EX-99.1 2 dex991.htm PRESS RELEASE Press Release

Exhibit 99.1

FOR IMMEDIATE RELEASE

May 11, 2010

THE WALT DISNEY COMPANY REPORTS SECOND QUARTER EARNINGS

BURBANK, Calif. – The Walt Disney Company today reported earnings for its second fiscal quarter and six months ended April 3, 2010. Diluted earnings per share (EPS) for the second quarter increased 45% to $0.48 from $0.33 in the prior-year quarter. EPS for the current and prior-year quarter include the items discussed in the following paragraph. Excluding these items, EPS increased 12% to $0.48 from $0.43 in the prior-year quarter.

The current quarter included restructuring and impairment charges, a gain on the sale of an investment in a pay television service in Central Europe, and an accounting gain related to the acquisition of the Disney Stores in Japan, which collectively had no net impact on EPS. The prior-year quarter included restructuring and impairment charges which had a $0.10 per share impact on EPS.

For the six month period, diluted EPS was $0.93 compared to $0.78 in the prior-year period. In addition to the items discussed above, EPS for the current six months included restructuring and impairment charges and a gain on the sale of an investment in a television service in Europe which were recorded in the first quarter of the current year while the prior-year period included a gain on the sale of our investment in two pay television services in Latin America. Excluding these items, EPS increased 12% to $0.95 from $0.85 in the prior-year six months.

“The incredible box office performance of Disney’s Alice in Wonderland and acquisition of Marvel, whose Iron Man 2 has grossed $334 million in global box office in its first two weeks, clearly show the benefits of investing in high quality branded content,” said Robert A. Iger, President and CEO, The Walt Disney Company. “With the economy showing signs of improvement, we’re confident our strategy is the right one to provide consumers the best in entertainment while building long-term value for our shareholders.”

 

1

The following table summarizes the second quarter and six-month results for fiscal 2010 and 2009 (in millions, except per share amounts):

 

     Quarter Ended          Six Months Ended       
     April 3,
2010		    March 28,
2009		    Change     April 3,
2010		    March 28,
2009		    Change  

Revenues

    $ 8,580    $ 8,087    6 %    $ 18,319    $ 17,686    4 % 

Segment operating income (1)

    $ 1,757    $ 1,526    15 %    $ 3,332    $ 2,970    12 % 

Net income (2)

    $ 953    $ 613    55 %    $ 1,797    $ 1,458    23 % 

Diluted EPS (2)

    $ 0.48    $ 0.33    45 %    $ 0.93    $ 0.78    19 % 

Cash provided by operations

    $ 1,574    $ 1,805    (13 )%    $ 2,489    $ 2,067    20 % 

Free cash flow (1)

    $ 1,074    $ 1,347    (20 )%    $ 1,682    $ 1,318    28 % 

 

  (1)

Aggregate segment operating income and free cash flow are non-GAAP financial measures. See the discussion of non-GAAP financial measures below.

  (2)

Reflects amounts attributable to shareholders of The Walt Disney Company, i.e. after deduction of noncontrolling (minority) interests.

SEGMENT RESULTS

The following table summarizes the second quarter and six-month segment operating results for fiscal 2010 and 2009 (in millions):

 

     Quarter Ended           Six Months Ended        
     April 3,
2010		     March 28,
2009		     Change     April 3,
2010		     March 28,
2009		     Change  

Revenues:

            

Media Networks

    $ 3,844      $ 3,620      6 %    $ 8,019      $ 7,523      7 % 

Parks and Resorts

      2,449        2,407      2 %      5,111        5,072      1 % 

Studio Entertainment

      1,536        1,435      7 %      3,471        3,380      3 % 

Consumer Products

      596        496      20 %      1,342        1,269      6 % 

Interactive Media

      155        129      20 %      376        442      (15 )% 
                                    
   $ 8,580      $ 8,087      6 %    $ 18,319      $ 17,686      4 % 
                                    

Segment operating income (loss):

             

