23 | $ | 15 | ||||
Compensation expense for all awards was recorded in selling, general and administrative expense in the consolidated statements of operations. As of March 31, 2013 and December 31, 2012, the Company recorded total liabilities for cash-settled awards of $60 million and $80 million, respectively.
Equity-Based Award Activity
Unit Awards
The table below presents unit award activity (in millions, except years and weighted-average grant price).
Unit Awards | Weighted- Average Grant Price | Weighted- Average Remaining Contractual Term (years) | Aggregate Intrinsic Value | ||||||||||
Outstanding as of December 31, 2012 | 3.1 | $ | 34.78 | ||||||||||
Settled | (1.4 | ) | 31.02 | $ | 49 | ||||||||
Outstanding as of March 31, 2013 | 1.7 | $ | 37.90 | 1.08 | $ | 69 | |||||||
Vested and expected to vest as of March 31, 2013 | 1.6 | $ | 37.89 | 1.08 | $ | 65 | |||||||
19
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Unit awards represent the contingent right to receive a cash payment for the amount by which the vesting price of Company stock exceeds the grant price. Because unit awards are cash-settled, the Company remeasures the fair value and compensation expense of outstanding unit awards each reporting date until settlement. As of March 31, 2013, the weighted-average fair value of unit awards outstanding was $40.75 per unit award. The Company made cash payments to settle vested unit awards totaling $49 million and $24 million during the three months ended March 31, 2013 and 2012, respectively. As of March 31, 2013, there was $33 million of unrecognized compensation cost, net of estimated forfeitures, related to unit awards, which is expected to be recognized over a weighted-average period of 1.47 years.
SARs
The table below presents SAR award activity (in millions, except years and weighted-average grant price).
SARs | Weighted- Average Grant Price | Weighted- Average Remaining Contractual Term (years) | Aggregate Intrinsic Value | ||||||||||
Outstanding as of December 31, 2012 | 1.8 | $ | 41.13 | ||||||||||
Granted | 1.9 | 65.23 | |||||||||||
Settled | (0.4 | ) | 41.29 | $ | 10 | ||||||||
Outstanding as of March 31, 2013 | 3.3 | $ | 55.10 | 2.13 | $ | 76 | |||||||
Vested and expected to vest as of March 31, 2013 | 3.0 | $ | 55.09 | 2.13 | $ | 72 | |||||||
As of March 31, 2013, the weighted-average fair value of SARs outstanding was $25.83 per award. The Company made cash payments of $10 million and zero to settle exercised SARs during the three months ended March 31, 2013 and 2012, respectively. As of March 31, 2013, there was $56 million of unrecognized compensation cost, net of estimated forfeitures, related to SARs, which is expected to be recognized over a weighted-average period of 2.03 years.
PRSUs and RSUs
The table below presents PRSU and RSU activity (in millions, except years and weighted-average grant price).
PRSUs and RSUs | Weighted-Average Grant Price | Weighted-Average Remaining Contractual Term (years) | Aggregate Fair Value | ||||||||||
Outstanding as of December 31, 2012 | 2.9 | $ | 39.66 | ||||||||||
Granted | 0.3 | 74.93 | |||||||||||
Converted | (0.7 | ) | 33.59 | $ | 47 | ||||||||
Outstanding as of March 31, 2013 | 2.5 | $ | 46.07 | 1.73 | $ | 200 | |||||||
Vested and expected to vest as of March 31, 2013 | 2.3 | $ | 45.66 | 1.69 | $ | 184 | |||||||
PRSUs represent the contingent right to receive shares of the Company’s Series A common stock based on continuous service and whether the Company achieves certain operating performance targets. As of March 31, 2013, there were approximately 2 million outstanding PRSUs with a weighted-average grant price of $43.57. As of March 31, 2013, unrecognized compensation cost, net of expected forfeitures, related to PRSUs was $33 million, which is expected to be recognized over a weighted-average period of 1.50 years.
