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SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
For the Quarter Ended March 31, 2001 |
Commission File Number 1-11605 |
Incorporated in Delaware |
I.R.S. Employer Identification No. |
|
500 South Buena Vista Street, Burbank, California 91521 |
95-4545390 |
Securities Registered Pursuant to Section 12(b) of the Act: |
Name of Each Exchange |
||
Title of Each Class |
on Which Registered |
|
Common Stock, $.01 par value |
New York Stock Exchange |
Securities Registered Pursuant to Section 12(g) of the Act: None. |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section |
|
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was requested to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ |
There were 2,089,955,354 shares of Disney common stock outstanding as of May 4, 2001. |
PART I . FINANCIAL INFORMATION |
On January 29, 2001, the Company announced the conversion of all of its outstanding Walt Disney |
|
Internet Group common stock (NYSE:DIG) into shares of Disney common stock (NYSE:DIS). This conversion was effected on March 20, 2001. Each outstanding share of Internet Group common stock was converted into 0.19353 of a share of Disney common stock, resulting in the issuance of approximately 8.6 million shares of Disney common stock. For the quarter and six months ended March 31, 2001, as-reported earnings attributed to Disney common stock reflect approximately 72% of Internet Group losses from October 1, 2000, through January 28, 2001, (the last date prior to the announcement of the conversion of the Internet Group common stock), and 100% thereafter. Accordingly, the Company no longer reports separate financial information for the Internet Group or the Disney common stock and will only report consolidated financial statements for The Walt Disney Company. |
ITEM 1: FINANCIAL STATEMENTS CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited; in millions, except per share data) |
Three Months |
Six Months |
||||||||||||||
------------------------- |
------------------------- |
||||||||||||||
2001 |
2000 |
2001 |
2000 |
||||||||||||
----------- |
----------- |
----------- |
---------- |
Revenues |
$ |
6,049 |
$ |
6,307 |
$ |
13,482 |
$ |
13,247 |
||||||||
Costs and expenses |
(5,133 |
) |
(5,549 |
) |
(11,416 |
) |
(11,391 |
) |
||||||||
Amortization of intangible assets |
(184 |
) |
(344 |
) |
(477 |
) |
(570 |
) |
||||||||
Gain on sale of businesses |
- |
- |
22 |
243 |
||||||||||||
Net interest expense and other |
(98 |
) |
(121 |
) |
(207 |
) |
(293 |
) |
||||||||
Equity in the income of investees |
66 |
63 |
148 |
74 |
||||||||||||
Restructuring and impairment charges |
(996 |
) |
(36 |
) |
(1,190 |
) |
(61 |
) |
||||||||
--------- |
--------- |
--------- |
--------- |
|||||||||||||
Income (loss) before income taxes, minority interests and |
(296 |
) |
320 |
362 |
1,249 |
|||||||||||
Income taxes |
(238 |
) |
(223 |
) |
(624 |
) |
(813 |
) |
||||||||
Minority interests |
(33 |
) |
(20 |
) |
(63 |
) |
(44 |
) |
||||||||
--------- |
--------- |
--------- |
--------- |
|||||||||||||
Income (loss) before cumulative effect of accounting changes |
(567 |
) |
77 |
(325 |
) |
392 |
||||||||||
Cumulative effect of accounting changes: |
Film accounting |
- |
- |
(228 |
) |
- |
||||||||||||
Derivative accounting |
- |
- |
(50 |
) |
- |
||||||||||||
-------- |
-------- |
-------- |
-------- |
Net income (loss) |
$ |
(567 |
) |
$ |
77 |
$ |
(603 |
) |
$ |
392 |
||||||
====== |
====== |
====== |
====== |
|||||||||||||
Earnings (loss) attributed to: |
|
Disney Common Stock (1) |
|
$ |
(548 |
) |
$ |
161 |
$ |
(486 |
) |
$ |
517 |
||||||
Internet Group Common Stock |
(19 |
) |
(84 |
) |
(117 |
) |
(125 |
) |
|||||||||
-------- |
-------- |
-------- |
-------- |
||||||||||||||
$ |
(567 |
) |
$ |
77 |
$ |
(603 |
) |
$ |
392 |
||||||||
====== |
====== |
====== |
====== |
Earnings (loss) per share before cumulative effect of |
|
|
Disney Common Stock (basic and diluted) (1) (2) |
$ |
(0.26 |
) |
$ |
0.08 |
$ |
(0.10 |
) |
$ |
0.25 |
|||||||
====== |
====== |
====== |
====== |
||||||||||||||
Internet Group Common Stock (basic and diluted) |
$ |
(0.45 |
) |
$ |
(1.87 |
) |
$ |
(2.72 |
) |
$ |
(2.84 |
) |
|||||
====== |
====== |
====== |
====== |
|
||||||||||||||||
Cumulative effect of accounting changes per Disney share: |
Film accounting |
$ |
- |
$ |
- |
$ |
(0.11 |
) |
$ |
- |
||||||||
Derivative accounting |
- |
- |
(0.02 |
) |
- |
||||||||||||
-------- |
-------- |
-------- |
-------- |
||||||||||||||
$ |
- |
$ |
- |
$ |
(0.13 |
) |
$ |
- |
|||||||||
====== |
====== |
====== |
====== |
Earnings (loss) per share attributed to: |
|
|
Disney Common Stock (basic and diluted) (1) (2) |
$ |
(0.26 |
) |
$ |
(0.08 |
) |
$ |
(0.23 |
) |
$ |
0.25 |
|||||||
====== |
====== |
====== |
====== |
|||||||||||||||
Internet Group Common Stock (basic and diluted) |
$ |
(0.45 |
) |
$ |
(1.87 |
) |
$ |
(2.72 |
) |
$ |
(2.84 |
) |
||||||
====== |
====== |
====== |
====== |
|||||||||||||||
|
||||||||||||||||||
Average number of common and common equivalent shares |
||||||||||||||||||
Disney Common Stock |
|
|
||||||||||||||||
Diluted |
2,098 |
2,103 |
2,101 |
2,092 |
||||||||||||||
====== |
====== |
====== |
====== |
|||||||||||||||
Basic |
2,082 |
2,069 |
2,082 |
2,067 |
||||||||||||||
====== |
====== |
====== |
====== |
|||||||||||||||
Internet Group Common Stock (basic and diluted) |
|
42 |
|
45 |
43 |
44 |
||||||||||||
====== |
====== |
====== |
====== |
|
||
(1) |
Including Disney's retained interest in the Internet Group. Disney's as-reported retained interest in the Internet Group reflects 100% of Internet Group losses through November 17, 1999, approximately 72% for the period from November 18, 1999 through January 28, 2001 (the last date prior to the announcement of the conversion of the Internet Group common stock), and 100% thereafter. |
|
(2) |
Amounts for the current year represent basic earnings per share. |
See Notes to Condensed Consolidated Financial Statements |
THE WALT DISNEY COMPANY |
March 31, |
September 30, |
|||||||
-------------------- |
-------------------- |
|||||||
ASSETS |
(unaudited) |
|||||||
Current Assets |
Cash and cash equivalents |
$ |
663 |
$ |
842 |
|||||
Receivables |
3,974 |
3,599 |
|||||||
Inventories |
578 |
702 |
|||||||
Television costs |
1,509 |
1,294 |
|||||||
Deferred income taxes |
568 |
623 |
|||||||
Other assets |
819 |
635 |
|||||||
--------------- |
--------------- |
Total current assets |
8,111 |
7,695 |
Film and television costs |
5,012 |
5,207 |
||||||
Investments |
2,137 |
2,270 |
||||||
Parks, resorts and other property, at cost |
Attractions, buildings and equipment |
16,662 |
16,610 |
|||||||
Accumulated depreciation |
(7,211 |
) |
(6,892 |
) |
|||||
--------------- |
--------------- |
||||||||
9,451 |
9,718 |
||||||||
Projects in progress |
2,527 |
1,995 |
|||||||
Land |
611 |
597 |
|||||||
--------------- |
--------------- |
||||||||
12,589 |
12,310 |
Intangible assets, net |
15,172 |
16,117 |
||||||
Other assets |
1,436 |
1,428 |
||||||
--------------- |
--------------- |
|||||||
$ |
44,457 |
$ |
45,027 |
|||||
=========== |
=========== |
|||||||
LIABILITIES AND STOCKHOLDERS' EQUITY |
||||||||
Current Liabilities |
Accounts and taxes payable and other accrued liabilities |
$ |
4,813 |
$ |
5,161 |
|||||
Current portion of borrowings |
175 |
2,502 |
|||||||
Unearned royalties and other advances |
916 |
739 |
|||||||
--------------- |
--------------- |
Total current liabilities |
5,904 |
8,402 |
Borrowings |
9,661 |
6,959 |
|||||||||
Deferred income taxes |
2,783 |
2,833 |
|||||||||
Other long term liabilities, unearned royalties and other advances |
2,699 |
2,377 |
|||||||||
Minority interests |
419 |
356 |
|||||||||
Stockholders' Equity |
|||||||||||
Preferred stock, $.01 par value |
|||||||||||
Authorized - 100 million shares, Issued - none |
|||||||||||
Common stock |
|||||||||||
Common stock - Disney, $.01 par value |
|||||||||||
Authorized - 3.6 billion shares, Issued - 2.1 billion shares |
12,083 |
9,920 |
|||||||||
Common stock - Internet Group, $.01 par value |
|||||||||||
Authorized - 1.0 billion shares |
- |
2,181 |
|||||||||
Retained earnings |
11,726 |
12,767 |
|||||||||
Accumulated other comprehensive income |
85 |
(28 |
) |
||||||||
--------------- |
--------------- |
||||||||||
23,894 |
24,840 |
||||||||||
Treasury stock, at cost, 31.1 million Disney shares |
(689 |
) |
(689 |
) |
|||||||
Shares held by TWDC Stock Compensation Fund II, at cost |
|||||||||||
Disney - 6.8 million shares |
(214 |
) |
(40 |
) |
|||||||
Internet Group |
- |
(11 |
) |
||||||||
--------------- |
--------------- |
||||||||||
22,991 |
24,100 |
||||||||||
--------------- |
--------------- |
||||||||||
$ |
44,457 |
$ |
45,027 |
||||||||
=========== |
=========== |
See Notes to Condensed Consolidated Financial Statements |
THE WALT DISNEY COMPANY |
Six Months Ended March 31, |
||||||||
-------------------------------------------- |
||||||||
2001 |
2000 |
|||||||
------------------- |
------------------- |
|||||||
NET (LOSS) INCOME |
$ |
(603 |
) |
$ |
392 |
|||
OPERATING ITEMS NOT REQUIRING CASH OUTLAYS |
Depreciation |
472 |
457 |
|||||||
Restructuring and impairment charges |
1,190 |
61 |
|||||||
Amortization of intangible assets |
477 |
570 |
|||||||
Cumulative effect of accounting changes |
278 |
- |
|||||||
Gain on sale of businesses |
(22 |
) |
(243 |
) |
|||||
Equity in the income of investees |
(148 |
) |
(74 |
) |
|||||
Minority interests |
63 |
44 |
|||||||
Other |
153 |
121 |
CHANGES IN ASSETS AND LIABILITIES |
(575 |
) |
700 |
|||||
--------------- |
--------------- |
|||||||
1,888 |
1,636 |
|||||||
--------------- |
--------------- |
Cash provided by operations |
1,285 |
2,028 |
|||||||
--------------- |
--------------- |
INVESTING ACTIVITIES |
Dispositions |
132 |
688 |
|||||||
Proceeds from sale of investments |
102 |
84 |
|||||||
Investments in parks, resorts and other property |
(896 |
) |
(934 |
) |
|||||
Investments in Euro Disney |
- |
(91 |
) |
||||||
Acquisitions (net of cash acquired) |
(444 |
) |
18 |
||||||
Purchase of investments |
(71 |
) |
(37 |
) |
|||||
Other |
(28 |
) |
- |
||||||
--------------- |
--------------- |
||||||||
Cash used by investing activities |
(1,205 |
) |
(272 |
) |
|||||
--------------- |
--------------- |
FINANCING ACTIVITIES |
Commercial paper borrowings, net |
2,288 |
(263 |
) |
||||||
Other borrowings |
300 |
992 |
|||||||
Reduction of borrowings |
(2,219 |
) |
(1,772 |
) |
|||||
Repurchases of common stock |
(266 |
) |
(115 |
) |
|||||
Exercise of stock options and other |
76 |
282 |
|||||||
Dividends |
(438 |
) |
(434 |
) |
|||||
--------------- |
--------------- |
||||||||
Cash used by financing activities |
(259 |
) |
(1,310 |
) |
|||||
--------------- |
--------------- |
(Decrease) increase in cash and cash equivalents |
(179 |
) |
446 |
|||||
Cash and cash equivalents, beginning of period |
842 |
414 |
||||||
--------------- |
--------------- |
|||||||
Cash and cash equivalents, end of period |
$ |
663 |
$ |
860 |
||||
=========== |
=========== |
See Notes to Condensed Consolidated Financial Statements |
THE WALT DISNEY COMPANY |
1 |
These condensed consolidated financial statements have been prepared in accordance with |
