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, 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 681,733,360 shares of common stock outstanding as of April 30, 1998
(including 170 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
1998 1997 1998 1997
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Revenues $5,242 $5,481 $11,581 $11,759
Costs and expenses (4,393) (4,617) (9,240) (9,468)
Gain on sale of KCAL - - - 135
-------- -------- --------- --------
Operating income 849 864 2,341 2,426
Corporate activities and other (48) (108) (126) (198)
Net interest expense (150) (184) (284) (355)
-------- -------- --------- --------
Income before income taxes 651 572 1,931 1,873
Income taxes (267) (239) (792) (791)
-------- -------- --------- --------
Net income $ 384 $ 333 $1,139 $1,082
======== ======== ========= ========
Earnings per share
Diluted $ 0.55 $ 0.49 $ 1.65 $ 1.58
======== ======== ========= ========
Basic $ 0.57 $ 0.49 $ 1.68 $ 1.60
======== ======== ========= ========
Average number of common and
common equivalent shares outstanding
Diluted 693 686 691 686
======== ======== ========= ========
Basic 679 674 676 674
======== ======== ========= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
In millions, except share data
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
----------- --------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 597 $ 317
Receivables 3,871 3,726
Inventories 935 942
Film and television costs 5,019 4,401
Investments 1,800 1,904
Theme parks, resorts and other property,
net of accumulated depreciation of $5,135
and $4,857 9,450 8,951
Intangible assets, net of accumulated
amortization of $920 and $707 15,955 16,011
Other assets 1,690 1,524
------- -------
$ 39,317 $ 37,776
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts and taxes payable and accrued
liabilities $ 6,228 $ 6,572
Borrowings 11,450 11,068
Unearned royalty and other advances 1,143 1,172
Deferred income taxes 1,870 1,679
Stockholders' equity
Preferred stock, $.01 par value
Authorized - 100 million shares
Issued - none
Common stock, $.01 par value Authorized -
1.2 billion shares Issued - 689 million
shares and 683 million shares 8,697 8,534
Retained earnings 10,499 9,557
Cumulative translation and other
adjustments 23 (12)
Treasury shares, at cost-10 million
shares and 8 million shares (593) (462)
Shares held by TWDC Stock Compensation
Fund, at cost-4 million shares at
September 30, 1997 - (332)
-------- -------
18,626 17,285
-------- -------
$ 39,317 $ 37,776
-------- -------
-------- -------
</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
---------------------------
1998 1997
----------- -----------
<S> <C> <C>
NET INCOME $ 1,139 $ 1,082
-------- --------
OPERATING ITEMS NOT REQUIRING CASH OUTLAYS
Amortization of film and television costs 2,292 2,040
Depreciation 373 343
Amortization of intangibles 213 233
Gain on sale of SBS and KCAL (38) (135)
Other 12 28
CHANGES IN
Receivables (139) (320)
Inventories 7 45
Other assets (166) (203)
Accounts and taxes payable and accrued
liabilities (116) 336
Deferred income taxes 189 226
Unearned royalty and other advances (29) (18)
-------- --------
2,598 2,575
-------- --------
CASH PROVIDED BY OPERATIONS 3,737 3,657
-------- --------
INVESTING ACTIVITIES
Film and television costs (2,893) (2,560)
Investments in theme parks, resorts and
other property (864) (765)
Acquisition of Classic Sports Network (net
of cash acquired) (173) -
Proceeds from sale of KCAL and other
investments 188 390
Other (13) (45)
-------- --------
(3,755) (2,980)
-------- --------
FINANCING ACTIVITIES
Borrowings 1,451 2,206
Proceeds from formation of REITs - 1,311
Reduction of borrowings (1,050) (3,033)
Dividends (197) (163)
Other 94 (136)
-------- -------
298 185
-------- -------
Increase in cash and cash equivalents 280 862
Cash and cash equivalents, beginning of period 317 278
-------- -------
Cash and cash equivalents, end of period $ 597 $ 1,140
-------- -------
-------- -------
</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, 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. On April 21, 1998, the Board of Directors approved a
three-for-one stock split of the Company's common stock, to be
effected by means of a special stock dividend. The split is
subject to stockholder approval of a charter amendment to
increase the Company's authorized common stock, which is
currently insufficient to permit consummation of the split,
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.
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 March 31, 1998 and 1997,
options for 2 million and 4 million shares, respectively, were
excluded from diluted EPS, and for the six-month periods, options
for 3 million and 4 million shares, respectively, were excluded.
<PAGE>
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
4. During the six months, the Company received net proceeds of
approximately $450 million from commercial paper activity and
approximately $1.0 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 swaps.
