UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2002 Commission File Number 1-11605
[GRAPHIC OMITTED]
Incorporated in Delaware I.R.S. Employer Identification
No. 95-4545390
500 South Buena Vista Street, Burbank, California 91521
(818) 560-1000
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Exchange
Title of class on Which Registered
Common Stock, $.01 par value New York Stock Exchange
Pacific Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
There were 2,040,818,802 shares of common stock outstanding as of June 26,
2002.
Explanatory Statement
The Company adopted Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets (SFAS 142) effective October 1, 2001, the
beginning of its current fiscal year. On May 15, 2002, the Company filed its
financial statements for the three and six months ended March 31, 2002 on Form
10-Q. In that report, the Company presented its Condensed Consolidated
Statements of Income on an as-reported basis consistent with generally accepted
accounting principles and, consistent with recent practice, presented pro forma
information in its Management's Discussion and Analysis of Financial Condition
and Results of Operations (MD&A) to enhance comparability and facilitate
analysis of operating results.
Pursuant to the requirements of SFAS 142, the Company provided on the face of
its as-reported Condensed Consolidated Statements of Income, supplemental
information that presented earnings and earnings per share for the prior-year
quarter and six month period as if SFAS 142 had been in effect during those
periods. The prior-year's adjusted earnings and earnings per share figures in
this supplemental information should have excluded all goodwill amortization
but, inadvertently, did not eliminate all of the goodwill charges associated
with the Internet Group. As a result, the corrected supplemental earnings and
earnings per share figures for the prior year are better than those originally
filed, as follows ($ in millions except per share amounts):
Three months ended Six months ended
March 31, 2001 March 31, 2001
------------------- --------------------
Earnings Earnings
Amount Per Share Amount Per Share
--------- --------- --------- ----------
Loss attributed to Disney
Common Stock before the cumulative
effect of accounting changes
adjusted for the impact of
SFAS 142 in fiscal 2001, as
previously reported on Form 10-Q $ (449) $ (0.21) $ (9) $ 0.00
Goodwill adjustment 60 0.02 185 0.08
--------- --------- --------- ---------
(Loss) earnings attributed to Disney
Common Stock before the cumulative
effect of accounting changes
adjusted for the impact of
SFAS 142 in fiscal 2001,
as amended $ (389) $ (0.19) $ 176 $ 0.08
========= ========= ========= ==========
The reconciliation table in Note 6 to the Condensed Consolidated Statements
of Income (page 8) and the related comments on page 13 in MD&A have also
been amended.
These changes have no impact on the Company's as-reported earnings and
--
earnings per share, nor on any of the pro forma information, nor any other
information presented in the Form 10-Q's for the three and six months ended
March 31, 2002 and 2001.
PART I. FINANCIAL INFORMATION
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited; in millions, except per share data)
Three Months Six Months
Ended March 31, Ended March 31,
---------------- -----------------
2002 2001 2002 2001
------- -------- ------- --------
Revenues $ 5,904 $ 6,049 $12,952 $13,482
Costs and expenses (5,299) (5,133) (11,698) (11,416)
Amortization of intangible assets (2) (184) (5) (477)
Gain on sale of business - - - 22
Net interest expense and other (158) (98) (103) (207)
Equity in the income of investees 49 66 119 148
Restructuring and impairment charges - (996) - (1,190)
------- -------- -------- --------
Income before income taxes, minority
interests and the cumulative effect
of accounting changes 494 (296) 1,265 362
Income taxes (205) (238) (504) (624)
Minority interests (30) (33) (64) (63)
------- -------- -------- --------
Income (loss) before the cumulative
effect of accounting changes 259 (567) 697 (325)
Cumulative effect of accounting changes:
Film accounting - - - (228)
Derivative accounting - - - (50)
------- -------- -------- --------
Net income (loss) $ 259 $ (567) $ 697 $ (603)
======= ======== ======== ========
Earnings (loss) attributed to:
Disney Common Stock $ 259 $ (548) $ 697 $ (486)
Internet Group Common Stock - (19) - (117)
------- -------- -------- --------
$ 259 $ (567) $ 697 $ (603)
======= ======== ======== ========
Earnings (loss) per share before
cumulative effect of
accounting changes attributed to:
Disney Common Stock
(basic and diluted) $ 0.13 $ (0.26) $ 0.34 $ (0.10)
======= ======== ======== ========
Internet Group Common Stock
(basic and diluted) $ n/a $ (0.45) $ n/a $ (2.72)
======= ======== ======== ========
Cumulative effect of accounting
changes per Disney share:
Film accounting $ - $ - $ - $ (0.11)
Derivative accounting - - - (0.02)
------- -------- -------- --------
$ - $ - $ - $ (0.13)
======= ======== ======== ========
Earnings (loss) per share attributed to:
Disney Common Stock
(basic and diluted) $ 0.13 $ (0.26) $ 0.34 $ (0.23)
======= ======== ======== ========
Internet Group Common Stock
(basic and diluted) $ n/a $ (0.45) $ n/a $ (2.72)
======= ======== ======= ========
Earnings (loss) attributed to Disney
Common Stock before the cumulative
effect of accounting changes adjusted
for the impact of SFAS 142
in fiscal 2001 (See Note 6) $ 259 $ (389) $ 697 $ 176
======= ======== ======= ========
Earnings (loss) per share attributed to
Disney Common Stock before the
cumulative effect of accounting
changes adjusted for the impact of
SFAS 142 in fiscal 2001 (See Note 6)
Diluted $ 0.13 $ (0.19) $ 0.34 $ 0.08
======= ======= ======== ========
Basic $ 0.13 $ (0.19) $ 0.34 $ 0.08
======= ======= ======== ========
Average number of common and common
equivalent shares outstanding:
Disney Common Stock:
Diluted 2,045 2,098 2,043 2,101
======= ======= ======== ========
Basic 2,039 2,082 2,039 2,082
======= ======= ======== ========
Internet Group Common Stock
(basic and diluted) n/a 42 n/a 43
======= ======= ======== ========
See Notes to Condensed Consolidated Financial Statements
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
March 31, September 30,
2002 2001
------------ ---------------
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 1,869 $ 618
Receivables 4,006 3,343
Inventories 663 671
Television costs 1,673 1,175
Deferred income taxes 554 622
Other assets 775 600
------------ ------------
Total current assets 9,540 7,029
Film and television costs 5,175 5,235
Investments 1,745 2,061
Parks, resorts and other property, at cost
Attractions, buildings and equipment 19,463 19,089
Accumulated depreciation (8,146) (7,728)
------------ -----------
11,317 11,361
Projects in progress 837 911
Land 676 635
------------ -----------
12,830 12,907
Intangible assets, net 2,736 2,716
Goodwill, net 17,060 12,106
Other assets 1,394 1,645
------------ -----------
$ 50,480 $ 43,699
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts and taxes payable and other accrued
liabilities $ 4,811 $ 4,603
Current portion of borrowings 867 829
Unearned royalties and other advances 929 787
------------ -----------
Total current liabilities 6,607 6,219
Borrowings 14,765 8,940
Deferred income taxes 2,364 2,730
Other long term liabilities, unearned royalties
and other advances 3,223 2,756
Minority interests 494 382
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value Authorized -
100 million shares, Issued - none
Common stock:
Common stock - Disney, $.01 par value
Authorized - 3.6 billion shares, Issued -
2.1 billion shares 12,107 12,096
Common stock - Internet Group, $.01 par
value Authorized - 1.0 billion shares - -
Retained earnings 12,440 12,171
Accumulated other comprehensive income 64 10
------------ -----------
24,611 24,277
Treasury stock, at cost, 81.4 million Disney (1,394) (1,395)
shares
Shares held by TWDC Stock Compensation Fund
II, at cost
7.8 million and 8.6 million Disney shares (190) (210)
------------ -----------
23,027 22,672
------------ -----------
$ 50,480 $ 43,699
============ ===========
See Notes to Condensed Consolidated Financial Statements
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)
Six Months Ended March 31,
---------------------------
2002 2001
------------ ------------
NET INCOME (LOSS) $ 697 $ (603)
OPERATING ITEMS NOT REQUIRING CASH
Depreciation 506 472
Equity in the income of investees (119) (148)
Minority interests 64 63
Amortization of intangible assets 5 477
Restructuring and impairment charges - 1,190
Cumulative effect of accounting changes - 278
Gain on sale of business - (22)
Other 345 340
CHANGES IN WORKING CAPITAL (818) (762)
----------- ------------
(17) 1,888
----------- ------------
Cash provided by operations 680 1,285
----------- ------------
INVESTING ACTIVITIES
Investments in parks, resorts and other
property (486) (896)
Acquisitions (net of cash acquired) (2,845) (444)
Dispositions 16 132
Proceeds from sale of investments 598 102
Purchase of investments (3) (71)
Other (11) (28)
----------- ------------
Cash used by investing activities (2,731) (1,205)
----------- ------------
FINANCING ACTIVITIES
Borrowings 2,905 300
Reduction of borrowings (1,147) (2,219)
Repurchases of common stock - (266)
Commercial paper borrowings, net 1,947 2,288
Exercise of stock options and other 25 76
Dividends (428) (438)
----------- ------------
Cash provided (used) by financing
activities 3,302 (259)
----------- ------------
Increase (decrease) in cash and cash
equivalents 1,251 (179)
Cash and cash equivalents, beginning of period 618 842
----------- ------------
Cash and cash equivalents, end of period $ 1,869 $ 663
=========== ============
See Notes to Condensed Consolidated Financial Statements
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except per share data)
1. These condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP) for interim
financial information and the instructions to Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by GAAP for complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation have been reflected in these condensed
consolidated financial statements. Operating results for the quarter and six
months are not necessarily indicative of the results that may be expected for
the year ending September 30, 2002. Certain reclassifications have been made in
the fiscal 2001 financial statements to conform to the fiscal 2002 presentation.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended September 30, 2001. In December 1999, DVD Financing, Inc. (DFI), a
subsidiary of Disney Vacation Development, Inc. and an indirect subsidiary of
the Company, completed a receivables sale transaction. In connection with this
sale, DFI prepares separate financial statements, although its separate assets
and liabilities are also consolidated in these financial statements.
