The Walt Disney Company (NYSE: DIS) today reported quarterly
earnings for its second fiscal quarter ended March 30, 2019.
Diluted earnings per share (EPS) from continuing operations for the
quarter increased 81% to $3.53 from $1.95 in the prior-year
quarter. Excluding certain items affecting comparability(1), EPS
for the quarter decreased 13% to $1.61 from $1.84 in the prior-year
quarter. EPS from continuing operations for the six months ended
March 30, 2019 increased to $5.42 from $4.86 in the prior-year
period. Excluding certain items affecting comparability(1), EPS for
the six months decreased 8% to $3.45 from $3.73 in the prior-year
period.
“We’re very pleased with our Q2 results and thrilled with the
record-breaking success of Avengers: Endgame, which is now the
second-highest grossing film of all time and will stream
exclusively on Disney+ starting December 11th,” said Robert A.
Iger, Chairman and Chief Executive Officer, The Walt Disney
Company. “The positive response to our direct-to-consumer
strategy has been gratifying, and the integration of the businesses
we acquired from 21st Century Fox only increases our confidence in
our ability to leverage decades of iconic storytelling and the
powerful creative engines across the entire company to deliver an
extraordinary value proposition to consumers.”
On March 20, 2019, the Company acquired Twenty-First Century Fox
(21CF) for cash and the issuance of 307 million shares. Results for
the current quarter and six months reflect the consolidation of 11
days of 21CF and Hulu LLC (Hulu) activities. Revenue for 21CF for
the 11 days totaled $373 million and operating income was $25
million.
The following table summarizes the second quarter and six-month
results for fiscal 2019 and 2018 (in millions, except per share
amounts):
Quarter Ended Six Months Ended March
30,2019 March 31,2018 Change March 30,2019 March
31,2018 Change Revenues $ 14,922 $ 14,548 3 % $ 30,225 $ 29,899 1 %
Segment operating income (1) $ 3,816 $ 4,237 (10 )% $ 7,471 $ 8,223
(9 )% Net income from continuing operations (2) $ 5,431 $ 2,937 85
% $ 8,219 $ 7,360 12 % Diluted EPS from continuing operations (2) $
3.53 $ 1.95 81 % $ 5.42 $ 4.86 12 % EPS excluding certain items
affecting comparability (1) $ 1.61 $ 1.84 (13 )% $ 3.45 $ 3.73 (8
)% Cash provided by continuing operations $ 3,915 $ 4,526 (13 )% $
6,014 $ 6,763 (11 )% Free cash flow (1) $ 2,720 $ 3,463 (21 )% $
3,624 $ 4,719 (23 )% (1) EPS excluding certain
items affecting comparability, segment operating income and free
cash flow are non-GAAP financial measures. See the discussion on
pages 9 through 12. The most significant item affecting
comparability for the current quarter and six-months period was a
non-cash gain recognized in connection with the acquisition of a
controlling interest in Hulu (Hulu gain), see page 10. The most
significant item affecting comparability for the prior-year quarter
and six-months period was a net benefit from new U.S. federal
income tax legislation (Tax Act). (2) 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 2019 and 2018 (in millions).
21CF operating results for the current period are not included in
our historical segments. Hulu operating results, including the 11
day period of consolidation and the periods Hulu was accounted for
as an equity method investment, are reported in our
Direct-to-Consumer & International segment:
Quarter Ended Six Months Ended March
30,2019 March 31,2018 Change March 30,2019 March
31,2018 Change Revenues: Media Networks $ 5,525 $ 5,508
—
% $ 11,446 $ 11,063 3 % Parks, Experiences and Products 6,169 5,903
5 % 12,993 12,430 5 % Studio Entertainment 2,134 2,499 (15 )% 3,958
5,008 (21 )% Direct-to-Consumer & International 955 831 15 %
1,873 1,762 6 % 21CF 373
—
nm 373 — nm Eliminations (234 ) (193 ) (21 )% (418 ) (364 ) (15 )%
$ 14,922 $ 14,548 3 % $ 30,225 $ 29,899
1 % Segment operating income/(loss): Media Networks $ 2,185 $ 2,258
(3 )% $ 3,515 $ 3,501
—
% Parks, Experiences and Products 1,506 1,309 15 % 3,658 3,263 12 %
Studio Entertainment 534 874 (39 )% 843 1,699 (50 )%
Direct-to-Consumer & International (393 ) (188 ) >(100)%
(529 ) (230 ) >(100)% 21CF 25 — nm 25 — nm Eliminations (41 )
(16 ) >(100)% (41 ) (10 ) >(100)% $ 3,816 $ 4,237
(10 )% $ 7,471 $ 8,223 (9 )%
Media Networks
Media Networks revenues for the quarter were comparable to the
prior-year quarter at $5.5 billion and segment operating income
decreased 3% to $2.2 billion.
