-----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, WLItuZNROJnX7akrzzig1nzb2BmM+a1XNDFIWCh4/BNbF0iauGuTiR9MSI/11Bkt hI2+pe6j5jdQlrkOvV0dWw== 0001001039-96-000022.txt : 19960805 0001001039-96-000022.hdr.sgml : 19960805 ACCESSION NUMBER: 0001001039-96-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960802 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WALT DISNEY CO/ CENTRAL INDEX KEY: 0001001039 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] 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: 96603230 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 June 30, 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 680,670,488 shares of common stock outstanding as of July 15, 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 Ended Nine Months Ended June 30 June 30 1996 1995 1996 1995 ---------- ---------- ---------- ---------- REVENUES $5,087 $2,773 $13,467 $9,027 COSTS AND EXPENSES (4,131) (2,199) (10,992) (7,057) ACCOUNTING CHANGE - - (300) - ========== ========== ========= ========= OPERATING INCOME 956 574 2,175 1,970 CORPORATE ACTIVITIES AND OTHER (66) (65) (248) (157) NET INTEREST EXPENSE (171) (21) (267) (101) ACQUISITION-RELATED COSTS - - (225) - ========== ========== ========== ========== INCOME BEFORE INCOME TAXES 719 488 1,435 1,712 INCOME TAXES 313 170 557 596 ========== ========== ========== ========== NET INCOME $ 406 $ 318 $ 878 $1,116 ========== ========== ========== ========== ========== ========== ========== ========== EARNINGS PER SHARE $ 0.59 $ 0.60 $ 1.47 $ 2.11 ========== ========== ========== ========== ========== ========== ========== ========== Average number of common and common equivalent shares outstanding 691 532 597 530 ========== ========== ========== ========== ========== ========== ========== ==========
THE WALT DISNEY COMPANY CONDENSED CONSOLIDATED BALANCE SHEET In millions
June 30, September 30, 1996 1995 ============== =============== (unaudited) ASSETS Cash and cash equivalents $ 357 $ 1,077 Investments 511 866 Receivables 3,029 1,793 Merchandise inventories 854 824 Film and television costs 3,566 2,099 Theme parks, resorts and other property, net of accumulated depreciation of $4,356 and $3,039 7,618 6,190 Intangible assets, net 18,092 - Other assets 2,551 1,757 ======== ========= $ 36,578 $ 14,606 ======== ========= ======== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Accounts and taxes payable and accrued liabilities $ 6,503 $ 3,043 Borrowings 11,705 2,984 Deferred income taxes 987 1,067 Unearned royalty and other advances 1,149 861 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 - 681 million shares and 575 million shares 8,514 1,226 Retained earnings 7,671 6,990 Cumulative translation and other adjustments 49 38 ======== ========= 16,234 8,254 Less treasury shares, at cost - 51 million shares at September 30, 1995 - 1,603 ======== ========= 16,234 6,651 ======== ========= $ 36,578 $ 14,606 ======== ========= ======== =========
THE WALT DISNEY COMPANY CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS In millions (unaudited)
Nine Months Ended June 30 =============================== 1996 1995 ============ ============ NET INCOME $ 878 $ 1,116 ========= ========= CHARGES TO INCOME NOT REQUIRING CASH OUTLAYS Amortization of film and television costs 2,086 994 Depreciation 509 346 Amortization of intangibles 187 - Accounting change 300 - Other 49 78 CHANGES IN Investments in trading securities 85 (78) Receivables (111) 221 Merchandise inventories 2 (60) Other assets (359) (182) Accounts and taxes payable and accrued liabilities (239) 442 Deferred income taxes 167 (119) Unearned royalty and other advances 244 (12) ========= ========= 2,920 1,630 ========= ========= CASH PROVIDED BY OPERATIONS 3,798 2,746 ========= ========= INVESTING ACTIVITIES Acquisition of Capital Cities/ABC, Inc., net of cash acquired (8,432) - Film and television costs (3,131) (1,373) Investments in theme parks, resorts and other property (1,194) (695) Purchases of investments (18) (893) Proceeds from sale of investments 350 831 Other - 79 ========= ========= (12,425) (2,051) ========= ========= FINANCING ACTIVITIES Borrowings 9,692 1,186 Reduction of borrowings (1,630) (760) Repurchases of common stock - (349) Dividends (197) (133) Exercise of stock options and other 42 131 ========= ========= 7,907 75 ========= ========= Increase (Decrease) in Cash and Cash Equivalents (720) 770 Cash and Cash Equivalents, Beginning of Period 1,077 187 ========= ========= Cash and Cash Equivalents, End of Period $ 357 $ 957 ========= ========= ========= =========
