The Walt Disney Company (NYSE: DIS) today reported record
quarterly earnings of $2.5 billion for its third fiscal quarter
ended June 27, 2015 compared to $2.2 billion for the
prior-year quarter. Diluted earnings per share (EPS) for the third
quarter increased 13% to $1.45 from $1.28 in the prior-year
quarter. EPS for the nine months ended June 27, 2015 increased
16% to $3.95 from $3.40 in the prior-year period. Excluding certain
items affecting comparability(1), EPS for the nine months increased
15%.
"We’re very pleased with our performance in the third quarter,
with record net income and diluted earnings per share of $1.45, up
13% from the prior year,” said Robert A. Iger, Chairman and Chief
Executive Officer, The Walt Disney Company. “The strong results
across our many diverse lines of business demonstrate the power of
our unparalleled brands, franchises and creative content."
The following table summarizes the third quarter and nine-month
results for fiscal 2015 and 2014 (in millions, except per share
amounts):
Quarter Ended Nine Months Ended June 27,2015
June 28,2014 Change June 27,2015 June 28,2014 Change Revenues $
13,101 $ 12,466 5 % $ 38,953 $ 36,424 7 % Segment
operating income (2) $ 4,120 $ 3,857 7 % $ 11,147 $ 10,230 9 % Net
income (3) $ 2,483 $ 2,245 11 % $ 6,773 $ 6,002 13 % Diluted EPS
(3) $ 1.45 $ 1.28 13 % $ 3.95 $ 3.40 16 % Cash provided by
operations $ 2,808 $ 2,936 (4 ) % $ 7,581 $ 6,675 14 % Free cash
flow (2) $ 1,652 $ 2,047 (19 ) % $ 4,520 $ 4,427 2 %
(1) See reconciliation of reported EPS to EPS excluding certain
items affecting comparability on page 8.(2) Segment operating
income and free cash flow are non-GAAP financial measures. See the
discussion of non-GAAP financial measures that follows.(3) Reflects
amounts attributable to shareholders of The Walt Disney Company,
i.e. after deduction of noncontrolling interests.
SEGMENT RESULTS
The following table summarizes the third quarter and nine-month
segment operating results for fiscal 2015 and 2014 (in
millions):
Quarter Ended Nine Months Ended June 27,2015
June 28,2014 Change June 27,2015 June 28,2014 Change
Revenues: Media Networks $ 5,768 $ 5,511 5 % $ 17,438
$ 15,935 9 % Parks and Resorts 4,131 3,980 4 % 11,801 11,139
6 % Studio Entertainment 2,040 1,807 13 % 5,583 5,500 2 % Consumer
Products 954 902 6 % 3,304 2,913 13 % Interactive 208 266
(22 )% 827 937 (12 )% $ 13,101 $ 12,466
5 % $ 38,953 $ 36,424 7 % Segment
operating income: Media Networks $ 2,378 $ 2,296 4 % $ 5,974 $
5,884 2 % Parks and Resorts 922 848 9 % 2,293 1,976 16 % Studio
Entertainment 472 411 15 % 1,443 1,295 11 % Consumer Products 348
273 27 % 1,336 977 37 % Interactive — 29 (100 )% 101
98 3 % $ 4,120 $ 3,857 7 % $ 11,147
$ 10,230 9 %
Media Networks
Media Networks revenues for the quarter increased 5% to $5.8
billion and segment operating income increased 4% to $2.4 billion.
The following table provides further detail of the Media Networks
results (in millions):
Quarter Ended Nine Months Ended June 27,2015
June 28,2014 Change June 27,2015 June 28,2014 Change
Revenues: Cable Networks $ 4,140 $ 3,942 5 % $ 12,336
$ 11,334 9 % Broadcasting 1,628 1,569 4
% 5,102 4,601 11 % $ 5,768 $ 5,511 5 %
$ 17,438 $ 15,935 9 % Segment operating
income: Cable Networks $ 2,078 $ 1,942 7 % $ 5,132 $ 5,193 (1 )%
Broadcasting 300 354 (15 )% 842 691 22
% $ 2,378 $ 2,296 4 % $ 5,974 $ 5,884 2
%
Cable Networks
Operating income at Cable Networks increased 7% to $2.1 billion
for the quarter due to growth at the domestic Disney Channels, ABC
Family and ESPN.
The increases at the domestic Disney Channels and ABC Family
were due to higher program sales and increased affiliate revenue,
driven by contractual rate increases. Program sales growth
reflected increased subscription video on demand (SVOD)
distribution revenues in the current quarter.
