The Walt Disney Company (NYSE: DIS) today reported third quarter
earnings, which are a record for any quarter. Diluted earnings per
share (EPS) for the third quarter increased 27% to $1.28 from $1.01
in the prior-year quarter. Excluding certain items affecting
comparability(1), EPS for the quarter increased 24% to $1.28 from
$1.03 in the prior-year quarter. Diluted EPS for the nine months
ended June 28, 2014 increased 30% to $3.40 compared to $2.61
in the prior-year period. Excluding certain items affecting
comparability, EPS for the nine months increased 31% to $3.43.
“Our strategy of building strong brands and franchises continues
to create great value across our company,” said Robert A. Iger,
chairman and CEO of The Walt Disney Company. “This quarter we
delivered the highest EPS in the company’s history, and we’ve now
generated greater EPS in the first three quarters of FY 2014 than
we have in any previous full fiscal year. We’re extremely pleased
with these results and we are also thrilled with the spectacular
performance of Guardians of the Galaxy, which holds great promise
as a new franchise for our company and once again reinforces the
tremendous value of Marvel.”
The following table summarizes the third quarter and nine-month
results for fiscal 2014 and 2013 (in millions, except per share
amounts):
Quarter Ended Nine Months Ended June 28,2014
June 29,2013 Change June 28,2014 June 29,2013
Change Revenues $ 12,466 $ 11,578 8 % $ 36,424 $ 33,473 9 %
Segment operating income (2)
$ 3,857 $ 3,351 15 % $ 10,230 $ 8,240 24 % Net income (3) $ 2,245 $
1,847 22 % $ 6,002 $ 4,742 27 % Diluted EPS (3) $ 1.28 $ 1.01 27 %
$ 3.40 $ 2.61 30 % Cash provided by operations $ 2,936 $ 3,413 (14
) % $ 6,675 $ 6,717 (1 ) % Free cash flow (2) $ 2,047 $ 2,723 (25 )
% $ 4,427 $ 4,908 (10 ) %
(1) See reconciliation of reported EPS to EPS excluding certain
items affecting comparability on page 8.(2) Aggregate segment
operating income and free cash flow are non-GAAP financial
measures. See the discussion of non-GAAP financial measures that
follows.(3) Reflects amounts attributable to shareholders of The
Walt Disney Company, i.e. after deduction of noncontrolling
interests.
SEGMENT RESULTS
The following table summarizes the third quarter and nine-month
segment operating results for fiscal 2014 and 2013 (in
millions):
Quarter Ended Nine Months Ended June
28,2014 June 29,2013 Change June 28,2014 June 29,2013
Change Revenues: Media Networks $ 5,511 $ 5,352 3 % $ 15,935 $
15,410 3 % Parks and Resorts 3,980 3,678 8 % 11,139 10,371 7 %
Studio Entertainment 1,807 1,590 14 % 5,500 4,473 23 % Consumer
Products 902 775 16 % 2,913 2,551 14 % Interactive 266 183
45 % 937 668 40 % $ 12,466 $ 11,578
8 % $ 36,424 $ 33,473 9 % Segment
operating income (loss): Media Networks $ 2,296 $ 2,300 — % $ 5,884
$ 5,376 9 % Parks and Resorts 848 689 23 % 1,976 1,649 20 % Studio
Entertainment 411 201 >100 % 1,295 553 >100 % Consumer
Products 273 219 25 % 977 765 28 % Interactive 29 (58 ) nm
98 (103 ) nm $ 3,857 $ 3,351 15 % $ 10,230
$ 8,240 24 %
Media Networks
Media Networks revenues for the quarter increased 3% to $5.5
billion and segment operating income was relatively flat at $2.3
billion. The following table provides further detail of the Media
Networks results (in millions):
Quarter Ended Nine Months Ended June
28,2014 June 29,2013 Change June 28,2014 June 29,2013
Change Revenues: Cable Networks $ 3,942 $ 3,884 1 % $ 11,334
$ 10,880 4 % Broadcasting 1,569 1,468 7 % 4,601
4,530 2 % $ 5,511 $ 5,352 3 % $ 15,935
$ 15,410 3 % Segment operating income: Cable Networks
$ 1,942 $ 2,087 (7 ) % $ 5,193 $ 4,763 9 % Broadcasting 354
213 66 % 691 613 13 % $ 2,296 $ 2,300
— % $ 5,884 $ 5,376 9 %
Cable Networks
Operating income at Cable Networks decreased 7% to $1.9 billion
for the quarter due to a decrease at ESPN, partially offset by an
increase at ABC Family. The decrease at ESPN was due to higher
programming and production costs, decreased recognition of
previously deferred revenue and the absence of ESPN UK, which was
