Walt Disney Co. — FY2019 Form 10-K
Reporting period: Fiscal year ended September 28, 2019. Fiscal fourth-quarter results are also summarized below. Disney operates Media Networks; Parks, Experiences and Products; Studio Entertainment; and Direct-to-Consumer & International (DTCI). The year includes Twenty-First Century Fox (TFCF) and Hulu results from their consolidation on March 20, 2019; prior-year results were not recast for the new revenue standard.
Financial performance
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Revenue | $69.57 billion | $59.43 billion | +17% |
| Net income attributable to Disney | $11.05 billion | $12.60 billion | -12% |
| Diluted EPS, continuing operations | $6.27 | $8.36 | -25% |
| Total segment operating income (non-GAAP) | $14.87 billion | $15.69 billion | -5% |
| Cash from continuing operating activities | $5.98 billion | $14.30 billion | -58% |
| Capital expenditures | $4.88 billion | $4.47 billion | +9% |
| Borrowings at year-end | $46.99 billion | $20.87 billion | More than doubled |
Continuing-operations net income was $10.91 billion, versus $13.07 billion. Fiscal 2019 also included $671 million of income from discontinued operations, primarily related to the regional sports networks (RSNs). A simple operating-cash-flow-less-capex measure was approximately $1.11 billion, down from $9.83 billion in FY2018; this is not a company-defined free-cash-flow measure.
Year-end cash and cash equivalents were $5.42 billion. Current assets were $28.12 billion and current liabilities $31.34 billion (approximately 0.90 current ratio). Disney reported $12.25 billion of unused bank-facility capacity and said liquidity, operating cash flows and capital-market access were adequate for operating needs and planned investment. Net interest expense rose 70% to $978 million.
Segment results and approximate operating margins
| Segment | Revenue FY2019 | Operating income/(loss) FY2019 | Change in operating income/(loss) | Approx. margin |
|---|---|---|---|---|
| Media Networks | $24.83 billion | $7.48 billion | +2% | 30.1% |
| Parks, Experiences and Products | $26.23 billion | $6.76 billion | +11% | 25.8% |
| Studio Entertainment | $11.13 billion | $2.69 billion | -11% | 24.1% |
| DTCI | $9.35 billion | $(1.81) billion | Loss widened | -19.4% |
Margins are approximate segment operating income or loss divided by segment revenue; segment operating income is a non-GAAP measure. Comparisons are affected by the partial-year consolidation of TFCF and Hulu.
Material changes versus FY2018
- TFCF acquisition consideration was $69.5 billion, funded with $35.7 billion cash and $33.8 billion in Disney shares. The acquisition materially expanded assets, goodwill and debt; year-end total assets rose to $193.98 billion from $98.60 billion.
- Revenue grew 17%, but net income attributable to Disney and continuing-operations diluted EPS declined. The comparison includes a $1.7 billion FY2018 Tax Act benefit, acquisition-related amortization, restructuring, higher interest costs and increased shares outstanding.
- FY2019 included a $4.79 billion non-cash gain from remeasuring Disney’s previously held Hulu interest. It helped lift reported earnings but did not represent operating cash generation.
- Operating cash flow fell largely because Disney paid approximately $7.6 billion in tax obligations associated with the Fox separation and RSN sale, alongside higher pension contributions and interest payments.
- Parks operating income increased on higher guest spending and domestic park results, despite lower international attendance. Studio operating income declined, while DTCI losses expanded with streaming investment and Hulu consolidation.
Outlook, commentary and risks
- Disney+ launched in November 2019 in the U.S. and four other countries, after fiscal year-end. Further international launches were planned through 2021. Management expected to forgo some third-party TV/SVOD licensing revenue as content moved to Disney+, while increasing programming and production investment.
- Management forecast FY2020 capital expenditures approximately $0.5 billion above FY2019’s $4.9 billion, primarily for DTCI and corporate technology and facilities.
- The TFCF integration plan had incurred $1.2 billion of FY2019 charges. Estimated total severance and related costs were approximately $1.5 billion, with substantial completion expected by the end of FY2021; other restructuring costs were expected to be immaterial.
- Management warned that, if then-current tourism trends continued, Hong Kong Disneyland Resort FY2020 operating income could fall approximately $275 million versus FY2019, reflecting reduced tourism amid events in Hong Kong.
- Key risks include execution and profitability of DTC services, integration and synergy delivery from TFCF, high programming and sports-rights commitments, changing consumer habits and competition, economic and travel disruptions, foreign-exchange exposure, intellectual-property and cybersecurity risks, and pension cost sensitivity.
- Total contractual obligations were $135.7 billion, including $50.4 billion in sports and other broadcast programming commitments and $65.9 billion of scheduled borrowing principal and interest payments. These are undiscounted contractual amounts, not balance-sheet debt alone.
Fiscal Q4 snapshot
For the quarter ended September 28, 2019, revenue was $19.10 billion, segment operating income was $3.44 billion, continuing-operations net income was $914 million, and diluted EPS was $0.43 from continuing operations ($0.58 including discontinued operations). Q4 included acquisition-related amortization, a debt-extinguishment charge and restructuring costs.
Most important facts for investors to verify
- Separate recurring earnings and cash generation from the $4.79 billion non-cash Hulu remeasurement gain and other acquisition-related or tax items.
- Assess the trajectory of DTCI losses, subscriber growth, content spending and the revenue displaced by Disney+’s use of content previously licensed externally.
- Track post-acquisition leverage, interest expense, debt maturities and progress toward restoring cash flow after the exceptional tax payment.
- Monitor delivery of TFCF integration savings against remaining severance costs and the stated FY2021 completion target.
- Evaluate the Hong Kong Disneyland outlook and the sensitivity of parks results to tourism, attendance, pricing and broader travel conditions.