The Walt Disney Company announced Q1 FY09 Financial Results
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  • 1. Q1 FY09 Earnings Conference Call FEBRUARY 3, 2009 Disney Speakers: Bob Iger President and Chief Executive Officer Tom Staggs Senior Executive Vice President and Chief Financial Officer Moderated by, Lowell Singer Senior Vice President, Investor Relations PRESENTATION Operator Good day, ladies and gentlemen, and welcome to the first quarter 2009 Walt Disney earnings conference call. (Operator Instructions). I would now like to turn your presentation over to Mr. Lowell Singer, Senior Vice President, Investor Relations of Walt Disney. Please proceed. Page 1
  • 2. February 3, 2009 Q1 FY09 Earnings Conference Call Lowell Singer – Senior Vice President, Investor Relations, The Walt Disney Company Thank you, Eric. Good afternoon, everyone, and welcome to The Walt Disney Company's first quarter 2009 earnings call. Our press release was issued a few minutes ago and it is now available on our website at www.Disney.com/investors. Today's call is also being webcast and the webcast can be accessed via our website. After the call, a replay and a transcript of today's remarks will also be available on our website. Joining me in Burbank today for the call are Bob Iger, Disney's President and Chief Executive Officer and Tom Staggs, Senior Executive Vice President and Chief Financial Officer. Bob and Tom are going to lead off with some comments. We will then, of course, turn it over to you guys for your questions. So, with that, let me turn it over to Bob and we'll get started. Bob Iger – President and Chief Executive Officer, The Walt Disney Company Thank you very much, Lowell. And good afternoon, everyone. Disney had a challenging first quarter with all of our lines of business impacted to various degrees by what is likely to be the weakest economy in our lifetime. Consumers and companies both are scaling back expenditure, emphasizing saving over spending, and it’s unclear when this will change. At the same time, certain of our businesses are experiencing signs of secular change as competition for people’s time is increasing and the abundance of choice is allowing consumers to be more selective. This clearly has had an impact on broadcast television and may have a long-term potential impact on the DVD business. In essence, we don’t believe the changes we are seeing in consumer behavior can all be attributed to a weak economy, and we feel it is important for us to address them as more than just cyclical issues. The combination of these changes with the severe economic downturn has caused us to examine much of what we do, guided by pragmatism and an appreciation of the advantages afforded to us by the strength of our creativity, our brands, our assets and the integrated way we manage our businesses. Fundamentally, we remain in a great competitive position, but circumstances require us to be even smarter in day-to-day management. We believe we have a real opportunity to strengthen our brands and to make our businesses even more efficient. With respect to the downturn, we are taking numerous steps to mitigate its impact. These efforts are company-wide, but each business segment is adjusting according to its Page 2
  • 3. February 3, 2009 Q1 FY09 Earnings Conference Call own conditions and needs. We continue to look for ways to adjust our cost base to changes in demand, provided that these actions do not compromise the quality of our products or the guest experience we offer. Cost savings are only part of what we are aiming to accomplish. We are also addressing the challenges created by the secular changes I discussed earlier. On the broadcast side, we are more focused than ever on creating great entertainment that we own and can distribute across multiple platforms in multiple territories. The consolidation of ABC Entertainment and ABC Studios creates a more sustainable cost structure, increases accountability and underscores our commitment to this content creation strategy. On the local broadcasting front, audience fragmentation and a weakened advertising environment is making the business much tougher. Our local television businesses have been extremely disciplined on the cost front, and while it might be tempting to reduce expenses even more, we will not do so at the expense of our local news brand, which we have concluded is the single most valuable asset of these stations and where we believe additional reductions would have a long-term negative impact. Our position as a market leader in local news provides us an opportunity to increase the value of these assets, even as competitors cut back. In our film business, we started taking measures three years ago to focus primarily on Disney-branded movies, allowing us to trim our output and expenses, to leverage the Disney name and to create opportunities for other Disney businesses, thus improving returns. Today, our focus is only intensifying as we address the changes affecting the DVD market. To that end, we plan to reduce production, marketing and distribution expenses at our home video business and to implement strategies that enhance the price-to-value relationship of our products. We believe the unique nature of our brand and the quality of our movies help us stand out in this environment, but we must also innovate in order to generate attractive returns. Consumer affinity for the Disney Parks remains extraordinary in this tough economy. The strength of the guest experience we offer, combined with new marketing and pricing strategies, has enabled us to do reasonably well in terms of attendance and advance bookings. Although we can cut come costs to compensate for somewhat lower revenue levels, we are determined to protect quality. Our goal is to offer the consumer a great experience at prices that are affordable in today’s climate. We believe this is the right thing to do in order to deliver long-term value. Page 3
  • 4. February 3, 2009 Q1 FY09 Earnings Conference Call This quarter, for the first time we are separately reporting the results of our Interactive Media Group, composed of our console, mobile and online gaming operations, as well as Disney.com and the technology backbone that serves all of Disney. Products developed by this newly-formed group play a critical role in building our brands and in deepening our relationship with the consumer. Investment in this unit is substantial, but so is the opportunity to both grow its own businesses and to buttress the Disney, ABC and ESPN brands. Disney.com remains an important destination for entertainment and information, as well as a growing online commerce business and it will be the anchor of our company-wide CRM efforts. Finally, as we address these challenges, I don’t want you to lose sight of the strength and commitment we’ve brought to launching new and growing existing creative franchises that resonate with consumers around the world, create value across the company and are the core of our competitive advantage. Last quarter, Disney Fairies got an enormous boost with an original direct-to-home DVD that’s so far sold over six million copies worldwide. This year, we will have a new Disney Channel series and a new feature film from the Jonas Brothers, a new Hannah Montana feature film, a new 3-D version of Toy Story and the introduction of our latest Disney Princess in The Princess and The Frog. Production or development is underway on sequels to Toy Story, Cars, Pirates and High School Musical, as well. As we work through this downturn, our aim is to bolster our creative capabilities, to protect our assets and cash flow and to look for additional opportunities to expand our businesses. It’s an incredibly challenging time, but we are clear on our objectives and disciplined in our execution. Our strengths remain the creativity of our people, our embrace of innovation and our great belief that nothing substitutes for quality when it comes to setting yourself consistently apart in the eyes of consumers. By staying focused, we believe we are positioning Disney for sustained long-term success. With that, I’ll turn it over to Tom… Tom Staggs – Senior Executive Vice President and Chief Financial Officer, The Walt Disney Company Thanks, Bob and good afternoon. I’m going to take a few minutes to discuss the key drivers of our Q1 performance, and I’ll then touch on the trends we’re seeing thus far in Q2. Page 4