The following table provides further detail of the Media
Networks results (in millions):
Quarter Ended Six Months Ended March
30,2019 March 31,2018 Change March 30,2019 March
31,2018 Change Supplemental revenue detail: Cable Networks $
3,708 $ 3,653 2 % $ 7,694 $ 7,486 3 % Broadcasting 1,817
1,855 (2 )% 3,752 3,577 5 % $ 5,525 $
5,508
—
%
$ 11,446 $ 11,063 3 % Supplemental operating income
detail: Cable Networks $ 1,756 $ 1,728 2 % $ 2,499 $ 2,521 (1 )%
Broadcasting 247 348 (29 )% 655 639 3 % Equity in the income of
investees 182 182
—
%
361 341 6 % $ 2,185 $ 2,258 (3 )% $
3,515 $ 3,501
—
%
Cable Networks
Cable Networks revenues for the quarter increased 2% to $3.7
billion and operating income increased 2% to $1.8 billion. Higher
operating income was due to an increase at ESPN.
The increase at ESPN was due to higher affiliate revenue,
partially offset by an increase in programming and production costs
and a decrease in advertising revenue. Affiliate revenue growth
reflected contractual rate increases, partially offset by a decline
in subscribers. The increase in programming and production costs
was due to contractual rate and production cost increases,
partially offset by the benefit of a shift in the mix of College
Football Playoff (CFP) games. Three host games aired in the current
quarter, whereas two semi-final games and one host game aired in
the prior-year quarter. Host games generally have a lower cost than
semi-final games. Lower advertising revenue was due to a decrease
in rates, partially offset by higher impressions. Impressions
reflected an increase in units delivered, partially offset by lower
average viewership. Advertising revenue was negatively impacted by
the shift in mix of CFP games.
Broadcasting
Broadcasting revenues for the quarter decreased 2% to $1.8
billion and operating income decreased 29% to $247 million. The
decrease in operating income was due to higher programming costs,
lower program sales and a decrease in advertising revenue,
partially offset by higher affiliate revenue from contractual rate
increases.
Higher programming costs were due to an increase in production
cost write-downs and in the average cost of network programming.
The decrease in program sales included lower sales of Grey’s
Anatomy and Criminal Minds, partially offset by higher sales of How
to Get Away with Murder. Lower advertising revenue reflected lower
average network viewership, partially offset by higher network
rates.
Parks, Experiences and
Products
Parks, Experiences and Products revenues for the quarter
increased 5% to $6.2 billion and segment operating income increased
15% to $1.5 billion. Operating income growth for the quarter was
due to growth at our domestic theme parks and resorts, increases at
our consumer products business and cruise line and higher
attendance and occupied room nights at Hong Kong Disneyland Resort.
Results included an adverse impact from a shift in the timing of
the Easter holiday. In the current year, the entire Easter holiday
falls in the third quarter, while the second quarter of the prior
year included one week of the Easter holiday.
Operating income growth at our domestic theme parks and resorts
was due to increased guest spending and higher attendance and
occupied room nights at Walt Disney World Resort, partially offset
by higher costs. Guest spending growth was primarily due to
increases in average ticket prices and food, beverage and
merchandise spending. Higher costs were due to labor and other cost
inflation and costs for new guest offerings.
The increase at our consumer products business was driven by
growth at our games business, partially offset by a decrease at our
merchandise licensing business. Operating income growth at our
games business was due to the sale of rights to a video game and
royalties from the licensed title Kingdom Hearts III, which was
released in the current quarter. The decrease at our merchandise
licensing business was driven by lower minimum guarantee shortfall
recognition due to the adoption of ASC 606 (see page 5), partially
offset by a favorable foreign currency impact.
The increase in operating income at our cruise line reflected
the impact of the dry-dock of the Disney Magic in the prior-year
quarter and higher average ticket prices.
