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Form 8-K WALT DISNEY CO/ For: Nov 10

November 10, 2016 4:20 PM EST


________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _________
FORM 8-K
 CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported):
November 10, 2016
__________
The Walt Disney Company
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation)
1-11605
 
95-4545390
(Commission File Number)
 
(IRS Employer Identification No.)
 
 
 
500 South Buena Vista Street
 
 
Burbank, California
 
91521
(Address of principal executive offices)
 
(Zip Code)
(818) 560-1000
(Registrant’s telephone number, including area code)
Not applicable
(Former name or address, if changed since last report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

________________________________________________________________________







Item 2.02 Results of Operations and Financial Condition.    

On November 10, 2016, the Registrant issued a press release relating to its results for the quarter and year ended October 1, 2016. A copy of the press release is furnished herewith as Exhibit 99.1.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits

99.1 Press release of November 10, 2016

Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. 
 
 
 
 
 
 
The Walt Disney Company
 
 
 
 
By:
 
/s/ Roger J. Patterson
 
 
 
Roger J. Patterson
 
 
 
Associate General Counsel and Assistant Secretary
 
 
 
Registered In-House Counsel
 
Dated: November 10, 2016





Exhibit 99.1
FOR IMMEDIATE RELEASE
November 10, 2016
THE WALT DISNEY COMPANY REPORTS
FOURTH QUARTER AND FULL YEAR EARNINGS FOR FISCAL 2016
Revenues for the year increased 6% to a record $55.6 billion.
Net income for the year increased 12% to a record $9.4 billion.
EPS for the year increased 17% to a record $5.73.
BURBANK, Calif. – The Walt Disney Company today reported earnings for its fourth quarter and fiscal year ended October 1, 2016. Diluted earnings per share (EPS) for the fourth quarter increased 16% to $1.10 from $0.95 in the prior-year quarter. Excluding certain items affecting comparability(1), EPS for the quarter decreased 8% to $1.10 from $1.20 in the prior-year quarter. Diluted EPS for the year increased 17% to $5.73 from $4.90 in the prior year. Excluding certain items affecting comparability(1), EPS for the year increased 11% to $5.72 from $5.15 in the prior year.
Due to our fiscal period end, results for the fourth quarter and full year of fiscal 2015 include the benefit from one additional week of operations (Fiscal Period Impact) compared to the current-year periods. The estimated EPS impact of the additional week of operations was approximately $0.13 for the prior-year periods, and the majority of the impact was in our Cable Networks business, followed by our Parks and Resorts and, to a lesser extent, our Consumer Products businesses.
“We’re very pleased with our performance for the year, delivering the highest revenue, net income and earnings per share in Disney’s history,” said Robert A. Iger, Chairman and Chief Executive Officer, The Walt Disney Company. “Fiscal 2016 was our sixth consecutive year of record results, highlighted by the opening of Shanghai Disney Resort, the phenomenally successful return of Star Wars, and our Studio’s record-breaking $7.5 billion in total box office. We remain confident that Disney will continue to deliver strong growth over the long-term as we further strengthen our brands and franchises, our technological capabilities, and our international presence.”
The following table summarizes the fourth quarter and full year results for fiscal 2016 and 2015 (in millions, except per share amounts):
 
Quarter Ended
 
 
 
 
Year Ended
 
 
 
Oct. 1, 2016
 
Oct. 3, 2015
 
Change
 
Oct. 1, 2016
 
Oct. 3, 2015
 
Change
Revenues
$
13,142

 
$
13,512

 
(3
)%
 
 
$
55,632

 
$
52,465

 
6
%
 
Segment operating income(1)
$
3,176

 
$
3,534

 
(10
)%
 
 
$
15,721

 
$
14,681

 
7
%
 
Net income(2)
$
1,771

 
$
1,609

 
10
 %
 
 
$
9,391

 
$
8,382

 
12
%
 
Diluted EPS(2)
$
1.10

 
$
0.95

 
16
 %
 
 
$
5.73

 
$
4.90

 
17
%
 
EPS excluding certain items affecting comparability(1)
$
1.10

 
$
1.20

 
(8
)%
 
 
$
5.72

 
$
5.15

 
11
%
 
Cash provided by operations
$
3,827

 
$
3,328

 
15
 %
 
 
$
13,213

 
$
10,909

 
21
%
 
Free cash flow(1)
$
2,745

 
$
2,124

 
29
 %
 
 
$
8,440

 
$
6,644

 
27
%
 
(1) 
EPS excluding items affecting comparability, segment operating income and free cash flow are non-GAAP financial measures. See the discussion on pages 8 through 10.
(2) 
Reflects amounts attributable to shareholders of The Walt Disney Company, i.e. after deduction of noncontrolling interests.


