UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1997 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 X NO
-------- --------
There were 675,133,968 shares of common stock outstanding as of May 1, 1997
(including 1,618,485 shares held by TWDC Stock Compensation Fund, an
affiliate of the Company).
<PAGE>
PART I. FINANCIAL INFORMATION
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
In millions, except per share data (unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31 March 31
<S> <C> <C> <C> <C>
1997 1996 1997 1996
-------- -------- --------- --------
REVENUES $5,481 $4,543 $11,759 $8,380
COSTS AND EXPENSES (4,617) (3,887) (9,468) (6,861)
GAIN ON SALE OF KCAL - - 135 -
ACCOUNTING CHANGE - (300) - (300)
-------- -------- --------- --------
OPERATING INCOME 864 356 2,426 1,219
CORPORATE ACTIVITIES AND OTHER (108) (97) (198) (182)
NET INTEREST EXPENSE (184) (83) (355) (96)
ACQUISITION-RELATED COSTS - (225) - (225)
-------- -------- --------- --------
INCOME/(LOSS) BEFORE INCOME TAXES 572 (49) 1,873 716
INCOME TAX (EXPENSE)/BENEFIT (239) 24 (791) (244)
-------- -------- --------- --------
NET INCOME/(LOSS) $ 333 $ (25) $1,082 $ 472
======== ======== ========= ========
EARNINGS/(LOSS) PER SHARE $ 0.49 $ (0.04) $ 1.58 $ 0.86
======== ======== ========= ========
Average number of common and common
equivalent shares outstanding 686 567 686 550
======== ======== ========= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
In millions, except share data
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, September 30,
1997 1996
----------- --------------
(unaudited)
ASSETS
Cash and cash equivalents $ 1,140 $ 278
Investments 472 454
Receivables 3,638 3,343
Inventories 906 951
Film and television costs 3,747 3,259
Theme parks, resorts and other property,
net of accumulated depreciation of
$4,728 and $4,448 8,443 8,031
Intangible assets, net of accumulated
amortization of $534 and $301 18,494 17,978
Other assets 2,297 2,332
-------- ---------
$ 39,137 $ 36,626
-------- ---------
-------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts and taxes payable and accrued
liabilities $ 6,292 $ 6,276
Borrowings 12,848 12,342
Deferred income taxes 1,979 743
Unearned royalty and other advances 1,161 1,179
Stockholders' equity
Preferred stock, $.01 par value
Authorized - 100 million shares
Issued - none
Common stock, $.01 par value
Authorized - 1.2 billion shares
Issued - 683 million shares and
682 million shares 8,592 8,576
Retained earnings 8,851 7,933
Cumulative translation and other
adjustments (12) 39
Treasury shares, at cost - 8 million shares (462) (462)
Shares held by TWDC Stock Compensation
Fund- 2 million shares (112) -
-------- ---------
16,857 16,086
-------- ---------
$ 39,137 $ 36,626
-------- ---------
-------- ---------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
In millions (unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31
---------------------------
<S> <C> 1997 <C> 1996
----------- -----------
NET INCOME $ 1,082 $ 472
-------- --------
OPERATING ITEMS NOT REQUIRING CASH OUTLAYS
Amortization of film and television costs 2,040 1,183
Depreciation 347 322
Amortization of intangibles 233 74
Gain on sale of KCAL (135) -
Accounting change - 300
Other 28 52
CHANGES IN
Investments in trading securities - 85
Receivables (320) (401)
Inventories 45 (22)
Other assets (203) (238)
Accounts and taxes payable and accrued
liabilities 332 (120)
Deferred income taxes 226 73
Unearned royalty and other advances (18) 168
-------- --------
2,575 1,476
-------- --------
CASH PROVIDED BY OPERATIONS 3,657 1,948
-------- --------
INVESTING ACTIVITIES
Acquisition of Capital Cities/ABC, Inc.,
net of cash acquired - (8,432)
Film and television costs (2,560) (2,156)
Investments in theme parks, resorts and
other property (765) (710)
Proceeds from sale of investments 13 301
Proceeds from sale of KCAL 377 -
Other (45) (16)
-------- --------
(2,980) (11,013)
-------- --------
FINANCING ACTIVITIES
Borrowings 2,206 8,726
Proceeds from formation of REIT 1,311 -
Reduction of borrowings (3,033) (370)
Dividends (163) (122)
Other (136) 35
-------- -------
185 8,269
-------- -------
Increase (Decrease) in Cash and Cash 862 (796)
Equivalents
Cash and Cash Equivalents, Beginning of Period 278 1,077
-------- -------
Cash and Cash Equivalents, End of Period $ 1,140 $ 281
-------- -------
-------- -------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<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 (consisting only
of normal recurring adjustments) considered necessary for a fair
presentation have been reflected in these condensed consolidated financial
statements. Operating results for the quarter are not necessarily
indicative of the results that may be expected for the year ending
September 30, 1997. Certain reclassifications have been made in the 1996
financial statements to conform to the 1997 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, 1996.