The terms "Company" and "we" are used in this report to refer collectively
to the parent company and the subsidiaries through which our various businesses
are actually conducted.
2. Effective October 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142).
As a result of adopting SFAS 142, a substantial amount of the Company's goodwill
and intangible assets are no longer amortized. Pursuant to SFAS 142, intangible
assets must be periodically tested for impairment, and the new standard provides
six months to complete the impairment review. During the quarter, the Company
completed its impairment review, which indicated that there was no impairment.
See Note 6.
The Company also adopted Statement of Financial Accounting Standards No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144),
effective October 1, 2001. The adoption of SFAS 144 did not have a material
impact on the Company's consolidated results of operations and financial
position.
Effective October 1, 2000, the Company adopted AICPA Statement of Position
No. 00-2, Accounting by Producers or Distributors of Films (SOP 00-2), and
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133), and recorded one-time after-tax
charges for the adoption of the standards totaling $228 million (or $0.11 per
share) and $50 million (or $0.02 per share), respectively, in the first quarter
of the prior year.
3. On October 24, 2001 the Company acquired Fox Family Worldwide, Inc.
(FFW) for $5.2 billion, funded with $2.9 billion of new long-term borrowings
plus the assumption of $2.3 billion of FFW long-term debt. Upon the closing of
the acquisition, the Company changed FFW's name to ABC Family Worldwide, Inc.
(ABC Family). Among the businesses acquired was the Fox Family Channel, which
has been renamed ABC Family Channel, a programming service that currently
reaches approximately 84 million cable and satellite television subscribers
throughout the U.S.; a 76% interest in Fox Kids Europe, which reaches more than
31 million subscribers across Europe; Fox Kids channels in Latin America, and
the Saban library and entertainment production businesses.
Our motivation for the acquisition was to acquire a fully integrated cable
channel with a significant international presence and therefore increase
shareholder value. We believe that we can reach this objective through the use
of new strategies which include cross promotion with our other television
properties, repurposing a portion of the programming of the ABC Television
Network, utilizing programming from the Disney and ABC libraries, developing
original programming and by reducing operating costs.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except per share data)
The acquisition of ABC Family has been accounted for in accordance with
Statement of Financial Accounting Standards No. 141, Business Combinations. The
cost of the acquisition was allocated to the assets acquired and liabilities
assumed based on estimates of their respective fair values at the date of
acquisition. Fair values were determined by internal studies and independent
third party appraisals. The purchase price allocation presented below is
preliminary and subject to refinements based on the completion of certain
valuation studies and restructuring plans.
The following table summarizes the preliminary purchase price allocation of
ABC Family's assets acquired and liabilities assumed at the date of acquisition.
Receivables $ 192
Programming costs 347
Other assets 516
Intangible assets 18
Goodwill 4,945
---------
Total assets 6,018
---------
Accounts payable and accrued (525)
liabilities
Other liabilities (248)
Minority interest (49)
---------
Total liabilities (822)
---------
Fair value of net assets
acquired 5,196
Borrowings and preferred stock
assumed (2,371)
---------
Cash purchase price, net of
cash acquired $ 2,825
=========
The excess of the purchase price over the fair value of the identifiable
net assets acquired of approximately $4.9 billion was allocated to goodwill that
was assigned to the Cable Networks reporting unit within the Media Networks
segment. None of this amount is expected to be deductible for tax purposes.
The Company's condensed consolidated results of operations have
incorporated ABC Family's activity on a consolidated basis from October 24,
2001, the date of acquisition. On a pro forma basis, adjusting only for the
assumption that the acquisition of ABC Family and related incremental borrowings
had occurred at the beginning of fiscal 2001, revenues for the six months ended
March 31, 2002 and 2001 are $12,983 million and $13,805 million, respectively.
Pro forma and as-reported net income (loss) and earnings (loss) per share for
both periods were approximately the same. The unaudited pro forma information is
not necessarily indicative of the results of operations had the acquisition
actually occurred at the beginning of fiscal 2001, nor is it necessarily
indicative of future results.
4. The ABC Family acquisition resulted in an initial increase in the
Company's borrowings totaling $5.2 billion, including senior notes originally
issued by FFW valued at $1.1 billion, with an effective interest rate of 8.4%
maturing in 2008; FFW preferred stock totaling $400 million with an effective
cost of capital of 5.25% and commercial paper with an effective interest rate,
including the impact of interest rate swaps, of 3.8%. The senior notes are
callable at a premium beginning November 1, 2002.
As of March 31, 2002, total borrowings were $15.6 billion.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except per share data)
5. During the first quarter of fiscal 2002, the Company sold its remaining
shares of Knight-Ridder, Inc. received in connection with the disposition of
certain publishing operations in fiscal 1997. The pre-tax gain of $216 million
on the sale is reported in "net interest expense and other" in the Condensed
Consolidated Statements of Income.
6. Pursuant to SFAS 142, substantially all of the Company's intangible
assets will no longer be amortized, and the Company is required to perform an
annual impairment test for goodwill and intangible assets. Goodwill and
intangible assets are allocated to various reporting units, which are either the
operating segment or one reporting level below the operating segment. The
Company's reporting units for purposes of applying the provisions of SFAS 142
are: Cable Networks, Television Broadcasting, Radio, Studio Entertainment,
Consumer Products and Parks and Resorts. SFAS 142 requires the Company to
compare the fair value of the reporting unit to its carrying amount on an annual
basis to determine if there is potential impairment. If the fair value of the
reporting unit is less than its carrying value, an impairment loss would be
recorded to the extent that the fair value of the goodwill within the reporting
unit is less than the carrying value. The impairment test for intangible assets
consists of comparing the fair value of the intangible asset to its carrying
amount. If the carrying amount of the intangible asset exceeds its fair value,
an impairment loss is recognized. Fair value for goodwill and intangible assets
are determined based on discounted cash flows and appraised values.
The following table provides a reconciliation of reported net loss for the
prior-year six months to adjusted loss had SFAS 142 been applied as of the
beginning of fiscal 2001:
Six Months
Ended March 31,
2001
--------------------
Earnings
Amount per
share
--------- --------
Reported net loss attributed to
Disney Common Stock $ (486) $ (0.23)
Cumulative effect of accounting changes 278 0.13
--------- --------
Reported loss attributed to Disney Common
Stock before the cumulative effect of
accounting changes (208) (0.10)
Add back amortization (net of tax):
Goodwill 359 0.17
Indefinite life intangible assets 25 0.01
--------- --------
Adjusted income attributed to
Disney Common Stock before the cumulative
effect of accounting changes $ 176 $ 0.08
========= ========
The changes in the carrying amount of goodwill for the six months ended
March 31, 2002, are as follows:
Media
Networks Other Total
--------- -------- --------
Balance as of October 1, 2001 $ 12,042 $ 64 $ 12,106
Goodwill acquired during the
period 4,945 9 4,954
-------- ------- -------
Balance as of March 31, 2002 $ 16,987 $ 73 17,060
======== ======== ========
Amortizable intangible assets at March 31, 2002 consisted of intellectual
copyrights of $297 million amortized over 10-31 years, and stadium facility
leases and other of $111 million amortized primarily over 33 years. Intangible
assets with indefinite lives at March 31, 2002 were FCC licenses of $1,366
million and ESPN trademark and other of $962 million.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except per share data)
7. The Company has a 39% interest in Euro Disney S.C.A., which operates the
Disneyland Resort Paris. Euro Disney's second theme park, Walt Disney Studios,
opened on March 16, 2002.
As of March 31, 2002, the total of the Company's investment, accounts and
notes receivable from Euro Disney totaled $394 million, including investments
and advances associated with Walt Disney Studios and $39 million (45 million
Euros) that Euro Disney has drawn under a $146 million (167 million Euros) line
of credit with the Company. It is expected that Euro Disney will draw additional
amounts under the credit line during fiscal 2002.
As of March 31, 2002, Euro Disney had, on a US GAAP basis, total assets of
$2.9 billion (3.3 billion Euros) and total liabilities of $2.8 billion (3.2
billion Euros), including borrowings of $1.9 billion (2.2 billion Euros).
