Jul 15, 2015
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Table of Contents 1.0 Executive Summary……………………………………………………………….……4 2.0 Corporation Overview…………………………………………………………….……4
2.1 Company Description………………………………………………………..…4
2.1.1 Management
2.2 Competitive Environment.……………………………………………..………7
2.3 Macroeconomic Climate & Outlook...………………………………………...10
2.3.1 International Market
2.3.2 Domestic Market
2.3.3 The Walt Disney Company Outlook
2.4 External Factors and Risks..……………………………………………….…..13
2.4.1 Litigation
2.4.2 Labor Relations
2.4.3 Social Responsibility Government Relation 3.0 Financial Statement Analysis……………………………………………...………..…..16
3.1. Balance Sheet Analysis…………………………………..………………...…..16
3.1.1 Current Ratio
3.1.2 Parks, Resorts, and other Property
3.1.3 Goodwill
3.1.4 Liabilities
3.1.5 Capital Structures
3.1.6 Current Liabilities 3.2. Income Statement Analysis…………………………………………..………………..24
3.2.1 Net Sales
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3.2.2 Operating Profit Margin
3.2.3 Net Profit Margin 3.2.4 Update- Q1 2012
3.3. Statement of Cash Flows Analysis............................................................................................29
3.3.1 Cash Flow from Operating Activities
3.3.2 Investing Activities
3.3.3 Financing Activities
3.3.4 Cash Flow Ratios
3.3.4.1 Cash Flow Liquidity
3.3.4.2 Cash Interest Coverage
3.3.4.3 Cash Flow Adequacy
3.3.4.4 Cash Flow Margin
3.3.4.5 Cash Return on Assets 3.3.4.6 Dividends Payout
4.0 Conclusion…………………………………………………………………...………..39 5.0 Appendix…………………………………………………………………..………….41
5.1 Disney’s Consolidated Balance Sheet
5.2 Disney’s Consolidated Income Statement 5.3 Disney’s Consolidated Statement of Cash Flows 5.4 Disney’s Summary Statement 5.5 Viacom’s Consolidated Balance Sheet 5.6 Viacom’s Consolidated Income Statement 5.7 Viacom’s Consolidated Statement of Cash Flows 5.8 Viacom’s Summary Statement
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1.0 Executive Summary
The objective of this report is to present a comprehensive financial statement
analysis of The Walt Disney Company (Disney). Disney is the world’s largest entertainment
and media conglomerate with business operations in media networks, parks and resorts, and
film studios. This report details Disney’s financial standing and operating environment
through an in depth analysis of the company’s balance sheet, income statement and
statement of cash flows. This report also provides a comprehensive overview of the
company’s industry, management and, finally, competitive environment, through
comparative analysis between Disney and Viacom Inc. Ultimately, with the detailed analysis
provided, this report serves as a useful tool for investors thinking about investing in Disney.
2.0 Corporation Overview
2.1 Company Description
For almost a century Disney has been distinguished in the field of family
entertainment. Headquartered in Burbank, California, Disney began as a cartoon studio in
the 1920’s. Since then, it has become a global corporation that continues to proudly provide
quality entertainment for every member of the family across America and around the world.1
Disney, together with its subsidiaries, has operations in five business segments including
media networks, parks and resorts, studio entertainment, consumer products, and interactive
media. Disney is a leading diversified international family entertainment and media
enterprise.2
Originally a cartoon studio founded by brothers Walt and Roy Disney, Disney has
grown exponentially since its inception. Disney currently has 166,000 full time employees
working in the company’s five business segments3 and is involved in multiple sectors of the
entertainment industry ranging from television broadcasts to theme parks. It currently ranks
66 on the 2012 Fortune 500 list,4 and 226 on the 2011 Global Fortune 500 list.5 In addition,
it can be seen that Disney is taking the right steps towards innovation by recently receiving
1 Disney History, http://thewaltdisneycompany.com/about-disney/disney-history 2 Company Overview, http://thewaltdisneycompany.com/about-disney/company-overview 3 Company Profile, http://finance.yahoo.com/q/pr?s=DIS+Profile 4 Fortune 500 ranking, http://money.cnn.com/magazines/fortune/fortune500/2012/snapshots/2190.html 5 Global Fortune 500 ranking, http://money.cnn.com/magazines/fortune/global500/2011/snapshots/2190.html
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the prestigious 2012 Huntington Award,6 and the company maintains a global presence as
the “World’s Most Admired Entertainment Company” for both years of 2011 and 2012.7
Disney's growth strategy has focused on expansion to provide an all-encompassing
entertainment company. This reduces risks and also allows exploitation of brands across
multiple channels to maximize gains. Disney's strategy relies heavily on branded creative
content that the company can monetize. Recently, Disney paid over $4 billion for
Lucasfilm. Other notable purchases by the company include Pixar Animation for $7.4
billion in 2006 and Marvel Entertainment for $4 billion in 2009. These purchases are an
asset to the company, and have produced iconic franchises ranging from Toy Story to Iron
Man—capitalizing on a market of parent consumers and their children. Disney’s revenues in
2012 were $42.3 billion, and the largest segment was Media Networks, which was
responsible for 46% of revenues.8
Despite the company’s multitude of successes, there has been controversy and failure
within recent times. In January 2013, Disney announced the closure of Junction Point, the
Austin, Texas game development studio responsible for the Epic Mickey series. Disney
acquired Junction Point in 2007, before it had any released titles. While the first game in the
series was deemed a success, its successor failed miserably. Although sales data has not been
made public, the Los Angeles Times reported that the multi-platform game only sold a total
of 270,000 copies in 2012.9
In addition, towards the end of last year, Disney released information regarding its
new Disney princess, Princess Sofia. Disney's first Latina princess, featured in the movie
"Sofia the First: Once Upon A Princess," has received backlash as well as support from
media outlets, especially the Latino community. However, this is not the first time there has
been controversy surrounding one of Disney's princesses. In 2009, "The Princess and the
Frog" received criticism from parents and the media for being set in New Orleans after
Hurricane Katrina, its voodoo references, and Disney’s first African-American princess,
Tiana, falling in love with a Caucasian prince.10 While both princesses showcase Disney’s
6 Innovation, http://www.financialops.org/web/conferences/innovation-awards-2012 7 Admired Company, http://money.cnn.com/magazines/fortune/most-admired/2012/industries/16.html 8 Research and Markets: The Walt Disney Company, http://www.thestreet.com/story/11830513/1/research-and-markets-the-walt-disney-company-the-entertainment-empire-strikes-back.html 9 Epic Mickey, http://www.wired.com/gamelife/2013/01/junction-point-closing/ 10 Princess, http://www.cnn.com/2012/10/19/showbiz/disneys-first-latina-princess/index.html
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support for diversity and innovation, the company has received heavy criticism in its
portrayal of these new princesses.
Disney has had a long and illustrious history filled with childhood memories and
commercial successes, to controversies surrounding stereotypes and joint-business failures.
Despite its history and what it has accomplished, the company strives to achieve more
through its core commitments: to act in an ethical manner, to champion the happiness and
well being of kids and families, and to inspire positive change in the world.11 These core
values are the main driving forces in the company and set a high standard to achieve success
in the future.
2.1.1 Management
The Chief Executive Officer and Chairman of Disney, Robert Iger, once said, “The
heart and soul of the company is creativity and innovation”.12 Mr. Iger officially joined the
Disney senior management team in 1996 as Chairman of the Disney-owned ABC Group,
and in 1999 was given the additional responsibility of President of Walt Disney International.
In this role, Mr. Iger expanded and coordinated Disney's presence outside of the United
States, establishing the blueprint for Disney's international growth today. In addition, Mr.
Iger served as President and Chief Executive Officer from October 2005, and President and
Chief Operating Officer from 2000-2005.13 His 2011 salary was $2,000,000 and his total
compensation was $33,434,398, after exercising around 685,000 of his stock shares. As of
2013, Mr. Iger owns 1,159,675 shares.14 This increase in ownership may be an indicator of
Mr. Iger’s commitment and belief in a strong year for the company.
Disney’s management team is divided between the executives working for the
corporate sector and executives working in the separate business unit sectors. Other than
Mr. Iger, there are nine executive and senior vice presidents who are specifically in charge of
the operations pertaining to Disney. There are eight executives and leaders in charge of the
specific business segments and affiliates of Disney (theme parks, consumer products, ESPN,
11 Commitments, http://thewaltdisneycompany.com/citizenship/commitments 12 Bob Iger quote, http://www.brainyquote.com/quotes/quotes/r/robertiger177671.html 13 Officer Information, http://thewaltdisneycompany.com/about-disney/leadership/ceo/robert-iger 14 Salary, http://www.forbes.com/profile/robert-iger/
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etc.).15 The Board of Directors consists of ten members, including Mr. Iger, and many of
them have been serving on the board for at least six years or more.16
In October of 2011, Mr. Iger announced that he would retire in March 2015 as CEO
of Disney and stay on as chairman until June 2016.17 Despite this news, the commitment
Mr. Iger and the Board of Directors have put into the company, and the leaps and bounds
management are striving to make will collectively steer Disney into a successful future.
2.2 Competitive Environment
Disney is a diversified international family entertainment and media enterprise, which
is split into five different segments: media networks, parks and resorts, studio entertainment,
consumer products and interactive media. The diversified aspect of Disney is what enables
them to bring in large amounts of revenue. Also, their fun-loving and family oriented
entertainment is why Disney is so popular around the globe, with quotes such as
“Disneyland, the happiest place on Earth,” and with characters that greet children as they
enter the theme parks, these are things that make Disney so successful in relation to their
competitors.