2. During the quarter, the Company issued approximately $1.2 billion in debt
secured by certain assets of its newspaper operations. The secured debt has
an interest rate based on one-month LIBOR and a maturity date of September
15, 1999. As discussed below, $990 million of this debt will be assumed by
Knight-Ridder, Inc. in connection with the disposition of certain of the
Company's newspaper operations. The Company also established a real estate
investment trust (REIT) during the quarter and issued equity interests in
the REIT to third-party investors in exchange for $469 million. In a
similar REIT transaction in the first quarter the Company received $842
million.
In addition, for the six-month period, the Company received proceeds of
approximately $1.0 billion through other financing arrangements with
effective interest rates ranging from 4.4% to 5.6% and maturities in fiscal
1999 through fiscal 2012. Certain of these financing arrangements are
denominated in foreign currencies for which the Company has entered into
cross-currency swap agreements effectively converting these obligations
into U.S. dollar denominated LIBOR-based variable rate debt instruments.
Certain of the proceeds from the above transactions were used to retire
commercial paper borrowings. Commercial paper outstanding as of March 31,
1997 totaled $1.5 billion with maturities of up to one year and an average
interest rate of 5.4%. The outstanding commercial paper borrowings are
supported by bank facilities totaling $5 billion, which expire in one to
five years and allow for borrowings at various maturities.
<PAGE>
Notes to Condensed Consolidated Financial Statements (continued)
3. On May 9, 1997, the Company consummated the disposition of a
substantial portion of its newspaper operations, acquired in
the Cap Cities/ABC, Inc. ("ABC") acquisition, for
Knight-Ridder, Inc. stock valued at $660 million and the
assumption by Knight-Ridder, Inc. of pre-existing secured debt
of $990 million. The disposition is not expected to have a
material impact on the financial results of the Company.
Revenues for the newspaper operations to be disposed of totaled $125 million
and $260 million for the quarter and six months ended March 31, 1997,
respectively. Pro forma revenue for the same periods in 1996 was $116
million and $238 million. Operating income was $22 million and $51 million
for the quarter and six months ended March 31, 1997, respectively, and $15
million and $33 million for the same pro forma periods in 1996. Operating
income for both 1997 and 1996 is net of goodwill amortization of $10 million
and $19 million for the quarter and six months, respectively.
The Company will continue to explore its strategic options with respect to
the remaining publishing operations it acquired as part of the ABC
acquisition.
4. In November 1996, the Company sold KCAL, a Los Angeles television station,
for $387 million in cash resulting in a pre-tax gain of $135 million. A
trust has retained $10 million of the sales price to cover certain
contingencies, and will remit any unutilized amount to the Company.
5. Dividends per share for the quarters ended March 31, 1997 and
1996 were $0.1325 and $0.11, respectively.
6. The unaudited pro forma information below for the quarter and six months
ended March 31, 1996 presents combined results of operations as if the
Company's prior-year acquisition of ABC had occurred at the beginning of
such periods. 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 such periods.
