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November 16, 2009 DIVERSIFIED ENTERTAINMENT
Henry Fund Research
The Walt Disney Co. (DIS) Investment Recommendation BUY
Iana Stahov Current Price $30.44
iana-stahov@uiowa.edu Target Price Range $34.09-35.48
2-Year Stock Price Movement (as of 11/13/2009)
INVESTMENT THESIS
(+)The Walt Disney Co. is one of the most
diversified entertainment companies in the U.S. with
four segments that span all the major forms of
entertainment: home, theater and outdoors/
vacation. The company is able to effectively
leverage content across its segments: successful
movie characters can be picked up in the park rides
and across consumer products.
(+)Due to the long-term contracts, its cable networks
are locked into stable revenue streams. That plus
cable networks’ highest profitability within Disney
makes them resilient in recessionary times.
(+)Disney has been very active in digital
Key Stock Statistics technologies and in-house games development.
52-Week Price Range $15.14-30.53 The latter is positioned for strong growth by
leveraging from Disney’s existing characters and
Market Capitalization (B) $56.57
those from Marvel’s library.
Shares Outstanding (B) 1.86
(+)Revenue synergies are expected from the
Institutional Ownership 66.5%
combined efforts of Marvel’s Film Production and
5-yr. weekly Beta 1.15 Disney’s Studios. We see great potential in
Dividend Yield 1.10% developing yet unknown characters and marketing
Price/Earnings (ttm) 18.03 those internationally.
Price/Book 1.54 (+)Disney has a strong balance sheet and relatively
Price/Sales 1.51 light leverage level which can allow it to pursue
either 100% or partial stakes in large cable
ROA (ttm) 5.59%
networks. The recent acquisition of Lifetime points
ROE(ttm) 9.46% to a strategic direction toward consolidation.
Projected 5-Year Growth 3.8%
(-)The vertically consolidating cable operators
EPS ($) present a growing threat for cable networks. As the
Year 2007 2008 2009 2010E 2011E 2012E former acquire content developers their increasing
EPS $2.33 $2.34 $1.78 $1.85 $2.22 $2.70 buyer power will diminish cable networks’ bargaining
All earnings represent earnings from operations and have been filtered
clout at subscription fees contract re-negotiations.
from net nonrecurring gains.
(-)Disney Studios are lacking strong movie
Valuation Models franchises in the pipeline. As the Pirates of the
Discounted Cash Flow $34.04 Caribbean success is exhausted and given its high
Economic Profit $34.04 benchmark, we do not see this segment’s EBIT
surpassing 2007 levels.
Relative P/E $31.83
Relative P/S $38.47 (-)We see competition intensifying among the major
media networks. This is likely to push up
programming costs and further fragment audiences.
Important disclosures appear on the last page of this report.
THE UNIVERSITY OF IOWA
Henry Fund Research Henry B. Tippie School of Management
EXECUTIVE SUMMARY Disney Segments: % of Total Revenues (2008)
Our overall outlook on the diversified entertainment
industry is neutral. At this point in the recessionary 7.6%
cycle we consider that revenue stream declines in a
given sub-industry are partially recovered as gains for Cable networks
27%
another one: consumers simply shift their entertainment Broadcasting
19.4%
preferences to lower-priced products. Home Parks & Resorts
entertainment as well as successful theatrical releases
will capture most audiences. Those companies that are Studio Entertainment
16%
most diversified across a range of segments (i.e. The 30.4% Consumer Products
Walt Disney Co.) are best positioned to weather this
recession.
The Walt Disney Co. can rely on its cable networks
segment as a cash flow cushion in an economic
downturn. This business can rely on fairly stable Disney Segments: % of Total Op. Income
revenue streams due to long-term contracts with cable (2008)
operators (MSOs). While broadcasters are losing
8.5%
advertising dollars, some of those move to cable
networks with better audience appeal per recent Cable networks
assessments. With Disney operating in both segments,
12.8% Broadcasting
its net bottom line is not hit as hard. We see the
48.5%
company’s ambitions to further expand its cable Parks & Resorts
networks ownership as a positive sign that will help it 22.4% Studio Entertainment
gain bargaining power in contract negotiations with
large MSOs. Growing in-house game development Consumer Products
capabilities and the recent acquisition of Marvel inject
new growth opportunities in this media conglomerate. 7.7%
We believe there is large potential in the development Source: The Walt Disney Co. 2008 10-k, http://sec.gov
of new Marvel characters and their commercializing
across Disney’s multiple segments not only in the U.S. The Media networks segment includes two sub-
but also across foreign markets. While there are some segments: cable networks (subscription fees and
concerns about the increasing content development advertising revenues) and broadcasting networks
costs and the growing buyer power of MSOs, the above (advertising revenues only). The former features a high
encouraging prospects for the company’s top and operating margin at 40.8% while the latter is a drag in
bottom line support our Buy recommendation. terms of profitability at 10.8% only resulting in OI margin
for the segment at 29.5%, which is still 4.5% higher than
COMPANY DESCRIPTION the next most profitable segment (Consumer Products at
25%). Its broadcasting operations include the ABC
The Walt Disney Company operates in the Diversified Broadcasting TV network along with 9 owned TV
Entertainment industry ranking #67 on the 2008 stations (6 in the top 10 TV markets) and TV production
Fortune 500 list with $37.8B annual revenues and and distribution entities (ABC Studios, Buena Vista
$4.4B annual profit. The company operates in four Productions, and ABC Family Productions) that produce
primary segments: media networks, parks and resorts, half-hour comedies, one-hour dramas and reality shows.
studio entertainment and consumer products1. As the Disney’s cable networks include Disney and ESPN
following revenue and profitability breakdowns indicate, (100% owned), SOAPnet, as well as stakes in A&E and
the media networks segment is the key driver of its Lifetime. Internet and mobile operations, also under this
business accounting for 42.6% of revenues and as segment, are focused on Disney websites’ maintenance
much as 56.2% of operating income (FY 2008 results). and content development for various digital platforms,
including mobile. We anticipate a 5-yr. CAGR growth of
3.4% in this segment with cable networks at 4% and
broadcasting networks at 2%.
Disney’s Parks and Resorts segment includes: the Walt
Disney World Resort in Florida, the Disneyland Resort in
California, the Disney Vacation Club, the Disney Cruise
Line, Adventures by Disney, and ESPN Zone. The
company manages and owns 51% and 43%,
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THE UNIVERSITY OF IOWA
Henry Fund Research Henry B. Tippie School of Management
respectively, in Disneyland Resort Paris and Hong are being exhausted (usually only about 2-3 sequels are
Kong Disneyland Resort. It also licenses the operations produced), diversified entertainment companies will be
of the Tokyo Disney Resort in Japan receiving royalties seeking “fresh” characters to refill the pipeline and lure
from that business. The Walt Disney Imagineering unit back consumers. With Marvel’s characters behind it,
is another key entity within this segment: it is in charge Disney will be well-positioned in that market.
of the design and development of new theme park
As our valuation analysis reveals, Marvel adds $2.57 to
concepts and resorts properties.
Disney’s stock price which implies the price tag to be
Studio Entertainment produces and acquires live- paid in this deal is fair and it creates value for Disney’s
action and animated motion pictures, direct-to-video shareholders. The P/E valuation indicates that MVL
programming, musical recordings and live stage plays. subtracts value, which makes sense because it is based
Walt Disney distributes produced and acquired films on net income which factors in the considerable
(including its film and television library) in the theatrical, intangibles amortization from the deal ($2.8B amortized
home entertainment and television markets. We over 6 years). As a result, MVL is dilutive to DIS
anticipate a 3% growth in this segment primarily earnings in the short-to-medium terms but that will
boosted by opportunities to leverage Marvel’s reverse when intangibles are fully amortized due to
characters for future movie franchises. MVL’s very high operating margins – around 40%.
Finally, the Consumer Products segment engages Marvel operates in three segments: Licensing (42% of
with licensees, manufacturers, publishers and retailers revenues; character licensing to other media
throughout the world to design, develop, publish, companies), Publishing (18%; comic books business)
promote and sell a wide variety of products based on and Film Production (39%; the newest segment - fully
existing and new Disney characters and other established in 2008). In a key step toward higher growth,
Company intellectual property. We project a 5% growth Marvel discontinued its Toy manufacturing segment a
in the consumer products segment as it leverages few years ago and developed its in-house Film
growth from creative content produced across the other Production. MVL is on a solid path of moving away from
Disney segments. In addition to that, while we currently licensing its characters to third party studios and build its
model Interactive Media Group within Consumer own footprint in that business. Once acquired by Disney,
Products (per Disney’s prior reporting), we anticipate it should get the necessary funds and expertise to
that sub-segment to generate a 5-yr. 7% CAGR as develop successful movie franchises. An overview of
game development capabilities take full scale and Marvel’s segments and recent results reveals the high
Disney is able to leverage its vast library of characters profitability of this creative shop. We anticipate that
and creative power as it continues building that profitability to continue supported by some cost
segment. The various online and digital formats of synergies due to the acquisition but, primarily,
content distribution will also contribute to the channel’s considerable revenue synergies in its Film Production
growth. segment.
Marvel Entertainment – Announced acquisition
Marvel: Revenues Forecast
The Walt Disney Co. is currently in the process of
15.0%
closing on its acquisition deal announced at the end of
August. Marvel’s acquisition is expected to be 10.0%
completed by the end of the calendar year (2009) or 5.0%
Disney’s Q1 2010. Based on $20M MVL net assets 0.0%
and $4B purchase price, almost the entire purchase
price is allocated to acquisition intangibles (assumed at ‐5.0% 2008 2009E 2010E 2011E
30% Goodwill and 70% amortizable intangibles). The ‐10.0%
deal is financed via cash ($30/ MVL share for 80.3M ‐15.0%
shares O/S) and 0.745 DIS shares based on Aug. 28
close ($26.84). This results in $50/ MVL share or a Licensing Publishing Film Production*
29% premium to its Aug. 28 close ($38.65). The Note: *Film Production segment (launched in 2007) gained scale in 2008
associated intangibles are due to Marvel’s highly resulting in over 100% growth (not featured on the chart due to scale)
Source: Marvel Entertainment 2008 10-k and 2009 Q1-Q3 10-q’s, http://sec.gov
valuable copyrights over a vast library of about 5,000
characters many of whom are not yet known or
developed on a larger scale. We believe that while part
of such a media power-house as Disney, those
characters could have large potential if leveraged
across Disney’s segments and aggressively marketed
in foreign markets. As the existing movie franchises
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THE UNIVERSITY OF IOWA
Henry Fund Research Henry B. Tippie School of Management
impact of the extra week, attendance was up 3% (+15%
Marvel: Op. Expenses % of Rev. Forecast in Disneyland offset by -3% in Walt Disney World).
100%
78%
80% 69% Surprise EPS % (MRQ)
60% 30%
40% 30%
20%
20%
0%
10%
2008 2009E 2010E 2011E
0%
Licensing Publishing Film Production DIS NWS TWX CBS DTV CMCSA
Notes: ‐10%
1.Due to its nature, the Licensing segment does not have any costs of revenues
and only carries SG&A expense, hence the low %. Source: YahooFinance, Analyst Estimates, http://finance.yahoo.com
2.The Film Production segment cost of revenues were not yet stabilized in 2008
(hence, the low %). That last three quarters in FY 2009 indicated the
sustainable level as shown on the graph. As our comparison-analysis below indicates, media
conglomerates delivered different profitability in the key
Source: Marvel Entertainment 2008 10-k and 2009 Q1-Q3 10-q’s, http://sec.gov
segments that drive their bottom line – media networks
and film production. Time Warner’s strong margin was
RECENT DEVELOPMENTS boosted by higher revenues from its premium cable
Industry earnings development. Surprise EPS % networks (i.e. HBO) and less exposure to the waning
DIS has been beating analysts’ expectations for the advertising market. The Film Production segment is less
past three quarters (+4-5% in Q2 and Q3 and +12% in correlated with the market as a whole and more with the
Q4 2009) but some of its competitors have done more. success (degree of “hit”) of its movie releases.
CBS surpassed expectations as it has been getting out Reflected in its margin, DIS lacked major “hits” lately.
of the red and Time Warner emerged with stronger than Operating Margin: Media Networks
expected subscription revenues from its Turner and
HBO channels. Comcast has been beating 35%
expectations by high-teens to low-twenties for a year 30%
now. Overall, looking at the earnings history it seems 25%
that Disney has a more predictable earnings pattern 20%
2008
whereas its competitors are more prone to “surprises.” 15%
With the Marvel acquisition factored in, the only area 10% Q1‐3
5%
where we might see a surprise is its studio
0%
entertainment considering Marvel might spur the
“creative element” in that segment. DIS NWS TWX NBC
Source: Competitors’ 10-k’s and 10-q’s (2008-2009), http://sec.gov
Disney FY 2009 Earnings (Nov. 12 release)
Excluding non-recurring items Disney reported a 5% Operating Margin: Film Production
YOY increase in its Q4 EPS ($0.46 vs. $0.44) and a 20% 19%
20% YOY decrease in its full-year earnings ($1.82 vs. 15% 14%
$2.28). Disney beat analysts’ expectations by 12% for 15%
Q4 2009. FY 2009, however, benefited from an extra
10% 7% 7% 2008
week of operations comparing to 2008 due to the year-
end date. Given the increasing focus on game and 5%
4% Q1‐3
multimedia technologies development, starting in FY
2009 Disney is reporting its Interactive Media Group 0%
separately from the Consumer products segment. DIS NWS TWX
Higher ESPN affiliate fees and advertising revenues in
its media segment were the primary drivers of stronger Source: Competitors’ 10-k’s and 10-q’s (2008-2009), http://sec.gov
top line and margins. Those were partially offset by
higher programming costs. Positive signs have been U.S. Market saturation: Foreign markets race
registered in the Parks and Resorts segment were Major U.S. media companies have recently been actively
domestic attendance was up 10% YoY primarily driven seeking licenses in foreign markets or acquiring
by the extra week in the fiscal year and strong positive controlling stakes in foreign media companies and
response to Disney’s promotional offers. Excluding the networks (e.g. in Asia, Middle East, Eastern Europe,
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THE UNIVERSITY OF IOWA
Henry Fund Research Henry B. Tippie School of Management
etc.). Disney’s ESPN has been eager to capture more
of the UK sports market away from BSkyB. It has
succeeded to secure transmission rights for some
soccer league games. (Note: BSKyB is partially owned
by News Corp.). News Corp, in turn, has been fighting
against U.K.’s protectionism over the local BBC.
Disney has been one of the most aggressive in
capturing foreign media companies: Hungama TV
Indian children’s channel (2006), Jetix Europe (2008,
reach over 58 countries) and a 32% stake in UTV
Software Comm. (2008, major Indian media Co.).
Key sub-industry (segment) developments:
I. Cable networks’ ownership consolidation
Companies holding stakes in the various cable network
joint ventures are seeking to increase their role or Source: Adapted from Standard & Poor’s Industry Survey: Movies and Home
acquire 100% ownership in their networks. Thus, Entertainment3
Disney and Hearst have positioned to “strengthen their
hold over cable networks” as their jointly owned A&E All recent EBIT spikes in Disney’s Studio Entertainment
acquired Lifetime. Travel Channel is for sale by Cox can be linked to the releases of its three PoTC movies.
Communications and NBC Universal or Scripps Set to premier on May 28, 2010, Prince of Persia: The
Networks are expected to bid on it. Time Warner is Sand of Time is intended to become another successful
positioned for a large acquisition (e.g. of DreamWorks) franchise similar to PoTC due to it fantasy/ adventure
as it sits on a large pile of cash after the AOL spin-off. style. We are somewhat intrigued by the prospects of
Similar in size to Marvel, DreamWorks would also be an that movie and will be watching it as advertising picks up
attractive target for Disney but we believe that in the in 2010. It is fairly possible it will surpass the
near term it will be busy adequately integrating MVL blockbuster threshold of $100M but is unlikely to match
once the deal is closed. PoTC success. We tend to think profitability in this
Another key recent development has been Comcast on segment will fail to return to 2007 levels. However, if the
the verge to acquire a 51% stake in NBC Universal new franchise proves to be a $200M or so hit, we would
from GE as the latter seeks liquidity (the deal is valued review upward our EBIT forecast for the next 3 years as
at ~$30B). We interpret that as a warning sign for such franchises typically come with about 2 sequels.
major content providers – the more integrated this large
MSO becomes, the more buyer power it will gain in III. Amusement and Theme Parks performance
long-term contracts re-negotiations with those
companies. Comcast is likely to become an aggressive
competitor to content providers – its 2004 takeover bid
to acquire Disney for $54B is still fresh in our minds.
Also, a recent abolishment of a law that restricted cable
operators’ share of the market to 30% opens up larger
growth opportunities for such giants as Comcast and
Time Warner Cable.
II. Studio Entertainment: Box office market share
Movie attendance remained fairly strong through the
recession as families substituted away from vacation
packages, theme parks and sports events. Domestic
gross box office receipts increased 7% YoY with Source: IBISWorld Industry Report: Amusement and Theme Parks in the U.S.
average ticket prices up 4% to $7.453. Disney’s (May. 29, 2009).
Studios have not been capturing those cash flows This segment received a hard hit due to the deep
lagging behind studios with more successful releases. economic downturn (see chart). Given our
Disney has not released a hit since its latest Pirates of macroeconomic forecast of a sluggish domestic
the Caribbean (PoTC) sequel. The following chart recovery, we see most theme park operations struggling
indicates Walt Disney Studios (i.e. Buena Vista) have to maintain their bottom line through the next 1-1.5
lost U.S. box office market share over the last two years years. A stronger recovery is expected in 2011, but
landing at 16% of the U.S. B.O. market ($4.1B) and growth in the next year, even given the 2009 low and
12% of the Worldwide B.O. market ($7.9B) YTD 2009. deep ticket discounts, could still be negative.
5
THE UNIVERSITY OF IOWA
Henry Fund Research Henry B. Tippie School of Management
According to IBISWorld estimate, Disney (50M visitors by cable and satellite providers. More affordable movie
annually) and Universal Studios theme parks account rentals, on the other hand, have been benefiting from the
for 50% and 30% of this industry’s revenues. Thus, recession. Rentals have also been boosted by
Amusement parks account for about 20% of the total convenient services such as Redbox and Netflix, digital
and are primarily represented by Paramount Parks download platforms and videogame consoles use.
(13M visitors annually)6. This business was acquired by Overall, rentals are increasingly cannibalizing movie
Cedar Fair Inc. from CBS Corp. for $1.24B in 2006. sales preventing stronger EBIT growth. Within the rental
market, DVDs have lost market share to Blu-ray.
Amusement and Theme Parks: Market Share (2009) Factoring in both sales and rentals, the DVD market
declined 2.4% ($23.3 to $21.6B) while the Blu-ray
market increased 62% ($0.3 to $0.8B) in 20083. Thus,
13.8%
The Walt Disney Co. given the growing popularity of that technology, movie
Anheuser‐Busch, Co's studios should seek expanding their Blu-ray offering.
9.2%
48.2% GE Co. (NBC Univ.)
