UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended April 2, 2011 |
Commission File Number 1-11605 |
Incorporated in Delaware |
I.R.S. Employer Identification | |
No. 95-4545390 |
500 South Buena Vista Street, Burbank, California 91521
(818) 560-1000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes X No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act (Check one).
Large accelerated filer | X | Accelerated filer | ||||
Non-accelerated filer (do not check if smaller reporting company) | Smaller reporting company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes No X
There were 1,890,153,714 shares of common stock outstanding as of May 3, 2011.
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited; in millions, except per share data)
Quarter Ended | Six Months Ended | |||||||||||||||
April 2,
2011 |
April 3,
2010 |
April 2,
2011 |
April 3,
2010 |
|||||||||||||
Revenues |
$ | 9,077 | $ | 8,580 | $ | 19,793 | $ | 18,319 | ||||||||
Costs and expenses |
(7,549) | (7,068) | (16,325) | (15,393) | ||||||||||||
Restructuring and impairment charges |
| (71) | (12) | (176) | ||||||||||||
Other income |
| 70 | 75 | 97 | ||||||||||||
Net interest expense |
(83) | (130) | (178) | (233) | ||||||||||||
Equity in the income of investees |
123 | 154 | 279 | 243 | ||||||||||||
Income before income taxes |
1,568 | 1,535 | 3,632 | 2,857 | ||||||||||||
Income taxes |
(558) | (537) | (1,288) | (1,015) | ||||||||||||
Net income |
1,010 | 998 | 2,344 | 1,842 | ||||||||||||
Less: Net income attributable to noncontrolling interests |
(68) | (45) | (100) | (45) | ||||||||||||
Net income attributable to The Walt Disney Company (Disney) |
$ | 942 | $ | 953 | $ | 2,244 | $ | 1,797 | ||||||||
Earnings per share attributable to Disney: |
||||||||||||||||
Diluted |
$ | 0.49 | $ | 0.48 | $ | 1.16 | $ | 0.93 | ||||||||
Basic |
$ | 0.50 | $ | 0.49 | $ | 1.18 | $ | 0.94 | ||||||||
Weighted average number of common and common equivalent shares outstanding: |
||||||||||||||||
Diluted |
1,934 | 1,973 | 1,930 | 1,938 | ||||||||||||
Basic |
1,899 | 1,940 | 1,895 | 1,903 | ||||||||||||
See Notes to Condensed Consolidated Financial Statements
2
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited; in millions, except per share data)
See Notes to Condensed Consolidated Financial Statements
3
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in millions)
See Notes to Condensed Consolidated Financial Statements
4
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(unaudited; in millions)
Quarter Ended | ||||||||||||||||||||||||
April 2, 2011 | April 3, 2010 | |||||||||||||||||||||||
Disney
Shareholders |
Non-
controlling Interests |
Total
Equity |
Disney
Shareholders |
Non-
controlling Interests |
Total
Equity |
|||||||||||||||||||
Beginning Balance |
$ | 37,797 | $ | 1,942 | $ | 39,739 | $ | 36,180 | $ | 1,778 | $ | 37,958 | ||||||||||||
Net income |
942 | 68 | 1,010 | 953 | 45 | 998 | ||||||||||||||||||
Other comprehensive income: |
||||||||||||||||||||||||
Market value adjustments for hedges and investments |
(21) | | (21) | 4 | | 4 | ||||||||||||||||||
Pension and postretirement medical adjustments |
42 | | 42 | 63 | | 63 | ||||||||||||||||||
Foreign currency translation and other |
29 | 16 | 45 | (29) | (11) | (40) | ||||||||||||||||||
Other comprehensive income |
50 | 16 | 66 | 38 | (11) | 27 | ||||||||||||||||||
Comprehensive income |
992 | 84 | 1,076 | 991 | 34 | 1,025 | ||||||||||||||||||
Equity compensation activity |
667 | | 667 | 526 | | 526 | ||||||||||||||||||
Common stock repurchases |
(805) | | (805) | (215) | | (215) | ||||||||||||||||||
Distributions and other |
(1) | (364) | (365) | (2) | (323) | (325) | ||||||||||||||||||
Ending Balance |
$ | 38,650 | $ | 1,662 | $ | 40,312 | $ | 37,480 | $ | 1,489 | $ | 38,969 | ||||||||||||
See Notes to Condensed Consolidated Financial Statements
5
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (contd)
(unaudited; in millions)
Quarter Ended | ||||||||||||||||||||||||
April 2, 2011 | April 3, 2010 | |||||||||||||||||||||||
Disney
Shareholders |
Non-
controlling Interests |
Total
Equity |
Disney
Shareholders |
Non-
controlling Interests |
Total
Equity |
|||||||||||||||||||
Beginning Balance |
$ | 37,519 | $ | 1,823 | $ | 39,342 | $ | 33,734 | $ | 1,691 | $ | 35,425 | ||||||||||||
Net income |
2,244 | 100 | 2,344 | 1,797 | 45 | 1,842 | ||||||||||||||||||
Other comprehensive income: |
||||||||||||||||||||||||
Market value adjustments for hedges and investments |
(54) | | (54) | 20 | | 20 | ||||||||||||||||||
Pension and postretirement medical adjustments |
78 | | 78 | 90 | | 90 | ||||||||||||||||||
Foreign currency translation and other |
20 | 8 | 28 | (25) | (14) | (39) | ||||||||||||||||||
Other comprehensive income |
44 | 8 | 52 | 85 | (14) | 71 | ||||||||||||||||||
Comprehensive income |
2,288 | 108 | 2,396 | 1,882 | 31 | 1,913 | ||||||||||||||||||
Equity compensation activity |
1,202 | | 1,202 | 870 | | 870 | ||||||||||||||||||
Dividends |
(756) | | (756) | (653) | | (653) | ||||||||||||||||||
Common stock repurchases |
(1,602) | | (1,602) | (240) | | (240) | ||||||||||||||||||
Acquisition of Marvel |
| | | 1,887 | 90 | 1,977 | ||||||||||||||||||
Distributions and other |
(1) | (269) | (270) | | (323) | (323) | ||||||||||||||||||
Ending Balance |
$ | 38,650 | $ | 1,662 | $ | 40,312 | $ | 37,480 | $ | 1,489 | $ | 38,969 | ||||||||||||
See Notes to Condensed Consolidated Financial Statements
6
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
1. | Principles of Consolidation |
These Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. We believe that we have included all normal recurring adjustments necessary for a fair statement of the results for the interim period. Operating results for the quarter and six months ended April 2, 2011 are not necessarily indicative of the results that may be expected for the year ending October 1, 2011. Certain reclassifications have been made in the prior year financial statements to conform to the current year presentation.
These financial statements should be read in conjunction with the Companys 2010 Annual Report on Form 10-K.
In December 1999, DVD Financing, Inc. (DFI), a subsidiary of Disney Vacation Development, Inc. and an indirect subsidiary of the Company, completed a receivables sale transaction that established a facility that permitted DFI to sell receivables arising from the sale of vacation club memberships on a periodic basis. In connection with this facility, DFI prepares separate financial statements, although its separate assets and liabilities are also consolidated in these financial statements. DFIs ability to sell new receivables under this facility ended on December 4, 2008. (See Note 13 for further discussion of this facility)
The Company enters into relationships or investments with other entities, and in certain instances, the entity in which the Company has a relationship or investment may qualify as a variable interest entity (VIE). A VIE is consolidated in the financial statements if the Company has the power to direct activities that most significantly impact the economic performance of the VIE and has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. Euro Disney and Hong Kong Disneyland are VIEs, and given the nature of the Companys relationships with these entities, which include management agreements, the Company has consolidated Euro Disney and Hong Kong Disneyland in its financial statements.
The terms Company, we, us, and our are used in this report to refer collectively to the parent company and the subsidiaries through which our various businesses are actually conducted.
2. | Segment Information |
The operating segments reported below are the segments of the Company for which separate financial information is available and for which segment results are evaluated regularly by the Chief Executive Officer in deciding how to allocate resources and in assessing performance. The Company reports the performance of its operating segments including equity in the income of investees, which consists primarily of cable businesses included in the Media Networks segment.
Beginning with the first quarter of fiscal 2011, the Company made changes to certain transfer pricing arrangements between its business units. The most significant change was to the allocation of home video revenue and distribution costs between the Media Networks and Studio Entertainment segments for home video titles produced by the Media Networks segment and distributed by the Studio Entertainment segment. These changes will generally result in higher revenues, expenses and operating income at our Media Networks segment with offsetting declines at our Studio Entertainment segment.
7
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
Quarter Ended | Six Months Ended | |||||||||||||||
April 2,
2011 |
April 3,
2010 |
April 2,
2011 |
April 3,
2010 |
|||||||||||||
Revenues (1 ) : |
||||||||||||||||
Media Networks |
$ | 4,322 | $ | 3,844 | $ | 8,967 | $ | 8,019 | ||||||||
Parks and Resorts |
2,630 | 2,449 | 5,498 | 5,111 | ||||||||||||
Studio Entertainment |
1,340 | 1,536 | 3,272 | 3,471 | ||||||||||||
Consumer Products |
626 | 596 | 1,548 | 1,342 | ||||||||||||
Interactive Media |
159 | 155 | 508 | 376 | ||||||||||||
$ | 9,077 | $ | 8,580 | $ | 19,793 | $ | 18,319 | |||||||||
Segment operating income (loss) (1 ) : |
||||||||||||||||
Media Networks |
$ | 1,524 | $ | 1,306 | $ | 2,590 | $ | 2,030 | ||||||||
Parks and Resorts |
145 | 150 | 613 | 525 | ||||||||||||
Studio Entertainment |
77 | 223 | 452 | 466 | ||||||||||||
Consumer Products |
142 | 133 | 454 | 376 | ||||||||||||
Interactive Media |
(115) | (55) | (128) | (65) | ||||||||||||
$ | 1,773 | $ | 1,757 | $ | 3,981 | $ | 3,332 | |||||||||
(1 ) |
Studio Entertainment segment revenues and operating income include an allocation of Consumer Products and Interactive Media revenues which is meant to reflect royalties on sales of merchandise based on certain Studio film properties. The increases/(decreases) related to these allocations on segment revenues and operating income as reported in the above table are as follows: |
Quarter Ended | Six Months Ended | |||||||||||||||
April 2,
2011 |
April 3,
2010 |
April 2,
2011 |
April 3,
2010 |
|||||||||||||
Studio Entertainment |
$ | 45 | $ | 45 | $ | 118 | $ | 85 | ||||||||
Consumer Products |
(44) | (41) | (116) | (79) | ||||||||||||
Interactive Media |
(1) | (4) | (2) | (6) | ||||||||||||
$ | | $ | | $ | | $ | | |||||||||
A reconciliation of segment operating income to income before income taxes is as follows:
Quarter Ended | Six Months Ended | |||||||||||||||
April 2,
2011 |
April 3,
2010 |
April 2,
2011 |
April 3,
2010 |
|||||||||||||
Segment operating income |
$ | 1,773 | $ | 1,757 | $ | 3,981 | $ | 3,332 | ||||||||
Corporate and unallocated shared expenses |
(122) | (91) | (234) | (163) | ||||||||||||
Restructuring and impairment charges |
| (71) | (12) | (176) | ||||||||||||
Other income |
| 70 | 75 | 97 | ||||||||||||
Net interest expense |
(83) | (130) | (178) | (233) | ||||||||||||
Income before income taxes |
$ | 1,568 | $ | 1,535 | $ | 3,632 | $ | 2,857 | ||||||||
3. | Acquisitions |
Playdom
On August 27, 2010, the Company acquired Playdom, Inc. (Playdom), a company that develops online social games. This acquisition is designed to strengthen the Companys digital gaming portfolio and provide access to a new customer base. Total consideration was approximately $563 million, subject to certain conditions and adjustments, of which approximately $115 million will be paid subject to vesting
8
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
conditions and recognized as post-close compensation expense. Additional consideration of up to $200 million may be paid if Playdom achieves predefined revenue and earnings targets for calendar year 2012. The Company has recognized the fair value (determined by a probability weighting of the potential payouts) of the additional consideration as a liability and subsequent fair value changes, measured quarterly, up to the ultimate amount paid, will be recognized in earnings.
The Company is in the process of finalizing the valuation of the assets acquired and liabilities assumed.
Goodwill
The changes in the carrying amount of goodwill for the six months ended April 2, 2011, are as follows:
Media
Networks |
Parks and
Resorts |
Studio
Entertainment |
Consumer
Products |
Interactive
Media |
Total | |||||||||||||||||||
Balance at Oct. 2, 2010 |
$ | 15,737 | $ | 171 | $ | 5,268 | $ | 1,805 | $ | 1,119 | $ | 24,100 | ||||||||||||
Acquisitions |
3 | | | | 10 | 13 | ||||||||||||||||||
Disposition |
(17) | | | | | (17) | ||||||||||||||||||
Other, net |
3 | | 7 | (8) | 29 | 31 | ||||||||||||||||||
Balance at April 2, 2011 |
$ | 15,726 | $ | 171 | $ | 5,275 | $ | 1,797 | $ | 1,158 | $ | 24,127 | ||||||||||||
The carrying amount of goodwill at April 2, 2011 and October 2, 2010 includes accumulated impairments of $29 million at Interactive Media.
The Disney Stores Japan
On March 31, 2010, the Company acquired all of the outstanding shares of Retail Networks Company Limited (The Disney Stores Japan) in exchange for a $17 million note. At the time of the acquisition, the Disney Store Japan had a cash balance of $13 million. In connection with the acquisition, the Company recognized a $22 million non-cash gain from the deemed termination of the existing licensing arrangement. The gain is reported in Other income in the fiscal 2010 Condensed Consolidated Statements of Income.
4. | Dispositions |
Miramax
On December 3, 2010, the Company sold Miramax Film NY, LLC (Miramax) for $663 million. Net proceeds which reflect closing adjustments, the settlement of related claims and obligations and Miramaxs cash balance at closing were $532 million, resulting in a pre-tax gain of $64 million, which is reported in Other income in the fiscal 2011 Condensed Consolidated Statement of Income. The book value of Miramax included $217 million of allocated goodwill that is not deductible for tax purposes. Accordingly, tax expense recorded in connection with the transaction was approximately $103 million resulting in a loss of $39 million after tax.
Other Dispositions
On January 27, 2010, the Company sold its investment in a pay television service in Europe for $78 million, resulting in a pre-tax gain of $48 million reported in Other income in the fiscal 2010 Condensed Consolidated Statements of Income.
On November 25, 2009, the Company sold its investment in a television service in Europe for $37 million, resulting in a pre-tax gain of $27 million reported in Other income in the fiscal 2010 Condensed Consolidated Statement of Income.
9
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
5. | Borrowings |
During the six months ended April 2, 2011, the Companys borrowing activity was as follows:
October 2,
2010 |
Additions | Payments |
Other
Activity |
April 2,
2011 |
||||||||||||||||
Commercial paper borrowings |
$ | 1,190 | $ | 470 | $ | | $ | | $ | 1,660 | ||||||||||
U.S. medium-term notes |
6,815 | | | 2 | 6,817 | |||||||||||||||
European medium-term notes |
273 | | | 1 | 274 | |||||||||||||||
Other foreign currency denominated debt |
965 | | | 22 | 987 | |||||||||||||||
Other (1) |
651 | | (34) | (97) | 520 | |||||||||||||||
Euro Disney borrowings ( 2 ) |
2,113 | | (62) | 90 | 2,141 | |||||||||||||||
Hong Kong Disneyland borrowings ( 3 ) |
473 | | | (100) | 373 | |||||||||||||||
Total |
$ | 12,480 | $ | 470 | $ | (96) | $ | (82) | $ | 12,772 | ||||||||||
(1 ) |
The other activity is primarily market value adjustments for debt with qualifying hedges. |
(2 ) |
The other activity is primarily the impact of foreign currency translation as a result of the weakening of the U.S. dollar against the Euro. |
(3 ) |
The other activity is due to the conversion of a portion of the Government of the Hong Kong Special Administrative Regions (HKSAR) loan to equity pursuant to a capital realignment and expansion plan. |
In February 2011, the Company entered into a new four-year $2.25 billion bank facility with a syndicate of lenders. This facility, in combination with an existing facility that matures in 2013, is used to support commercial paper borrowings. The new facility allows the Company to issue up to $800 million of letters of credit. The bank facilities allow for borrowings at LIBOR-based rates plus a spread depending on the credit default swap spread applicable to the Companys debt, subject to a cap and a floor that vary with the Companys public debt rating. The spread above LIBOR can range from 0.33% to 4.50%.
6. | International Theme Park Investments |
The Company has a 51% effective ownership interest in the operations of Euro Disney and a 47% ownership interest in the operations of Hong Kong Disneyland, both of which are consolidated in the Companys financial statements.
The following table presents summarized balance sheet information for the Company as of April 2, 2011, reflecting the impact of consolidating the balance sheets of Euro Disney and Hong Kong Disneyland.
Before Euro
Disney and Hong Kong Disneyland Consolidation |
Euro Disney,
Hong Kong Disneyland and Adjustments |
Total | ||||||||||
Cash and cash equivalents |
$ | 2,518 | $ | 576 | $ | 3,094 | ||||||
Other current assets |
9,875 | 251 | 10,126 | |||||||||
Total current assets |
12,393 | 827 | 13,220 | |||||||||
Investments |
3,598 | (1,099) | 2,499 | |||||||||
Fixed assets |
14,627 | 4,271 | 18,898 | |||||||||
Other assets |
35,856 | 115 | 35,971 | |||||||||
Total assets |
$ | 66,474 | $ | 4,114 | $ | 70,588 | ||||||
Current portion of borrowings |
$ | 3,895 | $ | 189 | $ | 4,084 | ||||||
Other current liabilities |
8,145 | 574 | 8,719 | |||||||||
Total current liabilities |
12,040 | 763 | 12,803 | |||||||||
Borrowings |
6,363 | 2,325 | 8,688 | |||||||||
Deferred income taxes and other long-term liabilities |
8,632 | 153 | 8,785 | |||||||||
Equity |
39,439 | 873 | 40,312 | |||||||||
Total liabilities and equity |
$ | 66,474 | $ | 4,114 | $ | 70,588 | ||||||
10
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
The following table presents summarized income statement information of the Company for the six months ended April 2, 2011, reflecting the impact of consolidating the income statements of Euro Disney and Hong Kong Disneyland.
Before Euro
Disney and Hong Kong Disneyland Consolidation |
Euro Disney,
Hong Kong Disneyland and Adjustments |
Total | ||||||||||
Revenues |
$ | 18,828 | $ | 965 | $ | 19,793 | ||||||
Cost and expenses |
(15,312) | (1,013) | (16,325) | |||||||||
Restructuring and impairment charges |
(12) | | (12) | |||||||||
Other income |
75 | | 75 | |||||||||
Net interest expense |
(128) | (50) | (178) | |||||||||
Equity in the income of investees |
230 | 49 | 279 | |||||||||
Income before income taxes |
3,681 | (49) | 3,632 | |||||||||
Income taxes |
(1,287) | (1) | (1,288) | |||||||||
Net income |
$ | 2,394 | $ | (50) | $ | 2,344 | ||||||
The following table presents summarized cash flow statement information of the Company for the six months ended April 2, 2011, reflecting the impact of consolidating the cash flow statements of Euro Disney and Hong Kong Disneyland.
Before Euro
Disney and Hong Kong Disneyland Consolidation |
Euro Disney,
Hong Kong Disneyland and Adjustments |
Total | ||||||||||
Cash provided by operations |
$ | 3,072 | $ | (4) | $ | 3,068 | ||||||
Investments in parks, resorts and other property |
(1,714) | (131) | (1,845) | |||||||||
Cash provided by other investing activities |
191 | 98 | 289 | |||||||||
Cash used by financing activities |
(1,145) | (62) | (1,207) | |||||||||
Impact of exchange rates on cash and cash equivalents |
49 | 18 | 67 | |||||||||
Decrease in cash and cash equivalents |
453 | (81) | 372 | |||||||||
Cash and cash equivalents, beginning of period |
2,065 | 657 | 2,722 | |||||||||
Cash and cash equivalents, end of period |
$ | 2,518 | $ | 576 | $ | 3,094 | ||||||
On April 8, 2011, the Company and its partner in China announced that the Chinese central government in Beijing had approved an agreement to build and operate a Disney resort in the Pudong district of Shanghai (Shanghai Disney Resort) that will be operated through a joint venture between the Company and its Chinese partner. Shanghai Disney Resort is scheduled to open in approximately five years. There will be a phased investment in the project totaling approximately $3.7 billion over the construction period (24.5 billion yuan) to build the theme park and an additional $0.7 billion (4.5 billion yuan) to build other properties for the resort, including two hotels and a retail, dining and entertainment area. The Company will finance 43%
11
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
of the initial investment in accordance with its equity ownership percentage. The Company anticipates consolidating Shanghai Disney Resort for financial statement reporting purposes due to the Companys involvement in the management of the resort.
7. | Pension and Other Benefit Programs |
The components of net periodic benefit cost are as follows:
Pension Plans | Postretirement Medical Plans | |||||||||||||||||||||||||||||||
Quarter Ended | Six Months Ended | Quarter Ended | Six Months Ended | |||||||||||||||||||||||||||||
April 2,
2011 |
April 3,
2010 |
April 2,
2011 |
April 3,
2010 |
April 2,
2011 |
April 3,
2010 |
April 2,
2011 |
April 3,
2010 |
|||||||||||||||||||||||||
Service cost |
$ | 73 | $ | 66 | $ | 147 | $ | 132 | $ | 5 | $ | 6 | $ | 10 | $ | 11 | ||||||||||||||||
Interest cost |
104 | 99 | 207 | 198 | 16 | 18 | 33 | 35 | ||||||||||||||||||||||||
Expected return on plan assets |
(110) | (103) | (220) | (207) | (6) | (7) | (12) | (13) | ||||||||||||||||||||||||
Amortization of prior year service costs |
4 | 4 | 7 | 7 | | (1) | (1) | (1) | ||||||||||||||||||||||||
Recognized net actuarial loss |
57 | 38 | 114 | 77 | 2 | 1 | 4 | 3 | ||||||||||||||||||||||||
Net periodic benefit cost |
$ | 128 | $ | 104 | $ | 255 | $ | 207 | $ | 17 | $ | 17 | $ | 34 | $ | 35 | ||||||||||||||||
During the six months ended April 2, 2011, the Company made contributions to its pension and postretirement medical plans totaling $169 million, which included discretionary contributions above the minimum requirements. The Company expects additional pension and postretirement medical plan contributions in fiscal 2011 of approximately $280 million which are expected to include discretionary contributions above the minimum requirements. Final minimum funding requirements for fiscal 2011 will be determined based on a January 1, 2011 funding actuarial valuation which will be available late in fiscal 2011.
8. | Earnings Per Share |
Diluted earnings per share amounts are based upon the weighted average number of common and common equivalent shares outstanding during the period and are calculated using the treasury stock method for equity-based compensation awards (Awards). A reconciliation of the weighted average number of common and common equivalent shares outstanding and Awards excluded from the diluted earnings per share calculation, as they were anti-dilutive, are as follows:
Quarter Ended | Six Months Ended | |||||||||||||||
April 2,
2011 |
April 3,
2010 |
April 2,
2011 |
April 3,
2010 |
|||||||||||||
Shares (in millions): |
||||||||||||||||
Weighted average number of common shares outstanding (basic) |
1,899 | 1,940 | 1,895 | 1,903 | ||||||||||||
Weighted average dilutive impact of equity-based compensation awards |
35 | 33 | 35 | 35 | ||||||||||||
Weighted average number of common and common equivalent shares outstanding (diluted) |
1,934 | 1,973 | 1,930 | 1,938 | ||||||||||||
Awards excluded from diluted earnings per share |
11 | 30 | 6 | 52 | ||||||||||||
12
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
9. | Equity |
On December 1, 2010, the Company declared a $0.40 per share dividend ($756 million) related to fiscal 2010 for shareholders of record on December 13, 2010, which was paid on January 18, 2011. The Company paid a $0.35 per share dividend ($653 million) during the second quarter of fiscal 2010 related to fiscal 2009.
During the six months ended April 2, 2011, the Company repurchased 42 million shares of its common stock for approximately $1.6 billion. On March 22, 2011, the Companys Board of Directors increased the repurchase authorization to a total of 400 million shares as of that date. As of April 2, 2011, the Company had remaining authorization in place to repurchase approximately 398 million additional shares. The repurchase program does not have an expiration date.
The Company received proceeds of $1.0 billion and $748 million from the exercise of 38 million and 32 million employee stock options during the first six months of fiscal 2011 and 2010, respectively.
The par value of the Companys outstanding common stock totaled approximately $27 million.
Accumulated other comprehensive income (loss), net of tax, is as follows:
April 2,
2011 |
October 2,
2010 |
|||||||
Market value adjustments for investments and hedges |
$ | (149) | $ | (95) | ||||
Foreign currency translation and other |
100 | 80 | ||||||
Unrecognized pension and postretirement medical expense |
(1,788) | (1,866) | ||||||
Accumulated other comprehensive income (loss) (1) |
$ | (1,837) | $ | (1,881) | ||||
(1) |
Accumulated other comprehensive income (loss) and components of other comprehensive income (loss) are recorded net of tax using a 37% estimated tax rate |
10. | Equity-Based Compensation |
The amount of compensation expense related to stock options, stock appreciation rights and restricted stock units (RSUs) is as follows:
Quarter Ended | Six Months Ended | |||||||||||||||
April 2,
2011 |
April 3,
2010 |
April 2,
2011 |
April 3,
2010 |
|||||||||||||
Stock options/rights |
$ | 45 | $ | 55 | $ | 100 | $ | 122 | ||||||||
RSUs |
79 | 82 | 156 | 150 | ||||||||||||
Total equity-based compensation expense |
$ | 124 | $ | 137 | $ | 256 | $ | 272 | ||||||||
13
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
Unrecognized compensation cost related to unvested stock options/rights and RSUs totaled approximately $281 million and $828 million, respectively, as of April 2, 2011.
In January 2011, the Company made equity compensation grants, which included its regular annual grant, consisting of 10.4 million stock options and 12.5 million RSUs, of which 0.4 million RSUs included market and/or performance conditions.
In March 2011, shareholders of the Company approved the 2011 Stock Incentive Plan, which increased the number of shares authorized to be awarded as grants by 64 million shares.
The weighted average grant date fair values of options issued during the six months ended April 2, 2011, and April 3, 2010, were $10.96 and $9.42, respectively.
11. Commitments | and Contingencies |
Legal Matters
Celador International Ltd. v. The Walt Disney Company. On May 19, 2004, an affiliate of the creator and licensor of the television program, Who Wants to be a Millionaire , filed an action against the Company and certain of its subsidiaries, including American Broadcasting Companies, Inc. and Buena Vista Television, LLC, alleging it was damaged by defendants improperly engaging in certain intra-company transactions and charging merchandise distribution expenses, resulting in an underpayment to the plaintiff. On July 7, 2010, the jury returned a verdict for breach of contract against certain subsidiaries of the Company, awarding plaintiff damages of $269.4 million. The Company has stipulated with the plaintiff to an award of prejudgment interest of $50 million, which amount will be reduced prorata should the Court of Appeals reduce the damages amount. On December 21, 2010, the Companys alternative motions for a new trial and for judgment as a matter of law were denied. Although we cannot predict the ultimate outcome of this lawsuit, the Company believes the jurys verdict is in error and intends to vigorously pursue its position on appeal, notice of which was filed by the Company on January 14, 2011. On or about January 28, 2011, plaintiff filed a notice of cross-appeal. The Company has determined that it does not have a probable loss under the applicable accounting standard relating to probability of loss for recording a reserve with respect to this litigation and therefore has not recorded a reserve.
The Company, together with, in some instances, certain of its directors and officers, is a defendant or codefendant in various other legal actions involving copyright, breach of contract and various other claims incident to the conduct of its businesses. Management does not expect the Company to suffer any material liability by reason of these actions.
Contractual Guarantees
The Company has guaranteed bond issuances by the Anaheim Public Authority that were used by the City of Anaheim to finance construction of infrastructure and a public parking facility adjacent to the Disneyland Resort. Revenues from sales, occupancy and property taxes from the Disneyland Resort and non-Disney hotels are used by the City of Anaheim to repay the bonds. In the event of a debt service shortfall, the Company will be responsible to fund the shortfall. As of April 2, 2011, the remaining debt service obligation guaranteed by the Company was $362 million, of which $90 million was principal. To the extent that tax revenues exceed the debt service payments in subsequent periods, the Company would be reimbursed for any previously funded shortfalls. To date, tax revenues have exceeded the debt service payments for the Anaheim bonds.
ESPN STAR Sports, a joint venture in which ESPN owns a 50% equity interest, has an agreement for global programming rights to International Cricket Council events from 2007 through 2015. Under
14
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
the terms of the agreement, ESPN and the other joint-venture partner have jointly guaranteed the programming rights obligation of approximately $0.7 billion over the remaining term of the agreement.
Long-Term Receivables and the Allowance for Credit Losses
The Company has accounts receivable with original maturities greater than one year in duration principally related to the Companys sale of program rights in the television syndication markets within the Media Networks segment and the Companys vacation ownership units within the Parks and Resorts segment. Allowances for credit losses are established against these receivables as necessary.
The Company estimates the allowance for credit losses related to receivables for the sale of syndicated programming based upon a number of factors, including historical experience, and an ongoing review of the financial condition of individual companies with which we do business. The balance of syndication receivables recorded in other non-current assets was approximately $0.7 billion, net of an immaterial allowance for credit losses as of April 2, 2011. The activity in the current period related to the allowance for credit losses was also not material.
The Company estimates the allowance for credit losses related to receivables for sales of its vacation ownership units based primarily on historical collection experience. Projections of uncollectible amounts are also based on consideration of the economic environment and the age of receivables. The balance of mortgage receivables recorded in other non-current assets was approximately $0.4 billion, net of a related allowance for credit losses of approximately 8%, as of April 2, 2011. The activity in the period related to the allowance for credit losses was not material.
Income Taxes
During the six months ended April 2, 2011, the Company settled certain tax matters and as a result reduced its unrecognized tax benefits by $70 million.
In the next twelve months, it is reasonably possible that our unrecognized tax benefits could change due to resolutions of certain open tax matters which would reduce our unrecognized tax benefits by $39 million.
12. | New Accounting Pronouncements |
Revenue Arrangements with Multiple Deliverables
In October 2009, the Financial Accounting Standards Board (FASB) issued guidance on revenue arrangements with multiple deliverables effective for the Companys 2011 fiscal year. The guidance revises the criteria for separating, measuring, and allocating arrangement consideration to each deliverable in a multiple element arrangement. The guidance requires companies to allocate revenue using the relative selling price of each deliverable, which must be estimated if the Company does not have a history of selling the deliverable on a stand-alone basis or third-party evidence of selling price. The Company adopted the provisions of this guidance at the beginning of fiscal year 2011, and the adoption did not have a material impact on the Companys financial statements.
Transfers and Servicing of Financial Assets
In June 2009, the FASB issued guidance on transfers and servicing of financial assets to eliminate the concept of a qualifying special-purpose entity, change the requirements for off balance sheet accounting for financial assets including limiting the circumstances where off balance sheet treatment for a portion of a financial asset is allowable, and require additional disclosures. The Company adopted the provisions of this guidance at the beginning of fiscal year 2011, and the adoption did not have a material impact on the Companys financial statements.
15
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
Variable Interest Entities
In June 2009, the FASB issued guidance to revise the approach to determine when a variable interest entity (VIE) should be consolidated. The new consolidation model for VIEs considers whether an entity has the power to direct the activities that most significantly impact a VIEs economic performance and shares in the significant risks and rewards of the VIE. The guidance on VIEs requires companies to continually reassess VIEs to determine if consolidation is appropriate and requires additional disclosures. The Company adopted the provisions of this guidance at the beginning of fiscal year 2011, and the adoption did not have a material impact on the Companys financial statements.
13. | Fair Value Measurements |
Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants. Assets and liabilities carried at fair value are classified in the following three categories:
|
Level 1 Quoted prices for identical instruments in active markets |
|
Level 2 Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets |
|
Level 3 Valuations derived from valuation techniques in which one or more significant inputs are unobservable |
The Companys assets and liabilities measured at fair value on a recurring basis are summarized by level in the following tables:
Fair Value Measurement at April 2, 2011 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets |
||||||||||||||||
Investments |
$ | 49 | $ | 25 | $ | 3 | $ | 77 | ||||||||
Derivatives (1) |
||||||||||||||||
Interest rate |
| 154 | | 154 | ||||||||||||
Foreign exchange |
| 349 | | 349 | ||||||||||||
Other derivatives |
| 3 | | 3 | ||||||||||||
Residual Interests |
| | 42 | 42 | ||||||||||||
Liabilities |
||||||||||||||||
Derivatives (1) |
||||||||||||||||
Interest rate |
| (15) | | (15) | ||||||||||||
Foreign exchange |
| (422) | | (422) | ||||||||||||
Total |
$ | 49 | $ | 94 | $ | 45 | $ | 188 | ||||||||
Fair Value Measurements at October 2, 2010 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets |
||||||||||||||||
Investments |
$ | 42 | $ | 42 | $ | 2 | $ | 86 | ||||||||
Derivatives (1) |
||||||||||||||||
Interest rate |
| 231 | | 231 | ||||||||||||
Foreign exchange |
| 404 | | 404 | ||||||||||||
Residual Interests |
| | 54 | 54 | ||||||||||||
Liabilities |
||||||||||||||||
Derivatives (1) |
||||||||||||||||
Interest rate |
| (22) | | (22) | ||||||||||||
Foreign exchange |
| (490) | | (490) | ||||||||||||
Other |
| | (1) | (1) | ||||||||||||
Total |
$ | 42 | $ | 165 | $ | 55 | $ | 262 | ||||||||
(1) |
The Company has master netting arrangements with counterparties to certain derivative contracts. Contracts in a liability position totaling $154 million and $206 million have been netted against contracts in an asset position in the Condensed Consolidated Balance Sheet at April 2, 2011 and October 2, 2010, respectively. |
16
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
The fair value of Level 2 investments is primarily determined by reference to market prices based on recent trading activity and other relevant information including pricing for similar securities as determined by third-party pricing services.
The fair values of Level 2 derivatives, which consist primarily of interest rate and foreign currency financial instrument contracts, are primarily determined based on the present value of future cash flows using internal models that use observable inputs, such as interest rates, yield curves and foreign currency exchange rates. Counterparty credit risk, which is mitigated by master netting agreements and collateral posting arrangements with certain counterparties, did not have a material impact on derivative fair value estimates.
Level 3 residual interests consist of our residual interests in securitized vacation ownership mortgage receivables and are valued using a discounted cash flow model that considers estimated interest rates, discount rates, prepayments, and defaults. There were no material changes in the residual interests in the first six months of fiscal 2011.
Fair Value of Financial Instruments
In addition to the financial instruments listed above, the Companys financial instruments also include cash, cash equivalents, receivables, accounts payable and borrowings.
The fair values of cash, cash equivalents, receivables, and accounts payable approximated the carrying values. The estimated fair values of the Companys total borrowings (current and noncurrent), primarily determined based on broker quotes, quoted market prices, interest rates for the same or similar instruments are $12.7 billion and $13.7 billion at April 2, 2011 and October 2, 2010, respectively.
Transfers of Financial Assets
Through December 4, 2008, the Company sold mortgage receivables arising from sales of its vacation ownership units under a facility that expired on December 4, 2008 and was not renewed. The Company continues to service the sold receivables and has a residual interest in those receivables. As of April 2, 2011, the outstanding principal amount for sold mortgage receivables was $271 million, and the carrying value of the Companys residual interest, which is recorded in other long-term assets, was $42 million.
The Company repurchases defaulted mortgage receivables at their outstanding balance. The Company did not make material repurchases in the six months ended April 2, 2011 or April 3, 2010. The Company generally has been able to sell the repurchased vacation ownership units for amounts that exceed the amounts at which they were repurchased.
The Company also provides credit support for up to 70% of the outstanding balance of the sold mortgage receivables which the mortgage receivable acquirer may draw on in the event of losses under the facility. The Company maintains a reserve for estimated credit losses related to these receivables.
17
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
14. Derivative | Instruments |
The Company manages its exposure to various risks relating to its ongoing business operations according to a risk management policy. The primary risks managed with derivative instruments are interest rate risk and foreign exchange risk.
The following table summarizes the fair value of the Companys derivative positions as of April 2, 2011:
Current
Assets |
Other
Assets |
Other
Accrued Liabilities |
Other
Long-Term Liabilities |
|||||||||||||
Derivatives designated as hedges |
||||||||||||||||
Foreign exchange |
$ | 101 | $ | 10 | $ | (215) | $ | (106) | ||||||||
Interest rate |
7 | 147 | | | ||||||||||||
Other |
2 | | | | ||||||||||||
Derivatives not designated as hedges |
||||||||||||||||
Foreign exchange |
68 | 170 | (99) | (2) | ||||||||||||
Interest rate |
| | | (15) | ||||||||||||
Other |
1 | | | | ||||||||||||
Gross fair value of derivatives |
179 | 327 | (314) | (123) | ||||||||||||
Counterparty netting |
(123) | (31) | 123 | 31 | ||||||||||||
Total Derivatives (1) |
$ | 56 | $ | 296 | $ | (191) | $ | (92) | ||||||||
The following table summarizes the fair value of the Companys derivative positions as of October 2, 2010:
Current
Assets |
Other
Assets |
Other
Accrued Liabilities |
Other
Long-Term Liabilities |
|||||||||||||
Derivatives designated as hedges |
||||||||||||||||
Foreign exchange |
$ | 78 | $ | 65 | $ | (210) | $ | (104) | ||||||||
Interest rate |
13 | 218 | | | ||||||||||||
Derivatives not designated as hedges |
||||||||||||||||
Foreign exchange |
80 | 181 | (140) | (36) | ||||||||||||
Interest rate |
| | | (22) | ||||||||||||
Gross fair value of derivatives |
171 | 464 | (350) | (162) | ||||||||||||
Counterparty netting |
(121) | (85) | 130 | 76 | ||||||||||||
Total Derivatives (1) |
$ | 50 | $ | 379 | $ | (220) | $ | (86) | ||||||||
(1 ) |
Refer to Note 13 for further information on derivative fair values and counterparty netting. |
Interest Rate Risk Management
The Company is exposed to the impact of interest rate changes primarily through its borrowing activities. The Companys objective is to mitigate the impact of interest rate changes on earnings and cash flows and on the market value of its borrowings. In accordance with its policy, the Company targets its fixed-rate debt as a percentage of its net debt between a minimum and maximum percentage. The Company typically uses pay-floating and pay-fixed interest rate swaps to facilitate its interest rate management activities.
The Company designates pay-floating interest rate swaps as fair value hedges of fixed-rate borrowings effectively converting fixed-rate borrowings to variable rate borrowings indexed to LIBOR.
18
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
As of both April 2, 2011 and October 2, 2010, the total notional amount of the Companys pay-floating interest rate swaps was $1.5 billion. The following table summarizes adjustments related to fair value hedges included in net interest expense in the Consolidated Statements of Income.
