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Accounting: 10Q Very Much 3 Views
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Transcript
- 00:00
Accounting Allah shmoop ten Q Very much without sweating the
- 00:07
details Take a shot at understanding more than fifteen percent
- 00:11
of this ten Q filing from Disney Ticker DVDs It's
- 00:15
from Q two of two thousand seventeen Ancient and yeah
- 00:18
it's an actual report We picked an old public report
Full Transcript
- 00:22
from Disney specifically because they're ten Queues are in fact
- 00:25
the happiest financial reporting on Earth And at least when
- 00:29
they're businesses happily minting cash Note that this report scrolls
- 00:33
for a long time It includes details on divisions inside
- 00:37
the company like sub segments the theme parks or different
- 00:40
from their movies segments inside of divisions and the requisite
- 00:44
income statement balance sheets and cash flow statements Yet all
- 00:48
of these So here we go We got assets and
- 00:50
current and notice All this is in millions so three
- 00:53
thousand Whatever million is three point eight billion dollars there
- 00:57
in cash They got a whole bunch of dough owed
- 00:59
to them and note how it changed from April to
- 01:01
October They're so cash went up a whole lot Wow
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that's nice And we got film and television the costs
- 01:07
and so understanding That's an asset in the parks In
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the theme parks thinking there is a lot of depreciation
- 01:13
associated with the theme parks So they spent fifty billion
- 01:16
dollars there Slowly appreciating them isn't gonna upgrade the magic
- 01:19
Matterhorn There were a bunch of land in there as
- 01:21
well Yeah Intangible That's got to be all those theme
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park characters only other craft they bought All right moving
- 01:27
on liabilities and angry All right well they owe some
- 01:30
dough a billion dollars there in accounts payable All right
- 01:33
Honored royalties Yeah They licensed there things out to motel
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and on their toy makers and even coach luggage now
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pays Doesn't go crazy that alright They've borrowed some money
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You got that They're sixteen billion dollars in debt And
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I got some deferred taxes there Yeah because income tax
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there Always a thing when you're this profitable all right
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And they got a whole lot of retain earnings Wow
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Seventy billion dollars Almost there It's a lot of dough
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And then we got Treasury Stock Means they bought back
- 01:58
stock and they've got some other things non controlling interest
- 02:01
All right That must be partnerships And they're like China
- 02:04
theme park of the one in France All right then
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We got the cash flow statements here got net income
- 02:09
and five billion dollars Then we're adding back depreciation amortization
- 02:12
right Because those were phantom cost billion there And then
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we get deferred tax and then cash distribution see from
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equity investments and partnerships and movie things Maybe got sold
- 02:21
equity based investment receivables and towards all this crap and
- 02:25
cash by operations Wow Operations generate four point seven and
- 02:28
five point nine billion dollars That's pretty darn good All
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right And then we got investing activities Yeah So the
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investment of theme parks and all And some training thing
- 02:36
and then financing activities Yeah commercial paper and borrowing dividends
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They paid out And you know they fought back from
- 02:42
stock and do a lot of three billion four billion
- 02:45
dollars of buyback They must think they're stock's cheap Alright
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then Everything footsie at Disney has really good accountant Well
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there's also what lengthy written description about the company all
- 02:53
this lawyer sounding crap over here which covers one off
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events You keep scrolling through their filings and then that
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describes special treatment of Harry terms like inter segment transfer
- 03:03
pricing So like what Is that All right Well just
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one example here to illustrate well when ABC Television Network
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owned one hundred percent by Disney spends money advertising on
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ESPN cable networks also one hundred percent owned by Disney
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The overall company doesn't get to count the movement of
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that money twice To ABC the dough is an expense
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right there Buying ads Teo ESPN its revenues They're selling
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ads and all of it has to be accounted for
- 03:31
properly and disclosed Well you can imagine how much chicken
- 03:35
ary could happen if a ne'er do well Okay Mountain
- 03:37
really tried the monkey with the numbers here they could
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make the company look a whole lot more or less
- 03:42
profitable than it really is Digesting a ten Q is
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like eating Brussels sprouts but ones that are covered with
- 03:48
brown sugar fatty bacon in Jack in the box special
- 03:50
sauce don't ask Well they're difficult to digest in the
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beginning but over time the sweetness grabs you And sometimes
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yes there are aftereffects So why ten queues like Why
- 04:02
do they have to be so formal While ten queues
- 04:05
served the vital function of allowing one company to compare
- 04:08
itself with another and to allow invest or to do
- 04:12
the same And you know from a public investor perspective
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they're vital investors Generally speaking really don't care whether a
- 04:18
company is selling little painted Chinese dragons nuclear warheads whoopee
- 04:22
cushions or iPhone app So they just care about earnings
- 04:26
growth more or less at least over the long run
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So the ten Q format puts all public companies on
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the same footing for investors or at least tries to
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and for the most part these air professional investors people
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like mutual fund managers hedge fund managers and investment bankers
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They all live and die based on how well or
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poorly a given company they're backing or shorting In the
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case of a hedge fund manager betting it's going to
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go the wrong direction well it's all a bad on
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you know how they're doing The ten Q forces companies
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to disclose ah lot about their inner workings whether they
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like it or not And it is because of this
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force disclosure that so many companies these days simply choose
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to remain private or at least for a long as
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they can Okay So the first step in reading a
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ten Q is TIO actually read the ten Q in
