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, 1998 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 2,048,689,853 shares of common stock outstanding as of July 31, 1998
(including 2,310 shares held by TWDC Stock Compensation Fund, an affiliate of
the Company).
<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
In millions, except per share data (unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
June 30 June 30
1998 1997 1998 1997
-------- -------- --------- --------
Revenues $5,248 $5,194 $16,829 $16,953
Costs and expenses (4,325) (4,134) (13,565) (13,602)
Gain on sale of KCAL - - - 135
-------- -------- --------- --------
Operating income 923 1,060 3,264 3,486
Corporate activities and other (49) (69) (175) (267)
Net interest expense (161) (185) (445) (540)
-------- -------- --------- --------
Income before income taxes 713 806 2,644 2,679
Income taxes (298) (333) (1,090) (1,124)
-------- -------- --------- --------
Net income $ 415 $ 473 $1,554 $1,555
======== ======== ========= ========
Earnings per share
Diluted $ 0.20 $ 0.23 $ 0.75 $ 0.75
======== ======== ========= ========
Basic $ 0.20 $ 0.23 $ 0.76 $ 0.77
======== ======== ========= ========
Average number of common and common
equivalent shares outstanding
Diluted 2,085 2,064 2,077 2,061
======== ======== ========= ========
Basic 2,043 2,023 2,033 2,022
======== ======== ========= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
<PAGE>
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
In millions, except share data
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, September 30,
1998 1997
----------- --------------
(unaudited)
ASSETS
Cash and cash equivalents $ 853 $ 317
Receivables 3,694 3,726
Inventories 920 942
Film and television costs 5,354 4,401
Investments 1,729 1,904
Theme parks, resorts and other property, net of
accumulated depreciation of $5,340 and 4,857 9,797 8,951
Intangible assets, net of accumulated
amortization of $1,028 and $707 15,859 16,011
Other assets 1,830 1,524
-------- ---------
$ 40,036 $ 37,776
-------- ---------
-------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts and taxes payable and accrued $ 5,888 $ 6,572
liabilities
Borrowings 11,972 11,068
Unearned royalty and other advances 1,021 1,172
Deferred income taxes 1,941 1,679
Stockholders' equity
Preferred stock, $.01 par value
Authorized - 100 million shares
Issued - none
Common stock, $.01 par value Authorized - 3.6 billion shares Issued - 2.1
billion shares and 2.0
billion shares 8,970 8,548
Retained earnings 10,792 9,543
Cumulative translation and other adjustments 45 (12)
Treasury shares, at cost - 29 million
shares and 24 million shares (593) (462)
Shares held by TWDC Stock Compensation Fund,
at cost - 13 million shares at
September 30, 1997 -- (332)
-------- ---------
19,214 17,285
-------- ---------
$ 40,036 $ 37,776
-------- ---------
-------- ---------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
<PAGE>
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
In millions (unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Nine Months Ended
June 30
---------------------------
1998 1997
----------- -----------
NET INCOME $ 1,554 $ 1,555
-------- --------
OPERATING ITEMS NOT REQUIRING CASH OUTLAYS
Amortization of film and television costs 3,235 2,889
Depreciation 595 545
Amortization of intangibles 321 337
Gain on sale of SBS and KCAL (38) (135)
Other 10 (1)
CHANGES IN
Receivables 38 (145)
Inventories 22 35
Other assets (79) (113)
Accounts and taxes payable and accrued liabilities (277) 315
Deferred income taxes 263 324
Unearned royalty and other advances (151) (19)
-------- --------
3,939 4,032
-------- --------
CASH PROVIDED BY OPERATIONS 5,493 5,587
-------- --------
INVESTING ACTIVITIES
Film and television costs (4,140) (3,642)
Investments in theme parks, resorts and other (1,577) (1,428)
property
Investment in E! Entertainment television -- (321)
Acquisition of Classic Sports Network (173) --
Proceeds from sale of SBS, KCAL and other 194 392
investments
Other (15) (161)
-------- --------
(5,711) (5,160)
-------- --------
FINANCING ACTIVITIES
Borrowings 2,076 2,303
Proceeds from formation of REITs -- 1,311
Reduction of borrowings (1,180) (3,412)
Dividends (305) (253)
Other 163 (126)
-------- -------
754 (177)
-------- -------
Increase in cash and cash equivalents 536 250
Cash and cash equivalents, beginning of period 317 278
-------- -------
Cash and cash equivalents, end of period $ 853 $ 528
-------- -------
-------- -------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
<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, 1998. Certain reclassifications
have been made in the 1997 condensed consolidated financial
statements to conform to the 1998 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, 1997.
