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 December 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 678,946,036 shares of common stock outstanding as of February 10,
1998 (including 170 shares held by TWDC Stock Compensation Fund, an affiliate
of the Company).
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
In millions, except per share data (unaudited)
<CAPTION>
Three Months Ended
December 31
--------------------------
<S> <C> <C>
1997 1996
---------- ----------
Revenues $ 6,339 $ 6,278
Costs and expenses (4,847) (4,851)
Gain on sale of KCAL - 135
-------- -------
Operating income 1,492 1,562
Corporate activities and other (78) (90)
Net interest expense (134) (171)
-------- -------
Income before income taxes 1,280 1,301
Income taxes (525) (552)
-------- -------
Net income $ 755 $ 749
======== =======
Earnings per share
Diluted $ 1.10 $ 1.09
======== =======
Basic $ 1.12 $ 1.11
======== =======
Average number of common and common equivalent
shares outstanding
Diluted 689 686
======== =======
Basic 673 675
======== =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
<TABLE>
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
In millions, except share data
<CAPTION>
<S> <C> <C>
December 31, September 30,
1997 1997
----------- ------------
(unaudited)
ASSETS
Cash and cash equivalents $ 887 $ 317
Receivables 4,600 3,726
Inventories 907 942
Film and television costs 4,819 4,401
Investments 1,799 1,897
Theme parks, resorts and other property, net of
accumulated depreciation of $4,954 and $4,857 9,226 8,951
Intangible assets, net of accumulated
amortization of $813 and $707 16,095 16,011
Other assets 1,611 1,531
------- --------
$ 39,944 $ 37,776
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts and taxes payable and accrued
liabilities $ 6,831 $ 6,572
Borrowings 12,003 11,068
Unearned royalty and other advances 1,046 1,172
Deferred income taxes 1,804 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 - 687 million and 683 million shares 8,592 8,534
Retained earnings 10,222 9,557
Cumulative translation and other adjustments 39 (12)
Less treasury shares, at cost, 10 million
shares and 8 million shares (593) (462)
Less shares held by TWDC Stock Compensation Fund,
at cost, 4 million shares at September 30, 1997 - (332)
------- --------
18,260 17,285
------- --------
$ 39,944 $ 37,776
======= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
<TABLE>
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
In millions (unaudited)
<CAPTION>
Three Months Ended
December 31
<S> <C> <C>
---------------------------
1997 1996
----------- -----------
NET INCOME $ 755 $ 749
-------- -------
OPERATING ITEMS NOT REQUIRING CASH OUTLAYS
Amortization of film and television costs 1,230 1,073
Depreciation 190 172
Amortization of intangibles 106 114
Gain on sale of KCAL - (135)
Other 35 29
CHANGES IN
Receivables (867) (813)
Inventories 35 143
Other assets (85) (108)
Accounts and taxes payable and accrued liabilities 473 703
Unearned royalty and other advances (125) (103)
Deferred income taxes 123 161
-------- -------
1,115 1,236
-------- -------
CASH PROVIDED BY OPERATIONS 1,870 1,985
-------- -------
INVESTING ACTIVITIES
Film and television costs (1,631) (1,427)
Investments in theme parks, resorts and
other property (487) (424)
Acquisition of Classic Sports Network
(net of cash acquired) (172) -
Proceeds from sale of KCAL and other
investments 90 395
Other (3) (54)
-------- -------
(2,203) (1,510)
-------- -------
FINANCING ACTIVITIES
Borrowings 1,947 1,281
Reduction of borrowings (983) (1,270)
Dividends (90) (75)
Other 29 18
-------- -------
903 (46)
-------- -------
Increase in Cash and Cash Equivalents 570 429
Cash and Cash Equivalents, Beginning of Period 317 278
-------- -------
Cash and Cash Equivalents, End of Period $ 887 $ 707
======== =======
</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 fiscal 1997 financial statements to
conform to the fiscal 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. During the 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.
Options to purchase 3 million and 5 million shares of common stock were
excluded from the average number of common and common equivalent shares
outstanding in the diluted EPS calculation for the quarters ended December
31, 1997 and 1996, respectively, because their exercise prices exceeded the
average market price over the quarter of the common shares.
3. During the quarter, the Company received net proceeds of approximately $1.8
billion from commercial paper activity and $168 million 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 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.
<PAGE>
Commercial paper outstanding as of December 31, 1997 totaled $3.7 billion
with maturities of up to one year and an average interest rate of 5.8%. The
outstanding commercial paper borrowings are supported by bank facilities
totaling $4.2 billion, which expire in one to four years and allow for
borrowings at various interest rates.
4. Dividends per share for the quarters ended December 31, 1997 and 1996 were
$0.13 and $0.11, respectively.
5. The unaudited pro forma information below for the quarter ended December 31,
1996 presents combined results of operations as if the disposition of certain
ABC publishing assets, the finalization of the ABC purchase price allocation
and the sale of KCAL, a Los Angeles television station, occurred at the
beginning of such period. The unaudited pro forma information is not
necessarily indicative of the results of operations of the Company that would
have occurred had the events occurred at the beginning of such period.