  • 5. February 3, 2009 Q1 FY09 Earnings Conference Call Let me start with Parks and Resorts. Last year, we had record-high first quarter attendance at our domestic parks. In this year’s Q1, our domestic parks’ attendance came in 5% below those levels, with roughly equal percentage declines at Walt Disney World and Disneyland. Guest spending at our domestic parks came in flat compared to the prior Q1, as slightly higher average ticket prices helped to offset lower merchandise spending. Occupancy levels in both Orlando and Anaheim were 85%, down mid single-digit percentage points versus last year. Average spending at our hotels was up modestly. At our international parks, attendance increased, both at Disneyland Resort Paris and Hong Kong Disneyland. Operating income, however, was lower as the prior year Q1 results benefited from higher real estate sales at Disneyland Resort Paris. As Bob mentioned, while our parks’ team manages costs based on demand, they are also committed to maintaining the premium guest experience that sets us apart. That commitment helps drive the long-term value of this business. In the shorter term, it can impact margins, as it did in Q1. Margins in the quarter were also affected by mark-to- market adjustments for fuel hedges of approximately $40 million. In fact, this fuel hedge impact alone accounted for 40% of our margin decline in the quarter. At Media Networks, cable operating income was down 12%. At ESPN, increased affiliate revenue more than offset lower advertising revenue, but operating income was impacted by higher rights costs, administrative expenses and receivables reserves. ESPN’s current ad sales declined by high single-digit percentage points in the quarter, consistent with what we saw in Q4. The decrease was due in part to softness in several ad categories including consumer electronics and automotive. Results at our domestic Disney Channel were also down as a result of the great success of High School Musical 2 on DVD last year. At Broadcasting, lower profits reflected ratings declines at ABC and the soft ad market, although lower programming costs at the network helped to partially offset those factors. Q1 results were also affected by bad debt expense associated with the Tribune bankruptcy filing. Scatter CPMs came in above upfront pricing levels by roughly 10%, but were significantly lower than Q1 scatter pricing in the prior year. Our TV stations are exceptionally well positioned in their markets and have gained ad revenue share, but weakness in the local ad market drove a revenue decline at the stations of approximately 15%, despite higher political ad spending in the quarter. As I mentioned last December, Studio Entertainment faced very difficult Q1 home video comparisons as the prior year quarter included the DVD release of Pirates of the Caribbean 3 and High School Musical 2. In addition, we and the industry as a whole Page 5
  • 6. February 3, 2009 Q1 FY09 Earnings Conference Call realized lower conversion rates on new releases and softer demand for catalog titles, which contributed to a decrease in DVD unit sales. These lower sales were easily the biggest factor in reduced results at the Studio in the quarter. In our Consumer Products segment, Q1 earned licensing royalties were roughly flat versus prior year, despite the difficult retail environment. The presence of Disney Stores North America revenue this year, as opposed to a royalty payment on the stores last year, drove the segment’s revenue increase in the quarter, but also hurt margins. We are now reporting the financials for our Disney-branded interactive businesses under a separate segment called “Interactive Media.” As Bob detailed, this new segment contains a collection of digital businesses that we believe offer attractive long- term opportunities. We expect to continue to invest further in these businesses, and particularly in Disney-branded video games, websites and virtual worlds for the next few years. In Q1 for this new segment, our increased losses were due to lower results in video games. Our unit sales for video games were up somewhat, but competition and the difficult market put pressure on pricing. We also saw higher unit cost of sales and marketing expenses on video games in the quarter. As Bob and I have indicated, we expect the difficult economic environment to continue. Having said that, room reservations at our domestic resorts for fiscal Q2 and Q3 are currently running slightly ahead of prior year, with strength in Q3 more than offsetting a slight decrease in Q2. The Easter holiday falls in Q3 this year versus fiscal Q2 last year, which helps explain this disparity between quarters. The strength in these bookings is coming from Walt Disney World on the success of our “Buy 4, Get 3 Free” promotion. Of course, this promotion is resulting in greater discounting for these reservations. Given the success of the promotion, we have extended the booking window to March 29th and will increase the travel window from June 27th to August 15th. We will begin accepting bookings for the new dates on Monday, February 9th. There is no question that the tough environment has an impact on our parks business. At the same time, the relatively modest attendance declines in the first quarter and the success of this promotion also help demonstrate the differentiated appeal of our theme parks and resorts and the content they feature. At Media Networks, we continue to see weakness in the ad market. Ad pacings at our TV stations are significantly behind last year, in part due to the lack of political spending in this year’s fiscal Q2. At the network, scatter pricing is running slightly above upfront pricing, though the pace of sales for Q2 is still below this time last year. At ESPN, pacings thus far in Q2 versus the prior year are slightly behind the comparison we saw in Q1. Pacings at ABC Family are up so far in Q2. Page 6
  • 7. February 3, 2009 Q1 FY09 Earnings Conference Call In our Consumer Products businesses, we are well positioned with strong licensed character properties. However, a persistent slowdown in the retail environment does impact our results at retail and, over time, our earned royalties. Like others, we are faced with a tough environment. In responding, our focus is on managing with financial discipline, including reducing costs where prudent. At the same time, we are also pursuing investments in additional high-quality products, increased innovation, and future growth. Disney’s brand strength and unmatched assets provide tremendous competitive advantages that will help us weather this economic cycle and we believe they position us well to deliver long-term growth and value to investors. With that, I’ll turn back to Lowell for Q&A. Lowell Singer – Senior Vice President, Investor Relations, The Walt Disney Company Ok, Tom. Thank you. Operator we are ready for the first question. Q&A Operator (Operator Instructions) Your first question comes from the line of Jessica Reif-Cohen with Bank of America - Merrill Lynch. Please proceed. Jessica Reif-Cohen – Analyst, Bank of America-Merrill Lynch Thanks. Two questions. I just wanted to follow up, Bob, on what you said about film. When you said you plan to spend less, do you mean you're spending less per film or overall in the film business? I wasn't really clear. And then, Tom, can you discuss the free cash flow outlook for the year? Bob Iger – President and Chief Executive Officer, The Walt Disney Company Well, our goal is to ultimately spend less in total on films, but because we're making fewer films and there's a greater percentage of those films that are what we call tent pole, the average price for film hasn't necessarily gone down significantly. We do believe, though, that the cost of both producing the DVDs, distributing and marketing the DVDs needs to be addressed. And that's exactly what we're doing with an eye Page 7