<TABLE>
<CAPTION>
(in millions, except per share data)
March 31, 1996
--------------------------------
<S> <C> <C>
Quarter Ended Six Months Ended
-------------- ----------------
Revenues $4,986 $10,879
Net income (1) 21 581
Earnings per share (1) 0.03 0.84
</TABLE>
(1) Amounts include the impact of a $300 million non-cash charge
related to the implementation of Statement of Financial Accounting
Standards No. 121. The charge reduced earnings per share by $0.27 for
the quarter and six months.
<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 and six months ended March
31, 1997 for each line of business, and for the Company as a whole, are not
necessarily indicative of results for the full year.
Creative Content revenues fluctuate based upon the timing of theatrical and
home video releases and seasonal consumer purchasing behavior. Release dates for
theatrical products are determined by several factors, including timing of
vacation and holiday periods and competition in the market.
Broadcasting revenues are influenced by advertiser demand and the seasonal
nature of programming, and generally peak in the spring and fall.
Theme Parks and Resorts revenues fluctuate with changes 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.
RESULTS OF OPERATIONS
For the Quarter and Six Months Ended March 31, 1997
On February 9, 1996, the Company acquired the operations of Capital
Cities/ABC, Inc. ("ABC"). The Company's results of operations have incorporated
ABC's activity since that date. Accordingly, the Company's results for the
prior-year quarter and six-month period on an as reported basis do not fully
reflect the acquisition. To enhance comparability, certain information for the
quarter and six months ended March 31, 1996 has been presented on a "pro forma"
basis and reflects the acquisition of ABC as though it had occurred at the
beginning of such periods. The Company believes prior-year pro forma results
provide more meaningful information for comparing net income, changes in net
income and earnings trends, as the pro forma presentation includes the results
of the Company and its acquired ABC operations for the quarter and six-month
periods. Accordingly, the discussion of fiscal 1997 results below reflects
comparisons to the Company's pro forma fiscal 1996 operating results. 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 such
periods. In addition, the discussion of the Company's operating results excludes
the impact of two non-recurring charges recorded by the Company during the
second quarter of the prior year as well as the gain on the sale of KCAL
recorded by the Company in the first quarter of the current year. Both the
prior-year non-recurring items and the gain on the sale of KCAL are discussed
below.
The Company's fiscal 1997 as reported results and fiscal 1996 pro forma
amounts reflect the impacts 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
resulting from the acquisition.
Consolidated Results - Quarter
<TABLE>
<CAPTION>
(unaudited; in millions, except per share data)
<S> <C> <C> <C> <C>
1996
1996 % (As
1997 (Pro forma) Change reported)
Revenues $5,481 $4,986 10% $4,543
Costs and Expenses (4,617) (4,333) (7)% (3,887)
Accounting Change - (300) n/m (300)
----- ---- ----
Operating Income 864 353 n/m 356
Corporate Activities
and Other (108) (98) (10%) (97)
Net Interest Expense (184) (189) 3% (83)
Acquisition-related Costs - - - (225)
----- ----- -----
Income/(Loss) Before
Income Taxes 572 66 n/m (49)
Income Tax (Expense)/Benefit (239) (45) n/m 24
---- --- ---
Net Income/(Loss) $ 333 $ 21 n/m $ (25)
===== ==== =====
Earnings/(Loss) Per Share $ 0.49 $ 0.03 n/m $ (0.04)
====== ====== =======
Net Income Excluding
Non-recurring Items $ 333 $ 204 63% $ 268
===== ===== =====
Earnings Per Share
Excluding Non-
recurring Items $ 0.49 $ 0.30 63% $ 0.47
==== ==== =====
Amortization of Intangible
Assets Included in $ 119 $ 119 -
Operating Income ===== =====
</TABLE>
Excluding the prior-year non-recurring charges, discussed below, net income
and earnings per share for the quarter increased 63% to $333 million and $0.49,
respectively. These results were driven by increased operating income in all
business segments. During the second quarter of the prior year, the Company
recorded two non-recurring charges consisting of a $300 million non-cash charge
related to the implementation of Statement of Financial Accounting Standards No.
