<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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 30, 1996
------------------------
THE WALT DISNEY COMPANY
(Exact Name of Registrant as Specified in its Charter)
DELAWARE
(State or Jurisdiction of Incorporation)
1-11605 95-4545390
(Commission File Number) (IRS Employer Identification No.)
500 SOUTH BUENA VISTA STREET, BURBANK, CALIFORNIA 91521
(Address of Principal Executive Offices) (Zip Code)
(818) 560-1000
(Registrant's Telephone Number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 5. OTHER EVENTS
CAPITAL CITIES/ABC, INC.
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Auditors............................................................................. 1
Consolidated Statement of Income........................................................................... 2
Consolidated Statement of Cash Flows....................................................................... 3
Consolidated Balance Sheet................................................................................. 4
Consolidated Statement of Stockholders' Equity............................................................. 5
Notes to Consolidated Financial Statements................................................................. 6
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
The Walt Disney Company
We have audited the accompanying consolidated balance sheets of Capital
Cities/ABC, Inc. as of December 31, 1995 and 1994, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Capital
Cities/ABC, Inc. at December 31, 1995 and 1994, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
New York, New York
March 8, 1996
1
<PAGE>
CAPITAL CITIES/ABC, INC.
CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net revenues............................................................ $ 6,878,558 $ 6,379,237 $ 5,673,653
------------ ------------ ------------
Costs and expenses
Direct operating expenses............................................. 4,077,210 3,745,689 3,557,301
Selling, general and administrative................................... 1,297,396 1,222,202 1,097,826
Depreciation.......................................................... 115,761 109,128 95,032
Amortization of intangible assets..................................... 65,733 63,407 61,345
Merger costs.......................................................... 91,302 -- --
------------ ------------ ------------
5,647,402 5,140,426 4,811,504
------------ ------------ ------------
Operating income........................................................ 1,231,156 1,238,811 862,149
------------ ------------ ------------
Other income (expense)
Interest expense...................................................... (57,152) (55,070) (59,772)
Interest income....................................................... 72,294 24,553 36,650
Miscellaneous, net.................................................... 67,038 (2,980) (10,648)
------------ ------------ ------------
82,180 (33,497) (33,770)
------------ ------------ ------------
Income before income taxes.............................................. 1,313,336 1,205,314 828,379
------------ ------------ ------------
Income taxes
Federal............................................................... 470,300 425,700 300,100
State and local....................................................... 114,400 99,800 60,900
------------ ------------ ------------
584,700 525,500 361,000
------------ ------------ ------------
Income before extraordinary charge...................................... 728,636 679,814 467,379
Extraordinary charge, net of income taxes............................... -- -- (12,122)
------------ ------------ ------------
Net income.............................................................. $ 728,636 $ 679,814 $ 455,257
------------ ------------ ------------
------------ ------------ ------------
Income per share before extraordinary charge............................ $ 4.73 $ 4.42 $ 2.85
Extraordinary charge per share.......................................... -- -- (.07)
------------ ------------ ------------
Net income per share.................................................... $ 4.73 $ 4.42 $ 2.78
------------ ------------ ------------
------------ ------------ ------------
Average shares outstanding (000's omitted).............................. 153,960 153,890 163,800
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes.
2
<PAGE>
CAPITAL CITIES/ABC, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities
Net income............................................................ $ 728,636 $ 679,814 $ 455,257
Adjustments to reconcile net income to net cash
Noncash and nonoperating items
Depreciation...................................................... 115,761 109,128 95,032
Amortization of intangible assets................................. 65,733 63,407 61,345
(Decrease) increase in deferred liabilities....................... (225,144) 45,988 7,995
Extraordinary charge, early debt redemption....................... -- -- 12,122
Other noncash and nonoperating items.............................. 77,672 50,315 31,009
------------ ----------- -------------
Cash from operations before changes in operating assets and
liabilities, net of effects of acquisitions and dispositions....... 762,658 948,652 662,760
Decrease in program assets and liabilities, net................... 17,229 63,779 29,722
(Increase) in accounts receivable................................. (131,048) (169,572) (57,895)
Increase in accounts payable, accrued expenses and other current
liabilities...................................................... 430,195 156,225 5,741
(Increase) decrease in other operating assets, net................ (19,002) (22,860) 20,190
------------ ----------- -------------
Net cash provided by operating activities............................... 1,060,032 976,224 660,518
------------ ----------- -------------
Cash flows from investing activities
Capital expenditures.................................................. (131,103) (121,460) (97,788)
Acquisition of operating companies and equity investments............. (312,343) (214,536) (133,294)
Purchases of short-term investments................................... (845,003) (590,483) (1,474,233)
Sales and maturities of short-term investments........................ 982,405 526,237 1,811,255
Proceeds from disposition of real estate.............................. -- 22,000 --
Proceeds from dispositions of operating companies and equity
investments.......................................................... 40,523 -- 12,500
Other investing activities, net....................................... (78,686) (52,708) 8,068
------------ ----------- -------------
Net cash (used in) provided by investing activities..................... (344,207) (430,950) 126,508
------------ ----------- -------------
Cash flows from financing activities
Common stock purchased for treasury................................... (78,217) (27,607) (715,010)
Common stock issued under employee stock plans........................ 43,471 31,099 29,365
Dividends............................................................. (30,785) (23,873) (3,238)
Payments of long-term debt............................................ (104,143) (7,805) (504,873)
Premium on early redemption of debt................................... -- -- (15,915)
------------ ----------- -------------
Net cash (used in) financing activities................................. (169,674) (28,186) (1,209,671)
------------ ----------- -------------
Net increase (decrease) in cash and short-term cash investments......... 546,151 517,088 (422,645)
Cash and short-term cash investments
Beginning of period................................................... 781,371 264,283 686,928
------------ ----------- -------------
End of period......................................................... $ 1,327,522 $ 781,371 $ 264,283
------------ ----------- -------------
------------ ----------- -------------
</TABLE>
See accompanying notes.