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this report Disney clearly states its earnings per share our
- 05:16
E P s that it increased from a dollar thirty
- 05:19
a share to a dollar fifty a share in the
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period and see the diluted GPS line there Yet then
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there's always a quotation from the CEO about how awesome
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the company is and how great their prospects are And
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then they're a bunch of numbers All right let's digest
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keyword footnotes They matter there disclosures count legally just as
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much as if they were huge haunted headlines So they're
- 05:39
worth actually reading Pretty much everyone knows what revenues are
- 05:44
albeit with variability and how you define them and recognize
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them and accept them But what is segment operating income
- 05:51
or soya swat However you pronounce that note that there's
- 05:54
a footnote Number one which divulges that s O is
- 05:57
not a gap measure meaning that Disney could have just
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made up the laws of accounting in defining the way
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it And on Lee it wants to report segment operating
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income without gap There are no rules and it's pretty
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much a financial version of the purge So what is
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S O I and hint it's not a sauce And
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but you did solution The key word here is segment
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Disney for example has highly distinct discreet segments of its
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company that it operates generally separately They're all linked with
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dotted lines and kind of sort of feed each other
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But the people running its theme parks have very little
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to do with the people running ESPN Same deal with
- 06:34
the ABC television networks and the movie production business each
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distinct business operation is a separate What What's that word
- 06:43
Oh yes segment Each has its operating income reported separately
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and this is done for both clarity and for human
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management so that bonuses and other reporting can be accurately
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tracked Okay moving out of line there's net income which
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is also footnoted Yeah Footnote number two right here so
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that non controlling interest are deducted aren't What's that None
- 07:04
controlling What on earth does that mean Fifty shades was
- 07:07
not a Disney production So must be something else about
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control issues Well if you have a non controlling interest
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while usually that means there's an outside investor who say
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you had to deal with or you wouldn't get the
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deal done Example Shanghai Disneyland Yeah without the Chinese government
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Or a provided China friendly business partner Disney would never
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have gotten the necessary permits and other rights to build
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Shanghai Disneyland in the first place or Disney able to
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control one hundred percent of its ownership in that park
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Well it certainly would have After all it has the
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cash ola But since it needed an outside partner Teo
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get parked build well It notes that separately And why
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does this matter Well let's say the friendly to China
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business partner owns twenty five percent of Shanghai Disneyland and
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Shanghai Disneyland earns a billion dollars in a given year
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Well then only seven hundred fifty million of those earnings
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are really attributable to Disney because it doesn't own one
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hundred percent of the park like it does Disneyland and
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Disneyworld If Disney controls seventy five percent of the earnings
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of that joint venture well then and only keep seventy
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five percent of the games fare fare The same would
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be true if there were losses And this notion applies
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to more than just theme parks But since they're such
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a distinct operating entity while they are relatively easy to
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dissect financially in theory over the last thirteen weeks Disney
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generated roughly two point five billion dollars in cash Did
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they do that by selling down a whole lot of
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their inventory like taking it from five and a half
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billion Now only two and a half No Or did
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they do it the old fashioned way from simply selling
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ads toe lots of eyeballs on their TV networks and
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everywhere else that they make money Alright at this point
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the answer is of course no freakin idea because we
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have to die further into the ten Q report So
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here we go on to page two segment results Disney
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is a corporation comprising four basic divisions Media networks of
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the broadcast divisions like you know ABC ESPN a few
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others Then you have Parks and resorts which are things
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like Disneyland Disneyworld Paris Disney Shanghai Disney Studio Entertainment That's
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the production part of Disney where they make the product
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rather than distributed as they do in the media networks
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line And then number four is well everything else has
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noted by the title Consumer products and interactive media Think
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Disney Princess Dolls disney dot com and a whole bunch
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of other stuff with the company then goes on to
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detail profits from each of these entities and it's clear
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that the dominant cash machine for Disney is its media
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networks business But it should be troubling to an investor
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that the company's revenues actually declined three percent year over
