Discovery Communications said in a Securities and Exchange Commission filing Monday that moves to amend its agreement with toymaker Hasbro regarding the fees it pays for animated programming, could lead to a goodwill writedown for its newest kid's network, The Hub.
Discovery launched the Hub, formerly Discovery Kids, in 60 million homes last October. Hasbro paid $300 million for a 50% interest in the network in 2009.
In a filing regarding a $500 million debt offering, Discovery said that it amended its agreement with Hasbro in May, which caused The Hub to revise the license fees it pays for animated programming.
"This amendment creates a trigger event for purposes of intangible asset and goodwill impairment testing," Discovery said in the filing. "The Hub's management is in the process of conducting a fair value analysis to support goodwill impairment testing, however the assessment is not complete and no determinations have been made. We currently expect that the evaluation will be completed during the third quarter of 2011."
News of the potential writedown was first reported by website Deadline.com.
A Discovery source said the goodwill review is simply an accounting requirement and the company feels very positive and encouraged by The Hub's early performance and ability to grow its audience in the future.
Miller Tabak media analyst David Joyce said that revisions to license agreements are fairly common.
"From time to time there are corporate actions (in this place, some sort of license fee negotiation) that could trigger a valuation review and a potential non-cash impairment charge," Joyce said.
Separately, Discovery said that it has purchased about 3.9 million shares of its own stock, worth about $147 million, between April 1 and June 10. The programmer said that as of June 10, it has purchased 11.6 million shares of stock under its $1 billion stock repurchased plan at an aggregate price of about $419 million.