-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UQxx0sTy0Pg389tOGeBoznjPOlS6QHj+DZTUeqIlg10/OkcoDy3ZjBNi2MfB2Ykc jU6FS2i+qsUy+UMQnz6+Sg== 0001001039-96-000009.txt : 19960514 0001001039-96-000009.hdr.sgml : 19960514 ACCESSION NUMBER: 0001001039-96-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960513 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WALT DISNEY CO/ CENTRAL INDEX KEY: 0001001039 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 954545390 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11605 FILM NUMBER: 96561192 BUSINESS ADDRESS: STREET 1: 500 SOUTH BUENA VISTA ST CITY: BURBANK STATE: CA ZIP: 91521 BUSINESS PHONE: 8185601000 MAIL ADDRESS: STREET 1: 500 SOUTH BUENA VISTA ST CITY: BURBANK STATE: CA ZIP: 91521 FORMER COMPANY: FORMER CONFORMED NAME: DC HOLDCO INC DATE OF NAME CHANGE: 19950918 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended March 31, 1996 Commission File Number 1-11605 The Walt Disney Company* Incorporated in Delaware I.R.S. Employer Identification No. 95-4545390 500 South Buena Vista Street, Burbank, California 91521 (818) 560-1000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES NO X ** There were 680,618,048 shares of common stock outstanding as of May 8, 1996. * The Walt Disney Company ("New Disney") was formerly known as DC Holdco, Inc. New Disney is the parent corporation of Disney Enterprises, Inc. ("Old Disney")(Commission File No. 1-4083; I.R.S. Employer Identification No. 95-0684440), which was known as "The Walt Disney Company" until February 9, 1996, when it became a wholly owned subsidiary of New Disney as a consequence of the acquisition by New Disney of the outstanding capital stock of Capital Cities/ABC, Inc., as more fully described herein. References herein to the "Company" refer to Old Disney prior to February 9, 1996 and New Disney thereafter. ** New Disney became subject to the reporting requirements of the Securities Exchange Act of 1934 on February 9, 1996, upon the effectiveness of its Registration Statement on Form 8-B, and has filed all reports required to be filed since that date. PART I. FINANCIAL INFORMATION THE WALT DISNEY COMPANY CONDENSED CONSOLIDATED STATEMENT OF INCOME In millions, except per share data (unaudited)
Three Months Six Months Ended Ended March 31 March 31 1996 1995 1996 1995 -------- -------- --------- -------- REVENUES $4,543 $2,951 $8,380 $6,254 COSTS AND EXPENSES (3,887) (2,343) (6,861) (4,858) ACCOUNTING CHANGE (300) - (300) - -------- -------- --------- -------- OPERATING INCOME 356 608 1,219 1,396 CORPORATE ACTIVITIES AND OTHER (97) (80) (182) (92) NET INTEREST EXPENSE (83) (44) (96) (80) ACQUISITION-RELATED COSTS (225) - (225) - -------- -------- --------- -------- INCOME/(LOSS) BEFORE INCOME TAXES (49) 484 716 1,224 INCOME TAXES/(BENEFIT) (24) 168 244 426 -------- -------- --------- -------- NET INCOME/(LOSS) $ (25) $ 316 $ 472 $ 798 -------- -------- --------- -------- EARNINGS/(LOSS) PER SHARE $(0.04) $ 0.60 $ 0.86 $ 1.51 -------- -------- --------- -------- Average number of common and common equivalent shares outstanding 567 529 550 529 -------- -------- --------- --------
THE WALT DISNEY COMPANY CONDENSED CONSOLIDATED BALANCE SHEET In millions
March 31, September 30, 1996 1995 ------------ ------------- (unaudited) ASSETS Cash and cash equivalents $ 281 $ 1,077 Investments 565 866 Receivables 3,309 1,793 Merchandise inventories 878 824 Film and television costs 3,621 2,099 Theme parks, resorts and other property, net of accumulated depreciation of $4,203 and $3,039 7,632 6,190 Intangible assets, net 17,697 - Other assets 2,784 1,757 ------- ------- $ 36,767 $ 14,606 ------- ------- ------- ------- LIABILITIES AND STOCKHOLDERS' EQUITY Accounts and taxes payable and accrued liabilities $ 6,933 $ 3,043 Borrowings 12,040 2,984 Deferred income taxes 852 1,067 Unearned royalty and other advances 1,073 861 Stockholders' equity Preferred stock, $.01 par value; $.10 at September 30, 1995 Authorized - 100 million shares Issued - none Common stock, $.01 par value; $.025 at September 30, 1995 Authorized - 1.2 billion shares Issued - 680 million shares and 575 million shares 8,482 1,226 Retained earnings 7,340 6,990 Cumulative translation and other adjustments 47 38 ------- ------- 15,869 8,254 Less treasury shares, at cost - 51 million shares at September 30, 1995 - 1,603 ------- ------- 15,869 6,651 ------- ------- $ 36,767 $ 14,606 ------- ------- ------- -------
THE WALT DISNEY COMPANY CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS In millions (unaudited)
Six Months Ended March 31 --------------------------- 1996 1995 ----------- ----------- NET INCOME $ 472 $ 798 --------- -------- CHARGES TO INCOME NOT REQUIRING CASH OUTLAYS Amortization of film and television costs 1,183 707 Depreciation 322 233 Amortization of intangibles 74 - Accounting change 300 - Other 67 20 CHANGES IN Investments in trading securities 85 (34) Receivables (401) (169) Merchandise inventories (22) 43 Other assets (238) (251) Accounts and taxes payable and accrued liabilities (120) 510 Deferred income taxes 73 (159) Unearned royalty and other advances 168 128 --------- -------- 1,491 1,028 --------- -------- CASH PROVIDED BY OPERATIONS 1,963 1,826 --------- -------- INVESTING ACTIVITIES Acquisition of Capital Cities/ABC, Inc., net of cash acquired (8,432) - Film and television costs (2,156) (929) Investments in theme parks, resorts, and other property (710) (424) Purchases of marketable securities (18) (383) Proceeds from sale of marketable securities 301 611 Other 2 117 --------- -------- (11,013) (1,008) --------- -------- FINANCING ACTIVITIES Borrowings 8,726 1,009 Reduction of borrowings (370) (759) Repurchases of common stock - (349) Dividends (122) (86) Exercise of stock options and other 20 62 --------- ------- 8,254 (123) --------- ------- Increase (Decrease) in Cash and Cash (796) 695 Equivalents Cash and Cash Equivalents, Beginning of Period 1,077 187 -------- ------- Cash and Cash Equivalents, End of Period $ 281 $ 882 -------- ------- -------- -------
