The Walt Disney Company (NYSE: DIS) today reported earnings for
its third fiscal quarter ended June 27, 2020. Diluted earnings per
share (EPS) from continuing operations for the quarter was a loss
of $2.61 compared to income of $0.79 in the prior-year quarter.
Excluding certain items affecting comparability(1), diluted EPS for
the quarter decreased 94% to $0.08 from $1.34 in the prior-year
quarter. EPS from continuing operations for the nine months ended
June 27, 2020 was a loss of $1.17 compared to income of $5.97 in
the prior-year period. Excluding certain items affecting
comparability(1), EPS for the nine months decreased 53% to $2.22
from $4.74 in the prior-year period. Results in the quarter and
nine months ended June 27, 2020 were adversely impacted by the
novel coronavirus (COVID-19). The most significant impact was at
the Parks, Experiences and Products segment as most of our theme
parks and resorts were closed for the entire quarter and our cruise
ship sailings were suspended.
“Despite the ongoing challenges of the pandemic, we’ve continued
to build on the incredible success of Disney+ as we grow our global
direct-to-consumer businesses,” said Bob Chapek, Chief Executive
Officer, The Walt Disney Company. “The global reach of our full
portfolio of direct-to-consumer services now exceeds an astounding
100 million paid subscriptions -- a significant milestone and a
reaffirmation of our DTC strategy, which we view as key to the
future growth of our company.”
Results in the prior-year nine-month period includes the
consolidation of TFCF Corporation (TFCF) and Hulu LLC (Hulu) for
the period March 20, 2019 through June 29, 2019, whereas the
current year results of TFCF and Hulu are included for the full
nine month period.
The following table summarizes the third quarter and nine months
results for fiscal 2020 and 2019 (in millions, except per share
amounts):
Quarter Ended
Nine Months Ended
June 27, 2020
June 29, 2019
Change
June 27, 2020
June 29, 2019
Change
Revenues
$
11,779
$
20,262
(42) %
$
50,681
$
50,489
— %
Income (loss) from continuing operations
before income taxes
$
(4,840)
$
2,009
nm
$
(1,163)
$
12,676
nm
Total segment operating income(1)
$
1,099
$
3,952
(72) %
$
7,502
$
11,422
(34) %
Net income (loss) from continuing
operations(2)
$
(4,718)
$
1,430
nm
$
(2,122)
$
9,648
nm
Diluted EPS from continuing
operations(2)
$
(2.61)
$
0.79
nm
$
(1.17)
$
5.97
nm
Diluted EPS excluding certain items
affecting comparability(1)
$
0.08
$
1.34
(94) %
$
2.22
$
4.74
(53) %
Cash provided by (used in)
continuing operations
$
1,162
$
(1,748)
nm
$
5,949
$
4,266
39 %
Free cash flow(1)
$
454
$
(2,925)
nm
$
2,656
$
699
>100 %
(1)
EPS excluding certain items affecting comparability, total
segment operating income and free cash flow are non-GAAP financial
measures. The comparable GAAP measures are diluted EPS from
continuing operations, income from continuing operations before
income taxes, and cash provided by continuing operations,
respectively. See the discussion on page 2 and on pages 10 through
13.
(2)
Reflects amounts attributable to shareholders of The Walt Disney
Company, i.e. after deduction of noncontrolling interests.
SEGMENT RESULTS
The Company evaluates the performance of its operating segments
based on segment operating income, and management uses total
segment operating income as a measure of the performance of
operating businesses separate from non-operating factors. The
Company believes that information about total 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.
The following is a reconciliation of income (loss) from
continuing operations before income taxes to total segment
operating income (in millions):
Quarter Ended
Nine Months Ended
June 27, 2020
June 29, 2019
Change
June 27, 2020
June 29, 2019
Change
Income (loss) from continuing operations
before income taxes
$
(4,840)
$
2,009
nm
$
(1,163)
$
12,676
nm
Add/(subtract):
Corporate and unallocated shared
expenses
179
238
25 %
604
678
11 %
Restructuring and impairment charges
5,047
207
>(100) %
5,342
869
>(100) %
Other (income) expense, net
(382)
123
nm
(382)
(4,840)
(92) %
Interest expense, net
412
411
— %
995
617
(61) %
Amortization of TFCF and Hulu
intangible assets and fair value
step-up
on film and television costs
683
779
12 %
2,106
884
>(100) %
Impairment of equity investments(1)
—
185
100 %
—
538
100 %
Total Segment Operating Income
$
1,099
$
3,952
(72) %
$
7,502
$
11,422
(34) %
(1)
The prior-year quarter reflects the impairment of an investment
in a cable channel at A+E Television Networks. The prior-year
nine-month period also includes an impairment of Vice Group
Holdings, Inc.