3
<PAGE>
CAPITAL CITIES/ABC, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets
Cash and short-term cash investments.................................................. $ 1,327,522 $ 781,371
Short-term investments................................................................ 100,667 238,029
Accounts and notes receivable (net of allowance for doubtful accounts of
$34,299 in 1995 and $46,419 in 1994)................................................. 1,193,412 1,056,280
Program licenses and rights........................................................... 545,059 440,443
Other current assets.................................................................. 225,846 200,064
----------- -----------
Total current assets................................................................ 3,392,506 2,716,187
----------- -----------
Property, plant and equipment, at cost
Land.................................................................................. 298,692 297,525
Buildings and improvements............................................................ 738,408 718,806
Broadcasting and publishing equipment................................................. 1,020,579 944,031
Other, including construction-in-progress............................................. 164,744 162,132
----------- -----------
2,222,423 2,122,494
Less accumulated depreciation......................................................... 916,026 831,838
----------- -----------
Property, plant and equipment, net.................................................. 1,306,397 1,290,656
----------- -----------
Intangible assets (net of accumulated amortization of $653,166 in 1995 and
$592,637 in 1994)...................................................................... 2,109,920 1,999,305
Program licenses and rights, noncurrent................................................. 154,395 195,563
Investment in unconsolidated equity affiliates.......................................... 403,169 334,460
Other assets............................................................................ 250,398 232,041
----------- -----------
$ 7,616,785 $ 6,768,212
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable...................................................................... $ 193,114 $ 163,566
Accrued compensation.................................................................. 446,887 131,370
Accrued interest...................................................................... 10,126 9,636
Accrued expenses and other current liabilities........................................ 335,984 263,618
Program licenses and rights........................................................... 359,834 281,923
Taxes on income....................................................................... 214,968 189,267
Long-term debt due within one year.................................................... 7,520 4,176
----------- -----------
Total current liabilities........................................................... 1,568,433 1,043,556
Deferred compensation................................................................... 21,483 188,492
Deferred income taxes................................................................... 180,140 247,532
Program licenses and rights, noncurrent................................................. 41,982 39,259
Other liabilities....................................................................... 222,502 233,987
Long-term debt due after one year....................................................... 513,874 610,666
----------- -----------
Total liabilities................................................................... 2,548,414 2,363,492
----------- -----------
Minority interest....................................................................... 130,084 116,163
----------- -----------
Stockholders' equity
Preferred stock, no par value (4,000,000 shares authorized)........................... -- --
Common stock, $0.10 par value (300,000,000 shares authorized)......................... 18,394 18,394
Additional paid-in capital............................................................ 1,047,810 1,036,068
Unrealized net gains on investments................................................... 43,633 57,008
Retained earnings..................................................................... 5,446,475 4,748,624
----------- -----------
6,556,312 5,860,094
Less common stock in treasury, at cost (30,026,730 shares in 1995 and
29,877,163 shares in 1994)........................................................... 1,618,025 1,571,537
----------- -----------
Total stockholders' equity.......................................................... 4,938,287 4,288,557
----------- -----------
$ 7,616,785 $ 6,768,212
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
4
<PAGE>
CAPITAL CITIES/ABC, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
UNREALIZED
ADDITIONAL NET GAINS
COMMON PAID-IN ON RETAINED TREASURY
STOCK CAPITAL INVESTMENTS EARNINGS STOCK TOTAL
