-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K0OZxN4dHRn3lkL/YiVLavgLkEBpRryHn07uqWSP8UOe+L5W7bCkvpqbP+owpoPC BvhDaKqpy3PGJ1HJJqVC7Q== 0000912057-96-007115.txt : 19960429 0000912057-96-007115.hdr.sgml : 19960429 ACCESSION NUMBER: 0000912057-96-007115 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960330 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960426 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WALT DISNEY CO/ CENTRAL INDEX KEY: 0001001039 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 954545390 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11605 FILM NUMBER: 96551381 BUSINESS ADDRESS: STREET 1: 500 SOUTH BUENA VISTA ST CITY: BURBANK STATE: CA ZIP: 91521 BUSINESS PHONE: 8185601000 MAIL ADDRESS: STREET 1: 500 SOUTH BUENA VISTA ST CITY: BURBANK STATE: CA ZIP: 91521 FORMER COMPANY: FORMER CONFORMED NAME: DC HOLDCO INC DATE OF NAME CHANGE: 19950918 8-K 1 8-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIER EVENT REPORTED): March 30, 1996 ------------------------ THE WALT DISNEY COMPANY (Exact Name of Registrant as Specified in its Charter) DELAWARE (State or Jurisdiction of Incorporation) 1-11605 95-4545390 (Commission File Number) (IRS Employer Identification No.) 500 SOUTH BUENA VISTA STREET, BURBANK, CALIFORNIA 91521 (Address of Principal Executive Offices) (Zip Code) (818) 560-1000 (Registrant's Telephone Number) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ITEM 5. OTHER EVENTS CAPITAL CITIES/ABC, INC. AUDITED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 CONTENTS
PAGE ----- Report of Independent Auditors............................................................................. 1 Consolidated Statement of Income........................................................................... 2 Consolidated Statement of Cash Flows....................................................................... 3 Consolidated Balance Sheet................................................................................. 4 Consolidated Statement of Stockholders' Equity............................................................. 5 Notes to Consolidated Financial Statements................................................................. 6
REPORT OF INDEPENDENT AUDITORS The Board of Directors The Walt Disney Company We have audited the accompanying consolidated balance sheets of Capital Cities/ABC, Inc. as of December 31, 1995 and 1994, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. 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 in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Capital Cities/ABC, Inc. at December 31, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. New York, New York March 8, 1996 1 CAPITAL CITIES/ABC, INC. CONSOLIDATED STATEMENT OF INCOME YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993 ------------ ------------ ------------ (DOLLARS IN THOUSANDS) Net revenues............................................................ $ 6,878,558 $ 6,379,237 $ 5,673,653 ------------ ------------ ------------ Costs and expenses Direct operating expenses............................................. 4,077,210 3,745,689 3,557,301 Selling, general and administrative................................... 1,297,396 1,222,202 1,097,826 Depreciation.......................................................... 115,761 109,128 95,032 Amortization of intangible assets..................................... 65,733 63,407 61,345 Merger costs.......................................................... 91,302 -- -- ------------ ------------ ------------ 5,647,402 5,140,426 4,811,504 ------------ ------------ ------------ Operating income........................................................ 1,231,156 1,238,811 862,149 ------------ ------------ ------------ Other income (expense) Interest expense...................................................... (57,152) (55,070) (59,772) Interest income....................................................... 72,294 24,553 36,650 Miscellaneous, net.................................................... 67,038 (2,980) (10,648) ------------ ------------ ------------ 82,180 (33,497) (33,770) ------------ ------------ ------------ Income before income taxes.............................................. 1,313,336 1,205,314 828,379 ------------ ------------ ------------ Income taxes Federal............................................................... 470,300 425,700 300,100 State and local....................................................... 114,400 99,800 60,900 ------------ ------------ ------------ 584,700 525,500 361,000 ------------ ------------ ------------ Income before extraordinary charge...................................... 728,636 679,814 467,379 Extraordinary charge, net of income taxes............................... -- -- (12,122) ------------ ------------ ------------ Net income.............................................................. $ 728,636 $ 679,814 $ 455,257 ------------ ------------ ------------ ------------ ------------ ------------ Income per share before extraordinary charge............................ $ 4.73 $ 4.42 $ 2.85 Extraordinary charge per share.......................................... -- -- (.07) ------------ ------------ ------------ Net income per share.................................................... $ 4.73 $ 4.42 $ 2.78 ------------ ------------ ------------ ------------ ------------ ------------ Average shares outstanding (000's omitted).............................. 153,960 153,890 163,800 ------------ ------------ ------------ ------------ ------------ ------------