Commercial paper outstanding as of March 31,1998 totaled $2.4
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 March 31, 1998 and
1997 were $0.1575 and $0.1325, respectively.
6. The unaudited pro forma information below for the quarter and six
months ended March 31, 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 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 year.
<TABLE>
<CAPTION>
(in millions, except per share data)
March 31, 1997
---------------------------------
Quarter ended Six months ended
-------------- ------------------
<S> <C> <C>
Revenues $ 5,218 $ 11,202
Net income 316 957
Earnings per share
Diluted $ 0.46 $ 1.40
Basic $ 0.47 $ 1.42
</TABLE>
<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, 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 Six Months Ended March 31, 1998
During fiscal 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 six months ended March 31, 1997
presents results of operations as if these events had occurred at the
beginning of the year. The Company believes prior-year pro forma results
provide more meaningful information for comparing revenues and earnings
trends. Accordingly, the discussion of fiscal 1998 results below includes
comparisons to the Company's pro forma fiscal 1997 operating results.
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 year.
<PAGE>
The Walt Disney Company
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Consolidated Results - Quarter
<TABLE>
<CAPTION>
(unaudited; in millions, except per share data)
<S> <C> <C> <C> <C>
1997 1997
1998 (Pro forma) % Change (As reported)
Revenues $5,242 $5,218 0% $5,481
Costs and expenses (4,393) (4,390) 0% (4,617)
------ ------ ------
Operating income 849 828 3% 864
Corporate activities and other (48) (108) 56% (108)
Net interest expense (150) (184) 18% (184)
---- ---- ----
Income before income taxes 651 536 21% 572
Income taxes (267) (220) (21)% (239)
---- ---- ----
Net income $ 384 $ 316 22% $ 333
=== === ===
Earnings per share
Diluted $ 0.55 $ 0.46 20% $ 0.49
==== ==== =====
Basic $ 0.57 $ 0.47 21% $ 0.49
==== ==== =====
Amortization of intangible assets
included in operating income $ 107 $ 104 (3)%
=== ===
</TABLE>
Net income and diluted earnings per share increased 22% and 20%
to $384 million and $0.55, respectively, over the prior-year pro forma
amounts. These results were driven by higher operating income, decreased
corporate activities and other and lower net interest expense. Increased
operating income reflected improved results from Theme Parks and Resorts,
partially offset by lower results from Creative Content. Corporate activities
and other decreased 56% due primarily to a gain on the sale of the Company's
interest in Scandinavian Broadcasting System ("SBS") and improved results
from E! Entertainment Television, A&E Television and Lifetime Television.
Net interes expense decreased 18% due primarily to lower average debt
balances.
On an as reported basis, net income and diluted earnings per
share increased 15% and 12%, respectively, driven by decreased corporate
activities and other, as well as lower net interest expense, as discussed
above. Operating income decreased due to the inclusion in the prior
year of certain ABC publishing businesses which were disposed of during
the third and fourth quarters of that year.
<PAGE>
The Walt Disney Company
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Consolidated Results - Six Months
<TABLE>
<CAPTION>
(unaudited; in millions, except per share data)
<S> <C> <C> <C> <C>
1997 1997
1998 (Proforma) % Change (As reported)
Revenues $11,581 $11,202 3% $11,759
Costs and expenses (9,240) (8,999) 3% (9,468)
Gain on sale of KCAL - - n/m 135
---
Operating income 2,341 2,203 6% 2,426
Corporate activities and other (126) (198) 36% (198)
Net interest expense (284) (355) 20% (355)
---- ---- ----
Income before income taxes 1,931 1,650 17% 1,873
Income taxes (792) (693) (14)% (791)
---- ---- -----
Net income $ 1,139 $ 957 19% $ 1,082
======= ===== =======
Earnings per share
Diluted $ 1.65 $ 1.40 18% $ 1.58
====== ====== =======
Basic $ 1.68 $ 1.42 18% $ 1.60
====== ======= =======
Amortization of intangible
assets included in operating
income $ 213 $ 208 (2)%
===== =====
</TABLE>
Net income and diluted earnings per share increased 19% and 18%
to $1.1 billion and $1.65, respectively, over the prior-year pro forma
amounts. These results were driven by higher operating income, decreased
corporate activities and other and lower net interest expense. The ncrease
in operating income was primarily driven by improved results from Theme Parks
and Resorts. Corporate activities and other decreased 36% due primarily to a
gain on the sale of the Company's interest in SBS and improved results from
E! Entertainment Television, A&E Television and Lifetime Television. Net
interest expense decreased 20% due primarily to lower average debt balances.