Emergence of strong MSOs (major vertically
9.3% Cedar Fair, L.P.
integrated cable operators)
9.5%
Six Flags, Inc. A key development that is changing the competitive
10.0% Other landscape has been the growing emergence of cable
operators as content providers. The major ones in the
U.S. (Comcast, Cablevision and Time Warner) have
Source: IBISWorld Industry Report: Amusement and Theme Parks in the U.S. been seeking to acquire content developers to build their
(May. 29, 2009)6.
in-house programming and grow vertically in addition to
This sub-industry has interesting recent dynamics. Six their distribution capabilities. In June 2009 the U.S.
Flags achieved a significant stake in a variety of Supreme Court has declined a challenge by major U.S.
amusement parks internationally. Also, in Feb. 2008 content developers (Time Warner, Walt Disney Co.,
Anheuser Busch announced plans to open 4 theme News Corp. and CBS Corp.) against a new type of DVR
parks in the wealthy Dubai (2012 open). The company - a remote server DVR from Cablevision. We see that
has been bought by InBev and the latter recently as a key warning sign for content providers: the network
announced plans to divest its parks division. The DVR could push DVR popularity even further and the
business was purchased by the private equity firm fast-forwarding power over TV ads will inevitably
Blackstone which also owns a stake in NBC Universal’s endanger cable networks’ second major source of
theme parks. We would expect that given the PE firm’s revenues – TV advertising. Content developers might
large base of financial capital, the expansion plans into have to reinvent their delivery of advertising such as
Dubai would continue. Disney has been less active in focus more on digital and online platforms. In addition,
seeking external theme parks growth. It focused on the emergence of strong cable operators integrated with
investing in the current ones and pursuing more cable networks is likely to diminish stand-alone cable
acquisitions in its media segment. While we applaud its networks’ leverage in negotiating favorable long-term
accomplishments in that area, Disney does have large contracts. While Walt Disney Co. is locked into
growth potential in the theme parks segment as well. contracts with most MSOs for another 10 years, once
We anticipate a 5-yr. CAGR of about 5% or in line with those expire the new terms might be less that favorable
the consumer products growth. Some of that would be as the competitive landscape pushes more buyer power
fueled by its new theme park in China although we do toward the MSOs.
not see strong margins form there. Opening operations
in large and/ or wealthy foreign markets could be very Growing popularity of cable networks
lucrative. On that, we see tremendous opportunity for Cable networks’ growing popularity in recent years
Disney in acquiring Anheuser Busch’s parks in the diverted viewers from the broadcasting networks as the
event Blackstone private equity group decides to sell former have increased investment in original
the operations and take the profits. With those parks’ programming, managed to find their niche audiences
ambitious growth plans in Dubai we consider them an and customize schedules accordingly. In addition, cable
attractive acquisition target. networks sometime offer re-runs of popular shows aired
initially by broadcasting companies. There are a few key
INDUSTRY TRENDS similarities between cable and broadcasting networks:
both have affiliates either in the form of cable operators
Declining DVD sales that carry their programming (cable networks) or TV
The major movie studios have been experiencing a stations (broadcasting networks). In addition, both
continuing decline in DVD sales as customers shifted to entities share their advertising time with affiliates:
digital downloads, broadband video and VOD offered broadcasters get the majority of it but allocate some for
6
THE UNIVERSITY OF IOWA
Henry Fund Research Henry B. Tippie School of Management
the local TV stations, and cable networks do the same (locked into longer term contracts). Its high-profile
with the MSOs that carry them. Frequently, new cable ESPN network approaches that classification but it does
networks forfeit the fees MSOs would usually pay and not have the pure-subscription model.
only hold on to advertising revenues for the first years Based on their cable and broadcasting operations
to get “shelf space” in the MSOs portfolio. Thus, while breadth, media companies’ market share is as follows:
formats and revenue sources are somewhat different,
we see broadcasting companies will find it increasingly
difficult to retain audiences crucial for their advertising-
based revenues format. Media companies that are
diversified both into cable and broadcasting networks
(e.g. Disney) will be hit less, but we could see the major
media companies adding even more cable networks or
increasing their stakes in those. The Walt Disney Co.
owns a few cable networks (Disney, ESPN, a stake in
A&E and Lifetime) – businesses that experienced much
stronger profitability than its broadcasting operations, Source: IBISWorld Industry Report: TV Broadcasting in the U.S. (Nov. 19, 2008).
especially during this recession.
The major broadcasting and cable networks are owned
MARKETS AND COMPETITION by one of these media power-houses:
Walt Disney’s competition consists of about 5 very
diversified players that also capture media networks, Major Competitors Networks Owned:
parks and resorts and TV/film production at different Walt Disney Co. ESPN, ABC, Disney, A&E & Lifetime (stake)
extents. Its primary competitors in the diversified Time Warner Inc. HBO, Cinemax, TBS, TNT & CW (w/ CBS)
entertainment industry are listed below starting with the News Corp. Fox, NatGeo (67%), BSkyB (stake) & Tata Sky (20%)
most diversified (left to right).
NBC Universal (GE) NBC, USA, CNBC, MSNBC, A&E & Lifetime (stake)
CBS Corp. CBS, CNET, Showtime & CW (w/ TW)
Movie and TV Companies: Business Segments Matrix
Notes:
Business Segment DIS CBS NBC NWS TWX VIA‐B
1. Disney, NBC and News Corp. co‐own Hulu.com.
Basic cable networks √ √ √ √ √ √
2. DIS and TWX own Marvel and DC Comics, respectivelly.
Premium cable networks √ √ √ 3. Time Warner, Inc. also owns AOL.
Broadcast TV networks √ √ √ √ √
Source: Standard and Poor’s Industry Survey: Broadcasting and Cable4.
Broadcast TV stations √ √ √ √
Radio stations/ ntwks. √ √ Such concentration along with fairly strong diversification
Theme parks/ resorts √ √ of each player indicates competition is intense and
Film Production √ √ √ √ √ √ companies have to invest exponentially in their
Book publishing √ √ √ √
programming to keep up. With new original shows and
high-quality graphics and other production elements,
Merchandise √ √ √ √ √ √
audiences are expecting even more each time. Hence,
Note: Ticker IDs: The Walt Disney Co. (DIS), CBS Corp. (CBS), NBC Universal we anticipate production costs to increase across the
(NBC- not a ticker), News Corp. (NWS), Time Warner Inc. (TWX), and Viacom, board, especially with continued investment in new
Inc. (VIA-B).
technologies to connect with fragmented audiences. Our
Source: Adapted from Standard & Poor’s Industry Survey: Movies and Home model factors in a 1% increase in media networks cost
Entertainment3
of revenues from the 70-71% level in the past couple of
years. We think that economies of scale in this industry
While competition is intense in the film production and
are not sustainable long-term simply because attracting
media networks segments with CBS, TWX and VIA-B
and retaining key talent is becoming increasingly
even offering premium cable networks, the theme parks
expensive.
segment has only two major players – Disney and NBC
(NBC Universal parks).
In terms of stock recovery performance over the past
We consider Disney’s lack of a premium cable network year, Disney has surpassed the market as a whole, but
in-house a potential downside going forward as basic two of its key competitors registered a much stronger
cable channels are dependent on volatile advertising recovery thus far (not shown on graph, a third one that
fees for their secondary source of revenues, while also outperformed Disney is CBS Corp.). We strongly
premium networks (HBO/ Cinemax, Showtime, Startz/ believe the company still has upside to capture and the
Encore, etc.) are based solely on subscription revenues market is primarily cautious about its parks and resorts
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THE UNIVERSITY OF IOWA
Henry Fund Research Henry B. Tippie School of Management
segments posting a strong enough recovery to jump
Competitors' D/E Ratio
back into the stock. In fact, as the company released
its FY 2009 earnings on Nov. 12, it announced a 3% 1.40 1.27
increase in domestic park attendance in Q4 (excl. the 1.20
impact of an extra week in FY 2009). We see some 1.00 0.81
0.79
signs of recovery going forward in that segment but this 0.80 0.62
trend is fragile as any kind of economic weakening 0.60 0.48
could wipe all top line gains. While we believe its parks 0.40
0.40
weathered the recession rather well due to ticket
0.20
discounts and cost-cutting, it will become more difficult
to support the bottom line through a still weak 2010. 0.00
DIS CMCSA TWX NWS DTV CBS
Source: Morningstar Data. Key Ratios. http://morningstar.com
Given the intensifying competitive landscape and the
burden of the recession projected to weigh on growth for
the next fiscal year as well, we forecast Disney growth
across segments to be modest vs. historical trends:
Disney Segments: Revenue Growth
25.0%
20.0%
Source: YahooFinance. Relative Stock Performance. http://finance.yahoo.com 15.0%
10.0%
Walt Disney is surpassing its competitors in the return 5.0%
on invested capital it generates. DTV does have a 0.0%
rather high ROIC but it is more of a programming ‐5.0% Cable Ntwks. Brdcst. Parks/Resorts Studio Ent't Consumer
distributor rather than a direct competitor to Disney. Ntwks. Products
‐10.0%
We believe that this performance coupled with the stock
‐15.0%
price recent movement still warrants some upside for
‐20.0%
Disney relative to what we have seen thus far.
2008 2009 2010
Competitors' ROIC (%) Source: Analyst’s Valuation Model – The Walt Disney Co. (Nov.16, 2009)
15 The media network segments might face slowing growth
10.3
10 6.7 with increasing market saturation and the growing buyer
5 2.80 power of large cable operators from whom cable
networks derive their contract fees. The primary driver
0
of slowing revenue growth, however, will be advertising
‐5 DIS CMCSA TWX NWS DTV revenues decline even post downtun as audiences shift
‐10 ‐7.1 away more from TV entertainment and embrace the
optionality of the DVR. Given that advertising revenues
‐15
‐15.3
represent as much as 45% of a cable and broadcasting
‐20 network’s revenues (see following chart), it could
Source: MSN Money Deluxe Screener Data, http://moneycentral.msn.com compress revenue growth in the next couple of years.
Also, Disney managed to achieve that return with a
relatively lightly levered balance sheet (see below). It
has room for additional leverage if attractive investment
opportunities emerge such as acquiring a larger cable
network/ bringing its stakes from partial to 100% or
launching new channels in underserved foreign
markets.
8
THE UNIVERSITY OF IOWA
Henry Fund Research Henry B. Tippie School of Management
one. Hence, we expect an overall slow pace of recovery
U.S. Broadcasting and Cable TV Market (distinct from most other recessions where 4-5% GDP
(2007 Revenues, $B) growths were registered after a prolonged recession).
0.5% Real GDP Growth
(incl. 9-mo. forecast)
TV Advertising
3.6 3.5
2.1 2.2 2.5
1.5 1.8
45.6% TV Subscriptions
53.9%
TV License/ Public -0.7 -0.7
Funds -2.7
-5.4
-6.4
Q3 07 Q1 08 Q3 08 Q1 09 Q3 09 Q1 10
Source: Standard and Poor’s Industry Survey: Broadcasting and Cable.
Source: Historical data: FRED Database. Forecast: Analyst.
In terms of cost of revenues, we believe broadcasting
networks will continue to struggle with their cost Unemployment. We expect the unemployment rate to
structure due to the projected advertising compression reach its 10.5% peak by mid 2010. However, as the
in the next couple of years. Cable networks will feature Bureau of Labor Statistics (BLS) reports, if the
a fairly flat trend helped by their revenues format – discouraged workers and part-time workers that want
majority derived from subscription fees for which long- full-time jobs were added to that, the rate would reach
term contracts are in place. Given that we do not see 16.5%. The labor week has shrunk to 33 hours, the
clear movie hits in Disney’s pipeline and with the recent lowest reading since measurement began 45 years ago.
step-down of the experienced segment’s head, we As unemployment rate eases to an expected 6.5% in
anticipate studio entertainment to continue to struggle 2011 and 5.6% by 2014, customer buying power is
in the next couple of years as its revenues fall short of expected to basically fully recover (BLS).
levels enough to boost profitability.
Civilian Unemployment Rate (%, seas. Adj.)
Disney Segments: Cost of Revenues Forecast (incl. 6‐mo. forecast)
12.0
10.2
95.0% 10.0
8.0
85.0%
6.0
75.0%
4.0
65.0% 2.0
0.0
55.0%
Apr‐05 Apr‐06 Apr‐07 Apr‐08 Apr‐09 Apr‐10
2007 2008 2009 2010
Cable Ntwks. Brdcst. Ntwks. Parks/Resorts Source: Historical data: FRED Database. Forecast: Analyst.
Studio Ent't Consumer Products Exchange rates. Given the international scope of Walt
Disney’s business, the continued depreciation of the
Source: Analyst’s Valuation Model – The Walt Disney Co. (Nov.16, 2009)
dollar would benefit its profitability via profits repatriation
ECONOMIC OUTLOOK and it would support its U.S. theme parks revenues from
GDP. With Disney even more focused on the consumer foreigners (at about 20% of total theme park revenues).
than its peers (primarily due to its theme parks We project a further weakening in the U.S. dollar through
segment), we anticipate GDP and disposable income 1H 2010 with currency recovery in 2H 2010.
recovery to be crucial for boosting its top line. Q3 2009
advance estimate came in as high as 3.5% but we
believe at least half of that was due to the stimulus and
cash for clunkers programs and not nearly as much to
the organic recovery and stronger economic health. In
light of that we see a fall-off in GDP in the next quarters
though 2H 2010 as the stimulus-injected economic fuel
runs out and the sluggish recovery sets the tone. Q3
2009 will also be boosted by the holiday season,
although it is not expected to be a particularly strong
9
THE UNIVERSITY OF IOWA
Henry Fund Research Henry B. Tippie School of Management
houses are bound to seek new markets. We believe that
Trade Weighted U.S. Dollar Index: Broad three players in the market: Disney, Time Warner and
(USD vs. major worldwide currencies)
Comcast are positioned to carry large M&A activity
140 primarily due to their strong balance sheets (high cash
levels and relatively low leverage). For Disney in
130
particular it would be appealing to acquire DreamWorks,
120 game developers, and even Netflix. The latter has built
112 a flexible business model with its new stream-to-TV
110 content allowing in to branch out from the older-style
mail-delivery system. Digital content streaming will be a
100
resilient growth channel. The following chart indicates
90 the higher growth potential in Asia which Disney has
Oct‐01 Oct‐03 Oct‐05 Oct‐07 Oct‐09 already been actively exploring.
World Cable & Broadcasting Market Growth
Source: Historical data: FRED Database. Forecast: Analyst.
8.0% 7.3%
6.5%
The Trade Weighted U.S. Dollar Index displayed above
measures the fair value of the U.S. dollar against a 6.0%
4.0%
basket of major world currencies. The Index was 4.0% 3.1% 3.0%2.6%
introduced by the Fed to replace the U.S. Dollar Index 2.0%
as the latter was heavily weighted in the euro and was
0.0%
not as reflective of trade volumes in major currencies.
U.S. Europe Asia‐Pacific
Disposable income. Even more than GDP, Disposable
income is a key driver of consumers’ discretionary 2003‐07 CAGR 2007‐12F CAGR
spending. Real personal disposable income rose 0.5%
in 2008 and it seems positioned to rise about 0.2% in Source: Broadcasting and2 Cable TV in the United States (Sep. 2008),
2009, a quite sluggish development. A pick-up in Datamonitor Industry Profile
industrial production per latest indicators (e.g.
Purchasing Managers’ Index - PMI) reveals that In our opinion, the Latin American market deserves
workers’ hours could increase leading to higher close attention: some countries in that market have been
disposable incomes in the following quarters. featuring increasing consumption power. A particularly
attractive market to enter is the one in Brazil – a country
Real Disposable Personal Income (BEA) that has been establishing itself as a major global
2.0 economic player. The recent decision of IOC
1.5 (International Olympic Committee) to hold the next
1.0
Olympic Games there proves the newly defined status of
that country. Overall, Brazil is probably a key vacation
0.5
destination in Latin America due to the various resorts,
0.0
the Rio de Janeiro Carnival, etc. Hence, due to that and
‐0.5
the central geographic location, a Disney theme park
‐1.0 there would be a good fit.
‐1.5
‐2.0
Another recently cleared growth avenue for Disney is
opening a theme park in Shanghai, China. After nearly a
Source: BEA – Personal Income and Outlays (Sep. 2009).
decade of negotiations with the local government to get
Overall, we believe the U.S. macroeconomic all required permits and purchase the land from farmers,
environment is still weak as job stability concerns on Nov. 5, 2009 the company announced it received the
remain high. However, the overall understanding is that required approvals to start building.
the worst is behind and the macroeconomic conditions
should be improving. Recovery in Disney’s theme Emerging digital technologies
parks attendance and resilience in foreign affiliates’ Given the increasing convenience, accessibility, quality
fees indicate some momentum for the top line. and diversity of entertainment content, viewers have
been registered to spend more time viewing content via
CATALYSTS FOR GROWTH various media. The advent of user-friendly digital
U.S. Media market saturation: Foreign markets race platforms can provide considerable avenues for growth
As the U.S. distribution channels of entertainment and the ability to capture some foreign markets that
programming have grown increasingly saturated with cannot directly access the TV programming of the U.S.
content and close competition, major media power- cable networks. We believe that game development is
10
THE UNIVERSITY OF IOWA
Henry Fund Research Henry B. Tippie School of Management
set to become a key growth area for Disney. Its video games market is a growing one with
acquisition of Mind’s Eye in 2005 (one of the leading tremendous potential particularly when factoring in
interactive TV games developers) has been the right emerging markets across the world.
step in the right direction. Video games will always
have their market and by adding Marvel it can leverage Disney has a strong balance sheet with a solid cash
that company’s large portfolio of characters for game- balance and light leverage. This supports the
development. With both Marvel and Pixar under its company’s strategy of consolidating cable networks
umbrella Disney will own virtually all popular cartoon under its umbrella. Continued increase in its stakes in
characters creating a true monopoly in that field. The those businesses will further boost profitability.
opportunity to develop multiple lines of games
customized by audience age group is very promising. Marvel’s acquisition brings Disney a large spectrum
of characters and potential to develop new ones and
Creative content: New character development convert them into successful franchises. Marvel’s
The primary cost of the large diversified entertainment assets can also be leveraged across all of Disney’s
companies is the cost of creative content and the segments making it a synergetic combination.
winners are typically the ones that both own the content
copyrights and financial resources. The Walt Disney
Co. has recently made a step in that direction by
INVESTMENT NEGATIVES
acquiring Marvel Entertainment – the legendary comics
The increasing trend of vertical integration of large
company that launched such characters as Spider-Man,
cable operators presents a threat to cable networks.
X-Men, Captain America, etc. The new addition is
As large MSOs acquire content developers their
similar to what its key competitor Time Warner already
buyer power with cable networks increases pushing
owns – DC Comics that owns the copyrights over such
for less favorable subscription fees-sharing contracts.
popular characters as Superman and Batman. We
foresee considerable revenue synergies coming out of
Disney’s movie studios have exhausted their Pirates
the Disney-Marvel combination. An initial look at the
of the Caribbean franchise and do not currently have
net assets and revenue stream of the acquisition might
another strong one in the pipeline. Since most large
indicate the impact should not be significant but the
theatrical hits are sequels of successful films, this
magnitude of the purchase price clearly indicates the
segments is set to continue at depressed EBIT levels
hidden potential. We believe that, as part of Disney,
comparing to 2007 results.
