https://thewaltdisneycompany.com/app/uploads/2020/08/q3-fy20-earnings.pdf

Disney has been particularly visible during the COVID-19 crisis because of its park shutdowns, the launch of Disney+, etc. Take some time to read their recent earnings report to get an idea of how management believes they have (and have not) been impacted by this crisis. Then, use the financial statements located on pages 15 through 17 of that earnings report to perform the following analyses: 1. Calculate the 13 significant financial ratios for both 2019 and 2020. Interpret your results, including changes between the two years. (Where applicable, use "quarter ended" numbers instead of "nine months ended".) 2. Calculate and interpret the BV Per Share, the PE Ratio, and the PB Ratio for 2020. Interpret your results. (1.8 billion common shares outstanding, no preferred stock, translate your Book Value to millions before you do your BV Per Share calculation.) (You can use the quote lookup for your stock price.) 3. Calculate and interpret the Degree of Financial Leverage for 2019 and 2020 (DFL). 4. Review the Statement of Cash flows. What sticks out to you as the largest sources and uses of cash in 2019 and 2020? 5. Based on your analyses from parts 1 through 4, would you recommend that a client purchase this stock? Back up your recommendation with specific results from your analyses. Additionally, comment on how you believe Disney has fared with the COVID- 19 crisis. Do you agree or disagree with the views that management gave in the earnings report (back up your views with specific results from your analyses)? Assumptions: When financial statements say there are "in millions", you can multiply that number by 1,000,000 to get the real $ amount (and if they are "in thousands", you can multiply by 1,000). Assume lease costs are 10% of the "costs and expenses" line of the Income Statement. EBIT (or operating profit) is not spelled out on these statements. Use "income from continuing operations before income taxes" and add back interest expense. For example, for 2019 EBIT would be 4,840+412=5,252. For EPS, use Basic EPS Attributable to Disney. To find total liabilities, you will need to use the Total Liabilities and Equity line, then back out the equity subtotal. For example, 2020 total liabilities would be 207,649-90,463=117,186. For Net Income, use Net Income Attributable to Walt Disney Company. Sales = Revenues = Credit Sales Fixed Assets = use the "Parks, resorts, and other property" total. For example, 2020 would be 31,891. THE WALT DISNEY COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited; in millions, except per share data) Quarter Ended June 27. June 29 2019 11,779 $ 20.262 (17.511) (5,047) (207) Revenues Costs and expenses Restructuring and impairment charges Other income (expense), et Interest expense, net Equity in the income (loss) of investees Income loss) from continuing operations before income Nine Months Ended June 27. June 29 2019 50,681 50,489 (40,933) (5,342) (869) 382 (995) (617 545 (14) 4.840 (412) 186 (1) 2.009 14.840) 331 (393) (650) (2.685) 9,991 (4.500) 1.616 (1,813) (3) 366 (32) 388 4.512) Income taxes en continuing operations Net income (loss) from continuing operations Income (los) from discontinued operations, net of income tax benefit (expense) of SI. (102) 511 and ($107), respectively Net income (loss) Net income from continuing operations attributable to no controlling interests Net income from discontinued operations attributable to noncontrolling interest Net income attributable to The Walt Disney Company (Disney) 1.983 (1.845) 10,379 (186) (309) (343) (36) 0.720 2.156 10.000 Earnings per share attributable to Disney": Diluted Continuing operations Discontinued operations $ s $ $ 0.79 0.18 0.97 (1.17) (0.00 (1.19) 5.97 022 5 6.19 Basic Continuing operations Discontinued operations S s S 6.00 0.79 0.18 (1.17) (0.023 (1.19) 022 0.9 6.32 1. 1814 1,807 1.616 Weighted average number of common and common equivalent shares outstanding Diluted Basic Total may not equal the sum of the column due to rounding. 1,00 1.802 1.80 1,607 15 THE WALT DISNEY COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited; in millions, except per share data) June 27 2020 September 2x 2019 23.115 5 5415 15.481 1.6 1.550 2135 4597 979 Current acts Cash and cash equivalents Receivables Inventories Licensed content costs and advances Other current assets Total current assets Produced and licensed content costs Investments Parks, resorts and other property Attractions, buildings and equipment Accumulated depreciation 41.330 28.124 22.10 3.224 61,130 34639 55 32.415) 5174 4.254 Projects in progress Land 103 31.291 1.165 31,603 23.215 0293 4,715 191,934 8.45 5 10334 2707 17.763 8857 4.722 31.341 54.197 Intangible assets, net Goodwill Other assets Total LIABILITIES AND EQUITY Current liabilities Accounts payable and other crued liabilities Current portion of borrowings Deferred revenue and other Total current liabilities Borrowings