generally accepted accounting principles (GAAP) for interim financial information and the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been reflected in these condensed consolidated financial statements. Operating results for the quarter are not necessarily indicative of the results that may be expected for the year ending September 30, 2001. Certain reclassifications have been made in the fiscal 2000 financial statements to conform to the fiscal 2001 presentation. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 2000. In December 1999, DVD Financing, Inc. (DFI), a subsidiary of Disney Vacation Development, Inc. and an indirect subsidiary of the Company, completed a receivables sale transaction. In connection with this sale, DFI prepares separate financial statements, although its separate assets and liabilities are also consolidated in these financial statements. |
2 |
Effective October 1, 2000, the Company adopted two new accounting pronouncements, AICPA |
Statement of Position No. 00-2, Accounting by Producers or Distributors of Films (SOP 00-2) and Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133). |
SOP 00-2 establishes new accounting standards for producers and distributors of films which |
|
resulted in changes in revenue recognition and accounting for exploitation costs, including advertising and marketing expenses, development and overhead costs. As a result of the adoption of SOP 00-2, the Company recorded a one-time after-tax charge of $228 million, or $0.11 per share, representing the cumulative effect of the adoption in its Condensed Consolidated Statements of Income. The charge represents costs that were capitalized as of September 30, 2000, that would have been expensed under the new rules. |
SFAS 133 requires that the Company record all derivatives on the balance sheet at fair value. There |
|
are two types of derivatives into which the Company enters: hedges of fair value exposure and hedges of cash flow exposure. Hedges of fair value exposure are entered into in order to hedge the fair value of a recognized asset or liability, or a firm commitment. Hedges of cash flow exposure are entered into in order to hedge a forecasted transaction or the variability of cash flows to be paid related to a recognized liability. On the date the derivative contract is entered in to, the Company designates the derivative as either a fair value hedge or a cash flow hedge. Changes in derivative fair values that are designated as fair value hedges will be recognized in earnings as offsets to the changes in fair value of related hedged assets, liabilities and firm commitments. Changes in the derivative fair values that are designated as cash flow hedges will be deferred and recorded as a component of accumulated other comprehensive income (AOCI) until the hedged transactions occur and are recognized in earnings. The ineffective portion of a hedging derivative's change in fair value will be immediately recognized in earnings. As a result of adopting SFAS 133 and in accordance with the transition provisions, the Company recorded a one-time after-tax charge of $50 million, or $0.02 per share, as of October 1, 2000, in its Condensed Consolidated Statements of Income representing the cumulative effect of the adoption and an after-tax unrealized gain of $60 million to AOCI. The Company expects to reclassify a $30 million after-tax gain from AOCI to earnings during fiscal 2001. |
During the six months, the Company recorded the change in fair market value related to fair value |
|
hedges, and the ineffectiveness related to cash flow hedges to net interest expense. These amounts were not material. |
THE WALT DISNEY COMPANY |
During the six months, the Company recorded the change in value related to cash flow hedges to |
|
AOCI, and reclassified a gain from AOCI to earnings, which was offset by net losses on the items being hedged. These amounts were not material. In addition, the Company reclassified deferred losses related to cash flow hedges from AOCI to earnings, due to the uncertainty of the timing of the original forecasted transaction. This activity recorded to AOCI resulted in an unrealized after-tax gain in AOCI of $110 million as of March 31, 2001, of which $62 million is expected to be classified to earnings during the current fiscal year. |
The Company formally documents all relationships between hedging instruments and hedged |
|
items, as well as its risk-management objectives and strategies for undertaking various hedge transactions. The Company links all hedges that are designated as fair value hedges to specific assets or liabilities on the balance sheet or to specific firm commitments. The Company links all hedges that are designated as cash flow hedges to forecasted transactions. The Company also assesses, both at the inception of the hedge and on an on-going basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge, the Company discontinues hedge accounting prospectively. |
3 |
On January 29, 2001, the Company announced the conversion of all of its outstanding Internet |
Group common stock into Disney common stock. This conversion was effected on March 20, 2001. Each outstanding share of Internet Group common stock was converted into 0.19353 of a share of Disney common stock, resulting in the issuance of approximately 8.6 million shares of Disney common stock. For the quarter and six months ended March 31, 2001, as-reported earnings attributed to Disney common stock reflect approximately 72% of Internet Group losses from October 1, 2000 through January 28, 2001 (the last date prior to the announcement of the conversion of the Internet Group common stock), and 100% thereafter. In addition, the Company has ceased the operations of the GO.com portal business, which resulted in restructuring charges of $862 million in the current quarter (see Note 4). |
In December 2000, the Company sold Infoseek Japan, K.K., a subsidiary that operates a search |
|
portal business in Japan, for approximately $81 million. The sale resulted in a pre-tax gain of $22 million. |
In November 1999, the Company sold Fairchild Publications, which it had acquired as part of the |
|
1996 acquisition of ABC, Inc., generating a pre-tax gain of $243 million. |
The Company's condensed consolidated results of operations have incorporated Infoseek's activity, |
|
on a consolidated basis, from November 18, 1999, the date on which the Company acquired the remaining interest in Infoseek that it did not already own, and the activity of Fairchild Publications through the date of its disposal. The unaudited pro forma information below presents combined results of operations as if the disposition of Fairchild Publications, the acquisition of Infoseek, the conversion of the Internet Group common stock into Disney common stock, the closure of the GO.com portal business and the adoption of the new film accounting rules (see Note 2) had occurred at the beginning of fiscal 2000, excluding the one-time impacts of those events. The pro forma amounts below for the prior-year six months exclude charges for purchased in-process research and development costs of $23 million related to the Infoseek acquisition. The unaudited pro forma information is not necessarily indicative of the results of operations had these events actually occurred at the beginning of fiscal 2000, nor is it necessarily indicative of future results. |
THE WALT DISNEY COMPANY |
Six Months Ended March 31, |
2001 |
2000 |
||||||||||||
----------------------------------------------------------------- |
------------- |
------------- |
||||||||||||
Revenues |
$ |
13,469 |
$ |
13,215 |
||||||||||
Income before cumulative effect of accounting changes |
$ |
702 |
$ |
662 |
||||||||||
Net income |
$ |
424 |
$ |
662 |
||||||||||
Diluted earnings per share before cumulative effect of accounting changes attributed to Disney common stock |
$ |
0.33 |
$ |
0.32 |
||||||||||
Diluted earnings per share attributed to Disney common stock |
$ |
0.20 |
$ |
0.32 |
4 |
The Company recorded restructuring and impairment charges for the quarter and six months |
summarized as follows: |
Three Months |
Six Months |
||||||||||||||
---------------------------- |
------------------------- |
||||||||||||||
2001 |
|
|
2000 |
2001 |
2000 |
||||||||||
----------- |
----------- |
----------- |
--------- |
||||||||||||
GO.com intangible assets impairment |
$ |
820 |
$ |
- |
$ |
820 |
$ |
- |
|||||||
GO.com severance, fixed asset write-offs and other |
42 |
- |
42 |
- |
|||||||||||
Themed entertainment assets |
61 |
- |
61 |
- |
|||||||||||
Disney Store closures |
51 |
- |
51 |
- |
|||||||||||
Investment impairment |
22 |
36 |
216 |
61 |
|||||||||||
-------- |
-------- |
-------- |
-------- |
||||||||||||
$ |
996 |
$ |
36 |
$ |
1,190 |
$ |
61 |
||||||||
====== |
====== |
====== |
====== |
The charge for closure of the GO.com portal business includes a non-cash write-off of intangible assets |
totaling $820 million and $42 million of severance, fixed asset write-offs and other costs. The Disney Store closure charge consists of lease termination costs, fixed asset and leasehold improvement write-offs, severance and other related closure costs. The investment impairment charge reflects other-than-temporary declines in the fair value of certain Internet investments, including $186 million for the Inktomi Corporation shares that the Company received as proceeds from the sale of Ultraseek. The themed entertainment asset charge represents a write-down to the estimated salvage value of property and equipment due to the inability of the related operations to recover the net carrying value of the assets. |
5 |
During the six months, the Company received net proceeds of $2.3 billion from commercial paper |
activity and an additional $300 million through the issuance of bonds having an effective interest rate of 5.9% and maturing in fiscal 2004 issued under the Euro Medium Term Note Program. These proceeds were partially used to repay $2.2 billion of term debt that matured during the period. |
6 |
During the six months, the Company paid an annual dividend of $438 million ($0.21 per share) |
applicable to fiscal 2000. |
THE WALT DISNEY COMPANY |
7 |
Diluted earnings per share amounts are calculated using the treasury stock method and are based |
upon the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares are excluded from the computation in periods in which they would have an anti-dilutive effect. The difference between basic and diluted earnings per share is solely attributable to stock options, which are considered anti-dilutive either in periods with losses, or when the option exercise prices exceed the weighted average market price per share of common stock during the period. For the three months ended March 31, 2001 and 2000, options for 102 million and 12 million shares, respectively, were excluded from the Disney diluted earnings per share calculation. For the six months ended March 31, 2001 and 2000, options for 67 million and 32 million shares, respectively, were excluded. |
Net loss per share attributed to the Internet Group reflects the results of operations from |
|
November 17, 1999, the date the Company acquired the remaining interest in Infoseek that it did not already own and first issued Internet Group common stock, through January 28, 2001, the last date prior to the announcement of the conversion of the Internet Group common stock. |