The impact of COVID-19 and measures to prevent its spread are
affecting our segments in a number of ways, most significantly at
Parks, Experiences and Products where we closed our theme parks and
retail stores, some of which have now re-opened, suspended cruise
ship sailings and guided tours and have seen an adverse impact on
our merchandise licensing business. In addition, we have delayed,
or in some cases, shortened or cancelled theatrical releases and
suspended stage play performances at Studio Entertainment and have
experienced an adverse impact on advertising sales at Media
Networks and Direct-to-Consumer & International. We have
experienced disruptions in the production and availability of
content, including the deferral or cancellation of certain sports
events and suspension of production of most film and television
content. Many of these businesses have been closed consistent with
government mandates or guidance. The most significant impact in the
current quarter from COVID-19 was an approximately $3.5 billion
adverse impact on operating income at our Parks, Experiences and
Products segment due to revenue lost as a result of the closures.
The negative impact at Parks, Experiences and Products was
partially offset by a positive impact at Media Networks. The
benefit at Media Networks was due to the deferral of sports
programming rights to future quarters when we currently anticipate
the events will air, partially offset by lower advertising revenue.
The impacts at Direct-to-Consumer & International and Studio
Entertainment were less significant as lower advertising revenue at
Direct-to-Consumer & International was partially offset by the
deferral of sports programming costs, while lower amortization,
marketing and distribution costs at Studio Entertainment were
largely offset by lower revenues as a result of theater closures.
In total, we estimate the net adverse impact of COVID-19 on our
current quarter segment operating income across all of our
businesses was approximately $2.9 billion, inclusive of the impact
at Parks, Experiences and Products.
The following table summarizes the third quarter segment revenue
and total segment operating income for fiscal 2020 and 2019 (in
millions):
Quarter Ended
Nine Months Ended
June 27, 2020
June 29, 2019
Change
June 27, 2020
June 29, 2019
Change
Revenues:
Media Networks
$
6,562
$
6,713
(2) %
$
21,180
$
18,317
16 %
Parks, Experiences and Products
983
6,575
(85) %
13,922
19,570
(29) %
Studio Entertainment
1,738
3,836
(55) %
8,041
7,817
3 %
Direct-to-Consumer &
International
3,969
3,875
2 %
12,114
5,940
>100 %
Eliminations
(1,473)
(737)
(100) %
(4,576)
(1,155)
>(100) %
Total Revenues
$
11,779
$
20,262
(42) %
$
50,681
$
50,489
— %
Segment operating income:
Media Networks
$
3,153
$
2,136
48 %
$
7,158
$
5,696
26 %
Parks, Experiences and Products
(1,960)
1,719
nm
1,017
5,377
(81) %
Studio Entertainment
668
792
(16) %
2,082
1,607
30 %
Direct-to-Consumer &
International
(706)
(562)
(26) %
(2,226)
(1,084)
>(100) %
Eliminations
(56)
(133)
58 %
(529)
(174)
>(100) %
Total Segment Operating Income
$
1,099
$
3,952
(72) %
$
7,502
$
11,422
(34) %
Media Networks
Media Networks revenues for the quarter decreased 2% to $6.6
billion, and segment operating income increased 48% to $3.2
billion. The following table provides further detail of the Media
Networks results (in millions):
Quarter Ended
Nine Months Ended
June 27, 2020
June 29, 2019
Change
June 27, 2020
June 29, 2019
Change
Revenues:
Cable Networks
$
4,034
$
4,464
(10) %
$
13,245
$
12,243
8 %
Broadcasting
2,528
2,249
12 %
7,935
6,074
31 %
$
6,562
$
6,713
(2) %
$
21,180
$
18,317
16 %
Segment operating income:
Cable Networks
$
2,459
$
1,637
50 %
$
5,120
$
4,169
23 %
Broadcasting
477
307
55 %
1,449
974
49 %
Equity in the income of investees
217
192
13 %
589
553
7 %
$
3,153
$
2,136
48 %
$
7,158
$
5,696
26 %
Cable Networks
Cable Networks revenues for the quarter decreased 10% to $4.0
billion and operating income increased 50% to $2.5 billion. The
increase in operating income was due to increases at ESPN and, to a
lesser extent, the FX Networks.
The increase at ESPN was due to lower programming and production
costs and to a lesser extent, higher affiliate revenue, partially
offset by lower advertising revenue. The decrease in programming
and production costs was due to the deferral of rights costs
related to the NBA and MLB reflecting the rescheduling of these
events to later quarters as a result of COVID-19. Affiliate revenue
growth was due to an increase in contractual rates, partially
offset by a decrease in subscribers. The decrease in subscribers
was net of the impact of the ACC Network, which launched in August
2019. The decrease in advertising revenue was driven by the absence
of major sporting events as a result of COVID-19.
Higher FX Networks results were due to a decrease in marketing
and programming costs driven by the shift of original programming
to later quarters in response to COVID-19.
Broadcasting
Broadcasting revenues for the quarter increased 12% to $2.5
billion and operating income increased 55% to $477 million. The
increase in operating income was due to lower network programming
and production costs, an increase in affiliate revenue due to
higher rates, higher program sales and lower marketing costs. These
increases were partially offset by lower advertising revenue.
