Question

In: Accounting

The segment footnote in The Walt Disney Company 2014 annual report follows (in millions): SEGMENT INFORMATION...

The segment footnote in The Walt Disney Company 2014 annual report follows (in millions):

SEGMENT INFORMATION
The operating segments reported below are the segments of the Company for which separate financial information is available and for which segment results are evaluated regularly by the Chief Executive Officer in deciding how to allocate resources and in assessing performance.

2014 2013 2012
Revenues
   Media Networks $21,152 $20,356 $19,436
   Parks and Resorts 15,099 14,087 12,920
   Studio Entertainment
      Third parties 6,988 5,721 5,566
    Intersegment 290 258 259
7,278 5,979 5,825
   Consumer Products
    Third parties 4,274 3,811 3,499
      Intersegment (289) (256) (247)
3,985 3,555 3,252
   Interactive
      Third parties 1,300 1,066 857
      Intersegment (1) (2) (12)
1,299 1,064 845
     Total consolidated revenues $48,813 $45,041 $42,278
Segment operating income (loss)
   Media Networks $7,321 $6,818 $6,619
   Parks and Resorts 2,663 2,220 1,902
   Studio Entertainment 1,549 661 722
   Consumer Products 1,356 1,112 937
   Interactive 116 (87) (216)
   Total segment operating income $13,005 $10,724 $9,964
Reconciliation of segment operating income
   to income before income taxes
  Segment operating income $13,005 $10,724 $9,964
Corporate and unallocated shared expenses (611) (531) (474)
Restructuring and impairment charges (140) (214) (100)
Other income/(expense), net (31) (69) 239
Interest income/(expense), net 23 (235) (369)
Hulu equity redemption charge - (55) -
   Income before income taxes $12,246 $9,620 $9,260
Capital expenditures
   Media Networks
      Cable Networks $172 $176 $170
      Broadcasting 88 87 85
   Parks and Resorts
      Domestic 1,184 1,140 2,242
      International 1,504 970 641
   Studio Entertainment 63 78 79
   Consumer Products 43 45 69
   Interactive 5 13 27
   Corporate 252 287 471
     Total capital expenditures $3,311 $2,796 $3,784
Depreciation expense
   Media Networks $238 $238 $241
   Parks and Resorts
      Domestic 1,117 1,041 927
      International 353 327 314
   Studio Entertainment 48 54 48
   Consumer Products 59 57 55
   Interactive 10 20 17
   Corporate 239 220 182
      Total depreciation expense $2,064 $1,957 $1,784
Amortization of intangible assets
   Media Networks $12 $13 $17
   Parks and Resorts 2 2 -
   Studio Entertainment 88 107 94
   Consumer Products 109 89 60
   Interactive 13 24 32
   Corporate - - -
Total amortization of intangible assets $224 $235 $203
Identifiable assets
   Media Networks $29,887 $28,627
   Parks and Resorts 23,335 22,056
   Studio Entertainment 15,155 14,750
   Consumer Products 7,526 7,506
   Interactive 2,259 2,311
   Corporate 6,024 5,991
   Total consolidated assets $84,186 $81,241


a. Confirm that each of Disney’s segments exceeds one or more of the quantitative thresholds.

Calculate the quantitative threshold tests for 2014 and 2013.

Round answers to one decimal place (ex: 0.2345 = 23.5%). Use negative signs with answers, when appropriate.

% revenues 2014 2013
Media Networks Answer % Answer %
Parks and Resorts Answer % Answer %
Studio Entertainment Answer % Answer %
Consumer Products Answer % Answer %
Interactive Media Answer % Answer %
% operating profit 2014 2013
Media Networks Answer % Answer %
Parks and Resorts Answer % Answer %
Studio Entertainment Answer % Answer %
Consumer Products Answer % Answer %
Interactive Media Answer % Answer %
% assets 2014 2013
Media Networks Answer % Answer %
Parks and Resorts Answer % Answer %
Studio Entertainment Answer % Answer %
Consumer Products Answer % Answer %
Interactive Media Answer % Answer %


Using 2014 calculations only, indicate whether the segment exceeds each quantitative threshold test or not. Select Yes or No using the drop-down answer menu.

Operating Profit Revenues Assets
Media Networks AnswerYesNo AnswerYesNo AnswerYesNo
Parks and Resorts AnswerYesNo AnswerYesNo AnswerYesNo
Studio Entertainment AnswerYesNo AnswerYesNo AnswerYesNo
Consumer Products AnswerYesNo AnswerYesNo AnswerYesNo
Interactive Media AnswerYesNo AnswerYesNo AnswerYesNo

c. Compute a rough DuPont analysis over the past three years of the operating segments (i.e., profit/ revenues, revenues/total assets, and return on assets as the product of the profit and turnover ratios).

Round profit margin answers to one decimal place (ex: 0.2345 = 23.5%). Use negative signs with answers, when appropriate.

Profit margin 2014 2013
Media Networks Answer % Answer %
Parks and Resorts Answer % Answer %
Studio Entertainment Answer % Answer %
Consumer Products Answer % Answer %
Interactive Media Answer % Answer %


Round asset turnover answers to two decimal places.

