Document/ExhibitDescriptionPagesSize 1: 10-K405 Annual Report on Form 10-K for Period End 9/30/96 49 269K
2: EX-3.(B) Amended Bylaws of the Company Dated 4/22/96 11 65K
3: EX-4.(C) 364 Day Credit Agreement Dated as of Oct. 30, 1996 51 229K
4: EX-4.(D) Five-Year Credit Agreement Dated 10/30/96 53 240K
5: EX-21 Subsidiaries of the Company 1 5K
6: EX-27 Financial Data Schedule 2 9K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 1996 Commission File Number 1-
11605
[LOGO OF THE WALT DISNEY COMPANY]
Incorporated in Delaware I.R.S. Employer
500 South Buena Vista Street, Burbank, California91521 Identification No.
(818) 560-1000 95-4545390
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
Common Stock, $.01 par value New York Stock Exchange
Pacific Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None.
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Rule
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
----
As of November 30, 1996, the aggregate market value of registrant's common
stock held by non-affiliates (based on the closing price on such date as
reported on the New York Stock Exchange-Composite Transactions) was $49.1
billion. All executive officers and directors of registrant and all persons
filing a Schedule 13D with the Securities and Exchange Commission in respect
to registrant's common stock have been deemed, solely for the purpose of the
foregoing calculation, to be "affiliates" of the registrant.
There were 675,098,522 shares of common stock outstanding as of December 12,1996.
Documents Incorporated by Reference
Certain information required for Part III of this report is incorporated
herein by reference to an amendment to this report on Form 10-K/A to be filed
within 120 days after the end of the fiscal year covered by this report.
PART I ITEM 1. BUSINESS
The Walt Disney Company, together with its subsidiaries, is a diversified
international entertainment company with operations in three business
segments: Creative Content, Broadcasting and Theme Parks and Resorts.
Information on revenues, operating income, identifiable assets and
supplemental revenue of the Company's business segments appears in Note 11 of
the Notes to Consolidated Financial Statements included in Item 8 hereof. The
Company employs approximately 100,000 people.
On February 9, 1996, the Company completed its acquisition of Capital
Cities/ABC, Inc. ("ABC"). Information on the acquisition appears in Note 2 of
the Notes to Consolidated Financial Statements included in Item 8 hereof. As a
result of the acquisition, a new parent company, with the name "The WaltDisney Company," replaced the old parent company of the same name. For
convenience, the term "Company" is used in this report to refer to both the
old and the new parent company. Unless the context otherwise requires, the
term is also used to refer collectively to the parent company and the
subsidiaries through which its various businesses are actually conducted.
BUSINESS SYNERGY The Company's three different operating segments market the Company's
trademarks, characters, products and services as part of a cohesive effort to
generate stockholder value through synergy.
The Creative Content segment produces live-action and animated motion
pictures, television programs and musical recordings, licenses the Company's
characters and other intellectual property for use in connection with
merchandise and publications, and publishes books and magazines. Within the
segment, films and characters are often promoted through the release of
audiocassettes and compact discs, children's books and magazines. In addition,
television programs have been created that contain characters originated in
animated films. Character merchandising and publications licensing promote the
Company's films and television programs, as well as the Company's other
operations. The Company also operates the Disney Stores, which are direct
retail distribution outlets for products based on the Company's characters and
films. The Company is also engaged directly in the home video and television
distribution of its film and television library.
The Company's other operations benefit substantially from the Creative
Content segment, and those operations in turn promote the Company's films,
television programs and merchandise. The products and services of the Creative
Content segment often contain elements highlighting the Company's theme parks
and resorts, and the theme parks and resorts will often promote recent
releases of motion pictures through parades, stage shows and other
attractions.
In keeping with its pursuit of business synergy, the Company recently moved
into the development of multimedia technologies, including interactive
software, interactive television and video ventures. The Company's interactive
software is primarily oriented toward children, and includes characters from
the Company's animated films and television programs. The Company is also
expanding into the cruise line business, with two ships scheduled to be
launched in 1998. The Company anticipates promoting the cruise line business
by incorporating the Company's characters, themes from live-action and
animated motion pictures, film and stage entertainment into the cruise
experience, and by packaging cruises with visits to the Walt Disney World
Resort.
In addition to the value generated through synergy, the Company believes its
operating segments benefit substantially from the Company's reputation in the
entertainment industry for commitment to excellent quality in all of its
products and services.
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CREATIVE CONTENT The Company is an industry leader in producing and acquiring live-action and
animated motion pictures for distribution to the theatrical, television and
home video markets, and producing original television programming for the
network and first-run syndication markets. In addition, the Company also
produces music recordings and live stage plays. The Company licenses the name
"Walt Disney," as well as the Company's characters, visual and literary
properties and songs and music, to various consumer manufacturers, retailers,
show promoters and publishers throughout the world. Company subsidiaries also
engage in direct retail distribution through The Disney Stores; publish
domestic newspapers, technical and specialty publications; create books,
magazines and comics in the United States and Europe; and produce popular
music, children's audio products and computer software for all markets, as
well as film and video products for the educational marketplace.
THEATRICAL FILMS
Walt Disney Pictures and Television, a subsidiary of the Company, produces
and acquires live-action motion pictures that are distributed under the
banners Walt Disney Pictures, Touchstone Pictures, Hollywood Pictures and
Caravan Pictures. Another subsidiary, Miramax Film Corp., acquires and
produces motion pictures that are primarily distributed under the Miramax
banner. The Company also produces and distributes animated motion pictures
under the banner Walt Disney Pictures. In addition, the Company distributes
films produced or acquired by certain independent production companies.
Recently, the Company announced a new direction for its film slate, which
will be phased-in over the next several years. The Company intends on
producing fewer total films, but increasing its per film expenditures.
Accordingly, total film expenditures are expected to approximate current
levels. During 1997, the Company will seek to distribute approximately 25
feature films under the Company's various banners and approximately 35
additional films under the Miramax banner, including several live-action
family feature films, one to two full-length animated films and between 45 and
55 films targeted to teenagers and adults. In addition, the Company
periodically reissues previously released animated films. As of September 30,1996, the Company had released 427 full-length live-action features (primarily
color), 34 full-length animated color features and approximately 554 cartoon
shorts.
The Company distributes and markets its filmed products principally through
its own distribution and marketing companies in the United States and major
foreign markets.
HOME VIDEO The Company directly distributes home video releases from each of its
banners in the domestic market. In the international market, the Company
distributes both directly and through foreign distribution companies. In
addition, the Company acquires and produces original programming for direct-
to-video release. As of September 30, 1996, approximately 834 produced and
acquired titles, including 437 feature films and 397 cartoon shorts and
animated features, were available to the domestic marketplace. Approximately
881 produced and acquired titles, including 462 feature films and 419 cartoon
shorts and animated features, were available to the international home
entertainment market.
TELEVISION PRODUCTION AND DISTRIBUTION The Company develops, produces and distributes television programming for
broadcasters, cable and satellite operators, including the major television
networks, The Disney Channel, A&E Television Networks and Lifetime Television
under the Buena Vista Television, Touchstone Television and Walt Disney
Television labels. Program development is carried out in collaboration with a
number of independent writers, producers and creative teams under various
development arrangements. The Company focuses on the development, production
and distribution of half-hour comedies for network prime-time broadcast,
including such series as Home Improvement, Ellen and Boy Meets World. Fall
1996 releases included Dangerous Minds, Life's Work and Homeboys in Outer
Space.
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Walt Disney Television currently distributes two animated cartoon series for
Saturday morning: Aladdin and Timon and Pumbaa. The Company also offers a
variety of prime-time specials for exhibition on network television.
Additionally, the Company produces first-run animated and live-action
syndicated programming. The Disney Afternoon is a two-hour block of cartoons
airing five days per week, including Aladdin, Gargoyles, Darkwing Duck, Mighty
Ducks, Quack Pack and Timon and Pumbaa. Live-action programming includes Live!
with Regis and Kathie Lee, a daily talk show on ABC; Siskel & Ebert, a weekly
motion picture review program; Disney Presents Bill Nye the Science Guy and
Sing Me a Story With Belle, weekly educational programs for children.
The Company licenses the theatrical and television film library to the
domestic television syndication market. Television programs in off-network
syndication include Home Improvement, Blossom, Dinosaurs, The Golden Girls and
Empty Nest. Major packages of the Company's feature films and television
programming have been licensed for broadcast continuing over several years.
The Company licenses television series developed for United States networks
in a number of foreign markets, including Canada, France, Germany, Italy,
Spain and the United Kingdom. Certain of the Company's television programs are
also syndicated by the Company abroad, including The Disney Club, a weekly
series that the Company produces for foreign markets. The Company's television
programs are telecast regularly in many countries, including Australia,
Brazil, Canada, China, France, Germany, Italy, Japan, Mexico, Spain and the
United Kingdom.
The Company currently licenses its feature films for pay television on an
output basis in several geographic markets, including the United Kingdom and
Scandinavia, and has an arrangement with Showtime through 1997 for the United
States. In 1993, the Company entered into an agreement to license to the
Encore pay television service, over a multi-year period, exclusive domestic
pay television rights to Miramax films beginning in 1994 and Touchstone
Pictures and Hollywood Pictures films starting in 1997.
AUDIO PRODUCTS AND MUSIC PUBLISHING The Company also produces and distributes compact discs, audiocassettes and
records, consisting primarily of soundtracks for animated films and read-along
products, directed at the children's market in the United States, France and
the United Kingdom, and licenses the creation of similar products throughout
the rest of the world. In addition, the Company commissions new music for its
motion pictures, television programs and records and exploits the song
copyrights created for the Company by licensing others to produce and
distribute printed music, records, audiovisual devices and public
performances.
Domestic retail sales of compact discs, audiocassettes and records are the
largest source of revenues, while direct marketing, which utilizes catalogs,
coupon packages and television, is a secondary means of distribution for the
Company.
The Company's Hollywood Records subsidiary develops, produces and markets
recordings from new talent across the spectrum of popular music, as well as
soundtracks from certain of the Company's live-action motion pictures.
WALT DISNEY THEATRICAL PRODUCTIONS
In 1994, the Company produced a Broadway-style stage musical based on the
animated feature film Beauty and the Beast. The stage adaptation is currently
playing in several cities in the United States and around the world. The
Company has also leased the New Amsterdam Theater in New York, and anticipates
producing additional live theatre including The Lion King, scheduled to open
in November 1997.
CHARACTER MERCHANDISE AND PUBLICATIONS LICENSING The Company's worldwide licensing activities generate royalties which are
usually based on a fixed percentage of the wholesale or retail selling price
of the licensee's products. The Company
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licenses characters based upon both traditional and newly created film
properties. Character merchandise categories which have been licensed include
apparel, watches, toys, gifts, housewares, stationery, sporting goods and
domestic items such as sheets and towels. Publication categories which have
been licensed include continuity-series books, book sets, art and picture
books and magazines.
In addition to receiving licensing fees, the Company is actively involved in
the development and approval of licensed merchandise and in the
conceptualization, development, writing and illustration of licensed
publications. The Company continually seeks to create new characters to be
used in licensed products.
THE DISNEY STORESThe Company markets Disney-related products directly through its retail
facilities operated under "The Disney Store" name. These facilities are
generally located in leading shopping malls and similar retail complexes. The
stores carry a wide variety of Disney merchandise and promote other businesses
of the Company. During fiscal 1996, the Company opened 65 new stores in the
United States and Canada, 19 in Europe and 17 in the Asia-Pacific area,
bringing the total number to 530 as of September 30, 1996. The Company expects
to open additional stores in the future in selected markets throughout the
United States, as well as in Asia-Pacific, European and Latin American
countries.
NEWSPAPER, TECHNICAL AND SPECIALTY PUBLISHING
Publishing operations include production of seven daily newspapers (five of
which have Sunday editions); weekly community newspapers; shopping guides and
real estate magazines; specialized publications that involve news and ideas
for various industries; and consumer, special interest, trade and agricultural
publications. The publishing group also provides research and database
services.
BOOKS AND MAGAZINES The Company also has book imprints in the United States offering books for
children and adults. The Company also produces several magazines for the
children and family markets as well as Discover, a general science magazine.
In addition, the Company is a partner in a joint venture which produces
children's books and magazines and computer software magazines in France.
DISNEY INTERACTIVE
Disney Interactive is a fully-integrated software business focused on the
product development and marketing of entertainment and educational computer
software and video game titles for home and school. The division's initiatives
also involve the development, publication and distribution of content for
narrow-band on-line services, the interactive software market, interactive
television platforms, Internet web sites and other emerging technology
ventures.
OTHER ACTIVITIES The Company produces audiovisual materials for the educational market,
including videocassettes and film strips. It also licenses the manufacture and
sale of posters and other teaching aids. The Company markets and distributes,
through various channels, animation cel art and other animation-related
artwork and collectibles.
COMPETITIVE POSITION
The success of the Creative Content operations is heavily dependent upon
public taste, which is unpredictable and subject to change. In addition,
filmed entertainment operating results fluctuate due to the timing of
theatrical and home video releases. Release dates are determined by several
factors, including timing of vacation and holiday periods and competition in
the market. Operating results for the licensing and retail distribution
business are influenced by seasonal consumer purchasing behavior and by the
timing of animated theatrical releases.
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The Company's Creative Content businesses compete with all forms of
entertainment. A significant number of companies produce and/or distribute
theatrical and television films, exploit products in the home video market,
provide pay television programming service, sponsor live theater, and/or
produce interactive software. The Company also competes to obtain creative
talents, story properties, advertiser support, broadcast rights and market
share, which are essential to the success of all of the Company's Creative
Content businesses.