1



SEGMENT RESULTS
The following table summarizes the fourth quarter and full year segment operating results for fiscal 2016 and 2015 (in millions):
 
Quarter Ended
 
 
 
 
Year Ended
 
 
 
Oct. 1, 2016
 
Oct. 3, 2015
 
Change
 
Oct. 1, 2016
 
Oct. 3, 2015
 
Change
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
Media Networks
$
5,658

 
$
5,826

 
(3
)%
 
 
$
23,689

 
$
23,264

 
2
 %
 
Parks and Resorts
4,386

 
4,361

 
1
 %
 
 
16,974

 
16,162

 
5
 %
 
Studio Entertainment
1,811

 
1,783

 
2
 %
 
 
9,441

 
7,366

 
28
 %
 
Consumer Products & Interactive Media
1,287

 
1,542

 
(17
)%
 
 
5,528

 
5,673

 
(3
)%
 
 
$
13,142

 
$
13,512

 
(3
)%
 
 
$
55,632

 
$
52,465

 
6
 %
 
Segment operating income:
 
 
 
 
 
 
 
 
 
 
 


 
Media Networks
$
1,672

 
$
1,819

 
(8
)%
 
 
$
7,755

 
$
7,793

 
 %
 
Parks and Resorts
699

 
738

 
(5
)%
 
 
3,298

 
3,031

 
9
 %
 
Studio Entertainment
381

 
530

 
(28
)%
 
 
2,703

 
1,973

 
37
 %
 
Consumer Products & Interactive Media
424

 
447

 
(5
)%
 
 
1,965

 
1,884

 
4
 %
 
 
$
3,176

 
$
3,534

 
(10
)%
 
 
$
15,721

 
$
14,681

 
7
 %
 

DISCUSSION OF FULL YEAR CONSOLIDATED RESULTS
For the year, the increase in diluted EPS was due to segment operating income growth driven by Studio Entertainment, Parks and Resorts and Consumer Products & Interactive Media, a decrease in weighted average shares outstanding as a result of our share repurchase program, a lower effective income tax rate and the Company’s share of a net gain recognized by A+E Television Networks in connection with their acquisition of an interest in Vice Group Holdings, Inc. (Vice Gain). These benefits were partially offset by higher net interest expense, charges taken in connection with the discontinuation of our Infinity console game business (Infinity Charge) and higher restructuring and impairment charges in the current year. The decrease in the effective income tax rate was due to a prior-year deferred income tax asset write-off as a result of the increase in our ownership of Euro Disney S.C.A. in connection with a recapitalization of Disneyland Paris (Disneyland Paris Tax Asset Write-off). The increase in net interest expense was due to higher average debt balances and lower investment gains in the current year. In addition, diluted EPS growth was negatively impacted by foreign currency translation due to the movement of the U.S. dollar against major currencies including the impact of our hedging program.
Segment operating income growth at Studio Entertainment was due to the success of our slate, particularly Star Wars: The Force Awakens, across all of our key distribution channels. Growth at Parks and Resorts was driven by our domestic operations due to higher average guest spending, attendance and occupied room nights, partially offset by cost inflation and spending on new guest offerings. Domestic growth was partially offset by a decrease at our international parks and resorts primarily due to lower attendance and occupied room nights at Disneyland Paris, decreased attendance at Hong Kong Disneyland Resort and lower results at Shanghai Disney Resort. The decrease at Shanghai Disney Resort was due to higher pre-opening expenses, partially offset by the benefit of a partial year of operations. Consumer Products & Interactive Media operating income growth was due to higher merchandise licensing revenue and an increase at our games business, partially offset by lower comparable store sales at our retail business. Merchandise licensing revenue growth was driven by the strength of Star Wars merchandise, partially offset by lower sales of merchandise based on Frozen. Media Networks results were slightly

2



lower compared to the prior year due to higher programming and production costs, the Fiscal Period Impact and lower results from our equity investments, partially offset by higher affiliate and advertising revenue.