Operating results at ESPN were driven by growth in affiliate
revenue, partially offset by lower advertising revenue. The
increase in affiliate revenues was due to contractual rate
increases and an increase in subscribers. The increase in
subscribers was due to the new SEC Network launched in August 2014,
partially offset by a decline in subscribers at certain of our
networks. The impact of contractual rates and subscribers on
affiliate revenue was partially offset by a decrease due to the
recognition of $176 million of previously deferred revenue in the
prior-year quarter related to annual programming commitments. As a
result of changes in contractual provisions, ESPN did not recognize
any deferred revenue in the current quarter. Lower advertising
revenues reflected lower ratings and rates, partially offset by
more units sold driven by NBA playoff games. Lower rates reflected
the benefit of World Cup soccer in the prior-year quarter. ESPN
programming and production costs were relatively flat in the
quarter as the addition of the SEC Network and higher rights costs
for NBA programming were essentially offset by the absence of
rights costs for NASCAR and World Cup soccer.
Broadcasting
Operating income at Broadcasting decreased 15% to $300 million
for the quarter driven by higher programming costs, lower
advertising revenue and higher labor related costs, partially
offset by growth in affiliate fees and higher program sales revenue
from SVOD distribution. Higher programming costs were driven by
increases in the average cost of primetime programming and pilot
costs in the current quarter. Lower advertising revenues reflected
decreased news and daytime ratings, partially offset by higher
rates. Affiliate fee growth was due to new contractual provisions
and contractual rate increases.
Parks and Resorts
Parks and Resorts revenues for the quarter increased 4% to $4.1
billion and segment operating income increased 9% to $922 million.
Operating income growth for the quarter was due to an increase at
our domestic operations, partially offset by a decrease at our
international operations.
Higher operating income at our domestic operations was primarily
due to volume and guest spending growth, partially offset by higher
costs. The increase in volumes was due to attendance growth at our
theme parks and higher occupied room nights at Walt Disney World
Resort and our Aulani resort in Hawaii. Guest spending growth was
due to higher food, beverage, and merchandise spending, increases
in average ticket prices at our cruise line and Disneyland Resort
and higher average hotel room rates. Cost increases were due to
labor and other cost inflation, costs for the 60th Anniversary
celebration at Disneyland Resort and higher pension and
postretirement medical costs, partially offset by lower marketing
costs at Walt Disney World Resort.
Lower operating income at our international operations was due
to lower attendance and occupied room nights at Hong Kong
Disneyland Resort, higher operating costs at Disneyland Paris and
Hong Kong Disneyland Resort, and higher pre-opening expenses at
Shanghai Disney Resort. These decreases were partially offset by
higher average ticket prices, increased food, beverage and
merchandise spending and higher volumes at Disneyland Paris.
Studio Entertainment
Studio Entertainment revenues for the quarter increased 13% to
$2.0 billion and segment operating income increased 15% to $472
million. Higher operating income was due to an increase in
theatrical distribution, growth at international television
distribution and a higher revenue share with the Consumer Products
segment. These increases were partially offset by a decrease in
home entertainment and higher film cost impairments.
The increase in theatrical distribution reflected the strong
performance of Marvel's Avengers: Age of Ultron in the current
quarter compared to Marvel's Captain America: The Winter Soldier in
the prior-year quarter. Theatrical results in the current quarter
also benefited from the continuing performance of Cinderella, which
was released in the second quarter of the current year. These
increases were partially offset by the strong international
performance of Frozen in the prior-year quarter and the results of
Tomorrowland in the current quarter. The growth in international
television distribution included sales of Star Wars titles, while
the increased Consumer Products revenue share was primarily due to
the performance of Frozen merchandise. The decrease at home
entertainment reflected lower unit sales due to the performance of
Frozen in the prior-year quarter compared to Big Hero 6 in the
current quarter.
Consumer Products
Consumer Products revenues for the quarter increased 6% to $954
million and segment operating income increased 27% to $348 million.
Higher operating income was due to an increase in merchandise
licensing revenues and lower third-party royalty expense.
Merchandise Licensing revenue growth reflected the performance of
merchandise based on Frozen, The Avengers and Star Wars, partially
offset by lower revenues from Spider-Man merchandise.
Interactive
Interactive revenues for the quarter decreased by $58 million to
$208 million and segment operating income decreased by $29 million
to break-even.
