The Walt Disney Company : Reports Second Quarter Earnings
05/08/2012| 04:20pm US/Eastern
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The Walt Disney Company (NYSE: DIS) today reported earnings for its
second fiscal quarter and six months ended March 31, 2012. Diluted
earnings per share (EPS) for the second quarter increased 29% to $0.63
from $0.49 in the prior-year quarter. EPS for the current quarter
included a gain related to an acquisition and restructuring and
impairment charges, which together resulted in a net $0.05 benefit to
EPS. Excluding these items, EPS for the quarter increased 18% to $0.58
compared to $0.49 in the prior-year quarter. Diluted EPS for the
six-months ended March 31, 2012 was $1.43 compared to $1.16 in the
prior-year period.
"With 18% adjusted growth in earnings per share, we're pleased with our
second quarter performance," said Robert A. Iger, Disney Chairman and
CEO. "We're incredibly optimistic about our future, given the strength
of our core brands, Disney, Pixar, Marvel, ESPN, and ABC, and our
extraordinary ability to grow franchises across our businesses, such as The
Avengers, which shattered domestic box office records with a $207.1
million opening weekend for a global performance of more than $702
million to date."
The following table summarizes the second quarter and six-month results
for fiscal 2012 and 2011 (in millions, except per share amounts):
Quarter Ended
Six Months Ended
March 31, 2012
April 2, 2011
Change
March 31, 2012
April 2, 2011
Change
Revenues
$
9,629
$
9,077
6
%
$
20,408
$
19,793
3
%
Segment operating income (1)
$
1,945
$
1,773
10
%
$
4,389
$
3,981
10
%
Net income (2)
$
1,143
$
942
21
%
$
2,607
$
2,244
16
%
Diluted EPS (2)
$
0.63
$
0.49
29
%
$
1.43
$
1.16
23
%
Cash provided by operations
$
1,812
$
1,949
(7
)
%
$
3,546
$
3,068
16
%
Free cash flow (1)
$
335
$
1,317
(75
)
%
$
1,435
$
1,223
17
%
(1) Aggregate segment operating income and free cash flow are
non-GAAP financial measures. See the discussion of non-GAAP financial
measures below. (2) Reflects amounts attributable to
shareholders of The Walt Disney Company, i.e. after deduction of
noncontrolling (minority) interests.
EPS for the current quarter includes restructuring and impairment
charges totaling $38 million and a $184 million non-cash gain on the
Company's existing equity investment in UTV Software Communication
Limited (UTV) which arose in connection with the acquisition of a
controlling interest in UTV. The UTV gain was recorded in "Other Income"
in the Consolidated Statements of Income.
EPS for the prior-year six months included gains on the sales of Miramax
and BASS ($75 million) and restructuring and impairment charges ($12
million). On an after-tax basis, these items had a net negative impact
on EPS of $0.01. Excluding these items and the current year items
discussed above, EPS for the six-month period increased 18% to $1.38
compared to $1.17 in the prior-year period.
SEGMENT RESULTS
The following table summarizes the second quarter and six-month segment
operating results for fiscal 2012 and 2011 (in millions):
Quarter Ended
Six Months Ended
March 31, 2012
April 2, 2011
Change
March 31, 2012
April 2, 2011
Change
Revenues:
Media Networks
$
4,692
$
4,322
9
%
$
9,471
$
8,967
6
%
Parks and Resorts
2,899
2,630
10
%
6,054
5,498
10
%
Studio Entertainment
1,180
1,340
(12
)
%
2,798
3,272
(14
)
%
Consumer Products
679
626
8
%
1,627
1,548
5
%
Interactive Media
179
159
13
%
458
508
(10
)
%
$
9,629
$
9,077
6
%
$
20,408
$
19,793
3
%
Segment operating income (loss):
Media Networks
$
1,729
$
1,524
13
%
$
2,922
$
2,590
13
%
Parks and Resorts
222
145
53
%
775
613
26
%
Studio Entertainment
(84
)
77
nm
329
452
(27
)
%
Consumer Products
148
142
4
%
461
454
2
%
Interactive Media
(70
)
(115
)
39
%
(98
)
(128
)
23
%
$
1,945
$
1,773
10
%
$
4,389
$
3,981
10
%
Media Networks
Media Networks revenues for the quarter increased 9% to $4.7 billion and
segment operating income increased 13% to $1.7 billion. The following
table provides further detail of the Media Networks results (in
millions):
Quarter Ended
Six Months Ended
March 31, 2012
April 2, 2011
Change
March 31, 2012
April 2, 2011
Change
Revenues:
Cable Networks
$
3,167
$
2,826
12
%
$
6,476
$
5,894
10
%
Broadcasting
1,525
1,496
2
%
2,995
3,073
(3
)
%
$
4,692
$
4,322
9
%
$
9,471
$
8,967
6
%
Segment operating income:
Cable Networks
$
1,500
$
1,357
11
%
$
2,467
$
2,128
16
%
Broadcasting
229
167
37
%
455
462
(2
)
%
$
1,729
$
1,524
13
%
$
2,922
$
2,590
13
%
Cable Networks
Operating income at Cable Networks increased $143 million to $1.5
billion for the quarter due to growth at ESPN and, to a lesser extent,
at the domestic Disney Channels. The increase at ESPN was driven by
higher affiliate and advertising revenue partially offset by higher
programming and production costs. The increase in affiliate revenue was
due to contractual rate increases and a reduction in revenue deferrals
related to annual program commitments. During the quarter, ESPN deferred
$190 million of revenue compared to $262 million in the prior year
quarter. The decrease was due to a change in the provisions related to
annual programming commitments in an affiliate contract. Advertising
revenue growth was due to higher rates and a shift in the timing of Rose
Bowl, Fiesta Bowl and NBA games relative to our fiscal period end.
Higher programming and production costs were driven by the shift in the
timing of college bowl and NBA games and higher contractual rates for
college basketball programming. Higher operating income at the domestic
Disney Channels was primarily due to increased affiliate revenue from
contractual rate increases and higher sales of Disney Channel programs.
Broadcasting
Operating income at Broadcasting increased $62 million to $229 million
due to lower programming and production costs and higher advertising
revenue. Lower programming and production costs were due to the absence
of costs for The Oprah Winfrey Show at the owned television
stations and decreased daytime and news production costs at the ABC
Television Network. Higher advertising revenues were due to increased
primetime rates at the ABC Television Network partially offset by a
decrease at the owned television stations.
Parks and Resorts
Parks and Resorts revenues for the quarter increased 10% to $2.9 billion
and segment operating income increased 53% to $222 million. Results for
the quarter were driven by increases at our domestic parks and resorts,
Tokyo Disney Resort and Hong Kong Disneyland Resort, partially offset by
a decrease at Disneyland Paris.
Higher operating income at our domestic parks and resorts was driven by
increased guest spending and attendance, partially offset by increased
costs. Increased guest spending reflected higher average ticket prices,
daily hotel room rates and food, beverage and merchandise spending.
Higher costs were driven by labor cost inflation, resort expansion and
new guest offerings, volume-related cost increases, and increased
investments in systems infrastructure.
The increase at Tokyo Disney Resort reflected the loss of income in the
prior-year quarter from the March 2011 earthquake and tsunami in Japan,
which resulted in a temporary suspension of operations, and the
collection of related business interruption insurance proceeds in the
current-year quarter. The increase at Hong Kong Disneyland Resort was
due to higher guest spending and attendance. The decrease at Disneyland
Paris was due to lower attendance and labor cost inflation.
Studio Entertainment
Studio Entertainment revenues decreased 12% to $1.2 billion and segment
operating income decreased $161 million to a loss of $84 million.
The decline in operating income was primarily due to lower worldwide
theatrical results reflecting the performance of John Carter in
the current quarter along with the related film cost write-down. Other
titles in the current quarter include The Muppets and Beauty
and the Beast 3D while the prior year included Tangled, Tron:
Legacy and Mars Needs Moms.
Consumer Products
Consumer Products revenues increased 8% to $679 million and segment
operating income increased 4% to $148 million. Higher operating income
was primarily due to an increase at Merchandise Licensing partially
offset by lower results at our retail business.
The increase at Merchandise Licensing was primarily due to higher
minimum guarantee shortfall recognition in the current quarter and
earned revenue growth driven by the performance of Minnie, Mickey,
The Avengers and Princess merchandise.
The decrease at our retail business was due to a decline in our North
American business driven by decreased margins due to higher promotions.
