Liberty avoids gloom through diversity
Discovery and Starz Encore help buoy co.
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Liberty reported a mixed bag of results Thursday, buoyed by solid growth at its program networks Discovery and Starz Encore despite revenue plunges from its businesses in the heavily devalued Latin American market, and nagging debt and restructuring issues at its European cable businesses UPC and Telewest.
The consolidated corporate entity finished the quarter with a cash balance of just under $2 billion, with $5.3 billion in debt. The current market value of its 15 major public assets (which range from AOL Time Warner and Viacom to Motorola and SprintPCS) stands at $12.4 billion.
Liberty Media's total asset value declined over the quarter along with the wilting stock market, exacerbated by some $5.1 billion in writedowns at AOL TW, News Corp. and Sprint. These led Liberty to report a $4.6 billion consolidated loss for the first six months of 2002.
Hedging pays off
It could have been worse, of course. The company's assortment of hedging activities, including share puts on its public stock holdings, exchangeable debt and swap agreements to exploit interest rate arbitrage, helped save the company at least $5 billion, according to CEO Dob Bennett.
The company says its even larger collection of private assets is "growing well."
Liberty repurchased a modest 24.8 million of its shares at an average price of around $10 each. The company is looking to buy back more in the future.
Discovery Communications (held 50% by Liberty) fared reasonably well in a "challenging global environment." Total operating cash flow rose 38% to $88 million for its domestic and international docu businesses, thanks to cost containment, affiliate sales revenue increases and modest ad growth.
Digital cable growth helped lift its six digital nets to 76 million U.S. households over the quarter.
Discovery also reported that most of its international networks are generating positive EBITDA.
Good shopping
Over at QVC, reported revenues and operating cash flow came in ahead of expectations, with operating margins up at a healthy 23% for the quarter. The home shopping market leader reported total revenues of $995 million for the quarter ended June 30 and used much of its cash flow to reduce outstanding debt by $229 million.
Similarly Liberty's 100% owned Starz Encore pay TV group reduced its outstanding bank debt by $60 million, and enjoyed revenue and operating cash flow, up 11% and 9% respectively, thanks to healthy subscription growth in digital homes. Cash flow growth would have been considerably better had it not been for a required $10 million in bad-debt reserve relating to the Adelphia bankruptcy.
Total subscription units for the second quarter were up 24% to 125.6 million for its Starz!, Encore and Thematic Multiplex premium movie services. For the full year, Bennett forecast revenue growth of 10%.
The picture overseas is somewhat messier. Pan-Euro cabler UPC, controlled by Liberty through its 70% stake in parent company UnitedGlobalCom, on Thursday warned that it might be forced to seek bankruptcy protection if it is unable to restructure its $10.2 billion debt. Meanwhile, Liberty recently resigned its position on the board of struggling U.K. cabler Telewest, in which it owns a 25% equity stake plus bond interest. Telewest, like UPC, is seeking restructuring with its banks and bondholders.
Nevertheless, undeterred by the financial plight of Euro cable, CEO Dob Bennett said the company was back looking at German cable assets as part of a consortium.
The company was less optimistic about short-term improvements in Latin America, where it has cable system and programming investments in hard-hit Argentina. Currency devaluation led to a 60% revenue decline to $54 million for the quarter.
