The Walt Disney Company Reports Third Quarter Earnings for Fiscal 2013

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The Walt Disney Company Reports Third Quarter Earnings for Fiscal 2013

BURBANK, Calif.--(BUSINESS WIRE)-- The Walt Disney Company (NYS: DIS) today reported earnings for its third fiscal quarter and nine months ended June 29, 2013. Diluted earnings per share (EPS) for the third quarter of $1.01 was equal to the prior-year quarter. Excluding certain items affecting comparability, EPS for the quarter increased 2% to $1.03 compared to $1.01 in the prior-year quarter. Diluted EPS for the nine months ended June 29, 2013 was $2.61 compared to $2.44 in the prior-year period.


"We are pleased with the results we delivered in the third quarter," said Robert A. Iger, Chairman and CEO of The Walt Disney Company. "We are confident that our strategy of creating high-quality branded content positions us well for the future."

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

  Quarter Ended    Nine Months Ended 
 

June 29,
2013

  

June 30,
2012

Change June 29,
2013
  June 30,
2012
Change
Revenues$11,578$11,0884%$33,473$31,4966%
Segment operating income (1)$3,351$3,2364%$8,240$7,6258%
Net income (2)$1,847$1,8311%$4,742$4,4387%
Diluted EPS (2)$1.01$1.01%$2.61$2.447%
Cash provided by operations$3,413$2,88518%$6,717$6,4314%
Free cash flow (1)$2,723$2,14527%$4,908$3,58037%
 

(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 $60 million of restructuring and impairment charges, which had a negative impact of $0.02 on EPS.

SEGMENT RESULTS

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

    
 Quarter Ended Nine Months Ended
 

June 29,
2013

  

June 30,
2012

Change 

June 29,
2013

  

June 30,
2012

Change
Revenues:
Media Networks$5,352$5,0845%$15,410$14,5556%
Parks and Resorts3,6783,4417%10,3719,4959%
Studio Entertainment1,5901,625(2

)%

4,4734,4231%
Consumer Products7757424%2,5512,3698%
Interactive 183  196 (7

)%

 668  654 2%
$11,578 $11,088 4%$33,473 $31,496 6%
Segment operating income (loss):
Media Networks$2,300$2,1268%$5,376$5,0486%
Parks and Resorts6896309%1,6491,40517%
Studio Entertainment201313(36

)%

553642(14

)%

Consumer Products2192095%76567014%
Interactive (58) (42)(38

)%

 (103) (140)26%
$3,351 $3,236 4%$8,240 $7,625 8%
 

Media Networks

Media Networks revenues for the quarter increased 5% to $5.4 billion and segment operating income increased 8% to $2.3 billion. The following table provides further detail of the Media Networks results (in millions):

    
 Quarter Ended Nine Months Ended
 

June 29,
2013

  

June 30,
2012

Change 

June 29,
2013

  

June 30,
2012

Change
Revenues:
Cable Networks$3,884$3,6108%$10,880$10,0868%
Broadcasting 1,468 1,474% 4,530 4,4691%
$5,352$5,0845%$15,410$14,5556%
Segment operating income:
Cable Networks$2,087$1,85812%$4,763$4,32510%
Broadcasting 213 268(21

)%

 613 723(15

)%

$2,300$2,1268%$5,376$5,0486%

Cable Networks

Operating income at Cable Networks increased $229 million to $2.1 billion for the quarter due to growth at ESPN, A&E Television Networks (AETN) and the domestic Disney Channels, partially offset by a decrease at ABC Family. 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 due to contractual rate increases and higher recognition of previously deferred revenues related to annual programming commitments. During the quarter, ESPN recognized $274 million of previously deferred revenue compared to $210 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. The increase in programming and production costs was due to contractual rate increases for Major League Baseball rights and production costs for new X Games events. Higher equity income from AETN reflected higher advertising and affiliate revenues, along with the benefit of the increase in the Company's ownership interest from 42% to 50%. Growth at the domestic Disney Channels was due to higher affiliate revenues from contractual rate increases and higher program sales. The decrease in operating income at ABC Family was due to higher programming costs driven by more hours of original scripted programming.

Broadcasting

Operating income at Broadcasting decreased $55 million to $213 million for the quarter due to higher primetime programming costs, lower program sales and decreased advertising revenue, partially offset by higher affiliate revenues. Higher primetime programming costs were driven by a shift of hours from self-produced to acquired programming, which had a higher average cost per hour compared to programming in the prior-year quarter. The decline in program sales reflected higher sales of Grey's Anatomy and Castle in the prior-year quarter. Lower advertising revenue was driven by a decline in network ratings and a decrease in rates and political advertising at the owned television stations, partially offset by higher network rates and growth in online advertising. Affiliate revenue growth was primarily due to higher contractual rates.