Results at Shanghai Disney Resort were comparable to the
prior-year quarter as an increase from higher average ticket prices
was largely offset by lower attendance.
Studio Entertainment
Studio Entertainment revenues for the quarter decreased 15% to
$2.1 billion and segment operating income decreased 39% to $534
million. Lower operating income was due to a decrease in theatrical
and home entertainment distribution results, partially offset by an
increase in TV/SVOD distribution.
The decrease in theatrical distribution results was due to the
success of Black Panther and the continued performance of Star
Wars: The Last Jedi in the prior-year quarter compared to Captain
Marvel and no comparable Star Wars title in the current
quarter.
The decrease in home entertainment results was due to lower unit
sales reflecting the performance of Thor: Ragnarok and Star Wars:
The Last Jedi in the prior-year quarter compared to no comparable
Marvel or Star Wars titles in the current quarter. Other
significant titles included Ralph Breaks the Internet in the
current quarter and Coco in the prior-year quarter.
Growth in TV/SVOD distribution results was due to a benefit from
the adoption of new revenue accounting guidance (see page 5) and
increases in domestic pay television title availabilities and
rates, partially offset by lower free television sales in part in
anticipation of the launch support of Disney+.
Direct-to-Consumer &
International
Direct-to-Consumer & International revenues for the quarter
increased 15% to $955 million and segment operating loss increased
from $188 million to $393 million. The increase in operating loss
was due to our ongoing investment in ESPN+, which was launched in
April 2018, costs associated with the upcoming launch of Disney+, a
loss from the consolidation of Hulu and higher losses from
streaming technology services, partially offset by an increase at
our International Channels.
In the current quarter, 100% of Hulu’s operating results from
March 20, 2019 to March 30, 2019 are included in the
Direct-to-Consumer & International segment as a result of our
acquisition of a controlling interest in Hulu. Prior to March 20,
2019, the Company’s ownership share of Hulu results was reported as
equity in the loss of investees.
The increase at our International Channels was due to higher
affiliate rates and lower sports programming costs.
ADOPTION OF NEW REVENUE RECOGNITION ACCOUNTING
GUIDANCE
At the beginning of fiscal 2019, the Company adopted new revenue
recognition accounting guidance (ASC 606). Results for fiscal 2019
are presented under ASC 606, while prior period amounts continue to
be reported in accordance with our historical accounting.
The current quarter includes a $27 million unfavorable impact on
segment operating income from the ASC 606 adoption. The most
significant impacts were reductions of $63 million at Parks,
Experiences and Products and $30 million at Media Networks, both of
which reflected a change in timing of revenue recognition on
contracts with minimum guarantees. These impacts were partially
offset by a $71 million benefit at Studio Entertainment, which
reflected a change in the timing of revenue recognition at our
TV/SVOD distribution business.
OTHER FINANCIAL INFORMATION
Corporate and Unallocated Shared
Expenses
Corporate and unallocated shared expenses increased $85 million
to $279 million in the current quarter due to costs incurred in
connection with the 21CF acquisition.
Restructuring Charges
During the quarter, the Company recorded charges totaling $662
million in connection with the acquisition and integration of 21CF.
The charges consisted of $403 million of severance and related
costs and $259 million for equity based compensation, primarily for
21CF awards that vested upon closing of the acquisition. These
charges are recorded in “Restructuring and impairment charges” in
the Condensed Consolidated Statements of Income.
Other income
Other income was as follows (in millions):
Quarter Ended March 30,2019 March 31,2018
Change Hulu Gain $ 4,917 $
—
nm Insurance recoveries related to legal matters 46 38 21 % Other —
3
—
%
Other income $ 4,963 $ 41 >100 %
The Company acquired 21CF’s 30% interest in Hulu as part of the
21CF acquisition. As a result, upon the closing of the 21CF
transaction, the Company owned a 60% interest in Hulu, began
consolidating Hulu and recorded a one-time gain of $4.9 billion as
a result of remeasuring our initial 30% interest in Hulu to fair
value.
Interest expense, net
Interest expense, net was as follows (in millions):
Quarter Ended March 30,2019 March 31,2018
Change Interest expense $ (198 ) $ (172 ) (15 )% Interest income,
investment income and other 55 29 90 % Interest
expense, net $ (143 ) $ (143 )
—
%
The increase in interest expense was due to higher average
interest rates and financing costs related to the 21CF acquisition,
partially offset by higher capitalized interest and market value
adjustments on pay-floating interest rate swap options.