Disney’s main competitors are Viacom and NBC Universal, who was recently
bought out by Comcast. Viacom is a media production company; its media networks include
Comedy Central, MTV, and Nickelodeon. It is also a movie production company; they own
companies such as Paramount Pictures, MTV Films, Nickelodeon Movies, and Home
Entertainment. Along with the media networks, there are also digital assets, such as
Nick.com, ratemyprofessor.com, and the Daily Show with John Stewart.18 Unlike Disney,
Viacom does not have parks and resorts as another source of revenue. Viacom’s market cap
is the lowest among its competitors, at $29.3 billion.19 Their 2012 total gross was
$914,405,740. Madagascar 3: Europe’s Most Wanted brought in the highest gross of
$216,391,482. This movie has a similar audience to Disney, which is why their gross is
similar to that of Disney’s animation movies. Viacom is also known for it’s charitable
contributions, which include donating more than $150 million over the last several years to
15 Management, http://thewaltdisneycompany.com/about-disney/leadership/management 16 Board of Directors, http://thewaltdisneycompany.com/about-disney/leadership/board-of-directors 17 Retirement, http://management.fortune.cnn.com/2012/05/09/500-disney-iger/ 18 Viacom, http://www.viacom.com/ourbrands/Pages/default.aspx 19 Viacom Market Cap, http://www.google.com/finance?q=NASDAQ:VIAB
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various causes such as, the eradication of poverty around the world and innovating medical
research and education. On Tuesday, February 5, 2013 Viacom was honored at USC School
of Cinematic Arts for their recent gift of $10 million.20
Recently Viacom has been struggling with revenues, experiencing a 16% decrease
during the fourth quarter of 2012. This decrease is due to the drop in Nickelodeon’s ratings,
which have been decreasing since 2011.21 While Nickelodeon’s ratings are hurting the
company, they are still able to bring in revenue. Nickelodeon recently announced an
exclusive apparel, toy, and specialty goods line inspired by Dora Rocks!, a 30 minute, music-
themed primetime special that premiered this past January. Being that Dora the Explorer
currently reaches about 12.4 million preschoolers around the world, Viacom is expecting
great revenues from this new show and it’s apparel and accessories line.22 Viacom’s MTV is
struggling as it is “waking up from a ‘Jersey Shore’ hangover” after six seasons Jersey Shore
ended in December, which also put an end to the show’s profitable advertising. According
to Wall Street Journal, the departure of Jersey Shore is one of many issues that will be
weighing down Viacom’s growth in this upcoming quarter.23
NBC Universal, who was recently bought out by Comcast with a high market cap of
$101.5 billion,24 is a media production company, providing TV programs such as NBC News,
Hulu, and E!. Its movie production companies include Focus Features and Universal. NBC
Universal is the most relevant to Disney; it not only produces revenue from its media
productions, but also from its parks and resorts. NBC Universal has three parks and resorts,
which falls short of Disney’s nine. These parks and resorts include Universal Orlando,
Universal Parks and Resorts, and Universal Studios Hollywood.25 Although NBC Universal
is a large company like Disney, the majority of its revenue comes from movies. NBC
Universal had a 2012 total gross of $1,468,526,529, which is about a $1 million short of
20 Charity, http://blog.viacom.com/2013/02/media-magnate-philanthropist-sumner-m-redstone-launches-site-for-charitable-foundation/ 21 Nickelodeon, http://mediadecoder.blogs.nytimes.com/2013/01/31/ratings-shortfall-at-nickelodeon-hurts-viacom-revenue/ 22 Dora Rocks, http://www.4-traders.com/VIACOM-A-9548248/news/VIACOM-A-Nickelodeon-Launches-Dora-Rocks-New-Limited-Edition-Product-Line-16011226/ 23 Jersey Shore, http://money.msn.com/now/post.aspx?post=9854221e-c5c2-4c7d-971c-9d5d2bb31768 24 NBC Univ Market Cap, http://www.google.com/finance?q=NBCUniversal+Media%2C+LLC&ei=XYITUdj_O6e2lgOrggE 25 NBC Universal, www.nbcuni.com
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Disney’s gross of $1,551,360,335. 26 Ted, with a gross of $218,815,48727 brought in the
greatest revenue for NBC Universal but with an “R” rating and an audience of those 17
years and older, it was unable to compete with Marvel’s the Avengers bringing in a gross of
$623,357,910. 28
Universal Studios Hollywood recently had a $1.6 billion proposal to expand their
theme park and production facilities approved which, due to the popularity of The
Wizarding World of Harry Potter at Universal Orlando, includes an addition of the same
Harry Potter attraction. NBC Universal has an evolution plan, which includes extensive
upgrades to their movie and television studios, creating new sets, sound stages and new
technology. They plan to build new hotels and spend $100 million on transportation
improvements and expansions at their theme parks.29
NBC Universal was not able to perform as well as they had in previous years. A
majority of their revenue is due to movie production, and in 2011 the final Harry Potter
movie was produced. Due to the popularity of the Harry Potter series, current movie
revenues have not been the same.30 In addition to the decrease in movie revenue, on Friday,
February 1, 2013, Oksana Baiul, a figure skater, filed a $5 million suit against NBC Universal
and Disson Skating Company, claiming that they used her images and name to promote two
specials that she had never agreed to. This case is currently undergoing consideration.31
The success of Disney is not only due to the size of the company, but also the many
segments that constitute it. Unlike Viacom, they have various other ways of generating
revenue, rather than solely relying on media entertainment. If Viacom’s movie production
isn’t successful, then the overall company will perform poorly. However, if Disney’s movie
productions aren’t successful, then they have four other components of their company to
rely on to generate a profit. NBC Universal is similar to Disney in that it produces revenue
26 Disney Movies, http://boxofficemojo.com/studio/chart/?view=parent&view2=&yr=2012&timeframe=yty&sort=&order=&studio=buenavista.htm 27 NBC Universal Movies, http://boxofficemojo.com/studio/chart/?view=parent&view2=&yr=2012&timeframe=yty&sort=&order=&studio=universal.htm 28 Disney Movies, http://boxofficemojo.com/studio/chart/?view=parent&view2=&yr=2012&timeframe=yty&sort=&order=&studio=buenavista.htm 29 Park Expansion, http://www.dailynews.com/news/ci_22527204/nbcuniversals-1-6b-park-studio-plan-approved-by 30 Ibid 31 Oksana, http://www.variety.com/article/VR1118065663/
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from media production and parks and resorts, however the size of Disney is overwhelming.
Not only do they have nine theme parks around the world and ownership of large media
entertainment companies, but they differ most by having their own radio station, their own
television channel, stores that solely sell their merchandise, and a larger target audience, just
to name a few. Due to the various components of Disney, it is the top competitor of the
industry.32
2.3 Macroeconomic Environment & Outlook
As a multinational corporation with business operations spanning every continent of
the world, Disney’s five main business segments are strongly based on the travel and leisure
industry, which compared to food and healthcare sectors, offer a relatively luxurious, and
therefore non-essential service. Thus, Disney’s operations and performance are quite volatile
in terms of global and domestic economic development, natural disasters, legal environment,
licensing and other regulations.
2.3.1 International Market
The Asian Pacific has some of the fastest growing economies in the world including
China, Russia, Thailand and India. In 2011 and 2012, China had a GDP growth rate of 9.3%
and 7.9% respectively, while India also showed promising growth at 6.9% and 5.3%
respectively.33 The surge in the middle-class population and stronger currency in China has
boosted consumption expenditure, especially in traveling and entertainment. 34 Chinese Yuen
has appreciated 16.5% against the US dollar over the past five years35 luring Chinese natives
to travel overseas and consume imported goods. In order to capitalize on the business
opportunities in these emerging markets, Disney has aggressively developed its segments in
these regions: In China, they opened many Disney English Centers and are expecting the
brand-new Shanghai Disney Resort to be completed in 2015.36
However despite the immense opportunity for growth, these countries often have
restrictions on foreign media and broadcasting entering the market. Their inadequate
32 Morningstar, http://financials.morningstar.com/competitors/industry-peer.action?t=DIS®ion=usa&culture=en_US 33 World Bank, www.worldbank.org/ 34 Ibid 35 CNBC, http://www.cnbc.com/id/15839178 36 Disney 10-K, http://thewaltdisneycompany.com/sites/default/files/reports/q4-fy12-form-10k.pdf
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protection of intellectual property, such as the absence copyright and trademarks laws, may
damage the studio and consumer products segments of Disney, due to infringement and
piracy issues in the region.
On the other hand, the current unresolved debt crisis in Europe has brought
uncertainties to the European economic environment. The stagnant markets in major
European countries, such as France (0.15% GDP growth rate) and the UK (-0.3% GDP
growth rate), contribute to undesirable investment conditions and declining consumption
spending.37 People tend to slash spending on non-necessities, including leisure and
entertainment goods. The drop in revenue from Disneyland Paris is an example of the
effects from the poor consumption market within the territory.38
2.3.2 Domestic Market
After the 2008 financial crisis, the US economy has been in recovery with positive
GDP growth since 2010.39 Despite rising employment and a 1.7% GDP growth rate last year,
the “fiscal cliff” imposed new taxes and government budget cuts in January 2013,40
hammering the recovering economy. It is very likely that the higher tax rates and smaller
federal budgets will decrease the discretionary income and spending of domestic households,
thus hurting the consumer industry. However, the gloomy economic environment has driven
the government to impose Quantitative Easing and other monetary policies to stimulate
recovery, indirectly devaluing the US dollar.41 The favorable exchange rate attracts countless
tourists to the US, boosting tourism revenues and merchandise sales. Total number of
overseas tourists has risen 23% since 2008.42 Disney has profited greatly due to the increase
in US tourism.
Aside from economic development, there are a number of factors affecting the
domestic media broadcasting industry. First, the Federal Communications Commission is
37 World Bank, www.worldbank.org/ 38 The Walt Disney Company, http://thewaltdisneycompany.com/sites/default/files/press-releases/pdfs/q4-fy12-earnings.pdf 39 World Bank. www.worldbank.org/ 40 Boston Herald, http://bostonherald.com/news_opinion/opinion/op_ed/2013/02/pols_fiddle_new_%E2%80%98fiscal_cliff%E2%80%99_looms 41 The Federal Reserve, http://www.federalreserve.gov/newsevents/speech/bernanke20121014a.htm 42 Office of Travel and Tourism Industries, http://tinet.ita.doc.gov/research/monthly/arrivals/index.html
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proposing to loosen the restrictions on the acquisition of media companies.43 The pending
proposal would allow media companies to own US daily newspapers and broadcast stations
more easily. This could very well factor into the future strategy of Disney, as Media
Networks are their largest revenue-generating business.
Another factor is the costs of broadcasting and filmmaking. Keen competition in
domestic sports broadcasting and Hollywood movie production has driven up license fees
and production costs. ESPN recently endured an increase of $170 million in sports
broadcasting rights fees in the first quarter of 2013.44 Some of its acquired rights are about to
expire in the coming two years,45 which raises doubts concerning its ability to successfully
renew these contracts.
The media industry is also affected by natural disasters. Hurricane Sandy hit New York
City in October 2012, generating an increased audience for the news reporting industry,
benefiting another Disney-owned channel, ABC.46 However, the disaster also suspended
some of Disney’s Broadway shows in the city for months.47
2.3.3 The Walt Disney Company Outlook
Disney reported record high net income and revenue in 2012, mainly due to its global
portfolio of businesses. Based in the US, Disney is facing the less optimistic US market. Its
strategy of global development has proven to not only diversify business risks, but also even
become the cash cow business of the company. Disney is shifting its strategic focus from
Europe to emerging markets, as seen in its expansion of the Hong Kong Disneyland Resort,
future development in China and acquisition in India. The favorable exchange rate against
the US dollar and Disney’s renowned reputation attracts tourists and merchandise licensing
for Disney. In 2013, the company expects to release many blockbuster sequels domestically
43 Bloomberg, http://www.bloomberg.com/news/2013-02-05/murdoch-coveting-papers-must-wait-as-rift-stalls-u-s-media-rule.html 44 NASDAQ, http://www.nasdaq.com/article/earnings-preview-disney-analyst-blog-cm213679#.URDJ-B1fCSo 45 Broadcast, http://www.broadcastnow.co.uk/news/broadcasters/espn-in-talks-to-sell-uk-sports-rights/5051306.article 46 NASDAQ, http://www.nasdaq.com/article/earnings-preview-disney-analyst-blog-cm213679#.URDJ-B1fCSo 47 Herald Tribune, http://arts.heraldtribune.com/2013-02-01/section/theater/cnbc-special-looks-at-the-risk-for-broadway-investors/
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and internationally, including Iron Man 3 and Thor: The Dark World.48 These releases will
drastically boost the studio entertainment revenues. It is highly probable that Disney will
continue to grow profitably in the long run.
Despite the positive outlook, Disney will undoubtedly encounter the problem of
soaring costs in broadcasting rights and business operations. Due to recent expansion in
various areas and acquisition of Lucasfilm and UTV, Disney has incurred huge long-term
debts.49 CEO Mr. Iger believes that their strategic investment will be successful and keep
Disney growing.50
2.4 External Factors and Risks
2.4.1 Litigation
Disney faces several unresolved legal problems. These legal problems involve
copyright, breach of contract, and various other claims incident to the conduct of Disney’s
businesses.51 Many of Disney’s directors and officers are a defendant or codefendant in
current pending litigation. Although Disney’s management does not expect the company to
suffer any material liability by reason of these actions, it is still a cause for concern.
