
Concept explainers
Analyzing Disney’s Income Tax Disclosures
The following questions pertain to Disney’s 2012 financial statements and income taxes footnote shown below.
- 1. How much did Disney report as income tax expense in fiscal 2012? How much cash did Disney pay during the year for income taxes? In general, why do these numbers differ?
- 2. What is Disney’s 2012 statutory tax rate? What is its 2012 effective tax rate? In general, why do these rates differ?
- 3. Why does Disney deduct a “Valuation allowance” from its net
deferred tax liability in its income tax footnote? - 4. Disney reports a net deferred tax liability of $1,486 million in fiscal 2012. How is this amount reflected on Disney's
balance sheet ? - 5. In its income taxes footnote, speculate as to why Disney reports “depreciable, amortizable and other property” as a deferred tax liability rather than a deferred tax asset.
DISNEY’S 2012 FINANCIAL STATEMENTS
DISNEY’S 2012 FINANCIAL STATEMENTS
Consolidated Statements of Income (in millions, except per share data) | |||
2012 | 2011 | 2010 | |
Revenues | $42,278 | $40,893 | $38,063 |
Costs and expenses | (33,115) | (33,112) | (31,337) |
Restructuring and impairment charges | (100) | (55) | (270) |
Other incomeAexpense). net | 239 | 75 | 140 |
Net interest expense | (369) | (343) | (409) |
Equity in the income of investees | 627 | 585 | 440 |
Income before income taxes | 9,260 | 8,043 | 6,627 |
Income taxes | (3,087) | (2,785) | (2,314) |
Consolidated Statements of Income (in millions, except per share data) | |||
2012 | 2011 | 2010 | |
Net income | 6,173 | 5,258 | 4,313 |
Less: Net income attributable to noncontrolling interests | (491) | (451) | (350) |
Net income attributable to Disney | $5,682 | $4,807 | $3,963 |
Earnings per share attributable to Disney: | |||
Diluted | $3,13 | $2.52 | $2.03 |
Basic | $3,17 | $2.56 | $2.07 |
Weighted average number of common and common equivalent shares outstanding: Diluted |
1,818 | 1.909 | 1.948 |
Basic | 1,794 | 1.878 | 1.915 |
See Notes to Consolidated Financial Statements.
Consolidated Balance Sheets (in millions, except per share data) | ||||||
September 29, | October 1, | |||||
2012 | 2011 | |||||
ASSETS Current assets Cash and cash equivalents | $3,387 | $3,185 | ||||
Receivables | 6,540 | 6,182 | ||||
Inventories | 1,337 | 1,595 | ||||
Television costs | 676 | 674 | ||||
Deferred income taxes | 765 | 1,487 | ||||
Other current assets | 804 | 634 | ||||
Total current assets | 13,709 | 13,757 | ||||
Film and television costs | 4,541 | 4,357 | ||||
Investments | 2,723 | 2,435 | ||||
Parks, resorts and other property, at cost attractions, buildings and equipment | 38,382 | 35,515 | ||||
(20,687) | (19,572) | |||||
17,395 | 15,943 | |||||
Projects in progress | 2,453 | 2,625 | ||||
Land | 1,164 | 1,127 | ||||
21,312 | 19,695 | |||||
Intangible assets, net | 5,015 | 5,121 | ||||
Goodwill | 25,110 | 24,145 | ||||
Other assets | 2,388 | 2,614 | ||||
Total assets | $74,398 | $72,124 | ||||
LIABILITIES AND EQUITY | ||||||
Current liabilities | ||||||
Accounts payable and other accrued liabilities | $6,393 | $6,362 | ||||
Current portion of borrowings | 3,614 | 3,055 |
September 29. 2012 | October 1. 2011 | ||
Unearned royalties and other advances | 2,806 | 2,671 | |
Total current liabilities | 12,313 | 12,088 | |
Borrowings | 10,697 | 10,922 | |
Deferred income taxes | , | 2,866 | |
Other long-term liabilities Commitments and contingencies (Note 14) Equity |
7,179 | 6,795 | |
Issued—none Common stock. $0.01 par value Authorized—4.6 billion shares. Issued—2.8 billion shares at September 29.2012. and 2.7 billion | |||
shares at October 1.2011 | 31,731 | 30,296 | |
42,965 | 38,375 | ||
Accumulated other comprehensive loss | (3,366) | (2,630) | |
71,430 | 66,041 | ||
(31,671) | (28,656) | ||
Total Disney shareholders' equity | 39,759 | 37,385 | |
Noncontrolling interests | 2,199 | 2,068 | |
Total equity | 41,958 | 39,453 | |
Total liabilities and equity | $74,898 | $72,124 |
See Notes to Consolidated Financial Statements.