121 and a $225 million charge for costs related to the acquisition of ABC. These
non-recurring charges reduced as reported net income from $268 million to a loss
of $25 million for the prior-year quarter and reduced as reported earnings per
share from $0.47 to a per share loss of $0.04 for the prior-year quarter. The
decline in the effective tax rates reflected the absence of these non-recurring
charges in the current year.
<PAGE>
Consolidated Results - Six Months
<TABLE>
<CAPTION>
(unaudited; in millions, except per share data)
<S> <C> <C> <C> <C>
1996
1996 % (As
1997 (Pro forma) Change reported)
----- ----------- ------ ---------
Revenues $11,759 $10,879 8% $8,380
Costs and Expenses (9,468) (9,038) (5)% (6,861)
Gain on Sale of KCAL 135 - n/m -
Accounting Change - (300) n/m (300)
------ ---- ----
Operating Income 2,426 1,541 57% 1,219
Corporate Activities
and Other (198) (122) (62)% (182)
Net Interest Expense (355) (356) n/m (96)
Acquisition Related Costs - - n/m (225)
---- ---- ----
Income Before Income Taxes 1,873 1,063 76% 716
Income Taxes (791) (482) (64)% (244)
---- ---- ----
Net Income $ 1,082 $ 581 86% $ 472
======= ===== == =====
Earnings Per Share $ 1.58 0.84 88% $ 0.86
====== ==== == =======
Net Income Excluding
Non-recurring Charges $ 1,002 $ 764 31% $ 765
and KCAL Gain ======= ===== =====
Earnings Per Share Excluding
Non-recurring Charges $ 1.46 $ 1.11 32% $ 1.39
and KCAL Gain ====== ====== ======
Amortization of Intangible
Assets Included in $ 233 $ 238 -
Operating Income ===== =====
</TABLE>
Net income for the six months, excluding the prior-year non-recurring
charges and the gain on the sale of KCAL, increased 31% to $1.0 billion and
earnings per share increased 32% to $1.46. During the first quarter the Company
sold KCAL, a Los Angeles television station, resulting in a pre-tax gain of $135
million. The gain on the sale of KCAL increased net income from $1.0 billion to
$1.1 billion and earnings per share from $1.46 to $1.58.
Corporate Activities and Other was impacted by certain non-recurring gains
in the prior-year six months primarily related to the sale of an investment in a
cellular communications company.
The decrease in the effective income tax rate versus the prior year pro
forma rate reflects the absence of the accounting change in the current year.
<PAGE>
Business Segment Results - Quarter
<TABLE>
<CAPTION>
(Unaudited; in millions)
<S> <C> <C> <C> <C>
1996
1996 % (As
1997 (Pro forma) Change reported)
------ ----------- ------ ---------
Revenues:
Creative Content $2,750 $2,532 9% $2,440
Broadcasting 1,528 1,399 9% 1,048
Theme Parks & Resorts 1,203 1,055 14% 1,055
----- ----- -- -----
Total $5,481 $4,986 10% $4,543
====== ====== == ======
Operating Income: (1)
Creative Content $ 390 $ 250 56% $ 260
Broadcasting 238 201 18% 194
Theme Parks & Resorts 236 202 17% 202
--- --- ---
864 653 32% 656
Accounting Change - (300) n/m (300)
--- ---- ----
Total $ 864 $ 353 n/m $ 356
===== ===== =====
(1) Includes depreciation and amortization
(excluding film costs) of:
Creative Content $ 60 $ 56
Broadcasting 131 129
Theme Parks & Resorts 90 87
--- ---
$ 281 $ 272
=== ===
</TABLE>
Creative Content
Revenues increased 9% or $218 million to $2.8 billion, driven by growth of
$102 million in television distribution, $73 million in theatrical revenues, $42
million in character merchandise licensing and $31 million in the Disney Stores,
partially offset by reductions in home video revenues of $45 million. Growth in
television was driven by an increase in the distribution of theatrical releases
into the international television market. The increase in theatrical revenues
reflected the box office successes of The English Patient, Evita and Jungle 2
Jungle domestically and 101 Dalmatians and Ransom internationally. Character
merchandise licensing reflected the strength of film and television properties
domestically, including 101 Dalmatians and Winnie the Pooh, and standard
characters internationally. Growth at the Disney Stores reflected continued
worldwide expansion with the opening of 19 new stores during the quarter,
bringing the total number of stores to 579. The decline in home video revenues
reflected the prior-year strength of 101 Dalmatians animated release in the
international market.