According to Disney’s annual 10-K form, Celador International Ltd. sued Disney on
May 19, 2004. This lawsuit was due to an alleged breach-of-contract between Celador and
Disney’s subsidiaries, American Broadcasting Companies, Inc. (ABC), Buena Vista
Television, LLC, and Valleycrest Productions. The eight-year lawsuit stemming from the
game show “Who Wants to Be a Millionaire” may finally be put to rest.52 After a litigation
trial, in July 2010, a federal jury awarded Celador $269.4 million in damages after
unanimously finding that Disney subsidiaries − ABC, Buena Vista and Valleycrest
Productions − had breached their contract with Celador to share profits.
In addition, the court awarded $50 million in prejudgment interest to Celador, bringing
the total to $320 million in damages.53 The court of Appeals affirmed the jury’s verdict later
in a brief six-page decision. Despite this, Disney still has confidence it does not have a
48 Disney 10-K, http://thewaltdisneycompany.com/sites/default/files/reports/q4-fy12-form-10k.pdf 49 Disney 10-K, http://thewaltdisneycompany.com/sites/default/files/reports/q4-fy12-form-10k.pdf 50 Ibid 51 Ibid 52 Rapid TV News, http://www.rapidtvnews.com/index.php/25295/disney-loses-320m-who-wants-to-be-a-millionaire-lawsuit.html 53 Ibid
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probable loss under the applicable accounting standard. It is difficult to accurately estimate
the impact of these legal issues due to a lack of information.
Beef Products Inc. sued ABC on September 13, 2012. The action was filed in the
South Dakota State Court against certain subsidiaries and employees of ABC, asserting
claims for defamation arising from alleged false statements and implications, statutory and
common law product disparagement, and tortious interference with existing and prospective
business relationships. Beef Products, Inc. eventually moved to dismiss all claims.54 It is still
uncertain as to what exactly ABC did to bring about these lawsuits.
Stan Lee Media sued Disney for billions of dollars over Marvel characters on October
10, 2012.55 The suit claims that Stan Lee Media owns the rights to “billions of dollars that
Disney has generated, or allowed others to generate.” Specifically the suit claims over $3.5
billion from motion pictures and over $2 billion from other media, merchandising and
Broadway.56 Disney has asked a judge to dismiss Stan Lee Media Inc.'s billion-dollar lawsuit
over iconic characters including Spider-Man, X-Men and Fantastic Four.57 Although this
lawsuit is described as completely frivolous, it is reminder of Disney’s copyright and patents
use.
2.4.2 Labor Relations
Disney recognizes that leadership is a key element in creating the best work
environment for their employees. They place a large emphasis on the recruitment and
selection process of their employees. Over the years, many individual business segments and
regions have conducted employee surveys.58 Disney has worked diligently to enrich the
employee experience and optimize organizational performance.
Based on Glassdoor employee reviews, 212 of 341 employees are satisfied or very
satisfied with working at Disney.59 When employees reviewed Disney, they described an
outstanding work environment and job-training program. However it was stated that Disney 54 The Walt Disney Company, http://thewaltdisneycompany.com/sites/default/files/reports/q4-fy12-form-10k.pdf 55 Los Angeles Times, http://articles.latimes.com/2012/oct/10/entertainment/la-et-ct-stan-lee-disney-lawsuit-20121010 56 Reuters, http://www.reuters.com/article/2012/10/11/us-stanleemedia-waltdisney-idUSBRE89A0CC20121011 57 Hollywood Reporter, http://www.hollywoodreporter.com/thr-esq/disney-wants-stan-lee-medias-396751 58 The Walt Disney Company, http://corporate.disney.go.com/citizenship2010/disneyworkplaces/overview/workingatdisney/ 59 Glassdoor, http://www.glassdoor.com/Reviews/Disney-Reviews-E717.htm
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is not a challenging work place.60 Employees and cast members are recognized as the most
valuable part of the Disney organization. Disney offers a comprehensive total rewards
package including medical benefits, opportunity for advancement within the company, a
good work life balance and retirement and financial benefits.61
Despite this, labor relations with Disney are not perfect. Los Angeles Times reported
that Disneyland and the labor union, “Unite Here Local 11,” settled a long dispute on
December 8, 2011. The labor dispute between Disney and 2,100 Disneyland resort hotel
workers was primarily due to wages and healthcare disputes. The new contract includes wage
increases and an option for the employees to remain in the union healthcare plan or
transition to one of Disney’s plans.62
2.4.3 Social Responsibility
Disney is revolutionizing the concept of corporate social responsibility. Disney
launched its Project Green Campaign, to help promote greener lifestyles to children. The
project invites young people to help the environment across four areas, climate, water, waste
and habitats. Disney will reach out to kids by way of their biggest teen stars including Miley
Cyrus and the Jonas Brothers, teaching them practical ways to protect the environment.63
Furthermore, Disney’s Worldwide Conservation Fund helps scientist all over the world
study animals and their habitats. It is estimated that Disney funds 106 projects in 44
countries.64
While simultaneously carrying out their social responsibility, Disney also tried to
increase their income by lobbying Florida lawmakers for a package of tax breaks, about
millions of dollars in state taxes. It is estimated these tax breaks would cost the state more
than $20 million per year.65
Disney sells theme-park tickets and other items to itself in order to avoid some state
and local taxes. They also sell a large quantity of tickets, hotel rooms, meal plans and other
60 Indeed, http://www.indeed.com/cmp/The-Walt-Disney-Company 61 Disney Careers, http://disneycareers.com/en/working-here/total-rewards/ 62 Los Angeles Times Blog, http://latimesblogs.latimes.com/money_co/2011/12/disneyland-and-union-settle-long-labor-dispute.html 63 Planet Forward, http://planetforward.ca/blog/disney-redefines-the-concept-of-corporate-social-responsibility/ 64 Travel Green, http://www.travelgreen.org/industry_landing3.htm?select_industry3_id=55 65 Orlando Sentinel, http://articles.orlandosentinel.com/2012-01-14/the-daily-disney/os-disney-isc-tax-breaks-20120114_1_dollars-in-state-taxes-central-florida-businesses-tax-savings
16
gifts to one of its subsidiaries. The subsidiary then sells a package to travelers at a higher
price.
3.0 Financial Statement Analysis
The objective of the following analysis is to provide investors an extensive overview
of Disney’s financial statements with the use of key metrics and ratios to evaluate the
performance of the company. The following sections compare the financial standings of
Disney with its competitor, Viacom, in essence, providing a thorough examination of the
two companies in order to predict any future strengths or weaknesses they might have. This
analysis of Disney and Viacom’s financial statements begins by analyzing both of their
balance sheets, with the use of related ratios, and then analyzes their income statements,
followed by their statement of cash flows.
3.1 Balance Sheet Analysis This section primarily focuses on the breakdown of both Disney’s and Viacom’s
balance sheets. Through detailed analysis of assets, liabilities, equity, and select ratios,
investors can achieve a better understanding on how Disney and Viacom are running
comparatively. It should be noted that because of Disney’s corporate structure and its
involvement in various industries, this report examines mainly material accounts on Disney’s
balance sheet. This analysis will then continue through the other statements and be
combined for an overall comparison.
3.1.1 Current Ratio
Because both Disney and Viacom have similar common size percentages for current
assets and current liabilities, the current ratio is a good measure to determine the liquidity of
each company. In effect, the current ratio compares a company’s ability to meet current
liability obligations with current assets.66
In 2012 Disney had a total value of $13 billion in current assets compared to
Viacom’s $4.8 billion, yet Disney’s current ratio was smaller to Viacom’s in comparison. This
is due to the fact that Disney’s percentage of current assets to total assets was lower than
66 Fraser, Lyn M, and Aileen Ormiston. Understanding Financial Statements. Upper Saddle River, NJ: Prentice Hall, 2013.
17
Viacom’s. Notably, Disney’s average percentage of account receivables was 8.6% of current
assets from 2010-2012, while Viacom’s average percentage of accounts receivables for the
three years was 11.5%. This could be a possible driver to why Viacom had a higher
percentage of current assets and ultimately a higher current ratio.
Based on the current ratio analysis, Viacom has consistently had a higher current
ratio than Disney. In addition, compared to the entertainment and movie industry, Disney
has been on the lower end of the industry—which is somewhat alarming. For 2012, at the
high end of the industry, Liberty Media had a current ratio of 4.5, and at the low end,
LodgeNet Interactive had a current ratio of 0.6.67 As shown by the bar graph below, Disney’s
current ratio was 80.0% lower than the Entertainment-Diversified industry.68 Based on their
current ratio values, both Disney and Viacom are barely healthy enough to meet short-term
liquidity demands.
Generally investors would like to see a current ratio of 2:169, however Disney and
Viacom do not have a high percentage of current assets to total assets and current liabilities
to total liabilities and equity—indicating that both companies are heavily invested in their
long-term assets such as property, plants, and equipment and goodwill. Although both
companies have a higher percentage of long-term assets, it is still worth looking over
Disney’s short-term liquidity to confirm that the company, although barely, can manage its
current liabilities with its current assets and to compare how well the company is doing
relative to the Entertainment-Diversified industry.
67 High and Low Current Ratio (Entertainment Industry), http://www.mysmartrend.com/news-briefs/news-watch/highest-current-ratio-movies-entertainment-industry-detected-shares-liberty-m 68 Disney Current Ratio, http://www.macroaxis.com/invest/ratio/DIS--Current_Ratio 69 Ibid
Current Ratio
Current Assets/Current Liabilities
2012 2011 2010
Disney 1.06 1.14 1.11
Viacom 1.27 1.33 1.30
18
3.1.2 Parks, Resorts, and other Property
The Parks, Resorts, and other Property section of Disney’s balance sheet includes
the accounts titled net attractions, buildings, and equipment (equivalent to property, plant,
and equipment), projects in progress, and land. Disney’s attractions, buildings, and
equipment account has been steadily growing over the 2010-2012 period. From 2010 to
2011, this account grew by 10%, and from 2011 to 2012 the account grew by 9%, while
Viacom’s net property and equipment decreased by 3% over the three-year period and is
approximately 5% of total assets. This account is very material on Disney’s balance sheet and
is attributed to the fact that Disney is involved in the theme park industry. In this manner,
when comparing Disney’s balance sheet to Viacom’s, investors should not compare these
two competitors based on this specific account because Viacom’s property and equipment
comprises mainly of studios. Instead, investors should focus on two things; first, how this
account’s growth over the three-year period signals the possibility that Disney will continue
to expand by buying more properties and investing in more of its theme park attractions;
and second, how the company is financing this growth, whether it be from long-term debt
or equity financing.
Over the past year, Disney has made headlines on their new theme park attractions,
which are a main source of revenue and are a huge part of their asset base. In recent news,
Disney has undergone construction to expand Disney’s Magic Kingdom in Florida. The
Fantasyland expansion is nearly complete, with the exception of the flagship attraction, The
Seven Dwarves Mine Train, which is projected to be complete by 2014.70 Overall, the
overlying theme of construction and renovation supports Disney’s expansion of its
attractions, buildings, and equipment, which could continue within the next few years. This
70 Fantasyland Expansion, http://themeparks.about.com/od/disneyparks/a/MKFantasylandExp.htm
Property, Plant, and Equipment-to-Total Assets
Property, Plant and Equipment/Total Assets
2012 2011 2010
Disney 28.72% 27.31% 25.73%
Viacom 4.80% 4.64% 4.99%
19
expansion is good for Disney because it constantly is innovating in order to maintain its
presence within the theme park industry.