2. In June 1998, the Company effected a three-for-one split of
the Company's common stock, by means of a special stock
dividend. The Company also amended its corporate charter to
increase the Company's authorized common stock from 1.2
billion shares to 3.6 billion shares. The Board of Directors
also approved an increase in the Company's share repurchase
authorization to 133.3 million shares of common stock
pre-split, or 400 million shares post-split. All share and
per share data has been restated to reflect the split.
3. During the first quarter, the Company adopted Statement of
Financial Accounting Standards No. 128 Earnings Per Share
("SFAS 128"), which specifies the method of computation,
presentation and disclosure for earnings per share ("EPS").
SFAS 128 requires the presentation of two EPS amounts, basic
and diluted. Basic EPS is calculated by dividing net income
by average common shares outstanding for the period. Diluted
EPS includes the dilution that would occur if outstanding
stock options were exercised and is comparable to the EPS the
Company has historically reported.
The diluted EPS calculation excludes the effect of stock options when their
exercise prices exceed the average market price over the period. For the
quarters ended June 30, 1998 and 1997, options for 13 million and 6 million
shares, respectively, were excluded from diluted EPS, and for the nine-month
periods, options for 9 million and 10 million shares, respectively, were
excluded.
<PAGE>
<PAGE>
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
4. During the nine months, the Company received net proceeds of
approximately $600 million from commercial paper activity and
approximately $1.5 billion through other financing
arrangements. The other financing arrangements have
effective interest rates ranging from 5.4% to 5.7% and
maturities in fiscal 1999 through 2008. Certain of this debt
is denominated in foreign currencies, which the Company has
effectively converted into U.S. dollar-denominated
LIBOR-based variable rate debt instruments by entering into
cross-currency/interest rate swaps.
Commercial paper outstanding as of June 30, 1998 totaled $2.6 billion with
maturities of up to one year and an average interest rate of 5.5%. The
outstanding commercial paper borrowings are supported by bank facilities
totaling $5.0 billion, which expire in one to four years and allow for
borrowings at various interest rates.
5. Dividends per share for the quarters ended June 30, 1998 and
1997 were $0.0525 and $0.0442, respectively.
6. The unaudited pro forma information below for the quarter
and nine months ended June 30, 1997 presents results of
operations as if the disposition of certain ABC publishing
assets and the sale of KCAL, a Los Angeles television
station, had occurred at the beginning of the prior year.
The unaudited pro forma information is not necessarily
indicative of the results of operations that the Company
would have reported had these events occurred at the
beginning of the prior year.
<TABLE>
<CAPTION>
<S> <C> <C>
(in millions, except per share
data)
June 30, 1997
---------------------------------
Quarter ended Nine months ended
-------------- ------------------
Revenues $ 4,982 $ 16,184
Net income 425 1,382
Earnings per share
Diluted $ 0.21 $ 0.67
Basic $ 0.21 $ 0.68
</TABLE>
<PAGE>
<PAGE>
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
7. In April 1997, the Company purchased a significant equity
stake in Starwave Corporation ("Starwave"), an Internet
technology company. In connection with the acquisition, the
Company was granted an option to purchase substantially all
the remaining shares of Starwave, which the Company exercised
during the third quarter. On June 18, 1998, the Company
reached an agreement whereby Starwave will be acquired by
Infoseek Corporation ("Infoseek"), an Internet search
company, pursuant to a merger. As a result of the merger and
the Company's purchase of additional shares of Infoseek
common stock, the Company will own approximately 43% of
Infoseek's outstanding common stock. In addition, the
Company will purchase warrants enabling it, under certain
circumstances, to achieve a majority stake in Infoseek.