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 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 estimates of their respective fair values. Assets acquired totaled $4.6 billion (of which $1.5 billion was cash) and liabilities assumed were $4.2 billion. A total of $18.3 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 from 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 June 30, Nine Months Ended June 30, ======================= =========================== 1996 1995 1996 1995 ========== ========= =========== ============ Revenues $5,087 $4,423 $15,966 $14,258 Net income (1) $ 406 $ 326 $ 1,008 $1,109 Earnings per share(1) $ 0.59 $ 0.47 $ 1.46 $ 1.62
(1) The 1996 nine-month period includes the impact of a $300 million non-cash charge related to the initial adoption of a new accounting standard (see Note 4). The charge reduced earnings per share by $0.27 for the period. 3. During June 1996, the Company issued Yen 100 billion (approximately $920 million) of Japanese yen bonds through a public offering in Japan. The bonds are senior, unsecured debt obligations of the Company which mature in June 1999. Interest on the bonds is payable semi-annually at a fixed rate of 5% per year through maturity. The bonds provide for principal payments in dollars and interest payments in Japanese yen. The Company simultaneously entered into a cross-currency swap agreement which effectively converted the interest obligation to dollars at a LIBOR-based variable interest rate. Also during June 1996, the Company established a European Medium-Term Note Program (the "Program"). Pursuant to the Program, the Company issued lira 300 billion (approximately $190 million) of Italian lira bonds through an offering in Europe. The bonds are senior, unsecured debt obligations of the Company which mature in June 2000. Interest on the bonds is payable annually at a fixed rate of 8.63% per year. The Company simultaneously entered into a cross-currency swap agreement which effectively converted the bonds into dollar denominated LIBOR-based variable rate instruments. The proceeds from both offerings were used to partially retire commercial paper borrowings related to the acquisition of Capital Cities. Commercial paper outstanding as of June 30, 1996 totaled $4.7 billion with maturities of up to one year, and an average interest rate of 5.4%. 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. Notes to Condensed Consolidated Financial Statements (continued) 4. During the second quarter of the current year, 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. 5. Dividends per share for the quarters ended June 30, 1996 and 1995 were $0.11 and $0.09, respectively. The Walt Disney Company Management's Discussion and Analysis of Financial Condition and Results of Operations Seasonality The Company's businesses are subject to the effects of seasonality. Consequently, the operating results for the quarter ended June 30, 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 Nine Months Ended June 30, 1996 On February 9, 1996, the Company acquired Capital Cities/ABC, Inc. ("Capital Cities"). The Company's results of operations have incorporated Capital Cities activity commencing upon such date. To enhance comparability, 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 those periods. Pro forma and as reported results reflect the impact of the acquisition including the use of purchase accounting as well as significant increases in amortization of intangible assets, interest expense, the effective income tax rate and shares outstanding. Consolidated Results - Quarter
(unaudited; in millions, except per share data) Pro forma As reported ======================== ======================= 1996 1995 % Change 1996 1995 % Change Revenues $5,087 $4,423 15% $5,087 $2,773 83% Costs and Expenses (4,131) (3,593) 15% (4,131) (2,199) 88% ------ ------ ------ ------ Operating Income 956 830 15% 956 574 67% Corporate Activities and Other (66) (50) 32% (66) (65) 2% Net Interest Expense (171) (193) (11)% (171) (21) n/m Income Before Income Taxes 719 587 22% 719 488 47% Income Taxes 313 261 20% 313 170 84% Net Income $ 406 $ 326 25% $ 406 $ 318 28% Earnings Per Share $ 0.59 $ 0.47 26% $ 0.59 $ 0.60 (2)% Amortization of Intangible Assets Included in Operating Income $ 113 $ 113 - $ 113 $ - n/m
