The Walt Disney Company (NYSE: DIS) today reported earnings for its first fiscal quarter ended January 1, 2011.
Press Release from The Walt Disney Company
The Walt Disney Company (NYSE: DIS) today reported earnings for its first fiscal quarter ended January 1, 2011. Diluted earnings per share (EPS) for the quarter were $0.68 compared to $0.44 in the prior-year quarter driven by growth at Media Networks, Studio Entertainment, Parks and Resorts and Consumer Products.
"We had an excellent first quarter, driven by strong creative content and our unique ability to leverage great entertainment across the many platforms, businesses and markets in which we operate," said Robert A. Iger, President and CEO. "With net income up 54%, it's a great start to a new fiscal year."
The following table summarizes the first quarter results for fiscal 2011 and 2010 (in millions, except per share amounts):
Quarter Ended
------------------------
Jan. 1, Jan. 2, Change
2011 2010
---------- ------- ----
Revenues $ 10,716 $ 9,739 10 %
Segment operating income (1) $ 2,208 $ 1,575 40 %
Net income (2) $ 1,302 $ 844 54 %
Diluted EPS (2) $ 0.68 $ 0.44 55 %
Cash provided by operations $ 1,119 $ 915 22 %
Free cash flow (1) $ (94 ) $ 608 nm
(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 included $75 million of gains on sales of businesses, primarily Miramax, which are reported in Other Income in the Consolidated Statement of Income, and $12 million of restructuring and impairment charges. As discussed below, the tax effect of these items essentially offset the pretax benefit of $63 million and as a result, these items collectively had no impact on EPS. The prior-year quarter included restructuring and impairment charges and a gain on the sale of an investment in a television service in Europe, which together had a net adverse impact of $0.03 on EPS. Excluding these items, EPS for the quarter increased 45% to $0.68 compared to $0.47 in the prior-year quarter.
SEGMENT RESULTS
The following table summarizes first quarter segment operating results for fiscal 2011 and 2010 (in millions).
Quarter Ended
--------------------------
Jan. 1, Jan. 2, Change
2011 2010
---------- --------- -------
Revenues:
Media Networks $ 4,645 $ 4,175 11 %
Parks and Resorts 2,868 2,662 8 %
Studio Entertainment 1,932 1,935 a^' %
Consumer Products 922 746 24 %
Interactive Media 349 221 58 %
------ -----
$ 10,716 $ 9,739 10 %
== ====== == =====
Segment operating income (loss):
Media Networks $ 1,066 $ 724 47 %
Parks and Resorts 468 375 25 %
Studio Entertainment 375 243 54 %
Consumer Products 312 243 28 %
Interactive Media (13 ) (10 ) (30 ) %
------ -- ----- --
$ 2,208 $ 1,575 40 %
== ====== == =====
Media Networks
Media Networks revenues for the quarter increased 11% to $4.6 billion and segment operating income increased 47% to $1.1 billion. The following table provides further detail of the Media Networks results (in millions):
Quarter Ended
----------------------
Jan. 1, Jan. 2, Change
2011 2010
-------- -------- ----
Revenues:
Cable Networks $ 3,068 $ 2,654 16 %
Broadcasting 1,577 1,521 4 %
----- -----
$ 4,645 $ 4,175 11 %
=== ===== === =====
Segment operating income:
Cable Networks $ 771 $ 544 42 %
Broadcasting 295 180 64 %
----- -----
$ 1,066 $ 724 47 %
=== ===== === =====
Cable Networks
Operating income at Cable Networks increased $227 million to $771 million for the quarter due to growth at ESPN and the Disney Channels and higher equity income. The increase at ESPN reflected higher advertising and affiliate revenue, partially offset by higher programming costs. Advertising revenue growth was primarily due to higher rates and sold inventory while higher affiliate revenue was due to contractual rate increases. Higher programming and production costs were driven by the addition of college football Bowl Championship Series games, including a shift of the Rose Bowl from the ABC Television Network, and contractual increases for NFL programming. Higher operating income at the Disney Channels was due to increased affiliate and advertising revenue. Affiliate revenue growth reflected contractual rate increases domestically and subscriber growth internationally. Higher advertising revenue was driven by improved rates internationally. Increased equity income reflected higher affiliate and advertising revenue and lower programming and restructuring costs at A&E/Lifetime.
Broadcasting
Operating income at Broadcasting increased $115 million to $295 million driven by higher advertising revenue at the owned television stations, lower sports programming costs at the ABC Television Network due to the shift of the Rose Bowl to ESPN, lower news and daytime production costs and higher net affiliate fees. Advertising revenues at the ABC Television Network decreased slightly as the impact of lower ratings and the shift of the Rose Bowl to ESPN were largely offset by higher advertising rates.