These warrants vest over a three-year period and expire in
five years. The transaction, which is subject to customary
closing conditions, including approvals by Infoseek's
shareholders and governmental regulatory authorities, is
expected to close in the first quarter of 1999. Upon
consummation of the transaction, the Company expects to
record a significant non-cash gain, a write-off for purchased
in-process research and development costs and an increase in
investments, reflecting the Company's share of the fair value
of Infoseek's intangible assets. The Company is currently
performing the necessary valuations and other studies to
determine the gain, the research and development write-off
and the amount of and amortization period for the intangible
assets.
8. In June 1998, the Financial Accounting Standards Board ("the
FASB") issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"), which the
Company expects to adopt effective October 1, 1999. SFAS 133
will require the Company to recognize all derivatives on the
balance sheet at fair value. Changes in a derivative's fair
value will either be offset against the change in fair value
of the hedged assets, liabilities, firm commitments or
forecasted transactions through earnings or recognized as a
component of other stockholders' equity until the hedged item
is recognized in earnings. The ineffective portion of a
hedging derivative's change in fair value will be immediately
recognized in earnings. The impact of SFAS 133 on the
Company's financial statements will depend on a variety of
factors, including future interpretative guidance from the
FASB, the future level of forecasted foreign currency
transactions, the extent of the Company's hedging activities,
the types of hedging instruments used and the effectiveness of
such instruments. However, the Company does not believe the
effect of adopting SFAS 133 will be material to its financial
position.
<PAGE>
<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 nine months ended June
30, 1998 for each business segment, and for the Company as a whole, are not
necessarily indicative of results to be expected 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 and home video 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 Nine Months Ended June 30, 1998
During 1997, the Company disposed of certain ABC publishing assets and
sold KCAL, a Los Angeles television station. The pro forma information below for
the quarter and nine months ended June 30, 1997 presents results of operations
as if these events had occurred at the beginning of the prior year. The Company
believes prior-year pro forma results provide more meaningful information for
comparing revenues and earnings trends. The pro forma information is not
necessarily indicative of the results that the Company would have reported had
these events occurred at the beginning of the prior year.
<PAGE>
<PAGE>
Consolidated Results - Quarter
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(unaudited; in millions, except per share data)
1997 1997
1998 (Pro forma) % Change (As reported)
Revenues $5,248 $4,982 5% $5,194
Costs and expenses (4,325) (3,998) (8)% (4,134)
------ ------ ------
Operating income 923 984 (6)% 1,060
Corporate activities (49) (69) 29% (69)
and other
Net interest expense (161) (185) 13% (185)
---- ---- ----
Income before income taxes 713 730 (2)% 806
Income taxes (298) (305) 2% (333)
---- ---- ----
Net income $ 415 $ 425 (2)% $ 473
===== ===== =====
Earnings per share
Diluted $ 0.20 $ 0.21 (5)% $ 0.23
====== ====== =======
Basic $ 0.20 $ 0.21 (5)% $ 0.23
====== ====== =======
Amortization of intangible assets
included in operating income $ 108 $ 103
==== ====
</TABLE>
Net income and diluted earnings per share decreased 2% and 5% to $415
million and $0.20, respectively, compared to the prior-year pro forma amounts.
These results were driven by lower operating income, partially offset by a
reduction in net expense associated with corporate activities and other and
lower net interest expense. Decreased operating income reflected significantly
lower results from Creative Content, partially offset by improvements from
Broadcasting and Theme Parks and Resorts. Corporate activities and other
decreased 29% reflecting improved results from the Company's equity investments,
including A&E Television and Lifetime Television. Net interest expense decreased
13% due primarily to lower average debt balances.