Net income for the quarter increased 25% and 28% on a pro forma and as reported basis, respectively, to $406 million. These results were driven by increased operating income on both an as reported and pro forma basis. Pro forma operating income reflects increases in all business segments. As reported operating income reflects the operations of Capital Cities from the effective date of the acquisition. Excluding amortization of acquisition-related intangible assets, as reported earnings per share increased 25% to $0.75 over the prior-year quarter. The Walt Disney Company Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Consolidated Results - Quarter (continued) As reported net interest expense increased to $171 million primarily due to acquisition-related borrowings during the second quarter. The effective income tax rate increased from 34.8% to 43.6% reflecting the impact of non-deductible amortization of intangible assets, and higher state taxes all arising from the acquisition. Pro forma net interest expense decreased 11% from the prior-year quarter to $171 million due primarily to lower interest rates. Consolidated Results - Nine Months
(unaudited; in millions, except per share data) Pro forma As reported ======================== ========================= 1996 1995 % Change 1996 1995 % Change Revenues $15,966 $14,258 12% $13,467 $9,027 49% Costs and Expenses (13,157)(11,503) 14% (10,992)(7,057) 56% Accounting Change (300) - n/m (300) - n/m ---- --- ---- --- Operating Income 2,509 2,755 (9)% 2,175 1,970 10% Corporate Activities and Other (188) (153) 23% (248) (157) 58% Net Interest Expense (510) (602) (15)% (267) (101) n/m Acquisition-Related Costs - - (225) - n/m Income Before Income Taxes 1,811 2,000 (9)% 1,435 1,712 (16)% Income Taxes 803 891 (10)% 557 596 (7)% Net Income $ 1,008 $1,109 (9)% $ 878 $1,116 (21)% Net Income Excluding Non-recurring Charges $ 1,191 $1,109 7% $1,180 $1,116 6% ======= ====== ====== ====== Earnings Per Share $ 1.46 $ 1.62 (10)% $ 1.47 $ 2.11 (30)% Earnings Per Share Excluding Non-recurring Charges $ 1.73 $ 1.62 7% $ 1.98 $ 2.11 (6)% Amortization of Intangible Assets Included in Operating Income $ 339 $ 339 - $ 187 $ - n/m ====== ===== ====== =====
Net income for the nine months, excluding the non-recurring charges discussed below, increased 7% and 6% on a pro forma and as reported basis, respectively, to $1.2 billion. These results were driven by increased operating income on both an as reported and pro forma basis. Pro forma operating income reflects increased operating income in Broadcasting and Theme Parks and Resorts, partially offset by decreased Creative Content operating income. As reported operating income reflects the operation of Capital Cities from the effective date of the acquisition. The Walt Disney Company Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) During the second quarter of the current year, 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," which resulted in the Company recognizing a $300 million non-cash charge. In addition, the Company recognized a $225 million charge for costs related to the acquisition of Capital Cities. Excluding these non-recurring charges and amortization of acquisition-related intangible assets, as reported earnings per share increased 9% over the prior-year period to $2.29. As reported corporate activities and other increased 58% 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 to $267 million due to the impact of new borrowings associated with the acquisition of Capital Cities, partially offset by lower interest rates. Pro forma net interest expense decreased 15% to $510 million reflecting lower interest rates. Business Segment Results The Company's results of operations have incorporated Capital Cities activity from the effective date of the acquisition. The following discussion of pro forma and as reported operating results excludes the impact of the two non-recurring charges, described previously, which were recorded by the Company during the second quarter. 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 $2,284 $1,835 24% $2,284 $1,525 50% Broadcasting 1,554 1,446 7% 1,554 106 n/m Theme Parks & Resorts 1,249 1,142 9% 1,249 1,142 9% Total $5,087 $4,423 15% $5,087 $2,773 83% Operating Income: (1) Creative Content $ 297 $ 264 13% $ 297 $ 240 24% Broadcasting 309 260 19% 309 28 n/m Theme Parks & Resorts 350 306 14% 350 306 14% Total $ 956 $ 830 15% $ 956 $ 574 67% (1) Includes depreciation and amortization (excluding film cost) of: Creative Content $ 55 $ 38 $ 55 $ 23 Broadcasting 131 128 131 2 Theme Parks & Resorts 105 94 105 94 $ 291 $ 260 $ 291 $ 119
