Market Overview

The Walt Disney Company Reports Fourth Quarter and Full Year Earnings for Fiscal 2017

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The Walt Disney Company (NYSE:DIS) today reported earnings for its
fourth quarter and fiscal year ended September 30, 2017. Diluted
earnings per share (EPS) for the fourth quarter increased 3% from $1.10
in the prior-year quarter to $1.13 in the current quarter. Excluding
certain items affecting comparability(1), EPS for the quarter
decreased 3% from $1.10 in the prior-year quarter to $1.07. Diluted EPS
for the year decreased from $5.73 in the prior year to $5.69. Excluding
certain items affecting comparability(1), EPS for the year
decreased from $5.72 in the prior year to $5.70.

"No other entertainment company is better equipped to navigate the
ever-evolving media landscape, thanks to our unparalleled collection of
brands and franchises and our ability to leverage IP across our entire
company," said Robert A. Iger, Chairman and Chief Executive Officer, The
Walt Disney Company. "We look forward to launching our first
direct-to-consumer streaming service in the new year, and we will
continue to invest for the future and take the smart risks required to
deliver shareholder value."

The following table summarizes the fourth quarter and full year results
for fiscal 2017 and 2016 (in millions, except per share amounts):

  Quarter Ended     Year Ended  

Sept. 30,
2017

 

Oct. 1,
2016

Change

Sept. 30,
2017

 

Oct. 1,
2016

Change
Revenues $ 12,779 $ 13,142 (3 ) % $ 55,137 $ 55,632 (1 )%
Segment operating income(1) $ 2,812 $ 3,176 (11 ) % $ 14,775 $ 15,721 (6 )%
Net income(2)(3) $ 1,747 $ 1,771 (1 ) % $ 8,980 $ 9,391 (4 )%
Diluted EPS(2)(3) $ 1.13 $ 1.10 3 ) % $ 5.69 $ 5.73 (1 )%
EPS excluding certain items affecting comparability(1)(3) $ 1.07 $ 1.10 (3 ) % $ 5.70 $ 5.72 %
Cash provided by operations $ 3,586 $ 3,707 (3 ) % $ 12,343 $ 13,136 (6 )%
Free cash flow(1) $ 2,691 $ 2,625 3 ) % $ 8,720 $ 8,363 4 %

(1) EPS excluding certain items affecting comparability,
segment operating income and free cash flow are non-GAAP financial
measures. Certain items affecting comparability during the fourth
quarter of fiscal 2017 included a non-cash net gain in connection with
the acquisition of a controlling interest in BAMTech LLC ($255 million)
and restructuring and impairment charges ($98 million).

(2)
Reflects amounts attributable to shareholders of The Walt Disney
Company, i.e. after deduction of noncontrolling interests.

(3)
Includes an income tax benefit related to the adoption of new
accounting rules for the tax effects of employee share-based awards,
which requires that excess tax benefits or tax deficiencies on employee
share-based awards be included in "Income taxes" in the Condensed
Consolidated Statement of Income. These amounts were previously recorded
in "Common stock" in the Condensed Consolidated Balance Sheet. An excess
tax benefit arises when the value of an employee share-based award on
the exercise or vesting date is higher than the fair value on the grant
date. A tax deficiency arises when the value on the exercise or vesting
date is lower than the grant date fair value.

SEGMENT RESULTS

The following table summarizes the fourth quarter and full year segment
operating results for fiscal 2017 and 2016 (in millions):

  Quarter Ended     Year Ended  

Sept. 30,
2017

  Oct. 1,
2016
Change

Sept. 30,
2017

 

Oct. 1,
2016

Change
Revenues:
Media Networks $ 5,465 $ 5,658 (3 )% $ 23,510 $ 23,689 (1 )%
Parks and Resorts 4,667 4,386 6 % 18,415 16,974 8 %
Studio Entertainment 1,432 1,811 (21 )% 8,379 9,441 (11 )%
Consumer Products & Interactive Media 1,215   1,287   (6 )% 4,833   5,528   (13 )%
$ 12,779   $ 13,142   (3 )% $ 55,137   $ 55,632   (1 )%
Segment operating income:
Media Networks $ 1,475 $ 1,672 (12 )% $ 6,902 $ 7,755 (11 )%
Parks and Resorts 746 699 7 % 3,774 3,298 14 %
Studio Entertainment 218 381 (43 )% 2,355 2,703 (13 )%
Consumer Products & Interactive Media 373   424   (12 )% 1,744   1,965   (11 )%
$ 2,812   $ 3,176   (11 )% $ 14,775   $ 15,721   (6 )%
 