<TABLE>
<CAPTION>
(in millions, except per share data)
<S> <C>
Quarter Ended
December 31, 1996
-----------------
Revenues $5,984
Net income 641
Earnings per share
Diluted 0.93
Basic 0.95
</TABLE>
6. During January 1998, 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. The contract provides for total payments of approximately
$9 billion over an eight-year period commencing with the 1998 season. As part
of the agreement, the NFL has the right to cancel the contract after five
years.
<PAGE>
The Walt Disney Company
Management's Discussion and Analysis of
Financial Condition and Results of Operations
SEASONALITY
The Company's businesses are subject to the effects of seasonality.
Consequently, the operating results for the quarter ended December 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 product 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 Ended December 31, 1997
During fiscal 1997, the Company disposed of certain ABC publishing assets,
finalized the ABC purchase price allocation and sold KCAL, a Los Angeles
television station. The pro forma information below for the quarter ended
December 31, 1996 presents combined results of operations as if these events
occurred at the beginning of such period. 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
reflects comparisons to the Company's pro forma fiscal 1997 operating results.
The pro forma information is not necessarily indicative of the results of
operations of the Company that would have occurred had these events occurred at
the beginning of such period.
<PAGE>
<TABLE>
Consolidated Results
<CAPTION>
For the Quarter Ended December 31,
(unaudited; in millions, except per share data)
<S> <C> <C> <C> <C>
1996 1996
1997 (Pro forma) % Change (As reported)
----- ----------- -------- ------------
Revenues $6,339 $5,984 6% $6,278
Costs and Expenses (4,847) (4,609) (5)% (4,851)
Gain on Sale of KCAL - - n/m 135
------ ------ ------
Operating Income 1,492 1,375 9% 1,562
Corporate Activities and Other (78) (90) 13% (90)
Net Interest Expense (134) (171) 22% (171)
------ ------ ------
Income Before Income Taxes 1,280 1,114 15% 1,301
Income Taxes (525) (473) (11)% (552)
------ ------ ------
Net Income $ 755 $ 641 18% $ 749
====== ====== ======
Earnings Per Share
Diluted $ 1.10 $ .93 18% $ 1.09
====== ====== ======
Basic $ 1.12 $ .95 18% $ 1.11
====== ====== ======
Amortization of Intangible Assets
Included in Operating Income $ 106 $ 103 $ 114
===== ===== =====
</TABLE>
Net income and diluted earnings per share for the quarter increased 18% to
$755 million and $1.10, respectively. These results were driven by increased
operating income in all business segments and a decrease in net interest
expense. The decrease in net interest expense of 22% was due primarily to
gains realized on the sale of certain investments and lower average debt
balances.
<PAGE>
<TABLE>
Business Segment Results
<CAPTION>
For the Quarter Ended December 31,
(Unaudited; in millions)
<S> <C> <C> <C> <C>
1996 1996
1997 (Pro forma) %Change (As reported)
---- ----------- ------- ------------
Revenues:
Creative Content $3,015 $2,962 2% $3,235
Broadcasting 2,064 1,872 10% 1,893
Theme Parks & Resorts 1,260 1,150 10% 1,150
----- ----- -----
Total $6,339 $5,984 6% $6,278
===== ===== =====
Operating Income: (1)
Creative Content $ 700 $ 668 5% $ 719
Broadcasting 505 469 8% 470
Theme Parks & Resorts 287 238 21% 238
----- ----- -----
1,492 1,375 9% 1,427
Gain on Sale of KCAL - - n/m 135
----- ----- -----
Total $ 1,492 $ 1,375 9% $ 1,562
===== ===== =====
(1) Includes depreciation and amortization (excluding film costs) of:
Creative Content $ 52 $ 42
Broadcasting 134 129
Theme Parks & Resorts 98 97
--- ---
$ 284 $ 268
=== ===
</TABLE>
Creative Content
Revenues increased 2% or $53 million to $3.0 billion, driven by growth of
$98 million in television distribution, $73 million in The Disney Store and $24
million in domestic character merchandise licensing, partially offset by a
reduction of $169 million in home video. Growth in television distribution
revenue reflected the increase in the distribution of film and television
product into the worldwide television market. Increased revenues at The Disney
Store reflected an increase in comparable store sales in North America and
Europe driven by a strong holiday season, and continued worldwide expansion with
the opening of 93 new stores since the prior-year quarter. The domestic
character merchandise licensing growth was driven by the strength of Winnie the
Pooh. The decline in home video revenues reflected the strength of titles in the
prior year, including the performance of Toy Story worldwide and Pocahontas
internationally.
<PAGE>
Operating income increased 5% or $32 million to $700 million, reflecting
growth in television distribution, The Disney Store and domestic character
merchandise licensing. These increases were partially offset by a reduction in
theatrical and home video distribution results compared to the prior year, which
benefited from the success in the domestic theatrical market of Ransom and 101
Dalmatians and in the home video market of Toy Story worldwide and Pocahontas
internationally. Costs and expenses, which consist primarily of production cost
amortization, distribution and selling expenses, product cost, labor and
occupancy, increased 1% or $21 million. The increase was primarily due to the
expansion of The Disney Store and increases in production cost amortization in
the theatrical markets, partially offset by a decrease in distribution and
selling expenses in the international home video market driven by a decline in
volume and a decrease in costs in the Interactive business driven by a reduction
in headcount and lower product development costs.