Media Networks

    $ 1,306      $ 1,306      —   %    $ 2,030      $ 1,961      4 % 

Parks and Resorts

      150        171      (12 )%      525        553      (5 )% 

Studio Entertainment

      223        13      >100 %      466        200      >100 % 

Consumer Products

      133        97      37 %      376        362      4 % 

Interactive Media

      (55 )      (61 )    10 %      (65 )      (106 )    39 % 
                                    
   $ 1,757      $ 1,526      15 %    $ 3,332      $ 2,970      12 % 
                                    

 

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Media Networks

Media Networks revenues for the quarter increased 6% to $3.8 billion and segment operating income was flat at $1.3 billion. The following table provides further detail of the Media Networks results (in millions):

 

     Quarter Ended          Six Months Ended       
     April 3,
2010		    March 28,
2009		    Change     April 3,
2010		    March 28,
2009		    Change  

Revenues:

                

Cable Networks

    $ 2,412    $ 2,204    9 %    $ 5,066    $ 4,656    9 % 

Broadcasting

      1,432      1,416    1 %      2,953      2,867    3 % 
                                
   $ 3,844    $ 3,620    6 %    $ 8,019    $ 7,523    7 % 
                                

Segment operating income:

                 

Cable Networks

    $ 1,183    $ 1,144    3 %    $ 1,727    $ 1,661    4 % 

Broadcasting

      123      162    (24 )%      303      300    1 % 
                                
   $ 1,306    $ 1,306    —   %    $ 2,030    $ 1,961    4 % 
                                

Cable Networks

Operating income at Cable Networks increased $39 million to $1.2 billion for the quarter driven by an increase at ESPN due to higher affiliate revenue and, to a lesser extent, advertising revenue, partially offset by higher programming costs. The increase in affiliate revenue was due to higher contractual rates and subscriber growth, which was driven by the launch of a new network in the United Kingdom, while higher advertising revenue was due to an increase in sold inventory, partially offset by lower ratings. Higher programming and production costs reflected costs for soccer programming rights for the new network in the United Kingdom and higher contractual costs for college basketball and NBA programming. At the worldwide Disney Channels higher affiliate and advertising revenues were offset by higher programming costs and sales and distribution expenses.

Broadcasting

Operating income at Broadcasting decreased $39 million to $123 million for the quarter primarily due to decreased primetime and news advertising revenues at the ABC Television Network, higher production cost amortization related to sales of ABC Studios productions and higher primetime programming costs. These decreases were partially offset by higher advertising revenues at the owned television stations and lower bad debt expense driven by recoveries of previously reserved syndication customer receivables. The decrease in advertising revenues at the ABC Television Network was driven by lower ratings, partially offset by higher rates and sold inventory.

Parks and Resorts

Parks and Resorts revenues for the quarter increased 2% to $2.4 billion and segment operating income decreased 12% to $150 million. Results for the quarter were driven by a decrease at Disney Cruise Line due to higher fuel costs and promotional activity.

 

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Operating income at our domestic parks was essentially flat as higher guest spending was offset by decreased attendance and occupied room nights and higher costs. Higher guest spending was primarily due to higher average ticket prices. Increased costs reflected labor and other cost inflation and higher pension and postretirement medical costs, partially offset by lower volume-related costs and savings from cost mitigation activities. Decreased attendance in part reflected an unfavorable net impact due to a shift in the timing of the New Year’s and Easter holiday periods relative to our fiscal periods.

Results at our international operations were essentially flat as increased attendance and hotel occupancy at Hong Kong Disneyland Resort was offset by decreased attendance and lower hotel occupancy at Disneyland Paris.

Studio Entertainment

Studio Entertainment revenues for the quarter increased 7% to $1.5 billion and segment operating income increased $210 million to $223 million. Higher operating income was primarily due to an increase in worldwide theatrical distribution.

The increase in worldwide theatrical distribution was primarily due to the strong performance of Alice in Wonderland in the current quarter, compared to Confessions of a Shopaholic and Race to Witch Mountain in the prior-year quarter, and lower distribution expense for future releases in the domestic market.

Consumer Products

Consumer Products revenues for the quarter increased 20% to $596 million and segment operating income increased 37% to $133 million.

The increase in segment operating income reflected growth at Merchandise Licensing, an increase at Publishing driven by Marvel titles, and improvement at our retail business driven by higher comparable store sales at the Disney Stores North America. The increase at Merchandise Licensing was driven by higher earned revenue led by the strong performance of Toy Story and Marvel merchandise, partially offset by amortization of Marvel acquisition intangible assets.