RSUs represent the contingent right to receive shares of the Company’s Series A common stock based on continuous service. As of March 31, 2013, there were approximately 1 million outstanding RSUs with a weighted-average grant price of $51.40. As of March 31, 2013, unrecognized compensation cost, net of expected forfeitures, related to RSUs was $30 million, which is expected to be recognized over a weighted-average period of 2.69 years.
20
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Stock Options
The table below presents stock option activity (in millions, except years and weighted-average exercise price).
Stock Options | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (years) | Aggregate Intrinsic Value | ||||||||||
Outstanding as of December 31, 2012 | 9.0 | $ | 28.53 | ||||||||||
Granted | 0.9 | 74.63 | |||||||||||
Exercised | (0.5 | ) | 33.01 | $ | 21 | ||||||||
Outstanding as of March 31, 2013 | 9.4 | $ | 32.92 | 5.31 | $ | 432 | |||||||
Vested and expected to vest as of March 31, 2013 | 9.2 | $ | 32.23 | 5.31 | $ | 426 | |||||||
Exercisable as of March 31, 2013 | 5.7 | $ | 22.25 | 5.05 | $ | 321 | |||||||
The Company received cash payments from the exercise of stock options totaling $15 million and $57 million during the three months ended March 31, 2013 and 2012, respectively. The weighted average grant date fair value of stock options granted during the three months ended March 31, 2013 was $24.60 per option. As of March 31, 2013, there was $51 million of unrecognized compensation cost, net of expected forfeitures, related to stock options, which is expected to be recognized over a weighted-average period of 1.99 years.
Employee Stock Purchase Plan
The Discovery Communications, Inc. 2011 Employee Stock Purchase Plan (the "DESPP") enables eligible employees to purchase shares of the Company’s common stock through payroll deductions or other permitted means. During the three months ended March 31, 2013 and 2012, the Company received cash totaling $1 million from the purchase of 20,000 shares.
NOTE 11. INCOME TAXES
The Company's provisions for income taxes on income from continuing operations were $146 million and $120 million, and the effective income tax rates were 39% and 35%, for the three months ended March 31, 2013 and 2012, respectively.
The following table reconciles the Company's effective income tax rate to the U.S. federal statutory income tax rate of 35%.
Three Months Ended March 31, | ||||||
2013 | 2012 | |||||
U.S. federal statutory income tax rate | 35 | % | 35 | % | ||
State and local income taxes, net of federal tax benefit | 3 | % | 3 | % | ||
Effect of foreign operations | 1 | % | 1 | % | ||
Domestic production activity deductions | 1 | % | (3 | )% | ||
Remeasurement gain on previously held equity interest | (2 | )% | — | % | ||
Other, net | 1 | % | (1 | )% | ||
Effective income tax rate | 39 | % | 35 | % | ||
The income tax rate for the three months ended March 31, 2013 increased 4% compared to the prior year. The increase was primarily due to an $11 million decrease in tax benefits from domestic production activity deductions, following legislative changes enacted in 2013. The impact of this change is recognized in the current quarter. In addition, the $92 million remeasurement gain on previously held equity interest for the three months ended March 31, 2013 is not taxable in the current year because the Company intends to indefinitely defer the realization of this gain for tax purposes.
The Company and its subsidiaries file income tax returns in the U.S. and various state and foreign jurisdictions. The Company is currently under examination by the Internal Revenue Service (“IRS”) for its 2009 and 2008 consolidated federal income tax returns. The Company has not been advised of any material adjustments. With few exceptions, the Company is no longer subject to audit by any jurisdiction for years prior to 2006.
21
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The Company's reserves for uncertain tax positions at March 31, 2013 and December 31, 2012 totaled $132 million and $128 million, respectively. The increase in the reserve during the three months ended March 31, 2013 was attributable, in approximately equal proportion, to uncertainties regarding allocation and taxation of income among multiple jurisdictions and the eligibility for, and application of, the rules surrounding certain tax credits.
As of March 31, 2013 and December 31, 2012 the Company had accrued approximately $11 million and $9 million, respectively, of total interest and penalties payable related to uncertain tax positions. The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense.