  • 8. February 3, 2009 Q1 FY09 Earnings Conference Call toward not only reducing the costs in what I'll call the investment in extras for the DVD, but also focused on improving the price-to-value relationships. For instance, we're finding that when we sell a Blu-ray DVD with a standard def file and downloadable file, we can actually offer a price to the consumer that is viewed by the consumer as delivering greater value, which is enabling us to drive revenue at a level that's slightly better than we might have if we had not added those basically valuable extras to the DVD. But definitely cost of basically the system needs to come down. Tom Staggs – Senior Executive Vice President and Chief Financial Officer, The Walt Disney Company Jessica, on free cash flow, while I won't give guidance per se, the biggest determinant, of course, will be the operating results as we go through the year. I would say a couple things about investment. There are a couple of places where we are making investments, first of all, on the programming side. I expect to invest a little bit more in programming at ABC, given the strike last year on a year-over-year basis. We continue to invest in programming at the Disney Channels around the world, as you know. On the capital side, the -- we're investing in increased capacity up at Pixar and we're putting some money into that this year. And on the parks side, the major drivers, I would expect capital expenditures to be up somewhat because we're investing in California Adventure, which we talked about last year. We continue to invest in the new ships that are due for the cruise business in a couple of years. And we're also continuing to invest in vacation club facilities. So as both Bob and I mentioned, we continue to try to make sure that we're being disciplined about our investments, but that we're putting investment towards quality product that we think cuts through the clutter, and on assets that we think will drive long-term growth for the Company. And so that, you should expect to continue. Lowell Singer – Senior Vice President, Investor Relations, The Walt Disney Company Thanks, Jessica. Operator, next question, please? Operator Your next question comes from the line of Benjamin Swinburne with Morgan Stanley. Please proceed. Page 8
  • 9. February 3, 2009 Q1 FY09 Earnings Conference Call Benjamin Swinburne – Analyst, Morgan Stanley Thanks. Good afternoon. Two questions. First, on the parks front, then one back to DVD. Just so I was clear, Tom, you said I think that hotel spending was up modestly in the quarter and we obviously saw the impact of the promotions, the “Buy 4, Get 3 free,” which you have extended. Is that how you think you'll see hotel spending pace through the rest of the year, obviously within some kind of a range? I guess what I'm trying to understand is, do you think that this offer in the market sort of keeps us in that range going forward? And then secondly, on the DVD side, I think we're all struggling with figuring out how much of this is cyclical versus secular. To some extent, the DVD business really fell off last year as retail overall fell off. I was wondering if you had any view on how Wal- Mart's activity or overall shelf space at retail for the DVD business might have been responsible for some of the numbers we've seen and whether that changes or can be changed as we head in through 2009? Tom Staggs – Senior Executive Vice President and Chief Financial Officer, The Walt Disney Company Well, Benjamin, I'll give you one note on the spending. I did mention that per room spending was roughly on par with the prior year in Q1. Bear in mind that “Buy 4, Get 3 free” promotion did not have travel periods in the first quarter. So that promotion did not impact guest spending or ADRs in the first quarter and that remains to be seen. I talked about… we've got Q2-Q3 were up in room reservations on the books. Those room reservations have more discount in them than you would have seen at this point last year. And I think that will show up in the ADR, as we report Q2 and Q3 later in the year. Bob Iger – President and Chief Executive Officer, The Walt Disney Company So going to DVDs and whether we're seeing cyclical or secular change. I think it's clear that the economy has had an impact on DVD sales and if you look at sales for the year, they worsened in the fourth calendar quarter or our first fiscal quarter significantly, suggesting that maybe there was the direct correlation between the cataclysmic events that occurred around the beginning of that quarter and DVD sales. However, we've been taking a hard look at this business for a while with a belief that as consumer choice grows - and we all know this to be true, just look at the availability of games online, as a for instance, or videos in multiple places or multichannel TV, you name it - that pressure on the business has only grown. And that consumers can afford, because of all that choice, to simply be more selective and potentially to buy Page 9
  • 10. February 3, 2009 Q1 FY09 Earnings Conference Call things that they believe they are absolutely going to want to watch instead of things that might just be nice to have. Just as a for instance, the average US DVD household owns about 80 DVDs already and the avid movie buyer or user at home that has a DVD player owns somewhere in the neighborhood of 135 to 140. That suggests that economy or not, that going forward, people potentially will be more selective about what they buy because they already have a pretty decent collection. So we're mindful of that. We believe that there are some secular changes affecting that business. We can't quantify it. We can't point, for instance, just to shelf space issues, Ben, to reference your question about Wal-Mart, as necessarily a key ingredient. That's obviously something that we're also watching very carefully. What we believe we need to do is we need to be mindful of these changes to address it when it comes to our cost structure. We've been focused a lot on the Disney brand because we believe that really does give us an advantage and we think it shows in both our conversion rates and in our pricing where we have slight advantages, and really, be careful about the timing of product that we put into the marketplace. And generally speaking, we need to be even more selective about what we choose to make and what we choose to distribute. Benjamin Swinburne – Analyst, Morgan Stanley Does this change your view on day-and-date with video-on-demand at all? Bob Iger – President and Chief Executive Officer, The Walt Disney Company Well, my view on day-and-date, which was pretty radical about three years ago, has modified somewhat over time. So, I don't know that it's necessarily changed my view at all. I'm not advocating being more aggressive on the windowing right now. I'm advocating being more focused on the cost of the system and being more focused on the quality of the marketing and making sure we deliver the right price-to-value relationship. What it does confirm, though, is that the Disney brand, particularly when it comes to library product - because we saw that in 2008, while library product was somewhat flat with where it was in 2007, there seemed to be some trends that, from a pricing perspective, we need to be mindful of. And when you bring a Disney DVD out and create an event out of that, not only is it something that can drive traffic to a mass retailer, which is obviously helpful, but it seems to be something that consumers are still willing to pay a decent price for. Rather than buying lots of library product in two- Page 10