----------- ----------- ----------- --------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1993.................. $ 18,394 $1,031,607 $ -- $3,640,664 $ (884,923) $3,805,742
Net income for 1993.................... -- -- -- 455,257 -- 455,257
725,850 shares issued under Employee
Stock Purchase Plan................... -- 1,023 -- -- 26,437 27,460
104,550 shares issued on exercise of
employee stock options................ -- (1,996) -- -- 3,901 1,905
11,442,170 shares purchased for
treasury.............................. -- -- -- -- (715,010) (715,010)
Cash dividends......................... -- -- -- (3,238) -- (3,238)
----------- ----------- ----------- --------- ---------- ---------
Balance December 31, 1993................ 18,394 1,030,634 -- 4,092,683 (1,569,595) 3,572,116
Net income for 1994.................... -- -- -- 679,814 -- 679,814
648,480 shares issued under Employee
Stock Purchase Plan................... -- 5,993 -- -- 24,480 30,473
31,402 shares issued on exercise of
employee stock options................ -- (559) -- -- 1,185 626
447,945 shares purchased for
treasury.............................. -- -- -- -- (27,607) (27,607)
Cash dividends......................... -- -- -- (23,873) -- (23,873)
Adjustment to beginning balance for
change in accounting method, net of
income taxes of $32,174............... -- -- 46,491 -- -- 46,491
Change in unrealized net gains, net of
income taxes of $7,278................ -- -- 10,517 -- -- 10,517
----------- ----------- ----------- --------- ---------- ---------
Balance December 31, 1994................ 18,394 1,036,068 57,008 4,748,624 (1,571,537) 4,288,557
Net income for 1995.................... -- -- -- 728,636 -- 728,636
704,489 shares issued under Employee
Stock Purchase Plan................... -- 12,171 -- -- 29,328 41,499
57,008 shares issued on exercise of
employee stock options................ -- (429) -- -- 2,401 1,972
911,064 shares purchased for
treasury.............................. -- -- -- -- (78,217) (78,217)
Cash dividends......................... -- -- -- (30,785) -- (30,785)
Change in unrealized net gains, net of
income taxes of $9,257................ -- -- (13,375) -- -- (13,375)
----------- ----------- ----------- --------- ---------- ---------
Balance December 31, 1995................ $ 18,394 $1,047,810 $ 43,633 $5,446,475 $(1,618,025) $4,938,287
----------- ----------- ----------- --------- ---------- ---------
</TABLE>
See accompanying notes.
5
<PAGE>
CAPITAL CITIES/ABC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUBSEQUENT EVENT
On July 31, 1995, Capital Cities/ABC, Inc. (the "Company") announced it
would merge with The Walt Disney Company ("Walt Disney"). Under the terms of the
agreement, the Company's shareholders have the right to receive one share of
Walt Disney stock and $65 in cash for each of their shares. The merger, after
approval of certain regulatory agencies and the shareholders of both companies,
closed on February 9, 1996. These financial statements are prepared on the basis
of a going concern, and, as such, have not been adjusted to reflect the
allocation of the purchase price to the net assets acquired.
During 1995, the Company incurred approximately $91,000,000 of
merger-related costs. These costs consist primarily of additional provisions for
long-term incentive compensation expense as a result of the merger-related
increase in the Company's share price as well as legal costs, printing and other
expenses directly related to the merger. In 1996, upon closing of the merger,
the Company incurred approximately $140,000,000 of similar, additional
merger-related expenses.
2. ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include
the accounts of all significant subsidiaries. Investments in other companies
which are at least 20% owned are reported on the equity method. The Company's
share of income or loss is included in "Miscellaneous, net" on the income
statement. All significant intercompany accounts and transactions have been
eliminated.
PROPERTY, PLANT AND EQUIPMENT - DEPRECIATION -- Depreciation is computed on
the straight-line method for financial accounting purposes and on accelerated
methods for tax purposes. Estimated useful lives for major asset categories are
10-55 years for buildings and improvements, 4-20 years for broadcasting
equipment and 5-20 years for publishing machinery and equipment. Leasehold
improvements are amortized over the terms of the leases.
INTANGIBLE ASSETS -- Intangible assets consist of amounts by which the cost
of acquisitions exceeded the values assigned to net tangible assets. The
broadcasting and publishing intangible assets, all of which may be characterized
as scarce assets with very long and productive lives, have historically
increased in value with the passage of time. In accordance with Accounting
Principles Board Opinion No. 17, substantially all of these intangible assets
are being amortized over periods of up to 40 years, even though in the opinion
of management there has been no diminution of value of the underlying assets.