It is reasonably possible that the total amount of unrecognized tax benefits related to certain of the Company's uncertain tax positions could decrease as much as $10 million within the next twelve months as a result of ongoing audits, lapses of statutes of limitations or regulatory developments.
NOTE 12. EARNINGS PER SHARE
The table below sets forth the computation of the weighted-average number of shares outstanding utilized in determining basic and diluted earnings per share (in millions, except per share amounts).
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Numerator: | ||||||||
Income from continuing operations, net of taxes | $ | 231 | $ | 223 | ||||
Less: | ||||||||
Net income attributable to noncontrolling interests | — | (1 | ) | |||||
Income from continuing operations available to Discovery Communications, Inc. stockholders | 231 | 222 | ||||||
Loss from discontinued operations available to Discovery Communications, Inc. stockholders | — | (1 | ) | |||||
Net income available to Discovery Communications, Inc. stockholders | $ | 231 | $ | 221 | ||||
Denominator: | ||||||||
Weighted average shares outstanding — basic | 363 | 386 | ||||||
Weighted average dilutive effect of equity awards | 4 | 4 | ||||||
Weighted average shares outstanding — diluted | 367 | 390 | ||||||
Basic earnings per share available to Discovery Communications, Inc. stockholders: | ||||||||
Continuing operations | $ | 0.64 | $ | 0.58 | ||||
Discontinued operations | $ | — | $ | — | ||||
Net income | $ | 0.64 | $ | 0.57 | ||||
Diluted earnings per share available to Discovery Communications, Inc. stockholders: | ||||||||
Continuing operations | $ | 0.63 | $ | 0.57 | ||||
Discontinued operations | $ | — | $ | — | ||||
Net income | $ | 0.63 | $ | 0.57 | ||||
Income per share amounts may not sum since each is calculated independently.
Earnings per share is calculated by dividing the applicable earnings available to Discovery Communications, Inc. stockholders by the weighted-average number of shares outstanding.
22
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
At March 31, 2013 and 2012, the weighted average number of basic and diluted shares outstanding included the Company’s outstanding Series A, Series B and Series C common stock, as well as its outstanding Series A and Series C convertible preferred stock, as the holder of each common and preferred series legally participates equally in any per share distributions. Diluted earnings per share adjusts basic earnings per share for the dilutive effect of the assumed exercise of outstanding equity awards using the treasury stock method. Diluted earnings per share also adjusts basic earnings per share for the dilutive effect of the assumed vesting of outstanding PRSUs whose performance targets have been achieved as of the last day of the most recent period.
The table below presents the details of the equity-based awards and preferred shares that were excluded from the calculation of diluted earnings per share (in millions).
Three Months Ended March 31, | ||||||
2013 | 2012 | |||||
Anti-dilutive stock options, PRSUs and RSUs | — | 2 | ||||
PRSUs whose performance targets have not been achieved | 1 | 2 | ||||
Contingently issuable preferred shares | 1 | 1 | ||||
NOTE 13. SUPPLEMENTAL DISCLOSURES
The table below presents the components of accrued expenses and other current liabilities (in millions).
March 31, 2013 | December 31, 2012 | |||||||
Accrued repurchase of preferred stock | $ | 256 | $ | — | ||||
Accrued payroll and related benefits | 212 | 275 | ||||||
Content rights payable | 96 | 131 | ||||||
Accrued interest | 80 | 30 | ||||||
Accrued income taxes | 53 | 59 | ||||||
Current portion of equity-based compensation liabilities | 46 | 55 | ||||||
Accrued other | 169 | 171 | ||||||
Total accrued expenses and other current liabilities | $ | 912 | $ | 721 | ||||
The table below presents the components of other expense, net (in millions).
