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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIER EVENT REPORTED):
MARCH 26, 1996
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THE WALT DISNEY COMPANY
(Exact Name of Registrant as Specified in its Charter)
DELAWARE
(State or Jurisdiction of Incorporation)
<TABLE>
<S> <C>
1-11605 95-4545390
(Commission File Number) (IRS Employer Identification No.)
</TABLE>
<TABLE>
<S> <C>
500 SOUTH BUENA VISTA STREET, BURBANK, CALIFORNIA 91521
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
(818) 560-1000
(Registrant's Telephone Number)
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ITEM 5. OTHER EVENTS
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
are based upon the consolidated financial statements of Disney Enterprises, Inc.
("Old Disney"), which prior to the acquisition (the "Acquisition") of Captial
Cities/ABC, Inc. ("Capital Cities") was known as the "The Walt Disney Company,"
and Capital Cities, combined and adjusted to give effect to the Acquisition. As
a result of the Acquisition, all of the outstanding shares of Capital Cities
common stock ("Capital Cities Common Stock") was converted into the right to
receive 154.6 million shares of common stock ("Disney Common Stock") of The Walt
Disney Company ("Disney"), which prior to the Acquisition was known as "DC
Holdco, Inc.," and $10.1 billion in cash.
The following unaudited pro forma combined condensed statements of income
for the three months ended December 31, 1995 and the year ended September 30,
1995 give effect to the Acquisition as if it had occurred at the beginning of
each period presented. The unaudited pro forma combined condensed statement of
income for the three months ended December 31, 1995 was prepared based upon the
unaudited consolidated statements of income of Old Disney and Capital Cities for
the three months ended December 31, 1995. The unaudited pro forma combined
condensed statement of income for the year ended September 30, 1995 was prepared
based upon the audited consolidated statement of income of Old Disney for the
year ended September 30, 1995 and the unaudited consolidated statements of
income of Capital Cities for the nine months ended October 1, 1995 and the three
months ended December 31, 1994.
The following unaudited pro forma combined condensed balance sheet as of
December 31, 1995 gives effect to the Acquisition as if it had occurred on such
date and was prepared based upon the unaudited consolidated balance sheets of
Old Disney and Capital Cities as of December 31, 1995.
These unaudited pro forma combined condensed financial statements and the
notes thereto should be read in conjunction with the Old Disney and Capital
Cities audited consolidated financial statements and unaudited interim
consolidated financial statements, including the notes thereto, which are
included in the reports of Old Disney and Capital Cities that are filed pursuant
to the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
The unaudited pro forma combined condensed financial statements are not
necessarily indicative of the results of operations or financial position of the
combined company that would have occurred had the Acquisition occurred at the
beginning of the periods presented or on the date indicated, nor are they
necessarily indicative of future operating results or financial position.
The unaudited pro forma adjustments are based upon information set forth in
the Prospectus of Disney and Old Disney, dated March 7, 1996 or the Joint Proxy
Statement/Prospectus of Old Disney and Capital Cities, dated November 13, 1995
and the Supplement to the Joint Proxy Statement/Prospectus, dated February 9,
1996, or included in the reports of Old Disney and Capital Cities that are filed
pursuant to the informational requirements of the Exchange Act, and certain
assumptions included in the notes to the unaudited pro forma combined condensed
financial statements. Disney believes the pro forma assumptions are reasonable
under the circumstances. In addition, as of the date hereof, Disney believes
that the unaudited pro forma combined condensed financial statements reflect the
impact on the operations and liquidity of Disney of all material events or
changes expected to result from the Acquisition.
The Acquisition will be accounted for by the purchase method of accounting.
Accordingly, Disney's cost to acquire Capital Cities (the "Purchase
Consideration") of $18.9 billion at December 31, 1995 will be allocated to the
assets acquired and liabilities assumed according to their respective fair
values, with the excess Purchase Consideration being allocated to goodwill. The
Disney Common Stock that is included in the Purchase Consideration is valued at
the approximate market price of Old Disney's common stock ($57 per share) when
the transaction was announced. The final allocation of the Purchase
Consideration is dependent upon certain valuations and other studies that have
not progressed to a stage where there is sufficient information to make such an
allocation in the accompanying unaudited pro forma combined
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condensed financial statements. Accordingly, the purchase allocation adjustments
made in connection with the development of the unaudited pro forma combined
condensed financial statements are preliminary and have been made solely for the
purpose of developing such unaudited pro forma combined condensed financial
statements.
The $16.1 billion pro forma excess of the Purchase Consideration over
tangible net assets acquired as of December 31, 1995 is being amortized over 40
years at a rate of $402 million per year, in accordance with generally accepted
accounting principles, which require that acquired intangible assets be
amortized over periods not to exceed 40 years. Disney believes that the
intangible assets acquired, representing principally the franchises and
trademarks of Capital Cities, represent scarce assets with indefinite lives,
which have historically appreciated in value over time. In addition, the
Acquisition will permit the continued expansion of current lines of business, as
well as the development of new businesses, via the cross promotion of the well
known franchises, trademarks and products of Old Disney and Capital Cities.