Lower operating income was primarily due to lower results from
Disney Infinity and decreased sales of console game catalog titles,
partially offset by the continued success of Tsum Tsum. The
decrease from Disney Infinity was due to decreased unit sales and
lower average net effective pricing.
OTHER FINANCIAL INFORMATION
Corporate and Unallocated Shared
Expenses
Corporate and unallocated shared expenses increased $9 million
to $146 million in the current quarter driven by higher labor
related costs.
Interest income/(expense),
net
Interest income/(expense), net was as follows (in millions):
Quarter Ended June 27,2015 June 28,2014 Change
Interest expense $ (62 ) $ (74 ) 16 % Interest and investment
income 50 24 >100 % Interest income/(expense), net
$ (12 ) $ (50 ) 76 %
The decrease in interest expense for the quarter was due to
lower average debt balances. The increase in interest and
investment income for the quarter was due to gains on sales of
investments.
Income Taxes
The effective income tax rate was as follows:
Quarter Ended June 27,2015 June 28,2014 Change
Effective income tax rate 33.4 % 34.1 % 0.7
ppt
The decrease in the effective income tax rate was due to a
benefit from an increase in earnings from foreign operations
indefinitely reinvested outside the United States, which are
subject to tax rates lower than the federal statutory income tax
rate.
Noncontrolling Interests
Quarter Ended (in millions) June 27,2015 June 28,2014
Change Net income attributable to noncontrolling interests $ 156 $
174 10 %
The decrease in net income attributable to noncontrolling
interests for the quarter was due to lower operating results at
Hong Kong Disneyland Resort.
Net income attributable to noncontrolling interests is
determined on income after royalties and management fees, financing
costs and income taxes.
Cash Flow
Cash provided by operations and free cash flow were as follows
(in millions):
Nine Months Ended June 27,2015 June 28,2014 Change
Cash provided by operations $ 7,581 $ 6,675 $ 906 Investments in
parks, resorts and other property (3,061 ) (2,248 ) (813 ) Free
cash flow (1) $ 4,520 $ 4,427 $ 93
(1) Free cash flow is not a financial measure
defined by GAAP. See the discussion of non-GAAP financial measures
that follows.
Cash provided by operations for the first nine months of fiscal
2015 increased 14% or $0.9 billion to $7.6 billion compared to the
first nine months of fiscal 2014. The increase in cash provided by
operations was due to higher segment operating results and the
impact of changes in payment terms for certain sports rights in
fiscal 2014, partially offset by increased income tax payments.
Capital Expenditures and Depreciation
Expense
Investments in parks, resorts and other property were as follows
(in millions):
Nine Months Ended June 27,2015 June 28,2014 Media Networks
Cable Networks $ 51 $ 101 Broadcasting 37 52 Total Media
Networks 88 153 Parks and Resorts Domestic 1,002 809
International 1,644 1,056 Total Parks and Resorts 2,646
1,865 Studio Entertainment 84 44 Consumer Products 35 23
Interactive 11 3 Corporate 197 160 Total investments in
parks, resorts and other property $ 3,061 $ 2,248
Capital expenditures increased from $2.2 billion to $3.1 billion
primarily due to higher construction spending for the Shanghai
Disney Resort.
Depreciation expense was as follows (in millions):
Nine Months Ended June 27,2015 June 28,2014 Media Networks
Cable Networks $ 114 $ 101 Broadcasting 71 70 Total Media
Networks 185 171 Parks and Resorts Domestic 865 832
International 258 259 Total Parks and Resorts 1,123
1,091 Studio Entertainment 41 37 Consumer Products 42 47
Interactive 9 7 Corporate 185 177 Total depreciation expense
$ 1,585 $ 1,530
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 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 EPS to EPS excluding
certain items affecting comparability:
Quarter Ended Nine Months Ended June 27,2015
June 28,2014 Change June 27,2015 June 28,2014 Change
Diluted EPS as reported $ 1.45 $ 1.28 13 % $ 3.95 $ 3.40 16 %
Exclude: Restructuring and impairment charges(1) — — nm — 0.03 — %
Other expense, net(2) — — nm — 0.01 — %
Diluted EPS excluding certain items affecting comparability(3) $
1.45 $ 1.28 13 % $ 3.95 $ 3.43 15 %
(1) Charges for the prior-year nine-month
period totaled $67 million (pre-tax), primarily for severance
costs.(2) Significant items in the prior-year nine-month period
include a loss from Venezuelan foreign currency translation ($143
million pre-tax and before noncontrolling interest), a gain on the
sale of property ($77 million pre-tax) and income related to a
portion of a settlement of an affiliate contract dispute ($29
million pre-tax).(3) May not equal the sum of the rows due to
rounding.