The decrease in network programming and production costs was due
to production shutdowns as a result of COVID-19 driven by The
Bachelorette, American Idol and Grey’s Anatomy. The increase in
program sales income was driven by sales of The Simpsons, Modern
Family and The Politician, partially offset by higher programming
and production costs due a timing impact from new accounting
guidance. Lower advertising revenue reflected a decrease at the
owned television stations and lower average network viewership.
At the beginning of fiscal 2020, the Company adopted new
accounting guidance, which generally results in lower amortization
of capitalized episodic television costs during network airings for
shows that we also expect to utilize on our direct-to-consumer
services. Compared to the previous accounting, programming and
production expense will generally be lower in the first half of the
fiscal year and higher in the second half of the fiscal year as the
capitalized costs are amortized.
Equity in the Income of Investees
Income from equity investees increased $25 million, from $192
million to $217 million, primarily driven by higher income from A+E
Television Networks driven by lower programming and marketing
costs.
Parks, Experiences and
Products
Parks, Experiences and Products revenues for the quarter
decreased 85% to $1.0 billion, and segment operating results
decreased $3.7 billion to a loss of $2.0 billion. Lower operating
results for the quarter were due to decreases at both the domestic
and international parks and experiences businesses and to a lesser
extent, at our merchandise licensing and retail businesses.
As a result of COVID-19, our domestic parks and resorts, cruise
line business and Disneyland Paris were closed for all of the
current quarter. Our Asia parks and resorts were closed for a
portion of the current quarter, as Shanghai Disney Resort re-opened
in May and Hong Kong Disneyland Resort re-opened in late June (Hong
Kong Disneyland Resort closed again in July).
The decrease at licensing and retail also reflected the impact
of COVID-19, which resulted in decreases in licensing earned
revenue and lower minimum guarantee shortfall recognition, the
closure of our Disney Stores for most of the quarter and the
write-down of store assets.
We estimate the total net adverse impact of COVID-19 on segment
operating income in the quarter was approximately $3.5 billion.
Studio Entertainment
Studio Entertainment revenues for the quarter decreased 55% to
$1.7 billion and segment operating income decreased 16% to $668
million. The decrease in operating income was due to lower
theatrical distribution results, partially offset by growth from
TV/SVOD distribution, a decrease in home entertainment marketing
costs and lower film cost impairments.
Theatrical distribution in the quarter was negatively impacted
by COVID-19 as theaters were generally closed domestically and
internationally. No significant titles were released in the current
quarter compared to the release of Avengers: Endgame, Aladdin and
Dark Phoenix in the prior-year quarter.
Growth in TV/SVOD distribution results was due to the sale of
content to Disney+ including library titles, Star Wars: The Rise of
Skywalker and Onward. This increase was partially offset by a
decrease in sales to third parties in the pay television
window.
Direct-to-Consumer &
International
Direct-to-Consumer & International revenues for the quarter
increased 2% to $4.0 billion and segment operating loss increased
from $562 million to $706 million. The increase in operating loss
was due to costs associated with the ongoing launch of Disney+,
partially offset by higher results at Star and ESPN+.
The increase at Star was primarily due to lower programming
costs, partially offset by a decrease in advertising impressions.
The decrease in programming costs was due to the comparison to the
quadrennial International Cricket Council World Cup matches that
aired in the prior year quarter and a shift in the timing of Indian
Premier League cricket games to later quarters due to COVID-19. The
decrease in advertising impressions was primarily due to the lack
of cricket matches.
Higher results at ESPN+ were primarily due to subscriber growth
and higher income from Ultimate Fighting Championship pay-per-view
events.
The following table presents the number of paid subscribers(1)
(in millions) for Disney+, ESPN+ and Hulu as of:
June 27, 2020
June 29, 2019
Change
Disney+(3)
57.5
—
nm
ESPN+
8.5
2.4
>100 %
Hulu
SVOD Only
32.1
25.7
25 %
Live TV + SVOD
3.4
2.2
55 %
Total Hulu
35.5
27.9
27 %
The following table presents the average monthly revenue per
paid subscriber(2) for the quarter ended:
June 27, 2020
June 29, 2019
Change
Disney+(3)
$
4.62
$
—
nm
ESPN+(4)
$
4.18
$
5.33
(22) %
Hulu
SVOD Only
$
11.39
$
12.68
(10) %
Live TV + SVOD
$
68.11
$
58.42
17 %
(1)
A subscriber for which we recognized subscription revenue. A
subscriber ceases to be a paid subscriber as of their effective
cancellation date or as a result of a failed payment method. A
subscription bundle is considered a paid subscriber for each
service included in the bundle. Subscribers include those who
receive the service through wholesale arrangements in which we
receive a fee for the distribution of Disney+ to each subscriber to
an existing content distribution tier. When we aggregate the total
number of paid subscribers across our direct-to-consumer services,
whether acquired individually, through a wholesale arrangement or
via the bundle, we refer to them as paid subscriptions.