Asset turnover 2014 2013
Media Networks Answer Answer
Parks and Resorts Answer Answer
Studio Entertainment Answer Answer
Consumer Products Answer Answer
Interactive Media Answer Answer


Use rounded figures from above to calculate.
Round answers to one decimal place (ex: 0.2345 = 23.5%).
Use negative signs with answers, when appropriate.

Return on Assets 2014 2013
Media Networks Answer % Answer %
Parks and Resorts Answer % Answer %
Studio Entertainment Answer % Answer %
Consumer Products Answer % Answer %
Interactive Media Answer % Answer %


d. Compute the free cash flow for each operating segment over the three-year period using the following definition: free cash flow = operating profit + depreciation and amortization - capital expenditures.

Use negative signs with answers, when appropriate.

Free cash flow 2014 2013 2012
Media Networks $Answer $Answer $Answer
Parks and Resorts Answer Answer Answer
Studio Entertainment Answer Answer Answer
Consumer Products Answer Answer Answer
Interactive Media Answer Answer Answer
Total $Answer $Answer $Answer

Solutions

Expert Solution

Ans (a). 2014 2013
Segment Revenue
Media Networks 43.3 45.2 Exceeds the quantitative threshhold of 10%. Hence a reportable segment
Parks & Resorts 30.9 31.3 Exceeds the quantitative threshhold of 10%. Hence a reportable segment
Studio Entertainment 14.9 13.3 Exceeds the quantitative threshhold of 10%. Hence a reportable segment
Consumer Products 8.2 7.9 Does not exceed the quantitative threshhold of 10%. Hence not a reportable segment.
Interactive Media 2.7 2.4 Does not exceed the quantitative threshhold of 10%. Hence not a reportable segment.
Operating Profit
Media Networks 56.3 63.6 Exceeds the quantitative threshhold of 10%. Hence a reportable segment
Parks & Resorts 20.5 20.7 Exceeds the quantitative threshhold of 10%. Hence a reportable segment
Studio Entertainment 11.9 6.2 Exceeds the quantitative threshhold of 10% in 2014. Hence a reportable segment
Consumer Products 10.4 10.4 Exceeds the quantitative threshhold of 10%. Hence a reportable segment
Interactive Media 0.9 100.0 Does not exceed the quantitative threshhold of 10%. Hence not a reportable segment in 2014. However can be considered as a reportable segment in 2013 as the only loss making segment
Assets
Media Networks 35.5 35.2 Exceeds the quantitative threshhold of 10%. Hence a reportable segment
Parks & Resorts 27.7 27.1 Exceeds the quantitative threshhold of 10%. Hence a reportable segment
Studio Entertainment 18.0 18.2 Exceeds the quantitative threshhold of 10%. Hence a reportable segment
Consumer Products 8.9 9.2 Does not exceed the quantitative threshhold of 10%. Hence not a reportable segment.
Interactive Media 2.7 2.8 Does not exceed the quantitative threshhold of 10%. Hence not a reportable segment.
Ans (b). Segment Revenue Operating Profit Assets
Media Networks Y Y Y
Parks & Resorts Y Y Y
Studio Entertainment Y Y Y
Consumer Products N Y N
Interactive Media N N N
Ans (c). 2014 2013
Profit Margin
Media Networks 34.6 33.5 Operating income/Revenue X 100
Parks & Resorts 17.6 15.8 Operating income/Revenue X 100
Studio Entertainment 21.3 11.1 Operating income/Revenue X 100
Consumer Products 34.0 59.5 Operating income/Revenue X 100
Interactive Media 8.9 -8.2 Operating income/Revenue X 100
Asset Turnover Ratio
Media Networks 70.8 71.1 Turnover/Gross Assets
Parks & Resorts 64.7 63.9 Turnover/Gross Assets
Studio Entertainment 48.0 40.5 Turnover/Gross Assets
Consumer Products 52.9 47.4 Turnover/Gross Assets
Interactive Media 21.6 17.8 Turnover/Gross Assets
Return on assets
Media Networks 24.5 23.8 Profit Margin * Asset Turnover Ratio/100
Parks & Resorts 11.4 10.1 Profit Margin * Asset Turnover Ratio/100
Studio Entertainment 10.2 4.5 Profit Margin * Asset Turnover Ratio/100
Consumer Products 18.0 28.2 Profit Margin * Asset Turnover Ratio/100
Interactive Media 1.9 -1.5 Profit Margin * Asset Turnover Ratio/100
Ans (d). 2014 2013 2012
Media Networks 8190 6806 6622 Operating Profit+Depreciation & Amortization-Capital Expenditure
Parks & Resorts 1447 1480 260 Operating Profit+Depreciation & Amortization-Capital Expenditure
Studio Entertainment 1622 744 785 Operating Profit+Depreciation & Amortization-Capital Expenditure
Consumer Products 1481 1189 983 Operating Profit+Depreciation & Amortization-Capital Expenditure
Interactive Media 134 -56 -194 Operating Profit+Depreciation & Amortization-Capital Expenditure

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