8 |
During the six months ended March 31, 2001, the Company repurchased 8.4 million |
shares of Disney common stock and 1.8 million shares of Internet Group common stock for approximately $256 million and $10 million, respectively. Under its share repurchase program, the Company was authorized to repurchase approximately 386 million additional Disney shares as of March 31, 2001. The Company evaluates share repurchase decisions on an ongoing basis, taking into account borrowing capacity, management's target capital structure and other investment opportunities. |
9 |
Comprehensive income (loss) is as follows: |
Three Months |
Six Months |
|||||||||||||||
--------------------------- |
-------------------------- |
|||||||||||||||
2001 |
2000 |
2001 |
2000 |
|||||||||||||
--------- |
--------- |
--------- |
--------- |
|||||||||||||
Net income (loss) |
$ |
(567 |
) |
$ |
77 |
$ |
(603 |
) |
$ |
392 |
||||||
Cumulative effect of adoption of SFAS 133 |
- |
- |
60 |
- |
||||||||||||
Cumulative translation and other adjustments, net of tax |
66 |
13 |
53 |
6 |
||||||||||||
-------- |
-------- |
-------- |
-------- |
|||||||||||||
Comprehensive income (loss) |
$ |
(501 |
) |
$ |
90 |
$ |
(490 |
) |
$ |
398 |
||||||
====== |
====== |
====== |
====== |
10 |
The operating segments reported below are the segments of the Company for which separate |
financial information is available and for which segment operating income or loss amounts are evaluated regularly by executive management in deciding how to allocate resources and in assessing performance. |
During the quarter ended March 31, 2001, the Company made certain changes to its business |
|
segment classifications. The Disney Store Catalog and the Disney Store Online, which were previously reported in the Internet Group, are now reported in the Consumer Products segment. Prior-year amounts have been reclassified to reflect the current year presentation. |
THE WALT DISNEY COMPANY |
Three Months |
Six Months |
|||||||||||||||
--------------------------- |
--------------------------- |
|||||||||||||||
2001 |
2000 |
2001 |
2000 |
|||||||||||||
----------- |
----------- |
----------- |
----------- |
|||||||||||||
Revenues: |
Media Networks |
$ |
2,211 |
$ |
2,397 |
$ |
5,117 |
$ |
5,150 |
||||||||||
-------- |
-------- |
-------- |
-------- |
|||||||||||||||
Parks & Resorts |
1,648 |
1,571 |
3,370 |
3,148 |
||||||||||||||
-------- |
-------- |
-------- |
-------- |
|||||||||||||||
Studio Entertainment |
||||||||||||||||||
Third parties |
1,548 |
1,637 |
3,385 |
3,216 |
||||||||||||||
Intersegment |
25 |
25 |
38 |
49 |
||||||||||||||
-------- |
-------- |
-------- |
-------- |
|||||||||||||||
1,573 |
1,662 |
3,423 |
3,265 |
|||||||||||||||
-------- |
-------- |
-------- |
-------- |
|||||||||||||||
Consumer Products |
|
|
|
|
||||||||||||||
Third parties |
593 |
634 |
1,498 |
1,625 |
||||||||||||||
Intersegment |
(25 |
) |
(25 |
) |
(38 |
) |
(49 |
) |
||||||||||
-------- |
-------- |
-------- |
-------- |
|||||||||||||||
568 |
609 |
1,460 |
1,576 |
|||||||||||||||
-------- |
-------- |
-------- |
-------- |
|||||||||||||||
Internet Group |
49 |
68 |
112 |
108 |
||||||||||||||
-------- |
-------- |
-------- |
-------- |
|||||||||||||||
$ |
6,049 |
|
$ |
6,307 |
|
$ |
13,482 |
$ |
13,247 |
|||||||||
====== |
====== |
====== |
====== |
|||||||||||||||
Segment operating income (loss): |
|
|
|
|
||||||||||||||
Media Networks |
$ |
489 |
$ |
536 |
$ |
1,079 |
$ |
1,176 |
||||||||||
Parks & Resorts |
331 |
330 |
716 |
693 |
||||||||||||||
Studio Entertainment |
164 |
9 |
316 |
37 |
||||||||||||||
Consumer Products |
90 |
69 |
262 |
266 |
||||||||||||||
Internet Group |
(49 |
) |
(85 |
) |
(117 |
) |
(166 |
) |
||||||||||
-------- |
-------- |
-------- |
-------- |
|||||||||||||||
$ |
1,025 |
$ |
859 |
$ |
2,256 |
$ |
2,006 |
|||||||||||
====== |
====== |
====== |
====== |
The Company evaluates the performance of its operating segments based on segment operating |
|
income. A reconciliation of segment operating income to income (loss) before income taxes, minority interests and cumulative effect of accounting changes is as follows: |
Three Months |
Six Months |
|||||||||||||||
--------------------------- |
--------------------------- |
|||||||||||||||
2001 |
2000 |
2001 |
2000 |
|||||||||||||
----------- |
----------- |
----------- |
----------- |
|||||||||||||
Segment operating income |
$ |
1,025 |
$ |
859 |
$ |
2,256 |
$ |
2,006 |
||||||||
Corporate and unallocated shared expenses |
(109 |
) |
(101 |
) |
(190 |
) |
(150 |
) |
||||||||
Amortization of intangible assets |
(184 |
) |
(344 |
) |
(477 |
) |
(570 |
) |
||||||||
Gain on sale of businesses |
- |
- |
22 |
243 |
||||||||||||
Net interest expense and other |
(98 |
) |
(121 |
) |
(207 |
) |
(293 |
) |
||||||||
Equity in the income of investees |
66 |
63 |
148 |
74 |
||||||||||||
Restructuring and impairment charges |
(996 |
) |
(36 |
) |
(1,190 |
) |
(61 |
) |
||||||||
-------- |
-------- |
-------- |
-------- |
|||||||||||||
Income (loss) before income taxes, minority interests and |
$ |
(296 |
) |
$ |
320 |
$ |
362 |
$ |
1,249 |
|||||||
====== |
====== |
====== |
====== |
THE WALT DISNEY COMPANY |
SEASONALITY |
The Company's businesses are subject to the effects of seasonality. Consequently, the operating |
|
results for the quarter and six months ended March 31, 2001 for each business segment, and for the Company as a whole, are not necessarily indicative of results to be expected for the full year. |
Media Networks revenues are influenced by advertiser demand and the seasonal nature of |
|
programming, and generally peak in the spring and fall. |
Studio Entertainment revenues fluctuate based upon the timing of theatrical motion picture and |
|
home video releases. Release dates for theatrical and home video products are determined by several factors, including timing of vacation and holiday periods and competition in the market. |
Parks & Resorts revenues fluctuate with changes in theme park attendance and resort occupancy |
|
resulting from the seasonal nature of vacation travel. Peak attendance and resort occupancy generally occur during the summer months when school vacations occur and during early-winter and spring holiday periods. |
Consumer Products revenues are influenced by seasonal consumer purchasing behavior and the |
|
timing of animated theatrical releases. |
Internet media revenues are influenced by advertiser demand and visitor traffic. |
THE WALT DISNEY COMPANY |
AS-REPORTED RESULTS OF OPERATIONS |
Three Months Ended March 31, |
Six Months |
|||||||||||||||||
--------------------------- |
------------------------- |
||||||||||||||||||
(unaudited; in millions, except per share data) |
2001 |
2000 |
2001 |
2000 |
|||||||||||||||
----------- |
----------- |
---------- |
---------- |
||||||||||||||||
Revenues |
$ |
6,049 |
$ |
6,307 |
$ |
13,482 |
$ |
13,247 |
|||||||||||
Costs and expenses |
(5,133 |
) |
(5,549 |
) |
(11,416 |
) |
(11,391 |
) |
|||||||||||
Amortization of intangible assets |
(184 |
) |
(344 |
) |
(477 |
) |
(570 |
) |
|||||||||||
Gain on sale of businesses |
- |
- |
22 |
243 |
|||||||||||||||
Net interest expense and other |
(98 |
) |
(121 |
) |
(207 |
) |
(293 |
) |
|||||||||||
Equity in income of investees |
66 |
63 |
148 |
74 |
|||||||||||||||
Restructuring and impairment charges |
(996 |
) |
(36 |
) |
(1,190 |
) |
(61 |
) |
|||||||||||
-------- |
-------- |
-------- |
-------- |
||||||||||||||||
Income before income taxes, minority interests and cumulative effect of accounting changes |
(296 |
) |
320 |
362 |
1,249 |
||||||||||||||
Income taxes |
(238 |
) |
(223 |
) |
(624 |
) |
(813 |
) |
|||||||||||
Minority interests |
(33 |
) |
(20 |
) |
(63 |
) |
(44 |
) |
|||||||||||
-------- |
-------- |
-------- |
-------- |
||||||||||||||||
Income before cumulative effect of accounting changes |
(567 |
) |
77 |
(325 |
) |
392 |
|||||||||||||
Cumulative effect of accounting changes: |
|
||||||||||||||||||
Film accounting |
- |
- |
(228 |
) |
- |
||||||||||||||
Derivative accounting |
- |
- |
(50 |
) |
- |
||||||||||||||
-------- |
-------- |
-------- |
-------- |
||||||||||||||||
Net income (loss) |
$ |
(567 |
) |
$ |
77 |
$ |
(603 |
) |
$ |
392 |
|
||||||||
====== |
====== |
====== |
====== |
||||||||||||||||
Earnings (loss) attributed to: |
|
||||||||||||||||||
Disney Common Stock (1) |
$ |
(548 |
) |
$ |
161 |
$ |
(486 |
) |
$ |
517 |
|||||||||
Internet Group Common Stock |
(19 |
) |
(84 |
) |
(117 |
) |
(125 |
) |
|||||||||||
-------- |
-------- |
-------- |
-------- |
||||||||||||||||
$ |
(567 |
) |
$ |
77 |
$ |
(603 |
) |
$ |
392 |
||||||||||
====== |
====== |
====== |
====== |
||||||||||||||||
Earnings (loss) per share before cumulative effect of accounting changes attributed to: |
|
||||||||||||||||||
|
Disney Common Stock (basic and diluted) (1) (2) |
$ |
(0.26 |
) |
$ |
0.08 |
$ |
(0.10 |
) |
$ |
0.25 |
||||||||
====== |
====== |
====== |
====== |
||||||||||||||||
|
Internet Group Common Stock (basic and diluted) |
$ |
(0.45 |
) |
$ |
(1.87 |
) |
$ |
(2.72 |
) |
$ |
(2.84 |
) |
||||||
====== |
====== |
====== |
====== |
||||||||||||||||
Earnings (loss) per share including cumulative effect of accounting changes attributed to: |
|
||||||||||||||||||
Disney Common Stock (basic and diluted) (1) (2) (3) |
$ |
(0.26 |
) |
$ |
0.08 |
$ |
(0.23 |
) |
$ |
0.25 |
|||||||||
====== |
====== |
====== |
====== |
||||||||||||||||
Internet Group Common Stock (basic and diluted) |
$ |
(0.45 |
) |
$ |
(1.87 |
) |
$ |
(2.72 |
) |
$ |
(2.84 |
) |
|||||||
====== |
====== |
====== |
====== |
||||||||||||||||
Earnings attributed to Disney common stock before cumulative effect of accounting changes, excluding restructuring and impairment charges |
$ |
366 |
$ |
161 |
$ |
713 |
$ |
533 |
|
||||||||||
====== |
====== |
====== |
====== |
||||||||||||||||
Earnings per share attributed to Disney common stock before cumulative effect of accounting changes, excluding restructuring and impairment charges (1) |
|
|
|
||||||||||||||||
Diluted |
$ |
0.17 |
$ |
0.08 |
$ |
0.34 |
$ |
0.25 |
|||||||||||
====== |
====== |
====== |
====== |
||||||||||||||||
Basic |
$ |
0.18 |
$ |
0.08 |
$ |
0.34 |
$ |
0.26 |
|||||||||||
====== |
====== |
====== |
====== |
||||||||||||||||
Average number of common and common equivalent shares outstanding: |
|
|
|
||||||||||||||||
Disney |
|||||||||||||||||||
|
|
Diluted |
2,098 |
2,103 |
2,101 |
2,092 |
|||||||||||||
====== |
====== |
====== |
====== |
||||||||||||||||
|
|
Basic |
2,082 |
2,069 |
2,082 |
2,067 |
|||||||||||||
====== |
====== |
====== |
====== |
||||||||||||||||
Internet Group (basic and diluted) |
42 |
45 |
43 |
44 |
|||||||||||||||
====== |
====== |
====== |
====== |
|
|
|
(1) |
Including Disney's retained interest in the Internet Group. Disney's as-reported retained interest in the Internet Group reflects 100% of Internet Group losses through November 17, 1999, approximately 72% for the period from November 18, 1999 through January 28, 2001 (the last date prior to the announcement of the conversion of the Internet Group common stock) and 100% thereafter. |
|
(2) |
Amounts for the current year represent basic earnings per share. |
|
(3) |
The per share impacts of the film and derivative accounting changes for the six month period were ($0.11) and ($0.02), respectively. |
