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The Walt Disney Company Reports First Quarter Earnings for Fiscal 2013

  The Walt Disney Company Reports First Quarter Earnings for Fiscal 2013

Business Wire

BURBANK, Calif. -- February 5, 2013

The Walt Disney Company (NYSE: DIS) today reported earnings for its first
quarter ended December29, 2012. Diluted earnings per share (EPS) for the
quarter was $0.77, but excluding certain items affecting comparability EPS was
$0.79 compared to $0.80 in the prior-year quarter.

“After delivering another record year of growth in 2012, we're off to a solid
start in Fiscal 2013,” said Robert A. Iger, Chairman and Chief Executive
Officer, The Walt Disney Company. “Our ongoing success is driven by our
long-term strategy, the strength of our brands and businesses, and our high
quality family entertainment.”

The following table summarizes the first quarter results for fiscal 2013 and
2012 (in millions, except per share amounts):

                            Quarter Ended                           
                             December 29, 2012   December 31, 2011   Change
Revenues                    $ 11,341              $ 10,779              5 %
Segment operating income    $ 2,380               $ 2,444               (3) %
^(1)
Net income ^(2)             $ 1,382               $ 1,464               (6) %
Diluted EPS ^(2)            $ 0.77                $ 0.80                (4) %
Cash provided by            $ 1,144               $ 1,734               (34) %
operations
Free cash flow ^(1)         $ 599                 $ 1,100               (46) %

^(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 charges related to the Celador litigation
($321 million) and our share of expense associated with an equity redemption
at Hulu LLC (Hulu Equity Redemption) ($55 million), a gain on the sale of our
50% interest in ESPN STAR Sports ($219 million) and a tax benefit related to
prior-year foreign earnings ($64 million). Collectively, these items had a net
adverse impact on EPS of $0.02.

SEGMENT RESULTS

The following table summarizes the first quarter segment operating results for
fiscal 2013 and 2012 (in millions):

                                   Quarter Ended                 
                                    December 29,   December 31,   Change
                                     2012             2011
Revenues:
Media Networks                     $ 5,101          $ 4,779          7 %
Parks and Resorts                    3,391            3,155          7 %
Studio Entertainment                 1,545            1,618          (5) %
Consumer Products                    1,013            948            7 %
Interactive                         291             279            4 %
                                   $ 11,341         $ 10,779         5 %
Segment operating income (loss):
Media Networks                     $ 1,214          $ 1,193          2 %
Parks and Resorts                    577              553            4 %
Studio Entertainment                 234              413            (43) %
Consumer Products                    346              313            11 %
Interactive                         9               (28)           nm
                                   $ 2,380          $ 2,444          (3) %

Media Networks

Media Networks revenues for the quarter increased 7% to $5.1 billion and
segment operating income increased 2% to $1.2 billion. The following table
provides further detail of the Media Networks results (in millions):

                            Quarter Ended                           
                             December 29, 2012   December 31, 2011   Change
Revenues:
Cable Networks              $ 3,538               $ 3,309               7 %
Broadcasting                 1,563                1,470               6 %
                            $ 5,101               $ 4,779               7 %
Segment operating income:
Cable Networks              $ 952                 $ 967                 (2) %
Broadcasting                 262                  226                 16 %
                            $ 1,214               $ 1,193               2 %

Cable Networks

Operating income at Cable Networks decreased $15 million to $952 million for
the quarter due to a decrease at ESPN, partially offset by growth at the
domestic Disney Channels, ABC Family and A&E Television Networks (AETN). The
decrease at ESPN was driven by higher programming and production costs,
partially offset by higher affiliate revenue. The increase in programming and
production costs reflected contractual rate increases for college football and
the NFL and an increase in the number of NBA games due to the lockout in the
prior year. The increase in affiliate revenue was due to contractual rate
increases and a reduction in revenue deferrals related to annual programming
commitments. During the quarter we deferred $154 million of revenue compared
to $190 million in the prior-year quarter. The decrease in revenue deferrals
was due to changes in the provisions related to annual programming commitments
in certain affiliate contracts. At the domestic Disney Channels, growth was
driven by higher affiliate revenue due to contractual rate increases. The
improvement at ABC Family was driven by higher advertising sales reflecting
higher units sold and lower marketing costs. Higher equity income from AETN
reflected higher affiliate and advertising revenues, partially offset by
higher marketing costs, along with the benefit of the increase in the
Company's ownership from 42% to 50%.