(2)
Revenue per paid subscriber is calculated based upon the average
of the monthly average paid subscribers for each month in the
period. The monthly average paid subscribers is calculated as the
sum of the beginning of the month and end of the month paid
subscriber count, divided by two. Disney+ average monthly revenue
per paid subscriber is calculated using a daily average of paid
subscribers for the period beginning at launch and ending on the
last day of the quarter. The average revenue per subscriber is net
of discounts offered on bundled services. The discount is allocated
to each service based on the relative retail price of each service
on a standalone basis. In general, wholesale arrangements have a
lower average monthly revenue per paid subscriber than subscribers
that we acquire directly or through third party platforms like
Apple.
(3)
Disney+ Hotstar launched on April 3, 2020 (as a conversion of
the preexisting Hotstar service in India) and is included in the
number of paid subscribers and average monthly revenue per paid
subscriber. The average monthly revenue per paid subscriber for
Disney+ Hotstar is significantly lower than the average monthly
revenue per paid subscriber in North America and Europe.
(4)
Excludes Pay-Per-View revenue.
The average monthly revenue per paid subscriber for ESPN+
decreased from $5.33 to $4.18 due to the introduction of a bundled
subscription package of Disney+, ESPN+ and Hulu beginning in
November 2019 and lower per-subscriber advertising revenue. The
bundled offering has a lower retail price than the aggregate
standalone retail prices of the individual services.
The average monthly revenue per paid subscriber for the Hulu
SVOD Only service decreased from $12.68 to $11.39 due to lower
per-subscriber advertising revenue. The average monthly revenue per
paid subscriber for the Hulu Live TV + SVOD service increased from
$58.42 to $68.11 due to increases in retail pricing and Live TV
per-subscriber advertising revenue, partially offset by the
introduction of the bundled subscription package.
Eliminations
Revenue eliminations increased from $737 million to $1.5 billion
and eliminations of segment operating income were $56 million in
the current quarter compared to $133 million in the prior-year
quarter. The decrease in eliminations of segment operating income
in the current quarter compared to the prior-year quarter was due
to the recognition of previously deferred profit on sales of Studio
Entertainment titles to Disney+, the International Channels and the
FX Networks.
OTHER FINANCIAL INFORMATION
Corporate and Unallocated Shared
Expenses
Corporate and unallocated shared expenses decreased $59 million
from $238 million to $179 million for the quarter primarily due to
lower compensation and TFCF integration costs, partially offset by
the absence of a benefit from amortization of a deferred gain on a
sale leaseback due to the adoption of new lease accounting
guidance.
Restructuring and Impairment
Charges
During the current and prior-year quarters, the Company recorded
charges totaling $5,047 million and $207 million, respectively. The
current quarter charges included $4,953 million of impairments of
goodwill and intangible assets at our International Channels
business and $94 million of restructuring costs. The impairment of
goodwill and intangible assets reflected the impacts of COVID-19
and of the ongoing shift of film and television distribution from
licensing of linear channels to a direct-to-consumer business model
on the International Channel businesses. Restructuring costs were
primarily for severance and contract termination charges in
connection with the integration of TFCF. The charge in the
prior-year quarter was primarily for severance costs in connection
with the integration of TFCF and accelerated equity based
compensation for TFCF awards that vested upon closing of the
acquisition. These charges are recorded in “Restructuring and
impairment charges” in the Condensed Consolidated Statement of
Income.
Other income (expense),
net
Other income (expense), net was as follows (in millions):
Quarter Ended
June 27, 2020
June 29, 2019
Change
DraftKings gain
$
382
$
—
nm
Hulu gain adjustment
—
(123)
(100) %
Other income (expense), net
$
382
$
(123)
nm
In the current quarter, the Company recognized a non-cash gain
to adjust its investment in DraftKings, Inc. to fair value
following its listing on Nasdaq (DraftKings gain). In the
prior-year quarter, the Company recorded a $123 million adjustment
to the gain we recorded on our Hulu investment in the second
quarter of the prior year.
Interest Expense, net
Interest expense, net was as follows (in millions):
Quarter Ended
June 27, 2020
June 29, 2019
Change
Interest expense
$
(456)
$
(472)
3 %
Interest, investment income and other
44
61
(28) %
Interest expense, net
$
(412)
$
(411)
— %
The decrease in interest expense was due to lower average
interest rates, partially offset by higher average debt balances
and lower capitalized interest.
The decrease in interest income, investment income and other was
driven by a lower benefit related to pension and postretirement
benefit costs, other than service cost and a decrease in interest
income on cash balances due to lower average rates, partially
offset by lower investment impairments.
Equity in the Income (Loss) of
Investees
Equity in the income (loss) of investees was as follows (in
millions):
Quarter Ended
June 27, 2020
June 29, 2019
Change
Amounts included in segment results:
Media Networks
$
217
$
192
13 %
Parks, Experiences and Products
(6)
—
nm
Direct-to-Consumer & International
(18)
7
nm
Impairment of equity investment
—
(185)
100 %
Amortization of TFCF intangible assets
related to equity
investees
(7)
(15)
53 %
Equity in the income (loss) of
investees
$
186
$
(1)
nm
Equity in the income (loss) of investees increased $187 million,
from a loss of $1 million to income of $186 million, primarily due
to the comparison to an impairment of an investment in a cable
channel at A+E Television Networks in the prior-year quarter.