Disney’s steady increase in Parks, Resorts, and Other Properties balance sheet
accounts are supported by recent news. In order to have a more detailed analysis, investors
should use both sources of information to make sure that Disney’s constant expansion is
profitable and sustainable. Disney has a huge equity base, and along with steady increases in
long-term borrowings, the company is able to safely finance its theme park expansion.
3.1.3 Goodwill
Goodwill is the most material asset on both Disney’s and Viacom’s balance sheets.
In 2012 alone, goodwill totaled $25 billion on Disney’s balance sheet and $11 billion on
Viacom’s balance sheet. Overall, through the 2010-2012 period, Disney’s goodwill account
averaged around 33% of total assets while Viacom’s averaged around 49% of total assets.
The goodwill account is a result of acquisitions, which makes sense for both Disney and
Viacom because both companies have made large acquisitions in the past few decades.
One important ratio to look at is the goodwill to total assets ratio, which is essentially
the common sized value of goodwill. “When a large portion of total assets is attributable to
intangible assets such as goodwill, the company may be at risk of having that portion of its
asset base wiped out quickly if it must record any goodwill impairments.”71 Some notable
acquisitions Disney has made are ABC, Pixar, and Marvel, and just recently in 2012, Disney
acquired LucasFilm.72 Within the past decade Disney’s market cap has nearly tripled to $90
billion through these acquisitions.73 Some of Viacom’s acquisitions include MTV Networks,
71 Goodwill-to-Assets Ratio, http://www.investinganswers.com/financial-dictionary/ratio-analysis/goodwill-assets-ratio-3615 72 Disney Acquisitions, http://news.cnet.com/8301-33617_3-57542663-276/the-disney-way-with-acquisitions/ 73 Ibid
Goodwill-to-Assets Ratio
Goodwill/Total Assets
2012 2011 2010
Disney 33.53% 33.48% 34.82%
Viacom 49.64% 48.52% 49.94%
20
Paramount Pictures, and Blockbuster Video.74 In effect, both companies are highly
influential in the media and movie entertainment industry, making acquisitions that are
beneficial sources of revenue and comprise a large asset base on each company’s respective
balance sheet.
Investors should be aware of the acquisitive nature of these companies, and should
also take note of what companies the parent company is investing in and buying out. It is
clear that Disney is acquiring these companies as long-term investments to further diversify
the company and expects them to prosper. Although this is a good thing, if these
acquisitions fail to perform it could present huge financial problems for Disney in the future.
As mentioned earlier, if Disney has to impair its goodwill for any reason, a majority of its
asset base will be wiped out. It is important to look at Disney’s acquisition history and
compare it to the goodwill account on the balance sheet to make educated decisions about
the health and strength of the company.
3.1.4 Liabilities
Disney’s total current liabilities were rising at a decreasing rate through the 2010-2012
period: 9.9% from 2010-2011 and 6% from 2011-2012. The surging current portion of debt
drove up Disney’s current liabilities. Viacom’s current liabilities rose 12.7% in 2011 mainly
due to a huge jump in accounts payable and accrued expenses. However, they fell at a rate of
2.6% in 2012, showing that they had better control in their accounts payable and accrued
expenses.75
Both companies incurred a considerable amount of commitments, including operating
lease arrangements and broadcasting programming obligations. In 2012, Disney had a total
of $5.3 billion in off-balance sheet liabilities, nearly twice the size of its total liabilities
recorded on its balance sheet. Most of the obligations are derived from sports programming
commitments from its cable network, ESPN.76 Viacom’s contractual obligations are related
to its involvement in the media broadcasting industry and its subsidiaries Blockbuster and
Famous Players, which entered operating leasing contracts for retail stores.77 However, these
74 Viacom Acquisitions, http://en.wikipedia.org/wiki/Viacom_(1971–2005)#String_of_acquisitions 75 Disney 10-K, http://thewaltdisneycompany.com/sites/default/files/reports/q4-fy12-form-10k.pdf 76 The Drum, http://www.thedrum.com/news/2013/02/25/espn-channel-acquisition-sees-bt-sport-broadcast-fa-cup-clydesdale-scottish-premier 77 Disney 10-K, http://thewaltdisneycompany.com/sites/default/files/reports/q4-fy12-form-10k.pdf
21
off-balance sheet commitments are comparably smaller than Disney’s, amounting to only
27% of its total liabilities. As the companies are obliged by their contracts to repay these off-
balance sheet liabilities, the debt ratio analysis should take these obligations into account;
otherwise, without these contracts the ratio will be misleading to investors.
Before adjustment, it seems that Viacom is highly leveraged compared to Disney. When
taking the off-balance sheet liabilities into consideration, Disney’s “true” debt ratio is nearly
doubled, implying that they shifted a significant portion of their liabilities off their balance
sheet. With such a high leverage ratio, they may face some liquidity issues if future
operations are not generating as much income as they are now. They are also very likely to
incur one-time settlement payments to terminate or rearrange these contracts in the future.78
Debt Ratio
Total Liabilities/Total Assets
2012 2011 2010
Disney 44.0% 45.3% 43.2%
Viacom 66.6% 62.1% 58.1%
Industry Average 44.6%79
Adjusted Debt Ratio
With off-balance sheet items Without off-balance sheet items
Disney 92.2% 44.0%
Viacom 84.6% 66.6%
Although the two corporations have endured similar off-balance sheet commitments,
there is a contrasting mix in their obligation components—which is a fundamental
difference in their business’ operations results. In general, Disney has had more privileged
rights and licenses to broadcast first-class sports and other programs, which contributes over
76% of their off-balance sheet commitments. They limit their cost in entering operating
leases (4.3%) as they franchise most of their consumer product retail shops to third parties.80
78 Fraser, Lyn M, and Aileen Ormiston. Understanding Financial Statements. Upper Saddle River, NJ: Prentice Hall, 2013. 79 The Stern Business School, NYU, http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/dbtfund.htm 80 Forbes, http://www.forbes.com/2008/02/05/disney-iger-franchise-biz-media-cx_lh_0205bizdisney.html
22
Instead of operating through franchises, Viacom runs Blockbuster Inc. and other
subsidiaries themselves, engaging in more operating lease arrangements. This leads to 44%
of their total off-balance sheet obligations, while the rest is from broadcasting commitments.
3.1.5 Capital Structures
The entertainment sector involves heavy investments in long-term fixed assets and film
projects. Both Disney and Viacom raised their capital from long-term borrowings and
shareholders. For the past three years, Disney has maintained a relatively stable proportion
of long-term borrowings, ranging from 18% to 19.3% of their total assets. Viacom has relied
more on long-term debts to finance its investments with its long-term borrowings growing
9.2% in 2011 and 10.7% in 2012.8182 Its soaring long-term debt to total capitalization signifies
a heavier reliance on long-term debt for permanent financing.
Although both corporations have undergone expansion in production and operations,
their needs in acquiring external financing from creditors differ due to their income and cash
flow from operations. Disney has undergone huge expansion in its parks and resorts
segment, opening new attractions and hotels, partly funded by strong income and cash
generated from operations, which lessens its need to borrow from financial institutions.
In contrast, Viacom took a dip in income and cash flow from operations in 2012,
putting pressure on external borrowings to finance its increased blockbuster film
productions in 2012 and 2011, including Mission: Impossible – Ghost Protocol,
Transformers: Dark of the Moon and Captain America – The First Avenger.83 The company
released a total of 31 movies compared to 9 productions in 2010.84
Long-Term Debt to Total Capitalization
Long-term debt/Long-term debt +Stockholders’ Equity
2012 2011 2010
Disney 20.3% 21.7% 20.5%
Viacom 52.2% 46.0% 42.1%
81 Disney 10-K, http://thewaltdisneycompany.com/sites/default/files/reports/q4-fy12-form-10k.pdf 82 Viacom 10k, http://www.sec.gov/Archives/edgar/data/1339947/000119312512471870/d435374d10k.htm 83 Reuters, http://blogs.reuters.com/mediafile/2010/12/03/jackass-3d-tops-avatar-on-viacom-chiefs-movie-list/ 84 Viacom 10k, http://www.sec.gov/Archives/edgar/data/1339947/000119312512471870/d435374d10k.htm
23
Another major difference in their capital structures is their mix in debt and equity
financing. Disney has a much smaller and fairly constant debt to equity ratio compared to
Viacom, which has a debt to equity ratio over 100% and has been rising over the past three
years.8586 This indicates that Disney emphasizes more in equity financing than Viacom, which
is a better and beneficial way of financing since equity financing brings no obligation to
paying back the capital to shareholders.87 It essentially exerts a smaller burden on Disney’s
future debt repayment to creditors. The sudden rise in Disney’s 2011 debt to equity ratio is
attributed to the large lump sum of borrowings it took during the year for major
development in 2012.
Debt-to-Equity Ratio
Total Liabilities/Stockholders’ Equity
2012 2011 2010
Disney 78.5% 82.8% 75.9%
Viacom 199.0% 164.1% 138.6%
Meanwhile, Viacom’s debt-to-equity ratio illustrates its constantly growing debt financing,
which can lead to problems in the future.
3.2 Income Statement Analysis
The income statement is essential when performing financial analysis of a company.
The income statement summarizes how a business incurs its revenue and expenses for both
operating and non-operating activities.88 It contains key metrics such as sales, operating
profit, and net profit. These figures are critical in assessing a companies overall financial
health.
85 Disney 10-K, http://thewaltdisneycompany.com/sites/default/files/reports/q4-fy12-form-10k.pdf 86 Viacom 10k, http://www.sec.gov/Archives/edgar/data/1339947/000119312512471870/d435374d10k.htm 87 Fraser, Lyn M, and Aileen Ormiston. Understanding Financial Statements. Upper Saddle River, NJ: Prentice Hall, 2013. 88 Investopedia, http://www.investopedia.com/terms/i/incomestatement.asp#axzz2N0hxhNZx
24
3.2.1 Net Sales
Net Sales and Revenue
2011-2012 2010-2011
Disney 3.4% 7.4%
Viacom (6.9%) 11.7%
Net sales is a key metric in analyzing a company’s income, it is the amount of
revenue generated by a company after the deduction of returns, allowances for damaged or
missing goods and any discounts allowed.89 Disney’s sales increased 7.4% from 2010-2011
and 3.4% from 2011-2012 indicating increasing revenue growth at a decreasing rate. The
decreasing rate of revenue growth is due to Disney’s five major business segments reporting
slower revenue growth numbers from 2011-2012 vs. 2010-2011.90 Only Disney’s Parks and
Resorts segment reported sustained growth from 2010-2011 through 2011-2012 at 10%.
Media Networks and Consumer Products reported growth at a decreasing rate, while
Interactive and Studio Entertainment reported decreases from 2011-2012 of 14% and 8%
respectively. The revenue decrease in Studio Entertainment was due largely in part to the
fewer releases and a decrease of home entertainment sales. The Interactive revenue decrease
89 Investopedia, http://www.investopedia.com/terms/n/netsales.asp#ixzz2MjtoAHQG 90 The Walt Disney Company, http://thewaltdisneycompany.com/sites/default/files/reports/q4-fy12-form-10k.pdf
-‐10.00%
-‐5.00%
0.00%
5.00%
10.00%
15.00%
2011-‐2012 2010-‐2011 Sales Grow
th
Years
Sales Growth
Disney
Viacom
25
was driven by a 29% decrease in console game sales.91 The fact that Disney’s sales growth is
down could become a concern if the trend continues, however they are still increasing
revenue, something that their competitors are struggling to do.