Interactive Media
Interactive Media revenues for the quarter increased 13% to $179 million
and segment operating results improved by $45 million to a loss of $70
million. Operating results were driven by an increase at our games
business reflecting improved results from social and console games.
Social game results were driven by lower acquisition accounting impacts
which had a higher adverse impact on the prior-year quarter and improved
title performance in the current quarter.
Improved console game results were primarily due to lower product
development costs, partially offset by a decline in console game sales,
which reflected fewer titles in release in the current year. Lower
product development costs reflected our ongoing shift from console games
to social and other interactive platforms.
OTHER FINANCIAL INFORMATION
Other Income
On February 2, 2012 the Company increased its percentage ownership in
UTV Software Communications Limited (UTV) from 50% to 93% through a
delisting process governed by Indian law. In connection with the
acquisition, the Company recorded a $184 million non-cash gain to adjust
the book value of its existing interest in UTV to the estimated fair
value.
Net Interest Expense
Net interest expense was as follows (in millions):
Quarter Ended
March 31,
2012
April 2,
2011
Interest expense
$
(126
)
$
(111
)
Interest and investment income
31
28
Net interest expense
$
(95
)
$
(83
)
The increase in interest expense for the quarter was driven by higher
average debt balances, partially offset by lower effective interest
rates.
Income Taxes
The effective income tax rate for the current quarter decreased to 34.6%
compared to 35.6% in the prior-year quarter primarily due to an increase
in earnings from foreign operations subject to tax at rates lower than
the federal statutory income tax rate.
Noncontrolling Interests
Net income attributable to noncontrolling interests increased from $68
million to $83 million due to improved operating results at ESPN and
Hong Kong Disneyland Resort partially offset by lower performance at
Disneyland Paris. Net income attributable to noncontrolling interests is
determined based on income after royalties, financing costs and income
taxes.
Cash Flow
Cash provided by operations and free cash flow were as follows (in
millions):
Six Months Ended
March 31, 2012
April 2, 2011
Change
Cash provided by operations
$
3,546
$
3,068
$
478
Investments in parks, resorts and other property
(2,111
)
(1,845
)
(266
)
Free cash flow (1)
$
1,435
$
1,223
$
212
(1) Free cash flow is not a financial measure defined by
GAAP. See the discussion of non-GAAP financial measures that follows
below.
Cash provided by operations increased 16% to $3.5 billion for the
current six month period compared to $3.1 billion in the prior-year six
month period. The increase was due to higher segment operating results
and the timing of receivable collections, partially offset by increased
television production and programming spending and higher income tax
payments.
Capital Expenditures and Depreciation Expense
Investments in parks, resorts and other property were as follows (in
millions):
Six Months Ended
March 31, 2012
April 2, 2011
Media Networks
Cable Networks
$
55
$
33
Broadcasting
24
55
Total Media Networks
79
88
Parks and Resorts
Domestic
1,445
1,381
International
310
165
Total Parks and Resorts
1,755
1,546
Studio Entertainment
33
57
Consumer Products
26
37
Interactive Media
10
12
Corporate
208
105
Total investments in parks, resorts and other property
$
2,111
$
1,845
Capital expenditures increased from $1.8 billion to $2.1 billion driven
by an increase at Parks and Resorts, due to resort expansion and new
guest offerings at Walt Disney World Resort and Disneyland Paris and
construction costs at Shanghai Disney Resort, and an increase at
Corporate driven by investments in facilities and information technology
infrastructure.
Depreciation expense was as follows (in millions):
Six Months Ended
March 31, 2012
April 2, 2011
Media Networks
Cable Networks
$
71
$
65
Broadcasting
48
51
Total Media Networks
119
116
Parks and Resorts
Domestic
457
409
International
157
158
Total Parks and Resorts
614
567
Studio Entertainment
26
30
Consumer Products
27
25
Interactive Media
8
9
Corporate
91
74
Total depreciation expense
$
885
$
821
Borrowings
Total borrowings and net borrowings are detailed below (in millions):
March 31,
2012
October 1, 2011
Change
Current portion of borrowings
$
3,447
$
3,055
$
392
Long-term borrowings
12,582
10,922
1,660
Total borrowings
16,029
13,977
2,052
Less: cash and cash equivalents
(3,731
)
(3,185
)
(546
)
Net borrowings (1)
$
12,298
$
10,792
$
1,506
(1) Net borrowings is a non-GAAP financial measure. See the
discussion of non-GAAP financial measures that follows.