Income Taxes
The effective income tax rate was as follows:
Quarter Ended
June 27, 2020
June 29, 2019
Change
Effective income tax rate - continuing
operations
6.8
%
19.6
%
12.8
ppt
The decrease in the effective income tax rate was due to the
impairment of International Channels goodwill, which is not tax
deductible.
Noncontrolling Interests
Net income attributable to noncontrolling interests was as
follows (in millions):
Quarter Ended
June 27, 2020
June 29, 2019
Change
Net income from continuing operations
attributable to
noncontrolling interests
$
(209)
$
(186)
(12) %
The increase in net income from continuing operations
attributable to noncontrolling interests was driven by higher
operating results at ESPN and accretion of the redeemable
noncontrolling interest in Hulu, partially offset by lower results
at Shanghai Disney Resort and Hong Kong Disneyland Resort.
Net income attributable to noncontrolling interests is
determined on income after royalties and management fees, financing
costs and income taxes, as applicable.
Cash Flow
Cash provided by operations and free cash flow were as follows
(in millions):
Nine Months Ended
June 27, 2020
June 29, 2019
Change
Cash provided by operations
$
5,949
$
4,266
$
1,683
Investments in parks, resorts and other
property
(3,293)
(3,567)
274
Free cash flow(1)
$
2,656
$
699
$
1,957
(1)
Free cash flow is not a financial measure defined by GAAP. See
the discussion on pages 10 through 13.
Cash provided by operations for the first nine months of fiscal
2020 increased by $1.7 billion from $4.3 billion in the prior-year
nine months to $5.9 billion in the current nine months. The
increase in cash provided by operations was due to lower income tax
payments and higher collection of accounts receivable, partially
offset by lower segment operating results and increased spending on
film and television productions. The decrease in income tax
payments was due to the prior-year payment of approximately $5.5
billion of tax obligations that arose from the spin-off of Fox
Corporation in connection with the TFCF acquisition.
Capital Expenditures and Depreciation
Expense
Investments in parks, resorts and other property were as follows
(in millions):
Nine Months Ended
June 27, 2020
June 29, 2019
Media Networks
Cable Networks
$
49
$
60
Broadcasting
48
65
Total Media Networks
97
125
Parks, Experiences and Products
Domestic
1,857
2,491
International
625
611
Total Parks, Experiences and Products
2,482
3,102
Studio Entertainment
61
61
Direct-to-Consumer & International
407
137
Corporate
246
142
Total investments in parks, resorts and
other property
$
3,293
$
3,567
Capital expenditures decreased from $3.6 billion to $3.3 billion
driven by lower spending at our domestic parks and resorts
primarily due to a decrease in spending on Star Wars: Galaxy’s Edge
at both the Walt Disney World and Disneyland resorts, partially
offset by higher spending on technology to support our
direct-to-consumer services and on corporate facilities. Capital
spending in the current period also reflected the suspension of
certain capital projects as a result of COVID-19.
Depreciation expense was as follows (in millions):
Nine Months Ended
June 27, 2020
June 29, 2019
Media Networks
Cable Networks
$
89
$
79
Broadcasting
64
62
Total Media Networks
153
141
Parks, Experiences and Products
Domestic
1,232
1,085
International
520
549
Total Parks, Experiences and Products
1,752
1,634
Studio Entertainment
70
53
Direct-to-Consumer & International
224
157
Corporate
129
124
Total depreciation expense
$
2,328
$
2,109
NON-GAAP FINANCIAL
MEASURES
This earnings release presents free cash flow, diluted EPS
excluding the impact of certain items affecting comparability, and
total 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 operating cash flow, diluted EPS or income
from continuing operations before income taxes as determined in
accordance with GAAP. Free cash flow, diluted EPS excluding certain
items affecting comparability and total segment operating income as
we have calculated them may not be comparable to similarly titled
measures reported by other companies. See further discussion of
total segment operating income on page 2.
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
obligations, make strategic acquisitions and investments and pay
dividends or repurchase shares.