sold in the fourth quarter of the prior year. These decreases were
partially offset by affiliate fee contractual rate increases and
higher advertising revenue. Programming and production costs
increases were driven by a contractual rate increase for Major
League Baseball and the addition of FIFA World Cup soccer,
partially offset by the absence of X Games events in the current
quarter. ESPN recognized $98 million less of previously deferred
revenue during the quarter as a result of changes in contractual
provisions related to annual programming commitments. ESPN
advertising revenue increased due to higher rates and more units
sold. Higher rates reflected the benefit of FIFA World Cup soccer
in the current quarter, partially offset by two less NBA finals
games this year. The increase at ABC Family was driven by lower
programming costs, reflecting fewer hours of original scripted
programming due to the timing of premieres, and higher affiliate
fees due to rate increases.
Broadcasting
Operating income at Broadcasting increased 66% to $354 million
for the quarter due to an increase in affiliate fees and higher
income from program sales. The increase in affiliate revenues was
due to contractual rate increases and new contractual provisions.
Increased operating income from program sales was driven by a lower
average expense amortization rate and higher revenues led by
Marvel's Agents of S.H.I.E.L.D.
Parks and Resorts
Parks and Resorts revenues for the quarter increased 8% to $4.0
billion and segment operating income increased 23% to $848 million.
Operating income growth for the quarter was driven by an increase
at our domestic operations, partially offset by a decrease at
Disneyland Paris. Parks and Resorts results include a favorable
impact due to a shift in the timing of the Easter holiday relative
to our fiscal periods.
Higher operating income at our domestic operations was due to
increased guest spending and higher attendance, partially offset by
higher costs. Guest spending growth reflected higher average ticket
prices for admissions at our theme parks and for sailings at our
cruise line and increased food, beverage and merchandise spending.
Higher costs were driven by MyMagic+ and labor and other cost
inflation, partially offset by lower pension and postretirement
medical costs.
The decrease in operating income at Disneyland Paris was due to
higher operating costs, decreased attendance and occupied room
nights and lower special event revenue, partially offset by higher
average ticket prices.
Studio Entertainment
Studio Entertainment revenues for the quarter increased 14% to
$1.8 billion and segment operating income increased to $411 million
from $201 million. Higher operating income was due to increases in
worldwide home entertainment and international theatrical
distribution, partially offset by a decrease in domestic theatrical
distribution.
The increase in worldwide home entertainment was driven by lower
per unit costs, higher net effective pricing and unit sales growth
reflecting the success of Frozen.
Higher international theatrical distribution results reflected
the performance of Frozen, Captain America 2: The Winter Soldier
and Maleficent in the current quarter compared to Iron Man 3,
Wreck-It-Ralph, Oz The Great and Powerful and Monsters University
in the prior-year quarter.
Lower results in domestic theatrical distribution were due to
the success of Iron Man 3 and Monsters University in the prior-year
quarter compared to Captain America 2: The Winter Soldier,
Maleficent and Million Dollar Arm in the current quarter.
Consumer Products
Consumer Products revenues for the quarter increased 16% to $902
million and segment operating income increased 25% to $273 million.
Higher operating income was due to increases at our Retail and
Merchandise Licensing businesses.
At our Retail business, higher operating income for the quarter
was driven by comparable store sales growth in all of our key
markets.