  • 11. February 3, 2009 Q1 FY09 Earnings Conference Call for-$5 or two-for-$10 discount bins. So, we like where we're positioned there with the Disney brand in a limited library and an event strategy. And that will continue to be our focus. Lowell Singer – Senior Vice President, Investor Relations, The Walt Disney Company Thanks, Ben. Benjamin Swinburne – Analyst, Morgan Stanley Thank you. Lowell Singer – Senior Vice President, Investor Relations, The Walt Disney Company Operator, next question, please? Operator Your next question comes from the line of Spencer Wang with Credit Suisse. Please proceed. Spencer Wang – Analyst, Credit Suisse Thanks, good afternoon. The first question's for Bob. You mentioned earlier that you guys were taking a close look at costs and they were mostly being handled at the divisional level. But maybe you could just help us quantify, is there some sort of target number you guys are hoping to achieve in fiscal '09? And then, just two quick housekeeping items for Tom. At Cable Networks, were there any affiliate revenue deferrals in the quarter? Then secondly, I don't know if you did or not, maybe I missed it. Did you size the bad debt charge at broadcasting? Thank you. Bob Iger – President and Chief Executive Officer, The Walt Disney Company Well, we've been spending, as a lot of companies have, a lot of time exploring or analyzing our cost structure. And this is clearly a time that demands that. It's also an opportunity to really look not just at costs, but at the overall structure of our businesses and by restructuring, creating efficiencies and simply becoming better at what we do. Page 11
  • 12. February 3, 2009 Q1 FY09 Earnings Conference Call And this is across the board. Some announcements have already been made, you probably read about, some you'll see in the months ahead. We're not going to quantify what our target is in terms of our overall cost reduction. By the way, it's more than just the business units. It's at the corporate level as well. But I can tell you that the number is going to be very significant. Because not only do these times demand that, but we just feel that it's really appropriate for us to take a look at a number of issues that go beyond, as I mentioned, just an economic downturn. The feeling being that when the economy rebounds, which it evidently will, the normal that we see isn't necessarily going to look like the normal that we were used to. And that's probably because some of the secular changes that we've referenced. So we're being very aggressive. We're very responsible, maybe in due course we'll be a little bit more specific about the number. Other than to tell you that it's quite significant, I don't think it would be appropriate since a lot of this is a work in progress to get any more detail. Spencer Wang – Analyst, Credit Suisse Okay, thank you. Tom Staggs – Senior Executive Vice President and Chief Financial Officer, The Walt Disney Company With regard to -- I think you asked about revenue deferrals at ESPN. Incremental deferral of affiliate revenue in Q1 was not a big factor in the quarter. One thing to bear in mind, by the way, when you think about the first quarter for ESPN, it's actually the quarter in which the relationship between advertising revenues to affiliate revenues is highest. Because we defer some affiliate revenues and we have a big quarter in terms of advertising because we have a lot of football, frankly, in the quarter that drives a fair amount of advertising revenue. Over in Broadcasting, I think you asked about the charge that we took with regard to the bankruptcy filing. That was about $60 million. Spencer Wang – Analyst, Credit Suisse Thanks. Page 12
  • 13. February 3, 2009 Q1 FY09 Earnings Conference Call Bob Iger – President and Chief Executive Officer, The Walt Disney Company Spencer, I just want to come back to one thing regarding cost reductions. Clearly, there have been and there will be reduction of personnel. The cost reductions that I speak of, though, go well beyond that and encompass a number of other things like reducing the cost of distributions, production, marketing, et cetera. So, it's an across the board process that does not just involve eliminating jobs. Spencer Wang – Analyst, Credit Suisse Great, thank you. Lowell Singer – Senior Vice President, Investor Relations, The Walt Disney Company Thanks, Spencer. Operator, next question, please? Operator Thank you. Your next question comes from the line of Doug Mitchelson with Deutsche Bank. Please proceed. Doug Mitchelson – Analyst, Deutsche Bank Thanks very much. Just a couple of clarifications for Tom. Tom, you mentioned for ESPN that the NFL was some pressure on cost - I thought that was the standard amortization increase each year. So if you could explain why the NFL was mentioned this year? And then at theme parks, you mentioned hotel bookings up slightly for 2Q-3Q. How is the drive-up attendance correlated with the hotel bookings? Has that been pretty similar? And should we think of Easter as a 4% shift from 3Q to 2Q? Thanks. Tom Staggs – Senior Executive Vice President and Chief Financial Officer, The Walt Disney Company With regard to the NFL, because ESPN was down modestly, the driver there being higher costs, I was trying to enumerate where the cost increases were. NFL was one of those places. It wasn't an anomalous year, it's the normal amortization schedule that you've come to expect. We are just trying to illuminate sort of where those things come from. Page 13
  • 14. February 3, 2009 Q1 FY09 Earnings Conference Call When you say drive-up attendance, when you look at theme park attendance, the resident sector has tended to be among the softest in terms of attendance origin. And that has been true in prior downturns. It was true this last quarter, although I will say that annual pass attendance at Disneyland has been quite good. I think there, you've got folks that are really attracted to the value of an annual pass to Disneyland and that has held up relatively well. But in terms of the otherwise resident attendance, that's been the softer piece of it. So in answer to your question, it doesn't correlate very well necessarily with occupancy trends. Bob Iger – President and Chief Executive Officer, The Walt Disney Company Doug, if you look at our advanced bookings and our recent attendance experience, what it suggests to us is that demand for that product is still really robust. But as you would expect in these tough economic times, the demand is tied pretty much to price as well. And we've decided that it was important for us to satisfy that demand and to address the economic issues that the world is facing with reduced pricing rather than trying to maintain prices and ultimately not attract as many people as possible. The experience people have when they visit our parks is one that is very good for our brand. There's also a strong word-of-mouth factor as well. People who go tell other people what their experience was, et cetera, and so on. And so keeping the pump primed, so to speak, is very, very important for this business, even though it has resulted in some reduction in margins for us. Tom Staggs – Senior Executive Vice President and Chief Financial Officer, The Walt Disney Company On the Easter shift, think of it this way. Last year when you had the Easter shift, our best estimate is it moved about $40 million of operating income from one quarter to the other. Depending on the pace of business this year, it would be somewhere in that ballpark, I would guess. Doug Mitchelson – Analyst, Deutsche Bank Thank you very much. Lowell Singer – Senior Vice President, Investor Relations, The Walt Disney Company Thank you, Doug. Operator, next question, please? Page 14