THE WALT DISNEY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. These condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the quarter are not necessarily indicative of the results that may be expected for the year ending September 30, 1996. Certain reclassifications have been made in the 1995 financial statements to conform to the 1996 presentation. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 1995. 2. On February 9, 1996 ("the effective date"), the Company completed its acquisition of Capital Cities/ABC, Inc. ("Capital Cities") pursuant to a reorganization agreement executed in July 1995. Pursuant to the acquisition, aggregate consideration paid to Capital Cities shareholders consisted of $10 billion in cash and 154.6 million shares of Company common stock valued at $8.9 billion based on the stock price as of the date the transaction was announced. Payment was effected on March 14, 1996. The acquisition has been accounted for as a purchase and the acquisition cost of $18.9 billion has been allocated to the assets acquired and liabilities assumed based on preliminary estimates of their respective fair values. Assets acquired totaled $5.4 billion (of which $1.5 billion was cash) and liabilities assumed were $4.3 billion. A total of $17.8 billion, representing the excess of acquisition cost over the fair value of Capital Cities' net tangible assets, has been allocated to intangible assets and is being amortized over 40 years. In connection with the acquisition, all common shares of old Disney outstanding immediately prior to the effective date of the acquisition were canceled and replaced with common shares of new Disney and all treasury shares were canceled and retired. Notes to Condensed Consolidated Financial Statements (continued) The Company's consolidated results of operations have incorporated Capital Cities activity commencing upon the effective date of the acquisition. The unaudited pro forma information below presents combined results of operations as if the acquisition had occurred at the beginning of the respective periods presented. The unaudited pro forma information is not necessarily indicative of the results of operations of the combined company had the acquisition occurred at the beginning of the periods presented, nor is it necessarily indicative of future results.
(in millions, except per share data) Quarter Ended Six Months Ended March 31, March 31, --------------------- -------------------- 1996 1995 1996 1995 --------- --------- --------- --------- Revenues $ 4,986 $ 4,558 $10,879 $ 9,835 Net income (1) $ 45 $ 274 $ 604 $ 782 Earnings per share (1) $ 0.06 $ 0.40 $ 0.88 $ 1.15
(1)The 1996 periods include the impact of a $300 million non-cash charge related to the initial adoption of a new accounting standard (see Note 5). The charge reduced earnings per share by $0.25 for the quarter and six-months. 3. In March 1996, the Company issued $8.8 billion of commercial paper borrowings to partially fund the cash consideration payable to Capital Cities shareholders. Subsequently, the Company issued $2.6 billion of Senior Notes (the Notes) principally in markets in the United States, Europe and Asia. The Notes are senior, unsecured debt obligations of the Company and were issued in two tranches, $1.3 billion that mature on March 30, 2001 and bear interest at 6.38%, and $1.3 billion that mature on March 30, 2006 and bear interest at 6.75%. Interest on the Notes is paid semi-annually through maturity. The proceeds from the Notes were used to partially retire the commercial paper borrowings. Commercial paper outstanding as of March 31, 1996 totaled $6.2 billion with maturities of up to one year, and an average interest rate of 5.35%. The remaining commercial paper borrowings are supported by bank facilities totaling $7 billion, which expire in one to five years and which allow for borrowings at various interest rates. The Company also assumed certain Capital Cities commitments to purchase broadcast rights for various feature film, sports and other programming. At March 31, 1996, the total of such commitments was $3.7 billion, payable over the next five years. 4. During April 1996, the Company adopted a new stock repurchase program. The program will allow the Company to purchase up to 104.5 million shares of its Common Stock from time to time in the open market or in privately negotiated transactions. The stock repurchase program replaces a similar program that was in place prior to the acquisition of Capital Cities. Notes to Condensed Consolidated Financial Statements (continued) 5. During the current quarter, the Company recorded two non-recurring charges. The Company implemented Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121). This new accounting standard changes the method that companies use to evaluate the carrying value of such assets by, among other things, requiring companies to evaluate assets at the lowest level at which identifiable cash flows can be determined. The implementation of SFAS 121 resulted in the Company recognizing a $300 million non-cash charge related principally to certain assets included in the Theme Parks and Resorts segment. In addition, the Company recognized a $225 million charge for costs related to the acquisition of Capital Cities. Acquisition-related costs consist principally of interest costs related primarily to imputed interest for the period from the effective date of the acquisition until March 14, 1996, the date that cash and stock consideration was issued to Capital Cities shareholders. 6. Dividends per share for the quarters ended March 31, 1996 and 1995 were $.11 and $.09, respectively. The Walt Disney Company Management's Discussion and Analysis of Financial Condition and Results of Operations Business segments On February 9, 1996 ("the effective date"), the Company acquired Capital Cities/ABC, Inc. ("Capital Cities"). The consolidated financial statements include the results of Capital Cities from the acquisition date. As a result of the acquisition, the Company has reconfigured its financial reporting segments. Prior-year results have been reclassified to reflect the new segment configuration. A description of the Company's new business segments follows. Creative Content includes the production of live-action and animated motion pictures for distribution to theatrical, home video and television markets, the production and distribution of original television programming, the licensing of the Company's name, characters and other properties, and the distribution of such properties through the Disney Store. Also included are the development and marketing of educational and entertainment software and audio products, the