The increase in operating income at Merchandise Licensing was
due to the performance of merchandise based on Frozen, Disney
Channel properties, Spider-Man and Planes partially offset by lower
Monsters University revenue. Additionally, Merchandise Licensing
results benefited from lower acquisition accounting impacts, which
reduced revenue recognition in the prior-year quarter. These
increases were partially offset by higher third-party
royalties.
Interactive
Interactive revenues for the quarter increased 45% to $266
million and segment operating results improved from a loss of $58
million to income of $29 million. Improved results were due to
strong game sales growth, lower product development costs and
higher licensing fees from our mobile phone business in Japan. The
increase in game sales was driven by Disney Infinity, which was
released in the fourth quarter of the prior year, and the success
of the Tsum Tsum and Frozen Free Fall mobile games. The decrease in
product development costs was due to fewer titles in development
and the benefit of restructuring activities.
OTHER FINANCIAL INFORMATION
Corporate and Unallocated Shared
Expenses
Corporate and unallocated shared expenses increased $22 million
to $137 million primarily due to higher incentive compensation
costs, the timing of allocations to operating segments and higher
charitable contributions.
Interest Income/(Expense),
net
Interest income/(expense), net was as follows (in millions):
Quarter Ended June 28,2014 June 29,2013 Change
Interest expense $ (74 ) $ (93 ) 20 % Interest and investment
income 24 10 >100 % Interest income/(expense), net
$ (50 ) $ (83 ) 40 %
The decrease in interest expense for the quarter was primarily
due to lower effective interest rates, partially offset by higher
average debt balances. The increase in interest and investment
income for the quarter was primarily due to gains on sales of
investments.
Income Taxes
The effective income tax rate was as follows:
Quarter Ended June 28,2014 June 29,2013 Change
Effective Income Tax Rate 34.1 % 34.2 % 0.1 ppt
Noncontrolling Interests
Quarter Ended June 28,2014 June 29,2013 Change
Net income attributable to noncontrolling interests $ 174 $ 187 7 %
The decrease in net income attributable to noncontrolling
interests for the quarter was driven by a decrease in operating
results at ESPN.
Net income attributable to noncontrolling interests is
determined on income after royalties and management fees, financing
costs and income taxes.
Cash Flow
Cash provided by operations and free cash flow were as follows
(in millions):
Nine Months Ended June 28,2014 June 29,2013
Change Cash provided by operations $ 6,675 $ 6,717 $ (42 )
Investments in parks, resorts and other property (2,248 ) (1,809 )
(439 ) Free cash flow (1) $ 4,427 $ 4,908 $ (481 )
(1) Free cash flow is not a financial measure defined by GAAP.
See the discussion of non-GAAP financial measures that follows.
Cash provided by operations for the first nine months of fiscal
2014 was comparable to the first nine months of fiscal 2013 at $6.7
billion. The benefit from higher segment operating results was
offset by higher television programming and production spending,
increased income tax payments and a larger build in receivables at
Studio Entertainment and Media Networks. The increase in
receivables at Studio Entertainment was driven by higher revenues
due to Frozen while the increase at Media Networks was due to the
timing of collections.
Capital Expenditures and Depreciation
Expense
Investments in parks, resorts and other property were as follows
(in millions):
Nine Months Ended June 28,2014 June 29,2013 Media
Networks Cable Networks $ 101 $ 111 Broadcasting 52 43 Total
Media Networks 153 154 Parks and Resorts Domestic 809 752
International 1,056 623 Total Parks and Resorts 1,865
1,375 Studio Entertainment 44 41 Consumer Products 23 27
Interactive 3 11 Corporate 160 201 Total investments in
parks, resorts and other property $ 2,248 $ 1,809
Capital expenditures increased from $1.8 billion to $2.2 billion
due to higher construction spending for the Shanghai Disney
Resort.