Deferred incens Other long-term liabilities Commitments and contingencies Redeemable non controlling interests Equity Preferred stock Common stock, 30.01 par value. Authorized - 4.6 billion shares, Issued - 1.3 billion shares Retained earnings Accumulated other comprehensive loss Treasury stock, at cost, 19 million shares Total Disney Shareholders' equity No controlling interest Total quity Totallities and equity 7.902 13.760 15.255 8963 5435 53.907 43.494 (907) 5.012 93 193984 16 THE WALT DISNEY COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited; in millions) Nine Months Ended June 27. June 29 2019 s 9,991 2.866 4.010 4953 (4.719) 1,716 234 548 (548) (545) 567 (1.483) 16 3R 471 59 591 83 2.100 (1.428) (96) 86 (1986) 95 5.949 219 (6.248) 4.266 OPERATING ACTIVITIES Net income (los) from continuing operations Depreciation and amortization Goodwill and intangible asset impairments Net gain on acquisition and investments Deferred income taxes Equity in the income) loss of investees Cash distributions received from equity investees Net change in produced and licensed content costs and advances Net change in operating lease right of use assets / liabilities Equity-based compensation Changes in operating assets and abilities, net of business acquisitions: Receivables Inventories Other assets Accounts payable and other liabilities Income taxes Cash provided by operations - continuing operations INVESTING ACTIVITIES Investments in parks, resorts and other property Acquisitions Other Cash used in investing activities - continuing operations FINANCING ACTIVITIES Commercial paper borrowings, et Borrowings Reduction of borrowings Dividends Proceeds from exercise of stock options Contributions from sales of no controlling interests Acquisition of noncontrolling and redeemable no controlling interests Other Cash provided by financing activities continuing operations CASH FLOWS FROM DISCONTINUED OPERATIONS Cash provided by operations - discontinued operations Cash provided by investing activities discontinued operations Cash used in financing activities - discontinued operations Cash provided by discontinued operations (3.567) (3.320) (13.785) 1.373 2,973 18.00 (2.297) (1.587) 23 (19,039) (1,310) 27% (1.430) (RI) 12.533 14,919 320 198 (179) 141 200 (49) 3.300 Impact of exchange rates on cash, cash equivalents and restricted cash Change in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash, beginning of period Cash, cash equivalents and restricted cash, end of period 17,699 5.455 4.155 7,352 17 Disney has been particularly visible during the COVID-19 crisis because of its park shutdowns, the launch of Disney+, etc. Take some time to read their recent earnings report to get an idea of how management believes they have (and have not) been impacted by this crisis. Then, use the financial statements located on pages 15 through 17 of that earnings report to perform the following analyses: 1. Calculate the 13 significant financial ratios for both 2019 and 2020. Interpret your results, including changes between the two years. (Where applicable, use "quarter ended" numbers instead of "nine months ended".) 2. Calculate and interpret the BV Per Share, the PE Ratio, and the PB Ratio for 2020. Interpret your results. (1.8 billion common shares outstanding, no preferred stock, translate your Book Value to millions before you do your BV Per Share calculation.) (You can use the quote lookup for your stock price.) 3. Calculate and interpret the Degree of Financial Leverage for 2019 and 2020 (DFL). 4. Review the Statement of Cash flows. What sticks out to you as the largest sources and uses of cash in 2019 and 2020? 5. Based on your analyses from parts 1 through 4, would you recommend that a client purchase this stock? Back up your recommendation with specific results from your analyses. Additionally, comment on how you believe Disney has fared with the COVID- 19 crisis. Do you agree or disagree with the views that management gave in the earnings report (back up your views with specific results from your analyses)? Assumptions: When financial statements say there are "in millions", you can multiply that number by 1,000,000 to get the real $ amount (and if they are "in thousands", you can multiply by 1,000). Assume lease costs are 10% of the "costs and expenses" line of the Income Statement. EBIT (or operating profit) is not spelled out on these statements. Use "income from continuing operations before income taxes" and add back interest expense. For example, for 2019 EBIT would be 4,840+412=5,252. For EPS, use Basic EPS Attributable to Disney. To find total liabilities, you will need to use the Total Liabilities and Equity line, then back out the equity subtotal. For example, 2020 total liabilities would be 207,649-90,463=117,186. For Net Income, use Net Income Attributable to Walt Disney Company. Sales = Revenues = Credit Sales Fixed Assets = use the "Parks, resorts, and other property" total. For example, 2020 would be 