The Walt Disney Company (NYSE: DIS) today reported quarterly
earnings of $2.1 billion for its second fiscal quarter ended
April 2, 2016, an increase of $35 million over the prior-year
quarter. Diluted earnings per share (EPS) for the quarter increased
6% to $1.30 from $1.23 in the prior-year quarter. Excluding certain
items affecting comparability(1), EPS for the quarter increased 11%
to $1.36. EPS for the six months ended April 2, 2016 increased
22% to $3.04 from $2.50 in the prior-year period. Excluding certain
items affecting comparability(1), EPS for the six months increased
20%.
“We’re very pleased with our overall results in Q2, which marks
our 11th consecutive quarter of double-digit growth in adjusted
EPS,” said Robert A. Iger, chairman and chief executive officer,
The Walt Disney Company. “Our Studio’s unprecedented winning streak
at the box office underscores the incredible appeal of our branded
content, which we continue to leverage across the entire company to
drive significant value. Looking forward, we are thrilled with the
Studio’s slate and tremendously excited about the June 16th grand
opening of the spectacular Shanghai Disney Resort.”
The following table summarizes the second quarter and six-month
results for fiscal 2016 and 2015 (in millions, except per share
amounts):
Quarter Ended Six Months Ended April
2,2016 March 28,2015 Change April 2,2016 March
28,2015 Change Revenues $ 12,969 $ 12,461 4 % $ 28,213 $ 25,852 9 %
Segment operating income (2) $ 3,822 $ 3,482 10 % $ 8,089 $ 7,027
15 % Net income (3) $ 2,143 $ 2,108 2 % $ 5,023 $ 4,290 17 %
Diluted EPS (3) $ 1.30 $ 1.23 6 % $ 3.04 $ 2.50 22 % Cash provided
by operations $ 3,400 $ 2,918 17 % $ 5,762 $ 4,773 21 % Free cash
flow (2) $ 2,250 $ 2,011 12 % $ 3,206 $ 2,868 12 %
(1)
Items affecting comparability during the quarter
ended April 2, 2016 included a $147 million charge in connection
with the discontinuation of our self-published console games
business, principally Infinity (Infinity Charge). For the six
months ended April 2, 2016, items affecting comparability 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), the
Infinity Charge, an investment impairment ($54 million) and
contract termination and severance costs ($27 million). These items
had a net favorable impact of $104 million. See the 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 second quarter and six-month
segment operating results for fiscal 2016 and 2015 (in
millions):
Quarter Ended Six Months Ended April
2,2016 March 28,2015 Change April 2,2016 March
28,2015 Change Revenues: Media Networks $ 5,793 $ 5,810 -- % $
12,125 $ 11,670 4 % Parks and Resorts 3,928 3,760 4 % 8,209 7,670 7
% Studio Entertainment 2,062 1,685 22 % 4,783 3,543 35 % Consumer
Products &
Interactive Media
1,186 1,206 (2 )% 3,096 2,969 4 % $
12,969 $ 12,461 4 % $ 28,213 $ 25,852 9
% Segment operating income: Media Networks $ 2,299 $ 2,101 9 % $
3,711 $ 3,596 3 % Parks and Resorts 624 566 10 % 1,605 1,371 17 %
Studio Entertainment 542 427 27 % 1,556 971 60 % Consumer Products
&
Interactive Media
357 388 (8 )% 1,217 1,089 12 % $ 3,822
$ 3,482 10 % $ 8,089 $ 7,027 15 %
Media Networks
Media Networks revenues for the quarter were relatively flat at
$5.8 billion and segment operating income increased 9% to $2.3
billion.
The following table provides further detail of the Media
Networks results (in millions):
Quarter Ended Six Months Ended April
2,2016 March 28,2015 Change April 2,2016 March
28,2015 Change Revenues: Cable Networks $ 3,955 $ 4,030 (2
)% $ 8,476 $ 8,196 3 % Broadcasting 1,838 1,780 3 %
3,649 3,474 5 % $ 5,793 $ 5,810
--
%
$ 12,125 $ 11,670 4 % Segment operating income: Cable
Networks $ 2,021 $ 1,799 12 % $ 3,210 $ 3,054 5 % Broadcasting 278
302 (8 )% 501 542 (8 )% $ 2,299
$ 2,101 9 % $ 3,711 $ 3,596 3 %
Cable Networks
Cable Networks revenues for the quarter decreased 2% to $4.0
billion and operating income increased 12% to $2.0 billion due to
an increase at ESPN, partially offset by lower equity income from
A&E.
