- Global success of Star Wars: The Force
Awakens drove record quarterly operating income at both Studio
Entertainment and Consumer Products & Interactive Media, which
grew at 86% and 23%, respectively.
- Strong domestic performance resulted in
22% operating income growth at Parks and Resorts.
- Underlying growth at Media Networks was
more than offset by the impact of the timing of College Football
Playoff bowl games.
The Walt Disney Company (NYSE: DIS) today reported
record quarterly earnings of $2.9 billion for its first fiscal
quarter ended January 2, 2016 compared to $2.2 billion for the
prior-year quarter. Diluted earnings per share (EPS) for the
quarter increased 36% to $1.73 from $1.27 in the prior-year
quarter. Excluding certain items affecting comparability(1), EPS
for the quarter increased 28% to $1.63.
“Driven by the phenomenal success of Star Wars, we delivered the
highest quarterly earnings in the history of our Company, marking
our 10th consecutive quarter of double-digit EPS growth,” said
Robert A. Iger, Chairman and Chief Executive Officer, The Walt
Disney Company. “We’re very pleased with our results, which
continue to validate our strategic focus and investments in brands
and franchises to drive long-term growth across the entire
Company.”
The following table summarizes the first quarter results for
fiscal 2016 and 2015 (in millions, except per share amounts):
Quarter Ended January 2,2016 December 27,2014
Change Revenues $ 15,244 $ 13,391 14 % Segment operating income (2)
$ 4,267 $ 3,545 20 % Net income (3) $ 2,880 $ 2,182 32 % Diluted
EPS (3) $ 1.73 $ 1.27 36 % Cash provided by operations $ 2,362 $
1,855 27 % Free cash flow (2) $ 956 $ 857 12 % (1) Items
affecting comparability during the quarter included the Company's
share of a net gain recognized by A&E Television Networks
(A&E) in connection with an acquisition of an interest in Vice
Group Holding, Inc. (Vice Gain) ($332 million), an investment
impairment ($54 million) and contract termination and severance
costs ($27 million) at our Media Networks segment. See
reconciliation of reported EPS to EPS excluding certain items
affecting comparability on page 8. (2) Segment operating income and
free cash flow are non-GAAP financial measures. See the discussion
on page 7 and 8. (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 first quarter segment
operating results for fiscal 2016 and 2015 (in millions):
Quarter Ended January 2,2016 December 27,2014
Change Revenues: Media Networks $ 6,332 $ 5,860 8 % Parks and
Resorts 4,281 3,910 9 % Studio Entertainment 2,721 1,858 46 %
Consumer Products & Interactive Media 1,910 1,763
8 % $ 15,244 $ 13,391 14 % Segment operating income:
Media Networks $ 1,412 $ 1,495 (6)% Parks and Resorts 981 805 22 %
Studio Entertainment 1,014 544 86 % Consumer Products &
Interactive Media 860 701 23 % $ 4,267 $ 3,545
20 %
Media Networks
Media Networks revenues for the quarter increased 8% to $6.3
billion, reflecting higher advertising and affiliate revenues, and
segment operating income decreased 6% to $1.4 billion. Advertising
revenue growth was due to an increase in units sold and higher
rates, partially offset by lower ratings. Affiliate revenue growth
was due to contractual rate increases, partially offset by a
decline in subscribers and unfavorable foreign currency translation
impacts.
The following table provides further detail of the Media
Networks results (in millions):
Quarter Ended January 2,2016 December 27,2014
Change Revenues: Cable Networks $ 4,521 $ 4,166 9 %
Broadcasting 1,811 1,694 7 % $ 6,332 $ 5,860
8 % Segment operating income: Cable Networks $ 1,189 $ 1,255
(5)% Broadcasting 223 240 (7)% $ 1,412 $ 1,495
(6)%
Cable Networks
Cable Networks revenues for the quarter increased 9% to $4.5
billion and operating income decreased 5% to $1.2 billion due to a
decrease at ESPN and lower equity income from A&E, partially
offset by growth at the domestic Disney Channels.
The decrease at ESPN was due to higher programming costs,
partially offset by an increase in advertising and affiliate
revenues. Results for the quarter were negatively impacted by the
timing of our fiscal quarter end relative to when College Football
Playoff (CFP) bowl games were played, which resulted in an increase
in programming costs and advertising revenues. Six CFP games were
aired in the current quarter that were aired in the second quarter
of the prior year. Increased programming costs due to the CFP games
as well as contractual rate increases for NFL and college football
programming were partially offset by the absence of rights costs
for NASCAR. Higher advertising revenue was due to an increase in
units sold and higher rates, both of which benefited from the CFP.