production of live stage plays and the publishing of newspapers, books and periodicals. Broadcasting includes the ABC Television Network and the ABC Radio Networks, owned television and radio stations, and the production and distribution of cable programming by ESPN and The Disney Channel. Theme Parks and Resorts includes the Walt Disney World(R) destination resort in Florida, Disneyland Park(R) and hotels in California, royalties earned from the Tokyo Disneyland theme park, certain real estate development operations and Disney Sports Enterprises. In addition to the business segments discussed above, Corporate Activities and Other includes the Company's equity share of operating results of investees, including Euro Disney and the A&E and Lifetime television networks, as well as the impact of a third-party minority interest in ESPN. Also included are corporate general and administrative expenses. The Walt Disney Company Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Seasonality The Company's businesses are subject to the effects of seasonality. Consequently, the operating results for the quarter ended March 31, 1996 for each line of business, and for the Company as a whole, are not necessarily indicative of results for the full year. The reader is encouraged to read the Company's 1995 Annual Report on Form 10-K in conjunction with this interim report. Creative Content operating results fluctuate based upon the timing of theatrical and home video releases and seasonal consumer purchasing behavior. Release dates are determined by several factors, including timing of vacation and holiday periods and competition in the market. Broadcasting operating results are influenced by advertiser demand and the seasonal nature of programming, and generally peak in the spring and fall. Theme Parks and Resorts operating results experience fluctuations in theme park attendance and resort occupancy resulting from the nature of vacation travel. Peak attendance and resort occupancy generally occur during the summer months when school vacations occur and during early-winter and spring holiday periods. The Walt Disney Company Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) RESULTS OF OPERATIONS For the Quarter and Six Months Ended March 31, 1996 The Company's results of operations have incorporated Capital Cities activity commencing upon the effective date of the acquisition. For comparative purposes, certain information presented below is on a "pro forma" basis and reflects the acquisition of Capital Cities as though it had occurred at the beginning of the respective periods presented. The pro forma results are not necessarily indicative of the combined results that would have occurred had the acquisition actually occurred at the beginning of fiscal 1995. Consolidated Results - Quarter
(unaudited; in millions, except per share data) Pro forma As reported ----------------------- ----------------------- 1996 1995 %Change 1996 1995 %Change ------ ------ ------- ------ ------ ------- Revenues $4,986 $4,558 9% $4,543 $2,951 54% Costs and Expenses (4,324) (3,760) 15 (3,887) (2,343) 66 Accounting Change (300) - n/m (300) - n/m Operating Income 362 798 (55) 356 608 (41) Corporate Activities and Other (99) (87) 14 (97) (80) 21 Net Interest Expense (182) (214) (15) (83) (44) 89 Acquisition-Related Costs - - - (225) - n/m Income/(Loss) Before Income Taxes 81 497 (84) (49) 484 n/m Income Taxes/(Benefit) 36 223 (84) (24) 168 n/m Net Income/(Loss) $ 45 $ 274 (84) $ (25) $ 316 n/m Earnings/(Loss) Per Share $0.06 $0.40 (85) $(0.04) $0.60 n/m Earnings Per Share excluding non-recurring charges $ 0.31 $0.40 (23) $0.47 $0.60 (22) Amortization of intangible assets included in operating income $ 111 $ 111 - $ 74 $ - n/m ----- ----- ----- ----- ----- ----- ----- -----
During the current quarter, the Company recorded two non-recurring charges. The Company implemented Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121). This new accounting standard changes the method that companies use to evaluate the carrying value of such assets by, among other things, requiring companies to evaluate assets at the lowest level at which identifiable cash flows can be determined. The implementation of SFAS 121 resulted in the Company recognizing a $300 million non-cash charge related principally to certain assets included in the Theme Parks and Resorts segment. In addition, the Company recognized a $225 million charge for costs related to the acquisition of Capital Cities. Acquisition-related costs consist principally of interest costs primarily The Walt Disney Company Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Consolidated Results - Quarter (continued) related to imputed interest for the period from the effective date of the acquisition until March 14, 1996, the date that cash and stock consideration was issued to Capital Cities shareholders. As reported net income excluding the non-recurring charges decreased 15% from the prior-year quarter to $268 million and earnings per share was $0.47, reflecting a 22% decrease. These results were impacted by the acquisition of Capital Cities, which resulted in significant increases in amortization of intangible assets, interest expense, the effective income tax rate and shares outstanding. Excluding amortization of acquisition-related intangible assets and the non-recurring charges, earnings per share was $0.60, equal to the prior-year quarter. As reported net interest expense increased 89% to $83 million primarily due to acquisition-related borrowings during the quarter. The effective income tax rate increased from 34.8% to 49.6% reflecting the impact of non-deductible amortization of intangible assets and imputed interest, and higher state taxes all arising from the acquisition. Pro forma net income excluding the non-recurring charges decreased 22% from the prior-year quarter to $213 million and earnings per share was $0.31, reflecting a 23% decrease. Pro forma net interest expense decreased 15% from the prior-year quarter to $182 million due primarily to lower interest rates. Consolidated Results - Six Months