Disney’s competitor Viacom saw a $1.027 billion decrease in net sales from 2011-
2012. This was due to Viacom’s poor Filmed Entertainment earnings, which saw a decrease
of $1.103 billion.92 Despite Disney’s decreasing revenue in interactive and studio
entertainment, they were still able to obtain a 7.4% growth in sales due to their company
generating revenue from many different business segments. On the other hand, Viacom’s
sales dropped due to their reliance on only two business segments. The fact that Disney is
still able to generate revenue growth while two of their five business segments are actually
decreasing in revenue is a good sign that they are a healthy sustainable business.
3.2.2 Operating Profit Margin
Operating Profit Margin
Operating Profit/Net Sales
2012 2011 2010
Disney 23.6% 21.6% 19.9%
Viacom 28.1% 24.9% 25.1%
Industry Average93 6.4%
Despite Disney’s decreasing rate of revenue growth they were still able to achieve a
13% growth in operating profit. Disney’s operating profits have been steadily increasing
over the past few years. Operating profit margin measures a company’s operating efficiency
and is a key metric in determining how much profit a company makes on each dollar of sales
after paying costs and expenses. Disney’s ability to consistently increase their operating
profit margin is largely due to their ability to cut costs and expenses as a percentage of sales.
Disney was able to successfully cut operating expenses, selling, general, and administrative
(SG&A) and other expenses in studio entertainment and interactive. Disney reported an
11% and 13% decrease in studio operating and SG&A expenses respectively. This was due
91 Ibid 92 Viacom 10k, http://www.sec.gov/Archives/edgar/data/1339947/000119312512471870/d435374d10k.htm 93 Reuters, http://www.reuters.com/finance/stocks/financialHighlights?symbol=DIS.N
26
to lower production and distribution costs of home entertainment systems and lower
marketing expenses driven by fewer blockbuster movie releases. Disney’s Interactive
business segment reported a 14% and 24% decrease in operating and SG&A expense
respectively. This was due to cutting in product development, a reduction in costs of
products sold, due to less volume, and lower marketing costs. Disney’s ability to cut costs in
their wavering business segments indicates the company’s efficiency and ability to adapt to
the current market demand.94
Disney’s revenue growth and effective cost cutting measures enabled operating
profit growth across all five of Disney’s major business segments. However, despite a 30%
growth in the Interactive segment, an operating loss of $216 million was reported in 2012.
Disney also reported Interactive-operating loss in 2010 and 2011.95 This would be a definite
cause of concern to investors however, in February 2011, Disney’s Interactive management
team promised to generate profit for the struggling business by 2013.96 Disney’s 10Q for
quarter ended December 29, 2012 shows that this promise was kept, and Disney Interactive
reported a $9 million operating profit.97 The fact that Disney was able to keep their promise
shows that management has a full grasp and understanding of their business and the costs
cutting measures necessary to turn a profit. A management team that understands how to
turn wavering business segments profitable is a very good thing.
Disney’s competitor Viacom shows operating profit margin of 28.1%, 24.8%, and
25.1% in 2012, 2011 and 2010 respectively. These numbers indicate that like Disney, Viacom
is able to control their expenses in certain business segments as a percentage of sales,
allowing their operating profit margin to grow despite a decrease in revenue from 2011-2012.
Most notably, Viacom made a 21%, $1.087 billion cut in operating expenses in their Filmed
Entertainment segment. These cuts along with decreases in SG&A and depreciation and
amortization in their Media Networks segment, coupled with the 1% increase in media
network operating income, allowed Viacom to report a stronger operating profit margin in
2012. The reason for the decrease in operating profit margin from 2010-2011 is due
94 Disney 10K, http://thewaltdisneycompany.com/sites/default/files/reports/q4-fy12-form-10k.pdf 95 Ibid 96 Gamasutra, http://www.gamasutra.com/view/news/33104/Disney_Interactive_Promises_25_Cost_Cuts_Profitability_By_2013.php#.UT5TlqVZ5zo 97 Disney 10-Q, http://thewaltdisneycompany.com/sites/default/files/reports/q1-fy13-form-10q.pdf
27
primarily to $769 million increase in Filmed Entertainment segment expenses. Media
networks also had an increase in expense of $381 million in 2011.98
Both Disney’s and Viacom’s operating profit margins are well above that of the
industry average. This further reinforces the fact both companies have the ability to maintain
efficiency within their operations by cutting expenses even when revenue is down in certain
segments.
3.2.3 Net Profit Margin
Net Profit Margin
Net Profit/Net Sales
2012 2011 2010
Disney 14.6% 12.9% 11.3%
Viacom 17.2% 14.6% 14.0%
Net profit margin measures the percentage of profit that is earned on every dollar
after taking into consideration all revenues and expenses that were reported during the
accounting period. Disney’s net profit margins were 14.6% in 2012, 12.9% in 2011 and
11.3% in 2010.99 The continual increase in their net profit margin mirrors that of the
operating profit margin, which is ultimately due to the “trickle down effect.”
During the past three years Disney has undergone various restructuring and
impairment charges. In 2010, Disney recorded $270 million in restructuring and impairment
charges relating to the organizational and cost structure of the Studio Entertainment and
Media Network segments. This $270 million write off had a 4% effect on the operating
income, while in 2011 and 2012, Disney wrote off $55 million and $100 million respectively.
In 2010 Disney’s charge of $270 million was due to restructuring charges of $138 million,
which were primarily due to severance and other related costs. The remaining $132 million
consisted of write-offs of costs relating to the closure of five ESPN Zone locations, the
closure of a studio production facility, and abandoned film projects.100 In 2011, the recording
of $55 million reflected the severance and other facility costs that related to the changes in
98 Viacom 10K, http://www.sec.gov/Archives/edgar/data/1339947/000119312512471870/d435374d10k.htm 99 Viacom 10K, http://www.sec.gov/Archives/edgar/data/1339947/000119312512471870/d435374d10k.htm 100 Disney 10-K, http://www.sec.gov/Archives/edgar/data/1339947/000119312512471870/d435374d10k.htm
28
the organization and cost structure at the Studio Entertainment and Interactive segments.
During their most recent year, Disney recorded $100 million of restructuring and
impairment charges due to the severance and facility costs, similar to the restructuring costs
in 2011.101
These write offs benefit Disney’s future operations by producing lower expenses in
later years. Disney was able to take such large charges in 2010 because they were so
profitable. By incurring these one-time charges Disney is able to reduce their future expenses
and create a cushion for any lull in future revenue.
Disney’s corporate and unallocated shared expenses increased 3% from 2011-2012
from $459 million to $474 million. This increase was largely due to charitable contributions.
Disney’s net interest expense had decreased by 16% in 2011 due to lower effective interest
rates and gains on sales of investments. However in 2012 it increased by 8% due to higher
debt balances. Disney’s other income in 2012 is what caused their net income to increase.
Their other income increased by over 100% in 2012, to the tune of $239 million. This was
due largely in part to the $184 million non-cash gain recorded with the acquisition of UTV
and the $79 million recovery of a receivable from Lehman Brothers bankruptcy.102 These
increases are what led to the continual increase of net profit margin over the past three years.
An overall increase in the net profit margin is also seen with Disney’s competitor,
Viacom. Viacom’s net profit margin increased over the past three years portraying a “trickle
down effect” from the operating profit margin. However, in 2011, the operating profit
margin had decreased by 0.2%. They were able to compensate for this decrease due to the
increase in equity earnings of investee companies. This caused a loss in 2010 of $67 million,
but in 2011 provided $40 million, which in turn created an increasing net profit margin.103
Both Disney and Viacom’s net profit margins have consistently remained higher than the
industry average of 8.3%.104 This is primarily due to Disney and Viacom’s abilities to cut
costs and expenses as a percentage of sales, which in turn increased their operating profit
margin, which trickles down to their net profit margin. Disney’s ability to consistently
increase their net profit margin is a great sign of a healthy and growing company.
101 Ibid. 102 Disney 10-K, http://www.sec.gov/Archives/edgar/data/1339947/000119312512471870/d435374d10k.htm 103 Viacom 10-K, http://www.sec.gov/cgi-bin/viewer?action=view&cik=1339947&accession_number=0001193125-12-471870&xbrl_type=v 104 Yahoo Finance, http://biz.yahoo.com/p/722conameu.html#dis
29
3.2.4 Update- Q1 2012
Just recently on February 5th, 2013, Disney released its quarterly report. Taking into
account information from this filing, it becomes apparent that while Disney’s net sales have
increased compared to last year’s first quarter report, there were decreases in operating and
net income.
Within the past quarter there was a 5% increase in sales overall. This increase in sales
is comprised of increases in revenue from all of its business segments except Studios and
Entertainment, which decreased at a rate of 5%.105 The increase in sales was due to higher
advertising revenue from Disney’s Cable Networks ESPN and ABC Family and from its
domestic theme park and resort operations.106 However, while net sales increased slightly, it
is concerning for investors to see a downward trend in the Studios and Entertainment
sector, which reported a decrease of 8% in its year-end. Decreases in revenue from this
sector are mainly caused by decreases in home entertainment sales, which decreased both
23% from a decline in unit sales and 8% from lower net effective pricing.107 Given the
current financial position of the company, it is able to offset lower revenues in this sector,
but investors should be concerned with how Disney manages pricing and volume for its
home entertainment sales.
Compared to last year’s first quarter report, Disney’s operating and net income both
decreased by 3% and 6% respectively. This is somewhat alarming since the company’s 10K
report shows an upward trend in these two margins, but after closer analysis, the main driver
to why operating income this first quarter was lower than last year’s first quarter is because
the Studio and Entertainment sector decreased its operating income by 43%. This decrease
is mainly attributed by decreases in the home entertainment and theatrical distribution
businesses.108 Disney’s other four business sectors were able to increase their operating
income by slight margins with the exception of Consumer Products, which increased its
operating income by 11%. Disney’s decrease in its Studio and Entertainment sector is the
main reason net income was lower as well—raising some concern to how the company is
managing this sector.
105 Disney 10-Q, http://thewaltdisneycompany.com/sites/default/files/reports/q1-fy13-form-10q.pdf 106 Ibid 107 Ibid 108 Ibid
30
Based on Disney’s 10-Q report, the company is still able to generate profit from its
operations. While some trends are skewed compared to the 10K report, one theme that
both filings share is the financial concern for the Studios and Entertainment sector—the
only sector to consistently decrease in revenues and operating income from year to year.
Because the company is very diversified and is a participant in multiple industries, it has the
cash and operations to cover for this sector, but investors should be concerned with how the
company is going to manage this sector within the next few years.
3.3 Statement of Cash Flow Analysis
The statement of cash flows expresses how cash has been generated and how it has
been used during the fiscal year. The cash flow statement is key in analyzing a companies
overall financial health. The most important metric in the cash flow statement is, cash flow
from operations (CFFO). CFFO gives direct insight into whether a company is generating
cash from their core business operations. The second section, cash flow from investing
activities reports cash position change from investments in financial markets, operating
subsidiaries, and plant property and equipment. While less important than CFFO, it is
important to analyze this section to see where the company is investing its hard earned cash.