Affiliate revenue growth was due to contractual rate increases,
partially offset by a decline in subscribers and unfavorable
foreign currency translation impacts.
Lower equity income from A&E was due to lower advertising
revenue and higher programming costs.
The increase at the domestic Disney Channels was due to higher
program sales in the current quarter and affiliate revenue growth,
partially offset by higher programming costs. Increased programming
costs were driven by higher costs for original programming.
Broadcasting
Broadcasting revenues for the quarter increased 7% to $1.8
billion and operating income decreased 7% to $223 million due to
higher programming costs and an increase in equity losses from
Hulu, partially offset by advertising and affiliate revenue growth
and higher program sales. The increase in programming costs was due
to a higher average cost of new scripted programming and the costs
of airing New Year’s Eve specials that aired in the second quarter
of the prior year. Higher equity losses from Hulu were due to
increased programming and marketing costs driven by new content
offerings, partially offset by higher subscription and advertising
revenues. The increase in broadcasting advertising revenue was due
to higher units sold, higher rates and the airing of New Year’s Eve
specials. These increases were partially offset by lower network
ratings and a decrease in political advertising at the owned
television stations. Higher programming sales were driven by the
sale of Jessica Jones in the current quarter.
Parks and Resorts
Parks and Resorts revenues for the quarter increased 9% to $4.3
billion and segment operating income increased 22% to $981 million.
Operating income growth for the quarter was due to an increase at
our domestic operations, partially offset by a decrease at our
international operations. Parks and Resorts operating results
benefited from the timing of our fiscal quarter end relative to the
New Year’s holiday. The current quarter included one week of the
holiday period that fell in the second quarter of the prior
year.
Higher operating income at our domestic operations was due to
guest spending and attendance growth, partially offset by higher
costs. The increase in guest spending was due to higher average
ticket prices at our theme parks and cruise line, increased food,
beverage and merchandise spending and higher average hotel room
rates. Cost increases were due to labor and other cost inflation,
new guest offerings, higher depreciation associated with new
attractions at Walt Disney World Resort and expenses incurred for
the dry-dock of the Disney Dream in the current quarter.
Lower operating income at our international operations was due
to higher operating costs and lower attendance at Disneyland Paris
as well as higher pre-opening expenses at Shanghai Disney Resort.
Results at Disneyland Paris were impacted by the closure of the
park for four days in November 2015.
Studio Entertainment
Studio Entertainment revenues for the quarter increased 46% to
$2.7 billion and segment operating income increased 86% to $1.0
billion. Higher operating income was due to an increase in
theatrical distribution results, a higher revenue share with the
Consumer Products & Interactive Media segment, growth in
TV/SVOD distribution and increased home entertainment results.
These increases were partially offset by the impact of foreign
currency translation due to the strengthening of the U.S. dollar
against major currencies.
The increase in theatrical distribution results and higher
revenue share with the Consumer Products & Interactive Media
segment were due to the strong performance of Star Wars: The Force
Awakens in the current quarter. Higher TV/SVOD distribution results
were driven by international growth and the increase in home
entertainment results was due to sales of Star Wars Classic
titles.
Consumer Products & Interactive
Media
Consumer Products & Interactive Media revenues for the
quarter increased 8% to $1.9 billion and segment operating income
increased 23% to $860 million. Higher operating income was due to
growth at our Merchandise Licensing business and, to a lesser
extent, at our Publishing and Games businesses, partially offset by
a decrease at our Retail business and the impact of foreign
currency translation due to the strengthening of the U.S. dollar
against major currencies.
The increases at Merchandise Licensing and Publishing were due
to higher licensing revenues from the performance of Star Wars
merchandise and the timing of minimum guarantee shortfall
recognition at Merchandise Licensing. At Games, growth was due to
higher licensing revenue from the success of Star Wars:
Battlefront, partially offset by lower Disney Infinity results. The
decrease from Disney Infinity was due to higher inventory reserves
and lower unit sales volume. The decrease at Retail was due to
lower comparable store sales and margins in Europe and North
America as well as at our online business in North America,
reflecting strong sales of merchandise based on Frozen in the
prior-year quarter, partially offset by current quarter sales of
Star Wars merchandise.
OTHER FINANCIAL INFORMATION
Corporate and Unallocated Shared
Expenses
Corporate and unallocated shared expenses increased $11 million
to $136 million in the current quarter primarily due to higher
compensation costs.
Interest Expense, net
Interest expense, net was as follows (in millions):
Quarter Ended January 2,2016 December 27,2014
Change Interest expense $ (66 ) $ (69 )
4
%
Interest and investment income 42 11
>100
%
Interest expense, net $ (24 ) $ (58 )
59
%
The increase in interest and investment income for the quarter
was due to gains on sales of investments.