(unaudited; in millions, except per share data) Pro forma As reported ------------------------ ---------------------- 1996 1995 %Change 1996 1995 %Change ------ ------ ------- ------ ------ ------- Revenues $10,879 $9,835 11% $8,380 $6,254 34% Costs and Expenses (9,022) (7,905) 14 (6,861) (4,858) 41 Accounting Change (300) - n/m (300) - n/m Operating Income 1,557 1,930 (19) 1,219 1,396 (13) Corporate Activities and Other (122) (103) 18 (182) (92) 98 Net Interest Expense (339) (409) (17) (96) (80) 20 Acquisition-Related Costs - - - (225) - n/m ---- ---- ---- ---- Income Before Income Taxes 1,096 1,418 (23) 716 1,224 (42) Income Taxes 492 636 (23) 244 426 (43) Net Income $ 604 $ 782 (23) $ 472 $ 798 (41) Earnings per share $ 0.88 $ 1.15 (23) $ 0.86 $ 1.51 (43) Earnings Per Share excluding non-recurring charges $ 1.13 $ 1.15 (2) $ 1.39 $ 1.51 (8) Amortization of intangible assets included in operating income $ 222 $ 222 - $ 74 $ - n/m
The Walt Disney Company Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Consolidated Results - Six Months (continued) As reported net income for the six months excluding the non-recurring charges decreased 4% from the prior-year period to $765 million and earnings per share was $1.39, reflecting an 8% decrease. Excluding amortization of acquisition-related intangible assets and the non-recurring charges, earnings per share was $1.52, reflecting a 1% increase over the prior-year period. As reported corporate activities and other increased 98% principally due to a $55 million gain in the prior-year first quarter related to the sale of a portion of the Company's investment in Euro Disney, and higher corporate general and administrative expenses. Net interest expense increased 20% due to the partial-period impact of new borrowings associated with the acquisition of Capital Cities, partially offset by lower interest rates. Pro forma net income for the six months excluding the non-recurring charges was $779 million, approximating the prior-year period, and earnings per share decreased 2% to $1.13. Pro forma net interest expense decreased 17% to $339 million reflecting lower interest rates. Business Segment Results The Company's results of operations have incorporated Capital Cities activity commencing upon the effective date of the acquisition. The following information presents operating results for the Company's business segments for the quarter and six months. For comparative purposes, certain information and discussions presented below are on a "pro forma" basis, reflecting the acquisition of Capital Cities as though it had occurred at the beginning of the respective periods for which information is presented. The pro forma results are not necessarily indicative of the combined results that would have occurred had the acquisition actually occurred at the beginning of those periods. The Walt Disney Company Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Business Segment Results - Quarter
(Unaudited; in millions) Pro forma As reported ----------------------- ------------------------ 1996 1995 %Change 1996 1995 %Change ------ ------ ------- ------ ------ ------- Revenues: Creative Content $2,510 $2,221 13% $2,424 $1,930 26% Broadcasting 1,421 1,417 - 1,064 101 n/m Theme Parks & Resorts 1,055 920 15 1,055 920 15 Total $4,986 $4,558 9% $4,543 2,951 54% Operating Income:(1) Creative Content $ 262 $ 418 (37)% $ 263 $ 407 (35)% Broadcasting 198 198 - 191 19 n/m Theme Parks & Resorts 202 182 11 202 182 11 662 798 (17) 656 608 8 Accounting Change for SFAS 121 (300) - n/m (300) - n/m Total Operating Income $ 362 $ 798 (55)% $ 356 $ 608 (41)% (1) Includes depreciation and amortization (excluding film cost) of: Creative Content $ 48 $ 41 $ 45 $ 26 Broadcasting 128 127 93 2 Theme Parks & Resorts 87 80 87 80 $ 263 $ 248 $ 225 $ 108
Creative Content - Quarter Revenues increased 13% or $289 million to $2.5 billion, driven by growth of $100 million in theatrical, $57 million in television, $52 million in character merchandise licensing, and $42 million in the Disney Stores. Theatrical revenues reflect the box office success of Mr. Holland's Opus domestically and Toy Story and Dangerous Minds internationally. Television revenues increased due to the success of titles internationally and in domestic syndication. Merchandise licensing revenues reflect the continued strength of standard characters, particularly in international markets. The growth in the Disney Stores reflects the impact of new stores, partially offset by lower comparable store sales due to the strength of The Lion King merchandise in the prior year. Operating income decreased 37% or $156 million to $262 million, primarily due to lower theatrical results and lower home video results, which reflected the prior-year profitability of The Lion King in domestic home video markets, partially offset by improved results in television and international merchandise licensing. Costs and expenses, which consist principally of production cost amortization, distribution and selling expenses, merchandise cost, labor and occupancy, increased 25% or The Walt Disney Company Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Creative Content - Quarter (continued) $445 million. The increase is primarily due to higher theatrical distribution and home video selling costs, the write-off of certain theatrical development projects and expansion of the Disney Stores. Broadcasting - Quarter Revenues remained flat at $1.4 billion, reflecting a $60 million increase in revenues at ESPN, due primarily to higher advertising revenues and affiliate fees resulting from expansion, offset by a $63 million decrease in television network revenues, primarily due to the impact of audience shortfalls and the absence of the Super Bowl in the current period. Operating income remained flat at $198 million, reflecting increases at ESPN offset by decreases at the television network, primarily due to the impact of audience shortfalls and the absence of the Super Bowl in the current period. Costs and expenses, which consist primarily of programming, selling, general and administrative costs remained flat at $1.2 billion, reflecting increased program rights and production costs driven by growth at ESPN and higher network program costs related to a change in program mix in response to audience shortfalls, offset by a decrease in program rights costs primarily due to the absence of the Super Bowl in the current period. Theme Parks and Resorts - Quarter Revenues increased 15% or $135 million to $1.1 billion, reflecting growth of $77 million due to higher domestic and international theme park attendance and increased guest spending in Florida and California, and $11 million from an increase in occupied rooms at Florida resorts, primarily attributable to the successful phased opening of Disney's All-Star Music Resort during the prior year. Operating income increased 11% or $20 million to $202 million, driven by higher theme park attendance and guest spending and increased occupied rooms at Florida resorts. Costs and expenses which consist principally of labor, costs of merchandise, food and beverages sold, depreciation, repairs and maintenance, entertainment, and marketing and sales expenses, increased 16% or $115 million. The increase was primarily due to higher operating costs resulting from higher attendance and expansion of theme park attractions and Florida resorts, and increased marketing and sales efforts. The Walt Disney Company Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Business Segment Results - Six Months