The increase at ESPN was due to the benefit of lower programming
costs and higher affiliate revenues, partially offset by a decrease
in advertising revenue. Results for the quarter benefited from the
timing of our fiscal quarter end relative to when College Football
Playoff (CFP) bowl games were played, which resulted in a decrease
in programming costs and advertising revenue. One CFP game was
aired in the current quarter, whereas seven CFP games were aired in
the second quarter of the prior year. Affiliate revenue growth was
due to contractual rate increases, partially offset by a decline in
subscribers. Lower advertising revenue was due to lower ratings and
rates, which were negatively impacted by the timing of CFP bowl
games, partially offset by higher units sold.
Lower equity income from A&E was due to a decrease in
advertising revenue, higher programming costs and a negative impact
from the conversion of the H2 channel to Viceland as Viceland is in
a start-up phase.
Broadcasting
Broadcasting revenues for the quarter increased 3% to $1.8
billion and operating income decreased 8% to $278 million due to
lower operating income from program sales and higher programming
and marketing costs, partially offset by advertising and affiliate
revenue growth. Lower operating income from program sales was due
to a significant SVOD sale in the prior-year quarter and a higher
cost mix of programs sold in the current quarter. The increase in
programming costs was due to a higher average cost of new scripted
programming and increased program cost write-offs. The increase in
network advertising revenue was due to higher rates, partially
offset by lower ratings. Affiliate revenue growth was primarily due
to contractual rate increases.
Parks and Resorts
Parks and Resorts revenues for the quarter increased 4% to $3.9
billion and segment operating income increased 10% to $624 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. The current quarter reflected an
offsetting impact from a shift in the timing of the New Year’s and
Easter holidays relative to our fiscal periods. The current quarter
was adversely impacted by the absence of several days of the New
Year’s holiday, which occurred in the second quarter of the prior
year. This impact was essentially offset by the benefit of the
two-week Easter holiday, which occurred in the second quarter of
the current year compared to the third quarter of the prior
year.
Higher operating income at our domestic operations was due to
guest spending 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 and higher
depreciation associated with new attractions. Attendance at our
domestic theme parks was relatively flat, as an increase at
Disneyland Resort was offset by a modest decrease at Walt Disney
World Resort.
Lower operating income at our international operations was due
to higher pre-opening expenses at Shanghai Disney Resort, increased
operating costs at Disneyland Paris and lower volume at Hong Kong
Disneyland Resort, partially offset by higher guest spending at
Disneyland Paris.
Studio Entertainment
Studio Entertainment revenues for the quarter increased 22% to
$2.1 billion and segment operating income increased 27% to $542
million. Higher operating income was due to an increase in
theatrical distribution results and growth in TV/SVOD distribution,
partially offset by the impact of foreign currency translation due
to the strengthening of the U.S. dollar against major currencies,
decreased home entertainment results and higher film cost
impairments.
The increase in theatrical distribution results was due to the
strong performance of Star Wars: The Force Awakens and Zootopia in
the current quarter compared to the continuing performance in the
prior-year quarter of Big Hero 6 and Into the Woods, both of which
were released domestically in the first quarter of the prior year.
Higher TV/SVOD distribution results were driven by international
growth. The decrease in home entertainment results was primarily
due to lower unit sales reflecting the performance of Big Hero 6,
Frozen and Marvel’s Guardians of the Galaxy in the prior-year
quarter compared to The Good Dinosaur, Inside Out and Marvel’s
Ant-Man in the current quarter. The decrease from lower unit sales
was partially offset by the benefit from Star Wars Classic titles
that are distributed by a third party.
Consumer Products & Interactive
Media
Consumer Products & Interactive Media revenues for the
quarter decreased 2% to $1.2 billion and segment operating income
decreased 8% to $357 million. Lower operating income was primarily
due to the impact of foreign currency translation due to the
strengthening of the U.S. dollar against major currencies, lower
operating margins and comparable store sales at our retail business
and lower results for Infinity. These decreases were partially
offset by higher licensing revenues.
Increased licensing revenues were driven by higher revenue from
Star Wars merchandise, partially offset by an adverse impact from
the timing of minimum guarantee shortfall recognition and a
decrease in revenue from merchandise based on Frozen.
OTHER FINANCIAL INFORMATION
Corporate and Unallocated Shared
Expenses
Corporate and unallocated shared expenses decreased $8 million
to $162 million in the current quarter primarily due to the timing
of allocations to operating segments.
Interest income/(expense),
net
Interest income/(expense), net was as follows (in millions):
Quarter Ended April 2,2016 March 28,2015
Change Interest expense $ (81 ) $ (66 ) (23 )% Interest and
investment income 14 74 (81 )% Interest
income/(expense), net $ (67 ) $ 8 Nm
The increase in interest expense for the quarter was due to
higher average debt balances, partially offset by higher
capitalized interest driven by the continued development of the
Shanghai Disney Resort.
The decrease in interest and investment income for the quarter
was due to gains on sales of investments in the prior-year
quarter.
