Business News
Liberty Media Reports Second Quarter Financial Results
2008-08-11 08:00:00
Liberty Media Reports Second Quarter Financial Results
Solid Revenue and Adjusted OIBDA Growth at both Liberty Interactive Group
and Liberty Entertainment Group
Repurchases 18.1 million Liberty Capital Group Shares
ENGLEWOOD, Colo., Aug. 11 /EMWNews/ -- Liberty Media
Corporation ("Liberty") (Nasdaq: LCAPA/B, LINTA/B and LMDIA/B) today
reported second quarter results for Liberty Capital group, Liberty
Interactive group and Liberty Entertainment group. Financial highlights for
the quarter included:
-- Liberty Interactive group's revenue increased 9% and adjusted OIBDA
increased 4%.
-- QVC's consolidated revenue increased 4% to $1.76 billion and adjusted
OIBDA increased 1% to $387 million.
-- Starz Entertainment's revenue increased 8% and adjusted OIBDA increased
24%.
-- Repurchased 18.1 million Liberty Capital shares through July 31st, or
14% of shares outstanding.
-- Through the DIRECTV share buyback, Liberty's economic ownership of
DIRECTV increased to over 49%, voting control remains at 48% per a
standstill agreement.
"Liberty continued its solid operating and financial performance in a
difficult environment. Several businesses, including DIRECTV, Starz, and
our e-commerce companies, delivered excellent results," stated Liberty
president and CEO Greg Maffei. "We also continued our focus on balance
sheet management, taking advantage of market weakness to repurchase 18.1
million shares of Liberty Capital, reducing outstanding shares by 14%.
DIRECTV also continued its buyback increasing our economic ownership to
over 49%."
During the quarter, Liberty announced the purchase of two e-commerce
companies. The assets of Red Envelope, an online gift retailer, were
purchased out of bankruptcy in June and will become part of the Provide
Commerce portfolio which includes ProFlowers, Secret Spoon, Cherry Moon
Farms and Shari's Berries. Further, Liberty signed a definitive agreement
to purchase Celebrate Express, a leading online and catalog retailer of
party supplies and costumes marketed under the brands Birthday Express, 1st
Wishes and Costume Express. Celebrate Express' products and brand are
complementary to BUYSEASONS, Inc., the Internet costume and party retailer
acquired by Liberty Media in 2006, and creates the stand-out leader in the
online party, costume and Halloween industry. This transaction is expected
to close in September.
LIBERTY INTERACTIVE GROUP -- The businesses and assets attributed to
Liberty Interactive group are engaged in, or are ownership interests in
companies that are engaged in, video and on-line commerce, and currently
include Liberty's subsidiaries QVC, Provide Commerce, Backcountry.com,
Inc., Bodybuilding.com, LLC and BUYSEASONS, Inc. and its 30% interest in
IAC/InterActiveCorp, 24% interest in Expedia and 20% interest in GSI
Commerce. Liberty has identified wholly-owned QVC, Inc. as the principal
operating segment of Liberty Interactive group.
Liberty Interactive group's revenue increased 9% and adjusted OIBDA
increased 4% for the quarter. The increases are primarily driven by growth
at QVC and Provide Commerce and the impact of the Backcountry.com, Inc. and
Bodybuilding.com, LLC acquisitions in June 2007 and December 2007,
respectively.
QVC
QVC's consolidated revenue increased 4% in the second quarter to $1.76
billion and adjusted OIBDA increased 1% to $387 million.
"The challenging economic environment continues, however we are pleased
with our disciplined approach to margin, expense and capital management,"
stated Mike George, QVC President and CEO. "We are excited about several
product, programming and distribution initiatives planned for the second
half of the year to offer our customers a compelling shopping experience
which will further differentiate us from other retailers. Internationally,
Japan has been a bright spot as sales momentum continues to increase."
QVC's domestic revenue decreased slightly in the second quarter to
$1.181 billion. Adjusted OIBDA decreased 2% to $286 million in the quarter.