PROGRAM LICENSES AND RIGHTS -- Program licenses and rights and related
liabilities are recorded when the license period begins and the program is
available for use. Television network and station rights for theatrical movies
and other long-form programming are charged to expense primarily on accelerated
bases related to the usage of the program. Television network series costs and
multi-year sports rights are charged to expense based on the flow of anticipated
revenue.
INVESTMENTS -- As of January 1, 1994, the Company adopted Statement of
Financial Accounting Standard No. 115, "ACCOUNTING FOR CERTAIN INVESTMENTS IN
DEBT AND EQUITY SECURITIES." The cumulative effect of adopting Standard No. 115
increased the opening balance of stockholders' equity by $46,491,000 (net of
$32,174,000 of deferred income taxes) to reflect the net unrealized holding
gains on securities classified as available-for-sale previously carried at
amortized cost or the lower of cost or market.
At December 31, 1995, cash and short-term cash investments consist primarily
of highly liquid U.S. Government obligations with maturities of three months or
less at the time of purchase. They include $1,303,559,000 of securities which
are classified as held-to-maturity and are carried at amortized cost, which
approximates market.
Short-term investments, which consist of highly liquid U.S. Government
instruments with original maturities in excess of three months, include
$100,667,000 of securities which are classified as held-to-maturity. They are
carried at amortized cost, which approximates market.
6
<PAGE>
CAPITAL CITIES/ABC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACCOUNTING POLICIES (CONTINUED)
Also, classified as available-for-sale are marketable equity securities
which are included in "Other assets" on the balance sheet with a cost of
$35,739,000 and a market value of $109,567,000.
RISKS AND UNCERTAINTIES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.
OTHER -- In June 1994, the Company effected a ten-for-one stock split on
common shares then outstanding. All share, per share and average share
information in the Consolidated Financial Statements and the Notes thereto have
been restated to reflect the stock split.
3. LONG-TERM DEBT
Long-term debt at December 31, 1995 and 1994 is as follows (000's omitted):
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
8 3/4% debentures due 2021............................................ $ 250,000 $ 250,000
8 7/8% notes due 2000................................................. 250,000 250,000
Commercial paper supported by bank revolving credit agreement......... -- 100,000
Other long-term debt.................................................. 21,394 14,842
---------- ----------
$ 521,394 $ 614,842
---------- ----------
---------- ----------
</TABLE>
The aggregate payments of long-term debt outstanding at December 31, 1995,
for the next five years are summarized as follows: 1996 -- $7,520,000; 1997 --
$7,549,000; 1998 -- $6,159,000; 1999 -- $166,000; 2000 -- $250,000,000.
Interest paid on long-term debt during 1995, 1994 and 1993 amounted to
$61,318,000, $59,292,000 and $83,002,000, respectively.
Commercial paper had been outstanding throughout most of 1995 but was repaid
by the end of the year in contemplation of the merger with Walt Disney. The
commercial paper had been supported by a bank revolving credit agreement which
was terminated in February 1996.
The 8 7/8% notes and the 8 3/4% debentures are not redeemable prior to
maturity and are not subject to any sinking fund.
During 1993, the Company redeemed $500,000,000 of notes and debentures. An
extraordinary charge of $12,122,000 (net of income taxes of $7,706,000), or
$0.07 per share, was recorded related to these redemptions.
The fair value of the Company's long-term debt, estimated based on the
quoted market prices for similar issues or on the current rates offered to the
Company for debt of similar remaining maturities, was approximately $615,000,000
and $628,000,000 at December 31, 1995 and 1994, respectively.
4. EMPLOYEE BENEFIT PLANS
The Company has defined benefit pension plans covering substantially all of
its employees not covered by union plans. The Company's policy is to fund
amounts as are necessary on an actuarial basis to provide for pension benefits
in accordance with the requirements of ERISA. Benefits are generally based on
years of service and compensation. The weighted average discount rate used in
determining the actuarial present
7
<PAGE>
CAPITAL CITIES/ABC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. EMPLOYEE BENEFIT PLANS (CONTINUED)
value of the projected benefit obligation was 8% at December 31, 1995 and 8.5%
at December 31, 1994. The rate of increase in future compensation levels and the
expected long-term rate of return on assets were 5% and 8%, respectively, in
1995 and 1994.