THE WALT DISNEY COMPANY |
For the quarter, as-reported earnings and earnings per share attributed to Disney common stock, |
|
excluding restructuring and impairment charges discussed below increased 127% to $366 million and 113% to $0.17, respectively. Results for the quarter were driven by increased segment operating income, decreased amortization of intangible assets and lower net interest expense and other, partially offset by higher corporate and unallocated shared expenses. Increased segment operating income reflected improved Studio Entertainment, Consumer Products and Internet Group results, partially offset by lower Media Networks results. Decreased amortization of intangible assets reflected certain intangible assets becoming fully amortized during the first quarter as well as a reduction in intangible assets related to the sale of Ultraseek and Eurosport in the last half of fiscal 2000. The net interest expense and other decrease reflected lower average debt balances and interest rates. Increased corporate and unallocated shared expenses were due to start-up costs at the Disney Club and costs for several strategic initiatives. |
For the six months, as-reported earnings and earnings per share attributed to Disney common stock |
|
before the cumulative effect of accounting changes and restructuring and impairment changes increased 34% to $713 million and 36% to $0.34, respectively. Results for the six months were driven by increased segment operating income and equity in income of investees and decreased amortization of intangible assets and net interest expense and other, partially offset by higher corporate and unallocated shared expenses. Increased segment operating income reflected improved Studio Entertainment, Parks & Resorts and Internet Group results, partially offset by lower Media Networks results. Higher equity income reflected increases from cable equity investments, partially offset by start-up losses incurred in connection with new investments. Decreased amortization of intangible assets reflected certain intangible assets becoming fully amortized during the quarter as well as a reduction in intangible assets related to the sale of Ultraseek and Eurosport in the latter part of fiscal 2000. The decrease in net interest expense and other were driven by lower average debt balances and gains from the sale of investments. Increased corporate and unallocated shared expenses relate to start-up costs at the Disney Club, which was launched during the current six months, and costs associated with several strategic initiatives designed to improve overall company-wide efficiency, including strategic sourcing and shared services. |
During for the quarter and six months, the Company recorded restructuring and impairment |
|
charges which are detailed below: |
Three Months |
Six Months |
|||||||||||||||
--------------------------- |
-------------------------- |
|||||||||||||||
(unaudited, in millions) |
2001 |
2000 |
2001 |
2000 |
||||||||||||
----------- |
----------- |
----------- |
----------- |
|||||||||||||
GO.com intangible assets impairment |
$ |
820 |
$ |
- |
$ |
820 |
$ |
- |
||||||||
GO.com severance, fixed asset write-offs and other |
42 |
- |
42 |
- |
||||||||||||
Themed entertainment assets |
61 |
- |
61 |
- |
||||||||||||
Disney Store closures |
51 |
- |
51 |
- |
||||||||||||
Investment impairment |
22 |
36 |
216 |
61 |
||||||||||||
-------- |
-------- |
-------- |
-------- |
|||||||||||||
$ |
996 |
$ |
36 |
$ |
1,190 |
$ |
61 |
|||||||||
====== |
====== |
====== |
====== |
The charge for the closure of the GO.com portal business includes a non-cash write-off of intangible assets totaling $820 million and $42 million of severance, fixed asset write-offs and other costs. The charge for the themed entertainment assets represents a write-down to the estimated salvage value of property and equipment due to the inability of the related operations to recover the net carrying value of the assets. The Disney Store closure charge is for the closure of approximately 70 stores and consists of lease termination costs, fixed assets, leasehold improvement and inventory write-downs, and other related closure costs. For the six months, restructuring and impairment charges also include $194 million of investment impairment charges recorded in the first quarter. |
THE WALT DISNEY COMPANY |
The Company announced on March 27, 2001, that it would eliminate 4,000 full-time jobs through a |
|
combination of voluntary and involuntary reductions. In connection with the reductions and related restructuring initiatives, the Company expects to incur severance and other costs of up to $250 million in the third and fourth quarters of this year. Commencing in fiscal 2002, the Company expects to realize annual cost savings from these initiatives of $350 million to $400 million. |
Effective October 1, 2000, the Company adopted AICPA Statement of Position No. 00-2, Accounting |
|
by Producers or Distributors of Films (SOP 00-2), and FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), and recorded one-time after-tax charges for the adoption of the standards totaling $228 million (or $0.11 per share) and $50 million (or $0.02 per share), respectively. |
Including the restructuring and impairment charges and cumulative effect of accounting changes, |
|
as-reported net loss and loss per share attributed to Disney common stock for the quarter and six months were $548 million and $0.26 and $486 million and $0.23, respectively. |
Intangible assets from the initial acquisition of an interest in Infoseek in November 1998 have been |
|
fully amortized. The impact of amortization related to the November 1999 acquisition of the remainder of Infoseek, after the impact of the closure of GO.com and the Ultraseek and Infoseek Japan sales, is expected to be $72 million for the remaining six months of fiscal 2001, $143 million in 2002 and $19 million in 2003. The Company determined the economic useful life of acquired goodwill by giving consideration to the useful lives of the identifiable intangible assets, including developed technology, trademarks, user base, joint venture agreements and in-place workforce. In addition, the Company considered the competitive environment and the rapid pace of technological change in the Internet industry. |
THE WALT DISNEY COMPANY |
PRO FORMA RESULTS OF OPERATIONS |
To enhance comparability, the unaudited pro forma information that follows presents combined |
|
results of operations as if the disposition of Fairchild Publications, the acquisition of Infoseek, the conversion of the Internet group common stock into Disney common stock, the closure of the GO.com portal business and the adoption of SOP 00-2 (see Notes 2 and 3) had occurred at the beginning of fiscal 2000, excluding the one-time impact of those events. The unaudited pro forma information is not necessarily indicative of the results of operations had these events actually occurred at the beginning of fiscal 2000, nor is it necessarily indicative of future results. |
Three Months Ended March 31, |
Six Months |
||||||||||||||||||||||
----------------------- |
------------------------ |
||||||||||||||||||||||
(unaudited; in millions, except per share data) |
2001 |
2000 |
% Change |
2001 |
2000 |
% Change |
|||||||||||||||||
--------- |
--------- |
------------ |
---------- |
---------- |
------------ |
||||||||||||||||||
Revenues |
$ |
6,047 |
$ |
6,287 |
(4)% |
$ |
13,469 |
$ |
13,215 |
2 % |
|||||||||||||
Costs and expenses |
(5,119 |
) |
(5,479 |
) |
7 % |
(11,370 |
) |
(11,366 |
) |
- |
|||||||||||||
Amortization of intangible assets |
(146 |
) |
(166 |
) |
12 % |
(296 |
) |
(329 |
) |
10 % |
|||||||||||||
Gain on sale of businesses |
- |
- |
- |
22 |
- |
n/m |
|||||||||||||||||
Net interest expense and other |
(98 |
) |
(121 |
) |
19 % |
(207 |
) |
(289 |
) |
28 % |
|||||||||||||
Equity in income of investees |
66 |
63 |
5 % |
148 |
115 |
29 % |
|||||||||||||||||
Restructuring and impairment charges |
(134 |
) |
(36 |
) |
272 % |
(328 |
) |
(61 |
) |
n/m |
|||||||||||||
------- |
------- |
------- |
------- |
||||||||||||||||||||
Income before income taxes, minority interests and cumulative effect of accounting changes |
616 |
548 |
12 % |
1,438 |
1,285 |
12 % |
|||||||||||||||||
Income taxes |
(276 |
) |
(251 |
) |
(10)% |
(673 |
) |
(579 |
) |
(16)% |
|||||||||||||
Minority interests |
(33 |
) |
(20 |
) |
(65)% |
(63 |
) |
(44 |
) |
(43)% |
|||||||||||||
------- |
------- |
------- |
------- |
||||||||||||||||||||
Income before cumulative effect of accounting changes |
307 |
277 |
11 % |
702 |
662 |
6 % |
|||||||||||||||||
Cumulative effect of accounting changes: |
|
||||||||||||||||||||||
Film accounting |
- |
- |
(228 |
) |
- |
||||||||||||||||||
Derivative accounting |
- |
- |
(50 |
) |
- |
||||||||||||||||||
------- |
------- |
------- |
------- |
||||||||||||||||||||
Net income |
$ |
307 |
$ |
277 |
11 % |
$ |
424 |
$ |
662 |
|
(36)% |
||||||||||||
===== |
===== |
===== |
===== |
||||||||||||||||||||
Earnings per share before cumulative effect of accounting changes: |
|
|
|
|
|
|
|
||||||||||||||||
Diluted |
$ |
0.15 |
$ |
0.13 |
15 % |
$ |
0.33 |
$ |
0.32 |
3 % |
|||||||||||||
===== |
===== |
===== |
===== |
||||||||||||||||||||
Basic |
$ |
0.15 |
$ |
0.13 |
$ |
0.34 |
$ |
0.32 |
|||||||||||||||
===== |
===== |
===== |
===== |
||||||||||||||||||||
Earnings per share including cumulative effect of accounting changes (diluted and |
$ |
0.15 |
$ |
0.13 |
|
$ |
0.20 |
$ |
0.32 |
||||||||||||||
===== |
===== |
===== |
===== |
||||||||||||||||||||
Earnings before cumulative effect of accounting changes, excluding restructuring and impairment charges |
$ |
391 |
$ |
294 |
33 % |
$ |
908 |
$ |
695 |
|
31 % |
||||||||||||
===== |
===== |
===== |
===== |
||||||||||||||||||||
Earnings per share before cumulative effect of accounting changes, excluding restructuring and impairment charges (diluted and basic) |
$ |
0.19 |
$ |
0.14 |
36 % |
$ |
0.43 |
$ |
0.33 |
30 % |
|||||||||||||
===== |
===== |
===== |
===== |
||||||||||||||||||||
Average number of common and common equivalent shares outstanding: |
|
|
|
||||||||||||||||||||
Diluted |
2,105 |
2,111 |
2,108 |
2,100 |
|||||||||||||||||||
===== |
===== |
===== |
===== |
||||||||||||||||||||
Basic |
2,089 |
2,077 |
2,090 |
2,075 |
|||||||||||||||||||
===== |
===== |
===== |
===== |
|
|
|
(1) |
The per share impacts of the film and derivative accounting changes for the six-month period were ($0.11) and ($0.02), respectively. |
THE WALT DISNEY COMPANY |
On a pro forma basis, net income and earnings per share before restructuring and impairment |
|
charges increased 33% to $391 million and 36% to $0.19, respectively for the quarter. For the six-months, pro forma net income and earnings per share before the cumulative effect of accounting changes and restructuring and impairment charges increased 31% to $908 million and 30% to $0.43, respectively. |
Pro forma results for the current and prior periods have been adjusted to exclude the operations of |
|
the GO.com portal business as well as related amortization of intangible assets. Prior year pro forma results have also been adjusted to exclude the gain on the sale of Fairchild Publications and its operations and to reflect the impact of the new film accounting rules. |