The final section of the statement of cash flows is the financing section. This section shows
how companies are obtaining external capital and if they are paying dividends. The statement
of cash flows is essential when analyzing a company’s financial health. Cash is the lifeblood
of a business and is vital for a company wanting to survive and prosper.
3.3.1 Cash Flow from Operating Activities
By analyzing Disney’s CFFO, investors are able to determine the amount of cash
Disney generates through its normal business operations. Disney’s CFFO increased 6%
from 2010-2011 and 14% from 2011-2012, primarily due to an increase in revenues from its
CFFO (in Millions)
2012 2011 2010
Disney $7,996 $6,994 $6,578
Viacom $2,498 $2,644 $1,147
31
Parks and Resorts, Media Networks, and Consumer Products businesses.109. This is a good
sign for investors since Disney’s CFFO is increasing at a decent rate, which demonstrates
that the company is able to generate more cash from its businesses each year. The company’s
cash flow margin increased from 17-19% illustrating that the company is retaining more cash
from its net sales. Overall, CFFO comprises of at least 60% of the total cash inflows over
the past three years.
A few factors that contributed to the CFFO growth rate in 2012 were an increase in
the inflow of deferred income taxes, a decrease in the outflow of accounts receivables
outstanding, and a positive inflow of inventories.110 The increase in deferred income taxes
shows that Disney is keeping more cash on hand since they paid less overseas tax benefits
and tax deferments.111 In addition, the fact that there is a decrease in the outflow of accounts
receivable and a positive inflow of inventory shows that Disney is collecting on its
receivables outstanding and is selling more inventories—helping drive the CFFO upwards.
This is a strong signal that Disney is managing its assets and liabilities effectively in order to
generate cash from its operations.
Disney’s growth in CFFO every year illustrates an upward trend that should continue
through the next few years, which is a positive sign for investors. Over the past three years,
the cash generated from operating activities has been used to help finance acquisitions and
pay restructuring costs, which proves that Disney is capable of acquiring more beneficial
companies and is able to continue restructuring its business in the long run. Given that
Disney can maintain this cash growth in the next few years and use its cash to reinvest in the
company, the returns on these investments will undoubtedly increase.
109 Disney 10K, http://thewaltdisneycompany.com/sites/default/files/reports/q4-fy12-form-10k.pdf 110 Disney 10K, http://thewaltdisneycompany.com/sites/default/files/reports/q4-fy12-form-10k.pdf 111 Ibid
Cash Flow Margin
Cash Flow from Operating Activities/Net Sales
2012 2011 2010
Disney 18.9% 17.1% 17.3%
Viacom 18.0% 17.7% N/A
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Compared to Disney, Viacom’s CFFO increased from 2010-2011, but then
decreased from 2011-2012 $2.6 billion to $2.5 billion. Although this decrease is very small,
there are a few factors that drove CFFO downwards from the previous year. Unlike Disney,
Viacom’s net income was smaller in 2012 than in 2011, and the company had outflows of
both deferred income taxes and inventories.
A decrease in net income from 2011-2012 is one of the main drivers to why CFFO
was lower, and this entails that Viacom had a slower year in producing a profit from the core
of their operations. In effect, this decrease in CFFO from 2011-2012 signals that the
company’s growth has stalled, this is important to look at when comparing both companies.
In addition, the company’s inventory has consistently been a large outflow over the past
three years, and in 2012 specifically, deferred income taxes were an outflow compared to
2011 where they were an inflow. This illustrates that Viacom is not efficiently managing its
inventories and that the company decided to pay off its deferred income taxes in 2012,
causing cash flow to decrease.
Both Disney and Viacom showed positive CFFO from the 2010-2012 period, but
Disney’s CFFO has been increasing every year while Viacom’s CFFO has been fluctuating.
Disney has significantly more CFFO because it is a larger company, and the amount of
revenues brought in is the main driver to a higher CFFO every year. This is notable when
comparing both companies because Viacom mainly plays a role in the entertainment
industry, while Disney is involved in multiple industries. Given that movies and network
revenue is down a certain year, Disney has the capability to offset a loss in revenue through
its operations in any of its other business segments.
3.3.2 Investing Activities
Disney’s main investing activities are comprised primarily of investments in parks,
resorts, and other property and acquisitions. When viewing this section, it is important to
look at the specifics of what and how much is being invested into capital structures and what
companies Disney recently acquired. In addition, by analyzing the sustainability and the
methods of financing these investments, investors will have a better understanding of
whether Disney will be profitable in the long run.
In 2012, investments into Parks and Resorts took up almost 30% of total outflows.
While Disney has invested heavily in its domestic parks (approximately 60% of investments
33
in parks, resorts, and other property), the company has increased its investments in its
international parks over the three-year period.112 The change in the amount of investments in
parks, resorts, and other property reflects that management is committed to reinvesting back
into the company. Disney is using a majority of its CFFO to reduce its current portion on
borrowings and at the same time, incurring more long-term borrowings in order to finance
its expansions. Prime examples of investment projects are the recent expansion in
Fantasyland and the construction of the Shanghai Disneyland.113 In 2012 alone, Disney
invested around 77.6% of its annual investments into its parks, resorts, and other property
segment. Though some may argue this is a very concentrated investment strategy that is
costly and risky, the steady growth in revenue from Disney's parks and resorts have proven
successful throughout the years, consistently yielding profitable returns.
During 2012, acquisitions totaled $1 billion mainly due to the acquisitions of UTV
and Seven TV.114 Also, based on the first quarter 10-Q, Disney acquired LucasFilm in
October 2012.115 These acquisitions diversify Disney’s influence in the media and movie
industry, potentially yielding long-term profits. By looking at Disney’s past acquisitions of
Pixar and Marvel, the company has a track record of making smart acquisitions. Pixar ranks
among the best acquisitions of all time releasing multiple blockbuster films for the company,
and Marvel’s recent franchises are box office hits.116 The fact that Disney has a track record
in acquiring profitable companies proves that they know what they are doing. Assuming this
trend continues, Disney’s recent acquisitions should prosper as well.
Similar to Disney, Viacom has also been investing in its capital expenditures and its
acquisition base. From 2010-2012, the company spent around 60% of investing in its capital
expenditures. It should be noted that Disney’s investments into its capital expenditures are
larger than Viacom’s because it is involved in the theme park industry, while Viacom is solely
involved in the media and entertainment industry. In addition, Viacom’s investing activities
are comprised of acquisitions, yet unlike Disney, some of Viacom’s key acquisitions are
failing. For example, Blockbuster failed to innovate in the home movie entertainment
112 Disney 10K, http://thewaltdisneycompany.com/sites/default/files/reports/q4-fy12-form-10k.pdf 113 Shanghai Disney, http://www.travelchinaguide.com/attraction/shanghai/disneyland-park.htm 114 Disney 10K, http://thewaltdisneycompany.com/sites/default/files/reports/q4-fy12-form-10k.pdf 115 Disney 10-Q, http://thewaltdisneycompany.com/sites/default/files/reports/q1-fy13-form-10q.pdf 116 Disney Acquisitions, http://news.cnet.com/8301-33617_3-57542663-276/the-disney-way-with-acquisitions/
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sector, causing it to go bankrupt and ultimately leaving Viacom with huge losses.117 From an
investment standpoint, the fact that Disney is able to grow their company so efficiently and
profitably through acquisitions is a great sign.
3.3.3 Financing Activities
Disney’s cash used by financing activities was $3 billion in 2012 compared to $3.2
billion in 2011. This section is comprised of mainly cash outflows, including repurchases of
common stock, dividend payments, and reduction of borrowings. Paying off borrowings
reduces the future interest expense of the company, and higher dividend payouts could help
attract potential investors in the future.118
Disney's financing cash inflows are comprised mainly of commercial paper
borrowings, long-term borrowings, and proceeds from the exercise of stock options. From
2010-2012, the commercial paper borrowings decreased overall, yet long-term borrowings
increased. This illustrates that Disney minimized short-term borrowings to potentially
improve its current financial position. Changes in commercial paper borrowings suggest a
refinancing of short-term debts into long-term financing. The increase in maturities of debts
not only improves the liquidity of the corporation, but it also saves on interest payments.
Since short-term borrowings have a higher stated interest rate than long-term debt
agreements, Disney increased its portion of long-term debt to help lower interest expense.
Disney's decision to swap short-term for long-term debt captures the advantage of the
current zero interest-rate policy119, further benefiting the company from leverage. Changes in
commercial paper borrowings suggest a refinancing of short-term debts, while cash from
long-term borrowings are used to finance investments in parks, resorts and other properties.
Viacom also increased its borrowings during the 2010-2012 period, totaling 43% of
total cash inflows. However, Viacom’s borrowing trend is much more drastic than Disney’s
as their borrowings grew at a rate of 115% from 2011-2012. Viacom's heavier reliance on
borrowings is likely due to a relatively smaller CFFO, giving rise for the need of external
financing to fund its purchase of treasury stock. Viacom’s CEO, Philippe Dauman,
117 Blockbuster, http://techcrunch.com/2011/04/06/make-it-a-blockbuster-night/ 118 Disney 10K, http://thewaltdisneycompany.com/sites/default/files/reports/q4-fy12-form-10k.pdf 119 Global Research. www.globalresearch.ca/the-Feds-monetary-policy-of-zero-interest-rates/5325258
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mentioned in a statement that the purchase of treasury stock demonstrates the company’s
confidence in its long-term outlook and that the company had strong cash flow in 2011.120
Both companies have negative financing cash flows, primarily due to huge debt
repayments and purchases of treasury stock. This shows that they are keeping up with their
debt repayments and are determined to raise the company’s stock price. Disney’s
management believes that the company’s financial position is strong, which is why they are
taking on more debt and buying more treasury stock. The large treasury stock repurchases
could also be to boost investor confidence. Disney has enough CFFO to cover for both its
investing and financing activities if needed, but the company is intelligently using its earned
cash to finance short-term assets and obligations while using its long-term borrowings to
finance its long-term investments.
3.3.4 Cash Flow Ratios
3.3.4.1 Cash Flow Liquidity
The cash flow liquidity ratio compares cash and cash equivalents, marketable
securities, and CFFO to the total current liabilities. It measures how well the company
manages its short-term debt with cash and other liquid assets. Since Disney’s CFFO and
total current liabilities both increased, their cash flow liquidity has remained fairly stable.
Over the past three years, Disney’s cash related assets have covered its current liabilities
about 0.86 times. In essence, Disney still needs to improve its cash flow liquidity since it
does not have enough cash to cover its current liabilities.
Cash Flow Liquidity Ratio
Cash and Cash Equivalents + Marketable Securities + CFO/Current Liabilities
2012 2011 2010
Disney 0.89X 0.82X 0.85X
Viacom 0.87X 0.93X 0.57X
Although Viacom’s cash flow liquidity decreased from 2011-2012, it still had a
slightly higher liquidity ratio than Disney. Both the CFFO and total current liabilities 120 Viacom Stock, http://www.bloomberg.com/news/2011-11-10/viacom-beats-estimates-boosts-buyback-to-10b.html
36
decreased, which caused the cash flow liquidity ratio to fall. A decrease in cash flow liquidity
indicates that Viacom had a worse year in 2012 since its CFFO decreased. Both companies
have a cash flow liquidity ratio that is less than one, which indicates that they cannot meet
short-term cash demands; however, based on an upward trend in Disney’s CFFO, this is not
an issue because Disney is projected to continue CFFO growth in the future.