The components of net pension cost for 1995, 1994 and 1993 are as follows
(000's omitted):
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Service cost of current period........................... $ 21,255 $ 18,624 $ 15,494
Interest cost on projected benefit obligation............ 50,899 48,049 42,499
Actual return on plan assets............................. (124,028) (18,294) (39,731)
Net amortization and deferral............................ 85,485 (18,799) 2,561
----------- ---------- ----------
Net pension cost......................................... $ 33,611 $ 29,580 $ 20,823
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
The following table sets forth the pension plans' funded status and amounts
recognized in the balance sheet at December 31, 1995 and 1994 (000's omitted):
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Actuarial present value of accumulated plan benefits (including vested benefits of
$554,319 in 1995 and $477,029 in 1994)................................................. $ 572,170 $ 491,692
----------- -----------
----------- -----------
Plan assets at fair value, primarily publicly traded securities and short-term cash
investments............................................................................ $ 620,584 $ 523,774
Projected benefit obligation for service rendered to date............................... (682,128) (599,884)
----------- -----------
Plan assets less than projected benefit obligation...................................... (61,544) (76,110)
Prior service cost not yet recognized in net periodic pension cost...................... 21,542 25,867
Unrecognized net (gain) loss from past experience different from that assumed........... (28,379) 14,101
Unrecognized net transition amount being recognized principally over 15 years........... (10,365) (12,470)
----------- -----------
Accrued pension cost included in balance sheet.......................................... $ (78,746) $ (48,612)
----------- -----------
----------- -----------
</TABLE>
For certain employees not covered by pension plans, the Company contributes
to profit sharing plans. The profit sharing plans provide for contributions by
the Company in such amount as the Board of Directors may annually determine.
Contributions to the profit sharing plans of $6,237,000, $6,228,000 and
$6,045,000 were charged to expense in 1995, 1994 and 1993, respectively.
The Company also has a Savings & Investment Plan which allows eligible
employees to allocate up to 10% of salary, through payroll deduction, among a
Company stock fund, several diversified equity funds, a bond fund and a money
market fund. The Company matches 50% of the employee's contribution, up to 5% of
salary. In 1995, 1994 and 1993, the cost of this plan (net of forfeitures) was
$13,354,000, $12,055,000 and $11,204,000, respectively. Upon closing of the
merger, the Company stock fund was replaced by a Walt Disney stock fund.
In addition to the Company's defined benefit pension plans and qualified
profit sharing plans, the Company provides certain postretirement medical and
life insurance benefits to eligible retirees and dependents. Covered individuals
include retired and active employees who have met certain age and service
requirements at various dates during 1989. No other employees become eligible
for postretirement benefits after these dates. The benefits are subject to
deductibles, co-payment provisions and other limitations. The Company reserves
the right to amend, modify or discontinue these plans in the future.
The accumulated postretirement benefit obligation was determined using an
assumed discount rate of 8% at December 31, 1995 and 8.5% at December 31, 1994.
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 10.6%; the rate was assumed to decrease
8
<PAGE>
CAPITAL CITIES/ABC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. EMPLOYEE BENEFIT PLANS (CONTINUED)
gradually to 5.5% by the year 2004 and remain at that level thereafter. An
increase in the assumed health care cost trend rate by one percentage point in
each year would increase the accumulated postretirement benefit obligation as of
December 31, 1995 by approximately $12,850,000 and the aggregate of the service
and interest cost components of net postretirement benefit cost for the year
then ended by approximately $996,000.
The following table sets forth the plans' amounts recognized in the
consolidated balance sheet at December 31, 1995 and 1994 for the Company's
defined postretirement benefit plans (other than pensions) (000's omitted):
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................................ $ 72,585 $ 63,978
Fully eligible active participants.................................. 24,589 23,022
Other active participants........................................... 21,566 22,352
---------- ----------
Total accumulated postretirement benefit obligation................... 118,740 109,352
Unrecognized net loss................................................. (14,992) (8,812)
---------- ----------
Accrued postretirement benefit cost................................... $ 103,748 $ 100,540
---------- ----------
---------- ----------
</TABLE>
Net postretirement benefit cost (other than pensions) for 1995, 1994 and
1993 consisted of the following components (000's omitted):
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Service cost-current period...................................... $ 709 $ 1,171 $ 1,232
Interest cost on accumulated postretirement benefit obligation... 9,068 8,181 8,141
Net amortization and deferral.................................... (177) 68 --
--------- --------- ---------
Net postretirement benefit cost.................................. $ 9,600 $ 9,420 $ 9,373
--------- --------- ---------
--------- --------- ---------
</TABLE>
5. COMMITMENTS
At December 31, 1995, the Company is committed to the purchase of broadcast
rights for various feature films, sports and other programming aggregating
approximately $4,096,000,000. The aggregate payments related to these
commitments during the next five years are summarized as follows:
1996 -- $1,569,250,000; 1997 -- $968,589,000; 1998 -- $649,494,000; 1999 --
$419,579,000; 2000 -- $344,530,000.