<PAGE>
Creative Content (continued)
Operating income increased 56% or $140 million to $390 million, reflecting
improved results for theatrical and television distribution and character
merchandise licensing, partially offset by a reduction in home video results
which faced difficult comparisons due to the prior year success of 101
Dalmatians animated release in the international market. Costs and expenses,
which consist primarily of production cost amortization, distribution and
selling expenses, product cost, labor and leasehold expense, increased 3% or $78
million. The increase was primarily due to increased amortization of production
costs in the theatrical distribution, home video and domestic television markets
and the expansion of the Disney Stores, partially offset by decreases in
distribution expenses in the home video and the domestic theatrical markets. In
addition, the prior-year costs included the write-off of certain development
projects.
Broadcasting
Revenues for the quarter increased $129 million or 9% to $1.5 billion,
driven by a $66 million increase at the television network and $76 million at
ESPN and The Disney Channel. The revenue growth at the television network was
primarily the result of ABC's coverage of championship college football games in
the current year. The revenue increase at ESPN was due primarily to higher
affiliate fees resulting from improved subscriber rates, as well as increased
advertising revenues resulting from increased advertising rates.
Operating income for the quarter increased $37 million or 18% to $238
million, reflecting revenue increases at ESPN and The Disney Channel and
improved results at the television network. Results at the television network
reflected the positive impact of current period sporting events, continued
strength in the advertising market and decreased program amortization, partially
offset by lower ratings. Costs and expenses, which consist primarily of
programming, selling, general and administrative costs, increased 8% or $92
million. This increase reflected increased programming rights and production
costs, driven principally by international growth at ESPN, partially offset by
benefits arising from significant reductions in program amortization and other
costs at the television network, primarily attributable to the acquisition.
<PAGE>
Theme Parks and Resorts
Revenues for the quarter increased 14% or $148 million to $1.2 billion,
driven by the Walt Disney World Resort, which had growth of $63 million from
higher guest spending, $46 million due to record attendance and $21 million from
increased occupied room nights. Guest spending growth included $15 million at
the Disney Village Marketplace, most of which was attributable to the October
1996 opening of the World of Disney, the world's largest Disney retail outlet.
The remaining growth in guest spending resulted from pricing and improved market
penetration in merchandise and food and beverage sales. Attendance gains were
driven by increased domestic and international tourist visitation primarily
attributable to the resort's 25th Anniversary celebration. Increased occupied
room nights reflected higher occupancy, as well as more available rooms
resulting from the opening of Disney's BoardWalk Resort during the fourth
quarter of the prior year. Disneyland's revenue grew $11 million reflecting
higher guest spending.
Operating income for the quarter increased 17% or $34 million to $236
million, driven by higher theme park attendance and occupied room nights at the
Walt Disney World Resort and increased guest spending at both Walt Disney World
and Disneyland. 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 13% or $114 million.
The increase was primarily due to higher operating costs resulting from higher
attendance and resort expansion, increased marketing and sales efforts,
including those related to the Walt Disney World Resort's 25th Anniversary
celebration, and increased merchandise costs due to higher guest spending
levels.