Parks and Resorts

Parks and Resorts revenues for the quarter increased 7% to $3.7 billion and segment operating income increased 9% to $689 million. Operating income growth for the quarter was driven by increases at our domestic parks and resorts. Parks and Resorts results for the quarter include an unfavorable impact due to a shift in the timing of the Easter holiday relative to our fiscal periods.

Higher operating income at our domestic parks and resorts was primarily due to increased guest spending, occupied room nights and attendance at Walt Disney World Resort and Disneyland Resort, partially offset by higher costs. Increased guest spending was due to higher average ticket prices and food and beverage spending. Higher costs were driven by spending on new guest offerings and labor and other cost inflation. Significant new guest offerings include MyMagic+, Disney's Art of Animation Resort, which opened in the third quarter of the prior year, and the expansion of the Magic Kingdom at the Walt Disney World Resort.

Studio Entertainment

Studio Entertainment revenues decreased 2% to $1.6 billion and segment operating income decreased $112 million to $201 million, primarily due to a decrease in worldwide theatrical distribution results. Lower theatrical results reflected pre-release marketing costs for The Lone Ranger and the performance of Marvel's Iron Man 3 in the current quarter compared to Marvel's The Avengers in the prior-year quarter, partially offset by better performance of Monsters University in the current quarter compared to Brave in the prior-year quarter.

Consumer Products

Consumer Products revenues increased 4% to $775 million and segment operating income increased 5% to $219 million. Higher operating income was due to increases at our Merchandise Licensing and Retail businesses.

The increase in operating income at Merchandise Licensing was due to the inclusion of Lucasfilm and the performance of Monsters University and Disney Junior merchandise, partially offset by lower Spider-Man revenue and higher revenue share with the Studio Entertainment segment. The increased revenue share reflected a higher mix of revenues from properties subject to revenue share in the current quarter. At our Retail business, higher operating income was driven by comparable store sales growth in North America and Japan and higher online sales in North America.

Interactive

Interactive revenues for the quarter decreased 7% to $183 million and segment operating results decreased by $16 million to a loss of $58 million. Lower operating results were primarily due to lower minimum guarantee recognition, a decline in console game sales as there were no new releases in the current quarter, and a decrease at our social games business due to a favorable acquisition accounting adjustment recognized in the prior-year quarter. These decreases were partially offset by growth at our Japan mobile business.

OTHER FINANCIAL INFORMATION

Net Interest Expense

Net interest expense was as follows (in millions):

  Quarter Ended 
 June 29,
2013
  June 30,
2012
Change
Interest expense$(93)$(115)19%
Interest and investment income 10  22 (55

)%

Net interest expense$(83)$(93)11%

The decrease in interest expense for the quarter was primarily due to lower effective interest rates. The decrease in interest and investment income for the quarter was driven by higher write-downs of investments.

Income Taxes

The effective income tax rate was as follows:

 Quarter Ended 

June 29,
2013

 

June 30,
2012

Change
Effective Income Tax Rate34.2%32.8%(1.4) ppt

The increase in the effective income tax rate for the quarter was driven by changes in our estimated full year effective income tax rate, which is the rate used to determine the quarterly tax provision. The estimated full year effective rate is adjusted each quarter based on information available at the end of that quarter. This impact was unfavorable in the current quarter whereas it was favorable in the prior-year quarter.

Cash Flow

Cash provided by operations and free cash flow were as follows (in millions):

  Nine Months Ended 
 

June 29,
2013

  

June 30,
2012

 Change
Cash provided by operations$6,717$6,431$286
Investments in parks, resorts and other property (1,809) (2,851) 1,042
Free cash flow (1)$4,908 $3,580 $1,328

(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 nine months of fiscal 2013 increased 4% or $286 million to $6.7 billion as compared to the first nine months of fiscal 2012. The increase was primarily due to higher segment operating results and lower tax payments, partially offset by the payment related to the Celador litigation and higher film production spending.

Capital Expenditures and Depreciation Expense

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

  Nine Months Ended
 

June 29,
2013

  

June 30,
2012

Media Networks
Cable Networks$111$88
Broadcasting 43 42
Total Media Networks 154 130
Parks and Resorts
Domestic7521,840
International 623 459
Total Parks and Resorts 1,375 2,299
Studio Entertainment4149
Consumer Products2746
Interactive1116
Corporate 201 311
Total investments in parks, resorts and other property$1,809$2,851
 

Capital expenditures decreased from $2.9 billion to $1.8 billion driven by decreases at Parks and Resorts and

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