Quarter Ended | Six Months Ended | |||||||||||||||
April 2,
2011 |
April 3,
2010 |
April 2,
2011 |
April 3,
2010 |
|||||||||||||
Gain (loss) on interest rate swaps |
$ | (24) | $ | 3 | $ | (77) | $ | (40) | ||||||||
Gain (loss) on hedged borrowings |
24 | (3) | 77 | 40 |
The Company may designate pay-fixed interest rate swaps as cash flow hedges of interest payments on floating-rate borrowings. Pay-fixed swaps effectively convert floating-rate borrowings to fixed-rate borrowings. The unrealized gain or losses from these cash flow hedges are deferred in accumulated other comprehensive income (AOCI) and recognized in interest expense as the interest payments occur. The Company did not have pay-fixed interest rate swaps that were designated as cash flow hedges of interest payments at April 2, 2011 nor at October 2, 2010.
Foreign Exchange Risk Management
The Company transacts business globally and is subject to risks associated with changing foreign currency exchange rates. The Companys objective is to reduce earnings and cash flow fluctuations associated with foreign currency exchange rate changes, enabling management to focus on core business issues and challenges.
The Company enters into option and forward contracts that change in value as foreign currency exchange rates change to protect the value of its existing foreign currency assets, liabilities, firm commitments and forecasted but not firmly committed foreign currency transactions. In accordance with policy, the Company hedges its forecasted foreign currency transactions for periods generally not to exceed four years within an established minimum and maximum range of annual exposure. The gains and losses on these contracts offset changes in the U.S. dollar equivalent value of the related forecasted transaction, asset, liability or firm commitment. The principal currencies hedged are the Euro, British pound, Japanese yen and Canadian dollar. Cross-currency swaps are used to effectively convert foreign currency-denominated borrowings into U.S. dollar denominated borrowings.
The Company designates foreign exchange forward and option contracts as cash flow hedges of firmly committed and forecasted foreign currency transactions. As of April 2, 2011 and October 2, 2010, the notional amounts of the Companys net foreign exchange cash flow hedges were $3.8 billion and $2.8 billion, respectively. Mark to market gains and losses on these contracts are deferred in AOCI and are recognized in earnings when the hedged transactions occur, offsetting changes in the value of the foreign currency transactions. Gains and losses recognized related to ineffectiveness for the six months ended April 2, 2011 and April 3, 2010 were not material. Net deferred losses recorded in AOCI for contracts that will mature in the next twelve months totaled $112 million. The following table summarizes the pre-tax adjustments to AOCI for foreign exchange cash flow hedges.
Quarter Ended | Six Months Ended | |||||||||||||||
April 2,
2011 |
April 3,
2010 |
April 2,
2011 |
April 3,
2010 |
|||||||||||||
Gain (loss) recorded in AOCI |
$ | (59) | $ | (2) | $ | (135) | $ | (7) | ||||||||
Reclassification of (gains) losses from AOCI into revenues and costs and expenses |
32 | 6 | 57 | 34 | ||||||||||||
Net change in AOCI |
$ | (27) | $ | 4 | $ | (78) | $ | 27 | ||||||||
19
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
Foreign exchange risk management contracts with respect to foreign currency assets and liabilities are not designated as hedges and do not qualify for hedge accounting. The notional amount of these foreign exchange contracts at April 2, 2011 and October 2, 2010 was $2.7 billion and $2.2 billion, respectively. During the quarters ended April 2, 2011 and April 3, 2010, the Company recognized a net loss of $91 million and a net gain of $57 million, respectively, in costs and expenses on these foreign exchange contracts which offset a net gain of $81 million and a net loss of $114 million on the related economic exposures for the three months ended April 2, 2011 and April 3, 2010, respectively. During the six months ended April 2, 2011 and April 3, 2010, the Company recognized a net loss of $64 million and a net gain of $52 million, respectively, in costs and expenses on these foreign exchange contracts which offset a net gain of $56 million and a net loss of $104 million on the related economic exposures for the six months ended April 2, 2011 and April 3, 2010, respectively.
Commodity Price Risk Management
The Company is subject to the volatility of commodities prices and designates certain commodity forward contracts as cash flow hedges of forecasted commodity purchases. Mark to market gains and losses on these contracts are deferred in AOCI and are recognized in earnings when the hedged transactions occur, offsetting changes in the value of commodity purchases. The fair value of the commodity hedging contracts was not material at April 2, 2011 nor at October 2, 2010.
Risk Management Derivatives Not Designated as Hedges
The Company enters into certain other risk management contracts that are not designated as hedges and do not quality for hedge accounting. These contracts, which include pay fixed interest rate swaps, commodity swap contracts and credit default swaps, are intended to offset economic exposures of the Company and are carried at market value with any changes in value recorded in earnings.
The notional amount of these contracts at April 2, 2011 and October 2, 2010 was $201 million and $218 million, respectively. For the six months ended April 2, 2011 and April 3, 2010, the gain and loss on these contracts recognized in income were not material.
Contingent Features
The Companys derivative financial instruments may require the Company to post collateral in the event that a net liability position with a counterparty exceeds limits defined by contract and that vary with Disneys credit rating. If the Companys credit ratings were to fall below investment grade, such counterparties would also have the right to terminate our derivative contracts, which could lead to a net payment to or from the Company for the aggregate net value by counterparty of our derivative contracts. The aggregate fair value of derivative instruments with credit-risk-related contingent features in a net liability position by counterparty were $283 million and $306 million on April 2, 2011 and October 2, 2010, respectively.
15. | Restructuring and Impairment Charges |
The Company recorded $12 million of restructuring and impairment charges in the current six months. In the prior-year six months, the Company recorded $176 million of restructuring and impairment charges related to organizational and cost structure initiatives primarily at our Studio Entertainment and Media Networks segments. Impairment charges were $96 million, of which $57 million were recorded in the second quarter of the prior year, and consisted of write-offs of capitalized costs primarily related to abandoned film projects and the closure of a studio production facility. Restructuring charges were $80 million, of which $14 million were recorded in the second quarter of the prior year, and reflected primarily severance and related costs.
20
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
ORGANIZATION OF INFORMATION
Managements Discussion and Analysis provides a narrative of the Companys financial performance and condition that should be read in conjunction with the accompanying financial statements. It includes the following sections:
Overview
Seasonality
Business Segment Results
Quarter Results
Six-Month Results
Other Financial Information
Financial Condition
Commitments and Contingencies
Other Matters
Market Risk
OVERVIEW
Our summary consolidated results are presented below:
Quarter Ended | Six Months Ended | |||||||||||||||||||||||
(in millions, except per share data) |
April 2,
2011 |
April 3,
2010 |
% Change
Better/ (Worse) |
April 2,
2011 |
April 3,
2010 |
% Change
Better/ (Worse) |
||||||||||||||||||
Revenues |
$ | 9,077 | $ | 8,580 | 6 % | $ | 19,793 | $ | 18,319 | 8 % | ||||||||||||||
Costs and expenses |
(7,549) | (7,068) | (7) % | (16,325) | (15,393) | (6) % | ||||||||||||||||||
Restructuring and impairment charges |
| (71) | nm | (12) | (176) | 93 % | ||||||||||||||||||
Other income |
| 70 | nm | 75 | 97 | (23) % | ||||||||||||||||||
Net interest expense |
(83) | (130) | 36 % | (178) | (233) | 24 % | ||||||||||||||||||
Equity in the income of investees |
123 | 154 | (20) % | 279 | 243 | 15 % | ||||||||||||||||||
Income before income taxes |
1,568 | 1,535 | 2 % | 3,632 | 2,857 | 27 % | ||||||||||||||||||
Income taxes |
(558) | (537) | (4) % | (1,288) | (1,015) | (27) % | ||||||||||||||||||
Net income |
1,010 | 998 | 1 % | 2,344 | 1,842 | 27 % | ||||||||||||||||||
Less: Net income attributable to noncontrolling interests |
(68) | (45) | (51) % | (100) | (45) | (>100) % | ||||||||||||||||||
Net income attributable to Disney |
$ | 942 | $ | 953 | (1) % | $ | 2,244 | $ | 1,797 | 25 % | ||||||||||||||
Diluted earnings per share |
$ | 0.49 | $ | 0.48 | 2 % | $ | 1.16 | $ | 0.93 | 25 % | ||||||||||||||
Quarter Results
Diluted earnings per share (EPS) increased 2% for the quarter driven by improved operating results. Improved operating results reflected higher advertising revenues and increased fees from Multi-channel Video Service Providers (MVSP) (Affiliate Fees) at ESPN and increased guest spending at our domestic parks and resorts. These increases were partially offset by higher programming costs at ESPN, increased operating expenses at our domestic parks and resorts, lower unit sales at our worldwide home entertainment business, lower results at our theatrical business reflecting the performance of Mars Needs Moms in the current quarter and the inclusion of results for Playdom in the current quarter, which included the impact of acquisition accounting.
21
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The prior-year quarter included restructuring and impairment charges of $71 million, a gain on the sale of an investment in a pay television service in Europe of $48 million, and an accounting gain related to the acquisition of the Disney Stores in Japan of $22 million, which collectively had no impact on EPS.
Six-Month Results
Diluted EPS increased 25% for the six months driven by improved operating results. Improved operating results reflected higher advertising revenues at ESPN and the owned television stations, increased Affiliate Fees, increased guest spending and volumes at our domestic and international parks and resorts and higher licensing revenue due to the strength of Toy Story and Marvel merchandise. These increases were partially offset by higher programming costs at ESPN, increased operating expenses at our domestic parks and resorts and the inclusion of results for Playdom in the current six months, which included the impact of acquisition accounting.
In the current six months, the Company recorded $12 million of restructuring and impairment charges and gains on the sale of Miramax and BASS totaling $75 million. The table below shows the pretax and after tax impact of these items.
Benefit / (Expense) | ||||||||||||
Pretax |
Tax
Effect |
After
Tax |
||||||||||
Restructuring and impairment charges |
$ | (12 | ) | $ | 31 | $ | 19 | |||||
Gains on sales of businesses |
75 | (107 | ) | (32 | ) | |||||||
$ | 63 | $ | (76 | ) | $ | (13 | ) | |||||
These restructuring and impairment charges include an impairment of assets that had tax basis significantly in excess of book value resulting in a $31 million tax benefit on the restructuring and impairment charges. In addition, the book value of Miramax included $217 million of allocated goodwill which is not tax deductible. Accordingly, the taxable gain on the sales of these businesses exceeded the $75 million book gain resulting in tax expense of $107 million. These items collectively had a $0.01 negative impact on EPS.
The prior-year six months included restructuring and impairment charges, gains on the sales of investments in pay television services in Europe and an accounting gain related to the acquisition of the Disney Stores in Japan, which together had a $0.02 negative impact on EPS.
SEASONALITY
The Companys businesses are subject to the effects of seasonality. Consequently, the operating results for the quarter and six months ended April 2, 2011 for each business segment, and for the Company as a whole, are not necessarily indicative of results to be expected for the full year.
Media Networks revenues are subject to seasonal advertising patterns and changes in viewership levels. In general, advertising revenues are somewhat higher during the fall and somewhat lower during the summer months. Affiliate revenues are typically collected ratably throughout the year. Certain affiliate revenues at ESPN are deferred until annual programming commitments are met, and these commitments are typically satisfied during the second half of the Companys fiscal year which generally results in higher revenue recognition during that period.
22
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Parks and Resorts revenues fluctuate with changes in theme park attendance and resort occupancy resulting from the seasonal nature of vacation travel and leisure activities. Peak attendance and resort occupancy generally occur during the summer months when school vacations occur and during early-winter and spring-holiday periods.
Studio Entertainment revenues fluctuate due to the timing and performance of releases in the theatrical, home entertainment, and television markets. Release dates are determined by several factors, including competition and the timing of vacation and holiday periods.
Consumer Products revenues are influenced by seasonal consumer purchasing behavior, which generally results in increased revenues during the Companys first fiscal quarter, and by the timing and performance of theatrical releases and cable programming broadcasts.
Interactive Media revenues fluctuate due to the timing and performance of video game releases which are determined by several factors, including theatrical releases and cable programming broadcasts, competition and the timing of holiday periods. Revenues from certain of our internet and mobile operations are subject to similar seasonal trends.
BUSINESS SEGMENT RESULTS
The Company evaluates the performance of its operating segments based on segment operating income, which is shown below along with segment revenues:
Quarter Ended | Six Months Ended | |||||||||||||||||||||||
(in millions) |
April 2,
2011 |
April 3,
2010 |
% Change
Better/ (Worse) |
April 2,
2011 |
April 3,
2010 |
% Change
Better/ (Worse) |
||||||||||||||||||
Revenues: |
||||||||||||||||||||||||
Media Networks |
$ | 4,322 | $ | 3,844 | 12 % | $ | 8,967 | $ | 8,019 | 12 % | ||||||||||||||
Parks and Resorts |
2,630 | 2,449 | 7 % | 5,498 | 5,111 | 8 % | ||||||||||||||||||
Studio Entertainment |
1,340 | 1,536 | (13) % | 3,272 | 3,471 | (6) % | ||||||||||||||||||
Consumer Products |
626 | 596 | 5 % | 1,548 | 1,342 | 15 % | ||||||||||||||||||
Interactive Media |
159 | 155 | 3 % | 508 | 376 | 35 % | ||||||||||||||||||
$ | 9,077 | $ | 8,580 | 6 % | $ | 19,793 | $ | 18,319 | 8 % | |||||||||||||||
Segment operating income (loss) : |
||||||||||||||||||||||||
Media Networks |
$ | 1,524 | $ | 1,306 | 17 % | $ | 2,590 | $ | 2,030 | 28 % | ||||||||||||||
Parks and Resorts |
145 | 150 | (3) % | 613 | 525 | 17 % | ||||||||||||||||||
Studio Entertainment |
77 | 223 | (65) % | 452 | 466 | (3) % | ||||||||||||||||||
Consumer Products |
142 | 133 | 7 % | 454 | 376 | 21 % | ||||||||||||||||||
Interactive Media |
(115) | (55) | (>100) % | (128) | (65) | (97) % | ||||||||||||||||||
$ | 1,773 | $ | 1,757 | 1 % | $ | 3,981 | $ | 3,332 | 19 % | |||||||||||||||
23
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The following table reconciles segment operating income to income before income taxes:
Quarter Ended | Six Months Ended | |||||||||||||||||||||||
(in millions) |
April 2,
2011 |
April 3,
2010 |
% Change
Better/ (Worse) |
April 2,
2011 |
April 3,
2010 |
% Change
Better/ (Worse) |
||||||||||||||||||
Segment operating income |
$ | 1,773 | $ | 1,757 | 1 % | $ | 3,981 | $ | 3,332 | 19 % | ||||||||||||||
Corporate and unallocated shared expenses |
(122) | (91) | (34) % | (234) | (163) | (44) % | ||||||||||||||||||
Restructuring and impairment charges |
| (71) | nm | (12) | (176) | 93 % | ||||||||||||||||||
Other income |
| 70 | nm | 75 | 97 | (23) % | ||||||||||||||||||
Net interest expense |
(83) | (130) | 36 % | (178) | (233) | 24 % | ||||||||||||||||||
Income before income taxes |
$ | 1,568 | $ | 1,535 | 2 % | $ | 3,632 | $ | 2,857 | 27 % | ||||||||||||||
Depreciation expense is as follows:
Quarter Ended | Six Months Ended | |||||||||||||||||||||||
(in millions) |
April 2,
2011 |
April 3,
2010 |
% Change
Better/ (Worse) |
April 2,
2011 |
April 3,
2010 |
% Change
Better/ (Worse) |
||||||||||||||||||
Media Networks |
||||||||||||||||||||||||
Cable Networks |
$ | 34 | $ | 27 | (26) % | $ | 65 | $ | 58 | (12) % | ||||||||||||||
Broadcasting |
27 | 25 | (8) % | 51 | 48 | (6) % | ||||||||||||||||||
Total Media Networks |
61 | 52 | (17) % | 116 | 106 | (9) % | ||||||||||||||||||
Parks and Resorts |
||||||||||||||||||||||||
Domestic |
203 | 198 | (3) % | 409 | 409 | % | ||||||||||||||||||
International |
79 | 83 | 5 % | 158 | 171 | 8 % | ||||||||||||||||||
Total Parks and Resorts |
282 | 281 | % | 567 | 580 | 2 % | ||||||||||||||||||
Studio Entertainment |
13 | 14 | 7 % | 30 | 28 | (7) % | ||||||||||||||||||
Consumer Products |
13 | 8 | (63) % | 25 | 14 | (79) % | ||||||||||||||||||
Interactive Media |
4 | 6 | 33 % | 9 | 13 | 31 % | ||||||||||||||||||
Corporate |
36 | 33 | (9) % | 74 | 64 | (16) % | ||||||||||||||||||
Total depreciation expense |
$ | 409 | $ | 394 | (4) % | $ | 821 | $ | 805 | (2) % | ||||||||||||||
Amortization of intangible assets is as follows:
Quarter Ended | Six Months Ended | |||||||||||||||||||||||
(in millions) |
April 2,
2011 |
April 3,
2010 |
% Change
Better/ (Worse) |
April 2,
2011 |
April 3,
2010 |
% Change
Better/ (Worse) |
||||||||||||||||||
Media Networks |
$ | 2 | $ | 2 | % | $ | 4 | $ | 4 | % | ||||||||||||||
Parks and Resorts |
| | % | | | % | ||||||||||||||||||
Studio Entertainment |
21 | 8 | (>100) % | 31 | 11 | (>100) % | ||||||||||||||||||
Consumer Products |
14 | 14 | % | 28 | 16 | (75) % | ||||||||||||||||||
Interactive Media |
10 | 6 | (67) % | 19 | 11 | (73) % | ||||||||||||||||||
Total amortization of intangible assets |
$ | 47 | $ | 30 | (57) % | $ | 82 | $ | 42 | (95) % | ||||||||||||||
24
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Media Networks
Operating results for the Media Networks segment are as follows:
Quarter Ended |
% Change
Better/ (Worse) |
|||||||||||
(in millions) |
April 2,
2011 |
April 3,
2010 |
||||||||||
Revenues |
||||||||||||
Affiliate Fees |
$ | 1,952 | $ | 1,774 | 10 % | |||||||
Advertising |
1,728 | 1,507 | 15 % | |||||||||
Other |
642 | 563 | 14 % | |||||||||
Total revenues |
4,322 | 3,844 | 12 % | |||||||||
Operating expenses |
(2,260) | (2,072) | (9) % | |||||||||
Selling, general, administrative and other |
(598) | (565) | (6) % | |||||||||
Depreciation and amortization |
(63) | (54) | (17) % | |||||||||
Equity in the income of investees |
123 | 153 | (20) % | |||||||||
Operating Income |
$ | 1,524 | $ | 1,306 | 17 % | |||||||
Revenues
The 10% increase in Affiliate Fees was driven by increases of 6% from contractual rate increases and 2% from subscriber growth at Cable Networks and an increase of 1% at Broadcasting due to new contractual provisions.
Higher advertising revenues were due to increases of $185 million at Cable Networks (from $566 million to $751 million) and $36 million at Broadcasting (from $941 million to $977 million). Higher Cable Networks advertising revenue was driven by a 23% increase due to higher rates and a 7% increase due to higher units sold. The increase at Broadcasting reflected improvements of 7% due to higher network advertising rates and 1% due to higher local television advertising, partially offset by a 2% decrease due to lower primetime ratings and a decrease at sports due to a shift of the BCS National Championship game to ESPN.
The increase in other revenues reflected the impact of a change in the transfer pricing arrangement between Studio Entertainment and Media Networks for distribution of Media Networks home entertainment product (see Note 2 to the Condensed Consolidated Financial Statements) and higher sales of ABC Studios productions driven by Criminal Minds and Army Wives , partially offset by the absence of Lost .
Costs and Expenses
Operating expenses include programming and production costs which increased $127 million from $1,718 million to $1,845 million. At Cable Networks, an increase in programming and production spending of $163 million was driven by higher sports rights costs due to the addition of college football Bowl Championship Series games. At Broadcasting, programming and production spending decreased $36 million driven by lower news production costs due to cost savings initiatives and decreased sports programming costs due to the shift of the BCS National Championship game to ESPN, partially offset by a higher cost mix of primetime programming. Operating costs also increased 1% due to higher labor costs and 1% due to the change in the transfer pricing arrangement for distribution of Media Networks home entertainment product.
The increase in selling, general and administrative and other costs and expenses was driven by the absence of recoveries of previously reserved receivables which occurred in the prior-year quarter and higher marketing expenses.
Equity in the Income of Investees
Income from equity investees was $123 million for the current quarter compared to $153 million in the prior-year quarter. The decrease in income from equity investees was due to programming costs for the Cricket World Cup at our ESPN Star Sports joint venture.
Segment Operating Income
Segment operating income increased 17%, or $218 million, to $1.5 billion. The increase was primarily due to higher advertising sales, increased Affiliate Fees and higher sales of ABC Studios productions, partially offset by higher programming costs, lower equity in the income of investees,
25
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
the absence of recoveries of previously reserved receivables and higher marketing costs.
The following table provides supplemental revenue and segment operating income detail for the Media Networks segment:
Quarter Ended |
% Change
Better/ (Worse) |
Six Months Ended |
% Change
Better/ (Worse) |
|||||||||||||||||||||
(in millions) |
April 2,
2011 |
April 3,
2010 |
April 2,
2011 |
April 3,
2010 |
||||||||||||||||||||
Revenues: |
||||||||||||||||||||||||
Cable Networks |
$ | 2,826 | $ | 2,412 | 17 % | $ | 5,894 | $ | 5,066 | 16 % | ||||||||||||||
Broadcasting |
1,496 | 1,432 | 4 % | 3,073 | 2,953 | 4 % | ||||||||||||||||||
$ | 4,322 | $ | 3,844 | 12 % | $ | 8,967 | $ | 8,019 | 12 % | |||||||||||||||
Segment operating income : |
||||||||||||||||||||||||
Cable Networks |
$ | 1,357 | $ | 1,183 | 15 % | $ | 2,128 | $ | 1,727 | 23 % | ||||||||||||||
Broadcasting |
167 | 123 | 36 % | 462 | 303 | 52 % | ||||||||||||||||||
$ | 1,524 | $ | 1,306 | 17 % | $ | 2,590 | $ | 2,030 | 28 % | |||||||||||||||
Restructuring and impairment charges
The Company recorded credits totaling $4 million and charges totaling $10 million in the current and prior-year quarters, respectively, that were reported in Restructuring and impairment charges in the Consolidated Statements of Income.
Parks and Resorts
Operating results for the Parks and Resorts segment are as follows:
Quarter Ended |
% Change
Better/ (Worse) |
|||||||||||
(in millions) |
April 2,
2011 |
April 3,
2010 |
||||||||||
Revenues |
||||||||||||
Domestic |
$ | 2,157 | $ | 1,989 | 8 % | |||||||
International |
473 | 460 | 3 % | |||||||||
Total revenues |
2,630 | 2,449 | 7 % | |||||||||
Operating expenses |
(1,755) | (1,619) | (8) % | |||||||||
Selling, general, administrative and other |
(448) | (399) | (12) % | |||||||||
Depreciation and amortization |
(282) | (281) | % | |||||||||
Operating Income |
$ | 145 | $ | 150 | (3) % | |||||||
Revenues
Parks and Resorts revenues increased 7%, or $181 million, to $2.6 billion due to increases of $168 million at our domestic operations and $13 million at our international operations. Results at both our domestic and international parks and resorts reflected an unfavorable impact due to a shift in the timing of the Easter holiday relative to our fiscal periods. As a result, the current quarter did not include any of the two week Easter holiday, while the prior-year quarter included one week of the Easter holiday.
Revenues at our domestic operations reflected a 5% increase due to higher average guest spending and a 3% increase from higher passenger cruise days driven by the launch of our new cruise ship, the Disney Dream, in January 2011. Higher guest spending was primarily due to higher average ticket prices and daily hotel room rates.
Revenues at our international operations reflected a 6% volume increase due to higher attendance and hotel occupancy and a 2% increase from average guest spending. These improvements
26
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
were partially offset by a 5% decrease driven by the March 2011 earthquake and tsunami in Japan which resulted in the temporary suspension of operations at Tokyo Disney Resort.
The following table presents supplemental park and hotel statistics:
Domestic | International (2) | Total | ||||||||||||||||||||||
Quarter Ended | Quarter Ended | Quarter Ended | ||||||||||||||||||||||
April 2,
2011 |
April 3,
2010 |
April 2,
2011 |
April 3,
2010 |
April 2,
2011 |
April 3,
2010 |
|||||||||||||||||||
Parks |
||||||||||||||||||||||||
Increase/(decrease) |
||||||||||||||||||||||||
Attendance |
% | (4) % | 9 % | (1) % | 2 % | (3) % | ||||||||||||||||||
Per Capita Guest Spending |
6 % | 5 % | (2) % | 8 % | 4 % | 6 % | ||||||||||||||||||
Hotels (1) |
||||||||||||||||||||||||
Occupancy |
81 % | 79 % | 84 % | 81 % | 81 % | 79 % | ||||||||||||||||||
Available Room Nights (in thousands) |
2,419 | 2,416 | 609 | 609 | 3,028 | 3,025 | ||||||||||||||||||
Per Room Guest Spending |
$ | 233 | $ | 224 | $ | 235 | $ | 227 | $ | 234 | $ | 225 |
(1) |
Hotel statistics include rentals of Disney Vacation Club units. Per room guest spending consists of the average daily hotel room rate as well as guest spending on food, beverage and merchandise at the hotels. |
(2) |
Per capita guest spending and per room guest spending include the impact of foreign currency translation. Guest spending statistics for Disneyland Paris were converted from Euros into US Dollars at weighted average exchange rates of $1.37 and $1.39 for the quarters ended April 2, 2011 and April 3, 2010, respectively. |
Costs and Expenses
Operating expenses include operating labor, which increased $69 million from $787 million to $856 million, driven by labor cost inflation and higher pension and healthcare costs and cost of sales, which increased $24 million from $250 million to $274 million driven by volume. Operating expenses also increased due to expansion costs for Disney California Adventure at Disneyland Resort and promotional and operating costs in connection with the launch of the Disney Dream .
The increase in selling, general, administrative and other costs and expenses was driven by labor cost inflation, increased marketing costs and costs associated with the Disney Dream .
Segment Operating Income
Segment operating income decreased 3%, or $5 million, to $145 million due to decreases at Disney Cruise Line and Tokyo Disney Resort, partially offset by increases at our domestic and consolidated international parks and resorts.
Studio Entertainment
Operating results for the Studio Entertainment segment are as follows:
Quarter Ended |
% Change
Better/ (Worse) |
|||||||||||
(in millions) |
April 2,
2011 |
April 3,
2010 |
||||||||||
Revenues |
||||||||||||
Theatrical distribution |
$ | 296 | $ | 465 | (36) % | |||||||
Home entertainment |
536 | 621 | (14) % | |||||||||
Television distribution and other |
508 | 450 | 13 % | |||||||||
Total revenues |
1,340 | 1,536 | (13) % | |||||||||
Operating expenses |
(659) | (745) | 12 % | |||||||||
Selling, general, administrative and other |
(570) | (546) | (4) % | |||||||||
Depreciation and amortization |
(34) | (22) | (55) % | |||||||||
Operating Income |
$ | 77 | $ | 223 | (65) % | |||||||
27
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Revenues
The decrease in theatrical distribution revenue reflected the strong performance of Alice in Wonderland which was in wide release worldwide in the prior-year quarter compared to the continuing performance of Tangled and Tron: Legacy which were released late in the first quarter of the current year domestically, and the performance of Gnomeo & Juliet and Mars Needs Moms which were released during the current quarter.
The decrease in home entertainment revenue reflected an 8% decrease due to lower unit sales, partially offset by a 4% increase due to higher net effective pricing driven by increased sales in Blu-ray format. Net effective pricing is the wholesale selling price adjusted for discounts, sales incentives and returns. The decreased unit sales in the current quarter reflected the strong prior-year performance of Toy Story 1 & 2 and the animated version of Alice in Wonderland domestically and Up internationally. Additionally, there was an 8% decrease due to the impact of a change in the transfer pricing arrangement between Studio Entertainment and Media Networks for distribution of Media Networks home entertainment product (see Note 2 to the Condensed Consolidated Financial Statements).
The increase in television distribution and other revenue was primarily due to growth in the domestic pay television market driven by Toy Story 3 .
Costs and Expenses
Operating expenses for the current quarter include film cost amortization of $315 million which was comparable to the prior-year quarter as a decrease driven by the prior-year performance of Alice in Wonderland was offset by higher current quarter film cost write-downs, driven by Mars Needs Moms . Operating expenses also included a 10% decrease due to lower participation and distribution costs. Lower participation costs reflected the strong performance of Alice in Wonderland in the prior-year quarter while the decrease in distribution costs was due to the change in the transfer pricing arrangement for distribution of Media Networks home entertainment product.
The increase in selling, general, administrative and other costs was primarily due to higher bad debt expense and executive contract termination costs, partially offset by lower theatrical marketing expense associated with the current quarter titles compared to Alice in Wonderland in the prior-year quarter.
Segment Operating Income
Segment operating income declined by $146 million to $77 million primarily due to lower results at home entertainment and theatrical distribution and higher film cost write-downs.
Restructuring and impairment charges
The Company recorded credits totaling $2 million and charges totaling $55 million in the current and prior-year quarters, respectively, primarily related to the closure of a production facility, which were reported in Restructuring and impairment charges in the Consolidated Statements of Income.
Consumer Products
Operating results for the Consumer Products segment are as follows:
Quarter Ended |
% Change
Better/ (Worse) |
|||||||||||
(in millions) |
April 2,
2011 |
April 3,
2010 |
||||||||||
Revenues |
||||||||||||
Licensing and publishing |
$ | 397 | $ | 419 | (5) % | |||||||
Retail and other |
229 | 177 | 29 % | |||||||||
Total revenues |
626 | 596 | 5 % | |||||||||
Operating expenses |
(295) | (268) | (10) % | |||||||||
Selling, general, administrative and other |
(162) | (173) | 6 % | |||||||||
Depreciation and amortization |
(27) | (22) | (23) % | |||||||||
Operating Income |
$ | 142 | $ | 133 | 7 % | |||||||
28
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Revenues
The decrease in licensing and publishing revenue was driven by a 6% decrease due to lower recognition of minimum guarantees and other revenue related to prior quarter shipments compared to the prior-year quarter and a 2% decrease due to less significant publishing releases in the current quarter compared to the strong performance of the Percy Jackson book, Last Olympian , in the prior-year quarter. These decreases were partially offset by a 3% increase driven by strong performance of Cars and Tangled merchandise in the current quarter.
Higher retail and other revenues were driven by a $36 million increase due to the acquisition of The Disney Store Japan at the end of the second quarter of fiscal 2010 and an increase of $12 million at our North American retail business, driven by higher comparable store sales.
Costs and Expenses
Operating expenses include cost of goods sold which increased by $12 million, from $106 million to $118 million. Operating expenses also include a 4% increase due to higher labor costs and a 2% increase due to higher rent and occupancy costs. These increases were driven by the acquisition of The Disney Store Japan.
The decrease in selling, general, administrative and other was driven by favorable foreign currency exchange impacts.
Operating Income
Segment operating income increased 7% to $142 million due to improved results at our North American retail and licensing businesses, partially offset by lower results at our publishing business.
Restructuring and impairment charges
The Company recorded charges totaling $2 million in the prior-year quarter for severance and related costs which were reported in Restructuring and impairment charges in the Consolidated Statements of Income.
Interactive Media
Operating results for the Interactive Media segment are as follows:
Quarter Ended |
% Change
Better/ (Worse) |
|||||||||||
(in millions) |
April 2,
2011 |
April 3,
2010 |
||||||||||
Revenues |
||||||||||||
Game sales and subscriptions |
$ | 108 | $ | 110 | (2) % | |||||||
Advertising and other |
51 | 45 | 13 % | |||||||||
Total revenues |
159 | 155 | 3 % | |||||||||
Operating expenses |
(141) | (122) | (16) % | |||||||||
Selling, general, administrative and other |
(119) | (76) | (57) % | |||||||||
Depreciation and amortization |
(14) | (12) | (17) % | |||||||||
Operating Income |
$ | (115) | $ | (55) | (>100) % | |||||||
29
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Revenues
Lower game sales and subscriptions revenue reflected a 14% decrease due to lower net effective pricing of self-published console games and a 5% decrease due to lower unit sales. The decrease was largely offset by higher revenues from the inclusion of Playdom in the current quarter.
Higher advertising and other revenue was driven by an increase at our mobile phone service business in Japan.
Costs and Expenses
Operating expenses include product development costs which increased $18 million from $82 million to $100 million driven by the acquisition of Playdom and increases at our mobile games and virtual worlds businesses.
The increase in selling, general, administrative and other expenses was driven by the acquisition of Playdom including the impact of acquisition accounting.
Operating Loss
Segment operating loss was $115 million compared to $55 million in the prior-year quarter driven by the inclusion of Playdom, including the impact of acquisition accounting, and increased mobile and virtual worlds product development costs in the current quarter.
Restructuring and impairment charges
The Company recorded charges totaling $6 million in the current quarter which were reported in Restructuring and impairment charges in the Consolidated Statements of Income.
BUSINESS SEGMENT RESULTS Six Month Results
Media Networks
Operating results for the Media Networks segment are as follows:
Six Months Ended |
% Change
Better/ (Worse) |
|||||||||||
(in millions) |
April 2,
2011 |
April 3,
2010 |
||||||||||
Revenues |
||||||||||||
Affiliate Fees |
$ | 3,802 | $ | 3,471 | 10 % | |||||||
Advertising |
3,989 | 3,457 | 15 % | |||||||||
Other |
1,176 | 1,091 | 8 % | |||||||||
Total revenues |
8,967 | 8,019 | 12 % | |||||||||
Operating expenses |
(5,387) | (5,040) | (7) % | |||||||||
Selling, general, administrative and other |
(1,149) | (1,081) | (6) % | |||||||||
Depreciation and amortization |
(120) | (110) | (9) % | |||||||||
Equity in the income of investees |
279 | 242 | 15 % | |||||||||
Operating Income |
$ | 2,590 | $ | 2,030 | 28 % | |||||||
Revenues
The increase in Affiliate Fees was driven by increases of 7% from contractual rate increases and 1% from subscriber growth at Cable Networks and a 1% increase at Broadcasting due to new contractual provisions.
Higher advertising revenues were due to an increase of $439 million at Cable Networks from $1,407 million to $1,846 million and an increase of $93 million at Broadcasting from $2,050 million to $2,143 million. The increase at Cable Networks was driven by a 20% increase due to higher rates and a 7% increase due to higher units sold. The increase at Broadcasting reflected an increase of 3% due to higher local television advertising.
The increase in other revenues was driven by a change in the transfer pricing arrangement between Studio Entertainment and Media Networks for distribution of Media Networks home entertainment product.
30
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Costs and Expenses
Operating expenses include programming and production costs which increased $229 million from $4,331 million to $4,560 million. At Cable Networks, an increase in programming and production spending of $364 million was driven by higher sports rights costs due to the addition of college football programming including Bowl Championship Series games. At Broadcasting, programming and production costs decreased $135 million driven by the shift of college sports programming to ESPN and lower news and daytime production costs due to cost savings initiatives. Operating expenses also reflect a 1% increase due to the change in the transfer pricing arrangement for distribution of Media Networks home entertainment product and a 1% increase due to higher labor costs.
The increase in selling, general and administrative and other costs and expenses was driven by recoveries of previously reserved receivables in the prior-year and higher marketing and sales costs at our Cable Network businesses.
Equity in the Income of Investees
Income from equity investees was $279 million for the current six month period compared to $242 million in the prior-year six month period. Higher income from equity investees was driven by higher affiliate and advertising revenue and lower programming and restructuring costs at A&E/Lifetime, partially offset by higher programming costs for the Cricket World Cup at our ESPN Star Sports joint venture.
Segment Operating Income
Segment operating income increased 28%, or $560 million, to $2.6 billion. The increase was primarily due to higher advertising sales, increased Affiliate Fees and higher equity in the income of investees, partially offset by higher programming costs, the absence of recoveries of previously reserved receivables and higher marketing and sales costs.
Restructuring and impairment charges
The Company recorded credits totaling $1 million and charges totaling $44 million for the current and prior-year six month periods, respectively. The charges in the prior-year six-month period were for severance and related costs. These charges were reported in Restructuring and impairment charges in the Consolidated Statements of Income.
Parks and Resorts
Operating results for the Parks and Resorts segment are as follows:
Six Months Ended |
% Change
Better/ (Worse) |
|||||||||||
(in millions) |
April 2,
2011 |
April 3,
2010 |
||||||||||
Revenues |
||||||||||||
Domestic |
$ | 4,406 | $ | 4,052 | 9 % | |||||||
International |
1,092 | 1,059 | 3 % | |||||||||
Total revenues |
5,498 | 5,111 | 8 % | |||||||||
Operating expenses |
(3,505) | (3,261) | (7) % | |||||||||
Selling, general, administrative and other |
(813) | (745) | (9) % | |||||||||
Depreciation and amortization |
(567) | (580) | 2 % | |||||||||
Operating Income |
$ | 613 | $ | 525 | 17 % | |||||||
Revenues
Parks and Resorts revenues increased 8%, or $387 million, to $5.5 billion due to an increase of $354 million at our domestic operations and an increase of $33 million at our international operations.
The increase in revenues at our domestic operations reflected a 5% increase driven by higher average guest spending and a 2% increase due to volume driven by higher passenger cruise days as a result of the launch of our new cruise ship, the Disney Dream , in January 2011 and higher hotel occupancy and theme park attendance. Higher guest spending was primarily due to higher average ticket prices and daily hotel room rates.
31
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Higher revenues at our international operations reflected a 4% increase driven by volume due to higher attendance and hotel occupancy and a 3% increase due to increased average guest spending. These improvements were partially offset by a decrease of 4% due to an unfavorable impact of foreign currency translation as a result of the strengthening of the U.S. dollar against the Euro. In addition, revenues decreased 2% as a result of the March 2011 earthquake and tsunami in Japan which resulted in a temporary suspension of operations at Tokyo Disney Resort.
The following table presents supplemental park and hotel statistics:
Domestic | International (2) | Total | ||||||||||||||||||||||
Six Months Ended | Six Months Ended | Six Months Ended | ||||||||||||||||||||||
April 2,
2011 |
April 3,
2010 |
April 2,
2011 |
April 3,
2010 |
April 2,
2011 |
April 3,
2010 |
|||||||||||||||||||
Parks Increase/(decrease) |
||||||||||||||||||||||||
Attendance |
1 % | 3 % | 6 % | (6) % | 2 % | % | ||||||||||||||||||
Per Capita Guest Spending |
7 % | % | (3) % | 9 % | 5 % | 2 % | ||||||||||||||||||
Hotels (1) |
||||||||||||||||||||||||
Occupancy |
83 % | 80 % | 84 % | 79 % | 83 % | 80 % | ||||||||||||||||||
Available Room Nights (in thousands) |
4,801 | 4,802 | 1,230 | 1,230 | 6,031 | 6,032 | ||||||||||||||||||
Per Room Guest Spending |
$ 238 | $ 228 | $ 261 | $ 258 | $ 242 | $ 234 |
(1) |
Hotel statistics include rentals of Disney Vacation Club units. Per room guest spending consists of the average daily hotel room rate as well as guest spending on food, beverage and merchandise at the hotels. |
(2) |
Per capita guest spending and per room guest spending include the impact of foreign currency translation. Guest spending statistics for Disneyland Paris were converted from Euros into US Dollars at weighted average exchange rates of $1.36 and $1.43 for six months ended April 2, 2011 and April 3, 2010, respectively. |
Costs and Expenses
Operating expenses include operating labor which increased by $109 million from $1,610 million to $1,719 million driven by labor cost inflation and higher pension and healthcare costs. Operating expenses also include cost of sales which increased $58 million from $527 million to $585 million due to increased merchandise costs driven by volume increases, higher promotional and operating costs in connection with the launch of the Disney Dream and expansion costs for Disney California Adventure at Disneyland Resort. These increases were partially offset by a favorable impact of foreign currency translation as a result of the strengthening of the U.S. dollar against the Euro.