Restructuring and impairment charges on a pro forma basis exclude the impact of the GO.com |
|
closure of $862 million. Including the restructuring and impairment charges, pro forma net income and earnings per share for the quarter and six months were $307 and $0.15 per share and $424 and $0.20, respectively. |
The following table provides a reconciliation of as-reported income (loss) per share attributed to |
|
Disney common stock to pro forma earnings per share before the cumulative effect of accounting changes, excluding restructuring and impairment charges. |
Three Months |
Six Months |
|||||||||||||||
--------------------------- |
-------------------------- |
|||||||||||||||
(unaudited) |
2001 |
2000 |
2001 |
2000 |
||||||||||||
----------- |
----------- |
----------- |
----------- |
|||||||||||||
As-reported income (loss) per share attributed to Disney |
$ |
(0.26 |
) |
$ |
0.08 |
$ |
(0.23 |
) |
$ |
0.25 |
||||||
Adjustment to attribute 100% of Internet Group operating |
(0.01 |
) |
(0.04 |
) |
(0.06 |
) |
(0.06 |
) |
||||||||
Adjustment to exclude pre-closure GO.com portal operating results and amortization of intangible assets |
0.02 |
0.08 |
0.09 |
0.17 |
||||||||||||
Adjustment to exclude GO.com restructuring and impairment charges |
0.40 |
- |
0.40 |
- |
||||||||||||
Adjustment to include a pre-acquisition Infoseek operating results |
- |
- |
- |
(0.03 |
) |
|||||||||||
Adjustment to reflect the impact of the new Film Accounting rules |
- |
0.01 |
- |
(0.01 |
) |
|||||||||||
-------- |
-------- |
-------- |
-------- |
|||||||||||||
Pro forma earnings per share |
0.15 |
0.13 |
0.20 |
0.32 |
||||||||||||
Adjustment to exclude restructuring and impairment charges |
0.04 |
0.01 |
0.10 |
0.01 |
||||||||||||
Adjustment to exclude the cumulative effect of accounting changes |
- |
- |
0.13 |
- |
||||||||||||
-------- |
-------- |
-------- |
-------- |
|||||||||||||
Pro forma earnings per share before the cumulative effect of accounting changes, excluding restructuring and impairment charges |
$ |
0.19 |
$ |
0.14 |
$ |
0.43 |
$ |
0.33 |
||||||||
====== |
====== |
====== |
====== |
THE WALT DISNEY COMPANY |
Business Segment Results - Quarter |
During the quarter, the Company made certain changes to its business segment classifications. The |
|
Disney Store Catalog and the Disney Store Online which were previously reported in the Internet Group, are now reported in the Consumer Products segment. Prior year amounts have been reclassified to reflect the current year presentation. |
Three Months Ended March 31, |
||||||||||||||||||
--------------------------------------------------------------------------- |
||||||||||||||||||
Pro Forma |
As Reported |
|||||||||||||||||
--------------------------- |
------------------------ |
|||||||||||||||||
(unaudited, in millions) |
2001 |
2000 |
% Change |
2001 |
2000 |
|||||||||||||
----------- |
----------- |
-------------- |
----------- |
------- |
||||||||||||||
Revenues: |
Media Networks |
$ |
2,211 |
$ |
2,397 |
(8)% |
$ |
2,211 |
$ |
2,397 |
||||||||||
Parks & Resorts |
1,648 |
1,571 |
5 % |
1,648 |
1,571 |
||||||||||||||
Studio Entertainment |
1,573 |
1,662 |
(5)% |
1,573 |
1,662 |
||||||||||||||
Consumer Products |
568 |
609 |
(7)% |
568 |
609 |
||||||||||||||
Internet Group |
47 |
48 |
(2)% |
49 |
68 |
||||||||||||||
-------- |
-------- |
-------- |
-------- |
||||||||||||||||
$ |
6,047 |
$ |
6,287 |
(4)% |
|
$ |
6,049 |
|
$ |
6,307 |
|||||||||
====== |
====== |
====== |
====== |
Segment operating income: (1) |
|
|
|
|
|
|
Media Networks |
$ |
489 |
$ |
536 |
(9)% |
$ |
489 |
$ |
536 |
||||||||||
Parks & Resorts |
331 |
330 |
- |
331 |
330 |
||||||||||||||
Studio Entertainment |
164 |
46 |
257 % |
164 |
9 |
||||||||||||||
Consumer Products |
90 |
69 |
30 % |
90 |
69 |
||||||||||||||
Internet Group |
(37 |
) |
(72 |
) |
49 % |
(49 |
) |
(85 |
) |
||||||||||
-------- |
-------- |
-------- |
-------- |
||||||||||||||||
$ |
1,037 |
$ |
909 |
14 % |
|
$ |
1,025 |
|
$ |
859 |
|||||||||
====== |
====== |
====== |
====== |
The Company evaluates the performance of its operating segments based on segment operating income. A reconciliation of segment operating income to income before income taxes and minority interests is as follows: |
Three Months Ended March 31, |
|||||||||||||||||||||
------------------------------------------------------------------------- |
|||||||||||||||||||||
Pro Forma |
As Reported |
||||||||||||||||||||
--------------------------- |
------------------------- |
||||||||||||||||||||
(unaudited, in millions) |
2001 |
2000 |
% Change |
2001 |
2000 |
||||||||||||||||
----------- |
----------- |
-------------- |
----------- |
--------- |
|||||||||||||||||
Segment operating income |
$ |
1,037 |
$ |
909 |
14 % |
$ |
1,025 |
$ |
859 |
||||||||||||
Corporate and unallocated shared expenses |
(109 |
) |
(101 |
) |
(8)% |
(109 |
) |
(101 |
) |
||||||||||||
Amortization of intangible assets |
(146 |
) |
(166 |
) |
12 % |
(184 |
) |
(344 |
) |
||||||||||||
Net interest expense and other |
(98 |
) |
(121 |
) |
19 % |
(98 |
) |
(121 |
) |
||||||||||||
Equity in the income of investees |
66 |
63 |
5 % |
66 |
63 |
||||||||||||||||
Restructuring and impairment charges |
(134 |
) |
(36 |
) |
272 % |
(996 |
) |
(36 |
) |
||||||||||||
-------- |
-------- |
-------- |
------- |
||||||||||||||||||
Income before income taxes and minority |
$ |
616 |
$ |
548 |
12 % |
$ |
(296 |
) |
$ |
320 |
|||||||||||
====== |
====== |
====== |
====== |
THE WALT DISNEY COMPANY |
(1) |
Segment earnings before interest, income taxes, depreciation and amortization (EBITDA) is as follows: |
Three Months Ended March 31, |
||||||||||||||||||||
-------------------------------------------------------------------------- |
||||||||||||||||||||
Pro Forma |
As Reported |
|||||||||||||||||||
--------------------------- |
-------------------------- |
|||||||||||||||||||
(unaudited, in millions) |
2001 |
2000 |
% Change |
2001 |
2000 |
|||||||||||||||
----------- |
----------- |
-------------- |
----------- |
--------- |
||||||||||||||||
Media Networks |
$ |
527 |
$ |
571 |
(8)% |
$ |
527 |
$ |
571 |
|||||||||||
Parks & Resorts |
470 |
463 |
2 % |
470 |
463 |
|||||||||||||||
Studio Entertainment |
175 |
59 |
197 % |
175 |
22 |
|||||||||||||||
Consumer Products |
113 |
94 |
20 % |
113 |
94 |
|||||||||||||||
Internet Group |
(30 |
) |
(69 |
) |
57 % |
(41 |
) |
(76 |
) |
|||||||||||
-------- |
-------- |
-------- |
------- |
|||||||||||||||||
$ |
1,255 |
$ |
1,118 |
12 % |
$ |
1,244 |
$ |
1,074 |
||||||||||||
====== |
====== |
====== |
====== |
Management believes that segment EBITDA provides additional information useful in analyzing |
|
the underlying business results. However, segment EBITDA is a non-GAAP financial metric and should be considered in addition to, not as a substitute for, reported segment operating income. |
Media Networks |
The following table provides supplemental revenue and operating income detail for the Media |
|
Networks segment: |
Three Months Ended March 31, |
|||||||||||||
-------------------------------------------------------- |
|||||||||||||
(unaudited, in millions) |
2001 |
2000 |
% Change |
||||||||||
---------------- |
---------------- |
-------------- |
|||||||||||
Revenues: |
Broadcasting |
$ |
1,410 |
$ |
1,652 |
(15)% |
|||||||||
Cable Networks |
801 |
745 |
8 % |
|||||||||||
------------ |
------------ |
|||||||||||||
$ |
2,211 |
$ |
2,397 |
(8)% |
||||||||||
========= |
========= |
Segment operating income: |
Broadcasting |
$ |
170 |
$ |
244 |
(30)% |
|||||||||
Cable Networks |
319 |
292 |
9 % |
|||||||||||
------------ |
------------ |
|||||||||||||
$ |
489 |
$ |
536 |
(9)% |
||||||||||
========= |
========= |
Revenues decreased 8%, or $186 million, to $2.2 billion, driven by decreases of $242 million at |
|
Broadcasting, partially offset by increases of $56 million at the Cable Networks. The decrease at Broadcasting was driven by lower ratings at the ABC television network and a soft advertising market at the ABC television network primetime division, the Company's owned television stations and radio operations partially offset by strong upfront network advertising sales. The increase at the Cable Networks was driven by annual contractual rate adjustments at ESPN combined with subscriber growth at ESPN, the Disney Channel domestically and certain International Disney Channels, partially offset by the soft advertising market during the quarter. Subscriber growth at the Disney Channel reflected the continuing conversion of the Disney Channel from a premium to a basic service. |
THE WALT DISNEY COMPANY |
Segment operating income decreased 9%, or $47 million, to $489 million, driven by a decrease of |
|
$74 million at Broadcasting, primarily due to decreased revenues, partially offset by increases of $27 million at the Cable Networks. Costs and expenses, which consist primarily of programming rights and amortization, production costs, distribution and selling expenses and labor costs, decreased 7% or $139 million. Decreased costs were driven by lower sports programming costs at the ABC television network due to higher costs for the Super Bowl in the prior year and lower television production costs, partially offset by higher programming costs at ESPN and the radio operations and start-up costs at the international Disney Channels. |
The Company has various contractual commitments for the purchase of broadcast rights for sports |
|
programming including the National Football League, Major League Baseball and the National Hockey League. The costs of these contracts have increased significantly in recent years. The Company has implemented a variety of strategies, including marketing efforts, to reduce the impact of the higher costs. The impact of these contracts on the Company's results over the remaining term of the contracts is dependent upon a number of factors, including the strengths of advertising markets, effectiveness of marketing efforts and the size of viewer audiences. |
The costs of these contracts are charged to expense based on the ratio of each period's gross |
|
revenues to estimated total gross revenues over the contract period. Estimates of total gross revenues can change significantly and, accordingly, they are reviewed periodically and amortization is adjusted if necessary. Such adjustments could have a material effect on results of operations in future periods. |
There has been softness in the advertising market during the first half of fiscal 2001 relative to |
|
the strong growth during fiscal 2000. Although management believes that the Company is well positioned to respond to market conditions, continuing declines in the advertising market could impact the segment. |
The Company has investments in cable operations that are accounted for as unconsolidated equity |
|
investments. The table below presents operating income from cable television activities, which comprise the Cable Networks and the Company's cable equity investments: |
Three Months Ended March 31, |
||||||||||||
---------------------------------------------------------------- |
||||||||||||
(unaudited, in millions) |
2001 |
2000 |
% Change |
|||||||||
-------------------- |
-------------------- |
---------------- |
||||||||||
Operating income: |
Cable Networks |
$ |
319 |
$ |
292 |
9 % |
|||||||||
