Question

Walt Disney Company: Analyzing reportable segment disclosures (LO B-2)

Provided below are excerpts from The Walt Disney Company Form 10-K for the fiscal year ended October 3, 2015.

Description of the Business and Segment Information

The Walt Disney Company, together with the subsidiaries through which businesses are conducted (the Company), is a diversified worldwide entertainment company with operations in the following business segments: Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products and Interactive.

DESCRIPTION OF THE BUSINESS

Media Networks

The Company operates cable programming services including the ESPN, Disney Channels, ABC Family and UTV/Bindass networks, broadcast businesses, which include the ABC TV page 1084Network and eight owned television stations, radio businesses consisting of the ESPN Radio Network, including 4 owned ESPN radio stations, and the Radio Disney Network, which operates from an owned radio station in Los Angeles. The ABC TV and ESPN Radio Networks have affiliated stations providing coverage to consumers throughout the U.S. The Company also produces original live-action and animated television programming, which may be sold in network, first-run syndication and other television markets worldwide, through online services and on DVD and Blu-ray formats. The Company has interests in media businesses that are accounted for under the equity method including A&E Television Networks LLC (A&E), Seven TV, CTV Specialty Television, Inc., Hulu LLC and Fusion Media Networks LLC. Our Media Networks business also operates branded internet sites.

Parks and Resorts

The Company owns and operates the Walt Disney World Resort in Florida and the Disneyland Resort. in California. The Walt Disney World Resort includes four theme parks (the Magic Kingdom, Epcot, Disney’s Hollywood Studios and Disney’s Animal Kingdom); 18 resort hotels; a retail, dining and entertainment complex; a sports complex; conference centers; campgrounds; water parks; and other recreational facilities. The Disneyland Resort includes two theme parks (Disneyland and Disney California Adventure), three resort hotels and a retail, dining and entertainment complex. Internationally, the Company manages and has an 81% (85% as of October 3, 2015) effective ownership interest in Disneyland Paris (see Disneyland Paris recapitalization in Note 6), which includes two theme parks (Disneyland Park and Walt Disney Studios Park); seven themed hotels; two convention centers; a shopping, dining and entertainment complex; and a 27-hole golf facility. The Company manages and has a 47% ownership interest in Hong Kong Disneyland Resort (HKDL), which includes one theme park and two resort hotels. The Company has a 43% ownership interest in Shanghai Disney Resort, which is currently under construction, and a 70% ownership interest in the management company of Shanghai Disney Resort. The Company also earns royalties on revenues generated by the Tokyo Disneyland Resort, which includes two theme parks (Tokyo Disneyland and Tokyo DisneySea) and three Disney-branded hotels, and is owned and operated by an unrelated Japanese corporation. The Company manages and markets vacation club ownership interests through the Disney Vacation Club; operates the Disney Cruise Line; the Adventures by Disney guided group vacations business; and Aulani, a hotel and vacation club resort. in Hawaii. The Company’s Walt Disney Imagineering unit designs and develops theme park concepts and attractions as well as resort properties.

Required:

All questions relate to Fiscal 2015 unless stated otherwise.

1. Disney states that the Chief Executive Officer evaluates the financial information of each segment separately. What is the significance of this statement with regard to disclosure requirements under U.S. GAAP?
2. Which business segment contributes the most (least) external revenue for Disney? Compute the percentage of segment external revenue to total segments external revenue for these two segments.
3. Which business segment contributes the most (least) pre-tax income for Disney? Compute the percentage of segment pre-tax income to total segments pre-tax income for these two segments.
4. Which business segment had the highest (lowest) percentage growth (year-to-year change) in total revenue from 2014 to 2015?
5. Which business segment had the highest (lowest) percentage growth (year-to-year change) in operating income from 2014 to 2015?
6. Which segment had the highest (lowest) operating income margin?
7. How would analysts use the business segment data related to the income statement?
8. What percentage of Disney’s revenue is earned in the United States?
9. The revenue in United States and Canada grew by about 10% from 2014 to 2015. However, revenue growth in the rest of the world was almost flat. What might explain the lack of growth? Do people outside the United States not like Frozen, Star Wars, and Winnie the Pooh anymore?

Answer 1

1. As per US GAAP, every segment of business is to be reported individually if its profit accounts 10% of total profits or if its revenue is 10% of total revenues or its assets are 10% of total assets.

CEO's evaluation regarding segment reporting is correct as per US GAAP.

2.