FY2019 Q4 PR Ex99 - The Walt Disney Company

FOR IMMEDIATE RELEASE

November 7, 2019

THE WALT DISNEY COMPANY REPORTS FOURTH QUARTER AND FULL YEAR EARNINGS FOR FISCAL 2019

BURBANK, Calif. ? The Walt Disney Company today reported earnings for its fourth quarter and fiscal year ended September 28, 2019. Diluted earnings per share (EPS) from continuing operations for the fourth quarter decreased 72% to $0.43 from $1.55 in the prior-year quarter. Excluding certain items affecting comparability(1), diluted EPS for the quarter decreased 28% to $1.07 from $1.48 in the prior-year quarter. Diluted EPS from continuing operations for the year decreased 25% to $6.27 from $8.36 in the prior year. Excluding certain items affecting comparability(1), diluted EPS from continuing operations for the year decreased 19% to $5.77 from $7.08 in the prior year.

"Our solid results in the fourth quarter reflect the ongoing strength of our brands and businesses," said Robert A. Iger, Chairman and Chief Executive Officer, The Walt Disney Company. "We've spent the last few years completely transforming The Walt Disney Company to focus the resources and immense creativity across the entire company on delivering an extraordinary direct-to-consumer experience, and we're excited for the launch of Disney+ on November 12."

On March 20, 2019, the Company acquired Twenty-First Century Fox, Inc., which was subsequently renamed TFCF Corporation (TFCF), for cash and the issuance of 307 million shares. Additionally, as part of the TFCF acquisition, we acquired a controlling interest in Hulu LLC (Hulu). Results for the current quarter and fiscal year reflect the consolidation of TFCF and Hulu.

The following table summarizes the fourth quarter and full year results for fiscal 2019 and 2018 (in millions, except per share amounts):

Quarter Ended

Sept. 28, Sept. 29,

2019

2018

Revenues

$ 19,100 $ 14,306

Income from continuing operations before income taxes

Total segment operating income(1)

$ 1,258 $ 3,202 $ 3,436 $ 3,277

Net income from continuing operations(2)

$ 785 $ 2,322

Diluted EPS from continuing operations(2)

$ 0.43 $ 1.55

Diluted EPS excluding certain items affecting comparability(1)

$ 1.07 $ 1.48

Cash provided by continuing operations $ 1,718 $ 3,853

Free cash flow(1)

$ 409 $ 2,652

Change 34 %

Year Ended

Sept. 28, Sept. 29,

2019

2018

$ 69,570 $ 59,434

(61)% $ 13,944 $ 14,729

5 % $ 14,868 $ 15,689

(66)% $ 10,441 $ 12,598

(72)% $ 6.27 $ 8.36

(28)%

(55)% (85)%

$ 5.77

$ 5,984 $ 1,108

$ 7.08

$ 14,295 $ 9,830

Change 17 % (5)% (5)% (17)%

(25)%

(19)% (58)% (89)%

(1) EPS excluding certain items affecting comparability, total segment operating income and free cash flow are non-GAAP financial

measures. The comparable GAAP measures are diluted EPS from continuing operations, income from continuing operations before

income taxes, and cash provided by continuing operations, respectively. See the discussion on page 2 and on pages 9 through 12. (2) Reflects amounts attributable to shareholders of The Walt Disney Company, i.e. after deduction of noncontrolling interests.

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SEGMENT RESULTS

The Company evaluates the performance of its operating segments based on segment operating income, and management uses total segment operating income as a measure of the performance of operating businesses separate from non-operating factors. The Company believes that information about total 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.

The following is a reconciliation of income from continuing operations before income taxes to total segment operating income (in millions):

Quarter Ended

(in millions)

Sept. 28, 2019

Sept. 29, 2018

Income from continuing operations

before income taxes

$ 1,258 $ 3,202

Add/(subtract):

Corporate and unallocated shared

expenses

309

208

Restructuring and impairment charges

Other (income) / expense, net

314

5

483

(507)

Interest expense, net

361

159

Amortization of TFCF and Hulu

intangible assets and fair value

step-up on film and television

costs

711

--

Impairment of equity investments

--

210

Total Segment Operating Income $ 3,436 $ 3,277

Change (61 )%

(49 )% >(100) %

nm >(100) %

nm nm 5%

Year Ended

Sept. 28, 2019

Sept. 29, 2018

$ 13,944 $ 14,729

Change (5 )%

987

1,183 (4,357)