Equity investments: |
||||||||||||||
A&E Television and Lifetime Television |
169 |
168 |
1 % |
|||||||||||
Other |
55 |
33 |
67 % |
|||||||||||
-------------- |
-------------- |
|||||||||||||
Operating income from cable television activities |
543 |
493 |
10 % |
|||||||||||
Partner share of operating income |
(190 |
) |
(169 |
) |
(12)% |
|||||||||
-------------- |
-------------- |
|||||||||||||
Disney share of operating income |
$ |
353 |
$ |
324 |
9 % |
|||||||||
=========== |
=========== |
Note: Operating income from cable television activities presented in this table represents 100% of both the Company's owned cable businesses and its cable equity investees. The Disney share of operating income represents the Company's ownership interest in cable television operating income. Cable Networks are reported in "Segment operating income" in the statements of income. Equity investments are accounted for under the equity method and the Company's proportionate share of the net income of its cable equity investments is reported in "Equity in the income of investees" in the statements of income. |
THE WALT DISNEY COMPANY |
The Company believes that operating income from cable television activities provides additional |
|
information useful in analyzing the underlying business results. However, operating income from cable television activities is a non-GAAP financial metric and should be considered in addition to, not as a substitute for, segment operating income. |
The Company's share of cable television operating income increased 9%, or $29 million, to $353 |
|
million, reflecting profit increases from cable equity investments and higher affiliate revenues at the cable networks driven by strong subscriber growth and annual contractual rate adjustments, partially offset by the soft advertising market, higher programming costs and start-up costs at certain international Disney Channels. |
Parks & Resorts |
Revenues increased 5%, or $77 million, to $1.6 billion, driven primarily by growth of $70 |
|
million at Disneyland and $21 million from Disney Cruise Line, reflecting the strength of the 7-day cruise package that was introduced in the fourth quarter of the prior year, partially offset by a $21 million decrease at Walt Disney World. At Disneyland, the opening of Disney's California Adventure, Downtown Disney District and the Grand Californian Hotel during the quarter resulted in increased attendance and higher guest spending. At Walt Disney World, decreased revenues were driven by lower theme park attendance, reflecting the prior-year success of the Millennium Celebration, which concluded in December 2000. |
Segment operating income remained flat at $331 million, reflecting continued growth at Disney |
|
Cruise Line and cost savings at Walt Disney World, offset by increased costs and expenses at Disneyland. Costs and expenses, which consist principally of labor, costs of merchandise, food and beverages sold, depreciation, repairs and maintenance, entertainment and marketing and sales expenses, increased 6% or $76 million, driven primarily by increases at Disneyland due to the opening of Disney's California Adventure, Downtown Disney District and the Grand Californian Hotel, partially offset by reduced costs at Walt Disney World. |
Studio Entertainment |
Revenues decreased 5%, or $89 million, to $1.6 billion, driven by declines of $210 million in |
|
worldwide theatrical motion picture distribution, partially offset by increases of $61 million in domestic home video and $269 million in stage plays. In international theatrical motion picture distribution, the performances of Unbreakable and 102 Dalmatians faced difficult comparisons to the prior year, which included Disney/Pixar's Toy Story 2, The Sixth Sense and Tarzan. Decreased domestic theatrical motion picture distribution revenues reflected the performances of Disney's Recess: School's Out and O Brother, Where Art Thou? which also faced difficult comparisons to the prior year, which included Scream 3, Mission to Mars and a strong animated film slate. Growth in domestic home video revenues reflected the successful VHS and DVD releases of Lady and the Tramp 2: Scamp's Adventure, Dinosaur and Remember the Titans compared to the prior-year quarter, which included Tarzan on VHS and DVD and The Sixth Sense on DVD. Stage play revenue gains were driven by more performances of The Lion King and improved performance of Aida. |
On a pro forma basis, segment operating income increased $118 million to $164 million, reflecting |
|
growth in domestic home video revenues and decreased costs in domestic theatrical motion picture distribution, partially offset by declines in international theatrical motion picture distribution. Costs and expenses, which consist primarily of production cost amortization, distribution and selling expenses, product costs and participation costs, decreased 13% or $207 million. In domestic theatrical motion picture distribution, cost decreases reflect higher distribution expenses and write-downs on Mission to Mars and Cradle Will Rock in the prior-year quarter. In international theatrical motion picture distribution, participation cost decreases reflected the success of Toy Story 2 and The Sixth Sense in the prior-year quarter. Costs and expenses also decreased in domestic home video reflecting higher participation expenses in the prior-year quarter due to The Sixth Sense. |
THE WALT DISNEY COMPANY |
On an as-reported basis, operating income increased $155 million reflecting the items described |
|
above as well as the impact of SOP 00-2 in the current quarter, which resulted in lower distribution and marketing costs as compared to the prior-year quarter. |
Consumer Products |
Revenues decreased 7%, or $41 million, to $568, reflecting declines of $48 million at the Disney |
|
Stores, publishing and worldwide merchandise licensing, partially offset by an increase at Disney Interactive. These declines were driven by lower comparative Disney store sales, declines at publishing, principally domestically and in Europe, and lower merchandise licensing revenues in Japan and Europe, partially offset by increases in other international regions. Improvements at Disney Interactive were driven by the success of the Aladdin and The Emperor's New Groove action games. |
Segment operating income increased 30%, or $21 million, to $90 million, reflecting increases at |
|
Disney Interactive and cost savings. Costs and expenses, which consist primarily of labor, product costs, including product development costs, distribution and selling expenses and leasehold expenses, decreased 11% or $62 million, primarily driven by lower costs at publishing and merchandise licensing due to lower sales volume and decreases at the Disney Stores due to cost savings. |
Internet Group |
On a pro forma basis, revenues decreased 2%, or $1 million, to $47 million, driven by higher |
|
commerce, licensing and advertising revenues at the Disney-branded Web sites, more than offset by the impact of the sale of Ultraseek in the fourth quarter of 2000. The growth in commerce revenues reflected increased sales at DisneyVacations.com resulting from expanded product offerings. |
On an as-reported basis, revenues decreased 28%, or $19 million, to $49 million, reflecting the items |
|
described above, as well as the impact of the closure of the GO.com portal during the current quarter. |
On a pro forma basis, segment operating loss improved 49%, or $35 million, to $37 million, |
|
reflecting lower costs and expenses and improved operating performance at the Disney-branded Web sites. Costs and expenses, which consist primarily of cost of revenues, sales and marketing, other operating expenses and depreciation, decreased 30%, or $36 million. Cost decreases were primarily due to the elimination of operating costs at toysmart.com, which closed in June 2000, as well as lower cost of revenues due to the impact of cost reduction initiatives. |
On an as-reported basis, segment operating loss improved 42%, or $36 million, to $49 million, |
|
reflecting the items described above, as well as a reduction in operating losses at the GO.com portal resulting from its closure in the current quarter. |
Business Segment Results - Six Months |
Six Months Ended March 31, |
||||||||||||||||||
--------------------------------------------------------------------------- |
||||||||||||||||||
Pro Forma |
As Reported |
|||||||||||||||||
--------------------------- |
------------------------ |
|||||||||||||||||
(unaudited, in millions) |
2001 |
2000 |
% Change |
2001 |
2000 |
|||||||||||||
----------- |
----------- |
-------------- |
----------- |
------- |
||||||||||||||
Revenues: |
Media Networks |
$ |
5,117 |
$ |
5,150 |
(1)% |
$ |
5,117 |
$ |
5,150 |
||||||||||
Parks & Resorts |
3,370 |
3,148 |
7 % |
3,370 |
3,148 |
||||||||||||||
Studio Entertainment |
3,423 |
3,265 |
5 % |
3,423 |
3,265 |
||||||||||||||
Consumer Products |
1,460 |
1,562 |
(7)% |
1,460 |
1,576 |
||||||||||||||
Internet Group |
99 |
90 |
10 % |
112 |
108 |
||||||||||||||
-------- |
-------- |
-------- |
-------- |
||||||||||||||||
$ |
13,469 |
$ |
13,215 |
2 % |
|
$ |
13,482 |
|
$ |
13,247 |
|||||||||
====== |
====== |
====== |
====== |
Segment operating income (loss): (1) |
|
|
|
|
|
|
Media Networks |
$ |
1,079 |
$ |
1,176 |
(8)% |
$ |
1,079 |
$ |
1,176 |
||||||||||
Parks & Resorts |
716 |
693 |
3 % |
716 |
693 |
||||||||||||||
Studio Entertainment |
316 |
1 |
n/m |
316 |
37 |
||||||||||||||
Consumer Products |
262 |
265 |
(1)% |
262 |
266 |
||||||||||||||
Internet Group |
(84 |
) |
(138 |
) |
39 % |
(117 |
) |
(166 |
) |
||||||||||
-------- |
-------- |
-------- |
-------- |
||||||||||||||||
$ |
2,289 |
$ |
1,997 |
15 % |
|
$ |
2,256 |
|
$ |
2,006 |
|||||||||
====== |
====== |
====== |
====== |
THE WALT DISNEY COMPANY |
The Company evaluates the performance of its operating segments based on segment operating income. A reconciliation of segment operating income to income before income taxes and minority interests is as follows: |
Six Months Ended March 31, |
||||||||||||||||||
-------------------------------------------------------------------------- |
||||||||||||||||||
Pro Forma |
As Reported |
|||||||||||||||||
--------------------------- |
--------------------------- |
|||||||||||||||||
(unaudited, in millions) |
2001 |
2000 |
% Change |
2001 |
2000 |
|||||||||||||
----------- |
----------- |
-------------- |
----------- |
---------- |
||||||||||||||
Segment operating income |
$ |
2,289 |
$ |
1,997 |
15 % |
$ |
2,256 |
$ |
2,006 |
|||||||||
Corporate and unallocated shared expenses |
(190 |
) |
(148 |
) |
(28)% |
(190 |
) |
(150 |
) |
|||||||||
Amortization of intangible assets |
(296 |
) |
(329 |
) |
10 % |
(477 |
) |
(570 |
) |
|||||||||
Gain on sale of businesses |
22 |
- |
n/m |
22 |
243 |
|||||||||||||
Net interest expense and other |
(207 |
) |
(289 |
) |
28 % |
(207 |
) |
(293 |
) |
|||||||||
Equity in income of investees |
148 |
115 |
29 % |
148 |
74 |
|||||||||||||
Restructuring and impairment charges |
(328 |
) |
(61 |
) |
n/m |
(1,190 |
) |
(61 |
) |
|||||||||
-------- |
-------- |
-------- |
------- |
|||||||||||||||
Income before income taxes and minority |
$ |
1,438 |
$ |
1,285 |
12 % |
$ |
362 |
$ |
1,249 |
|||||||||
====== |
====== |
====== |
====== |
(1) |