See accompanying notes. 2 CAPITAL CITIES/ABC, INC. CONSOLIDATED STATEMENT OF CASH FLOWS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993 ------------ ----------- ------------- (DOLLARS IN THOUSANDS) Cash flows from operating activities Net income............................................................ $ 728,636 $ 679,814 $ 455,257 Adjustments to reconcile net income to net cash Noncash and nonoperating items Depreciation...................................................... 115,761 109,128 95,032 Amortization of intangible assets................................. 65,733 63,407 61,345 (Decrease) increase in deferred liabilities....................... (225,144) 45,988 7,995 Extraordinary charge, early debt redemption....................... -- -- 12,122 Other noncash and nonoperating items.............................. 77,672 50,315 31,009 ------------ ----------- ------------- Cash from operations before changes in operating assets and liabilities, net of effects of acquisitions and dispositions....... 762,658 948,652 662,760 Decrease in program assets and liabilities, net................... 17,229 63,779 29,722 (Increase) in accounts receivable................................. (131,048) (169,572) (57,895) Increase in accounts payable, accrued expenses and other current liabilities...................................................... 430,195 156,225 5,741 (Increase) decrease in other operating assets, net................ (19,002) (22,860) 20,190 ------------ ----------- ------------- Net cash provided by operating activities............................... 1,060,032 976,224 660,518 ------------ ----------- ------------- Cash flows from investing activities Capital expenditures.................................................. (131,103) (121,460) (97,788) Acquisition of operating companies and equity investments............. (312,343) (214,536) (133,294) Purchases of short-term investments................................... (845,003) (590,483) (1,474,233) Sales and maturities of short-term investments........................ 982,405 526,237 1,811,255 Proceeds from disposition of real estate.............................. -- 22,000 -- Proceeds from dispositions of operating companies and equity investments.......................................................... 40,523 -- 12,500 Other investing activities, net....................................... (78,686) (52,708) 8,068 ------------ ----------- ------------- Net cash (used in) provided by investing activities..................... (344,207) (430,950) 126,508 ------------ ----------- ------------- Cash flows from financing activities Common stock purchased for treasury................................... (78,217) (27,607) (715,010) Common stock issued under employee stock plans........................ 43,471 31,099 29,365 Dividends............................................................. (30,785) (23,873) (3,238) Payments of long-term debt............................................ (104,143) (7,805) (504,873) Premium on early redemption of debt................................... -- -- (15,915) ------------ ----------- ------------- Net cash (used in) financing activities................................. (169,674) (28,186) (1,209,671) ------------ ----------- ------------- Net increase (decrease) in cash and short-term cash investments......... 546,151 517,088 (422,645) Cash and short-term cash investments Beginning of period................................................... 781,371 264,283 686,928 ------------ ----------- ------------- End of period......................................................... $ 1,327,522 $ 781,371 $ 264,283 ------------ ----------- ------------- ------------ ----------- -------------
See accompanying notes. 3 CAPITAL CITIES/ABC, INC. CONSOLIDATED BALANCE SHEET DECEMBER 31, 1995 AND 1994
1995 1994 ----------- ----------- (DOLLARS IN THOUSANDS) ASSETS Current assets Cash and short-term cash investments.................................................. $ 1,327,522 $ 781,371 Short-term investments................................................................ 100,667 238,029 Accounts and notes receivable (net of allowance for doubtful accounts of $34,299 in 1995 and $46,419 in 1994)................................................. 1,193,412 1,056,280 Program licenses and rights........................................................... 545,059 440,443 Other current assets.................................................................. 225,846 200,064 ----------- ----------- Total current assets................................................................ 3,392,506 2,716,187 ----------- ----------- Property, plant and equipment, at cost Land.................................................................................. 298,692 297,525 Buildings and improvements............................................................ 738,408 718,806 Broadcasting and publishing equipment................................................. 1,020,579 944,031 Other, including construction-in-progress............................................. 164,744 162,132 ----------- ----------- 2,222,423 2,122,494 Less accumulated depreciation......................................................... 916,026 831,838 ----------- ----------- Property, plant and equipment, net.................................................. 1,306,397 1,290,656 ----------- ----------- Intangible assets (net of accumulated amortization of $653,166 in 1995 and $592,637 in 1994)...................................................................... 2,109,920 1,999,305 Program licenses and rights, noncurrent................................................. 154,395 195,563 Investment in unconsolidated equity affiliates.......................................... 403,169 334,460 Other assets............................................................................ 250,398 232,041 ----------- ----------- $ 7,616,785 $ 6,768,212 ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable...................................................................... $ 193,114 $ 163,566 Accrued compensation.................................................................. 446,887 131,370 Accrued interest...................................................................... 10,126 9,636 Accrued expenses and other current liabilities........................................ 