(Unaudited; in millions) Pro forma As reported ----------------------- ------------------------- 1996 1995 %Change 1996 1995 %Change ------ ------ ------- ------ ------ ------- Revenues: Creative Content $5,554 $4,888 14% $5,144 $4,277 20% Broadcasting 3,276 3,173 3 1,187 202 n/m Theme Parks & Resorts 2,049 1,774 16 2,049 1,775 15 Total $10,879 $9,835 11% $8,380 $6,254 34% Operating Income:(1) Creative Content $ 928 $1,058 (12)% $ 912 $1,024 (11)% Broadcasting 532 528 1 209 27 n/m Theme Parks & Resorts 397 344 15 398 345 15 1,857 1,930 (4) 1,519 1,396 9 Accounting Change for SFAS 121 (300) - n/m (300) - n/m Total Operating Income $1,557 $1,930 (19)% $1,219 $1,396 (13)% (1) Includes depreciation and amortization (excluding film cost) of: Creative Content $ 96 $ 82 $ 84 $ 52 Broadcasting 256 254 118 4 Theme Parks & Resorts 174 160 174 160 $ 526 $ 496 $ 376 $ 216
Creative Content - Six Months Revenues increased 14% or $666 million to $5.6 billion, driven by growth of $134 million in theatrical, $104 million in television, $103 million in character merchandise licensing, $102 million in the Disney Stores, and $93 million in home video. Theatrical revenues reflect the box office success of Toy Story worldwide and Pocahontas and Dangerous Minds internationally. Television revenues increased due to the success of titles in worldwide pay television and syndication. Merchandise licensing revenues increased due to the strength of standard characters, principally internationally. Revenue growth at the Disney Stores reflect the impact of new stores, partially offset by lower comparable store sales due to the strength of The Lion King merchandise in the prior-year period. Home video revenues reflect Cinderella, Pocahontas and The Santa Clause domestically, and The Lion King and 101 Dalmatians internationally. The Walt Disney Company Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Creative Content - Six Months (continued) Operating income decreased 12% or $130 million to $928 million, primarily due to lower theatrical results, which reflected higher costs, and lower home video results, which reflected the prior-year profitability in home video of The Lion King domestically and Snow White and the Seven Dwarfs worldwide, partially offset by improved results in merchandise licensing internationally and television. Costs and expenses increased 21% or $796 million. The increase is primarily due to higher theatrical distribution and home video selling costs, the write-off of certain theatrical development projects, higher production cost amortization and expansion of the Disney Stores. Broadcasting - Six Months Revenues increased 3% or $103 million to $3.3 billion, reflecting a $122 million increase in revenues at ESPN, driven by higher advertising revenues and affiliate fees due primarily to expansion, offset by a $44 million decrease in television network revenues, primarily due to the impact of audience shortfalls and the absence of the Super Bowl in the current period. Operating income increased 1% or $4 million to $532 million, reflecting increases at ESPN offset by decreases at the television network primarily due to the impact of audience shortfalls and the absence of the Super Bowl in the current period. Costs and expenses increased 4% or $99 million to $2.7 billion, reflecting increased program rights and production costs driven by growth at ESPN, partially offset by a decrease in program rights costs primarily due to the absence of the Super Bowl in the current period. Theme Parks and Resorts - Six Months Revenues increased 16% or $275 million to $2.0 billion, reflecting growth of $142 million due to higher domestic and international theme park attendance and increased guest spending in Florida and California, and $35 million from an increase in occupied rooms at Florida and California resorts, primarily attributable to the successful phased opening of Disney's All-Star Music Resort during the prior year. Operating income increased 15% or $53 million to $397 million, driven by higher theme park attendance and guest spending and increased occupied rooms at Florida resorts. Costs and expenses increased 16% or $222 million. The increase was primarily due to higher operating costs resulting from higher attendance and expansion of theme park attractions and Florida resorts, and increased marketing and sales efforts. The Walt Disney Company Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) FINANCIAL CONDITION During the current quarter, the Company completed its acquisition of Capital Cities pursuant to a reorganization agreement executed in July 1995. Aggregate consideration paid to Capital Cities shareholders in March 1996 consisted of $10 billion in cash and 154.6 million shares of Company common stock. The Company initially funded the cash portion through the issuance of approximately $8.8 billion of commercial paper and the use of existing cash and investments. Subsequently, the Company issued $2.6 billion of five-year and ten-year Senior Notes and used the proceeds to partially repay the commercial paper. Bank facilities totaling $7 billion are in place to support the remaining commercial paper outstanding. The Company expects to replace some of the remaining commercial paper with longer-term financing, including debt to be issued under a shelf registration statement filed in November 1995 permitting the issuance from time to time of up to an additional $2.4 billion of debt and