The Walt Disney Company Reports Second Quarter Earnings for Fiscal 2013

  The Walt Disney Company Reports Second Quarter Earnings for Fiscal 2013

Business Wire

BURBANK, Calif. -- May 07, 2013

The Walt Disney Company (NYSE: DIS) today reported earnings for its second
fiscal quarter and six months ended March30, 2013. Diluted earnings per share
(EPS) for the second quarter increased 32% to $0.83 from $0.63 in the
prior-year quarter. Excluding certain items affecting comparability, EPS for
the quarter increased 36% to $0.79 compared to $0.58 in the prior-year
quarter. Diluted EPS for the six-months ended March30, 2013 was $1.60
compared to $1.43 in the prior-year period.

“With adjusted earnings per share up 36% over last year, we're obviously
pleased with our second quarter,” said Robert A. Iger, Chairman and CEO, The
Walt Disney Company. “Our results reflect our successful strategy, the
strength of our brands and the value of our high-quality creative content, all
of which continue to drive long-term growth and shareholder value.”

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

                Quarter Ended                Six Months Ended    
                  March       March               March       March
                 30,       31,      Change    30,       31,       Change
                  2013        2012                2013        2012
Revenues        $ 10,554    $ 9,629    10   %   $ 21,895    $ 20,408    7    %
Segment
operating       $ 2,509     $ 1,945    29   %   $ 4,889     $ 4,389     11   %
income ^(1)
Net income      $ 1,513     $ 1,143    32   %   $ 2,895     $ 2,607     11   %
^(2)
Diluted EPS     $ 0.83      $ 0.63     32   %   $ 1.60      $ 1.43      12   %
^(2)
Cash provided   $ 2,160     $ 1,812    19   %   $ 3,304     $ 3,546     (7)  %
by operations
Free cash       $ 1,586     $ 335      >100 %   $ 2,185     $ 1,435     52   %
flow ^(1)

       Aggregate segment operating income and free cash flow are non-GAAP
^(1)  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 $102 million of tax benefits related to
pre-tax earnings in prior years, a $10 million gain on the sale of a business
and $61 million of restructuring charges. Collectively, these items had a net
positive impact on EPS of $0.04 in the current quarter. EPS in the prior-year
quarter included a $184 million non-cash gain recorded in connection with the
acquisition of a controlling interest in UTV Software Communications Limited
(UTV Gain) and $38 million of restructuring charges. Collectively, these items
had a net positive impact on EPS of $0.05 in the prior-year quarter. The
current-year gain on the sale of a business and the UTV Gain are recorded in
"Other income/(expense), net" in the Consolidated Statements of Income.

SEGMENT RESULTS

The following table summarizes the second quarter and six-month segment
operating results for fiscal 2013 and 2012 (in millions):

                Quarter Ended                  Six Months Ended      
                  March        March                March        March
                 30,        31,       Change    30,        31,        Change
                  2013         2012                 2013         2012
Revenues:
Media           $ 4,957      $ 4,692     6   %    $ 10,058     $ 9,471      6   %
Networks
Parks and         3,302        2,899     14  %      6,693        6,054      11  %
Resorts
Studio            1,338        1,180     13  %      2,883        2,798      3   %
Entertainment
Consumer          763          679       12  %      1,776        1,627      9   %
Products
Interactive      194        179      8   %     485        458       6   %
                $ 10,554    $ 9,629    10  %    $ 21,895    $ 20,408    7   %
Segment
operating
income
(loss):
Media           $ 1,862      $ 1,729     8   %    $ 3,076      $ 2,922      5   %
Networks
Parks and         383          222       73  %      960          775        24  %
Resorts
Studio            118          (84   )   nm         352          329        7   %
Entertainment
Consumer          200          148       35  %      546          461        18  %
Products
Interactive      (54    )    (70   )   23  %     (45    )    (98    )   54  %
                $ 2,509     $ 1,945    29  %    $ 4,889     $ 4,389     11  %
                                                                                