335,984 263,618 Program licenses and rights........................................................... 359,834 281,923 Taxes on income....................................................................... 214,968 189,267 Long-term debt due within one year.................................................... 7,520 4,176 ----------- ----------- Total current liabilities........................................................... 1,568,433 1,043,556 Deferred compensation................................................................... 21,483 188,492 Deferred income taxes................................................................... 180,140 247,532 Program licenses and rights, noncurrent................................................. 41,982 39,259 Other liabilities....................................................................... 222,502 233,987 Long-term debt due after one year....................................................... 513,874 610,666 ----------- ----------- Total liabilities................................................................... 2,548,414 2,363,492 ----------- ----------- Minority interest....................................................................... 130,084 116,163 ----------- ----------- Stockholders' equity Preferred stock, no par value (4,000,000 shares authorized)........................... -- -- Common stock, $0.10 par value (300,000,000 shares authorized)......................... 18,394 18,394 Additional paid-in capital............................................................ 1,047,810 1,036,068 Unrealized net gains on investments................................................... 43,633 57,008 Retained earnings..................................................................... 5,446,475 4,748,624 ----------- ----------- 6,556,312 5,860,094 Less common stock in treasury, at cost (30,026,730 shares in 1995 and 29,877,163 shares in 1994)........................................................... 1,618,025 1,571,537 ----------- ----------- Total stockholders' equity.......................................................... 4,938,287 4,288,557 ----------- ----------- $ 7,616,785 $ 6,768,212 ----------- ----------- ----------- -----------
See accompanying notes. 4 CAPITAL CITIES/ABC, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
UNREALIZED ADDITIONAL NET GAINS COMMON PAID-IN ON RETAINED TREASURY STOCK CAPITAL INVESTMENTS EARNINGS STOCK TOTAL ----------- ----------- ----------- --------- ---------- --------- (DOLLARS IN THOUSANDS) Balance January 1, 1993.................. $ 18,394 $1,031,607 $ -- $3,640,664 $ (884,923) $3,805,742 Net income for 1993.................... -- -- -- 455,257 -- 455,257 725,850 shares issued under Employee Stock Purchase Plan................... -- 1,023 -- -- 26,437 27,460 104,550 shares issued on exercise of employee stock options................ -- (1,996) -- -- 3,901 1,905 11,442,170 shares purchased for treasury.............................. -- -- -- -- (715,010) (715,010) Cash dividends......................... -- -- -- (3,238) -- (3,238) ----------- ----------- ----------- --------- ---------- --------- Balance December 31, 1993................ 18,394 1,030,634 -- 4,092,683 (1,569,595) 3,572,116 Net income for 1994.................... -- -- -- 679,814 -- 679,814 648,480 shares issued under Employee Stock Purchase Plan................... -- 5,993 -- -- 24,480 30,473 31,402 shares issued on exercise of employee stock options................ -- (559) -- -- 1,185 626 447,945 shares purchased for treasury.............................. -- -- -- -- (27,607) (27,607) Cash dividends......................... -- -- -- (23,873) -- (23,873) Adjustment to beginning balance for change in accounting method, net of income taxes of $32,174............... -- -- 46,491 -- -- 46,491 Change in unrealized net gains, net of income taxes of $7,278................ -- -- 10,517 -- -- 10,517 ----------- ----------- ----------- --------- ---------- --------- Balance December 31, 1994................ 18,394 1,036,068 57,008 4,748,624 (1,571,537) 4,288,557 Net income for 1995.................... -- -- -- 728,636 -- 728,636 704,489 shares issued under Employee Stock Purchase Plan................... -- 12,171 -- -- 29,328 41,499 57,008 shares issued on exercise of employee stock options................ -- (429) -- -- 2,401 1,972 911,064 shares purchased for treasury.............................. -- -- -- -- (78,217) (78,217) Cash dividends......................... -- -- -- (30,785) -- (30,785) Change in unrealized net gains, net of income taxes of $9,257................ -- -- (13,375) -- -- (13,375) ----------- ----------- ----------- --------- ---------- --------- Balance December 31, 1995................ $ 18,394 $1,047,810 $ 43,633 $5,446,475 $(1,618,025) $4,938,287 ----------- ----------- ----------- --------- ---------- ---------
See accompanying notes. 5 CAPITAL CITIES/ABC, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUBSEQUENT EVENT On July 31, 1995, Capital Cities/ABC, Inc. (the "Company") announced it would merge with The Walt Disney Company ("Walt Disney"). Under the terms of the agreement, the Company's shareholders have the right to receive one share of Walt Disney stock and $65 in cash for each of their shares. The merger, after approval of certain regulatory agencies and the shareholders of both companies, closed on February 9, 1996. These financial statements are prepared on the basis of a going concern, and, as such, have not been adjusted to reflect the allocation of the purchase price to the net assets acquired. During 1995, the Company incurred approximately $91,000,000 of merger-related costs. These costs consist primarily of additional provisions for long-term incentive compensation expense as a result of the merger-related increase in the Company's share price as well as legal costs, printing and other expenses directly related to the merger. In 1996, upon closing of the merger, the Company incurred approximately $140,000,000 of similar, additional merger-related expenses. 2. ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include the accounts of all significant subsidiaries. Investments in other companies which are at least 20% owned are reported on the equity method. The Company's share of income or loss is included in "Miscellaneous, net" on the income statement. All significant intercompany accounts and transactions have been eliminated. PROPERTY, PLANT AND EQUIPMENT - DEPRECIATION -- Depreciation is computed on the straight-line method for financial accounting purposes and on accelerated methods for tax purposes. Estimated useful lives for major asset categories are 10-55 years for buildings and improvements, 4-20 years for broadcasting equipment and 5-20 years for publishing machinery and equipment. Leasehold improvements are amortized over the terms of the leases. INTANGIBLE ASSETS -- Intangible assets consist of amounts by which the cost of acquisitions exceeded the values assigned to net tangible assets. The broadcasting and publishing intangible assets, all of which may be characterized as scarce assets with very long and productive lives, have historically increased in value with the passage of time. In accordance with Accounting Principles Board Opinion No. 17, substantially all of these intangible assets are being amortized over periods of up to 40 years, even though in the opinion of management there has been no diminution of value of the underlying assets. PROGRAM LICENSES AND RIGHTS -- 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. INVESTMENTS -- As of January 1, 1994, the Company adopted Statement of Financial Accounting Standard No. 115, "ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES." The cumulative effect of adopting Standard No. 115 increased the opening balance of stockholders' equity by $46,491,000 (net of $32,174,000 of deferred income taxes) to reflect the net unrealized holding gains on securities classified as available-for-sale previously carried at amortized cost or the lower of cost or market. At December 31, 1995, cash and short-term cash investments consist primarily of highly liquid U.S. Government obligations with maturities of three months or less at the time of purchase. They include $1,303,559,000 of securities which are classified as held-to-maturity and are carried at amortized cost, which approximates market. Short-term investments, which consist of highly liquid U.S. Government instruments with original maturities in excess of three months, include $100,667,000 of securities which are classified as held-to-maturity. They are carried at amortized cost, which approximates market. 6 CAPITAL CITIES/ABC, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. ACCOUNTING POLICIES (CONTINUED) Also, classified as available-for-sale are marketable equity securities which are included in "Other assets" on the balance sheet with a cost of $35,739,000 and a market value of $109,567,000. RISKS AND UNCERTAINTIES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. OTHER -- In June 1994, the Company effected a ten-for-one stock split on common shares then outstanding. All share, per share and average share information in the Consolidated Financial Statements and the Notes thereto have been restated to reflect the stock split. 3. LONG-TERM DEBT Long-term debt at December 31, 1995 and 1994 is as follows (000's omitted):
1995 1994 ---------- ---------- 8 3/4% debentures due 2021............................................ $ 250,000 $ 250,000 8 7/8% notes due 2000................................................. 250,000 250,000 Commercial paper supported by bank revolving credit agreement......... -- 100,000 Other long-term debt.................................................. 21,394 14,842 ---------- ---------- $ 521,394 $ 614,842 ---------- ---------- ---------- ----------
The aggregate payments of long-term debt outstanding at December 31, 1995, for the next five years are summarized as follows: 1996 -- $7,520,000; 1997 -- $7,549,000; 1998 -- $6,159,000; 1999 -- $166,000; 2000 -- $250,000,000. Interest paid on long-term debt during 1995, 1994 and 1993 amounted to $61,318,000, $59,292,000 and $83,002,000, respectively. Commercial paper had been outstanding throughout most of 1995 but was repaid by the end of the year in contemplation of the merger with Walt Disney. The commercial paper had been supported by a bank revolving credit agreement which was terminated in February 1996. The 8 7/8% notes and the 8 3/4% debentures are not redeemable prior to maturity and are not subject to any sinking fund. During 1993, the Company redeemed $500,000,000 of notes and debentures. An extraordinary charge of $12,122,000 (net of income taxes of $7,706,000), or $0.07 per share, was recorded related to these redemptions. The fair value of the Company's long-term debt, estimated based on the quoted market prices for similar issues or on the current rates offered to the Company for debt of similar remaining maturities, was approximately $615,000,000 and $628,000,000 at December 31, 1995 and 1994, respectively. 4. EMPLOYEE BENEFIT PLANS The Company has defined benefit pension plans covering substantially all of its employees not covered by union plans. The Company's policy is to fund amounts as are necessary on an actuarial basis to provide for pension benefits in accordance with the requirements of ERISA. Benefits are generally based on years of service and compensation. The weighted average discount rate used in determining the actuarial present 7 CAPITAL CITIES/ABC, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. EMPLOYEE BENEFIT PLANS (CONTINUED) value of the projected benefit obligation was 8% at December 31, 1995 and 8.5% at December 31, 1994. The rate of increase in future compensation levels and the expected long-term rate of return on assets were 5% and 8%, respectively, in 1995 and 1994. The components of net pension cost for 1995, 1994 and 1993 are as follows (000's omitted):