On an as reported basis, net income and diluted earnings per share
decreased 12% and 13%, respectively, driven by decreased operating income,
partially offset by a reduction in net expense associated with corporate
activities and other, as well as lower net interest expense, as discussed above.
The decrease in operating income also reflected the inclusion in the prior year
of certain ABC publishing businesses which were disposed of during the third and
fourth quarters of that year.
During the third quarter, the Company exercised its option to purchase
substantially all the remaining shares of Starwave Corporation ("Starwave"), an
Internet technology company, through the issuance of Company common stock. On
June 18, 1998, the Company reached an agreement whereby Starwave will be
acquired by Infoseek Corporation ("Infoseek"), an Internet search company,
pursuant to a merger. As a result of the merger and the Company's purchase of
additional shares of Infoseek common stock, the Company will own approximately
43% of Infoseek's <PAGE>
Consolidated Results - Quarter (continued)
outstanding common stock. In addition, the Company will purchase warrants
enabling it, under certain circumstances, to achieve a majority stake in
Infoseek. These warrants vest over a three-year period and expire in five years.
The transaction, which is subject to customary closing conditions, including
approvals by Infoseek's shareholders and governmental regulatory authorities, is
expected to close in the first quarter of 1999. Upon consummation of the
transaction, the Company expects to record a significant non-cash gain, a
write-off for purchased in-process research and development costs and an
increase in investments, reflecting the Company's share of the fair value of
Infoseek's intangible assets. The Company is currently performing the necessary
valuations and other studies to determine the gain, the research and development
write-off and the amount of and amortization period for the intangible assets.
Consolidated Results - Nine Months
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(unaudited; in millions, except per share data)
1997 1997
1998 (Pro forma) % Change (As reported)
------ ----------- -------- -------------
Revenues $16,829 $16,184 4% $16,953
Costs and expenses (13,565) (12,997) (4)% (13,602)
Gain on sale of KCAL - - n/m 135
------- ------- -------
Operating income 3,264 3,187 2% 3,486
Corporate activities and other (175) (267) 34% (267)
Net interest expense (445) (540) 18% (540)
---- ---- ----
Income before income taxes 2,644 2,380 11% 2,679
Income taxes (1,090) (998) (9)% (1,124)
------ ---- ------
Net income $ 1,554 $ 1,382 12% $ 1,555
======= ======= =======
Earnings per share
Diluted $ 0.75 $ 0.67 12% $ 0.75
======= ======= =======
Basic $ 0.76 $ 0.68 12% $ 0.77
======= ======= =======
Amortization of intangible assets
included in operating income $ 321 $ 311
===== =====
</TABLE>
<PAGE>
<PAGE>
Consolidated Results - Nine Months (continued)
Net income and diluted earnings per share increased 12% to $1.6 billion
and $0.75, respectively, over the prior-year pro forma amounts. These results
were driven by a reduction in net expense associated with corporate activities
and other and lower net interest expense. Corporate activities and other
decreased 34% due primarily to a gain on the sale of the Company's interest in
Scandinavian Broadcasting System ("SBS") and improved results from the Company's
equity investments, including A&E Television and Lifetime Television. Net
interest expense decreased 18% due primarily to lower average debt balances.
On an as reported basis, net income and diluted earnings per share were
flat, reflecting a reduction in net expense associated with corporate activities
and other, as well as lower net interest expense, as discussed above, offset by
decreased operating income. Operating income decreased compared to the prior
year, which reflected the gain on the sale of KCAL and the inclusion of certain
ABC publishing assets which were disposed of during the third and fourth
quarters of 1997.