Broadcasting

Operating income at Broadcasting increased $36 million to $262 million driven
by increased advertising revenues at the ABC Television Network and owned
television stations and higher program sales, partially offset by higher
primetime network programming costs. The increase in network advertising
revenues was primarily due to higher advertising rates and higher online
advertising, partially offset by lower ratings and fewer units sold. Higher
advertising revenue at the owned television stations reflected increased
political advertising. Program sales growth was driven by Revenge and Once
Upon A Time. Higher programming costs were due to more hours of first run
original scripted programming in the current quarter.

Parks and Resorts

Parks and Resorts revenues for the quarter increased 7% to $3.4 billion and
segment operating income increased 4% to $577 million. Results for the quarter
were driven by 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
increased guest spending at both Walt Disney World Resort and Disneyland
Resort, the addition of the Disney Fantasy cruise ship which launched in March
2012, attendance growth at Disneyland Resort, and higher occupied room nights
at Walt Disney World Resort. These increases were partially offset by higher
operating costs and lower average cruise ship ticket prices driven by a cruise
itinerary out of a new port location for the Disney Magic. Increased guest
spending reflected higher average ticket prices, daily hotel room rates and
food, beverage and merchandise spending. Higher operating costs were due to
resort expansion and new guest offerings, including the addition of the Disney
Fantasy and investments in systems infrastructure at Walt Disney World Resort,
as well as labor and other cost inflation.

Lower results from our international operations reflect higher costs due to
new guest offerings and labor cost inflation at Disneyland Paris and start up
costs at Shanghai Disney Resort, partially offset by increased guest spending
at Hong Kong Disneyland Resort.

Studio Entertainment

Studio Entertainment revenues decreased 5% to $1.5 billion and segment
operating income decreased 43% to $234 million.

Lower operating income for the quarter was driven by decreases in home
entertainment and theatrical distribution, partially offset by an increase in
television and subscription video on demand (TV/SVOD) distribution.

The decrease at home entertainment was due to lower unit sales reflecting the
strong performance of The Lion King Diamond Release in the prior-year quarter
compared to the Cinderella Diamond Release in the current quarter.
Additionally, the prior-year quarter included Cars 2, which had lower
production cost amortization given the strength of its merchandise licensing
revenues, compared to Brave in the current quarter.

The decline in theatrical distribution was driven by marketing and
distribution costs for Lincoln and Monsters, Inc. 3D in the current quarter,
the continuing strong performance in the prior year of The Lion King 3D, which
was released in Q4 2011, and one additional new Disney theatrical title in
wide release in the current quarter. Key new Disney titles in wide release in
the current quarter were Wreck-it Ralph and Frankenweenie, while The Muppets
was released in the prior-year quarter.

The operating income increase in TV/SVOD distribution was primarily due to a
domestic SVOD sale of library titles in the current quarter and higher
international sales driven by the timing of title availabilities.

Consumer Products

Consumer Products revenues increased 7% to $1.0 billion and segment operating
income increased 11% to $346 million. Higher operating income was due to
increases at Merchandise Licensing and at our retail business.

The increase at Merchandise Licensing was due to lower revenue share with the
Studio Entertainment segment which reflected a higher mix of revenues from
properties subject to the revenue share in the prior-year quarter driven by
sales of Cars merchandise.

At our retail business, higher operating income was driven by higher
comparable store sales in Japan and growth in North America which benefited
from higher online sales, comparable store sales growth and store format
changes.

Interactive

Interactive revenues for the quarter increased 4% to $291 million and segment
operating results improved from a loss of $28 million to income of $9 million.
Higher operating results were driven by lower acquisition accounting impacts
at our social games business which were adverse in the prior-year quarter and
growth at our Japan mobile business from a new licensing agreement for Disney
branded mobile phones and content.