  • 15. February 3, 2009 Q1 FY09 Earnings Conference Call Operator Your next question comes from the line of Imran Khan with JPMorgan. Please proceed. Imran Khan – Analyst, JP Morgan Yes, hi thank you for taking my questions. Two questions. First on ESPN. Trying to better understand what are some of the initiatives you can take to potentially reduce some of the cost structure on ESPN and what are you taking or not on those areas? And secondly, interactive segment is roughly 3% of your revenue and I'm assuming you are breaking it down because you expect it to grow. And you talked about investment in this area. Can you help us understand what type of investment we're talking about and the growth, whether it will be organic or acquisition? Thank you. Bob Iger – President and Chief Executive Officer, The Walt Disney Company On ESPN front, clearly you can't do much in terms of your long-term commitment to sports rights. Although they have been more selective over the past few years on what rights they buy. You can reduce your cost of production somewhat, but the quality of that production is a pretty important ingredient to the quality of the viewer experience and brand equity. We have reduced somewhat some of our investments in certain areas, or slowed them down mostly, or delayed. We continue to invest in new media, for instance, but at a slightly slower pace. But the new media component of ESPN is also deemed pretty important, not only to the current day, brand equity and experience, but future growth. So, the cost reductions at ESPN, I would call, compared with some of the potential cost reductions at our other businesses relatively modest. And across the board, but in other words, when I say that, I mean from here and there as opposed to a significant part reduction from any one specific area. Tom Staggs – Senior Executive Vice President and Chief Financial Officer, The Walt Disney Company With regard to Interactive Media, let me see if I can frame the investment for you a little bit. First of all, most of the investment we're making in that business shows up on the expense line, the capital part of the equation is not terribly significant. And part of the reason for that is that we expense the production and development costs at games as they are incurred. I would expect to see the investment in 2009 be up somewhat from 2008. The biggest driver of that will likely be increased investment in the games business, so in the development of games. Page 15
  • 16. February 3, 2009 Q1 FY09 Earnings Conference Call We invested about $170 million in video game development last year. I think that in the neighborhood of $40 million to $50 million or so million dollars more of investment this year is probably in the right ballpark on that one. We'll also see increased investment at Disney.com, as we build out its both branding and CRM capabilities, as Bob referenced, although a much more modest pace of increase in the investment there. And then our investment in virtual worlds will continue and I think will ramp up somewhat. We believe that is a business that can ramp to profitability actually reasonably quickly and show some nice returns for us. Of course, Club Penguin is already profitable. But I think there is more for us there in that property and in the other properties that we're developing. And those are the largest components. We also have mobile content and services initiatives there. We'll make some incremental investment, but again that is one that I think, that's one you will see ramp to profitability relatively quickly. So we feel good about we're going, but again, there's increased investment on the horizon this year. And we'll continue to invest for the next couple years before we start to show that being a driver of growth for the Company overall. Imran Khan – Analyst, JP Morgan Great, thank you. Lowell Singer – Senior Vice President, Investor Relations, The Walt Disney Company Thanks, Imran. Operator, next question, please. Operator Your next question comes from the line of Michael Nathanson with Sanford Bernstein. Please proceed. Michael Nathanson – Analyst, Sanford Bernstein Hi. Thanks. I have one for Bob, and then two for Tom for housekeeping. Bob, coming back to Imran's question, what percentage of the cost base component would you characterize as programming, production or investment? I was wondering if you could follow up on that and then I have another one. Page 16
  • 17. February 3, 2009 Q1 FY09 Earnings Conference Call Bob Iger – President and Chief Executive Officer, The Walt Disney Company We don't break down the rights component versus the production or the investment component at ESPN. Except, I can say that given the cost of rights to certain high quality very, very popular events, you would expect that rights cost generally speaking is the largest component of ESPN's expense structure. Michael Nathanson – Analyst, Sanford Bernstein Okay. And let me just follow up on cable networks. The past few years, you've grown your affiliate fees double-digits. I wondered in the near term whether you think that's still achievable? So are you still seeing the same type of growth you've seen in the last couple years for affiliate fees? Bob Iger – President and Chief Executive Officer, The Walt Disney Company We have deals that are locked in for the next few years. And we're just starting to have discussions with some of the large cable operators about extending those deals. But it's way too early to either discuss or predict just what the rates will be. Our investment in those brands, those programs, has clearly paid off. Just look at the results at ABC Family, at Disney Channel, at ESPN. And we're finding in our discussions with the operators, while there's pressure on costs for everyone, including them, something we need to be mindful of, the popularity of our channels is clearly delivering value for them in making their multi-service business attractive to their customers. But also, it's providing value to them particularly at ESPN and their ability to sell local ads. Michael Nathanson – Analyst, Sanford Bernstein Okay. Thanks, Bob. I want to ask Tom about the fuel hedge. Have you benefited from previous years of fuel hedge and what's the risk if fuel prices stay where they are, there's future quarters of mark-to-market losses? Tom Staggs – Senior Executive Vice President and Chief Financial Officer, The Walt Disney Company Well, if fuel prices stay where they are, there wouldn't be any more mark-to-market on those particular hedges. By nature of it, the hedge was taken at a price that was higher than the price fell to and therefore there was embedded loss in the hedge. The accounting for hedges on fuel isn't the same as accounting for certain other financial Page 17
  • 18. February 3, 2009 Q1 FY09 Earnings Conference Call instruments because of the deemed hedge effectiveness. So it's a mark-to-market kind of item. So if you felt the fuel was going to drop materially from these levels, and I'm not making any such predictions, then you would potentially have more exposure on those fuel hedges. But at this point, I don't expect that to be true. This is the largest sort of swing from a fuel hedge mark-to-market that I can recall certainly by a large measure. But of course, this is the largest amount of volatility we have seen in fuel in recent memory. Lowell Singer – Senior Vice President, Investor Relations, The Walt Disney Company Thanks, Michael. Operator, next question, please? Operator Your next question comes from the line of Mark Wienkes with Goldman Sachs. Please proceed. Mark Wienkes - Analyst, Goldman Sachs Great, thank you. Let's see if we can get to the cable nets another way. Given what you know for affiliate fee growth over the next couple years or even just this year and your plans for OpEx, if the cable network advertising doesn't change from where it's pacing now at ESPN, Family, et cetera, can cable nets EBITDA be flat for the full year? Tom Staggs – Senior Executive Vice President and Chief Financial Officer, The Walt Disney Company Well, I am, as you might expect, not going to speculate on what might happen in the circumstances because there's a lot of moving parts through all these equations. As you saw, there was some softness in the results of cable this last quarter. A big chunk of that was due to the High School Musical 2 DVD. The-- Bob Iger – President and Chief Executive Officer, The Walt Disney Company Which is just a pass-back. That's just from the Studio. Page 18