Business Segment Results - Quarter
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(unaudited; in millions)
1997 1997
1998 (Pro forma) %Change (As reported)
----- ----------- ------- ------------
Revenues:
Creative Content $2,016 $2,004 1% $2,216
Broadcasting 1,728 1,609 7% 1,609
Theme Parks & Resorts 1,504 1,369 10% 1,369
----- ----- -----
Total $5,248 $4,982 5% $5,194
====== ====== ======
Operating Income: (1)
Creative Content $ 111 $ 257 (57)% $ 333
Broadcasting 384 337 14% 337
Theme Parks & Resorts 428 390 10% 390
--- --- ---
Total $ 923 $ 984 (6)% $ 1,060
===== ===== =======
(1) Includes depreciation and amortization (excluding film costs) of:
Creative Content $ 51 $ 50
Broadcasting 136 129
Theme Parks & Resorts 132 120
--- ---
$ 319 $ 299
===== =====
</TABLE>
<PAGE>
<PAGE>
Creative Content
Compared to prior-year pro forma amounts, revenues increased $12 million
or 1% to $2.0 billion, due primarily to increases of $68 million in television
distribution, $17 million in international home video, $17 million in domestic
publishing, $16 million at The Disney Store and $12 million in domestic
merchandise licensing, offset by declines of $105 million in domestic home video
revenues and $23 million in international theatrical revenues. The growth in
television revenues was driven by a higher volume of television programming and
theatrical releases distributed to the worldwide television market. Increases in
international home video were driven by the success of Air Force One and Con
Air. Growth in domestic publishing reflected the success of book titles such as
Don't Sweat the Small Stuff. Increased revenues at The Disney Store reflected
continued worldwide expansion as well as increased comparative store sales in
North America and Europe. Growth in domestic merchandise licensing was primarily
due to the continued strength of Winnie the Pooh. The decline in domestic home
video and international theatrical revenues reflected difficult comparisons to
the prior year, which benefited from the successful release of 101 Dalmatians in
the domestic home video market and the theatrical performances of 101 Dalmatians
and The English Patient internationally. In addition, international revenues
were impacted by economic weakness in many Asian markets.
On an as reported basis, revenues decreased $200 million or 9%, reflecting
the items described above, as well as the impact of the disposition of certain
ABC publishing assets in the prior year.
Compared to prior-year pro forma amounts, operating income decreased $146
million or 57% to $111 million, reflecting declines in domestic home video and
worldwide theatrical results. Costs and expenses, which consist primarily of
production cost amortization, distribution and selling expense, product cost,
labor and leasehold expense, increased 9% or $158 million. The increase was
driven by higher production cost amortization in worldwide theatrical and
international home video markets, increased distribution expenses in the
theatrical and home video markets, and higher television distribution costs.
These increases reflect higher production and distribution costs within the
film industry. As competition for creative talent and consumer awareness
has increased, costs within the industry have tended to increase at
rates significantly above inflation. In addition, The Disney Store
experienced increased costs due to continued worldwide expansion.
<PAGE>
<PAGE>
Creative Content (continued)
On an as reported basis, operating income decreased $222 million or 67%,
reflecting the items described above as well as the impact of the disposition of
certain ABC publishing assets in the prior year.
Broadcasting
Revenues increased $119 million or 7% to $1.7 billion, driven by increases
of $84 million at the cable networks, $28 million at the television network and
$15 million at the television stations. The increase in revenues at the cable
networks was primarily due to higher advertising rates and subscriber growth.
The increase at the television network was due to sports advertising revenues,
driven by the 1998 Soccer World Cup, and the increase at the television stations
was due to a strong advertising market.
Operating income increased $47 million or 14% to $384 million, primarily
reflecting increases in revenues at the cable networks, television stations and
television network, partially offset by higher costs and expenses and losses on
start-up cable ventures. Costs and expenses, which consist primarily of
programming, selling, general and administrative costs, increased 6% or $72
million. This increase was driven by higher sports programming costs at ESPN and
the television network, partially offset by decreased program amortization at
the television network, due primarily to less expensive primetime series
programming and increased use of primetime reruns.
There has been a continuing decline in viewership at all major
broadcast networks, including ABC, reflecting the growth in the cable
industry's share of viewers. In addition, there have been continuing
increases in the cost of sports and other programming.