3.3.4.2 Cash Interest Coverage
Cash Interest Coverage Ratio
CFO + Interest Paid + Taxes Paid/Interest Paid
2012 2011 2010
Disney 30.95X 29.51X 22.74X
Viacom 9.59X 10.00X 6.54X
The cash interest coverage ratio is useful for determining the amount of cash
available to pay interest expenses. The lower the ratio, the more the company is burdened by
interest expense. Disney’s cash interest coverage has been steadily increasing from 2010-
2012. This is largely due to Disney refinancing of short-term debt into long-term financing,
thus reducing their interest expense. The upward trend is also because of Disney’s increasing
CFFO from 2010-2012. This ratio further reinforces the fact that Disney is generating a
large amount of CFFO, which is great. Viacom’s cash interest coverage ratio decreased,
largely due to their decreasing CFFO from 2011-2012. The fact that Disney’s cash interest
coverage ratio is more than three times the size of Viacom’s shows how much stronger
Disney is as a company.
3.3.4.3 Cash Flow Adequacy
Cash flow adequacy indicates a company’s ability to cover capital expense, debt
repayments, and dividends from CFFO. It essentially measures a company’s cash sufficiency.
Disney’s cash flow adequacy went down year by year, due to Disney’s debt repayments,
37
which almost tripled in 2012 from 2011 due to their recent expansions.121 Disney adjusted
their business plan and borrowed more money during the most recent economic decline.
Cash Flow Adequacy Ratio
Cash Flow from Operating Activities/Capital Expenditures + Debt Repayment + Dividends Paid
2012 2011 2010
Disney 0.92X 1.29X 1.59X
Viacom 1.56X 1.96X 2.43X
Similar to Disney, Viacom’s cash flow adequacy decreased, due to increases in capital
expenditures, debt repayments, and dividends paid outflows. Because these accounts slightly
increased and the company’s CFFO decreased, this caused an overall decrease in the cash
flow adequacy ratio, meaning that Viacom did worse in 2012 than in previous years.
3.3.4.4 Cash Return on Assets
The cash return on assets ratio shows how well a company is generating cash from
it’s assets, which is especially important for Disney because of their large investments.
Disney’s cash return on assets increased for the past three years, which is a good sign for
investors. This increase is due to Disney’s CFFO increasing at an increasing rate, and it’s
ability to efficiently manage their assets in order to generate a positive income.
Cash Return on Asset Ratio
Cash Flow from Operating Activities/Total Assets
2012 2011 2010
Disney 10.7% 9.7% 9.5%
Viacom 11.2% 11.6% 5.0%
Unlike Disney, Viacom’s cash return on assets decreased within the past two years.
This was primarily due to decreases in both CFFO and total assets, however this should not
be a big concern for investors’ because the ratio is still above 11% and the fluctuation was
121 Disney 10K, http://thewaltdisneycompany.com/sites/default/files/reports/q4-fy12-form-10k.pdf
38
less than 0.5%. This decrease was due to Viacom’s inability to generate higher profits than it
did in prior years, because their movie productions had been so successful in 2010 and 2011.
4.0 Conclusion
An analysis of Disney’s financial statements reinforces that Disney in the “king” in
the media and entertainment industry. Disney’s increasing sales over the past three years
coupled with their increasing operating profit, net income and CFFO indicate that Disney is
financially stable and growing every year. It is especially impressive that Disney was able to
increase operating profit despite two of their five business segments reporting a decrease in
revenue from 2011-2012. Disney’s ability to cut expenses in order to maintain increasing net
profit margins and CFFO speaks volumes to the management’s business acumen and
understanding of how to generate growth. This also displays one of Disney’s large
competitive advantages, that they can generate revenue from any one of there five business
segments. Given Disney’s competent management team they are poised to keep this growth
trajectory in the future through strategic cost cutting, expansions and acquisitions.
Currently, Disney’s shares are trading at an all time high, increasing about 73% over
the past year. This, along with Disney’s large repurchases of treasury stock indicate that
Disney’s management as well as the market see a profitable future for the company. These
record results should come as no surprise given Disney’s recent 2011-2012 performance.
With a staggering $7.9 billion in CFFO Disney is able to efficiently pay off its liabilities while
still reinvesting in the company through expansions and acquisitions. Given our financial
analysis, our team strongly believes that’s Disney is a safe and lucrative investment.
“We keep moving forward, opening new doors, and doing new things, because we’re curious and curiosity keeps leading us down new paths.” – Walt Disney122
122 Quote, http://www.brainyquote.com/quotes/quotes/w/waltdisney132637.html
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5.0 Appendix 5.1 The Walt Disney Company Consolidated Balance Sheet (USD $ in millions) Sep. 29, 2012 Oct. 01, 2011 Oct. 02, 2010 Current assets Cash and cash equivalents 3387 4.52% 3185 4.42% 2722 3.93% Receivables 6540 8.73% 6182 8.57% 5784 8.36% Inventories 1537 2.05% 1595 2.21% 1442 2.08% Television costs 676 0.90% 674 0.93% 678 0.98% Deferred income taxes 765 1.02% 1487 2.06% 1018 1.47% Other current assets 804 1.07% 634 0.88% 581 0.84% Total current assets 13709 18.30% 13757 19.07% 12225 17.66% Film and television costs 4541 6.06% 4357 6.04% 4773 6.90% Investments 2723 3.64% 2435 3.38% 2513 3.63% Parks, resorts and other property, at cost Attractions, buildings and equipment 38582 51.51% 35515 49.24% 32875 47.50% Accumulated depreciation -20687 -27.62% -19572 -27.14% -18373 -26.55% Parks, resorts and other property, at cost before projects in progress and land, Total 17895 23.89% 15943 22.10% 14502 20.95% Projects in progress 2453 3.28% 2625 3.64% 2180 3.15% Land 1164 1.55% 1127 1.56% 1124 1.62% Parks, resorts and other property 21512 28.72% 19695 27.31% 17806 25.73% Intangible assets, net 5015 6.70% 5121 7.10% 5081 7.34% Goodwill 25110 33.53% 24145 33.48% 24100 34.82% Other assets 2288 3.05% 2614 3.62% 2708 3.91% Total assets 74898 100.00% 72124 100.00% 69206 100.00% Current liabilities Accounts payable and other accrued liabilities 6393 8.54% 6362 8.82% 6109 8.83% Current portion of borrowings 3614 4.83% 3055 4.24% 2350 3.40% Unearned royalties and other advances 2806 3.75% 2671 3.70% 2541 3.67% Total current liabilities 12813 17.11% 12088 16.76% 11000 15.89% Borrowings 10697 14.28% 10922 15.14% 10130 14.64% Deferred income taxes 2251 3.01% 2866 3.97% 2630 3.80% Other long-term liabilities 7179 9.59% 6795 9.42% 6104 8.82% Equity Preferred stock, $.01 par value Authorized - 100 million shares, Issued - none
40
Common stock, $.01 par value Authorized - 4.6 billion shares, Issued - 2.8 billion shares at September 29, 2012 and 2.7 billion shares at October 1, 2011 31731 42.37% 30296 42.01% 28736 41.52% Retained earnings 42965 57.36% 38375 53.21% 34327 49.60% Accumulated other comprehensive loss -3266 -4.36% -2630 -3.65% -1881 -2.72%
Stockholders' Equity subtotal before Treasury Stock, Total 71430 95.37% 66041 91.57% 61182 88.41%
Treasury stock, at cost, 1.0 billion shares at September 29, 2012 and 0.9 billion shares at October 1, 2011 -31671 -42.29% -28656 -39.73% -23663 -34.19% Total Disney Shareholder's equity 39759 53.08% 37385 51.83% 37519 54.21% Noncontrolling interests 2199 2.94% 2068 2.87% 1823 2.63% Total Equity 41958 56.02% 39453 54.70% 39342 56.85% Total liabilities and equity 74898 100.00% 72124 100.00% 69206 100.00%
41
5.2 The Walt Disney Company Consolidated Income Statement (USD $ in millions) Sep. 29, 2012 Oct. 01, 2011 Oct. 02, 2010 Revenues 42278 100.00% 40893 100.00% 38063 100.00% Costs and expenses -33415 -79.04% -33112 -80.97% -31337 -82.33% Restructuring and impairment charges -100 -0.24% -55 -0.13% -270 -0.71% Other income/(expense), net 239 0.57% 75 0.18% 140 0.37% Net interest expense -369 -0.87% -343 -0.84% -409 -1.07% Equity in the income of investees 627 1.48% 585 1.43% 440 1.16% Income before income taxes 9260 21.90% 8043 19.67% 6627 17.41% Income taxes -3087 -7.30% -2785 -6.81% -2314 -6.08% Net income 6173 14.60% 5258 12.86% 4313 11.33%
Less: Net income attributable to noncontrolling interests -491 -1.16% -451 -1.10% -350 -0.92%
Net income attributable to The Walt Disney Company (Disney) 5682 13.44% 4807 11.76% 3963 10.41%
Earnings per share attributable to Disney: Diluted 3.13 2.52 2.03 Basic 3.17 2.56 2.07
Weighted average number of common and common equivalent shares outstanding: Diluted 1818 1909 1948 Basic 1794 1878 1915
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5.3 The Walt Disney Company Consolidated Statement of Cash Flows (USD $ in millions)
Sep. 29, 2012 Oct. 01, 2011 Oct. 02, 2010 OPERATING ACTIVITIES Net income 6173 5258 4313 Depreciation and amortization 1987 1841 1713 Gains on acquisitions and dispositions -184 -75 -118 Deferred income taxes 472 127 133 Equity in the income of investees -627 -585 -440 Cash distributions received from equity investees 663 608 473 Net change in film and television costs -52 332 238 Equity-based compensation 408 423 391 Impairment charges 22 16 132 Other 195 188 9 Changes in operating assets and liabilities Receivables -108 -518 -686 Inventories 18 -199 -127 Other assets -151 -189 42 Accounts payable and other accrued liabilities -608 -367 649 Income taxes -242 134 -144 Cash provided by operations 7966 6994 6578 INVESTING ACTIVITIES Investments in parks, resorts and other property -3784 -3559 -2110 Proceeds from dispositions 15 564 170 Acquisitions -1088 -184 -2493 Other 98 -107 -90 Cash used in investing activities -4759 -3286 -4523 FINANCING ACTIVITIES Commercial paper borrowings, net 467 393 1190 Borrowings 3779 2350 Reduction of borrowings -3822 -1096 -1371 Dividends -1076 -756 -653 Repurchases of common stock -3015 -4993 -2669 Proceeds from exercise of stock options 1008 1128 1133 Other -326 -259 -293 Cash used in financing activities -2985 -3233 -2663 Impact of exchange rates on cash and cash equivalents -20 -12 -87 Increase in cash and cash equivalents 202 463 -695 Cash and cash equivalents, beginning of year 3185 2722 3417 Cash and cash equivalents, end of year 3387 3185 2722 Supplemental disclosure of cash flow information: Interest paid 718 377 393 Income taxes paid 2630 2341 2170