Equity in the Income of
Investees
Equity in the income of investees was as follows (in
millions):
Quarter Ended January 2,2016 December 27,2014
Change Equity in the income of investees $ 474 $ 212 >100 %
The increase in equity in the income of investees was driven by
the Vice Gain which totaled $332 million, partially offset by lower
operating results at Hulu and A&E. The Vice Gain has been
excluded from segment operating income.
Income Taxes
The effective income tax rate was as follows:
Quarter Ended January 2,2016 December 27,2014
Change Effective income tax rate 33.2% 33.3% 0.1 ppt
Noncontrolling Interests
Quarter Ended (in millions) January 2,2016
December 27,2014 Change Net income attributable to noncontrolling
interests $ 30 $ 62
52 %
The decrease in net income attributable to noncontrolling
interests for the quarter was due to lower results at Disneyland
Paris and higher pre-opening expenses at Shanghai Disney
Resort.
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):
Quarter Ended January 2,2016 December 27,2014
Change Cash provided by operations $ 2,362 $ 1,855 $ 507
Investments in parks, resorts and other property (1,406 ) (998 )
(408 ) Free cash flow (1) $ 956 $ 857 $ 99
(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 quarter of fiscal 2016
increased 27% or $0.5 billion to $2.4 billion compared to the first
quarter of fiscal 2015. The increase in cash provided by operations
reflected higher segment operating results, partially offset by an
increase in receivables at Studio Entertainment driven by revenue
from Star Wars: The Force Awakens.
Capital Expenditures and Depreciation
Expense
Investments in parks, resorts and other property were as follows
(in millions):
Quarter Ended January 2,2016 December 27,2014 Media
Networks Cable Networks $ 27 $ 15 Broadcasting 30 7 Total
Media Networks 57 22 Parks and Resorts Domestic 627 239
International 607 638 Total Parks and Resorts 1,234
877 Studio Entertainment 27 24 Consumer Products & Interactive
Media 13 5 Corporate 75 70 Total investments in parks,
resorts and other property $ 1,406 $ 998
Capital expenditures increased from $1.0 billion to $1.4 billion
primarily due to higher construction spending for new attractions
at Walt Disney World Resort, Disneyland Resort and Hong Kong
Disneyland Resort, partially offset by lower construction spending
for the Shanghai Disney Resort.
Depreciation expense was as follows (in millions):
Quarter Ended January 2,2016 December 27,2014 Media
Networks Cable Networks $ 37 $ 37 Broadcasting 21 21 Total
Media Networks 58 58 Parks and Resorts Domestic 318 297
International 84 89 Total Parks and Resorts 402 386
Studio Entertainment 13 14 Consumer Products & Interactive
Media 14 16 Corporate 63 61 Total depreciation expense $ 550
$ 535
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 items 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 the excluded 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 January 2,2016 December 27,2014
Change EPS as reported $ 1.73 $ 1.27
36 %
Exclude: Vice Gain (0.13 ) — nm Restructuring and impairment
charges(1) 0.03 — nm EPS excluding certain items
affecting comparability(2) $ 1.63 $ 1.27
28 %
(1) Charges for the quarter totaled $81 million (pre-tax),
driven by an investment impairment ($54 million pre-tax) and
contract termination and severance costs ($27 million pre-tax) at
our Media Networks segment. (2) 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 January 2,2016 December 27,2014 Segment
operating income $ 4,267 $ 3,545 Corporate and unallocated shared
expenses (136 ) (125 ) Restructuring and impairment charges (81 ) —
Interest expense, net (24 ) (58 ) Vice Gain 332 —
Income before income taxes 4,358 3,362 Income taxes (1,448 ) (1,118
) Net income $ 2,910 $ 2,244
CONFERENCE CALL INFORMATION
In conjunction with this release, The Walt Disney Company will
host a conference call today, February 9, 2016, 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 February 23, 2016
at 7:00 PM EST/4:00 PM PST.