Marvel’s characters could see exponential growth
primarily due to the available financial resources and
The growth of DVR popularity and the introduction of
key access to foreign markets. Stand-alone Marvel
a network DVR on a remote server (by Cablevision) is
was not able to access those on its own and usually
set to further compress networks’ advertising
had to go through other large studios. Now, under
revenues. With consumers being able to skip
Disney’s umbrella it could start developing its lesser
commercials, media companies will have to develop
know characters and propel those across its key
new advertising platforms or risk losing those dollars
markets.
to online businesses.
INVESTMENT POSITIVES The overall intensifying competition across cable
The Walt Disney Co. is a highly diversified media networks and public’s increasing expectations for
company surpassing its closest competitors in the original and more impressive programming is likely to
breadth of its operations. As it captures most of the continue pushing programming costs up.
entertainment spectrum, the company is better
cushioned to weather a recession. VALUATION
Our estimated DIS share value using the DCF/ EP
With as much as 27% of total revenues and 48.5% valuation is $34.04. This value includes the impact of
of total operating income coming from the cable Marvel Entertainment’s acquisition of +$2.57 (projected
networks segment, this business is a key driver of
to close by the end of 2009). For a comparison of
Disney’s operating results. The long-term contract
Disney’s stock price and key financial metrics (i.e. EPS,
base of this segment’s revenues makes its cash Net Income margin, Revenue growth and ROIC) with
flows much more stable vs. other segments. and without Marvel, see the appendix. MVL acquisition
is assumed to impact financials starting in Disney’s Q1
The recent launch and a strong pace of growth in 2010 (Oct.-Dec.). The relative P/E valuation returns a
the company’s in-house game development value of $31.83 while P/S returns $38.47. The three
operations indicate a new growth avenue. The methods result in an average price of $34.78 or a 14.3%
11
THE UNIVERSITY OF IOWA
Henry Fund Research Henry B. Tippie School of Management
premium relative to Disney’s Nov. 13 close of $30.44. REFERENCES
Given this valuation and the qualitative aspects of
Disney’s marketplace positioning described earlier in 1. DIS FY2009 Earnings Release (Nov. 12, 2009), Company
the report, we recommend a Buy on DIS stock. website. 2005-08 10-k’s, 2006-09 10-q’s (DIS, TWX,
CMCSA, VIA-B and NWS), http://www.sec.gov
Financial profile assumptions: Sensitivity analysis 2. Broadcasting and Cable TV in the United States (Sep.
We expect DIS to maintain its target leverage at 19% 2008), Datamonitor Industry Profile. Business Source
(Total Debt as a percentage of Total Assets). Complete database
Operating Cash Flow is projected to grow at 7.9% 5- 3. Amobi, T. N. (Sep. 10, 2009). Industry Surveys. Movies
year CAGR. The current WACC estimate is at 8.88% and Home Entertainment. Standard and Poor’s. Net
Advantage database
with applied market risk premium of 5% (Henry Fund
Analysts’ consensus). The sensitivity analysis reveals 4. Kolb, E.B. & Amobi, T. N. (Jul. 30, 2009). Industry Surveys.
that a 2% fluctuation from the terminal projected cost of Broadcasting, Cable & Satellite. Standard and Poor’s. Net
Advantage database
revenues (74.5%, per model) would result in $3.27
deviation from the target DCF model stock price. A 5. IBISWorld Industry Report (May 29, 2009). Amusement and
fluctuation in the terminal revenues growth assumption Theme Parks in the U.S. IBIS Database,
http://www.ibisworld.com
has a different pattern of impact: a 0.5% increase from
model’s 2.5% adds $2.18 to the stock while the same
decrease subtracts $1.84. This reveals that while cost
of revenues seems to have a linear relationship with the IMPORTANT DISCLAIMER
stock price, terminal revenue growth has more of an This report was created by a student(s) enrolled in the Applied
exponential impact. Further, the assumption of Securities Management (Henry Fund) program at the University of
Iowa’s Tippie School of Management. The intent of these reports is to
Marvel’s amortizable acquisition intangibles as a provide potential employers and other interested parties an example of
percentage of total created intangibles seems to have the analytical skills, investment knowledge, and communication
minimal impact on the stock price; however, a higher abilities of Henry Fund students. Henry Fund analysts are not
percentage assumption tends to increase the target registered investment advisors, brokers or officially licensed financial
professionals. The investment opinion contained in this report does
stock price by a few cents (related to the tax shield not represent an offer or solicitation to buy or sell any of the
effect of the respective amortization). aforementioned securities. Unless otherwise noted, facts and figures
included in this report are from publicly available sources. This report is
Sell discipline not a complete compilation of data, and its accuracy is not guaranteed.
From time to time, the University of Iowa, its faculty, staff, students, or
We would consider selling the DIS stock if a the Henry Fund may hold a financial interest in the companies
combination of a few from the following developments mentioned in this report.
occurs:
• The company fails to close on the Marvel
acquisition and loses the deal
• Its studio segment experiences another year of
depressing growth and bottom line as the company
fails to discover a successful movie franchise
• Comcast acquires the entire 100% stake in its close
competitor NBC Universal, or
• Due to legal disputes, Disney fails to gain back
copyrights over Marvel’s characters that are
currently licensed to third-party studios.
12
THE UNIVERSITY OF IOWA
Henry Fund Research Henry B. Tippie School of Management
Walt Disney Co.
Key Assumptions of Valuation Model
Ticker Symbol DIS
Current Stock Price $ 30.44 As of 11/13/2009
Marginal Tax Rate 37.0% Derived from the income tax provision and adj. only for operating recurring items
Normal Cash (% of Revenue) 9.0% Historic 3‐year avg.
Target Leverage (% of Assets BV) 18.5% 3‐yr. avg. L‐T Debt as % of Total Assets; applied to L‐T Debt balance in forecast
Risk‐Free Rate 4.36% 30‐Yr. T‐Bond (as of 11/13/2009)
Market Risk Premium 5.00% Henry Fund Analysts' consensus (11 analysts)
Beta 1.15 Base: 5‐yr. monthly returns (Oct. 2004 ‐ 2009)
Cost of Debt 6.20% A‐rated L‐T Debt
Cost of Equity 10.12%
Cost of Preferred N/A
WACC 8.88%
Target Terminal Growth 2.7% Derived from by‐segment assumptions
Interest Income ‐ Interest Rate (L‐T) 3.5% Based on historical 5‐yr. average
Interest Expense ‐ Interest Rate (L‐T) 5.5% Based on historical 5‐yr. average
Valuation Overview and Key Assumptions:
1. The model incorporates the forecasted impact of Walt Disney's (DIS) acquisition of Marvel (MVL) starting in FY 2010 (deal close by 2009‐end).
2. A dynamic formula allows to switch the model from Disney w/ and w/out Marvel' acquisition and compare key metrics such as EPS impact.
3. Segment revenues and operating expenses are modeled separately for both stand‐alone Walt Disney and Marvel.
4. Most acquisition synergies are projected in revenues w/ some in distribution costs (DIS and MVL have mostly different cost structures).
5. The acquisition is estimated to be dilutive to Disney's stand‐alone EPS due to the impact of MVL's created intangibles (amortized over 6 yrs.)
6. Treasury stock serves as a plug on the balance sheet ‐ in the event of excess cash it triggers share repurchases.
7. DIS is assumed to maintain a target capital structure (L‐T Debt/ Total Assets = 19%) based on historical trend and for const. WACC validity.
13
THE UNIVERSITY OF IOWA
Henry Fund Research Henry B. Tippie School of Management
Walt Disney Co.
FYE October 3
($ Millions)
Segment Revenues (historic) 2004 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 2008
Revenues 30,752
$ 31,944 $
$ 8,854 $
8,027 $
8,474 $ 8,392 $ 33,747 $ 9,725 $ 8,073 $ 9,045 $ 8,667 $ 35,510 10,452 $
$ 9,236 $ 9,445 $ 37,843
8,710 $
% Growth 3.9% 5.6% 9.8% 0.6% 6.7% 3.3% 5.2% 7.5% 7.9% 2.1% 9.0% 6.6%
Media Networks 11,778
$ 13,207 $
$ 3,674 $
3,551 $
3,594 $ 3,281 $ 14,100 $ 3,911 $ 3,561 $ 3,817 $ 3,757 $ 15,046 4,109 $
$ 3,550 $
4,054 $ 4,403 $ 16,116
% Growth 12.1% 6.8% 6.5% 0.3% 6.2% 14.5% 6.7% 5.1% ‐0.3% 6.2% 17.2% 7.1%
Cable Networks 6,410
$ 7,262
$ $
1,865 1,772
$ 2,206
$ $ 2,316 $ 8,159 $ 2,092 $ 1,899 $ 2,305 $ 2,871 $ 9,167 2,412
$ $
2,110 2,592
$ $ 2,927 $ 10,041
% Growth 13.3% 12.4% 12.2% 7.2% 4.5% 24.0% 12.4% 15.3% 11.1% 12.5% 2.0% 9.5%
Broadcasting 5,368
$ 5,945
$ $
1,809 1,779
$ 1,388
$ $ 965 $ 5,941 $ 1,819 $ 1,662 $ 1,512 $ 886 $ 5,879 1,697
$ $
1,440 1,462
$ $ 1,476 $ 6,075
% Growth 10.7% ‐0.1% 0.6% ‐6.6% 8.9% ‐8.2% ‐1.0% ‐6.7% ‐13.4% ‐3.3% 66.6% 3.3%
Parks and Resorts 7,750
$ 9,023
$ $
2,402 2,251
$ 2,730
$ $ 2,542 $ 9,925 $ 2,489 $ 2,446 $ 2,904 $ 2,787 $ 10,626 2,772
$ $
2,725 3,038
$ $ 2,969 $ 11,504
% Growth 16.4% 10.0% 3.6% 8.7% 6.4% 9.6% 7.1% 11.4% 11.4% 4.6% 6.5% 8.3%
Studio Entertainment 8,713
$ 7,587
$ $
2,045 1,774
$ 1,705
$ $ 2,005 $ 7,529 $ 2,633 $ 1,550 $ 1,775 $ 1,533 $ 7,491 2,641
$ $
1,822 1,433
$ $ 1,452 $ 7,348
% Growth ‐12.9% ‐0.8% 28.8% ‐12.6% 4.1% ‐23.5% ‐0.5% 0.3% 17.5% ‐19.3% ‐5.3% ‐1.9%
Consumer Products 2,511
$ 2,127
$ $ 733 $ 451 $ 445 $ 564 $ 2,193 $ 692 $ 516 $ 549 $ 590 $ 2,347 $ 930 $ 613 $ 711 $ 621 $ 2,875
% Growth ‐15.3% 3.1% ‐5.6% 14.4% 23.4% 4.6% 7.0% 34.4% 18.8% 29.5% 5.3% 22.5%
Costs and expenses (incl. Depr.) 26,045
$ 27,290
$ $
7,475 6,593
$ 6,475
$ $ 6,843 $ 27,386 $ 7,731 $ 6,284 $ 6,756 $ 6,912 $ 27,683 8,204
$ $
6,571 6,916
$ $ 7,696 $ 29,387
% of Revenues 85.4% 84.4% 82.1% 76.4% 81.5% 81.2% 79.5% 77.8% 74.7% 79.8% 78.0% 78.5% 75.4% 74.9% 81.5% 77.7%
Media Networks 9,390
$ 10,458
$ $
3,068 2,582
$ 2,489
$ $ 2,481 $ 10,620 $ 3,161 $ 2,386 $ 2,459 $ 2,755 $ 10,761 3,180
$ 2,194
$ 2,534
$ $ 3,453 $ 11,361
% of Revenues 79.2% 83.5% 72.7% 69.3% 75.6% 75.3% 80.8% 67.0% 64.4% 73.3% 71.5% 77.4% 61.8% 62.5% 78.4% 70.5%
Cable Networks 4,486
$ 4,977
$ $
1,493 $ 963 1,231
$ $ 1,467 $ 5,154 $ 1,639 $ 936 $ 1,242 $ 1,768 $ 5,585 1,826
$ $
1,016 1,380
$ $ 1,719 $ 5,941
% of Revenues 68.5% 80.1% 54.3% 55.8% 63.3% 63.2% 78.3% 49.3% 53.9% 61.6% 60.9% 75.7% 48.2% 53.2% 58.7% 59.2%
Broadcasting 4,904
$ 5,481
$ $
1,575 1,619
$ 1,258
$ $ 1,014 $ 5,466 $ 1,522 $ 1,450 $ 1,217 $ 987 $ 5,176 1,354
$ $
1,178 1,154
$ $ 1,734 $ 5,420
% of Revenues 92.2% 87.1% 91.0% 90.6% 105.1% 92.0% 83.7% 87.2% 80.5% 111.4% 88.0% 79.8% 81.8% 78.9% 117.5% 89.2%
Parks and Resorts 6,627
$ 7,845
$ $
2,027 2,037
$ 2,181
$ $ 2,146 $ 8,391 $ 2,084 $ 2,192 $ 2,283 $ 2,357 $ 8,916 2,267
$ $
2,386 2,397
$ $ 2,557 $ 9,607
% of Revenues 86.9% 84.4% 90.5% 79.9% 84.4% 84.5% 83.7% 89.6% 78.6% 84.6% 83.9% 81.8% 87.6% 78.9% 86.1% 83.5%
Studio Entertainment 8,051
$ 7,380
$ $
1,917 1,627
$ 1,465
$ $ 1,791 $ 6,800 $ 2,029 $ 1,315 $ 1,583 $ 1,363 $ 6,290 2,127
$ $
1,445 1,336
$ $ 1,354 $ 6,262
% of Revenues 97.3% 93.7% 91.7% 85.9% 89.3% 90.3% 77.1% 84.8% 89.2% 88.9% 84.0% 80.5% 79.3% 93.2% 93.3% 85.2%
Consumer Products 1,977
$ 1,607
$ $ 463 $ 347 $ 340 $ 425 $ 1,575 $ 457 $ 391 $ 431 $ 437 $ 1,716 $ 630 $ 546 $ 649 $ 332 $ 2,157
% of Revenues 75.6% 63.2% 76.9% 76.4% 75.4% 71.8% 66.0% 75.8% 78.5% 74.1% 73.1% 67.7% 89.1% 91.3% 53.5% 75.0%
Operating income 4,707
$ 4,654
$ $
1,379 1,434
$ 1,999
$ $ 1,549 $ 6,361 $ 1,994 $ 1,789 $ 2,289 $ 1,755 $ 7,827 2,248
$ $
2,139 2,320
$ $ 1,749 $ 8,456
OI Margin % 14.6% 15.6% 17.9% 23.6% 18.5% 18.8% 20.5% 22.2% 25.3% 20.2% 22.0% 21.5% 24.6% 25.1% 18.5% 22.3%
Media Networks 2,388
$ 2,749
$ $ 606 $ 969 1,105
$ $ 800 $ 3,480 $ 750 $ 1,175 $ 1,358 $ 1,002 $ 4,285 $ 929 1,356
$ 1,520
$ $ 950 $ 4,755
OI Margin % 20.8% 16.5% 27.3% 30.7% 24.4% 24.7% 19.2% 33.0% 35.6% 26.7% 28.5% 22.6% 38.2% 37.5% 21.6% 29.5%
Cable Networks 1,924
$ 2,285
$ $ 372 $ 809 $ 975 $ 849 $ 3,005 $ 453 $ 963 $ 1,063 $ 1,103 $ 3,582 $ 586 $
1,094 1,212
$ $ 1,208 $ 4,100
OI Margin % 31.5% 19.9% 45.7% 44.2% 36.7% 36.8% 21.7% 50.7% 46.1% 38.4% 39.1% 24.3% 51.8% 46.8% 41.3% 40.8%
Broadcasting $ 464 $ 464 $ 234 $ 160 $ 130 $ (49) $ 475 $ 297 $ 212 $ 295 $ (101) $ 703 $ 343 $ 262 $ 308 $ (258) $ 655
OI Margin % 7.8% 12.9% 9.0% 9.4% ‐5.1% 8.0% 16.3% 12.8% 19.5% ‐11.4% 12.0% 20.2% 18.2% 21.1% ‐17.5% 10.8%
Parks and Resorts 1,123
$ 1,178
$ $ 375 $ 214 $ 549 $ 396 $ 1,534 $ 405 $ 254 $ 621 $ 430 $ 1,710 $ 505 $ 339 $ 641 $ 412 $ 1,897
OI Margin % 13.1% 15.6% 9.5% 20.1% 15.6% 15.5% 16.3% 10.4% 21.4% 15.4% 16.1% 18.2% 12.4% 21.1% 13.9% 16.5%
Studio Entertainment $ 662 $ 207 $ 128 $ 147 $ 240 $ 214 $ 729 $ 604 $ 235 $ 192 $ 170 $ 1,201 $ 514 $ 377 $ 97 $ 98 $ 1,086
OI Margin % 2.7% 6.3% 8.3% 14.1% 10.7% 9.7% 22.9% 15.2% 10.8% 11.1% 16.0% 19.5% 20.7% 6.8% 6.7% 14.8%
Consumer Products $ 534 $ 520 $ 270 $ 104 $ 105 $ 139 $ 618 $ 235 $ 125 $ 118 $ 153 $ 631 67 $ 62
$ 300 $ $ 289 $ 718
OI Margin % 24.4% 36.8% 23.1% 23.6% 24.6% 28.2% 34.0% 24.2% 21.5% 25.9% 26.9% 32.3% 10.9% 8.7% 46.5% 25.0%
Costs and expenses (excl. Depr.) 25,002 $
$ 26,094 $
7,143 6,269
$ 6,146
$ $ 6,537 $ 26,095 $ 7,397 $ 5,958 $ 6,423 $ 6,578 $ 26,356 7,863
$ $
6,223 6,560
$ $ 7,337 $ 27,983
Add: Equity in investees' inc. (loss) 372 $
$ 483 $ 111 $ 108 $ 136 $ 118 $ 473 $ 121 $ 121 $ 147 $ 96 $ 485 $ 123 $ 144 $ 175 $ 139 $ 581
Costs and expenses (inc. stmt) 25,374 $
$ 26,577 $
7,254 6,377
$ 6,282
$ $ 6,655 $ 26,568 $ 7,518 $ 6,079 $ 6,570 $ 6,674 $ 26,841 7,986
$ $
6,367 6,735
$ $ 7,476 $ 28,564
Corporate expenses, net $ 428 $ 536 104
$ $
138 $ 120 $ 160 $ 522 $ 106 $ 132 $ 115 $ 144 $ 497 $ 92 $ 97 $ 124 $ 158 $ 471
Corporate expenses (excl. Depr.) $ 273 $ 404 $ 70 $
107 $ 92 $ 127 $ 396 $ 73 $ 99 $ 81 $ 112 $ 365 $ 62 $ 67 $ 93 $ 126 $ 348
% of Total Revenues 0.9% 1.3% 0.8% 1.3% 1.1% 1.5% 1.2% 0.8% 1.2% 0.9% 1.3% 1.0% 0.6% 0.8% 1.0% 1.3% 0.9%
Depreciation ‐ total 1,198
$ 1,328
$ $
366 355
$ $ 357 $ 339 $ 1,417 $ 367 $ 359 $ 367 $ 366 $ 1,459 $ 371 378
$ $ 387 $ 391 $ 1,527
% of Total Revenues
Depreciation ‐ segments 1,043
$ 1,196 $ 332 $ 324 $ 329
$ $ 306 $ 1,291 $ 334 $ 326 $ 333 $ 334 $ 1,327 $ 341 $ 348 $ 356 $ 359 $ 1,404
Depreciation ‐ corporate $ 155 34 $
$ 132 $ 31 $ 28 $ 33 $ 126 $ 33 $ 33 $ 34 $ 32 $ 132 30 $
$ 30 $ 31 $ 32 $ 123
Depreciation & Amortization $ 1,210 $ 1,341 $ 370 $ 360 $ 362 $ 345 $ 1,437 $ 374 $ 367 $ 375 $ 375 $ 1,491 $ 385 $ 391 $ 402 $ 404 $ 1,582
Depreciation $ 1,198 $ 1,328 $ 366 $ 355 $ 357 $ 339 $ 1,417 $ 367 $ 359 $ 367 $ 366 $ 1,459 $ 371 $ 378 $ 387 $ 391 $ 1,527
Amortization 12 $
$ 4 5 14 $
13 $ $ $ 5 $ 6 $ 20 $ 7 $ 8 $ 8 $ 9 $ 32 $ 13 $ 15 $ 13 $ 55
Equity in investees' income (loss) $ 372 $ 483 $ 111 $ 108 $ 136 $ 118 $ 473 $ 121 $ 121 $ 147 $ 96 $ 485 $ 123 $ 144 $ 175 $ 139 $ 581
% of Revenues 1.2% 1.5% 1.3% 1.3% 1.6% 1.4% 1.4% 1.2% 1.5% 1.6% 1.1% 1.4% 1.2% 1.7% 1.9% 1.5% 1.5%
14
THE UNIVERSITY OF IOWA
Henry Fund Research Henry B. Tippie School of Management
Walt Disney Co.