OTHER FINANCIAL INFORMATION

Corporate and Unallocated Shared Expenses

Corporate and unallocated shared expenses increased $16 million to $123
million for the quarter. The increase was driven by the timing of allocations
to the operating segments.

Net Interest Expense

Net interest expense was as follows (in millions):

                                 Quarter Ended                 
                                  December 29,   December 31,   Change
                                   2012             2011
Interest expense                 $ (92)           $ (116)          21 %
Interest and investment income    20              26             (23) %
Net interest expense             $ (72)           $ (90)           20 %

The decrease in net interest expense for the quarter was due to lower
effective interest rates.

Income Taxes

The effective income tax rate was as follows:

                           Quarter Ended                         
                            December 29, 2012  December 31, 2011   Change
Effective Income Tax Rate   29.1       %        32.1       %        3.0  ppt

The decrease in the effective tax rate for the quarter was primarily due to an
increase in the amount of prior-year earnings from foreign operations
indefinitely reinvested outside of the United States which are subject to
foreign tax rates lower than the federal statutory income tax rate. The impact
of the increase in the prior-year earnings from foreign operations as well as
certain other items affecting comparability benefited the effective tax rate
by 4.3 percentage points. (See Footnote 1 to the reconciliation of reported
EPS to EPS excluding certain items in the Non-GAAP Financial Measures section
for further information on the effective tax rate).

Noncontrolling Interests

Net income attributable to noncontrolling interests decreased $1 million to
$56 million for the quarter due to higher recognition of royalties and
management fees at Disneyland Paris and start up costs at Shanghai Disney
Resort, partially offset by an increase in net income at ESPN. The increase at
ESPN was due to the gain on the sale of our 50% equity interest in ESPN STAR
Sports, partially offset by lower operating results. 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):

                          Quarter Ended                           
                           December 29, 2012   December 31, 2011    Change
Cash provided by          $ 1,144               $ 1,734               $ (590 )
operations
Investments in parks,
resorts and other          (545       )         (634       )         89   
property
Free cash flow ^(1)       $ 599                $ 1,100              $ (501 )

^(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 quarter of fiscal 2013 decreased 34%
or $590 million to $1.1 billion as compared to the first quarter of fiscal
2012. The decrease was due to the timing of receivable collections at Media
Networks and cash disbursements at Corporate.

Capital Expenditures and Depreciation Expense

Investments in parks, resorts and other property were as follows (in
millions):

                                     Quarter Ended
                                      December 29, 2012   December 31, 2011
Media Networks
Cable Networks                       $ 31                  $ 20
Broadcasting                          12                   10
Total Media Networks                  43                   30
Parks and Resorts
Domestic                               242                   358
International                         176                  123
Total Parks and Resorts               418                  481
Studio Entertainment                   10                    17
Consumer Products                      6                     16
Interactive                            3                     4
Corporate                             65                   86
Total investments in parks,          $ 545                 $ 634
resorts and other property

Capital expenditures decreased from $634 million to $545 million driven by a
decrease at domestic Parks and Resorts, partially offset by an increase at
international Parks and Resorts. The decrease at our domestic Parks and
Resorts was primarily due to lower spending for resort expansion and new guest
offerings at Disneyland Resort and Walt Disney World Resort as compared to the
prior-year quarter which included Cars Land and Disney's Art of Animation. The
increase at our international Parks and Resorts was due to construction costs
at Shanghai Disney Resort, partially offset by decreased spending on the
resort expansion at Hong Kong Disneyland Resort.