Creative Content - Quarter Revenues increased 24% or $449 million to $2.3 billion, driven by growth of $142 million in home video, $105 million in television, $42 million in the Disney Stores, $41 million in character merchandise licensing and $34 million in theatrical. Home video revenues reflect the domestic release of Aristocats and The Many Adventures of Winnie the Pooh. Television revenues increased due to the success of titles in worldwide pay television and syndication. The growth in the Disney Stores primarily reflects the impact of new stores as well as higher comparable store sales. Merchandise licensing revenues reflect the continued strength of standard characters worldwide and increased levels of targeted marketing. Increased theatrical revenues reflect the box office performances of The Rock and The Hunchback of Notre Dame domestically and Toy Story internationally. The Walt Disney Company Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Creative Content - Quarter (continued) Operating income increased 13% or $33 million to $297 million, reflecting increases in home video, television and merchandise licensing, partially offset by lower theatrical results. Costs and expenses, which consist principally of production cost amortization, distribution and selling expenses, merchandise cost, labor and occupancy, increased 26% or $416 million. The increase is primarily due to higher theatrical distribution and amortization costs, higher home video selling costs and expansion of the Disney Stores. Broadcasting - Quarter Revenues increased 7% or $108 million to $1.6 billion, driven by a $58 million increase in revenues at ESPN and The Disney Channel, due primarily to higher advertising revenues and affiliate fees resulting from continued growth at ESPN, and an increase of $23 million at the television stations due primarily to the addition of two stations in September 1995. Operating income increased 19% or $49 million to $309 million, reflecting significant decreases in program amortization, primarily at the television network, and revenue increases at ESPN and The Disney Channel. Costs and expenses, which consist primarily of programming, selling, general and administrative costs increased 5% or $59 million, reflecting increased program rights and production costs, driven by growth at ESPN, partially offset by decreased program amortization at the television network, primarily attributable to the acquisition. Theme Parks and Resorts - Quarter Revenues increased 9% or $107 million to $1.2 billion, reflecting growth of $90 million due to higher domestic and international theme park attendance and increased guest spending in Florida and California, and an increase in occupied rooms at Florida and California resorts, primarily due to increased occupancy. The Walt Disney Company Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Theme Parks and Resorts - Quarter (continued) Operating income increased 14% or $44 million to $350 million, driven by higher theme park attendance and guest spending, and increased occupied rooms at Florida and California 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 8% or $63 million. The increase was primarily due to higher operating costs resulting from increased attendance. Business Segment Results - Nine Months
(Unaudited; in millions) Pro forma As reported =========================== ============================ 1996 1995 %Change 1996 1995 %Change Revenues: Creative Content $7,838 $6,723 17% $7,428 $5,802 28% Broadcasting 4,830 4,619 5% 2,741 308 n/m Theme Parks & Resorts 3,298 2,916 13% 3,298 2,917 13% Total $15,966 $14,258 12% $13,467 $9,027 49% Operating Income: (1) Creative Content $1,226 $1,323 (7)% $1,209 $1,264 (4)% Broadcasting 836 782 7% 519 55 n/m Theme Parks & Resorts 747 650 15% 747 651 15% Total 2,809 2,755 2% 2,475 1,970 26% Accounting Change for SFAS 121 (300) - n/m (300) - n/m Total $2,509 $2,755 (9)% $2,175 $1,970 10% (1) Includes depreciation and amortization (excluding film cost) of: Creative Content $ 151 $ 120 $ 139 $ 75 Broadcasting 391 386 249 6 Theme Parks & Resorts 279 254 279 254 $ 821 $ 760 $ 667 $ 335
The Walt Disney Company Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Creative Content - Nine Months Revenues increased 17% or $1.1 billion to $7.8 billion, driven by growth of $235 million in home video, $210 million in television, $168 million in theatrical, $123 million in character merchandise licensing and $144 million in the Disney Stores. Home video revenues reflect Pocahontas, Cinderella, Aristocats and The Santa Clause domestically, and The Lion King and 101 Dalmatians internationally. Television revenues increased due to the success of titles in worldwide pay television and syndication. Theatrical revenues reflect the box office performance of Toy Story worldwide, Pocahontas internationally and The Rock domestically. Merchandise licensing revenues increased due to the strength of standard characters worldwide and increased levels of targeted marketing. Revenue growth at the Disney Stores reflects the impact of new stores. Operating income decreased 7% or $97 million to $1.2 billion, primarily due to lower theatrical results partially offset by improved results in television, worldwide merchandise licensing and home video. Costs and expenses increased 22% or $1.2 billion. 