The following table presents a summary of the Company’s
consolidated cash flows (in millions):
Quarter Ended
Nine Months Ended
June 27, 2020
June 29, 2019
June 27, 2020
June 29, 2019
Cash provided by (used in) operations -
continuing operations
$
1,162
$
(1,748)
$
5,949
$
4,266
Cash used in investing activities -
continuing operations
(714)
(1,102)
(3,320)
(13,785)
Cash provided by (used in) financing
activities – continuing
operations
8,303
(163)
14,919
12,533
Cash provided by (used in) operations -
discontinued operations
(2)
355
2
320
Cash provided by investing activities -
discontinued operations
—
—
198
—
Cash used in financing activities -
discontinued operations
—
(179)
—
(179)
Impact of exchange rates on cash, cash
equivalents and restricted
cash
27
(28)
(49)
47
Change in cash, cash equivalents and
restricted cash
8,776
(2,865)
17,699
3,202
Cash, cash equivalents and restricted
cash, beginning of period
14,378
10,222
5,455
4,155
Cash, cash equivalents and restricted
cash, end of period
$
23,154
$
7,357
$
23,154
$
7,357
The following table presents a reconciliation of the Company’s
consolidated cash provided by operations to free cash flow (in
millions):
Quarter Ended
Nine Months Ended
June 27, 2020
June 29, 2019
Change
June 27, 2020
June 29, 2019
Change
Cash provided by (used in) operations
–
continuing operations
$
1,162
$
(1,748)
$
2,910
$
5,949
$
4,266
$
1,683
Investments in parks, resorts and
other
property
(708)
(1,177)
469
(3,293)
(3,567)
274
Free cash flow
$
454
$
(2,925)
$
3,379
$
2,656
$
699
$
1,957
Diluted EPS excluding certain items
affecting comparability – The Company uses diluted EPS
excluding certain items to evaluate the performance of the
Company’s operations exclusive of certain items affecting
comparability of results from period to period. The Company
believes that information about diluted EPS exclusive of these
items 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 diluted EPS from
continuing operations to diluted EPS excluding certain items
affecting comparability for the third quarter:
(in millions except EPS)
Pre-Tax Income/
Loss
Tax Benefit/
Expense(1)
After-Tax Income/
Loss(2)
Diluted EPS(3)
Change vs. prior year period
Quarter Ended June 27, 2020
As reported
$
(4,840)
$
331
$
(4,509)
$
(2.61)
n/m
Exclude:
Other income(4)
(382)
89
(293)
(0.16)
Amortization of TFCF and Hulu intangible
assets and fair value step-up on film and television costs(5)
683
(159)
524
0.28
Restructuring and impairment
charges(6)
5,047
(408)
4,639
2.56
Excluding certain items affecting
comparability
$
508
$
(147)
$
361
$
0.08
(94) %
Quarter Ended June 29, 2019
As reported
$
2,009
$
(393)
$
1,616
$
0.79
Exclude:
Amortization of TFCF and Hulu intangible
assets and fair value step-up on film and television costs(5)
779
(168)
611
0.34
Restructuring and impairment
charges(6)
207
(48)
159
0.09
Impairment of equity investment(7)
185
(42)
143
0.08
Other income(4)
123
(28)
95
0.05
Excluding certain items affecting
comparability
$
3,303
$
(679)
$
2,624
$
1.34
(1)
Tax benefit/expense is determined using the tax rate applicable
to the individual item.
(2)
Before noncontrolling interest share.
(3)
Net of noncontrolling interest share, where applicable. Total
may not equal the sum of the column due to rounding.
(4)
For the current quarter, other income was due to the DraftKings
gain ($382 million). For the prior-year quarter, other income
reflects an adjustment to the Hulu gain ($123 million).
(5)
For the current quarter, intangible asset amortization was $486
million, step-up amortization was $190 million and amortization of
intangible assets related to TFCF equity investees was $7 million.
For the prior-year quarter, intangible asset amortization was $490
million, step-up amortization was $274 million and amortization of
intangible assets related to TFCF equity investees was $15
million.
(6)
Charges in the current quarter were due to goodwill and
intangible asset impairments ($4,953 million) and severance and
contract termination costs related to the acquisition and
integration of TFCF ($94 million). Charges in the prior-year
quarter included severance costs related to the acquisition and
integration of TFCF and an acceleration of equity based
compensation, primarily for TFCF awards that vested upon closing
the acquisition.
(7)
Primarily reflects the impairment of an investment in a cable
channel at A+E Television Networks.
The following table reconciles reported diluted EPS from
continuing operations to diluted EPS excluding certain items
affecting comparability for the year:
(in millions except EPS)
Pre-Tax Income/
Loss
Tax Benefit/
Expense(1)
After-Tax Income/
Loss(2)
Diluted EPS(3)
Change vs. prior year period
Nine Months Ended June 27, 2020:
As reported
$
(1,163)
$
(650)
$
(1,813)
$
(1.17)
n/m
Exclude:
Other income(4)
(382)
89
(293)
(0.16)
Amortization of TFCF and Hulu intangible
assets and fair value step-up on film and television costs(5)
2,106
(490)
1,616
0.86
Restructuring and impairment
charges(6)
5,342
(477)
4,865
2.69
Excluding certain items affecting
comparability
$
5,903
$
(1,528)
$
4,375
$
2.22
(53) %
Nine Months Ended June 29, 2019:
As reported
$
12,676
$
(2,685)
$
9,991
$
5.97
Exclude:
Other income(4)
(4,840)
1,114
(3,726)
(2.30)
One-time net benefit from the Tax
Act(8)
—
(34)
(34)
(0.02)
Amortization of TFCF and Hulu intangible
assets and fair value step-up on film and television costs(5)
884
(191)
693
0.43
Restructuring and impairment
charges(6)
869
(200)
669
0.42
Impairment of equity investments(7)
538
(123)
415
0.26
Excluding certain items affecting
comparability
$
10,127
$
(2,119)
$
8,008
$
4.74
(1)
Tax benefit/expense is determined using the tax rate applicable
to the individual item.