31,891. THE WALT DISNEY COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited; in millions, except per share data) Quarter Ended June 27. June 29 2019 11,779 $ 20.262 (17.511) (5,047) (207) Revenues Costs and expenses Restructuring and impairment charges Other income (expense), et Interest expense, net Equity in the income (loss) of investees Income loss) from continuing operations before income Nine Months Ended June 27. June 29 2019 50,681 50,489 (40,933) (5,342) (869) 382 (995) (617 545 (14) 4.840 (412) 186 (1) 2.009 14.840) 331 (393) (650) (2.685) 9,991 (4.500) 1.616 (1,813) (3) 366 (32) 388 4.512) Income taxes en continuing operations Net income (loss) from continuing operations Income (los) from discontinued operations, net of income tax benefit (expense) of SI. (102) 511 and ($107), respectively Net income (loss) Net income from continuing operations attributable to no controlling interests Net income from discontinued operations attributable to noncontrolling interest Net income attributable to The Walt Disney Company (Disney) 1.983 (1.845) 10,379 (186) (309) (343) (36) 0.720 2.156 10.000 Earnings per share attributable to Disney": Diluted Continuing operations Discontinued operations $ s $ $ 0.79 0.18 0.97 (1.17) (0.00 (1.19) 5.97 022 5 6.19 Basic Continuing operations Discontinued operations S s S 6.00 0.79 0.18 (1.17) (0.023 (1.19) 022 0.9 6.32 1. 1814 1,807 1.616 Weighted average number of common and common equivalent shares outstanding Diluted Basic Total may not equal the sum of the column due to rounding. 1,00 1.802 1.80 1,607 15 THE WALT DISNEY COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited; in millions, except per share data) June 27 2020 September 2x 2019 23.115 5 5415 15.481 1.6 1.550 2135 4597 979 Current acts Cash and cash equivalents Receivables Inventories Licensed content costs and advances Other current assets Total current assets Produced and licensed content costs Investments Parks, resorts and other property Attractions, buildings and equipment Accumulated depreciation 41.330 28.124 22.10 3.224 61,130 34639 55 32.415) 5174 4.254 Projects in progress Land 103 31.291 1.165 31,603 23.215 0293 4,715 191,934 8.45 5 10334 2707 17.763 8857 4.722 31.341 54.197 Intangible assets, net Goodwill Other assets Total LIABILITIES AND EQUITY Current liabilities Accounts payable and other crued liabilities Current portion of borrowings Deferred revenue and other Total current liabilities Borrowings Deferred incens Other long-term liabilities Commitments and contingencies Redeemable non controlling interests Equity Preferred stock Common stock, 30.01 par value. Authorized - 4.6 billion shares, Issued - 1.3 billion shares Retained earnings Accumulated other comprehensive loss Treasury stock, at cost, 19 million shares Total Disney Shareholders' equity No controlling interest Total quity Totallities and equity 7.902 13.760 15.255 8963 5435 53.907 43.494 (907) 5.012 93 193984 16 THE WALT DISNEY COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited; in millions) Nine Months Ended June 27. June 29 2019 s 9,991 2.866 4.010 4953 (4.719) 1,716 234 548 (548) (545) 567 (1.483) 16 3R 471 59 591 83 2.100 (1.428) (96) 86 (1986) 95 5.949 219 (6.248) 4.266 OPERATING ACTIVITIES Net income (los) from continuing operations Depreciation and amortization Goodwill and intangible asset impairments Net gain on acquisition and investments Deferred income taxes Equity in the income) loss of investees Cash distributions received from equity investees Net change in produced and licensed content costs and advances Net change in operating lease right of use assets / liabilities Equity-based compensation Changes in operating assets and abilities, net of business acquisitions: Receivables Inventories Other assets Accounts payable and other liabilities Income taxes Cash provided by operations - continuing operations INVESTING ACTIVITIES Investments in parks, resorts and other property Acquisitions Other Cash used in investing activities - continuing operations FINANCING ACTIVITIES Commercial paper borrowings, et Borrowings Reduction of borrowings Dividends Proceeds from exercise of stock options Contributions from sales of no controlling interests Acquisition of noncontrolling and redeemable no controlling interests Other Cash provided by financing activities continuing operations CASH FLOWS FROM DISCONTINUED OPERATIONS Cash provided by operations - discontinued operations Cash provided by investing activities discontinued operations Cash used in financing activities - discontinued operations Cash provided by discontinued operations (3.567) (3.320) (13.785) 1.373 2,973 18.00 (2.297) (1.587) 23 (19,039) (1,310) 27% (1.430) (RI) 12.533 14,919 320 198 (179) 141 200 (49) 3.300 Impact of exchange rates on cash, cash equivalents and restricted cash Change in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash, beginning of period Cash, cash equivalents and restricted cash, end of period 17,699 5.455 4.155 7,352 17