The Company competes in its character merchandising and other licensing,
publishing and retail activities with other licensers, publishers and
retailers of character, brand and celebrity names. Although public information
is limited, the Company believes it is the largest worldwide licenser of
character-based merchandise and producer/distributor of children's audio
products.
The Company's newspaper publishing operations compete in their various local
markets against other newspapers, and other media channels for audience and
advertising revenues. Technical and specialty publications usually cover small
markets, with limited competition.
BROADCASTING TELEVISION AND RADIO NETWORKS The Company operates the ABC Television Network, which as of September 30,1996 had 223 primary affiliated stations operating under long-term agreements
reaching 99.9% of all U.S. television households. The ABC Television Network
broadcasts programs in "dayparts" and types as follows: Monday through Friday
Early Morning, Daytime and Late Night, Monday through Sunday Prime Time and
News, Children's and Sports. The Company also operates the ABC Radio Networks,
which serve more than 122 million people weekly over approximately 2,900
affiliates as of September 30, 1996 through seven different program services,
each with its own group of affiliated stations. The ABC Radio Networks also
produce and distribute a number of radio program series for radio stations
nationwide.
Generally, the networks pay the cost of producing their own programs or
acquiring broadcast rights from other producers for network programming and
pay varying amounts of compensation to affiliated stations for broadcasting
the programs and commercial announcements included therein. Substantially all
revenues from network operations are derived from the sale to advertisers of
time in network programs for commercial announcements. The ability to sell
time for commercial announcements and the rates received are dependent on many
factors, primarily the quantitative and qualitative audience that the network
can deliver to the advertiser, as well as overall advertiser demand for time
in the network marketplace.
TELEVISION AND RADIO STATIONS The Company owns nine very high frequency (VHF) television stations, five of
which are located in the top ten markets in the United States; one ultra high
frequency (UHF) television station; eleven standard (AM) radio stations; and
ten frequency modulation (FM) radio stations. All of the television stations
are affiliated with the ABC Television Network, and 17 of the 21 radio
stations are affiliated with the ABC Radio Networks. The Company's television
stations penetrate 24% of the nation's television households, calculated using
the multiple ownership rules of the Federal Communications Commission (FCC).
The Company's radio stations reach more than 13 million people weekly in the
top twenty United States advertising markets.
During 1996, the Company also operated KCAL-TV, an independent station in
Los Angeles, California. In May 1996, the Company entered into an agreement to
sell KCAL to Young Broadcasting, Inc. The sale was consummated on November 22,1996.
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CABLE AND INTERNATIONAL BROADCAST The Company's Cable and International Broadcast operations are principally
involved in the production and distribution of cable television programming,
the licensing of programming to domestic and international markets and
investment in joint ventures in foreign-based television operations and
television production and distribution entities. The Company owns The Disney
Channel, 80% of ESPN Inc., 37.5% of the A&E Television Networks, 50% of
Lifetime Entertainment Services, and has various other investments in Europe.
The Disney Channel, which has approximately 25 million domestic and 7
million international subscribers, is a cable television service. New shows
developed for original use by The Disney Channel include dramatic, adventure,
comedy and educational series, as well as documentaries and first-run
television movies. In addition, entertainment specials include shows
originating from both the Walt Disney World Resort(R) and Disneyland Park(R).
The balance of the programming consists of products acquired from third
parties and products from the Company's theatrical film and television
programming library. The Disney Channel Taiwan premiered in March 1995,
followed by the launch of The Disney Channel U.K. in October 1995. The Company
began broadcasting The Disney Channel Australia in 1996, expects to launch The
Disney Channel in France and the Middle East in 1997, and is exploring the
development of The Disney Channel in other countries around the world.
ESPN Inc. operates ESPN, a cable sports programming service reaching 70
million subscribers domestically and 105 million subscribers in 160 countries
internationally, and ESPN2, which reaches 38 million domestic subscribers.
ESPN also owns 33% of Eurosport, a pan-European satellite-delivered cable and
direct-to-home sports programming service, and 20% of Japan Sports Network, a
sports cable channel. ESPNews, a 24-hour sports news cable channel, was
launched in fall 1996, and ESPN Asia and Star Sports have formed a joint
venture for delivery of sports programming throughout most of Asia.
The A&E Television Network is a cable programming service devoted to
cultural and entertainment programming reaching 68 million subscribers. The
History Channel, which is owned by A&E, reaches 22 million subscribers.
Lifetime Entertainment Services owns Lifetime Television, which reaches 66
million cable subscribers and is devoted to women's lifestyle programming.
The Company has affiliated European operations including (i) Tele-Munchen
Fernseh GmbH & Co., a 50%-owned television and theatrical
production/distribution company based in Munich, Germany, which also has
interests in cinemas, (ii) RTL 2 Fernseh GmbH & Co., a 23%-owned general
entertainment commercial broadcasting company, also based in Munich, reaching
28 million households, (iii) TM3 Fernseh GmbH & Co. KG, a 37.5%-owned women-
oriented commercial broadcasting company reaching 17 million households, also
based in Munich, (iv) RTL Disney Fernseh GmbH & Co. KG ("Super RTL"), a 50%-
owned German family entertainment commercial broadcasting company reaching 18
million households and (v) Scandinavian Broadcasting System SA, a 23%-owned
company based in Luxembourg with interests in television and radio stations,
satellite-delivered cable and direct-to-home programming services and
television production, serving various European countries and reaching 13
million households.
The Company's share of the financial results of the cable and international
broadcast services, other than The Disney Channel and ESPN Inc., are reported
under the heading "Corporate Activities and Other" in the Company's
consolidated statements of income.
COMPETITIVE POSITION
The ABC Television Network, The Disney Channel, ESPN and other broadcasting
affiliates compete for viewers with the other television networks, independent
television stations, other video media such as cable television, multipoint
distribution services ("MDS," which employ non-broadcast frequencies to
transmit subscription television services to individual homes and businesses),
direct
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broadcast services, satellite television program services and videocassettes.
In the sale of advertising time, the broadcasting operations compete with
other television networks, independent television stations, suppliers of cable
television programs and other advertising media such as newspapers, magazines
and billboards. Substantial competition also exists for exclusive broadcasting
rights for television programs. The ABC Radio Networks likewise compete with
other radio networks and radio programming services, independent radio
stations and other advertising media.
The Company's television and radio stations are in competition with other
television and radio stations, cable television systems, MDS, direct broadcast
services, satellite television program services, videocassettes and other
advertising media such as newspapers, magazines and billboards. Such
competition occurs primarily in individual market areas. Generally, a
television station in one market does not compete directly with other stations
in other market areas. Nor does a group of stations, such as those owned by
the Company, compete with any other group of stations as such. While the
pattern of competition in the radio station industry is basically the same, it
is not uncommon for radio stations outside of a market area to place a signal
of sufficient strength within that area (particularly during nighttime hours)
to gain a share of the audience. However, they generally do not realize
significantly increased advertising revenues as a result.
The Company's television and radio broadcasting operations are under the
jurisdiction of the FCC. Under the Communications Act of 1934, as amended (the
"Communications Act"), the FCC is empowered to issue, revoke or modify
broadcasting licenses, determine the location of stations, regulate the
equipment used by stations, adopt regulations to carry out the provisions of
the Communications Act and impose certain penalties for violation of its
regulations.
FCC regulations also restrict the ownership of stations and cable operations
in certain circumstances, and regulate the practices of network broadcasters,
cable providers and competing services. Such laws and regulations are subject
to change, and the Company generally cannot predict whether new legislation or
regulations, or a change in the extent of application or enforcement of
current laws and regulations, would have an adverse impact on the Company's
operations.
THEME PARKS AND RESORTS The Company operates the Walt Disney World Resort in Florida and the
Disneyland Park and two hotels in California. The Company also earns royalties
on revenues generated by the Tokyo Disneyland(R) theme park and has an equity
interest in Disneyland Paris.
WALT DISNEY WORLD RESORT
The Walt Disney World Resort is located on approximately 30,500 acres of
land owned by Company subsidiaries 15 miles southwest of Orlando, Florida. The
resort includes three theme parks (the Magic Kingdom, Epcot and the Disney-MGM
Studios), hotels and villas, an entertainment complex, a shopping village,
conference centers, campgrounds, golf courses, water parks and other
recreational facilities designed to attract visitors for an extended stay. A
fourth theme park, Disney's Animal Kingdom featuring live animals in natural
habitats, is currently under construction and scheduled to open in spring
1998.
The Company markets the entire Walt Disney World Resort through a variety of
national, international and local advertising and promotional activities. The
Walt Disney World Resort began celebrating its 25th Anniversary in October
1996 with a series of promotional and special events. A number of attractions
in each of the theme parks are sponsored by corporate participants through
long-term participation agreements.
MAGIC KINGDOM - The Magic Kingdom, which opened in 1971, consists of seven
principal areas: Main Street U.S.A., Liberty Square, Frontierland, New
Tomorrowland, Fantasyland, Adventureland and Toontown Fair. These areas
feature themed rides and attractions, restaurants, refreshment stands and
merchandise shops.
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EPCOT - Epcot, which opened in 1982, consists of two major themed areas:
Future World and World Showcase. Future World dramatizes certain historical
developments and addresses the challenges facing the world today through major
pavilions devoted to high-tech products of the future ("Innoventions"),
communication and technological exhibitions ("Spaceship Earth"), and energy,
transportation, imagination, life and health, the land and seas. World
Showcase presents a community of nations focusing on the culture, traditions
and accomplishments of people around the world. World Showcase includes as a
central showpiece the American Adventure pavilion, which highlights the
history of the American people. Other nations represented are Canada, China,
France, Germany, Italy, Japan, Mexico, Morocco, Norway and the United Kingdom.
Both areas feature themed rides and attractions, restaurants and merchandise
shops.
DISNEY-MGM STUDIOS - The Disney-MGM Studios, which opened in 1989, consists
of a theme park, an animation studio and a film and television production
facility. The complex park centers around Hollywood as it was during the
1930's and 1940's and features Disney animators at work and a backstage tour
of the film and television production facilities in addition to themed food
service and merchandise facilities and other attractions. The production
facility consists of three sound stages, merchandise shops and a back lot area
and currently hosts both feature film and television productions.
RESORT FACILITIES - As of September 30, 1996, the Company owned and operated
12 resort hotels and a complex of villas and suites at the Walt Disney World
Resort, with a total of approximately 14,700 rooms. The Disney Institute, a
resort offering participatory programs and life-enriching experiences, opened
in 1996, as did Disney's BoardWalk Hotel with 378 luxury rooms. In addition,
Disney's Fort Wilderness camping and recreational area offers approximately
1,200 campsites and wilderness homes. Several of the resort hotels also
contain conference centers and related facilities.
Recreational activities available at the resort facilities include five
championship golf courses, miniature golf courses, an animal sanctuary,
tennis, sailing, water skiing, swimming, horseback riding and a number of
noncompetitive sports and leisure time activities. The Company also operates
three water parks: Blizzard Beach, River Country and Typhoon Lagoon.
The Company has also developed a shopping facility and entertainment complex
to be known as Downtown Disney, which consists of the Disney Village
Marketplace and Pleasure Island. The Disney Village Marketplace is home to the
50,000-square-foot World of Disney, which opened in October 1996 and is the
largest Disney retail store in the world. Pleasure Island, an entertainment
center adjacent to the Disney Village Marketplace, includes restaurants, night
clubs and shopping facilities. These shopping and entertainment facilities are
currently under significant expansion. The newly expanded property will be
situated on 66 acres on the west side of Pleasure Island and will include
multiple third party arrangements such as the House of Blues, a New Orleans-
style restaurant and live entertainment facility; Wolfgang Puck's Cafe, a
California cuisine restaurant; Virgin Records Megastore, a state-of-the-art
music, video and book showplace; Cirque du Soleil, a high energy acrobatics
and modern dance show; Bongos Cuban Cafe, a cafe/night club; and an AMC
theater complex, which will become the largest theater complex in Florida.
Currently under development are Celebration, a 4,900-acre town; Disney
Cruise Line, a cruise vacation line that will include two 85,000 ton ships;
Disney's Coronado Springs Resort, a facility designed to serve the moderately
priced hotel/convention market; and Disney's Wide World of Sports, a sports
complex featuring professional and amateur sporting events.
At the Disney Village Marketplace Hotel Plaza, seven independently operated
hotels are situated on property leased from the Company. These hotels have a
capacity of approximately 3,700 rooms. Additionally, two hotels--the Walt
Disney World Swan and the Walt Disney World Dolphin, with an aggregate
capacity of approximately 2,300 rooms--are independently operated on property
leased from the Company near Epcot. Another hotel, the 288-room Shades of
Green on Walt Disney World Resort, is leased from the Company and operated by
a non-profit organization as an armed forces recreation center.
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DISNEYLAND The Company owns 330 acres and has under long-term lease an additional 39
acres of land in Anaheim, California. Disneyland, which opened in 1955,
consists of eight principal areas: Toontown, Fantasyland, Adventureland,
Frontierland, Tomorrowland, New Orleans Square, Main Street and Critter
Country. These areas feature themed rides and attractions, restaurants,
refreshment stands and merchandise shops. A number of the Disneyland
attractions are sponsored by corporate participants. The Company markets
Disneyland through national and local advertising and promotional activities.
The Company also owns and operates the 1,100-room Disneyland Hotel and the
500-room Disneyland Pacific Hotel.