Depreciation expense was as follows (in millions):
Nine Months Ended June 28,2014 June 29,2013 Media
Networks Cable Networks $ 101 $ 105 Broadcasting 70 74 Total
Media Networks 171 179 Parks and Resorts Domestic 832 781
International 259 242 Total Parks and Resorts 1,091
1,023 Studio Entertainment 37 39 Consumer Products 47 43
Interactive 7 13 Corporate 177 161 Total depreciation
expense $ 1,530 $ 1,458
Non-GAAP Financial
Measures
This earnings release presents EPS excluding the impact of
certain items affecting comparability, free cash flow and aggregate
segment operating income, all of which are important financial
measures for the Company, but are not financial measures defined by
GAAP.
These measures should be reviewed in conjunction with the
relevant GAAP financial measures and are not presented as
alternative measures of EPS, cash flow or net income as determined
in accordance with GAAP. EPS excluding certain items affecting
comparability, free cash flow and aggregate segment operating
income as we have calculated them may not be comparable to
similarly titled measures reported by other companies.
EPS excluding certain items affecting
comparability – The Company uses EPS excluding certain items
to evaluate the performance of the Company’s operations exclusive
of certain items affecting comparability of results from period to
period. The Company believes that information about EPS exclusive
of these impacts is useful to investors, particularly where the
impact of the excluded items is significant in relation to reported
earnings, because the measure allows for comparability between
periods of the operating performance of the Company’s business and
allows investors to evaluate the impact of these items separately
from the impact of the operations of the business.
The following table reconciles reported EPS to EPS excluding
certain items affecting comparability:
Quarter Ended Nine Months Ended June
28,2014 June 29,2013 Change June 28,2014 June 29,2013
Change Diluted EPS as reported $ 1.28 $ 1.01 27 % $ 3.40 $ 2.61 30
% Exclude: Restructuring and impairment charges (1) — 0.02 nm 0.03
0.04 (25 )% Favorable tax adjustments related to pre-tax earnings
of prior years — — nm — (0.06 ) nm Tax benefit from prior-year
foreign earnings indefinitely reinvested outside the United States
(2) — — nm — (0.04 ) nm Hulu Equity Redemption charge (3) — — nm —
0.02 nm Other income/(expense), net (4) — nm
0.01 0.04 (75 )% Diluted EPS excluding certain items
affecting comparability(5) $ 1.28 $ 1.03 24 % $ 3.43
$ 2.62 31 %
(1) Charges for the current quarter and nine-month period
totaled $0 million and $67 million (pre-tax), respectively, driven
by severance costs. Charges for the prior-year quarter and
nine-month period totaled $60 million and $121 million (pre-tax),
respectively, driven by severance costs.(2) The prior-year
nine-month period includes a tax benefit due to an increase in
prior-year earnings from foreign operations indefinitely reinvested
outside the United States and subject to tax rates lower than the
federal statutory income tax rate ($64 million).(3) Our share of
expense associated with an equity redemption at Hulu LLC ($55
million pre-tax).(4) Significant items in the current nine-month
period include a loss from Venezuelan foreign currency translation
($143 million pre-tax and before noncontrolling interest), a gain
on the sale of property ($77 million pre-tax) and income related to
a portion of a settlement of an affiliate contract dispute ($29
million pre-tax). Significant items in the prior-year nine-month
period include the Celador litigation charge ($321 million pre-tax)
and a gain on the sale of our interest in ESPN STAR Sports ($219
million pre-tax and before noncontrolling interest).(5) May not
equal the sum of the rows due to rounding.
Free cash flow – The Company uses
free cash flow (cash provided by operations less investments in
parks, resorts and other property), among other measures, to
evaluate the ability of its operations to generate cash that is
available for purposes other than capital expenditures. Management
believes that information about free cash flow provides investors
with an important perspective on the cash available to service
debt, make strategic acquisitions and investments and pay dividends
or repurchase shares.