Interactive Media

Interactive Media revenues for the quarter increased 20% to $155 million and operating results improved from a loss of $61 million in the prior-year quarter to a loss of $55 million in the current quarter.

Improved operating results reflected higher Club Penguin subscription revenues and lower video game inventory costs, partially offset by higher internet product development and sales and marketing costs.

 

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OTHER FINANCIAL INFORMATION

Restructuring and Impairment Charges

The Company recorded $71 million of restructuring and impairment charges in the current quarter primarily related to the closure of a Studio production facility.

Net Interest Expense

Net interest expense was as follows (in millions):

 

     Quarter Ended  
     April 3,
2010		     March 28,
2009		  

Interest expense

    $ (147 )    $ (150 ) 

Interest and investment income

      17        22   
                

Net interest expense

    $ (130 )    $ (128 ) 
                

The decrease in interest expense for the quarter was primarily due to lower effective interest rates, partially offset by expense related to the early redemption of a film financing borrowing.

The decrease in interest and investment income was primarily due to lower effective interest rates.

Income Taxes

The effective income tax rate for the current quarter was 35.0% compared to 34.8% in the prior-year quarter. The current quarter included a charge to reflect the loss of a tax benefit related to Medicare Part D subsidies as a result of the recently enacted healthcare reform legislation and a benefit from the favorable resolution of certain prior-year tax matters.

Cash Flow

Cash provided by operations and free cash flow were as follows (in millions):

 

     Six Months Ended        
     April 3,
2010		     March 28,
2009		     Change  

Cash provided by operations

    $ 2,489      $ 2,067      $ 422   

Investments in parks, resorts and other property

      (807 )      (749 )      (58 ) 
                        

Free cash flow (1)

    $ 1,682      $ 1,318      $ 364   
                        

 

  (1)

Free cash flow is not a financial measure defined by GAAP. See the discussion of non-GAAP financial measures that follows below.

 

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The increase in cash provided by operations was driven by higher segment operating results.

The increase in capital expenditures reflected the expansion at Disney’s California Adventure and Hong Kong Disneyland Resort, the construction of a Disney Vacation Club Resort in Hawaii and higher construction progress payments on two new cruise ships. These increases were partially offset by decreased spending on broadcast and production facilities.

Capital Expenditures and Depreciation Expense

Investments in parks, resorts and other property by segment were as follows (in millions):

 

     Six Months Ended
     April 3,
2010		    March 28,
2009

Media Networks

      

Cable Networks

    $ 31    $ 51

Broadcasting

      29      64
             

Total Media Networks

      60      115
             

Parks and Resorts

      

Domestic

      559      457

International

      85      46
             

Total Parks and Resorts

      644      503
             

Studio Entertainment

      38      83

Consumer Products

      24      13

Interactive Media

      7      10

Corporate

      34      25
             

Total investments in parks, resorts and other property

    $ 807    $ 749
             

Depreciation expense is as follows (in millions):

   
     Six Months Ended
     April 3,
2010		    March 28,
2009

Media Networks

      

Cable Networks

    $ 58    $ 56

Broadcasting

      48      44
             

Total Media Networks

      106      100
             

Parks and Resorts

      

Domestic

      409      406

International

      171      156
             

Total Parks and Resorts

      580      562
             

Studio Entertainment

      28      24

Consumer Products

      14      13

Interactive Media

      13      13

Corporate

      64      64
             

Total depreciation expense

    $ 805    $ 776
             

 

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Borrowings

Total borrowings and net borrowings are detailed below (in millions):

 

     April 3,
2010		     Oct. 3,
2009		     Change  

Current portion of borrowings

    $ 2,241      $ 1,206      $ 1,035   

Long-term borrowings

      11,000        11,495        (495 ) 
                        

Total borrowings

      13,241        12,701        540   

Less: cash and cash equivalents

      (3,075 )      (3,417 )      342   
                        

Net borrowings (1)

    $ 10,166      $ 9,284      $ 882   
                        

 

  (1)

Net borrowings is a non-GAAP financial measure. See the discussion of non-GAAP financial measures that follows.