(2)
Before noncontrolling interest share.
(3)
Net of noncontrolling interest share, where applicable. Total
may not equal the sum of the column due to rounding.
(4)
For the current nine-month period, other income was due to the
DraftKings gain ($382 million). For the prior-year period, other
income included the Hulu gain ($4,794 million) and insurance
recoveries on a legal matter ($46 million).
(5)
For the current nine-month period, intangible asset amortization
was $1,470 million, step-up amortization was $613 million and
amortization of intangible assets related to TFCF equity investees
was $23 million. For the prior-year period, intangible asset
amortization was $562 million, step-up amortization was $307
million and amortization of intangible assets related to TFCF
equity investees was $15 million.
(6)
Charges in the current period were due to goodwill and
intangible asset impairments ($4,953 million) and severance and
contract termination costs ($389 million) related to the
acquisition and integration of TFCF. Charges in the prior-year
period included severance costs related to the acquisition and
integration of TFCF and an acceleration of equity based
compensation, primarily for TFCF awards that vested upon closing
the acquisition.
(7)
Reflects the impairments of Vice Group Holdings, Inc. and of an
investment in a cable channel at A+E Television Networks.
(8)
Reflects the benefit from the U.S. federal income tax
legislation enacted in fiscal 2018 (Tax Act).
CONFERENCE CALL INFORMATION
In conjunction with this release, The Walt Disney Company will
host a conference call today, August 4, 2020, at 4:30 PM EDT/1:30
PM PDT via a live Webcast. To access the Webcast go to www.disney.com/investors. The discussion will be
archived.
FORWARD-LOOKING STATEMENTS
Certain statements and information in this communication may be
deemed to be “forward-looking statements” within the meaning of the
Federal Private Securities Litigation Reform Act of 1995, including
statements such as business prospects, estimates and timing of
expense and other statements that are not historical in nature.
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, asset acquisitions or dispositions,
integration initiatives and timing of synergy realization, new or
expanded business lines or cessation of certain operations) or
other business decisions, 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, regulatory, political, or military
developments;
- technological developments; and
- labor markets and activities;
each such risk includes the current and future impacts of, and
is amplified by, COVID-19 and related mitigation efforts.
Such developments may further affect entertainment, travel and
leisure businesses generally and may, among other things, affect
(or further affect, as applicable):
- the performance of the Company’s theatrical and home
entertainment releases;
- the advertising market for broadcast and cable television
programming;
- demand for our products and services;
- construction;
- expenses of providing medical and pension benefits;
- income tax expense;
- performance of some or all company businesses either directly
or through their impact on those who distribute our products;
and
- achievement of anticipated benefits of the TFCF
transaction.
Additional factors are set forth in the Company’s Annual Report
on Form 10-K for the year ended September 28, 2019 under Item 1A,
“Risk Factors,” Item 7, “Management’s Discussion and Analysis,”
Item 1, “Business,” and subsequent reports, including, among
others, quarterly reports on Form 10-Q and Current Reports on Forms
8-K.
THE WALT DISNEY
COMPANY
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
(unaudited; in millions,
except per share data)
Quarter Ended
Nine Months Ended
June 27, 2020
June 29, 2019
June 27, 2020
June 29, 2019
Revenues
$
11,779
$
20,262
$
50,681
$
50,489
Costs and expenses
(11,728)
(17,511)
(46,434)
(40,933)
Restructuring and impairment charges
(5,047)
(207)
(5,342)
(869)
Other income (expense), net
382
(123)
382
4,840
Interest expense, net
(412)
(411)
(995)
(617)
Equity in the income (loss) of
investees
186
(1)
545
(234)
Income (loss) from continuing operations
before income
taxes
(4,840)
2,009
(1,163)
12,676
Income taxes on continuing operations
331
(393)
(650)
(2,685)
Net income (loss) from continuing
operations
(4,509)
1,616
(1,813)
9,991
Income (loss) from discontinued
operations, net of income tax
benefit (expense) of $1, ($102), $11 and
($107), respectively
(3)
366
(32)
388
Net income (loss)
(4,512)
1,982
(1,845)
10,379
Net income from continuing operations
attributable to
noncontrolling interests
(209)
(186)
(309)
(343)
Net income from discontinued operations
attributable to
noncontrolling interests
—
(36)
—
(36)
Net income attributable to The Walt Disney
Company (Disney)
$
(4,721)
$
1,760
$
(2,154)
$
10,000
Earnings per share attributable to
Disney(1):
Diluted
Continuing operations
$
(2.61)
$
0.79
$
(1.17)
$
5.97
Discontinued operations
—
0.18
(0.02)
0.22
$
(2.61)
$
0.97
$
(1.19)
$
6.19
Basic
Continuing operations
$
(2.61)
$
0.79
$
(1.17)
$
6.00
Discontinued operations
—
0.18
$
(0.02)
$
0.22
$
(2.61)
$
0.98
$
(1.19)
$
6.22
Weighted average number of common and
common equivalent shares outstanding:
Diluted
1,809
1,814
1,807
1,616
Basic
1,809
1,802
1,807
1,607
(1) Total may not equal the sum of the
column due to rounding.
