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.
<PAGE>
PART I. FINANCIAL INFORMATION
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENT OF INCOME
In millions, except per share data (unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
========== ========== ========== ==========
========== ========== ========== ==========
</TABLE>
<PAGE>
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
In millions
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
============== ===============
(unaudited)
<S> <C> <C>
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
======== =========
======== =========
</TABLE>
<PAGE>
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
In millions (unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30
===============================
1996 1995
============ ============
<S> <C> <C>
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
========= =========
========= =========
</TABLE>
<PAGE>
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.
<PAGE>
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.
<TABLE>
<CAPTION>
(in millions, except per share data)
Quarter Ended June 30, Nine Months Ended June 30,
======================= ===========================
1996 1995 1996 1995
========== ========= =========== ============
<S> <C> <C> <C> <C>
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
</TABLE>
(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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<TABLE>
<CAPTION>
(unaudited; in millions, except per share data)
Pro forma As reported
======================== =======================
1996 1995 % Change 1996 1995 % Change
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
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.
<PAGE>
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
<TABLE>
<CAPTION>
(unaudited; in millions, except per share data)
Pro forma As reported
======================== =========================
1996 1995 % Change 1996 1995 % Change
<S> <C> <C> <C> <C> <C> <C>
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
====== ===== ====== =====
</TABLE>
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.
<PAGE>
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.
<PAGE>
The Walt Disney Company
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Business Segment Results - Quarter
<TABLE>
<CAPTION>
(Unaudited; in millions)
Pro forma As reported
=========================== =============================
1996 1995 %Change 1996 1995 %Change
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
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.
<PAGE>
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.
<PAGE>
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
<TABLE>
<CAPTION>
(Unaudited; in millions)
Pro forma As reported
=========================== ============================
1996 1995 %Change 1996 1995 %Change
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
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0
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