The total borrowings shown above include $2,153 million and $2,311
million attributable to our consolidated international theme parks as of
March 31, 2012 and October 1, 2011, respectively. Cash and cash
equivalents attributable to our consolidated international theme parks
totaled $634 million and $778 million as of March 31, 2012 and October
1, 2011, respectively.
Non-GAAP Financial Measures
This earnings release presents earnings per share excluding the impact
of certain items, net borrowings, 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
earnings per share, borrowings, cash flow or net income as determined in
accordance with GAAP. Net borrowings, 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.
Earnings per share excluding certain items
- The Company uses earnings per share excluding certain items to
evaluate the performance of the Company's operations exclusive of
certain items that impact the comparability of results from period to
period. The Company believes that information about earnings per share
exclusive of these impacts is useful to investors, particularly where
the impact of the excluded items is significant in relation to reported
earnings, because the measure allows for comparability between periods
of the operating performance of the Company's business and allows
investors to evaluate the impact of these items separately from the
impact of the operations of the business.
The following table reconciles reported earnings per share to earnings
per share excluding certain items:
Quarter Ended
Six Months Ended
March 31,
2012
April 2,
2011
Change
March 31,
2012
April 2,
2011
Change
Diluted EPS as reported
$
0.63
$
0.49
29
%
$
1.43
$
1.16
23
%
Exclude:
Restructuring and impairment charges (1)
0.01
?
nm
0.02
(0.01
)
nm
Other income (2)
(0.06
)
?
nm
(0.06
)
0.02
nm
Diluted EPS excluding certain items (3)
$
0.58
$
0.49
18
%
$
1.38
$
1.17
18
%
(1) Restructuring and impairment charges for the current
quarter and six months were $38 million and $44 million, respectively,
primarily for severance and other costs. Restructuring and impairment
charges for the prior-year six months were $12 million and consist of a
$9 million impairment charge related to the sale of assets and severance
and other costs that were recorded in the first quarter of the prior
year. The impairment charge included assets that had tax basis
significantly in excess of the book value and resulted in a $31 million
tax benefit on the restructuring and impairment charges.
(2) Other income for the current quarter and six-months
consists of the UTV Gain ($184 million). Other income for the prior-year
six months consists of gains on the sales of Miramax and BASS ($75
million) in the first quarter. The tax effect on these gains exceeded
the pretax benefit and resulted in a $32 million after tax loss.
(3) Diluted EPS excluding certain items may not equal the sum
of the column due to rounding.
Net borrowings - The Company believes that
information about net borrowings provides investors with a useful
perspective on our financial condition. Net borrowings reflect the
subtraction of cash and cash equivalents from total borrowings. Since we
earn interest income on our cash balances that offsets a portion of the
interest expense we pay on our borrowings, net borrowings can be used as
a measure to gauge net interest expense. In addition, a portion of our
cash and cash equivalents is available to repay outstanding indebtedness
when the indebtedness matures or when other circumstances arise.
However, we may not immediately apply cash and cash equivalents to the
reduction of debt, nor do we expect that we would use all of our
available cash and cash equivalents to repay debt in the ordinary course
of business.
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
March 31, 2012
April 2, 2011
March 31, 2012
April 2, 2011
Segment operating income
$
1,945
$
1,773
$
4,389
$
3,981
Corporate and unallocated shared expenses
(120
)
(122
)
(227
)
(234
)
Restructuring and impairment charges
(38
)
?
(44
)
(12
)
Other income
184
?
184
75
Net interest expense
(95
)
(83
)
(185
)
(178
)
Income before income taxes
1,876
1,568
4,117
3,632
Income taxes
(650
)
(558
)
(1,370
)
(1,288
)
Net income
$
1,226
$
1,010
$
2,747
$
2,344
CONFERENCE CALL INFORMATION
In conjunction with this release, The Walt Disney Company will host a
conference call today, May 8, 2012, at 5:00 PM EST/2:00 PM PST via a
live Webcast. To access the Webcast go to www.disney.com/investors.
The discussion will be available via replay through May 15, 2012 at 7:00
PM EST/4:00 PM PST.
FORWARD-LOOKING STATEMENTS
Management believes certain statements in this earnings release may
constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements are
made on the basis of management's views and assumptions regarding future
events and business performance as of the time the statements are made.