The Company has received approval from the city of Anaheim to construct a
new theme park, Disney's California Adventure. The new theme park will be
constructed on the existing Disneyland parking lot and property adjacent to
the park. Disney's California Adventure will celebrate the many attributes of
the state of California and will feature Disneyland Center, a themed complex
of shopping, dining, and entertainment venues; the Grand Californian, a deluxe
750-room hotel located inside the park; and an assortment of "California"
themed areas with associated rides and attractions.
DISNEY VACATION CLUB
In 1995, the Company completed the 497-unit Disney Old Key West Resort at
the Walt Disney World Resort. In addition, 175 units in Vero Beach, Florida
opened in October 1995, and 102 units on Hilton Head Island, South Carolina,
and 383 villas located at Disney's BoardWalk Resort opened in 1996. Available
units at each facility are intended to be sold under a vacation ownership plan
and operated partially as rental property until the units are sold.
DISNEY REGIONAL ENTERTAINMENT The Company is developing a variety of entertainment-based initiatives to
open in various parts of the United States and abroad. These businesses will
include sports concepts, interactive entertainment centers, children's play
centers and other operations that use Disney's creative entertainment talents
and the popularity of the Disney brand.
Beginning in February 1997, the Company will be opening Club Disney, the
first regional entertainment operation, in select suburban markets. Club
Disney is a play environment oriented toward children under 10 and their
parents. The first store in Thousand Oaks, California, will include a three-
story Jungle Climber, a game area, the Pooh N You Hundred Acre Wood-themed
play area, Curiosity Castle, the Starring You Studio and other attractions.
Entrance to the property will be priced comparably with the cost of admission
to a movie theater. The property will also have a cafe, a unique retail store
and party rooms with different themes for birthdays and other special
occasions.
TOKYO DISNEYLAND The Company earns royalties on revenues generated by the Tokyo Disneyland
theme park, which is owned and operated by Oriental Land Co., Ltd. (OLC), an
unrelated Japanese corporation. The park, which opened in 1983, is similar in
size and concept to Disneyland and is located approximately six miles from
downtown Tokyo, Japan.
The Company and OLC have concluded a joint study of the basic design concept
for a theme park and associated hotel adjacent to Tokyo Disneyland. The
schematic design and design development stages for Tokyo DisneySea are
expected to continue until late 1997, at which time OLC will make a final
decision whether to commence construction.
In addition, the Company and OLC have reached agreement on the construction
of a 500 room Disney-branded hotel to be built near Tokyo Disneyland.
DISNEYLAND PARIS
Disneyland Paris is located on a 4,800-acre site at Marne-la-Valle,
approximately 20 miles east of Paris, France. The theme park, which opened in
April 1992, features 42 attractions in its five themed
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lands. Seven themed hotels, with a total of approximately 5,800 rooms, are part
of the resort complex, together with an entertainment center offering a variety
of retail, dining and show facilities. The project has been developed pursuant
to a 1987 master agreement with French governmental authorities by Euro Disney
S.C.A., a publicly held French company in which the Company holds a 39% equity
interest and which is managed by a subsidiary of the Company. The financial
results of the Company's investment in Euro Disney are reported under the
heading "Corporate Activities and Other" in the Company's consolidated
statements of income.
WALT DISNEY IMAGINEERING
Walt Disney Imagineering provides master planning, real estate development,
attraction and show design, engineering support, production support, project
management and other development services for the Company's operations.
ANAHEIM SPORTS, INC. The Company owns and operates a National Hockey League franchise, the Mighty
Ducks of Anaheim. In addition, a subsidiary of the Company serves as general
partner of the Anaheim Angels (formerly the California Angels), a Major League
Baseball team.
COMPETITIVE POSITION
All of the theme parks and most of the associated resort facilities are
operated on a year-round basis. Historically, the theme parks and resorts
business experiences fluctuations in 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.
The Company's theme parks and resorts compete with all other forms of
entertainment, lodging, tourism and recreational activities. The profitability
of the leisure-time industry is influenced by various factors which are not
directly controllable, such as economic conditions, amount of available leisure
time, oil and transportation prices and weather patterns.
ITEM 2. PROPERTIES
The Walt Disney World Resort, Disneyland Park and other properties of the
Company and its subsidiaries are described in Item 1 under the caption Theme
Parks and Resorts. Film library properties are described in Item 1 under the
caption Creative Content.
A subsidiary of the Company owns approximately 51 acres of land in Burbank,
California on which the Company's studios and executive offices are located.
The studio facilities are used for the production of both live-action and
animated motion pictures and television products. In addition, Company
subsidiaries lease office and warehouse space for certain studio and corporate
activities.
The Company's Broadcasting segment corporate offices are located in a
Company-owned building at 77 West 66th Street in New York City. The Company
also owns the ABC Television Center adjacent to the building and ABC Radio
Networks' studios at 125 West End Avenue in New York City.
Subsidiaries of the Company own the ABC Television Center and lease the ABC
Television Network offices in Los Angeles, the ABC News Bureau facility in
Washington, DC and a computer facility in Hackensack, New Jersey, under leases
expiring on various dates through 2034. The Company's broadcast operations and
engineering facility and local television studios and offices in New York City
are leased, but the Company has the right to acquire such properties for a
nominal sum in 1997. The Company's 80%-owned subsidiary ESPN owns ESPN Plaza in
Bristol, Connecticut, from which it conducts its technical operations. The
Company owns the majority of its other broadcast studios and offices and
broadcast transmitter sites elsewhere, and those which it does not own are
occupied under leases expiring on various dates through 2039.
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A U.K. subsidiary of the Company owns buildings on a four-acre parcel under
long-term lease in London, England. The mixed-use development consists of
143,000 square feet of office space occupied by subsidiary operations, a
27,000 square foot building leased to a third party and 65,000 square feet of
retail space.
Various Company subsidiaries own and lease executive, editorial and other
offices and facilities used by the publishing operation in various cities. For
leased properties, the leases expire on various dates through 2006. All of the
significant premises occupied by the newspapers are owned by Company
subsidiaries.
The Company's Disney Store unit also leases retail space for the Disney
Stores in shopping malls and similar retail complexes worldwide.
It is the Company's practice to obtain United States and foreign legal
protection for its theatrical and television product and its other original
works, including the various names and designs of the animated characters and
the publications and music which have been created in connection with the
Company's filmed products. The Company owns all rights to the name, likeness
and portrait of Walt Disney.
ITEM 3. LEGAL PROCEEDINGSThe Company, together with, in some instances, certain of its directors and
officers, is a defendant or co-defendant in various legal actions involving
copyright, breach of contract and various other claims incident to the conduct
of its businesses. Management does not expect the Company to suffer any
material liability by reason of such actions.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of stockholders during the fourth
quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are elected each year at the
organizational meeting of the Board of Directors which follows the annual
meeting of the stockholders and at other meetings as appropriate. Each of the
executive officers has been employed by the Company in the position or
positions indicated in the list and pertinent notes below. Messrs. Eisner,
Disney and Murphy have been employed by the Company as executive officers for
more than five years.
At September 30, 1996, the executive officers were as follows:
[Download Table]
Executive
Officer
Name Age Title Since
--------------------- --- -------------------------------- ---------
Michael D. Eisner 54 Chairman of the Board and Chief 1984
Executive Officer
Michael S. Ovitz 49 President /1/ 1995
Roy E. Disney 66 Vice Chairman of the Board 1984
Sanford M. Litvack 60 Senior Executive Vice President 1991
and Chief of Corporate
Operations
Richard D. Nanula 36 Senior Executive Vice President 1996
and Chief Financial Officer /2/
John F. Cooke 54 Executive Vice President- 1995
Corporate Affairs /3/
Lawrence P. Murphy 44 Executive Vice President and 1985
Chief Strategic Officer and
Chairman of Disney Cruise Lines
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/1/ On October 2, 1995, Mr. Michael Ovitz joined the Company and assumed the
position of President. Mr. Ovitz co-founded and served as chairman of
Creative Artists Agency from 1975 until 1995. On December 12, 1996, the
Company announced that Mr. Ovitz will leave the Company effective January31, 1997.
/2/ Mr. Nanula joined the Company's strategic planning operation in 1986 and was
named Vice President-Treasurer of the Company in January 1990. He was named
Senior Vice President and Chief Financial Officer in August 1991, Executive
Vice President in February 1994 and President of The Disney Stores, Inc. in
November 1994, where he served until assuming his present position in
February 1996.
/3/ Mr. Cooke served as President of the The Disney Channel from 1985 until
assuming his present position in February 1995.
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PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERSThe Company's common stock is listed on the New York and Pacific stock
exchanges (NYSE symbol DIS). The following sets forth the high and low
composite sale prices for the fiscal periods indicated.
[Download Table]
Sales Price
---------------
High Low
------- -------
1996
4th Quarter.............................................. $63 5/8 $53 3/8
3rd Quarter.............................................. 65 5/8 58 1/4
2nd Quarter.............................................. 69 3/4 59 1/2
1st Quarter.............................................. 62 7/8 55 3/8
1995
4th Quarter.............................................. 62 3/4 50 1/2
3rd Quarter.............................................. 60 52 7/8
2nd Quarter.............................................. 56 1/4 45
1st Quarter.............................................. 46 7/8 37 3/4
The Company declared a first quarter dividend of $.09 per share and three
subsequent quarterly dividends of $.11 per share in 1996, and in 1995,
declared a first quarter dividend of $.075 per share and three subsequent
quarterly dividends of $.09 per share.
As of September 30, 1996, the approximate number of record holders of the
Company's common stock was 564,000.
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ITEM 6. SELECTED FINANCIAL DATA
(In millions, except per share data)
[Download Table]
1996 (1),(2) 1995 1994 1993(3) 1992
------------ ------- ------- ------- -------
Statements of Income
Revenues $ 18,739 $12,151 $10,090 $ 8,531 $ 7,504
Operating income 3,033 2,466 1,972 1,722 1,435
Income before cumulative
effect of accounting changes 1,214 1,380 1,110 671 817
Cumulative effect of
accounting changes -- -- -- (371) --
Net income 1,214 1,380 1,110 300 817
Per Share
Earnings before cumulative
effect of accounting changes $ 1.96 $ 2.60 $ 2.04 $ 1.23 $ 1.52
Cumulative effect of
accounting changes -- -- -- (.68) --
Earnings 1.96 2.60 2.04 .55 1.52
Dividends .42 .35 .29 .24 .20
Balance Sheets
Total assets $ 37,306 $14,606 $12,826 $11,751 $10,862
Borrowings 12,342 2,984 2,937 2,386 2,222
Stockholders' equity 16,086 6,651 5,508 5,031 4,705
Statements of Cash Flows
Cash flow from operations $ 4,625 $ 3,510 $ 2,808 $ 2,145 $ 1,838
Investing activities (13,464) (2,288) (2,887) (2,660) (1,924)
Financing activities 8,040 (332) (97) 113 (36)
--------
(1) These amounts reflect the impact of the acquisition of ABC. See Note 2 to
the Consolidated Financial Statements.
(2) 1996 results include a $300 million non-cash charge pertaining to the
implementation of SFAS 121 Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of, and a $225 million
charge for costs related to the acquisition of ABC. The earnings per share
impacts of these charges were $.30 and $.22, respectively. See Notes 2 and
11 to the Consolidated Financial Statements.
(3) In 1993, the Company changed its accounting policy for project-related
pre-opening costs, adopted SFAS 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions" and adopted SFAS 109
"Accounting for Income Taxes." The cumulative effect of these accounting
changes on the 1993 results follows.
[Download Table]
Net Earnings
income per share
------ ---------
Expense pre-opening costs as incurred $(271) $(.50)
Adopt SFAS 106 (130) (.24)
Adopt SFAS 109 30 .06
----- -----
$(371) $(.68)
===== =====
Operating and net income for 1993 also reflect a $350 million charge to fully
reserve the Company's outstanding receivables from Euro Disney and the
Company's commitment to help fund Euro Disney for a limited period. The
earnings per share impact of the charge, net of income tax benefit, was $.64.
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(2) During the second quarter of 1996, the Company recorded two non-recurring
charges. The Company adopted Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of," which resulted in the Company recognizing
a $300 million non-cash charge. In addition, the Company recognized a $225
million charge for costs related to the acquisition of ABC. See Notes 2
and 11 to the Consolidated Financial Statements.
As a result of the acquisition, the Company has reconfigured its financial
reporting segments into Creative Content, Broadcasting, and Theme Parks and
Resorts. Consumer products operations, ABC's publishing operations and filmed
entertainment activities not related to broadcasting have been classified as
Creative Content. Operations previously reported as Filmed Entertainment that
pertain to broadcasting, as well as ABC's broadcasting operations, have been
classified as the Broadcasting segment. The Theme Parks and Resorts segment
contains the same operations as in prior years.
The following discussion of 1996 versus 1995 performance is primarily based
on pro forma results. The Company believes pro forma results represent the
best comparative standard for assessing net income, changes in net income and
earnings trends, as the pro forma presentation combines a full year of the
results of the Company and its acquired ABC operations. The discussion of
consolidated results also includes "as reported" comparisons to the extent
there have been material changes in reported amounts.
The discussion of Theme Parks and Resorts segment results is on an as
reported basis since the pro forma adjustments did not impact this segment.
CONSOLIDATED RESULTS 1996 VS. 1995 (PRO FORMA AND AS REPORTED)
Pro forma results for all periods and as reported results since the
acquisition date reflect the impact of the acquisition of ABC, including the
use of purchase accounting. Comparisons of as reported results reflect
significant increases in amortization of intangible assets, interest expense,
the effective income tax rate and shares outstanding arising from the
acquisition.
Pro forma revenues increased 12% to $21.2 billion, reflecting growth in all
business segments. Net income, excluding non-recurring charges, increased 16%
to $1.5 billion, and earnings per share increased 15% to $2.23. These results
were driven by increased operating income at the Theme Parks and Resorts and
Broadcasting segments.