DISCUSSION OF FOURTH QUARTER SEGMENT RESULTS

Media Networks
Media Networks revenues for the quarter decreased 3% to $5.7 billion, and segment operating income decreased 8% to $1.7 billion. The following table provides further detail of the Media Networks results (in millions):
 
Quarter Ended
 
 
 
 
Year Ended
 
 
 
Oct. 1, 2016
 
Oct. 3, 2015
 
Change
 
Oct. 1, 2016
 
Oct. 3, 2015
 
Change
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cable Networks
$
3,956

 
$
4,245

 
(7
)%
 
 
$
16,632

 
$
16,581

 
 %
 
Broadcasting
1,702

 
1,581

 
8
 %
 
 
7,057

 
6,683

 
6
 %
 
 
$
5,658

 
$
5,826

 
(3
)%
 
 
$
23,689

 
$
23,264

 
2
 %
 
Segment operating income:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cable Networks
$
1,448

 
$
1,655

 
(13
)%
 
 
$
6,748

 
$
6,787

 
(1
)%
 
Broadcasting
224

 
164

 
37
 %
 
 
1,007

 
1,006

 
 %
 
 
$
1,672

 
$
1,819

 
(8
)%
 
 
$
7,755

 
$
7,793

 
 %
 
Cable Networks
Operating income at Cable Networks decreased $207 million to $1.4 billion for the quarter due to decreases at ESPN and the Disney Channels, partially offset by an increase at Freeform.
The decrease at ESPN reflected lower advertising and affiliate revenue and higher programming and production costs. Lower advertising revenue was primarily due to fewer impressions and lower rates. The decrease in impressions was driven by the Fiscal Period Impact, lower ratings and fewer units sold. Lower affiliate revenue was due to the Fiscal Period Impact and a decline in subscribers, partially offset by contractual rate increases. The increase in programming and production costs was driven by costs for Olympics programming internationally, the World Cup of Hockey rights and higher contractual rates for college sports, partially offset by the absence of costs for the British Open and a favorable Fiscal Period Impact.
Lower results at the Disney Channels were primarily due to decreased affiliate revenue and program sales, partially offset by lower programming and production costs driven by a decrease in program write-downs. The decrease in affiliate revenue was primarily due to the Fiscal Period Impact, partially offset by contractual rate increases.
Growth at Freeform was driven by lower programming and production costs, as well as a decrease in marketing expense, partially offset by a decrease in affiliate revenue due to an unfavorable Fiscal Period Impact. Lower programming and production costs were driven by fewer hours of original scripted programming in the current quarter, while the decrease in marketing expense was due to launching fewer new series.

Broadcasting
Operating income at Broadcasting increased $60 million to $224 million for the quarter due to higher operating income from program sales, an increase in affiliate revenue and a decrease in compensation-

3



related costs, partially offset by higher programming costs, lower advertising revenue and an increase in equity losses from Hulu.
Affiliate revenue growth reflected higher contractual rates. The increase in program sales income was driven by sales of Luke Cage, Quantico and Golden Girls, partially offset by lower sales of Scandal and Nashville. The increase in programming costs was due to a higher average amortization rate for network programming, the addition of the Emmy Awards show and higher costs for political news coverage in the current quarter, partially offset by a favorable Fiscal Period Impact. The decrease in advertising revenue was due to a decrease in impressions, partially offset by higher rates and the addition of the Emmy Awards show. Lower impressions were driven by the Fiscal Period Impact, decreased ratings and fewer units sold, which was a result of higher political coverage in the current year. Higher equity losses from Hulu reflected increased programming, marketing and labor costs, partially offset by higher subscription and advertising revenues.