8. Diluted earnings per share amounts are calculated using the treasury stock
method and are based upon the weighted average number of common and common
equivalent shares outstanding during the period. For the quarter ended March 31,
2002 and 2001, options for 126 million and 102 million shares, respectively,
were excluded from the Disney diluted earnings per share calculation as they
were anti-dilutive. For the six months ended March 31, 2002 and 2001, options
for 145 million and 67 million shares, respectively, were excluded.
9. Comprehensive income (loss) is as follows:
Three Months Six Months
Ended March 31, Ended March 31,
----------------- ---------------
2002 2001 2002 2001
------- ------- ------ -------
Net income (loss) $ 259 $ (567) $ 697 $ (603)
Cumulative effect of adoption of
SFAS 133, net of tax - - - 60
Market value adjustments for investments
and hedges, net of tax (11) 66 16 56
Foreign currency translation, net of tax (2) - 38 (3)
------ ------ ----- ------
Comprehensive income (loss) $ 246 $ (501) $ 751 $ (490)
====== ======= ====== ======
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except per share data)
10. The operating segments reported below are the segments of the Company for
which separate financial information is available and for which segment
operating income amounts are evaluated regularly by executive management in
deciding how to allocate resources and in assessing performance.
Three Months Six Months
Ended March 31, Ended March 31,
----------------- -----------------
2002 2001 2002 2001
-------- -------- ------- --------
Revenues:
Media Networks $ 2,196 $ 2,258 $ 5,172 $ 5,225
--------- -------- -------- ---------
Parks and Resorts 1,525 1,650 2,958 3,374
--------- -------- -------- ---------
Studio Entertainment
Third parties 1,586 1,548 3,378 3,385
Intersegment 17 25 30 38
--------- -------- -------- ---------
1,603 1,573 3,408 3,423
--------- -------- -------- ---------
Consumer Products
Third parties 597 593 1,444 1,498
Intersegment (17) (25) (30) (38)
--------- -------- -------- ---------
580 568 1,414 1,460
--------- -------- -------- ---------
$ 5,904 $ 6,049 $12,952 $ 13,482
========= ======== ======== =========
Segment operating income:
Media Networks $ 309 $ 445 $ 551 $ 971
Parks and Resorts 280 329 467 713
Studio Entertainment 27 164 176 316
Consumer Products 86 87 261 256
--------- -------- -------- ---------
$ 702 $ 1,025 $ 1,455 $ 2,256
========= ======== ======== =========
We evaluate the performance of the Company's operating segments based on
segment operating income. A reconciliation of segment operating income to income
before income taxes, minority interests and the cumulative effect of accounting
changes is as follows:
Three Months Six Months
Ended March 31, Ended March 31,
----------------- -----------------
2002 2001 2002 2001
------- ------- ------- -------
Segment operating income $ 702 $ 1,025 $ 1,455 $ 2,256
Corporate and unallocated shared expenses (97) (109) (201) (190)
Amortization of intangible assets (2) (184) (5) (477)
Gain on sale of business - - - 22
Net interest expense and other (158) (98) (103) (207)
Equity in the income of investees 49 66 119 148
Restructuring and impairment charges - (996) - (1,190)
------- -------- -------- --------
Income before income taxes, minority
interests and
the cumulative effect of accounting
changes $ 494 $ (296) $ 1,265 $ 362
======= ======== ======== ========
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except per share data)
11. 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. Except for the matters described below, management does not
expect a material impact to its results of operations, financial position or
cash flows by reason of these actions.
During the period covered by this report, there were no material
developments in the proceeding previously reported in the Company's annual
report on Form 10-K for fiscal year 2001, All Pro Sports Camps, Inc. et al. v.
Walt Disney Company et al.
Stephen Slesinger, Inc. v. The Walt Disney Company. In this lawsuit, filed
on February 27, 1991 and pending in the Los Angeles County Superior Court, the
plaintiff claims that a Company subsidiary defrauded it and breached a 1983
licensing agreement with respect to certain Winnie the Pooh properties, by
failing to account for and pay royalties on revenues earned from the sale of
Winnie the Pooh movies on videocassette and from the exploitation of Winnie the
Pooh merchandising rights. The plaintiff seeks damages for the licensee's
alleged breaches as well as confirmation of the plaintiff's interpretation of
the licensing agreement with respect to future activities. The plaintiff also
seeks the right to terminate the agreement on the basis of the alleged past
breaches. The Company disputes that the plaintiff is entitled to any damages or
other relief of any kind, including termination of the licensing agreement. The
claim is currently scheduled for trial in February 2003. Given the number of
outstanding issues and the uncertainty of their ultimate disposition, management
is unable to predict the magnitude of any potential determination of the
plaintiff's claims.
Management believes that it is not currently possible to estimate the
impact, if any, that the ultimate resolution of these two matters will have on
the Company's results of operations, financial position or cash flows.
12. The Company's contractual commitments other than leases were
approximately $15.4 billion as of March 31, 2002, including approximately $11.7
billion for sports programming rights. The commitments include obligations under
a six-year agreement entered into on January 22, 2002, with the National
Basketball Association (NBA) to broadcast more than 100 regular and post-season
games per year, including the NBA finals, beginning with the 2002-03 season. The
agreement included distribution rights for related NBA programming and content
and extended several existing agreements.
13. The Internal Revenue Service (IRS) is currently examining the Company's
federal income tax returns for 1993 through 1995. While the audit is not
complete, the IRS has recently indicated its intention to challenge certain of
the Company's tax positions. We believe that the Company's tax positions comply
with applicable tax law and intend to defend the Company's positions vigorously.
The ultimate disposition of these matters could require the Company to make
additional payments to the IRS. Nonetheless, we believe that the Company has
adequately provided for any foreseeable payments related to these matters and
consequently do not anticipate any material earnings impact from the ultimate
resolution of these matters.
THE WALT DISNEY COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEASONALITY
The Company's businesses are subject to the effects of seasonality.
Consequently, the operating results for the quarter and six months ended March
31, 2002 for each business segment, and for the Company as a whole, are not
necessarily indicative of results to be expected for the full year.
Media Networks revenues are influenced by advertiser demand and the
seasonal nature of programming, and generally peak in the spring and fall.
Studio Entertainment revenues fluctuate based upon the timing of theatrical
motion picture, home video (VHS and DVD) and television releases. Release dates
for theatrical, home video and television products are determined by several
factors, including timing of vacation and holiday periods and competition in the
market.
Parks and Resorts revenues fluctuate with changes in theme park attendance
and resort occupancy resulting from the seasonal 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.
Consumer Products revenues are influenced by seasonal consumer purchasing
behavior and the timing of animated theatrical releases.
THE WALT DISNEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(continued)
AS-REPORTED RESULTS OF OPERATIONS
Net income was $259 million compared to a net loss of $567 million in the
prior-year quarter. Net income and earnings per share attributed to Disney
common stock were $259 million and $0.13, respectively, compared to a net loss
and loss per share of $548 million and $0.26, respectively in the prior-year
quarter. Results for the prior-year quarter included restructuring and
impairment charges totaling $1.0 billion. The current quarter reflects the
cessation of amortization of intangible assets, due to the adoption of SFAS 142,
effective October 1, 2001. Net loss and loss per share after adjusting for the
impact of SFAS 142 attributed to Disney common stock for the prior-year quarter
were $389 million and $0.19, respectively.
Excluding the year-over-year impact of the restructuring charges, results
for the current quarter reflected lower segment operating income and equity in
the income of investees and higher net interest expense and other, partially
offset by decreased corporate and unallocated shared expenses. Decreased segment
operating income primarily reflected lower Studio Entertainment, Media Networks
and Parks and Resorts results. Lower equity in the income of investees reflected
declines at the cable services driven by the soft advertising market and
increased pre-opening costs at Euro Disney due to the opening of Walt Disney
Studios at the Disneyland Resort Paris during the quarter. Increases in net
interest expense and other were driven by higher average debt balances,
primarily due to the incremental borrowings related to the ABC Family
acquisition. Decreased corporate and unallocated shared expenses were driven by
the timing of expenses and lower costs due to the rollout of the Disney Club, a
customer loyalty and appreciation program, in the first quarter of the prior
year, partially offset by higher costs for new financial and human resources
information technology systems, which are intended to improve productivity and
reduce costs.
For the six months, net income was $697 million compared to a net loss of
$603 million in the prior-year period. Net income and earnings per share
attributed to Disney common stock were $697 million and $0.34, respectively, for
the current-year period compared to a net loss and loss per share of $486
million and $0.23 in the prior-year period. Results for the current period
include a pre-tax gain ($216 million or $0.07 per share) on the sale of the
remaining shares of Knight-Ridder, Inc., operations of ABC Family acquired on
October 24, 2001, incremental interest expense for borrowings related to that
acquisition and the cessation of amortization of goodwill and intangible assets,
due to the adoption of SFAS 142 effective October 1, 2001. The prior-year period
included restructuring and impairment charges ($1.2 billion or $0.44 per share
attributed to Disney common stock) and the cumulative effect of accounting
changes ($278 million or $0.13 per share). Earnings and earnings per share
attributed to Disney common stock before the cumulative effect of accounting
changes adjusted for the impact of SFAS 142 were $176 million and $0.08,
respectively for the prior-year period.