The increase in interest income, investment income and other was
due to the inclusion of a $22 million benefit related to pension
and postretirement plan costs, other than service cost. The Company
adopted new accounting guidance in fiscal 2019 and now presents the
elements of pension and postretirement plan costs other than
service cost in “Interest expense, net.” The comparable net benefit
of $6 million in the prior-year quarter was reported in “Costs and
expenses.” The benefit in the current quarter was due to the
expected return on plan assets exceeding interest expense on plan
liabilities and amortization of prior net actuarial losses.
Equity in the Income (Loss) of
Investees, net
Equity in the income (loss) of investees was as follows (in
millions):
Quarter Ended March 30,2019 March 31,2018
Change Amounts included in segment results: Media Networks $ 182 $
182
—
%
Parks, Experiences and Products — (7 ) nm Direct-to-Consumer &
International (141 ) (169 ) 17 % Vice Impairment (353 ) — nm
Equity in the income / (loss) of investees, net $ (312 ) $ 6
nm
Equity in the income / (loss) of investees decreased $318
million to a loss of $312 million for the quarter due to an
impairment of our investment in Vice (Vice Impairment), partially
offset by an impact from consolidating Hulu. In the current
quarter, 11 days of Hulu’s results are reported in revenues and
expenses, whereas in the prior year, the Company recognized its
share of Hulu’s results as equity in the loss of investees for the
entire quarter.
Income Taxes
The effective income tax rate was as follows:
Quarter Ended March 30,2019 March 31,2018
Change Effective income tax rate 22.8 % 20.7 % (2.1 ) ppt
The increase in the effective income tax rate was due to the
comparison to a $0.1 billion net tax benefit related to the Tax Act
that was recognized in the prior-year quarter and an unfavorable
impact in the current quarter from a change in our full year
effective tax rate. The estimated full year effective rate is used
to determine the quarterly income tax provision and is adjusted
each quarter based on information available at the end of that
quarter. These increases were partially offset by a reduction in
the Company’s U.S. statutory federal income tax rate to 21.0% in
fiscal 2019 from 24.5% in fiscal 2018.
Noncontrolling Interests
Net (income) loss attributable to noncontrolling interests was
as follows (in millions):
Quarter Ended March 30,2019 March 31,2018
Change Net income attributable to noncontrolling interests $ (159 )
$ (178 ) 11 %
The decrease in net income attributable to noncontrolling
interests was due to a higher loss from our direct-to-consumer
sports business and the consolidation of a loss at Hulu, partially
offset by growth at ESPN and Hong Kong Disneyland Resort.
Net income attributable to noncontrolling interests is
determined on income after royalties and management fees, financing
costs and income taxes, as applicable.
Cash Flow
Cash provided by operations from continuing operations and free
cash flow were as follows (in millions):
Six Months Ended March 30,2019 March 31,2018
Change Cash provided by operations - continuing operations $ 6,014
$ 6,763 $ (749 ) Investments in parks, resorts and other property
(2,390 ) (2,044 ) (346 ) Free cash flow (1) $ 3,624 $ 4,719
$ (1,095 ) (1) Free cash flow is not a
financial measure defined by GAAP. See the discussion on pages 9
through 12.
Cash provided by operations for the first six months of fiscal
2019 decreased by $0.7 billion from $6.8 billion in the prior-year
six months to $6.0 billion in the current six months. The decrease
was driven by lower segment operating results and higher payments
for interest and income taxes.
Capital Expenditures and Depreciation
Expense
Investments in parks, resorts and other property were as follows
(in millions):
Six Months Ended March 30,2019 March 31,2018 Media
Networks Cable Networks $ 41 $ 63 Broadcasting 55 45 Total
Media Networks 96 108 Parks, Experiences and Products
Domestic 1,678 1,419 International 415 310 Total Parks,
Experiences and Products 2,093 1,729 Studio Entertainment 39
52 Direct-to-Consumer & International 83 81 21CF 5 — Corporate
74 74 Total investments in parks, resorts and other property
$ 2,390 $ 2,044
Capital expenditures increased by $346 million to $2.4 billion
driven by higher spending on new attractions at our domestic theme
parks and resorts.