Pro forma net interest expense decreased 10% to $698 million reflecting
lower interest rates and a reduction in net borrowings (the Company's
borrowings less cash and liquid investments).
As reported revenues increased 54% to $18.7 billion, reflecting increases in
all business segments and the impact of the acquisition of ABC. Net income,
excluding the non-recurring charges, increased 11% to $1.5 billion driven by
increased operating income for each business segment. Earnings per share,
excluding the non-recurring charges, decreased 5% to $2.48, reflecting the
impact of additional shares issued in connection with the acquisition.
As reported corporate activities and other increased 29% to $309 million,
reflecting higher corporate general and administrative costs and a $55 million
gain in the prior year related to the sale of a portion of the Company's
investment in Euro Disney.
1995 VS. 1994 (AS REPORTED)
Revenues increased 20% or $2.1 billion to $12.2 billion in 1995, reflecting
growth in Creative Content, Broadcasting and Theme Parks and Resorts revenues
of $1.5 billion, $55 million, and $502 million, respectively.
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Operating income rose 25% or $494 million to $2.5 billion in 1995, driven by
increases in Creative Content and Theme Parks and Resorts operating income of
$326 million and $169 million, respectively. Net income increased 24% to $1.4
billion and earnings per share increased 27% to $2.60 from $1.1 billion and
$2.04, respectively.
Corporate activities and other expenses decreased 14% or $40 million to $239
million. The results for 1995 included a gain of $55 million from the sale of
approximately 75 million shares, or 20% of the Company's investment in Euro
Disney, partially offset by higher corporate general and administrative
expenses.
Net interest income decreased $120 million to an expense of $110 million in
1995. The decrease reflected both a decline in interest income driven by lower
average investment balances and yields and an increase in interest expense
primarily reflecting the impact of higher borrowings. The higher borrowings
were due in part to prior-year common stock repurchases and Euro Disney
funding, which were initiated in the latter part of 1994.
BUSINESS SEGMENT RESULTS CREATIVE CONTENT 1996 VS. 1995 (PRO FORMA)
Revenues increased 17% or $1.5 billion to $10.5 billion, driven by growth of
$500 million in home video, $274 million in theatrical, $197 million in the
Disney Stores and $151 million in character merchandise licensing. Home video
revenues reflect Pocahontas, Cinderella and The Aristocats animated titles and
The Santa Clause, While You Were Sleeping and Crimson Tide live-action titles
domestically, as well as The Lion King and 101 Dalmatians internationally.
Theatrical revenues reflect the worldwide box office performance of Toy Story,
The Rock and The Hunchback of Notre Dame, the international performance of
Pocahontas and the domestic performance of Phenomenon. Revenue growth at the
Disney Stores was driven by the opening of 101 new stores in 1996, bringing
the total number of stores to 530. Comparable store sales declined 2%,
primarily due to the strength of The Lion King merchandise in the prior year,
and new stores contributed $103 million of sales growth. Merchandise licensing
revenues increased due to the strength of standard characters worldwide and
the success of targeted marketing programs. Television revenues from program
distribution were comparable to the prior year, reflecting the success of
live-action titles in pay television, offset by the syndication sale of Home
Improvement in the prior year.
Operating income remained flat at $1.6 billion, reflecting improved results
in home video and worldwide merchandise licensing offset by lower theatrical
results. Costs and expenses increased 21% or $1.5 billion. The increase is
primarily due to higher theatrical distribution and home video selling costs,
higher production cost amortization, expansion of the Disney Stores and the
write-off of certain theatrical development projects.
1995 VS. 1994 (AS REPORTED)
Revenues increased 24% or $1.5 billion to $7.7 billion in 1995, driven by
growth of $605 million in worldwide home video revenues, $340 million in
television revenues, $237 million from the Disney Stores, $106 million in
worldwide theatrical revenues and $67 million from worldwide character
merchandise licensing. Home video revenues reflected the domestic and initial
international release of The Lion King and the worldwide release of Snow White
and the Seven Dwarfs. Television revenues grew primarily due to the release of
Home Improvement in syndication and increased availability and success of
titles in pay television. Growth at the Disney Stores was driven by the
opening of 105 new stores in 1995, bringing the total number of stores to 429.
Comparable store sales grew 4% and sales at new stores contributed $94 million
of sales growth. Theatrical revenues reflected the domestic rerelease and
expanded international release of The Lion King, the domestic release of
Pocahontas and the domestic release of the live-action titles The Santa
Clause, While You Were Sleeping and Pulp Fiction. Worldwide merchandise
licensing growth was generated by increased demand for traditional Disney
characters and recent animated film properties, principally The Lion King and
Pocahontas.
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Operating income increased 27% or $326 million to $1.5 billion in 1995,
primarily due to growth in worldwide home video, television, worldwide
character merchandise licensing and the Disney Stores. Costs and expenses
increased 23% or $1.2 billion, principally due to higher home video marketing
and distribution costs reflecting the worldwide release of Snow White and the
Seven Dwarfs and the domestic release of The Lion King, the ongoing expansion
and revenue growth of the Disney Stores, higher distribution costs related to
theatrical releases and costs associated with the syndication of Home
Improvement.
BROADCASTING 1996 VS. 1995 (PRO FORMA)
Revenues increased 4% or $267 million to $6.2 billion, reflecting a $309
million increase in revenues at ESPN and The Disney Channel, resulting from
higher advertising revenues and affiliate fees due primarily to expansion,
subscriber growth and improved advertising rates. Revenue increases were
partially offset by a $61 million decrease at the television network and
stations due to the impact of ratings deterioration and the absence of the
Super Bowl in the current period.
Operating income increased 12% or $114 million to $1.1 billion, reflecting
decreased costs and expenses at the television network, revenue increases at
ESPN and The Disney Channel and lower program write-offs at KCAL. Costs and
expenses increased 3% or $153 million, reflecting increased program rights and
production costs driven by growth at ESPN and The Disney Channel
internationally, partially offset by significantly decreased program
amortization at the television network, primarily attributable to the
acquisition, and lower program write-offs at KCAL.
1995 VS. 1994 (AS REPORTED)
The results reported in each year were not material, and reflected the
Company's broadcasting operations prior to the acquisition of ABC.
THEME PARKS AND RESORTS 1996 VS. 1995
Revenues increased 13% or $501 million to $4.5 billion, reflecting growth of
$191 million due to record theme park attendance, $148 million from greater
guest spending, and $52 million due to increased occupied rooms, primarily at
Florida resorts. Record theme park attendance at both the Walt Disney World
Resort and Disneyland Park in 1996 reflected growth in domestic and
international tourist visitation. Increased guest spending resulted from
higher admission prices, increased sales of food and beverages due to pricing
and expanded locations, and higher room rates at hotel and resort properties.
The increase in occupied rooms in Florida resulted from higher occupancy and a
complete year of operations at Disney's All-Star Music Resort, which opened in
phases during 1995. Occupied rooms also increased due to the opening of
Disney's BoardWalk Resort in June 1996.
Fiscal 1996 operating income increased 15% or $131 million to $990 million,
resulting primarily from higher theme park attendance, increased guest
spending and increased occupied rooms at Florida resorts. Costs and expenses,
which consist principally of labor, costs of merchandise, food and beverages
sold, depreciation, repairs and maintenance, entertainment and marketing and
sales expenses, increased 12% or $370 million, primarily due to increased
operating hours in response to higher attendance, expansion of theme park
attractions and resorts, increased marketing and sales expenses and increased
costs associated with higher guest spending and increased occupied rooms.
1995 VS. 1994
Revenues increased 14% or $502 million to $4.0 billion, driven by growth of
$288 million from higher theme park attendance in Florida and California and
$127 million from an increase in occupied rooms at Florida resorts. Higher
theme park attendance reflected increased domestic and international tourist
visitation. The increase in occupied rooms reflected the openings of Disney's
Wilderness Lodge
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and Disney's All-Star Sports Resort in the third quarter of 1994 and the
phased opening of Disney's All-Star Music Resort during 1995.
Operating income increased 24% or $169 million to $859 million in 1995,
driven by higher theme park attendance and increased occupied rooms at Florida
resorts. Costs and expenses increased 12% or $333 million, primarily due to
increased attendance and occupied rooms, expansion of theme park attractions
and Florida resorts and increased marketing and sales expenses, partially
offset by the impact of ongoing cost reduction initiatives.
LIQUIDITY AND CAPITAL RESOURCES The Company generates significant cash from operations and has substantial
borrowing capacity to meet its operating and discretionary spending
requirements. Cash provided by operations increased 32% or $1.1 billion to
$4.6 billion in 1996, which includes the impact of the acquistion of ABC
discussed below.
Net borrowings increased $10.6 billion to $12.0 billion during fiscal 1996.
The increase was primarily due to an increase in debt in connection with the
acquisition of ABC.
In 1996, the Company invested $3.7 billion to develop, produce and acquire
rights to film and television properties and $1.7 billion to design and
develop new theme park attractions, resort properties, real estate
developments and other properties. 1995 investments totaled $1.9 billion and
$896 million, respectively.
The $1.8 billion increased investment in film and television properties was
primarily driven by ABC's television spending subsequent to the acquisition.
Television expenditures in 1997 will be higher as they will reflect a full
year of ABC's operations.
The $849 million increased investment in theme parks, resorts and other
properties resulted from initiatives including Disney's Animal Kingdom, Disney
Cruise Line, Disney's BoardWalk Resort, Disney's Coronado Springs Resort,
Disney's Wide World of Sports, and the town of Celebration. Continued spending
increases related to these projects and from development of additional
initiatives, including Disney's California Adventure and Downtown Disney, are
anticipated through 1997.
The Company repurchased 8 million shares of its common stock for
approximately $462 million in 1996. Under its share repurchase program, the
Company is authorized to purchase up to an additional 96 million shares. The
Company evaluates share repurchase decisions on an ongoing basis, taking into
account borrowing capacity, management's target capital structure, and other
investment opportunities. The Company also used $271 million to fund dividend
payments during the year.
During the second quarter of 1996, the Company completed its acquisition of
ABC. Aggregate consideration paid to ABC shareholders in March 1996 consisted
of $10.1 billion in cash and 155 million shares of Company common stock. The
Company initially funded the cash portion through the issuance of
approximately $8.8 billion of commercial paper and the use of existing cash
and investments. At acquisition, the Company assumed $627 million of ABC's
long-term debt.
Since the acquisition of ABC, the Company has replaced a portion of its
commercial paper with longer-term financing, and expects to continue this
process in the future. In the United States, the Company has issued $275
million of medium-term notes maturing in two to fifteen years, and in the
global bond market, the Company has issued $1.3 billion of five year notes and
$1.3 billion of ten year notes. In Europe, the Company has issued 300 billion
Italian lira (approximately $190 million) of four year notes, and borrowed
(Pounds)335 million (approximately $520 million) through a private offering.
In the Japanese market, the Company issued (Yen)150 billion (approximately
$1.4 billion) of three-year bonds through two public offerings. The Company
has swapped the interest payable on the foreign denominated borrowings into
United States dollar LIBOR.
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The Company employs a variety of on-and off-balance-sheet financial
instruments to manage its exposure to changes in interest rates and
fluctuations in the value of foreign currencies. The Company does not expect
interest rate movements or fluctuations in the value of foreign currencies to
significantly affect its liquidity in the foreseeable future. For 1996 and
1995, a 1% increase or decrease in interest rates would not have had a
material impact on the Company's liquidity or operating results.
The Company currently maintains significant borrowing capacity to take
advantage of growth and investment opportunities. The Company focuses on net
borrowings, which take into account its cash and investment balances, when
monitoring borrowing capacity. The Company's borrowing capacity includes a $5
billion line of credit which is available for general corporate purposes and
to support commercial paper issuance. The Company has the capacity to issue up
to $2.1 billion in additional debt under a U.S. shelf registration filed in
March 1996, and $1.2 billion under a Euro Medium-Term Note Program established
in June 1996.
The Company sold its Los Angeles television station KCAL in November 1996
for $387 million in cash.
The Company's financial condition remains strong. The Company believes that
its cash, other liquid assets, operating cash flows and access to capital
markets 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Supplemental Data on page 27.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANYDIRECTORS
Information regarding directors appearing under the caption ELECTION OF
DIRECTORS in the Company's Proxy Statement for the 1997 Annual Meeting of
Stockholders (the "1997 Proxy Statement") is hereby incorporated by reference.
Information regarding executive officers is included in Part I of this Form
10-K as permitted by General Instruction G(3).
ITEM 11. EXECUTIVE COMPENSATION
Information appearing under the captions DIRECTORS' REMUNERATION; ATTENDANCE
and EXECUTIVE COMPENSATION in the 1997 Proxy Statement is hereby incorporated
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information setting forth the security ownership of certain beneficial
owners and management appearing under the caption STOCK OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS and STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS in
the 1997 Proxy Statement is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain related transactions appearing under the
caption RELATED TRANSACTIONS in the 1997 Proxy Statement is hereby
incorporated by reference.
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PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits and Financial Statements and Schedules
(1) Financial Statements and Schedules
See Index to Financial Statements and Supplemental Data at page 27.
(2) Exhibits
3(a) Restated Certificate of Incorporation of the Company, filed as
Exhibit 3(a) to the Form 8-B/A, dated January 23, 1996, is hereby
incorporated by reference.
3(b) Amended Bylaws of the Company, dated April 22, 1996, is filed
herewith.