preferred equity securities. For the six months ended March 31, 1996, cash provided by operations increased 7.5% or $137 million to $2.0 billion. Net borrowings (the Company's borrowings less cash and liquid investments) increased $10.2 billion to $11.6 billion, due primarily to new borrowings and liquidation of certain investments in connection with the acquisition of Capital Cities. During the six months, the Company invested $2.2 billion to produce and acquire film and television properties and $710 million primarily to design and develop new theme park attractions and resort properties. As the operator of ABC Television Network, ESPN and television and radio stations, the Company expects to continue to enter into programming commitments to purchase the broadcast rights for various feature film, sports and other programming. Total commitments to purchase broadcast programming approximated $3.7 billion at March 31, 1996. This amount is substantially payable over the next five years. The Company believes that its financial condition remains strong and that its cash, other liquid assets, operating cash flows, access to equity capital markets and borrowing capacity, taken together, provide adequate resources to fund ongoing operating requirements and future capital expenditures related to the expansion of existing businesses and development of new projects. PART II. OTHER INFORMATION THE WALT DISNEY COMPANY Item 4. Submission of Matters to a Vote of Security Holders The following matters were submitted to a vote of security holders during the Company's Special Meeting of Stockholders held January 4, 1996: Description of Matter
Votes Cast Broker For Against Abstentions Non-Votes ----------- ----------- ------------ ------------ 1. Acquisition of Capital Cities/ABC, Inc. 388,734,536 1,600,289 1,685,281 132,606,588 2. Approval of 1995 Stock Incentive Plan and Amendment of 1990 Stock Incentive Plan 322,834,849 64,876,460 4,308,797 132,606,588
Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (i) Amended and Restated 1991 Stock Option Plan of Capital Cities/ABC, Inc. is filed herewith. (b) Reports on Form 8-K (i) Report on Form 8-K, dated January 4, 1996, with respect to the approval by the stockholders of The Walt Disney Company of the plan to acquire Capital Cities/ABC, Inc. (ii) Report on Form 8-K, dated February 9, 1996, with respect to the consummation of the acquisition by The Walt Disney Company and Disney Enterprises, Inc. (iii)Report on Form 8-K, dated March 7, 1996, with respect to the filing of exhibits in connection with the Registration Statement on Form S-3 (No. 33-62777) of The Walt Disney Company and Disney Enterprises, Inc. (iv) Report on Form 8-K, dated March 7, 1996, with respect to the consent of the Company's independent accountants (Price Waterhouse LLP). Item 6. Exhibits and Reports on Form 8-K (continued) (v) Report on Form 8-K, dated March 26, 1996, with respect to the Unaudited Pro Forma Combined Condensed Financial Statements of the Company for the year ended September 30, 1995 and the three months ended December 31, 1995. (vi) Report on Form 8-K, dated March 30, 1996, with respect to the filing of Capital Cities/ABC, Inc.'s audited consolidated financial statements for the year ended December 31, 1995. THE WALT DISNEY COMPANY SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE WALT DISNEY COMPANY (Registrant) By /s/ Richard D. Nanula Richard D. Nanula Senior Executive Vice President and Chief Financial Officer May 13, 1996 Burbank, California EX-27 2
5 The schedule contains summary financial information extracted from the condensed consolidated balance sheet and condensed consolidated statement of income found on the Company's Form 10-Q for the six months ended March 31, 1996 and is qualified in its entirety by reference to such financial statements. 1,000,000 U.S. DOLLARS 6-MOS SEP-30-1995 OCT-01-1995 MAR-31-1996 1 281 565 3,309 0 878 0 11,835 4,203 36,767 0 12,040 0 0 8,482 7,387 37,767 8,380 8,380 0 7,161 407 0 128 716 244 472 0 0 0 472 (0.04) (0.04)
EX-10 3 AMENDED AND RESTATED 1991 STOCK OPTION PLAN OF CAPITAL CITIES/ABC, INC APRIL 23, 1996 l. Purposes. The purposes of the 1991 Stock Option Plan (the "Plan") of Capital Cities/ABC, Inc. (the "Corporation") are to provide a greater community of interest between the Corporation's shareholders and its key employees, to facilitate the purchase by such employees of shares of stock in the Corporation, to encourage such employees to remain in the employ of the Corporation and to assist the Corporation in retaining the services of its key employees. 2. Stock to be Offered. The shares that may be issued under the Plan shall not exceed 500,000 shares of the Corporation's common stock, $1.00 par value ("Common Stock"), subject to adjustment under the provisions of Section 8. Such shares may be authorized but unissued shares or treasury shares, as the Board of Directors of the Corporation (the "Board of Directors") may from time to time determine. Shares reserved under an option which for any reason expires or is terminated, in whole or in part, shall again be available for the purposes of the Plan. All previous reservations of shares of Common Stock for issuance pursuant to the Corporation's Employee Stock Option Plan, to the extent not required for issuance upon the exercise of outstanding and unexercised options as of the date this Plan is adopted, are hereby terminated and cancelled. 3. Eligibility. Options may be granted to any key employee (including officers) of the Corporation or of any of its subsidiary corporations (as that term is defined in Section 7). 4. Administration. The Plan shall be administered by the Corporation's Compensation Committee (the "Committee"); provided, however, that the Board of Directors of the Corporation, in its discretion, may appoint another and different committee to administer the Plan. The Committee, subject to the express provisions of the Plan, shall have authority, in its sole discretion, to determine the individuals who shall receive stock options, the kind of options to be granted, the times when options shall be granted and the number of shares to be subject to each option; to determine the provisions of option agreements (which need not be identical); to prescribe, amend and rescind rules and regulations relating to the Plan; to construe option agreements and the Plan; and to make all other determinations necessary and advisable for the proper administration of the Plan. All decisions and determinations of the Committee shall be made by a majority of the Committee and shall be conclusive. 