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Remeasurement gain on previously held equity interest | $ | 92 | $ | — | ||||
Losses on derivative instruments | (59 | ) | — | |||||
Other expense | — | (2 | ) | |||||
Total other income (expense), net | $ | 33 | $ | (2 | ) | |||
NOTE 14. RELATED PARTY TRANSACTIONS
In the normal course of business, the Company enters into transactions with related parties. The Company provides equity method investees, including unconsolidated VIEs, with content licenses and services such as distribution, sales and administrative support (see Note 3). Related parties also include entities that share common directorship or ownership, such as Liberty Global, Inc. ("Liberty Global"). Discovery’s Board of Directors includes three members who serve as directors of Liberty Global. John C. Malone is Chairman of the Board of Liberty Global and beneficially owns approximately 36% of the aggregate voting power of Liberty Global with respect to the election of directors. Revenue from Liberty Global is earned under contractual arrangements for multi-year network distribution arrangements. Other primarily consists of distribution revenue from JCOM earned by Discovery Japan. Following the consolidation of Discovery Japan, revenues earned from JCOM are reflected in related party revenues (see Note 2).
23
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The table below presents a summary of the transactions with related parties (in millions).
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Revenues and service charges: | ||||||||
Liberty Global | $ | 12 | $ | 13 | ||||
Equity method investees(a) | 16 | 27 | ||||||
Other | 4 | — | ||||||
Total revenues and service charges | $ | 32 | $ | 40 | ||||
Interest income(b) | $ | 9 | $ | 6 | ||||
Expenses | $ | 6 | $ | 8 | ||||
(a) The decrease in revenue from transactions with equity method investees is primarily attributable to the consolidation of Discovery Japan and lower sales of content to OWN.
(b) The Company records interest earnings from loans to equity method investees as a component of losses from equity method investees, net, in the consolidated statements of operations.
Of the revenues and other service charges earned from transactions with equity method investees, the Company provided funding for $8 million and $14 million for the three months ended March 31, 2013 and 2012, respectively.
The table below presents receivables due from related parties (in millions).
March 31, 2013 | December 31, 2012 | |||||||
Receivables | $ | 15 | $ | 19 | ||||
Note receivable (see Note 3) | $ | 505 | $ | 482 | ||||
NOTE 15. COMMITMENTS, CONTINGENCIES, AND GUARANTEES
Commitments
In the normal course of business, the Company enters into various commitments, which primarily include programming and talent arrangements, operating and capital leases, employment contracts, sponsorship commitments, arrangements to purchase various goods and services, future funding commitments to equity method investees (see Note 3), and the obligation to issue additional shares of preferred stock under the anti-dilution provisions of its outstanding preferred stock.
Contingencies
Put Right
The Company has granted put rights related to various partially owned subsidiaries and investments. Harpo has the right to require the Company to purchase its interest in OWN for fair value at various dates (see Note 3). No amounts have been recorded by the Company for the Harpo put right. TF1 has the right to require the Company to purchase its remaining shares at various dates should Discovery acquire a controlling interest in Eurosport. The TF1 put right is recorded at fair value (see Note 4). Additionally, JCOM has the right to require the Company to purchase its redeemable interest in Discovery Japan. The Company recorded the JCOM put right as redeemable noncontrolling interest (see Note 8).
Legal Matters
In the normal course of business, the Company experiences routine claims and legal proceedings. It is the opinion of the Company’s management, based on information available at this time, that none of the current claims and proceedings will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
Guarantees
The Company has guaranteed a certain level of operating performance for The Hub (see Note 3). There were no amounts recorded for guarantees associated with equity method investees as of March 31, 2013 or December 31, 2012.
24
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The Company may provide indemnities intended to protect others from certain business risks. Similarly, the Company may remain contingently liable for certain obligations in the event that a third party does not fulfill its obligations under an indemnification obligation. The Company records a liability for its indemnification obligations and other contingent liabilities when probable and estimable. There were no material amounts for indemnifications or other contingencies recorded as of March 31, 2013 or December 31, 2012.
NOTE 16. REPORTABLE SEGMENTS
The Company’s reportable segments are determined based on (i) financial information reviewed by its chief operating decision maker (“CODM”), the Chief Executive Officer, (ii) internal management and related reporting structure, and (iii) the basis upon which the CODM makes resource allocation decisions.