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 October 3, 2015 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 January 2,2016 December
27,2014 Revenues: Services $ 12,622 $ 10,727 Products 2,622
2,664 Total revenues 15,244 13,391 Costs and expenses: Cost
of services (exclusive of depreciation and amortization) (7,056 )
(6,134 ) Cost of products (exclusive of depreciation and
amortization) (1,567 ) (1,522 ) Selling, general, administrative
and other (2,025 ) (1,935 ) Depreciation and amortization (607 )
(592 ) Total costs and expenses (11,255 ) (10,183 ) Restructuring
and impairment charges (81 ) — Interest expense, net (24 ) (58 )
Equity in the income of investees 474 212 Income
before income taxes 4,358 3,362 Income taxes (1,448 ) (1,118 ) Net
income 2,910 2,244 Less: Net income attributable to noncontrolling
interests (30 ) (62 ) Net income attributable to The Walt Disney
Company (Disney) $ 2,880 $ 2,182 Earnings per
share attributable to Disney: Diluted $ 1.73 $ 1.27
Basic $ 1.74 $ 1.28 Weighted average
number of common and common equivalent shares outstanding: Diluted
1,668 1,717 Basic 1,654 1,700
Dividends declared per share $ 0.71 $ 1.15
THE WALT DISNEY COMPANY CONDENSED
CONSOLIDATED BALANCE SHEETS (unaudited; in millions, except
per share data) January 2,2016 October 3,2015 ASSETS
Current assets Cash and cash equivalents $ 4,301 $ 4,269
Receivables 10,298 8,019 Inventories 1,434 1,571 Television costs
and advances 811 1,170 Deferred income taxes — 767 Other current
assets 924 962 Total current assets 17,768 16,758
Film and television costs 6,330 6,183 Investments 3,268 2,643
Parks, resorts and other property Attractions, buildings and
equipment 42,937 42,745 Accumulated depreciation (25,179 ) (24,844
) 17,758 17,901 Projects in progress 6,485 6,028 Land 1,244
1,250 25,487 25,179 Intangible assets, net 7,104 7,172
Goodwill 27,818 27,826 Other assets 2,346 2,421 Total
assets $ 90,121 $ 88,182 LIABILITIES AND
EQUITY Current liabilities Accounts payable and other accrued
liabilities $ 9,320 $ 7,844 Current portion of borrowings 5,950
4,563 Unearned royalties and other advances 3,526 3,927
Total current liabilities 18,796 16,334 Borrowings
12,965 12,773 Deferred income taxes 3,874 4,051 Other long-term
liabilities 6,288 6,369 Commitments and contingencies Equity
Preferred stock, $.01 par value, Authorized – 100 million shares,
Issued – none — — Common stock, $.01 par value, Authorized – 4.6
billion shares, Issued – 2.9 billionshares at January 2, 2016 and
2.8 billion shares at October 3, 2015 35,249 35,122 Retained
earnings 60,734 59,028 Accumulated other comprehensive loss (2,469
) (2,421 ) 93,514 91,729 Treasury stock, at cost, 1.2 billion
shares (49,556 ) (47,204 ) Total Disney Shareholders’ equity 43,958
44,525 Noncontrolling interests 4,240 4,130 Total
equity 48,198 48,655 Total liabilities and equity $
90,121 $ 88,182
THE WALT DISNEY
COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in millions) Quarter Ended January 2,2016
December 27,2014 OPERATING ACTIVITIES Net income $ 2,910 $
2,244 Depreciation and amortization 607 592 Gains on sales of
investments (27 ) — Deferred income taxes 551 290 Equity in the
income of investees (474 ) (212 ) Cash distributions received from
equity investees 206 197 Net change in film and television costs
and advances 705 114 Equity-based compensation 106 104 Other 144
171 Changes in operating assets and liabilities: Receivables (2,358
) (1,027 ) Inventories 134 92 Other assets 91 (44 ) Accounts
payable and other accrued liabilities (891 ) (1,283 ) Income taxes
658 617 Cash provided by operations 2,362
1,855 INVESTING ACTIVITIES Investments in parks,
resorts and other property (1,406 ) (998 ) Sales of investments 40
— Acquisitions (400 ) — Other (32 ) 7 Cash used in investing
activities (1,798 ) (991 ) FINANCING ACTIVITIES Commercial
paper borrowings, net 1,907 2,747 Borrowings 382 69 Reduction of
borrowings (564 ) (1,098 ) Repurchases of common stock (2,352 )
(1,303 ) Proceeds from exercise of stock options 52 65
Contributions from noncontrolling interest holders — 351 Other 107
66 Cash (used in)/provided by financing activities
(468 ) 897 Impact of exchange rates on cash and cash
equivalents (64 ) (105 ) Change in cash and cash equivalents
32 1,656 Cash and cash equivalents, beginning of period 4,269
3,421 Cash and cash equivalents, end of period $
4,301 $ 5,077
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version on businesswire.com: http://www.businesswire.com/news/home/20160209006737/en/
The Walt Disney CompanyZenia MuchaCorporate
Communications818-560-5300orLowell SingerInvestor
Relations818-560-6601
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