1995 1994 1993 ----------- ---------- ---------- Service cost of current period........................... $ 21,255 $ 18,624 $ 15,494 Interest cost on projected benefit obligation............ 50,899 48,049 42,499 Actual return on plan assets............................. (124,028) (18,294) (39,731) Net amortization and deferral............................ 85,485 (18,799) 2,561 ----------- ---------- ---------- Net pension cost......................................... $ 33,611 $ 29,580 $ 20,823 ----------- ---------- ---------- ----------- ---------- ----------
The following table sets forth the pension plans' funded status and amounts recognized in the balance sheet at December 31, 1995 and 1994 (000's omitted):
1995 1994 ----------- ----------- Actuarial present value of accumulated plan benefits (including vested benefits of $554,319 in 1995 and $477,029 in 1994)................................................. $ 572,170 $ 491,692 ----------- ----------- ----------- ----------- Plan assets at fair value, primarily publicly traded securities and short-term cash investments............................................................................ $ 620,584 $ 523,774 Projected benefit obligation for service rendered to date............................... (682,128) (599,884) ----------- ----------- Plan assets less than projected benefit obligation...................................... (61,544) (76,110) Prior service cost not yet recognized in net periodic pension cost...................... 21,542 25,867 Unrecognized net (gain) loss from past experience different from that assumed........... (28,379) 14,101 Unrecognized net transition amount being recognized principally over 15 years........... (10,365) (12,470) ----------- ----------- Accrued pension cost included in balance sheet.......................................... $ (78,746) $ (48,612) ----------- ----------- ----------- -----------
For certain employees not covered by pension plans, the Company contributes to profit sharing plans. The profit sharing plans provide for contributions by the Company in such amount as the Board of Directors may annually determine. Contributions to the profit sharing plans of $6,237,000, $6,228,000 and $6,045,000 were charged to expense in 1995, 1994 and 1993, respectively. The Company also has a Savings & Investment Plan which allows eligible employees to allocate up to 10% of salary, through payroll deduction, among a Company stock fund, several diversified equity funds, a bond fund and a money market fund. The Company matches 50% of the employee's contribution, up to 5% of salary. In 1995, 1994 and 1993, the cost of this plan (net of forfeitures) was $13,354,000, $12,055,000 and $11,204,000, respectively. Upon closing of the merger, the Company stock fund was replaced by a Walt Disney stock fund. In addition to the Company's defined benefit pension plans and qualified profit sharing plans, the Company provides certain postretirement medical and life insurance benefits to eligible retirees and dependents. Covered individuals include retired and active employees who have met certain age and service requirements at various dates during 1989. No other employees become eligible for postretirement benefits after these dates. The benefits are subject to deductibles, co-payment provisions and other limitations. The Company reserves the right to amend, modify or discontinue these plans in the future. The accumulated postretirement benefit obligation was determined using an assumed discount rate of 8% at December 31, 1995 and 8.5% at December 31, 1994. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 10.6%; the rate was assumed to decrease 8 CAPITAL CITIES/ABC, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. EMPLOYEE BENEFIT PLANS (CONTINUED) gradually to 5.5% by the year 2004 and remain at that level thereafter. An increase in the assumed health care cost trend rate by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1995 by approximately $12,850,000 and the aggregate of the service and interest cost components of net postretirement benefit cost for the year then ended by approximately $996,000. The following table sets forth the plans' amounts recognized in the consolidated balance sheet at December 31, 1995 and 1994 for the Company's defined postretirement benefit plans (other than pensions) (000's omitted):
1995 1994 ---------- ---------- Accumulated postretirement benefit obligation: Retirees............................................................ $ 72,585 $ 63,978 Fully eligible active participants.................................. 24,589 23,022 Other active participants........................................... 21,566 22,352 ---------- ---------- Total accumulated postretirement benefit obligation................... 118,740 109,352 Unrecognized net loss................................................. (14,992) (8,812) ---------- ---------- Accrued postretirement benefit cost................................... $ 103,748 $ 100,540 ---------- ---------- ---------- ----------
Net postretirement benefit cost (other than pensions) for 1995, 1994 and 1993 consisted of the following components (000's omitted):
1995 1994 1993 --------- --------- --------- Service cost-current period...................................... $ 709 $ 1,171 $ 1,232 Interest cost on accumulated postretirement benefit obligation... 9,068 8,181 8,141 Net amortization and deferral.................................... (177) 68 -- --------- --------- --------- Net postretirement benefit cost.................................. $ 9,600 $ 9,420 $ 9,373 --------- --------- --------- --------- --------- ---------