Depreciation expense was as follows (in millions):
Six Months Ended March 30,2019 March 31,2018 Media
Networks Cable Networks $ 49 $ 57 Broadcasting 40 46
Total Media Networks
89 103 Parks, Experiences and Products Domestic 719 727
International 368 367 Total Parks, Experiences and Products
1,087 1,094 Studio Entertainment 30 27 Direct-to-Consumer
& International 67 49 21CF 4 — Corporate 81 91 Total
depreciation expense $ 1,358 $ 1,364
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 these items separately
from the impact of the operations of the business.
The following table reconciles reported EPS from continuing
operations to EPS excluding certain items affecting comparability
for the quarter.
(in millions except EPS) Pre-Tax Income/
Loss
Tax Benefit/
Expense (1)
After-Tax Income/
Loss (2)
EPS (3)
Change vs.prior yearperiod
Quarter Ended March 30, 2019: As reported $ 7,237 $ (1,647 ) $
5,590 $ 3.53 81 % Exclude: Other income, net (4) (4,963 ) 1,142
(3,821 ) (2.48 ) Restructuring and impairment charges (5) 662 (152
) 510 0.33 Vice Impairment 353 (81 ) 272 0.18 Amortization of 21CF
and Hulu intangible assets and fair value step-up on film and
television costs 105 (24 ) 81 0.05 Excluding
certain items affecting comparability $ 3,394 $ (762 ) $
2,632 $ 1.61 (13 )% Quarter Ended March 31,
2018: As reported $ 3,928 $ (813 ) $ 3,115 $ 1.95 Exclude: One-time
net benefit from the Tax Act — (134 ) (134 ) (0.09 ) Other income,
net (4) (41 ) 11 (30 ) (0.02 ) Restructuring and impairment charges
13 (3 ) 10 0.01 Excluding certain items
affecting comparability $ 3,900 $ (939 ) $ 2,961 $
1.84 (1) Tax benefit/expense
adjustments are determined using the tax rate applicable to the
individual item affecting comparability. (2) Before noncontrolling
interest share. (3) Net of noncontrolling interest share, where
applicable. Total may not equal the sum of the column due to
rounding. (4) Other income, net for the current quarter includes a
non-cash gain recognized in connection with the acquisition of a
controlling interest in Hulu ($4.9 billion) and insurance
recoveries on a legal matter ($46 million). Other income in the
prior-year quarter includes insurance recoveries on a legal matter
($38 million). (5) Reflects severance and equity-based compensation
charges related to the acquisition and integration of 21CF ($662
million).
The following table reconciles reported EPS from continuing
operations to EPS excluding certain items affecting comparability
for the year.
(in millions except EPS) Pre-Tax Income/
Loss
Tax Benefit/
Expense (1)
After-Tax Income/
Loss (2)
EPS (3)
Change vs.prior yearperiod
Six Months Ended March 30, 2019: As reported $ 10,668 $ (2,292 ) $
8,376 $ 5.42 12 % Exclude: Other income, net (4) (4,963 ) 1,142
(3,821 ) (2.52 ) One-time net benefit from the Tax Act — (34 ) (34
) (0.02 ) Restructuring and impairment charges (5) 662 (152 ) 510
0.33 Vice Impairment 353 (81 ) 272 0.18 Amortization of 21CF and
Hulu intangible assets and fair value step-up on film and
television costs 105 (24 ) 81 0.05 Excluding
certain items affecting comparability $ 6,825 $ (1,441 ) $
5,384 $ 3.45 (8 )% Six Months Ended March 31,
2018: As reported $ 7,673 $ (85 ) $ 7,588 $ 4.86 Exclude: One-time
net benefit from the Tax Act — (1,691 ) (1,691 ) (1.10 ) Other
income, net (4) (94 ) 23 (71 ) (0.05 ) Restructuring and impairment
charges 28 (6 ) 22 0.01 Excluding certain
items affecting comparability $ 7,607 $ (1,759 ) $ 5,848
$ 3.73 (1) Tax benefit/expense
adjustments are determined using the tax rate applicable to the
individual item affecting comparability. (2) Before noncontrolling
interest share. (3) Net of noncontrolling interest share, where
applicable. Total may not equal the sum of the column due to
rounding. (4) Other income, net for the current six-month period
includes a non-cash gain recognized in connection with the
acquisition of a controlling interest in Hulu ($4.9 billion) and
insurance recoveries on a legal matter ($46 million). Other income
in the prior-year six-month period included a gain from the sale of
property rights ($53 million) and insurance recoveries on a legal
matter ($38 million). (5) Reflects severance and equity-based
compensation charges related to the acquisition and integration of
21CF ($662 million).