  • 19. February 3, 2009 Q1 FY09 Earnings Conference Call Tom Staggs – Senior Executive Vice President and Chief Financial Officer, The Walt Disney Company From the Studio, yes. Bob Iger – President and Chief Executive Officer, The Walt Disney Company From the Studio to Disney Channel. Tom Staggs – Senior Executive Vice President and Chief Financial Officer, The Walt Disney Company The Disney Channel, exactly, that they had last year that they didn't have this year, so that actually enters into the equation. But the underlying point is that while there's softness in the ad markets, there's great resilience in our cable nets, both by virtue of their structure, being more skewed towards affiliate fees than towards advertising. Obviously Disney Channel in the extreme, ESPN also, but to somewhat lesser extent. So we feel extremely good about how they are positioned and extremely good about their ability to perform in a difficult environment, both in terms of their response too, on costs that Bob mentioned, but also just in terms of basic business structure that they have. Now, ESPN, there's certain of its categories that are important; automotive as an example, have gone through some difficult times. And so that's had somewhat more of an impact than we would have liked. But I think as - going forward, I don't think - I wouldn't trade our portfolio of cable assets for any other. Mark Wienkes - Analyst, Goldman Sachs Right, and you don't have the High School Musical 2 comp and the ratio as you said for advertising relative to affiliate fees actually improves? Tom Staggs – Senior Executive Vice President and Chief Financial Officer, The Walt Disney Company Right. Mark Wienkes - Analyst, Goldman Sachs Q2, Q3, okay. Page 19
  • 20. February 3, 2009 Q1 FY09 Earnings Conference Call Tom Staggs – Senior Executive Vice President and Chief Financial Officer, The Walt Disney Company Right. Mark Wienkes - Analyst, Goldman Sachs Quick follow-up, given the broader softness we saw at retail across the board, could you comment on the drivers of flat earned royalty revenue in Consumer Products in Q1 and how that has trended post the holiday? Tom Staggs – Senior Executive Vice President and Chief Financial Officer, The Walt Disney Company Yes, I could try to illuminate a little bit. The earned royalties, which is the measure that we watch most closely in licensing, as we mentioned, were roughly flat in the first quarter. The key to that is that we have had very strong properties, that commanded a fair amount of shelf space by retailers and so that helped us on the earned royalty side there. Now, as we go forward and the retail environment perhaps stays soft, that could impact the pace of reorders. And while, again, as I mentioned in the prepared remarks, we feel really good about the strength of the franchises underpinning our licensing business and the pace of retail can have an impact. Over time, we continue, and I think Bob mentioned a couple of the franchises that we continue to invest in, the sequels that we have in the works, et cetera. Over time, our aim is to continue to build up and add to our stable of properties to continue to bolster this business. And so that to me in the medium to long-term looks very good. The other thing I would say is that one thing we saw in the quarter was there was some shift away from toys towards other categories of merchandise. And so the franchises that we saw that are heavier in toys were somewhat softer than those that were heavier in apparel and those types of things. So, those kinds of shifts may continue, but at the end of the day, we're diversified across those categories in a way that we feel quite good about. Mark Wienkes - Analyst, Goldman Sachs Great, thank you. Page 20
  • 21. February 3, 2009 Q1 FY09 Earnings Conference Call Lowell Singer – Senior Vice President, Investor Relations, The Walt Disney Company Thank you, Mark. Operator, next question, please? Operator Your next question comes from the line of Michael Morris with UBS. Please proceed. Michael Morris – Analyst, UBS Thank you. At the ABC network, can you talk a little bit about what you're seeing right now in terms of year-over-year ad pacings? And then also, what are you seeing with respect to options being taken right now on upfront sales for the coming quarter? And what do you think that means in terms of how you approach the upfront this year? And then, also over at the parks segment, the promotion looks like it's successful in terms of driving traffic. Can you give a little more color on maybe specifically what you're giving up in the 7 for the price of 4 with respect to the price of a ticket and what you're giving up in terms of hotel revenue? Thank you. Tom Staggs – Senior Executive Vice President and Chief Financial Officer, The Walt Disney Company Let's see, on the ABC network, as I mentioned, we can see the scatter pricing, which is still up from the upfront. But the pace continues to be down on an overall basis. Remember, in the second quarter the scatter pricing is only a piece, and the smaller piece, of the pie. So on an overall look, you're still looking at pacings that are at single digits, high single digits off versus the prior year, so not that bad. Options? The option pickup for Q3, which is the one that's going on right now, or just finishing up right now, that's coming in slightly lower than what you might otherwise have expected. But not to the extent that we are alarmed about it. We're seeing a little bit more holdback in consumer goods and to a lesser extent, pharmaceuticals with some strength in some other categories. And so there's no question it's a soft ad market. The strongest properties are selling pretty well and I think that Mike Shaw and his team are doing a very good job of making the most of a difficult market. Bob Iger – President and Chief Executive Officer, The Walt Disney Company And to give you some flavor, on the 4 plus 3 discount, basically the discount on the ticket is relatively modest because we put in place three years ago a pricing strategy Page 21
  • 22. February 3, 2009 Q1 FY09 Earnings Conference Call that made it cheaper from a ticket perspective the more days you bought or the more days you stayed. So there was a real incentive, if you were considering staying for four days to buy seven days and the cost of the extra tickets were that much lower. Because at that point, what we got from you was we got a longer length of stay and higher hotel revenue. In this particular case, the way to look at it is the discount on the ticket is modest, as I mentioned. The discount on the hotel obviously is significant because you're getting three nights for free. And that was not part of the previous pricing strategy that we had in place. That said, when you look at our bookings in the current quarter and the bookings for next quarter at Orlando, as a for instance, where we have the lion's share of our hotels and drive the most attendance, were up nicely in this quarter and next on a bookings basis from the similar quarters last year, suggesting that this is a promotion or a pricing strategy that's really working. And to the point I made earlier, our goal right now is to keep people coming to Walt Disney World and Disneyland. Clearly there's a benefit to that, as I mentioned, from a brand perspective. But when they stay longer, they obviously spend more beyond just the ticket and the hotel room. And that's a value to us in this economy. Michael Morris – Analyst, UBS Thank you, and then as a quick follow-up, when we talk about being slightly ahead of last year, what's your comfort level with what you can see now versus where we'll actually come in? So, do you feel comfortable that you'll actually come in ahead at this point, or… Tom Staggs – Senior Executive Vice President and Chief Financial Officer, The Walt Disney Company Are you asking about park bookings? Michael Morris – Analyst, UBS Yes, park bookings, exactly. Tom Staggs – Senior Executive Vice President and Chief Financial Officer, The Walt Disney Company Well, we can only tell you what the pace of the bookings is at this point. We're loathe to predict what that means ultimately. I think we're encouraged by the strength of those Page 22