For the quarter, the mix of product sold shifted to the accessories area
from the home and jewelry categories. The average selling price increased
6% from $44.83 to $47.39 while the total number of units shipped declined
4% to 27.6 million from 28.8 million. Returns as a percent of gross product
revenue increased due to product mix shifts and higher average selling
prices. QVC.com sales as a percentage of domestic sales grew from 23% in
the second quarter of 2007 to 25% in the second quarter of 2008. The
domestic adjusted OIBDA margin decreased 50 basis points primarily due to
the lower gross margin percentage as a result of lower initial product
margins in the home and apparel product areas and higher freight and
warehousing costs related to customer shipments.
QVC's international revenue increased 14% in the second quarter to $580
million due to favorable foreign currency exchange rates and subscriber
growth in the U.K. and Japan. Excluding the effect of exchange rates,
international revenue increased in the UK by 3% and Japan by 10% and 3%
overall. International adjusted OIBDA increased 11% in the second quarter
from $91 million to $101 million. International adjusted OIBDA margins
decreased 50 basis points primarily due to lower gross margins as a result
of lower initial product margins and higher commissions expense as a
percentage of net revenue due to new fixed-rate agreements in the U.K. and
Japan. Excluding the effect of exchange rates, QVC's international adjusted
OIBDA increased 1% in the second quarter.
QVC U.K. revenue grew 3% in local currency in the second quarter. The
UK experienced a slowdown in promotional category sales and softness in the
home category. Units shipped increased 4% in the second quarter while
average selling price declined 1%. QVC Japan's net revenue in local
currency increased 10% for the second quarter, the first double digit
quarter sales increase since the fourth quarter of 2006. Beginning in March
2007, QVC Japan faced a heightened regulatory focus on health and beauty
product presentations. QVC Japan's results were favorably impacted as it
anniversaries the impact of this to the business and it has shown
productivity gains in the home, jewelry and fashion areas as it continues
to successfully shift product away from health and beauty and into these
categories. The German business experienced softness in the jewelry and
apparel product categories resulting in a 3% decrease in net revenue in
local currency for the second quarter. QVC Germany's average selling price
increased slightly in local currency but units shipped decreased in the
period by 2%. QVC Germany experienced a lower gross margin percentage
primarily due to a higher inventory obsolescence provision.
QVC's outstanding bank debt was $4.49 billion at June 30, 2008.
E-commerce Businesses
Liberty Interactive's e-commerce businesses, which include
Backcountry.com, Provide Commerce, Bodybuilding.com and BUYSEASONS, had
strong financial results in the second quarter and continue to grow at a
rapid pace. In the aggregate, the e-commerce businesses experienced revenue
and adjusted OIBDA growth of 97% and 108%, respectively, primarily due to
strong growth at Provide and the previously mentioned acquisitions.
Assuming the businesses were all consolidated on January 1, 2007, revenue
and adjusted OIBDA growth of these businesses would have been 41% and 75%,
respectively, for the quarter. However, no assurance can be given that had
the companies been consolidated from January 1, 2007, the results would not
have been different.
Share Repurchases
There were no share repurchases of Liberty Interactive stock during the
second quarter of 2008. Currently, Liberty has approximately $740 million
remaining under its Liberty Interactive stock repurchase authorization.
LIBERTY ENTERTAINMENT GROUP -- The businesses and assets attributed to
Liberty Entertainment group are engaged in, or are ownership interests in
companies that are engaged in, television and internet distribution and
programming, and currently include Liberty's subsidiaries Starz
Entertainment, LLC ("Starz Entertainment"), FUN Technologies, Inc. ("FUN"),
and the Liberty Sports Group, its equity affiliates GSN LLC and WildBlue
Communications, Inc. and its interest in DIRECTV. Liberty has identified
Starz Entertainment, LLC, a consolidated, wholly-owned subsidiary, as the
principal operating segment of Liberty Entertainment group. As previously
noted, Liberty issued the Liberty Entertainment group tracking stock on
March 4, 2008. The assets and businesses attributed to the Liberty
Entertainment group were previously attributed to the Capital group. The
presentation below treats the assets and businesses attributed to the
Liberty Entertainment group as though they had been attributed to the Group
since January 1, 2007.