5. Form of Options. Options granted under the Plan may be incentive stock options within the meaning of Section 422(b) of the Internal Revenue Code ("Incentive Stock Options") or options which are not Incentive Stock Options ("Non-Qualified Options"), as the Committee shall determine. 6. Provisions of Options. The Committee shall determine the provisions of each option, subject to the following: (a) The option price must be at least 100% of the fair market value of the Common Stock at the time the option is granted. (b) The term of an Incentive Stock Option may not exceed 10 years from the date it is granted. (c) The term of a Non-Qualified Option may not exceed 11 years from the date it is granted. (d) An option may not be transferred by an optionee otherwise than by will or by the laws of descent and distribution, and may be exercised, during his lifetime, only by him. (e) Except as otherwise provided under Section 10: (i) No option shall be exercisable, in whole or in part, earlier than one year from the date it is granted. (ii) (A) An option having a term of at least four years shall not be exercisable earlier than in cumulative annual portions at the rate of 25% of the total number of shares subject to such option; and (B) An option having a term of less than four years shall not be exercisable earlier than in cumulative annual portions equal to the total number of shares subject to such option divided by the number of years of the term of such option. (f) An option may be exercised within three months after the date of an optionee's termination of employment (or (i) within 12 months after such date if the optionee's termination of employment was on account of his death or his disability, within the meaning of Internal Revenue Code Section 22(e) (3) or (ii) within 18 months after such date if the optionee held the position of Chief Executive Officer of the Corporation at any time prior to February 9, 1996, and the optionee was eligible for retirement benefits upon such termination of employment), but only to the extent the option is exercisable on such date. The provisions of this paragraph shall in no event operate to extend the term of any option beyond the time limit provided for in paragraph (b) of this Section. (g) The exercise price of any option may be paid, at the optionee's election, either in cash or by his exchange of Common Stock previously held by him. Any shares of Common Stock so exchanged shall be valued at their fair market value on the date the option is exercised. (h) All Incentive Stock Options, by their terms, shall comply with all the requirements of Section 422(b) of the Internal Revenue Code. 7. Individual Limitations. (a) An Incentive Stock Option may not be granted to any individual who owns (at the date of grant of the option) stock possessing more than 10% of the total combined voting power of all classes of stock of his employer corporation or of any of its parent corporations or subsidiary corporations. (b) The aggregate fair market value (determined at the time the option is granted) of the shares of Common Stock with respect to which Incentive Stock Options may be exercisable for the first time by any individual during any calendar year (under this Plan and all such plans of his employer corporation and its subsidiary corporations and parent corporations) shall not exceed $100,000. (c) For all purposes of the Plan (i) the term "parent corporation" shall be as defined in Internal Revenue Code Section 425(e); and (ii) the term "subsidiary corporation" shall be as defined in Internal Revenue Code Section 425(f). 8. Adjustments. In the event that the outstanding shares of Common Stock are increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Corporation or of another corporation, by reason of a merger, recapitalization, reclassification, stock split-up, combination or exchange of shares, or dividend or other distribution payable in capital stock, the aggregate number of shares of Common Stock subject to this Plan and the number of shares and the price per share of Common Stock subject to any outstanding options shall be appropriately adjusted by the Committee to reflect such event. 9. Amendment and Termination of Plan. The Plan shall become effective on the date of its adoption by the Board of Directors and shall remain effective for the grant of options until 10 years from that date (and for the subsequent exercise of such options), unless it is sooner terminated by the Board of Directors. The Board of Directors, in its discretion and at any time, may modify, amend or terminate the Plan; provided, however, that no modification or amendment may be made, without the approval of the shareholders of the Corporation, which would increase the maximum aggregate number of shares which may be issued under the Plan, change the class of employees who are eligible for the grant of options, reduce the option price, extend the termination date of the Plan, or increase the period of time during which options may be exercised. Neither termination of the Plan, nor any modification or amendment thereof, shall adversely affect any rights under an option previously granted under the Plan without the consent of the Optionee. 