Segment EBITDA is as follows: |
Six Months Ended March 31, |
||||||||||||||||||||
-------------------------------------------------------------------------- |
||||||||||||||||||||
Pro Forma |
As Reported |
|||||||||||||||||||
--------------------------- |
-------------------------- |
|||||||||||||||||||
(unaudited, in millions) |
2001 |
2000 |
% Change |
2001 |
2000 |
|||||||||||||||
----------- |
----------- |
-------------- |
----------- |
--------- |
||||||||||||||||
Media Networks |
$ |
1,155 |
$ |
1,245 |
(7)% |
$ |
1,155 |
$ |
1,245 |
|||||||||||
Parks & Resorts |
998 |
965 |
3 % |
998 |
965 |
|||||||||||||||
Studio Entertainment |
340 |
29 |
n/m |
340 |
65 |
|||||||||||||||
Consumer Products |
308 |
317 |
(3)% |
308 |
318 |
|||||||||||||||
Internet Group |
(71 |
) |
(134 |
) |
47 % |
(101 |
) |
(153 |
) |
|||||||||||
-------- |
-------- |
-------- |
-------- |
|||||||||||||||||
$ |
2,730 |
$ |
2,422 |
13 % |
$ |
2,700 |
$ |
2,440 |
||||||||||||
====== |
====== |
====== |
====== |
Management believes that segment EBITDA provides additional information useful in analyzing |
|
the underlying business results. However, segment EBITDA is a non-GAAP financial metric and should be considered in addition to, not as a substitute for, reported segment operating income. |
Media Networks |
The following table provides supplemental revenue and operating income detail for the Media |
|
Networks segment: |
Six Months Ended March 31, |
|||||||||||||
-------------------------------------------------------- |
|||||||||||||
(unaudited, in millions) |
2001 |
2000 |
% Change |
||||||||||
---------------- |
---------------- |
-------------- |
|||||||||||
Revenues: |
Broadcasting |
$ |
3,133 |
$ |
3,367 |
(7)% |
|||||||||
Cable Networks |
1,984 |
1,783 |
11 % |
|||||||||||
------------ |
------------ |
|||||||||||||
$ |
5,117 |
$ |
5,150 |
(1)% |
||||||||||
========= |
========= |
Segment operating income: |
Broadcasting |
$ |
479 |
$ |
589 |
(19)% |
|||||||||
Cable Networks |
600 |
587 |
2 % |
|||||||||||
------------ |
------------ |
|||||||||||||
$ |
1,079 |
$ |
1,176 |
(8)% |
||||||||||
========= |
========= |
Revenues remained flat at $5.1 billion, reflecting a decrease of 7%, or $234 million, at Broadcasting, |
|
offset by an increase of 11%, or $201 million, at the Cable Networks. Decreases at Broadcasting were driven by the soft advertising market at the ABC television network, the Company's owned television stations and radio operations and lower ratings on network programming, partially offset by strong upfront network advertising sales and the impact of Who Wants to Be a Millionaire, which joined the prime time lineup during the second quarter of 2000. Increases at the Cable Networks were driven by annual contractual rate adjustments at ESPN and subscriber growth at the Disney Channel domestically, and certain International Disney Channels and ESPN, partially offset by the soft advertising market. Subscriber growth at the Disney Channel reflected the continuing conversion of the Disney Channel from a premium to a basic service. |
Segment operating income decreased 8%, or $97 million, to $1.1 billion, driven by decreases of |
|
$110 million at Broadcasting, primarily due to decreased revenues, offset by increases of $13 million at the Cable Networks. Costs and expenses increased 2%, or $64 million, due to higher sports programming costs at ESPN, principally on National Football League (NFL) broadcasts, and start-up costs associated with the launch of SoapNet and certain International Disney Channels. These increases were partially offset by lower NFL programming costs at the ABC television network, reflecting higher costs for the Super Bowl in the prior year. |
The Company has investments in cable operations that are accounted for as unconsolidated equity |
|
investments. The table below presents operating income from cable television activities, which comprises the Cable Networks and the Company's cable equity investments: |
Six Months Ended March 31, |
||||||||||||
---------------------------------------------------------------- |
||||||||||||
(unaudited, in millions) |
2001 |
2000 |
% Change |
|||||||||
-------------------- |
-------------------- |
---------------- |
||||||||||
Operating income: |
Cable Networks |
$ |
600 |
$ |
587 |
2 % |
|||||||||
Equity investments: |
||||||||||||||
A&E Television and Lifetime Television |
354 |
318 |
11 % |
|||||||||||
Other |
114 |
51 |
124 % |
|||||||||||
--------------- |
--------------- |
|||||||||||||
Operating income from cable television activities |
1,068 |
956 |
12 % |
|||||||||||
Partner share of operating income |
(391 |
) |
(318 |
) |
(23)% |
|||||||||
--------------- |
--------------- |
|||||||||||||
Disney share of operating income |
$ |
677 |
$ |
638 |
6 % |
|||||||||
=========== |
=========== |
The Company's share of cable television operating income increased 6%, or $39 million, to $677 |
|
million, reflecting profit increases from cable equity investments and higher affiliate revenues from annual contractual rate adjustments and subscriber growth at the cable networks, partially offset by higher programming costs at ESPN, the soft advertising market and the cost and expenses associated with the launch of SoapNet and certain international Disney Channels. |
THE WALT DISNEY COMPANY |
Parks & Resorts |
Revenues increased 7%, or $222 million, to $3.4 billion, driven primarily by growth of $94 |
|
at Disneyland, resulting from increased attendance and guest spending; $54 million at Walt Disney World Resort, reflecting increased guest spending, and $38 million from Disney Cruise Line, reflecting the strength of the 7-day cruise package that was introduced in the fourth quarter of the prior year. At Disneyland, the 45th Anniversary Celebration, which concluded in December 2000, and the opening of Disney's California Adventure, Downtown Disney District and the Grand Californian Hotel during the second quarter drove increased attendance and higher guest spending. |
Segment operating income increased 3%, or $23 million, to $716 million, driven by increased guest |
|
spending at Walt Disney World and continued growth at Disney Cruise Line, partially offset by cost increases at Disneyland. Costs and expenses increased 8% or $199 million, driven by the opening of Disney's California Adventure, Downtown Disney District and the Grand Californian Hotel. |
Studio Entertainment |
Revenues increased 5%, or $158 million, to $3.4 billion, driven by growth of $436 million in |
|
worldwide home video and $63 million in stage plays, partially offset by a decline of $342 million in worldwide theatrical motion picture distribution. Worldwide home video revenues reflected strong VHS and DVD sales driven by the continued success of Disney/Pixar's Toy Story 2, including the Toy Story/Toy Story 2 DVD multipack, and the successful releases of Dinosaur, Remember the Titans and Lady and the Tramp 2: Scamp's Adventure. Growth in stage play revenues was primarily driven by more performances of The Lion King and improved performance of Aida. In domestic theatrical motion picture distribution, revenue decreases reflected the performances of Unbreakable and Remember the Titans, which faced difficult comparisons to the prior year, which included Toy Story 2, Scream 3 and Mission to MarsMission to Mars.. In international theatrical motion picture distribution, the performances of Unbreakable and Dinosaur also faced difficult comparisons to the prior year, which included Toy Story 2, The Sixth Sense and Tarzan. |
On a pro forma basis, segment operating income increased $315 million to $316 million, reflecting |
|
growth in worldwide home video revenues revenues and stage play revenues revenues and decreased costs and expenses in domestic theatrical motion picture distribution, partially offset by declines in international theatrical motion picture distribution. Costs and expenses, which consist primarily of production cost amortization, distribution and selling expenses, product costs and participation costs, decreased 5% or $157 million. In domestic theatrical motion picture distribution, cost decreases reflect higher distribution expenses and write-downs on The Insider, Mission to Mars and Bicentennial Man in the prior year. Participation costs decreased in worldwide theatrical motion picture distribution, reflecting the success of Toy Story 2 and The Sixth Sense in the prior year. Increased costs in worldwide home video reflect higher distribution expenses driven by an increase in videotape unit sales and higher participation costs due to the success of Toy Story 2 in the current period. |
On an as-reported basis, operating income increased $279 million reflecting the items described |
|
above as well as the impact of SOP 00-2 in the current year which resulted in higher distribution and marketing costs as compared to the prior year. |
Consumer Products |
On a pro forma basis, revenues decreased 7%, or $102 million, to $1.5 billion, reflecting declines of |
|
$98 million at the Disney Stores, $20 million at publishing and $17 million in worldwide merchandise licensing, partially offset by an increase of $21 million at Disney Interactive driven by the continued success of the Who Wants to Be a Millionaire video games as well as the Aladdin and The Emperor's New Groove action games. The Disney Stores showed lower comparative store sales, and decreases at publishing were primarily attributable to declines domestically and in Europe. The decrease in worldwide merchandise licensing revenues primarily reflected continued declines domestically and in Europe and Japan. |
THE WALT DISNEY COMPANY |
On an as-reported basis, revenue decreased 7% or $116 million, reflecting the items described |
|
above, as well as the impact of the disposition of Fairchild Publications in the first quarter of the prior year. |
On a pro forma basis, segment operating income decreased 1%, or $3 million, to $262 million, |
|
reflecting declines at the Disney Stores and in worldwide merchandise licensing, partially offset by an increase at Disney Interactive. Costs and expenses decreased 8% or $99 million, primarily due to cost reductions at the Disney Stores, partially offset by higher advertising costs. |
On an as-reported basis, segment operating income decreased 2% or $4 million, reflecting the items |
|
described above, as well as the impact of the disposition of Fairchild Publications in the first quarter of the prior year. |
Internet Group |
On a pro forma basis, revenues increased 10%, or $9 million, to $99 million, driven by higher |
|
advertising and licensing revenues at the ESPN-branded, Disney-branded and ABC-branded Web sites and increased sales at DisneyVacations.com due to expanded product offerings. These increases were partially offset by the impacts of the closure of toysmart.com and the sale of Ultraseek in the third and fourth quarters of 2000, respectively, and the sale of Infoseek Japan in the prior quarter. |
On an as-reported basis, revenues increased 4%, or $4 million, to $112 million, reflecting the items |
|
described above, as well as a full period of Infoseek operations, which were consolidated into the Internet Group beginning November 18, 1999, offset by the impact of the closure of the GO.com Portal in February 2001. |