During the second quarter of the current year, the Company entered into a
new agreement with the National Football League (the "NFL") for the right to
broadcast NFL football games on the ABC Television Network and ESPN. The
contract provides for total payments of approximately $9 billion over an
eight-year period, commencing with the 1998 season. The programming rights fees
under the new contract are significantly higher than those required by the
previous contract. The increased cost of the new contract will exceed the
expected revenue increases for the time period. The Company is endeavoring
to enter into arrangements with its ABC network affiliates to help offset
these costs. The higher fees under the new contract reflect various
factors, including increased competition for sports programming rights and
an increase in the number of games to be broadcast by ESPN.
<PAGE>
<PAGE>
Theme Parks and Resorts
Revenues increased $135 million or 10% to $1.5 billion, driven by $71
million of higher guest spending, $22 million from increased occupied room
nights and $20 million from attendance growth. Higher guest spending reflected
increased average admissions spending, higher average room rates at the hotel
properties and expanded retail and restaurant attractions at Downtown Disney at
the Walt Disney World Resort. Increased occupied room nights resulted from
additional capacity due to the August 1997 opening of Disney's Coronado Springs
Resort. Attendance growth reflected record attendance at the Walt Disney World
Resort from the April 1998 opening of Disney's Animal Kingdom, and increased
attendance at Disneyland driven by the May 1998 opening of New Tomorrowland.
Operating income for the quarter increased $38 million or 10% to $428
million, driven by higher guest spending, increased occupied room nights and
attendance growth at the Walt Disney World Resort 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 $97 million or 10%. Increased operating
costs reflected expanded operations primarily related to Disney's Animal Kingdom
and Disney's Coronado Springs Resort.
<PAGE>
<PAGE>
Business Segment Results - Nine Months
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(unaudited; in millions)
1997 1997
1998 (Pro forma) %Change (As reported)
------ ----------- ------- ------------
Revenues:
Creative Content $7,440 $7,453 (0)% $8,201
Broadcasting 5,381 5,009 7% 5,030
Theme Parks & Resorts 4,008 3,722 8% 3,722
----- ----- -----
Total $16,829 $16,184 4% $16,953
======= ======= =======
Operating Income: (1)
Creative Content $1,150 $1,279 (10)% $1,434
Broadcasting 1,128 1,044 8% 1,053
Theme Parks & Resorts 986 864 14% 864
------ ----- -----
3,264 3,187 2% 3,351
Gain on Sale of KCAL - - n/m 135
------ ----- ----- ---
Total $3,264 $3,187 2% $3,486
====== ====== ======
(1)Includes depreciation and amortization (excluding film costs) of:
Creative Content $ 153 $ 133
Broadcasting 405 389
Theme Parks & Resorts 334 307
--- ---
$ 892 $ 829
====== ======
</TABLE>
Creative Content
Compared to prior-year pro forma amounts, revenues were unchanged at $7.4
billion, as growth of $143 million in television distribution, $128 million at
The Disney Store, $50 million in domestic publishing and $40 million in domestic
character merchandise licensing was offset by declines in home video revenues of
$282 million and theatrical revenues of $117 million. The increase in television
revenues was driven by a higher volume of television programming and theatrical
releases distributed to the worldwide television market. Growth at The Disney
Store reflected continued worldwide expansion as well as increased comparative
store sales in North America and Europe. A total of 50 new stores were opened
since the prior-year quarter, bringing the total number of stores to 660. Growth
in domestic publishing reflected the success of book titles such as Don't Sweat
the Small Stuff. Character merchandise licensing reflected the strength of
Winnie the Pooh in the domestic market. Lower home video and theatrical revenues
reflected difficult comparisons to the prior year. The prior-year home video
results benefited from the performance of Toy Story worldwide and Bambi
domestically. Theatrical results in the prior year benefited from the worldwide
success of 101 Dalmatians, Ransom and The English Patient.