The increase in selling, general, administrative and other costs and expenses was driven by labor cost inflation, increased marketing costs and costs associated with the additional cruise ship.
Segment Operating Income
Segment operating income increased 17%, or $88 million, to $613 million due to increases at our domestic parks and resorts, partially offset by a decrease at Disney Cruise Line. At our international parks and resorts, favorable results at Disneyland Paris and Hong Kong Disneyland Resort were partially offset by lower results at Tokyo Disney Resort.
Studio Entertainment
Operating results for the Studio Entertainment segment are as follows:
Six Months Ended |
% Change
Better/ (Worse) |
|||||||||||
(in millions) |
April 2,
2011 |
April 3,
2010 |
||||||||||
Revenues |
||||||||||||
Theatrical distribution |
$ | 625 | $ | 897 | (30) % | |||||||
Home entertainment |
1,579 | 1,614 | (2) % | |||||||||
Television distribution and other |
1,068 | 960 | 11 % | |||||||||
Total revenues |
3,272 | 3,471 | (6) % | |||||||||
Operating expenses |
(1,558) | (1,712) | 9 % | |||||||||
Selling, general, administrative and other |
(1,201) | (1,254) | 4 % | |||||||||
Depreciation and amortization |
(61) | (39) | (56) % | |||||||||
Operating Income |
$ | 452 | $ | 466 | (3) % | |||||||
32
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Revenues
The decrease in theatrical distribution revenue reflected the worldwide performance of current period titles including Tangled , Tron: Legacy and Mars Needs Moms compared to the prior-year period, which included Alice in Wonderland, A Christmas Carol and Princess and the Frog domestically and internationally and Up in international markets.
At home entertainment, 6% revenue growth due to higher unit sales and 3% growth due to higher net effective pricing were more than offset by a decrease due to the change in the transfer pricing arrangement between Studio Entertainment and Media Networks for distribution of Media Networks home entertainment product. Higher unit sales in the current period were driven by the strong international performance of Toy Story 3 compared to Up in the prior-year period as well as increased catalog sales.
The increase in television distribution and other revenue was primarily due to the inclusion of Marvel which was acquired at the beginning of the second quarter of fiscal 2010.
Costs and Expenses
Operating expenses for the current period included film cost amortization of $738 million which was comparable to the prior-year period as an increase driven by the addition of Marvel was offset by a decrease driven by lower theatrical revenues and lower film cost write-downs in the current period. Operating expenses also include distribution and participation costs which decreased by $150 million. The decrease in distribution costs was due to the change in the transfer pricing arrangement for distribution of Media Networks home entertainment product while lower participation costs were driven by the strong performance of Alice in Wonderland in the prior-year period.
The decrease in selling, general, administrative and other costs was driven by lower marketing expenses at our theatrical and home entertainment businesses including the impact of cost reduction initiatives, partially offset by the inclusion of Marvel.
Segment Operating Income
Segment operating income decreased 3%, or $14 million, to $452 million primarily due to a decrease in international theatrical distribution and the impact of the transfer pricing change, partially offset by improvements in international home entertainment.
Restructuring and impairment charges
The Company recorded credits totaling $2 million and charges totaling $122 million for the current and prior-year six month periods, respectively. The charges in the prior-year six months were primarily due to the write-off of capitalized costs related to abandoned film projects, the closure of a production facility and, severance and related costs. These credits and charges were reported in Restructuring and impairment charges in the Consolidated Statements of Income.
33
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Consumer Products
Operating results for the Consumer Products segment are as follows:
Six Months Ended |
% Change
Better/ (Worse) |
|||||||||||
(in millions) |
April 2,
2011 |
April 3,
2010 |
||||||||||
Revenues |
||||||||||||
Licensing and publishing |
$ | 914 | $ | 831 | 10 % | |||||||
Retail and other |
634 | 511 | 24 % | |||||||||
Total revenues |
1,548 | 1,342 | 15 % | |||||||||
Operating expenses |
(697) | (616) | (13) % | |||||||||
Selling, general, administrative and other |
(344) | (320) | (8) % | |||||||||
Depreciation and amortization |
(53) | (30) | (77) % | |||||||||
Operating Income |
$ | 454 | $ | 376 | 21 % | |||||||
Revenues
The increase in licensing and publishing revenue was primarily due to an 8% increase resulting from the acquisition of Marvel at the beginning of the second quarter of fiscal 2010 and a 6% increase driven by the strong performance of Toy Story, Cars and Tangled merchandise.
Higher retail and other revenues were driven by a $78 million increase due to the acquisition of The Disney Store Japan at the end of the second quarter of fiscal 2010 and an increase of $42 million at our North American retail business driven by higher comparable store sales.
Costs and Expenses
Operating expenses included an increase of $43 million in cost of goods sold, from $280 million to $323 million, driven by the acquisition of The Disney Store Japan and Marvel publishing sales. Operating expenses also included a 3% increase due to higher labor costs and a 2% increase due to higher rent and occupancy costs, both of which were driven by the acquisition of The Disney Store Japan.
The increase in selling, general, administrative and other was driven by the inclusion of Marvel, as was the increase in depreciation and amortization.
Segment Operating Income
Segment operating income increased 21%, or $78 million, to $454 million due to an increase in our licensing business driven by the strength of Toy Story merchandise and the acquisition of Marvel and improved results at our North American retail business.
Restructuring and impairment charges
The Company recorded charges totaling $2 million in the prior-year six month period which were reported in Restructuring and impairment charges in the Consolidated Statements of Income.
Interactive Media
Operating results for the Interactive Media segment are as follows:
Six Months Ended |
% Change
Better/ (Worse) |
|||||||||||
(in millions) |
April 2,
2011 |
April 3,
2010 |
||||||||||
Revenues |
||||||||||||
Game sales and subscriptions |
$ | 404 | $ | 282 | 43 % | |||||||
Advertising and other |
104 | 94 | 11 % | |||||||||
Total revenues |
508 | 376 | 35 % | |||||||||
Operating expenses |
(345) | (273) | (26) % | |||||||||
Selling, general, administrative and other |
(263) | (144) | (83) % | |||||||||
Depreciation and amortization |
(28) | (24) | (17) % | |||||||||
Operating Income |
$ | (128) | $ | (65) | (97) % | |||||||
34
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Revenues
The increase in game sales and subscriptions revenue reflected a 17% increase due to higher net effective pricing of console games and a 16% increase due to higher console game unit sales, reflecting the strong performance of Epic Mickey and Toy Story 3 . Additionally, the inclusion of Playdom in the current six months contributed to higher game sales and subscription revenues.
Higher advertising and other revenue was driven by an increase at our mobile phone service business in Japan.
Costs and Expenses
Operating expense included a $42 million increase in product development expense primarily due to the acquisition of Playdom and a $14 million increase in cost of goods sold driven by higher console game unit sales.
The increase in selling, general, administrative and other costs was primarily due to the impact of acquisition accounting relating to Playdom and higher sales and marketing costs driven by the release of Epic Mickey .
Operating Loss
Segment operating loss was $128 million compared to $65 million in the prior-year six month period as increased console game sales were more than offset by the inclusion of results for Playdom in the current period, including the impact of acquisition accounting.
Restructuring and impairment charges
The Company recorded charges totaling $6 million in the current six month period which were reported in Restructuring and impairment charges in the Consolidated Statements of Income.
OTHER FINANCIAL INFORMATION
Corporate and Unallocated Shared Expenses
Corporate and unallocated shared expenses are as follows:
Quarter Ended |
% Change
Better/ (Worse) |
Six Months Ended |
% Change
Better/ (Worse) |
|||||||||||||||||||||
(in millions) |
April 2,
2011 |
April 3,
2010 |
April 2,
2011 |
April 3,
2010 |
||||||||||||||||||||
Corporate and unallocated shared expenses |
$ | 122 | $ | 91 | (34) % | $ | 234 | $ | 163 | (44) % |
Corporate and unallocated shared expenses increased for both the quarter and six months primarily due to the timing of expenses and higher compensation related costs.
Net Interest Expense
Net interest expense is as follows:
Quarter Ended |
% Change
Better/ (Worse) |
Six Months Ended |
% Change
Better/ (Worse) |
|||||||||||||||||||||
(in millions) |
April 2,
2011 |
April 3,
2010 |
April 2,
2011 |
April 3,
2010 |
||||||||||||||||||||
Interest expense |
$ | (111) | $ | (147) | 24 % | $ | (211) | $ | (265) | 20 % | ||||||||||||||
Interest and investment income |
28 | 17 | 65 % | 33 | 32 | 3 % | ||||||||||||||||||
Net interest expense |
$ | (83) | $ | (130) | 36 % | $ | (178) | $ | (233) | 24 % | ||||||||||||||
35
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The decrease in interest expense for the quarter and six months was primarily due to lower effective interest rates, higher capitalized interest and lower average debt balances. Higher capitalized interest was driven by increased capital spending.
The increase in interest and investment income for the quarter was driven by gains from sales of investments.
Income Taxes
The effective income tax rate is as follows:
Quarter Ended |
Change
Better/ (Worse) |
Six Months Ended |
Change
Better/ (Worse) |
|||||||||||||||||||||
April 2,
2011 |
April 3,
2010 |
April 2,
2011 |
April 3,
2010 |
|||||||||||||||||||||
Effective Income Tax Rate |
35.6 % | 35.0 % | (0.6) ppt | 35.5 % | 35.5 % | ppt |
The effective income tax rate for the current-year quarter and six months was comparable to the rate for the respective prior-year periods. The prior year quarter and six months included the favorable resolution of certain income tax matters which was largely offset by a $72 million charge related to the enactment of health care reform legislation in March 2010. Under this legislation the Companys deductions for retiree prescription drug benefits will be reduced by the amount of Medicare Part D drug subsidies received beginning in fiscal year 2014. Under applicable accounting rules, the Company was required to reduce its existing deferred tax asset, which was established for the future deductibility of retiree prescription drug benefit costs, to reflect the lost deductions. The reduction was recorded as a charge to earnings in the period the legislation was enacted.
Noncontrolling Interests
Net income attributable to noncontrolling interests is as follows:
Quarter Ended |
% Change
Better/ (Worse) |
Six Months Ended |
% Change
Better/ (Worse) |
|||||||||||||||||||||
(in millions) |
April 2,
2011 |
April 3,
2010 |
April 2,
2011 |
April 3,
2010 |
||||||||||||||||||||
Net income attributable to noncontrolling interests |
$ | 68 | $ | 45 | (51) % | $ | 100 | $ | 45 | (>100) % |
The increase in net income attributable to noncontrolling interests for the quarter and six months was due to improved operating results at ESPN, Hong Kong Disneyland and Disneyland Paris. Net income attributable to noncontrolling interests is determined based on income after royalties, financing costs and income taxes.
36
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
FINANCIAL CONDITION
The change in cash and cash equivalents is as follows:
Six Months Ended |
Change
Better/(Worse) |
|||||||||||
(in millions) |
April 2,
2011 |
April 3,
2010 |
||||||||||
Cash provided by operations |
$ | 3,068 | $ | 2,489 | $ | 579 | ||||||
Cash used in investing activities |
(1,556) | (2,978) | 1,422 | |||||||||
Cash (used in)/provided by financing activities |
(1,207) | 259 | (1,466) | |||||||||
Impact of exchange rates on cash and cash equivalents |
67 | (112) | 179 | |||||||||
Increase/(decrease) in cash and cash equivalents |
$ | 372 | $ | (342) | $ | 714 | ||||||
Operating Activities
Cash provided by operations of $3.1 billion for the current six month period increased 23% compared to the prior-year six month period. The increase was primarily due to higher operating cash receipts driven by higher revenues at our Media Networks, Parks and Resorts, Consumer Products and Interactive Media businesses and the timing of receivable collections at our Media Networks, Consumer Products and Studio Entertainment businesses. These increases were partially offset by higher cash payments at Corporate and our Parks and Resorts, Interactive Media and Consumer Products businesses. The increase in cash payments at Corporate was driven by higher income tax payments and the timing of contributions to our pension plans. The increase in cash payments at Parks and Resorts was driven by labor cost inflation, higher promotional and operating costs from the January launch of the Disney Dream and expansion costs for Disney California Adventure at Disneyland Resort, while the increase in cash payments at Interactive Media reflects the inclusion of Playdom, which was acquired subsequent to the prior-year six month period. The increase in cash payments at Consumer Products was primarily due to the inclusion of The Disney Store Japan and Marvel.
Film and Television Costs
The Companys Studio Entertainment and Media Networks segments incur costs to acquire and produce film and television programming. Film and television production costs include all internally produced content such as live action and animated feature films, animated direct-to-video programming, television series, television specials, theatrical stage plays or other similar product. Programming costs include film or television product licensed for a specific period from third parties for airing on the Companys broadcast, cable networks and television stations. Programming assets are generally recorded when the programming becomes available to us with a corresponding increase in programming liabilities. Accordingly, we analyze our programming assets net of the related liability.
The Companys film and television production and programming activity for the six months ended April 2, 2011 and April 3, 2010 are as follows:
Six Months Ended | ||||||||
(in millions) |
April 2,
2011 |
April 3,
2010 |
||||||
Beginning balances: |
||||||||
Production and programming assets |
$ | 5,451 | $ | 5,756 | ||||
Programming liabilities |
(990) | (1,040) | ||||||
4,461 | 4,716 | |||||||
Spending: |
||||||||
Film and television production |
1,514 | 1,796 | ||||||
Broadcast programming |
2,939 | 2,639 | ||||||
4,453 | 4,435 | |||||||
Amortization: |
||||||||
Film and television production |
(1,641) | (1,684) | ||||||
Broadcast programming |
(2,628) | (2,270) | ||||||
(4,269) | (3,954) | |||||||
Change in film and television production and programming costs |
184 | 481 | ||||||
Other non-cash activity |
5 | 62 | ||||||
Ending balances: |
||||||||
Production and programming assets |
5,487 | 6,141 | ||||||
Programming liabilities |
(837) | (882) | ||||||
$ | 4,650 | $ | 5,259 | |||||
37
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Investing Activities
Investing activities consist principally of investments in parks, resorts, and other property and acquisition and divestiture activity.
During the six months ended April 2, 2011 and April 3, 2010, investment in parks, resorts and other properties were as follows:
Six Months Ended | ||||||||
(in millions) |
April 2,
2011 |
April 3,
2010 |
||||||
Media Networks |
||||||||
Cable Networks |
$ | 33 | $ | 31 | ||||
Broadcasting |
55 | 29 | ||||||
Total Media Networks |
88 | 60 | ||||||
Parks and Resorts |
||||||||
Domestic |
1,381 | 559 | ||||||
International |
165 | 85 | ||||||
Total Parks and Resorts |
1,546 | 644 | ||||||
Studio Entertainment |
57 | 38 | ||||||
Consumer Products |
37 | 24 | ||||||
Interactive Media |
12 | 7 | ||||||
Corporate |
105 | 34 | ||||||
Total investment in parks, resorts and other property |
$ | 1,845 | $ | 807 | ||||
Capital expenditures for the Parks and Resorts segment are principally for theme park and resort expansion, new rides and attractions, cruise ships, recurring capital and capital improvements. The increase in capital expenditures at Parks and Resorts reflected the final payment on our new cruise ship, the Disney Dream , theme park and resort expansions and new guest offerings at Walt Disney World Resort, Hong Kong Disneyland Resort, and Disney California Adventure and the construction of our Aulani resort in Hawaii.
Capital expenditures at Media Networks primarily reflect investments in facilities and equipment for expanding and upgrading broadcast centers, production facilities, and television station facilities.
Capital expenditures at Corporate primarily reflect investments in information technology and other equipment and corporate facilities. The increase in fiscal 2011 was driven by investments in equipment and corporate facilities.
Other Investing Activities
During the current six months, proceeds from dispositions totaled $566 million primarily due to the sale of Miramax, partially offset by acquisitions totaling $171 million which included payments related to the acquisition of Playdom, Inc.
During the prior-year six month period, acquisitions totaled $2.3 billion due to the acquisition of Marvel Entertainment, Inc.
38
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Financing Activities
Cash used by financing activities was $1.2 billion for the current six month period compared to cash provided by financing activities of $259 million for the prior-year six-month period. The change of $1.5 billion was primarily due to higher repurchases of common stock.
During the six months ended April 2, 2011, the Companys borrowing activity was as follows:
October 2,
2010 |
Additions | Payments |
Other
Activity |
April 2,
2011 |
||||||||||||||||
Commercial paper borrowings |
$ | 1,190 | $ | 470 | $ | | $ | | $ | 1,660 | ||||||||||
U.S. medium-term notes |
6,815 | | | 2 | 6,817 | |||||||||||||||
European medium-term notes |
273 | | | 1 | 274 | |||||||||||||||
Other foreign currency denominated debt |
965 | | | 22 | 987 | |||||||||||||||
Other (1) |
651 | | (34) | (97) | 520 | |||||||||||||||
Euro Disney borrowings ( 2 ) |
2,113 | | (62) | 90 | 2,141 | |||||||||||||||
Hong Kong Disneyland borrowings ( 3 ) |
473 | | | (100) | 373 | |||||||||||||||
Total |
$ | 12,480 | $ | 470 | $ | (96) | $ | (82) | $ | 12,772 | ||||||||||
(1 ) |
The other activity is primarily market value adjustments for debt with qualifying hedges. |
(2 ) |
The other activity is primarily the impact of foreign currency translation as a result of the weakening of the U.S. dollar against the Euro. |
(3 ) |
The other activity is due to the conversion of a portion of the HKSARs loan to equity pursuant to the capital realignment and expansion plan. |
39
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The Companys bank facilities as of April 2, 2011 were as follows:
(in millions) |
Committed
Capacity |
Capacity
Used |
Unused
Capacity |
|||||||||
Bank facilities expiring February 2013 |
$ | 2,250 | $ | | $ | 2,250 | ||||||
Bank facilities expiring February 2015 |
2,250 | 101 | 2,149 | |||||||||
Total |
$ | 4,500 | $ | 101 | $ | 4,399 | ||||||
In February 2011, the Company entered into a new four-year $2.25 billion bank facility with a syndicate of lenders. This facility, in combination with an existing facility that matures in 2013, is used to support commercial paper borrowings. The new bank facility allows the Company to issue up to $800 million of letters of credit, which if utilized, reduces available borrowings under this facility. As of April 2, 2011, $101 million of letters of credit had been issued under this facility. These bank facilities allow for borrowings at LIBOR-based rates plus a spread, which depends on the Companys public debt rating and can range from 0.33% to 4.50%.
The Company may use commercial paper borrowings up to the amount of its unused bank facilities, in conjunction with term debt issuance and operating cash flow, to retire or refinance other borrowings before or as they come due.
On December 1, 2010, the Company declared a $0.40 per share dividend ($756 million) related to fiscal 2010 for shareholders of record on December 13, 2010, which was paid on January 18, 2011. The Company paid a $0.35 per share dividend ($653 million) during the second quarter of fiscal 2010 related to fiscal 2009.
During the six months ended April 2, 2011, the Company repurchased 42 million shares of its common stock for approximately $1.6 billion. On March 22, 2011, the Companys Board of Directors increased the repurchase authorization to a total of 400 million shares as of that date. As of April 2, 2011, the Company had remaining authorization in place to repurchase approximately 398 million additional shares. The repurchase program does not have an expiration date.
We believe that the Companys financial condition is strong and that its cash balances, other liquid assets, operating cash flows, access to debt and equity capital markets and borrowing capacity, taken together, provide adequate resources to fund ongoing operating requirements and future capital expenditures related to the expansion of existing businesses and development of new projects. However, the Companys operating cash flow and access to the capital markets can be impacted by macroeconomic factors outside of its control. In addition to macroeconomic factors, the Companys borrowing costs can be impacted by short- and long-term debt ratings assigned by independent rating agencies, which are based, in significant part, on the Companys performance as measured by certain credit metrics such as interest coverage and leverage ratios. As of April 2, 2011, Moodys Investors Services long- and short-term debt ratings for the Company were A2 and P-1, respectively, with stable outlook; Standard & Poors long- and short-term debt ratings for the Company were A and A-1, respectively, with stable outlook; and Fitchs long- and short-term debt ratings for the Company were A and F-1, respectively, with stable outlook. The Companys bank facilities contain only one financial covenant, relating to interest coverage, which the Company met on April 2, 2011, by a significant margin. The Companys bank facilities also specifically exclude certain entities, such as Euro Disney and Hong Kong Disneyland, from any representations, covenants or events of default.
Euro Disney has annual covenants under its debt agreements that limit its investment and financing activities and require it to meet certain financial performance covenants. Euro Disney was in compliance with these covenants for fiscal 2010.
40
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
COMMITMENTS AND CONTINGENCIES
Legal Matters
As disclosed in Note 11 to the Condensed Consolidated Financial Statements, the Company has exposure for certain legal matters.
Guarantees
See Note 11 to the Condensed Consolidated Financial Statements for information regarding the Companys guarantees.
Tax Matters
As disclosed in Note 10 to the Consolidated Financial Statements in the 2010 Annual Report on Form 10-K, the Company has exposure for certain tax matters.
Contractual Commitments
Refer to Note 15 in the Consolidated Financial Statements in the 2010 Annual Report on Form 10-K for information regarding the Companys contractual commitments.
OTHER MATTERS
Accounting Policies and Estimates
We believe that the application of the following accounting policies, which are important to our financial position and results of operations, require significant judgments and estimates on the part of management. For a summary of our significant accounting policies, including the accounting policies discussed below, see Note 2 to the Consolidated Financial Statements in the 2010 Annual Report on Form 10-K.
Film and Television Revenues and Costs
We expense film and television production, participation and residual costs over the applicable product life cycle based upon the ratio of the current periods revenues to the estimated remaining total revenues (Ultimate Revenues) for each production. If our estimate of Ultimate Revenues decreases, amortization of film and television costs may be accelerated. Conversely, if our estimate of Ultimate Revenues increase, film and television cost amortization may be slowed. For film productions, Ultimate Revenues include revenues from all sources that will be earned within ten years from the date of the initial theatrical release. For television series, Ultimate Revenues include revenues that will be earned within ten years from delivery of the first episode, or if still in production, five years from delivery of the most recent episode, if later.
With respect to films intended for theatrical release, the most sensitive factor affecting our estimate of Ultimate Revenues (and therefore affecting future film cost amortization and/or impairment) is domestic theatrical performance. Revenues derived from other markets subsequent to the domestic theatrical release (e.g., the home entertainment or international theatrical markets) have historically been highly correlated with domestic theatrical performance. Domestic theatrical performance varies primarily based upon the public interest and demand for a particular film, the popularity of competing films at the time of release and the level of marketing effort. Upon a films release and determination of domestic theatrical performance, the Companys estimates of revenues from succeeding windows and markets are revised based on historical relationships and an analysis of current market trends. The most sensitive factor affecting our estimate of Ultimate Revenues for released films is the extent of home entertainment sales achieved. Home entertainment sales vary based on the number and quality of competing home video products as well as the manner in which retailers market and price our products.
41
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
With respect to television series or other television productions intended for broadcast, the most sensitive factor affecting estimates of Ultimate Revenues is the programs rating and the strength of the advertising market. Program ratings, which are an indication of market acceptance, directly affect the Companys ability to generate advertising revenues during the airing of the program. In addition, television series with greater market acceptance are more likely to generate incremental revenues through the eventual sale of the program rights in the syndication, international and home entertainment markets. Alternatively, poor ratings may result in a television series cancellation, which would require the immediate write-off of any unamortized production costs. A significant decline in the advertising market would also negatively impact our estimates.
We expense the cost of television broadcast rights for acquired movies, series and other programs based on the number of times the program is expected to be aired or on a straight-line basis over the useful life, as appropriate. Amortization of those television programming assets being amortized on a number of airings basis may be accelerated if we reduce the estimated future airings and slowed if we increase the estimated future airings. The number of future airings of a particular program is impacted primarily by the programs ratings in previous airings, expected advertising rates and availability and quality of alternative programming. Accordingly, planned usage is reviewed periodically and revised if necessary. We amortize rights costs for multi-year sports programming arrangements during the applicable seasons based on the estimated relative value of each year in the arrangement. The estimated values of each year are based on our projection of revenues over the contract period which include advertising revenue and an allocation of affiliate revenue. If the annual contractual payments related to each season approximate each seasons relative value, we expense the related contractual payment during the applicable season. If planned usage patterns or estimated relative values by year were to change significantly, amortization of our sports rights costs may be accelerated or slowed.
Costs of film and television productions are subject to regular recoverability assessments which compare the estimated fair values with the unamortized costs. The net realizable values of television broadcast program licenses and rights are reviewed using a daypart methodology. A daypart is defined as an aggregation of programs broadcast during a particular time of day or programs of a similar type. The Companys dayparts are: daytime, late night, primetime, news, children, and sports (includes network and cable). The net realizable values of other cable programming assets are reviewed on an aggregated basis for each cable channel. Individual programs are written-off when there are no plans to air or sublicense the program. Estimated values are based upon assumptions about future demand and market conditions. If actual demand or market conditions are less favorable than our projections, film, television and programming cost write-downs may be required.
Revenue Recognition
The Company has revenue recognition policies for its various operating segments that are appropriate to the circumstances of each business. See Note 2 to the Consolidated Financial Statements in the 2010 Annual Report on Form 10-K as for a summary of these revenue recognition policies.
We reduce home entertainment and software product revenues for estimated future returns of merchandise and for customer programs and sales incentives. These estimates are based upon historical return experience, current economic trends and projections of customer demand for and acceptance of our products. If we underestimate the level of returns and concessions in a particular period, we may record less revenue in later periods when returns exceed the estimated amount. Conversely, if we overestimate the level of returns and concessions for a period, we may have additional revenue in later periods when returns and concessions are less than estimated.
We recognize revenues from advance theme park ticket sales when the tickets are used. For non-expiring, multi-day tickets, we recognize revenue over a three-year time period based on estimated
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
usage, which is derived from historical usage patterns. If actual usage is different than our estimated usage, revenues may not be recognized in the periods the related services are rendered. In addition, a change in usage patterns would impact the timing of revenue recognition.
Pension and Postretirement Medical Plan Actuarial Assumptions
The Companys pension and postretirement medical benefit obligations and related costs are calculated using a number of actuarial assumptions. Two critical assumptions, the discount rate and the expected return on plan assets, are important elements of expense and/or liability measurement which we evaluate annually. Refer to the 2010 Annual Report on Form 10-K for estimated impacts of changes in these assumptions. Other assumptions include the healthcare cost trend rate and employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation increase.
The discount rate enables us to state expected future cash payments for benefits as a present value on the measurement date. A lower discount rate increases the present value of benefit obligations and increases pension expense. The guideline for setting this rate is high-quality long-term corporate bond rates. The Companys discount rate was determined by considering the average of pension yield curves constructed of a large population of high quality corporate bonds. The resulting discount rate reflects the matching of plan liability cash flows to the yield curves.
To determine the expected long-term rate of return on the plan assets, we consider the current and expected asset allocation, as well as historical and expected returns on each plan asset class. A lower expected rate of return on pension plan assets will increase pension expense.
Goodwill, Intangible Assets, Long-Lived Assets and Investments
The Company is required to test goodwill and other indefinite-lived intangible assets for impairment on an annual basis and if current events or circumstances require, on an interim basis. Goodwill is allocated to various reporting units, which are generally an operating segment or one level below the operating segment. The Company compares the fair value of each reporting unit to its carrying amount to determine if there is potential goodwill impairment. If the fair value of a reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the fair value of the goodwill within the reporting unit is less than the carrying value of the goodwill.
To determine the fair value of our reporting units, we generally use a present value technique (discounted cash flow) corroborated by market multiples when available and as appropriate. We apply what we believe to be the most appropriate valuation methodology for each of our reporting units. The discounted cash flow analyses are sensitive to our estimates of future revenue growth and margins for these businesses. We include in the projected cash flows an estimate of the revenue we believe the reporting unit would receive if the intellectual property developed by the reporting unit that is being used by other reporting units was licensed to an unrelated third party at its fair market value. These amounts are not necessarily the same as those included in segment operating results. We believe our estimates of fair value are consistent with how a marketplace participant would value our reporting units.
In times of adverse economic conditions in the global economy, the Companys long-term cash flow projections are subject to a greater degree of uncertainty than usual. If we had established different reporting units or utilized different valuation methodologies or assumptions, the impairment test results could differ, and we could be required to record impairment charges.
The Company is required to compare the fair values of other indefinite-lived intangible assets to their carrying amounts. If the carrying amount of an indefinite-lived intangible asset exceeds its fair
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
value, an impairment loss is recognized. Fair values of other indefinite-lived intangible assets are determined based on discounted cash flows or appraised values, as appropriate.
The Company tests long-lived assets, including amortizable intangible assets, for impairment whenever events or changes in circumstances (triggering events) indicate that the carrying amount may not be recoverable. Once a triggering event has occurred, the impairment test employed is based on whether the intent is to hold the asset for continued use or to hold the asset for sale. The impairment test for assets held for use requires a comparison of cash flows expected to be generated over the useful life of an asset group against the carrying value of the asset group. An asset group is established by identifying the lowest level of cash flows generated by a group of assets that are largely independent of the cash flows of other assets and could include assets used across multiple businesses or segments. If the carrying value of the asset group exceeds the estimated undiscounted future cash flows, an impairment would be measured as the difference between the fair value of the groups long-lived assets and the carrying value of the groups long-lived assets. The impairment is allocated to the long-lived assets of the group on a pro rata basis using the relative carrying amounts, but only to the extent the carrying value of each asset is above its fair value. For assets held for sale, to the extent the carrying value is greater than the assets fair value less costs to sell, an impairment loss is recognized for the difference. Determining whether a long-lived asset is impaired requires various estimates and assumptions, including whether a triggering event has occurred, the identification of the asset groups, estimates of future cash flows and the discount rate used to determine fair values. If we had established different asset groups or utilized different valuation methodologies or assumptions, the impairment test results could differ, and we could be required to record impairment charges.
The Company has cost and equity investments. The fair value of these investments is dependent on the performance of the investee companies, as well as volatility inherent in the external markets for these investments. In assessing potential impairment of these investments, we consider these factors, as well as the forecasted financial performance of the investees and market values, where available. If these forecasts are not met or market values indicate an other-than-temporary decline in value, impairment charges may be required.
Allowance for Doubtful Accounts
We evaluate our allowance for doubtful accounts and estimate collectibility of accounts receivable based on our analysis of historical bad debt experience in conjunction with our assessment of the financial condition of individual companies with which we do business. In times of domestic or global economic turmoil, our estimates and judgments with respect to the collectibility of our receivables are subject to greater uncertainty than in more stable periods. If our estimate of uncollectible accounts is too low, costs and expenses may increase in future periods, and if it is too high, cost and expenses may decrease in future periods.
Contingencies and Litigation
We are currently involved in certain legal proceedings and, as required, have accrued estimates of the probable and estimable losses for the resolution of these claims. These estimates have been developed in consultation with outside counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially affected by changes in our assumptions or the effectiveness of our strategies related to these proceedings. See Note 11 to the Condensed Consolidated Financial Statements for information on litigation exposure.
Income Tax Audits
As a matter of course, the Company is regularly audited by federal, state and foreign tax authorities. From time to time, these audits result in proposed assessments. Our determinations regarding the recognition of income tax benefits are made in consultation with outside tax and legal
44
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
counsel where appropriate and are based upon the technical merits of our tax positions in consideration of applicable tax statutes and related interpretations and precedents and upon the expected outcome of proceedings (or negotiations) with taxing and legal authorities. The tax benefits ultimately realized by the Company may differ from those recognized in our financial statements based on a number of factors, including the Companys decision to settle rather than litigate a matter, relevant legal precedents related to similar matters and the Companys success in supporting its filing positions with taxing authorities.
New Accounting Pronouncements
See Note 12 to the Condensed Consolidated Financial Statements for information regarding new accounting pronouncements.
MARKET RISK
The Company is exposed to the impact of interest rate changes, foreign currency fluctuations, commodity fluctuations and changes in the market values of its investments.
Policies and Procedures
In the normal course of business, we employ established policies and procedures to manage the Companys exposure to changes in interest rates, foreign currencies, commodities, and the fair market value of certain investments in debt and equity securities using a variety of financial instruments.
Our objectives in managing exposure to interest rate changes are to limit the impact of interest rate volatility on earnings and cash flows and to lower overall borrowing costs. To achieve these objectives, we primarily use interest rate swaps to manage net exposure to interest rate changes related to the Companys portfolio of borrowings. By policy, the Company targets fixed-rate debt as a percentage of its net debt between minimum and maximum percentages.
Our objective in managing exposure to foreign currency fluctuations is to reduce volatility of earnings and cash flow in order to allow management to focus on core business issues and challenges. Accordingly, the Company enters into various contracts that change in value as foreign exchange rates change to protect the U.S. dollar equivalent value of its existing foreign currency assets, liabilities, commitments and forecasted foreign currency revenues and expenses. The Company utilizes option strategies and forward contracts that provide for the purchase or sale of foreign currencies to hedge probable, but not firmly committed, transactions. The Company also uses forward and option contracts to hedge foreign currency assets and liabilities. The principal foreign currencies hedged are the Euro, British pound, Japanese yen and Canadian dollar. Cross-currency swaps are used to effectively convert foreign currency denominated borrowings to U.S. dollar denominated borrowings. By policy, the Company maintains hedge coverage between minimum and maximum percentages of its forecasted foreign exchange exposures generally for periods not to exceed four years. The gains and losses on these contracts offset changes in the U.S. dollar equivalent value of the related exposures.
Our objectives in managing exposure to commodity fluctuations are to use commodity derivatives to reduce volatility of earnings and cash flows arising from commodity price changes. The amounts hedged using commodity swap contracts are based on forecasted levels of consumption of certain commodities, such as fuel, oil and gasoline.
It is the Companys policy to enter into foreign currency and interest rate derivative transactions and other financial instruments only to the extent considered necessary to meet its objectives as stated above. The Company does not enter into these transactions or any other hedging transactions for speculative purposes.
45
Item 3. Quantitative and Qualitative Disclosures about Market Risk. See Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures We have established disclosure controls and procedures to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and made known to the officers who certify the Companys financial reports and to other members of senior management and the Board of Directors as appropriate to allow timely decisions regarding required disclosure.
Based on their evaluation as of April 2, 2011, the principal executive officer and principal financial officer of the Company have concluded that the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective.
There have been no changes in our internal controls over financial reporting during the second quarter of fiscal 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
46
PART II. OTHER INFORMATION
ITEM 1. | Legal Proceedings |
Since our Form 10-Q filing for the quarter ended January 1, 2011, developments identified below occurred in the following legal proceedings.
Legal Matters
Celador International Ltd. v. The Walt Disney Company. On May 19, 2004, an affiliate of the creator and licensor of the television program, Who Wants to be a Millionaire , filed an action against the Company and certain of its subsidiaries, including American Broadcasting Companies, Inc. and Buena Vista Television, LLC, alleging it was damaged by defendants improperly engaging in certain intra-company transactions and charging merchandise distribution expenses, resulting in an underpayment to the plaintiff. On July 7, 2010, the jury returned a verdict for breach of contract against certain subsidiaries of the Company, awarding plaintiff damages of $269.4 million. The Company has stipulated with the plaintiff to an award of prejudgment interest of $50 million, which amount will be reduced prorata should the Court of Appeals reduce the damages amount. On December 21, 2010, the Companys alternative motions for a new trial and for judgment as a matter of law were denied. Although we cannot predict the ultimate outcome of this lawsuit, the Company believes the jurys verdict is in error and intends to vigorously pursue its position on appeal, notice of which was filed by the Company on January 14, 2011. On or about January 28, 2011, plaintiff filed a notice of cross-appeal. The Company has determined that it does not have a probable loss under the applicable accounting standard relating to probability of loss for recording a reserve with respect to this litigation and therefore has not recorded a reserve.
The Company, together with, in some instances, certain of its directors and officers, is a defendant or codefendant in various other legal actions involving copyright, breach of contract and various other claims incident to the conduct of its businesses. Management does not expect the Company to suffer any material liability by reason of these actions.
ITEM 1A. | Risk Factors |
The Private Securities Litigation Reform Act of 1995 (the Act) provides a safe harbor for forward-looking statements made by or on behalf of the Company. We may from time to time make written or oral statements that are forward-looking, including statements contained in this report and other filings with the Securities and Exchange Commission and in reports to our shareholders. All forward-looking statements are made on the basis of managements views and assumptions regarding future events and business performance as of the time the statements are made and the Company does not undertake any obligation to update its disclosure relating to forward looking matters. 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 Companys control, including: changes in domestic and global economic conditions, competitive conditions and consumer preferences; adverse weather conditions or natural disasters; health concerns; international, political or military developments; and technological developments. Such developments may affect travel and leisure businesses generally and may, among other things, affect the performance of the Companys 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 discussed in the 2010 Annual Report on Form 10-K under the Item 1A, Risk Factors.
A variety of uncontrollable events may reduce demand for our products and services, impair our ability to provide our products and services or increase the cost of providing our products and services.
Demand for our products and services, particularly our theme parks and resorts, is highly dependent on the general environment for travel and tourism. The environment for travel and tourism, as well as demand for other entertainment products, can be significantly adversely affected in the United States, globally or in specific
47
regions as a result of a variety of factors beyond our control, including: adverse weather conditions arising from short-term weather patterns or long-term climate change or natural disasters (such as excessive heat or rain, hurricanes and earthquakes); health concerns; international, political or military developments; and terrorist attacks. These events and others, such as fluctuations in travel and energy costs and computer virus attacks, intrusions or other widespread computing or telecommunications failures, may also damage our ability to provide our products and services or to obtain insurance coverage with respect to these events. In addition, we derive royalties from the sales of our licensed goods and services by third parties and the management of businesses operated under brands licensed from the Company, and we are therefore dependent on the successes of those third parties for that portion of our revenue. A wide variety of factors could influence the success of those third parties and if negative factors significantly impacted a sufficient number of our licensees, that could adversely affect the profitability of one or more of our businesses. We obtain insurance against the risk of losses relating to some of these events, generally including physical damage to our property and resulting business interruption, certain injuries occurring on our property and liability for alleged breach of legal responsibilities. When insurance is obtained it is subject to deductibles, exclusions and caps. The types and levels of coverage we obtain vary from time to time depending on our view of the likelihood of specific types and levels of loss in relation to the cost of obtaining coverage for such types and levels of loss. The earthquake and tsunami in Japan in March 2011 has resulted in a period of suspension of our operations and those of certain of our licensees in Japan, including Tokyo Disney Resort. While we expect that some of the costs of this suspension may be covered by insurance, the extent of the costs of this suspension net of the insurance coverage cannot be determined at this time.