Media Networks

Media Networks revenues for the quarter increased 6% to $5.0 billion and
segment operating income increased 8% to $1.9 billion. The following table
provides further detail of the Media Networks results (in millions):

                 Quarter Ended                Six Months Ended   
                   March      March                March       March
                  30,      31,      Change     30,       31,      Change
                   2013       2012                 2013        2012
Revenues:
Cable Networks   $ 3,458    $ 3,167    9    %    $ 6,996     $ 6,476    8    %
Broadcasting      1,499     1,525    (2)  %     3,062      2,995    2    %
                 $ 4,957    $ 4,692    6    %    $ 10,058    $ 9,471    6    %
Segment
operating
income:
Cable Networks   $ 1,724    $ 1,500    15   %    $ 2,676     $ 2,467    8    %
Broadcasting      138       229      (40) %     400        455      (12) %
                 $ 1,862    $ 1,729    8    %    $ 3,076     $ 2,922    5    %
                                                                             

Cable Networks

Operating income at Cable Networks increased $224 million to $1.7 billion for
the quarter due to growth at ESPN. Higher operating income at ESPN was due to
increased affiliate revenues and, to a lesser extent, higher advertising
revenues, partially offset by increased programming and production costs.
Increased affiliate revenues at ESPN were primarily due to contractual rate
increases, a reduction in revenue deferrals as a result of changes in
provisions related to annual programming commitments in certain affiliate
contracts and international subscriber growth. During the quarter, ESPN
deferred $120 million of revenue compared to $190 million in the prior-year
quarter. Growth in ESPN advertising revenues was primarily due to an increase
in units sold and higher rates, partially offset by lower ratings in certain
of our programming. The increase in programming costs was driven by
contractual rate increases for college sports.

Broadcasting

Operating income at Broadcasting decreased $91 million to $138 million for the
quarter due to higher primetime programming costs and a decrease in
advertising revenue at the ABC Television Network, partially offset by an
increase in advertising revenue at the owned television stations. Higher
primetime programming costs were driven by increased production cost
write-offs and higher cost acquired programming. The decrease in network
advertising revenue was primarily due to lower ratings, partially offset by
higher rates and increased online advertising.

Parks and Resorts

Parks and Resorts revenues for the quarter increased 14% to $3.3 billion and
segment operating income increased 73% to $383 million. Results for the
quarter were driven by increases at our domestic operations and, to a lesser
extent, at our international operations. Results at both our domestic and
international parks and resorts reflected a favorable impact due to a shift in
the timing of the New Year's and Easter holidays relative to our fiscal
periods.

Higher operating income at our domestic operations was primarily due to
increased guest spending and attendance at both Walt Disney World Resort and
Disneyland Resort, the addition of the Disney Fantasy cruise ship, which
launched in March 2012, and higher occupied room nights at the Walt Disney
World Resort. These increases were partially offset by increased costs.
Increased guest spending was due to higher average ticket prices, food,
beverage and merchandise spending and daily hotel room rates. Higher costs
were driven by new guest offerings, including investments in systems
infrastructure at Walt Disney World Resort and resort expansion at Disneyland
Resort, as well as labor and other cost inflation.

Higher operating income from our international operations reflected higher
guest spending at Disneyland Paris and increased attendance at Hong Kong
Disneyland Resort, partially offset by the absence of business interruption
insurance proceeds related to Tokyo Disney Resort, which were collected in the
prior-year quarter.

Studio Entertainment

Studio Entertainment revenues increased 13% to $1.3 billion and segment
operating income increased $202 million to $118 million.

Higher operating income for the quarter was driven by lower film impairments,
due to the write-down on John Carter in the prior year, and an increase in
worldwide theatrical distribution.

Worldwide theatrical distribution results reflected the strong performance of
Oz The Great And Powerful and Wreck-it Ralph in the current quarter compared
to John Carter in the prior-year quarter.

Consumer Products

Consumer Products revenues increased 12% to $763 million and segment operating
income increased 35% to $200 million. Higher operating income was primarily
due to increases at Merchandise Licensing and at our retail business.