Liberty Entertainment group's revenue increased 32% and adjusted OIBDA
increased 13% for the quarter. The increases are primarily due to growth at
Starz Entertainment and the addition of the Liberty Sports Group which was
acquired in February 2008. Liberty Entertainment group's results are
comprised of Starz Entertainment, FUN and the Liberty Sports Group.
Starz Entertainment, LLC
Starz Entertainment revenue increased 8% to $275 million and adjusted
OIBDA increased 24% to $68 million.
The increase in revenue was primarily due to higher effective rates for
Starz Entertainment's services and to a lesser extent, increases in the
weighted average number of subscription units. Starz and Encore, the two
principal service offerings of Starz Entertainment, experienced average
subscription unit increases of 6% and 11%, respectively, during the
quarter. The effects of these increases in subscription units are somewhat
mitigated by Starz Entertainment's fixed-rate affiliation agreements.
Starz Entertainment's operating expenses increased 4% due to increased
SG&A expenses associated with a new Starz branding campaign. Programming
expenses decreased 4% as a result of lower bonus payment amortization and a
lower percentage of first-run movie exhibitions as compared to the number
of library product exhibitions partially offset by a higher effective rate
for the movie titles exhibited in 2008.
"Starz posted another strong quarter of growth. The number of
subscribers to our channels continued to increase, and the Starz flagship
channel finished first in total day ratings among premium channels in 10 of
the first 26 weeks of the year," said Starz LLC Chairman and CEO Robert B.
Clasen. "In addition, we completed our first affiliate deal for StarzPlay,
our broadband movie service, with Verizon Communications.
LIBERTY CAPITAL GROUP -- The businesses and assets attributed to
Liberty Capital group are all of Liberty's businesses and assets other than
those attributed to the Liberty Interactive group and Liberty Entertainment
group and include its subsidiaries Starz Media, LLC, TruePosition, Inc.,
Atlanta National League Baseball Club, Inc. (the owner of the Atlanta
Braves), Leisure Arts, Inc., and WFRV and WJMN Television Station, Inc.,
and its interests in Time Warner, Inc. and Sprint Nextel Corporation
Liberty Capital group's revenue increased to $174 million or 33% while
its adjusted OIBDA deficit increased to $40 million for the quarter. The
increase in revenue was primarily due to the acquisition of the Atlanta
Braves baseball club in May 2007. The increase in the adjusted OIBDA
deficit was due to marketing and advertising costs associated with the
release of several Overture films at Starz Media.
CEO Robert B. Clasen stated, "Overture Films' movie The Visitor proved
to be the sleeper indie hit of the year, opening in April to critical
acclaim and finishing among the top box office performers among all films
in the second quarter. Anchor Bay Entertainment began the home
entertainment distribution of Overture's first movie Mad Money which has
performed very strongly."
Share Repurchases
During the second quarter and through July 31, 2008, Liberty
repurchased 18.1 million shares of Series A Liberty Capital common stock at
an average cost per share of $14.79 for total cash consideration of $267
million. These repurchases represent 14% of the shares outstanding.
1. Please see page 10 of this press release for the definition of
adjusted OIBDA and a discussion of management's use of this
performance measure. Schedule 1 to this press release provides a
reconciliation of Liberty's consolidated segment adjusted OIBDA for
its operating segments to consolidated earnings from continuing
operations before income taxes and minority interests. Schedule 2 to
this press release provides a reconciliation of adjusted OIBDA for
each privately held entity presented herein to that entity's operating
income for the same period, as determined under GAAP.
NOTES
Liberty Media Corporation operates and owns interests in a broad range
of video and on-line commerce, media, communications and entertainment
businesses. Those interests are currently attributed to three tracking
stock groups: Liberty Interactive group, Liberty Entertainment group and
Liberty Capital group.
As a supplement to Liberty's consolidated statements of operations
included in its 10-Q, the following is a presentation of financial
information on a stand-alone basis for QVC and Starz Entertainment which
have been identified as the principal operating segments of Liberty
Interactive and Liberty Entertainment, respectively.