9
<PAGE>
CAPITAL CITIES/ABC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. COMMITMENTS (CONTINUED)
Rental expense under operating leases amounted to $107,204,000, $97,965,000
and $86,312,000 for 1995, 1994 and 1993, respectively. Future minimum annual
rental payments under non-cancelable leases are as follows (000's omitted):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- ----------
<S> <C> <C>
1996.................................................................. $ 6,862 $ 69,673
1997.................................................................. 5,882 63,444
1998.................................................................. 5,356 58,663
1999.................................................................. 5,248 53,729
2000.................................................................. 5,320 48,054
2001 and thereafter................................................... 106,468 116,337
---------- ----------
Minimum lease payments................................................ 135,136 $ 409,900
----------
----------
Imputed interest...................................................... (95,655)
----------
Present value of minimum lease payments............................... $ 39,481
----------
----------
</TABLE>
Total minimum payments for operating leases have not been reduced for future
minimum sublease rentals aggregating $7,982,000.
6. SEGMENT DATA
The Company's business operations are classified into two segments:
Broadcasting and Publishing. Broadcasting operations include the ABC Television
Network and ten television stations, the ABC Radio Networks, radio stations,
cable television programming and multimedia business activities. The Publishing
segment includes newspapers, shopping guides, various specialized business
periodicals and books, research
10
<PAGE>
CAPITAL CITIES/ABC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. SEGMENT DATA (CONTINUED)
services and database publishing. There are no material product transfers
between segments of the Company, and virtually all of the Company's business is
conducted within the United States. The segment data is as follows (000's
omitted):
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BROADCASTING
Net revenues............................... $ 5,727,524 $ 5,277,126 $ 4,663,215 $ 4,265,561 $ 4,329,743
------------ ------------ ------------ ------------ ------------
Direct operating costs................... 4,418,688 4,015,864 3,762,988 3,523,143 3,537,676
Depreciation............................. 93,857 86,727 75,424 76,406 75,883
Amortization of intangible assets........ 50,163 47,337 46,726 46,695 46,476
------------ ------------ ------------ ------------ ------------
Total operating costs...................... 4,562,708 4,149,928 3,885,138 3,646,244 3,660,035
------------ ------------ ------------ ------------ ------------
Income from operations..................... $ 1,164,816 $ 1,127,198 $ 778,077 $ 619,317 $ 669,708
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Assets at year-end......................... $ 5,116,769 $ 4,650,611 $ 4,389,700 $ 4,357,152 $ 4,249,089
Capital expenditures....................... 105,005 102,850 78,526 94,255 106,254
PUBLISHING
Net revenues............................... $ 1,151,034 $ 1,102,111 $ 1,010,438 $ 1,078,566 $ 1,052,246
------------ ------------ ------------ ------------ ------------
Direct operating costs................... 977,114 911,384 851,787 908,791 895,402
Depreciation............................. 19,309 19,639 18,385 18,072 18,084
Amortization of intangible assets........ 15,570 16,070 14,619 15,314 15,855
------------ ------------ ------------ ------------ ------------
Total operating costs...................... 1,011,993 947,093 884,791 942,177 929,341
------------ ------------ ------------ ------------ ------------
Income from operations..................... $ 139,041 $ 155,018 $ 125,647 $ 136,389 $ 122,905
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Assets at year-end......................... $ 795,740 $ 814,907 $ 824,369 $ 777,512 $ 886,482
Capital expenditures....................... 25,270 18,183 18,657 20,276 13,878
CONSOLIDATED
Net revenues............................... $ 6,878,558 $ 6,379,237 $ 5,673,653 $ 5,344,127 $ 5,381,989
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Income from operations..................... 1,303,857 $ 1,282,216 $ 903,724 $ 755,706 $ 792,613
General corporate expense................ (72,701) (43,405) (41,575) (33,901) (31,380)
------------ ------------ ------------ ------------ ------------
Operating income........................... 1,231,156 1,238,811 862,149 721,805 761,233
Interest expense......................... (57,152) (55,070) (59,772) (104,009) (179,347)
Interest and miscellaneous, net.......... 139,332 21,573 26,002 68,132 80,310
------------ ------------ ------------ ------------ ------------
Income before income taxes................. $ 1,313,336 $ 1,205,314 $ 828,379 $ 685,928 $ 662,196
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Assets employed by segments................ $ 5,912,509 $ 5,465,518 $ 5,214,069 $ 5,134,664 $ 5,135,571
Cash investments and other corporate
assets.................................... 1,704,276 1,302,694 578,549 1,387,495 1,560,141
------------ ------------ ------------ ------------ ------------
Total assets at year-end................... $ 7,616,785 $ 6,768,212 $ 5,792,618 $ 6,522,159 $ 6,695,712
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
7. INCOME TAXES
The Company accounts for income taxes under the liability method of
accounting pursuant to Financial Accounting Standard No. 109.