Parks and Resorts
Parks and Resorts revenues for the quarter increased 1% to $4.4 billion, and segment operating income decreased 5% to $699 million due to a decrease at our international operations, partially offset by an increase at our domestic operations.
The decrease in operating income at our international operations was due to lower results at Disneyland Paris and Hong Kong Disneyland Resort, partially offset by the benefit of the first full quarter of operations for Shanghai Disney Resort. Lower results at Disneyland Paris were primarily due to decreases in attendance and occupied room nights. At Hong Kong Disneyland Resort, the decrease in operating income was due to lower attendance.
The increase at our domestic operations was primarily due to growth at Walt Disney World Resort, partially offset by a decrease at Disneyland Resort. The improvement at Walt Disney World Resort was due to lower costs and guest spending growth, partially offset by lower volumes. Guest spending growth was driven by higher average ticket prices and room rates and increased food and beverage spending. Lower volumes reflected the Fiscal Period Impact, which more than offset increases in attendance and occupied room nights on a comparable fiscal period basis. Results at Disneyland Resort reflected lower attendance, partially offset by higher average ticket prices and lower costs. The decrease in attendance reflected the impact of the 60th Anniversary celebration in the prior-year quarter and an unfavorable Fiscal Period Impact. Lower costs at both Walt Disney World Resort and Disneyland Resort were due to a favorable Fiscal Period Impact.


Studio Entertainment
Studio Entertainment revenues for the quarter increased 2% to $1.8 billion, and segment operating income decreased $149 million to $381 million. The decrease in operating income was driven by lower theatrical distribution results, partially offset by growth in TV/SVOD distribution.
The decrease in theatrical distribution results reflected the lower than expected performance of Pete’s Dragon and Queen of Katwe in the current quarter. Results also reflected the continuing performance of Finding Dory and Captain America: Civil War in the current quarter compared to Inside Out, Ant-Man and Avengers: Age of Ultron in the prior-year quarter. Additionally, the current quarter included higher pre-release marketing costs.
The increase in TV/SVOD distribution was primarily due to a sale of Star Wars Classic titles in the current quarter.


4




Consumer Products & Interactive Media
Consumer Products & Interactive Media revenues for the quarter decreased 17% to $1.3 billion, and segment operating income decreased 5% to $424 million. The decrease in revenue was primarily due to the discontinuation of our Infinity console game business. Lower operating income was driven by decreases at our merchandise licensing and games businesses, partially offset by an increase at our publishing business due to cost saving initiatives.
The decrease in operating income from merchandise licensing was due to the Fiscal Period Impact and a decrease in revenues from merchandise based on Frozen, partially offset by higher revenues from merchandise based on Finding Dory/Nemo and various Disney properties.
Lower results at our games business were due to the discontinuation of our Infinity console game business, which benefited from the launch of Infinity 3.0 in the prior-year quarter, and an unfavorable foreign exchange impact due to the strengthening of the U.S. dollar against major currencies. These decreases were partially offset by higher licensing revenues.


OTHER QUARTERLY FINANCIAL INFORMATION

Corporate and Unallocated Shared Expenses
Corporate and unallocated shared expenses decreased $19 million to $183 million for the quarter due to lower compensation-related costs.

Interest Expense, net
Interest expense, net was as follows (in millions):
  
Quarter Ended
 
 
 
 
Oct. 1, 2016
 
Oct. 3, 2015
 
Change
Interest expense
$
(119
)
 
$
(68
)
 
(75
)%
 
Interest and investment income
20

 
13

 
54
 %
 
Interest expense, net
$
(99
)
 
$
(55
)
 
(80
)%
 
The increase in interest expense for the quarter was due to higher average debt balances, an increase in our effective interest rate and lower capitalized interest. The prior-year quarter included interest capitalized during the development of the Shanghai Disney Resort, which opened in the third quarter of the current year.
The increase in interest and investment income for the quarter was due to lower investment write-downs.


5



Income Taxes
The effective income tax rate was as follows:
 
Quarter Ended
 
 
 
 
Oct. 1, 2016
 
Oct. 3, 2015
 
Change
Effective income tax rate
34.3
%
 
46.0
%
 
11.7

ppt
The decrease in the effective income tax rate for the quarter was due to the Disneyland Paris Tax Asset Write-off, which increased the effective tax rate by 12.4 percentage points in the prior-year quarter.

Noncontrolling Interests
  
Quarter Ended
 
 
 
(in millions)
Oct. 1, 2016
 
Oct. 3, 2015
 
Change
Net income attributable to noncontrolling interests
$
121

 
$
132

 
8
%
 
The decrease in net income attributable to noncontrolling interests for the quarter was due to lower results at Disneyland Paris and ESPN, partially offset by higher results at Shanghai Disney Resort.
Net income attributable to noncontrolling interests is determined on income after royalties and management fees, financing costs and income taxes.