Depreciation expense was as follows (in millions):

                             Quarter Ended
                              December 29,   December 31,
                               2012             2011
Media Networks
Cable Networks               $ 32             $ 34
Broadcasting                  24              23
Total Media Networks          56              57
Parks and Resorts
Domestic                       255              224
International                 80              79
Total Parks and Resorts       335             303
Studio Entertainment           9                13
Consumer Products              14               13
Interactive                    5                4
Corporate                     54              46
Total depreciation expense   $ 473            $ 436

Borrowings

Total borrowings and net borrowings are detailed below (in millions):

                         December 29, 2012   September 29, 2012   Change
Current portion of       $ 4,815               $ 3,614                $ 1,201
borrowings
Long-term borrowings      12,633              10,697               1,936
Total borrowings           17,448                14,311                 3,137
Less: cash and cash       (3,207      )        (3,387      )         180
equivalents
Net borrowings ^(1)      $ 14,241             $ 10,924              $ 3,317

^(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 $269 million and $267 million
attributable to our consolidated international theme parks as of December 29,
2012 and September 29, 2012, respectively. Cash and cash equivalents
attributable to our consolidated international theme parks totaled $320
million and $548 million as of December 29, 2012 and September 29, 2012,
respectively.

Non-GAAP Financial Measures

This earnings release presents EPS 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 EPS,
borrowings, cash flow or net income as determined in accordance with GAAP. EPS
excluding certain items, 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.

EPS excluding certain items – The Company uses EPS 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 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:

                                      Quarter Ended                 
                                       December 29,   December 31,   Change
                                        2012 ^(1)        2011
Diluted EPS as reported               $ 0.77           $ 0.80           (4) %
Exclude:
Other income/(expense), net ^(2)        0.04             —              nm
Hulu Equity Redemption charge           0.02             —              nm
Tax benefit from prior-year foreign
earnings
                                       (0.04)          —              nm
indefinitely reinvested outside the
United States
Diluted EPS excluding certain items   $ 0.79           $ 0.80           (1) %

^(1) The following table reconciles the effective tax rate in EPS as reported
to the effective tax rate in EPS excluding certain items (dollars in
millions).

                                                                
                             Pre-Tax       Tax           After-Tax
                            Income/      Benefit/     Income/     Effective
                                                                     Tax Rate
                             (Loss)        (Expense)     (Loss)
As reported                $ 2,028       $ (590   )    $ 1,438       29.1   %
Exclude:
Other income/(expense),      (102   )      55            (47    )
net
Hulu Equity Redemption       (55    )      20            (35    )
charge
Tax benefit from
prior-year foreign
earnings
                            —           64          64     
indefinitely reinvested
outside the United
States
Excluding items            $ 2,185      $ (729   )    $ 1,456      33.4   %
affecting comparability

^(2) Other income/(expense), net for the current year includes the Celador
litigation charge ($321 million) partially offset by the gain on the sale of
our interest in ESPN STAR Sports ($219 million).

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
                                      December 29, 2012   December 31, 2011
Segment operating income             $ 2,380               $ 2,444
Corporate and unallocated shared       (123       )          (107       )
expenses
Restructuring and impairment           —                    (6         )
charges
Other income/(expense), net            (102       )          —
Net interest expense                   (72        )          (90        )
Hulu Equity Redemption charge         (55        )         —          
Income before income taxes             2,028                 2,241
Income taxes                          (590       )         (720       )
Net income                           $ 1,438              $ 1,521      

CONFERENCE CALL INFORMATION

In conjunction with this release, The Walt Disney Company will host a
conference call today, February 5, 2013, 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 19, 2013 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 developmentsmay 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 September29, 2012 under Item1A, “Risk Factors,” and
subsequent reports.

THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited; in millions, except per share data)
                                             
                                                Quarter Ended
                                               December 29,   December 31,
                                                 2012             2011
Revenues                                       $ 11,341         $ 10,779
Costs and expenses                               (9,249   )       (8,587   )
Restructuring and impairment charges             —                (6       )
Other income/(expense), net                      (102     )       —
Net interest expense                             (72      )       (90      )
Equity in the income of investees               110            145      
Income before income taxes                       2,028            2,241
Income taxes                                    (590     )      (720     )
Net income                                       1,438            1,521
Less: Net income attributable to                (56      )      (57      )
noncontrolling interests
Net income attributable to The Walt Disney     $ 1,382         $ 1,464    
Company (Disney)
                                                                  
Earnings per share attributable to Disney:
Diluted                                        $ 0.77          $ 0.80     
Basic                                          $ 0.78          $ 0.81     
                                                                  