Parks and Resorts
Parks and Resorts revenues for the quarter increased 8% to $2.9 billion and segment operating income increased 25% to $468 million. Results for the quarter reflected increases at our domestic and international parks and resorts, partially offset by a decrease at Disney Cruise Line.
Higher operating income at our domestic parks and resorts was driven by increased guest spending, attendance, and hotel occupancy partially offset by increased costs. The guest spending increase was primarily due to higher average ticket prices and increased food and beverage and merchandise spending. Increased costs reflected labor cost inflation and higher pension and healthcare costs.
Results at our international parks and resorts reflected increased guest spending, hotel occupancy and attendance. Increased guest spending was driven by higher food and beverage spending and average daily hotel room rates.
The decrease at Disney Cruise Line was driven by increased operating costs in connection with the January launch of the Disney Dream and the impact of scheduled dry-dock maintenance.
Studio Entertainment
Studio Entertainment revenues for the quarter were essentially flat at $1.9 billion and segment operating income increased 54% to $375 million. Higher operating income was primarily due to an increase in worldwide home entertainment and lower film cost write-downs.
The increase in worldwide home entertainment was primarily due to lower distribution and marketing expenses resulting from cost reduction initiatives and higher unit sales in international markets. The increase in unit sales reflected the strong performance of Toy Story 3 in the current quarter compared to Up in the prior-year quarter which had been released in fewer international markets.
Consumer Products
Consumer Products revenues for the quarter increased 24% to $922 million and segment operating income increased 28% to $312 million.
The increase in segment operating income was primarily due to higher licensing revenue, driven by the strength of Toy Story and the inclusion of Marvel, and comparable store sales growth and improved margins at the Disney Store North America. Improved margins at the Disney Store North America reflected benefits from a new global purchasing strategy and improved product offerings.
Interactive Media
Interactive Media revenues for the quarter increased 58% to $349 million and segment operating results decreased by $3 million to a loss of $13 million as higher sales of console games were more than offset by the inclusion of results for Playdom in the current quarter, which reflected the impact of acquisition accounting.
Higher console game sales reflected the strong performance of Epic Mickey and Toy Story 3 compared to the prior-year quarter, which included Sing It Pop Hits and Tinker Bell and the Lost Treasure.
OTHER FINANCIAL INFORMATION
Corporate and Unallocated Shared Expenses
Corporate and unallocated shared expenses increased from $72 million to $112 million driven by the timing of expenses and higher compensation related costs.
Restructuring and Impairment Charges and Other Income
The Company recorded $12 million of restructuring and impairment charges in the current quarter and gains on the sale of Miramax and BASS totaling $75 million. The table below shows the pretax and after tax impact of these items.
Benefit/(Expense)
-------------------------------
Pretax Tax After
Effect Tax
------- -------- -----
Restructuring and impairment charges $ (12 ) $ 31 $ 19
Gains on sales of businesses 75 (107 ) (32 )
--- ---- -- --- -
$ 63 $ (76 ) $ (13 )
== === == ==== == = === =
Restructuring and impairment charges include an impairment related to assets that had tax basis significantly in excess of the book value resulting in a $31 million tax benefit on the restructuring and impairment charges. Our book value of Miramax included allocated goodwill totaling $217 million which is not tax deductible. Accordingly, the taxable gain on the sales of businesses exceeded the $75 million book gain resulting in the tax expense of $107 million.
In the prior year quarter, the Company recorded restructuring and impairment charges totaling $105 million and a gain on the sale of an investment in a television service in Europe of $27 million. The charges primarily related to organizational and cost structure initiatives at our Media Networks and Studio Entertainment segments including actions taken in connection with a change in Studio segment leadership. Restructuring charges of $66 million were primarily severance and related costs while impairment charges of $39 million consisted of write-offs of capitalized costs related to abandoned film projects.
Net Interest Expense
Net interest expense was as follows (in millions):
Quarter Ended
-----------------------
Jan. 1, Jan. 2,
2011 2010
-------- --------
Interest expense $ (100 ) $ (118 )
Interest and investment income 5 15
---- ----
Net interest expense $ (95 ) $ (103 )
== ==== == == ==== ==
The decrease in interest expense for the quarter was primarily due to higher capitalized interest driven by higher capital spending. The decrease in interest and investment income reflected write downs of investments in the current quarter.
Income Taxes
The effective income tax rate for the quarter decreased to 35.4% from 36.2% in the prior-year quarter driven by benefits from the favorable resolution of certain income tax matters and from an increase in the domestic production deduction rate, partially offset by the net tax impact of the impairment charges and sale of businesses discussed above.