FULL YEAR CASH FLOW STATEMENT INFORMATION

Cash Flow
Cash provided by operations and free cash flow were as follows (in millions):
 
Year Ended
 
 
 
Oct. 1, 2016
 
Oct. 3, 2015
 
Change
Cash provided by operations
$
13,213

 
$
10,909

 
$
2,304

Investments in parks, resorts and other property
(4,773
)
 
(4,265
)
 
(508
)
Free cash flow(1)
$
8,440

 
$
6,644

 
$
1,796

(1)    Free cash flow is not a financial measure defined by GAAP. See the discussion on pages 8 through 10.
Cash provided by operations for fiscal 2016 increased 21% or $2.3 billion to $13.2 billion compared to fiscal 2015. The increase in cash provided by operations was driven by higher Studio Entertainment and Parks and Resorts operating results and lower income tax payments, partially offset by higher pension contributions.


6



Capital Expenditures and Depreciation Expense
Investments in parks, resorts and other property were as follows (in millions):
 
Year Ended
 
Oct. 1, 2016
 
Oct. 3, 2015
Media Networks
 
 
 
Cable Networks
$
86

 
$
127

Broadcasting
80

 
71

Total Media Networks
166

 
198

Parks and Resorts
 
 
 
Domestic
2,180

 
1,457

International
2,035

 
2,147

Total Parks and Resorts
4,215

 
3,604

Studio Entertainment
86

 
107

Consumer Products & Interactive Media
53

 
87

Corporate
253

 
269

Total investments in parks, resorts and other property
$
4,773

 
$
4,265

Capital expenditures increased from $4.3 billion to $4.8 billion due to an increase at Parks and Resorts driven by higher construction spending at our domestic parks, Hong Kong Disneyland Resort and Disney Cruise Line, partially offset by lower spending at Shanghai Disney Resort.
Depreciation expense was as follows (in millions):
 
Year Ended
 
Oct. 1, 2016
 
Oct. 3, 2015
Media Networks
 
 
 
Cable Networks
$
147

 
$
150

Broadcasting
90

 
95

Total Media Networks
237

 
245

Parks and Resorts
 
 
 
Domestic
1,273

 
1,169

International
445

 
345

Total Parks and Resorts
1,718

 
1,514

Studio Entertainment
51

 
55

Consumer Products & Interactive Media
63

 
69

Corporate
251

 
249

Total depreciation expense
$
2,320

 
$
2,132






7



Non-GAAP Financial Measures
This earnings release presents EPS excluding the impact of certain items affecting comparability, free cash flow and aggregate segment operating income, all of which are important financial measures for the Company but are not financial measures defined by GAAP.
These measures should be reviewed in conjunction with the relevant GAAP financial measures and are not presented as alternative measures of EPS, cash flow or net income as determined in accordance with GAAP. EPS excluding certain items affecting comparability, free cash flow and aggregate segment operating income as we have calculated them may not be comparable to similarly titled measures reported by other companies.
EPS excluding certain items affecting comparability – The Company uses EPS excluding certain items to evaluate the performance of the Company’s operations exclusive of certain items affecting comparability of results from period to period. The Company believes that information about EPS exclusive of these items is useful to investors, particularly where the impact of the excluded items is significant in relation to reported earnings, because the measure allows for comparability between periods of the operating performance of the Company’s business and allows investors to evaluate the impact of these items separately from the impact of the operations of the business.
The following table reconciles reported EPS to EPS excluding certain items affecting comparability for the fourth quarter:
(in millions except EPS)
Pre-Tax Income/Loss
 
Tax Benefit/Expense (1)
 
After-Tax Income/Loss (2)
 
EPS (3)
 
Change vs. prior year period
Quarter Ended October 1, 2016:
 
 
 
 
 
 
 
 
 
As reported
$
2,881

 
$
(989
)
 
$
1,892

 
$
1.10

 
16
 %
Exclude:(4)
 
 
 
 
 
 
 
 
 
Infinity Charge
(18
)
 
7

 
(11
)
 
(0.01
)
 
 
Restructuring and impairment charges
31

 
(11
)
 
20

 
0.01

 
 