The total borrowings shown above include $2,639 million and $2,868 million attributable to Disneyland Paris and Hong Kong Disneyland Resort as of April 3, 2010 and October 3, 2009, respectively. Cash and cash equivalents attributable to Disneyland Paris and Hong Kong Disneyland Resort totaled $527 million and $606 million as of April 3, 2010 and October 3, 2009, respectively.

Non-GAAP Financial Measures

This earnings release presents earnings per share excluding the impact of certain items, net borrowings, free cash flow, and aggregate segment operating income, all of which are important financial measures for the Company but are not financial measures defined by GAAP.

These measures should be reviewed in conjunction with the relevant GAAP financial measures and are not presented as alternative measures of earnings per share, borrowings, cash flow or net income as determined in accordance with GAAP. Net borrowings, free cash flow, and aggregate segment operating income as we have calculated them may not be comparable to similarly titled measures reported by other companies.

Earnings per share excluding certain items – The Company uses earnings per share excluding certain items to evaluate the performance of the Company’s operations exclusive of certain items that impact the comparability of results from period to period. In the current quarter, these items included restructuring and impairment charges, a gain on the sale of an investment in a pay television service in Central Europe, and an accounting gain related to the acquisition of the Disney Stores in Japan. In the prior-year quarter, we excluded restructuring and impairment charges. The Company believes that information about earnings per share exclusive of these impacts is useful to investors, particularly where the impact of the excluded items is significant in relation to reported earnings, because the measure allows for comparability between periods of the operating performance of the Company’s business and allows investors to evaluate the impact of these items separately from

 

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the impact of the operations of the business. The following table reconciles reported earnings per share to earnings per share excluding certain items:

 

     Quarter Ended          Six Months Ended        
     April 3,
2010		     March 28,
2009		    Change     April 3,
2010		     March 28,
2009		     Change  

Diluted EPS as reported

    $ 0.48      $ 0.33    45 %    $ 0.93      $ 0.78      19 % 

Exclude:

              

Restructuring and impairment charges

      0.02        0.11    (82 )%      0.06        0.11      (45 )% 

Other income (1)

      (0.02 )      —      nm        (0.03 )      (0.04 )    25 % 
                                   

Diluted EPS excluding certain items (2)

    $ 0.48      $ 0.43    12 %    $ 0.95      $ 0.85      12 % 
                                   

 

  (1)

Other income for the current six months consists of gains on the sales of our investments in television services in Europe in the first and second quarters, and an accounting gain related to the acquisition of the Disney Stores in Japan in the second quarter. Other income for the prior-year six months consists of a gain on the sale of an investment in two pay television services in Latin America.

  (2)

Diluted EPS excluding certain items may not equal the sum of the column due to rounding.

Net borrowings – The Company believes that information about net borrowings provides investors with a useful perspective on our financial condition. Net borrowings reflect the subtraction of cash and cash equivalents from total borrowings. Since we earn interest income on our cash balances that offsets a portion of the interest expense we pay on our borrowings, net borrowings can be used as a measure to gauge net interest expense. In addition, a portion of our cash and cash equivalents is available to repay outstanding indebtedness when the indebtedness matures or when other circumstances arise. However, we may not immediately apply cash and cash equivalents to the reduction of debt, nor do we expect that we would use all of our available cash and cash equivalents to repay debt in the ordinary course of business.

Free cash flow – The Company uses free cash flow (cash provided by operations less investments in parks, resorts and other property), among other measures, to evaluate the ability of its operations to generate cash that is available for purposes other than capital expenditures. Management believes that information about free cash flow provides investors with an important perspective on the cash available to service debt, make strategic acquisitions and investments and pay dividends or repurchase shares.

Aggregate segment operating income – The Company evaluates the performance of its operating segments based on segment operating income, and management uses aggregate segment operating income as a measure of the performance of operating businesses separate from non-operating factors. The Company believes that information about aggregate segment operating income assists investors by allowing them to evaluate changes in the operating results of the Company’s portfolio of businesses separate from non-operational factors that affect net income, thus providing separate insight into both operations and the other factors that affect reported results.