The accounting policies of the reportable segments are the same as the Company’s, except that certain inter-segment transactions that are eliminated for consolidation are not eliminated at the segment level. In determining segment performance, inter-segment transactions are treated as third-party transactions. Inter-segment transactions, which primarily include advertising and content purchases between segments, were not significant for the periods presented.
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 revenues less costs of revenues and selling, general and administrative expenses excluding: (i) mark-to-market equity-based compensation, (ii) depreciation and amortization, (iii) amortization of deferred launch incentives, (iv) exit and restructuring charges, (v) certain impairment charges and (vi) gains and losses on business and asset dispositions. 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 equity-based compensation, exit and restructuring charges, certain impairment charges, and gains and losses on business and asset dispositions from the calculation of Adjusted OIBDA due to their volatility. The Company also excludes depreciation of fixed assets, and amortization of intangible assets and deferred launch incentives as these amounts do not represent cash payments in the current reporting period. 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. Certain corporate expenses are excluded from segment results to enable executive management to evaluate segment performance based upon the decisions of segment executives.
The tables below present summarized financial information for each of the Company’s reportable segments (in millions).
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Revenues: | ||||||||
U.S. Networks | $ | 686 | $ | 681 | ||||
International Networks | 444 | 380 | ||||||
Education | 27 | 24 | ||||||
Corporate and inter-segment eliminations | (1 | ) | — | |||||
Total revenues | $ | 1,156 | $ | 1,085 | ||||
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Total Adjusted OIBDA: | ||||||||
U.S. Networks | $ | 377 | $ | 395 | ||||
International Networks | 184 | 171 | ||||||
Education | 7 | 6 | ||||||
Corporate and inter-segment eliminations | (70 | ) | (64 | ) | ||||
Total Adjusted OIBDA | $ | 498 | $ | 508 | ||||
25
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Reconciliation of Total Adjusted OIBDA to Operating Income: | ||||||||
Total Adjusted OIBDA | $ | 498 | $ | 508 | ||||
Amortization of deferred launch incentives | (5 | ) | (5 | ) | ||||
Mark-to-market equity-based compensation | (46 | ) | (25 | ) | ||||
Depreciation and amortization | (32 | ) | (29 | ) | ||||
Restructuring charges | (1 | ) | (1 | ) | ||||
Operating income | $ | 414 | $ | 448 | ||||
March 31, 2013 | December 31, 2012 | |||||||
Total assets: | ||||||||
U.S. Networks | $ | 2,955 | $ | 2,878 | ||||
International Networks | 2,170 | 1,984 | ||||||
Education | 57 | 63 | ||||||
Corporate and inter-segment eliminations | 9,239 | 8,005 | ||||||
Total assets | $ | 14,421 | $ | 12,930 | ||||
Total assets for corporate and inter-segment eliminations include goodwill that is allocated to the Company’s segments to account for goodwill. The presentation of segment assets in the table above is consistent with the financial reports that are reviewed by the Company’s CODM.
NOTE 17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Overview
As of March 31, 2013 and December 31, 2012, the senior notes outstanding (see Note 6) have been issued by DCL, a wholly-owned subsidiary of the Company, pursuant to Registration Statements on Form S-3 filed with the U.S. Securities and Exchange Commission (the “Shelf Registration”). The Company fully and unconditionally guarantees the senior notes on an unsecured basis. The Company, DCL, and/or Discovery Communications Holding, LLC (“DCH”), a wholly-owned subsidiary of the Company (collectively, the “Issuers”), may issue additional debt securities under the Shelf Registration that are fully and unconditionally guaranteed by the other Issuers.