11
<PAGE>
CAPITAL CITIES/ABC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
The provision for taxes on income (before the extraordinary charge for 1993)
differs from the amount of tax determined by applying the federal statutory rate
for the following reasons (000's omitted):
<TABLE>
<CAPTION>
1995 1994 1993
----------------------- ----------------------- ---------------------
AMOUNT % AMOUNT % AMOUNT %
------------ --------- ------------ --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income before income taxes......................... $ 1,313,336 $ 1,205,314 $ 828,379
------------ ------------ ----------
------------ ------------ ----------
Income tax expense at statutory federal rate....... $ 459,668 35.0 $ 421,860 35.0 $ 289,933 35.0
State and local income taxes, net of federal
benefit........................................... 75,063 5.7 66,137 5.5 40,321 4.9
Amortization of intangibles........................ 18,439 1.4 18,272 1.5 17,950 2.2
Other, net......................................... 31,530 2.4 19,231 1.6 12,796 1.5
------------ --- ------------ --- ---------- ---
Total.............................................. $ 584,700 44.5 $ 525,500 43.6 $ 361,000 43.6
------------ --- ------------ --- ---------- ---
------------ --- ------------ --- ---------- ---
</TABLE>
Income tax expense is comprised of the following (000's omitted):
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Federal
Current................................................ $ 526,400 $ 468,600 $ 312,800
Deferred............................................... (56,100) (42,900) (12,700)
---------- ---------- ----------
470,300 425,700 300,100
---------- ---------- ----------
State and local
Current................................................ 130,200 111,900 65,500
Deferred............................................... (15,800) (12,100) (4,600)
---------- ---------- ----------
114,400 99,800 60,900
---------- ---------- ----------
Total.................................................... $ 584,700 $ 525,500 $ 361,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Income taxes paid, net of refunds received, during 1995, 1994 and 1993
amounted to $633,335,000, $535,198,000 and $341,587,000, respectively.
Deferred income taxes represent the tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
12
<PAGE>
CAPITAL CITIES/ABC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax asset (recorded in
other current assets on the balance sheet) and liability as of December 31, 1995
and 1994, are as follows (000's omitted):
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Current
Programming........................................................................... $ 49,382 $ 42,708
Other, net............................................................................ 90,701 83,256
----------- -----------
Net current deferred tax asset.......................................................... $ 140,083 $ 125,964
----------- -----------
----------- -----------
Noncurrent
Deferred compensation................................................................. $ 115,254 $ 67,059
Postretirement benefits other than pensions........................................... 43,060 41,783
Basis differences on prior business combinations...................................... (248,783) (253,251)
Basis differences for certain investments in debt and equity securities............... (30,195) (39,452)
Accelerated depreciation.............................................................. (141,463) (129,047)
Other, net............................................................................ 81,987 65,376
----------- -----------
Net noncurrent deferred tax liability................................................... $ (180,140) $ (247,532)
----------- -----------
----------- -----------
</TABLE>
8. COMMON STOCK PLANS
The Company has stock option plans under which certain key personnel have
been granted the right to purchase shares of common stock over a 6-, 10- or
11-year period from the date of grant at prices equal to market value on the
grant date. All options vested 100% upon the approval of the merger by the
shareholders of the Company. Each participant could elect to receive cash or to
have his option assumed by Walt Disney and converted into options to purchase
Walt Disney common stock. The following information pertains to the Company's
stock option plans:
<TABLE>
<CAPTION>
1995 1994 1993
------------------ ------------------ ------------------
<S> <C> <C> <C>
Outstanding options, beginning of year.............. 676,258 442,660 357,460
Granted............................................. 75,000 265,000 191,000
Canceled or expired................................. (16,500) -- (1,250)
Exercised........................................... (57,008) (31,402) (104,550)
------------------ ------------------ ------------------
Outstanding options, end of year.................... 677,750 676,258 442,660
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Average price of options exercised during the
year............................................... $34.42 $18.07 $15.92
Exercise price of outstanding options, end of
year............................................... $ 38.19 to $97.13 $ 18.64 to $83.00 $ 13.11 to $63.48
Options exercisable, end of year.................... 294,500 218,008 176,660
Options available for future grant.................. -- 4,444,000 4,709,000
</TABLE>
The Company had an Employee Stock Purchase Plan which allowed eligible
employees, through contributions of up to 15% of their compensation, to purchase
shares at 85% of the lower of fair market value at the Grant Date or at the
Purchase Date (normally one year subsequent). Employees purchased 704,489,
648,480 and 725,850 shares under the Plan in 1995, 1994 and 1993, respectively.