<PAGE>
Creative Content (continued)
On an as reported basis, revenues decreased $761 million or 9%, reflecting
the items described above as well as the impact of the disposition of certain
ABC publishing assets in the prior year.
Compared to prior-year pro forma amounts, operating income decreased $129
million or 10% to $1.2 billion, reflecting declines in theatrical and home video
results, partially offset by increases in television distribution, domestic
merchandise licensing, Disney Interactive and The Disney Store. Costs and
expenses increased 2% or $116 million. The increase was driven by an increase in
production cost amortization in the theatrical, home video and network
television markets as well as an increase in costs at The Disney Store due to
continued expansion. The increase in costs was also attributable to an increase
in the number of shows produced for syndication. These increases were partially
offset by declines in distribution and selling expenses in the home video and
domestic theatrical markets, driven by a reduction in volume, and declines
within television distribution, due to the termination of a network production
joint venture. Disney Interactive also experienced a decrease in costs driven by
a reduction in headcount and lower product development costs.
On an as reported basis, operating income decreased $284 million or 20%,
reflecting the items described above as well as the impact of the disposition of
certain ABC publishing assets in the prior year.
Broadcasting
Compared to prior-year pro forma amounts, revenues increased $372 million
or 7% to $5.4 billion, driven by increases of $274 million at the cable
networks, $62 million at the television stations and $33 million at the
television network. The increase in revenues at the cable networks was primarily
due to higher advertising rates and subscriber growth. The increase at the
television stations was due to a strong advertising market and the increase at
the television network was due to sports advertising revenues, driven by the
1998 Soccer World Cup.
On an as reported basis, revenues increased $351 million or 7%, reflecting
the items described above, partially offset by the impact of the sale of KCAL in
the prior year.
Compared to prior-year pro forma amounts, operating income increased $84
million or 8% to $1.1 billion, reflecting increases in revenues at the cable
networks and television stations, partially offset by lower results at the
television network. Results at the television network reflected the impact of
lower ratings and higher costs and expenses. Costs and expenses increased 7% or
$288 million. This increase reflected <PAGE>
Broadcasting (continued)
increased program amortization at the television network, due primarily to a
reduction in benefits arising from the ABC acquisition, and higher programming
costs at ESPN.
On an as reported basis, operating income increased $75 million or 7%,
reflecting the items described above, partially offset by the impact of the sale
of KCAL in the prior year.
Theme Parks and Resorts
Revenues increased $286 million or 8% to $4.0 billion, driven by growth at
the Walt Disney World Resort, reflecting increased guest spending of $205
million and growth of $74 million from increased occupied room nights. This
growth was partially offset by a decrease of $11 million resulting from lower
attendance in the second quarter due to the conclusion of the prior-year's 25th
Anniversary Celebration. Higher guest spending reflected increased average
admissions spending, higher average room rates at the hotel properties and
expanded retail and restaurant attractions at Downtown Disney. Increased
occupied room nights resulted from additional capacity due to the August 1997
opening of Disney's Coronado Springs Resort. Disneyland's revenues for the nine
months declined as a result of reduced attendance driven by the prior-year's
Main Street Electrical Parade farewell season, construction of New Tomorrowland
in the first half of the year and inclement weather, partially offset by higher
guest spending.
Operating income increased $122 million or 14% to $986 million, driven by
increased guest spending and higher occupied room nights at the Walt Disney
World Resort. Costs and expenses increased $164 million or 6%, reflecting
expanded operations primarily related to Disney's Animal Kingdom and Disney's
Coronado Springs Resort.
FINANCIAL CONDITION
For the nine months ended June 30, 1998, cash provided by operations
decreased $94 million to $5.5 billion.
During the nine months, the Company received approximately $600 million
from net commercial paper activity and approximately $1.5 billion through other
financing arrangements. Commercial paper borrowings outstanding as of June 30,
1998 totaled $2.6 billion with maturities of up to one year, supported by bank
facilities totaling $5.0 billion, which expire in one to four years and allow
for borrowings at various interest rates.