Excluding the year-over-year impact of the restructuring charges, results
for the six months were driven by lower segment operating income and equity in
income of investees and higher corporate and unallocated shared expenses,
partially offset by lower net interest expense and other. Decreased segment
operating income reflected lower Media Networks, Parks and Resorts and Studio
Entertainment results. Lower equity in the income of investees reflected
decreases at the cable services resulting from the soft advertising market and
pre-opening costs at Euro Disney due to the opening of Walt Disney Studios.
Higher corporate and unallocated shared expenses were driven by strategic
initiatives designed to promote the Disney brand and costs for new financial and
human resources information technology systems, partially offset by timing of
expenses and lower cost due to the rollout of the Disney Club in the prior-year
period. Lower net interest expense and other reflected the gain on the sale of
Knight-Ridder, Inc. shares, partially offset by higher average debt balances due
to the acquisition of ABC Family.
On October 24, 2001 the Company acquired ABC Family for $5.2 billion,
funded with $2.9 billion of new long-term borrowings plus the assumption of $2.3
billion of long-term debt (see Note 3 to the Condensed Consolidated Financial
Statements). The current period includes the operations of ABC Family and
incremental interest expense for acquisition-related borrowings from the date of
acquisition.
THE WALT DISNEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(continued)
PRO FORMA RESULTS OF OPERATIONS
To enhance comparability, the unaudited pro forma information that follows
presents consolidated results of operations as if the acquisition of ABC Family,
the conversion of the Internet Group common stock into Disney common stock, the
closure of the GO.com portal business and the adoption of new goodwill and
intangible asset accounting rules (see Notes 2 and 3 to the Condensed
Consolidated Financial Statements) had occurred at the beginning of fiscal 2001.
The acquisition of ABC Family resulted in a $5.2 billion increase in borrowings.
Pro forma net interest and other has been adjusted as if these incremental
borrowings had been outstanding as of the beginning of the periods presented.
The unaudited pro forma information is not necessarily indicative of the results
of operations had these events actually occurred at the beginning of fiscal
2001, nor is it necessarily indicative of future results.
Three Months Six Months
Ended March 31, Ended March 31,
---------------- % ---------------- %
(unaudited; in millions, 2002 2001 Change 2002 2001 Change
except per share data) ------- ------- ------ ------- ------ ------
Revenues $ 5,904 $ 6,215 (5)% $ 12,983 $ 13,792 (6)%
Costs and expenses (5,299) (5,237) (1)% (11,725) (11,590) (1)%
Amortization of intangible
assets (2) (5) 60 % (5) (13) 62 %
Gain on sale of business - - - - 22 n/m
Net interest expense and other (158) (151) (5)% (115) (316) 64 %
Equity in the income of
investees 49 67 (27)% 119 153 (22)%
Restructuring and impairment
charges - (134) n/m - (328) n/m
------- ------- ------- -------
Income before income taxes,
minority interests and the
cumulative effect of accounting
changes 494 755 (35)% 1,257 1,720 (27)%
Income taxes (205) (283) 28 % (501) (688) 27 %
Minority interests (30) (32) 6 % (64) (63) (2)%
------- ------- ------- ------
Income before the cumulative
effect of accounting
changes 259 440 (41)% 692 969 (29)%
Cumulative effect of
accounting changes:
Film accounting - - - - (228) n/m
Derivative accounting - - - - (50) n/m
------- ------- ------- ------
Net income $ 259 $ 440 (41)% $ 692 $ 691
======= ======= ======= ======
Earnings per share before the
cumulative effect of
accounting changes
(basic and diluted) $ 0.13 $ 0.21 (38)% $ 0.34 $ 0.46 (26)%
======= ======= ======= ======
Earnings per share including
the cumulative effect of
accounting changes
(basic and diluted) (1) $ 0.13 $ 0.21 (38)% $ 0.34 $ 0.33 3 %
======= ======= ======= ======
Earnings before the cumulative
effect of accounting changes,
excluding the investment
gain in fiscal 2002,
restructuring and impairment
charges and gain on the sale
of business in fiscal 2001 $ 259 $ 524 (51)% $ 556 $ 1,181 (53)%
======= ======= ======= ======
Earnings per share before the
cumulative effect of
accounting changes, excluding
the investment gain in fiscal
2002, restructuring and
impairment charges and gain
on sale of business in fiscal
2001:
Diluted $ 0.13 $ 0.25 (48)% $ 0.27 $ 0.56 (52)%
======= ======= ======= =======
Basic $ 0.13 $ 0.25 $ 0.27 $ 0.57
======= ======= ======= ======
Average number of common
and common equivalent
shares outstanding:
Diluted 2,045 2,105 2,043 2,108
======= ======= ======= ======
Basic 2,039 2,089 2,039 2,090
======= ======= ======= ======
-------------------------------------
(1) The per share impacts of the film and derivative accounting changes for the
prior year were $(0.11) and $(0.02), respectively.
THE WALT DISNEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(continued)
The following table provides a reconciliation of as-reported earnings per
share attributed to Disney common stock to pro forma earnings per share.
Three Months Six Months
Ended March 31, Ended March 31,
----------------- -----------------
(unaudited) 2002 2001 2002 2001
------- -------- -------- -------
As-reported earnings (loss) per share
attributed to Disney common stock $ 0.13 $ (0.26) $ 0.34 $ (0.23)
Adjustment to attribute 100% of Internet
Group operating results to Disney common
stock (72% included in as-reported amounts) - (0.01) - (0.06)
Adjustment to exclude pre-closure GO.com
portal operating results and amortization
of intangible assets - 0.02 - 0.09
Adjustment to exclude GO.com restructuring
and impairment charges - 0.40 - 0.40
Adjustment to exclude goodwill and intangible
assets amortization pursuant to SFAS 142 - 0.06 - 0.13
Adjustment to exclude the cumulative effect
of accounting changes - - - 0.13
------- -------- -------- -------
Pro forma earnings per share before the
cumulative effect of accounting changes 0.13 0.21 0.34 0.46
Adjustment to exclude restructuring and
impairment charges - 0.04 - 0.10
Adjustment to exclude investment gain in
fiscal 2002 - - (0.07) -
------- -------- -------- -------
Pro forma earnings per share before the
cumulative effect of accounting changes,
excluding the investment gain in fiscal
2002 and restructuring and impairment
charges and gain on the sale of business
in fiscal 2001 $ 0.13 $ 0.25 $ 0.27 $ 0.56
======= ======== ======== =======
-----------------------------------------------
The impact of the gain on sale of a business on fiscal 2001 and the pro forma
impact of ABC Family on both periods was less than $0.01.
THE WALT DISNEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(continued)
Business Segment Results - Quarter
Three Months Ended March 31,
-----------------------------------------------
(unaudited, in millions) As Reported Pro Forma
----------------- -----------------
Revenues: 2002 2001 2002 2001 % Change
------- ------- ------- ------- ---------
Media Networks $ 2,196 $ 2,258 $ 2,196 $ 2,417 (9)%
Parks and Resorts 1,525 1,650 1,525 1,650 (8)%
Studio Entertainment 1,603 1,573 1,603 1,573 2 %
Consumer Products 580 568 580 575 1 %
-------- ------- ------- -------
$ 5,904 $ 6,049 $ 5,904 $ 6,215 (5)%
======= ======= ======= =======
Segment operating income:
Media Networks $ 309 $ 445 $ 309 $ 503 (39)%
Parks and Resorts 280 329 280 329 (15)%
Studio Entertainment 27 164 27 164 (84)%
Consumer Products 86 87 86 91 (5)%
------- ------- ------- -------
$ 702 $ 1,025 $ 702 $ 1,087 (35)%
======= ======= ======= =======
The Company evaluates the performance of its operating segments based on
segment operating income. The following table reconciles segment operating
income to income (loss) before income taxes and minority interests.
Three Months Ended March 31,
----------------------------------------------
As Reported Pro Forma
----------------- -----------------
(unaudited, in millions) 2002 2001 2002 2001 % Change
------- ------- ------- ------- ---------
Segment operating income $ 702 $ 1,025 $ 702 $ 1,087 (35)%
Corporate and unallocated
shared expenses (97) (109) (97) (109) 11 %
Amortization of intangible
assets (2) (184) (2) (5) 60 %
Net interest expense and other (158) (98) (158) (151) (5)%
Equity in the income of
investees 49 66 49 67 (27)%
Restructuring and impairment
charges - (996) - (134) n/m
------- ------- ------- -------
Income (loss) before income
taxes and minority
interests $ 494 $ (296) $ 494 $ 755 (35)%
======= ======= ====== =======
Segment earnings before interest, income taxes, depreciation and
amortization (EBITDA) is as follows:
Three Months Ended March 31,
----------------------------------------------
As Reported Pro Forma
----------------- -----------------
(unaudited, in millions) 2002 2001 2002 2001 % Change
------- ------- ------- ------- ---------
Media Networks $ 354 $ 489 $ 354 $ 548 (35)%
Parks and Resorts 441 468 441 468 (6)%
Studio Entertainment 37 175 37 175 (79)%
Consumer Products 102 112 102 116 (12)%
------- ------ ------ ------
$ 934 $ 1,244 $ 934 $ 1,307 (29)%
======= ====== ====== ======
THE WALT DISNEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(continued)
Management believes that segment EBITDA provides additional information
useful in analyzing the underlying business results. However, segment EBITDA is
a non-GAAP financial metric and should be considered in addition to, not as a
substitute for, reported segment operating income.