Labor disputes may disrupt our operations and adversely affect the profitability of any of our businesses.
A significant number of employees in various of our businesses are covered by collective bargaining agreements, including employees of our theme parks and resorts as well as writers, directors, actors, production personnel and others employed in our media networks and studio operations. In addition, the employees of licensees who manufacture and retailers who sell our consumer products, and employees of providers of programming content (such as sports leagues) may be covered by labor agreements with their employers. In general, a labor dispute involving our employees or the employees of our licensees or retailers who sell our consumer products or providers of programming content may disrupt our operations and reduce our revenues, and resolution of disputes may increase our costs.
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PART II. OTHER INFORMATION (continued)
ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
The following table provides information about Company purchases of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act during the quarter ended April 2, 2011 :
Period |
Total
Number of Shares Purchased (1) |
Weighted
Average Price Paid per Share |
Total Number of
Shares Purchased as Part of Publicly Announced Plans or Programs |
Maximum
|
||||||||||
January 2, 2011 January 31, 2011 |
5,069,068 | $ | 38.93 | 4,652,000 | 72 million | |||||||||
February 1, 2011 February 28, 2011 |
3,857,165 | 41.75 | 3,780,700 | 68 million | ||||||||||
March 1, 2011 April 2, 2011 |
11,106,553 | 42.33 | 11,011,000 | 398 million | ||||||||||
Total |
20,032,786 | 41.36 | 19,443,700 | 398 million | ||||||||||
(1) |
589,086 shares were purchased on the open market to provide shares to participants in the Walt Disney Investment Plan (WDIP) and Employee Stock Purchase Plan (ESPP). These purchases were not made pursuant to a publicly announced repurchase plan or program. |
(2) |
Under a share repurchase program implemented effective June 10, 1998, the Company is authorized to repurchase shares of its common stock. On March 22, 2011, the Companys Board of Directors increased the repurchase authorization to a total of 400 million shares as of that date. The repurchase program does not have an expiration date. |
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ITEM 5. Other Information
On May 5, 2011, effective January 2, 2012, the Company amended its Amended and Restated Key Employees Deferred Compensation and Retirement Plan (the Key Plan) and the Amended and Restated Benefit Equalization Plan of ABC, Inc. (the ABC BEP). Those plans provide additional retirement benefits for salaried employees in excess of the compensation limitations and maximum benefit accruals under two of the tax-qualified defined benefit retirement plans offered by the Company, and the amendments were adopted concurrent with changes in those two Company tax-qualified defined benefit retirement plans.
The Company currently maintains the Disney Salaried Retirement Plan (the Salaried Plan), for salaried employees of the Company and certain subsidiaries, and the ABC, Inc. Retirement Plan (the ABC Plan) for employees of ABC, Inc. and certain other subsidiaries of the Company. Benefits under these two plans are based in part on a percentage of average monthly compensation multiplied by years of credited service. For service years prior to January 1, 2012, average monthly compensation under the Salaried Plan excludes overtime, commissions and regular bonus, while average monthly compensation under the ABC Plan includes overtime, commissions and regular bonus; both plans exclude equity compensation and other similar forms of compensation.
Pursuant to amendments to the Salaried Plan and the ABC Plan adopted concurrent with the amendments to the Key Plan and the ABC BEP, the Company reduced the percentage of average monthly compensation in the formula on which benefits are based in both the Salaried Plan and the ABC Plan to 1.25% and added overtime, commissions and regular bonus amounts to the calculation of average monthly compensation under the Salaried Plan, in each case for compensation received beginning January 1, 2012. As a result, the percentage of average monthly compensation used in the formulas for calculating benefits in both the Key Plan and the ABC BEP (which incorporate the terms of the Salaried Plan and the ABC Plan, respectively, in this regard) were also reduced to 1.25%, and overtime, commissions and regular bonus amounts were added to the calculation of average monthly compensation under the Key Plan, again beginning January 1, 2012. In addition, the Key Plan and the ABC BEP also recognized equity compensation paid in lieu of bonus. The amendments to the Salaried Plan, the Key Plan, the ABC Plan and the ABC BEP, also provide that employees who begin service with the Company on or after January 1, 2012 will not receive benefits under these plans, and the Company intends to provide benefits under new defined contribution plans for employees who begin service on or after January 1, 2012.
In addition, amendments to the Key Plan and the ABC BEP provide that, starting on January 1, 2017, average annual compensation used for calculating benefits under the plans for any participant will be capped at the greater of $1,000,000 and the participants average annual compensation determined as of January 1, 2017. The amendments to the Key Plan and the ABC BEP also provide that the total benefits payable under the plans to participants who are executive officers at the time of their retirement or within at least one complete fiscal year preceding their retirement shall not be greater than the benefits they would have received if the plans had not been amended.
The Amended Key Plan and the Amended BEP are attached as Exhibits 10.5 and 10.6 respectively to this Report and are incorporated herein by reference.
The Company has also adopted new forms of stock option and restricted stock unit award agreements. The new forms refer to the Companys 2011 Stock Incentive Plan and add provisions related to data privacy. The restricted stock unit awards also specify that satisfaction of performance tests pursuant to Section 162(m) will be waived in certain circumstances if the recipient is not subject to Section 162(m) at the time of vesting. The option awards provide that, if an award was granted at least one year before termination of employment, options will continue to vest and will remain exercisable until the earlier of five years after the date of termination of employment or the scheduled expiration of the award if the executives employment terminates for reasons other than death or cause and if either at the date of termination or, if the terms of the participants employment agreement provide for continued vesting following termination, at the expiration of the regular term of the participants employment agreement the participant is age 60 or greater and has at least ten years of service. The prior forms extended vesting and exercisability for three years after the date of termination of employment. The new forms are attached as Exhibits 10.2, 10.3 and 10.4 to this Report and are incorporated herein by reference.
ITEM 6. Exhibits
See Index of Exhibits.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
THE WALT DISNEY COMPANY |
||
(Registrant) | ||
By: |
/s/ JAMES A. RASULO |
|
James A. Rasulo, Senior Executive Vice President and Chief Financial Officer |
May 10, 2011
Burbank, California
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INDEX OF EXHIBITS
Number and Description of Exhibit (Numbers Coincide with Item 601 of Regulation S-K) |
Document Incorporated by Reference from a Previous Filing or Filed Herewith, as Indicated below |
|||
10.1 | The 2011 Stock Incentive Plan | Incorporated herein by reference to Annex A to Proxy Statement for the 2011 annual meeting of the Registrant | ||
10.2 | Form of Performance-Based Stock Unit Award Agreement (Section 162(m) Vesting Requirement) | Filed herewith | ||
10.3 | Form of Performance-Based Stock Unit Award Agreement (Three-Year Vesting subject to Total Shareholder Return/EPS Growth Tests/Section 162(m) Vesting Requirement) | Filed herewith | ||
10.4 | Form of Non-Qualified Stock Option Award Agreement | Filed herewith | ||
10.5 | The Amended and Restated The Walt Disney Productions and Associated Companies Key Employees Deferred Compensation and Retirement Plan | Filed herewith | ||
10.6 | The Amended and Restated Benefit Equalization Plan of ABC, Inc. | Filed herewith | ||
31.1 | Rule 13a-14(a) Certification of Chief Executive Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 | Filed herewith | ||
31.2 | Rule 13a-14(a) Certification of Chief Financial Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 | Filed herewith | ||
32.1 | Section 1350 Certification of Chief Executive Officer of the Company in accordance with Section 906 of the Sarbanes-Oxley Act of 2002* | Furnished | ||
32.2 | Section 1350 Certification of Chief Financial Officer of the Company in accordance with Section 906 of the Sarbanes-Oxley Act of 2002* | Furnished | ||
101 | The following materials from the Companys Quarterly Report on Form 10-Q for the quarter ended April 2, 2011 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Cash Flows, (iv) the Condensed Consolidated Statements of Equity and (v) related notes | Furnished |
* A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
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Exhibit 10.2
THE WALT DISNEY COMPANY
Performance-Based
Stock Unit Award
(Section 162(m) Vesting Requirement)
AWARD AGREEMENT, dated as of <DATED> between The Walt Disney Company, a Delaware corporation ( Disney ), and (the Participant ). This Award is granted on <GRANT DATE> (the Date of Grant ) by the Compensation Committee of the Disney Board of Directors (the Committee ) pursuant to the terms of the Amended and Restated 2002 Executive Performance Plan (the Plan ), and pursuant to the terms of the 2011 Stock Incentive Plan (the Stock Plan ). The applicable terms of the Plan and the Stock Plan are incorporated herein by reference, including the definitions of terms contained therein.
Section 1. Stock Unit Award . Disney hereby grants to the Participant, on the terms and conditions set forth herein, an Award of <#STOCK UNITS> Stock Units . The Stock Units are notional units of measurement denominated in Shares of Disney (i.e. one Stock Unit is equivalent in value to one Share, subject to the terms hereof). The Stock Units represent an unfunded, unsecured obligation of Disney. The Stock Units granted by this Award are grouped into subdivisions referred to herein as Tranches , and each Tranche constitutes one quarter (25%) of the Award. Subject to the terms, conditions and Section 162(m) performance-based vesting requirements set forth herein, one Tranche will vest on each of the first, second, third and fourth anniversary dates, respectively, of the Date of Grant (any such anniversary date being a Scheduled Vesting Date ).
Section 2. Vesting Requirements . The vesting of this Award (other than pursuant to accelerated vesting in certain circumstances as provided in Section 3 below or vesting pursuant to Section 6 below) shall be subject to the satisfaction of the conditions set forth in subsections A and B of this Section 2:
A. Section 162(m) Vesting Requirement . This Award is subject to performance vesting requirements under this Section 2.A, with respect to all Tranches, based upon the achievement of the Performance Targets applicable to the Performance Periods which are set forth below, subject to certification of achievement of such Performance Targets by the Committee pursuant to Section 4.8 of the Plan. The respective Performance Targets (together with the Business Criteria with respect to such Performance Targets) shall be established by the Committee for each Tranche by no later than 90 days following the beginning of the Performance Period applicable to such Tranche. If the Performance Target for a Tranche is not satisfied, all of the Stock Units comprising such Tranche shall be immediately forfeited. For each of the Tranches of Stock Units granted hereunder the Performance Period shall be the last fiscal year (or a portion thereof) of Disney ending prior to the Scheduled Vesting Date of such Tranche.
1
B. Service Vesting Requirement . In addition to the performance vesting requirements of subsection A of this Section 2, the right of the Participant to receive payment of any Tranche of this Award shall become vested only if he or she remains continuously employed by Disney or an Affiliate thereof from the date hereof until the Scheduled Vesting Date of such Tranche; provided , however , that, nothing set forth herein shall be deemed to modify, qualify, or otherwise derogate from, the requirement of Section 4.8 of the Plan that the Committee certify in writing (which writing may be the approved minutes of the Committee) that the applicable Performance Targets of Section 2.A above have been satisfied prior to the payment of any amount to the Participant under this Award.
If the service vesting requirements of this Section 2.B are not satisfied for any Tranche or Tranches, the applicable number of Stock Units shall be immediately forfeited and the Participants rights with respect thereto shall cease.
All Stock Units for which all of the requirements of this Section 2 have been satisfied shall become vested and shall thereafter be payable in accordance with Section 5 hereof.
Section 3. Accelerated Vesting . Notwithstanding the terms and conditions of Section 2 hereof, upon the Participants death or disability (within the meaning of Section 409A of the Internal Revenue Code), or upon the occurrence of a Triggering Event within the 12-month period following a Change in Control in accordance with Section 11 of the Stock Plan as in effect as of the date of the Triggering Event (provided, in each case, that the Participant is employed by Disney (or an Affiliate) at the time of such death, disability or occurrence of a Triggering Event), this Award shall become fully vested and shall be payable in accordance with Section 5 hereof to the extent that it has not previously been forfeited.
Section 4. Dividend Equivalents . Any dividends paid in cash on Shares of Disney will be credited to the Participant as additional Stock Units as if the Stock Units previously held by the Participant were outstanding Shares, as follows: such credit shall be made in whole and/or fractional Stock Units and shall be based on the fair market value (as defined in the Stock Plan) of the Shares on the date of payment of such dividend. All such additional Stock Units shall be subject to the same vesting requirements applicable to the Stock Units in respect of which they were credited and shall be payable in accordance with Section 5 hereof.
Section 5. Payment of Award. Payment of vested Stock Units shall be made within 30 days following the later of:
(i) | the date as of which all of the applicable vesting requirements under Section 2 hereof shall have been satisfied for the applicable Tranche, or |
2
(ii) | the date of certification of achievement of the applicable Performance Targets by the Committee for the applicable Tranche, as required under Section 2.A hereof, |
or within 30 days following acceleration of vesting under Section 3 hereof, if applicable but in no event later than the later of (x) December 31 of the year in which the Scheduled Vesting Date occurs and (y) two and one-half months after the Scheduled Vesting Date occurs. The Stock Units shall be paid in cash or in Shares (or some combination thereof), as determined by the Committee in its discretion at the time of payment, and in either case shall be paid to the Participant after deduction of applicable minimum statutory withholding taxes.
Section 6. Extended Vesting based on Age and Service Years .
(a) In the event that Participants employment with Disney or an Affiliate thereof terminates for any reason other than death, disability or cause (as further provided in the Stock Plan) at a time when (i) the Participant has attained the age of sixty and has completed at least ten consecutive Service Years (as hereinafter defined) and (ii) at least one year has passed since the Date of Grant of this Award, then the remaining then unvested Tranches of this Award shall vest in accordance with the terms and provisions hereof in the same manner as if Participants employment had continued through the Scheduled Vesting Date, provided that all of the conditions to such vesting (other than the condition set forth in Section 2.B hereof), including without limitation the condition set forth in Section 2.A hereof, have been met; provided, however , that to the extent that the vesting of any Stock Units under this Award is subject to the achievement of performance condition(s) pursuant to Section 2.A hereof (which conditions were imposed under Disneys compensation practices and policies because the Participant was at the time of grant of this Award an executive officer of Disney who could have been a covered employee within the meaning of Section 162(m) at the time payment of this Award was expected to be made), and such performance condition(s) relate, in whole or in part, to any performance period continuing after the end of Disneys fiscal year in which the termination of Participants employment with Disney or an Affiliate thereof occurs, then such performance condition(s) set forth in Section 2.A hereof shall be waived with respect to any such vesting of Stock Units hereunder (and any similar performance conditions set forth in Section 2.A of any other Award of Stock Units granted to the Participant after January 1, 2010 shall also be waived), provided that this proviso shall not be applicable if and to the extent, in the reasonable opinion of tax counsel to Disney, the presence thereof would cause any Stock Units intended to be qualified as other performance based compensation within the meaning of Section 162(m) of the Internal Revenue Code to fail to be so qualified at any time prior to the termination of the Participants employment with Disney or any Affiliate thereof. For purposes of the foregoing, Service Year shall mean any calendar year during which the Participant was continuously employed by Disney or an Affiliate thereof for the entire calendar year. In determining the total number of consecutive Service Years that the Participant has been so employed, the Company shall apply such rules regarding the bridging of service as the Committee may adopt from time to time.
(b) Notwithstanding any other term or provision hereof, if at the time of termination of employment (other than upon the scheduled expiration date of an employment agreement) Participant is employed pursuant to an employment
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agreement with Disney or an Affiliate which provides under certain circumstances for the continued vesting of any Stock Units subject to this Award in the event of the termination of such employment agreement prior to its scheduled expiration date (a Contractual Extension Provision ), then, except as otherwise provided in such employment agreement, (i) this Section 6 shall be interpreted and applied in all respects as if Participant had remained continuously employed by Disney or an Affiliate thereof from the Date of Grant of this Award through the scheduled expiration date of such employment agreement and (ii) the date of termination of Participants employment for all purposes under this Section 6 shall be deemed to be the scheduled expiration date of such employment agreement.
Section 7. Restrictions on Transfer . Neither this Stock Unit Award nor any Stock Units covered hereby may be sold, assigned, transferred, encumbered, hypothecated or pledged by the Participant, other than to Disney as a result of forfeiture of the units as provided herein and as provided in Section 6 of the Plan. The Stock Units constitute Restricted Units as defined in Section 2.2 of the Plan.
Section 8. No Voting Rights. The Stock Units granted pursuant to this Award, whether or not vested, will not confer any voting rights upon the Participant, unless and until the Award is paid in Shares.
Section 9. Award Subject to Plans, Etc. This Stock Unit Award is subject to the terms of the Plan and the Stock Plan, the terms and provisions of which are hereby incorporated by reference. In the event of a conflict or ambiguity between any term or provision contained herein and a term or provision of the Plan or the Stock Plan, the Plan or the Stock Plan (as applicable) will govern and prevail.
Section 10. Changes in Capitalization . The Stock Units under this Award shall be subject to the provisions of the Stock Plan relating to adjustments for changes in corporate capitalization.
Section 11. Effect of Employment Agreement. If the Participant is employed pursuant to an employment agreement with Disney, any provisions thereof relating to the effect of a termination of the Participants employment upon his or her rights with respect to this Award, including, without limitation, any provisions regarding acceleration of vesting and/or payment of this Award in the event of termination of employment, shall be fully applicable and supersede any provisions hereof with respect to the same subject matter.
Section 12. No Right of Employment . Nothing in this Award Agreement shall confer upon the Participant any right to continue as an employee of Disney or an Affiliate nor interfere in any way with the right of Disney or an Affiliate to terminate the Participants employment at any time or to change the terms and conditions of such employment.
Section 13. Data Privacy. The Participant expressly authorizes and consents to the collection, possession, use, retention and transfer of personal data of the Participant, whether in electronic or other form, by and among Disney, its Affiliates, third-party administrator(s) and other possible recipients, in each case for the exclusive purpose of
4
implementing, administering, facilitating and/or managing the Participants Awards under, and participation in, the Plan and Stock Plan. Such personal data may include, without limitation, the Participants name, home address and telephone number, date of birth, Social Security Number, social insurance number or other identification number, salary, nationality, job title and other job-related information, tax information, the number of Disney shares held or sold by the Participant, and the details of all Awards (including any information contained in this Award and all Award-related materials) granted to the Participant, whether exercised, unexercised, vested, unvested, cancelled or outstanding ( Data ). The Participant acknowledges, understands and agrees that Data will be transferred to Merrill Lynch, which is assisting Disney with the implementation, administration and management of the Plan and Stock Plan, and/or to such other third-party plan administrator(s) and/or recipients as may be selected by Disney in the future. The Participant understands that one or more of the administrators or recipients of Data may be located in countries other than the country of Participants current residence, and that such other countries may have data privacy laws and protections different from, and less protective than, the laws and protections of the country of Participants current residence, the Member States of the European Union or any other country to which the Participant may be at any time relocated.
Section 14. Governing Law . This Award Agreement shall be construed and enforced in accordance with the laws of the State of Delaware, without giving effect to the choice of law principles thereof.
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5
Exhibit 10.3
THE WALT DISNEY COMPANY
Performance-Based
Stock Unit Award
(Three-Year Vesting subject to Total Shareholder Return/EPS Growth
Tests/Section 162(m) Vesting Requirement)
AWARD AGREEMENT, dated as of <DATED> between The Walt Disney Company, a Delaware corporation ( Disney ), and (the Participant ). This Award is granted on < GRANT DATE > (the Date of Grant ) by the Compensation Committee of the Disney Board of Directors (the Committee ) pursuant to the terms of the Amended and Restated 2002 Executive Performance Plan (the Plan ), and pursuant to the terms of the 2011 Stock Incentive Plan (the Stock Plan ). The applicable terms of the Plan and the Stock Plan are incorporated herein by reference, including the definitions of terms contained therein.
Section 1. Stock Unit Award . Disney hereby grants to the Participant, on the terms and conditions set forth herein, an Award for a target number of Stock Units of <# STOCK UNITS > (such target number of Stock Units, together with such number of additional whole or fractional Stock Unit(s), if any, as may from time to time be credited with respect thereto (as dividend equivalents) pursuant to Section 4 hereof, being referred to herein as the Target Award Amount ). The number of Stock Units which may be awarded hereunder is dependent upon the satisfaction of the conditions set forth herein and may range from no Stock Units to 150% of the Target Award Amount. The Stock Units are notional units of measurement denominated in Shares of Disney (i.e., one Stock Unit is equivalent in value to one Share, subject to the terms hereof). The Stock Units represent an unfunded, unsecured obligation of Disney.
Section 2. Vesting Requirements . The vesting of this Award (other than pursuant to accelerated vesting in certain circumstances as provided in Section 3 below or vesting pursuant to Section 6 below) shall be subject to the satisfaction of the conditions set forth in subsections A, B and C of this Section 2:
A. |
Total Shareholder Return/EPS Growth Test. The vesting of the Stock Units subject to this Award shall be conditioned upon the satisfaction of either (i) a performance vesting requirement based on Total Shareholder Return (as hereinafter defined) of Disney as compared to the Total Shareholder Returns of the S&P 500 Companies (as hereinafter defined) with respect to the three-year period ending on the Determination Date (as hereinafter defined), all as further provided below in Section 2.A(a) hereof (the TSR Performance Requirement ) OR (ii) under certain circumstances provided for below, a performance vesting requirement based upon the Disney Adjusted EPS Growth Rate (as defined below) as compared to the EPS Growth Rates of the S&P 500 Companies (subject to certain exclusions as hereinafter provided), all as further |
provided in Section 2.A(b) hereof (the EPS Growth Performance Requirement ). |
(a) |
Total Shareholder Return: Three-Year Test . In order for the TSR Performance Requirement to be satisfied pursuant to this Section 2.A(a) with respect to any Stock Units subject to this Award, the TSR Percentile (as hereinafter defined) of Disney must equal or exceed the TSR Percentile of 25.00% of the S&P 500 Companies (the S&P 25 th TSR Percentile ). If this requirement is met, the specific number of Stock Units subject to this Award which shall satisfy the TSR Performance Requirement shall be determined as follows: |
i. |
If the TSR Percentile of Disney is 25.00% (the S&P 25 th TSR Percentile ), then the number of Stock Units which shall satisfy the TSR Performance Requirement shall be 50% of the Target Award Amount. |
ii. |
If the TSR Percentile of Disney equals or exceeds the TSR Percentile of 75.00% of the S&P 500 Companies (the S&P 75 th TSR Percentile ), the number of Stock Units which shall satisfy the TSR Performance Requirement shall be 150% of the Target Award Amount. |
iii. |
If the TSR Percentile of Disney exceeds the S&P 25 th Percentile but is less than the S&P 75 th Percentile, the percentage of Stock Units as to which the TSR Performance Requirement shall have been satisfied shall be determined by multiplying the TSR Percentile of Disney by two. For example, if the TSR Percentile of Disney is 40.00%, then Stock Units equal to 80% of the Target Award Amount shall have satisfied the TSR Performance Requirement; if the TSR Percentile of Disney is 60.55%, then 121.10% of the Target Award Amount shall have satisfied the TSR Performance Requirement. |
For t h e purposes hereof, the terms set forth below shall have the following meanings:
Determination Date shall mean the date which precedes the Scheduled Vesting Date (as hereinafter defined) by one month. For example, for an Award vesting on a January 14 of any specified year, the Determination Date of such Award is December 14 of the prior year.
Total Shareholder Return shall mean an amount equal to the average of the total return figures for the three-year periods ending on the twenty (20) trading days referred to below as currently reported under
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Comparative Returns by Bloomberg L.P. ( Bloomberg ) (or any other reporting service that the Committee may designate from time to time):
(i) | for Disney (as such total return figures for Disney may be adjusted by the Committee, by no later than the Scheduled Vesting Date, to take into account any factors which the Committee has determined are not properly reflected in such reported figures) or |
(ii) | for any other S&P 500 Company, |
in each case for the twenty (20) latest trading days up to and (if the Determination Date is a trading day) including the Determination Date.
TSR Percentile shall mean the percentile ranking (which shall be carried out to two decimal points) as determined by Disney on the basis of the Total Shareholder Return figures reported by Bloomberg (or any other reporting service that the Committee may designate from time to time) for each of the S&P 500 Companies, including Disney (provided that in the case of Disney adjustments may be made by the Committee with respect to Total Shareholder Return as provided above).
S&P 500 Companies shall mean all of the companies which are listed on the Standard & Poors 500 Composite Index, including Disney, on the date which is three years and twenty (20) trading days prior to the Determination Date and which remain continuously listed on the Standard & Poors 500 Composite Index through and including the Determination Date; provided however, that for the purposes hereof the Standard & Poors 500 Composite Index shall be deemed to include companies that were removed therefrom during the measurement period but that continued during the entire measurement period to have their shares listed on at least one of the NYSE, NASDAQ, American Stock Exchange, Boston Stock Exchange, Chicago Stock Exchange, National Stock Exchanged (formerly Cincinnati Stock Exchange), NYSE Arca (formerly known as the Pacific Stock Exchange), Philadelphia Stock Exchange or any other exchange(s) that the Committee may designate from time to time.
(b) |
EPS Growth Test . If the Award will not vest, or shall not have vested, on the Scheduled Vesting Date with respect to at least 100% of the Target Award Amount by reason of the non-satisfaction of any vesting requirement set forth above in Section 2.A(a) hereof, then the Committee shall, no later than the Scheduled Vesting Date, determine whether or not the Disney Adjusted EPS Growth Rate (as defined below) for the twelve (12) fiscal quarters reported on or before the Determination Date equals or exceeds the EPS Growth Rate (as |
3
defined below) of 50% of the S&P 500 Companies over the same period (the S&P 50 th Percentile for Average Annualized EPS Growth Rate ). If the Committee determines that the Disney Adjusted EPS Growth Rate for such period is equal to or greater than the S&P 50 th Percentile for EPS Growth Rate, then the percentage of the Target Award Amount of Stock Units which shall satisfy the performance requirement of this Section 2.A(b) (the EPS Growth Performance Requirement ) shall be 50%, unless the TSR Percentile of Disney determined pursuant to Section 2.A(a) above shall be greater than or equal to 25.00%, in which case the percentage of the Target Award Amount of Stock Units which shall satisfy the EPS Growth Performance Requirement shall be equal to the TSR Percentile of Disney plus 50 (it being understood for the avoidance of doubt that the percentage of the Target Award Amount of the Stock Units vesting hereunder by operation of the EPS Growth Performance Requirement cannot under any circumstances exceed 100%). Thus, for example, if the TSR Percentile for Disney determined pursuant to Section 2.A(a) above is 5.50% and the EPS Growth Performance Requirement is satisfied, then 50% of the Target Award Amount of Stock Units shall satisfy the EPS Growth Performance Requirement, and if the TSR Percentile of Disney is 37.50%, then 87.50% of the Target Award Amount of Stock Units shall satisfy the EPS Growth Performance Requirement. |
For the purposes hereof, the terms set forth below shall have the following meanings:
Disney Adjusted EPS Growth Rate shall mean the compound annual growth rate of the Disney Adjusted EPS (as defined below) for the twelve (12) fiscal quarters of Disney ended immediately prior to the Determination Date for which financial results have been filed with the Securities and Exchange Commission on a Form 10-Q or Form 10-K (the Disney EPS Growth Performance Period ). For the avoidance of doubt, the Disney Adjusted EPS Growth Rate shall be calculated on the basis of the Disney Adjusted EPS for the four fiscal quarters prior to the Disney EPS Growth Performance Period as compared to Disney Adjusted EPS for the final four quarters of the Disney EPS Growth Performance Period.
Disney Adjusted EPS shall mean the EPS of Disney, after such adjustments thereto as the Committee deems appropriate in its sole discretion (i) to exclude the effect of extraordinary, unusual and/or nonrecurring items and (ii) to reflect such other factors as the Committee deems appropriate to fairly reflect earnings per share growth.
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EPS Growth Rate shall mean the compound annual growth rate of EPS (as defined below) for the twelve (12) most recent fiscal quarters ended immediately prior to the Determination Date (the S&P 500 EPS Growth Performance Period ) as determined on the basis of EPS reported on or prior to the Determination Date by Bloomberg (or any other reporting service that the Committee may designate from time to time) for any of the S&P 500 Companies other than (i) Disney and (ii) any S&P 500 Company with negative EPS (as reported by Bloomberg or any other reporting service that the Committee may designate from time to time) for the four fiscal quarters (in the aggregate) prior to the S&P 500 EPS Growth Performance Period (unless otherwise provided by the Committee on a case by case basis) (the EPS for any such four quarters (whether or not negative) being referred to herein as the Starting EPS ). For the avoidance of doubt, the EPS Growth Rate of any S&P 500 Company shall be calculated on the basis of the Starting EPS of such company as compared to its EPS for the final four quarters of the S&P 500 EPS Growth Performance Period.
EPS shall mean the diluted earnings per share from continuing operations for any company for a specified period as reported by Bloomberg (or any other reporting service that the Committee may designate from time to time).
(c) | Satisfaction of Section 2.A Vesting Requirement. In the event that the EPS Growth Performance Requirement has been satisfied in accordance with Section 2.A(b) hereof with respect to any number of Stock Units, then such number of Stock Units shall be deemed to have satisfied the performance vesting requirement of this Section 2.A in lieu of any lesser number of Stock Units determined to have satisfied the TSR Performance Requirement pursuant to Section 2.A(a). In the event that the EPS Growth Performance Requirement is not satisfied or is not required to be applied pursuant to Section 2.A(b) hereof, the number of Stock Units, if any, which shall satisfy the performance vesting requirement of this Section 2.A shall be the number of Stock Units determined pursuant to Section 2.A(a) hereof. For the avoidance of doubt regarding the application of the TSR Performance Requirement and the EPS Growth Performance Requirement, the following example ranges of results are given: |
(i) |
If the TSR Percentile of Disney is less than the S&P 25 th TSR |
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Percentile, and the EPS Growth Performance Requirement is not met, the number of Stock Units vesting is zero.
(ii) |
If the TSR Percentile of Disney is less than the S&P 25 th TSR Percentile and the EPS Growth Performance Requirement is met, the percentage of Stock Units vesting is 50% of the Target Award Amount. |
(iii) |
If the TSR Percentile of Disney is equal to or greater than the S&P 25 th TSR Percentile but less than 50.00%, and the EPS Growth Performance Requirement is not met, the percentage of the Target Award Amount vesting is equal to the TSR Percentile of Disney multiplied by two. |
(iv) |
If the TSR Percentile of Disney is equal to or greater than the S&P 25 th TSR Percentile but less than 50.00%, and the EPS Growth Performance Requirement is met, then the percentage of the Target Award Amount vesting is equal to the TSR Percentile of Disney plus 50. |
(v) | If the TSR Percentile of Disney is equal to or greater than 50.00% but less than 75.00%, then the EPS Growth Performance Requirement is not applicable, then the percentage of the Target Award Amount vesting is equal to the TSR Percentile of Disney multiplied by two. |
(vi) | If the TSR Percentile of Disney is equal to or greater than 75.00%, then the EPS Growth Performance Requirement is not applicable and the percentage of Stock Units vesting is equal to 150% of the Target Award Amount. |
B. | Section 162(m) Vesting Requirement . This Award shall also be subject to additional performance vesting requirements under this Section 2.B with respect to all Stock Units subject to this Award, based upon the achievement of the Performance Target applicable to the Performance Period set forth below, and subject to certification of achievement of such Performance Target by the Committee pursuant to Section 4.8 of the Plan. The Performance Target (together with the Business Criteria with respect to such Performance Target) shall be established by the Committee by no later than 90 days following the beginning of the Performance Period applicable to this Award. If the Performance Target is not satisfied, all of the Stock Units subject to this Award shall be immediately forfeited. The Performance Period for this Award shall be the last fiscal year of Disney to be completed prior to the Scheduled Vesting Date. |
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C. | Service Vesting Requirement. In addition to the performance vesting requirements of subsections A and B of this Section 2, the right of the Participant to receive payment of this Award shall become vested only if he or she remains continuously employed by Disney or an Affiliate from the date hereof until the Scheduled Vesting Date; provided , however , that nothing set forth herein shall be deemed to modify, qualify, or otherwise derogate from, the requirement of Section 4.8 of the Plan that the Committee certify in writing (which writing may be the approved minutes of the Committee) that the Performance Target of Section 2.B above has been achieved prior to the payment of any amount to the Participant under this Award. |
If the service vesting requirements of this Section 2.C are not satisfied, all of the Stock Units subject to this Award shall be immediately forfeited and the Participants rights with respect thereto shall cease.
All Stock Units for which all of the requirements of this Section 2 have been satisfied shall become vested and shall thereafter be payable in accordance with Section 5 hereof. Subject to the terms, conditions and performance-based vesting requirements set forth herein, the Stock Units subject to this Award will vest on the third anniversary date of the Date of Grant (the Scheduled Vesting Date ).
Section 3. Accelerated Vesting . Notwithstanding the terms and conditions of Section 2 hereof, upon the Participants death or disability (within the meaning of Section 409A of the Internal Revenue Code), or upon the occurrence of a Triggering Event within the 12-month period following a Change in Control in accordance with Section 11 of the Stock Plan as in effect as of the date of the Triggering Event (any of the foregoing being an Accelerating Event ) (provided, in each case, that the Participant is employed by Disney (or an Affiliate) at the time of such Accelerating Event), this Award shall become fully vested with respect to the Target Award Amount of Stock Units; provided, however, that notwithstanding the foregoing, if such Accelerating Event shall have occurred after the Determination Date but before the Scheduled Vesting Date, then the number of Stock Units which shall become fully vested shall be determined on the same basis as if the Participant had been continuously employed by Disney (or an Affiliate) until the Scheduled Vesting Date and shall be payable in accordance with Section 5 hereof to the extent that it has not previously been forfeited.
Section 4. Dividend Equivalents . Any dividends paid in cash on Shares of Disney will be credited to the Participant with respect to the Target Award Amount of Stock Units as additional Stock Units as if the Stock Units previously held by the Participant were outstanding Shares, as follows: such credit shall be made in whole
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and/or fractional Stock Units on the Target Award Amount as in effect at the time of such crediting and shall be based on the fair market value (as defined in the Stock Plan) of the Shares on the date of payment of such dividend. All such additional Stock Units shall be subject to the same vesting requirements applicable to the Target Award Amount of Stock Units in respect of which they were credited and shall be payable in accordance with Section 5 hereof.
Section 5. Payment of Award . Payment of vested Stock Units shall be made within 30 days following the later of:
(i) | the date as of which all of the vesting requirements under Section 2 hereof shall have been satisfied, or |
(ii) | the date of certification of achievement of the Performance Target by the Committee, as required under Sections 2.B and 2.C hereof, |
(or within 30 days following acceleration of vesting under Section 3 hereof, if applicable) but in no event later than the later of (x) December 31 of the year in which the scheduled vesting date occurs and (y) two and one-half months after the Scheduled Vesting Date occurs. The Stock Units shall be paid in cash or in Shares (or some combination thereof), as determined by the Committee in its discretion at the time of payment, and in either case shall be paid to the Participant after deduction of applicable minimum statutory withholding taxes.
Section 6. Extended Vesting based on Age and Service Years .
(a) In the event that Participants employment with Disney or an Affiliate thereof terminates for any reason other than death, disability or cause (as further provided in the Stock Plan) at a time when (i) the Participant has attained the age of sixty and has completed at least ten consecutive Service Years (as hereinafter defined) and (ii) at least one year has passed since the Date of Grant of this Award, then this Award shall vest in accordance with its terms and provisions in the same manner as if Participants employment had continued through the Scheduled Vesting Date, provided that all of the conditions to such vesting (other than the condition set forth in Section 2.C hereof), including without limitation the conditions set forth in Sections 2.A and 2.B hereof, have been met; provided, however , that to the extent that the vesting of any Stock Units under this Award is subject to the achievement of performance condition(s) pursuant to Section 2.B hereof (which conditions were imposed under Disneys compensation practices and policies because the Participant was at the time of grant of this Award an executive officer of Disney who could have been a covered employee within the meaning of Section 162(m) at the time payment of this Award was expected to be made), and such performance condition(s) relate, in whole or in part, to any performance period continuing after the end of Disneys fiscal year in which the termination of Participants employment with Disney or an Affiliate thereof occurs, then such performance condition(s) set forth in Section 2.B hereof shall be waived with respect to any such vesting of Stock Units hereunder (and any similar performance conditions set forth in Section 2.B of any other Award of Stock Units granted to the Participant after January 1, 2010 shall also be waived), provided that this proviso shall not be applicable if and to the extent, in the reasonable opinion of tax counsel to Disney, the presence thereof would cause any Stock Units intended to
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be qualified as other performance based compensation within the meaning of Section 162(m) of the Internal Revenue Code to fail to be so qualified at any time prior to the termination of the Participants employment with Disney or any Affiliate thereof. For purposes of the foregoing, Service Year shall mean any calendar year during which the Participant was continuously employed by Disney or an Affiliate thereof for the entire calendar year. In determining the total number of consecutive Service Years that the Participant has been so employed, the Company shall apply such rules regarding the bridging of service as the Committee may adopt from time to time.
(b) Notwithstanding any other term or provision hereof, if at the time of termination of employment (other than upon the scheduled expiration date of an employment agreement) Participant is employed pursuant to an employment agreement with Disney or an Affiliate which provides under certain circumstances for the continued vesting of any Stock Units subject to this Award in the event of the termination of such employment agreement prior to its scheduled expiration date (a Contractual Extension Provision ), then, except as otherwise provided in such employment agreement, (i) this Section 6 shall be interpreted and applied in all respects as if Participant had remained continuously employed by Disney or an Affiliate thereof from the Date of Grant of this Award through the scheduled expiration date of such employment agreement and (ii) the date of termination of Participants employment for all purposes under this Section 6 shall be deemed to be the scheduled expiration date of such employment agreement.
Section 7. Restrictions on Transfer . Neither this Stock Unit Award nor any Stock Units covered hereby may be sold, assigned, transferred, encumbered, hypothecated or pledged by the Participant, other than to Disney as a result of forfeiture of the units as provided herein and as provided in Section 6 of the Plan. The Stock Units constitute Restricted Units as defined in Section 2.2 of the Plan.
Section 8. No Voting Rights . The Stock Units granted pursuant to this Award, whether or not vested, will not confer any voting rights upon the Participant, unless and until the Award is paid in Shares.
Section 9. Award Subject to Plans, Etc . This Stock Unit Award is subject to the terms of the Plan and the Stock Plan, the terms and provisions of which are hereby incorporated by reference. In the event of a conflict or ambiguity between any term or provision contained herein and a term or provision of the Plan or the Stock Plan, the Plan or the Stock Plan (as applicable) will govern and prevail.
Section 10. Changes in Capitalization . The Stock Units under this Award shall be subject to the provisions of the Stock Plan relating to adjustments for changes in corporate capitalization.
Section 11. Effect of Employment Agreement. If the Participant is employed pursuant to an employment agreement with Disney, any provisions thereof relating to the effect of a termination of the Participants employment upon his or her rights with respect to this Award, including, without limitation, any provisions regarding acceleration of vesting and/or payment of this Award in the event of termination of employment, shall be
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fully applicable and supersede any provisions hereof with respect to the same subject matter.