On an as reported basis, net income and iluted earnings per share
increased 5% and 4%, respectively, driven by decreased corporate activities
and other, as well as lower net interest expense, as discussed above,
partially offset by decreased operating income. Operating income decreased
due to the gain on the sale of KCAL in the prior year and the inclusion in
the prior year of certain ABC publishing businesses which were disposed
of during the third and fourth quarters of that year.
<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)
<S> <C> <C> <C> <C>
1997 1997
1998 (Pro forma) %Change (As reported)
------ ----------- ------- -------------
Revenues:
Creative Content $2,409 $2,487 (3)% $2,750
Broadcasting 1,589 1,528 4% 1,528
Theme Parks & Resorts 1,244 1,203 3% 1,203
----- ----- -----
Total $5,242 $5,218 0% $5,481
===== ===== =====
Operating Income: (1)
Creative Content $ 339 $ 354 (4)% $ 390
Broadcasting 239 238 0% 238
Theme Parks & Resorts 271 236 15% 236
--- --- ---
Total $ 849 $ 828 3% $ 864
=== === ===
(1) Includes depreciation and amortization (excluding film costs)of:
Creative Content $ 50 $ 41
Broadcasting 135 131
Theme Parks & Resorts 104 90
--- ---
$ 289 $ 262
=== ===
</TABLE>
Creative Content
Compared to prior-year pro forma amounts, revenues decreased $78 million
or 3% to $2.4 billion, due primarily to declines of $113 million in
international home video revenues and $111 million in worldwide theatrical
revenues, partially offset by increases of $73 million in domestic home video
revenues and $39 million in revenues at The Disney Store. The decline in
international home video and worldwide theatrical revenues reflected the
prior-year strength of Toy Story, Aladdin and the King of Thieves and The
Hunchback of Notre Dame in the home video market and the theatrical releases of
Evita and Jungle 2 Jungle domestically and 101 Dalmatians and Ransom
internationally. Growth in domestic home video reflected the re-release of The
Little Mermaid and Peter Pan and release of Hercules. Results at The Disney
Store were driven by a 14% increase in comparative stores sales in North
America.
On an as reported basis, revenues decreased $341 million or 12%,
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 $15
million or 4% to $339 million, reflecting declines in worldwide theatrical and
international home video results, partially offset by the growth in domestic
home video,
<PAGE>
The Walt Disney Company
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Creative Content (continued)
The Disney Store and domestic television distribution and improvements at
Disney Interactive. Costs and expenses, which consist primarily of production
cost amortization, distribution and selling expense, product cost, labor and
leasehold expense, decreased 3% or $63 million. The decrease was due to a
decline in distribution and selling expenses in the international home video
market, a decline in television distribution costs, due to the termination of a
network production joint venture, lower distribution expenses in the domestic
theatrical market and reduced costs at Disney Interactive. These decreases were
partially offset by higher production cost amortization in worldwide theatrical
and network television markets and increased costs at The Disney Store due to
continued worldwide expansion.
On an as reported basis, operating income decreased $51 million or 13%
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 $61 million or 4% to $1.6 billion, driven by increases
of $86 million at the cable networks and $19 million at the television stations.
The increase in revenues at the cable networks was primarily due to higher
advertising rates and subscriber growth, and the increase at the television
stations was due to a strong advertising market. The increases at the cable
networks and television stations were partially offset by a $43 million decrease
at the television network due to ratings decreases and the impact of the Olympic
Winter Games on scatter market advertising sales.
Operating income was flat at $239 million, primarily reflecting increases
in revenues at the cable networks and television stations, offset by decreases
at the television network reflecting the impact of lower revenue and higher
costs and expenses. Costs and expenses, which consist primarily of programming,
selling, general and administrative costs, increased 5% or $60 million. This
increase was driven by higher programming costs at ESPN and increased program
amortization at the television network, due primarily to a reduction in benefits
arising from the ABC acquisition.
Theme Parks and Resorts
Revenues increased $41 million or 3% to $1.2 billion, driven by growth at
the Walt Disney World Resort, where guest spending grew $65 million and
increased occupied room nights generated $24 million of incremental revenue.
This growth was
<PAGE>
The Walt Disney Company
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Theme Parks and Resorts (continued)
partially offset by a decrease of $37 million resulting from lower attendance
due to the conclusion of the prior-year's 25th Anniversary Celebration. Higher
guest spending reflected growth in 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 or the quarter were lower due to reduced
attendance attributed to construction of New Tomorrowland and inclement weather,
partially offset by higher guest spending.