Income Taxes
The effective income tax rate was as follows:
Quarter Ended April 2,2016 March 28,2015
Change Effective income tax rate 34.0 % 32.9 % (1.1 ) ppt
The increase in the effective income tax rate for the quarter
was due to a shift in the mix of earnings between domestic and
foreign tax jurisdictions, including foreign losses for which we
cannot recognize a tax benefit.
Noncontrolling Interests
Quarter Ended (in millions) April 2,2016 March
28,2015 Change Net income attributable to noncontrolling interests
$ 133 $ 120 (11 )%
The increase in net income attributable to noncontrolling
interests for the quarter was primarily due to higher results at
ESPN, partially offset by 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):
Six Months Ended April 2,2016 March 28,2015
Change Cash provided by operations $ 5,762 $ 4,773 $ 989
Investments in parks, resorts and other property (2,556 ) (1,905 )
(651 ) Free cash flow (1) $ 3,206 $ 2,868 $ 338
(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 six months of fiscal
2016 increased 21% or $1.0 billion to $5.8 billion compared to the
first six months of fiscal 2015. The increase in cash provided by
operations reflected higher segment operating results, partially
offset by higher pension and postretirement medical contributions,
an increase in receivables at Studio Entertainment driven by higher
revenues in the current period due to Zootopia and Star Wars: The
Force Awakens compared to Big Hero 6 and Cinderella in the
prior-year period and higher television production spending.
Capital Expenditures and Depreciation
Expense
Investments in parks, resorts and other property were as follows
(in millions):
Six Months Ended April 2,2016 March 28,2015 Media
Networks Cable Networks $ 33 $ 26 Broadcasting 44 20 Total
Media Networks 77 46 Parks and Resorts Domestic 1,131 606
International 1,172 1,054 Total Parks and Resorts 2,303
1,660 Studio Entertainment 44 52 Consumer Products &
Interactive Media 20 26 Corporate 112 121 Total investments
in parks, resorts and other property $ 2,556 $ 1,905
Capital expenditures increased from $1.9 billion to $2.6 billion
primarily due to higher construction spending at Walt Disney World
Resort, Hong Kong Disneyland Resort and Disneyland Resort.
Depreciation expense was as follows (in millions):
Six Months Ended April 2,2016 March 28,2015 Media
Networks Cable Networks $ 74 $ 75 Broadcasting 45 47 Total
Media Networks 119 122 Parks and Resorts Domestic 636 586
International 170 174
Total Parks and Resorts
806 760 Studio Entertainment 24 28 Consumer Products &
Interactive Media 30 33 Corporate 124 122 Total depreciation
expense $ 1,103 $ 1,065
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 Six Months Ended April
2,2016 March 28,2015 Change April 2,2016 March
28,2015 Change EPS as reported $ 1.30 $ 1.23 6 % $ 3.04 $ 2.50 22 %
Exclude: Vice Gain — — nm (0.13 ) — nm Infinity Charge 0.06 — nm
0.06 — nm Restructuring and impairment charges(1) — —
nm 0.03 — nm EPS excluding certain items affecting
comparability(2) $ 1.36 $ 1.23 11 % $ 3.00 $
2.50 20 %
(1)
Charges for the six month period 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 Six Months Ended April 2,2016
March 28,2015 April 2,2016 March 28,2015 Segment operating
income $ 3,822 $ 3,482 $ 8,089 $ 7,027 Corporate and unallocated
shared expenses (162 ) (170 ) (298 ) (295 ) Restructuring and
impairment charges — — (81 ) — Interest income/(expense), net (67 )
8 (91 ) (50 ) Vice Gain — — 332 — Infinity Charge(1) (147 ) —
(147 ) — Income before income taxes 3,446 3,320 7,804
6,682 Income taxes (1,170 ) (1,092 ) (2,618 ) (2,210 ) Net income $
2,276 $ 2,228 $ 5,186 $ 4,472
(1)
The Infinity Charge was primarily due to an inventory
write-down. The charge also included severance and other asset
impairments and was reported in "Cost of products" in the Condensed
Consolidated Statement of Income.