978

744

(33 )%

33 (601) 574

>(100) % >100 %

(70 )%

1,595 538

$ 14,868

-- 210 $ 15,689

nm >(100) %

(5 )%

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The following table summarizes the fourth quarter and full year segment revenue and segment operating income for fiscal 2019 and 2018 (in millions):

Revenues: Media Networks Parks, Experiences and Products

Studio Entertainment Direct-to-Consumer &

International

Eliminations

Total Revenues

Quarter Ended

Sept. 28, 2019

Sept. 29, 2018

Change

Year Ended

Sept. 28, 2019

Sept. 29, 2018

Change

$ 6,510 $ 5,325

22 % $ 24,827 $ 21,922

13 %

6,655 3,310

6,135 2,177

8% 52 %

26,225 11,127

24,701 10,065

6% 11 %

3,428

825

(803)

(156)

$ 19,100 $ 14,306

>100 % >(100) %

34 %

9,349

3,414

(1,958)

(668)

$ 69,570 $ 59,434

>100 % >(100) %

17 %

Segment operating income:

Media Networks

$ 1,783 $ 1,842

(3 )%

Parks, Experiences and Products

1,381

1,177

17 %

Studio Entertainment

1,079

604

79 %

Direct-to-Consumer & International

(740)

(340) >(100) %

Eliminations

(67)

(6) >(100) %

Total Segment Operating Income $ 3,436 $ 3,277

5%

$ 7,479 $ 7,338

2%

6,758 2,686

6,095 3,004

11 % (11 )%

(1,814)

(738)

(241)

(10)

$ 14,868 $ 15,689

>(100) % >(100) %

(5 )%

TFCF and Hulu operating results for the current period are consolidated and reported in our segments. Prior to the acquisition of TFCF, Hulu was accounted for as an equity method investment and was reported in our Direct-to-Consumer & International segment.

DISCUSSION OF FULL YEAR SEGMENT RESULTS

Segment operating income decreased at Direct-to-Consumer & International and Studio Entertainment and increased at Parks, Experiences and Products and Media Networks. The decrease at Direct-to-Consumer & International was due to the consolidation of Hulu, our ongoing investment in ESPN+ and costs to support the launch of Disney+. Lower segment operating income at Studio Entertainment was due to the consolidation of TFCF's operations. TFCF results included a loss from theatrical distribution and film cost impairments, partially offset by income from TV/SVOD distribution. Higher operating results at Parks, Experiences and Products was due to growth at the domestic theme parks and resorts and merchandise licensing. The increase at our domestic parks and resorts was due to higher guest spending, partially offset by labor and other cost inflation. Growth at Media Networks was due to the consolidation of TFCF's operations, partially offset by a decrease at our legacy operations. The decrease at our legacy operations was due to higher programming and production costs and a decrease in ABC Studios program sales, partially offset by an increase in affiliate revenue. Eliminations of segment operating income increased due to higher sales of ABC Studios programs to Hulu and the International Channels. The elimination of sales of TFCF television programs to Hulu and our International Channels also contributed to the increase.

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DISCUSSION OF FOURTH QUARTER SEGMENT RESULTS

Media Networks

Media Networks revenues for the quarter increased 22% to $6.5 billion, and segment operating income decreased 3% to $1.8 billion. The following table provides further detail of the Media Networks results (in millions):

Revenues: Cable Networks Broadcasting

Quarter Ended

Sept. 28, Sept. 29,

2019

2018

$ 4,243 $ 3,527

2,267

1,798

$ 6,510 $ 5,325

Change

Year Ended

Sept. 28, Sept. 29,

2019

2018

20 % 26 % 22 %

$ 16,486 8,341

$ 24,827

$ 14,610 7,312

$ 21,922

Change

13 % 14 % 13 %

Segment operating income:

Cable Networks Broadcasting Equity in the income of

investees

$ 1,256 $ 1,275

377

394

150

173

$ 1,783 $ 1,842

(1)% (4)%

(13)% (3)%

$ 5,425 1,351

703 $ 7,479

$ 5,225 1,402

711 $ 7,338

4% (4)%

(1)% 2%

Cable Networks

Cable Networks revenues for the quarter increased 20% to $4.2 billion and operating income decreased $19 million to $1.3 billion. Lower operating income was due to a decrease at ESPN, partially offset by the consolidation of TFCF businesses (primarily the FX and National Geographic networks).