<PAGE>
Business Segment Results - Six Months
<TABLE>
<CAPTION>
(Unaudited; in millions)
<S> <C> <C> <C> <C>
1996
1996 % (As
1997 (Pro forma) Change reported)
Revenues:
Creative Content $5,985 $5,608 7% $5,160
Broadcasting 3,421 3,222 6% 1,171
Theme Parks & Resorts 2,353 2,049 15% 2,049
----- ----- -----
Total $11,759 $10,879 8% $8,380
======= ======= ======
Operating Income: (1)
Creative Content $1,101 $ 898 23% $ 909
Broadcasting 716 545 31% 212
Theme Parks & Resorts 474 398 19% 398
--- --- ---
2,291 1,841 24% 1,519
Gain on Sale of KCAL 135 - n/m -
Accounting Change - (300) n/m (300)
----- ---- -----
Total $ 2,426 $ 1,541 57% $ 1,219
======= ======= =======
(1) Includes depreciation and amortization
(excluding film costs) of:
Creative Content $ 118 $ 112
Broadcasting 256 258
Theme Parks & Resorts 187 174
--- ---
$ 561 $ 544
=== ===
</TABLE>
Creative Content
Revenues increased 7% or $377 million to $6.0 billion, driven by growth of
$125 million in the Disney Stores, $115 million in character merchandise
licensing, $65 million in television distribution and $46 million in theatrical
revenue. Growth at the Disney Stores reflected strong holiday sales in the first
quarter and increased revenues due to continued worldwide expansion. Character
merchandise licensing reflected the strength of film and television properties
domestically, including 101 Dalmatians, Winnie the Pooh and Toy Story, and
standard characters internationally. The increase in television revenue was
driven by an increase in the distribution of theatrical releases in the
international television market. The growth in theatrical revenues reflected the
successful box office performances of Ransom and 101 Dalmatians worldwide, The
English Patient domestically and The Hunchback of Notre Dame internationally.
<PAGE>
Creative Content (continued)
Operating income increased 23% or $203 million to $1.1 billion, reflecting
improved results for theatrical distribution, character merchandise licensing
and television distribution, partially offset by a reduction in home video
results which faced difficult comparisons due to the prior-year success of The
Lion King and the 101 Dalmatians animated release internationally. Costs and
expenses increased 4% or $174 million. The increase was primarily due to the
expansion of the Disney Stores and increases in production cost amortization
expense in the theatrical distribution and home video markets, partially offset
by decreases in distribution expenses in the domestic theatrical and
international home video markets. In addition, the prior-year costs include the
second quarter write-off of certain development projects.
Broadcasting
Revenues increased $199 million or 6% to $3.4 billion, driven by a $138
million increase at ESPN and The Disney Channel, a $53 million increase at the
television network, and a $25 million increase at the television stations. The
revenue increase at ESPN was due primarily to higher affiliate fees resulting
from improved subscriber rates, as well as increased advertising revenues,
resulting from higher advertising rates. The revenue growth at the television
network was primarily the result of improved performance of sports programming.
The revenue increase at the television stations was due primarily to increased
political advertising.
Operating income increased $171 million or 31% to $716 million, reflecting
revenue increases at ESPN and The Disney Channel, as well as improved results at
the television network and the television stations. Results at the television
network reflected the positive impact of current period sporting events,
continued strength in the advertising market and decreased program amortization,
partially offset by lower ratings. Costs and expenses increased 1% or $28
million. This increase reflected increased programming rights and production
costs, driven by international growth at ESPN, partially offset by benefits
arising from significant reductions in program amortization and other costs at
the television network, primarily attributable to the acquisition.
<PAGE>
Theme Parks and Resorts
Revenues increased 15% or $304 million to $2.4 billion, reflecting strength
at the Walt Disney World Resort, which had growth of $145 million from increased
guest spending, $82 million from higher attendance and $38 million from
increased occupied room nights. Guest spending growth reflected pricing and
higher per capita merchandise and food and beverage sales as well as $38 million
from the Disney Village Marketplace, primarily attributable to the World of
Disney store. Attendance gains resulted from increased domestic and
international tourism primarily attributable to the 25th Anniversary
celebration. Increased occupied room nights reflected higher occupancy and more
available rooms due to the opening of Disney's BoardWalk Resort in the fourth
quarter of the prior year. Disneyland had revenue growth of $25 million due
primarily to higher guest spending.
Operating income increased 19% or $76 million to $474 million, driven by
higher theme park attendance and occupied room nights at the Walt Disney World
Resort and increased guest spending at both Walt Disney World and Disneyland.