On a pro forma basis, segment operating loss improved 39%, or $54 million, to $84 million, |
|
primarily reflecting lower costs and expenses, which decreased 20%, or $45 million. Cost decreases were primarily due to reduction in cost of revenues and general and administrative expenses due to cost reduction initiatives and the elimination of operating costs at toysmart.com after its closure in June 2000 partially offset by higher sales and marketing costs due to growth in the sales infrastructure and media spend at the ESPN-branded and ABC-branded Web sites. Operating results also benefited from revenue growth and improved operating performance at the Disney-branded Web sites. |
On an as-reported basis, segment operating loss improved 30%, or $49 million, to $117 million, |
|
reflecting the items described above, as well as charges of $23 million in the prior year for acquired in-process research and development offset by higher operating losses at the GO.com portal in the current year driven by a decline in advertising and sponsorship revenues due to the portal's closure in February 2001. |
FINANCIAL CONDITION |
For the six months ended March 31, 2001, cash provided by operations decreased $743 million to |
|
$1.3 billion reflecting increased payments for television broadcast rights, primarily due to the timing of the NFL payments, and higher income tax payments. Additionally, the prior-year six months included proceeds from the sale of receivables at Disney Vacation Club. These decreases were partially offset by higher net income before non-cash charges. |
During the six months, the Company invested $896 million in parks, resorts and other properties. |
|
These expenditures reflected continued spending for Disney's California Adventure, which opened in February 2001 and expansion of resort facilities at the Walt Disney World Resort. |
THE WALT DISNEY COMPANY |
During the six months, the Company invested $444 million to acquire the rights to a |
|
copyright for certain intellectual property, certain radio station and publishing assets and the rights to a music library. |
Total commitments to purchase broadcast programming approximated $12.6 billion at December |
|
31, 2000, including approximately $9.8 billion related to sports programming rights, primarily NFL, College Football, Major League Baseball and NHL. Substantially all of this amount is payable over the next six years. |
The Company expects that the ABC Television Network, ESPN and the Company's television and |
|
radio stations will continue to enter into programming commitments to purchase the broadcast rights for various feature films, sports and other programming. |
During the six months, the Company received net proceeds of $2.3 billion from commercial paper |
|
activity and an additional $300 million of 5.90% fixed rate notes maturing in 2004 issued under the Euro Medium Term Note Program. These proceeds were partially used to repay $2.2 billion of term debt, which matured during the period. Commercial paper borrowings outstanding as of March 31, 2001 totaled $3.5 billion with maturities of up to one year. Commercial paper is supported by two bank facilities of $2.25 billion each, one expiring within one year and the other expiring in 2005. These facilities allow for borrowings at various interest rates based upon the base rates and facility fees as defined in the agreements. As of March 31, 2001, the Company had not borrowed against these facilities. The Company also has the ability to borrow under a U.S. shelf registration statement and a euro medium-term note program, which collectively permit the issuance of up to approximately $4.5 billion of additional debt. |
As of March 31, 2001, the Company was authorized to purchase up to 386 million shares of Disney |
|
common stock. During the six months, the Company acquired approximately 8.4 million shares of Disney common stock and 1.8 million shares of Internet Group common stock for approximately $256 million and $10 million, respectively. The Company also paid $438 million in dividends during the first quarter of the current year. |
The Company believes that its financial condition is strong and that its cash, other liquid assets, |
|
operating cash flows, access to equity capital markets and borrowing capacity, taken together, provide adequate resources to fund ongoing operating requirements and future capital expenditures related to the expansion of existing businesses and development of new projects. |
MARKET RISK |
Interest Rate Risk Management |
The Company is exposed to the impact of interest rate changes. The Company's objective is to |
|
manage the impact of interest rate changes on earnings and cash flows and on the market value of its investments and borrowings. The Company maintains fixed-rate debt as a percentage of its net debt between a minimum and maximum percentage, which is set by policy. |
The Company uses interest rate swaps and other instruments to manage net exposure to interest |
|
rate changes related to its borrowings and investments and to lower its overall borrowing costs. Significant interest rate risk management instruments held by the Company during the quarter included pay-floating and pay-fixed swaps. Pay-floating swaps, which expire in one to 29 years, effectively convert medium- and long-term obligations to LIBOR-indexed variable rate instruments. Pay-fixed swaps, which expire in one to two years, effectively convert floating-rate obligations to fixed-rate instruments. As of March 31, 2001, the Company held one swap that does not qualify as a hedge. This swap has been recorded on the balance sheet at its fair market value and any changes in fair value has been recorded in net interest expense. |
THE WALT DISNEY COMPANY |
Foreign Exchange Risk Management |
The Company transacts business in virtually every part of the world and is subject to risks |
|
associated with changing foreign exchange rates. The Company's objective is to reduce earnings and cash flow volatility associated with foreign exchange rate changes to allow management to focus its attention on its core business issues and challenges. Accordingly, the Company enters into various contracts that change in value as foreign exchange rates change to protect the value of its existing foreign currency assets and liabilities, commitments and anticipated foreign currency revenues. By policy, the Company maintains hedge coverage between minimum and maximum percentages of its anticipated foreign exchange exposures for periods of up to five years. The gains and losses on these contracts offset changes in the value of the related exposures. It is the Company's policy to enter into foreign currency transactions only to the extent considered necessary to meet its objectives as stated above. The Company does not enter into foreign currency transactions for speculative purposes. |
The Company uses forward and option strategies that provide for the sale of foreign currencies to |
|
hedge probable, but not firmly committed, revenues. The Company also uses forward contracts to hedge foreign currency assets and liabilities. These forward and option contracts mature within three years. While these hedging instruments are subject to fluctuations in value, such fluctuations should offset changes in the value of the underlying exposures being hedged. The principal currencies hedged are the European euro, Japanese yen, British pound and Canadian dollar. Cross-currency swaps are used to hedge foreign currency-denominated borrowings. |
Other Derivatives |
The Company holds warrants in both public and private companies. These warrants, although not |
|
designated as hedging instruments, are deemed derivatives if they contain a net-share settlement clause. During the quarter, the Company recorded the change in fair value of certain of these instruments to current earnings. |
FORWARD LOOKING STATEMENTS |
The Private Securities Litigation Reform Act of 1995 (the Act) provides a safe harbor for "forward- |
|
looking statements" made by or on behalf of the Company. The Company and its representatives may from time to time make written or oral statements that are "forward-looking", including statements contained in this report and other filings with Securities and Exchange Commission and in reports to the Company's shareholders. Management believes that all statements that express expectations and projections with respect to future matters, including further restructuring or strategic initiatives and the actions relating to the Company's strategic sourcing initiative, as well as from developments beyond the Company's control including changes in global economic conditions that may, among other things, affect the international performance of the Company's theatrical and home video releases, television programming and consumer products and, in addition, uncertainties associated with the Internet; the launching or prospective development of new business initiatives and the introduction of the euro are forward-looking statements within the meaning of the Act. These statements are made on the basis of management's views and assumptions, as of the time the statements are made, regarding future events and business performance. There can be no assurance, however, that management's expectations will necessarily come to pass. |
Factors that may affect forward-looking statements. For an enterprise as large and complex as the |
|
Company, a wide range of factors could materially affect future developments and performance. A list of such factors is set forth in the Company's Annual Report on Form 10-K for the year ended September 30, 2000 under the heading "Factors that may affect forward-looking statements." |
PART II. OTHER INFORMATION |
ITEM 4. Submission of Matters to a Vote of Security Holders |
The following matters were submitted to a vote of security holders during the Company's annual |
|
meeting of shareholders held on March 6, 2001. |
Description of Matter |
1. |
Election of Directors |
Votes |
Authority |
|||||||
------------------- |
---------------- |
|||||||||
Reveta F. Bowers |
1,707,369,018 |
55,364,914 |
For |
Against |
Abstentions |
Broker |
|||||||
------------------ |
------------------- |
---------------- |
------------------ |
|||||||
2. |
Ratification of PricewaterhouseCoopers |
1,745,473,224 |
5,458,100 |
11,401,273 |
401,335 |
|||||
3. |
Amendment of the 1995 Stock |
879,151,899 |
507,822,054 |
15,399,955 |
360,360,024 |
|||||
4. |
Stockholder proposal to limit the stock |
135,070,646 |
1,237,966,852 |
29,336,409 |
360,360,025 |
ITEM 6. Reports on Form 8-K |
(a) |
Reports on Form 8-K |
(1) |
Current report on Form 8-K dated January 29, 2001, setting forth the decision to convert all outstanding share of Disney Internet Group common stock (NYSE:DIG) into shares of Disney common stock (NYSE:DIS) effective March 20, 2001. |
||
(2) |
Current report on Form 8-K dated April 17, 2001, setting forth restatements of consolidated results of operations for the 2000 and 1999 fiscal years. |
SIGNATURE |
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 thereunto duly authorized. |
THE WALT DISNEY COMPANY |
|
|
|
(Registrant) |
By: |
/s/ THOMAS O. STAGGS |
||
|
|||
(Thomas O. Staggs, Senior Executive Vice President and Chief Financial Officer) |
May 9, 2001 |