Disney believes it will benefit from the Acquisition for an indeterminable
period of time of at least 40 years and, therefore, a 40-year amortization
period is appropriate. After consummation of the Acquisition, Disney will
complete the valuations and other studies of the significant assets, liabilities
and business operations of Capital Cities. Using this information, Disney will
make a final allocation of the Purchase Consideration, including allocation to
tangible assets and liabilities, identifiable intangible assets and goodwill.
Disney believes that any significant allocation of excess Purchase Consideration
to intangible assets other than goodwill will be amortized over periods
approximating 40 years.
Disney will perform periodic reviews of the goodwill and other intangible
assets arising from the Acquisition, to ensure that they are carried at
recoverable amounts in light of current business conditions.
The future results of operations of Disney will reflect increased
amortization of intangible assets, increased interest expense and a higher
effective income tax rate, since a significant portion of the consideration to
be received by Capital Cities shareholders as a result of the consummation of
the Acquisition will be non-deductible for tax purposes. The future financial
position of Disney will reflect increased intangible assets as described above,
increased borrowings and increased stockholders' equity resulting from the
issuance of Disney Common Stock to shareholders of Capital Cities. See "Notes to
Unaudited Pro Forma Combined Condensed Financial Statements."
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UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, 1995
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HISTORICAL
-------------------- PRO FORMA
CAPITAL ----------------------
OLD DISNEY CITIES ADJUSTMENTS COMBINED
---------- ------- ----------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues.................................................... $3,818 $ 2,057 $5,875
Costs and Expenses.......................................... 2,850 1,644 $ (57)(a) 4,437
Depreciation................................................ 115 30 145
Amortization of Intangible Assets........................... 17 84(b) 101
---------- ------- ----- --------
Operating Income............................................ 853 366 (27) 1,192
General and Administrative Expenses......................... 54 54
Interest Expense (Income), Net.............................. 13 (5) 170(c) 178
Other Expense (Income), Net................................. 22 (65) (43)
---------- ------- ----- --------
Income Before Income Taxes.................................. 764 436 (197) 1,003
Income Taxes................................................ 268 201 (44)(d) 425
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Net Income.................................................. $ 496 $ 235 $(153) $ 578
---------- ------- ----- --------
---------- ------- ----- --------
Earnings Per Share.......................................... $ 0.93 $ 1.53 $ 0.84(e)
---------- ------- --------
---------- ------- --------
Average Number of Common and Common Equivalent Shares
Outstanding................................................ 534 154 689(e)
---------- ------- --------
---------- ------- --------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1995
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HISTORICAL
--------------------- PRO FORMA
CAPITAL -----------------------
OLD DISNEY CITIES ADJUSTMENTS COMBINED
----------- ------- ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues.................................................... $12,112 $ 6,796 $18,908
Costs and Expenses.......................................... 9,233 5,273 $ (34)(a) 14,472
Depreciation................................................ 433 111 544
Amortization of Intangible Assets........................... 64 344(b) 408
----------- ------- ----- ---------
Operating Income............................................ 2,446 1,348 (310) 3,484
General and Administrative Expenses......................... 184 44 228
Interest Expense (Income), Net.............................. 110 (4) 682(c) 788
Other Expense, Net.......................................... 35 2 37
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Income Before Income Taxes.................................. 2,117 1,306 (992) 2,431
Income Taxes................................................ 737 572 (253)(d) 1,056
----------- ------- ----- ---------
Net Income.................................................. $ 1,380 $ 734 $(739) $ 1,375
----------- ------- ----- ---------
----------- ------- ----- ---------
Earnings Per Share.......................................... $ 2.60 $ 4.77 $ 2.01(e)
----------- ------- ---------
----------- ------- ---------
Average Number of Common and Common Equivalent Shares
Outstanding................................................ 530 154 685(e)
----------- ------- ---------
----------- ------- ---------
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
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UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
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HISTORICAL
--------------------- PRO FORMA
CAPITAL -------------------------
OLD DISNEY CITIES ADJUSTMENTS COMBINED
----------- ------- ------------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS
Cash and Cash Equivalents................................. $ 997 $ 1,327 $(1,824)(a) $ 500
Investments............................................... 614 101 (600)(b) 115
Receivables............................................... 2,416 1,193 3,609
Inventories............................................... 784 784
Film and Television Costs................................. 2,297 699 2,996
Theme Parks, Resorts and Other Property, Net.............. 6,440 1,306 7,746
Intangible Assets, Net.................................... 2,110 13,988(c) 16,098
Other Assets.............................................. 1,728 880 2,608
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$15,276 $ 7,616 $11,564 $34,456
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----------- ------- ------------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts and Taxes Payable and Other Accrued
Liabilities.............................................. $ 3,360 $ 1,623 $ (381)(d) $ 4,602
Borrowings................................................ 2,775 522 8,071(e) 11,368
Other Liabilities......................................... 2,017 533 2,550
Stockholders' Equity...................................... 7,124 4,938 3,874(f) 15,936
----------- ------- ------------- ---------
$15,276 $ 7,616 $11,564 $34,456
----------- ------- ------------- ---------
----------- ------- ------------- ---------
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
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NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
(TABULAR DOLLARS IN MILLIONS)
The unaudited pro forma combined condensed financial statements reflect the
conversion of each outstanding share of Capital Cities Common Stock (154.6
million shares as of February 9, 1996, the effective date of the Acquisition)
into 154.6 million shares of Disney Common Stock and $10.1 billion in cash.