Media Networks
The following table provides supplemental revenue and operating income
detail for the Media Networks segment:
(unaudited, in millions) Pro Forma
---------------------------------
Three Months Ended March 31, 2002 2001 % Change
---------- --------- ---------
Revenues:
Broadcasting $ 1,290 $ 1,513 (15)%
Cable Networks 906 904 -
-------- --------
$ 2,196 $ 2,417 (9)%
======== ========
Segment operating income:
Broadcasting $ (11) $ 167 n/m
Cable Networks 320 336 (5)%
-------- --------
$ 309 $ 503 (39)%
======== ========
On a pro forma basis, Media Networks revenues decreased 9%, or $221
million, to $2.2 billion, driven by decreases of $223 million at Broadcasting.
The decrease at Broadcasting was driven by declines at the ABC television
network due to lower ratings and lower advertising rates from upfront sales and
at the Company's owned television stations due to the weak advertising market
and the impact of lower network ratings. Revenues at the Cable Networks were
essentially flat as increased affiliate revenues at ESPN and increased domestic
and international subscribers at the Disney Channel were offset by lower
advertising revenues due to the weak advertising market.
On a pro forma basis, segment operating income decreased 39%, or $194
million, to $309 million, driven by decreases of $178 million at Broadcasting,
resulting from decreased revenues, partially offset by lower costs and expenses.
Costs and expenses, which consist primarily of programming rights costs and
amortization, production costs, distribution and selling expenses and labor
costs, decreased by 1%, or $27 million, for the quarter. Decreased costs were
driven by lower costs at the Internet Group web sites reflecting the prior-year
restructuring, lower distribution costs, and decreased amortization and
production costs, partially offset by higher sports programming costs at ESPN.
As-reported revenues decreased 3% to $2.2 billion and segment operating
income decreased 31% to $309 million. As-reported amounts for the prior-year
period include revenues and losses of the GO.com portal (which was closed in
February 2001) and exclude ABC Family operations.
The Company has various contractual commitments for the purchase of
broadcast rights for sports and other programming, including the National
Football League (NFL), National Basketball Association (NBA), Major League
Baseball (MLB), National Hockey League (NHL) and various college football
conference and bowl games. The costs of these contracts have increased
significantly in recent years. We have implemented a variety of strategies,
including marketing efforts, to reduce the impact of the higher costs. The
impact of these contracts on the Company's results over the remaining term of
the contracts is dependent upon a number of factors, including the strength of
advertising markets, effectiveness of marketing efforts and the size of viewer
audiences.
THE WALT DISNEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(continued)
The Company has investments in cable operations that are accounted for as
unconsolidated equity investments. The table below presents operating income
from cable television activities, which comprise the Cable Networks and the
Company's cable equity investments:
(unaudited, in millions) Pro Forma
---------------------------------
Three Months Ended March 31, 2002 2001 % Change
---------- --------- ---------
Operating income:
Cable Networks $ 320 $ 336 (5)%
Equity investments:
A&E Television, Lifetime
Television and
E! Entertainment Television 128 170 (25)%
Other 36 56 (36)%
-------- -------
Operating income from cable television
activities 484 562 (14)%
Partner share of operating income (136) (190) 28 %
-------- -------
Disney share of operating income $ 348 $ 372 (6)%
======== =======
Note: Operating income from cable television activities presented in this
table represents 100% of both the Company's owned cable businesses and its
cable equity investees. The Disney share of operating income represents the
Company's interest in cable television operating income. Cable Networks are
reported in "Segment operating income" in the statements of income. Equity
investments are accounted for under the equity method, and the Company's
proportionate share of the net income of its cable equity investments is
reported in "Equity in the income of investees" in the statements of
income.
We believe that operating income from cable television activities provides
additional information useful in analyzing the underlying business results.
However, operating income from cable television activities is a non-GAAP
financial metric and should be considered in addition to, not as a substitute
for, segment operating income.
The Company's share of cable television operating income decreased 6%, or
$24 million, to $348 million, reflecting higher programming costs at ESPN and
the weak advertising market, at both ESPN and the cable equity investments,
partially offset by higher cable network affiliate revenues and continued
improvements at both the domestic and international Disney Channels.
Parks and Resorts
Revenues decreased 8%, or $125 million, to $1.5 billion, driven primarily
by decreases of $136 million at the Walt Disney World Resort, partially offset
by increased royalties of $17 million from the Tokyo Disney Resort. At the Walt
Disney World Resort, decreased revenues reflected lower attendance, guest
spending and hotel occupancy resulting from continued disruption in travel and
tourism. Lower guest spending at Walt Disney World also reflected ticket and
other promotional programs. Increased royalties at the Tokyo Disney Resort were
due primarily to the opening of Tokyo DisneySea in the fourth quarter of the
prior year. Revenues at the Disneyland Resort were comparable to the prior year
as increased attendance due to a full period of Disney's California Adventure
was offset by lower guest spending due to ticket and other promotional programs.
Segment operating income decreased 15%, or $49 million, to $280 million,
reflecting revenue declines at the Walt Disney World Resort, partially offset by
the absence of pre-opening costs at the Disneyland Resort and higher royalties
from the Tokyo Disney Resort. Costs and expenses, which consist principally of
labor, costs of merchandise, food and beverages sold, depreciation, repairs and
maintenance, entertainment and marketing and sales expense, decreased 6% or $76
million, driven by decreases at the Disneyland Resort due to the absence of
non-recurring pre-opening costs for Disney's California Adventure, which opened
in the second quarter of the prior year. Additionally, volume decreases at the
Walt Disney World Resort contributed to lower costs and expenses.
THE WALT DISNEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(continued)
Studio Entertainment
Revenues increased 2%, or $30 million, to $1.6 billion, driven by an
increase of $80 million in domestic theatrical motion picture distribution,
partially offset by a decrease of $44 million in worldwide television
distribution. In domestic theatrical motion picture distribution, the increase
was due to the strong performance of Snow Dogs and Peter Pan II: Return to Never
Land as well as an increased number of releases during the quarter. Worldwide
home video revenues were comparable to the prior year as strong DVD sales from
Atlantis, Cinderella II: Dreams Come True, Pearl Harbor and other live-action
titles were offset by lower VHS unit sales reflecting the prior-year success of
Lady and the Tramp II: Scamp's Adventure and Remember the Titans as well as
decreased revenues from the rental business due to fewer titles being available
in the current quarter. The declines in worldwide television distribution
revenues reflected better performing live-action titles in the prior-year
quarter.
Segment operating income decreased 84%, or $137 million, to $27 million,
driven by increased costs in domestic theatrical motion picture distribution and
worldwide home video and revenue declines in worldwide television distribution.
Costs and expenses, which consist primarily of production cost amortization,
distribution and selling expenses, product costs and participation costs
increased 12%, or $167 million. Higher costs and expenses in domestic theatrical
motion picture distribution reflected increased distribution and marketing
expenses due to the higher number and timing of releases during the quarter. In
worldwide home video, cost increases reflected higher marketing and distribution
costs for Atlantis and Cinderella II:Dreams Come True, partially offset by lower
participation costs.
Consumer Products
On a pro forma basis, revenues increased 1%, or $5 million, to $580
million, reflecting increases of $20 million at the Disney Store and $12 million
in publishing operations, offset by a decline of $35 million in worldwide
merchandise licensing. These increases reflected positive comparative store
sales both domestically and internationally at the Disney Store and the
successful release by the publishing group of Lucky Man: A Memoir by Michael J.
Fox and Hope Through Heartsongs. The decrease in merchandise licensing revenue
was driven by lower minimum guarantee payments in the current quarter.
On a pro forma basis, segment operating income decreased 5%, or $5 million,
to $86 million, reflecting declines at worldwide merchandise licensing,
partially offset by revenue increases discussed above and cost reductions at the
Disney Store. Costs and expenses, which consist primarily of labor, product
costs, including product development costs, distribution and selling expenses
and leasehold expenses, increased 2% or $10 million, driven by higher sales
volume at the continuing Disney Stores and publishing, partially offset by lower
costs due to the closure of certain Disney Store locations.
As-reported revenues increased 2% to $580 million and segment operating
income decreased 1% to $86 million. As-reported amounts exclude ABC Family
operations in the prior-year period.
THE WALT DISNEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(continued)
Business Segment Results - Six Months
Six Months Ended March 31,
------------------------------------------------
(unaudited, in millions) As Reported Pro Forma
----------------- -----------------
Revenues: 2002 2001 2002 2001 % Change
-------- -------- ------- -------- --------
Media Networks $ 5,172 $ 5,225 $ 5,202 $ 5,516 (6)%
Parks and Resorts 2,958 3,374 2,958 3,374 (12)%
Studio Entertainment 3,408 3,423 3,408 3,423 -
Consumer Products 1,414 1,460 1,415 1,479 (4)%
------- ------- ------ -------
$ 12,952 $ 13,482 $12,983 $ 13,792 (6)%
======= ======= ====== =======
Segment operating income:
Media Networks $ 551 $ 971 $ 555 $ 1,094 (49)%
Parks and Resorts 467 713 467 713 (35)%
Studio Entertainment 176 316 176 316 (44)%
Consumer Products 261 256 261 269 (3)%
------- ------- ------ -------
$ 1,455 $ 2,256 $ 1,459 $ 2,392 (39)%
======= ======= ====== =======
The Company evaluates the performance of its operating segments based on
segment operating income. The following table reconciles segment operating
income to income before income taxes and minority interests.