The Plan terminated on the closing of the merger. An additional 676,315 Company
shares were issued to employees at that date.
13
<PAGE>
CAPITAL CITIES/ABC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following summarizes the Company's results of operations for each
quarter of 1995 and 1994 (000's omitted, except per share amounts). The net
income per share computation for each quarter and the year are separate
calculations.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
1995
Net revenues............................... $ 1,606,815 $ 1,648,689 $ 1,566,528 $ 2,056,526 $ 6,878,558
Costs and expenses....................... 1,321,921 1,296,516 1,338,642 1,690,323 5,647,402
------------ ------------ ------------ ------------ ------------
Operating income........................... 284,894 352,173 227,886 366,203 1,231,156
Interest expense......................... (14,493) (14,555) (14,983) (13,121) (57,152)
Interest and miscellaneous, net.......... 8,758 32,966 15,134 82,474 139,332
------------ ------------ ------------ ------------ ------------
Income before income taxes................. 279,159 370,584 228,037 435,556 1,313,336
Income taxes............................. 121,400 161,700 101,000 200,600 584,700
------------ ------------ ------------ ------------ ------------
Net income................................. $ 157,759 $ 208,884 $ 127,037 $ 234,956 $ 728,636
------------ ------------ ------------ ------------ ------------
Net income per share....................... $ 1.02 $ 1.36 $ 0.83 $ 1.53 $ 4.73
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
1994
Net revenues............................... $ 1,404,949 $ 1,538,092 $ 1,461,932 $ 1,974,264 $ 6,379,237
Costs and expenses....................... 1,191,187 1,195,766 1,218,829 1,534,644 5,140,426
------------ ------------ ------------ ------------ ------------
Operating income........................... 213,762 342,326 243,103 439,620 1,238,811
Interest expense......................... (13,031) (13,406) (14,129) (14,504) (55,070)
Interest and miscellaneous, net.......... 4,750 6,368 7,001 3,454 21,573
------------ ------------ ------------ ------------ ------------
Income before income taxes................. 205,481 335,288 235,975 428,570 1,205,314
Income taxes............................. 89,400 145,800 102,300 188,000 525,500
------------ ------------ ------------ ------------ ------------
Net income................................. $ 116,081 $ 189,488 $ 133,675 $ 240,570 $ 679,814
------------ ------------ ------------ ------------ ------------
Net income per share....................... $0.76 $1.23 $0.87 $1.56 $4.42
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
10. COMMON STOCK AND STOCKHOLDER INFORMATION (UNAUDITED)
As of December 31, 1995, the approximate number of holders of common stock
was 11,300. Dividends of $.05 per share have been paid for each quarter of 1995
and the last three quarters of 1994 and $.005 for the first quarter of 1994. The
common stock was traded on the New York and Pacific Stock Exchanges. The high,
low and closing prices of the Company's common stock for each quarter of 1995
and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------------- -------------------------------
HIGH LOW CLOSE HIGH LOW CLOSE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1st quarter............................... 91 3/4 82 3/4 88 1/2 $ 71 7/8 $ 60 1/4 $ 68 3/8
2nd quarter............................... 109 1/2 80 3/4 108 75 1/2 66 1/4 71 1/2
3rd quarter............................... 121 95 1/2 117 5/8 85 3/8 71 1/8 82
4th quarter............................... 126 7/8 115 1/4 123 3/8 86 1/2 76 1/8 85 1/4
</TABLE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibit 23 Consent of Independent Auditors (Ernst & Young LLP).
14
<PAGE>
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: April 26, 1996 By: /s/ DAVID K. THOMPSON
--------------------------------------
David K. Thompson
Senior Vice President -- Assistant
General Counsel
15
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in Form 8-K (Current Report) of The Walt Disney
Company filed on April 26, 1996 and to the incorporation by reference in the
Registration Statement (Form S-3 No. 62777) and related Prospectus of The Walt
Disney Company and DC Holdco, Inc. of our report dated March 8, 1996 with
respect to the consolidated financial statements of Capital Cities/ABC, Inc. for
the years ended December 31, 1995 and 1994 and for each of the three years in
the period ended December 31, 1995, filed with the Securities and Exchange
Commission.
ERNST & YOUNG LLP
New York, New York
April 26, 1996