 

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A reconciliation of segment operating income to net income is as follows (in millions):

 

     Quarter Ended     Six Months Ended  
     April 3,
2010		     March 28,
2009		     April 3,
2010		     March 28,
2009		  

Segment operating income

    $ 1,757      $ 1,526      $ 3,332      $ 2,970   

Corporate and unallocated shared expenses

      (91 )      (92 )      (163 )      (172 ) 

Restructuring and impairment charges

      (71 )      (305 )      (176 )      (305 ) 

Other income

      70        —          97        114   

Net interest expense

      (130 )      (128 )      (233 )      (267 ) 
                                

Income before income taxes

      1,535        1,001        2,857        2,340   

Income taxes

      (537 )      (348 )      (1,015 )      (836 ) 
                                

Net income

    $ 998      $ 653      $ 1,842      $ 1,504   
                                

CONFERENCE CALL INFORMATION

In conjunction with this release, The Walt Disney Company will host a conference call today, May 11, 2010, at 4:30 PM EST/1:30 PM PST via a live Webcast. To access the Webcast go to www.disney.com/investors. The discussion will be available via replay through May 18, 2010 at 7:00 PM EST/4:00 PM PST.

 

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FORWARD-LOOKING STATEMENTS

Management believes certain statements in this earnings release may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are made on the basis of management’s views and assumptions regarding future events and business performance as of the time the statements are made. Management does not undertake any obligation to update these statements.

Actual results may differ materially from those expressed or implied. Such differences may result from actions taken by the Company, including restructuring or strategic initiatives (including capital investments or asset acquisitions or dispositions), as well as from developments beyond the Company’s control, including:

 

  •  

changes in domestic and global economic conditions, competitive conditions and consumer preferences

 

  •  

adverse weather conditions or natural disasters;

 

  •  

health concerns;

 

  •  

international, political, or military developments; and

 

  •  

technological developments.

Such developments may affect travel and leisure businesses generally and may, among other things, affect:

 

  •  

the performance of the Company’s theatrical and home entertainment releases;

 

  •  

the advertising market for broadcast and cable television programming;

 

  •  

expenses of providing medical and pension benefits;

 

  •  

demand for our products; and

 

  •  

performance of some or all company businesses either directly or through their impact on those who distribute our products.

Additional factors are set forth in the Company’s Annual Report on Form 10-K for the year ended October 3, 2009 under Item 1A, “Risk Factors,” and subsequent reports.

 

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The Walt Disney Company

CONSOLIDATED STATEMENTS OF INCOME

(unaudited; in millions, except per share data)

 

     Quarter Ended     Six Months Ended  
     April 3,
2010		     March 28,
2009		     April 3,
2010		     March 28,
2009		  

Revenues

    $ 8,580      $ 8,087      $ 18,319      $ 17,686   

Costs and expenses

      (7,068 )      (6,800 )      (15,393 )      (15,182 ) 

Restructuring and impairment charges

      (71 )      (305 )      (176 )      (305 ) 

Other income

      70        —          97        114   

Net interest expense

      (130 )      (128 )      (233 )      (267 ) 

Equity in the income of investees

      154        147        243        294   
                                

Income before income taxes

      1,535        1,001        2,857        2,340   

Income taxes

      (537 )      (348 )      (1,015 )      (836 ) 
                                

Net income

      998        653        1,842        1,504   

Less: Net income attributable to noncontrolling interests

      (45 )      (40 )      (45 )      (46 ) 
                                

Net income attributable to The Walt Disney Company (Disney)

    $ 953      $ 613      $ 1,797      $ 1,458   
                                

Earnings per share attributable to Disney:

         

Diluted

    $ 0.48      $ 0.33      $ 0.93      $ 0.78   
                                

Basic

    $ 0.49      $ 0.33      $ 0.94      $ 0.79   
                                

Weighted average number of common and common equivalent shares outstanding:

         

Diluted

      1,973        1,868        1,938        1,870   
                                

Basic

      1,940        1,855        1,903        1,854   
                                

 

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The Walt Disney Company

CONSOLIDATED BALANCE SHEETS

(unaudited; in millions, except per share data)

 

     April 3,
2010		     October 3,
2009		  

ASSETS

     