Broadcasting
Revenues increased 10% or $192 million to $2.1 billion, primarily driven
by a $104 million increase in revenues at ESPN and Disney Channel, a $49 million
increase at the television network and an increase of $32 million at the
television and radio stations. The revenue growth at ESPN was due primarily to
higher advertising revenues and affiliate fees resulting from continued
subscriber growth and improved advertising and subscriber rates. Increases
at Disney Channel were driven by higher affiliate fees due to subscriber
growth. The revenue increases at the television and radio stations and the
television network were due primarily to improved advertising rates.
Operating income increased 8% or $36 million to $505 million, reflecting
revenue increases at ESPN, Disney Channel, the television and radio stations and
the television network, partially offset by increased costs and expenses at the
television network. Costs and expenses, which consist primarily of programming,
selling and general and administrative costs, increased 11% or $156 million.
This increase reflected higher program amortization at the television network,
due primarily to changes in the program mix in response to lower ratings and a
reduction in benefits arising from the ABC acquisition, and increased program
rights and production costs driven by growth at ESPN.
<PAGE>
Theme Parks and Resorts
Revenues increased $110 million or 10% to $1.3 billion, reflecting growth
at the Walt Disney World Resort, which celebrated the final months of its 25th
Anniversary. Growth at the resort included $59 million from higher guest
spending, $28 million from increased occupied rooms and $10 million due to
record theme park attendance. Higher guest spending reflected increased average
admissions spending, higher average room rates at hotel properties and increased
merchandise and food and beverage sales. The increase in occupied rooms
reflected higher occupancy and the opening of Disney's Coronado Springs Resort
in August 1997. Record theme park attendance resulted from growth in domestic
tourist visitation. Revenues for the quarter also reflected increased sales of
units at Disney Vacation Club partially offset by reduced revenues at
Disneyland. Disneyland's revenues for the quarter were down due to reduced
attendance compared with the prior-year's record attendance attributed to the
Main Street Electrical Parade farewell season, partially offset by higher guest
spending.
Operating income increased $49 million or 21% to $287 million, resulting
primarily from higher guest spending, increased occupied rooms and record theme
park attendance at the Walt Disney World Resort. 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 $61 million or 7%. Increased operating costs were associated
with growth in theme park attendance and occupied rooms and higher guest
spending.
FINANCIAL CONDITION
For the quarter ended December 31, 1997, cash provided by operations
decreased $115 million to $1.9 billion, primarily reflecting the impact of
certain non-recurring income tax payments related to the disposition of certain
publishing assets in fiscal 1997.
During the quarter, the Company received approximately $1.8 billion from
net commercial paper activity and $168 million from new financing arrangements.
Commercial paper borrowings outstanding as of December 31, 1997 totaled $3.7
billion with maturities of up to one year, supported by bank facilities totaling
$4.2 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 $2.8 billion of additional debt.
<PAGE>
During the quarter, the Company invested $487 million in theme parks,
resorts and other properties. These expenditures reflected continued expansion
activities including Disney's Animal Kingdom, Disney's California Adventure,
Disney Cruise Line and certain resort facilities at the Walt Disney World
Resort.
During the quarter, the Company invested $1.6 billion to develop, produce
and acquire rights to film and television properties. These costs increased over
the prior year quarter due primarily to higher spending on live-action
theatrical and television productions.
Total commitments to purchase broadcast programming approximated $4.6
billion at December 31, 1997. Substantially all of this amount is payable over
the next five years.
During January 1998, 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. The contract provides for total payments of approximately $9
billion over an eight-year period commencing with the 1998 season.
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
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
<PAGE>
THE WALT DISNEY COMPANY
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE WALT DISNEY COMPANY
(Registrant)
By /s/ Richard D. Nanula
----------------------------------
Richard D. Nanula
Senior Executive Vice President and
Chief Financial Officer
February 17, 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 three months ended December 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> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 887
<SECURITIES> 0
<RECEIVABLES> 4,600
<ALLOWANCES> 0
<INVENTORY> 907
<CURRENT-ASSETS> 0
<PP&E> 14,180
<DEPRECIATION> 4,954
<TOTAL-ASSETS> 39,944
<CURRENT-LIABILITIES> 0
<BONDS> 12,003
0
0
<COMMON> 8,592
<OTHER-SE> 9,668
<TOTAL-LIABILITY-AND-EQUITY> 39,944
<SALES> 0
<TOTAL-REVENUES> 6,339
<CGS> 0
<TOTAL-COSTS> 4,847
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 134
<INCOME-PRETAX> 1,280
<INCOME-TAX> 525
<INCOME-CONTINUING> 755
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 755
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.10
</TABLE>