FYE October 3
($ Millions)
Segment Revenues (forecast) 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 2009 Q1 2010E Q2 2010E Q3 2010E Q4 2010E 2010E 2011E 2012E 2013E 2014E Terminal
Revenues 37,843 $
$ 9,599 $
8,087 $
8,596 $ 9,867 $ 36,149 $ 9,893 $ 8,425 $ 9,005 $ 10,251 $ 37,575 40,731 $
$ 38,959 $ 42,406 $ 43,630 $ 44,830
% Growth 6.6% ‐8.2% ‐7.2% ‐6.9% 4.5% ‐4.5% 3.1% 4.2% 4.8% 3.9% 3.9% 3.7% 4.5% 4.1% 2.9% 2.8%
Media Networks 16,116 $
$ 3,903 $
3,620 $
3,961 $ 4,725 $ 16,209 $ 4,045 $ 3,736 $ 4,145 $ 4,853 $ 16,779 18,138 $
$ 17,444 $ 18,713 $ 19,119 $ 19,599
% Growth 7.1% ‐5.0% 2.0% ‐2.3% 7.3% 0.6% 3.6% 3.2% 4.6% 2.7% 3.5% 4.0% 4.0% 3.2% 2.2% 2.5%
Cable Networks 10,041 $
$ 2,204 $
2,452 $ 2,563 $ 3,336 $ 10,555 $ 2,550 $ 2,292 $ 2,691 $ 3,436 $ 10,969 12,094 $
$ 11,518 $ 12,578 $ 12,892 $ 13,279
% Growth 9.5% 1.7% 4.5% ‐1.1% 14.0% 5.1% 4.0% 4.0% 5.0% 3.0% 3.9% 5.0% 5.0% 4.0% 2.5% 3.0%
Broadcasting 6,075 $
$ 1,451 $
1,416 $
1,398 $ 1,389 $ 5,654 $ 1,495 $ 1,444 $ 1,454 $ 1,417 $ 5,810 $ 5,926 $
6,044 6,135
$ $ 6,227 $ 6,320
% Growth 3.3% ‐14.5% ‐1.7% ‐4.4% ‐5.9% ‐6.9% 3.0% 2.0% 4.0% 2.0% 2.8% 2.0% 2.0% 1.5% 1.5% 1.5%
Parks and Resorts 11,504 $
$ 2,407 $
2,665 $ 2,751 $ 2,844 $ 10,667 $ 2,718 $ 2,503 $ 2,889 $ 3,015 $ 11,125 12,264 $
$ 11,570 $ 12,877 $ 13,328 $ 13,728
% Growth 8.3% ‐3.9% ‐11.7% ‐9.4% ‐4.2% ‐7.3% 2.0% 4.0% 5.0% 6.0% 4.3% 4.0% 6.0% 5.0% 3.5% 3.0%
Studio Entertainment 7,348 $
$ 1,945 $
1,435 $
1,261 $ 1,495 $ 6,136 $ 2,023 $ 1,535 $ 1,311 $ 1,540 $ 6,410 $ 6,538 $
6,734 6,970
$ $ 7,144 $ 7,322
% Growth ‐1.9% ‐26.4% ‐21.2% ‐12.0% 3.0% ‐16.5% 4.0% 7.0% 4.0% 3.0% 4.5% 2.0% 3.0% 3.5% 2.5% 2.5%
Consumer Products 2,875 $
$ 1,086 $
625 623
$ $ 803 $ 3,137 $ 1,108 $ 650 $ 660 $ 843 $ 3,261 $ 3,408 $
3,595 3,847
$ $ 4,039 $ 4,181
% Growth 22.5% 16.8% 2.0% ‐12.4% 29.3% 9.1% 2.0% 4.0% 6.0% 5.0% 4.0% 4.5% 5.5% 7.0% 5.0% 3.5%
Costs and expenses (incl. Depr.) 29,387 $
$ 6,561 $
8,155 $ 6,747 $ 8,014 $ 29,477 $ 8,494 $ 6,848 $ 7,120 $ 7,992 $ 30,454 32,110 $
$ 31,302 $ 33,146 $ 33,899 $ 34,816
% of Revenues 77.7% 85.0% 81.1% 78.5% 81.2% 81.5% 85.9% 81.3% 79.1% 78.0% 81.0% 80.3% 78.8% 78.2% 77.7% 77.7%
Media Networks 11,361 $
$ 2,314 $
3,248 $ 2,642 $ 3,240 $ 11,444 $ 3,324 $ 2,532 $ 2,894 $ 3,207 $ 11,957 13,059 $
$ 12,593 $ 13,316 $ 13,531 $ 13,852
% of Revenues 70.5% 83.2% 63.9% 66.7% 68.6% 70.6% 82.2% 67.8% 69.8% 66.1% 71.3% 72.2% 72.0% 71.2% 70.8% 70.7%
Cable Networks 5,941 $
$ 1,935 $
1,060 $
1,448 $ 1,853 $ 6,296 $ 1,964 $ 1,261 $ 1,615 $ 1,890 $ 6,729 $ 7,141 $
7,498 7,672
$ $ 7,864 $ 8,100
% of Revenues 59.2% 78.9% 48.1% 56.5% 55.5% 59.6% 77.0% 55.0% 60.0% 55.0% 61.3% 62.0% 62.0% 61.0% 61.0% 61.0%
Broadcasting 5,420 $
$ 1,313 $
1,254 $
1,194 $ 1,387 $ 5,148 $ 1,360 $ 1,271 $ 1,279 $ 1,318 $ 5,228 $ 5,452 $
5,561 5,644
$ $ 5,667 $ 5,752
% of Revenues 89.2% 90.5% 88.6% 85.4% 99.9% 91.1% 91.0% 88.0% 88.0% 93.0% 90.0% 92.0% 92.0% 92.0% 91.0% 91.0%
Parks and Resorts 9,607 $
$ 2,236 $
2,283 $ 2,230 $ 2,500 $ 9,249 $ 2,324 $ 2,253 $ 2,340 $ 2,593 $ 9,509 10,424 $
$ 9,834 $ 10,881 $ 11,195 $ 11,531
% of Revenues 83.5% 85.7% 92.9% 81.1% 87.9% 86.7% 85.5% 90.0% 81.0% 86.0% 85.5% 85.0% 85.0% 84.5% 84.0% 84.0%
Studio Entertainment 6,262 $
$ 1,758 $
1,422 $
1,273 $ 1,508 $ 5,961 $ 1,982 $ 1,459 $ 1,272 $ 1,509 $ 6,222 $ 6,080 $
5,858 6,064
$ $ 6,144 $ 6,297
% of Revenues 85.2% 90.4% 99.1% 101.0% 100.9% 97.1% 98.0% 95.0% 97.0% 98.0% 97.1% 93.0% 87.0% 87.0% 86.0% 86.0%
Consumer Products 2,157
$ 866
$ $
589 602
$ $ 766 $ 2,823 $ 864 $ 605 $ 614 $ 683 $ 2,766 $ 2,795 $
2,768 2,885
$ $ 3,030 $ 3,136
% of Revenues 75.0% 79.7% 94.2% 96.6% 95.4% 90.0% 78.0% 93.0% 93.0% 81.0% 84.8% 82.0% 77.0% 75.0% 75.0% 75.0%
Operating income 8,456 $
$ 1,444 $ 1,526 $
1,849 $ 1,853 $ 6,672 $ 1,399 $ 1,577 $ 1,885 $ 2,258 $ 7,121 $ 7,657 $
8,621 9,260
$ $ 9,731 $ 10,014
OI Margin % 22.3% 15.0% 18.9% 21.5% 18.8% 18.5% 14.1% 18.7% 20.9% 22.0% 19.0% 19.7% 21.2% 21.8% 22.3% 22.3%
Media Networks 4,755 $
$ 655 $
1,306 $
1,319 $ 1,485 $ 4,765 $ 721 $ 1,205 $ 1,251 $ 1,645 $ 4,822 $ 4,851 $
5,079 5,396
$ $ 5,588 $ 5,748
OI Margin % 29.5% 16.8% 36.1% 33.3% 31.4% 29.4% 17.8% 32.2% 30.2% 33.9% 28.7% 27.8% 28.0% 28.8% 29.2% 29.3%
Cable Networks 4,100
$ 517
$ $
1,144 $
1,115 $ 1,483 $ 4,259 $ 587 $ 1,031 $ 1,076 $ 1,546 $ 4,241 $ 4,377 $
4,596 4,905
$ $ 5,028 $ 5,179
OI Margin % 40.8% 21.1% 51.9% 43.5% 44.5% 40.4% 23.0% 45.0% 40.0% 45.0% 38.7% 38.0% 38.0% 39.0% 39.0% 39.0%
Broadcasting $ 655 138
$ $
162 204 $ 2
$ $ 506 $ 135 $ 173 $ 174 $ 99 474
$ 581 $ $ 484 $ 491 $ 560 $ 569
OI Margin % 10.8% 9.5% 11.4% 14.6% 0.1% 8.9% 9.0% 12.0% 12.0% 7.0% 10.0% 8.0% 8.0% 8.0% 9.0% 9.0%
Parks and Resorts 1,897
$ 382
$ $
171 521
$ $ 344 $ 1,418 $ 394 $ 250 $ 549 $ 422 $ 1,615 $ 1,735 $
1,840 1,996
$ $ 2,132 $ 2,196
OI Margin % 16.5% 14.3% 7.1% 18.9% 12.1% 13.3% 14.5% 10.0% 19.0% 14.0% 14.5% 15.0% 15.0% 15.5% 16.0% 16.0%
Studio Entertainment 1,086
$ 187
$ $ 13 $
(12) $ (13) $ 175 $ 40 $ 77 $ 39 $ 31 458
$ 187 $ $ 875 $ 906 $ 1,000 $ 1,025
OI Margin % 14.8% 9.6% 0.9% ‐1.0% ‐0.9% 2.9% 2.0% 5.0% 3.0% 2.0% 2.9% 7.0% 13.0% 13.0% 14.0% 14.0%
Consumer Products $ 718 220
$ $ 36 $ 21 $ 37 $ 314 $ 244 $ 46 $ 46 $ 160 613
$ 496 $ $ 827 $ 962 $ 1,010 $ 1,045
OI Margin % 25.0% 20.3% 5.8% 3.4% 4.6% 10.0% 22.0% 7.0% 7.0% 19.0% 15.2% 18.0% 23.0% 25.0% 25.0% 25.0%
Costs and expenses (excl. Depr.) 27,983 $
$ 7,804 $ 6,200 $ 6,389 $ 7,632 $ 28,025 $ 8,118 $ 6,472 $ 6,744 $ 7,616 $ 28,952 $ 29,732 $ 30,462 $ 31,408 $ 32,066 $ 32,885
Add: Equity in investees' inc. (loss) 147 $
$ 581 $ 155
147 $ $ 128 $ 577 $ 129 $ 133 $ 156 574 $ 600 $ 625 $ 643 $ 661
$ 136 $ 554 $
Costs and expenses (inc. stmt) 28,564 $
$ 7,951 $ 6,347 $ 6,544 $ 7,760 $ 28,602 $ 8,247 $ 6,605 $ 6,900 $ 7,753 $ 29,505 $ 30,307 $ 31,063 $ 32,033 $ 32,709 $ 33,546
Corporate expenses, net $ 471 $ 80 $ 92 $ 96 $ 130 $ 398
Corporate expenses (excl. Depr.) $ 348 $ 48 $ 60 $ 64 $ 98 $ 270 $ 65 $ 86 $ 84 $ 141 411
$ 376 $ $ 430 $ 447 $ 460 $ 473
% of Total Revenues 0.9% 0.5% 0.7% 0.7% 1.0% 0.7% 0.7% 1.0% 0.9% 1.4% 1.0% 1.1% 1.1% 1.1% 1.1% 1.1%
Depreciation ‐ total 1,527
$ 383
$ $
393 390
$ $ 414 $ 1,580 $ 411 $ 411 $ 411 $ 411 $ 1,642 $ 1,715 $
1,801 1,900
$ $ 2,004 $ 2,110
% of Total Revenues
Depreciation ‐ segments 1,404
$ 351
$ 361
$ $
358 $ 382 $ 1,452 $ 376 $ 376 $ 376 $ 376 $ 1,503 $ 1,569 1,648
$ 1,739
$ $ 1,834 $ 1,931
Depreciation ‐ corporate $ 123 $ 32 $ 32 $ 32 $ 32 $ 128 $ 35 $ 35 $ 35 $ 35 $ 140 $
146 $ 153 $ 162 $ 170 $ 179
Depreciation & Amortization $ 1,582 $ 396 $ 406 $ 404 $ 425 $ 1,631 $ 531 $ 531 $ 531 $ 531 $ 2,123 $ 2,219 $ 2,301 $ 2,396 $ 2,495 $ 2,597
Depreciation $ 1,527 $ 383 $ 393 $ 390 $ 414 $ 1,580 $ 411 $ 411 $ 411 $ 411 $ 1,642 $ 1,715 $ 1,801 $ 1,900 $ 2,004 $ 2,110
Amortization 55 $ 13 $ 13 $ 14 $ 11 $ 51 $ 120 $ 120 $ 120 $ 120 $ 481 $
$ 504 $ 500 $ 496 $ 492 $ 487
Equity in investees' income (loss) 574 $ 600 $ 625 $ 643 $ 661
$ 581 $ 147 $ 147 $ 155 $ 128 $ 577 $ 129 $ 133 $ 156 $ 136 $ 554 $
% of Revenues 1.5% 1.5% 1.8% 1.8% 1.3% 1.6% 1.3% 1.6% 1.7% 1.3% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5%
1.3% 1.6% 1.7% 1.3%
Notes:
1. Uptick in studio entertainment revenues post 2011 is due to the increasing use of key Marvel characters after contracts w/ other studios expire.
2. The Broadcasting segment is expected to continue operating in a tight cost structure.
3. Synergies from Marvel's acquisition are incorporated in MVL's forecast.
4. While DIS will capture some cost synergies by leveraging MVL characters across its segments, the incr. costs of programm.dev't/ creative talent compensation will offset that somewhat.