Set forth below are condensed consolidating financial statements presenting the financial position, results of operations and comprehensive income, and cash flows of (i) the Company, (ii) DCH, (iii) DCL, (iv) the non-guarantor subsidiaries of DCL on a combined basis, (v) the other non-guarantor subsidiaries of the Company on a combined basis and (vi) reclassifications and eliminations necessary to arrive at the consolidated financial statement balances for the Company. DCL and the non-guarantor subsidiaries of DCL are the primary operating subsidiaries of the Company. DCL primarily includes Discovery Channel and TLC networks in the U.S. The non-guarantor subsidiaries of DCL include the Company’s other U.S. and international networks, education businesses, and most of the Company’s websites and other digital media services. The non-guarantor subsidiaries of DCL are wholly-owned subsidiaries of DCL with the exception of certain equity method investments. DCL is a wholly-owned subsidiary of DCH. The Company wholly owns DCH through a 33 1/3% direct ownership interest and a 66 2/3% indirect ownership interest through Discovery Holding Company (“DHC”), a wholly-owned subsidiary of the Company. DHC is included in the other non-guarantor subsidiaries of the Company.
Basis of Presentation
Solely for purposes of presenting the condensed consolidating financial statements, investments in the Company’s subsidiaries have been accounted for by their respective parent company using the equity method. Accordingly, in the following condensed consolidating financial statements, the equity method has been applied to (i) the Company’s interests in DCH and the other non-guarantor subsidiaries of the Company, (ii) DCH’s interest in DCL and (iii) DCL’s interests in the non-guarantor subsidiaries of DCL. Inter-company accounts and transactions have been eliminated to arrive at the consolidated financial statement amounts for the Company. The Company’s accounting bases in all subsidiaries, including goodwill and recognized intangible assets, have been “pushed-down” to the applicable subsidiaries.
26
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The operations of certain of the Company’s international subsidiaries are excluded from the Company’s consolidated U.S. income tax return. Tax expense related to permanent differences has been allocated to the entity that created the difference. Tax expense related to temporary differences has been allocated to the entity that created the difference, where identifiable. The remaining temporary differences are allocated to each entity included in the Company’s consolidated U.S. income tax return based on each entity’s relative pretax income. Deferred taxes have been allocated based upon the temporary differences between the carrying amounts of the respective assets and liabilities of the applicable entities.
The condensed consolidating financial statements should be read in conjunction with the consolidated financial statements of the Company.
27
DISCOVERY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Condensed Consolidating Balance Sheet
March 31, 2013
(in millions)
Discovery | DCH | DCL | Non-Guarantor Subsidiaries of DCL | Other Non- Guarantor Subsidiaries of Discovery | Reclassifications and Eliminations | Discovery and Subsidiaries | ||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | — | $ | 2,191 | $ | 169 | $ | — | $ | — | $ | 2,360 | ||||||||||||||
Receivables, net | — | — | 415 | 740 | — | (7 | ) | 1,148 | ||||||||||||||||||||
Content rights, net | — | — | 9 | 118 | — | — | 127 | |||||||||||||||||||||
Deferred income taxes | — | — | 33 | 41 | — | — | 74 | |||||||||||||||||||||
Prepaid expenses and other current assets | 116 | — | 125 | 67 | — | (4 | ) | 304 | ||||||||||||||||||||
Intercompany trade receivables, net | — | — | 190 | — | — | (190 | ) | — | ||||||||||||||||||||
Total current assets | 116 | — | 2,963 | 1,135 | — | (201 | ) | 4,013 | ||||||||||||||||||||
Investment in and advances to subsidiaries | 6,382 | 6,406 | 5,386 | — | 4,269 | (22,443 | ) | — | ||||||||||||||||||||
Noncurrent content rights, net | — | — | 634 | 949 | — | — | 1,583 | |||||||||||||||||||||
Goodwill | — | — | 3,769 | 2,732 | — | — | 6,501 | |||||||||||||||||||||
Equity method investments | — | — | 337 | 768 | — | — | 1,105 | |||||||||||||||||||||
Other noncurrent assets | — | 20 | 509 | 710 | — | (20 | ) | 1,219 | ||||||||||||||||||||
Total assets | $ | 6,498 | $ | 6,426 | $ | 13,598 | $ | 6,294 | $ | 4,269 | $ | (22,664 | ) | $ | 14,421 | |||||||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||||||
Current portion of long-term debt | $ | — | $ | — | $ | 6 | $ | 16 | $ | — | $ | — | ||||||||||||||||