DISCUSSION OF FULL YEAR CONSOLIDATED RESULTS

For the year, the decrease in diluted EPS was due to lower segment
operating income and higher net interest expense. These decreases were
partially offset by a decrease in weighted average shares outstanding as
a result of our share repurchase program and a lower effective income
tax rate due to a lower rate on foreign earnings and a favorable impact
from the adoption of a new accounting pronouncement for the tax effects
of employee share-based awards ($125 million). The increase in net
interest expense was due to higher average debt balances, lower
capitalized interest and higher average interest rates.

Lower segment operating income was due to decreases at Media Networks,
Studio Entertainment and Consumer Products & Interactive Media,
partially offset by growth at Parks and Resorts. The decrease at Media
Networks was due to contractual rate increases for sports programming,
lower advertising revenue and higher losses from our equity investments
in BAMTech LLC (BAMTech) and Hulu LLC (Hulu), partially offset by higher
affiliate revenue. Lower Studio Entertainment and Consumer Products &
Interactive Media results were due to the exceptional performance of the
Star Wars franchise in the prior year, which benefited all of our key
distribution channels. Growth at Parks and Resorts was due to increases
at our international and domestic operations. Internationally, we
benefited from a full year of operations at Shanghai Disney Resort and
higher attendance and guest spending at Disneyland Paris driven by the
25th Anniversary celebration in the current year. The increase at our
domestic operations was due to higher guest spending for admissions to
our theme parks and sailings on our cruise ships and higher attendance,
partially offset by cost inflation and higher expenses for operations
support and new guest offerings. Growth at our domestic operations was
adversely impacted by Hurricane Irma and Hurricane Matthew in the
current year.

DISCUSSION OF FOURTH QUARTER SEGMENT RESULTS

Media Networks

Media Networks revenues for the quarter decreased 3% to $5.5 billion,
and segment operating income decreased 12% to $1.5 billion. The
following table provides further detail of the Media Networks results
(in millions):

  Quarter Ended     Year Ended  

Sept. 30,
2017

 

Oct. 1,
2016

Change

Sept. 30,
2017

 

Oct. 1,
2016

Change
Revenues:
Cable Networks $ 3,951 $ 3,956 % $ 16,527 $ 16,632 (1 )%
Broadcasting 1,514   1,702   (11 )% 6,983   7,057   (1 )%
$ 5,465   $ 5,658   (3 )% $ 23,510   $ 23,689   (1 )%
Segment operating income:
Cable Networks $ 1,236 $ 1,251 (1 )% $ 5,353 $ 5,965 (10 )%
Broadcasting 229 271 (15 )% 1,205 1,193 1 %
Equity in the income of investees 10   150   (93 )% 344   597   (42 )%
$ 1,475   $ 1,672   (12 )% $ 6,902   $ 7,755   (11 )%
 

Cable Networks

Operating income at Cable Networks decreased $15 million to $1.2 billion
for the quarter due to a decrease at Freeform, partially offset by
growth at the Disney Channels due to higher program sales.

The decrease at Freeform was driven by lower advertising revenue
primarily due to a decrease in average viewership.

Results at ESPN were comparable to the prior-year quarter as higher
programming costs and lower advertising revenue were offset by higher
affiliate revenue. The programming cost increase was driven by
contractual rate increases for NFL, college sports and MLB, partially
offset by the absence of costs for Olympics programming internationally
and the World Cup of Hockey. Lower advertising revenue was due to a
decrease in average viewership and lower units delivered, partially
offset by higher rates. Affiliate revenue growth resulted from
contractual rate increases, partially offset by a decline in subscribers.

Broadcasting

Operating income at Broadcasting decreased $42 million to $229 million
for the quarter driven by lower advertising revenue and a decrease in
program sales, partially offset by an increase in affiliate revenue, due
to rate increases, and lower programming costs.