Weighted average number of common and common
equivalent shares outstanding:
Diluted                                         1,800          1,824    
Basic                                           1,777          1,798    


THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited; in millions, except per share data)
                                                            
                                               December 29,    September 29,
                                                2012             2012
ASSETS
Current assets
Cash and cash equivalents                     $ 3,207          $ 3,387
Receivables                                     7,315            6,540
Inventories                                     1,440            1,537
Television costs and advances                   864              676
Deferred income taxes                           762              765
Other current assets                           734            804       
Total current assets                            14,322           13,709
Film and television costs                       4,811            4,541
Investments                                     2,622            2,723
Parks, resorts and other property, at cost
Attractions, buildings and equipment            39,351           38,582
Accumulated depreciation                       (21,186   )     (20,687   )
                                                18,165           17,895
Projects in progress                            2,336            2,453
Land                                           1,170          1,164     
                                                21,671           21,512
Intangible assets, net                          7,532            5,015
Goodwill                                        27,433           25,110
Other assets                                   2,251          2,288     
Total assets                                  $ 80,642        $ 74,898    
                                                                 
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and other accrued            $ 6,767          $ 6,393
liabilities
Current portion of borrowings                   4,815            3,614
Unearned royalties and other advances          2,916          2,806     
Total current liabilities                       14,498           12,813
                                                                 
Borrowings                                      12,633           10,697
Deferred income taxes                           2,854            2,251
Other long-term liabilities                     7,287            7,179
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 –       32,662           31,731
2.8 billion shares
Retained earnings                               43,022           42,965
Accumulated other comprehensive loss           (3,128    )     (3,266    )
                                                72,556           71,430
Treasury stock, at cost, 1.0 billion shares    (31,540   )     (31,671   )
Total Disney Shareholders' equity               41,016           39,759
Noncontrolling interests                       2,354          2,199     
Total equity                                   43,370         41,958    
Total liabilities and equity                  $ 80,642        $ 74,898    


THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited; in millions)
                                             
                                                Quarter Ended
                                                December 29,   December 31,
                                                 2012             2011
OPERATING ACTIVITIES
Net income                                     $ 1,438          $ 1,521
Depreciation and amortization                    514              485
Gain on disposition                              (219     )       —
Deferred income taxes                            (236     )       (14      )
Equity in the income of investees                (110     )       (145     )
Cash distributions received from equity          192              161
investees
Net change in film and television costs and      (187     )       (256     )
advances
Equity-based compensation                        100              100
Other                                            86               148
Changes in operating assets and liabilities:
Receivables                                      (934     )       (643     )
Inventories                                      95               52
Other assets                                     42               23
Accounts payable and other accrued               (314     )       (373     )
liabilities
Income taxes                                    677            675      
Cash provided by operations                     1,144          1,734    
                                                                  
INVESTING ACTIVITIES
Investments in parks, resorts and other          (545     )       (634     )
property
Proceeds from disposition                        335              —
Acquisitions                                     (2,265   )       (361     )
Other                                           10             17       
Cash used in investing activities               (2,465   )      (978     )
                                                                  
FINANCING ACTIVITIES
Commercial paper borrowings/(repayments),        994              (976     )
net
Borrowings                                       3,037            1,590
Reduction of borrowings                          (776     )       (49      )
Dividends                                        (1,300   )       —
Repurchases of common stock                      (1,044   )       (800     )
Proceeds from exercise of stock options          124              114
Other                                           101            (9       )
Cash provided by/(used in) financing            1,136          (130     )
activities
                                                                  
Impact of exchange rates on cash and cash       5              (45      )
equivalents
                                                                  
Increase/(decrease) in cash and cash             (180     )       581
equivalents
Cash and cash equivalents, beginning of         3,387          3,185    
period
Cash and cash equivalents, end of period       $ 3,207         $ 3,766    

Contact:

The Walt Disney Company
Zenia Mucha
Corporate Communications
818-560-5300
or
Lowell Singer
Investor Relations
818-560-6601