  • 23. February 3, 2009 Q1 FY09 Earnings Conference Call bookings. I mentioned that we're extending the promotion so that the travel window will extend to August 15th ultimately. But it remains to be seen. Bob Iger – President and Chief Executive Officer, The Walt Disney Company Let's also not lose sight of the fact that fiscal 2008 was a tremendous year for our parks, particularly Orlando. I think it was the second biggest year we've ever had. It was the biggest year in attendance that we've ever had. Tom Staggs – Senior Executive Vice President and Chief Financial Officer, The Walt Disney Company Attendance, yes. Bob Iger – President and Chief Executive Officer, The Walt Disney Company By a nice margin. And the comparisons that we're making are all to the biggest year Orlando ever had. The other thing we have to keep in mind is that our, not only our results, but our attendance and our bookings through October 1 were really significant. That business held up very well with little, if any, discounting. And eventually this economy, as we've seen in a number of businesses, has to catch up with you and that's exactly what we're experiencing. And again, we're actually pleased with what we're seeing at our parks because it confirms that we've got a great product and the demand remains unbelievably strong. There's not much we can do about the economy except address the expense side. We would have a huge problem if we didn't have the demand, if there was something wrong with the product. It would take us a lot longer to fix that. Lowell Singer – Senior Vice President, Investor Relations, The Walt Disney Company Thanks, Mike. Michael Morris – Analyst, UBS Thank you very much. Lowell Singer – Senior Vice President, Investor Relations, The Walt Disney Company Operator, next question, please? Page 23
  • 24. February 3, 2009 Q1 FY09 Earnings Conference Call Operator Your next question comes from the line of Rich Greenfield with Pali Capital. Please proceed. Rich Greenfield – Analyst, Pali Capital Yes, couple questions. First, just getting back to this ESPN issue, if you were to back out, or the cable network issue in general, when you look at the 2% increase in revenues and the 12% decrease in operating income, could you give us a sense of what that would look like for each of those, if it wasn't for the comp issue related to High School Musical 2? Would you have been up mid single-digits or a couple percent more and how much would that have cut down? I assume the margin impact was far greater than the revenue impact on a year-over-year basis? Then just two housekeeping issues. One, on something like ABC.com, those shows that are streamed on that, are the revenues now booked within the television division or broadcasting and the cost is now within interactive? How does that all work given the various activities of all of your businesses online and off line? And then just attendance, you didn't mention attendance, what is your attendance up or down through 02-02-09 on a quarter to date basis? Thanks. Bob Iger – President and Chief Executive Officer, The Walt Disney Company Okay. Let's see, now, you asked a lot of questions there, Rich. Well, first of all, on the attendance front. Attendance for this quarter that we're in at Walt Disney World is actually up mid single-digits versus the same quarter a year ago. And Disneyland is up double-digits this quarter versus a year ago. Now, we're only a month into Q2, and that's what I'm giving you. Clearly at Walt Disney World, the attendance increase should be the result of the 4 plus 3 discount that we have in the marketplace. So we're actually seeing some nice attendance trends. Interestingly enough, if you look at attendance at Walt Disney World since October 1, it's only down 2% and Disneyland is flat year to year since October 1. So we have a relatively nice attendance story to tell. Tom, do you want to take the question on cable? Page 24
  • 25. February 3, 2009 Q1 FY09 Earnings Conference Call Tom Staggs – Senior Executive Vice President and Chief Financial Officer, The Walt Disney Company Yes, I mean I think if it weren't for the High School Musical 2 DVD comparison, the cable networks would have still been down, but very modestly in the quarter. So that was, that was the biggest… Bob Iger – President and Chief Executive Officer, The Walt Disney Company You also had a very strong first quarter for ESPN in sales a year ago. Tom Staggs – Senior Executive Vice President and Chief Financial Officer, The Walt Disney Company They were up double-digit percentages a year ago in advertising sales, so they had a tough advertising run. Bob Iger – President and Chief Executive Officer, The Walt Disney Company To help you on the interactive revenue and costs, the revenue that comes in for ABC shows streamed on the Internet or for ABC shows purchased on iTunes, that goes directly to ABC or the Media Networks. Any costs involved in what I'll call delivering the show, there are residuals and et cetera and so on, that's obviously borne by ABC. The Internet group provides some backbone, mostly on the technology front, to all of our businesses to ESPN, to the Disney businesses, to ABC. But most of that is allocated back to the business unit or some of it is allocated back to the business unit. But the revenue largely goes directly to the business unit. Tom Staggs – Senior Executive Vice President and Chief Financial Officer, The Walt Disney Company One footnote -- Rich Greenfield – Analyst, Pali Capital It's all allocated back? Bob Iger – President and Chief Executive Officer, The Walt Disney Company It's all allocated back. And there's marketing expense as well and that's borne by the business unit directly. Page 25
  • 26. February 3, 2009 Q1 FY09 Earnings Conference Call Rich Greenfield – Analyst, Pali Capital And then just final follow-up question just on this attendance issue. When you look at international, given what's happened to the pound and all of the foreign currencies, especially in Europe, what are you seeing in terms of forward bookings from overseas? Bob Iger – President and Chief Executive Officer, The Walt Disney Company Well, I won't break down forward bookings. I'll break down attendance today. As Tom mentioned in his remarks in our call, international attendance is still up versus last year. The numbers are actually international attendance to Walt Disney World is up versus last year. Disneyland is down modestly. But Disney World international attendance is up. We won't break down the bookings by region yet. Although Tom mentioned from an attendance perspective what we're seeing is what I'll call local or resident is the one that is the softest. Tom Staggs – Senior Executive Vice President and Chief Financial Officer, The Walt Disney Company Rich, it remains to be seen what the, where the dollar goes from here and what the strength of the dollar means. And as the difficult environment ripples through other economies, so we want to be careful not to make predictions on that. I'll give you one footnote on the trend in attendance in the second quarter. It's important to remember that the second quarter, when it's all said and done, won't have the benefit of Easter. And so the attendance comparisons will suffer as a result. Lowell Singer – Senior Vice President, Investor Relations, The Walt Disney Company Thanks, Rich. Operator, next question, please? Operator Your next question comes from the line of Alan Gould with Natixis. Please proceed. Alan Gould – Analyst, Natixis Thank you. First of all, on ESPN, if I think long-term margins in that business, are affiliate fees increasing at the same rate, quicker or slower than programming costs at ESPN? Page 26