5. COMMITMENTS At December 31, 1995, the Company is committed to the purchase of broadcast rights for various feature films, sports and other programming aggregating approximately $4,096,000,000. The aggregate payments related to these commitments during the next five years are summarized as follows: 1996 -- $1,569,250,000; 1997 -- $968,589,000; 1998 -- $649,494,000; 1999 -- $419,579,000; 2000 -- $344,530,000. 9 CAPITAL CITIES/ABC, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. COMMITMENTS (CONTINUED) Rental expense under operating leases amounted to $107,204,000, $97,965,000 and $86,312,000 for 1995, 1994 and 1993, respectively. Future minimum annual rental payments under non-cancelable leases are as follows (000's omitted):
CAPITAL OPERATING LEASES LEASES ---------- ---------- 1996.................................................................. $ 6,862 $ 69,673 1997.................................................................. 5,882 63,444 1998.................................................................. 5,356 58,663 1999.................................................................. 5,248 53,729 2000.................................................................. 5,320 48,054 2001 and thereafter................................................... 106,468 116,337 ---------- ---------- Minimum lease payments................................................ 135,136 $ 409,900 ---------- ---------- Imputed interest...................................................... (95,655) ---------- Present value of minimum lease payments............................... $ 39,481 ---------- ----------
Total minimum payments for operating leases have not been reduced for future minimum sublease rentals aggregating $7,982,000. 6. SEGMENT DATA The Company's business operations are classified into two segments: Broadcasting and Publishing. Broadcasting operations include the ABC Television Network and ten television stations, the ABC Radio Networks, radio stations, cable television programming and multimedia business activities. The Publishing segment includes newspapers, shopping guides, various specialized business periodicals and books, research 10 CAPITAL CITIES/ABC, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. SEGMENT DATA (CONTINUED) services and database publishing. There are no material product transfers between segments of the Company, and virtually all of the Company's business is conducted within the United States. The segment data is as follows (000's omitted):
1995 1994 1993 1992 1991 ------------ ------------ ------------ ------------ ------------ BROADCASTING Net revenues............................... $ 5,727,524 $ 5,277,126 $ 4,663,215 $ 4,265,561 $ 4,329,743 ------------ ------------ ------------ ------------ ------------ Direct operating costs................... 4,418,688 4,015,864 3,762,988 3,523,143 3,537,676 Depreciation............................. 93,857 86,727 75,424 76,406 75,883 Amortization of intangible assets........ 50,163 47,337 46,726 46,695 46,476 ------------ ------------ ------------ ------------ ------------ Total operating costs...................... 4,562,708 4,149,928 3,885,138 3,646,244 3,660,035 ------------ ------------ ------------ ------------ ------------ Income from operations..................... $ 1,164,816 $ 1,127,198 $ 778,077 $ 619,317 $ 669,708 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Assets at year-end......................... $ 5,116,769 $ 4,650,611 $ 4,389,700 $ 4,357,152 $ 4,249,089 Capital expenditures....................... 105,005 102,850 78,526 94,255 106,254 PUBLISHING Net revenues............................... $ 1,151,034 $ 1,102,111 $ 1,010,438 $ 1,078,566 $ 1,052,246 ------------ ------------ ------------ ------------ ------------ Direct operating costs................... 977,114 911,384 851,787 908,791 895,402 Depreciation............................. 19,309 19,639 18,385 18,072 18,084 Amortization of intangible assets........ 15,570 16,070 14,619 15,314 15,855 ------------ ------------ ------------ ------------ ------------ Total operating costs...................... 1,011,993 947,093 884,791 942,177 929,341 ------------ ------------ ------------ ------------ ------------ Income from operations..................... $ 139,041 $ 155,018 $ 125,647 $ 136,389 $ 122,905 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Assets at year-end......................... $ 795,740 $ 814,907 $ 824,369 $ 777,512 $ 886,482 Capital expenditures....................... 25,270 18,183 18,657 20,276 13,878 CONSOLIDATED Net revenues............................... $ 6,878,558 $ 6,379,237 $ 5,673,653 $ 5,344,127 $ 5,381,989 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Income from operations..................... 1,303,857 $ 1,282,216 $ 903,724 $ 755,706 $ 792,613 General corporate expense................ (72,701) (43,405) (41,575) (33,901) (31,380) ------------ ------------ ------------ ------------ ------------ Operating income........................... 1,231,156 1,238,811 862,149 721,805 761,233 Interest expense......................... (57,152) (55,070) (59,772) (104,009) (179,347) Interest and miscellaneous, net.......... 139,332 21,573 26,002 68,132 80,310 ------------ ------------ ------------ ------------ ------------ Income before income taxes................. $ 1,313,336 $ 1,205,314 $ 828,379 $ 685,928 $ 662,196 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Assets employed by segments................ $ 5,912,509 $ 5,465,518 $ 5,214,069 $ 5,134,664 $ 5,135,571 Cash investments and other corporate assets.................................... 1,704,276 1,302,694 578,549 1,387,495 1,560,141 ------------ ------------ ------------ ------------ ------------ Total assets at year-end................... $ 7,616,785 $ 6,768,212 $ 5,792,618 $ 6,522,159 $ 6,695,712 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
7. INCOME TAXES The Company accounts for income taxes under the liability method of accounting pursuant to Financial Accounting Standard No. 109. 11 CAPITAL CITIES/ABC, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. INCOME TAXES (CONTINUED) The provision for taxes on income (before the extraordinary charge for 1993) differs from the amount of tax determined by applying the federal statutory rate for the following reasons (000's omitted):