The decrease at ESPN was due to increases in programming, production and marketing costs, partially offset by higher affiliate revenue. Higher programming costs were driven by rate increases for NFL, college sports and MLB programming. Affiliate revenue growth was due to an increase in contractual rates and the launch of the ACC Network, partially offset by a decrease in subscribers.

Broadcasting

Broadcasting revenues for the quarter increased 26% to $2.3 billion and operating income decreased $17 million to $377 million. The decrease in operating income was due to lower results at our legacy operations, partially offset by the consolidation of TFCF program sales.

The decrease at our legacy operations was due to lower ABC Studios program sales, an increase in programming and production costs at the ABC Television Network, a decrease in advertising revenue and higher marketing costs. These decreases were partially offset by an increase in affiliate revenue due to higher rates. The decrease in ABC Studios program sales was driven by the comparison to prior-year sales of Daredevil and Iron Fist and lower sales of Black-ish. The increase in programming and production costs was driven by higher write-downs and an increase in the average cost of network programming in the current quarter compared to the prior-year quarter. Lower advertising revenue reflected a decrease in rates at the owned television stations.

Equity in the Income of Investees

Equity in the income of investees decreased from $173 million in the prior-year quarter to $150 million in the current quarter due to lower income from A+E Television Networks driven by a decrease in affiliate and advertising revenues and higher marketing costs.

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Parks, Experiences and Products Parks, Experiences and Products revenues for the quarter increased 8% to $6.7 billion, and segment

operating income increased 17% to $1.4 billion. Operating income growth for the quarter was due to increases from merchandise licensing, Disneyland Resort and Disney Vacation Club.

Higher operating income at our merchandise licensing business was due to an increase in revenue from sales of merchandise based on Frozen and Toy Story, partially offset by lower sales of merchandise based on Mickey and Minnie.

Growth at Disneyland Resort was primarily due to higher guest spending, partially offset by expenses associated with Star Wars: Galaxy's Edge, which opened on May 31, and, to a lesser extent, lower attendance. Guest spending growth was primarily due to increases in average ticket prices and higher food, beverage and merchandise spending.

The increase in operating income at Disney Vacation Club was due to higher sales at Disney's Riviera Resort in the current quarter, which included a timing benefit from the adoption of new revenue recognition accounting guidance (see page 6), compared to sales of Copper Creek Villas & Cabins in the prior-year quarter.

Results at Walt Disney World Resort were comparable to the prior-year quarter, despite the adverse impact of Hurricane Dorian in the current quarter. Increases in guest spending and, to a lesser extent, occupied room nights and attendance were offset by higher costs. Higher costs were driven by costs associated with Star Wars: Galaxy's Edge, which opened on August 29, and cost inflation. Guest spending growth was primarily due to increased food, beverage and merchandise spending and higher average ticket prices.

Operating income at our international parks and resorts was comparable to the prior-year quarter, as growth at Disneyland Paris and Shanghai Disney Resort was largely offset by a decrease at Hong Kong Disneyland Resort. The increase at Disneyland Paris was driven by higher average ticket prices and attendance growth. At Shanghai Disney Resort, higher operating income was due to an increase in average ticket prices, partially offset by lower attendance. Lower results at Hong Kong Disneyland Resort were due to decreases in attendance and occupied room nights reflecting the impact of recent events.

Studio Entertainment Studio Entertainment revenues for the quarter increased 52% to $3.3 billion and segment operating

income increased 79% to $1,079 million. Higher operating income was due to an increase in theatrical distribution results, partially offset by a loss from the consolidation of the TFCF businesses.

The increase in theatrical distribution results was due to the performance of The Lion King, Toy Story 4 and Aladdin in the current quarter compared to Incredibles 2 and Ant-Man And The Wasp in the prioryear quarter.

Operating results at the TFCF businesses reflected a loss from theatrical distribution driven by the performance of Ad Astra, Art of Racing In The Rain and Dark Phoenix, partially offset by income from TV/SVOD distribution.

Direct-to-Consumer & International Direct-to-Consumer & International revenues for the quarter increased from $0.8 billion to $3.4

billion and segment operating loss increased from $340 million to $740 million. The increase in operating loss was due to the consolidation of Hulu, costs associated with the upcoming launch of Disney+ and our ongoing investment in ESPN+, which was launched in April 2018. These decreases were partially offset by a benefit from the inclusion of the TFCF businesses driven by income at Star India.

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