Excluding certain items affecting comparability
$
2,894

 
$
(993
)
 
$
1,901

 
$
1.10

 
(8
)%
 
 
 
 
 
 
 
 
 
 
Quarter Ended October 3, 2015:
 
 
 
 
 
 
 
 
 
As reported
$
3,224

 
$
(1,483
)
 
$
1,741

 
$
0.95

 
 
Exclude:(4)
 
 
 
 
 
 
 
 
 
Disneyland Paris Tax Asset Write-off

 
399

 
399

 
0.24

 
 
Restructuring and impairment charges
53

 
(20
)
 
33

 
0.02

 
 
Excluding certain items affecting comparability
$
3,277

 
$
(1,104
)
 
$
2,173

 
$
1.20

 
 

(1) 
Tax benefit/expense adjustments are determined using the tax rate applicable to the individual item affecting comparability.
(2) 
Before noncontrolling interest share.
(3) 
Net of noncontrolling interest share, where applicable. Total may not equal the sum of the column due to rounding.
(4) 
Items affecting comparability during the fourth quarter of 2016 included a favorable adjustment to the Infinity Charge ($18 million) and restructuring and impairment charges ($31 million). In the prior-year fourth quarter, the Company recorded the Disneyland Paris Tax Asset Write-off ($399 million) and restructuring and impairment charges ($53 million).


8



The following table reconciles reported EPS to EPS excluding certain items affecting comparability for the year:
(in millions except EPS)
Pre-Tax Income/Loss
 
Tax Benefit/Expense (1)
 
After-Tax Income/Loss (2)
 
EPS (3)
 
Change vs. prior year period
Year Ended October 1, 2016:
 
 
 
 
 
 
 
 
 
As reported
$
14,868

 
$
(5,078
)
 
$
9,790

 
$
5.73

 
17
%
Exclude:(4)
 
 
 
 
 
 
 
 
 
Vice Gain
(332
)
 
122

 
(210
)
 
(0.13
)
 
 
Infinity Charge
129

 
(47
)
 
82

 
0.05

 
 
Restructuring and impairment charges
156

 
(43
)
 
113

 
0.07

 
 
Excluding certain items affecting comparability
$
14,821

 
$
(5,046
)
 
$
9,775

 
$
5.72

 
11
%
 
 
 
 
 
 
 
 
 
 
Year Ended October 3, 2015:
 
 
 
 
 
 
 
 
 
As reported
$
13,868

 
$
(5,016
)
 
$
8,852

 
$
4.90

 


Exclude:(4)
 
 
 
 
 
 
 
 
 
Disneyland Paris Tax Asset Write-off

 
399

 
399

 
0.23

 
 
Restructuring and impairment charges
53

 
(20
)
 
33

 
0.02

 
 
Excluding certain items affecting comparability
$
13,921

 
$
(4,637
)
 
$
9,284

 
$
5.15

 



(1) 
Tax benefit/expense adjustments are determined using the tax rate applicable to the individual item affecting comparability.
(2) 
Before noncontrolling interest share.
(3) 
Net of noncontrolling interest share, where applicable. Total may not equal the sum of the column due to rounding.
(4) 
For the year ended October 1, 2016, items affecting comparability included the Vice Gain ($332 million), the Infinity Charge ($129 million) and restructuring and impairment charges ($156 million). In the prior year, the Company recorded the Disneyland Paris Tax Asset Write-off ($399 million) and restructuring and impairment charges ($53 million).
Free cash flow – The Company uses free cash flow (cash provided by operations less investments in parks, resorts and other property), among other measures, to evaluate the ability of its operations to generate cash that is available for purposes other than capital expenditures. Management believes that information about free cash flow provides investors with an important perspective on the cash available to service debt obligations, make strategic acquisitions and investments and pay dividends or repurchase shares.
Aggregate segment operating income – The Company evaluates the performance of its operating segments based on segment operating income, and management uses aggregate segment operating income as a measure of the performance of operating businesses separate from non-operating factors. The Company believes that information about aggregate segment operating income assists investors by allowing them to evaluate changes in the operating results of the Company’s portfolio of businesses separate from non-operational factors that affect net income, thus providing separate insight into both operations and the other factors that affect reported results.