Cash Flow
Cash provided by operations and free cash flow were as follows (in millions):
Quarter Ended
---------------------------------
Jan. 1, 2011 Jan. 2, 2010 Change
----------------- --------------- -----------
Cash provided by operations $ 1,119 $ 915 $ 204
Investments in parks, resorts and (1,213 ) (307 ) (906 )
other property
------ ---- ---- ---- ---- --
Free cash flow (1) $ (94 ) $ 608 $ (702 )
==== ====== ==== ==== ==== == ==== ==
(1) Free cash flow is not a financial measure defined by GAAP. See the discussion of non-GAAP financial measures that follows below.
The increase in cash provided by operations was primarily due to higher operating cash receipts driven by the timing of receivable collections at our Media Networks and Consumer Products businesses and higher revenues at Parks and Resorts, partially offset by higher cash payments at Corporate and our Media Networks, Parks and Resorts and Consumer Products businesses. The increase in cash payments at Corporate and our Media Networks businesses was driven by the timing of accounts payable disbursements. The increase in cash payments at Parks and Resorts was driven by higher volumes, while the increase in cash payments at Consumer Products was driven by the operations of the Disney Store Japan and Marvel which were acquired subsequent to the prior-year quarter.
The increase in capital expenditures was primarily due to the final payment on our new cruise ship, the Disney Dream.
Capital Expenditures and Depreciation Expense
Investments in parks, resorts and other property by segment were as follows (in millions):
Quarter Ended
-------------------
Jan. 1, Jan. 2,
2011 2010
-------- ------
Media Networks
Cable Networks $ 12 $ 11
Broadcasting 21 11
----- ---
Total Media Networks 33 22
----- ---
Parks and Resorts
Domestic 1,012 193
International 76 36
----- ---
Total Parks and Resorts 1,088 229
----- ---
Studio Entertainment 24 15
Consumer Products 13 13
Interactive Media 4 4
Corporate 51 24
----- ---
Total investments in parks, resorts and other property $ 1,213 $ 307
=== ===== === ===
Depreciation expense by segment was as follows (in millions):
Quarter Ended
-----------------
Jan. 1, Jan. 2,
2011 2010
------ ------
Media Networks
Cable Networks $ 31 $ 31
Broadcasting 24 23
--- ---
Total Media Networks 55 54
--- ---
Parks and Resorts
Domestic 206 211
International 79 88
--- ---
Total Parks and Resorts 285 299
--- ---
Studio Entertainment 17 14
Consumer Products 12 6
Interactive Media 5 7
Corporate 38 31
--- ---
Total depreciation expense $ 412 $ 411
=== === === ===
Borrowings
Total borrowings and net borrowings are detailed below (in millions):
Jan. 1, Oct. 2, Change
2011 2010
---------- ---------- --------
Current portion of borrowings $ 2,822 $ 2,350 $ 472
Long-term borrowings 9,933 10,130 (197 )
------ ------ ---- --
Total borrowings 12,755 12,480 275
Less: cash and cash equivalents (3,039 ) (2,722 ) (317 )
------ -- ------ -- ---- --
Net borrowings (1) $ 9,716 $ 9,758 $ (42 )
== ====== == ====== == ==== ==
(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 $2,431 million and $2,586 million attributable to Euro Disney and Hong Kong Disneyland as of January 1, 2011 and October 2, 2010, respectively. Cash and cash equivalents attributable to Euro Disney and Hong Kong Disneyland totaled $590 million and $657 million as of January 1, 2011 and October 2, 2010, 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
-------------------------
Jan. 1, Jan. 2, Change
2011 2010
--------- --------- ----
Diluted EPS attributable to Disney as reported $ 0.68 $ 0.44 55 %
Exclude:
Restructuring and impairment charges (0.01 ) 0.03 nm
Other income (1) 0.02 (0.01 ) nm
----- ----- --
Diluted EPS attributable to Disney excluding certain items (2) $ 0.68 $ 0.47 45 %
== ===== == =====
(1) Other income for the current quarter consists of gains on the sales of Miramax and BASS. Other income for the prior-year quarter consists of a gain on the sale of an investment in a television service in Europe.