Six Months Ended March 31,
------------------------------------------------
As Reported Pro Forma
----------------- -----------------
(unaudited, in millions) 2002 2001 2002 2001 % Change
------- ------- ------- ------- --------
Segment operating income $ 1,455 $ 2,256 $ 1,459 $ 2,392 (39)%
Corporate and unallocated
shared expenses (201) (190) (201) (190) (6)%
Amortization of intangible
assets (5) (477) (5) (13) 62 %
Gain on sale of businesses - 22 - 22 n/m
Net interest expense and other (103) (207) (115) (316) 64 %
Equity in the income of
investees 119 148 119 153 (22)%
Restructuring and impairment
charges - (1,190) - (328) n/m
----- ------- ------ -------
Income before income taxes and
minority interests $ 1,265 $ 362 $ 1,257 $ 1,720 (27)%
====== ====== ====== =======
Segment EBITDA is as follows:
Six Months Ended March 31,
------------------------------------------------
As Reported Pro Forma
----------------- -----------------
(unaudited, in millions) 2002 2001 2002 2000 % Change
------- ------- ------- ------- --------
Media Networks $ 642 $ 1,060 $ 647 $ 1,185 (45)%
Parks and Resorts 789 995 789 995 (21)%
Studio Entertainment 197 340 197 340 (42)%
Consumer Products 290 305 290 318 (9)%
------- ------- ------ -------
$ 1,918 $ 2,700 $1,923 $ 2,838 (32)%
======= ======= ====== =======
THE WALT DISNEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(continued)
We believe that segment EBITDA provides additional information useful in
analyzing the underlying business results. However, segment EBITDA is a non-GAAP
financial metric and should be considered in addition to, not as a substitute
for, reported segment operating income.
Media Networks
The following table provides supplemental revenue and operating income
detail for the Media Networks segment:
(unaudited, in millions) Pro Forma
---------------------------------
Six Months Ended March 31, 2002 2001 % Change
---------- --------- ---------
Revenues:
Broadcasting $ 2,766 $ 3,315 (17)%
Cable Networks 2,436 2,201 11 %
-------- --------
$ 5,202 $ 5,516 (6)%
======== ========
Segment operating income:
Broadcasting $ (87) $ 454 n/m
Cable Networks 642 640 -
-------- --------
$ 555 $ 1,094 (49)%
======== ========
On a pro forma basis, revenues decreased 6%, or $314 million, to $5.2
billion, reflecting a decrease of 17%, or $549 million, at Broadcasting,
partially offset by an increase of 11%, or $235 million, at the Cable Networks.
The decrease at Broadcasting was driven by declines at the ABC television
network, the Company's owned television stations and radio operations due to
lower ratings and the soft advertising market. Increases at the Cable Networks
were driven by higher affiliate revenues, partially offset by lower advertising
revenues due to the soft advertising market.
On a pro forma basis, segment operating income decreased 49%, or $539
million, to $555 million, driven by decreases of $541 million at Broadcasting,
primarily due to decreased revenues. Cable operating income was comparable to
the prior year as revenue gains were offset by cost increases. Costs and
expenses increased 5%, or $225 million, driven by higher sports programming
costs at ESPN, principally for NFL broadcasts.
As-reported revenues remained flat at $5.2 billion and segment operating
income decreased 43% to $551 million. As-reported amounts include a partial
period of ABC Family operations in the current period and GO.com portal losses
(which was closed in February 2001) in the prior-year period.
THE WALT DISNEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(continued)
The Company has investments in cable operations that are accounted for as
unconsolidated equity investments. The table below presents operating income
from cable television activities, which comprise the Cable Networks and the
Company's cable equity investments:
(unaudited, in millions) Pro Forma
---------------------------------
Six Months Ended March 31, 2002 2001 % Change
---------- --------- ---------
Operating income:
Cable Networks $ 642 $ 640 -
Equity investments:
A&E Television, Lifetime
Television and
E! Entertainment Television 294 356 (17)%
Other 101 122 (17)%
--------- -------
Operating income from cable
television activities 1,037 1,118 (7)%
Partner share of operating income (328) (396) 17 %
--------- -------
Disney share of operating income $ 709 $ 722 (2)%
========= =======
Note: Operating income from cable television activities presented in this
table represents 100% of both the Company's owned cable businesses and its
cable equity investees. The Disney share of operating income represents the
Company's interest in cable television operating income. Cable Networks are
reported in "Segment operating income" in the statements of income. Equity
investments are accounted for under the equity method, and the Company's
proportionate share of the net income of its cable equity investments is
reported in "Equity in the income of investees" in the statements of
income.
The Company's share of cable television operating income decreased 2%, or
$13 million, to $709 million. The decrease was driven by lower revenues due to
the weak advertising market at both ESPN and the cable equity affiliates as well
as higher sports programming costs at ESPN, partially offset by higher affiliate
revenues at the Cable Networks.
Parks and Resorts
Revenues decreased 12%, or $416 million, to $3.0 billion, driven primarily
by decreases of $451 million at the Walt Disney World Resort, partially offset
by growth of $24 million at the Disneyland Resort and increased royalties of $32
million from the Tokyo Disney Resort. At the Walt Disney World Resort, decreased
revenues reflected lower attendance, guest spending and hotel occupancy
resulting from continued disruption in travel and tourism. The opening of
Disney's California Adventure, Downtown Disney District and the Grand
Californian Hotel during the second quarter of the prior year, as well as the
strength of local attendance due primarily to the success of the Annual Passport
program, drove increased attendance and occupied room nights at the Disneyland
Resort. Both Walt Disney World and Disneyland experienced lower guest spending
due to ticket and other promotional programs. The increased royalties at Tokyo
Disney Resort were due to the opening of the Tokyo DisneySea theme park and the
Tokyo DisneySea Hotel Mira Costa in the fourth quarter of the prior year.
Segment operating income decreased 35%, or $246 million, to $467 million,
driven by revenue declines at the Walt Disney World Resort, partially offset by
decreased costs and expenses. Costs and expenses decreased 6%, or $170 million,
driven primarily by volume decreases and productivity and cost reduction
initiatives at Walt Disney World and the absence of pre-opening costs for
Disney's California Adventure.
THE WALT DISNEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(continued)
Studio Entertainment
Revenues decreased $15 million to $3.4 billion, driven by decreases of $25
million in television distribution, partially offset by an increase of $13
million in theatrical motion picture distribution. The decline in worldwide
television distribution was due to better performing live-action titles in the
prior year. Worldwide home video sales were comparable to the prior year as
stronger DVD sales driven by Pearl Harbor, Snow White and the Seven Dwarfs,
Atlantis, Princess Diaries and other live-action titles were offset by lower
revenues from the rental business and lower VHS sales in the current-year period
reflecting the prior-year success of Disney/Pixar's Toy Story 2, Lady and the
Tramp II: Scamp's Adventure, Dinosaur and Remember the Titans. In theatrical
motion picture distribution, revenues increased domestically due to strong
performances of Disney/Pixar's Monster's Inc., Snow Dogs and Peter Pan II:
Return to Never Land as well as an increased number of releases in the
current-year period. This increase was partially offset by declines
internationally as the success of Monsters, Inc. faced difficult comparisons to
the prior-year, which had more releases including Unbreakable, Dinosaur and 102
Dalmatians.
Segment operating income decreased 44%, or $140 million, to $176 million,
driven by declines in theatrical motion picture distribution, television
distribution and worldwide home video. Operating income declines in theatrical
motion picture distribution and home video were driven by cost increases. The
decrease in television distribution was due to revenue declines. Costs and
expenses increased 4% or $125 million. In worldwide theatrical motion picture
distribution, cost increases were driven by higher distribution and marketing
expenses domestically due to an increased number and timing of releases during
the current-year period, partially offset by decreases internationally due to a
fewer number of releases in the current year. Increased costs in worldwide home
video reflected higher marketing and distribution costs for Pearl Harbor, Snow
White and the Seven Dwarfs and Atlantis, partially offset by lower participation
costs.
Consumer Products
On a pro forma basis, revenues decreased 4%, or $64 million, to $1.4
billion, reflecting declines in worldwide merchandise licensing of $49 million
and Disney Interactive of $40 million, partially offset by increases in
publishing operations of $15 million and the Disney Store of $8 million. The
decline in worldwide merchandise licensing was driven by lower guarantee
payments in the current period. Lower revenues at Disney Interactive reflected
weaker performing personal computer CD-ROM titles, due in part to the softening
in the personal computer market. The increases at the Disney Store were
primarily in North America, driven by higher comparative store sales. Higher
publishing revenues were due to successful book releases during the current
period.