10. Trigger Events. (a) For the purpose of this Plan, a "Trigger Event" shall mean (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d) (3) or 14(d) (2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person"), other than Berkshire Hathaway, Inc., a Delaware corporation ("Berkshire"), or any Affiliate or Associate (as hereinafter defined) of Berkshire (Berkshire and such Affiliate and Associate being hereinafter referred to collectively as the "Berkshire Group"), in one or more transactions, of beneficial ownership (within the meaning of Rule l3d-3 promulgated under the Exchange Act) of an aggregate of 20% or more of either (x) the then outstanding shares of Common Stock (the "Outstanding Common Stock") or (y) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Trigger Event: (A) any acquisition directly from the Corporation (excluding an acquisition by virtue of the exercise of a conversion privilege), provided that the Person acquiring such Outstanding Common Stock or Outstanding Company Voting Securities beneficially owns less than 5% of the Outstanding Common Stock and the Outstanding Company Voting Securities immediately prior to such acquisition, (B) any acquisition by the Corporation, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any Affiliate of the Corporation or (D) any acquisition by any corporation pursuant to a transaction described in clauses (A), (B) and (C) of paragraph (iv) below; or (ii) The acquisition by any one or more of the Berkshire Group, in one or more transactions, of beneficial ownership (within the meaning of Rule l3d-3 promulgated under the Exchange Act) of more than 30% (the "Prohibited Percentage") of either the Outstanding Common Stock or the Outstanding Company Voting Securities, provided, however, that any such acquisition shall not constitute a Trigger Event if the Berkshire Group shall have attained the Prohibited Percentage (A) as the result of an acquisition of Outstanding Common Stock of Outstanding Company Voting Securities by the Corporation which, by reducing the number of shares outstanding, increases the proportionate number of shares owned by the Berkshire Group to the Prohibited Percentage or (B) with the consent of the Board of Directors in accordance with an Agreement dated January 2, 1986 between the Corporation and Berkshire, provided, however, that if the Berkshire Group shall become the beneficial owner of more than 30% of such securities pursuant to clauses (A) or (B) of this paragraph (ii), and shall thereafter acquire any additional Outstanding Common Stock or Outstanding Company Voting Securities other than pursuant to clause (B) of this paragraph (ii), then such acquisition shall constitute a Trigger Event; or (iii) Individuals who constitute the Incumbent Board (as hereinafter defined) cease for any reason to constitute at least a majority of the Board of Directors. "Incumbent Board" shall mean individuals who as of March 19, 1991, constitute the Board of Directors and any individual who becomes a director subsequent to March 19, 1991, whose election, or nomination for election by the Corporation's shareholders, is approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or (iv) Approval by the shareholders of the Corporation of a reorganization, merger or consolidation, in each case unless, following such reorganization, merger or consolidation, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation of the Outstanding Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding the Corporation, any employee benefit plan (or related trust) of the Corporation and the Berkshire Group) beneficially owns, directly or indirectly, 20% or more, and the Berkshire Group does not beneficially own, directly or indirectly, more than 30%, of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation and (C) at least a majority of the members of the Board of Directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (v) Approval by the shareholders of the Corporation of (x) a complete liquidation or dissolution of the Corporation or (y) the sale or other disposition of all or substantially all of the assets of the Corporation, other than to a corporation with respect to which, following such sale or other disposition, (A) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding the Corporation, any employee benefit plan (or related trust) of the Corporation and the Berkshire Group) beneficially owns, directly or indirectly, 20% or more, and the Berkshire Group does not beneficially own, directly or indirectly, more than 30% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation and (C) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Corporation. For the purpose of this Section, the terms "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule l2b-2 of the General Rules and Regulations under the Exchange Act, as in effect on March l9, 1991. (b) Upon the occurrence of a Trigger Event, as defined in this Section 10, each and every option outstanding under the Plan which was granted more than 6 months prior thereto shall be exercisable in full. 11. Miscellaneous. (a) The grant of any option shall be subject to the execution by an optionee of a written option agreement in the form, and containing the terms, specified by the Committee. (b) Nothing in this Plan or in any option granted hereunder shall be construed as conferring upon any employee any right to continue in the service of the Corporation or any of its subsidiary corporations. (c) The grant of options under the Plan, the issuance and delivery of shares upon exercise of options, and all other matters, shall be subject to all laws, rules and regulations as may from time to time be applicable thereto. (d) Subject to such rules and regulations as the Committee may establish, the holder of an option may irrevocably elect to satisfy any Federal, state or local tax withholding obligation arising in connection with his exercise of such option by (i) requesting the Corporation to withhold shares of Common Stock otherwise deliverable to him upon such exercise and/or (ii) tendering to the Corporation shares of Common Stock previously held by him. Any such election must be made prior to the date the amount of tax to be withheld is to be determined (the "Tax Date") and shall be subject to the consent or disapproval of the Committee. Any shares of Common Stock so withheld or tendered shall be valued at their fair market value on the Tax Date. If the holder of the option is subject to the reporting requirements of Section 16a of the Exchange Act, any such election must be made either (i) during the "window period" beginning on the third business day following the date of the release of the Corporation's quarterly or annual summary statement of sales and earnings and ending on the twelfth business day following such date, or (ii) at least 6 months prior to the Tax Date, and shall be subject to and in conformity with the provisions of Rule l6b-3 promulgated under the Exchange Act. 12. Approval of Shareholders. This Plan is subject to the approval of the shareholders of the Corporation within one year of the date of its adoption by the Board of Directors. If the Plan is not so approved, the Plan and any options granted hereunder shall be and become void. -----END PRIVACY-ENHANCED MESSAGE-----