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 - Nine Months Revenues increased 5% or $211 million to $4.8 billion, reflecting a $200 million increase in revenues at ESPN and The Disney Channel, resulting from higher advertising revenues and affiliate fees due primarily to expansion, partially offset by a $46 million decrease at the television network and stations due to the impact of continuing ratings deterioration and the absence of the Super Bowl in the current period. Operating income increased 7% or $54 million to $836 million, reflecting significant decreases in program amortization, primarily at the television network, and revenue increases at ESPN and The Disney Channel. Decreased program amortization more than offset the revenue decreases at the television network and stations. Costs and expenses increased 4% or $157 million, reflecting increased program rights and production costs driven by growth at ESPN, partially offset by decreased program amortization at the television network, primarily attributable to the acquisition. The Walt Disney Company Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Theme Parks and Resorts - Nine Months Revenues increased 13% or $382 million to $3.3 billion, reflecting growth of $213 million due to higher domestic and international theme park attendance and increased guest spending in Florida and California, and $61 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 and increased occupancy. Operating income increased 15% or $97 million to $747 million, driven by higher theme park attendance and guest spending and increased occupied rooms at Florida resorts. Costs and expenses increased 13% or $285 million. The increase was primarily due to higher operating costs resulting from higher attendance and expansion of theme park attractions and Florida resorts. FINANCIAL CONDITION During the second 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. Also during the second quarter, the Company issued $2.6 billion of five-year and ten-year senior notes. During the current quarter the Company issued approximately $920 million of Japanese yen bonds and approximately $190 million of Italian lira bonds, which mature in three and four years respectively. The proceeds from these issuances were used to partially repay the commercial paper. Bank facilities totaling $7 billion are in place to support the remaining commercial paper outstanding. The Company intends 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 $2.2 billion of debt and preferred equity securities. For the nine months ended June 30, 1996, cash provided by operations increased 38% or $1.1 billion to $3.8 billion. The Walt Disney Company Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Net borrowings (the Company's borrowings less cash and liquid investments) increased $9.8 billion to $11.2 billion, due primarily to new borrowings and liquidation of certain investments in connection with the acquisition of Capital Cities. During the nine months, the Company invested $3.1 billion to produce and acquire film and television properties and $1.2 billion primarily to design and develop new theme park attractions and resort properties. The Company expects the ABC Television Network, ESPN and the Company's television and radio stations 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 $3.8 billion at June 30, 1996. This amount is substantially payable over the next five years. The Company believes that its financial condition is 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 None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K None 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 August 2, 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 nine months ended June 30, 1996 and is qualified in its entirety by reference to such financial statements. 1,000,000 U.S. DOLLARS 9-MOS SEP-30-1995 OCT-01-1995 JUN-30-1996 1 357 511 3,029 0 854 0 11,974 4,356 36,578 0 11,705 0 0 8,514 7,720 36,578 13,467 13,467 0 11,292 473 0 314 1,435 557 878 0 0 0 878 (1.47) (1.47)
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