Section 12. No Right of Employment . Nothing in this Award Agreement shall confer upon the Participant any right to continue as an employee of Disney or an Affiliate or interfere in any way with the right of Disney or an Affiliate to terminate the Participants employment at any time or to change the terms and conditions of such employment.
Section 13. Data Privacy . The Participant expressly authorizes and consents to the collection, possession, use, retention and transfer of personal data of the Participant, whether in electronic or other form, by and among Disney, its Affiliates, third-party administrator(s) and other possible recipients, in each case for the exclusive purpose of implementing, administering, facilitating and/or managing the Participants Awards under, and participation in, the Plan and Stock Plan. Such personal data may include, without limitation, the Participants name, home address and telephone number, date of birth, Social Security Number, social insurance number or other identification number, salary, nationality, job title and other job-related information, tax information, the number of Disney shares held or sold by the Participant, and the details of all Awards (including any information contained in this Award and all Award-related materials) granted to the Participant, whether exercised, unexercised, vested, unvested, cancelled or outstanding ( Data ). The Participant acknowledges, understands and agrees that Data will be transferred to Merrill Lynch, which is assisting Disney with the implementation, administration and management of the Plan and Stock Plan, and/or to such other third-party plan administrator(s) and/or recipients as may be selected by Disney in the future. The Participant understands that one or more of the administrators or recipients of Data may be located in countries other than the country of Participants current residence, and that such other countries may have data privacy laws and protections different from, and less protective than, the laws and protections of the country of Participants current residence, the Member States of the European Union or any other country to which the Participant may be at any time relocated.
Section 14. Governing Law . This Award Agreement shall be construed and enforced in accordance with the laws of the State of Delaware, without giving effect to the choice of law principles thereof.
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Exhibit 10.4
THE WALT DISNEY COMPANY
Non-Qualified Stock Option Award Agreement
This AWARD AGREEMENT (the Agreement) is between you, Participant Name , and The Walt Disney Company (Disney), in connection with the Non-Qualified Stock Option Award (the Option) granted to you on Grant Date , by the Compensation Committee of the Board of Directors of Disney pursuant to the terms of the 2011 Stock Incentive Plan (the Plan), the applicable terms and conditions of which are incorporated herein by reference and made a part of this Agreement.
This Option gives you the opportunity to purchase #### shares of Common Stock of The Walt Disney Company at an exercise price of $Option Price per share. The exercise price is the average of the highest and the lowest market prices for the Common Stock on the above grant date as determined pursuant to the Plan.
This Option may not be exercised before First Vest Date. On or after that date, subject to your continued employment by Disney or an affiliated company (as described further below) and to the other provisions of the Plan, you may exercise the Option with respect to the number of shares set forth opposite the first date below. As the subsequent dates set forth below occur, you may exercise as to the number of shares set forth opposite those dates:
Vest Date 1 Exercise Qty 1 Shares
Vest Date 2 Exercise Qty 2 Shares
Vest Date 3 Exercise Qty 3 Shares
Vest Date 4 Exercise Qty 4 Shares
Provided your employment continues, the term of this Option is ten years from the grant date and, therefore, expires on [insert tenth anniversary date of grant date]. If your employment should cease prior to the date on which your grant expires, your right to vest and exercise under the Option
will be subject to early termination as provided in Sections 6.5, 12 and 13.2 of the Plan. Except under certain circumstances specified in such Sections, you will generally have the right of continued vesting and exercisability for three months following the date of termination of your employment (such period as it may hereinafter be extended in certain circumstances as provided below being the Extended Vesting and Exercisability Period), and any shares that vest during the Extended Vesting and Exercisability Period will be exercisable during such period (or, under certain circumstances, for such longer period as may be provided by the Plan).
You may exercise this Option as to all or part of the number of shares covered by the Option which are then vested by paying the aggregate exercise price and applicable withholding taxes on the gross gain. You will be provided with additional information at the time of exercise about the methods available for exercising your Option and paying your withholding taxes, in accordance with the methods of exercising options permitted under Section 6.6 of the Plan. You are urged to seek advice from your tax accountant or attorney when making decisions regarding the exercise of this Option. This Option may not be transferred or assigned.
Notwithstanding any other term or provision hereof, you agree by acceptance of this Option that, except for certain shares (the Tax-Available Shares) that may be sold to pay taxes up to the Maximum Tax Liability (as defined below) upon an exercise of a portion of, or all of, this Option, you will hold, for not less than twelve months from the date of exercise of this Option, shares representing no less than [seventy-five percent (75%)] [one hundred percent (100%)] of the shares acquired by you (other than Tax-Available Shares) upon such exercise; provided, however, that the foregoing obligation to hold such shares (and any similar obligation in any non-qualified stock option award previously granted to you) shall not be applicable at any time when you are already holding shares of Common Stock of Disney (including any outstanding restricted stock units (with or without performance-based vesting conditions) awarded to you by with a value equal to at least [three] [five] times your base salary as in effect at such time (the Disney Stock Ownership Requirement). For purposes hereof the term Maximum Tax Liability shall mean the amount calculated by multiplying total income recognized, as reported by Disney for Federal income tax purposes, upon an exercise of this Option, by a percentage determined as follows:
2
FR + SR (100-FR) + MR
where:
FR = the highest Federal income tax rate in effect at time of exercise of the Option;
SR = the highest state income tax rate, if any, in effect at the time of exercise of the Option in the state where your principle Disney office is located; and
MR = the Medicare tax rate in effect at time of exercise of the Option.
The number of whole shares acquired upon any exercise of the Options that may be sold to discharge the Maximum Tax Liability shall be determined by dividing the Maximum Tax Liability by the fair market value (as defined in Section 2 of the Plan) of one share of Disney common stock on the date of exercise of the Option and disregarding any fractional amount resulting from such calculation.
For the purposes hereof, your commitment to hold the percentage of shares referred to above for not less than twelve months unless you are already in compliance with the Disney Stock Ownership Requirement shall constitute an undertaking by you not to sell, transfer, pledge, encumber, assign or otherwise dispose of, except for certain transfers to family members and certain others permitted with the prior approval of the Committee pursuant to Section 6.7 of the Plan, any of such shares during such period.
If you are employed pursuant to an employment agreement with Disney, any provisions thereof relating to the effect of a termination of your employment upon your rights with respect to this Option, including, without limitation, any provision regarding acceleration of this Option, shall be fully applicable and shall supersede the provisions hereof relating to the same subject matter, but in no event shall the restriction on sale of shares acquired upon the exercise of this Option referred herein apply after any termination of your employment with Disney.
3
In the event that your employment with Disney or an Affiliate thereof terminates for any reason other than death or cause (as further provided in the Plan) at a time when (i) you have attained the age of sixty and have completed at least ten consecutive Service Years (as hereinafter defined) and (ii) at least one year has passed since the Grant Date of this Option, then notwithstanding any other term or provision hereof, the Extended Vesting and Exercisability Period shall continue until the earlier of five years from the date of termination of your employment or the expiration date of this Option as provided above; provided, however, that in the event of your death during such period, all remaining unvested Tranches of this Option shall vest immediately upon such event and thereafter all remaining unexercised Tranches (or portions thereof) of this Option shall be exercisable until the earlier of the expiration of 18 months from date of death or the expiration date of this Option. For purposes of the foregoing, Service Year shall mean any calendar year during which you have been continuously employed by Disney or an Affiliate thereof for the entire calendar year. In determining the total number of consecutive Service Years that you have been so employed, the Company shall apply such rules regarding the bridging of service as the Committee may adopt from time to time.
Notwithstanding any other term or provision hereof, if you are employed pursuant to an employment agreement with Disney or an Affiliate which provides under certain circumstances for the continued vesting and/or exercisability of this Option in the event of the termination of such employment agreement prior to its scheduled expiration date (a Contractual Extension Provision ), then, except as otherwise expressly provided in such employment agreement, (i) this Option shall be interpreted and applied in all respects to have the same effect as if you had remained continuously employed by Disney or an Affiliate thereof from the Grant Date of this Option through the scheduled expiration date of such employment agreement and (ii) the date of termination of your employment for all purposes hereunder shall be deemed to be the scheduled expiration date of such employment agreement.
You expressly authorize and consent to the collection, possession, use, retention and transfer of your personal data, whether in electronic or other form, by and among Disney, its Affiliates, third-party administrator(s) and other possible recipients, in each case for the exclusive purpose of
4
implementing, administering, facilitating and/or managing your Awards under, and participation in, the Plan. Such personal data may include, without limitation, your name, home address and telephone number, date of birth, Social Security Number, social insurance number or other identification number, salary, nationality, job title and other job-related information, tax information, the number of Disney shares held or sold by you, and the details of all Awards (including any information contained in this Award and all Award-related materials) granted to you, whether exercised, unexercised, vested, unvested, cancelled or outstanding ( Data ). You acknowledge, understand and agree that Data will be transferred to Merrill Lynch, which is assisting Disney with the implementation, administration and management of the Plan, and/or to such other third-party plan administrator(s) and/or recipients as may be selected by Disney in the future. You understand that one or more of the administrators or recipients of Data may be located in countries other than the country of your current residence, and that such other countries may have data privacy laws and protections different from, and less protective than, the laws and protections of the country of your current residence, the Member States of the European Union or any other country to which you may be at any time relocated.
Please sign this Non-Qualified Stock Option Award Agreement where indicated below. Your signature acknowledges receipt of a copy of the Plan and evidences your agreement to be bound by all the terms and provisions of this Agreement and the Plan.
THE WALT DISNEY COMPANY | PARTICIPANT | |
By: |
By: |
|
(Signature of Participant) |
5
Exhibit 10.5
The Walt Disney Productions and
Associated Companies
Key Employees Deferred
Compensation and Retirement Plan
Amended and Restated
Effective as of January 1, 2012
Contents
Article 1. Introduction |
1 | |||
1.1 Background and History |
1 | |||
1.2 Restatement of Plan |
1 | |||
1.3 Purpose and Applicability of the Plan |
1 | |||
1.4 Status of the Plan |
1 | |||
Article 2. Definitions and Construction |
4 | |||
2.1 Definitions |
4 | |||
2.2 Gender and Number |
10 | |||
2.3 Headings |
11 | |||
2.4 Requirement to Be in Written Form |
11 | |||
2.5 Severability |
11 | |||
2.6 Applicable Law |
11 | |||
Article 3. Participation, Service and Vesting |
12 | |||
3.1 Participation |
12 | |||
3.2 Duration |
12 | |||
3.3 Transfers |
12 | |||
3.4 Vesting |
13 | |||
Article 4. Retirement Income |
14 | |||
4.1 Determination of Retirement Income |
14 | |||
4.2 Early Commencement of Retirement Income |
16 | |||
4.3 Late Commencement of Retirement Income |
16 | |||
Article 5. Distribution of Plan Benefits |
17 | |||
5.1 General |
17 | |||
5.2 Time of Payment |
17 | |||
5.3 Form of Payment |
17 | |||
5.4 Benefit Cash-out |
18 | |||
Article 6. Transfers, Rehires and Other Special Situations |
20 | |||
6.1 Effect and Applicability |
20 | |||
6.2 Code Section 409A Aggregation Rules |
20 | |||
6.3 No Duplication of Benefits |
20 | |||
6.4 Excess Accumulated Contribution Benefit |
21 | |||
6.5 Transfers from Nonaccount Plans |
23 | |||
6.6 Additional Retirement Income |
25 | |||
6.7 Permissible Delays or Accelerations |
26 |
i
Article 7. Pre-Commencement Death Benefit |
27 | |||
7.1 Amount of Pre-Commencement Death Benefit |
27 | |||
7.2 Time and Form of Payment for Pre-Commencement Death Benefit |
27 | |||
7.3 Beneficiary Determination |
27 | |||
7.4 Cash-Out Payment of Pre-Commencement Death Benefit |
28 | |||
Article 8. Financing and Administration |
29 | |||
8.1 Financing |
29 | |||
8.2 Plan Administrative Committee |
29 | |||
8.3 Duties of Committee |
29 | |||
8.4 Meetings |
30 | |||
8.5 Actions by the Committee |
30 | |||
8.6 Compensation and Bonding |
30 | |||
8.7 Establishment of Rules and Interpretation of Plan |
30 | |||
8.8 Limitation of Liability |
31 | |||
8.9 Indemnification |
31 | |||
8.10 Claims Procedures |
31 | |||
8.11 Limitation on Actions |
33 | |||
8.12 Class Action Forum |
34 | |||
8.13 Records |
35 | |||
Article 9. Amendment and Termination |
36 | |||
9.1 Amendments |
36 | |||
9.2 Termination of Plan |
36 | |||
9.3 Successors |
36 | |||
9.4 Prohibition on Changes Due to Code Section 409A |
37 | |||
9.5 Additional Participating Employers |
37 | |||
Article 10. Miscellaneous Provisions |
38 | |||
10.1 Good-Faith Valuation Binding |
38 | |||
10.2 Taxation |
38 | |||
10.3 Withholding |
38 | |||
10.4 Offset for Obligations to the Company or an Affiliate |
38 | |||
10.5 No Enlargement of Employment Rights |
38 | |||
10.6 Non-Alienation |
39 | |||
10.7 No Examination or Accounting |
39 | |||
10.8 Incompetency |
39 | |||
10.9 Notice of Address |
39 | |||
10.10 Data |
40 | |||
10.11 Service of Legal Process |
40 | |||
10.12 Qualified Military Service |
40 | |||
10.13 Counterparts |
40 |
ii
Section 1.1
Article 1. Introduction
1.1 Background and History
The Walt Disney Company (Company) previously established The Walt Disney Productions and Associated Companies Key Employees Deferred Compensation and Retirement Plan (Plan) to provide retirement income to certain employees and to equalize the benefits of employees participating in certain retirement plans, including the Disney Salaried Service Pension Plan and the Disney Salaried Supplemental Pension Plan, both of which have been merged into the Disney Salaried Pension Plan D (the Pension Plan) (formerly known as the Disney Salaried Retirement Plan). Effective as of January 1, 2009, the Company amended and restated the Plan to bring the Plan into compliance with Code section 409A and the final Treasury Regulations thereunder.
1.2 Restatement of Plan
Effective as of January 1, 2012, the Company hereby amends and restates the Plan to reflect changes required by the re-design of retirement benefits for salaried employees. The provisions of this restatement shall be effective as of January 1, 2012, except as specifically provided in this document. Nothing contained in this restatement shall be interpreted as amending any provision under the Key Plan Part I. (Capitalized terms with special meanings are defined in Article 2 of this Plan.)
1.3 Purpose and Applicability of the Plan
The Company desires to provide certain designated key management and highly compensated Employees with enhanced retirement benefits over and above those provided under the applicable portion(s) of the Pension Plan due to the application of the limits under Code sections 415 and 401(a)(17). The purpose of the Plan document is to set forth the terms and conditions pursuant to which these benefits are accrued and to describe the nature and extent of the employees rights to these accrued benefits.
Except as otherwise provided herein, the provisions of this Plan restatement are applicable only to Participants (other than Grandfathered Participants) who are Eligible Employees on or after January 1, 2012. Unless otherwise explicitly provided in this Plan restatement, the Plan provisions, operation and administration in effect prior to this restatement shall continue to govern the terms and conditions of the Plan prior to January 1, 2012 that apply to Participants (other than Grandfathered Participants) who are not Eligible Employees on or after January 1, 2012. The benefits of Grandfathered Participants shall be determined solely under the provisions of Key Plan Part I.
1.4 Status of the Plan
(a) |
Nonqualified Plan. The Plan is not qualified within the meaning of Code section 401(a). The Plan is intended to provide an unfunded and unsecured promise to pay money in the future and thus not to involve, pursuant to Treasury Regulations section 1.83-3(e), the transfer of property for purposes of Code section 83. Likewise, benefits credited under this Plan are not intended to confer an economic |
1
Section 1.4
benefit upon the Participant nor is the right to the receipt of future benefits under the Plan intended to result in any Participant, Beneficiary or alternate payee being in constructive receipt of any amount so as to result in any benefit due under the Plan being includible in the gross income of any Participant, Beneficiary or alternate payee in advance of the date on which payment of any benefit due under the Plan is actually made. For tax purposes and purposes of Title I of ERISA, the Plan is intended to be an unfunded, nonqualified deferred compensation plan covering certain designated employees who are within a select group of key management or highly compensated employees. |
(b) | Compliance with Code Section 409A. This Plan is intended to comply with Code section 409A and related regulatory guidance. Therefore, the Plan shall be administered and interpreted in a manner consistent with that purpose. The Committee shall have full authority to take any and all actions as it deems necessary or appropriate to carry out this intent and purpose of the Plan. |
(c) | Additional or Special Arrangements. Except as provided in the following sentence, the Committee, the Company, or any other Employer may, in its sole discretion, provide by a separate written agreement that the benefits payable to any individual who is also an Eligible Employee under the Plan shall be determined in accordance with the terms of the Plan, as the same may be modified in respect of that Eligible Employee under such agreement. No such agreement entered into on or after January 1, 2012 shall provide benefits for an individual unless the individual was, as of December 31, 2011, a Covered Employee as this term was defined in the Pension Plan on that date. Any such agreement may provide such Eligible Employee with additional years of service, credit for service with affiliated companies, a different vesting schedule, an individualized formula for the determination of such Eligible Employees benefit, or such other modification (which may constitute an enhancement or limitation) of the benefits provided hereby as the Committee, Company, or other Employer shall specify. Further, any separate agreement may provide for benefits which may be partially or wholly in addition to or in lieu of any benefits provided hereunder, and which may be greater, less than or equal to any benefits provided hereunder and any such benefits may or may not be calculated or otherwise determined by reference to the benefits provided by the Plan or by reference to, or by incorporation by reference of, any of the terms or provisions of the Plan. However, deferrals of compensation under this Plan and such other separate written agreement, if any, shall be aggregated with respect to the Eligible Employee to the extent required under Code section 409A and related regulations for purposes of assuring compliance with those rules. |
(d) |
No Guarantees of Intended Tax Treatment. The Plan shall be administered and interpreted so as to satisfy the requirements for the intended tax treatment under the Code described in this Plan section. However, the treatment of benefits earned under and benefits received from this Plan, for purposes of the Code and other applicable tax laws (such as state income and employment tax laws), shall be determined under |
2
Section 1.4
the Code and other applicable tax laws and no guarantee or commitment is made to any Participant, Beneficiary or alternate payee with respect to the treatment of accruals under or benefits payable from the Plan for purposes of the Code and other applicable tax laws. |
3
Section 2.1
Article 2. Definitions and Construction
2.1 Definitions
Whenever used in the Plan, the following terms shall have the respective meanings set forth below, unless otherwise expressly provided; and when the defined meaning is intended, the term is capitalized.
(a) | Actuarial Equivalent or Actuarially Equivalent means equality in the value of the aggregate amounts expected under different forms of payment, with adjustments to compensate for time or frequency of receipt, using the interest rates, mortality tables, and other actuarial assumptions and methods provided in the definition of Actuarial Equivalent under the Pension Plan that is applicable to the benefit when it is determined under this Plan. At any given time, |
(1) | The same actuarial assumptions and methods shall be used in valuing each annuity payment option, in determining whether the payments are actuarially equivalent; and |
(2) | Such assumptions and methods must be reasonable. |
(b) | Affiliate generally means any corporation or other entity that is required to be aggregated with the Company under Code sections 414(b) or (c). |
(c) | Beneficiary means: |
(1) | With respect to any Pre-Commencement Death Benefit, the person or persons designated by the Plan as entitled to receive such benefit, as determined under Plan section 7.3; and |
(2) | With respect to any Excess Accumulated Contribution Benefit, the person or persons designated by the Plan as entitled to receive such benefit, as determined under Plan section 6.4(c)(3). |
(d) | Benefit Calculation Date means the date as of which a benefit payable from this Plan is calculated and, unless otherwise explicitly provided, such date shall be: |
(1) | With respect to a Participant, the first day of the calendar month coincident with or next following the Payment Event; and |
(2) | With respect to a Beneficiary, the first day of the calendar month next following the Payment Event. |
(e) | Board means the Board of Directors of the Company. |
(f) |
Certain and Life Annuity means, for Payment Events occurring on or after January 1, 2012 (including a Payment Event for a Participant (other than a Grandfathered Participant) who is not an Eligible Employee on or after January 1, |
4
Section 2.1
2012), a monthly benefit that is the Actuarial Equivalent of a Participants Single Life Annuity and that is payable during the Participants lifetime with a guaranteed payment period during which monthly payments shall be made without regard to the Participants death. The last payment shall be made on the first day of the calendar month in which the Participants death occurs or, if later, the end of the guaranteed payment period. If the Participant dies prior to the end of the guaranteed payment period and is survived by the Joint/Contingent Annuitant, the Actuarial Equivalent present value of the remaining guaranteed payments shall be paid to the Joint/Contingent Annuitant in a single lump sum payment on the first day of the fourth calendar month next following the Participants death. If the Joint/Contingent Annuitant dies before the Participant and no new Joint/Contingent Annuitant has been designated at the Participants death, the Actuarial Equivalent present value of the remaining guaranteed payments shall be paid to the Participants estate in a single lump sum payment on the first day of the fourth calendar month next following the Participants death. |
(g) | Change in Control means an event described under paragraphs (1), (2), (3), (4) or (5) as follows: |
(1) | The acquisition within any 12-month period by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended) (a Person) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended) of thirty percent (30%) or more of the total voting power of the then outstanding stock of the Company entitled to vote generally in the election of directors, but excluding the following transactions (the Excluded Acquisitions): |
(A) | Any acquisition directly from the Company (other than an acquisition by virtue of the exercise of a conversion privilege of a security that was not acquired directly from the Company), |
(B) | Any acquisition by the Company, and |
(C) | Any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company; |
(2) | Any time during a period of 12 months or less, individuals who at the beginning of such period constitute the Board (and any new directors whose election by the Board or nomination for election by the Companys shareholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was so approved) ceasing for any reason to constitute a majority thereof; |
5
Section 2.1
(3) | An acquisition (other than an Excluded Acquisition) by any Person of fifty percent (50%) or more of the voting power or value of the Companys stock; |
(4) | The consummation of a merger, consolidation, reorganization or similar corporate transaction, whether or not the Company is the surviving company in such transaction, other than a merger, consolidation, or reorganization that would result in the Persons who are beneficial owners of the Companys stock outstanding immediately prior thereto continuing to beneficially own, directly or indirectly, in substantially the same proportions, at least fifty percent (50%) of the combined voting power or value of the Companys stock (or the stock of the surviving entity) outstanding immediately after such merger, consolidation or reorganization; or |
(5) | The sale or other disposition during any 12-month period of all or substantially all of the assets of the Company, provided that such sale is of assets having a total gross fair market value equal to or greater than 40% of the total gross fair market value of the assets of the Company immediately prior to such sale or disposition. |
The foregoing definition of Change in Control is intended to comply with the requirements of Code section 409A and the guidance issued thereunder and shall be interpreted and applied by the Committee in a manner consistent with this intent.
(h) | Code means the Internal Revenue Code of 1986, as amended and any succeeding federal tax provisions. |
(i) | Committee means the Investment and Administrative Committee of The Walt Disney Company Sponsored Qualified Benefit Plans and Key Employees Deferred Compensation and Retirement Plan. |
(j) | Company means The Walt Disney Company. |
(k) | Domestic Partner means the individual determined by the Company in its sole discretion to be the Participants same-sex domestic partner in accordance with the Companys procedures for identifying domestic partners. |
(l) | Early Retirement Date means, with respect to the Participant, the Early Retirement Date as set forth in the applicable provisions of the Pension Plan to which benefits accrued under this Plan relate. |
(m) | Eligible Employee means a salaried Employee of an Employer who is an Eligible Employee, as this term is defined in the Pension Plan, and who is designated by the Company or an Employer as an executive-level Employee under the customary employee classification procedures of the Company or Employer. |
(n) | Employee means any individual who is employed as a common-law employee of the Company or an Affiliate, including officers, but excluding independent |
6
Section 2.1
contractors and leased employees (or any individuals designated as independent contractors or leased employees under the customary worker classification procedures of the Company or an Affiliate) and directors who are not officers or otherwise employees.
(o) | Employer means the Company and all Affiliates that have been designated as Employers with respect to the Plan in accordance with the terms of Plan section 9.5. |
(p) | ERISA means the Employee Retirement Income Security Act of 1974, as amended. |
(q) | Excess Accumulated Contribution Benefit means the benefit, if any, determined and payable under Plan section 6.4. For purposes of Code sections 409A and 3121(v)(2), the Excess Accumulated Contribution Benefit shall be a deferral of compensation under a nonaccount balance plan, as described in Treasury Regulations sections 1.409A-1(c)(2)(i)(C) and 31.3121(v)(2)-1(c)(2). |
(r) | Executive Officer means an Eligible Employee who is an officer of the Company or its Affiliates and who performs a policy-making function for the Company, as determined from time to time by the Board, which determination shall be conclusive. If an Eligible Employee ceases to be an Executive Officer, as determined by the Board in its sole discretion, he shall be deemed to continue to be an Executive Officer (while employment continues) through the last day of the calendar year that includes the last day of the Companys fiscal year next following the Companys fiscal year during which the Eligible Employee ceased to be an Executive Officer. |
(s) | Grandfathered Participant means an individual whose employment with the Company and all Affiliates terminated before January 1, 2005, while the individual had a vested benefit under the Key Plan Part I. If a Grandfathered Participant is reemployed after 2004 and before 2012 and once again becomes a Participant, Key Plan Part I shall apply only to the Participants benefit that was earned and vested before 2005. The Participant shall not be a Grandfathered Participant with respect to any benefit earned or vested after 2004. |
(t) | Interest Rate means the 6-month LIBOR rate effective as of each January 1 based on the rate in effect as of the preceding October 1. |
(u) | Joint and Survivor Annuity means a monthly benefit that is the Actuarial Equivalent of a Participants Single Life Annuity and that is payable during the Participants lifetime with a designated percentage of the Participants monthly benefit amount continuing after his death to his Joint/Contingent Annuitant, if such Joint/Contingent Annuitant survives him, for the Joint/Contingent Annuitants remaining lifetime. The last payment shall be made on the first day of the calendar month in which the Participants death occurs or, if later, the Joint/Contingent Annuitants death. |
7
Section 2.1
(v) | Joint/Contingent Annuitant means the person(s) designated as such by the Participant or the Plan, as applicable, as entitled to receive a portion of the Participants Retirement Income following his death. |
(w) | Key Plan Part I means, with respect to a Grandfathered Participant, the Plan as in effect on October 3, 2004. |
(x) | Military Leave means leave subject to reemployment rights under the Uniformed Services Employment and Reemployment Rights Act of 1994, as amended from time to time. |
(y) | Normal Retirement Date means, with respect to the Participant, the Normal Retirement Date as set forth in the applicable provisions of the Pension Plan to which benefits accrued under this Plan relate. |
(z) | Participant means any person who has been admitted to, and has not been removed from, participation in the Plan pursuant to the provisions of Article 3. |
(aa) |
Payment Date means the date that any vested Retirement Income becomes payable to the Participant under Plan section 5.2 or, if the Participant has died before the Payment Date of any vested Retirement Income, the date that any Pre-Commencement Death Benefit becomes payable to the Beneficiary under Plan section 7.2. The Payment Date of any Excess Accumulated Contribution Benefit shall be determined under Plan section 6.4. If the Participant has post-separation or reemployment accruals under Plan section 6.6(b), then the Payment Date for the additional accruals shall be the Benefit Calculation Date. Notwithstanding any other Plan provision to the contrary and solely for purposes of determining compliance with Code section 409A and related Treasury Regulations, except with respect to any payment due under Plan section 6.6(b), a payment shall be deemed made on the Payment Date if the benefit actually commences by the end of the calendar year in which the Payment Date occurs or, if later, by the 15 th day of the third month following the Payment Date. |
(bb) | Payment Event means the applicable event triggering a payment of vested benefits under the Plan. The applicable event shall be one of the following: |
(1) | With respect to Retirement Income, the earlier of: |
(A) | The later of the Participants Separation from Service or attainment of age 55; |
(B) | A Change in Control; |
(2) | With respect to the Pre-Commencement Death Benefit and before the Payment Date of any vested Retirement Income to the Participant, the later of Participants death or the date that the Participant would have attained age 55; |
8
Section 2.1
(3) | With respect to any Excess Accumulated Contribution Benefit, the Participants Separation from Service or, if earlier, the Participants death; or |
(4) | With respect to post-separation or reemployment accruals under Plan section 6.6(b) after a Payment Event under subparagraph (1)(A), January 1 of the calendar year following the calendar year in which such additional Retirement Income is accrued. |
(cc) | Pension Plan means the Disney Salaried Pension Plan D (formerly known as the Disney Salaried Retirement Plan), as in effect from time to time. The term Pension Plan also includes the Disney Salaried Service Pension Plan and the Disney Salaried Supplemental Pension Plan, which have been merged into the Pension Plan. The Pension Plan constitutes a qualified employer plan as defined under Treasury Regulations section 1.409A-1(a)(2). |
(dd) | Pension Plan Benefit means the benefit payable under the Pension Plan. |
(ee) | Plan means The Walt Disney Productions and Associated Companies Key Employees Deferred Compensation and Retirement Plan, as contained herein and as amended from time to time. With respect to a Grandfathered Participant only, the Plan includes Key Plan Part I. |
(ff) | Pre-Commencement Death Benefit means the benefit described in Article 7. |
(gg) | Retirement Income means a monthly benefit: |
(1) | Which a Participant has earned under the Plan as of any date of reference; and |
(2) | Which is more fully determined under Article 4. |
To the extent a Participants Retirement Income is paid or expressed as an annual benefit, such annual benefit payment shall be 12 times the Participants monthly benefit.
(hh) | Separation from Service means, as provided in the following paragraphs of this subsection, an Employees termination from employment with the Company and all Affiliates, whether by retirement, resignation from or discharge by the Company or an Affiliate (but not by a transfer among the Company and Affiliates or death). |
(1) | A Separation from Service shall be deemed to have occurred on a certain date if an Employee and the Company and Affiliates reasonably anticipate, based on the facts and circumstances, that either: |
(A) | The Employee will not provide any additional services for the Company or any Affiliate after that date; or |
(B) | The level of bona fide services performed by the Employee after that date will permanently decrease to no more than 40 percent of the average |
9
Section 2.2
level | of bona fide services performed by the Employee over the immediately preceding 36 months. |
(2) | If an Employee is absent from employment due to Military Leave, sick leave, or any other bona fide leave of absence authorized by the Company or an Affiliate and there is a reasonable expectation that the Employee will return to perform services for the Company or an Affiliate, then a Separation from Service shall not occur until the later of: |
(A) | The first date immediately following the date that is six months after the first date that an Employee was absent from employment; and |
(B) | To the extent the Employee retains a right to reemployment with the Company or any Affiliate under an applicable statute or by contract, the date the Employee no longer retains a right to reemployment. |
If a Participant fails to return to work upon the expiration of any Military Leave, sick leave, or other bona fide leave of absence where such leave is for less than six months, the Separation from Service shall occur as of the date of the expiration of such leave.
(ii) | Single Life Annuity means a benefit payable monthly during the Participants lifetime, commencing as of his Benefit Calculation Date and ending with the payment due on the first day of the calendar month in which the Participants death occurs. |
(jj) | Specified Employee means any person determined to be a specified employee under Code section 409A and Treasury Regulations section 1.409A-1(i). |
(kk) | Spouse means a spouse as defined by the Defense of Marriage Act (Pub. Law No. 104-199) and shall also include a former spouse of a Participant to the extent required by a domestic relations order, within the meaning of Code section 414(p)(1)(B) and permitted under Treasury Regulations section 1.409A-3(j)(4)(ii). This definition is intended to clarify how the term spouse has been applied for purposes of the Plan (and Key Plan Part I) prior to January 1, 2009 and will be applied for purposes of the Plan (and Key Plan Part I) on and after January 1, 2009. |
(ll) | Treasury Regulations means the regulations promulgated by the United States Department of the Treasury under the Code. |
2.2 Gender and Number
Except as otherwise indicated by the context, any masculine or feminine terminology shall also include the opposite gender, and the definition of any term in the singular or plural shall also include the opposite number.
10
Section 2.3
2.3 Headings
The headings of this Plan are inserted for convenience of reference only, and they are not to be used in the construction of the Plan.
2.4 Requirement to Be in Written Form
Various notices provided by the Company, the Committee, or any duly authorized agent of either of them and various elections made by Participants, Beneficiaries or other payees are required to be in written form. Notwithstanding anything to the contrary in this Plan, any notices and elections related to, or that may constitute part of, the Plan may be conveyed through an electronic system or any other system approved by the Committee unless otherwise provided under applicable law or regulatory guidance.
2.5 Severability
If a provision of this Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included in the Plan.
2.6 Applicable Law
To the extent not preempted by ERISA or other federal law, the Plan and all rights hereunder shall be governed, construed, and administered in accordance with the laws of the state of California.
11
Section 3.1
Article 3. Participation, Service and Vesting
3.1 Participation
Each Eligible Employee whose benefit under the applicable portion of the Pension Plan, for any calendar year, is limited by Code sections 415 and/or 401(a)(17) shall be a Participant in the Plan. Notwithstanding the foregoing, but subject to the following sentence, each Employee who becomes an Eligible Employee pursuant to an agreement approved by the Committee shall become a Participant as of the date, if any, specified in such agreement or otherwise specified by the Committee. No such agreement entered into on or after January 1, 2012 shall provide for participation by an individual unless the individual was, as of December 31, 2011, a Covered Employee as this term was defined in the Pension Plan on that date. Each individual who is a Participant in the Plan on the date immediately preceding January 1, 2012 shall continue as a Participant in the Plan in accordance with the terms of the Plan (or, in the case of a Grandfathered Participant, the terms of Key Plan Part I).
3.2 Duration
An individual who becomes a Participant under the Plan shall remain a Participant for as long as he remains an Employee or is entitled to receive any benefits hereunder.
3.3 Transfers
(a) | Transfers to Eligible Employee Status. An Employee who transfers employment before January 1, 2012 such that he becomes an Eligible Employee and satisfies the requirements of Plan section 3.1 as of the date of transfer shall be a Participant in the Plan as of the date of transfer. No Employee shall become an Eligible Employee by reason of an employment transfer occurring on or after January 1, 2012. |
(b) | Transfers from Eligible Employee Status. To the extent a Participant transfers employment to an Affiliate and is no longer an Eligible Employee: |
(1) | The Participant may become vested in his Retirement Income pursuant to Plan section 3.4, even though he is no longer an Eligible Employee. |
(2) | The Participant shall, if he is or becomes vested in his Retirement Income, remain a Participant in the Plan until the date his vested Retirement Income is distributed from the Plan. |
(3) | To the extent the Participant has no vested interest in his Retirement Income under the Plan but remains employed by an Affiliate, the Participant shall remain a Participant in the Plan until the date he ceases to be employed by the Company and all Affiliates at a time when he has no vested Retirement Income under the Plan. If he remains employed by an Affiliate until his Retirement Income under the Plan vests, his status as a Participant shall be determined under paragraph (2). |
12
Section 3.4
(c) | Transfers to ABC On or After January 1, 2012. If an Eligible Employee transfers from an Employer to a BEP Employer (as defined in Plan section 6.5(c)(5)) on or after January 1, 2012, he shall remain an Eligible Employee under the Plan as long as he remains an Eligible Employee as this term is defined in the Pension Plan. |
3.4 Vesting
(a) | Vested Benefit. Except as otherwise provided in this Plan section, a Participant who is vested under the Pension Plan shall be 100 percent vested in his Retirement Income and shall be entitled to a benefit from the Plan. If a Participant has a Separation from Service prior to becoming vested under the Pension Plan, his Retirement Income under the Plan shall be immediately forfeited. |
(b) | Vesting on Change in Control . If a Change in Control occurs, each Participant shall become 100 percent vested in his Retirement Income if he is not already 100 percent vested upon the Change in Control. |
(c) | Level of Combined Vested Benefit . The amount of the combined vested benefits under the Pension Plan and the Plan that the Participant is entitled to receive as of a date certain generally shall not decrease after the Participants benefits under the Plan become 100 percent vested; provided, however, that the portion of the Participants vested benefits payable under this Plan may decrease over time, due to the operation of the Plan and the Pension Plan, when (1) benefits payable under the Pension Plan increase or (2) benefits determined under the benefit formula prescribed by Plan section 4.1 decrease, for example, by reason of a decrease in average compensation. |
13
Section 4.1
Article 4. Retirement Income
4.1 Determination of Retirement Income
(a) | A Participants Retirement Income payable for the Participants lifetime (or other form in which the accrued benefit is defined under the Pension Plan at any time of reference) from the Plan as of his Normal Retirement Date shall be equal to the gross benefit amount determined under paragraph (1), minus the Pension Plan Benefit amount determined under paragraph (2), but shall not be more than the maximum determined under paragraph (3) (if applicable), as follows: |
(1) | The gross benefit amount equals the Pension Plan Benefit accrued through the Benefit Calculation Date that would be payable to the Participant under the Pension Plan as of his Normal Retirement Date if the Pension Plan Benefit was determined: |
(A) | Without regard to the limits imposed by Code sections 415 and 401(a)(17); |
(B) | By taking into account the amount of any base compensation, as determined by the Committee in its sole discretion, that the Participant deferred into a nonqualified account balance plan, within the meaning of Treasury Regulations section 1.409A-1(c)(2) through December 31, 2005; |
(C) | For a Participant who is an Eligible Employee on or after January 1, 2011, by taking into account any equity in lieu of bonus received by the Participant on or after such date as if it were pension-eligible compensation under the Pension Plan; and |
(D) | Effective January 1, 2017, by limiting the Participants average annual compensation used in the benefit formula, as follows: |
(i) | If the Participants average annual compensation: |
(I) | determined for purposes of calculating benefits based on service before January 1, 2012 equals or exceeds $1 million as of December 31, 2016, the Participants average annual compensation shall be frozen for such purpose and shall not thereafter increase or decrease. |
(II) | determined for purposes of calculating benefits based on service on and after January 1, 2012, equals or exceeds $1 million as of December 31, 2016, the Participants average annual compensation shall be frozen for such purpose and shall not thereafter increase or decrease. |
14
Section 4.1
(ii) | If the Participants average annual compensation for one or both purposes described in (i), above, is less than $1 million as of December 31, 2016, the Participants average annual compensation for such purpose or purposes shall continue to be calculated as described in the Pension Plan, except that: |
(I) | compensation taken into account with respect to any 12-consecutive-month period that is used to determine the average and begins on or after January 1, 2017 shall not exceed $1 million; and |
(II) | annual average compensation shall not increase above $1 million. |
(2) | The gross benefit amount described in paragraph (1) shall be reduced by the Pension Plan Benefit accrued through the Benefit Calculation Date that would be payable to the Participant under the Pension Plan as of his Normal Retirement Date. |
(3) | Notwithstanding the foregoing, if a Participant is (or is deemed to be) an Executive Officer as of the earlier of the date he ceases to be an Eligible Employee or his Separation from Service, the Participants Retirement Income shall not exceed the greater of: |
(A) | The Retirement Income that the Participant would have been entitled to under the Plan if the provisions of the Plan and the Pension Plan as in effect on December 31, 2011 had continued in effect without change; or |
(B) | If the Participant: |
(i) | was not an Executive Officer on January 1, 2012, but later becomes an Executive Officer; or |
(ii) | after ceasing to be an Executive Officer after January 1, 2012 (including the exhaustion of the period described in Plan section 2.1(r) during which he was deemed to be an Executive Officer), later again becomes an Executive Officer, |
the Retirement Income payable to the Participant under the Plan, determined as if he had a Separation from Service on the day immediately preceding the most recent date after January 1, 2012 on which he becomes or again becomes an Executive Officer.