<PAGE>
FINANCIAL CONDITION (continued)
As of June 30, 1998, the Company had the ability to borrow under a U.S.
shelf registration statement and a Euro medium-term note program, which
collectively permit the issuance of up to approximately $1.9 billion of
additional debt. In August 1998, the Company filed a new U.S. shelf registration
statement which replaces the existing U.S. shelf registration statement and
allows for issuance of up to $5.0 billion of debt.
During the nine months, the Company invested $1.6 billion in theme parks,
resorts and other properties. These expenditures reflected continued expansion
activities related to Disney Cruise Line, Disney's Animal Kingdom, Disney's
California Adventure and certain resort facilities at the Walt Disney World
Resort.
During the nine months, the Company invested $4.1 billion to develop,
produce and acquire rights to film and television properties. These costs
increased over the prior-year nine months due primarily to higher spending on
live-action theatrical and television productions.
During the second quarter, the Company reached agreement with the National
Football League (the "NFL") with respect to a new contract for the right to
broadcast NFL football games. The contract provides for the ABC Television
Network to broadcast Monday Night Football and for ESPN to broadcast Sunday
evening games for total payments of approximately $9 billion over an eight-
year period commencing with the 1998 season.
Total commitments to purchase broadcast programming approximated $14.4
billion at June 30, 1998, including the new NFL contract. Substantially all of
this amount, other than payments under the new NFL contract, is payable over the
next five years. 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.
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>
<PAGE>
PART II. OTHER INFORMATION
THE WALT DISNEY COMPANY
Item 2. Changes in Securities
On June 10, 1998, after obtaining stockholder consent, the Company filed a
Restated Certificate of Incorporation that increased the total number of
authorized shares of common stock of the Company from 1,200,000,000 to
3,600,000,000. On June 19, 1998, the Company effected a three-for-one split (the
"Split") of its issued common stock.
Under the terms of the Company's Stockholder Rights Plan, each outstanding
share of the Company's common stock was, prior to the Split, associated with one
preferred stock purchase right (a "Right"). In accordance with the terms of the
Rights Agreement, dated November 8, 1995, between the Company and The Bank of
New York, as Rights Agent, as a result of the Split each share of the Company's
common stock is now associated with one-third of a Right.
Item 4. Submission of matters to a vote of security holders
Pursuant to a solicitation dated May 6, 1998 requesting written consent of
stockholders by June 9, 1998, the Company's stockholders approved the adoption
of the amendment to the Company's Certificate of Incorporation, as described in
Item 2 above. A total of 585,183,017 votes were cast in favor of the amendment;
5,125,298 were cast against the amendment; and the holders of 988,747 shares
abstained from the vote.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
<PAGE>
<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/ Thomas O. Staggs
Thomas O. Staggs
Executive Vice President and
Chief Financial Officer
August 14, 1998
Burbank, California
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the condensed
consolidated balance sheet and condensed consolidated statement of income found
in the Company's Form 10-Q for the nine months ended June 30, 1998, 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> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 853
<SECURITIES> 0
<RECEIVABLES> 3,694
<ALLOWANCES> 0
<INVENTORY> 920
<CURRENT-ASSETS> 0
<PP&E> 15,137
<DEPRECIATION> 5,340
<TOTAL-ASSETS> 40,036
<CURRENT-LIABILITIES> 0
<BONDS> 11,972
0
0
<COMMON> 8,970
<OTHER-SE> 10,244
<TOTAL-LIABILITY-AND-EQUITY> 40,036
<SALES> 0
<TOTAL-REVENUES> 16,829
<CGS> 0
<TOTAL-COSTS> 13,565
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 445
<INCOME-PRETAX> 2,644
<INCOME-TAX> 1,090
<INCOME-CONTINUING> 1,554
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<CHANGES> 0
<NET-INCOME> 1,554
<EPS-PRIMARY> .76
<EPS-DILUTED> .75
</TABLE>