1995 1994 1993 ----------------------- ----------------------- --------------------- AMOUNT % AMOUNT % AMOUNT % ------------ --------- ------------ --------- ---------- --------- Income before income taxes......................... $ 1,313,336 $ 1,205,314 $ 828,379 ------------ ------------ ---------- ------------ ------------ ---------- Income tax expense at statutory federal rate....... $ 459,668 35.0 $ 421,860 35.0 $ 289,933 35.0 State and local income taxes, net of federal benefit........................................... 75,063 5.7 66,137 5.5 40,321 4.9 Amortization of intangibles........................ 18,439 1.4 18,272 1.5 17,950 2.2 Other, net......................................... 31,530 2.4 19,231 1.6 12,796 1.5 ------------ --- ------------ --- ---------- --- Total.............................................. $ 584,700 44.5 $ 525,500 43.6 $ 361,000 43.6 ------------ --- ------------ --- ---------- --- ------------ --- ------------ --- ---------- ---
Income tax expense is comprised of the following (000's omitted):
1995 1994 1993 ---------- ---------- ---------- Federal Current................................................ $ 526,400 $ 468,600 $ 312,800 Deferred............................................... (56,100) (42,900) (12,700) ---------- ---------- ---------- 470,300 425,700 300,100 ---------- ---------- ---------- State and local Current................................................ 130,200 111,900 65,500 Deferred............................................... (15,800) (12,100) (4,600) ---------- ---------- ---------- 114,400 99,800 60,900 ---------- ---------- ---------- Total.................................................... $ 584,700 $ 525,500 $ 361,000 ---------- ---------- ---------- ---------- ---------- ----------
Income taxes paid, net of refunds received, during 1995, 1994 and 1993 amounted to $633,335,000, $535,198,000 and $341,587,000, respectively. Deferred income taxes represent the tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. 12 CAPITAL CITIES/ABC, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. INCOME TAXES (CONTINUED) Significant components of the Company's deferred tax asset (recorded in other current assets on the balance sheet) and liability as of December 31, 1995 and 1994, are as follows (000's omitted):
1995 1994 ----------- ----------- Current Programming........................................................................... $ 49,382 $ 42,708 Other, net............................................................................ 90,701 83,256 ----------- ----------- Net current deferred tax asset.......................................................... $ 140,083 $ 125,964 ----------- ----------- ----------- ----------- Noncurrent Deferred compensation................................................................. $ 115,254 $ 67,059 Postretirement benefits other than pensions........................................... 43,060 41,783 Basis differences on prior business combinations...................................... (248,783) (253,251) Basis differences for certain investments in debt and equity securities............... (30,195) (39,452) Accelerated depreciation.............................................................. (141,463) (129,047) Other, net............................................................................ 81,987 65,376 ----------- ----------- Net noncurrent deferred tax liability................................................... $ (180,140) $ (247,532) ----------- ----------- ----------- -----------
8. COMMON STOCK PLANS The Company has stock option plans under which certain key personnel have been granted the right to purchase shares of common stock over a 6-, 10- or 11-year period from the date of grant at prices equal to market value on the grant date. All options vested 100% upon the approval of the merger by the shareholders of the Company. Each participant could elect to receive cash or to have his option assumed by Walt Disney and converted into options to purchase Walt Disney common stock. The following information pertains to the Company's stock option plans:
1995 1994 1993 ------------------ ------------------ ------------------ Outstanding options, beginning of year.............. 676,258 442,660 357,460 Granted............................................. 75,000 265,000 191,000 Canceled or expired................................. (16,500) -- (1,250) Exercised........................................... (57,008) (31,402) (104,550) ------------------ ------------------ ------------------ Outstanding options, end of year.................... 677,750 676,258 442,660 ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ Average price of options exercised during the year............................................... $34.42 $18.07 $15.92 Exercise price of outstanding options, end of year............................................... $ 38.19 to $97.13 $ 18.64 to $83.00 $ 13.11 to $63.48 Options exercisable, end of year.................... 294,500 218,008 176,660 Options available for future grant.................. -- 4,444,000 4,709,000
The Company had an Employee Stock Purchase Plan which allowed eligible employees, through contributions of up to 15% of their compensation, to purchase shares at 85% of the lower of fair market value at the Grant Date or at the Purchase Date (normally one year subsequent). Employees purchased 704,489, 648,480 and 725,850 shares under the Plan in 1995, 1994 and 1993, respectively. The Plan terminated on the closing of the merger. An additional 676,315 Company shares were issued to employees at that date. 13 CAPITAL CITIES/ABC, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. QUARTERLY FINANCIAL DATA (UNAUDITED) The following summarizes the Company's results of operations for each quarter of 1995 and 1994 (000's omitted, except per share amounts). The net income per share computation for each quarter and the year are separate calculations.