15
THE UNIVERSITY OF IOWA
Henry Fund Research Henry B. Tippie School of Management
Marvel Entertainment
FYE December 31
($ Millions)
4
Income Statement 2006 2007 2008 2009E 2010E 2011E 2012E 2013E 2014E Terminal
Revenues $ 352 $ 486 $ 676 $ 626 $ 652 $ 697 $ 763 $ 829 $ 873 $ 896
% Growth ‐9.9% 38.1% 39.2% ‐7.4% 4.1% 6.9% 9.4% 8.7% 5.4% 2.6%
Cost of revenues $ 104 $ 61 $ 192 $ 235 $ 247 $ 265 $ 291 $ 322 $ 344 $ 354
% of Revenues 29.4% 12.5% 28.3% 37.5% 37.9% 38.0% 38.2% 38.8% 39.3% 39.5%
Gross Profit $ 248 $ 425 $ 485 $ 391 $ 405 $ 432 $ 471 $ 507 $ 530 $ 542
Gross Margin 70.6% 87.5% 71.7% 62.5% 62.1% 62.0% 61.8% 61.2% 60.7% 60.5%
SG&A $ 123 $ 147 $ 139 $ 144 $ 147 $ 153 $ 158 $ 167 $ 175 $ 173
% of Revenues 35.0% 30.3% 20.5% 23.0% 22.5% 21.9% 20.7% 20.2% 20.0% 19.3%
Restructuring/ Other 18 $ 11 $ 7 $ 8 $ 20 $
$ 21 $ 15 $ 8 $ 9 $ 9
% of Revenues 5.0% 2.3% 1.0% 1.3% 3.0% 3.0% 2.0% 1.0% 1.0% 1.0%
EBIT $ 108 $ 267 $ 339 $ 239 $ 239 $ 259 $ 299 $ 331 $ 347 $ 360
EBIT Margin 30.6% 54.9% 50.2% 38.1% 36.7% 37.1% 39.1% 40.0% 39.7% 40.1%
Segment Revenues 2006 2007 2008 2009E 2010E 2011E 2012E 2013E 2014E Terminal
Total Revenues $ 352 $ 486 $ 676 $ 626 $ 652 $ 697 $ 763 $ 829 $ 873 $ 896
Total U.S. $ 257 $ 339 $ 443 $ 410 $ 426 $ 452 $ 491 $ 540 $ 575 $ 591
% Growth ‐16.3% 31.7% 30.7% ‐7.4% 3.9% 6.1% 8.8% 10.1% 6.4% 2.6%
Total Foreign 95 $ 147 $ 234 $ 217 $ 227 $ 246 $ 272 $ 288 $ 298 $ 306
$
% Growth 13.5% 55.4% 58.7% ‐7.3% 4.6% 8.6% 10.4% 6.2% 3.4% 2.5%
Licensing $ 127 $ 273 $ 293 $ 265 $ 274 $ 289 $ 312 $ 330 $ 339 $ 346
% Growth ‐44.7% 114.4% 7.4% ‐9.4% 3.3% 5.7% 7.9% 5.8% 2.6% 2.0%
U.S. 84 $ 179 $ 170 $ 154 $ 157 $ 164 $ 175 $ 189 $ 195 $ 199
$
% Growth ‐53.9% 112.8% ‐4.6% ‐9.4% 2.0% 4.0% 7.0% 8.0% 3.0% 2.0%
Foreign 43 $ 94 $ 123 $ 111 $ 117 $ 126 $ 137 $ 141 $ 144 $ 147
$
% Growth ‐10.0% 117.6% 30.0% ‐9.4% 5.0% 8.0% 9.0% 3.0% 2.0% 2.0%
Publishing $ 109 $ 126 $ 125 $ 115 $ 117 $ 120 $ 127 $ 137 $ 146 $ 149
% Growth 17.4% 15.9% ‐0.2% ‐8.3% 1.6% 3.0% 5.7% 7.6% 6.5% 2.0%
U.S. 91 $ 107 $ 112 $ 102 $ 104 $ 108 $ 114 $ 123 $ 132 $ 134
$
% Growth 17.6% 17.6% 4.5% ‐8.3% 2.0% 3.0% 6.0% 8.0% 7.0% 2.0%
Foreign 18 $ 19 $ 14 $ 13 $ 12 $
$ 13 $ 13 $ 14 $ 14 $ 14
% Growth 16.6% 6.8% ‐27.1% ‐8.3% ‐2.0% 3.0% 3.0% 4.0% 2.0% 2.0%
Film Production1 $ 116 $ 87 $ 258 $ 246 $ 262 $ 288 $ 323 $ 362 $ 389 $ 402
% Growth 70.7% ‐24.7% 195.2% ‐4.6% 6.2% 10.0% 12.4% 11.9% 7.5% 3.3%
U.S. 82 $ 53 $ 161 $ 153 $ 164 $ 180 $ 202 $ 228 $ 249 $ 257
$
% Growth 72.3% ‐35.4% 202.3% ‐4.6% 7.0% 10.0% 12.0% 13.0% 9.0% 3.5%
Foreign 34 $ 34 $ 98 $ 93 $ 98 $ 107 $ 121 $ 134 $ 140 $ 144
$
% Growth 67.0% 1.2% 184.3% ‐4.6% 5.0% 10.0% 13.0% 10.0% 5.0% 3.0%
Segment ‐ Operating Costs 2006 2007 2008 2009E 2010E 2011E 2012E 2013E 2014E Terminal
Total Cost of Revenues $ 104 $ 61 $ 192 $ 235 $ 247 $ 265 $ 291 $ 322 $ 344 $ 354
2
Licensing $ ‐ $ ‐ $ ‐ ‐
$ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐
% of Revenues N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Publishing 6 47 $ 52 $ 55 $ 55 $ 56 $
$ 55 $ 58 $ 62 $ 66 $ 67
% of Revenues 43.5% 41.5% 44.0% 48.2% 48.0% 46.0% 46.0% 45.0% 45.0% 45.0%
Film Production 1,3,5 56 $ $ 136 $ 180 $ 191 $ 210 $ 233 $ 260 $ 278 $ 287
$ 9
% of Revenues 48.6% 10.0% 52.8% 73.0% 73.0% 73.0% 72.0% 72.0% 71.5% 71.5%
Total SG&A $ 123 $ 147 $ 139 $ 144 $ 147 $ 153 $ 158 $ 167 $ 175 $ 173
Licensing 49 $ 76 $ 71 $ 79 $ 79 $
$ 82 $ 87 $ 91 $ 93 $ 95
% of Revenues 38.7% 27.8% 24.2% 29.7% 29.0% 28.5% 28.0% 27.5% 27.5% 27.5%
Publishing 17 $ 20 $ 23 $ 24 $ 23 $
$ 23 $ 24 $ 25 $ 27 $ 27
% of Revenues 15.9% 15.8% 18.2% 20.5% 20.0% 19.0% 18.5% 18.5% 18.5% 18.0%
Film Production 1 34 $ 30 $ 16 $ 13 $ 14 $
$ 16 $ 16 $ 18 $ 19 $ 20
% of Revenues 29.3% 33.8% 6.1% 5.2% 5.5% 5.5% 5.0% 5.0% 5.0% 5.0%
Corporate overhead 23 $ 22 $ 29 $ 29 $ 29 $
$ 31 $ 31 $ 33 $ 35 $ 31
% of Total Revenues 6.5% 4.5% 4.3% 4.6% 4.5% 4.5% 4.0% 4.0% 4.0% 3.5%
Notes:
1. Marvel ceased its toy manufacturing operations in early FY 2008. Starting in FY 2008, the third segment is Film Production.
Toy revenues earned from Hasbro (mfg. of toys) are now classsified under the licensing segment.
2. Marvel Studios were initially licensing characters to 3rd party studio. Recently, the Film Production segment grew as MVL started in‐house production.
Licensing activities relate to 3rd party movie production are included in the Licensing segment.
Marvel is in a JV with Sony Pictures Entertainment ("Spider‐Man venture"); MVL has majority control in it.
3. MVL cost of revenues increased by $130M in FY 2008 due to the amortization of film inventory in the new Film Production Segment.
This was partially offset by the reduction of production costs from exiting the Toy segement.
4. FY 2009 results are estimated based on 1H 2009 actuals (FYE Dec. 31). MVL cash flows are expected to accrue to Disney starting in Q1 2010 (Oct‐Dec. 2009).
5. Projected cost synergies: costs of revenue in Film Production due to some cost sharing with the Disney Studios.
6. Publishing costs are expected to decline leveraging from Disney's distribution platform and in‐house operations.
16
THE UNIVERSITY OF IOWA
Henry Fund Research Henry B. Tippie School of Management
Walt Disney Co.
FYE October 3
($ Millions)
Income Statement (historic) 2004 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 2008
TOTAL Revenues 9,725 $ 8,073 $ 9,045 $ 8,667 $ 35,510 $ 10,452 $ 8,710 $ 9,236 $ 9,445 $ 37,843
$ 30,752 $ 31,944 $ 8,854 $ 8,027 $ 8,474 $ 8,392 $ 33,747 $
% Growth 3.9% 5.6% 9.8% 0.6% 6.7% 3.3% 5.2% 7.5% 7.9% 2.1% 9.0% 6.6%
Revenues ‐ Disney 9,725 $ 8,073 $ 9,045 $ 8,667 $ 35,510 $ 10,452 $ 8,710 $ 9,236 $ 9,445 $ 37,843
$ 30,752 $ 31,944 $ 8,854 $ 8,027 $ 8,474 $ 8,392 $ 33,747 $
% Growth 3.9% 5.6% 9.8% 0.6% 6.7% 3.3% 5.2% 7.5% 7.9% 2.1% 9.0% 6.6%
Revenues ‐ Marvel
% Growth
TOTAL Costs of revenues 7,562 $ 6,074 $ 6,566 $ 6,623 $ 26,825 $ 7,972 $ 6,354 $ 6,720 $ 7,463 $ 28,509
$ 25,221 $ 26,092 $ 7,254 $ 6,377 $ 6,282 $ 6,655 $ 26,568 $
% of Revenue 82.0% 81.7% 81.9% 79.4% 74.1% 79.3% 78.7% 77.8% 75.2% 72.6% 76.4% 75.5% 76.3% 73.0% 72.8% 79.0% 75.3%
Costs of revenues ‐ Disney segments 7,562 $ 6,074 $ 6,566 $ 6,623 $ 26,825 $ 7,972 $ 6,354 $ 6,720 $ 7,463 $ 28,509
$ 25,221 $ 26,092 $ 7,254 $ 6,377 $ 6,282 $ 6,655 $ 26,568 $
% of Revenue 82.0% 81.7% 81.9% 79.4% 74.1% 79.3% 78.7% 77.8% 75.2% 72.6% 76.4% 75.5% 76.3% 73.0% 72.8% 79.0% 75.3%
Costs of revenues/ SG&A ‐ Marvel
% of Revenue
Corporate expenses 273
$ 404
$ $
70 $ 107 92 $ 127
$ $
396 $ 73 $ 99 $ 81 $ 112 $ 365 $ 62 $ 67 93 $ 126 $
$ 348
Depreciation and amortization $ 1,210 $ 1,341 $ 370 $ 360 $ 362 $ 345 $ 1,437 $ 374 $ 367 $ 375 $ 375 $ 1,491 385
$ $ 391 $ 402 $ 404 $ 1,582
Operating Income/ EBIT $ 4,048 $ 4,107 $ 1,160 $ 1,183 $ 1,738 $ 1,265 $ 5,346 $
1,716 $ 1,533 $ 2,023 $ 1,557 $ 6,829 $ 2,033 $ 1,898 $ 2,021 $ 1,452 $ 7,404
OI Margin % 13.2% 12.9% 13.1% 14.7% 20.5% 15.1% 15.8% 17.6% 19.0% 22.4% 18.0% 19.2% 19.5% 21.8% 21.9% 15.4% 19.6%
Restructuring/ Other expense 1 (64)
$ (6)
$ $
70 $ ‐ 18 $ ‐
$ $ 88 $
1,052 $ ‐ $ ‐ $ (48) $ 1,004 $
‐ $ ‐ 32 $ (91) $
$ (59)
Net interest expense 617
$ $
597 $ 163 $ 145 $ 133 $ 151 592
$ $ 157 $ 130 $ 143 $ 163 $ 593 123
$ $ 147 $ 141 $ 113 $ 524
Interest income $ 28 109
$ 18 $
$ 42 25 $
$ 29 114
$ $ 31 $ 37 $ 45 $
40 $ 153 $ 93 $ 39 20 $
$ 36 $ 188
Investment balance (yr.‐end) $ 3,334 $ 2,949 $ 3,726 $ 4,665 $ 4,564
Investment balance (avg.) $ 3,142 $ 3,338 $ 4,196 $ 4,615
Interest rate 3.5% 3.4% 3.6% 4.1%
Interest expense 645 $
$ 706 $ 181 $ 187 $ 158 706 $ 188
$ 180 $ $ 167 $ 183 746 $
$ 208 $ 216 $ 186 $ 161 712
$ 149 $
Debt balance (yr.‐end) $ 13,488 $ 12,467 $ 13,525 $ 15,172 $ 14,639
Debt balance (avg.) $ 12,978 $ 12,996 $ 14,349 $ 14,906
Interest rate 5.4% 5.4% 5.2% 4.8%
Equity in investees' income (loss) 372
$ 483 $ 111
$ $ 108 $ 136 $ 118 473
$ $ 121 $ 121 $ 147 96
$ 485
$ $
123 $ 144 $ 175 $ 139 581
$
Total other expenses, net 309
$ 120 $ (18)
$ $
37 $ (21) 33
$ $ 31 $ (1,016) (4)
$ 9 $ $ 115 $ (896) $
‐ $ 3 $ (66) 65
$ $ 2
EBT (excl. min. interest) $ 3,739 $ 3,987 $ 1,178 $ 1,146 $ 1,759 $ 1,232 $ 5,315 $
2,732 $ 1,524 $ 2,027 $ 1,442 $ 7,725 $ 2,033 $ 1,895 $ 2,087 $ 1,387 $ 7,402
Income tax expense (benefit) $ 1,197 $ 1,241 $ 429 $ 404 $ 611 $ 446 $ 1,890 $
1,026 $ 590 $ 762 $ 496 $ 2,874 759 $ 712 $ 712
$ $ 490 $ 2,673
Effective tax rate 32.0% 31.1% 36.4% 35.3% 34.7% 36.2% 35.6% 37.6% 38.7% 37.6% 34.4% 37.2% 37.3% 37.6% 34.1% 35.3% 36.1%
Minority interests (3) $ (69) $ (100) $ (177) $
$ (197) $ (177) $ (16) $ (12) $ (73) $ (82) $ (183) $ (5) $ (24) $ (50) $ (91) $ (137) $ (302)
Income ‐ cont. operations $ 2,345 $ 2,569 $ 733 $ 730 $ 1,075 $ 704 $ 3,242 $ 1,701 $ 931 $ 1,196 $ 846 $ 4,674 $ 1,250 $ 1,133 $ 1,284 $ 760 $ 4,427
Net income (loss) $ 2,345 $ 2,533 $ 733 $ 730 $ 1,075 $ 704 $ 3,242 $ 1,701 $ 931 $ 1,178 $ 877 $ 4,687 $ 1,250 $ 1,133 $ 1,284 $ 760 $ 4,427
Net income margin 7.6% 7.9% 8.3% 9.1% 12.7% 8.4% 9.6% 17.5% 11.5% 13.0% 10.1% 13.2% 12.0% 13.0% 13.9% 8.0% 11.7%
Earnings Per Share 2004 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 2008
Year‐end shares O/S
1,998
2,007 2,064 1,962 1,823
EPS ‐ basic (cont'd op.) $ 1.14 $ 1.27 $ 0.38 $ 0.38 $ 0.52 $ 0.34 $ 1.62 $ 0.83 $ 0.46 $ 0.60 $ 0.45 $ 2.33 $ 0.66 $ 0.60 $ 0.68 $ 0.41 $ 2.34
% Growth 10.7% 27.6% 118.6% 20.3% 16.3% 30.8% 44.2% ‐20.5% 31.8% 12.0% ‐8.3% 0.4%
17
THE UNIVERSITY OF IOWA
Henry Fund Research Henry B. Tippie School of Management
Walt Disney Co.
FYE October 3
($ Millions)
Income Statement (forecast) 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 2009 Q1 2010E Q2 2010E Q3 2010E Q4 2010E 2010E 2011E 2012E 2013E 2014E Terminal
TOTAL Revenues 10,056 $ 8,588
$ 37,843 $ 9,599 $ 8,087 $ 8,596 $ 9,867 $ 36,149 $ $ 9,168 $ 10,414 $ 38,227 $ 39,657 $ 41,494 $ 43,235 $ 44,504 $ 45,726
% Growth 6.6% ‐8.2% ‐7.2% ‐6.9% 4.5% ‐4.5% 4.8% 6.2% 6.7% 5.5% 5.7% 3.7% 4.6% 4.2% 2.9% 2.7%
Revenues ‐ Disney $ 37,843 $ 9,599 $ 8,087 $ 8,596 $ 9,867 $ 36,149 $ 9,893 $ 8,425 $ 9,005 $ 10,251 $ 37,575 $ 38,959 $ 40,731 $ 42,406 $ 43,630 $ 44,830
% Growth 6.6% ‐8.2% ‐7.2% ‐6.9% 4.5% ‐4.5% 3.1% 4.2% 4.8% 3.9% 3.9% 3.7% 4.5% 4.1% 2.9% 2.8%
Revenues ‐ Marvel $ 163 $ 163 $ 163 $ 163 $ 652 $ 697 $ 763 $ 829 $ 873 $ 896
% Growth 4.1% 6.9% 9.4% 8.7% 5.4% 2.6%
TOTAL Costs of revenues $ 28,509 $ 7,938 $ 6,334 $ 6,530 $ 7,749 $ 28,551 $ 8,346 $ 6,704 $ 6,999 $ 7,851 $ 29,899 $ 30,725 $ 31,512 $ 32,522 $ 33,227 $ 34,073
% of Revenue 75.3% 82.7% 78.3% 76.0% 78.5% 79.0% 83.0% 78.1% 76.3% 75.4% 78.2% 77.5% 75.9% 75.2% 74.7% 74.5%
Costs of revenues ‐ Disney segments $ 28,509 $ 7,938 $ 6,334 $ 6,530 $ 7,749 $ 28,551 $ 8,247 $ 6,605 $ 6,900 $ 7,753 $ 29,505 $ 30,307 $ 31,063 $ 32,033 $ 32,709 $ 33,546
% of Revenue 75.3% 82.7% 78.3% 76.0% 78.5% 79.0% 83.4% 78.4% 76.6% 75.6% 78.5% 77.8% 76.3% 75.5% 75.0% 74.8%
Costs of revenues/ SG&A ‐ Marvel 98
$ $ 98 $ 98 $ 98 $ 394 $ 418 $ 449 $ 489 $ 518 $ 527
% of Revenue 60.3% 60.3% 60.3% 60.3% 60.3% 59.9% 58.9% 59.0% 59.3% 58.9%
Corporate expenses 348 $
$ 60 $
48 $ 64 $ 98 $ 270 $ 65 $ 86 $ 84 $ 141 $ 376 $ 411 $ 430 $ 447 $ 460 $ 473
Depreciation and amortization $ 1,582 $ 396 $ 406 $ 404 $ 425 $ 1,631 $ 531 $ 531 $ 531 $ 531 $ 2,123 $ 2,219 $ 2,301 $ 2,396 $ 2,495 $ 2,597
Operating Income/ EBIT $ 7,404 $ 1,217 $ 1,287 $ 1,598 $ 1,595 $ 5,697 $ 1,115 $ 1,268 $ 1,555 $ 1,890 $ 5,829 $ 6,302 $ 7,252 $ 7,870 $ 8,321 $ 8,582
OI Margin % 19.6% 12.7% 15.9% 18.6% 16.2% 15.8% 11.3% 15.1% 17.3% 18.4% 15.5% 16.2% 17.8% 18.6% 19.1% 19.1%
Restructuring/ Other expense 1 (59) $ 114 $ (305) $ (21) $ 62 $ (150) $ (24)
$ $ (24) $ (24) (95)
$ (24) $ $ 96 $ 107 $ 119 $ 122 $ 126
Net interest expense 524 $ 139 $ 128 $
$ 75 $ 124 $ 466 $ 132 $ 132 $ 132 $ 132 $ 528 $ 577 $ 654 $ 655 $ 657 $ 657
Interest income 188 $
$ 22 $
29 $ 59 $ 12 $ 122 $ 41 $ 41 $ 41 $ 41 $ 165 $ 178 $ 186 $ 194 $ 201 $ 207
Investment balance (yr.‐end) $ 4,564 $ 5,971 $ 5,002 $ 5,190 $ 5,432 $ 5,662 $ 5,829 $ 5,989
Investment balance (avg.) $ 4,615 $ 5,268 $ 5,487 $ 5,096 $ 5,311 $ 5,547 $ 5,746 $ 5,909
Interest rate 4.1% 2.3% 3.0% 3.5% 3.5% 3.5% 3.5% 3.5%
Interest expense 712
$ $ 168 $ 150 588 $ 173 $ 173 $ 173 $ 173 $ 693 $ 755 $ 840 $ 850 $ 858 $ 864
$ 134 $ 136 $
Debt balance (yr.‐end) $ 14,639 $ 12,701 $ 15,017 $ 15,197 $ 15,353 $ 15,539 $ 15,665 $ 15,765
Debt balance (avg.) $ 14,906 $ 13,670 $ 13,859 $ 15,107 $ 15,275 $ 15,446 $ 15,602 $ 15,715
Interest rate 4.8% 4.3% 5.0% 5.0% 5.5% 5.5% 5.5% 5.5%
Equity in investees' income (loss) 581 $ 147
$ $ 147 $ 155 $
128 577 $ 129 $ 133 $ 156
$ $ 136 $
554 574
$ 600
$ $
625 643
$ 661
$
Total other expenses, net $ 2 $ (122) $ 286 $ (59) $
(66) 27 $
$ 39 $ (0)
23 $ $
20 $ 69 (93)
$ $
(53) (89)
$ $ (108) $ (129)
EBT (excl. min. interest) $ 7,402 $ 1,339 $ 1,001 $ 1,657 $ 1,661 $ 5,658 $ 1,088 $ 1,245 $ 1,555 $ 1,871 $ 5,760 $ 6,395 $ 7,305 $ 7,958 $ 8,429 $ 8,711
Income tax expense (benefit) $ 2,673 $ 488 $ 348 $ 626 587
$ $ 2,049 $ 403 $ 461 $ 575 $ 692 $ 2,131 $ 2,366 $ 2,703 $ 2,945 $ 3,119 $ 3,223
Effective tax rate 36.1% 36.4% 34.8% 37.8% 35.3% 36.2% 37.0% 37.0% 37.0% 37.0% 37.0% 37.0% 37.0% 37.0% 37.0% 37.0%
Minority interests (6) $ (40) $ (77) $ (179) $ (302) $ (78) $ (78) $ (78) $ (78) $ (314) $ (325) $ (340) $ (354) $ (364) $ (375)
$ (302) $
Income ‐ cont. operations $ 4,427 $ 845 $ 613 $ 954 $ 895 $ 3,307 $ 607 $ 706 $ 901 $ 1,100 $ 3,315 $ 3,703 $ 4,262 $ 4,660 $ 4,946 $ 5,114
Net income (loss) $ 4,427 $ 845 $ 613 $ 954 $ 895 $ 3,307 $ 607 $ 706 $ 901 $ 1,100 $ 3,315 $ 3,703 $ 4,262 $ 4,660 $ 4,946 $ 5,114
Net income margin 11.7% 8.8% 7.6% 11.1% 9.1% 9.1% 6.1% 8.4% 10.0% 10.7% 8.8% 9.5% 10.5% 11.0% 11.3% 11.4%
Earnings Per Share 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 2009 Q1 2010E Q2 2010E Q3 2010E Q4 2010E 2010E 2011E 2012E 2013E 2014E Terminal
Year‐end shares O/S
1,823 1,856 1,791 1,791 1,791 1,791 1,791 1,670 1,578 1,481 1,386 1,296
EPS ‐ basic (cont'd op.) $ 2.34 $ 0.46 $ 0.33 $ 0.51 $ 0.48 1.78 $ 0.34 $ 0.39 $ 0.50 $ 0.61 $ 1.85 $ 2.22 $ 2.70 $ 3.15 $ 3.57 $ 3.94
% Growth 0.4% ‐30.5% ‐45.1% ‐24.0% 17.9% ‐23.9% ‐25.7% 19.3% ‐2.0% 27.6% 3.9% 19.8% 21.8% 16.5% 13.4% 10.5%
Notes:
1. The projected income statement above incorporates Marvel's forecasted operating results
2. Marvel's acquisition adds some restructuring expenses starting in FY 2010.
18
THE UNIVERSITY OF IOWA
Henry Fund Research Henry B. Tippie School of Management
Walt Disney's Acquisition of Marvel Entertainment: Impact on Key Metrics
Metrics Q1 2010E Q2 2010E Q3 2010E Q4 2010E 2010E 2011E 2012E 2013E 2014E Terminal
EPS Impact
Disney 1.98 $
$ 0.37 $ 0.42 $ 0.54 $ 0.65 $ 2.83 $
2.36 $ 3.66 $
3.26 $ 4.02
% Growth ‐19.3% 28.6% 4.4% 35.1% 11.1% 19.0% 20.0% 15.1% 12.5% 9.7%
Disney w/ Marvel 1.85 $
$ 0.34 $ 0.39 $ 0.50 $ 0.61 $ 2.70 $
2.22 $ 3.57 $
3.15 $ 3.94
% Growth ‐25.7% 19.3% ‐2.0% 27.6% 3.9% 19.8% 21.8% 16.5% 13.4% 10.5%
Marvel impact ($) $ (0.03) $ (0.03) $ (0.03) $ (0.04) $ (0.13) $ (0.14) $ (0.13) $ (0.11) $ (0.09) $ (0.08)
Marvel impact (%) ‐8.0% ‐7.2% ‐6.2% ‐5.5% ‐6.5% ‐5.9% ‐4.5% ‐3.4% ‐2.6% ‐1.9%
Net Income Margin
Disney 6.5% 8.8% 10.4% 11.1% 9.2% 9.9% 10.8% 11.2% 11.6% 11.6%
Disney w/ Marvel 6.1% 8.4% 10.0% 10.7% 8.8% 9.5% 10.5% 11.0% 11.3% 11.4%
Revenue Growth
Disney 3.07% 4.18% 4.76% 3.89% 3.94% 3.68% 4.55% 4.11% 2.89% 2.75%
Disney w/ Marvel 4.77% 6.20% 6.66% 5.54% 5.75% 3.74% 4.63% 4.20% 2.93% 2.75%
ROIC
Disney 21.2% 18.9% 20.3% 21.2% 21.7% 22.0%
Disney w/ Marvel 22.8% 18.6% 20.2% 21.5% 22.4% 23.0%
DCF/ EP Target Share Price
Disney $ 31.47
Disney w/ Marvel $ 34.04
Marvel Impact ($) $ 2.57
Marvel Impact (%) 8.2%
19
THE UNIVERSITY OF IOWA
Henry Fund Research Henry B. Tippie School of Management
Walt Disney Co.
Common Size Income Statement
FYE October 3
Hist. 3‐yr Hist. 5‐yr
2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E Terminal Average Average
Total Revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costs of revenues ‐ Disney segmen 81.7% 78.7% 75.5% 75.3% 79.0% 78.5% 77.8% 76.3% 75.5% 75.0% 74.8% 76.6% 78.1%
Corporate expenses 1.3% 1.2% 1.0% 0.9% 0.7% 1.0% 1.1% 1.1% 1.1% 1.1% 1.1% 0.9% 1.0%
Depreciation and amortization 4.2% 4.3% 4.2% 4.2% 4.5% 5.6% 5.7% 5.6% 5.7% 5.7% 5.8% 4.3% 4.3%
Operating Income/ EBIT 12.9% 15.8% 19.2% 19.6% 15.8% 14.8% 15.5% 17.0% 17.8% 18.3% 18.3% 18.2% 16.7%
Other income 0.0% 0.3% 2.8% ‐0.2% ‐0.4% ‐0.2% 0.3% 0.3% 0.3% 0.3% 0.3% 0.8% 0.5%
Net interest expense ‐1.9% ‐1.8% ‐1.7% ‐1.4% ‐1.3% ‐1.4% ‐1.5% ‐1.6% ‐1.5% ‐1.5% ‐1.5% ‐1.4% ‐1.6%
Equity in investees' earnings 1.5% 1.4% 1.4% 1.5% 1.6% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5%
Total other expenses, net ‐0.4% ‐0.1% 2.5% 0.0% ‐0.1% ‐0.1% 0.3% 0.2% 0.2% 0.3% 0.3% 0.8% 0.4%
EBT (excl. min. interest) 12.5% 15.7% 21.8% 19.6% 15.7% 15.3% 16.4% 17.9% 18.8% 19.3% 19.4% 19.0% 17.0%
Income tax expense (benefit) ‐3.9% ‐5.6% ‐8.1% ‐7.1% ‐5.7% ‐5.7% ‐6.1% ‐6.6% ‐6.9% ‐7.1% ‐7.2% ‐6.9% ‐6.1%
Minority interests ‐0.6% ‐0.5% ‐0.5% ‐0.8% ‐0.8% ‐0.8% ‐0.8% ‐0.8% ‐0.8% ‐0.8% ‐0.8% ‐0.7% ‐0.6%
Earnings ‐ discont. operations ‐0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Net income (loss) 7.9% 9.6% 13.2% 11.7% 9.1% 8.8% 9.5% 10.5% 11.0% 11.3% 11.4% 11.3% 10.3%
Notes:
1. Above reflects the consolidated income statement ratios (Disney w/ Marvel Entertainment included).
2. Disney's and Marvel's operating results are projected by segment separately.
20
THE UNIVERSITY OF IOWA
Henry Fund Research Henry B. Tippie School of Management
Marvel Entertainment
FYE September 27
($ Millions) ~ FYE 2009
Balance Sheet1 2006 2007 2008 2009EAt Acquisition 2010E 2011E 2012E 2013E 2014E Terminal
2
Cash and cash equivalents $ 40 $ 51 $ 118 $ 38
$ 119 $ 117 $ 126 $ 137 $ 149 $ 157 $ 161
Short‐term investments $ ‐ $ 21 $ 33 $
‐
$ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐
Receivables $ 59 $ 29 $ 144 $ 29
$ 29 $ 78 $ 84 $ 92 $ 99 $ 105 $ 108
Inventories and other $ 72 $ 26 $ 19 $ 23
$ 23 $ 26 $ 28 $ 31 $ 33 $ 35 $ 36
Deferred income taxes $ 23 $ 21 $ 34 $ 25
$ 25 $ 29 $ 31 $ 34 $ 37 $ 39 $ 40
Total current assets $ 194 $ 148 $ 348 $ 116
$ 197 $ 251 $ 269 $ 294 $ 319 $ 336 $ 345
Fixed assets/ Film inventory $ 21 $ 267 $ 185 $ 196
$ 196 $ 210 $ 239 $ 269 $ 303 $ 320 $ 337
Goodwill $ 342 $ 346 $ 346 $ 1,178
$ 346 $ 1,178 $ 1,178 $ 1,178 $ 1,178 $ 1,178 $ 1,178
Amortized intangibles 3 $ 2,749 $ 2,291 $ 1,833 $ 1,375 $ 916 $ 458 $ ‐
Deferred income taxes $ 36 $ 37 $ 13 $ 17 $ 17 $ 20 $ 21 $ 23 $ 25 $ 26 $ 27
Restr. cash/ Other non‐current $ 31 $ 19 $ 45 $ 64 $ 64 $ 52 $ 56 $ 61 $ 66 $ 70 $ 72
Total assets $ 624 $ 817 $ 937 $ 821 $ 4,321 $ 4,002 $ 3,595 $ 3,200 $ 2,808 $ 2,389 $ 1,959
A/P and accruals $ 112 $ 125 $ 119 $ 127 $ 127 $ 143 $ 153 $ 168 $ 182 $ 192 $ 197
Deferred revenue $ 140 $ 89 $ 81 $ 67 $ 67 $ 72 $ 77 $ 84 $ 91 $ 96 $ 99
4
Film facility $ ‐ $ 43 $ 205 ‐
$ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐
Total current liabilities $ 253 $ 256 $ 405 $ 194 $ 194 $ 215 $ 230 $ 252 $ 274 $ 288 $ 296
Deferred revenue, non‐current $ 36 $ 58 $ 49 $ 95 $ 95 $ 65 $ 70 $ 76 $ 83 $ 87 $ 90
Film facility, non‐current4 $ 50 $ 247 $ 8 ‐
$ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐
Deferred income taxes $ 31 $ 75 $ 78 $ 77 $ 77 $ 78 $ 84 $ 92 $ 99 $ 105 $ 108
Total liabilities $ 369 $ 636 $ 541 $ 366 $ 366 $ 359 $ 384 $ 419 $ 456 $ 480 $ 493
Shareholders' equity $ 255 $ 182 $ 396 $ 455 $ 3,955
Annual retained earnings are within consolidated NI
Total liabilities & SE $ 624 $ 817 $ 937 $ 821 $ 4,321
B/S Drivers (% of Revenues): 2006 2007 2008 2009 At Acquisition 2010E 2011E 2012E 2013E 2014E Terminal
Cash 12% 10% 17% 19% 18% 18% 18% 18% 18% 18%
Short‐term investments 0% 4% 5% 0% 0% 0% 0% 0% 0% 0%
Receivables 17% 6% 21% 5% 12% 12% 12% 12% 12% 12%
Inventories 20% 5% 3% 4% 4% 4% 4% 4% 4% 4%
Deferred income taxes, cur. 6% 4% 5% 4% 5% 5% 5% 5% 5% 5%
Deferred income taxes, non‐cur. 10% 8% 2% 3% 3% 3% 3% 3% 3% 3%
Other non‐current assets 9% 4% 7% 10% 8% 8% 8% 8% 8% 8%
A/P and accruals 32% 26% 18% 20% 22% 22% 22% 22% 22% 22%
Deferred revenue, cur. 40% 18% 12% 11% 11% 11% 11% 11% 11% 11%
Deferred revenue, non‐current 10% 12% 7% 15% 10% 10% 10% 10% 10% 10%
Income taxes payable/ other 9% 15% 12% 12% 12% 12% 12% 12% 12% 12%
Other B/S Assumptions:
Depreciation $ 6.0 $ 1.6 $ 0.9 $ 6 $ 6 $ 7 $ 8 $ 9 $ 10
% of Beg. Fixed assets 3% 3% 3% 3% 3% 3%
CapEx $ 20 $ 35 $ 38 $ 41 $ 26 $ 27
% of Revenues 3% 5% 5% 5% 3% 3%
Amortization $ 458 $ 458 $ 458 $ 458 $ 458 $ 458
1 2 3 4 5 6
Notes:
1. Marvel's Q2 2009 Balance sheet line‐items are estimated as at FYE 2009.
2. $38.22M of the cash balance is restricted for interest payment (credit covenants); the rest of $81M is applied to net the Purchase Price.
3. Acquisition‐related created intangibles are amortized over a period of 6 years.
4. All debt is assumed at the consolidated level (on Disney's consolidated balance sheet).
21
THE UNIVERSITY OF IOWA
Henry Fund Research Henry B. Tippie School of Management
Marvel Entertainment ‐ Acquisition Price Acquisition Intangibles
Cash Portion: Cash/ share $ 30.00 Purchase Price $ 3,935
x MVL Shares O/S 80.33 M + Transaction costs (0.5%) $ 20
Cash Portion $2,410 M ‐ Net Assets $ 28
Intangibles $ 3,927
* MVL shares O/S = 78.49M shares + 1.84M options = 80.3M
Goodwill (30%) $ 1,178
Stock Portion: Exchange Ratio 0.745 DIS shares/ MVL share Amortized intangibles (70%) $ 2,749
x Shares O/S 80.33 M
DIS Shares for issue 59.85 M
x DIS Share Price $ 26.84
Stock Portion $ 1,606 M
Cash Portion $ 2,410
Stock Portion $ 1,606
Gross Purchase Price $ 4,016 M
‐ MVL Cash $ (81) M
Net Purchase Price $ 3,935 M
Implied MVL Value/ sh. $50 ($30 + 0.745*$26.84)
Premium: 29% over Aug. 28 price ($38.65)
Acquisition Deal Overview and Comments:
1. Disney is in the process of acquiring 100% of Marvel in a cash and stock transaction.
2. Deal is expected to close by Dec. 31, 2009 (i.e. during Disney's Q1 2010)
3. MVL and DIS share prices included above are anchored as of Aug. 28, 2009 close (per deal specifications).
4. Although Marvel carries ~$300M in NOL benefits, those are not factored in the purchase price ‐ difficult to capture by Disney
5. To finance the acquisition, Disney will issue about 59M shares (see above); it expects to repurchase min. that amount in FY 2010
6. Besides the new intangibles amortization, issued shares are also expected to be dilutive to Disney's EPS in the first few quarters
7. Marvel has about 40‐45% of the comic book market and about 5,000 characters in its library
8. Amortized intangibles are estimated at 70% of total created intangibles; sensitivity analysis tests that assumption.
22
THE UNIVERSITY OF IOWA
Henry Fund Research Henry B. Tippie School of Management
Walt Disney Co.
FYE October 3
($ Millions)
Balance Sheet (combined) 1 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E Terminal
Cash & cash equivalents $ 1,723 $ 2,411 $ 3,670 $ 3,001 $ 3,417 $ 3,499 $ 3,632 $ 3,803 $ 3,966 $ 4,084 $ 4,196
Receivables $ 4,585 $ 4,707 $ 5,032 $ 5,373 $ 4,854 $ 5,328 $ 5,527 $ 5,783 $ 6,025 $ 6,201 $ 6,371
Inventories $ 626 $ 694 $ 641 $ 1,124 $ 1,271 $ 1,158 $ 1,095 $ 1,146 $ 1,195 $ 1,230 $ 1,264
Television costs $ 510 $ 415 $ 559 $ 541 $ 631 $ 564 $ 584 $ 611 $ 636 $ 654 $ 672
Deferred income taxes $ 749 $ 592 $ 862 $ 1,024 $ 1,140 $ 1,026 $ 1,065 $ 1,116 $ 1,165 $ 1,200 $ 1,233
Other current assets $ 652 $ 743 $ 550 $ 603 $ 576 $ 639 $ 662 $ 692 $ 721 $ 742 $ 762
Total current assets 9,562 $ 11,314 $ 11,666 $ 11,889 $ 12,214 $ 12,566 $ 13,152 $ 13,707 $ 14,111 $ 14,499
$ 8,845 $
Film and television costs $ 5,427 $ 5,235 $ 5,123 $ 5,394 $ 5,125 $ 5,523 $ 5,727 $ 5,988 $ 6,234 $ 6,414 $ 6,590
Investments $ 1,226 $ 1,315 $ 995 $ 1,563 $ 2,554 $ 1,503 $ 1,558 $ 1,629 $ 1,696 $ 1,745 $ 1,793
Fixed assets, net $ 16,968 $ 17,167 $ 17,433 $ 17,532 $ 17,597 $ 17,674 $ 17,746 $ 18,020 $ 18,282 $ 18,485 $ 18,644
Fixed assets, net (Marvel) $ 210 $ 239 $ 269 $ 303 $ 320 $ 337
Fixed assets, gross (Disney) $ 28,444 $ 29,756 $ 31,407 $ 32,662 $ 33,825 $ 35,328 $ 37,081 $ 39,118 $ 41,238 $ 43,420 $ 45,661
Less: Accum. depreciation $ 12,605 $ 13,781 $ 15,145 $ 16,310 $ 17,395 $ 19,031 $ 20,740 $ 22,534 $ 24,426 $ 26,421 $ 28,522
Land $ 1,129 $ 1,192 $ 1,171 $ 1,180 $ 1,167 $ 1,167 $ 1,167 $ 1,167 $ 1,167 $ 1,167 $ 1,167
Goodwill2 $ 16,974 $ 22,505 $ 22,085 $ 22,151 $ 21,683 $ 22,861 $ 22,861 $ 22,861 $ 22,861 $ 22,861 $ 22,861
Intangibles, net2 $ 2,731 $ 2,907 $ 2,494 $ 2,428 $ 2,247 $ 4,591 $ 4,164 $ 3,746 $ 3,335 $ 2,931 $ 2,533
Other assets $ 987 $ 1,307 $ 1,484 $ 1,763 $ 2,022 $ 2,119 $ 1,809 $ 1,894 $ 1,975 $ 2,033 $ 2,089
Total assets $ 53,158 $ 59,998 $ 60,928 $ 62,497 $ 63,117 $ 66,485 $ 66,433 $ 67,290 $ 68,090 $ 68,581 $ 69,009
Accounts payable and accruals $ 5,339 $ 5,917 $ 5,949 $ 5,980 $ 5,616 $ 6,011 $ 6,237 $ 6,417 $ 6,689 $ 6,886 $ 7,075
Current portion ‐ debt $ 2,310 $ 2,682 $ 3,280 $ 3,529 $ 1,206 $ 2,722 $ 2,912 $ 2,909 $ 2,947 $ 2,982 $ 3,003
Unearned royalties and other $ 1,519 $ 1,611 $ 2,162 $ 2,082 $ 2,112 $ 2,016 $ 2,094 $ 2,197 $ 2,294 $ 2,365 $ 2,430
Total current liabilities 8,934 $ 10,749 $ 11,244 $ 11,523 $ 11,930 $ 12,233 $ 12,508
$ 9,168 $ 10,210 $ 11,391 $ 11,591 $
Long‐term debt3 $ 10,157 $ 10,843 $ 11,892 $ 11,110 $ 11,495 $ 12,295 $ 12,285 $ 12,444 $ 12,592 $ 12,683 $ 12,762
Deferred income taxes $ 2,430 $ 2,651 $ 2,573 $ 2,350 $ 1,819 $ 2,333 $ 2,733 $ 2,861 $ 2,983 $ 3,072 $ 3,156
Other non‐current liabilities4 $ 3,945 $ 3,131 $ 3,024 $ 3,779 $ 5,444 $ 4,133 $ 4,286 $ 4,480 $ 4,665 $ 4,799 $ 4,931
Minority interests $ 1,248 $ 1,343 $ 1,295 $ 1,344 $ 1,691 $ 1,100 $ 1,100 $ 1,100 $ 1,100 $ 1,100 $ 1,100
Total liabilities $ 26,948 $ 28,178 $ 30,175 $ 30,174 $ 29,383 $ 30,610 $ 31,647 $ 32,409 $ 33,269 $ 33,887 $ 34,457
Common stock & PIC $ 13,288 $ 22,377 $ 24,207 $ 26,546 $ 27,038 $ 29,451 $ 30,340 $ 31,318 $ 32,396 $ 33,583 $ 34,890
Retained earnings $ 17,775 $ 20,630 $ 24,805 $ 28,413 $ 31,033 $ 33,644 $ 36,699 $ 40,301 $ 44,308 $ 48,586 $ 53,009
Accum. other compreh. income (loss) $ (572) $ (8) $ (157) $ (81) $ (1,644) $ (1,644) $ (1,644) $ (1,644) $ (1,644) $ (1,644) $ (1,644)
Treasury stock $ (4,281) $ (11,179) $ (18,102) $ (22,555) $ (22,693) $ (25,576) $ (30,610) $ (35,094) $ (40,240) $ (45,831) $ (51,703)
Total shareholders' equity $ 26,210 $ 31,820 $ 30,753 $ 32,323 $ 33,734 $ 35,875 $ 34,785 $ 34,881 $ 34,820 $ 34,694 $ 34,552
Total liab. & shareholders' equity $ 53,158 $ 59,998 $ 60,928 $ 62,497 $ 63,117 $ 66,485 $ 66,433 $ 67,290 $ 68,090 $ 68,581 $ 69,009
Notes:
1. Above represents the consolidated balance sheet of Disney w/ Marvel (see MVL's "At Acquisition" and projected balance sheet separately).