4(a) Form of Registration Rights Agreement entered into or to be
entered into with certain stockholders of the Company, filed as
Exhibit B to Exhibit 2.1 to the Current Report on Form 8-K, dated
July 31, 1995, of Disney Enterprises, Inc., is hereby incorporated
by reference.
4(b) Rights Agreement dated as of November 8, 1995 between the Company
and The Bank of New York, as rights agent, filed as Exhibit 4.2 to
the Registration Statement on Form S-4, dated November 13, 1995,
(No. 33-64141), is hereby incorporated by reference.
4(c) 364-Day Credit Agreement, dated as of October 30, 1996, among the
Company, as Borrower, Citicorp USA, Inc., as Administrative Agent,
Credit Suisse and Bank of America National Trust and Savings
Association, as Co-Administrative Agents and the Financial
Institutions named therein, is filed herewith.
4(d) Five-Year Credit Agreement, dated October 30, 1996, among the
Company, as Borrower, Citicorp USA, Inc., as Administrative Agent,
Credit Suisse and Bank of America National Trust and Savings
Association, as Co-Administrative Agents and the Financial
Institutions named therein, is filed herewith.
4(e) Indenture, dated as of November 30, 1990, between Disney
Enterprises, Inc. and Bankers Trust Company, as Trustee, with
respect to certain senior debt securities of the Company, filed as
Exhibit 2 to the Company's Current Report on Form 8-K, dated
January 14, 1991, is hereby incorporated by reference.
4(f) Indenture, dated as of March 7, 1996, between the Company and
Citibank, N.A., as Trustee, with respect to certain senior debt
securities of the Company, filed as Exhibit 4.1(a) to the
Company's Current Report on Form 8-K, dated March 7, 1996, is
hereby incorporated by reference.
4(g) Other long-term borrowing instruments issued by the Company are
omitted pursuant to Item 601(b) (4) (iii) of Regulation S-K. The
Company undertakes to furnish copies of such instruments to the
Commission upon request.
10(a) (i) Agreement on the Creation and the Operation of Euro Disneyland
en France, dated March 25, 1987, and (ii) Letter relating thereto
of Michael D. Eisner, Chairman Disney Enterprises, Inc., dated
March 24, 1987, filed as Exhibits 10(b) and 10(a), respectively,
to Disney Enterprises, Inc.'s Current Report on Form 8-K dated
April 24, 1987, are hereby incorporated by reference.
10(b) Limited Recourse Financing Facility Agreement, dated as of April
27, 1988, among Disney Enterprises, Inc., Citibank Channel Island
Limited and Citicorp International, filed as Exhibit 10(a) to
Disney Enterprises, Inc.'s Current Report on Form 8-K dated April
29, 1988, is hereby incorporated by reference.
10(c) (i) Employment Agreement, dated as of January 10, 1989, between
Disney Enterprises, Inc. and Michael D. Eisner, filed as Exhibit
10(a) to Disney Enterprises, Inc.'s Quarterly Report on Form 10-Q
for the period ended March 31, 1989; (ii) Agreement, dated March
1, 1985, between Disney Enterprises, Inc. and Michael D. Eisner,
filed as
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Exhibit 2 to Disney Enterprises, Inc.'s Quarterly Report on Form
10-Q for the period ended June 30, 1985; and (iii) description of
action by the Compensation Committee taken on November 30, 1990,
filed as Exhibit 10(c) to Disney Enterprises, Inc.'s Annual Report
on Form 10-K for the year ended September 30, 1990, are hereby
incorporated by reference.
10(e) Employment Agreement, dated October 1, 1995, between Disney
Enterprises, Inc. and Michael S. Ovitz filed as Exhibit 10(e) to
Disney Enterprises, Inc.'s Annual Report on Form 10-K for the year
ended September 30, 1995, is hereby incorporated by reference.
10(f) (i) Contract, dated December 14, 1979, with E. Cardon Walker, to
purchase a 2% interest in certain motion pictures to be produced
by Disney Enterprises, Inc. and to acquire an additional 2% profit
participation; and (ii) Amendment thereto, dated August 8, 1980,
filed as Exhibits 1 and 3, respectively, to Disney Enterprises,
Inc.'s Annual Report on Form 10-K for the year ended September 30,
1980, are hereby incorporated by reference.
10(g) Form of Indemnification Agreement entered into or to be entered
into by certain officers and directors of Disney Enterprises, Inc.
as determined from time to time by the Board of Directors,
included as Annex C to the Proxy Statement for Disney Enterprises,
Inc.'s 1988 Annual Meeting of Stockholders, is hereby incorporated
by reference.
10(h) 1995 Stock Option Plan for Non-Employee Directors, filed as
Exhibit A to the Proxy Statement for Disney Enterprises, Inc.'s
1995 Annual Meeting of Stockholders, is hereby incorporated by
reference.
10(i) (i) 1990 Stock Incentive Plan and Rules, filed as Exhibits 28(a)
and 28(b), respectively, to Disney Enterprises, Inc.'s
Registration Statement on Form S-8 (No. 33-39770), dated April 5,
1991, and (ii) Amended and Restated 1990 Stock Incentive Plan and
Rules, attached as Appendix B-2 to Disney Enterprises, Inc.'s
Joint Proxy Statement/ Prospectus included in the Registration
Statement on Form S-4, dated November 13, 1995 (No. 33-64141), is
hereby incorporated by reference.
10(j) 1995 Stock Incentive Plan and Rules, attached as Appendix B-1 to
Disney Enterprises, Inc.'s Joint Proxy Statement/Prospectus
included in the Registration Statement on Form S-4, dated November13, 1995 (File No. 33-64141), is hereby incorporated by reference.
10(k) (i) 1987 Stock Incentive Plan and Rules, (ii) 1984 Stock Incentive
Plan and Rules, (iii) 1981 Incentive Plan and Rules and (iv) 1980
Stock Option Plan, all as set forth as Exhibits 1(a), 1(b), 2(a),
2(b), 3(a), 3(b) and 4, respectively, to the Prospectus contained
in Part I of Disney Enterprises, Inc.'s Registration Statement on
Form S-8 (No. 33-26106), dated December 20, 1988, are hereby
incorporated by reference.
10(l) Contingent Stock Award Rules under Disney Enterprises, Inc.'s 1984
Stock Incentive Plan, filed as Exhibit 10(t) to Disney
Enterprises, Inc.'s Annual Report on Form 10-K for the year ended
September 30, 1986, is hereby incorporated by reference.
10(m) 1996 Cash Bonus Performance Plan, filed as Exhibit 10(m) to Disney
Enterprises, Inc.'s Annual Report on Form 10-K for the year ended
September 30, 1995, is hereby incorporated by reference.
10(n) Disney Salaried Retirement Plan, as amended through March 1, 1994,
filed as Exhibit 10(l) to Disney Enterprises, Inc.'s Annual Report
on Form 10-K for the year ended September 30, 1994, is hereby
incorporated by reference.
10(o) The Walt Disney Company and Associated Companies Key Employees
Deferred Compensation and Retirement Plan, filed as Exhibit 10(u)
to Disney Enterprises, Inc.'s Annual Report on Form 10-K for the
year ended September 30, 1985, is hereby incorporated by
reference.
10(p) Group Term Life Insurance Plan (summary plan description), filed
as Exhibit 10(x) to Disney Enterprises, Inc.'s Annual Report on
Form 10-K for the year ended September 30, 1985, is hereby
incorporated by reference.
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10(q) Group Personal Excess Liability Insurance Plan (summary plan
description), filed as Exhibit 10(z) to Disney Enterprises, Inc.'s
Annual Report on Form 10-K for the year ended September 30, 1986,
is hereby incorporated by reference.
10(r) Family Income Assurance Plan (summary plan description), filed as
Exhibit 10(aa) to the Annual Report on Form 10-K for the year
ended September 30, 1986, is hereby incorporated by reference.
10(s) Disney Salaried Savings and Investment Plan, as amended and
restated, filed as Exhibit 10(s) to Disney Enterprises, Inc.'s
Annual Report on Form 10-K for the year ended September 30, 1995,
is hereby incorporated by reference.
10(t) Disney Salaried Savings and Investment Trust Agreement, dated June30, 1992, filed as Exhibit 10 to Disney Enterprises, Inc.'s
Quarterly Report on Form 10-Q for the period ended June 30, 1992,
is hereby incorporated by reference.
10(u) Master Trust Agreement for Employees Savings and Retirement Plans,
as amended and restated through June 1, 1990, between Disney
Enterprises, Inc. and Bankers Trust Company, as Trustee, filed as
Exhibit 28(b) to Disney Enterprises, Inc.'s Registration Statement
on Form S-8 (No. 33-35405), dated June 14, 1990, is hereby
incorporated by reference.
10(v) Employee Stock Option Plan of Capital Cities/ABC, Inc., as amended
through December 15, 1987, filed as Exhibit 10(f) to Capital
Cities/ABC, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1992, is hereby incorporated by reference.
10(w) Amended and Restated 1991 Stock Option Plan of Capital Cities/ABC,
Inc., filed as Exhibit 6(a)(i) to the Company's Quarterly Report
on Form 10-Q for the period ended March 31, 1996, is hereby
incorporated by reference.
10(x) Amended and Restated Agreement and Plan of Reorganization, dated
as of July 31, 1995, between Disney Enterprises, Inc. and Capital
Cities/ABC, Inc., filed as Exhibit 2.1 to Disney Enterprises,
Inc.'s Current Report on Form 8-K, dated October 6, 1995, is
hereby incorporated by reference.
10(y) First Amendment to the Disney Salaried Retirement Plan as amended
and restated effective January 1, 1988, filed as Exhibit (10) to
Disney Enterprises, Inc.'s Quarterly Report on Form 10-Q for the
period ended December 31, 1995, is hereby incorporated by
reference.
21Subsidiaries of the Company is filed herewith.
23 Consent of Price Waterhouse LLP, the Company's independent
accountants, is included herein at page 28.
27Financial Data Schedule (filed electronically only).
28(a) Financial statements with respect to the Disney Salaried Savings
and Investment Plan for the year ended December 31, 1995, filed as
Exhibit 28 to Disney Enterprises, Inc.'s Annual Report on Form 10-
K for the year ended September 30, 1995, as amended by Amendment
No. 1 on Form 10-K/A dated June 30, 1996, are hereby incorporated
by reference.
(b) Reports on Form 8-K
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
Date: December 19, 1996 By: MICHAEL D. EISNER
-----------------------------------------------------
(Michael D. Eisner, Chairman of the Board and Chief
Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
[Download Table]
Signature Title Date
--------- ----- ----
Principal Executive Officer
MICHAEL D. EISNER Chairman of the Board and December 19, 1996
----------------------------- Chief Executive Officer
(Michael D. Eisner)
Principal Financial and Accounting
Officers
RICHARD D. NANULA Senior Executive Vice December 19, 1996
----------------------------- President and Chief
(Richard D. Nanula) Financial Officer
JOHN J. GARAND Senior Vice President- December 19, 1996
----------------------------- Planning and Control
(John J. Garand)
Directors
REVETA F. BOWERS Director December 19, 1996
-----------------------------
(Reveta F. Bowers)
ROY E. DISNEY Director December 19, 1996
-----------------------------
(Roy E. Disney)
MICHAEL D. EISNER Director December 19, 1996
-----------------------------
(Michael D. Eisner)
STANLEY P. GOLD Director December 19, 1996
-----------------------------
(Stanley P. Gold)
SANFORD M. LITVACK Director December 19, 1996
-----------------------------
(Sanford M. Litvack)
IGNACIO E. LOZANO, JR. Director December 19, 1996
-----------------------------
(Ignacio E. Lozano, Jr.)
GEORGE J. MITCHELL Director December 19, 1996
-----------------------------
(George J. Mitchell)
THOMAS S. MURPHY Director December 19, 1996
-----------------------------
(Thomas S. Murphy)
RICHARD A. NUNIS Director December 19, 1996
-----------------------------
(Richard A. Nunis)
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[Download Table]
Signature Title Date
--------- ----- ----
MICHAEL S. OVITZ Director December 19, 1996
------------------------
(Michael S. Ovitz)
LEO J. O'DONOVAN, S.J. Director December 19, 1996
------------------------
(Leo J. O'Donovan, S.J.)
SIDNEY POITIER Director December 19, 1996
------------------------
(Sidney Poitier)
IRWIN E. RUSSELL Director December 19, 1996
------------------------
(Irwin E. Russell)
ROBERT A.M. STERN Director December 19, 1996
------------------------
(Robert A.M. Stern)
E. CARDON WALKER Director December 19, 1996
------------------------
(E. Cardon Walker)
RAYMOND L. WATSON Director December 19, 1996
------------------------
(Raymond L. Watson)
GARY L. WILSON Director December 19, 1996
------------------------
(Gary L. Wilson)
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THE WALT DISNEY COMPANY AND SUBSIDIARIESINDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
[Download Table]
Page
----
Report of Independent Accountants and Consent of Independent Accountants.. 28
Consolidated Financial Statements of The Walt Disney Company and
Subsidiaries
Consolidated Statements of Income for the Years Ended September 30,1996, 1995 and 1994.................................................... 29
Consolidated Balance Sheets as of September 30, 1996 and 1995........... 30
Consolidated Statements of Cash Flows for the Years Ended September 30,1996, 1995 and 1994.................................................... 31
Notes to Consolidated Financial Statements.............................. 32
Quarterly Financial Summary............................................. 47
Schedules other than those listed above are omitted for the reason that they
are not applicable or the required information is included in the financial
statements or related notes.
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of The Walt Disney Company
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of The Walt Disney Company and its subsidiaries (the "Company") at
September 30, 1996 and 1995, and the results of their operations and their
cash flows for each of the three years in the period ended September 30, 1996,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standard Board's Statement
of Financial Accounting Standards 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of," in fiscal 1996.