Unless otherwise noted, the foregoing discussion compares financial
information for the three months ended June 30, 2008 to the same periods in
2007. Please see page 10 of this press release for the definition of
adjusted OIBDA and a discussion of management's use of this performance
measure. Schedule 1 to this press release provides a reconciliation of
Liberty's consolidated segment adjusted OIBDA for its operating segments to
consolidated earnings from continuing operations before income taxes and
minority interests. Schedule 2 to this press release provides a
reconciliation of the adjusted OIBDA for each privately held entity
presented herein to that entity's operating income for the same period, as
determined under GAAP. Certain prior period amounts have been reclassified
for comparability with the 2008 presentation. Liberty completed the sale of
its controlling interests in OpenTV and On Command during 2007, and as
such, the financial results of these companies have been excluded from all
periods presented.
Fair Value of Public Holdings and Derivatives
March 31, June 30,
(amounts in millions and include the value of 2008 2008
derivatives)
InterActiveCorp $1,728 1,605
Expedia (1) 1,515 1,272
GSI Commerce 121 130
Total Attributed Liberty Interactive Group $3,364 3,007
DIRECTV (1) 11,662 14,073
Total Attributed Liberty Entertainment Group $11,662 14,073
Non Strategic Public Holdings (2) 4,565 4,716
Total Attributed Liberty Capital Group $4,565 4,716
(1) Represents fair value of Liberty's investments in Expedia and DIRECTV.
In accordance with GAAP, Liberty accounts for these investments using
the equity method of accounting and includes these investments in its
consolidated balance sheet at their historical carrying values.
(2) Represents Liberty's non-strategic public holdings which are accounted
for at fair value including any associated equity derivatives on such
investments. Also includes the liability associated with borrowed
shares which totaled $751 million and $682 million at March 31, 2008
and June 30, 2008, respectively.
Cash and Debt
The following presentation is provided to separately identify cash and
liquid investments and debt information.
March 31, June 30,
(amounts in millions) 2008 2008
Cash and Cash Related Investments:
Total Attributed Liberty Interactive
Group Cash (GAAP) $646 731
Total Attributed Liberty Entertainment
Group Cash (GAAP) 981 1,029
Total Attributed Liberty Capital
Group Cash (GAAP) (1) 2,259 2,116
Total Liberty Consolidated
Cash (GAAP) $3,886 3,876
Debt:
Senior Notes and Debentures (2) $3,108 3,108
QVC Bank Credit Facility 4,489 4,486
Other 78 78
Less: Unamortized Discount (14) (15)
Total Attributed Liberty Interactive
Group Debt (GAAP) 7,661 7,657
Senior Exchangeable Debentures (3) 551 551
Liberty derivative borrowing - 1,993
Other 54 53
Total Attributed Liberty Entertainment
Group Debt 605 2,597
Less: Fair Market Value Adjustment (166) (223)
Total Attributed Liberty Entertainment
Group Debt (GAAP) 439 2,374
Senior Exchangeable Debentures (3) 3,442 3,442
Bank Credit Facility 750 750
Other 673 713
Total Attributed Liberty Capital
Group Debt 4,865 4,905
Less: Fair Market Value Adjustment (963) (957)
Total Attributed Liberty Capital
Group Debt (GAAP) 3,902 3,948
Total Consolidated Liberty Debt (GAAP) $12,002 13,979
(1) Does not include $643 million and $542 million of restricted cash on
March 31, 2008 and June 30, 2008, respectively, that is reflected in
other long-term assets in Liberty's condensed consolidated balance
sheet. Please see discussion related to Investment Fund in the
footnotes to Liberty's condensed consolidated financial statements
included in its most recently filed Form 10-Q.
(2) Face amount of Senior Notes and Debentures with no reduction for the
unamortized discount.
(3) Face amount of Senior Exchangeable Debentures with no reduction for
the fair market value adjustment.
Total attributed Liberty Interactive group cash and liquid investments
increased $85 million compared to March 31, 2008 primarily due to cash flow
from QVC operations partially offset by tax sharing payments to Liberty
Capital group and interest payments. Total attributed Liberty Interactive
group debt remained flat compared to March 31, 2008.
Total attributed Liberty Entertainment group cash and liquid
investments increased $48 million compared to March 31, 2008 primarily due
to cash flow from Starz Entertainment operations. Total attributed Liberty
Entertainment group debt increased $1.992 billion compared to March 31,
2008 due to borrowings against the equity collar on 110 million DIRECTV
shares.