(b) | To the extent any portion of the Participants Pension Plan Benefit is offset by benefits payable under another qualified retirement plan, a Participants Retirement Income shall be determined prior to the application of any such other offsets. |
15
Section 4.2
4.2 Early Commencement of Retirement Income
If payment of a Participants vested Retirement Income is to commence or be made before his Normal Retirement Date, the amount of his Retirement Income shall be equal to his vested Retirement Income determined under Plan section 4.1 as of his Normal Retirement Date reduced for early commencement in accordance with the early retirement reduction rules set forth in the portion of the Pension Plan to which the benefits under the Plan relate or, where no such rules apply or where reductions to a lower age than specified in the Pension Plan are necessary, on an Actuarially Equivalent basis.
4.3 Late Commencement of Retirement Income
If payment of a Participants vested Retirement Income is to commence or be made after his Normal Retirement Date, the Participants Retirement Income shall be equal to the amount that would be payable under Plan section 4.1 if the Participants Pension Plan Benefit is determined as of the Benefit Calculation Date, instead of the Participants Normal Retirement Date.
16
Section 5.1
Article 5. Distribution of Plan Benefits
5.1 General
A Participants vested Retirement Income shall be payable, for reasons other than the Participants death, at the time and in the form determined in this Article 5.
5.2 Time of Payment
(a) | Default Time of Payment. Except as otherwise provided for under the terms of the Plan, the Participant shall be entitled to a payment of Retirement Income under the Plan as of the earlier Payment Date determined below: |
(1) | If the Payment Event is the later of the Participants Separation from Service or attainment of age 55, then the Payment Date is the first day of the second calendar month following the Benefit Calculation Date; provided, however, that in the case of a Specified Employee, this date shall in no event be earlier than the first day of the month coinciding with or next following the date that is six months after Separation from Service of a Specified Employee; or |
(2) | If the Payment Event is a Change in Control, then the Payment Date is the first day of the second calendar month following the Benefit Calculation Date. |
(b) | Catch-Up Payments. Once payments commence, the Plan shall provide the Participant with a one-time payment equal to the amount of missed payments between the Benefit Calculation Date and the actual Payment Date. In the case of a Specified Employee, the missed payments shall be adjusted at the Interest Rate for the period between the Payment Date that would have applied had the Participant not been a Specified Employee and the Specified Employees Payment Date, as determined under subsection (a)(1). |
(c) | Earlier Payments. An earlier payment may be made, as determined by the Committee in its sole discretion, only to the extent that a permissible Code section 409A and related Treasury Regulations exception ( e.g. , the payment of employment taxes) may be applied. |
(d) | Continued Payments. Once a Participants Retirement Income commences, the payment of his Retirement Income shall not be delayed or accelerated, except as provided for in accordance with Plan section 6.7. |
5.3 Form of Payment
(a) | Default Form of Payment. |
(1) | If a Participants Retirement Income is payable due to a Payment Event under Plan section 5.2(a)(1), the Participants Retirement Income shall be paid in the form of a 50% Joint and Survivor Annuity if the Participant has a Spouse on the Benefit Calculation Date, and in the form of a Single Life Annuity if the Participant does not have a Spouse on the Benefit Calculation Date. In lieu of |
17
Section 5.4
this default payment form, the Participant may timely elect an optional form of payment in accordance with subsections (b) and (c).
(2) | If a Participants Retirement Income is payable due to a Change in Control under Plan section 5.2(a)(2), the Participants Retirement Income shall be paid in the form of a single lump sum payment. |
(b) | Optional Form of Payment. A Participant whose Retirement Income is payable due to a Payment Event under Plan section 5.2(a)(1) that occurs on or after January 1, 2012 (including a Payment Event for a Participant (other than a Grandfathered Participant) who is not an Eligible Employee on or after January 1, 2012) may elect before his Payment Date, in accordance with any election timing restrictions and spousal consent requirements imposed by the Plan, to have his vested Retirement Income paid in any of the following Actuarially Equivalent forms of payment: |
(1) | Single Life Annuity; |
(2) | 50% Joint and Survivor Annuity; |
(3) | 75% Joint and Survivor Annuity; |
(4) | 100% Joint and Survivor Annuity; |
(5) | 10-Year Certain and Life Annuity; or |
(6) | 20-Year Certain and Life Annuity. |
(c) | Joint/Contingent Annuitant. If a Participant elects an optional form of payment that does or may provide a survivor benefit, the Participants election shall not be valid unless the Participant also specifies a Joint/Contingent Annuitant. |
(d) | Form of Payment Adjustments. Any adjustments to the amount of Retirement Income otherwise payable under this Article 5 as a result of the form of payment selected shall be calculated using reasonable Actuarially Equivalent factors. The amount of Retirement Income shall be adjusted on an Actuarially Equivalent basis. |
(e) | Cash Payments. All benefit payments hereunder shall be made in cash. |
5.4 Benefit Cash-out
Notwithstanding the time and form of payment determined pursuant to this Article 5, if the Actuarially Equivalent lump sum present value of all nonqualified deferred compensation plan benefits that the Participant (or his Joint/Contingent Annuitant) is entitled to receive under all nonaccount balance plans of the Company and all Affiliates, that must be aggregated for purposes of Treasury Regulations section 1.409A-1(c)(2), is less than the Code section 402(g)(1)(B) limit as of a Benefit Calculation Date, the Company may, in its sole discretion (evidenced in writing on or before the distribution date), distribute the Participants Retirement Income to him (or his Joint/Contingent Annuitant) in a single lump
18
Section 5.4
sum payment; provided, however, that all of the Participants other nonaccount balance nonqualified plan benefits are also paid in a single lump sum payment as of the same date.
19
Section 6.1
Article 6. Transfers, Rehires and Other Special Situations
6.1 Effect and Applicability
This Article provides additional information and rules covering special situations under which Retirement Income may become payable under Article 4 and Article 5. In the event of a conflict between a provision under Article 4 and Article 5 and a provision of this Article, the provision of this Article shall govern with respect to the Participants or circumstances specified in this Article and the provisions of Article 4 and Article 5 shall continue to govern with respect to other Participants and circumstances.
6.2 Code Section 409A Aggregation Rules
Except as provided in the following sentence, the Company has the authority to provide to any individual or individuals selected by the Company or Committee benefits under the Plan or under a separate agreement, method, program or other arrangement that constitutes a nonaccount balance plan. No such agreement entered into on or after January 1, 2012 shall provide benefits for an individual unless the individual was, as of December 31, 2011, a Covered Employee as this term was defined in the Pension Plan on that date. To the extent any Participant is entitled to a deferral of compensation under any such nonaccount balance plan, then, only to the extent required by Code section 409A and related Treasury Regulations, the separate nonaccount balance plan shall be aggregated with the Plan.
6.3 No Duplication of Benefits
(a) | Key Plan Part I Benefits . In determining the Participants Retirement Income at any time, to the extent a Participant is entitled to a benefit under the Key Plan Part I as a result of also being a Grandfathered Participant, the amount of Retirement Income payable to a Participant with respect to a Payment Event shall be reduced as of the Benefit Calculation Date by the Actuarially Equivalent lump sum present value of the Participants benefit under the Key Plan Part I, determined in accordance with Treasury Regulations section 1.409A-6(a)(3)(i), so that the Participant shall not receive a duplication of benefits under the Plan. |
(b) | Post-Payment Event Accruals . In determining the Participants Retirement Income at any time after a Payment Event, the Participants prior service and earnings may be taken into account to the extent such service and earnings are taken into account when determining a Participants Pension Plan Benefit following such Payment Event. Notwithstanding anything to the contrary in the Plan, the amount of any additional Retirement Income payable to a Participant with respect to a new Payment Event shall be reduced by the Actuarially Equivalent value of the Participants vested Retirement Income determined as of the Benefit Calculation Date for any prior Payment Event increased at the Interest Rate, so that the Participant shall not receive a duplication of benefits under the Plan. |
20
Section 6.4
6.4 Excess Accumulated Contribution Benefit
(a) | Limited Applicability. The provisions of this section apply only if a Participant had Accumulated Contributions under the Plan as in effect on April 30, 1984, and the Accumulated Contributions have not been distributed as of December 31, 2008. |
(b) | Excess Accumulated Contribution Benefit Payable to a Participant |
(1) | Amount of Benefit. An Excess Accumulated Contribution Benefit shall be payable to the Participant only if and to the extent that, as of the Benefit Calculation Date, the Participants Accumulated Contributions exceed the Actuarial Equivalent present value of the Participants Past Service Frozen Benefit. |
(2) | Time and Form of Payment. Any Excess Accumulated Contribution Benefit payable to the Participant under this subsection shall be paid in a single sum as of the Payment Date, which is the first day of the second calendar month following the Benefit Calculation Date; provided, however, that in the case of a Specified Employee, the Payment Date shall in no event be earlier than the first day of the month coinciding with or next following the date that is six months after the Specified Employees Separation from Service. In the case of a Specified Employee, the missed payments shall be adjusted at the Interest Rate for the period between the Payment Date that would have applied had the Participant not been a Specified Employee and the Specified Employees Payment Date. The Participant may not elect any different form of payment of the Excess Accumulated Contribution Benefit. |
(c) | Excess Accumulated Contribution Benefit Payable to a Beneficiary |
(1) | Amount of Benefit |
(A) | Participants Death before Separation from Service. Prior to the Participants Separation from Service, an Excess Accumulated Contribution Benefit shall be payable to the Participants Beneficiary only if and to the extent that, as of the Benefit Calculation Date ( i.e. , the first day of the calendar month following the Participants death), the Accumulated Contributions exceed the Actuarial Equivalent present value of the Participants Past Service Frozen Benefit. |
(B) | Participants Death after Pension Plan Benefits Commence. If, as of the date that all benefit payments with respect to the Participant from the Pension Plan cease (which shall be the Benefit Calculation Date for this purpose), clause (i) exceeds clause (ii), then such excess shall be distributed to the Participants Beneficiary. For purposes of this subparagraph, clause (i) and clause (ii) shall be defined as follows: |
21
Section 6.4
(i) | The Participants Accumulated Contributions that have not been previously distributed as of the Benefit Calculation Date. |
(ii) | The Actuarial Equivalent present value of all benefits paid from the Pension Plan, excluding the Flat Benefit (as defined in the Pension Plan), to all persons and entities with respect to the Participant, including after the Participants death, through the Benefit Calculation Date. |
(2) | Time and Form of Payment. Any Excess Accumulated Contribution Benefit payable to one or more Beneficiaries under this subsection shall be paid in a single sum as of the Payment Date, which is the first day of the fourth calendar month following the Benefit Calculation Date. The Beneficiary may not elect any different form of payment of the Excess Accumulated Contribution Benefit. |
(3) | Beneficiary Determination. For purposes of determining the Beneficiary entitled to receive any Excess Accumulated Contribution Benefit, the Beneficiary of the Participant shall be: |
(A) | The person, persons or entity named by the Participant by written designation under the Pension Plan; or |
(B) | If the Participant has not made such a designation or the person, persons or entity so designated predecease the Participant, the Beneficiary shall be determined under Plan section 7.3, disregarding the last sentence thereof; or |
(C) | If the Participant has no survivors in any of the categories specified under Plan section 7.3, the Participants estate or, if the Participants estate has been settled, the estate of the last Beneficiary to die. |
(d) | Aggregation of Benefits for Cash-Out Purposes. Except as provided in this subsection, the payment of any Excess Accumulated Contribution Benefit shall not affect in any way the determination of the amount, time or form of payment of any Retirement Income or Pre-Commencement Death Benefit payable under any other provision of this Plan. Notwithstanding the foregoing: |
(1) | Any Excess Accumulated Contribution Benefit shall be aggregated with any Retirement Income benefits payable to the Participant for determining whether such benefits may be cashed-out under Plan section 5.4 only if both such benefits have the same Payment Date; and |
(2) |
Any Excess Accumulated Contribution Benefit shall be aggregated with any Pre-Commencement Death Benefit payable to the Beneficiary for determining whether such benefits may be cashed-out under Plan section 7.4 only if the |
22
Section 6.5
Payment Date of any Excess Accumulated Contribution Benefit is the same or later than the Payment Date of the Pre-Commencement Death Benefit. |
(e) | Definitions Applicable to this Plan Section. In addition to the terms defined in Plan section 2.1 or elsewhere in this Plan, whenever used in this Plan section, the following terms shall have the respective meanings set forth below. |
(1) | Accumulated Contributions means the Participants deferred compensation under the Plan through April 30, 1984, plus interest at such rate as the Committee, in its sole discretion, may determine from time to time. Unless otherwise specified by the Committee, the interest rate shall be based on the weighted average prime rate of Bank of America, as determined by the Committee in its sole discretion. Such interest shall be determined at the end of each calendar year. Interest shall be credited on the Participants average balance during the calendar year just ended. No interest shall be credited for any period following the Participants Separation from Service or, if earlier, the Participants death. |
(2) | Past Service Frozen Benefit means the Participants Pre-May 1984 Service Benefit, as determined under the Pension Plan. |
6.5 Transfers from Nonaccount Plans
(a) | General Rule. Except as otherwise described in this Plan section, in calculating a Participants Retirement Income at any time after the Participant transfers to an Employer from another Affiliate in which the Participant accrued a benefit under another nonaccount balance nonqualified plan, his prior service and earnings shall not be taken into account in determining Retirement Income under this Plan, even if such service and earnings are taken into account when determining his Pension Plan Benefit. No transfer on or after January 1, 2012 to an Employer from a non-Employer Affiliate shall result in participation in the Plan. |
(b) | Transfers from ABC. Notwithstanding any Plan provision to the contrary, if a Participant transferred before January 1, 2012 to an Employer from a BEP Employer and the Participant accrued a benefit under the ABC Plan and/or BEP, the Participants Retirement Income under the Plan after the transfer shall be determined under this subsection. |
(1) | If, as of any Benefit Calculation Date, the Participants Add-On Benefit is greater than his All-Service Benefit, then the Participants Retirement Income shall be determined under the terms of this Plan without adjustment for the Participants service and earnings with a BEP Employer. |
(2) |
If, as of any Benefit Calculation Date, the Participants All-Service Benefit is greater than his Add-On Benefit, the Participants Retirement Income shall be the Participants All-Service Benefit reduced by the Participants Retirement Income, as defined in and determined under the BEP. Because it is the express |
23
Section 6.5
intent of this Plan that there be no prohibited substitution of benefits in violation of Treasury Regulations section 1.409A-3(f), Retirement Income under this Plan and Retirement Income under the BEP are payable only at the same time and only in forms that are Actuarially Equivalent life annuities, applying the same reasonable actuarial assumptions and methods across the Plan, the Pension Plan, the BEP and the ABC Plan. |
If an Employee transfers on or after January 1, 2012 to an Employer from a BEP Employer, he shall not become an Eligible Employee or a Participant in the Plan by reason of such transfer.
(c) | Definitions Applicable to this Plan Section. In addition to the terms defined in Plan section 2.1 or elsewhere in this Plan, whenever used in this Plan section, the following terms shall have the respective meanings set forth below. |
(1) | ABC Plan means the ABC, Inc. Retirement Plan (known as the Disney Salaried Pension Plan A on and after January 1, 2012), a qualified employer plan as defined under Treasury Regulations section 1.409A-1(a)(2). |
(2) | Add-On Benefit means, with respect to a Participant who transfers to an Employer from a BEP Employer, the sum of: |
(A) | The Participants Retirement Income, determined under this Plan, and the Participants Pension Plan Benefit taking account only service and earnings with an Employer; and |
(B) | The Participants Retirement Income, as defined in and determined under BEP, and the Participants Pension Plan Benefit, as defined in and determined under the ABC Plan taking into account only service and earnings with a BEP Employer. |
For purpose of determining these benefits, service and earnings shall be measured using the appropriate terms, such as, but not limited to, Compensation or Credited Service, used under the benefit formulas of the relevant plans.
(3) | All-Service Benefit means, with respect to a Participant who transfers to an Employer from a BEP Employer, the Participants Retirement Income under this Plan and Pension Plan Benefit under the Pension Plan taking into account the Participants service and earnings with all Employers and BEP Employers. For purpose of determining these benefits, service and earnings shall be measured using the appropriate terms, such as, but not limited to, Compensation or Credited Service, used under the benefit formulas of the relevant plans. |
24
Section 6.6
(4) | BEP means the Benefit Equalization Plan of ABC Inc., a nonqualified, nonaccount balance plan under Treasury Regulations section 1.409A-1(c)(2). |
(5) | BEP Employer means an Employer, as that term is defined in the BEP, as opposed to an Employer defined under this Plan. |
6.6 Additional Retirement Income
If a Participant has a Payment Event and then accrues additional vested Retirement Income under the Plan, the additional vested Retirement Income shall be payable to the Participant as described in this Plan section. The time and form of payment for any additional Retirement Income that is payable shall be determined in accordance with the terms of subsections (a) and (b) as follows:
(a) | Continued Employment After Change in Control. To the extent a Participant is entitled to additional Retirement Income following a Change in Control as a result of continued employment with an Employer, the Participants additional Retirement Income shall be paid to him at the time of payment specified under Plan section 5.2 in the form of payment determined under Plan section 5.3. |
(b) | Post-Separation Accruals and Reemployment . If a Participant is entitled to additional Retirement Income following a Payment Event due to receiving post-Separation from Service accruals or additional Retirement Income as a result of: |
(1) | Becoming reemployed as an Employee of an Employer before January 1, 2012 (or becoming reemployed by an Affiliate and later transferring employment to an Employer before January 1, 2012) after his Separation from Service (or his termination pursuant to the Key Plan Part I); |
(2) | Increasing the level of bona fide service he provides as an Employee of an Employer following a Separation from Service, such that he may have a subsequent Separation from Service; or |
(3) | Returning to work as an Eligible Employee after a leave of absence that results in a Separation from Service, |
the Participants Benefit Calculation Date (and Payment Date) for such additional Retirement Income shall be January 1 of the calendar year following the calendar year in which such additional Retirement Income accrues. The last payment of Retirement Income under this subsection shall occur on January 1 of the calendar year following the calendar year in which the Participant ceases accruing additional Retirement Income. It is intended that the additional Retirement Income that becomes payable under this subsection shall not constitute a deferral of compensation for purposes of Code section 409A because the additional Retirement Income will be paid under the short-term deferral rule of Treasury Regulations section 1.409A-1(b)(4). Notwithstanding the foregoing, compensation or service credits provided to a Participant under the Pension Plan with respect to a period of
25
Section 6.7
Disability (as defined in the Pension Plan) shall be disregarded and shall not cause post-separation accruals under the Plan.
6.7 Permissible Delays or Accelerations
If the Company or Committee determines that a delay or an acceleration of a Participants Retirement Income is permitted or required by Code section 409A and related Treasury Regulations ( e.g. , a delay to comply with Code section 162(m) or an acceleration to pay employment taxes), the Company or the Committee may either delay or accelerate the payment of a Participants Retirement Income in accordance with the terms of Code section 409A and related Treasury Regulations in its sole discretion as it deems advisable.
26
Section 7.1
Article 7.Pre-Commencement Death Benefit
7.1 Amount of Pre-Commencement Death Benefit
In the event of a Participants death prior to his Payment Date under Article 5 with respect to any vested Retirement Income, the Participants Beneficiary shall be entitled to a Pre-Commencement Death Benefit. The Pre-Commencement Death Benefit shall equal the amount of the benefit determined as of the Benefit Calculation Date that would be payable to a Joint/Contingent Annuitant if:
(a) | The Participants vested Retirement Income had commenced as of the Payment Date under Plan section 5.2(a)(1), disregarding any delay in the Payment Date because the Participant was a Specified Employee as of the date of his death, |
(b) | In the form of a 50% Joint and Survivor Annuity, and |
(c) | The Participant died on the date following such commencement. |
7.2 Time and Form of Payment for Pre-Commencement Death Benefit
(a) | Time of Payment of Death Benefit. The Beneficiarys Payment Date for the Pre-Commencement Death Benefit payable pursuant to Plan section 7.1 shall be the first day of the fourth calendar month next following the Beneficiarys Payment Event. |
(b) | Form of Payment of Death Benefit. The Pre-Commencement Death Benefit payable under this Article 7 shall be paid to the Beneficiary in the form of a Single Life Annuity. |
(c) | Catch-Up Payments. Once payments commence, the Plan shall provide the Beneficiary with a one-time payment equal to the amount of missed payments between the Benefit Calculation Date and the actual Payment Date. |
(d) | Earlier Payments. An earlier payment may be made, as determined by the Committee in its sole discretion, only to the extent that a permissible Code section 409A and related Treasury Regulations exception may be applied. |
(e) | Delayed Commencement. If the payment or commencement of any benefit due under this Plan section is paid after the Beneficiarys Payment Date, the benefit shall be paid without any interest adjustments for the delayed commencement. |
7.3 Beneficiary Determination
For purposes of determining the Beneficiary entitled to a Pre-Commencement Death Benefit, the Beneficiary of the Participant shall be:
(a) | The Participants surviving Spouse, if any, and if not, |
(b) | The Participants surviving Domestic Partner, if any, and if not, |
27
Section 7.4
(c) | The Participants surviving natural and legally-adopted children, if any, and if not, |
(d) | The Participants surviving parents, if any, and if not, |
(e) | The Participants surviving siblings, if any. |
If there is more than one Beneficiary in any category described above, any amounts payable shall be paid equally to all Beneficiaries. Notwithstanding any provision to the contrary, if the Participant has no survivors in any of the above categories, no Pre-Commencement Death Benefit is payable from the Plan.
7.4 Cash-Out Payment of Pre-Commencement Death Benefit
Notwithstanding anything in this Article 7 to the contrary, if the Actuarially Equivalent lump sum present value of all nonqualified deferred compensation plan benefits that the Beneficiary (or, to the extent applicable, all Beneficiaries entitled to a Pre-Commencement Death Benefit) is entitled to receive under all the nonaccount balance plans of the Company and all Affiliates, that must be aggregated for purposes of Treasury Regulations section 1.409A-1(c)(2), is less than the Code section 402(g)(1)(B) limit as of the Benefit Calculation Date, the Company may, in its sole discretion (evidenced in writing on or before the distribution date), distribute the Beneficiarys Pre-Commencement Death Benefit in the form of a single lump sum payment; provided, however, that all of the Beneficiarys other nonaccount balance nonqualified plan benefits are also paid in a single lump sum payment as of the same date.
28
Section 8.1
Article 8. Financing and Administration
8.1 Financing
(a) | General Creditors. The Plan constitutes a mere promise of the Employer to make payments in accordance with the terms of the Plan. This Plan does not give any Participant, Joint/Contingent Annuitant or Beneficiary any interest, lien, or claim in or against any specific assets of the Company or any Affiliate. The Participant, Joint/Contingent Annuitant and/or Beneficiary shall have only the rights of general, unsecured creditors of the Employer with respect to their rights under the Plan. |
(b) | Allocation Among Employers. The obligation to pay benefits hereunder shall be the obligation of the Employers whose Employees are Participants entitled to benefits hereunder. The Company and each Employer shall provide the benefits described in the Plan and allocable to such entity from its general assets. Notwithstanding the foregoing, the Company, in its sole discretion, shall have the authority to allocate the total liability to pay benefits under the Plan among the Employers in such manner and amounts as it deems appropriate. |
(c) | Alternative Funding. The Company may, but shall not be required to, establish a grantor trust as a funding source for its obligations under the Plan. If such a trust is so established, it shall be the intention of the Company that the trust shall constitute an unfunded arrangement for purposes of the Plan, such that the Plan shall continue to be an unfunded plan maintained for the purpose of providing deferred compensation to a select group of management or highly compensated employees under ERISA. With respect to any Participant, the assets of the trust so established shall remain subject to the claims of the creditors of that Participants Employer in the event of the Employers bankruptcy or insolvency. However, to the extent that funds placed in a trust and allocable to the benefits payable under the Plan are sufficient, the trust assets may be used to pay benefits under the Plan. If such trust assets are not sufficient to pay all benefits due under the Plan, then the appropriate Employer shall have the obligation, and the Participant, Joint/Contingent Annuitant or Beneficiary who is due such benefits shall look to such Employer to provide such benefits. |
8.2 Plan Administrative Committee
The general administration of the Plan and the responsibility for carrying out the provisions of the Plan resides with the Committee. The members of the Committee shall be determined under the provisions of the Pension Plan.
8.3 Duties of Committee
The members of the Committee shall elect a chairman from their number and a secretary who may be but need not be one of the members of the Committee; may appoint from their number such subcommittees with such powers as they shall determine; and may authorize one or more of their number or any agent to execute or deliver any instrument or make any
29
Section 8.4
payment on their behalf. In addition, the Committee may retain counsel, employ agents, and provide for such clerical, accounting, actuarial and consulting services as it may require in carrying out the terms of the Plan; and may allocate among its members or delegate all or such portion of the duties under the Plan, as it, in its sole discretion, shall decide.
8.4Meetings
The Committee shall hold meetings upon such notice, at such place or places, and at such time or times as it may from time to time determine.
8.5 Actions by the Committee
Any act which the Plan authorizes or requires the Committee to do may be done, if done at a meeting, by a majority of a quorum of members. A quorum is 50% of all members of the Committee then in office. The action of that majority expressed from time to time by a vote at a meeting shall constitute the action of the Committee and shall have the same effect for all purposes as if assented to by all members of the Committee at the time in office. Alternatively, any action required or permitted to be taken by the Committee may be done by unanimous written consent in lieu of a meeting.
8.6Compensation and Bonding
No member of the Committee shall receive any compensation from the Plan for his services as such. Except as may otherwise be required by law, no bond or other security need be required of any member in that capacity in any jurisdiction.
8.7 Establishment of Rules and Interpretation of Plan
The Committee shall have full discretionary power and authority as may be necessary to carry out the provisions of the Plan, including, without limiting the generality of the foregoing, the discretionary power to:
(a) | Promulgate and enforce rules and regulations as it deems necessary or appropriate for the administration of the Plan; |
(b) | Construe and interpret the Plan and decide all matters arising thereunder, including the right to remedy possible ambiguities, inconsistencies, and omissions and correct defects; |
(c) | Make factual determinations and decide all questions relating to individuals eligibility for participation or for benefits under the Plan, vesting, forfeitures, the amount, manner and timing of payment of benefits, and the status of persons as Participants, Grandfathered Participants, Employees, Eligible Employees, Spouses, Domestic Partners, Joint/Contingent Annuitants, Beneficiaries and alternate payees; and |
(d) | Require any person to furnish such documentation, information, or other matter as the Committee may require for the proper administration of the Plan and as a prerequisite to any payment or distribution by the Plan. |
30
Section 8.8
All decisions of the Committee relating to matters within its jurisdiction shall be final, conclusive, and binding. If, pursuant to Plan section 8.3, the Committee delegates all or any portion of its duties under the Plan, the individual, entity, or group of persons to which duties have been delegated shall have the same discretionary power and authority as the Committee unless the delegation specifically provides otherwise.
8.8 Limitation of Liability
Except as and to the extent otherwise provided by applicable law, no liability whatever shall attach to or be incurred by the members of the Committee or by the shareholders, directors, officers, or employees of the Company or an Affiliate under or by reason of any of the terms and conditions contained in the Plan or in any of the contracts procured pursuant thereto or implied therefrom.
8.9 Indemnification
To the maximum extent permitted by the Companys by-laws, as amended from time to time, the Company shall indemnify each member of the Committee, and each director, officer, and employee or agent of the Company or an Affiliate against any expenses and liabilities that such person may incur as a result of any act or failure to act, made in good faith, by such person in relation to the Plan.
8.10 Claims Procedures
(a) | Every claim for benefits under the Plan by a person (hereinafter referred to as Claimant) or by a Claimants authorized representative shall be filed by submitting to the person (claim administrator) designated by the Committee, a written application on a form designated by the Committee. The claim administrator shall process such application and approve or disapprove it. Claims for benefits under the Plan shall be governed by subsections (b) through (f). Subsection (g) and Plan sections 8.11 and 8.12 shall apply to all claims under the Plan, including, but not limited to claims for benefits (both based on the terms of the Plan and those based on an alleged violation of the law), claims for breach of fiduciary duty, and other claims that some aspect of the Plans operation, administration or design or some aspect of the Plans investments, is unlawful or violates the terms of the Plan. |
(b) | If a Claimant is denied any benefits under the Plan either in total or in an amount less than the full benefit to which he claims to be entitled, the claim administrator shall advise the Claimant of the denial within 90 days after receipt of the claim by the claim administrator. The claim administrator shall furnish the Claimant with a written notice setting forth: |
(1) | The computation of the Claimants benefit, if any; |
(2) | The specific reason or reasons for the denial; |
(3) | The specific Plan sections on which the denial is based; |
31
Section 8.10
(4) | A description of any additional material or information necessary for the Claimant to perfect his claim, if possible, and an explanation of why such material or information is needed; and |
(5) | A description of the Plans claim review procedures, the time limits under such procedures and a statement of the Claimants right to bring a civil action under ERISA section 502(a) following a denial of benefits on appeal. |
If unforeseeable or special administrative problems or circumstances require an extension of time for processing the claim, the claim administrator shall furnish a written notice to the Claimant prior to close of the 90-day period explaining why an extension of time is needed and the approximate date by which the claim administrator expects to have processed the claim. In no event shall the claim administrator render a final decision on the validity of a claim later than 180 days after the claim administrator initially receives the claim.
(c) | Within 60 days of receipt of the information described in subsection (b), the Claimant or his duly authorized representative may file written appeal of the determination with the Committee. As part of his appeal, the Claimant may submit written comments, documents, records and other information relating to the claim. |
(d) | As long as the Claimants appeal is pending (including the 60-day period described in subsection (c)) the Claimant or his duly authorized representative shall be provided, upon request and free of charge, access to and copies of all documents, records and other information relevant to the claim and may review pertinent Plan documents and may submit issues and comments in writing to the Committee. |
(e) | The Committee shall notify the Claimant in writing of the appeals decision (whether or not adverse) in written or electronic form within a reasonable period of time, but not later than 60 days after the Committees receipt of the appeal. Notwithstanding, if the Committee determines that special circumstances (for example, the need to hold a hearing) require an extension of time, the Committee shall notify the Claimant of the reason or reasons for the extension and of the date by which it expects to make its decision. This extended period shall not exceed 60 days from the end of the initial 60-day period. The Committees decision on appeal shall take into account all comments, documents, records and other information submitted by the Claimant and relevant to the claim, without regard to whether such information was submitted or considered in the initial benefit determination. |
(f) | If the Committee decides to deny benefits on appeal, the Committee shall provide the Claimant in writing with: |
(1) | The specific reason or reasons for the denial; |
(2) | The specific Plan provisions on which the denial is made; |
32
Section 8.11
(3) | A statement that the Claimant is entitled to receive, upon request and free of charge, access to and copies of all documents, records and other information relevant to the claim; and |
(4) | A statement regarding the Claimants right to bring a civil action under ERISA section 5.02(a) following a denial of benefits on appeal. |
(g) | Any person eligible to receive benefits under the Plan shall furnish to the claim administrator or the Committee any information or evidence requested by the claim administrator or the Committee and reasonably required for the proper administration of the Plan. Failure on the part of any person to comply with any such request within a reasonable period of time shall be sufficient grounds for delay in the payment of any benefits that may be due under the Plan until such information or evidence is received by the claim administrator or the Committee. If any person claiming benefits under the Plan makes a false statement that is material to the claim for benefits, the claim administrator or the Committee may offset against future payments any amount paid to such person to which he was not entitled under the provisions of the Plan. |
8.11 Limitation on Actions
(a) | Notwithstanding any Plan provision to the contrary, none of the following claims or action may be filed in any court unless and until the requirements of subsection (b) are fully met. |
(1) | A claim or action to recover benefits allegedly due under the provisions of the Plan or by reason of any law; |
(2) | A claim or action to enforce rights under the Plan; |
(3) | A claim or action to clarify rights to future benefits under the Plan; |
(4) | Any other claim or action that |
(A) | Relates to the Plan, and |
(B) | Seeks a remedy, ruling, or judgment of any kind against the Plan or the Committee. |
(b) | The requirements of this subsection are not met: |
(1) | Until the Claimant (as defined in Plan section 8.10(a)) has exhausted the administrative review procedure set forth in Plan section 8.10; and |
(2) | Unless such claim or action is filed in a court with jurisdiction over such claim or action no later than 36 months after: |
33
Section 8.12
(A) | In the case of a claim or action to recover benefits, the date the first benefit payment was actually made or was allegedly due whichever is earlier; |
(B) | In the case of a claim or action to enforce a right, the date the Committee or its delegate first denied the Claimants request to exercise such right, regardless of whether such denial occurred during administrative review pursuant to Plan section 8.10; |
(C) | In the case of a claim or action to clarify rights to future benefits, the date the Committee first repudiated its alleged obligation to provide such future benefits, regardless of whether such repudiation occurred during administrative review pursuant to Plan section 8.10; or |
(D) | In the case of any other claim or action described in subsection (a)(4), above, the earliest date on which the claimant knew or should have known of the material facts on which such claim or action is based; |
provided that if a request for administrative review pursuant to Plan section 8.10 is pending before the claims administrator designated by the Committee to review such claims when the 36-month period described in this paragraph (2) expires, the deadline for filing such claim or action in a court with proper jurisdiction shall be extended to the date that is 60 calendar days after the final denial of the claim on administrative review.
(3) | The period described in paragraph (2), above, is hereafter referred to as the Applicable Limitations Period. The Applicable Limitations Period replaces and supersedes any limitations period that might otherwise be deemed applicable under state or federal law in the absence of this Plan section 8.11. Except as provided in the following two sentences, a claim or action filed after the expiration of the Applicable Limitations Period shall be deemed time-barred. The Committee shall have the discretion to extend the Applicable Limitations Period upon a showing of exceptional circumstances that, in the opinion of the Committee, provide good cause for extension. The exercise of this discretion is committed solely to the Committee and is not subject to review. |
8.12 Class Action Forum
(a) | To the fullest extent permitted by law, any putative class action lawsuit brought in whole or in part under ERISA section 502 (or any successor provision) and relating to the Plan, the lawfulness of any Plan provision, the administration of the Plan, the management, investment or handling of Plan assets, or the performance or non-performance of Plan fiduciaries or administrators shall be filed in one of the following jurisdictions: |
(1) | The jurisdiction in which the Plan is principally administered, or |
34
Section 8.13
(2) | The jurisdiction in which the largest number of putative class members reside (or if that jurisdiction cannot be determined, the jurisdiction in which the largest number of class members is reasonably believed to reside). |
(b) | If any putative class action within the scope of subsection (a) is filed in a jurisdiction other than one of those described in subsection (a), or if any non-class action filed in such a jurisdiction is subsequently amended or altered to include class action allegations, then the Plan, all parties to such action that are related to the Plan (such as a Plan fiduciary, administrator, or party in interest), and all alleged Participants and Beneficiaries shall take all necessary steps to have the action removed to, transferred to, or re-filed in a jurisdiction described in subsection (a). Such steps may include, but are not limited to: |
(1) | A joint motion to transfer the action, or |
(2) | A joint motion to dismiss the action without prejudice to its re-filing in a jurisdiction described in subsection (a), with any applicable time limits or statutes of limitations applied as if the suit or class action allegation had originally been filed or asserted in a jurisdiction described in subsection (a) at the same time it was filed or asserted in a jurisdiction not described therein. |
(c) | The provisions of this Plan section 8.12 shall be waived if no party invokes them within 120 days of the filing of a putative class action or assertion of class action allegations. |
(d) | Nothing in this Plan section 8.12 shall relieve any putative class member of any obligation existing under the Plan or by law to exhaust all administrative remedies before initiating litigation. |
8.13 Records
The records of an Employer or Affiliate with respect to length of employment, employment history, base pay, absences, and all other relevant matters may be conclusively relied on by the Committee.
35
Section 9.1
Article 9. Amendment and Termination
9.1 Amendments
The Company must necessarily and does hereby reserve the right to amend, modify, or terminate the Plan at any time by action of its Board. The Committee in its sole discretion shall have the power to amend the Plan to:
(a) | Comply with laws and regulations, or as otherwise may be desirable when prompted by a change in law or regulation; and |
(b) | Make any other change that may be necessary or desirable provided any amendment adopted pursuant to this Plan section 9.1 shall not increase the Companys annual expense by more than five (5) million dollars. |
Any material amendment shall be in writing and executed by a duly authorized officer of the Company or a member of the Committee. An amendment to the Plan may modify its terms in any respect whatsoever, and may include, without limitation, a permanent or temporary freezing of the Plan such that the Plan shall remain in effect with respect to existing accrued benefits without permitting any new benefit accruals. All Participants and Beneficiaries shall be bound by any amendment.
9.2 Termination of Plan
The Company, through action of the Board, reserves the right to discontinue and terminate the Plan at any time, for any reason. Any action to terminate the Plan shall be taken by the Board in the form of a written Plan amendment executed by a duly authorized officer of the Company. If the Plan is terminated, such discontinuance or termination shall not have the effect of decreasing the level of benefits which a Participant would be entitled to receive under Article 5 if he incurred a Separation from Service with the Company and all Affiliates on the later of:
(a) | The date the resolution to terminate and discontinue the Plan is adopted; or |
(b) | The date the termination and discontinuance is effective. |
Vested Retirement Income and any Pre-Commencement Death Benefits shall be distributed as soon as practicable if such distribution is permitted because the Plans termination and liquidation meets the requirements of Treasury Regulations section 1.409A-3(j)(4) and, if such requirements are not met, at the earliest time otherwise permitted under the terms of the Plan in accordance with Code section 409A and related Treasury Regulations. Such termination shall be binding on all Participants and all other persons.
9.3 Successors
In case of the merger, consolidation, liquidation, dissolution or reorganization of an Employer, or the sale by an Employer of all or substantially all of its assets, provision may be made by written agreement between the Company and any successor corporation acquiring or receiving a substantial part of the Employers assets, whereby the Plan shall be
36
Section 9.4
continued by the successor. If the Plan is to be continued by the successor, then effective as of the date of the reorganization or transfer, the successor corporation shall be substituted for the Employer under the Plan. To the extent applicable, such written agreement may also specify no later than the closing date of an asset purchase transaction, whether Employees covered by the transaction shall incur a Separation from Service. The substitution of a successor corporation for an Employer shall not in any way be considered a termination of the Plan.
9.4 Prohibition on Changes Due to Code Section 409A
Notwithstanding the foregoing, neither the Board nor the Committee may amend or terminate the Plan in any manner that the Board or the Committee determines in its sole discretion and in accordance with the advice of counsel, violates the applicable provisions of Code section 409A and related Treasury Regulations, including, but not limited to, the applicable time and form of payment requirements, the applicable prohibitions on accelerations, and the plan termination and liquidation provisions.