On a pro forma basis, segment operating income decreased 3%, or $8 million,
to $261 million, reflecting declines at worldwide merchandise licensing and
Disney Interactive, partially offset by increases at the Disney Store. Costs and
expenses, decreased 5% or $56 million, primarily driven by lower costs at Disney
Interactive and worldwide merchandise licensing due to revenue declines and at
the Disney Store due to closures and lower advertising costs, partially offset
by increased costs at publishing due to higher sales volume.
As-reported revenues decreased 3% to $1.4 billion and segment operating
income increased 2% to $261 million. As-reported amounts exclude ABC Family
operations in the prior year and a partial period in the current year.
THE WALT DISNEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS,--(continued),
FINANCIAL CONDITION
For the six months ended March 31, 2002, cash provided by operations
decreased $605 million to $680 million, reflecting lower pre-tax income before
non-cash charges.
During the six months, the Company invested $486 million in parks, resorts
and other properties. The decrease from the prior year was due to the completion
of Disney's California Adventure, which opened in February 2001.
In January 2002, the ABC Television Network and ESPN reached a six-year
agreement with the NBA to televise more than 100 regular and post-season games.
At March 31, 2002, contractual commitments for sports programming rights totaled
$11.7 billion, primarily for NFL, NBA, college football, MLB and NHL. Total
contractual commitments other than leases, including commitments to purchase
broadcast programming, totaled $15.4 billion. Substantially all of this amount
is payable over the next six years.
We expect that the ABC Television Network, ESPN, ABC Family, The Disney
Channels and the Company's television and radio stations will continue to enter
into programming commitments to purchase the broadcast rights for various
feature films, sports and other programming.
On October 24, 2001, the Company acquired ABC Family for $5.2 billion,
funded with $2.9 billion of new long-term borrowings, plus the assumption of
$2.3 billion of borrowings (of which $867 million was subsequently repaid).
During the six months, the Company increased its commercial paper
borrowings by $1.9 billion and issued debt with proceeds of $2.9 billion,
consisting of $1.7 billion of global bonds, $330 million of retail callable
bonds and medium-term notes and $832 million of euro-yen notes. These borrowings
have effective interest rates, including the impact of interest rate swaps,
ranging from 2.5% to 7.0% and mature in fiscal 2005 through fiscal 2032. During
the six months, the Company repaid approximately $280 million of term debt,
which either matured or was called during the quarter. Additionally, during the
six months the Company repaid approximately $867 million of debt assumed in the
acquisition of ABC Family.
Commercial paper borrowings outstanding as of March 31, 2002 totaled $2.7
billion, with maturities of up to one year, supported by a $2.25 billion bank
facility, which expires in 2003 and a $2.25 billion bank facility, which expires
in 2005. These bank facilities allow for borrowings at LIBOR-based rates plus a
spread, depending upon the Company's public debt rating. As of March 31, 2002,
the Company had not borrowed against these bank facilities.
The Company has a 39% interest in Euro Disney S.C.A., which operates the
Disneyland Resort Paris. As of March 31, 2002, Euro Disney has drawn $39 million
(45 million Euros) under a $146 million (167 million Euros) line of credit with
the Company and it is expected that Euro Disney will draw additional a0mounts
under the credit line during fiscal 2002. As of March 31, 2002, Euro Disney had,
on a US GAAP basis, total assets of $2.9 billion (3.3 billion Euros) and total
liabilities of $2.8 billion (3.2 billion Euros), including borrowings of $1.9
billion (2.2 billion Euros).
The Company also paid $428 million in dividends during the first quarter of
the current year.
Recent events have caused significant changes in the insurance market which
are impacting the cost and availability of the Company's insurance coverage.
However, the Company believes that as renewals for various policies occur, it
will be able to continue to obtain reasonable levels of coverage based on our
historical loss experience.
THE WALT DISNEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(continued)
We believe that the Company's financial condition is strong and that its
cash, other liquid assets, operating cash flows, access to equity capital
markets and borrowing capacity, taken together, provide adequate resources to
fund ongoing operating requirements and future capital expenditures related to
the expansion of existing businesses and development of new projects. However,
the Company's operating cash flow and access to the capital markets can be
impacted by macroeconomic factors outside of its control. In addition to
macroeconomic factors, the Company's borrowing costs can be impacted by short-
and long-term debt ratings assigned by independent rating agencies, which are
based, in significant part, on certain credit measures such as interest coverage
and leverage ratios.
OTHER MATTERS
Accounting Policies and Estimates
We believe that the application of the following accounting policies, which
are important to our financial position and results of operations, requires
significant judgments and estimates on the part of management. For a summary of
all of our accounting policies, including the accounting policies discussed
below, see Note 1 of the Consolidated Financial Statements in the 2001 Annual
Report.
Film and television revenues and costs
We expense the cost of film and television production and participations as
well as multi-year sports rights over the applicable product life cycle based
upon the ratio of the current period's gross revenues to the estimated remaining
total gross revenues. These estimates are calculated on an individual production
basis for film and television and on an individual contract basis for sports
rights. Estimates of total gross revenues can change due to a variety of
factors, including the level of market acceptance, advertising rates and
subscriber fees.
Television network and station rights for theatrical movies, series and
other programs are charged to expense based on the number of times the program
is expected to be shown. Estimates of usage of television network and station
programming can change based on competition and audience acceptance.
Accordingly, revenue estimates and planned usage are reviewed periodically and
are revised if necessary. A change in revenue projections or planned usage could
have an impact on our results of operations.
Costs of film and television productions and programming costs for our
television and cable networks are subject to valuation adjustments pursuant to
the applicable accounting rules. The values of the television program licenses
and rights are reviewed using a daypart methodology. The Company's dayparts are:
early morning, daytime, late night, prime time, news, children's and sports. A
daypart is defined as an aggregation of programs broadcast during a particular
time of day or programs of a similar type. Estimated values are based upon
assumptions about future demand and market conditions. If actual demand or
market conditions are less favorable than our projections, film, television and
programming cost write-downs may be required.
THE WALT DISNEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(continued)
Revenue Recognition
The Company has revenue recognition policies for its various operating
segments, which are appropriate to the circumstances of each business. See Note
1 of the Consolidated Financial Statements in the 2001 Annual Report for a
summary of these revenue recognition policies.
We record reductions to revenues for estimated future returns of
merchandise, primarily home video, DVD and software products, and for customer
programs and sales incentives. These estimates are based upon historical return
experience, current economic trends and projections of customer demand for and
acceptance of our products. Differences may result in the amount and timing of
our revenue for any period if actual performance varies from our estimates.
Goodwill, Intangible assets, Long-lived assets and investments
Effective October 1, 2001, we adopted SFAS 142, as described more fully in
Note 6 of the Condensed Consolidated Financial Statements. SFAS 142 requires
that goodwill and other intangible assets be tested for impairment within six
months of the date of adoption and then on a periodic basis thereafter. During
the six-month period ended March 31, 2002, we completed our impairment testing
and determined that there were no impairment losses related to goodwill and
other intangible assets. In assessing the recoverability of goodwill and other
intangible assets, projections regarding estimated future cash flows and other
factors are made to determine the fair value of the respective assets. If these
estimates or related projections change in the future, we may be required to
record impairment charges for these assets.
Long-lived assets include certain long-term investments. The fair value of
the long-term investments is dependent on the performance of the companies we
invest in, as well as volatility inherent in the external markets for these
investments. In assessing potential impairment for these investments, we will
consider these factors as well as forecasted financial performance of our
investees. If these forecasts are not met, impairment charges may be required.
Contingencies and Litigation
We are currently involved in certain legal proceedings and, as required,
have accrued our estimate of the probable costs for the resolution of these
claims. This estimate has been developed in consultation with outside counsel
and is based upon an analysis of potential results, assuming a combination of
litigation and settlement strategies. It is possible, however, that future
results of operations for any particular quarterly or annual period could be
materially affected by changes in our assumptions or the effectiveness of our
strategies related to these proceedings.
THE WALT DISNEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(continued)
Income Tax Audits
The IRS is currently examining the Company's federal income tax returns for
1993 through 1995. While the audit is not complete, the IRS has recently
indicated its intention to challenge certain of the Company's tax positions. We
believe that the Company's tax positions comply with applicable tax law and
intend to defend the Company's positions vigorously. The ultimate disposition of
these matters could require the Company to make additional payments to the IRS.
Nonetheless, we believe that the Company has adequately provided for any
foreseeable payments related to these matters and consequently do not anticipate
any material earnings impact from the ultimate resolution of these matters.
Accounting Changes
Effective October 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142).
As a result of adopting SFAS 142, a substantial amount of the Company's
intangible assets are no longer amortized. Pursuant to SFAS 142, intangible
assets must be periodically tested for impairment, and the new standard provides
six months to complete the impairment review. During the quarter, the Company
completed its initial impairment review, which indicated that there was no
impairment. See Note 6 to the Condensed Consolidated Financial Statements.
The Company also adopted Statement of Financial Accounting Standards No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144),
effective October 1, 2001. The adoption of SFAS 144 did not have a material
impact on the Company's consolidated results of operations and financial
position.