Total attributed Liberty Capital group cash and liquid investments
decreased $143 million compared to March 31, 2008 due to the purchase of
Liberty Capital Series A common stock and cash taxes paid partially offset
by tax sharing payments received from Liberty Interactive group and Liberty
Entertainment group. Total attributed Liberty Capital group debt increased
$40 million compared to March 31, 2008 due to increased subsidiary debt.
Important Notice: Liberty Media Corporation (Nasdaq: LINTA, LINTB,
LMDIA, LMDIB, LCAPA, LCAPB) President and CEO, Gregory B. Maffei will
discuss Liberty's earnings release in a conference call which will begin at
11:00 a.m. (ET) on August 11, 2008. The call can be accessed by dialing
(877) 719-9791 or (719) 325-4774 at least 10 minutes prior to the start
time. Replays of the conference call can be accessed from 1:00 p.m. (ET) on
August 11, 2008 through 12:00 p.m. (ET) August 18, 2008, by dialing (719)
457-0820 or (888) 203-1112 plus the pass code 7804069#. The call will also
be broadcast live across the Internet and archived on our website. To
access the webcast go to
http://www.libertymedia.com/investor_relations/default.htm. Links to this
press release will also be available on the Liberty Media web site.
Certain statements in this press release constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995, including the statements regarding the long-term prospects of
QVC and anticipated programming costs for Starz Entertainment in 2008.
These forward-looking statements are based on management's current
expectations and assumptions, which are inherently subject to
uncertainties, risks and changes in circumstances that are difficult to
predict. Actual results, performance or achievements of the operating
businesses of Liberty included herein could differ materially from those
expressed or implied by such forward-looking statements. Such risks,
uncertainties and other factors include, among others: the risks and
factors described in the publicly filed documents of Liberty, including the
most recently filed Form 10-Q of Liberty; general economic and business
conditions and industry trends including in the advertising and retail
markets; the continued strength of the industries in which such businesses
operate; continued consolidation of the broadband distribution and movie
studio industries; uncertainties inherent in proposed business strategies
and development plans; changes in distribution and viewing of television
programming, including the expanded deployment of personal video recorders
and IP television and their impact on television advertising revenue and
home shopping networks; disruption in the production of theatrical films or
television programs due to strikes by unions representing writers,
directors or actors; increased digital television penetration and the
impact on channel positioning of our networks; rapid technological changes;
future financial performance, including availability, terms and deployment
of capital; availability of qualified personnel; the development and
provision of programming for new television and telecommunications
technologies; changes in, or the failure or the inability to comply with,
government regulation, including, without limitation, regulations of the
Federal Communications Commission, and adverse outcomes from regulatory
proceedings; adverse outcomes in pending litigation; changes in the nature
of key strategic relationships with partners and joint ventures; competitor
responses to such operating businesses' products and services, and the
overall market acceptance of such products and services, including
acceptance of the pricing of such products and services; and threatened
terrorist attacks and ongoing military action, including armed conflict in
the Middle East and other parts of the world. These forward-looking
statements speak only as of the date of this press release. Liberty
expressly disclaims any obligation or undertaking to disseminate any
updates or revisions to any forward-looking statement contained herein to
reflect any change in Liberty's expectations with regard thereto or any
change in events, conditions or circumstances on which any such statement
is based.
SUPPLEMENTAL INFORMATION
As a supplement to Liberty's consolidated statements of operations, the
following is a presentation of quarterly financial information and
operating metrics on a stand-alone basis for the two largest privately held
businesses (QVC and Starz Entertainment) owned by or in which Liberty held
an interest at June 30, 2008.
Please see below for the definition of adjusted OIBDA and Schedule 2 at
the end of this document for reconciliations for the applicable periods in
2007 and 2008 of adjusted OIBDA to operating income, as determined under GAAP,
for each identified entity.