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
obligations, 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 income from continuing operations before
income taxes to segment operating income is as follows (in
millions):
Quarter Ended % Change Six Months Ended
% Change
March 30,2019 March 31,2018 Better/(Worse) March 30,2019
March 31,2018 Better/(Worse) Income from continuing
operations before income taxes $ 7,237 $ 3,928 (84 )% $ 10,668 $
7,673 39 % Add/(subtract): Corporate and unallocated shared
expenses 279 194 (44 )% 440 344 (28 )% Restructuring and impairment
charges 662 13 >(100 )% 662 28 >(100)% Other income (4,963 )
(41 ) >100 % (4,963 ) (94 ) >100 % Interest expense, net 143
143 — % 206 272 24 % Amortization of 21CF and Hulu intangible
assets and fair value step-up on film and television costs 105 — nm
105 — nm Vice Impairment 353 — nm 353 —
nm Segment Operating Income $ 3,816 $ 4,237 (10 )% $
7,471 $ 8,223 (9 )%
CONFERENCE CALL INFORMATION
In conjunction with this release, The Walt Disney Company will
host a conference call today, May 8, 2019, at 4:30 PM EDT/1:30
PM PDT via a live Webcast. To access the Webcast go to www.disney.com/investors. The discussion will be
archived.
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, regulatory,
or military developments; and
- technological developments.
Such developments may affect entertainment, 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;
- demand for our products and
services;
- expenses of providing medical and
pension benefits;
- income tax expense;
- performance of some or all company
businesses either directly or through their impact on those who
distribute our products; and
- achievement of anticipated benefits of
the recent 21st Century Fox transaction.
Additional factors are set forth in the Company’s Annual Report
on Form 10-K for the year ended September 29, 2018 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 March 30,2019 March
31,2018 March 30,2019 March 31,2018 Revenues: Services $
13,006 $ 12,520 $ 25,872 $ 25,504 Products 1,916 2,028
4,353 4,395 Total revenues 14,922 14,548
30,225 29,899 Costs and expenses: Cost of services (exclusive of
depreciation and amortization) (7,167 ) (6,313 ) (14,731 ) (13,637
) Cost of products (exclusive of depreciation and amortization)
(1,209 ) (1,228 ) (2,646 ) (2,633 ) Selling, general,
administrative and other (2,327 ) (2,239 ) (4,479 ) (4,326 )
Depreciation and amortization (828 ) (731 ) (1,560 ) (1,473 ) Total
costs and expenses (11,531 ) (10,511 ) (23,416 ) (22,069 )
Restructuring and impairment charges (662 ) (13 ) (662 ) (28 )
Other income 4,963 41 4,963 94 Interest expense, net (143 ) (143 )
(206 ) (272 ) Equity in the income / (loss) of investees, net (312
) 6 (236 ) 49 Income from continuing operations
before income taxes 7,237 3,928 10,668 7,673 Income taxes from
continuing operations (1,647 ) (813 ) (2,292 ) (85 ) Net income
from continuing operations 5,590 3,115 8,376 7,588 Income (loss)
from discontinued operations (net of income taxes of $5, $0, $5 and
$0, respectively) 21 — 21 —
Consolidated net income 5,611 3,115 8,397 7,588 Less: Net income
attributable to noncontrolling interests (159 ) (178 ) (157 ) (228
) Net income attributable to The Walt Disney Company (Disney) $
5,452 $ 2,937 $ 8,240 $ 7,360
Earnings per share attributable to Disney: Continuing operations $
3.53 $ 1.95 $ 5.42 $ 4.86 Discontinued operations 0.01 —
0.01 — Diluted $ 3.55 $ 1.95 $
5.43 $ 4.86 Continuing operations $ 3.55 $
1.95 $ 5.44 $ 4.88 Discontinued operations 0.01 —
0.01 — Basic $ 3.56 $ 1.95 $ 5.46
$ 4.88 Weighted average number of common and
common equivalent shares outstanding: Diluted 1,537 1,510
1,517 1,515 Basic 1,530 1,503
1,510 1,507
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED BALANCE
SHEETS
(unaudited; in millions, except per