PRICE WATERHOUSE LLP
Los Angeles, California
November 25, 1996CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the prospectuses
constituting part of the Registration Statements on Form S-8 (Nos. 33-26106,
33-35405 and 33-39770) and Form S-3 (Nos. 33-49891 and 33-62777) of The Walt
Disney Company of our report dated November 25, 1996 which appears above.
PRICE WATERHOUSE LLP
Los Angeles, California
December 19, 1996
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CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)
[Download Table]
Year ended September 30 1996 1995 1994
---------------------------------------------------------------------------
REVENUES $ 18,739 $12,151 $10,090 COSTS AND EXPENSES (15,406) (9,685) (8,118)
ACCOUNTING CHANGE (300) -- --
-------- ------- -------
OPERATING INCOME 3,033 2,466 1,972 CORPORATE ACTIVITIES AND OTHER (309) (239) (279)
INTEREST EXPENSE (479) (178) (120)
INVESTMENT AND INTEREST INCOME 41 68 130 ACQUISITION-RELATED COSTS (225) -- --
-------- ------- -------
INCOME BEFORE INCOME TAXES 2,061 2,117 1,703 INCOME TAXES (847) (737) (593)
-------- ------- -------
NET INCOME $ 1,214 $ 1,380 $ 1,110
======== ======= =======
EARNINGS PER SHARE $ 1.96 $ 2.60 $ 2.04
======== ======= =======
Average number of common and common equivalent
shares outstanding 619 530 545
======== ======= =======
See Notes to Consolidated Financial Statements
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CONSOLIDATED BALANCE SHEETS
(In millions)
[Download Table]
September 30 1996 1995
-------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 278 $ 1,077
Investments 454 866
Receivables 3,343 1,793
Inventories 951 824
Film and television costs 3,912 2,099
Theme parks, resorts and other property, at cost
Attractions, buildings and equipment 11,019 8,340
Accumulated depreciation (4,448) (3,039)
------- -------
6,571 5,301
Projects in process 1,342 778
Land 118 111
------- -------
8,031 6,190
Intangible assets, net 17,978 --
Other assets 2,359 1,757
------- -------
$37,306 $14,606
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and other accrued liabilities $ 6,374 $ 2,843
Income taxes payable 582 200
Borrowings 12,342 2,984
Unearned royalty and other advances 1,179 861
Deferred income taxes 743 1,067
Stockholders' equity
Preferred stock, $.01 par value; $.10 at September 30, 1995
Authorized--100 million shares
Issued--none
Common stock, $.01 par value; $.025 at September 30, 1995
Authorized--1.2 billion shares
Issued--682 million shares and 575 million shares 8,576 1,226
Retained earnings 7,933 6,990
Cumulative translation and other adjustments 39 38
------- -------
16,548 8,254
Less treasury stock, at cost, 8 million shares and 51
million shares (462) (1,603)
------- -------
16,086 6,651
------- -------
$37,306 $14,606
======= =======
See Notes to Consolidated Financial Statements
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in millions, except per share amounts)
1 Description of the Business and Summary of Significant Accounting Policies
The Walt Disney Company, together with its subsidiaries (the "Company"), is
a diversified international entertainment organization. As discussed in Note
2, the Company acquired Capital Cities/ABC, Inc. ("ABC") on February 9, 1996.
As a result of the acquisition, the Company has reconfigured its financial
reporting segments into Creative Content, Broadcasting and Theme Parks and
Resorts. Consumer products operations, ABC's publishing operations and filmed
entertainment activities not related to broadcasting have been classified as
Creative Content. Operations previously reported as Filmed Entertainment that
pertain to broadcasting, as well as ABC's broadcasting operations, have been
classified as the Broadcasting segment. The Theme Parks and Resorts segment
contains the same operations as in prior years. The Company's business
segments are described below.
CREATIVE CONTENT The Company produces and acquires live-action and animated motion pictures
for distribution to the theatrical, home video and television markets. The
Company also produces original television programming for the network and
first-run syndication markets. The Company distributes its filmed product
through its own distribution and marketing companies in the United States and
most foreign markets.
The Company licenses the name "Walt Disney," as well as the Company's
characters, visual and literary properties and songs and music, to various
consumer manufacturers, retailers, show promoters and publishers throughout
the world. The Company also engages in direct retail distribution principally
through the Disney Stores, and produces books and magazines for the general
public in the United States and Europe. In addition, the Company produces
audio products for all markets, as well as film, video and computer software
products for the educational marketplace.
The Company also publishes newspapers, technical and specialty publications
and provides research and database services, primarily for markets in the
United States.
BROADCASTING The Company operates the ABC Television Network which has primary and
secondary affiliated stations providing coverage to U.S. television
households. The Company also owns television and radio stations affiliated
with the ABC Television Network and the ABC Radio Networks. The Company's
Cable and International Broadcast operations include domestic, European,
Taiwanese, Japanese and Australian operations, and are principally involved in
the production and distribution of cable television programming, the licensing
of programming to domestic and international markets and investing in joint
ventures in foreign-based television operations and television production and
distribution entities. The primary domestic cable programming services, which
operate through joint ventures, are ESPN, the A&E Television Networks and
Lifetime Television. The Company provides programming for and operates The
Disney Channel, a television programming service.
THEME PARKS AND RESORTS The Company operates the Walt Disney World Resort(R) in Florida, and
Disneyland Park(R), the Disneyland Hotel and the Disneyland Pacific Hotel in
California. The Walt Disney World Resort includes the Magic Kingdom, Epcot and
the Disney-MGM Studios Theme Park, twelve resort hotels and a complex of
villas and suites, a nighttime entertainment complex, a shopping village,
conference centers, campgrounds, golf courses, water parks and other
recreational facilities. The Company earns royalties on revenues generated by
the Tokyo Disneyland(R) theme park near Tokyo, Japan, which is owned and
operated by an unrelated Japanese corporation. The Company also has an
investment in
-32-
Euro Disney S.C.A. ("Euro Disney"), a publicly held French corporation that
operates Disneyland Paris. The Company's Walt Disney Imagineering unit designs
and develops new theme park concepts and attractions, as well as resort
properties. The Company also manages and markets vacation ownership interests
in the Disney Vacation Club. Included in Theme Parks and Resorts are the
Company's National Hockey League franchise, the Mighty Ducks of Anaheim, and
its ownership interest in the Anaheim Angels, a Major League Baseball team.
SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of
The Walt Disney Company and its subsidiaries after elimination of intercompany
accounts and transactions. Investments in unconsolidated affiliated companies
are accounted for using the equity method, and are classified in the
consolidated balance sheets as "Other assets."The Company's share of earnings
or losses in its equity investments is shown under "Corporate activities and
other" in the consolidated statements of income.
Accounting Changes
During the second quarter of 1996, the Company adopted SFAS 121 Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of ("SFAS 121") (see Note 11). Long-lived assets to be held and used
are recorded at cost. Management reviews long-lived assets and the related
intangible assets for impairment whenever events or changes in circumstances
indicate the carrying amount of such assets may not be recoverable.
Recoverability of these assets is determined by comparing the forecasted
undiscounted net cash flows of the operation to which the assets relate, to
the carrying amount including associated intangible assets of such operation.
If the operation is determined to be unable to recover the carrying amount of
its assets, then intangible assets are written down first, followed by the
other long-lived assets of the operation, to fair value. Fair value is
determined based on discounted cash flows or appraised values, depending upon
the nature of the assets.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
footnotes thereto. Actual results could differ from those estimates.
Revenue Recognition
Revenues from the theatrical distribution of motion pictures are recognized
when motion pictures are exhibited. Revenues from video sales are recognized
on the date that video units are made widely available for sale by retailers.
Revenues from the licensing of feature films and television programming are
recorded when the material is available for telecasting by the licensee and
when certain other conditions are met.
Broadcast advertising revenues are recognized when commercials are aired.
Revenues from television subscription services related to the Company's
primary cable programming services are recognized as services are provided.
Revenues from participants and sponsors at the theme parks are generally
recorded over the period of the applicable agreements commencing with the
opening of the related attraction.
Cash, Cash Equivalents and Investments
Cash and cash equivalents consist of cash on hand and marketable securities
with original maturities of three months or less.
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Debt and equity securities are classified into one of three categories. Debt
securities that the Company has the positive intent and ability to hold to
maturity are classified as "held-to-maturity" and reported at amortized cost.
Debt securities not classified as held-to-maturity and marketable equity
securities are classified as either "trading" or "available-for-sale," and are
recorded at fair value with unrealized gains and losses included in earnings
or stockholders' equity, respectively.
Inventories
Carrying amounts of merchandise, materials and supplies inventories are
generally determined on a moving average cost basis and are stated at the
lower of cost or market.
Film and Television Costs
Film and television production and participation costs are expensed based on
the ratio of the current period's gross revenues to estimated total gross
revenues from all sources on an individual production basis. Estimates of
total gross revenues can change significantly due to the level of market
acceptance of film and television products. Accordingly, revenue estimates are
reviewed periodically and amortization is adjusted. Such adjustments could
have a material effect on results of operations in future periods.
Television broadcast program licenses and rights and related liabilities are
recorded when the license period begins and the program is available for use.
Television network and station rights for theatrical movies and other long-
form programming are charged to expense primarily on accelerated bases related
to the usage of the program. Television network series costs and multi-year
sports rights are charged to expense based on the flow of anticipated revenue.
Theme Parks, Resorts and Other Property
Theme parks, resorts and other property are carried at cost. Depreciation is
computed on the straight-line method based upon estimated useful lives ranging
from three to fifty years.
Intangible/Other Assets
Rights to the name, likeness and portrait of Walt Disney and other
intangible assets are amortized over periods ranging from two to forty years.
The Company continually reviews the recoverability of the carrying value of
these assets using the methodology prescribed in SFAS 121.
Risk Management Contracts
In the normal course of business, the Company employs a variety of off-
balance-sheet financial instruments to manage its exposure to fluctuations in
interest and foreign currency exchange rates, including interest rate and
cross-currency swap agreements, forward and option contracts, and interest
rate exchange-traded futures. The Company designates interest rate and cross-
currency swaps as hedges of investments and debt, and accrues the differential
to be paid or received under the agreements as interest rates change over the
lives of the contracts. Differences paid or received on swap agreements are
recognized as adjustments to interest income or expense over the life of the
swaps, thereby adjusting the effective interest rate on the underlying
investment or obligation. Gains and losses on the termination of swap
agreements, prior to their original maturity, are deferred and amortized to
interest income or expense over the remaining term of the underlying hedged
transactions. Gains and losses arising from interest rate futures, forward and
option contracts, and foreign currency forward and option contracts are
recognized in income or expense as offsets of gains and losses resulting from
the underlying hedged transactions.
Cash flows from interest rate and foreign exchange risk management
activities are classified in the same category as the cash flows from the
related investment, borrowing or foreign exchange activity.
The Company classifies its derivative financial instruments as held or
issued for purposes other than trading.
-34-
Earnings Per Share
Earnings per share amounts are based upon the weighted average number of
common and common equivalent shares outstanding during the year. Common
equivalent shares are excluded from the computation in periods in which they
have an anti-dilutive effect.
Reclassifications
Certain reclassifications have been made in the 1995 and 1994 financial
statements to conform to the 1996 presentation.
2 Acquisition
On February 9, 1996, the Company completed its acquisition of ABC. Pursuant
to the acquisition, aggregate consideration paid to ABC shareholders consisted
of $10.1 billion in cash and 155 million shares of Company common stock valued
at $8.8 billion based on the stock price as of the date the transaction was
announced.
The acquisition has been accounted for as a purchase and the acquisition
cost of $18.9 billion has been allocated to the assets acquired and
liabilities assumed based on estimates of their respective fair values. Assets
acquired totaled $4.8 billion (of which $1.5 billion was cash) and liabilities
assumed were $4.4 billion. A total of $18.3 billion, representing the excess
of acquisition cost over the fair value of ABC's net tangible assets, has been
allocated to intangible assets and is being amortized over forty years.
In connection with the acquisition, all common shares of the Company
outstanding immediately prior to the effective date of the acquisition were
canceled and replaced with new common shares and all treasury shares were
canceled and retired.
The Company's consolidated results of operations have incorporated ABC's
activity from the effective date of the acquisition. The unaudited pro forma
information below presents combined results of operations as if the
acquisition had occurred at the beginning of the respective periods presented.
The unaudited pro forma information is not necessarily indicative of the
results of operations of the combined company had the acquisition occurred at
the beginning of the periods presented, nor is it necessarily indicative of
future results.
[Download Table]
(in millions, except per share data)
Period Ended September 30,
-------------------------------------
1996 1995
------------------ ------------------
Revenues $ 21,238 $ 18,949
Net income (1) 1,350 1,326
Earnings per share (1) 1.96 1.94
--------
(1) The 1996 period includes the impact of a $300 million non-cash charge
related to the initial adoption of a new accounting standard (see Note
11). The charge reduced earnings per share by $0.27 for the period.
In addition, during the second quarter, the Company recognized a $225
million charge for costs related to the acquisition, which are not included in
the above pro forma amounts. Acquisition-related costs consist principally of
interest costs related to imputed interest for the period from the effective
date of the acquisition until March 14, 1996, the date that cash and stock
consideration was issued to ABC shareholders.
The Company entered into an agreement to sell its independent Los Angeles
television station as a result of the ABC acquisition. The sale of KCAL-TV for
$387 million was completed on November 22, 1996, resulting in a gain of
approximately $135 million which will be recognized in 1997's income
statement.