9.5 Additional Participating Employers
(a) | Adoption. With the consent of the Company, any Affiliate may adopt the Plan before January 1, 2012 for its Eligible Employees and thereby become an Employer under the Plan. An Affiliate adopting the Plan shall compile and submit all information required by the Committee with reference to its Eligible Employees. An entity will be considered to have adopted the Plan with the consent of the Company if it takes significant action that is consistent with the adoption of the Plan, the Board or Committee is aware of the action, and neither objects to the action. |
(b) | Crediting of Prior Service . If an Affiliate adopts the Plan in accordance with subsection (a), or if any persons become Employees of an Employer before January 1, 2012 as the result of merger or consolidation or as the result of acquisition of all or part of the assets or business of another company, the Company shall determine to what extent, if any, previous service with the Affiliate or acquired business shall be recognized under the Plan. |
(c) | Withdrawal by Affiliate. Any Employer may withdraw its participation in the Plan on appropriate action by it. In addition, an Employer will automatically cease to participate in the Plan from and after the date it ceases to be an Affiliate. In either event, the benefits under the Plan will be earned with respect that Employers participation in the Plan shall be determined by the Committee. Pensions payable to Employees employed by the withdrawing Employer shall be payable to such Employees when due under the Plan, but such Employees shall not be considered Eligible Employees from and after the date of withdrawal by their Employer. |
37
Section 10.1
Article 10. Miscellaneous Provisions
10.1 Good-Faith Valuation Binding
In determining the value of the Participants Retirement Income, the Committee shall exercise its best judgment, and all such determinations of value (in the absence of bad faith) shall be binding upon all Participants and their Joint/Contingent Annuitants and Beneficiaries.
10.2 Taxation
It is the intention of the Company that the benefits payable hereunder shall not be deductible by the Employers nor taxable for federal income tax purposes to Participants or Beneficiaries until such benefits are paid by the Employers to such Participants or Beneficiaries. Without limiting the foregoing, it is intended that the Plan meet the requirements of Code section 409A and related Treasury Regulations and the Committee shall use its reasonable best efforts to interpret and administer the Plan in accordance with such requirements. When benefits are paid hereunder, it is the intention of the Company that they shall be deductible by the Employers under Code section 162.
10.3 Withholding
All distributions shall be net of any applicable federal, state, or local income or employment taxes or any other amounts required to be withheld by law. In addition, the Company or any Affiliate may withhold from a Participants currently payable salary, bonus, or other compensation any applicable federal, state, or local income or employment taxes that may be due upon accruing benefits under the Plan.
10.4 Offset for Obligations to the Company or an Affiliate
Notwithstanding anything in the Plan to the contrary, if a Participant or Beneficiary has any outstanding obligation to the Company or any Affiliate (whether or not such obligation is related to the Plan), the Committee may cause the Retirement Income of such Participant or Beneficiary to be reduced and offset by, and to be applied to satisfy, the amount of such obligation; provided, the offset is not in excess of $5,000 for any tax year (determined based on the tax year of the Company and Affiliates) and the offset occurs at the same time as the outstanding obligation to the Company or any Affiliate is due.
10.5 No Enlargement of Employment Rights
This Plan is strictly a voluntary undertaking on the part of the Company and the Employers and shall not be deemed to constitute a contract between the Employers and any Employee or Participant, Beneficiary, or alternate payee, or to be consideration for, or an inducement to, or a condition of, the employment of any Employee. Nothing contained in this Plan or any modification of the same or act done in pursuance hereof shall be construed as giving any person any legal or equitable right against the Employer, unless specifically provided herein, or as giving any person a right to be retained in the employ of the Employer. All Participants shall remain subject to assignment, reassignment, promotion, transfer, layoff, reduction, suspension, and discharge to the same extent as if this Plan had never been established.
38
Section 10.6
10.6 Non-Alienation
(a) | Except as otherwise permitted by the Plan, no benefit payable at any time under the Plan shall be subject to the debts or liabilities of a Participant or his Beneficiary. Any attempt to alienate, sell, transfer, assign, pledge, or otherwise encumber any such benefit, whether presently or thereafter payable, shall be void. Except as provided in this Plan section, no benefit under the Plan shall be subject in any manner to attachment, garnishment, or encumbrance of any kind. |
(b) | Payment may be made from a Participants Retirement Income to an alternate payee, pursuant to a domestic relations order. |
(1) | The Committee shall establish reasonable written procedures for reviewing court orders made, pursuant to state domestic relations law (including a community property law), relating to child support, alimony payments, or marital property rights of a Spouse, child, or other dependent of a Participant and for notifying Participants and alternate payees of the receipt of such orders and of the Plans procedures for determining if the orders are approved domestic relations orders and for administering distributions under domestic relations orders. |
(2) | Except as may otherwise be required by applicable law, such domestic relations orders may not require a retroactive transfer of all or part of a Participants Retirement Income. |
10.7 No Examination or Accounting
Neither this Plan nor any action taken thereunder shall be construed as giving any person the right to an accounting or to examine the books or affairs of the Company or any Affiliate.
10.8 Incompetency
Every person receiving or claiming benefits under the Plan shall be conclusively presumed to be mentally competent and of age until the date on which the Committee receives a written notice, in a form and manner acceptable to the Committee, that such person is incompetent or a minor, for whom a guardian or other person legally vested with the care of his person or estate has been appointed; provided, however, that if the Committee shall find that any person to whom a benefit is payable under the Plan is unable to care for his affairs because of incompetency, or is a minor, any payment due (unless a prior claim therefore shall have been made by a duly appointed legal representative) may be paid instead to the guardian of such person or to the person having custody of such person, without further liability on the part of an Employer for the amount of such payment to the person on whose account such payment is made.
10.9 Notice of Address
Each person entitled to benefits from the Plan must file with the Committee or its agent, in writing, his post office address and each change of post office address. Any communication, statement, or notice addressed to such a person at his latest reported post office address will
39
Section 10.10
be binding upon him for all purposes of the Plan, and neither the Committee nor the Company shall be obliged to search for or ascertain his whereabouts.
10.10 Data
All persons entitled to benefits from the Plan must furnish to the Committee such documents, evidence, or information, including information concerning marital status, as the Committee considers necessary or desirable for the purpose of administering the Plan.
10.11 Service of Legal Process
The General Counsel of the Company is hereby designated agent of the Plan for the purpose of receiving service of summons, subpoena, or other legal process.
10.12 Qualified Military Service
Notwithstanding any provision of this Plan to the contrary and to the fullest extent permitted under Treasury Regulations section 1.409A-2(a)(15), the election requirements under this Plan shall be deemed satisfied to the extent that an election is provided to the Participant to satisfy the requirements of the Uniformed Service Employment and Reemployment Rights Act of 1994, as amended.
10.13 Counterparts
This Plan may be executed in any number of counterparts, each of which shall be deemed to be an original. All the counterparts shall constitute but one and the same instrument and may be sufficiently evidenced by any one counterpart.
In Witness Whereof , the undersigned, duly authorized by the Board, has caused this instrument to be executed on May 5, 2011, but effective as of January 1, 2012.
By |
/s/_ Barbara Kellams |
|
Barbara A. Kellams | ||
Vice-President Counsel | ||
The Walt Disney Company |
40
Exhibit 10.6
Benefit Equalization Plan of
ABC, Inc.
Amended and Restated
Effective as of January 1, 2012
Section 1.1
Contents
Article 1. Introduction |
1 | |||
1.1 Background and History |
1 | |||
1.2 Restatement of Plan |
2 | |||
1.3 Purpose and Applicability of the Plan |
2 | |||
1.4 Status of the Plan |
2 | |||
Article 2. Definitions and Construction |
4 | |||
2.1 Definitions |
4 | |||
2.2 Gender and Number |
10 | |||
2.3 Headings |
10 | |||
2.4 Requirement to Be in Written Form |
10 | |||
2.5 Severability |
10 | |||
2.6 Applicable Law |
11 | |||
Article 3. Participation, Service and Vesting |
12 | |||
3.1 Participation |
12 | |||
3.2 Duration |
12 | |||
3.3 Transfers |
12 | |||
3.4 Vesting |
13 | |||
Article 4. Retirement Income |
14 | |||
4.1 Determination of Retirement Income |
14 | |||
Article 5. Distribution of Plan Benefits |
17 | |||
5.1 General |
17 | |||
5.2 Time of Payment |
17 | |||
5.3 Form of Payment |
17 | |||
5.4 Benefit Cash-out |
18 | |||
Article 6. Transfers, Rehires and Other Special Situations |
20 | |||
6.1 Effect and Applicability |
20 | |||
6.2 Code Section 409A Aggregation Rules |
20 | |||
6.3 No Duplication of Benefits |
20 | |||
6.4 Additional Retirement Income |
21 | |||
6.5 Permissible Delays or Accelerations |
22 |
i
Section 1.1
Article 7. Pre-Commencement Death Benefit |
23 | |||
7.1 Amount of Pre-Commencement Death Benefit |
23 | |||
7.2 Time and Form of Payment for Pre-Commencement Death Benefit |
23 | |||
7.3 Beneficiary Determination |
23 | |||
7.4 Cash-Out Payment of Pre-Commencement Death Benefit |
24 | |||
Article 8. Financing and Administration |
25 | |||
8.1 Financing |
25 | |||
8.2 Plan Administrative Committee |
25 | |||
8.3 Duties of Committee |
25 | |||
8.4 Meetings |
26 | |||
8.5 Actions by the Committee |
26 | |||
8.6 Compensation and Bonding |
26 | |||
8.7 Establishment of Rules and Interpretation of Plan |
26 | |||
8.8 Limitation of Liability |
27 | |||
8.9 Indemnification |
27 | |||
8.10 Claims Procedures |
27 | |||
8.11 Limitation on Actions |
29 | |||
8.12 Class Action Forum |
30 | |||
8.13 Records |
31 | |||
Article 9. Amendment and Termination |
32 | |||
9.1 Amendments |
32 | |||
9.2 Termination of Plan |
32 | |||
9.3 Successors |
32 | |||
9.4 Prohibition on Changes Due to Code Section 409A |
33 | |||
9.5 Additional Participating Employers |
33 | |||
Article 10. Miscellaneous Provisions |
34 | |||
10.1 Good-Faith Valuation Binding |
34 | |||
10.2 Taxation |
34 | |||
10.3 Offset for Obligations to the Company or an Affiliate |
34 | |||
10.4 Withholding |
34 | |||
10.5 No Enlargement of Employment Rights |
34 | |||
10.6 Non-Alienation |
35 | |||
10.7 No Examination or Accounting |
35 | |||
10.8 Incompetency |
35 | |||
10.9 Notice of Address |
35 | |||
10.10 Data |
36 | |||
10.11 Service of Legal Process |
36 | |||
10.12 Qualified Military Service |
36 | |||
10.13 Counterparts |
36 |
ii
Section 1.1
Article 1. Introduction
1.1 Background and History
ABC, Inc. established the Benefit Equalization Plan of ABC, Inc. (Plan) to equalize the benefits of employees participating in the Disney Salaried Pension Plan A (Pension Plan) (formerly known as the ABC, Inc. Retirement Plan) and the ABC, Inc. Savings & Investment Plan (Savings & Investment Plan).
On an after December 1, 1988, the Plan equalized the benefits of the employees participating in the ABC, Inc. Supplemental Pension Plan (as set forth on Schedule XXXIII of the Pension Plan on and after January 1, 1996).
Effective as of January 1, 1996, Participants in the Plan received a single sum distribution of the Actuarial Equivalent, as in effect at that time, of their Retirement Income under this Plan as a result of the Change in Control that occurred when The Walt Disney Company (the Company) acquired ABC, Inc. Future Retirement Income payable to such Participants shall be reduced by the Retirement Income distributed, as further described in Plan section 4.1(b).
Effective May 9, 1997, Fairchild Publications, Inc. assumed responsibility for all liabilities and obligations of ABC Media, Inc. and its subsidiaries under:
(a) | The Benefit Equalization Plan of ABC, Inc.; and |
(b) | The Benefit Equalization Plan of Capital Cities Media, Inc. |
for the benefits of then current and former employees of ABC Media, Inc. and its subsidiaries.
As of March 31, 1998, the Plan ceased equalizing benefits under the Savings & Investment Plan and distributed all benefits under the plan to applicable participants.
Prior to April 1, 1998, the Benefit Equalization Plan of Capital Cities Media, Inc. equalized the benefits under the Fairchild Publications, Inc. Publishing Pension Plan. As of April 1, 1998, the Benefit Equalization Plan of Capital Cities Media, Inc was merged into the Plan. On and after April 1, 1998, the Plan equalized the benefits for the Fairchild Publications, Inc. Publishing Pension Plan (as set forth on Schedule XXXVII of the Pension Plan on and after April 1, 1998).
As of October 3, 2004, the Plan only equalized benefits under the Pension Plan (and schedules set forth thereto).
Effective as of January 1, 2009, ABC, Inc. amended and restated the Plan:
(a) | To bring the Plan into compliance with Code section 409A and the final Treasury Regulations thereunder; and |
1
Section 1.2
(b) | To transfer sponsorship of the Plan to The Walt Disney Company. |
1.2 Restatement of Plan
Effective as of January 1, 2012, the Company hereby amends and restates the Plan to reflect changes required by the re-design of retirement benefits for salaried employees. The provisions of this restatement shall be effective as of January 1, 2012, except as specifically provided in this document. Nothing contained in this restatement shall be interpreted as amending any provision under the BEP Part I. (Capitalized terms with special meanings are defined in Article 2 of this Plan.)
1.3 Purpose and Applicability of the Plan
The Company and ABC, Inc. desire to provide certain designated key management and highly compensated Employees with enhanced retirement benefits over and above those provided under the applicable portion(s) of the Pension Plan due to the application of the limits under Code sections 415 and 401(a)(17). The purpose of the Plan document is to set forth the terms and conditions pursuant to which these benefits are accrued and to describe the nature and extent of the employees rights to these accrued benefits.
Except as otherwise provided herein, the provisions of this Plan restatement are applicable only to Participants (other than Grandfathered Participants) who are Eligible Employees on or after January 1, 2012. Unless otherwise explicitly provided in this Plan restatement, the Plan provisions, operation and administration in effect prior to this restatement shall continue to govern the terms and conditions of the Plan prior to January 1, 2012 that apply to Participants (other than Grandfathered Participants) who are not Eligible Employees on or after January 1, 2012. The benefits of Grandfathered Participants shall be determined solely under the provisions of BEP Part I.
1.4 Status of the Plan
(a) | Nonqualified Plan . The Plan is not qualified within the meaning of Code section 401(a). The Plan is intended to provide an unfunded and unsecured promise to pay money in the future and thus not to involve, pursuant to Treasury Regulations section 1.83-3(e), the transfer of property for purposes of Code section 83. Likewise, benefits credited under this Plan are not intended to confer an economic benefit upon the Participant nor is the right to the receipt of future benefits under the Plan intended to result in any Participant, Beneficiary or alternate payee being in constructive receipt of any amount so as to result in any benefit due under the Plan being includible in the gross income of any Participant, Beneficiary or alternate payee in advance of the date on which payment of any benefit due under the Plan is actually made. For tax purposes and purposes of Title I of ERISA, the Plan is intended to be an unfunded, nonqualified deferred compensation plan covering certain designated employees who are within a select group of key management or highly compensated employees. |
(b) |
Compliance with Code Section 409A . This Plan is intended to comply with Code section 409A and related regulatory guidance. Therefore, the Plan shall be |
2
Section 1.4
administered and interpreted in a manner consistent with that purpose. The Committee shall have full authority to take any and all actions as it deems necessary or appropriate to carry out this intent and purpose of the Plan. |
(c) | Additional or Special Arrangements. Except as provided in the following sentence, the Committee, the Company, or any other Employer may, in its sole discretion, provide by a separate written agreement that the benefits payable to any individual who is also an Eligible Employee under the Plan shall be determined in accordance with the terms of the Plan, as the same may be modified in respect of that Eligible Employee under such agreement. No such agreement entered into on or after January 1, 2012 shall provide benefits for an individual unless the individual was, as of December 31, 2011, an Eligible Employee as this term was defined in the Pension Plan on that date. Any such agreement may provide such Eligible Employee with additional years of service, credit for service with affiliated companies, a different vesting schedule, an individualized formula for the determination of such Eligible Employees benefit, or such other modification (which may constitute an enhancement or limitation) of the benefits provided hereby as the Committee, Company, or other Employer shall specify. Further, any separate agreement may provide for benefits which may be partially or wholly in addition to or in lieu of any benefits provided hereunder, and which may be greater, less than or equal to any benefits provided hereunder and any such benefits may or may not be calculated or otherwise determined by reference to the benefits provided by the Plan or by reference to, or by incorporation by reference of, any of the terms or provisions of the Plan. However, deferrals of compensation under this Plan and such other separate written agreement, if any, shall be aggregated with respect to the Eligible Employee to the extent required under Code section 409A and related regulations for purposes of assuring compliance with those rules. |
(d) | No Guarantees of Intended Tax Treatment . The Plan shall be administered and interpreted so as to satisfy the requirements for the intended tax treatment under the Code described in this Plan section. However, the treatment of benefits earned under and benefits received from this Plan, for purposes of the Code and other applicable tax laws (such as state income and employment tax laws), shall be determined under the Code and other applicable tax laws and no guarantee or commitment is made to any Participant, Beneficiary or alternate payee with respect to the treatment of accruals under or benefits payable from the Plan for purposes of the Code and other applicable tax laws. |
3
Section 2.1
Article 2. Definitions and Construction
2.1 Definitions
Whenever used in the Plan, the following terms shall have the respective meanings set forth below, unless otherwise expressly provided; and when the defined meaning is intended, the term is capitalized.
(a) | Actuarial Equivalent or Actuarially Equivalent means equality in the value of the aggregate amounts expected under different forms of payment, with adjustments to compensate for time or frequency of receipt, using the interest rates, mortality tables, and other actuarial assumptions and methods provided in the definition of Actuarial Equivalent under the Pension Plan that is applicable to the benefit when it is determined under this Plan. At any given time: |
(1) | The same actuarial assumptions and methods shall be used in valuing each annuity payment option, in determining whether the payments are actuarially equivalent; and |
(2) | Such assumptions and methods must be reasonable. |
(b) | Affiliate generally means any corporation or other entity that is required to be aggregated with the Company under Code sections 414(b) or (c). |
(c) | Beneficiary means the person or persons designated by the Plan as entitled to receive the Participants Pre-Commencement Death Benefit as determined under Plan section 7.3. |
(d) | Benefit Calculation Date means the date as of which Retirement Income payable to a Participant or the Pre-Commencement Death Benefit payable to a Beneficiary is calculated and, unless otherwise explicitly provided, such date shall be: |
(1) | With respect to a Participant, the first day of the calendar month coincident with or next following the Payment Event; and |
(2) | With respect to a Beneficiary, the first day of the calendar month next following the Payment Event. |
(e) | BEP Part I means, with respect to a Grandfathered Participant, the applicable portion of the Benefit Equalization Plan of ABC, Inc. as in effect on October 3, 2004. |
(f) | Board means the Board of Directors of the Company. |
(g) |
Certain and Life Annuity means, for Payment Events occurring on or after January 1, 2012 (including a Payment Event for a Participant (other than a Grandfathered Participant) who is not an Eligible Employee on or after January 1, 2012), a monthly benefit that is the Actuarial Equivalent of a Participants Single |
4
Section 2.1
Life Annuity and that is payable during the Participants lifetime with a guaranteed payment period during which monthly payments shall be made without regard to the Participants death. The last payment shall be made on the first day of the calendar month in which the Participants death occurs or, if later, the end of the guaranteed payment period. If the Participant dies prior to the end of the guaranteed payment period and is survived by the Joint/Contingent Annuitant, the Actuarial Equivalent present value of the remaining guaranteed payments shall be paid to the Joint/Contingent Annuitant in a single lump sum payment on the first day of the fourth calendar month next following the Participants death. If the Joint/Contingent Annuitant dies before the Participant and no new Joint/Contingent Annuitant has been designated at the Participants death, the Actuarial Equivalent present value of the remaining guaranteed payments shall be paid to the Participants estate in a single lump sum payment on the first day of the fourth calendar month next following the Participants death. |
(h) | Change in Control means an event described under paragraphs (1), (2), (3), (4) or (5) as follows: |
(1) | The acquisition within any 12-month period by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended) (a Person) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended) of thirty percent (30%) or more of the total voting power of the then outstanding stock of the Company entitled to vote generally in the election of directors, but excluding the following transactions (the Excluded Acquisitions): |
(A) | Any acquisition directly from the Company (other than an acquisition by virtue of the exercise of a conversion privilege of a security that was not acquired directly from the Company), |
(B) | Any acquisition by the Company, and |
(C) | Any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company; |
(2) | Any time during a period of 12 months or less, individuals who at the beginning of such period constitute the Board (and any new directors whose election by the Board or nomination for election by the Companys shareholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was so approved) ceasing for any reason to constitute a majority thereof; |
(3) | An acquisition (other than an Excluded Acquisition) by any Person of fifty percent (50%) or more of the voting power or value of the Companys stock; |
5
Section 2.1
(4) | The consummation of a merger, consolidation, reorganization or similar corporate transaction, whether or not the Company is the surviving company in such transaction, other than a merger, consolidation, or reorganization that would result in the Persons who are beneficial owners of the Companys stock outstanding immediately prior thereto continuing to beneficially own, directly or indirectly, in substantially the same proportions, at least fifty percent (50%) of the combined voting power or value of the Companys stock (or the stock of the surviving entity) outstanding immediately after such merger, consolidation or reorganization; or |
(5) | The sale or other disposition during any 12-month period of all or substantially all of the assets of the Company, provided that such sale is of assets having a total gross fair market value equal to or greater than 40% of the total gross fair market value of the assets of the Company immediately prior to such sale or disposition. |
The foregoing definition of Change in Control is intended to comply with the requirements of Code section 409A and the guidance issued thereunder and shall be interpreted and applied by the Committee in a manner consistent with this intent.
(i) | Code means the Internal Revenue Code of 1986, as amended and any succeeding federal tax provisions. |
(j) | Committee means the Investment and Administrative Committee of The Walt Disney Company Sponsored Qualified Benefit Plans and Key Employees Deferred Compensation and Retirement Plan. |
(k) | Company means The Walt Disney Company. |
(l) | Domestic Partner means the individual determined by the Company in its sole discretion to be the Participants same-sex domestic partner in accordance with the Companys procedures for identifying domestic partners. |
(m) | Early Retirement Date means, with respect to the Participant, the Early Retirement Date as set forth in the applicable provisions of the Pension Plan to which benefits accrued under this Plan relate. |
(n) | Eligible Employee means a salaried Employee of an Employer who is an Eligible Employee who has become a Member as these terms are defined in the Pension Plan, and who is designated by the Company or an Employer as an executive-level Employee under the customary employee classification procedures of the Company or Employer. |
(o) |
Employee means any individual who is employed as a common-law employee of the Company or an Affiliate, including officers, but excluding independent contractors and leased employees (or any individuals designated as independent |
6
Section 2.1
contractors or leased employees under the customary worker classification procedures of the Company or an Affiliate) and directors who are not officers or otherwise employees. |
(p) | Employer means ABC, Inc. and all Affiliates that have been designated as Employers with respect to the Plan in accordance with the terms of Plan section 9.5. |
(q) | ERISA means the Employee Retirement Income Security Act of 1974, as amended. |
(r) | Executive Officer means an Eligible Employee who is an officer of the Company or its Affiliates and who performs a policy-making function for the Company, as determined from time to time by the Board, which determination shall be conclusive. If an Eligible Employee ceases to be an Executive Officer, as determined by the Board in its sole discretion, he shall be deemed to continue to be an Executive Officer (while employment continues) through the last day of the calendar year that includes the last day of the Companys fiscal year next following the Companys fiscal year during which the Eligible Employee ceased to be an Executive Officer. |
(s) | Grandfathered Participant means an individual whose employment with the Company and all Affiliates terminated before January 1, 2005, while the individual had a vested benefit under the BEP Part I. If a Grandfathered Participant is reemployed after 2004 and before 2012 and once again becomes a Participant, BEP Part I shall apply only to the Participants benefit that was earned and vested before 2005. The Participant shall not be a Grandfathered Participant with respect to any benefit earned or vested after 2004. |
(t) | Interest Rate means the 6-month LIBOR rate effective as of each January 1 based on the rate in effect as of the preceding October 1. |
(u) | Joint and Survivor Annuity means a monthly benefit that is the Actuarial Equivalent of a Participants Single Life Annuity and that is payable during the Participants lifetime with a designated percentage of the Participants monthly benefit amount continuing after his death to his Joint/Contingent Annuitant, if such Joint/Contingent Annuitant survives him, for the Joint/Contingent Annuitants remaining lifetime. The last payment shall be made on the first day of the calendar month in which the Participants death occurs or, if later, the Joint/Contingent Annuitants death. |
(v) | Joint/Contingent Annuitant means the person(s) designated as such by the Participant or the Plan, as applicable, as entitled to receive a portion of the Participants Retirement Income following his death. |
(w) |
Key Plan Employer means an Employer, as that term is defined in The Walt Disney Productions and Associated Companies Key Employees Deferred |
7
Section 2.1
Compensation and Retirement Plan, as opposed to an Employer defined under this Plan. |
(x) | Military Leave means leave subject to reemployment rights under the Uniformed Services Employment and Reemployment Rights Act of 1994, as amended from time to time. |
(y) | Normal Retirement Date means, with respect to the Participant, the Normal Retirement Date as set forth in the applicable provisions of the Pension Plan to which benefits accrued under this Plan relate. |
(z) | Participant means any person who has been admitted to, and has not been removed from, participation in the Plan pursuant to the provisions of Article 3. |
(aa) |
Payment Date means the date that any vested Retirement Income becomes payable to the Participant under Plan section 5.2 or, if the Participant has died before the Payment Date of any vested Retirement Income, the date that any Pre-Commencement Death Benefit becomes payable to the Beneficiary under Plan section 7.2. If the Participant has post-separation or reemployment accruals under Plan section 6.4(b), then the Payment Date for the additional accruals shall be the Benefit Calculation Date. Notwithstanding any other Plan provision to the contrary and solely for purposes of determining compliance with Code section 409A and related Treasury Regulations, except with respect to any payment due under Plan section 6.4(b), a payment shall be deemed made on the Payment Date if the benefit actually commences by the end of the calendar year in which the Payment Date occurs or, if later, by the 15 th day of the third month following the Payment Date. |
(bb) | Payment Event means the applicable event triggering a payment of vested benefits under the Plan. The applicable event shall be one of the following: |
(1) | The later of the Participants Separation from Service or attainment of age 55; |
(2) | Before the Payment Date of any vested Retirement Income to the Participant, the later of Participants death or the date that the Participant would have attained age 55; |
(3) | A Change in Control; or |
(4) | With respect to post-separation or reemployment accruals under Plan section 6.4(b) after a Payment Event under paragraph (1), January 1 of the calendar year following the calendar year in which such additional Retirement Income is accrued. |
(cc) | Pension Plan means the Disney Salaried Pension Plan A (formerly known as the ABC, Inc. Retirement Plan), as in effect from time to time. The Pension Plan constitutes a qualified employer plan as defined under Treasury Regulations section 1.409A-1(a)(2). |
8
Section 2.1
(dd) | Pension Plan Benefit means the monthly benefit payable under the Pension Plan. |
(ee) | Plan means the Benefit Equalization Plan of ABC, Inc., as contained herein and as amended from time to time. With respect to a Grandfathered Participant only, the Plan includes BEP Part I. |
(ff) | Pre-Commencement Death Benefit means the benefit described in Article 7. |
(gg) | Retirement Income means a monthly benefit: |
(1) | Which a Participant has earned under the Plan as of any date of reference; and |
(2) | Which is more fully determined under Article 4. |
To the extent a Participants Retirement Income is paid or expressed as an annual benefit, such annual benefit payment shall be 12 times the Participants monthly benefit.
(hh) | Separation from Service means, as provided in the following paragraphs of this subsection, an Employees termination from employment with the Company and all Affiliates, whether by retirement, resignation from or discharge by the Company or an Affiliate (but not by a transfer among the Company and Affiliates or death). |
(1) | A Separation from Service shall be deemed to have occurred on a certain date if an Employee and the Company and Affiliates reasonably anticipate, based on the facts and circumstances, that either: |
(A) | The Employee will not provide any additional services for the Company or any Affiliate after that date; or |
(B) | The level of bona fide services performed by the Employee after that date will permanently decrease to no more than 40 percent of the average level of bona fide services performed by the Employee over the immediately preceding 36 months. |
(2) | If an Employee is absent from employment due to Military Leave, sick leave, or any other bona fide leave of absence authorized by the Company or an Affiliate and there is a reasonable expectation that the Employee will return to perform services for the Company or an Affiliate, then a Separation from Service shall not occur until the later of: |
(A) | The first date immediately following the date that is six months after the first date that an Employee was absent from employment; and |
(B) | To the extent the Employee retains a right to reemployment with the Company or any Affiliate under an applicable statute or by contract, the date the Employee no longer retains a right to reemployment. |
9
Section 2.2
If a Participant fails to return to work upon the expiration of any Military Leave, sick leave, or other bona fide leave of absence where such leave is for less than six months, the Separation from Service shall occur as of the date of the expiration of such leave.
(ii) | Single Life Annuity means a benefit payable monthly during the Participants lifetime, commencing as of his Benefit Calculation Date and ending with the payment due on the first day of the calendar month in which the Participants death occurs. |
(jj) | Specified Employee means any person determined to be a specified employee under Code section 409A and Treasury Regulations section 1.409A-1(i). |
(kk) | Spouse means a spouse as defined by the Defense of Marriage Act (Pub. Law No. 104-199) and shall also include a former spouse of a Participant to the extent required by a domestic relations order, within the meaning of Code section 414(p)(1)(B) and permitted under Treasury Regulations section 1.409A-3(j)(4)(ii). This definition is intended to clarify how the term spouse has been applied for purposes of the Plan (and BEP Part I) prior to January 1, 2009 and will be applied for purposes of the Plan (and BEP Part I) on and after January 1, 2009. |
(ll) | Treasury Regulations means the regulations promulgated by the United States Department of the Treasury under the Code. |
2.2 Gender and Number
Except as otherwise indicated by the context, any masculine or feminine terminology shall also include the opposite gender, and the definition of any term in the singular or plural shall also include the opposite number.
2.3 Headings
The headings of this Plan are inserted for convenience of reference only, and they are not to be used in the construction of the Plan.
2.4 Requirement to Be in Written Form
Various notices provided by the Company, Employers, the Committee, or any duly authorized agent of either of them and various elections made by Participants, Beneficiaries or other payees are required to be in written form. Notwithstanding anything to the contrary in this Plan, any notices and elections related to, or that may constitute part of, the Plan may be conveyed through an electronic system or any other system approved by the Committee unless otherwise provided under applicable law or regulatory guidance.
2.5 Severability
If a provision of this Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included in the Plan.
10
Section 2.6
2.6 Applicable Law
To the extent not preempted by ERISA or other federal law, the Plan and all rights hereunder shall be governed, construed, and administered in accordance with the laws of the state of California.
11
Section 3.1
Article 3. Participation, Service and Vesting
3.1 Participation
Each Eligible Employee whose benefit under the applicable portion of the Pension Plan, for any calendar year, is limited by Code sections 415 and/or 401(a)(17) shall be a Participant in the Plan. Notwithstanding the foregoing, but subject to the following sentence, each Employee who becomes an Eligible Employee pursuant to an agreement approved by the Committee shall become a Participant as of the date, if any, specified in such agreement or otherwise specified by the Committee. No such agreement entered into on or after January 1, 2012 shall provide for participation by an individual unless the individual was, as of December 31, 2011, an Eligible Employee as this term was defined in the Pension Plan on that date. Each individual who is a Participant in the Plan on the date immediately preceding January 1, 2012 shall continue as a Participant in the Plan in accordance with the terms of the Plan (or, in the case of a Grandfathered Participant, the terms of BEP Part I).
3.2 Duration
An individual who becomes a Participant under the Plan shall remain a Participant for as long as he remains an Employee or is entitled to receive any benefits hereunder.
3.3 Transfers
(a) | Transfers to Eligible Employee Status. An Employee who transfers employment before January 1, 2012 such that he becomes an Eligible Employee and satisfies the requirements of Plan section 3.1 as of the date of transfer shall be a Participant in the Plan as of the date of transfer. No Employee shall become an Eligible Employee by reason of an employment transfer occurring on or after January 1, 2012. |
(b) | Transfers from Eligible Employee Status . To the extent a Participant transfers employment to an Affiliate and is no longer an Eligible Employee: |
(1) | The Participant may become vested in his Retirement Income pursuant to Plan section 3.4, even though he is no longer an Eligible Employee. |
(2) | The Participant shall, if he is or becomes vested in his Retirement Income, remain a Participant in the Plan until the date his vested Retirement Income is distributed from the Plan. |
(3) | To the extent the Participant has no vested interest in his Retirement Income under the Plan but remains employed by an Affiliate, the Participant shall remain a Participant in the Plan until the date he ceases to be employed by the Company and all Affiliates at a time when he has no vested Retirement Income under the Plan. If he remains employed by an Affiliate until his Retirement Income under the Plan vests, his status as a Participant shall be determined under paragraph (2). |
12
Section 3.4
(c) | Transfers to The Walt Disney Company On or After January 1, 2012. If an Eligible Employee transfers from an Employer to a Key Plan Employer on or after January 1, 2012, he shall remain an Eligible Employee under the Plan as long as he remains an Eligible Employee as this term is defined in the Pension Plan. |
3.4 Vesting
(a) | Vested Benefit . Except as otherwise provided in this Plan section, a Participant who is vested under the Pension Plan shall be 100 percent vested in his Retirement Income and shall be entitled to a benefit from the Plan. If a Participant has a Separation from Service prior to becoming vested under the Pension Plan, his Retirement Income under the Plan shall be immediately forfeited. |
(b) | Vesting on Change in Control . If a Change in Control occurs, each Participant shall become 100 percent vested in his Retirement Income if he is not already 100 percent vested upon the Change in Control. |
(c) | Level of Combined Vested Benefit . The amount of the combined vested benefits under the Pension Plan and the Plan that the Participant is entitled to receive as of a date certain generally shall not decrease after the Participants benefits under the Plan become 100 percent vested; provided, however, that the portion of the Participants vested benefits payable under this Plan may decrease over time due to the operation of the Plan and the Pension Plan when (1) benefits payable under the Pension Plan increase or (2) benefits determined under the benefit formula prescribed by Plan section 4.1 decrease, for example, by reason of a decrease in average compensation. |
13
Section 4.1
Article 4. Retirement Income
4.1 Determination of Retirement Income
(a) | Subject to subsections (b), (c), and (d), a Participants Retirement Income payable for the Participants lifetime (or other form in which the accrued benefit is defined under the Pension Plan at any time of reference) from the Plan as of his Benefit Calculation Date shall be equal to the gross benefit amount determined under paragraph (1), minus the Pension Plan Benefit amount determined under paragraph (2), but shall not be more than the maximum determined under paragraph (3) (if applicable), as follows: |
(1) | The gross benefit amount equals the Pension Plan Benefit that would have been payable to the Participant under the Pension Plan if he incurred a Severance from Service (as this term is defined in the Pension Plan) on the date of the Payment Event (or his actual Severance from Service under the Pension Plan, if earlier) and elected benefit commencement as of his Benefit Calculation Date and if the Pension Plan Benefit was determined: |
(A) | Without regard to the limits imposed by Code sections 415 and 401(a)(17) and without regard to Schedule XXVI of the Pension Plan, relating to the reduction in the Code section 401(a)(17) limit that became effective for Plan Years beginning on or after January 1, 1994, under which a Participants Pension Plan Benefit is determined as the sum of a pre-1994 portion and a post-1993 portion in order to mitigate the effect of the reduction, to the extent that such benefit otherwise payable under the Pension Plan exceeds the limitations imposed by Code sections 401(a)(17) and 415; |
(B) | For a Participant who is an Eligible Employee on or after January 1, 2011, by taking into account any equity in lieu of bonus received by the Participant on or after such date as if it were pension-eligible compensation under the Pension Plan; and |
(C) | Effective January 1, 2017, by limiting the Participants average annual compensation used in the benefit formula, as follows: |
(i) | If the Participants average annual compensation: |
(I) | determined for purposes of calculating benefits based on service before January 1, 2012 equals or exceeds $1 million as of December 31, 2016, the Participants average annual compensation shall be frozen for such purpose and shall not thereafter increase or decrease. |
14
Section 4.1
(II) | determined for purposes of calculating benefits based on service on and after January 1, 2012, equals or exceeds $1 million as of December 31, 2016, the Participants average annual compensation shall be frozen for such purpose and shall not thereafter increase or decrease. |
(ii) | If the Participants average annual compensation for one or both purposes described in (i), above, is less than $1 million as of December 31, 2016, the Participants average annual compensation for such purpose or purposes shall continue to be calculated as described in the Pension Plan, except that: |
(I) | compensation taken into account with respect to any 12-consecutive-month period that is used to determine the average and begins on or after January 1, 2017 shall not exceed $1 million; and |
(II) | annual average compensation shall not increase above $1 million. |
(2) | The gross benefit amount described in paragraph (1) shall be reduced by the Pension Plan Benefit that would have been payable to the Participant under the Pension Plan if he incurred a Severance from Service (as this term is defined in the Pension Plan) on the date of the Payment Event (or his actual Severance from Service under the Pension Plan, if earlier) and elected benefit commencement as of his Benefit Calculation Date. |
(3) | Notwithstanding the foregoing, if a Participant is (or is deemed to be) an Executive Officer as of the earlier of the date he ceases to be an Eligible Employee or his Separation from Service, the Participants Retirement Income shall not exceed the greater of: |
(A) | The Retirement Income that the Participant would have been entitled to under the Plan if the provisions of the Plan and the Pension Plan as in effect on December 31, 2011 had continued in effect without change; or |
(B) | If the Participant: |
(i) | was not an Executive Officer on January 1, 2012, but later becomes an Executive Officer; or |
(ii) |
after ceasing to be an Executive Officer after January 1, 2012 (including the exhaustion of the period described in Plan section 2.1(r) during which he was deemed to be an Executive Officer), later again becomes an Executive Officer, |
15
Section 4.1
the Retirement Income payable to the Participant under the Plan, determined as if he had a Separation from Service on the day immediately preceding the most recent date after January 1, 2012 on which he becomes or again becomes an Executive Officer. |
(b) | To the extent that a Participants name is set forth in Committee records on or before December 31, 2008, in determining the amount of the Participants Retirement Income, the amount determined under subsection (a) shall be reduced by the Retirement Income amount stated in the Committee records for such Participant that was paid on or about January 1, 1996. This amount reflects the annuity value on which a lump sum was paid to the Participant under the terms of the Plan then in effect as a result of the Change in Control by which The Walt Disney Company acquired ABC, Inc. If the Benefit Calculation Date occurs before the Participants Normal Retirement Date, the annuity value applied to reduce the amount determined under subsection (a) shall be reduced for payment before the Normal Retirement Date (as applicable) in accordance with the early retirement reduction rules for reducing the gross benefit set forth in the Pension Plan as in effect at the Change in Control or, where no such rules apply or where reductions to a lower age than specified in the Pension Plan are necessary, on an Actuarially Equivalent basis. |
(c) | If the Participants Payment Event is a Change in Control: |
(1) | The Participants Retirement Income shall be determined under subsection (a) as if the Participant Severed from Service (as this term is defined under the Pension Plan) with a fully vested Pension Plan Benefit on the last day of the month preceding the Change in Control; and |
(2) | If the Participants Benefit Calculation Date is before his Normal Retirement Date, the Retirement Income calculation described in subsection (a): |
(A) | shall be performed as if the Participant elected commencement as of his Normal Retirement Date instead of his Benefit Calculation Date; and |
(B) | after taking into account any adjustment described in subsection (b) as of the Normal Retirement Date, shall be reduced for payment before the Normal Retirement Date on an Actuarially Equivalent basis to the Participants Benefit Calculation Date. |
(d) | To the extent any portion of the Participants Pension Plan benefit is offset by benefits payable under another qualified retirement plan, a Participants Retirement Income shall be determined prior to the application of any such other offsets. |
16
Section 5.1
Article 5. Distribution of Plan Benefits
5.1 General
A Participants vested Retirement Income shall be payable, for reasons other than the Participants death, at the time and in the form determined in this Article 5.
