Management's discussion and analysis of financial condition and results of operations is a supplement to and should be read in conjunction with the accompanying consolidated financial statements and related notes. This section provides additional information regardingDiscovery, Inc.'s ("Discovery," the "Company," "we," "us," or "our") businesses, current developments, results of operations, cash flows and financial condition. Additional context can also be found in our 2019 Annual Report on Form 10-K. BUSINESS OVERVIEW We are a global media company that provides content across multiple distribution platforms, including linear platforms such as pay-television ("pay-TV"), free-to-air ("FTA") and broadcast television, authenticated TV Everywhere ("TVE") applications, digital distribution arrangements, content licensing arrangements and direct-to-consumer ("DTC") subscription products. As one of the world's largest pay-TV programmers, we provide original and purchased content and live events to approximately 3.8 billion cumulative subscribers and viewers worldwide through networks that we wholly or partially own. We distribute customized content in theU.S. and over 220 other countries and territories in 50 languages. Our global portfolio of networks includes prominent nonfiction television brands such asDiscovery Channel , our most widely distributed global brand,HGTV , Food Network,TLC , Animal Planet, Investigation Discovery, Travel Channel, OWN, Science Channel, and MotorTrend (previously known as Velocity domestically and currently known as Turbo in most international countries). Among other networks in theU.S. , Discovery also features two Spanish-language services, Discovery en Español and Discovery Familia. Our international portfolio also includes Eurosport, a leading sports entertainment provider and broadcaster of theOlympic Games (the "Olympics") acrossEurope , TVN, a Polish media company, as well as Discovery Kids, a leading children's entertainment brand inLatin America . We participate in joint ventures, including the recently formed multi-platform venture with Chip andJoanna Gaines , which plans to launch a linear network, SVOD and TV Everywhere ("TVE") products planned for a future date; and Group Nine Media ("Group Nine"), a digital media holding company home to top digital brands includingNowThis News , the Dodo, Thrillist,PopSugar , and Seeker. We also operate production studios. Our objectives are to invest in high-quality content for our networks and brands to build viewership, optimize distribution revenue, capture advertising sales, and create or reposition branded channels and business to sustain long-term growth and occupy a desired content niche with strong consumer appeal. Our strategy is to maximize the distribution, ratings and profit potential of each of our branded networks. In addition to growing distribution and advertising revenues for our branded networks, we have extended content distribution across new platforms, including brand-aligned websites, online streaming, mobile devices, video on demand ("VOD") and broadband channels, which provide promotional platforms for our television content and serve as additional outlets for advertising and distribution revenue. Audience ratings are a key driver in generating advertising revenue and creating demand on the part of cable television operators, direct-to-home ("DTH") satellite operators, telecommunication service providers, and other content distributors who deliver our content to their customers. Our content spans genres including survival, natural history, exploration, sports, general entertainment, home, food and travel, heroes, adventure, crime and investigation, health and kids. We have an extensive library of content and own most rights to our content and footage, which enables us to leverage our library to quickly launch brands and services into new markets and on new platforms. Our content can be re-edited and updated in a cost-effective manner to provide topical versions of subject matter that can be utilized around the world on a variety of platforms. Although the Company utilizes certain brands and content globally, we classify our operations in two reportable segments:U.S. Networks, consisting principally of domestic television networks and digital content services, and International Networks, consisting primarily of international television networks and digital content services. Our segment presentation aligns with our management structure and the financial information management uses to make decisions about operating matters, such as the allocation of resources and business performance assessments. Impact of COVID-19 OnMarch 11, 2020 , theWorld Health Organization declared the current novel coronavirus ("COVID-19") outbreak to be a global pandemic. COVID-19 continues to spread throughout the world, and the duration and severity of its effects and economic disruption are currently unknown. In response to this declaration and the rapid spread of COVID-19,the United States and other countries throughout the world have imposed varying degrees of restrictions on social and commercial activity in an effort to slow the spread of the illness. These measures have had, and are expected to continue to have, a significant adverse impact upon many sectors of the economy, including the media industry. We are closely monitoring the impact of COVID-19 on all aspects of our business and geographies, including how it will impact our customers, employees, suppliers, vendors, distribution and advertising partners, production facilities, and various third parties. 44 -------------------------------------------------------------------------------- While we did not incur significant disruptions during the three months endedMarch 31, 2020 , we have taken certain steps to mitigate the risks to our business in light of the pandemic. We are unable to predict the full impact that COVID-19 will have on our financial position, operating results, and cash flows due to numerous uncertainties and the speed with which the COVID-19 situation is developing. The extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and the actions to contain the virus or treat its impact, among others. Our consolidated financial statements presented herein reflect the latest estimates and assumptions made by management that affect the reported amounts of assets and liabilities and related disclosures as of the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented. Actual results may differ significantly from these estimates and assumptions. We assessed goodwill, other intangibles, deferred tax assets, programming assets, and accounts receivable for recoverability based upon latest estimates and judgments with respect to expected future operating results, ultimate usage of content and latest expectations with respect to collectability. No asset impairments were recorded as ofMarch 31, 2020 , as the fair value of such assets exceeded their carrying value. However, due to significant uncertainty surrounding the situation, management's judgment regarding this could change in the future. The effects of the pandemic may negatively impact the Company's financial position, results of operations, and cash flows. In particular, our advertising revenues, which represented 54% of our consolidated revenues in 2019, may decrease significantly throughout the remainder of 2020 if our advertising partners in certain sectors (such as travel) reduce their advertising spending or if we are limited in our ability to create and air new content due to prolonged production shutdowns and delays. The Company generally relies on third-party production partners to produce its content, and these third-party production partners were forced to shut down during the first quarter of 2020 due to COVID-19. The Company continues to monitor customer and consumer demands by employing innovative production and programming strategies, including content filmed by our on-air talent and seeking viewer feedback on which content to air. We intend to continue to adapt our plans as needed to drive our business and meet our obligations during the COVID-19 situation. However, the current level of uncertainty over the economic and operational impacts of COVID-19 means the related financial impact cannot be reasonably and fully estimated at this time. In response to the COVID-19 pandemic, during the first quarter of 2020, the Company pursued a number of cost savings initiatives that it believes will offset a portion of potential revenue losses and deferrals due to the impact of COVID-19, through the implementation of travel, marketing, production and other operating cost reductions. The Company also implemented remote work arrangements effectivemid-March 2020 and to date, these arrangements have not materially affected our ability to maintain our business operations. Additionally, certain sporting events that the Company has rights to have been cancelled or postponed, thereby eliminating or deferring the related revenues and expenses. For example, onMarch 24, 2020 , theInternational Olympic Committee and theTokyo 2020 Organizing Committee agreed to postpone theOlympic Games to 2021. The Company expects that the postponement of theOlympic Games will shift Olympic-related revenues and defer significant expenses from fiscal year 2020 to fiscal year 2021. In addition, we have implemented several measures that we believe will preserve sufficient liquidity in the near term. As described further in Liquidity and Capital Resources, duringMarch 2020 , we drew down$500 million under our$2.5 billion revolving credit facility to increase our cash position and maximize flexibility in light of the current uncertainty surrounding the impact of COVID-19. We have upcoming corporate debt maturities inJune 2020 of$600 million and inJune 2021 of$640 million . Finally, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted onMarch 27, 2020 inthe United States . The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion ofSocial Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain refundable employee retention credits. As ofMarch 31, 2020 , we do not expect the CARES Act to have a material effect on our financial position and results of operations. We continue to monitor other relief measures taken by theU.S. and other governments around the world. 45
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