Management does not undertake any obligation to update these statements.
Actual results may differ materially from those expressed or implied.
Such differences may result from actions taken by the Company, including
restructuring or strategic initiatives (including capital investments or
asset acquisitions or dispositions), as well as from developments beyond
the Company's control, including:
changes in domestic and global economic conditions, competitive
conditions and consumer preferences
adverse weather conditions or natural disasters;
health concerns;
international, political, or military developments; and
technological developments.
Such developments may affect travel and leisure businesses generally and
may, among other things, affect:
the performance of the Company's theatrical and home entertainment
releases;
the advertising market for broadcast and cable television programming;
expenses of providing medical and pension benefits;
demand for our products; and
performance of some or all company businesses either directly or
through their impact on those who distribute our products.
Additional factors are set forth in the Company's Annual Report on Form
10-K for the year ended October 1, 2011 under Item 1A, "Risk Factors,"
and subsequent reports.
The Walt Disney Company
CONSOLIDATED STATEMENTS OF INCOME
(unaudited; in millions, except per share data)
Quarter Ended
Six Months Ended
March 31, 2012
April 2, 2011
March 31, 2012
April 2, 2011
Revenues
$
9,629
$
9,077
$
20,408
$
19,793
Costs and expenses
(7,942
)
(7,549
)
(16,529
)
(16,325
)
Restructuring and impairment charges
(38
)
?
(44
)
(12
)
Other income
184
?
184
75
Net interest expense
(95
)
(83
)
(185
)
(178
)
Equity in the income of investees
138
123
283
279
Income before income taxes
1,876
1,568
4,117
3,632
Income taxes
(650
)
(558
)
(1,370
)
(1,288
)
Net income
1,226
1,010
2,747
2,344
Less: Net income attributable to noncontrolling interests
(83
)
(68
)
(140
)
(100
)
Net income attributable to The Walt Disney Company (Disney)
$
1,143
$
942
$
2,607
$
2,244
Earnings per share attributable to Disney:
Diluted
$
0.63
$
0.49
$
1.43
$
1.16
Basic
$
0.64
$
0.50
$
1.45
$
1.18
Weighted average number of common and common equivalent shares
outstanding:
Treasury stock, at cost, 982.5 million shares at March 31, 2012 and
937.8 million shares at October 1, 2011
(30,325
)
(28,656
)
Total Disney Shareholders' equity
38,049
37,385
Noncontrolling interests
1,863
2,068
Total equity
39,912
39,453
$
75,233
$
72,124
The Walt Disney Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in millions)
Six Months Ended
March 31,
2012
April 2,
2011
OPERATING ACTIVITIES
Net income
$
2,747
$
2,344
Depreciation and amortization
973
903
Gains on acquisitions and dispositions
(184
)
(75
)
Deferred income taxes
236
195
Equity in the income of investees
(283
)
(279
)
Cash distributions received from equity investees
315
295
Net change in film and television costs
(496
)
(184
)
Equity-based compensation
208
212
Other
16
(42
)
Changes in operating assets and liabilities:
Receivables
188
(21
)
Inventories
70
(30
)
Other assets
67
28
Accounts payable and other accrued liabilities
60
2
Income taxes
(371
)
(280
)
Cash provided by operations
3,546
3,068
INVESTING ACTIVITIES
Investments in parks, resorts and other property
(2,111
)
(1,845
)
Proceeds from dispositions
15
566
Acquisitions
(726
)
(171
)
Other
41
(106
)
Cash used in investing activities
(2,781
)
(1,556
)
FINANCING ACTIVITIES
Commercial paper borrowings, net
290
470
Borrowings
3,159
--
Reduction of borrowings
(1,545
)
(73
)
Dividends
(1,076
)
(756
)
Repurchases of common stock
(1,669
)
(1,602
)
Proceeds from exercise of stock options
524
1,018
Other
91
(264
)
Cash used by financing activities
(226
)
(1,207
)
Impact of exchange rates on cash and cash equivalents
7
67
Increase in cash and cash equivalents
546
372
Cash and cash equivalents, beginning of period
3,185
2,722
Cash and cash equivalents, end of period
$
3,731
$
3,094
The Walt Disney Company Zenia Mucha Corporate Communications 818-560-5300 or Kathryn
Kranhold Corporate Communications 818-560-8306 or Lowell
Singer Investor Relations 818-560-6601
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