THE WALT DISNEY
COMPANY
CONDENSED CONSOLIDATED BALANCE
SHEETS
(unaudited; in millions,
except per share data)
June 27, 2020
September 28, 2019
ASSETS
Current assets
Cash and cash equivalents
$
23,115
$
5,418
Receivables
12,622
15,481
Inventories
1,559
1,649
Licensed content costs and advances
3,135
4,597
Other current assets
899
979
Total current assets
41,330
28,124
Produced and licensed content costs
25,560
22,810
Investments
3,611
3,224
Parks, resorts and other property
Attractions, buildings and equipment
61,130
58,589
Accumulated depreciation
(34,639)
(32,415)
26,491
26,174
Projects in progress
4,380
4,264
Land
1,020
1,165
31,891
31,603
Intangible assets, net
19,589
23,215
Goodwill
77,233
80,293
Other assets
8,435
4,715
Total assets
$
207,649
$
193,984
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and other accrued
liabilities
$
16,986
$
17,762
Current portion of borrowings
10,224
8,857
Deferred revenue and other
3,707
4,722
Total current liabilities
30,917
31,341
Borrowings
54,197
38,129
Deferred income taxes
7,055
7,902
Other long-term liabilities
15,855
13,760
Commitments and contingencies
Redeemable noncontrolling interests
9,162
8,963
Equity
Preferred stock
—
—
Common stock, $0.01 par value, Authorized
– 4.6 billion shares, Issued – 1.8 billion shares
54,386
53,907
Retained earnings
39,004
42,494
Accumulated other comprehensive loss
(6,617)
(6,617)
Treasury stock, at cost, 19 million
shares
(907)
(907)
Total Disney Shareholders’ equity
85,866
88,877
Noncontrolling interests
4,597
5,012
Total equity
90,463
93,889
Total liabilities and equity
$
207,649
$
193,984
THE WALT DISNEY
COMPANY
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited; in
millions)
Nine Months Ended
June 27, 2020
June 29, 2019
OPERATING ACTIVITIES
Net income (loss) from continuing
operations
$
(1,813)
$
9,991
Depreciation and amortization
4,010
2,866
Goodwill and intangible asset
impairments
4,953
—
Net gain on acquisition and
investments
(370)
(4,719)
Deferred income taxes
(548)
1,716
Equity in the (income) loss of
investees
(545)
234
Cash distributions received from equity
investees
567
548
Net change in produced and licensed
content costs and advances
(1,483)
59
Net change in operating lease right of use
assets / liabilities
16
—
Equity-based compensation
388
591
Other
471
83
Changes in operating assets and
liabilities, net of business acquisitions:
Receivables
2,100
(1,428)
Inventories
86
(96)
Other assets
8
450
Accounts payable and other liabilities
(1,986)
219
Income taxes
95
(6,248)
Cash provided by operations - continuing
operations
5,949
4,266
INVESTING ACTIVITIES
Investments in parks, resorts and other
property
(3,293)
(3,567)
Acquisitions
—
(9,901)
Other
(27)
(317)
Cash used in investing activities -
continuing operations
(3,320)
(13,785)
FINANCING ACTIVITIES
Commercial paper borrowings, net
1,373
2,973
Borrowings
18,030
31,348
Reduction of borrowings
(2,297)
(19,039)
Dividends
(1,587)
(1,310)
Proceeds from exercise of stock
options
238
278
Contributions from / sales of
noncontrolling interests
—
544
Acquisition of noncontrolling and
redeemable noncontrolling interests
—
(1,430)
Other
(838)
(831)
Cash provided by financing activities -
continuing operations
14,919
12,533
CASH FLOWS FROM DISCONTINUED
OPERATIONS
Cash provided by operations - discontinued
operations
2
320
Cash provided by investing activities -
discontinued operations
198
—
Cash used in financing activities -
discontinued operations
—
(179)
Cash provided by discontinued
operations
200
141
Impact of exchange rates on cash, cash
equivalents and restricted cash
(49)
47
Change in cash, cash equivalents and
restricted cash
17,699
3,202
Cash, cash equivalents and restricted
cash, beginning of period
5,455
4,155
Cash, cash equivalents and restricted
cash, end of period
$
23,154
$
7,357
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200804006006/en/
Zenia Mucha Corporate Communications 818-560-5300
Lowell Singer Investor Relations 818-560-6601
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