(2) Diluted EPS attributable to Disney 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
-------------------------
Jan. 1, Jan. 2,
2011 2010
--------- ---------
Segment operating income $ 2,208 $ 1,575
Corporate and unallocated shared expenses (112 ) (72 )
Restructuring and impairment charges (12 ) (105 )
Other income 75 27
Net interest expense (95 ) (103 )
----- -- ----- --
Income before income taxes 2,064 1,322
Income taxes (730 ) (478 )
----- -- ----- --
Net income $ 1,334 $ 844
== ===== == =====
CONFERENCE CALL INFORMATION
In conjunction with this release, The Walt Disney Company will host a conference call today, February 8, 2011, 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 February 15, 2011 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 2, 2010 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
-------------------------------
Jan. 1, Jan. 2,
2011 2010
------------ ------------
Revenues $ 10,716 $ 9,739
Costs and expenses (8,776 ) (8,325 )
Restructuring and impairment charges (12 ) (105 )
Other income 75 27
Net interest expense (95 ) (103 )
Equity in the income of investees 156 89
------ ------
Income before income taxes 2,064 1,322
Income taxes (730 ) (478 )
------ - ------ -
Net income 1,334 844
Less: Net income attributable to noncontrolling interests (32 ) --
Net income attributable to The Walt Disney Company (Disney) $ 1,302 $ 844
===== ====== ===== ======
Earnings per share attributable to Disney:
Diluted $ 0.68 $ 0.44
===== ====== ===== ======
Basic $ 0.69 $ 0.45
===== ====== ===== ======
Weighted average number of common and common equivalent shares
outstanding:
Diluted 1,927 1,903
====== ======
Basic 1,891 1,867
====== ======
The Walt Disney Company
CONSOLIDATED BALANCE SHEETS
(unaudited; in millions, except per share data)
Jan. 1, Oct. 2,
2011 2010
------------- -------------
ASSETS
Current assets
Cash and cash equivalents $ 3,039 $ 2,722
Receivables 7,028 5,784
Inventories 1,416 1,442
Television costs 833 678
Deferred income taxes 1,052 1,018
Other current assets 626 581
------- -------
13,994 12,225
Total current assets
Film and television costs 4,636 4,773
Investments 2,491 2,513
Parks, resorts and other property, at cost
Attractions, buildings and equipment 32,966 32,875
Accumulated depreciation (18,601 ) (18,373 )
------- - ------- -
14,365 14,502
Projects in progress 3,001 2,180
Land 1,120 1,124
------- -------
Total parks, resorts and other property, at cost 18,486 17,806
Intangible assets, net 5,193 5,081
Goodwill 24,121 24,100
Other assets 2,029 2,708
------- -------
$ 70,950 $ 69,206
===== ======= ===== =======
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and other accrued liabilities $ 7,118 $ 6,109
Current portion of borrowings 2,822 2,350
Unearned royalties and other advances 2,807 2,541
------- -------
Total current liabilities 12,747 11,000
Borrowings 9,933 10,130
Deferred income taxes 2,577 2,630
Other long-term liabilities 5,954 6,104
Commitments and contingencies
Disney Shareholders' equity
Preferred stock, $.01 par value
Authorized - 100 million shares, Issued - none -- --
Common stock, $.01 par value
Authorized - 4.6 billion shares, Issued - 2.7 billion shares 29,271 28,736
Retained earnings 34,873 34,327
Accumulated other comprehensive loss (1,887 ) (1,881 )
------- - ------- -
62,257 61,182
Treasury stock, at cost, 825.3 million shares at January 1, 2011 and (24,460 ) (23,663 )
803.1 million shares at October 2, 2010
------- - ------- -
Total Disney Shareholders' equity 37,797 37,519
Noncontrolling interests 1,942 1,823
------- -------
Total equity 39,739 39,342
------- -------
$ 70,950 $ 69,206
===== ======= ===== =======
The Walt Disney Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in millions)
Quarter Ended
-----------------------------------
Jan. 1, Jan. 2,
2011 2010
-------------- --------------
OPERATING ACTIVITIES
Net income $ 1,334 $ 844
Depreciation and amortization 447 423
Gains on dispositions (75 ) (27 )
Deferred income taxes (61 ) (6 )
Equity in the income of investees (156 ) (89 )
Cash distributions received from equity investees 170 92
Net change in film and television costs 94 36
Equity-based compensation 128 135
Impairment charges 12 39
Other 84 (70 )
Changes in operating assets and liabilities:
Receivables (1,313 ) (1,100 )
Inventories 13 87
Other assets 58 102
Accounts payable and other accrued liabilities (290 ) 56
Income taxes 674 393
------ ------
Cash provided by operations 1,119 915
------ ------
INVESTING ACTIVITIES
Investments in parks, resorts and other property (1,213 ) (307 )
Proceeds from dispositions 556 37
Acquisitions (163 ) (2,254 )
Other (61 ) (16 )
------ ---- ------ ----
Cash used in investing activities (881 ) (2,540 )
------ ---- ------ ----
FINANCING ACTIVITIES
Commercial paper borrowings, net 496 1,297
Reduction of borrowings (42 ) (79 )
Repurchases of common stock (797 ) (25 )
Exercises of stock options and other 442 233
------ ------
Cash provided by financing activities 99 1,426
------ ------
Impact of exchange rates on cash and cash equivalents (20 ) (14 )
------ ---- ------ ----
Increase / (decrease) in cash and cash equivalents 317 (213 )
Cash and cash equivalents, beginning of period 2,722 3,417
------ ------
Cash and cash equivalents, end of period $ 3,039 $ 3,204
==== ====== ==== ======
Rick DeMott
Animation World Network
Creator of Rick's Flicks Picks