9



A reconciliation of segment operating income to net income is as follows (in millions):
 
Quarter Ended
 
Year Ended
 
Oct. 1, 2016
 
Oct. 3, 2015
 
Oct. 1, 2016
 
Oct. 3, 2015
Segment operating income
$
3,176

 
$
3,534

 
$
15,721

 
$
14,681

Corporate and unallocated shared expenses
(183
)
 
(202
)
 
(640
)
 
(643
)
Restructuring and impairment charges
(31
)
 
(53
)
 
(156
)
 
(53
)
Interest expense, net
(99
)
 
(55
)
 
(260
)
 
(117
)
Vice Gain

 

 
332

 

Infinity Charge
18

 

 
(129
)
 

Income before income taxes
2,881

 
3,224

 
14,868

 
13,868

Income taxes
(989
)
 
(1,483
)
 
(5,078
)
 
(5,016
)
Net income
$
1,892

 
$
1,741

 
$
9,790

 
$
8,852


CONFERENCE CALL INFORMATION
In conjunction with this release, The Walt Disney Company will host a conference call today, November 10, 2016, at 5:00 PM EST/2:00 PM PST via a live webcast. To access the webcast go to www.disney.com/investors. The discussion will be archived.


10



FORWARD-LOOKING STATEMENTS
Management believes certain statements in this earnings release may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are made on the basis of management’s views and assumptions regarding future events and business performance as of the time the statements are made. Management does not undertake any obligation to update these statements.
Actual results may differ materially from those expressed or implied. Such differences may result from actions taken by the Company, including restructuring or strategic initiatives (including capital investments or asset acquisitions or dispositions), as well as from developments beyond the Company’s control, including:
changes in domestic and global economic conditions, competitive conditions and consumer preferences;
adverse weather conditions or natural disasters;
health concerns;
international, political, or military developments; and
technological developments.
Such developments may affect entertainment, travel and leisure businesses generally and may, among other things, affect:
the performance of the Company’s theatrical and home entertainment releases;
the advertising market for broadcast and cable television programming;
demand for our products and services;
expenses of providing medical and pension benefits; and
performance of some or all company businesses either directly or through their impact on those who distribute our products.
Additional factors are set forth in the Company’s Annual Report on Form 10-K for the year ended October 3, 2015 under Item 1A, “Risk Factors,” and subsequent reports.



11



THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited; in millions, except per share data)
 
 
Quarter Ended
 
Year Ended
 
October 1,
2016
 
October 3,
2015
 
October 1,
2016
 
October 3,
2015
Revenues
$
13,142

 
$
13,512

 
$
55,632

 
$
52,465

Costs and expenses
(10,281
)
 
(10,364
)
 
(41,274
)
 
(39,241
)
Restructuring and impairment charges
(31
)
 
(53
)
 
(156
)
 
(53
)
Interest expense, net
(99
)
 
(55
)
 
(260
)
 
(117
)
Equity in the income of investees
150

 
184

 
926

 
814

Income before income taxes
2,881

 
3,224

 
14,868

 
13,868

Income taxes
(989
)
 
(1,483
)
 
(5,078
)
 
(5,016
)
Net income
1,892

 
1,741

 
9,790

 
8,852

Less: Net income attributable to noncontrolling interests
(121
)
 
(132
)
 
(399
)
 
(470
)
Net income attributable to The Walt Disney Company (Disney)
$
1,771

 
$
1,609

 
$
9,391

 
$
8,382

 
 
 
 
 
 
 
 
Earnings per share attributable to Disney:
 
 
 
 
 
 
 
Diluted
$
1.10

 
$
0.95

 
$
5.73

 
$
4.90

Basic
$
1.10

 
$
0.96

 
$
5.76

 
$
4.95

 
 
 
 
 
 
 
 
Weighted average number of common and common equivalent shares outstanding:
 
 
 
 
 
 
 
Diluted
1,615

 
1,694

 
1,639

 
1,709

Basic
1,606

 
1,679

 
1,629

 
1,694

 
 
 
 
 
 
 
 
Dividends declared per share
$

 
$

 
$
1.42

 
$
1.81




12



THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited; in millions, except per share data)
 
