01—Abstract
Summary
Summary of the 10-Q filed May 8, 2019. Cited figures are marked; the original filing is the authoritative source.
The Walt Disney Company reported strong financial results for the quarter and six months ended March 30, 2019, driven by the significant acquisition of Twenty-First Century Fox (21CF) and the consolidation of Hulu.
Total revenues saw a 3% increase for the quarter and 1% for the six months, reaching $14.9 billiona and $30.2 billion, respectively. Net income attributable to Disney surged by 86% for the quarter to $5.5 billion and by 12% for the six months to $8.2 billion, largely due to a substantial one-time gain from remeasuring its Hulu investment to fair value. Diluted earnings per share (EPS) from continuing operations also saw significant growth, up 81% for the quarter to $3.53.
Segment performance was mixed. While Parks, Experiences and Products showed solid growth in both revenue and operating income, Studio Entertainment experienced a notable decline in revenues and operating income, primarily due to a weaker theatrical and home entertainment release slate compared to the prior year. The Direct-to-Consumer & International segment continued to operate at a loss, reflecting ongoing investments in streaming services like ESPN+ and preparations for the Disney+ launch, along with the inclusion of Hulu's results.
The company also incurred significant restructuring and impairment charges related to the 21CF acquisition and integration. The acquisition of 21CF significantly impacted the balance sheet, increasing total assets and liabilities.
The company also assumed substantial debt, leading to a higher overall debt level, which is being addressed through planned divestitures. Despite the increased debt, Disney maintained a strong liquidity position.
02—Key points
Key Highlights
- Total revenues for the quarter increased 3% to $14.9 billion, and for the six months increased 1% to $30.2 billion.
- Net income attributable to Disney increased significantly by 86% for the quarter to $5.5 billion, primarily driven by a $4.9 billion gain from the Hulu remeasurement.
- Diluted EPS from continuing operations rose 81% to $3.53 for the quarter.
- The acquisition of 21st Century Fox (21CF) was completed on March 20, 2019, significantly impacting the company's financial statements and balance sheet.
- Parks, Experiences and Products segment revenue grew 5% for the quarter and 5% for the six months, with operating income up 15% and 12% respectively.
- Studio Entertainment revenues declined 15% for the quarter and 21% for the six months, impacting segment operating income.
- Direct-to-Consumer & International segment reported an operating loss, reflecting increased investments in streaming services and the consolidation of Hulu.
- Restructuring and impairment charges totaled $662 million for the quarter and $662 million for the six months, primarily related to the 21CF acquisition and integration.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2019filed May 8, 2019Financial Statements
Q2 FY2019 against Q2 FY2018
| Line item | Q2 FY2019Q2 FY2018 | Change |
|---|---|---|
| Revenue | $14.92B$14.55B | +2.6% |
| SG&A Expenses | $2.33B$2.24B | +4.1% |
| Operating Expenses | $11.53B$10.51B | +9.7% |
| Operating Income | $3.81B$4.24B | −10.0% |
| Interest Expense | $198.00M$172.00M | +15.1% |
| Net Income | $5.45B$2.94B | +85.6% |
| EPS (Basic) | $3.56$1.95 | +82.6% |
| EPS (Diluted) | $3.55$1.95 | +82.1% |
| Shares Outstanding (Basic) | 1.53B1.50B | +1.8% |
| Shares Outstanding (Diluted) | 1.54B1.51B | +1.8% |
05—Questions
Frequently Asked Questions
What was the primary driver of the significant increase in net income for the quarter?
The primary driver of the significant increase in net income for the quarter was a one-time, non-cash gain of $4.9 billion recognized from remeasuring Disney's previously held 30% interest in Hulu to its fair value upon gaining a controlling interest as part of the 21CF acquisition.
How has the acquisition of 21st Century Fox impacted Disney's financial position?
The acquisition of 21CF, completed on March 20, 2019, significantly increased Disney's total assets and liabilities. It also led to a substantial increase in consolidated indebtedness, with the company assuming $23 billion of 21CF's debt and incurring an additional $15 billion under a bridge loan facility. This increased debt load is expected to be managed through planned divestitures, such as the Regional Sports Networks.
What is the performance of Disney's different business segments?
Parks, Experiences and Products showed strong growth in both revenue and operating income. Studio Entertainment experienced a decline in revenue and operating income due to a weaker release slate compared to the prior year. The Direct-to-Consumer & International segment continued to incur operating losses as the company invests heavily in its streaming services like ESPN+ and prepares for the launch of Disney+.
What are the significant charges reported in the quarter?
Disney reported significant restructuring and impairment charges of $662 million for the quarter. These charges are primarily related to severance and related costs, as well as equity-based compensation, in connection with the acquisition and integration of 21CF. Additionally, an impairment charge of $353 million was recognized for an equity investment in Vice.
06—Continue