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5.4 The Walt Disney Company Summary Statement of Cash Flows (USD $ in millions)
2012 2011 2010 Inflows $ % $ % $ % CFFO 7966 59.75% 6994 61.20% 6578 72.52% Proceeds from dispositions 15 0.11% 564 4.93% 170 1.87% Other (from investing activity) 98 0.74% 0 0.00% 0 0.00% Commercial paper borrowings, net 467 3.50% 393 3.44% 1190 13.12% Borrowings 3779 28.34% 2350 20.56% 0 0.00%
Proceeds from exercise of stock options 1008 7.56% 1128 9.87% 1133 12.49% Total Inflow 13333 100.00% 11429 100.00% 9071 100.00% Outflows
Investments in parks, resorts and other property 3784 28.82% 3559 32.45% 2110 21.61% Acquisitions 1088 8.29% 184 1.68% 2493 25.53% Other (from investing activity) 0 0.00% 107 0.98% 90 0.92% Reduction of borrowings 3822 29.11% 1096 9.99% 1371 14.04% Dividends 1076 8.19% 756 6.89% 653 6.69% Repurchases of common stock 3015 22.96% 4993 45.53% 2669 27.33% Other (from financing activity) 326 2.48% 259 2.36% 293 3.00%
Impact of exchange rates on cash and cash equivalents 20 0.15% 12 0.11% 87 0.89% Total Outflow 13131 100.00% 10966 100.00% 9766 100.00% Net Change in Cash 202 463 -695
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5.5 Viacom Inc. Consolidated Balance Sheet (USD $ in millions)
Sept. 30, 2012 Sept. 30, 2011 Sept. 30, 2010 Assets Current Abstract Cash and cash equivalents 848 3.81% 1,021 4.48% 837 3.79% Receivables, net 2,533 11.38% 2,732 11.98% 2,417 10.94% Inventory Net 832 3.74% 828 3.63% 861 3.90% Deferred Tax Assets, Net, Current 68 0.31% 41 0.18% 77 0.35%
Prepaid and other assets 572 2.57% 639 2.80% 281 1.27% Assets Held For Sale 0 0.00% 0 0.00% 76 0.34% Total current assets 4,853 21.81% 5,261 23.07% 4,549 20.59% Property and equipment - net 1,068 4.80% 1,057 4.64% 1,102 4.99% Inventory Noncurrent 4,205 18.90% 4,239 18.59% 4,145 18.76% Goodwill 11,045 49.64% 11,064 48.52% 11,035 49.94% Deferred tax assets, net 0 0.00% 0 0.00% 156 0.71% Intangibles, net 328 1.47% 392 1.72% 467 2.11% Other assets 751 3.38% 788 3.46% 568 2.57% Assets Held for Sale 0 0.00% 0 0.00% 74 0.33% Total assets 22,250 100.00% 22,801 100.00% 22,096 100.00% Current liabilities [Abstract]: Accounts payable 255 1.15% 386 1.69% 210 0.95% Accrued expenses 943 4.24% 1,193 5.23% 1,000 4.53% Participants' share and residuals 989 4.44% 1,158 5.08% 1,059 4.79% Program rights obligations 569 2.56% 475 2.08% 390 1.77% Deferred revenue 230 1.03% 187 0.82% 256 1.16% Current portion of debt 18 0.08% 23 0.10% 31 0.14% Other liabilities 826 3.71% 520 2.28% 435 1.97% Liabilities Held For Sale 0 0.00% 0 0.00% 117 0.53% Total current liabilities 3,830 17.21% 3,942 17.29% 3,498 15.83% Noncurrent portion of debt 8,131 36.54% 7,342 32.20% 6,721 30.42% Participants' share and residuals, noncurrent 533 2.40% 487 2.14% 453 2.05%
Program rights obligations, noncurrent 642 2.89% 771 3.38% 691 3.13%
Deferred tax liabilities, net 5 0.02% 123 0.54% 0 0.00% Other liabilities 1,491 6.70% 1,351 5.93% 1,343 6.08% Redeemable noncontrolling interest 179 0.80% 152 0.67% 131 0.59%
Commitments and contingencies (Note 15)
Viacom Stockholders' equity Common stock, value 1 0.00% 1 0.00% 1 0.00% Additional paid-in-capital 8,916 40.07% 8,614 37.78% 8,346 37.77%
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Treasury stock -11,025 -49.55% -8,225 -36.07% -5,725 -25.91% Treasury stock held 267.1 1.20% 207.2 0.91% 151.5 0.69% Retained earnings 9,820 44.13% 8,418 36.92% 6,775 30.66% Total, accumulated other comprehensive income (loss) -264 -1.19% -164 -0.72% -114 -0.52%
Total Viacom stockholders' equity 7,448 33.47% 8,644 37.91% 9,283 42.01%
Noncontrolling interests -9 -0.04% -11 -0.05% -24 -0.11% Total equity 7,439 33.43% 8,633 37.86% 9,259 41.90% Total liabilities and equity 22,250 100.00% 22,801 100.00% 22,096 100.00% Common stock, Class A [Member]
Viacom Stockholders' equity Common stock, par value 0.001 0.00% 0.001 0.00% 0.001 0.00% Common Stock Authorized 375 1.69% 375 1.64% 375 1.70% Common stock, outstanding 51.1 0.23% 51.4 0.23% 52 0.24% Common stock, Class B [Member]
Viacom Stockholders' equity Common stock, par value 0.001 0.00% 0.001 0.00% 0.001 0.00% Common Stock Authorized 5,000 22.47% 5,000 21.93% 5,000 22.63% Common stock, outstanding 455.9 2.05% 506.9 2.22% 556.5 2.52% Common Stock/APIC Viacom Stockholders' equity Total equity 8,917 40.08% 8,615 37.78% 8,347 37.78% Treasury Stock Viacom Stockholders' equity Total equity -11,025 -49.55% -8,225 -36.07% -5,725 -25.91% Retained Earnings Viacom Stockholders' equity Total equity 9,820 44.13% 8,418 36.92% 6,775 30.66% Accumulated Other Comprehensive Income (Loss)
Viacom Stockholders' equity Total equity -264 -1.19% -164 -0.72% -114 -0.52% Total Viacom Stockholders' Equity
Viacom Stockholders' equity Total equity 7,448 33.47% 8,644 37.91% 9,283 42.01% Noncontrolling Interests Viacom Stockholders' equity Total equity (9) -0.04% (11) -0.05% (24) -0.11%
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5.6 Viacom Inc. Consolidated Income Statement (USD $ in millions)
Sep. 30, 2012 Sep. 30, 2011 Sep. 30, 2010 Sales Revenue, Net $13,887 100% $14,914 100% $13,356 100% Expenses [Abstract]: Operating 6,993 50% 7,868 53% 6,888 52% Selling, general and administrative 2,757 20% 2,921 20% 2,752 21% Depreciation and amortization 236 2% 271 2% 308 2% Restructuring 0 0% 144 1% 0 0% Asset impairment 60 0% Total expenses 9,986 72% 11,204 75% 10,008 75% Operating Income $3,901 28% 3,710 25% $3,348 25% Interest Expense Net -417 -3% -412 -3% -425 -3% Equity in net losses of investee companies 12 0% 40 0% -87 -1% Loss on extinguishment of debt -21 0% -87 -1% 0 0% Other items, net -5 0% -6 0% 2 0% Earnings From Continuing Operations Before Provision For Income Taxes 3,470 25% 3,245 22% 2,838 21% Provision for Income Taxes -1,085 -8% -1,062 -7% -962 -7% Net earnings from continuing operations 2,385 17% 2,183 15% 1,876 14% Discontinued operations, net of tax -364 -3% -10 0% -351 -3% Net earnings (Viacom and noncontrolling interests) 2,021 15% 2,173 15% 1,525 11% Net (losses) earnings attibutable to noncontrolling interests -40 0% -37 0% 23 0% Net earnings attibutable to Viacom 1,981 14% 2,136 14% 1,548 12% Amounts attibutable to Viacom [Abstract]: Net earnings from continuing operations attributable to Viacom 2,345 17% 2,146 14% 1,899 14% Discontinued operations, net of tax -364 -3% -10 0% -351 -3% Net earnings attributable to Viacom $1,981 14% $2,136 14% $1,548 12% Basic earnings per share attibutable to Viacom [Abstract]: Income (Loss) from Continuing Operations, Per Basic Share $4.42 0% $3.65 0% $3.12 0% Income Loss From Discontinued Operations Net Of Tax Per Basic Share ($0.69) 0% ($0.01) 0% ($0.57) 0% Basic net earnings per share attibutable to Viacom $3.73 0% $3.64 0% $2.55 0% Diluted earnings per share attributable to Viacom [Abstract]: Income (Loss) From Continuing Operations Per Diluted Share $4.36 0% $3.61 0% $3.11 0% Income Loss From Discontinued Operations Net Of Tax Per Diluted Share ($0.67) 0% ($0.02) 0% ($0.57) 0% Diluted net earnings per share attibutable to Viacom $3.69 0% $3.59 0% $2.54 0% Weighted average number of common shares outstanding [Abstract]:
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Weighted average number of common shares outstanding, basic 530.7 4% 587.3 4% 607.8 5% Weighted average number of common shares outstanding, diluted 537.5 4% 594.3 4% 610.4 5% Dividends declared per share of Class A and Class B common stock $1.05 0% $0.80 0% $0.30 0%
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5.7 Viacom Inc. Consolidated Statement of Cash Flows (USD $ in millions)
2012 2011 2010 OPERATING ACTIVITIES Net earnings (Viacom and noncontrolling interests) 2021 2173 864 Discontinued operations, net of tax 364 10 321 Net earnings from continuing operations 2385 2183 1185 Reconciling items: Depreciation and amortization 236 271 222 Feature film and program amortization 4380 4809 3015 Equity-based compensation 122 128 80 Equity in net (income) losses and distributions from investee companies -6 -32 72 Deferred income taxes -87 376 -119 Operating assets and liabilities, net of acquisitions: Receivables 270 -398 419 Inventory, program rights and participations -4492 -4538 -3251 Accounts payable and other current liabilities -367 -92 -404 Other, net 56 -42 -82 Discontinued operations, net 1 -21 10 Cash provided by operations 2498 2644 1147 INVESTING ACTIVITIES Acquisitions and investments, net -18 -72 -63 Capital expenditures -154 -155 -105 Discontinued operations, net -84 0 0 Net cash flow used in investing activities -256 -227 -168
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5.8 Viacom Inc. Summary Statement of Cash Flows (USD $ in millions) 2012 2011 2010
Inflow $ % $ % $ % CFFO 2498 50.78% 2644 62.57% 1147 99.83% Borrowings 2,116 43.02% 982 23.24% 0 0.00% Commercial paper 0 0.00% 423 10.01% 0 0.00% Excess tax benefits on equity-based and compensation awards
37 0.75%
13 0.31%
0 0.00%
Exercise of stock options 268 5.45% 164 3.88% 2 0.17% Total Inflow 4919 100.00% 4226 100.00% 1149 100.00% Outflow Acquisitions and investments, net 18 0.35% 72 1.78% 63 10.33% Capital expenditures 154 3.02% 155 3.83% 105 17.21% Discontinued operations, net 84 1.65% 0 0.00% 0 0.00% Debt repayments 892 17.52% 776 19.20% 276 45.25% Commercial paper 423 8.31% 0 0.00% 16 2.62% Purchase of treasury stock 2,809 55.16% 2,450 60.61% 0 0.00% Dividends paid 554 10.88% 417 10.32% 91 14.92% Other, net from financing activities 156 3.06% 166 4.11% 55 9.02% Effect of exchange rate changes on cash and cash equivalents
2 0.04%
6 0.15%
4 0.66%
Total Outflow 5092 100.00% 4042 100.00% 610 100.00% Net Change in Cash -173 184 539