The decrease in advertising revenue reflected lower network impressions,
lower political advertising at our owned television stations and the
absence of the Emmy Awards show, partially offset by higher network
rates. Lower network impressions were driven by a decrease in average
viewership, partially offset by an increase in units delivered. The
decrease in program sales was primarily due to fewer significant titles
in the current quarter compared to the prior-year quarter. The current
quarter included sales of The Punisher and Designated Survivor,
whereas the prior-year quarter included sales of Luke Cage, Castle,
Golden Girls and Quantico. Programming costs reflected the
benefit of one less week of new programming due to the timing of our
fall season launch and the absence of costs for the Emmy Awards,
partially offset by higher write-downs.

Equity in the Income of Investees

Equity in the income of investees decreased to $10 million from $150
million due to higher losses from BAMTech and Hulu and lower income at
A+E Television Networks (A+E). The BAMTech results reflected a valuation
adjustment to sports programming rights that were prepaid prior to our
acquisition of BAMTech and increased costs for technology platform
investments. The higher loss at Hulu was due to higher labor, marketing
and distribution costs, partially offset by growth in subscription and
advertising revenue. The decrease at A +E was due to higher marketing
costs, lower program sales and lower advertising revenue.

Parks and Resorts

Parks and Resorts revenues for the quarter increased 6% to $4.7 billion,
and segment operating income increased 7% to $746 million. Operating
income growth for the quarter was due to an increase at our
international operations, partially offset by a decrease at our domestic
operations, which were unfavorably impacted by Hurricane Irma. As a
result of the hurricane, Walt Disney World Resort was closed for two
days, and we canceled three cruise itineraries and shortened two others.

Results at our international operations were due to growth at Disneyland
Paris and Shanghai Disney Resort. The improvement at Disneyland Paris
reflected increases in attendance, guest spending and occupied room
nights, partially offset by higher costs, driven by the 25th Anniversary
celebration, and a loss from its 50% joint venture interest in Villages
Nature. Guest spending growth was primarily due to higher average ticket
prices and food and beverage spending. The increase at Shanghai Disney
Resort was due to attendance growth and lower marketing costs, partially
offset by lower average ticket prices. The decrease in marketing costs
reflected costs associated with the grand opening of Shanghai Disney
Resort in the prior year.

The decrease in operating income at our domestic operations was driven
by lower results at Walt Disney World Resort, partially offset by an
increase at our cruise line, growth at Disneyland Resort and higher
sales of vacation club units.

Lower results at Walt Disney World Resort were driven by higher costs
and fewer occupied room nights, partially offset by growth in guest
spending and attendance, although both were negatively impacted by
Hurricane Irma. Higher costs were primarily due to increases in labor
and employee benefits, depreciation and marketing. Guest spending growth
was due to increased food and beverage spending and higher average daily
hotel room rates. Available hotel room nights were lower due to
refurbishments and conversions to vacation club units.

Growth at our cruise line resulted from higher average ticket prices.

Higher results at Disneyland Resort were due to increases in guest
spending and attendance, partially offset by higher costs for new guest
offerings and marketing. The increase in guest spending was primarily
due to higher average ticket prices.

Studio Entertainment

Studio Entertainment revenues for the quarter decreased 21% to $1.4
billion and segment operating income decreased $163 million to $218
million. The decrease in operating income was due to higher film cost
impairments, lower TV/ SVOD distribution results and a lower revenue
share from the Consumer Products & Interactive Media segment. Home
entertainment and theatrical distribution results were comparable to the
prior-year quarter. However, theatrical distribution revenues declined
primarily due to the performance of Cars 3 in the current quarter
compared to Finding Dory in the prior-year quarter.

The increase in film cost impairments resulted from a write-off in the
current quarter of an animated title that was in development, which we
do not plan to release.

Lower TV/SVOD distribution results were due to a domestic sale of Star
Wars Classic titles in the prior-year quarter.

The decrease in revenue share with the Consumer Products & Interactive
Media segment was primarily due to stronger performance of merchandise
based on Star Wars, Frozen and Finding Dory in the
prior-year quarter, partially offset by Cars merchandise in the current
quarter.

Home entertainment results in the current quarter included the release
of Guardians of the Galaxy Vol. 2 and the continuing performances
of Beauty and the Beast and Moana, whereas the prior-year
quarter included the release of Captain America: Civil War and The
Jungle Book
and the continuing performance of Zootopia.

Theatrical distribution results were comparable to the prior-year
quarter as the continuing performance of Pirates of the Caribbean:
Dead Men Tell No Tales
and Cars 3 in the current quarter were
offset by the continuing performance Finding Dory and the release
of Pete's Dragon in the prior-year quarter.