Operating income increased $35 million or 15% to $271 million, driven by
higher guest spending and increased occupied room nights at the Walt Disney
World Resort. Costs and expenses, which consist primarily of labor, costs of
merchandise, food and beverages sold, depreciation, repairs and maintenance,
entertainment and marketing and sales expenses, increased $6 million or 1%.
Increased operating costs reflected resort expansion related to Disney's
Coronado Springs Resort and start-up costs for Disney Cruise Line and Disney's
Animal Kingdom, partially offset by the absence of costs associated with the
25th Anniversary Celebration at Walt Disney World in the prior year.
Business Segment Results - Six Months
<TABLE>
<CAPTION>
(Unaudited; in millions)
<S> <C> <C> <C> <C>
1997 1997
1998 (Pro forma) %Change (As reported)
Revenues:
Creative Content $5,424 $5,449 0% $5,985
Broadcasting 3,653 3,400 7% 3,421
Theme Parks & Resorts 2,504 2,353 6% 2,353
----- ----- -----
Total $11,581 $11,202 3% $11,759
====== ====== ======
Operating Income: (1)
Creative Content $ 1,039 $ 1,022 2% $ 1,101
Broadcasting 744 707 5% 716
Theme Parks & Resorts 558 474 18% 474
---- ---- ----
2,341 2,203 6% 2,291
Gain on Sale of KCAL - - n/m 135
---- ---- ----
Total $ 2,341 $ 2,203 6% $ 2,426
====== ====== ======
(1) Includes depreciation and amortization (excluding film costs) of:
Creative Content $ 102 $ 83
Broadcasting 269 260
Theme Parks & Resorts 202 187
--- ---
$ 573 $ 530
=== ===
</TABLE>
<PAGE>
The Walt Disney Company
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Creative Content
Compared to prior-year pro forma amounts, revenues were unchanged at $5.4
billion, as growth of $112 million at The Disney Store, $88 million in domestic
television distribution, $52 million in domestic home video, $33 million in
domestic publishing and $24 million in character merchandise licensing was
offset by declines in international home video revenues of $246 million and
domestic theatrical revenues of $109 million. Growth at The Disney Store
reflected continued worldwide expansion as well as increased comparative store
sales in North America and Europe. A total of 77 new stores were opened since
the prior-year quarter, bringing the total number of stores to 656.The increase
in television revenues was driven by a higher volume of television programming
and theatrical releases distributed to the domestic television market. Domestic
home video reflected the re-release of The Little Mermaid and Peter Pan and
release of Hercules. Growth in domestic publishing reflected the success of
contemporary-themed book titles. Character merchandise licensing reflected the
strength of Winnie the Pooh in the domestic market. Lower international home
video and domestic theatrical revenues reflected difficult comparisons to the
prior year, which benefited from the strength of Toy Story and Pocahontas in the
international home video market and Scream, The English Patient, 101 Dalmatians
and Ransom in the domestic theatrical market.
On an as reported basis, revenues decreased $561 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 increased $17
million or 2% to $1.0 billion, reflecting improved results for domestic
television distribution and home video, The Disney Store, character merchandise
licensing and Disney Interactive, partially offset by a reduction in worldwide
theatrical and international home video results.Costs and expenses decreased 1%
or $42 million.The decrease was driven by a decline in distribution and selling
expenses in the international home video market and a reduction in costs in
television distribution, due to the termination of a network production joint
venture. The decrease was also due to lower costs at Disney Interactive, driven
by a reduction in headcount and lower product development costs, and a reduction
in distribution expenses in the domestic theatrical market.These decreases were
partially offset by an increase in costs at The Disney Store due to continued
expansion and in production cost amortization for worldwide theatrical and
network television markets.
On an as reported basis, operating income decreased $62 million or 6%,
reflecting the items described above as well as the impact of the disposition
of certain ABC publishing assets in the prior year.
<PAGE>
The Walt Disney Company
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Broadcasting
Compared to prior-year pro forma amounts, revenues increased $253 million
or 7% to $3.7 billion, driven by increases of $190 million at the cable networks
and $47 million at the television stations. The increase in revenues at the
cable networks was primarily due to higher advertising rates and subscriber
growth. Growth in revenues at the television stations was due to a strong
advertising market.
On an as reported basis, revenues increased $232 million or 7%, reflecting
the items described above as well as the impact of the sale of KCAL in the
prior year.
Compared to prior-year pro forma amounts, operating income increased $37
million or 5% to $744 million, reflecting increases in revenues at the cable
networks and television stations, partially offset by decreases at the
television network. Results at the television network reflected the impact of
lower ratings and higher costs and expenses. Costs and expenses increased 8% or
$216 million. This increase reflected 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 $28 million or 4%,
reflecting the items described above as well as the impact of the sale of KCAL
in the prior year.