share data)
March 30,2019 September 29,2018 ASSETS Current assets Cash
and cash equivalents $ 10,108 $ 4,150 Receivables 14,593 9,334
Inventories 1,445 1,392 Television costs and advances 5,408 1,314
Other current assets 1,257 635 Assets held for sale 1,466 —
Total current assets
34,277 16,825 Film and television costs 24,353 7,888 Investments
4,080 2,899 Parks, resorts and other property Attractions,
buildings and equipment 57,991 55,238 Accumulated depreciation
(33,132 ) (30,764 ) 24,859 24,474 Projects in progress 4,984 3,942
Land 1,174 1,124 31,017 29,540 Intangible assets, net
26,985 6,812 Goodwill 75,057 31,269 Noncurrent assets held for sale
- discontinued operations 13,182 — Other assets 5,391 3,365
Total assets $ 214,342 $ 98,598
LIABILITIES AND EQUITY Current liabilities Accounts payable and
other accrued liabilities $ 20,503 $ 9,479 Current portion of
borrowings 19,158 3,790 Deferred revenue and other 4,281 4,591
Liabilities held for sale 434 — Total current
liabilities 44,376 17,860 Borrowings 37,803 17,084 Deferred income
taxes 11,208 3,109 Noncurrent liabilities held for sale -
discontinued operations 2,659 — Other long-term liabilities 12,854
6,590 Commitments and contingencies Redeemable noncontrolling
interests 1,103 1,123 Equity Preferred stock — — Common stock,
$0.01 par value, Authorized – 4.6 billion shares, Issued – 1.8
billion shares at
March 30, 2019 and 2.9 billion shares at
September 29, 2018
53,419 36,779 Retained earnings 41,212 82,679 Accumulated other
comprehensive loss (3,786 ) (3,097 ) 90,845 116,361 Treasury stock,
at cost, 19 million shares at March 30, 2019 and 1.4 billion shares
at September 29, 2018 (907 ) (67,588 ) Total Disney Shareholders’
equity 89,938 48,773 Noncontrolling interests 14,401 4,059
Total equity 104,339 52,832 Total liabilities
and equity $ 214,342 $ 98,598
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(unaudited; in millions)
Six Months Ended March 30,2019 March 31,2018
OPERATING ACTIVITIES Net income from continuing operations $ 8,376
$ 7,588 Depreciation and amortization 1,560 1,473 Gain on
acquisition (4,917 ) — Deferred income taxes 1,190 (1,623 ) Equity
in the (income) / loss of investees 236 (49 ) Cash distributions
received from equity investees 370 389 Net change in film and
television costs and advances (281 ) (490 ) Equity-based
compensation 475 194 Other 121 155 Changes in operating assets and
liabilities, net of business acquisitions: Receivables (386 )
(1,004 ) Inventories (19 ) 64 Other assets 46 (248 ) Accounts
payable and other liabilities (283 ) (92 ) Income taxes (474 ) 406
Cash provided by operations - continuing operations 6,014
6,763 INVESTING ACTIVITIES Investments in
parks, resorts and other property (2,390 ) (2,044 ) Acquisitions
(9,901 ) (1,581 ) Other (392 ) (180 ) Cash used in investing
activities - continuing operations (12,683 ) (3,805 )
FINANCING ACTIVITIES Commercial paper borrowings, net 376 1,372
Borrowings 31,145 1,048 Reduction of borrowings (17,398 ) (1,350 )
Dividends (1,310 ) (1,266 ) Repurchases of common stock — (2,608 )
Proceeds from exercise of stock options 83 91 Other (200 ) (169 )
Cash provided by / (used in) financing activities - continuing
operations 12,696 (2,882 ) CASH FLOWS FROM
DISCONTINUED OPERATIONS Cash used in operations - discontinued
operations (35 ) — Impact of exchange rates on cash, cash
equivalents and restricted cash 75 55 Change
in cash, cash equivalents and restricted cash 6,067 131 Cash, cash
equivalents and restricted cash, beginning of period 4,155
4,064 Cash, cash equivalents and restricted cash, end of
period $ 10,222 $ 4,195
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Zenia MuchaCorporate Communications818-560-5300
Lowell SingerInvestor Relations818-560-6601
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