Consumer Products & Interactive Media

Consumer Products & Interactive Media revenues for the quarter decreased
6% to $1.2 billion, and segment operating income decreased 12% to $373
million due to a decrease at our merchandise licensing business.

Lower results at our merchandise licensing business were primarily due
to a decrease in earned licensing revenues, higher third-party royalty
expense and an unfavorable impact from foreign currency translation.
Lower earned licensing revenues were due to decreased sales of
merchandise based on Star Wars, Frozen and Finding Dory,
partially offset by increases from merchandise based on Cars and
Spider-Man.

OTHER QUARTERLY FINANCIAL INFORMATION

Corporate and Unallocated Shared Expenses

Corporate and unallocated shared expenses increased $7 million to $190
million for the quarter due to higher charitable contributions including
contributions to disaster relief efforts.

Interest Expense, net

Interest expense, net was as follows (in millions):

  Quarter Ended  

Sept. 30,
2017

 

Oct. 1,
2016

Change
Interest expense $ (137 ) $ (119 ) (15 )%
Interest and investment income 52   20   >100 %
Interest expense, net $ (85 ) $ (99 ) 14 %
 

The increase in interest expense for the quarter was due to higher
average debt balances and an increase in average interest rates.

The increase in interest and investment income for the quarter was due
to gains on investments in the current quarter.

Income Taxes

The effective income tax rate was as follows:

  Quarter Ended    

Sept. 30,
2017

 

Oct. 1,
2016

Change
Effective income tax rate 30.8 % 34.3 % 3.5 ppt
 

The decrease in the effective income tax rate for the quarter was due to
the impact of a change in our full year effective tax rate. The
estimated full year effective rate is used to determine the quarterly
income tax provision and is adjusted each quarter based on information
available at the end of that quarter. The impact was favorable in the
current quarter whereas it was unfavorable in the prior-year quarter.
The change in our full year effective tax rate in both years was driven
by a change in the estimated rate on foreign earnings. The decrease was
partially offset by a benefit in the prior-year quarter from the
favorable resolution of certain tax matters.

FULL YEAR CASH FLOW STATEMENT INFORMATION

Cash Flow

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

  Year Ended  

Sept. 30,
2017

 

Oct. 1,
2016

Change
Cash provided by operations $ 12,343 $ 13,136 $ (793 )
Investments in parks, resorts and other property (3,623 ) (4,773 ) 1,150  
Free cash flow(1) $ 8,720   $ 8,363   $ 357  

(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 2017 decreased 6% or $0.8 billion
to $12.3 billion compared to fiscal 2016. The decrease in cash provided
by operations was due to higher film and television production spending,
lower segment operating results and higher pension plan contributions,
partially offset by lower tax payments.

Cash flow information for fiscal 2016 has been restated to reflect the
adoption of two new accounting standards during fiscal 2017. One
standard requires cash paid for shares withheld to satisfy employee
payroll tax obligations related to equity based compensation vestings to
be classified as a financing activity instead of as an operating
activity. The other standard requires restricted cash to be reported as
part of cash and cash equivalents in the Consolidated Statement of Cash
Flows, and thus the change in restricted cash will no longer be reported
as an activity in the statement of cash flows. As a result of adopting
these standards, fiscal 2016 cash provided by operations was reduced by
$77 million.

Capital Expenditures and Depreciation Expense

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

  Year Ended

Sept. 30,
2017

 

Oct. 1,
2016

Media Networks
Cable Networks $ 75 $ 86
Broadcasting 64   80
Total Media Networks 139   166
Parks and Resorts
Domestic 2,375 2,180
International 816   2,035
Total Parks and Resorts 3,191   4,215
Studio Entertainment 85 86
Consumer Products & Interactive Media 30 53
Corporate 178   253
Total investments in parks, resorts and other property $ 3,623   $ 4,773
 

Capital expenditures decreased from $4.8 billion to $3.6 billion driven
by lower spending at Shanghai Disney Resort and Hong Kong Disneyland
Resort, partially offset by higher spending at our domestic parks.