The increase at Merchandise Licensing was driven by the performance of Disney
Channel, Mickey and Minnie, and Marvel properties, partially offset by lower
revenue from sales of Cars merchandise. Merchandise Licensing growth also
benefited from a licensee audit settlement.

At our retail business, higher operating income was driven by higher
comparable store sales in North America and Japan and higher online sales in
North America.

Interactive

Interactive revenues for the quarter increased 8% to $194 million and segment
operating results improved by $16 million to a loss of $54 million. Higher
operating results were due to growth at our Japan mobile business from a
licensing agreement that started in February 2012 and lower acquisition
accounting expense at our social games business.

OTHER FINANCIAL INFORMATION

Corporate and Unallocated Shared Expenses

Corporate and unallocated shared expenses increased $9 million to $129 million
for the quarter. The increase was driven by the timing of allocations to the
operating segments and higher charitable contributions.

Net Interest Expense

Net interest expense was as follows (in millions):

                                 Quarter Ended           
                                  March 30,   March 31,   Change
                                   2013          2012
Interest expense                 $ (83   )     $ (126   )    34   %
Interest and investment income    29          31         (6)  %
Net interest expense             $ (54   )     $ (95    )    43   %
                                                                  

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

Income Taxes

The effective income tax rate was as follows:

                           Quarter Ended         
                            March 30,  March 31,   Change
                            2013        2012
Effective Income Tax Rate   28.8   %    34.6   %    5.8  ppt
                                                          

The decrease in the effective income tax rate for the quarter was primarily
due to favorable tax adjustments related to pre-tax earnings in prior years.
These favorable tax adjustments reduced the effective income tax rate by 4.5
percentage points.

Noncontrolling Interests

Net income attributable to noncontrolling interests increased $25 million to
$108 million for the quarter due to improved operating results at ESPN. 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):

                                          Six Months Ended        
                                           March 30,   March 31,    Change
                                            2013          2012
Cash provided by operations               $ 3,304       $ 3,546       $ (242 )
Investments in parks, resorts and other    (1,119  )    (2,111  )    992  
property
Free cash flow ^(1)                       $ 2,185      $ 1,435      $ 750  

^(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 six months of fiscal 2013 decreased
7% or $242 million to $3.3 billion as compared to the first six months of
fiscal 2012. The decrease was primarily due to the timing of receivable
collections at Media Networks and the timing of disbursements.

Capital Expenditures and Depreciation Expense

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

                                                     Six Months Ended
                                                      March 30,   March 31,
                                                       2013          2012
Media Networks
Cable Networks                                       $ 67          $ 55
Broadcasting                                          24           24
Total Media Networks                                  91           79
Parks and Resorts
Domestic                                               481           1,445
International                                         359          310
Total Parks and Resorts                               840          1,755
Studio Entertainment                                   27            33
Consumer Products                                      14            26
Interactive                                            6             10
Corporate                                             141          208
Total investments in parks, resorts and other        $ 1,119       $ 2,111
property
                                                                     

Capital expenditures decreased from $2.1 billion to $1.1 billion driven by a
decrease at Parks and Resorts due to the final progress payment in the
prior-year period for the Disney Fantasy cruise ship. The decrease in Parks
and Resorts spending also reflected significant spending in the prior-year
period for the expansion of Disney California Adventure and for the
construction of Disney's Art of Animation Resort. These decreases were
partially offset by higher spending in the current year for Shanghai Disney
Resort.

