The Walt Disney Company Reports Second Quarter and Six Months Earnings for Fiscal 2019 – Business Wire


BURBANK, Calif.–(BUSINESS WIRE)–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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