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3 Investment in Euro Disney
Euro Disney operates the Disneyland Paris theme park and resort complex on a
4,800-acre site near Paris, France. The Company accounts for its 39% ownership
interest in Euro Disney using the equity method of accounting. As of September30, 1996, the Company's recorded investment in Euro Disney was $430 million.
The quoted market value of the Company's Euro Disney shares at September 30,1996 was approximately $634 million.
During fiscal year 1994, the Company entered into restructuring agreements
with Euro Disney and the lenders participating in a financial restructuring
for Euro Disney (the "Lenders") to provide certain debt, equity and lease
financing to Euro Disney. In addition, the Company agreed to cancel certain
fully-reserved receivables and waive royalties and base management fees for a
period of five years and reduce such amounts for a specified period
thereafter.
As part of the overall restructuring, the Lenders served as underwriters for
51% of the Euro Disney rights offering, agreed to forgive certain interest
charges of Euro Disney, having a present value of approximately $300 million,
and deferred all principal payments until three years later than originally
scheduled. Pursuant to the terms of the restructuring, interest charges will
continue to progressively increase through fiscal year 2003, although
substantially all of the interest will have been reinstated by the end of
fiscal year 1998. Additionally, Euro Disney will begin paying royalties and
management fees commencing in fiscal year 1999.
Also as part of the restructuring, the Company agreed to arrange for the
provision of a 10-year unsecured standby credit facility of approximately $210
million, upon request, bearing interest at PIBOR. As of September 30, 1996,
Euro Disney had not requested the Company to establish this facility. The
Company also agreed, as long as any obligations to the Lenders are
outstanding, to maintain ownership of at least 34% of the outstanding common
stock of Euro Disney until June 1999, at least 25% for the subsequent five
years and at least 16.67% for an additional term thereafter.
In connection with the restructuring, Euro Disney Associes S.N.C. ("Disney
SNC"), a wholly-owned affiliate of the Company, entered into a lease
arrangement with a noncancelable term of 12 years (the "Lease") related to
substantially all of the Disneyland Paris theme park assets, and then entered
into a 12-year sublease agreement (the "Sublease") with Euro Disney. Remaining
lease rentals at September 30, 1996 of FF 9.8 billion ($1.9 billion)
receivable from Euro Disney under the Sublease approximate the amounts payable
by Disney SNC under the Lease. At the conclusion of the Sublease term, Euro
Disney will have the option to assume Disney SNC's rights and obligations
under the Lease. If Euro Disney does not exercise its option, Disney SNC may
purchase the assets, continue to lease the assets or elect to terminate the
Lease, in which case Disney SNC would make a termination payment to the lessor
equal to 75% of the lessor's then outstanding debt related to the theme park
assets, estimated to be $1.5 billion; Disney SNC could then sell or lease the
assets on behalf of the lessor to satisfy the remaining debt, with any excess
proceeds payable to Disney SNC.
Euro Disney's consolidated financial statements are prepared in accordance
with accounting principles generally accepted in France ("French GAAP"). U.S.
generally accepted accounting principles ("U.S. GAAP") differ in certain
significant respects from French GAAP applied by Euro Disney, principally as
they relate to accounting for leases and the calculation of interest expense
relating to debt affected by Euro Disney's financial restructuring. The
Company records its pro rata equity share of Euro Disney's operating results
calculated in accordance with U.S. GAAP.
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4 Film and Television Costs
[Download Table]
1996 1995
------------------------------------------
Theatrical Film Costs
Released, less amortization $ 944 $ 632
In-process 1,947 970
------ ------
2,891 1,602
------ ------
Television Costs
Released, less amortization 303 274
In-process 168 120
------ ------
471 394
------ ------
Television Broadcast Rights 550 103
------ ------
$3,912 $2,099
====== ======
Based on management's total gross revenue estimates as of September 30, 1996,
approximately 89% of unamortized film and television costs (except in-process)
are expected to be amortized during the next three years.
5 Borrowings
[Download Table]
Effective Fiscal
Interest Year
Rate Maturity 1996 1995
------------------------------------------------------------------------
Commercial paper (a) 5.5% 1997 $ 4,185 $ --
U.S. dollar notes and debentures (b) 6.6 1998-2093 4,399 1,085
Dual currency and foreign notes (c) 5.4 1997-2000 1,987 363
Senior participating notes (d) 6.3 2000-2001 1,099 1,057
Other 5.6 1997-2013 672 479
------- ------
5.9% $12,342 $2,984
======= ======
--------
(a) In support of the issuance of commercial paper to fund the cash portion of
the ABC purchase price (see Note 2), the Company established bank
facilities in October 1995 totaling $12 billion. A portion of the
commercial paper issued was subsequently refinanced into longer-term
borrowings, and the bank facilities were refinanced to $7 billion. In
October 1996, these facilities were further refinanced to $5 billion and
expire in one to five years. Under the bank facilities, the Company has
the option to borrow at various interest rates.
(b) Includes approximately $600 million of borrowings previously issued by
ABC, Inc. and $300 million of borrowings due in 2093. The effective
interest rate reflects the effect of interest rate swaps entered into with
respect to certain of these borrowings.
(c) Denominated principally in U.S. dollars, Japanese yen, Australian dollars,
and Italian lira. The effective interest rate reflects the effect of
interest rate and cross-currency swaps entered into with respect to
certain of these borrowings.
(d) The average coupon rate is 2.7% on $1.3 billion face value of notes.
Additional interest may be paid based on the performance of designated
portfolios of films.
Borrowings, excluding commercial paper, have the following scheduled
maturities:
[Download Table]
1997 $ 119
1998 752
1999 1,414
2000 918
2001 2,529
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The Company capitalizes interest on assets constructed for its theme parks,
resorts and other property, and on theatrical and television productions in
process. In 1996, 1995 and 1994, respectively, total interest costs incurred
were $545, $236 and $172 million, of which $66, $58 and $52 million were
capitalized.
6 Income Taxes
[Download Table]
1996 1995 1994
--------------------------------------------------------
Income Before Income Taxes
Domestic (including U.S. exports) $1,822 $1,908 $1,514
Foreign subsidiaries 239 209 189
------ ------ ------
$2,061 $2,117 $1,703
====== ====== ======
Income Tax Provision
Current
Federal $ 389 $ 325 $ 117
State 101 68 30
Foreign (including withholding) 235 184 163
------ ------ ------
725 577 310
------ ------ ------
Deferred
Federal 106 170 260
State 16 (10) 23
------ ------ ------
122 160 283
------ ------ ------
$ 847 $ 737 $ 593
====== ====== ======
[Download Table]
Components of Deferred Tax Assets and Liabilities 1996 1995
-----------------------------------------------------------------------
Deferred tax assets:
Accrued liabilities $(1,863) $ (440)
Investment in Euro Disney (74) (153)
Other--net (20) (13)
------- ------
Total deferred tax assets (1,957) (606)
------- ------
Deferred tax liabilities:
Depreciable, amortizable and other property 2,193 1,235
Licensing revenues 203 189
Leveraged leases 254 199
------- ------
Total deferred tax liabilities 2,650 1,623
------- ------
Net deferred tax liability before valuation allowance 693 1,017
Valuation allowance 50 50
------- ------
Net deferred tax liability $ 743 $1,067
======= ======
[Download Table]
Reconciliation of Effective Income Tax Rate 1996 1995 1994
------------------------------------------------------------------
Federal income tax rate 35.0% 35.0% 35.0%
Nondeductible amortization of intangible assets 5.1 -- --
State taxes, net of Federal income tax benefit 3.7 1.9 2.1
Other--net (2.7) (2.1) (2.3)
---- ---- ----
41.1% 34.8% 34.8%
==== ==== ====
In 1996 and 1995, income tax benefits of $44 and $90 million, respectively,
were allocated to stockholders' equity. Such benefits were attributable to
employee stock option transactions.
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7 Pension and Other Benefit Programs
The Company maintains pension plans and postretirement medical benefit plans
covering most of its domestic employees not covered by union or industry-wide
plans. Employees hired after January 1, 1994 are not eligible for the
postretirement medical benefit plans. Pension benefits are generally based on
years of service and/or compensation. The following summarizes the balance
sheet impact, as well as the benefit obligations, assets, funded status and
rate assumptions associated with the pension and postretirement medical
benefit plans.
[Download Table]
Postretirement
Pension plans benefit plans
-------------- ----------------
1996 1995 1996 1995
------- ----- ------- -------
Reconciliation of funded status of the
plans and the amounts included in the
Company's consolidated balance sheet:
Projected benefit obligations
Beginning obligations $ (604) $(476) $ (162) $ (182)
ABC's plans at acquisition (774) -- (99) --
Service cost (68) (38) (12) (11)
Interest cost (81) (38) (16) (13)
Amendments -- (5) -- 43
Gains or (losses) 88 (68) 10 (2)
Benefits paid 37 21 8 3
------- ----- ------- -------
Ending obligations (1,402) (604) (271) (162)
------- ----- ------- -------
Fair value of plans' assets
Beginning fair value 632 485 107 78
ABC's plans at acquisition 631 -- -- --
Actual return on plans' assets 149 102 20 16
Contributions 74 72 23 16
Benefits paid (44) (27) (12) (3)
------- ----- ------- -------
Ending fair value 1,442 632 138 107
------- ----- ------- -------
Funded status of the plans 40 28 (133) (55)
Unrecognized net (gain) loss (42) 98 (9) 15
Unrecognized prior service benefit (2) (2) (75) (111)
------- ----- ------- -------
Net balance sheet asset (liability) $ (4) $ 124 $ (217) $ (151)
======= ===== ======= =======
Rate assumptions
Discount rate 7.8% 7.5% 7.8% 7.5%
Rate of return on plans' assets 10.0% 9.5% 10.0% 9.5%
Salary increases 5.6% 5.8% N/A n/a
Annual increase in cost of benefits N/A n/a 7.0% 7.0%
The annual increase in cost of postretirement benefits of 7% is assumed to
decrease .3ppts per year until stabilizing at 5.5%. An increase in the assumed
benefits cost trend of 1ppt for each year would increase the postretirement
benefit obligation at September 30, 1996 by $55 million.
The Company's accumulated pension benefit obligation at September 30, 1996
was $1.2 billion, of which 98% was vested. The projected benefit obligation
for the postretirement benefit plans at September 30, 1996 comprised 47%
retirees, 18% fully eligible active participants and 35% other active
participants.
The income statement cost of the pension plans for 1996, 1995 and 1994
totaled $58, $33 and $37 million, respectively. The income statement cost
(credit) for the postretirement benefit plans for the same years was $(16),
$(43) and $14 million, respectively. The discount rates and the salary
increase rate were 8.5% and 6.3%, respectively, in 1994.
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8 Stockholders' Equity
[Download Table]
Common Paid-in Retained
(Shares in millions) Shares Stock Capital Earnings
---------------------------------------------------------------
Balance at September 30, 1993 565 $14 $ 862 $4,833
Exercise of stock options, net 2 -- 69 --
Dividends ($.2875 per share) -- -- -- (153)
Net income -- -- -- 1,110
--- --- ------ ------
Balance at September 30, 1994 567 14 931 5,790
Exercise of stock options, net 8 -- 281 --
Dividends ($.345 per share) -- -- -- (180)
Net income -- -- -- 1,380
--- --- ------ ------
Balance at September 30, 1995 575 14 1,212 6,990
Acquisition impact (see Note 2) 104 (7) 7,213 --
Exercise of stock options, net 3 -- 144 --
Dividends ($.42 per share) -- -- -- (271)
Net income -- -- -- 1,214
--- --- ------ ------
Balance at September 30, 1996 682 $ 7 $8,569 $7,933
=== === ====== ======
In November 1995, the Company adopted a stockholders' rights plan on
substantially the same terms originally adopted by the Company in 1989. The
plan becomes operative in certain events involving the acquisition of 25% or
more of the Company's common stock by any person or group in a transaction not
approved by the Company's Board of Directors. Upon the occurrence of such an
event, each right, unless redeemed by the Board, entitles its holder to
purchase for $350 an amount of common stock of the Company, or in certain
circumstances the acquirer, having a market value of twice the purchase price.
In connection with the rights plan, 7 million shares of preferred stock were
reserved. In connection with the acquisition of ABC, the Company's former
stockholders' rights plan was canceled.
At September 30, 1996 and 1995, the Company's cumulative foreign currency
translation adjustments and other amounts recorded directly to equity were $39
and $38 million, net of deferred taxes of $16 and $18 million, respectively.
The Company attempts to increase the long-term value of its shares by
periodically acquiring its stock when it perceives that the market value is
below an appropriate ratio of share price to historical earnings, projected
earnings, or other relevant measures. Treasury stock activity for the three
years ended September 30, 1996 was as follows:
[Download Table]
Treasury
(Shares in millions) Shares Stock
------------------------------------------------------------
Balance at September 30, 1993 29 $ 715
Common stock repurchased 14 571
--- -------
Balance at September 30, 1994 43 1,286
Common stock repurchased, net 8 317
--- -------
Balance at September 30, 1995 51 1,603
Cancellation of treasury stock (see Note 2) (51) (1,603)
Common stock repurchased 8 462
--- -------
Balance at September 30, 1996 8 $ 462
=== =======
On April 22, 1996, the Company adopted a new share repurchase program. The
program will allow the Company to purchase up to 105 million shares of its
common stock from time to time in the open market or in privately negotiated
transactions. In December 1996, the Company established a fund pursuant to the
repurchase program to acquire shares of the Company for the purpose of funding
certain stock-based compensation. Any shares acquired by the fund that are not
utilized must be disposed of by December 31, 1999. Concurrent with the
acquisition of ABC, the Company canceled its former share repurchase program.