Depreciation expense was as follows (in millions):

  Year Ended

Sept. 30,
2017

 

Oct. 1,
2016

Media Networks
Cable Networks $ 137 $ 147
Broadcasting 88   90
Total Media Networks 225   237
Parks and Resorts
Domestic 1,336 1,273
International 660   445
Total Parks and Resorts 1,996   1,718
Studio Entertainment 50 51
Consumer Products & Interactive Media 63 63
Corporate 252   251
Total depreciation expense $ 2,586   $ 2,320
 

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)  

EPS
Change vs.
prior year
period

Quarter Ended September 30, 2017:
As reported $ 2,694 $ (829 ) $ 1,865 $ 1.13 3 %
Exclude(4):
Gain related to the acquisition of BAMTech (255 ) 93 (162 ) (0.10 )
Restructuring and impairment charges 98   (31 ) 67   0.04  
Excluding certain items affecting comparability $ 2,537   $ (767 ) $ 1,770   $ 1.07   (3 )%
 
Quarter Ended October 1, 2016:
As reported $ 2,881 $ (989 ) $ 1,892 $ 1.10
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  

(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 fiscal 2017 include a
non-cash net gain in connection with the acquisition of a controlling
interest in BAMTech ($255 million), which was recorded in "Other income,
net" in the Condensed Consolidated Statements of Income, and
restructuring and impairment charges ($98 million). In the prior-year
fourth quarter, the Company recorded a favorable adjustment to charges
taken in the second quarter of the prior year in connection with the
discontinuation of our Infinity console game business (Infinity Charge)
($18 million) and restructuring and impairment charges ($31 million).

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)  

EPS
Change vs.
prior year
period

Year Ended September 30, 2017:
As reported $ 13,788 $ (4,422 ) $ 9,366 $ 5.69 (1 )%
Exclude(4):
Gain related to the acquisition of BAMTech (255 ) 93 (162 ) (0.10 )
Settlement of litigation 177 (65 ) 112 0.07
Restructuring and impairment charges 98   (31 ) 67   0.04  
Excluding certain items affecting comparability $ 13,808   $ (4,425 ) $ 9,383   $ 5.70   %
 
Year Ended October 1, 2016:
As reported $ 14,868 $ (5,078 ) $ 9,790 $ 5.73
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  

(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 September 30, 2017, items affecting comparability included a
charge, net of committed insurance recoveries, in connection with the
settlement of litigation ($177 million), restructuring and impairment
charges ($98 million) and a non-cash net gain in connection with the
acquisition of a controlling interest in BAMTech ($255 million), which
was recorded in "Other income, net" in the Condensed Consolidated
Statements of Income. In the prior year, the Company recorded the
Company's share of a net gain recognized by A+E in connection with their
acquisition of an interest in Vice Group Holding, Inc. (Vice Gain) ($332
million), the Infinity Charge ($129 million) and restructuring and
impairment charges ($156 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.

A reconciliation of segment operating income to net income is as follows
(in millions):

  Quarter Ended   Year Ended

Sept. 30,
2017

 

Oct. 1,
2016

Sept. 30,
2017

 

Oct. 1,
2016

Segment operating income $ 2,812 $ 3,176 $ 14,775 $ 15,721
Corporate and unallocated shared expenses (190 ) (183 ) (582 ) (640 )
Restructuring and impairment charges (98 ) (31 ) (98 ) (156 )
Interest expense, net (85 ) (99 ) (385 ) (260 )
Other income, net 255 78
Vice Gain 332
Infinity Charge   18     (129 )
Income before income taxes 2,694 2,881 13,788 14,868
Income taxes (829 ) (989 ) (4,422 ) (5,078 )
Net income $ 1,865   $ 1,892   $ 9,366   $ 9,790  
 

CONFERENCE CALL INFORMATION

In conjunction with this release, The Walt Disney Company will host a
conference call today, November 9, 2017, at 4:30 PM EST/1:30 PM PST via
a live webcast. To access the webcast go to www.disney.com/investors.
The discussion will be archived.

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;
  • income tax expense; 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 1, 2016 under Item 1A, "Risk Factors,"
and subsequent reports.