October 1,
2016
 
October 3,
2015
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
4,610

 
$
4,269

Receivables
9,065

 
8,019

Inventories
1,390

 
1,571

Television costs and advances
1,208

 
1,170

Deferred income taxes

 
767

Other current assets
693

 
962

Total current assets
16,966

 
16,758

Film and television costs
6,339

 
6,183

Investments
4,280

 
2,643

Parks, resorts and other property
 
 
 
Attractions, buildings and equipment
50,270

 
42,745

Accumulated depreciation
(26,849
)
 
(24,844
)
 
23,421

 
17,901

Projects in progress
2,684

 
6,028

Land
1,244

 
1,250

 
27,349

 
25,179

Intangible assets, net
6,949

 
7,172

Goodwill
27,810

 
27,826

Other assets
2,340

 
2,421

Total assets
$
92,033

 
$
88,182

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities
 
 
 
Accounts payable and other accrued liabilities
$
9,130

 
$
7,844

Current portion of borrowings
3,687

 
4,563

Unearned royalties and other advances
4,025

 
3,927

Total current liabilities
16,842

 
16,334

 
 
 
 
Borrowings
16,483

 
12,773

Deferred income taxes
3,679

 
4,051

Other long-term liabilities
7,706

 
6,369

Commitments and contingencies
 
 
 
Equity
 
 
 
Preferred stock, $.01 par value
Authorized – 100 million shares, Issued – none

 

Common stock, $.01 par value, Authorized – 4.6 billion shares, Issued – 2.9 billion shares at October 1, 2016 and 2.8 billion shares at October 3, 2015
35,859

 
35,122

Retained earnings
66,088

 
59,028

Accumulated other comprehensive loss
(3,979
)
 
(2,421
)
 
97,968

 
91,729

Treasury stock, at cost, 1.3 billion shares at October 1, 2016 and 1.2 billion shares at October 3, 2015
(54,703
)
 
(47,204
)
Total Disney Shareholders’ equity
43,265

 
44,525

Noncontrolling interests
4,058

 
4,130

Total equity
47,323

 
48,655

Total liabilities and equity
$
92,033

 
$
88,182


13



THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in millions)
 
 
Year Ended
 
October 1,
2016
 
October 3,
2015
OPERATING ACTIVITIES
 
 
 
Net income
$
9,790

 
$
8,852

Depreciation and amortization
2,527

 
2,354

Gains on sales of investments and dispositions
(26
)
 
(91
)
Deferred income taxes
1,214

 
(102
)
Equity in the income of investees
(926
)
 
(814
)
Cash distributions received from equity investees
799

 
752

Net change in film and television costs and advances
(101
)
 
(922
)
Equity-based compensation
393

 
410

Other
445

 
341

Changes in operating assets and liabilities:
 
 
 
Receivables
(393
)
 
(211
)
Inventories
186

 
1

Other assets
(137
)
 
34

Accounts payable and other accrued liabilities
40

 
(49
)
Income taxes
(598
)
 
354

Cash provided by operations
13,213

 
10,909

 
 
 
 
INVESTING ACTIVITIES
 
 
 
Investments in parks, resorts and other property
(4,773
)
 
(4,265
)
Sales of investments/proceeds from dispositions
45

 
166

Acquisitions
(850
)
 

Other
(180
)
 
(146
)
Cash used in investing activities
(5,758
)
 
(4,245
)
 
 
 
 
FINANCING ACTIVITIES
 
 
 
Commercial paper borrowings/(repayments), net
(920
)
 
2,376

Borrowings
6,065

 
2,550

Reduction of borrowings
(2,205
)
 
(2,221
)
Dividends
(2,313
)
 
(3,063
)
Repurchases of common stock
(7,499
)
 
(6,095
)
Proceeds from exercise of stock options
259

 
329

Contributions from noncontrolling interest holders

 
1,012

Other
(378
)
 
(402
)
Cash used in financing activities
(6,991
)
 
(5,514
)
 
 
 
 
Impact of exchange rates on cash and cash equivalents
(123
)
 
(302
)
 
 
 
 
Change in cash and cash equivalents
341

 
848

Cash and cash equivalents, beginning of year
4,269

 
3,421

Cash and cash equivalents, end of year
$
4,610

 
$
4,269



14




Contacts:

Zenia Mucha
Corporate Communications
818-560-5300


Lowell Singer
Investor Relations
818-560-6601





15


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