Costs and expenses increased 14% or $228 million. The increase was primarily due
to higher operating costs resulting from higher attendance and resort expansion,
increased marketing and sales efforts, including those related to the Walt
Disney World Resort's 25th Anniversary celebration, and increased merchandise
costs due to higher guest spending levels.
FINANCIAL CONDITION
For the six months ended March 31, 1997, cash provided by operations
increased $1.7 billion to $3.7 billion, which includes the impact of the ABC
acquisition.
During the six months, the Company received $2.2 billion from various
financing arrangements and $1.3 billion from the formation of two real estate
investment trusts, as more fully explained in the notes to the condensed
consolidated financial statements. Certain of the proceeds from these
transactions were used to repay commercial paper borrowings. Commercial paper
borrowings outstanding as of March 31, 1997 totaled $1.5 billion with maturities
of up to one year, and are supported by bank facilities totaling $5 billion,
which expire in one to five years and allow for borrowings at various interest
rates. The Company continues to replace some of the remaining commercial paper
with longer-term financing and may utilize, among other options, a U.S. shelf
registration statement filed in March 1996 and a Euro Medium-Term Note Program
established in June 1996, which collectively will permit the future issuance of
up to approximately $3.0 billion of additional debt.
<PAGE>
FINANCIAL CONDITION (continued)
During the six months, the Company invested $2.6 billion to produce and
acquire film and television properties. These costs are higher than the
prior-year six months due primarily to the inclusion in fiscal 1997 of a full
period of spending at the acquired ABC operations.
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 films, sports and other
programming. Total commitments to purchase broadcast programming approximated
$3.7 billion at March 31, 1997. Substantially all of this amount is 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
The following matters were submitted to a vote of security holders during
the Company's Annual Meeting of Stockholders held February 25, 1997.
Description of Matter
<TABLE>
<CAPTION>
<S> <C> <C>
Votes Cast For Authority Withheld
-------------- -------------------
1. Election of directors:
Reveta F. Bowers 502,362,270 84,757,152
Roy E. Disney 502,476,299 84,643,123
Ignacio E. Lozano, Jr. 502,117,153 85,002,269
George J. Mitchell 501,352,106 85,767,316
Gary L. Wilson 500,988,006 86,131,416
</TABLE>
<TABLE>
<CAPTION>
Votes Cast Broker
For Against Abstentions Non-Votes
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
2. Approval of 1997
Cash Bonus
Performance Plan 523,684,913 46,600,634 16,833,875 N/A
for Executive
Officers
3. Approval of
performance-based
compensation plan
for CEO of the 507,426,436 61,459,085 18,233,901 N/A
Company
4. Ratification of
Price Waterhouse
as independent 582,027,039 2,768,041 2,324,342 N/A
accountants
5. Act upon
stockholder
proposal with 43,522,642 411,501,241 25,383,772 106,711,767
respect to
contract suppliers
6. Act upon
stockholder
proposal with
respect to 48,415,907 416,703,248 15,288,500 106,711,767
accountability in
executive
compensation
</TABLE>
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
May 14, 1997
Burbank, California
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheet and condensed consolidated statement
of income found on the Company's Form 10-Q for the six months ended
March 31, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,140
<SECURITIES> 472
<RECEIVABLES> 3,638
<ALLOWANCES> 0
<INVENTORY> 906
<CURRENT-ASSETS> 0
<PP&E> 13,171
<DEPRECIATION> 4,728
<TOTAL-ASSETS> 39,137
<CURRENT-LIABILITIES> 0
<BONDS> 12,848
0
0
<COMMON> 8,592
<OTHER-SE> 8,265
<TOTAL-LIABILITY-AND-EQUITY> 39,137
<SALES> 11,759
<TOTAL-REVENUES> 11,759
<CGS> 0
<TOTAL-COSTS> 9,333
<OTHER-EXPENSES> 198
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 355
<INCOME-PRETAX> 1,873
<INCOME-TAX> 791
<INCOME-CONTINUING> 1,082
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,082
<EPS-PRIMARY> 1.58
<EPS-DILUTED> 1.58
</TABLE>
