Answer the following questions based on the 2014 annual report of the Walt Disney Company (Disney). A link to the annual report is provided with the posting of this exam. The financial statements are on pp. 63-111 of the annual report, and all questions can be answered within those pages. Points for each question are given in parentheses.
Note the following requirements for submission:
*Provide a concise and clearly expressed answer to each question. Do NOT copy or repeat the question in your answer.
*For each answer, you MUST specify where (name of financial statement, number of footnote, or page number) you found the answer. Some answers may be found in more than one place, in which case a single reference is sufficient. Page numbers are found at the bottom of the page.
*Any calculations must be shown explicitly in the Word document. When calculations are required, no credit will be given if they are not explicitly shown.
*Be careful that answers are expressed clearly. This includes rounding of ratios, and the way in which dollar amounts are expressed. These issues have been discussed in class.
1. (4) Which CPA firm audited the financial statements? What type of opinion was issued?
2. (4) What is Disney’s fiscal year?
3. (5) What amount of restructuring costs did Disney expense in 2014? What was the chief cause of these costs?
4. (10) For years 2012 – 2014, determine:
a. The amount of cash dividends paid
b. The dividend payout ratio. Comment briefly
5. (5) What has been the amount of advertising expense over the three years presented? Comment on any trend or pattern.
6. (4) Equity in the income of investees is a negative amount in the computation of operating cash flow. Briefly explain why.
7. (4) What amount of 2014 intangible assets consists of FCC licenses? Are these licenses amortized (explain how you know)?
8. (4) Has Disney guaranteed any debt of third parties? Explain briefly.
9. (12) For 2014 and 2013, compute debt/equity and debt/tangible net worth ratios. Comment briefly.
10. (4) “Commitments and contingencies” appear on the balance sheet, but no amount is given. Explain briefly why.
11. (3) What was the amount of film costs in process at the end of fiscal 2014?
12. (6) What types of costs are included under “film and television costs”? What method is used to account for these costs?
13. (10) With regard to debt:
a. What amount of commercial paper is outstanding at the end of fiscal 2014? What is the interest rate? Does Disney have the ability to issue additional commercial paper, and if so, how much?
b. What long-term debt has the highest effective interest rate? Why and when did this debt arise? Is the amount of this debt cause for concern? Explain.
14. (12) With regard to pension plans:
a. What amount of pension benefits were paid to retirees in 2014?
b. What is the funded status of pension plans at the end of fiscal 2014?
c. What is the chief reason for the increase in benefit obligation during 2014?
d. What is the assumed rate of return on pension assets?
15. (3) Does Disney fund postretirement medical benefits? If so, what is the funded status at the end of fiscal 2014?
16. (6) Compute the ratio of the allowance for doubtful accounts to gross receivables (omit “other”) for 2014 and 2013. Comment briefly.
17. (3) Equity income of investees is derived primarily from what industry?
18. (3) What method does Disney use to test goodwill for impairment?
19. (5) What was the amount of pre-tax expense for stock options/RSUs for 2014? What is the general vesting rule for RSUs?
20. (3) What is the amount of Disney’s commitment to deliver future broadcast programming?
21. (16) Compute current ratio, quick ratio, and days sales in accounts receivable (omit “other”) for 2014 and 2013. Comment briefly on Disney’s liquidity position.
22. (24) With regard to segment operations:
a. Which segment accounts for the majority of capital expenditures?
b. What is the chief reason that the sum of segment operating incomes exceeds Disney’s overall operating income?
c. Compute segment ROA for 2014 and comment briefly.
d. Compute segment ROS for 2012-2014 and comment briefly.