Current assets

     

Cash and cash equivalents

    $ 3,075      $ 3,417   

Receivables

      5,478        4,854   

Inventories

      1,225        1,271   

Television costs

      951        631   

Deferred income taxes

      1,162        1,140   

Other current assets

      596        576   
                

Total current assets

      12,487        11,889   

Film and television costs

      5,190        5,125   

Investments

      2,607        2,554   

Parks, resorts and other property, at cost

     

Attractions, buildings and equipment

      32,396        32,475   

Accumulated depreciation

      (17,884 )      (17,395 ) 
                
     14,512        15,080   

Projects in progress

      1,664        1,350   

Land

      1,158        1,167   
                

Total parks, resorts and other property, at cost

      17,334        17,597   

Intangible assets, net

      5,091        2,247   

Goodwill

      23,691        21,683   

Other assets

      2,360        2,022   
                
   $ 68,760      $ 63,117   
                

LIABILITIES AND SHAREHOLDERS’ EQUITY

     

Current liabilities

     

Accounts payable and other accrued liabilities

    $ 4,879      $ 5,616   

Current portion of borrowings

      2,241        1,206   

Unearned royalties and other advances

      2,932        2,112   
                

Total current liabilities

      10,052        8,934   

Borrowings

      11,000        11,495   

Deferred income taxes

      3,085        1,819   

Other long-term liabilities

      5,654        5,444   

Commitments and contingencies

     

Disney Shareholders’ equity

     

Preferred stock, $.01 par value

     

Authorized – 100 million shares, Issued – none

      —          —     

Common stock, $.01 par value

     

Authorized – 3.6 billion shares, Issued – 2.6 billion shares

      28,100        27,038   

Retained earnings

      32,173        31,033   

Accumulated other comprehensive loss

      (1,559 )      (1,644 ) 
                
     58,714        56,427   

Treasury stock, at cost, 730.8 million shares at April 3, 2010 and 781.7 million shares at October 3, 2009

     (21,234 )      (22,693 ) 
                

Total Disney Shareholders’ equity

      37,480        33,734   

Noncontrolling interests

      1,489        1,691   
                

Total equity

      38,969        35,425   
                
   $ 68,760      $ 63,117   
                

 

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The Walt Disney Company

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited; in millions)

 

     Six Months Ended  
     April 3,
2010		     March 28,
2009		  

OPERATING ACTIVITIES

     

Net income

    $ 1,842      $ 1,504   

Depreciation and amortization

      847        802   

Gains on sales of equity investments

      (75 )      (114 ) 

Deferred income taxes

      235        (49 ) 

Equity in the income of investees

      (243 )      (294 ) 

Cash distributions received from equity investees

      202        258   

Net change in film and television costs

      (481 )      (537 ) 

Equity-based compensation

      272        225   

Impairment charges

      96        203   

Other

      (78 )      (72 ) 

Changes in operating assets and liabilities:

     

Receivables

      (348 )      454   

Inventories

      66        (74 ) 

Other assets

      58        (32 ) 

Accounts payable and other accrued liabilities

      330        (182 ) 

Income taxes

      (234 )      (25 ) 
                

Cash provided by operations

      2,489        2,067   
                

INVESTING ACTIVITIES

     

Investments in parks, resorts and other property

      (807 )      (749 ) 

Proceeds from sales of equity investments

      115        185   

Acquisitions

      (2,261 )      (146 ) 

Other

      (25 )      (3 ) 
                

Cash used in investing activities

      (2,978 )      (713 ) 
                

FINANCING ACTIVITIES

     

Commercial paper borrowings/repayments, net

      974        (919 ) 

Borrowings

      —          1,739   

Reduction of borrowings

      (243 )      (726 ) 

Dividends

      (653 )      (648 ) 

Repurchases of common stock

      (240 )      (104 ) 

Exercise of stock options and other

      309        (328 ) 
                

Cash provided by (used in) financing activities

      147        (986 ) 
                

(Decrease)/increase in cash and cash equivalents

      (342 )      368   

Cash and cash equivalents, beginning of period

     3,417        3,001   
                

Cash and cash equivalents, end of period

    $ 3,075      $ 3,369   
                

 

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