Free cash flow – The Company uses
free cash flow (cash provided by operations less investments in
parks, resorts and other property), among other measures, to
evaluate the ability of its operations to generate cash that is
available for purposes other than capital expenditures. Management
believes that information about free cash flow provides investors
with an important perspective on the cash available to service
debt, make strategic acquisitions and investments and pay dividends
or repurchase shares.
Aggregate segment operating income
– The Company evaluates the performance of its operating segments
based on segment operating income, and management uses aggregate
segment operating income as a measure of the performance of
operating businesses separate from non-operating factors. The
Company believes that information about aggregate segment operating
income assists investors by allowing them to evaluate changes in
the operating results of the Company’s portfolio of businesses
separate from non-operational factors that affect net income, thus
providing separate insight into both operations and the other
factors that affect reported results.
A reconciliation of segment operating income to net income is as
follows (in millions):
Quarter Ended Nine Months Ended June 27,2015 June
28,2014 June 27,2015 June 28,2014 Segment operating income $
4,120 $ 3,857 $ 11,147 $ 10,230 Corporate and unallocated shared
expenses (146 ) (137 ) (441 ) (408 ) Restructuring and impairment
charges — — — (67 ) Other expense, net — — — (31 ) Interest
income/(expense), net (12 ) (50 ) (62 ) 61 Income before
income taxes 3,962 3,670 10,644 9,785 Income taxes (1,323 ) (1,251
) (3,533 ) (3,406 ) Net income $ 2,639 $ 2,419 $
7,111 $ 6,379
CONFERENCE CALL INFORMATION
In conjunction with this release, The Walt Disney Company will
host a conference call today, August 4, 2015, at 5:00 PM
EDT/2:00 PM PDT via a live Webcast. To access the Webcast go to
www.disney.com/investors. The
discussion will be available via replay through August 18, 2015 at
7:00 PM EDT/4:00 PM PDT.
FORWARD-LOOKING STATEMENTS
Management believes certain statements in this earnings release
may constitute “forward-looking statements” within the meaning of
the Private Securities Litigation Reform Act of 1995. These
statements are made on the basis of management’s views and
assumptions regarding future events and business performance as of
the time the statements are made. Management does not undertake any
obligation to update these statements.
Actual results may differ materially from those expressed or
implied. Such differences may result from actions taken by the
Company, including restructuring or strategic initiatives
(including capital investments or asset acquisitions or
dispositions), as well as from developments beyond the Company’s
control, including:
- changes in domestic and global economic
conditions, competitive conditions and consumer preferences;
- adverse weather conditions or natural
disasters;
- health concerns;
- international, political, or military
developments; and
- technological developments.
Such developments may affect travel and leisure businesses
generally and may, among other things, affect:
- the performance of the Company’s
theatrical and home entertainment releases;
- the advertising market for broadcast
and cable television programming;
- expenses of providing medical and
pension benefits;
- demand for our products; and
- performance of some or all company
businesses either directly or through their impact on those who
distribute our products.
Additional factors are set forth in the Company’s Annual Report
on Form 10-K for the year ended September 27, 2014 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 Nine Months Ended June 27,2015 June
28,2014 June 27,2015 June 28,2014 Revenues: Services $
11,308 $ 10,531 $ 32,587 $ 29,989 Products 1,793 1,935
6,366 6,435 Total revenues 13,101 12,466
38,953 36,424 Costs and expenses: Cost of services (exclusive of
depreciation and amortization) (5,547 ) (5,217 ) (17,224 ) (15,617
) Cost of products (exclusive of depreciation and amortization)
(1,116 ) (1,147 ) (3,785 ) (3,784 ) Selling, general,
administrative and other (2,101 ) (2,047 ) (6,117 ) (6,181 )
Depreciation and amortization (575 ) (557 ) (1,751 ) (1,698 ) Total
costs and expenses (9,339 ) (8,968 ) (28,877 ) (27,280 )
