The Walt Disney Company Reports Second Quarter Earnings for Fiscal 2013

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The Walt Disney Company Reports Second Quarter Earnings for Fiscal 2013

BURBANK, Calif.--(BUSINESS WIRE)-- The Walt Disney Company (NYS: DIS) today reported earnings for its second fiscal quarter and six months ended March 30, 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 March 30, 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 30,
2013

  

March 31,
2012

Change March 30,
2013
  March 31,
2012
Change
Revenues$10,554$9,62910%$21,895$20,4087%

Segment operating income (1)

$2,509$1,94529%$4,889$4,38911%
Net income (2)$1,513$1,14332%$2,895$2,60711%
Diluted EPS (2)$0.83$0.6332%$1.60$1.4312%

Cash provided by operations

$2,160$1,81219%$3,304$3,546

(7)

%

Free cash flow (1)$1,586$335

>100

%

$2,185$1,43552%

(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 $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 30,
2013
  March 31,
2012
Change March 30,
2013
  March 31,
2012
Change
Revenues:
Media Networks$4,957$4,6926%$10,058$9,4716%
Parks and Resorts3,3022,89914%6,6936,05411%
Studio Entertainment1,3381,18013%2,8832,7983%
Consumer Products76367912%1,7761,6279%
Interactive 194  179 8% 485  458 6%
$10,554 $9,629 10%$21,895 $20,408 7%

Segment operating income (loss):

Media Networks$1,862$1,7298%$3,076$2,9225%
Parks and Resorts38322273%96077524%
Studio Entertainment118(84)nm3523297%
Consumer Products20014835%54646118%
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 30,
2013

  

March 31,
2012

Change 

March 30,
2013

  

March 31,
2012

Change
Revenues:
Cable Networks$3,458$3,1679%$6,996$6,4768%
Broadcasting 1,499 1,525

(2)

%

 3,062 2,9952%
$4,957$4,6926%$10,058$9,4716%

Segment operating income:

Cable Networks$1,724$1,50015%$2,676$2,4678%
Broadcasting 138 229

(40)

%

 400 455

(12)

%

$1,862$1,7298%$3,076$2,9225%
 

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,
2013
  March 31,
2012
Change
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,
2013

 

March 31,
2012

Change
Effective Income Tax Rate28.8%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,
2013

  

March 31,
2012

 Change
Cash provided by operations$3,304$3,546$(242)
Investments in parks, resorts and other property (1,119) (2,111) 992 
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,
2013

  

March 31,
2012

Media Networks
Cable Networks$67$55
Broadcasting 24 24
Total Media Networks 91 79
Parks and Resorts
Domestic4811,445
International 359 310
Total Parks and Resorts 840 1,755
Studio Entertainment2733
Consumer Products1426
Interactive610
Corporate 141 208
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