Depreciation expense was as follows (in millions):

                             Six Months Ended
                              March 30,   March 31,
                               2013          2012
Media Networks
Cable Networks               $ 68          $ 71
Broadcasting                  49           48
Total Media Networks          117          119
Parks and Resorts
Domestic                       521           457
International                 161          157
Total Parks and Resorts       682          614
Studio Entertainment           24            26
Consumer Products              28            27
Interactive                    10            8
Corporate                     108          91
Total depreciation expense   $ 969         $ 885
                                             

Non-GAAP Financial Measures

This earnings release presents EPS excluding the impact of certain items, 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, 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                  Six Months Ended    
                      March       March               March       March
                     30,       31,       Change    30,       31,       Change
                      2013        2012                 2013        2012
Diluted EPS as      $ 0.83      $ 0.63      32   %   $ 1.60      $ 1.43      12  %
reported
Exclude:
Favorable tax
adjustments

related to            (0.06 )     —         nm         (0.06 )     —         nm
pre-tax earnings
in

prior years
Tax benefit from
prior-year

foreign earnings
indefinitely
                      —           —         nm         (0.04 )     —         nm
reinvested
outside the
United

States
Other
income/(expense),     —           (0.06 )   nm         0.04        (0.06 )   nm
net ^(1)
Hulu Equity
Redemption            —           —         nm         0.02        —         nm

charge ^(2)
Restructuring and
impairment           0.02      0.01     100  %    0.02      0.02     —   %

charges ^(3)
Diluted EPS
excluding certain   $ 0.79     $ 0.58     36   %   $ 1.58     $ 1.38     14  %

items ^(4)

       The prior-year quarter and six-month period consists of the UTV Gain
^(1)  ($184 million). The current six-month period includes the Celador
       litigation charge ($321 million), partially offset by the gain on the
       sale of our interest in ESPN STAR Sports ($219 million).
^(2)   Our share of expense associated with an equity redemption at Hulu LLC
       ($55 million).
       Charges for the current quarter and six-month period totaled $61
^(3)   million, primarily for severance costs. Charges for the prior-year
       quarter and six-month period totaled $38 million and $44 million,
       respectively, primarily for severance costs.
^(4)   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             Six Months Ended
                          March 30,   March 31,    March 30,   March 31,
                           2013          2012          2013          2012
Segment operating        $ 2,509       $ 1,945       $ 4,889       $ 4,389
income
Corporate and
unallocated shared         (129   )      (120   )      (252    )     (227    )
expenses
Restructuring and          (61    )      (38    )      (61     )     (44     )
impairment charges
Other                      10            184           (92     )     184
income/(expense), net
Net interest expense       (54    )      (95    )      (126    )     (185    )
Hulu Equity Redemption    —           —           (55     )    —       
charge
Income before income       2,275         1,876         4,303         4,117
taxes
Income taxes              (654   )     (650   )     (1,244  )    (1,370  )
Net income               $ 1,621      $ 1,226      $ 3,059      $ 2,747   
                                                                             

CONFERENCE CALL INFORMATION

In conjunction with this release, The Walt Disney Company will host a
conference call today, May7, 2013, 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 May 21, 2013 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 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              Six Months Ended
                          March 30,   March 31,    March 30,   March 31,
                           2013          2012          2013          2012
Revenues                 $ 10,554      $ 9,629       $ 21,895      $ 20,408
Costs and expenses         (8,359  )     (7,942  )     (17,608 )     (16,529 )
Restructuring and          (61     )     (38     )     (61     )     (44     )
impairment charges
Other                      10            184           (92     )     184
income/(expense), net
Net interest expense       (54     )     (95     )     (126    )     (185    )
Equity in the income      185         138         295         283     
of investees
Income before income       2,275         1,876         4,303         4,117
taxes
Income taxes              (654    )    (650    )    (1,244  )    (1,370  )
Net income                 1,621         1,226         3,059         2,747
Less: Net income
attributable to           (108    )    (83     )    (164    )    (140    )
noncontrolling
interests
Net income
attributable to The      $ 1,513      $ 1,143      $ 2,895      $ 2,607   
Walt Disney Company
(Disney)
                                                                     
Earnings per share
attributable to
Disney:
Diluted                  $ 0.83       $ 0.63       $ 1.60       $ 1.43    
Basic                    $ 0.84       $ 0.64       $ 1.62       $ 1.45    
                                                                     