Consolidated Statements of Cash Flows (in millions) | |||
2012 | 2011 | 2010 | |
OPERATING ACTIVITIES | |||
Net income | $6,173 | $5,258 | $4,313 |
Depreciation and amortization | 1,987 | 1,841 | 1,713 |
Gains on acquisitions and dispositions | (184) | (75) | (118) |
Deferred income taxes | 472 | 127 | 133 |
Equity in the income of investees | (627) | (585) | (440) |
Cash distributions received from equity investees | 663 | 608 | 473 |
Net change in film and television costs | (52) | 332 | 238 |
Equity-based compensation | 408 | 423 | 391 |
Impairment charges | 22 | 16 | 132 |
Other | 195 | 188 | 9 |
2012 | 2011 | 2010 | ||||
Changes in operating assets and liabilities Receivables | (108) | (518) | (686) | |||
Inventories | 18 | (199) | (127) | |||
Other assets | (151) | (189) | 42 | |||
Accounts payable and other accrued liabilities | (608) | (367) | 649 | |||
Income taxes | (242) | 134 | (144) | |||
Cash provided by operations | 7,966 | 6,994 | 6,578 | |||
INVESTING ACTIVITIES | ||||||
Investments in parks, resorts, and other property | (3,784) | (3,559) | (2,110) | |||
Proceeds from dispositions | 15 | 564 | 170 | |||
Acquisitions | (1,088) | (184) | (2,493) | |||
Other | 98 | (107) | (90) | |||
Cash used in investing activities | (4,759) | (3,286) | (4,523) | |||
FINANCING ACTIVITIES Commercial paper borrowings, net | 467 | 393 | 1,190 | |||
Borrowings | 3,779 | 2,350 | — | |||
Reduction of borrowings | (3,822) | (1,096) | (1,371) | |||
Dividends | (1,076) | (756) | (653) | |||
Repurchases of common stock | (3,015) | (4,993) | (2,669) | |||
Proceeds from exercise of stock options | 1,008 | 1,128 | 1,133 | |||
Other | (326) | (259) | (293) | |||
Cash used in financing activities | (2,985) | (3,233) | (2,663) | |||
Impact of exchange rates on cash and cash equivalents | (20) | (12) | (87) | |||
Increase/(decrease) in cash and cash equivalents | 202 | 463 | (695) | |||
Cash and cash equivalents, beginning of year | 3,185 | 2,722 | 3,417 | |||
Cash and cash equivalents, end of year | $3,387 | $3,185 | $2,722 | |||
Supplemental disclosure of cash flow information: | ||||||
Interest paid | $718 | $377 | $393 | |||
Income taxes paid | $2,630 | $2,341 | $2,170 |
DISNEY’S 2012 INCOME TAXES FOOTNOTE EXCERPTS
Income Taxes
2012 | 2011 | 2010 | |
Income Before Income Taxes | |||
Domestic (including U.S. exports) | $8,105 | $7,330 | $6,074 |
Foreign subsidiaries | 1,155 | 713 | 553 |
$9,260 | $8,043 | $6,627 | |
Income Tax Expense/(Benefit) | |||
Current | |||
Federal | $1,975 | $1,851 | $1,530 |
State | 111 | 272 | 236 |
Foreign | 422 | 521 | 432 |
2,624 | 2,644 | 2,198 | |
Deferred | |||
Federal | 465 | 147 | 307 |
State | (2) | (6) | (191) |
463 | 141 | 116 | |
$3,087 | $2,785 | $2,314 |
September 29, 2012 | October 1, 2011 | |
Components of |
||
Accrued liabilities | $(3,034) | $(2,806) |
Foreign subsidiaries | (579) | (566) |
Equity-based compensation | (160) | (323) |
Noncontrolling interest net operating losses | (584) | (554) |
Other | (361) | (386) |
Total deferred tax assets | (4,718) | (4,635) |
Depreciable, amortizable, and other property | 4,924 | 4,959 |
Licensing revenues | 336 | 301 |
Leveraged leases | 33 | 38 |
Other | 100 | 136 |
Total deferred tax liabilities | 5393 | 5,434 |
Net deferred tax liability before valuation allowance | 675 | 799 |
Valuation allowance | 811 | 580 |
Net deferred tax liability | $1,486 | $ 1,379 |
The valuation allowance principally relates to tax attributes of $193 million acquired with UTV and ; $584 million deferred tax asset for the noncontrolling interest share of net operating losses at the International Theme Parks. The ultimate recognition of the noncontrolling interest share of the net operating losses, which have an indefinite carryforward period, would not have an impact on net income attributable to Disney as any income tax benefit would be offset by a charge to noncontrolling interests in the income statement.
A reconciliation of the effective income tax rate to the federal rate is as follows:
2012 | 2011 | 2010 | |
Federal income tax rate | 35.0% | 35.0% | 35.0% |
State taxes, net of federal benefit | 2.0 | 2.1 | 2.6 |
Domestic production activity deduction | (2.5) | (2.3) | (1.7) |
Other, including tax reserves and related interest | (1.2) | (0.2) | (1.0) |
333% | 34.6% | 34.9% |

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