CONFERENCE CALL INFORMATION
In conjunction with this release, The Walt Disney Company will
host a conference call today, May 10, 2016, at 5:00 PM
EDT/2:00 PM PDT via a live Webcast. To access the Webcast go to
www.disney.com/investors. The
discussion will be available via replay through May 24, 2016 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 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 Six Months Ended April
2,2016 March 28,2015 April 2,2016 March 28,2015
Revenues: Services $ 11,171 $ 10,552 $ 23,793 $ 21,279 Products
1,798 1,909 4,420 4,573 Total revenues
12,969 12,461 28,213 25,852 Costs and expenses: Cost of services
(exclusive of depreciation and amortization) (5,566 ) (5,543 )
(12,622 ) (11,677 ) Cost of products (exclusive of depreciation and
amortization) (1,298 ) (1,147 ) (2,865 ) (2,669 ) Selling, general,
administrative and other (2,137 ) (2,081 ) (4,162 ) (4,016 )
Depreciation and amortization (605 ) (584 ) (1,212 ) (1,176 ) Total
costs and expenses (9,606 ) (9,355 ) (20,861 ) (19,538 )
Restructuring and impairment charges — — (81 ) — Interest
income/(expense), net (67 ) 8 (91 ) (50 ) Equity in the income of
investees 150 206 624 418 Income before
income taxes 3,446 3,320 7,804 6,682 Income taxes (1,170 ) (1,092 )
(2,618 ) (2,210 ) Net income 2,276 2,228 5,186 4,472 Less: Net
income attributable to noncontrolling interests (133 ) (120 ) (163
) (182 ) Net income attributable to The Walt Disney Company
(Disney) $ 2,143 $ 2,108 $ 5,023 $ 4,290
Earnings per share attributable to Disney: Diluted $
1.30 $ 1.23 $ 3.04 $ 2.50 Basic
$ 1.31 $ 1.24 $ 3.06 $ 2.52
Weighted average number of common and common equivalent shares
outstanding: Diluted 1,643 1,715 1,655 1,716
Basic 1,633 1,699 1,643 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) April 2,2016
October 3,2015 ASSETS Current assets Cash and cash equivalents $
5,015 $ 4,269 Receivables 8,874 8,019 Inventories 1,352 1,571
Television costs and advances 977 1,170 Deferred income taxes — 767
Other current assets 781 962 Total current assets
16,999 16,758 Film and television costs 6,484 6,183 Investments
3,247 2,643 Parks, resorts and other property Attractions,
buildings and equipment 43,577 42,745 Accumulated depreciation
(25,857 ) (24,844 ) 17,720 17,901 Projects in progress 7,454 6,028
Land 1,247 1,250 26,421 25,179 Intangible assets, net
7,052 7,172 Goodwill 27,817 27,826 Other assets 2,244 2,421
Total assets $ 90,264 $ 88,182
LIABILITIES AND EQUITY Current liabilities Accounts payable and
other accrued liabilities $ 7,252 $ 7,844 Current portion of
borrowings 5,755 4,563 Unearned royalties and other advances 4,066
3,927 Total current liabilities 17,073 16,334
Borrowings 15,367 12,773 Deferred income taxes 4,044 4,051 Other
long-term liabilities 5,770 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 April 2, 2016
and 2.8 billion shares at October 3, 2015 35,448 35,122 Retained
earnings 62,870 59,028 Accumulated other comprehensive loss (2,599
) (2,421 ) 95,719 91,729 Treasury stock, at cost, 1.2 billion
shares (51,595 ) (47,204 ) Total Disney Shareholders’ equity 44,124
44,525 Noncontrolling interests 3,886 4,130 Total
equity 48,010 48,655 Total liabilities and equity $
90,264 $ 88,182
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in millions) Six Months Ended April
2,2016 March 28,2015 OPERATING ACTIVITIES Net income $ 5,186
$ 4,472 Depreciation and amortization 1,212 1,176 Gains on sales of
investments (27 ) (56 ) Deferred income taxes 797 202 Equity in the
income of investees (624 ) (418 ) Cash distributions received from
equity investees 383 349 Net change in film and television costs
and advances 35 (33 ) Equity-based compensation 205 213 Other 124
175 Changes in operating assets and liabilities: Receivables (542 )
(208 ) Inventories 218 129 Other assets 63 (110 ) Accounts payable
and other accrued liabilities (746 ) (847 ) Income taxes (522 )
(271 ) Cash provided by operations 5,762 4,773
INVESTING ACTIVITIES Investments in parks, resorts and other
property (2,556 ) (1,905 ) Sales of investments 42 81 Acquisitions
(400 ) — Other (124 ) (3 ) Cash used in investing activities (3,038
) (1,827 ) FINANCING ACTIVITIES Commercial paper borrowings,
net 709 1,954 Borrowings 3,766 117 Reduction of borrowings (626 )
(1,953 ) Dividends (1,168 ) (1,948 ) Repurchases of common stock
(4,391 ) (1,788 ) Proceeds from exercise of stock options 160 235
Contributions from noncontrolling interest holders — 829 Other (431
) 209 Cash used in financing activities (1,981 ) (2,345 )
Impact of exchange rates on cash and cash equivalents 3
(277 ) Change in cash and cash equivalents 746 324
Cash and cash equivalents, beginning of period 4,269 3,421
Cash and cash equivalents, end of period $ 5,015 $
3,745
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The Walt Disney CompanyZenia MuchaCorporate
Communications818-560-5300orLowell SingerInvestor
Relations818-560-6601
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