Restructuring and impairment charges — — — (67 ) Other expense, net
— — — (31 ) Interest income/(expense), net (12 ) (50 ) (62 ) 61
Equity in the income of investees 212 222 630
678 Income before income taxes 3,962 3,670 10,644 9,785
Income taxes (1,323 ) (1,251 ) (3,533 ) (3,406 ) Net income 2,639
2,419 7,111 6,379 Less: Net income attributable to noncontrolling
interests (156 ) (174 ) (338 ) (377 ) Net income attributable to
The Walt Disney Company (Disney) $ 2,483 $ 2,245 $
6,773 $ 6,002 Earnings per share attributable
to Disney: Diluted $ 1.45 $ 1.28 $ 3.95 $ 3.40
Basic $ 1.46 $ 1.30 $ 3.99 $
3.43 Weighted average number of common and common
equivalent shares outstanding: Diluted 1,711 1,748
1,714 1,767 Basic 1,696 1,732
1,699 1,748 Dividends declared per share $
0.66 $ — $ 1.81 $ 0.86
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED BALANCE
SHEETS
(unaudited; in millions, except per
share data)
June 27,2015 September 27,2014 ASSETS Current assets Cash
and cash equivalents $ 4,475 $ 3,421 Receivables 8,012 7,822
Inventories 1,513 1,574 Television costs and advances 1,006 1,061
Deferred income taxes 619 497 Other current assets 887 801
Total current assets 16,512 15,176 Film and television costs
5,775 5,325 Investments 2,694 2,696 Parks, resorts and other
property Attractions, buildings and equipment 42,210 42,263
Accumulated depreciation (24,473 ) (23,722 ) 17,737 18,541 Projects
in progress 5,449 3,553 Land 1,250 1,238 24,436
23,332 Intangible assets, net 7,237 7,434 Goodwill 27,848 27,881
Other assets 2,865 2,342 Total assets $ 87,367
$ 84,186 LIABILITIES AND EQUITY Current liabilities
Accounts payable and other accrued liabilities $ 7,794 $ 7,595
Current portion of borrowings 3,119 2,164 Unearned royalties and
other advances 3,913 3,533 Total current liabilities
14,826 13,292 Borrowings 12,154 12,676 Deferred income taxes
4,113 4,098 Other long-term liabilities 5,767 5,942 Commitments and
contingencies Equity Preferred stock, $.01 par value Authorized –
100 million shares, Issued – none — — Common stock, $.01 par value
Authorized – 4.6 billion shares, Issued – 2.8 billion shares 34,930
34,301 Retained earnings 57,425 53,734 Accumulated other
comprehensive loss (1,904 ) (1,968 ) 90,451 86,067 Treasury stock,
at cost, 1.2 billion shares at June 27, 2015 and1.1 billion shares
at September 27, 2014 (43,932 ) (41,109 ) Total Disney
Shareholders’ equity 46,519 44,958 Noncontrolling interests 3,988
3,220 Total equity 50,507 48,178 Total
liabilities and equity $ 87,367 $ 84,186
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(unaudited; in millions)
Nine Months Ended June 27,2015 June 28,2014 OPERATING
ACTIVITIES Net income $ 7,111 $ 6,379 Depreciation and amortization
1,751 1,698 Gains on sales of investments and dispositions (89 )
(285 ) Deferred income taxes (167 ) 304 Equity in the income of
investees (630 ) (678 ) Cash distributions received from equity
investees 553 538 Net change in film and television costs and
advances (623 ) (993 ) Equity-based compensation 309 308 Other 214
33 Changes in operating assets and liabilities: Receivables (229 )
(543 ) Inventories 48 61 Other assets (274 ) (73 ) Accounts payable
and other accrued liabilities (507 ) (288 ) Income taxes 114
214 Cash provided by operations 7,581 6,675
INVESTING ACTIVITIES Investments in parks, resorts and other
property (3,061 ) (2,248 ) Sales of investments/proceeds from
dispositions 143 382 Acquisitions — (402 ) Other (137 ) (24 ) Cash
used in investing activities (3,055 ) (2,292 ) FINANCING
ACTIVITIES Commercial paper borrowings, net 2,352 1,253 Borrowings
181 2,180 Reduction of borrowings (2,006 ) (1,549 ) Dividends
(1,948 ) (1,508 ) Repurchases of common stock (2,823 ) (5,087 )
Proceeds from exercise of stock options 292 348 Contributions from
noncontrolling interest holders 1,012 608 Other (301 ) (335 ) Cash
used in financing activities (3,241 ) (4,090 ) Impact of
exchange rates on cash and cash equivalents (231 ) (134 )
Increase in cash and cash equivalents 1,054 159 Cash and cash
equivalents, beginning of period 3,421 3,931 Cash and
cash equivalents, end of period $ 4,475 $ 4,090
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The Walt Disney CompanyZenia MuchaCorporate
Communications818-560-5300orLowell SingerInvestor
Relations818-560-6601
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