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9 Stock Incentive Plans
Under various plans, the Company may grant stock option and other awards to
key executive, management and creative personnel. Transactions under the
various stock option and incentive plans for the periods indicated were as
follows:
[Download Table]
(Shares in millions) 1996 1995 1994
--------------------------------------------------
Outstanding at beginning of year 35 39 36
Awards canceled (2) (4) (1)
Awards granted 21 8 6
Awards exercised (3) (8) (2)
Awards transferred (ABC) 1 -- --
--- --- ---
Outstanding at September 30 52 35 39
=== === ===
Exercisable at September 30 17 15 17
=== === ===
Stock option awards are granted at prices equal to at least market price on
the date of grant. Options outstanding at September 30, 1996 and 1995 ranged
in price from $13.28 to $65.75 and $5.56 to $57.44 per share, respectively.
Options exercised ranged in price from $5.56 to $57.44 per share in 1996, from
$3.61 to $57.44 per share in 1995, and from $3.23 to $41.00 per share in 1994.
Shares available for future option grants at September 30, 1996 were 60
million.
In October 1995, the Financial Accounting Standards Board issued SFAS 123,
Accounting for Stock-Based Compensation ("SFAS 123") which is effective for
the Company in fiscal 1997. As permitted under SFAS 123, the Company has
elected not to adopt the fair value based method of accounting for its stock-
based compensation plans, but will continue to account for such compensation
under the provisions of APB Opinion No. 25 and, accordingly, the impact of
SFAS 123 on the Company's financial statements is not expected to be material.
The Company will comply with the disclosure requirements of SFAS 123 in 1997.
10 Detail of Certain Balance Sheet Accounts
[Download Table]
1996 1995
---------------------------------------------------------------
Receivables
Trade, net of allowances $ 2,875 $1,593
Other 468 200
------- ------
$ 3,343 $1,793
======= ======
Accounts Payable and Other Accrued Liabilities
Accounts payable $ 5,515 $2,131
Payroll and employee benefits 757 647
Other 102 65
------- ------
$ 6,374 $2,843
======= ======
Intangible Assets
Cost in excess of ABC's net assets acquired $16,079 $ --
Trademark 1,100 --
FCC licenses 1,100 --
Accumulated amortization (301) --
------- ------
$17,978 $ --
======= ======
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[Download Table]
Geographic Segments 1996 1995 1994
--------------------------------------------------
Domestic Revenues
United States $14,422 $ 8,876 $ 7,544
United States export 746 608 480
International Revenues
Europe 2,086 1,677 1,345
Rest of World 1,485 990 721
------- ------- -------
$18,739 $12,151 $10,090
======= ======= =======
Operating Income
United States $ 2,113 $ 1,665 $ 1,345
Europe 953 486 405
Rest of World 178 402 280
Unallocated expenses (211) (87) (58)
------- ------- -------
$ 3,033 $ 2,466 $ 1,972
======= ======= =======
Identifiable Assets
United States $35,442 $13,438 $11,306
Europe 1,495 1,060 1,238
Rest of World 369 108 282
------- ------- -------
$37,306 $14,606 $12,826
======= ======= =======
During the second quarter of the current year, the Company implemented SFAS
121. This new accounting standard changes the method that companies use to
evaluate the carrying value of such assets by, among other things, requiring
companies to evaluate assets at the lowest level at which identifiable cash
flows can be determined. The implementation of SFAS 121 resulted in the
Company recognizing a $300 million non-cash charge related principally to
certain assets included in the Theme Parks and Resorts segment.
12 Financial Instruments
Investments
As of September 30, 1996, the Company held $41 million of securities
classified as available-for-sale. As of September 30, 1995, the Company held
$96 million of securities classified as trading and $403 and $307 million of
securities and cash equivalents, respectively, classified as available-for-
sale. In 1996 and 1995, realized gains and losses on available-for-sale
securities, determined principally on an average cost basis, and unrealized
gains and losses on available-for-sale securities were not material. In 1995,
the change in the net unrealized gain on trading securities was not material.
Financial Risk Management
The Company is exposed to the impact of interest rate changes. The Company's
objective is to manage the impact of interest rate changes on earnings and
cash flows and on the market value of its investments and borrowings. The
Company maintains fixed rate debt as a percentage of its net debt between a
minimum and maximum percentage, which is set by policy.
The Company transacts business in virtually every part of the world and is
subject to risks associated with changing foreign exchange rates. The
Company's objective is to reduce earnings and cash flow volatility associated
with foreign exchange rate changes to allow management to focus its attention
on its core business issues and challenges. Accordingly, the Company enters
into various contracts which change in value as foreign exchange rates change
to protect the value of its existing foreign currency assets and liabilities,
commitments and anticipated foreign currency revenues. By
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policy, the Company maintains hedge coverage between minimum and maximum
percentages of its anticipated foreign exchange exposures for each of the next
five years. The gains and losses on these contracts offset changes in the
value of the related exposures.
It is the Company's policy to enter into foreign currency and interest rate
transactions only to the extent considered necessary to meet its objectives as
stated above. The Company does not enter into foreign currency or interest
rate transactions for speculative purposes.
Interest Rate Risk Management
The Company uses interest rate swaps and other instruments to manage net
exposure to interest rate changes related to its portfolio of borrowings and
investments and to lower its overall borrowing costs. Significant interest
rate risk management instruments held by the Company at September 30, 1996 and
1995 are described below.
Interest Rate Risk Management--Borrowings
At September 30, 1996, the Company had outstanding interest rate swaps on
its borrowings with notional amounts totaling $900 million, which effectively
converted floating rate commercial paper to fixed rate instruments. At
September 30, 1996 and 1995, the Company had outstanding interest rate swaps
on its borrowings with notional amounts totaling $1,520 and $685 million,
respectively, which effectively converted medium-term notes to commercial
paper or LIBOR-based variable rate instruments. These swap agreements expire
in two to 15 years.
Interest Rate Risk Management--Investment Transactions
At September 30, 1995, the Company had outstanding $154 million notional
amount of interest rate swaps designated as hedges of investments, and $225
million of options, futures and forward contracts. These swaps and contracts
were terminated during 1996 and the realized gains and losses are included in
earnings.
Interest Rate Risk Management--Summary of Transactions
The following table reflects incremental changes in the notional or
contractual amounts of the Company's interest rate contracts during 1996 and
1995. Activity representing renewal of existing positions is excluded.
[Download Table]
Balance at Balance at
September 30, Maturities/ September 30,1995 Additions Expirations Terminations 1996
------------------------------------------------------------------------------------
Pay floating swaps $ 719 $1,195 $ (115) $ (279) $1,520
Pay fixed swaps 4,680 1,460 -- (5,240) 900
Forward contracts -- 93 (93) -- --
Futures contracts 123 6 -- (129) --
Option contracts 102 12 (40) (74) --
------ ------ ------- ------- ------
$5,624 $2,766 $ (248) $(5,722) $2,420
====== ====== ======= ======= ======
Balance at Balance at
September 30, Maturities/ September 30,1994 Additions Expirations Terminations 1995
------------------------------------------------------------------------------------
Pay floating swaps $1,037 $ 984 $ (135) $(1,167) $ 719
Pay fixed swaps 214 4,606 -- (140) 4,680
Spreadlock contracts 250 -- (250) -- --
Forward contracts 101 294 (395) -- --
Futures contracts 266 289 (239) (193) 123
Option contracts 94 239 (190) (41) 102
------ ------ ------- ------- ------
$1,962 $6,412 $(1,209) $(1,541) $5,624
====== ====== ======= ======= ======
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The impact of interest rate risk management activities on income in 1996 and
1995 and the amount of deferred gains and losses from interest rate risk
management transactions at September 30, 1996 and 1995 were not material.
Foreign Exchange Risk Management
The Company primarily uses option strategies which provide for the sale of
foreign currencies to hedge probable, but not firmly committed, revenues.
While these hedging instruments are subject to fluctuations in value, such
fluctuations are offset by changes in the value of the underlying exposures
being hedged. The principal currencies hedged are the Japanese yen, French
franc, German mark, British pound, Canadian dollar, Italian lira and Spanish
peseta.
Foreign Exchange Risk Management Transactions
The Company uses option contracts to hedge anticipated foreign currency
revenues. The Company also uses forward contracts to hedge foreign currency
assets, liabilities and foreign currency payments the Company is committed to
make in connection with the construction of two cruise ships (see Note 13).
Cross-currency swaps are used to hedge foreign currency-denominated
borrowings.
At September 30, 1996 and 1995, the notional amounts of the Company's
foreign exchange risk management contracts, net of notional amounts of
contracts with counterparties against which the Company has a legal right of
offset, the related exposures hedged and the contract maturities are as
follows:
[Download Table]
1996 1995
------------------------------ ------------------------------
NOTIONAL EXPOSURES FISCAL YEAR Notional Exposures Fiscal Year
AMOUNT HEDGED MATURITY Amount Hedged Maturity
-------- --------- ----------- -------- --------- -----------
Option contracts $5,563 $3,386 1997-1999 $5,070 $2,869 1996-1999
Forward contracts 1,981 1,174 1997-1999 1,940 1,196 1996-1999
Cross-currency swaps 2,308 2,536 1997-2001 350 350 1997-1998
------ ------ ------ ------
$9,852 $7,096 $7,360 $4,415
====== ====== ====== ======
Gains and losses on contracts hedging anticipated foreign currency revenues
and foreign currency commitments are deferred until such revenues are
recognized or such commitments are met, and offset changes in the value of the
foreign currency revenues and commitments. At September 30, 1996 and 1995, the
Company had net deferred gains of $28 million and net deferred losses of $189
million, respectively, related to foreign currency hedge transactions, which
will be recognized in income over the next three years. Amounts recognizable
in any one year are not material and will be substantially offset by gains and
losses in the value of the related hedged transactions.
The impact of foreign exchange risk management activities on income in 1996
and 1995 was not material.
Fair Value of Financial Instruments
At September 30, 1996 and 1995, the Company's financial instruments included
cash, cash equivalents, investments, receivables, accounts payable, borrowings
and interest rate and foreign exchange risk management contracts.
-45-
At September 30, 1996 and 1995, the fair values of cash and cash
equivalents, receivables, accounts payable, commercial paper and securities
sold under agreements to repurchase approximated carrying values because of
the short-term nature of these instruments. The estimated fair values of other
financial instruments subject to fair value disclosures, determined based on
broker quotes or quoted market prices or rates for the same or similar
instruments, and the related carrying amounts are as follows:
[Download Table]
1996 1995
------------------- -----------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
--------- -------- -------- -------
Investments $ 41 $ 41 $ 499 $ 499
Borrowings (12,342) (12,270) (2,984) (3,151)
Risk management contracts 466 460 181 137
--------- -------- ------- -------
$(11,835) $(11,769) $(2,304) $(2,515)
========= ======== ======= =======
Credit Concentrations
The Company continually monitors its positions with, and the credit quality
of, the financial institutions which are counterparties to its financial
instruments and does not anticipate nonperformance by the counterparties. The
Company would not realize a material loss as of September 30, 1996 in the
event of nonperformance by any one counterparty. The Company enters into
transactions only with financial institution counterparties which have a
credit rating of A- or better. The Company's current policy in agreements with
financial institution counterparties is generally to require collateral in the
event credit ratings fall below A- or in the event aggregate exposures exceed
limits as defined by contract. In addition, the Company limits the amount of
credit exposure with any one institution. At September 30, 1996, financial
institution counterparties posted collateral of $201 million to the Company,
and the Company was not required to collateralize its financial instrument
obligations.
The Company's trade receivables and investments do not represent significant
concentrations of credit risk at September 30, 1996, due to the wide variety
of customers and markets into which the Company's products are sold, their
dispersion across many geographic areas, and the diversification of the
Company's portfolio among instruments and issuers.
13 Commitments and Contingencies
The Company, together with, in some instances, certain of its directors and
officers, is a defendant or co-defendant in various legal actions involving
copyright, breach of contract and various other claims incident to the conduct
of its businesses. Management does not expect the Company to suffer any
material liability by reason of such actions, nor does it expect that such
actions will have a material effect on the Company's liquidity or operating
results.
During 1995, the Company entered into agreements with a shipyard to build
two cruise ships for its Disney Cruise Line. Under the agreements, the Company
is committed to make payments totaling approximately $700 million through
1999.
At September 30, 1996, the Company is committed to the purchase of broadcast
rights for various feature films, sports and other programming aggregating
approximately $4.5 billion. This amount is substantially payable over the next
five years.
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QUARTERLY FINANCIAL SUMMARY
(In millions, except per share data)
(Unaudited)
[Download Table]
December 31 March 31 June 30 September 30
--------------------------------------------------------------------------
1996 (/1/)
Revenues $3,837 $4,543 $5,087 $5,272
Operating income (/2/) 863 356 956 858
Net income (loss) (/2/) 497 (25) 406 336
Earnings (loss) per share (/2/) .93 (.04) .59 .49
1995
Revenues $3,303 $2,951 $2,773 $3,124
Operating income 787 608 574 497
Net income 482 315 318 265
Earnings per share .91 .60 .60 .50
--------
(1) Results after February 9, 1996 reflect the impact of the acquisition of
ABC. See Note 2 to the Consolidated Financial Statements.
(2) Reflects a $300 million non-cash charge in the second quarter pertaining
to the implementation of SFAS 121, and a $225 million charge for costs
related to the acquisition of ABC. The earnings per share impacts of these
charges were $.30 and $.22, respectively. See Notes 2 and 11 to the
Consolidated Financial Statements.
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