Aggregate segment operating income
– The Company evaluates the performance of its operating segments
based on segment operating income, and management uses aggregate
segment operating income as a measure of the performance of
operating businesses separate from non-operating factors. The
Company believes that information about aggregate segment operating
income assists investors by allowing them to evaluate changes in
the operating results of the Company’s portfolio of businesses
separate from non-operational factors that affect net income, thus
providing separate insight into both operations and the other
factors that affect reported results.
A reconciliation of segment operating income to net income is as
follows (in millions):
Quarter Ended Nine Months Ended June 28,2014
June 29,2013 June 28,2014 June 29,2013 Segment operating
income $ 3,857 $ 3,351 $ 10,230 $ 8,240 Corporate and unallocated
shared expenses (137 ) (115 ) (408 ) (367 ) Restructuring and
impairment charges — (60 ) (67 ) (121 ) Other income/(expense), net
— — (31 ) (92 ) Interest income/(expense), net (50 ) (83 ) 61 (209
) Hulu Equity Redemption charge — — — (55 )
Income before income taxes 3,670 3,093 9,785 7,396 Income taxes
(1,251 ) (1,059 ) (3,406 ) (2,303 ) Net income $ 2,419 $
2,034 $ 6,379 $ 5,093
CONFERENCE CALL INFORMATION
In conjunction with this release, The Walt Disney Company will
host a conference call today, August 5, 2014, at 5:00 PM
EST/2:00 PM PST via a live Webcast. To access the Webcast go to
www.disney.com/investors. The
discussion will be available via replay through August 19, 2014 at
7:00 PM EDT/4:00 PM PDT.
FORWARD-LOOKING STATEMENTS
Management believes certain statements in this earnings release
may constitute “forward-looking statements” within the meaning of
the Private Securities Litigation Reform Act of 1995. These
statements are made on the basis of management’s views and
assumptions regarding future events and business performance as of
the time the statements are made. Management does not undertake any
obligation to update these statements.
Actual results may differ materially from those expressed or
implied. Such differences may result from actions taken by the
Company, including restructuring or strategic initiatives
(including capital investments or asset acquisitions or
dispositions), as well as from developments beyond the Company’s
control, including:
- changes in domestic and global economic
conditions, competitive conditions and consumer preferences;
- adverse weather conditions or natural
disasters;
- health concerns;
- international, political, or military
developments; and
- technological developments.
Such developments may affect travel and leisure businesses
generally and may, among other things, affect:
- the performance of the Company’s
theatrical and home entertainment releases;
- the advertising market for broadcast
and cable television programming;
- expenses of providing medical and
pension benefits;
- demand for our products; and
- performance of some or all company
businesses either directly or through their impact on those who
distribute our products.
Additional factors are set forth in the Company’s Annual Report
on Form 10-K for the year ended September 28, 2013 under
Item 1A, “Risk Factors,” and subsequent reports.
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF
INCOME
(unaudited; in millions, except per
share data)
Quarter Ended Nine Months Ended June 28,2014
June 29,2013 June 28,2014 June 29,2013 Revenues $ 12,466 $
11,578 $ 36,424 $ 33,473 Costs and expenses (8,968 ) (8,574 )
(27,280 ) (26,182 ) Restructuring and impairment charges — (60 )
(67 ) (121 ) Other income/(expense), net — — (31 ) (92 ) Interest
income/(expense), net (50 ) (83 ) 61 (209 ) Equity in the income of
investees 222 232 678 527 Income before
income taxes 3,670 3,093 9,785 7,396 Income taxes (1,251 ) (1,059 )
(3,406 ) (2,303 ) Net income 2,419 2,034 6,379 5,093 Less: Net