Weighted average
number of common and
common equivalent
shares outstanding:
Diluted                   1,825       1,818       1,813       1,821   
Basic                     1,804       1,793       1,791       1,795   
                                                                             
                                                                             

THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited; in millions, except per share data)
                                                            
                                                  March 30,    September 29,
                                                   2013          2012
ASSETS
Current assets
Cash and cash equivalents                        $ 3,952       $ 3,387
Receivables                                        7,154         6,540
Inventories                                        1,403         1,537
Television costs and advances                      905           676
Deferred income taxes                              758           765
Other current assets                              831         804       
Total current assets                               15,003        13,709
Film and television costs                          4,895         4,541
Investments                                        2,566         2,723
Parks, resorts and other property, at cost
Attractions, buildings and equipment               39,520        38,582
Accumulated depreciation                          (21,481 )    (20,687   )
                                                   18,039        17,895
Projects in progress                               2,445         2,453
Land                                              1,166       1,164     
                                                   21,650        21,512
Intangible assets, net                             7,493         5,015
Goodwill                                           27,428        25,110
Other assets                                      2,323       2,288     
Total assets                                     $ 81,358     $ 74,898    
                                                                 
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and other accrued liabilities   $ 6,325       $ 6,393
Current portion of borrowings                      3,556         3,614
Unearned royalties and other advances             3,572       2,806     
Total current liabilities                          13,453        12,813
                                                                 
Borrowings                                         13,381        10,697
Deferred income taxes                              3,090         2,251
Other long-term liabilities                        7,290         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 – 2.8      32,929        31,731
billion shares
Retained earnings                                  44,517        42,965
Accumulated other comprehensive loss              (2,968  )    (3,266    )
                                                   74,478        71,430
Treasury stock, at cost, 1.0 billion shares       (32,389 )    (31,671   )
Total Disney Shareholders' equity                  42,089        39,759
Noncontrolling interests                          2,055       2,199     
Total equity                                      44,144      41,958    
Total liabilities and equity                     $ 81,358     $ 74,898    
                                                                 
                                                                 

THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in millions)
                                                   
                                                      Six Months Ended
                                                      March 30,   March 31,
                                                       2013          2012
OPERATING ACTIVITIES
Net income                                           $ 3,059       $ 2,747
Depreciation and amortization                          1,064         973
Gains on dispositions and acquisition                  (229    )     (184    )
Deferred income taxes                                  (247    )     236
Equity in the income of investees                      (295    )     (283    )
Cash distributions received from equity investees      367           315
Net change in film and television costs and            (571    )     (496    )
advances
Equity-based compensation                              208           208
Other                                                  103           16
Changes in operating assets and liabilities:
Receivables                                            (76     )     188
Inventories                                            137           70
Other assets                                           (1      )     67
Accounts payable and other accrued liabilities         17            60
Income taxes                                          (232    )    (371    )
Cash provided by operations                           3,304       3,546   
                                                                     
INVESTING ACTIVITIES
Investments in parks, resorts and other property       (1,119  )     (2,111  )
Proceeds from dispositions                             345           15
Acquisitions                                           (2,310  )     (726    )
Other                                                 94          41      
Cash used in investing activities                     (2,990  )    (2,781  )
                                                                     
FINANCING ACTIVITIES
Commercial paper borrowings/(repayments), net          (245    )     290
Borrowings                                             3,878         3,159
Reduction of borrowings                                (788    )     (1,545  )
Dividends                                              (1,324  )     (1,076  )
Repurchases of common stock                            (1,894  )     (1,669  )
Proceeds from exercise of stock options                354           524
Other                                                 329         91      
Cash provided by/(used in) financing activities       310         (226    )
                                                                     
Impact of exchange rates on cash and cash             (59     )    7       
equivalents
                                                                     
Increase in cash and cash equivalents                  565           546
Cash and cash equivalents, beginning of period        3,387       3,185   
Cash and cash equivalents, end of period             $ 3,952      $ 3,731   
                                                                             
                                                                             

Contact:

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