2. Goodwill and amortized intangibles increase by amounts estimated from Marvel's cash and stock acquisition.
3. Long‐term debt balance is based on 3‐yr. avg. Debt as % of Total assets ‐ results in target capital structure of 19%.
23
THE UNIVERSITY OF IOWA
Henry Fund Research Henry B. Tippie School of Management
Walt Disney Co.
FYE October 3
($ Millions)
Balance Sheet ‐ Supporting Schedules
Shareholders' equity schedule 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E Terminal
Dividends paid 1 $ 490 $ 519 $ 637 $ 664 $ 648 $ 696 $ 648 $ 661 $ 652 $ 668 $ 690
Dividend payout 20.9% 20.2% 19.6% 14.2% 14.6% 21.0% 17.5% 15.5% 14.0% 13.5% 13.5%
Dividend/ share 0.24 $
$ 0.27 $ 0.31 $ 0.35 $ 0.35 $ 0.39 $ 0.39 $ 0.42 $ 0.44 $ 0.48 $ 0.53
% Growth 14.3% 12.5% 14.8% 12.9% 0.0% 11.1% ‐0.2% 7.9% 5.2% 9.4% 10.5%
Share repurchases2 $ 2,420 $ 6,898 $ 6,923 $ 4,453 $ 138 $ 2,883 $ 5,033 $ 4,484 $ 5,146 $ 5,591 $ 5,873
Common stock & PIC (ESOP and Marvel issue)3 $ 2,413 $ 889 $ 979 $ 1,078 $ 1,187 $ 1,307
$ 50.16 $ 57.24 $ 50.49
Depreciation & Amortization 4 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E Terminal
Amortization ‐ Intangibles (Disney) $ 13 $ 20 $ 32 $ 55 $ 51 $ 22 $ 46 $ 42 $ 37 $ 33 $ 29
% of Beg. Net intangibles 0.5% 0.7% 1.1% 2.2% 2.1% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Amortization ‐ Intangibles (Marvel) 5 $ 458 $ 458 $ 458 $ 458 $ 458 $ 458
Depreciation ‐ Parks, Resorts & Corporate $ 1,328 $ 1,417 $ 1,459 $ 1,527 $ 1,580 $ 1,636 $ 1,709 $ 1,794 $ 1,892 $ 1,995 $ 2,100
% of Beg. Gross P&E (excl. land) 4.9% 5.0% 4.9% 4.9% 4.8% 4.8% 4.8% 4.8% 4.8% 4.8% 4.8%
Depreciation ‐ Marvel 6 6 7 8 9
$ $ $ $ $ $ 10
Investments/ CapEx 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E Terminal
Intangibles Acquisition 6 (71) $ 196
$ $ (381) $ (11) $ (130) $ 75 $ 78 $ 81 $ 85 $ 87 $ 90
% of Revenue 0.2% 0.2% 0.2% 0.2% 0.2% 0.2%
Capital Expenditures ‐ Disney $ 1,812 $ 1,553 $ 1,746 $ 1,617 $ 1,658 $ 1,503 $ 1,753 $ 2,037 $ 2,120 $ 2,182 $ 2,242
% of Revenue 5.7% 4.6% 4.9% 4.3% 4.6% 4.0% 4.5% 5.0% 5.0% 5.0% 5.0%
Capital Expenditures ‐ Marvel $ 20 $ 35 $ 38 $ 41 $ 26 $ 27
Notes:
1. Walt Disney declares the annual dividend for a given FY in Q1 of the next FY and pays it in Q2.
2. Share repurchases represent changes in the Treasury account balance (plug on the balance sheet).
3. Additions to Common stock/ PIC are driven by employee stock options exercised forecast (ESOP) and the issue of ~59M shares in FY10 to finance the Marvel acquisition.
4. Starting in FY 2010 Depreciation and Amortization include the impact of Marvel's acquisition.
5. High amortization is due to estimated amortizable intangibles created form the acquisition given Marvel's Net Assets and the announced Purchase Price.
6. Negative intangibles acquisition balance implies writedowns or asset dispositions.
24
THE UNIVERSITY OF IOWA
Henry Fund Research Henry B. Tippie School of Management
Walt Disney Co.
Common Size Balance Sheet
FYE October 3 31,944
$ 33,747
$ $
35,510 37,843
$ 36,149
$ $
37,575 38,959
$ 40,731
$ $
42,406 43,630
$ 44,830
$
Hist. 3‐yr Hist. 5‐yr
2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E Terminal Average Average
Cash & cash equivalents 5.4% 7.1% 10.3% 7.9% 9.5% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.2% 8.1%
Receivables 14.4% 13.9% 14.2% 14.2% 13.4% 14.2% 14.2% 14.2% 14.2% 14.2% 14.2% 13.9% 14.0%
Inventories 2.0% 2.1% 1.8% 3.0% 3.5% 3.1% 2.8% 2.8% 2.8% 2.8% 2.8% 2.8% 2.5%
Television costs 1.6% 1.2% 1.6% 1.4% 1.7% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.6% 1.5%
Deferred income taxes 2.3% 1.8% 2.4% 2.7% 3.2% 2.6% 2.6% 2.6% 2.6% 2.6% 2.6% 2.8% 2.5%
Other current assets 2.0% 2.2% 1.5% 1.6% 1.6% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.6% 1.8%
Total current assets 27.7% 28.3% 31.9% 30.8% 32.9% 32.5% 32.3% 32.3% 32.3% 32.3% 32.3% 31.9% 30.3%
Film and television costs 17.0% 15.5% 14.4% 14.3% 14.2% 14.7% 14.7% 14.7% 14.7% 14.7% 14.7% 14.3% 15.1%
Investments 3.8% 3.9% 2.8% 4.1% 7.1% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.7% 4.3%
Fixed assets, net 53.1% 50.9% 49.1% 46.3% 48.7% 47.0% 45.6% 44.2% 43.1% 42.4% 41.6% 48.0% 49.6%
Goodwill 53.1% 66.7% 62.2% 58.5% 60.0% 60.8% 58.7% 56.1% 53.9% 52.4% 51.0% 60.2% 60.1%
Intangibles, net 8.5% 8.6% 7.0% 6.4% 6.2% 12.2% 10.7% 9.2% 7.9% 6.7% 5.7% 6.6% 7.4%
Other assets 3.1% 3.9% 4.2% 4.7% 5.6% 5.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.8% 4.3%
Total assets 166.4% 177.8% 171.6% 165.1% 174.6% 176.9% 170.5% 165.2% 160.6% 157.2% 153.9% 170.4% 171.1%
Accounts payable and accruals 16.7% 17.5% 16.8% 15.8% 15.5% 16.0% 16.0% 15.8% 15.8% 15.8% 15.8% 16.0% 16.5%
Current portion ‐ debt 7.2% 7.9% 9.2% 9.3% 3.3% 7.2% 7.5% 7.1% 6.9% 6.8% 6.7% 7.3% 7.4%
Unearned royalties and other 4.8% 4.8% 6.1% 5.5% 5.8% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.8% 5.4%
Total current liabilities 28.7% 30.3% 32.1% 30.6% 24.7% 28.6% 28.9% 28.3% 28.1% 28.0% 27.9% 29.1% 29.3%
Long‐term debt 31.8% 32.1% 33.5% 29.4% 31.8% 32.7% 31.5% 30.6% 29.7% 29.1% 28.5% 31.5% 31.7%
Deferred income taxes 7.6% 7.9% 7.2% 6.2% 5.0% 6.0% 6.8% 6.8% 6.8% 6.8% 6.8% 6.2% 6.8%
Other non‐current liabilities 12.3% 9.3% 8.5% 10.0% 15.1% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.2% 11.0%
Minority interests 3.9% 4.0% 3.6% 3.6% 4.7% 2.9% 2.8% 2.7% 2.6% 2.5% 2.5% 4.0% 4.0%
Total liabilities 84.4% 83.5% 85.0% 79.7% 81.3% 81.5% 81.2% 79.6% 78.5% 77.7% 76.9% 82.0% 82.8%
Common stock & PIC 41.6% 66.3% 68.2% 70.1% 74.8% 78.4% 77.9% 76.9% 76.4% 77.0% 77.8% 71.0% 64.2%
Retained earnings 55.6% 61.1% 69.9% 75.1% 85.8% 89.5% 94.2% 98.9% 104.5% 111.4% 118.2% 76.9% 69.5%
Accum. other compreh. income (loss) ‐1.8% 0.0% ‐0.4% ‐0.2% ‐4.5% ‐4.4% ‐4.2% ‐4.0% ‐3.9% ‐3.8% ‐3.7% ‐1.7% ‐1.4%
Treasury stock ‐13.4% ‐33.1% ‐51.0% ‐59.6% ‐62.8% ‐68.1% ‐78.6% ‐86.2% ‐94.9% ‐105.0% ‐115.3% ‐57.8% ‐44.0%
Total shareholders' equity 82.0% 94.3% 86.6% 85.4% 93.3% 95.5% 89.3% 85.6% 82.1% 79.5% 77.1% 88.4% 88.3%
Total liab. & shareholders' equity 166.4% 177.8% 171.6% 165.1% 174.6% 176.9% 170.5% 165.2% 160.6% 157.2% 153.9% 170.4% 171.1%
Other Drivers:
A/R days (DSO) (based on Gross A/R) 52.4 50.9 51.7 51.8 49.0 51.0 51.0 51.0 51.0 51.0 51.0 50.9 51.2
Inventory Days 7.2 7.5 6.6 10.8 12.8 11.0 10.0 10.0 10.0 10.0 10.0 10.1 9.0
A/P days (DPO) 61.0 64.0 61.1 57.7 56.7 57.0 57.0 56.0 56.0 56.0 56.0 58.5 60.1
Note: Intangibles as % of revenues increase signifficantly due to Marvel's acquisition.
25
THE UNIVERSITY OF IOWA
Henry Fund Research Henry B. Tippie School of Management
Walt Disney Co.
FYE October 3
($ Millions)
Cash Flow Statement 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E Terminal
CASH FLOWS FROM OPERATIONS:
Net income 2,533
$ 3,374
$ $
4,687 4,427
$ 3,307
$ $
3,315 3,703
$ 4,262
$ $
4,660 4,946
$ 5,114
$
Adjustments for operating activities: 1,524
$ 1,743
$ $ 778 1,869
$ 2,331
$ $
2,160 2,580
$ 2,378
$ $
2,469 2,549
$ 2,649
$
Discontinued operations, net $ 21 $ 28 $ 10 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐
Depreciation and amortization 1,341
$ 1,446
$ $
1,491 1,582
$ 1,631
$ $
2,123 2,219
$ 2,301
$ $
2,396 2,495
$ 2,597
$
Gains on sales ‐ business equity inv'ts (26)
$ (70)
$ $ (1,052) $ (14) $
(342) $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐
Deferred income taxes (265)
$ (139)
$ $
(137) $
(128) $ 323 $ 628 $ 361 $ 77 $ 73 $ 53 $ 51
Equity in investees ‐ income net of cash dist. (81)
$ (15)
$ (65)
$ $
(105) $ (72) $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐
Minority interests $ 177 $ 183 $ 177 $ 302 $ 302 (591)
$ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐
Equity‐based compensation $ 370 $ 373 $ 419 $ 402 $ 457 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐
Impairment/ Other (13)
$ (63)
$ (65)
$ $
(170) 32
$ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐
Changes in operating assets and liabilities $ 212 $ 941 $
(44) (850)
$ (574)
$ $ (1,872) $ 384 (232)
$ $
(118) $ (87) $ (89)
Receivables (156)
$ $
(85) $
(355) $
(594) $ 468 (474)
$ $
(199) $
(255) (242)
$ $
(176) $
(170)
Inventories $ 22 (63)
$ $ 52 (329)
$ $
(117) $ 113 $ 63 $ (51) $ (49) $ (35) $ (34)
Film and television costs ‐ net change $ 568 $ 860 115 $
(301) $ (43) (331)
$ $
(224) (287)
$ (271)
$ (198)
$ (194)
$
Other assets (90)
$ (55)
$ 9
$ $ (64) $
(565) $ (1,575) $ 517 $ 182 $ 173 $ 126 $ 121
Accounts payable and accruals (255)
$ $ 304 $ 77 $ 488 $
(325) $ 395 $ 226 $ 180 $ 272 $ 198 $ 189
Income taxes $ 123 (20)
$ $ 58 $ (50) $
9 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐
Net Cash from Operations 4,269
$ 6,058
$ $
5,421 5,446
$ 5,064
$ $
3,602 6,667
$ 6,408
$ $
7,011 7,408
$ 7,674
$
CASH FLOWS FROM INVESTING:
Investments ‐ Fixed assets $ (1,822) $ (1,299) $ (1,569) (1,578)
$ $
(1,753) $ (1,719) $ (1,788) $ (2,075) $ (2,162) $ (2,208) $ (2,268)
Sale of investments, net of proceeds $ 140 1,127
$ $
1,556 $
76 $ 174 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐
Acquisitions (incl. intangibles & goodwill) $ (9) (55)
$ $
(608) (660)
$ (517)
$ $ (2,951) (133)
$ (152)
$ $
(152) (136)
$ (138)
$
Net Cash from Investing $ (1,691) (227)
$ (621)
$ (2,162)
$ $
(2,096) $ (4,670) $ (1,921) $ (2,227) $ (2,314) $ (2,344) $ (2,406)
CASH FLOWS FROM FINANCING:
Net borrowing (commercial paper) $ 654 $ 85 1,847
$ (701)
$ $
(1,985) 1,516
$ $ 189 $ (2) $ 38 $ 35 $ 22
Net borrowing (L‐T debt) $ (1,353) $ 856 $ 849 $ 1,229 $ 133 $ 800 (10)
$ $ 159 $ 148 $ 91 $ 79
Dividends paid (490)
$ (519)
$ $
(637) $
(664) (648)
$ $
(696) (648)
$ (661)
$ $
(652) (668)
$ (690)
$
Repurchases of stock/ Treasury stock $ (2,249) $ (6,898) $ (6,923) (4,453)
$ $
(138) $ (2,883) $ (5,033) $ (4,484) $ (5,146) $ (5,591) $ (5,873)
Stock options exercised/ Other $ 541 1,333
$ $
1,323 $ 636 86
$ $
2,413 $ 889 $ 979 1,078
$ 1,187
$ 1,307
$
Net Cash from Financing $ (2,897) $ (5,143) $ (3,541) (3,953)
$ $
(2,552) 1,150
$ $ (4,613) $ (4,010) $ (4,535) $ (4,946) $ (5,155)
Change in Cash and Equivalents $ (319) $ 688 $ 1,259 $ (669) $ 416 $ 82 $ 133 $ 171 $ 163 $ 118 $ 112
Cash: Beginning of the Year 2,042 $
$ 1,723 $ 2,411 3,670 $
$ 3,001 $
3,417 $ 3,499 $ 3,632 $ 3,803 $ 3,966 $ 4,084
Cash: End of the Year $ 1,723 $ 2,411 $ 3,670 $ 3,001 $ 3,417 $ 3,499 $ 3,632 $ 3,803 $ 3,966 $ 4,084 $ 4,196
26
THE UNIVERSITY OF IOWA
Henry Fund Research Henry B. Tippie School of Management
Walt Disney Co. (as of 11/13/09)
FYE October 3 Yield 10‐yr. UST Spread
AAA 4.60% 4.36% 0.2%
WACC Calculation AA 5.00% 4.36% 0.6%
Common Shares Outstanding (M) $ 1,856 A 6.20% 4.36% 1.8%
Current Price $ 30.44 Closing price as of 11/13/2009 BBB 7.20% 4.36% 2.8%
Market Value of Equity 56,497
$ BB 9.50% 4.36% 5.1%
Preferred Shares Outstanding $ ‐ BB‐ 13.60% 4.36% 9.2%
Preferred Price $ ‐ Source: Updated from 10‐yr. instruments' yields (Dec. 2008, Compustat)
Market Value of Preferred $ ‐
Marginal Tax Rate Calc. Effective Marginal
Effective Tax Rate 37.0% Estimated marginal tax rate Components
Market Value of Debt & Leases (M) 14,090
$ Debt & PV op. leases O/S as of FYE 2008 U.S. Federal tax 35.0% 35.0%
U.S. State and local 3.0% 3.0%
Market Value of Capital (E+P+D) 70,587
$ Foreign sales effect ‐0.1% ‐0.5%
Tax reserves/ Other ‐1.8% ‐0.5%
Risk‐Free Rate 4.36% 30‐Yr. T‐Bond Tax Rate 36.1% 37.0%
Market Premium 5.00% Henry Fund Analysts' consensus (11 analysts)
Beta 1.15 Base: 5‐yr.monthly returns (Nov. 2004 ‐ 2009); Industry avg. is 1.66 (Source: Damodaran, Jan. 2009)
Cost of Equity 10.12%
Interest Coverage Ratio 9.7 Based on YTD 2009 EBIT/Net interest expense
Debt/ Market Cap Ratio 22.5%
S&P Debt Rating A Per FY 2008 10‐K (consistent w/ interest coverage and Debt/ Market Cap ratios)
Cost of Debt 6.20%
Equity Weight 80.0%
Debt Weight 20.0%
WACC 8.88%
27
THE UNIVERSITY OF IOWA
Henry Fund Research Henry B. Tippie School of Management
Walt Disney Co.