<TABLE>
<S> <C>
The Purchase Consideration is detailed as follows:
Cash................................................................ $10,049
Disney Common Stock................................................. 8,812
Settlement of certain benefit plans (1)............................. 65
-------
Total Purchase Consideration.......................................... 18,926
Less: Capital Cities tangible net assets as of December 31, 1995...... 2,828
-------
Excess of Purchase Consideration over tangible net assets acquired.... $16,098
-------
-------
</TABLE>
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(1) As a result of the Acquisition, certain Capital Cities benefit plans became
fully vested and the related benefits became immediately payable in a single
lump-sum distribution. In addition, the Acquisition results in accelerated
vesting of Capital Cities Options which, for purposes of these pro forma
combined condensed financial statements, are assumed to be settled in cash.
The amount included in the Purchase Consideration reflects total estimated
payments of $446 million, less related amounts accrued at December 31, 1995
of $327 million, and less estimated income tax benefits of $54 million.
Acquisition expenses, including debt issuance costs, are not expected to be
material and, accordingly, have not been included in the unaudited pro forma
combined condensed financial statements.
Transactions between Old Disney and Capital Cities have not been eliminated
from the unaudited pro forma combined condensed financial statements, as the
amounts are immaterial in the periods presented.
The impact on Disney's financial position from the disposition of its
investment in KCAL-TV and from the disposition of either Capital Cities'
newspaper or radio station operations in Detroit and Dallas/Fort Worth is not
expected to be material and, accordingly, has not been reflected in the
unaudited pro forma combined condensed financial statements.
Certain reclassifications have been made to Old Disney's and Capital Cities'
historical consolidated financial statements to set forth the unaudited pro
forma combined condensed financial statements of Disney after giving effect to
the Acquisition.
Pro forma adjustments giving effect to the Acquisition in the unaudited pro
forma combined condensed statements of income reflect the following:
(a) Elimination of merger costs which are assumed to have been incurred
prior to the Acquisition.
(b) Amortization of the excess of Purchase Consideration over tangible
net assets acquired on a straight-line basis over 40 years, net of
elimination of Capital Cities' historical amortization of excess acquisition
costs over the values assigned to tangible net assets acquired in prior
acquisitions.
(c) Increase in interest expense resulting from the use of new
borrowings to finance a portion of the Purchase Consideration and reduction
in investment and interest income, resulting from the use of certain
short-term investments and cash to fund partial payment of the Purchase
Consideration. The interest rate on new borrowings of $8.1 billion is
assumed to be 6.5%.
(d) Income tax effect of pro forma adjustments, excluding amortization
of the excess of the Purchase Consideration over tangible net assets
acquired, which is non-deductible for tax purposes.
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(e) Earnings per share based upon the weighted average number of shares
of Old Disney common stock and common equivalent shares outstanding for the
periods presented, including the shares of Disney Common Stock assumed to be
issued in connection with the Acquisition, as if they had been issued at the
beginning of the periods presented.
Pro forma adjustments giving effect to the Acquisition in the unaudited pro
forma combined condensed balance sheet reflect the following:
(a) Liquidation of certain cash balances to fund partial payment of the
Purchase Consideration.
(b) Liquidation of certain short-term investments to fund partial
payment of the Purchase Consideration.
(c) Excess of Purchase Consideration over net assets acquired, net of
Capital Cities' historical excess of purchase consideration over the values
assigned to tangible net assets acquired in prior acquisitions.
(d) Liquidation of accrued liabilities related to the cash settlement of
certain Capital Cities benefit plans and recording of income tax benefits
related to the distribution of accelerated benefits.
(e) New borrowings to finance the cash portion of the Purchase
Consideration and the cash settlement of certain Capital Cities benefit
plans.
(f) Cancellation of Old Disney treasury stock, elimination of Capital
Cities stockholders' equity, and issuance of 154.6 million shares of Disney
Common Stock.
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SIGNATURES
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 hereunto duly authorized.
THE WALT DISNEY COMPANY
Date: March 25, 1996 By: /s/ DAVID K. THOMPSON
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David K. Thompson
Senior Vice President -- Assistant
General Counsel
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