MARKET RISK
Interest Rate Risk Management
The Company is exposed to the impact of interest rate changes. Our
objective is to manage the impact of interest rate changes on earnings and cash
flows and on the market value of the Company's investments and borrowings. We
maintain fixed-rate debt as a percentage of our net debt between a minimum and
maximum percentage, which is set by policy.
We use interest rate swaps and other instruments to manage net exposure to
interest rate changes related to our borrowings and investments and to lower the
Company's overall borrowing costs. We do not enter into interest rate swaps for
speculative purposes. Significant interest rate risk management instruments held
by the Company during the quarter included pay-floating and pay-fixed swaps.
Pay-floating swaps, which expire in one to 30 years, effectively convert medium-
and long-term obligations to LIBOR-indexed variable rate instruments. Pay-fixed
swaps, which expire in one to two years, effectively convert floating-rate
obligations to fixed-rate instruments.
THE WALT DISNEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(continued)
Foreign Exchange Risk Management
The Company transacts business in virtually every part of the world and is
subject to risks associated with changing foreign exchange rates. Our objective
is to reduce earnings and cash flow volatility associated with foreign exchange
rate changes to allow management to focus its attention on our core business
issues and challenges. Accordingly, the Company enters into various contracts
that 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 policy, we maintain hedge coverage
between minimum and maximum percentages of its anticipated foreign exchange
exposures for periods of up to five years. The gains and losses on these
contracts offset changes in the value of the related exposures. It is our policy
to enter into foreign currency transactions only to the extent considered
necessary to meet these objectives. The Company does not enter into foreign
currency transactions for speculative purposes.
We use forward and option strategies that provide for the sale of foreign
currencies to hedge probable, but not firmly committed, revenues. We also use
forward contracts to hedge foreign currency assets and liabilities. These
forward and option contracts mature within three years. While these hedging
instruments are subject to fluctuations in value, such fluctuations should
offset changes in the value of the underlying exposures being hedged. The
principal currencies hedged are the European euro, Japanese yen, British pound
and Canadian dollar. Cross-currency swaps are used to hedge foreign
currency-denominated borrowings.
Other Derivatives
The Company holds warrants in both public and private companies. These
warrants, although not designated as hedging instruments, are deemed derivatives
if they contain a net-share settlement clause. During the quarter, the Company
recorded the change in fair value of certain of these instruments to current
earnings.
FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the Act) provides a
safe harbor for "forward- looking statements" made by or on behalf of the
Company. We may from time to time make written or oral statements that are
"forward-looking", including statements contained in this report and other
filings with Securities and Exchange Commission and in reports to our
shareholders. All statements that express expectations and projections with
respect to future matters may be affected by changes in the Company's strategic
direction, as well as by developments beyond the Company's control. These
developments may include changes in global, political or economic conditions
that may, among other things, affect the international performance of the
Company's theatrical and home video releases, television programming and
consumer products; regulatory and other uncertainties associated with the
Internet and other technological developments, and the launching or prospective
development of new business initiatives. All forward-looking statements are made
on the basis of management's views and assumptions, as of the time the
statements are made, regarding future events and business performance. There can
be no assurance, however, that our expectations will necessarily come to pass.
Factors that may affect forward-looking statements. For an enterprise as
large and complex as the Company, a wide range of factors could materially
affect future developments and performance. A list of such factors is set forth
in the Company's Annual Report on Form 10-K for the year ended September 30,
2001 under the heading "Factors that may affect forward-looking statements."
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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. Except as set forth below, management does not expect a
material impact to its results of operations, financial position or cash flows
by reason of these actions.
In re The Walt Disney Company Derivative Litigation. William and Geraldine
Brehm and 13 other individuals filed an amended and consolidated complaint on
May 28, 1997 in the Delaware Court of Chancery seeking, among other things, a
declaratory judgment against each of the Company's directors as of December 1996
that the Company's 1995 employment agreement with its former president, Michael
S. Ovitz, was void, or alternatively that Mr. Ovitz's termination should be
deemed a termination "for cause" and any severance payments to him forfeited. On
October 8, 1998, the Delaware Court of Chancery dismissed all counts of the
amended complaint. On February 9, 2000, the Supreme Court of Delaware affirmed
the dismissal but ruled also that the plaintiffs should be permitted to file an
amended complaint in accordance with the Court's opinion. The plaintiffs filed
their amended complaint on January 3, 2002. The Company's directors have moved
to dismiss the amended complaint.
Similar or identical claims have also been filed by the same plaintiffs
(other than William and Geraldine Brehm) in the Superior Court of the State of
California, Los Angeles County, beginning with a claim filed by Richard and
David Kaplan on January 3, 1997. On May 18, 1998, an additional claim was filed
in the same California court by Dorothy L. Greenfield. On September 25, 2001,
Ms. Greenfield sought leave to amend her claim, but withdrew her request to
amend on January 3, 2002. All of the California claims have been consolidated
and stayed pending final resolution of the Delaware proceedings.
During the period covered by this report, there were no material
developments in the other proceeding previously reported in the Company's annual
report on Form 10-K for fiscal year 2001, All Pro Sports Camps, Inc. et al. v.
Walt Disney Company et al.
Stephen Slesinger, Inc. v. The Walt Disney Company. In this lawsuit, filed
on February 27, 1991 and pending in the Los Angeles County Superior Court, the
plaintiff claims that a Company subsidiary defrauded it and breached a 1983
licensing agreement with respect to certain Winnie the Pooh properties, by
failing to account for and pay royalties on revenues earned from the sale of
Winnie the Pooh movies on videocassette and from the exploitation of Winnie the
Pooh merchandising rights. The plaintiff seeks damages for the licensee's
alleged breaches as well as confirmation of the plaintiff's interpretation of
the licensing agreement with respect to future activities. The plaintiff also
seeks the right to terminate the agreement on the basis of the alleged past
breaches. The Company disputes that the plaintiff is entitled to any damages or
other relief of any kind, including termination of the licensing agreement. The
claim is currently scheduled for trial in February 2003. If each of the
plaintiff's claims were to be confirmed in a final judgment, damages could total
as much as several hundred million dollars and adversely impact the value to the
Company of any future exploitation of the licensed rights. However, given the
number of outstanding issues and the uncertainty of their ultimate disposition,
management is unable to predict the magnitude of any potential determination of
the plaintiff's claims.
Management believes that it is not currently possible to estimate the
impact, if any, that the ultimate resolution of these three matters will have on
the Company's results of operations, financial position or cash flows.
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
The following matters were submitted to a vote of security holders during
the Company's annual meeting of shareholders held on February 19, 2002.
Description of Matter
Votes Authority
1. Election of Directors Cast For Withheld
--------------- -------------
Reveta F. Bowers 1,630,088,721 49,282,853
John E. Bryson 1,630,753,581 48,617,993
Roy E. Disney 1,631,633,573 47,738,001
Michael D. Eisner 1,622,270,705 57,100,869
Judith L. Estrin 1,631,126,538 48,245,036
Stanley P. Gold 1,630,788,386 48,583,188
Robert A. Iger 1,626,836,785 52,534,789
Monica C. Lozano 1,630,947,681 48,423,893
George J. Mitchell 1,611,230,836 68,140,738
Thomas S. Murphy 1,623,845,743 55,525,831
Leo J. O'Donovan, S.J. 1,630,061,801 49,309,773
Sidney Poitier 1,629,360,888 50,010,686
Robert A. M. Stern 1,623,149,006 56,222,568
Andrea L. Van de Kamp 1,630,413,585 48,957,989
Raymond L. Watson 1,630,080,875 49,290,699
Gary L. Wilson 1,623,594,876 55,776,698
Broker
For Against Abstentions Non-Votes
----------------------------------------------------
2. Ratification of
PricewaterhouseCoopers
LLP as independent
accountants 1,630,349,265 35,693,363 13,328,946
3. Approval of the 2002
Executive Performance
Plan 1,579,664,445 80,996,189 18,710,940
4. Stockholder proposal
relating to independent
accountants 495,788,502 707,889,178 73,530,755 402,163,139
5. Stockholder proposal
relating to labor
standards for China 76,735,909 1,088,542,859 111,929,667 402,163,139
6. Stockholder proposal
relating to theme
park safety reporting 62,464,931 1,122,424,179 92,319,325 402,163,139
7. Stockholder proposal
relating to stock
options 87,997,412 1,142,868,208 46,342,815 402,163,139
PART II. OTHER INFORMATION (continued)
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10 (a) Amended and Restated Disney Salaried Retirement Plan
10 (b) Amended and Restated Disney Salaried Savings and Investment Plan
10 (c) Disney Severance Pay Plan
10 (d) Amended and Restated ABC, Inc. Savings and Investment Plan
(b) Reports on Form 8-K
The following current report on Form 8-K was filed by the Company during
the Company's second fiscal quarter:
(1) Current report on Form 8-K dated January 31, 2002 setting forth (a) the
earnings release for the fiscal quarter ended December 31, 2001 and (b)
text of the conference call concerning the earnings release.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE WALT DISNEY COMPANY
---------------------------------------
(Registrant)
By: /s/ THOMAS O. STAGGS
---------------------------------------
(Thomas O. Staggs, Senior Executive
Vice President and Chief Financial
Officer)
June 28, 2002
Burbank, California