FYE October 3
Value Driver Estimation 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E Terminal
NOPLAT
EBITA $ 4,603 $ 5,839 $ 7,346 $ 8,040 $ 6,325 $ 6,863 $ 7,380 $ 8,352 $ 8,991 $ 9,456 $ 9,731
Less: Taxes on EBITA
Marginal Tax Rate 31.1% 35.6% 37.2% 36.1% 36.2% 35.3% 37.0% 37.0% 37.0% 37.0% 37.0%
Total Income Tax Provision $ 1,241 $ 1,890 $ 2,874 $ 2,673 $ 2,049 $ 2,131 $ 2,366 $ 2,703 $ 2,945 $ 3,119 $ 3,223
Plus: Tax Shield on Interest Expense $ 220 $ 251 $ 278 $ 257 $ 213 $ 245 $ 279 $ 311 $ 314 $ 317 $ 320
Less: Tax on Interest Income $ (34) $ (41) $ (57) $ (68) $ (44) $ (58) $ (66) $ (69) $ (72) $ (74) $ (77)
Less/Plus: Tax on Nonop. Income/ Loss $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
Taxes on EBITA $ 1,427 $ 2,101 $ 3,095 $ 2,862 $ 2,218 $ 2,318 $ 2,580 $ 2,945 $ 3,187 $ 3,362 $ 3,466
Plus: Change in Deferred Taxes $ (497) $ 378 $ (348) $ (385) $ (647) $ 628 $ 361 $ 77 $ 73 $ 53 $ 51
NOPLAT $ 2,679 $ 4,116 $ 3,903 $ 4,793 $ 3,460 $ 5,173 $ 5,161 $ 5,485 $ 5,877 $ 6,147 $ 6,316
INVESTED CAPITAL
Operating Working Capital:
Plus: Normal Cash $ 2,875 $ 3,037 $ 3,196 $ 3,406 $ 3,253 $ 3,382 $ 3,506 $ 3,666 $ 3,817 $ 3,927 $ 4,035
Plus: Receivables $ 4,585 $ 4,707 $ 5,032 $ 5,373 $ 4,854 $ 5,328 $ 5,527 $ 5,783 $ 6,025 $ 6,201 $ 6,371
Plus: Inventory $ 626 $ 694 $ 641 $ 1,124 $ 1,271 $ 1,158 $ 1,095 $ 1,146 $ 1,195 $ 1,230 $ 1,264
Plus: Other Current Assets $ 1,162 $ 1,158 $ 1,109 $ 1,144 $ 1,207 $ 1,202 $ 1,247 $ 1,303 $ 1,357 $ 1,396 $ 1,435
Less: Accounts Payable $ (5,339) $ (5,917) $ (5,949) $ (5,980) $ (5,616) $ (6,011) $ (6,237) $ (6,417) $ (6,689) $ (6,886) $ (7,075)
Less: Unearned royalties/ Othe $ (1,519) $ (1,611) $ (2,162) $ (2,082) $ (2,112) $ (2,016) $ (2,094) $ (2,197) $ (2,294) $ (2,365) $ (2,430)
Net Operating Working Capital $ 2,390 $ 2,068 $ 1,867 $ 2,985 $ 2,857 $ 3,044 $ 3,044 $ 3,285 $ 3,410 $ 3,503 $ 3,600
(+) Net Property and Equipment $ 16,968 $ 17,167 $ 17,433 $ 17,532 $ 17,597 $ 17,674 $ 17,746 $ 18,020 $ 18,282 $ 18,485 $ 18,644
(+) Capitalized PV Operating Leases1 $ 1,170 $ 1,321 $ 1,341 $ 1,376 $ 1,389 $ 1,463 $ 1,462 $ 1,481 $ 1,499 $ 1,509 $ 1,519
(+) Net Intangibles & Other $ 9,145 $ 9,449 $ 9,101 $ 9,585 $ 9,394 $ 12,233 $ 11,700 $ 11,627 $ 11,544 $ 11,378 $ 11,212
(-) Other Long-Term Operating Liabilities $ 5,193 $ 4,474 $ 4,319 $ 5,123 $ 7,135 $ 5,233 $ 5,386 $ 5,580 $ 5,765 $ 5,899 $ 6,031
NET INVESTED CAPITAL 2 $ 23,310 $ 24,210 $ 24,082 $ 24,979 $ 22,713 $ 27,717 $ 27,105 $ 27,352 $ 27,471 $ 27,467 $ 27,425
ROIC (NOPLAT/Invested Capital)
NOPLAT $ 2,679 $ 4,116 $ 3,903 $ 4,793 $ 3,460 $ 5,173 $ 5,161 $ 5,485 $ 5,877 $ 6,147 $ 6,316
Invested Capital (Beginning) $ 24,215 $ 23,310 $ 24,210 $ 24,082 $ 24,979 $ 22,713 $ 27,717 $ 27,105 $ 27,352 $ 27,471 $ 27,467
ROIC (NOPLAT/Invested Capital) 11.1% 17.7% 16.1% 19.9% 13.9% 22.8% 18.6% 20.2% 21.5% 22.4% 23.0%
FREE CASH FLOW
NOPLAT $ 2,679 $ 4,116 $ 3,903 $ 4,793 $ 3,460 $ 5,173 $ 5,161 $ 5,485 $ 5,877 $ 6,147 $ 6,316
Net Investment (change in invested capital) $ (905) $ 900 $ (128) $ 897 $ (2,265) $ 5,004 $ (612) $ 247 $ 119 $ (4) $ (42)
Free Cash Flow (NOPLAT - Net Inv't) $ 3,584 $ 3,216 $ 4,032 $ 3,896 $ 5,726 $ 170 $ 5,774 $ 5,238 $ 5,758 $ 6,151 $ 6,358
ECONOMIC PROFIT
Invested Capital (Beginning) $ 24,215 $ 23,310 $ 24,210 $ 24,082 $ 24,979 $ 22,713 $ 27,717 $ 27,105 $ 27,352 $ 27,471 $ 27,467
ROIC 11.1% 17.7% 16.1% 19.9% 13.9% 22.8% 18.6% 20.2% 21.5% 22.4% 23.0%
WACC 8.9% 8.9% 8.9% 8.9% 8.9% 8.9% 8.9% 8.9% 8.9% 8.9% 8.9%
EP (Invested Capital*(ROIC-WACC)) $ 528 $ 2,046 $ 1,753 $ 2,653 $ 1,241 $ 3,156 $ 2,699 $ 3,077 $ 3,447 $ 3,707 $ 3,876
NON-OPERATING ASSETS
Cash on Hand $ 1,723 $ 2,411 $ 3,670 $ 3,001 $ 3,417 $ 3,499 $ 3,632 $ 3,803 $ 3,966 $ 4,084 $ 4,196
"Normal" Cash $ 2,875 $ 3,037 $ 3,196 $ 3,406 $ 3,253 $ 3,382 $ 3,506 $ 3,666 $ 3,817 $ 3,927 $ 4,035
Excess Cash $ - $ - $ 474 $ - $ 164 $ 117 $ 126 $ 137 $ 149 $ 157 $ 161
Short-Term & Long-Term Investments $ 1,226 $ 1,315 $ 995 $ 1,563 $ 2,554 $ 1,503 $ 1,558 $ 1,629 $ 1,696 $ 1,745 $ 1,793
Non-Operating Assets $ 1,226 $ 1,315 $ 1,469 $ 1,563 $ 2,718 $ 1,620 $ 1,684 $ 1,767 $ 1,845 $ 1,902 $ 1,954
Notes:
1. PV of Operating Leases is capitalized in the Invested Capital calculation, consistent with adding the respective liability balance to total debt and other debt-like obligation
PV of Operating Leases is grown from FYE 2008 at the growth rate of assets, assuming leased assets will show similar pattern
2. Higher ROIC going forward is due to revenue synergies with Marvel and the overall much higher profitability of this business (EBIT at around 40%
28
THE UNIVERSITY OF IOWA
Henry Fund Research Henry B. Tippie School of Management
Walt Disney Co. WACC 8.88%
Valuation Calculations Terminal Growth Rate 2.75%
FYE October 3 Terminal ROIC 23.0%
Cost of Equity 10.12%
DCF Model 2010E 2011E 2012E 2013E 2014E Terminal
FCF $ 170 $ 5,774 $ 5,238 $ 5,758 $ 6,151 $ 90,628
PV(FCF) $ 156 $ 4,870 $ 4,057 $ 4,097 $ 4,019 $ 59,218
PV(FCF) $ 74,808
+ PV(Non‐Oper) $ 2,718
‐ PV(Debt/ Cap. Leases) $ 12,701
‐ PV(Op. Leases/ Other) $ 1,389
‐ PV(ESOP) $ 978
‐ PV(Other Liab.) $ ‐
PV(Equity) $ 62,457
Shares Outst. 1,856
Target Price $ 33.65 As of FYE 2009 (October 3)
Target Price $ 34.04 As of 11/13/2009 (growth at cost of capital)
EP Model 2010E 2011E 2012E 2013E 2014E Terminal
ROIC 22.78% 18.62% 20.23% 21.49% 22.38% 22.99%
EP $ 3,156 $ 2,699 $ 3,077 $ 3,447 $ 3,707 $ 63,161
PV(EP) $ 2,898 $ 2,277 $ 2,384 $ 2,452 $ 2,422 $ 41,270
PV(EP) $ 52,573
Invested Capital $ 22,235
PV(Operations) $ 74,808
+ PV(Non‐Oper) $ 2,718
‐ PV(Debt/ Cap. Leases) $ 12,701
‐ PV(Op. Leases) $ 1,389
‐ PV(ESOP) $ 978
‐ PV(Other Liab.) $ ‐
PV(Equity) $ 62,457
Shares Outst. 1,856
Target Price $ 33.65 As of FYE 2009 (October 3)
Target Price $ 34.04 As of 11/13/2009 (growth at cost of capital)
29
THE UNIVERSITY OF IOWA
Henry Fund Research Henry B. Tippie School of Management
Walt Disney Co.
Market Data: As of Oct. 09, 2009
Relative Valuation: Peer Group in Diversified Entertainment Sub‐industry
Symbol Company Name Industry Market Cap. (M) Shares O/S (M) Beta ROA (%) ROIC (%) EBT (%) D/E
CMCSA Comcast Corp CATV Systems $ 44,625 2,870 0.83 2.5 2.8 12.4 0.79
TWX Time Warner Inc Ent't ‐ Diversified $ 35,865 1,186 1.34 ‐13.3 ‐15.3 ‐46.1 0.48
NWSA News Corp. Ent't ‐ Diversified $ 31,868 2,614 1.57 ‐5.7 ‐7.1 ‐18.2 0.62
CCL Carnival Corp Ent't ‐ General $ 27,350 838 1.38 5.5 6.6 14.9 0.47
DISCA Discovery Comm. Inc CATV Systems $ 8,613 282 0.95 6.6 7.2 30.4 0.59
DWA DreamWorks Animation Inc Movie Production $ 2,937 87 1.00 13.4 17.0 26.2 0.07
WMS WMS Industries Inc Resorts & Casinos $ 2,411 50 1.86 11.3 13.2 19.9 0.19
DIS Walt Disney Co. Ent't ‐ Diversified $ 56,497 1,856 1.15 5.5 6.7 15.1 0.4
Symbol Price EPS 09E EPS 10E Sales 09E (B) Sales 10E (B) P/E 09 P/E 10 P/S 09 P/S 10
CMCSA 15.55
$ $ 1.11 $ 1.19 $ 35.6 $ 36.8 14.0 13.1 1.3 1.2
TWX 30.25
$ $ 2.02 $ 2.25 $ 28.8 $ 28.8 15.0 13.4 1.2 1.2
NWSA 12.19
$ $ 0.77 $ 0.90 $ 30.8 $ 32.0 15.8 13.5 1.0 1.0
CCL 32.65
$ $ 2.18 $ 2.23 $ 13.2 $ 14.4 15.0 14.6 2.1 1.9
DISCA 30.55
$ $ 1.36 $ 1.57 $ 3.5 $ 3.7 22.5 19.5 2.5 2.3
DWA 33.87
$ $ 1.61 $ 2.30 $ 0.7 $ 0.9 21.0 14.7 4.1 3.3
WMS 47.76
$ $ 1.82 $ 2.16 $ 0.8 $ 0.9 26.2 22.1 3.1 2.8
Average 19.3 15.9 1.9 2.0
DIS $ 30.44 $ 1.78 $ 1.85 $ 36.15 $ 38.23 17.1 16.4 1.6 1.5
DIS Sales/ Share 20.60
$ 19.48 $
Valuation Model DIS Implied Price Average
Relative P/E (EPS09) $ 34.31
31.83
$
Relative P/E (EPS10) $ 29.35
P/S Ratio (Sales09) $ 36.38
38.47
$
P/S Ratio (Sales10) $ 40.57
DCF/ EP Valuation $ 34.04
Avg. Target Price: $ 34.78
Current Price: $ 30.44
% Premium
Target Price $ 34.09 12.0%
Range (+/‐ 2%): $ 35.48 16.5%
30
THE UNIVERSITY OF IOWA
Henry Fund Research Henry B. Tippie School of Management
Walt Disney Co.
DCF/ EP Valuation: Sensitivity Analysis
Terminal Revenue Growth
$ 34.04 2.25% 2.50% 2.75% 3.00% 3.25% 3.50%
72.52% 35.21
$ $
36.22 37.32
$ $ 38.51 $ 39.80 $ 41.22
Terminal Cost of Rev. %
73.02% 34.46
$ $
35.44 36.50
$ $ 37.65 $ 38.91 $ 40.28
73.52% 33.70
$ $
34.65 35.68
$ $ 36.80 $ 38.01 $ 39.34
74.02% 32.95
$ $
33.87 34.86
$ $ 35.94 $ 37.11 $ 38.40
74.52% 32.20
$ $
33.09 34.04
$ $ 35.09 $ 36.22 $ 37.46
75.02% 31.44
$ $
32.30 33.23
$ $ 34.23 $ 35.32 $ 36.52
75.52% 30.69
$ $
31.52 32.41
$ $ 33.38 $ 34.43 $ 35.58
76.02% 29.94
$ $
30.73 31.59
$ $ 32.52 $ 33.53 $ 34.64
76.52% 29.19
$ $
29.95 30.77
$ $ 31.66 $ 32.64 $ 33.70
% Amortizable Intangibles (Marvel Acquisition)
$ 34.04 25% 40% 55% 70% 75% 80%
7.88% 41.64
$ $
41.89 42.14
$ $ 42.39 $ 42.47 $ 42.55
8.08% 39.76
$ $
40.00 40.23
$ $ 40.47 $ 40.55 $ 40.62
WACC Estimate
8.28% 38.01
$ $
38.24 38.46
$ $ 38.69 $ 38.76 $ 38.84
8.48% 36.39
$ $
36.61 36.82
$ $ 37.03 $ 37.10 $ 37.17
8.68% 34.88
$ $
35.08 35.28
$ $ 35.49 $ 35.56 $ 35.62
8.88% 33.46
$ $
33.66 33.85
$ $ 34.04 $ 34.11 $ 34.17
32.14
9.08% $ 32.32
$ $
32.51 $ 32.69 $ 32.75 $ 32.82
30.89
9.28% $ 31.07
$ $
31.25 $ 31.42 $ 31.48 $ 31.54
29.72
9.48% $ 29.89
$ $
30.06 $ 30.23 $ 30.29 $ 30.34
31
THE UNIVERSITY OF IOWA
Henry Fund Research Henry B. Tippie School of Management
Walt Disney Co.
Operating Leases ‐ Present Value
($ Millions)
Pre‐tax cost of debt 6.20%
Lease commitment in "Thereafter" $ 619
Average annual lease payment $ 243
Estimated # Yrs. in "Thereafter" 1 2
2
Annuity equiv. of "Thereafter" amount 310
$
Lease PV of Lease
Year Yrs. to Maturity
Commitment Payment 3
2009 0.25 $ 98 $ 97
2010 1.25 $ 351 $ 326
2011 2.25 $ 305 $ 266
2012 3.25 $ 265 $ 218
2013 4.25 $ 198 $ 153
Thereafter 5.25 $ 619 $ 329
$ 1,836 $ 1,389
Notes:
1. # of Years implied in thereafter is calculated as total commitment/ average annual lease payment.
2. Commitment beyond year 5 is converted into an annuity; then used to calc. PV of "Thereafter" amount.
3. Represents present value of non‐cancellable op. leases as of FYE 2008 (Source: 2008 10‐k, p. 102).
32
THE UNIVERSITY OF IOWA
Henry Fund Research Henry B. Tippie School of Management
Walt Disney Co.
VALUATION OF OPTIONS GRANTED IN ESOP
Ticker Symbol DIS
Current Stock Price $ 30.44 As of 11/13/2009
Risk Free Rate 4.36% 30‐Yr. T‐Bond
Current Dividend Yield 1.10% per Yahoo! Finance (11‐13‐2009)
Annualized St. Dev. of Stock Returns 29.00% Source: 2008 10‐k, p. 96
(# Shares in thousands)
Average Average B‐S Value
Range of Number Exercise Remaining Option of Options
Outstanding Options of Shares (M) Price Life (yrs) Price Granted
Range 1 8.00 $ 9.95 3.30 $ 20.77 $ 166
Range 2 10.00
$ 18.08 5.20 $ 15.33 $ 153
Range 3 30.00
$ 23.67 4.30 $ 11.58 $ 347
Range 4 27.00
$ 29.06 3.10 $ 7.76 $ 210
Range 5 19.00
$ 33.78 2.20 $ 4.67 $ 89
Range 6 3.00 $ 39.88 1.70 $ 2.21 $ 7
Range 7 3.00 $ 42.21 2.00 $ 2.18 $ 7
Range 8 1.00 $ 116.37 1.40 $ 0.00 $ 0
Total 101.00
$ 27.32 3.42 $ 9.77 $ 978
Note: Above stock options include only "vested" ones.
33
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