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year Yeah you should be looking at that first change
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Colin There we'll both parks and Resorts businesses Yeah and
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the studio entertainment division grew a healthy twenty percent plus
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and the everything else limped along growing three percent Well
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the result was that the overall Cos Segment profitability grew
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an anemic five percent to just under four billion dollars
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in the quarter So you can fairly ask yourself Well
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wait a second Why was free cash flow two point
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five billion and segment operating income was almost four billion
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What on Earth accounts for the billion and a half
- 10:09
dollars difference Did the company by a new fleet of
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G six jets or something But with those questions in
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the back of your noodle you scroll further down to
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get the details of the media networks business on the
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middle of Page two here Well both the cable network
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Piece I ESPN Disney premium channels and so on and
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the ABC broadcast network grew only about three percent Their
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profitability was odd in that the cable networks profitability declined
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Well if you're a sports fan you'll note that ESPN
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used to charge extremely high rates The cable operators to
- 10:39
carry its ah must have sports related programming Then the
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cable operators began to rebel ESPN tried to go quote
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over the top by just streaming it sports programming directly
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off of it on ESPN hoping people would log on
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and paying money for doing that But in doing so
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Disney for went the seven dollars a household for month
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fees it had been getting from the cable operators you
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know and and assume that it could either sell enough
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Internet banner and video ads to make up for the
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seven dollars Or it could create its own premium content
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service streamed over the Web Think like Netflix only Disney
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all day long If it's able to make this happen
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then ESPN no longer needs Comcast and direct TV in
- 11:19
Cocks and Cablevision and the others And it can just
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own its own distribution Well a bunch of other factors
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led to a rejiggering of industry dynamics which may be
- 11:27
extremely high profit margins of ESPN very likely a thing
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of the past until it builds out its own direct
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billing relationship audience where the masses give ESPN a credit
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card and for twenty bucks a month or something like
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that ESPN gives them Max and Stephen a arguing about
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whatever they argue about So with your investing hat on
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while you might rationally expect further declines from cable here
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in the future all right well the broadcast networks side
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was a much rosier picture with company growing fourteen percent
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C right there Why one word trump Not that he's
- 11:57
good bad or anything in between But the fast growing
- 11:59
economy continued with advertisers scrambling to spend their marginal dollars
- 12:03
to build market share in the big beneficiary was the
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television network But aren't broadcast networks cyclical like don't think
- 12:10
go up a lot in good times and down a
- 12:12
lot in bad Uh well then there's the weirdest line
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of all What is equity in the income of invest
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Ease Well Accounting rules require that if a corporation owns
- 12:22
a percentage above a minimum threshold say twenty percent than
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the corporation has to report it pro Radha or proportional
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percentage of profits For example if Disney owned forty percent
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of a company which earned a hundred million dollars in
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the period it would report forty million dollars in the
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form of equity in the income of invest Ease Yeah
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under Page three and beyond We get more details The
- 12:44
report explains why ESPN is starting to show the big
- 12:46
hurt higher programming costs or cited along with various college
- 12:49
sport timing issues the whole bunch Other reasons like declining
- 12:52
subscribers or called out for the less than awesome numbers
- 12:55
here If you continue to read you'll reap the rewards
- 12:58
of all kinds of other details about the operating metrics
- 13:00
of the quarter Star Wars marijuana and other stuff all
- 13:04
drove the numbers Interest expense income taxes and more Page
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five covers interest expense Disney carries a fair amount of
- 13:11
debt It also covers income taxes where Disney has been
- 13:14
paying thirty two point three percent You know that's what
- 13:17
they paid in the last quarter Other details including cash
- 13:19
flow cap tax depreciation and other notes all follow through
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Page nine Then here starting on page eleven you get
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to enjoy the Disney Income statement all over again Only
- 13:29
this time from a corporate level which includes those really
- 13:33
excellent G six jets note that in this segment revenues
- 13:36
come to the same number but are derived from services
- 13:39
and products as opposed to operating business segments And if
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you continue to scroll you will see the dollar fifty
- 13:44
share in earnings that Disney produced in the quarter Well
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keep scrolling down Page twelve You'll get Disney's balance sheet
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roughly three point eight billion dollars in cash and equivalents
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roughly nine point three billion dollars in money owed to
- 13:57
Disney and so on This is a moment snapshot taken
- 14:00
of all of Disney's bank and inventory accounts there notably
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done on April one And no it was not an
- 14:06
April Fool's joke You could bet that anyway accountants are
- 14:09
not super into April Fool's Day All right well the
- 14:11
terms here complex if they look like gobbledygook Well don't
- 14:14
sweat It will hit each one of these items in
- 14:16
the next eighteen thousand hours of study here So you
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know you might want to take your break now Oh
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