   
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited; in millions, except per share data)
 
Quarter Ended Year Ended
September 30,
2017
  October 1,
2016
September 30,
2017
  October 1,
2016
Revenues $ 12,779 $ 13,142 $ 55,137 $ 55,632
Costs and expenses (10,150 ) (10,281 ) (41,264 ) (41,274 )
Restructuring and impairment charges (98 ) (31 ) (98 ) (156 )
Other income, net 255 78
Interest expense, net (85 ) (99 ) (385 ) (260 )
Equity in the income (loss) of investees, net (7 ) 150   320   926  
Income before income taxes 2,694 2,881 13,788 14,868
Income taxes (829 ) (989 ) (4,422 ) (5,078 )
Net income 1,865 1,892 9,366 9,790
Less: Net income attributable to noncontrolling interests (118 ) (121 ) (386 ) (399 )
Net income attributable to The Walt Disney Company (Disney) $ 1,747   $ 1,771   $ 8,980   $ 9,391  
 
Earnings per share attributable to Disney:
Diluted $ 1.13   $ 1.10   $ 5.69   $ 5.73  
Basic $ 1.14   $ 1.10   $ 5.73   $ 5.76  
 
Weighted average number of common and common equivalent shares
outstanding:
Diluted 1,547   1,615   1,578   1,639  
Basic 1,538   1,606   1,568   1,629  
 
Dividends declared per share $   $   $ 1.56   $ 1.42  
 
 
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited; in millions, except per share data)
   
September 30,
2017
October 1,
2016
ASSETS
Current assets
Cash and cash equivalents $ 4,017 $ 4,610
Receivables 8,633 9,065
Inventories 1,373 1,390
Television costs and advances 1,278 1,208
Other current assets 588   693  
Total current assets 15,889 16,966
Film and television costs 7,481 6,339
Investments 3,202 4,280
Parks, resorts and other property
Attractions, buildings and equipment 54,043 50,270
Accumulated depreciation (29,037 ) (26,849 )
25,006 23,421
Projects in progress 2,145 2,684
Land 1,255   1,244  
28,406 27,349
Intangible assets, net 6,995 6,949
Goodwill 31,426 27,810
Other assets 2,390   2,340  
Total assets $ 95,789   $ 92,033  
 
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and other accrued liabilities $ 8,855 $ 9,130
Current portion of borrowings 6,172 3,687
Deferred revenue and other 4,568   4,025  
Total current liabilities 19,595 16,842
 
Borrowings 19,119 16,483
Deferred income taxes 4,480 3,679
Other long-term liabilities 6,443 7,706
Commitments and contingencies
Redeemable noncontrolling interest 1,148
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
36,248 35,859
Retained earnings 72,606 66,088
Accumulated other comprehensive loss (3,528 ) (3,979 )
105,326 97,968
Treasury stock, at cost, 1.4 billion shares at September 30, 2017
and 1.3 billion shares at October 1, 2016
(64,011 ) (54,703 )
Total Disney Shareholders' equity 41,315 43,265
Noncontrolling interests 3,689   4,058  
Total equity 45,004   47,323  
Total liabilities and equity $ 95,789   $ 92,033  
 
 
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in millions)
 

 

Year Ended
September 30,
2017
  October 1,
2016
OPERATING ACTIVITIES
Net income $ 9,366 $ 9,790
Depreciation and amortization 2,782 2,527
Gains on acquisitions and sales of investments (289 ) (26 )
Deferred income taxes 334 1,214
Equity in the income of investees (320 ) (926 )
Cash distributions received from equity investees 788 799
Net change in film and television costs and advances (1,075 ) (101 )
Equity-based compensation 364 393
Other 503 674
Changes in operating assets and liabilities:
Receivables 107 (393 )
Inventories (5 ) 186
Other assets (52 ) (443 )
Accounts payable and other accrued liabilities (368 ) 40
Income taxes 208   (598 )
Cash provided by operations 12,343   13,136  
 
INVESTING ACTIVITIES
Investments in parks, resorts and other property (3,623 ) (4,773 )
Acquisitions (417 ) (850 )
Other (71 ) (135 )
Cash used in investing activities (4,111 ) (5,758 )
 
FINANCING ACTIVITIES
Commercial paper borrowings/(repayments), net 1,247 (920 )
Borrowings 4,820 6,065
Reduction of borrowings (2,364 ) (2,205 )
Dividends (2,445 ) (2,313 )
Repurchases of common stock (9,368 ) (7,499 )
Proceeds from exercise of stock options 276 259
Other (1,125 ) (607 )
Cash used in financing activities (8,959 ) (7,220 )
 
Impact of exchange rates on cash and cash equivalents 31   (123 )
 
Change in cash and cash equivalents and restricted cash (696 ) 35
Cash and cash equivalents and restricted cash, beginning of year 4,760   4,725  
Total cash and cash equivalents and restricted cash $ 4,064   $ 4,760  

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