5.2 Time of Payment
(a) | Default Time of Payment . Except as otherwise provided for under the terms of the Plan, the Participant shall be entitled to a payment of Retirement Income under the Plan as of the earlier Payment Date determined below: |
(1) | If the Payment Event is the later of the Participants Separation from Service or attainment of age 55, then the Payment Date is the first day of the second calendar month following the Benefit Calculation Date; provided, however, that in the case of a Specified Employee, this date shall in no event be earlier than the first day of the month coinciding with or next following the date that is six months after Separation from Service of a Specified Employee; or |
(2) | If the Payment Event is a Change in Control, then the Payment Date is the first day of the second calendar month following the Benefit Calculation Date. |
(b) | Catch-Up Payments. Once payments commence, the Plan shall provide the Participant with a one-time payment equal to the amount of missed payments between the Benefit Calculation Date and the actual Payment Date. In the case of a Specified Employee, the missed payments shall be adjusted at the Interest Rate for the period between the Payment Date that would have applied had the Participant not been a Specified Employee and the Specified Employees Payment Date, as determined under subsection (a)(1). |
(c) | Earlier Payments. An earlier payment may be made, as determined by the Committee in its sole discretion, only to the extent that a permissible Code section 409A and related Treasury Regulations exception ( e.g. , the payment of employment taxes) may be applied. |
(d) | Continued Payments. Once a Participants Retirement Income commences, the payment of his Retirement Income shall not be delayed or accelerated, except as provided for in accordance with Plan section 6.5. |
5.3 Form of Payment
(a) | Default Form of Payment . |
(1) |
If a Participants Retirement Income is payable due to a Payment Event under Plan section 5.2(a)(1), the Participants Retirement Income shall be paid in the form of a 50% Joint and Survivor Annuity if the Participant has a Spouse on the Benefit Calculation Date, and in the form of a Single Life Annuity if the Participant does not have a Spouse on the Benefit Calculation Date. In lieu of |
17
Section 5.4
this default payment form, the Participant may timely elect an optional form of payment in accordance with subsections (b) and (c). |
(2) | If a Participants Retirement Income is payable due to a Change in Control under Plan section 5.2(a)(2), the Participants Retirement Income shall be paid in the form of a single lump sum payment. |
(b) | Optional Form of Payment . A Participant whose Retirement Income is payable due to a Payment Event under Plan section 5.2(a)(1) that occurs on or after January 1, 2012 (including a Payment Event for a Participant (other than a Grandfathered Participant) who is not an Eligible Employee on or after January 1, 2012) may elect before his Payment Date, in accordance with any election timing restrictions and spousal consent requirements imposed by the Plan, to have his vested Retirement Income paid in any of the following Actuarially Equivalent forms of payment: |
(1) | Single Life Annuity; |
(2) | 50% Joint and Survivor Annuity; |
(3) | 75% Joint and Survivor Annuity; |
(4) | 100% Joint and Survivor Annuity; |
(5) | 10-Year Certain and Life Annuity; or |
(6) | 20-Year Certain and Life Annuity. |
(c) | Joint/Contingent Annuitant . If a Participant elects an optional form of payment that does or may provide a survivor benefit, the Participants election shall not be valid unless the Participant also specifies a Joint/Contingent Annuitant. |
(d) | Form of Payment Adjustments . Any adjustments to the amount of Retirement Income otherwise payable under this Article 5 as a result of the form of payment selected shall be calculated using reasonable Actuarially Equivalent factors. The amount of Retirement Income shall be adjusted on an Actuarially Equivalent basis. |
(e) | Cash Payments . All benefit payments hereunder shall be made in cash. |
5.4 Benefit Cash-out
Notwithstanding the time and form of payment determined pursuant to this Article 5, if the Actuarially Equivalent lump sum present value of all nonqualified deferred compensation plan benefits that the Participant (or his Joint/Contingent Annuitant) is entitled to receive under all nonaccount balance plans of the Company and all Affiliates, that must be aggregated for purposes of Treasury Regulations section 1.409A-1(c)(2), is less than the Code section 402(g)(1)(B) limit as of the Benefit Calculation Date, the Company may, in its sole discretion (evidenced in writing on or before the distribution date), distribute the Participants Retirement Income to him (or his Joint/Contingent Annuitant) in a single lump
18
Section 5.4
sum payment; provided, however, that all of the Participants other nonaccount balance nonqualified plan benefits are also paid in a single lump sum payment as of the same date.
19
Section 6.1
Article 6. Transfers, Rehires and Other Special Situations
6.1 Effect and Applicability
This Article provides additional information and rules covering special situations under which Retirement Income may become payable under Article 4 and Article 5. In the event of a conflict between a provision under Article 4 and Article 5 and a provision of this Article, the provision of this Article shall govern with respect to the Participants or circumstances specified in this Article and the provisions of Article 4 and Article 5 shall continue to govern with respect to other Participants and circumstances.
6.2 Code Section 409A Aggregation Rules
Except as provided in the following sentence, the Company has the authority to provide to any individual or individuals selected by the Company or Committee benefits under the Plan or under a separate agreement, method, program or other arrangement that constitutes a nonaccount balance plan. No such agreement entered into on or after January 1, 2012 shall provide benefits for an individual unless the individual was, as of December 31, 2011, an Eligible Employee as this term was defined in the Pension Plan on that date. To the extent any Participant is entitled to a deferral of compensation under any such nonaccount balance plan, then, only to the extent required by Code section 409A and related Treasury Regulations, the separate nonaccount balance plan shall be aggregated with the Plan.
6.3 No Duplication of Benefits
(a) | BEP Part I Benefits . In determining the Participants Retirement Income at any time, to the extent a Participant is entitled to a benefit under the BEP Part I as a result of also being a Grandfathered Participant, the amount of Retirement Income payable to a Participant with respect to a Payment Event shall be reduced as of the Benefit Calculation Date by the Actuarially Equivalent lump sum present value of the Participants benefit under the BEP Part I, determined in accordance with Treasury Regulations section 1.409A-6(a)(3)(i), so that the Participant shall not receive a duplication of benefits under the Plan. |
(b) | Post-Payment Event Accruals . In determining the Participants Retirement Income at any time after a Payment Event, the Participants prior service and earnings may be taken into account to the extent such service and earnings are taken into account when determining a Participants Pension Plan Benefit following such Payment Event. Notwithstanding anything to the contrary in the Plan, the amount of any additional Retirement Income payable to a Participant with respect to a new Payment Event shall be reduced by the Actuarially Equivalent lump sum present value of the Participants vested Retirement Income determined as of the Benefit Calculation Date for any prior Payment Event increased at the Interest Rate, so that the Participant shall not receive a duplication of benefits under the Plan. |
(c) |
Transfers . In calculating a Participants Retirement Income at any time after the Participant transfers to an Employer from another Affiliate in which the Participant |
20
Section 6.4
accrued a benefit under another nonaccount balance nonqualified plan, his prior service and earnings shall not be taken into account in determining Retirement Income under this Plan, even if such service and earnings are taken into account when determining his Pension Plan Benefit. No transfer on or after January 1, 2012 to an Employer from a non-Employer Affiliate shall result in participation in the Plan. |
6.4 Additional Retirement Income
If a Participant has a Payment Event and then accrues additional vested Retirement Income under the Plan, the additional vested Retirement Income shall be payable to the Participant as described in this Plan section. The time and form of payment for any additional Retirement Income that is payable under this section shall be determined in accordance with the terms of subsections (a) and (b) as follows:
(a) | Continued Employment After Change in Control. To the extent a Participant is entitled to additional Retirement Income following a Change in Control (on or after January 1, 2009) as a result of continued employment with an Employer, the Participants additional Retirement Income shall be paid to him at the time of payment specified under Plan section 5.2 in the form of payment determined under Plan section 5.3. |
(b) | Post-Separation Accruals and Reemployment . If a Participant is entitled to additional Retirement Income following a Payment Event due to receiving post-Separation from Service accruals or additional Retirement Income as a result of: |
(1) | Becoming reemployed as an Employee of an Employer before January 1, 2012 (or becoming reemployed by an Affiliate and later transferring employment to an Employer before January 1, 2012) after his Separation from Service (or his termination pursuant to the BEP Part I); |
(2) | Increasing the level of bona fide service he provides as an Employee of an Employer following a Separation from Service, such that he may have a subsequent Separation from Service; or |
(3) | Returning to work as an Eligible Employee after a leave of absence that results in a Separation from Service. |
the Participants Benefit Calculation Date (and Payment Date) for such additional Retirement Income shall be January 1 of the calendar year following the calendar year in which such additional Retirement Income accrues. The last payment of Retirement Income under this subsection shall occur on January 1 of the calendar year following the calendar year in which the Participant ceases accruing additional Retirement Income. It is intended that the additional Retirement Income that becomes payable under this subsection shall not constitute a deferral of compensation for purposes of Code section 409A because the additional Retirement Income will be paid under the short-term deferral rule of Treasury Regulations
21
Section 6.5
section 1.409A-1(b)(4). Notwithstanding the foregoing, compensation or service credits provided to a Participant under the Pension Plan with respect to any period during which the Participant is Disabled (as defined in the Pension Plan) shall be disregarded and shall not cause post-separation accruals under the Plan.
6.5 Permissible Delays or Accelerations
If the Company or Committee determines that a delay or an acceleration of a Participants Retirement Income is permitted or required by Code section 409A and related Treasury Regulations ( e.g. , a delay to comply with Code section 162(m) or an acceleration to pay employment taxes), the Company or the Committee may either delay or accelerate the payment of a Participants Retirement Income in accordance with the terms of Code section 409A and related Treasury Regulations in its sole discretion as it deems advisable.
22
Section 7.1
Article 7. Pre-Commencement Death Benefit
7.1 Amount of Pre-Commencement Death Benefit
In the event of a Participants death prior to his Payment Date under Article 5 with respect to any vested Retirement Income, the Participants Beneficiary shall be entitled to a Pre-Commencement Death Benefit. The Pre-Commencement Death Benefit shall equal the amount of the benefit determined as of the Benefit Calculation Date that would be payable to a Joint/Contingent Annuitant if:
(a) | The Participants vested Retirement Income had commenced as of the Payment Date under Plan section 5.2(a)(1), disregarding any delay in the Payment Date because the Participant was a Specified Employee as of the date of his death, |
(b) | In the form of a 50% Joint and Survivor Annuity, and |
(c) | The Participant died on the date following such commencement. |
7.2 Time and Form of Payment for Pre-Commencement Death Benefit
(a) | Time of Payment of Death Benefit . The Beneficiarys Payment Date for the Pre-Commencement Death Benefit payable pursuant to Plan section 7.1 shall be the first day of the fourth calendar month next following the Beneficiarys Payment Event. |
(b) | Form of Payment of Death Benefit . The Pre-Commencement Death Benefit payable under this Article 7 shall be paid to the Beneficiary in the form of a Single Life Annuity. |
(c) | Catch-Up Payments. Once payments commence, the Plan shall provide the Beneficiary with a one-time payment equal to the amount of missed payments between the Benefit Calculation Date and the actual Payment Date. |
(d) | Earlier Payments. An earlier payment may be made, as determined by the Committee in its sole discretion, only to the extent that a permissible Code section 409A and related Treasury Regulations exception may be applied. |
(e) | Delayed Commencement. If the payment or commencement of any benefit due under this section is paid after the Beneficiarys Payment Date, the benefit shall be paid without any interest adjustments for the delayed commencement. |
7.3 Beneficiary Determination
For purposes of determining the Beneficiary entitled to a Pre-Commencement Death Benefit, the Beneficiary of the Participant shall be:
(a) | The Participants surviving Spouse, if any, and if not, |
(b) | The Participants surviving Domestic Partner, if any, and if not, |
23
Section 7.4
(c) | The Participants surviving natural and legally adopted children, if any, and if not, |
(d) | The Participants surviving parents, if any, and if not, |
(e) | The Participants surviving siblings, if any. |
If there is more than one Beneficiary in any category described above, any amounts payable shall be paid equally to all Beneficiaries. Notwithstanding any provision to the contrary, if the Participant has no survivors in any of the above categories, no Pre-Commencement Death Benefit is payable from the Plan.
7.4 Cash-Out Payment of Pre-Commencement Death Benefit
Notwithstanding anything in this Article 7 to the contrary, if the Actuarially Equivalent lump sum present value of all nonqualified deferred compensation plan benefits that the Beneficiary (or, to the extent applicable, all Beneficiaries entitled to a Pre-Commencement Death Benefit) is entitled to receive under all the nonaccount balance plans of the Company and all Affiliates, that must be aggregated for purposes of Treasury Regulations section 1.409A-1(c)(2), is less than the Code section 402(g)(1)(B) limit as of the Benefit Calculation Date, the Company may, in its sole discretion (evidenced in writing on or before the distribution date), distribute the Beneficiarys Pre-Commencement Death Benefit in the form of a single lump sum payment; provided, however, that all of the Beneficiarys other nonaccount balance nonqualified plan benefits are also paid in a single lump sum payment as of the same date.
24
Section 8.1
Article 8. Financing and Administration
8.1 Financing
(a) | General Creditors . The Plan constitutes a mere promise of the Employer to make payments in accordance with the terms of the Plan. This Plan does not give any Participant, Joint/Contingent Annuitant or Beneficiary any interest, lien, or claim in or against any specific assets of the Company or any Affiliate. The Participant, Joint/Contingent Annuitant and/or Beneficiary shall have only the rights of general, unsecured creditors of the Employer with respect to their rights under the Plan. |
(b) | Allocation Among Employers . The obligation to pay benefits hereunder shall be the obligation of the Employers whose Employees are Participants entitled to benefits hereunder. Each Employer shall provide the benefits described in the Plan and allocable to such entity from its general assets. Notwithstanding the foregoing, the Company, in its sole discretion, shall have the authority to allocate the total liability to pay benefits under the Plan among the Employers in such manner and amounts as it deems appropriate. |
(c) | Alternative Funding . The Company may, but shall not be required to, establish a grantor trust as a funding source for its obligations under the Plan. If such a trust is so established, it shall be the intention of the Company that the trust shall constitute an unfunded arrangement for purposes of the Plan, such that the Plan shall continue to be an unfunded plan maintained for the purpose of providing deferred compensation to a select group of management or highly compensated employees under ERISA. With respect to any Participant, the assets of the trust so established shall remain subject to the claims of the creditors of that Participants Employer in the event of the Employers bankruptcy or insolvency. However, to the extent that funds placed in a trust and allocable to the benefits payable under the Plan are sufficient, the trust assets may be used to pay benefits under the Plan. If such trust assets are not sufficient to pay all benefits due under the Plan, then the appropriate Employer shall have the obligation, and the Participant, Joint/Contingent Annuitant or Beneficiary who is due such benefits shall look to such Employer to provide such benefits. |
8.2 Plan Administrative Committee
The general administration of the Plan and the responsibility for carrying out the provisions of the Plan resides with the Committee. The members of the Committee shall be determined under the provisions of the Disney Salaried Pension Plan D (formerly known as the Disney Salaried Retirement Plan).
8.3 Duties of Committee
The members of the Committee shall elect a chairman from their number and a secretary who may be but need not be one of the members of the Committee; may appoint from their number such subcommittees with such powers as they shall determine; and may authorize
25
Section 8.4
one or more of their number or any agent to execute or deliver any instrument or make any payment on their behalf. In addition, the Committee may retain counsel, employ agents, and provide for such clerical, accounting, actuarial and consulting services as it may require in carrying out the terms of the Plan; and may allocate among its members or delegate all or such portion of the duties under the Plan, as it, in its sole discretion, shall decide.
8.4 Meetings
The Committee shall hold meetings upon such notice, at such place or places, and at such time or times as it may from time to time determine.
8.5 Actions by the Committee
Any act which the Plan authorizes or requires the Committee to do may be done, if done at a meeting, by a majority of a quorum of members. A quorum is 50% of all members of the Committee then in office. The action of that majority expressed from time to time by a vote at a meeting shall constitute the action of the Committee and shall have the same effect for all purposes as if assented to by all members of the Committee at the time in office. Alternatively, any action required or permitted to be taken by the Committee may be done by unanimous written consent in lieu of a meeting.
8.6 Compensation and Bonding
No member of the Committee shall receive any compensation from the Plan for his services as such. Except as may otherwise be required by law, no bond or other security need be required of any member in that capacity in any jurisdiction.
8.7 Establishment of Rules and Interpretation of Plan
The Committee shall have full discretionary power and authority as may be necessary to carry out the provisions of the Plan, including, without limiting the generality of the foregoing, the discretionary power to:
(a) | Promulgate and enforce rules and regulations as it deems necessary or appropriate for the administration of the Plan; |
(b) | Construe and interpret the Plan and decide all matters arising thereunder, including the right to remedy possible ambiguities, inconsistencies, and omissions and correct defects; |
(c) | Make factual determinations and decide all questions relating to individuals eligibility for participation or for benefits under the Plan, vesting, forfeitures, the amount, manner and timing of payment of benefits, and the status of persons as Participants, Grandfathered Participants, Employees, Eligible Employees, Spouses, Domestic Partners, Joint/Contingent Annuitants, Beneficiaries and alternate payees; and |
26
Section 8.8
(d) | Require any person to furnish such documentation, information, or other matter as the Committee may require for the proper administration of the Plan and as a prerequisite to any payment or distribution by the Plan. |
All decisions of the Committee relating to matters within its jurisdiction shall be final, conclusive, and binding. If, pursuant to Plan section 8.3, the Committee delegates all or any portion of its duties under the Plan, the individual, entity, or group of persons to which duties have been delegated shall have the same discretionary power and authority as the Committee unless the delegation specifically provides otherwise.
8.8 Limitation of Liability
Except as and to the extent otherwise provided by applicable law, no liability whatever shall attach to or be incurred by the members of the Committee or by the shareholders, directors, officers, or employees of an Employer or an Affiliate under or by reason of any of the terms and conditions contained in the Plan or in any of the contracts procured pursuant thereto or implied therefrom.
8.9 Indemnification
To the maximum extent permitted by the Companys by-laws, as amended from time to time, the Company shall indemnify each member of the Committee, and each director, officer, and employee or agent of the Company or an Affiliate against any expenses and liabilities that such person may incur as a result of any act or failure to act, made in good faith, by such person in relation to the Plan.
8.10 Claims Procedures
(a) | Every claim for benefits under the Plan by a person (hereinafter referred to as Claimant) or by a Claimants authorized representative shall be filed by submitting to the person (claim administrator) designated by the Committee, a written application on a form designated by the Committee. The claim administrator shall process such application and approve or disapprove it. Claims for benefits under the Plan shall be governed by subsections (b) through (f). Subsection (g) and Plan sections 8.11 and 8.12 shall apply to all claims under the Plan, including, but not limited to claims for benefits (both based on the terms of the Plan and those based on an alleged violation of the law), claims for breach of fiduciary duty, and other claims that some aspect of the Plans operation, administration or design or some aspect of the Plans investments, is unlawful or violates the terms of the Plan. |
(b) | If a Claimant is denied any benefits under the Plan either in total or in an amount less than the full benefit to which he claims to be entitled, the claim administrator shall advise the Claimant of the denial within 90 days after receipt of the claim by the claim administrator. The claim administrator shall furnish the Claimant with a written notice setting forth: |
(1) | The computation of the Claimants benefit, if any; |
27
Section 8.10
(2) | The specific reason or reasons for the denial; |
(3) | The specific Plan sections on which the denial is based; |
(4) | A description of any additional material or information necessary for the Claimant to perfect his claim, if possible, and an explanation of why such material or information is needed; and |
(5) | A description of the Plans claim review procedures, the time limits under such procedures and a statement of the Claimants right to bring a civil action under ERISA section 502(a) following a denial of benefits on appeal. |
If unforeseeable or special administrative problems or circumstances require an extension of time for processing the claim, the claim administrator shall furnish a written notice to the Claimant prior to close of the 90-day period explaining why an extension of time is needed and the approximate date by which the claim administrator expects to have processed the claim. In no event shall the claim administrator render a final decision on the validity of a claim later than 180 days after the claim administrator initially receives the claim.
(c) | Within 60 days of receipt of the information described in subsection (b), the Claimant or his duly authorized representative may file written appeal of the determination with the Committee. As part of his appeal, the Claimant may submit written comments, documents, records and other information relating to the claim. |
(d) | As long as the Claimants appeal is pending (including the 60-day period described in subsection (c)) the Claimant or his duly authorized representative shall be provided, upon request and free of charge, access to and copies of all documents, records and other information relevant to the claim and may review pertinent Plan documents and may submit issues and comments in writing to the Committee. |
(e) | The Committee shall notify the Claimant in writing of the appeals decision (whether or not adverse) in written or electronic form within a reasonable period of time, but not later than 60 days after the Committees receipt of the appeal. Notwithstanding, if the Committee determines that special circumstances (for example, the need to hold a hearing) require an extension of time, the Committee shall notify the Claimant of the reason or reasons for the extension and of the date by which it expects to make its decision. This extended period shall not exceed 60 days from the end of the initial 60-day period. The Committees decision on appeal shall take into account all comments, documents, records and other information submitted by the Claimant and relevant to the claim, without regard to whether such information was submitted or considered in the initial benefit determination. |
(f) | If the Committee decides to deny benefits on appeal, the Committee shall provide the Claimant in writing with: |
28
Section 8.11
(1) | The specific reason or reasons for the denial; |
(2) | The specific Plan provisions on which the denial is made; |
(3) | A statement that the Claimant is entitled to receive, upon request and free of charge, access to and copies of all documents, records and other information relevant to the claim; and |
(4) | A statement regarding the Claimants right to bring a civil action under ERISA section 5.02(a) following a denial of benefits on appeal. |
(g) | Any person eligible to receive benefits under the Plan shall furnish to the claim administrator or the Committee any information or evidence requested by the claim administrator or the Committee and reasonably required for the proper administration of the Plan. Failure on the part of any person to comply with any such request within a reasonable period of time shall be sufficient grounds for delay in the payment of any benefits that may be due under the Plan until such information or evidence is received by the claim administrator or the Committee. If any person claiming benefits under the Plan makes a false statement that is material to the claim for benefits, the claim administrator or the Committee may offset against future payments any amount paid to such person to which he was not entitled under the provisions of the Plan. |
8.11 Limitation on Actions
(a) | Notwithstanding any Plan provision to the contrary, none of the following claims or action may be filed in any court unless and until the requirements of subsection (b) are fully met. |
(1) | A claim or action to recover benefits allegedly due under the provisions of the Plan or by reason of any law; |
(2) | A claim or action to enforce rights under the Plan; |
(3) | A claim or action to clarify rights to future benefits under the Plan; |
(4) | Any other claim or action that |
(A) | Relates to the Plan, and |
(B) | Seeks a remedy, ruling, or judgment of any kind against the Plan or the Committee. |
(b) | The requirements of this subsection are not met: |
(1) | Until the Claimant (as defined in Plan section 8.10(a)) has exhausted the administrative review procedure set forth in Plan section 8.10; and |
29
Section 8.12
(2) | Unless such claim or action is filed in a court with jurisdiction over such claim or action no later than 36 months after: |
(A) | In the case of a claim or action to recover benefits, the date the first benefit payment was actually made or was allegedly due whichever is earlier; |
(B) | In the case of a claim or action to enforce a right, the date the Committee or its delegate first denied the Claimants request to exercise such right, regardless of whether such denial occurred during administrative review pursuant to Plan section 8.10; |
(C) | In the case of a claim or action to clarify rights to future benefits, the date the Committee first repudiated its alleged obligation to provide such future benefits, regardless of whether such repudiation occurred during administrative review pursuant to Plan section 8.10; or |
(D) | In the case of any other claim or action described in subsection (a)(4), above, the earliest date on which the claimant knew or should have known of the material facts on which such claim or action is based; |
provided that if a request for administrative review pursuant to Plan section 8.10 is pending before the claims administrator designated by the Committee to review such claims when the 36-month period described in this paragraph (2) expires, the deadline for filing such claim or action in a court with proper jurisdiction shall be extended to the date that is 60 calendar days after the final denial of the claim on administrative review.
(3) | The period described in paragraph (2), above, is hereafter referred to as the Applicable Limitations Period. The Applicable Limitations Period replaces and supersedes any limitations period that might otherwise be deemed applicable under state or federal law in the absence of this Plan section 8.11. Except as provided in the following two sentences, a claim or action filed after the expiration of the Applicable Limitations Period shall be deemed time-barred. The Committee shall have the discretion to extend the Applicable Limitations Period upon a showing of exceptional circumstances that, in the opinion of the Committee, provide good cause for extension. The exercise of this discretion is committed solely to the Committee and is not subject to review. |
8.12 Class Action Forum
(a) |
To the fullest extent permitted by law, any putative class action lawsuit brought in whole or in part under ERISA section 502 (or any successor provision) and relating to the Plan, the lawfulness of any Plan provision, the administration of the Plan, the management, investment or handling of Plan assets, or the performance or non- |
30
Section 8.13
performance of Plan fiduciaries or administrators shall be filed in one of the following jurisdictions: |
(1) | The jurisdiction in which the Plan is principally administered, or |
(2) | The jurisdiction in which the largest number of putative class members reside (or if that jurisdiction cannot be determined, the jurisdiction in which the largest number of class members is reasonably believed to reside). |
(b) | If any putative class action within the scope of subsection (a) is filed in a jurisdiction other than one of those described in subsection (a), or if any non-class action filed in such a jurisdiction is subsequently amended or altered to include class action allegations, then the Plan, all parties to such action that are related to the Plan (such as a Plan fiduciary, administrator, or party in interest), and all alleged Participants and Beneficiaries shall take all necessary steps to have the action removed to, transferred to, or re-filed in a jurisdiction described in subsection (a). Such steps may include, but are not limited to: |
(1) | A joint motion to transfer the action, or |
(2) | A joint motion to dismiss the action without prejudice to its re-filing in a jurisdiction described in subsection (a), with any applicable time limits or statutes of limitations applied as if the suit or class action allegation had originally been filed or asserted in a jurisdiction described in subsection (a) at the same time it was filed or asserted in a jurisdiction not described therein. |
(c) | The provisions of this Plan section 8.12 shall be waived if no party invokes them within 120 days of the filing of a putative class action or assertion of class action allegations. |
(d) | Nothing in this Plan section 8.12 shall relieve any putative class member of any obligation existing under the Plan or by law to exhaust all administrative remedies before initiating litigation. |
8.13 Records
The records of an Employer or Affiliate with respect to length of employment, employment history, base pay, absences, and all other relevant matters may be conclusively relied on by the Committee.
31
Section 9.1
Article 9. Amendment and Termination
9.1 Amendments
The Company must necessarily and does hereby reserve the right to amend, modify, or terminate the Plan at any time by action of its Board. The Committee in its sole discretion shall have the power to amend the Plan to:
(a) | Comply with laws and regulations, or as otherwise may be desirable when prompted by a change in law or regulation; and |
(b) | Make any other change that may be necessary or desirable provided any amendment adopted pursuant to this Plan section 9.1 shall not increase the Companys annual expense by more than five (5) million dollars. |
Any material amendment shall be in writing and executed by a duly authorized officer of the Company or a member of the Committee. An amendment to the Plan may modify its terms in any respect whatsoever, and may include, without limitation, a permanent or temporary freezing of the Plan such that the Plan shall remain in effect with respect to existing accrued benefits without permitting any new benefit accruals. All Participants and Beneficiaries shall be bound by any amendment.
9.2 Termination of Plan
The Company, through action of the Board, reserves the right to discontinue and terminate the Plan at any time, for any reason. Any action to terminate the Plan shall be taken by the Board in the form of a written Plan amendment executed by a duly authorized officer of the Company. If the Plan is terminated, such discontinuance or termination shall not have the effect of decreasing the level of benefits which a Participant would be entitled to receive under Article 5 if he incurred a Separation from Service with the Company and all Affiliates on the later of:
(a) | The date the resolution to terminate and discontinue the Plan is adopted, or |
(b) | The date the termination and discontinuance is effective. |
Vested Retirement Income and any Pre-Commencement Death Benefits shall be distributed as soon as practicable if such distribution is permitted because the Plans termination and liquidation meets the requirements of Treasury Regulations section 1.409A-3(j)(4) and, if such requirements are not met, at the earliest time otherwise permitted under the terms of the Plan in accordance with Code section 409A and related Treasury Regulations. Such termination shall be binding on all Participants and all other persons.
9.3 Successors
In case of the merger, consolidation, liquidation, dissolution or reorganization of an Employer, or the sale by an Employer of all or substantially all of its assets, provision may be made by written agreement between the Company and any successor corporation acquiring or receiving a substantial part of the Employers assets, whereby the Plan shall be
32
Section 9.4
continued by the successor. If the Plan is to be continued by the successor, then effective as of the date of the reorganization or transfer, the successor corporation shall be substituted for the Employer under the Plan. To the extent applicable, such written agreement may also specify no later than the closing date of an asset purchase transaction, whether Employees covered by the transaction shall incur a Separation from Service. The substitution of a successor corporation for an Employer shall not in any way be considered a termination of the Plan.
9.4 Prohibition on Changes Due to Code Section 409A
Notwithstanding the foregoing, neither the Board nor the Committee may amend or terminate the Plan in any manner that the Board or the Committee determines in its sole discretion and in accordance with the advice of counsel, violates the applicable provisions of Code section 409A and related Treasury Regulations, including, but not limited to, the applicable time and form of payment requirements, the applicable prohibitions on accelerations, and the plan termination and liquidation provisions.
9.5 Additional Participating Employers
(a) | Adoption . With the consent of the Company, any Affiliate may adopt the Plan before January 1, 2012 for its Eligible Employees and thereby become an Employer under the Plan. An Affiliate adopting the Plan shall compile and submit all information required by the Committee with reference to its Eligible Employees. An entity will be considered to have adopted the Plan with the consent of the Company if it takes significant action that is consistent with the adoption of the Plan, the Board or Committee is aware of the action, and neither objects to the action. |
(b) | Crediting of Prior Service . If an Affiliate adopts the Plan in accordance with subsection (a), or if any persons become Employees of an Employer before January 1, 2012 as the result of merger or consolidation or as the result of acquisition of all or part of the assets or business of another company, the Company shall determine to what extent, if any, previous service with the Affiliate or acquired business shall be recognized under the Plan. |
(c) | Withdrawal by Affiliate . Any Employer may withdraw its participation in the Plan on appropriate action by it. In addition, an Employer will automatically cease to participate in the Plan from and after the date it ceases to be an Affiliate. In either event, the benefits under the Plan will be earned with respect that Employers participation in the Plan shall be determined by the Committee. Pensions payable to Employees employed by the withdrawing Employer shall be payable to such Employees when due under the Plan, but such Employees shall not be considered Eligible Employees from and after the date of withdrawal by their Employer. |
33
Section 10.1
Article 10. Miscellaneous Provisions
10.1 Good-Faith Valuation Binding
In determining the value of the Participants Retirement Income, the Committee shall exercise its best judgment, and all such determinations of value (in the absence of bad faith) shall be binding upon all Participants and their Joint/Contingent Annuitants and Beneficiaries.
10.2 Taxation
It is the intention of the Company that the benefits payable hereunder shall not be deductible by the Employers nor taxable for federal income tax purposes to Participants or Beneficiaries until such benefits are paid by the Employers to such Participants or Beneficiaries. Without limiting the foregoing, it is intended that the Plan meet the requirements of Code section 409A and related Treasury Regulations and the Committee shall use its reasonable best efforts to interpret and administer the Plan in accordance with such requirements. When benefits are paid hereunder, it is the intention of the Company that they shall be deductible by the Employers under Code section 162.
10.3 Offset for Obligations to the Company or an Affiliate
Notwithstanding anything in the Plan to the contrary, if a Participant or Beneficiary has any outstanding obligation to the Company or any Affiliate (whether or not such obligation is related to the Plan), the Committee may cause the Retirement Income of such Participant or Beneficiary to be reduced and offset by, and to be applied to satisfy, the amount of such obligation; provided, the offset is not in excess of $5,000 for any tax year (determined based on the tax year of the Company and Affiliates) and the offset occurs at the same time as the outstanding obligation to the Company or any Affiliate is due.
10.4 Withholding
All distributions shall be net of any applicable federal, state, or local income or employment taxes or any other amounts required to be withheld by law. In addition, the Company or any Affiliate may withhold from a Participants currently payable salary, bonus, or other compensation any applicable federal, state, or local income or employment taxes that may be due upon accruing benefits under the Plan.
10.5 No Enlargement of Employment Rights
This Plan is strictly a voluntary undertaking on the part of the Company and the Employers and shall not be deemed to constitute a contract between the Employers and any Employee or Participant, Beneficiary, or alternate payee, or to be consideration for, or an inducement to, or a condition of, the employment of any Employee. Nothing contained in this Plan or any modification of the same or act done in pursuance hereof shall be construed as giving any person any legal or equitable right against the Employer, unless specifically provided herein, or as giving any person a right to be retained in the employ of the Employer. All Participants shall remain subject to assignment, reassignment, promotion, transfer, layoff, reduction, suspension, and discharge to the same extent as if this Plan had never been established.
34
Section 10.6
10.6 Non-Alienation
(a) | Except as otherwise permitted by the Plan, no benefit payable at any time under the Plan shall be subject to the debts or liabilities of a Participant or his Beneficiary. Any attempt to alienate, sell, transfer, assign, pledge, or otherwise encumber any such benefit, whether presently or thereafter payable, shall be void. Except as provided in this Plan section, no benefit under the Plan shall be subject in any manner to attachment, garnishment, or encumbrance of any kind. |
(b) | Payment may be made from a Participants Retirement Income to an alternate payee, pursuant to a domestic relations order. |
(1) | The Committee shall establish reasonable written procedures for reviewing court orders made, pursuant to state domestic relations law (including a community property law), relating to child support, alimony payments, or marital property rights of a Spouse, child, or other dependent of a Participant and for notifying Participants and alternate payees of the receipt of such orders and of the Plans procedures for determining if the orders are approved domestic relations orders and for administering distributions under domestic relations orders. |
(2) | Except as may otherwise be required by applicable law, such domestic relations orders may not require a retroactive transfer of all or part of a Participants Retirement Income. |
10.7 No Examination or Accounting
Neither this Plan nor any action taken thereunder shall be construed as giving any person the right to an accounting or to examine the books or affairs of the Company or any Affiliate.
10.8 Incompetency
Every person receiving or claiming benefits under the Plan shall be conclusively presumed to be mentally competent and of age until the date on which the Committee receives a written notice, in a form and manner acceptable to the Committee, that such person is incompetent or a minor, for whom a guardian or other person legally vested with the care of his person or estate has been appointed; provided, however, that if the Committee shall find that any person to whom a benefit is payable under the Plan is unable to care for his affairs because of incompetency, or is a minor, any payment due (unless a prior claim therefore shall have been made by a duly appointed legal representative) may be paid instead to the guardian of such person or to the person having custody of such person, without further liability on the part of an Employer for the amount of such payment to the person on whose account such payment is made.
10.9 Notice of Address
Each person entitled to benefits from the Plan must file with the Committee or its agent, in writing, his post office address and each change of post office address. Any communication, statement, or notice addressed to such a person at his latest reported post office address will
35
Section 10.10
be binding upon him for all purposes of the Plan, and neither the Committee nor the Company shall be obliged to search for or ascertain his whereabouts.
10.10 Data
All persons entitled to benefits from the Plan must furnish to the Committee such documents, evidence, or information, including information concerning marital status, as the Committee considers necessary or desirable for the purpose of administering the Plan.
10.11 Service of Legal Process
The General Counsel of the Company is hereby designated agent of the Plan for the purpose of receiving service of summons, subpoena, or other legal process.
10.12 Qualified Military Service
Notwithstanding any provision of this Plan to the contrary and to the fullest extent permitted under Treasury Regulations section 1.409A-2(a)(15), the election requirements under this Plan shall be deemed satisfied to the extent that an election is provided to the Participant to satisfy the requirements of the Uniformed Service Employment and Reemployment Rights Act of 1994, as amended.
10.13 Counterparts
This Plan may be executed in any number of counterparts, each of which shall be deemed to be an original. All the counterparts shall constitute but one and the same instrument and may be sufficiently evidenced by any one counterpart.
In Witness Whereof, the undersigned, duly authorized by the Board, has caused this instrument to be executed on May 5, 2011, but effective as of January 1, 2012.
By |
/s/_ Barbara Kellams |
|
Barbara A. Kellams | ||
Vice-President Counsel | ||
The Walt Disney Company |
36
Exhibit 31.1
RULE 13a-14(a) CERTIFICATION IN
ACCORDANCE WITH SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Robert A. Iger, President and Chief Executive Officer of The Walt Disney Company (the Company), certify that:
1. | I have reviewed this quarterly report on Form 10-Q of the Company; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: May 10, 2011
By: |
/s/ ROBERT A. IGER |
|
Robert A. Iger | ||
President and Chief Executive Officer |
Exhibit 31.2
RULE 13a-14(a) CERTIFICATION IN
ACCORDANCE WITH SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, James A. Rasulo, Senior Executive Vice President and Chief Financial Officer of The Walt Disney Company (the Company), certify that:
1. | I have reviewed this quarterly report on Form 10-Q of the Company; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: May 10, 2011
By: |
/s/ JAMES A. RASULO |
|
James A. Rasulo | ||
Senior Executive Vice President and Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002*
In connection with the Quarterly Report of The Walt Disney Company (the Company) on Form 10-Q for the fiscal quarter ended April 2, 2011 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Robert A. Iger, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
1. | The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
By: |
/s/ ROBERT A. IGER |
|
Robert A. Iger | ||
President and Chief Executive Officer May 10, 2011 |
* | A signed original of this written statement required by Section 906 has been provided to The Walt Disney Company and will be retained by The Walt Disney Company and furnished to the Securities and Exchange Commission or its staff upon request. |
Exhibit 32.2
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002*
In connection with the Quarterly Report of The Walt Disney Company (the Company) on Form 10-Q for the fiscal quarter ended April 2, 2011 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, James A. Rasulo, Senior Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
1. | The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
By: |
/s/ JAMES A. RASULO |
|
James A. Rasulo | ||
Senior Executive Vice President and Chief Financial Officer May 10, 2011 |
* | A signed original of this written statement required by Section 906 has been provided to The Walt Disney Company and will be retained by The Walt Disney Company and furnished to the Securities and Exchange Commission or its staff upon request. |