QUARTERLY SUMMARY
(amounts in millions) 2Q07 3Q07 4Q07 1Q08 2Q08
Liberty Interactive Group
QVC (100%)
Revenue - Domestic $1,184 1,174 1,676 1,176 1,181
Revenue - International 509 512 658 589 580
Revenue - Total $1,693 1,686 2,334 1,765 1,761
Adjusted OIBDA - Domestic $292 278 396 281 286
Adjusted OIBDA - International 91 86 135 106 101
Adjusted OIBDA - Total $383 364 531 387 387
Operating Income $244 231 396 250 253
Gross Margin - Domestic 37.6% 36.6% 35.4% 36.4% 37.0%
Gross Margin - International 37.5% 36.7% 37.3% 36.8% 37.3%
Liberty Entertainment Group
STARZ ENTERTAINMENT (100%)
Revenue $254 282 265 273 275
Adjusted OIBDA $55 88 48 74 68
Operating Income $42 78 30 60 53
Subscription Units - Starz 16.1 16.0 16.3 16.8 17.0
Subscription Units - Encore 28.4 30.3 30.7 31.4 31.3
NON-GAAP FINANCIAL MEASURES
This press release includes a presentation of adjusted OIBDA, which is
a non-GAAP financial measure, for each of the privately held entities of
Liberty included herein together with a reconciliation of that non-GAAP
measure to the privately held entity's operating income, determined under
GAAP. Liberty defines adjusted OIBDA as revenue less cost of sales,
operating expenses, and selling, general and administrative expenses
(excluding stock and other equity-based compensation). Adjusted OIBDA, as
defined by Liberty, excludes depreciation and amortization, stock and other
equity-based compensation and restructuring and impairment charges that are
included in the measurement of operating income pursuant to GAAP.
Liberty believes adjusted OIBDA is an important indicator of the
operational strength and performance of its businesses, including the
ability to service debt and fund capital expenditures. In addition, this
measure allows management to view operating results and perform analytical
comparisons and benchmarking between businesses and identify strategies to
improve performance. Because adjusted OIBDA is used as a measure of
operating performance, Liberty views operating income as the most directly
comparable GAAP measure. Adjusted OIBDA is not meant to replace or
supercede operating income or any other GAAP measure, but rather to
supplement such GAAP measures in order to present investors with the same
information that Liberty's management considers in assessing the results of
operations and performance of its assets. Please see the attached schedules
for a reconciliation of consolidated segment adjusted OIBDA to consolidated
earnings from continuing operations before income taxes and minority
interest (Schedule 1) and a reconciliation, for QVC and Starz
Entertainment, of each identified entity's adjusted OIBDA to its operating
income calculated in accordance with GAAP (Schedule 2).
SCHEDULE 1
The following table provides a reconciliation of consolidated segment
adjusted OIBDA to earnings from continuing operations before income taxes
and minority interest for the three months ended June 30, 2007 and 2008,
respectively.
(amounts in millions) 2007 2008
Liberty Interactive Group $393 410
Liberty Entertainment Group 55 62
Liberty Capital Group (31) (40)
Consolidated segment adjusted OIBDA $417 432
Consolidated segment adjusted OIBDA $417 432
Stock compensation (18) (27)
Depreciation and amortization (172) (176)
Interest expense (145) (187)
Realized and unrealized gains (losses) on financial
instruments, net (251) (37)
Gains (losses) on disposition of assets, net 629 (1)
Other, net 85 206
Earnings from continuing operations before income
taxes and minority interest $545 210
SCHEDULE 2
The following table provides a reconciliation for QVC and Starz
Entertainment of adjusted OIBDA to operating income calculated in
accordance with GAAP for the three months ended June 30, 2007, September
30, 2007, December 31, 2007, March 31, 2008 and June 30, 2008,
respectively.
(amounts in millions) 2Q07 3Q07 4Q07 1Q08 2Q08
Liberty Interactive Group
QVC (100%)
Adjusted OIBDA $383 364 531 387 387
Depreciation and Amortization (134) (129) (133) (132) (129)
Stock Compensation Expense (5) (4) (2) (5) (5)
Operating Income $244 231 396 250 253
Liberty Entertainment Group
STARZ ENTERTAINMENT (100%)
Adjusted OIBDA $55 88 48 74 68
Depreciation and Amortization (6) (3) (6) (4) (5)
Stock Compensation Expense (7) (7) (12) (10) (10)
Operating Income $42 78 30 60 53
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