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER YEAR ------------ ------------ ------------ ------------ ------------ 1995 Net revenues............................... $ 1,606,815 $ 1,648,689 $ 1,566,528 $ 2,056,526 $ 6,878,558 Costs and expenses....................... 1,321,921 1,296,516 1,338,642 1,690,323 5,647,402 ------------ ------------ ------------ ------------ ------------ Operating income........................... 284,894 352,173 227,886 366,203 1,231,156 Interest expense......................... (14,493) (14,555) (14,983) (13,121) (57,152) Interest and miscellaneous, net.......... 8,758 32,966 15,134 82,474 139,332 ------------ ------------ ------------ ------------ ------------ Income before income taxes................. 279,159 370,584 228,037 435,556 1,313,336 Income taxes............................. 121,400 161,700 101,000 200,600 584,700 ------------ ------------ ------------ ------------ ------------ Net income................................. $ 157,759 $ 208,884 $ 127,037 $ 234,956 $ 728,636 ------------ ------------ ------------ ------------ ------------ Net income per share....................... $ 1.02 $ 1.36 $ 0.83 $ 1.53 $ 4.73 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 1994 Net revenues............................... $ 1,404,949 $ 1,538,092 $ 1,461,932 $ 1,974,264 $ 6,379,237 Costs and expenses....................... 1,191,187 1,195,766 1,218,829 1,534,644 5,140,426 ------------ ------------ ------------ ------------ ------------ Operating income........................... 213,762 342,326 243,103 439,620 1,238,811 Interest expense......................... (13,031) (13,406) (14,129) (14,504) (55,070) Interest and miscellaneous, net.......... 4,750 6,368 7,001 3,454 21,573 ------------ ------------ ------------ ------------ ------------ Income before income taxes................. 205,481 335,288 235,975 428,570 1,205,314 Income taxes............................. 89,400 145,800 102,300 188,000 525,500 ------------ ------------ ------------ ------------ ------------ Net income................................. $ 116,081 $ 189,488 $ 133,675 $ 240,570 $ 679,814 ------------ ------------ ------------ ------------ ------------ Net income per share....................... $0.76 $1.23 $0.87 $1.56 $4.42 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
10. COMMON STOCK AND STOCKHOLDER INFORMATION (UNAUDITED) As of December 31, 1995, the approximate number of holders of common stock was 11,300. Dividends of $.05 per share have been paid for each quarter of 1995 and the last three quarters of 1994 and $.005 for the first quarter of 1994. The common stock was traded on the New York and Pacific Stock Exchanges. The high, low and closing prices of the Company's common stock for each quarter of 1995 and 1994 are as follows:
1995 1994 ------------------------------- ------------------------------- HIGH LOW CLOSE HIGH LOW CLOSE --------- --------- --------- --------- --------- --------- 1st quarter............................... 91 3/4 82 3/4 88 1/2 $ 71 7/8 $ 60 1/4 $ 68 3/8 2nd quarter............................... 109 1/2 80 3/4 108 75 1/2 66 1/4 71 1/2 3rd quarter............................... 121 95 1/2 117 5/8 85 3/8 71 1/8 82 4th quarter............................... 126 7/8 115 1/4 123 3/8 86 1/2 76 1/8 85 1/4
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (c) Exhibit 23 Consent of Independent Auditors (Ernst & Young LLP). 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. THE WALT DISNEY COMPANY Date: April 26, 1996 By: /s/ DAVID K. THOMPSON -------------------------------------- David K. Thompson Senior Vice President -- Assistant General Counsel 15 EX-23 2 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the inclusion in Form 8-K (Current Report) of The Walt Disney Company filed on April 26, 1996 and to the incorporation by reference in the Registration Statement (Form S-3 No. 62777) and related Prospectus of The Walt Disney Company and DC Holdco, Inc. of our report dated March 8, 1996 with respect to the consolidated financial statements of Capital Cities/ABC, Inc. for the years ended December 31, 1995 and 1994 and for each of the three years in the period ended December 31, 1995, filed with the Securities and Exchange Commission. ERNST & YOUNG LLP New York, New York April 26, 1996 -----END PRIVACY-ENHANCED MESSAGE-----