  • 27. February 3, 2009 Q1 FY09 Earnings Conference Call Tom Staggs – Senior Executive Vice President and Chief Financial Officer, The Walt Disney Company What we've said in the past and remains true is that we believe that the pace that we've locked in for affiliate fee increases is one that we can leverage to grow profits over time with, given the business as a whole, even considering the expected pace of increase in programming costs. So, we think that continues to be a leveragable business model. Obviously, the advertising revenues being down this quarter impacted us for this Q1, although bear in mind Q1 is the lowest profit quarter for ESPN of the year. Bob Iger – President and Chief Executive Officer, The Walt Disney Company Because of the NFL. Tom Staggs – Senior Executive Vice President and Chief Financial Officer, The Walt Disney Company Yes, exactly, and because of the deferral of affiliate fees. Alan Gould – Analyst, Natixis And what were the ESPN receivable reserves you talked about? How much were they and is it Charter, or can you just -- how much were they? Tom Staggs – Senior Executive Vice President and Chief Financial Officer, The Walt Disney Company You guessed right, and in cable, it came to about $25 million reserves over and above sort of, that particular instance. Alan Gould – Analyst, Natixis So you had $25 million in Cable and you had the $60 million in Broadcasting? Tom Staggs – Senior Executive Vice President and Chief Financial Officer, The Walt Disney Company Yes, different… Alan Gould – Analyst, Natixis Different reserves? Page 27
  • 28. February 3, 2009 Q1 FY09 Earnings Conference Call Tom Staggs – Senior Executive Vice President and Chief Financial Officer, The Walt Disney Company Different customers–, that's correct. Alan Gould – Analyst, Natixis And then lastly, on the video side, can you tell us how many video units you sold in the first fiscal quarter this year versus first fiscal quarter of last year? Tom Staggs – Senior Executive Vice President and Chief Financial Officer, The Walt Disney Company We haven't given out exact numbers of video units, in part because the titles that are in the market in any given quarter make those comparisons very, very difficult to sort of interpret. But I mentioned in the comments the units were down. That was easily the biggest driver of the lower results of the studio for the quarter, so you can surmise they are double-digit percentages. The biggest driver, of course, the comparison of Pirates of the Caribbean 3 versus the most comparable title this quarter being Prince Caspian. And so that alone had a very big impact on the units we sold. Alan Gould – Analyst, Natixis Okay. Thank you very much. Lowell Singer – Senior Vice President, Investor Relations, The Walt Disney Company Thanks, Alan. Operator, we have time for one more question. Operator? Operator Your next question comes from the line of David Miller with Caris & Company. Please proceed. David Miller - Analyst, Caris & Co. Yes. Hi, good afternoon. Tom, just two housekeeping questions for you. You had said three months ago on your Q4 call that you had suspended all stock repurchasing activity. It looks like from the share count here that you've resumed that and I'm wondering if you could just shed a little color on that. It looks like a liquidity situation Page 28
  • 29. February 3, 2009 Q1 FY09 Earnings Conference Call obviously improved as witnessed by your debt deal that you did on December 17th. And if you can touch on that, that would just be great. Then also, as you know, here in California, Governor Schwarzenegger is talking about proposing roughly a 10% tax on all sports/entertainment items, which would include theme parks. I assume that would include Disneyland. And if that piece of legislation passes, are you more prone to pay that out out of your own pocket or to pass on some sort of cost increase to consumers? Thanks very much. Tom Staggs – Senior Executive Vice President and Chief Financial Officer, The Walt Disney Company Bob's looking at me wondering whether I started buying back shares without telling him again. No, we have not resumed purchasing shares, I think it's just some -- the share count remember is on fully diluted shares is probably what you're looking at. To the extent that you have a decrease in the stock price, the number of in the money options would go down and therefore you could see a decrease in your fully diluted share count and that's probably what you're referencing. David Miller - Analyst, Caris & Co. Got you. Bob Iger – President and Chief Executive Officer, The Walt Disney Company On the ticket tax, we've provided the state with what we think is a pretty comprehensive, incredible analysis that suggests strongly that a tax on tickets, particularly theme parks, but also on sporting events, would actually cost the state money. That it could have a negative effect on ticket purchases if the cost is passed back to the consumer and that would result in less spending in the state overall and less taxes paid in aggregate. I guess by virtue -- but with that answer, I'm suggesting that if there is such a tax, it's likely that we would have to pass that tax on to our consumers, but we have made no decisions about that at all. We are going to remain hopeful or optimistic that such a tax is not going to be levied, at least on the theme park business. David Miller - Analyst, Caris & Co. Okay, thank you. Page 29
  • 30. February 3, 2009 Q1 FY09 Earnings Conference Call Lowell Singer – Senior Vice President, Investor Relations, The Walt Disney Company Thank you, David. Okay everyone, thanks again for joining us today. I want to note that a reconciliation of non-GAAP measures that were referred to on this call to equivalent GAAP measures can be found on our Investor Relations website. Let me remind you that certain statements on this call may constitute forward-looking statements under the securities laws. We make these statements on the basis of our views and assumptions regarding future events and business performance at the time we make them and we do not undertake any obligation to update these statements. Forward-looking statements are subject to a number of risks and uncertainties and actual results may differ materially from the results expressed or implied in light of a variety of factors, including factors contained in our annual report on Form 10-K and in our other filings with the Securities and Exchange Commission. This concludes today's first quarter call. Thanks, everyone, for joining us. ### Management believes certain statements in this call may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are made on the basis of management’s views and assumptions regarding future events and business performance as of the time the statements are made. Management does not undertake any obligation to update these statements. Actual results may differ materially from those expressed or implied. Such differences may result from actions taken by the Company, including restructuring or strategic initiatives (including capital investments or asset acquisitions or dispositions), as well as from developments beyond the Company’s control, including: - adverse weather conditions or natural disasters; - health concerns; - international, political, or military developments; - technological developments; and - changes in domestic and global economic conditions, competitive conditions and consumer preferences. Such developments may affect travel and leisure businesses generally and may, among other things, affect: - the performance of the Company’s theatrical and home entertainment releases; - the advertising market for broadcast and cable television programming; - expenses of providing medical and pension benefits; - demand for our products; and - performance of some or all company businesses either directly or through their impact on those who distribute our products. Additional factors are set forth in the Company’s Annual Report on Form 10-K for the year ended September 27, 2008 and in subsequent reports on Form 10-Q under Item 1A, “Risk Factors”. Reconciliations of non-GAAP measures to closest equivalent GAAP measures can be found at www.disney.com/investors. Page 30