income attributable to noncontrolling interests (174 ) (187 ) (377
) (351 ) Net income attributable to The Walt Disney Company
(Disney) $ 2,245 $ 1,847 $ 6,002 $ 4,742
Earnings per share attributable to Disney: Diluted $
1.28 $ 1.01 $ 3.40 $ 2.61 Basic $ 1.30
$ 1.02 $ 3.43 $ 2.64 Weighted
average number of common and common equivalent shares outstanding:
Diluted 1,748 1,821 1,767 1,816 Basic
1,732 1,802 1,748 1,794
Dividends declared per share $ — $ — $ 0.86 $
0.75
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED BALANCE
SHEETS
(unaudited; in millions, except per
share data)
June 28,2014 September 28,2013 ASSETS Current assets
Cash and cash equivalents $ 4,090 $ 3,931 Receivables 7,543 6,967
Inventories 1,425 1,487 Television costs and advances 1,095 634
Deferred income taxes 480 485 Other current assets 572 605
Total current assets 15,205 14,109 Film and television costs
5,025 4,783 Investments 2,858 2,849 Parks, resorts and other
property Attractions, buildings and equipment 41,934 41,192
Accumulated depreciation (23,615 ) (22,459 ) 18,319 18,733 Projects
in progress 3,441 2,476 Land 1,253 1,171 23,013
22,380 Intangible assets, net 7,268 7,370 Goodwill 27,924 27,324
Other assets 2,430 2,426 Total assets $ 83,723
$ 81,241 LIABILITIES AND EQUITY Current liabilities
Accounts payable and other accrued liabilities $ 6,379 $ 6,803
Current portion of borrowings 3,216 1,512 Unearned royalties and
other advances 3,756 3,389 Total current liabilities
13,351 11,704 Borrowings 12,920 12,776 Deferred income taxes
4,360 4,050 Other long-term liabilities 4,480 4,561 Commitments and
contingencies Equity Preferred stock, $.01 par valueAuthorized –
100 million shares, Issued – none — — Common stock, $.01 par
valueAuthorized – 4.6 billion shares, Issued – 2.8 billion shares
34,123 33,440 Retained earnings 52,235 47,758 Accumulated other
comprehensive loss (1,169 ) (1,187 ) 85,189 80,011 Treasury stock,
at cost, 1.1 billion shares at June 28, 2014 and1.0 billion shares
at September 28, 2013 (39,669 ) (34,582 ) Total Disney
Shareholders' equity 45,520 45,429 Noncontrolling interests 3,092
2,721 Total equity 48,612 48,150 Total
liabilities and equity $ 83,723 $ 81,241
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(unaudited; in millions)
Nine Months Ended June 28,2014 June 29,2013 OPERATING
ACTIVITIES Net income $ 6,379 $ 5,093 Depreciation and amortization
1,698 1,633 Gains on sales of investments and dispositions (285 )
(245 ) Deferred income taxes 304 163 Equity in the income of
investees (678 ) (527 ) Cash distributions received from equity
investees 538 526 Net change in film and television costs and
advances (993 ) (357 ) Equity-based compensation 308 305 Other 33
249 Changes in operating assets and liabilities: Receivables (543 )
(3 ) Inventories 61 78 Other assets (73 ) (3 ) Accounts payable and
other accrued liabilities (288 ) (328 ) Income taxes 214 133
Cash provided by operations 6,675 6,717
INVESTING ACTIVITIES Investments in parks, resorts and other
property (2,248 ) (1,809 ) Sales of investments/proceeds from
dispositions 382 367 Acquisitions (402 ) (2,310 ) Other (24 ) 90
Cash used in investing activities (2,292 ) (3,662 )
FINANCING ACTIVITIES Commercial paper borrowings/(repayments), net
1,253 (2,000 ) Borrowings 2,180 3,900 Reduction of borrowings
(1,549 ) (817 ) Dividends (1,508 ) (1,324 ) Repurchases of common
stock (5,087 ) (2,694 ) Proceeds from exercise of stock options 348
518 Other 273 (19 ) Cash used in financing activities (4,090
) (2,436 ) Impact of exchange rates on cash and cash
equivalents (134 ) (74 ) Increase in cash and cash
equivalents 159 545 Cash and cash equivalents, beginning of period
3,931 3,387 Cash and cash equivalents, end of period
$ 4,090 $ 3,932
The Walt Disney CompanyZenia MuchaCorporate
Communications818-560-5300orLowell SingerInvestor
Relations818-560-6601
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