Theme Parks and Resorts
Revenues increased $151 million or 6% to $2.5 billion driven by growth at
the Walt Disney World Resort, where guest spending grew $152 million and
increased occupied room nights generated $53 million of incremental revenue.
This growth was partially offset by a decrease of $26 million resulting from
lower attendance 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 provided by the August 1997 opening of
Disney's Coronado Springs Resort. Disneyland's revenues for the six months were
lower as a result of reduced attendance compared with the prior-year's Main
Street Electrical Parade farewell season, due in part to the current-year's
construction of New Tomorrowland and inclement weather, partially offset by
higher guest spending.
Operating income increased $84 million or 18% to $558 million, driven by
increased guest spending and higher occupied room nights at the Walt Disney
World Resort. Costs and expenses increased $67 million or 4%, reflecting
higher operating
<PAGE>
The Walt Disney Company
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Theme Parks and Resorts (continued)
costs due to resort expansion related to Disney's Coronado Springs Resort and
start-up costs for Disney Cruise Line and Disney's Animal Kingdom.
FINANCIAL CONDITION
For the six months ended March 31, 1998, cash provided by operations was
flat at $3.7 billion.
During the six months, the Company received approximately $450 million
from net commercial paper activity and approximately $1.0 billion through other
financing arrangements. Commercial paper borrowings outstanding as of March 31,
1998 totaled $2.4 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.
The Company also has the ability to borrow under a U.S.shelf registration
statement filed in March 1996 and a Euro Medium-Term Note Program established
in June 1996, which collectively permit the issuance of up to approximately
$1.9 billion of additional debt.
During the six months, the Company invested $864 million in theme parks,
resorts and other properties. These expenditures reflected continued expansion
activities related to Disney's Animal Kingdom, Disney's California Adventure,
Disney Cruise Line and certain resort facilities at the Walt Disney World
Resort.
During the six months, the Company invested $2.9 billion to develop,
produce and acquire rights to film and television properties. These costs
increased over the prior-year six months due primarily to higher spending on
live-action theatrical and television productions.
During the quarter, ABC and ESPN 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 the total payments of approximately $9 billion over an
eight-year period commencing with the 1998 season.
Total commitments to purchase broadcast programming approximated $14
billion at March 31, 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>
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 24, 1998.
Description of Matter
<TABLE>
<CAPTION>
<S> <C> <C>
Votes Cast For Authority Withheld
1. Election of directors
Michael D. Eisner 545,038,806 23,402,230
Stanley P. Gold 541,248,179 27,192,857
Thomas S. Murphy 544,412,465 24,028,571
Leo J. O'Donovan, S.J. 542,522,305 25,918,731
Irwin E. Russell 542,198,188 26,242,848
Raymond L. Watson 545,280,649 23,160,387
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Votes Cast Broker
For Against Abstentions Non-Votes
-------- ---------- ------------ ------------
2. Amendment of 410,667,825 5,553,732 2,578,087 149,641,392
the Certificate
of Incorporation
to provide for
annual election
of directors
3. Ratification of 563,567,074 2,607,577 2,250,565 15,820
Price Waterhouse,
LLP as independent
accountants
4. Stockholder 180,167,404 230,703,583 7,922,069 149,647,980
proposal with
respect to
shareholder
rights plan
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Votes Cast Broker
For Against Abstentions Non-Votes
-------- ---------- ------------ ------------
5. Stockholder 145,144,947 263,281,897 10,368,527 149,645,665
proposal with
respect to
corporate
governance
6. Stockholder 33,692,460 352,811,374 32,279,693 149,657,509
proposal with
respect to
contract supplier
standards
</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, 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 six months ended March 31, 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> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 597
<SECURITIES> 0
<RECEIVABLES> 3,871
<ALLOWANCES> 0
<INVENTORY> 935
<CURRENT-ASSETS> 0
<PP&E> 14,585
<DEPRECIATION> 5,135
<TOTAL-ASSETS> 39,317
<CURRENT-LIABILITIES> 0
<BONDS> 11,450
0
0
<COMMON> 8,697
<OTHER-SE> 9,929
<TOTAL-LIABILITY-AND-EQUITY> 39,317
<SALES> 0
<TOTAL-REVENUES> 11,581
<CGS> 0
<TOTAL-COSTS> 9,240
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 284
<INCOME-PRETAX> 1,931
<INCOME-TAX> 792
<INCOME-CONTINUING> 1,139
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,139
<EPS-PRIMARY> 1.68
<EPS-DILUTED> 1.65
</TABLE>
