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 July 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 |
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 1,856,004,398 shares of common stock outstanding as of August 2, 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 | Nine Months Ended | |||||||||||||||
July 2,
2011 |
July 3,
2010 |
July 2,
2011 |
July 3,
2010 |
|||||||||||||
Revenues |
$ | 10,675 | $ | 10,002 | $ | 30,468 | $ | 28,321 | ||||||||
Costs and expenses |
(8,229) | (7,723) | (24,554) | (23,116) | ||||||||||||
Restructuring and impairment charges |
(34) | (36) | (46) | (212) | ||||||||||||
Other income |
- | 43 | 75 | 140 | ||||||||||||
Net interest expense |
(88) | (89) | (266) | (322) | ||||||||||||
Equity in the income of investees |
184 | 139 | 463 | 382 | ||||||||||||
Income before income taxes |
2,508 | 2,336 | 6,140 | 5,193 | ||||||||||||
Income taxes |
(845) | (831) | (2,133) | (1,846) | ||||||||||||
Net income |
1,663 | 1,505 | 4,007 | 3,347 | ||||||||||||
Less: Net income attributable to noncontrolling interests |
(187) | (174) | (287) | (219) | ||||||||||||
Net income attributable to The Walt Disney Company (Disney) |
$ | 1,476 | $ | 1,331 | $ | 3,720 | $ | 3,128 | ||||||||
Earnings per share attributable to Disney: |
||||||||||||||||
Diluted |
$ | 0.77 | $ | 0.67 | $ | 1.93 | $ | 1.60 | ||||||||
Basic |
$ | 0.78 | $ | 0.68 | $ | 1.97 | $ | 1.63 | ||||||||
Weighted average number of common and common equivalent shares outstanding: |
||||||||||||||||
Diluted |
1,912 | 1,978 | 1,924 | 1,951 | ||||||||||||
Basic |
1,883 | 1,945 | 1,891 | 1,917 | ||||||||||||
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)
Nine Months Ended | ||||||||
July 2,
2011 |
July 3,
2010 |
|||||||
OPERATING ACTIVITIES |
||||||||
Net income |
$ | 4,007 | $ | 3,347 | ||||
Depreciation and amortization |
1,379 | 1,279 | ||||||
Gains on dispositions |
(75) | (118) | ||||||
Deferred income taxes |
207 | 464 | ||||||
Equity in the income of investees |
(463) | (382) | ||||||
Cash distributions received from equity investees |
463 | 350 | ||||||
Net change in film and television costs |
216 | 31 | ||||||
Equity-based compensation |
353 | 391 | ||||||
Impairment charges |
10 | 126 | ||||||
Other |
(39) | 13 | ||||||
Changes in operating assets and liabilities: |
||||||||
Receivables |
(532) | (711) | ||||||
Inventories |
(105) | (1) | ||||||
Other assets |
59 | 112 | ||||||
Accounts payable and other accrued liabilities |
(839) | (319) | ||||||
Income taxes |
249 | (210) | ||||||
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Cash provided by operations |
4,890 | 4,372 | ||||||
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INVESTING ACTIVITIES |
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Investments in parks, resorts and other property |
(2,561) | (1,313) | ||||||
Proceeds from dispositions |
564 | 170 | ||||||
Acquisitions |
(172) | (2,280) | ||||||
Other |
2 | (40) | ||||||
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Cash used in investing activities |
(2,167) | (3,463) | ||||||
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FINANCING ACTIVITIES |
||||||||
Commercial paper borrowings, net |
620 | 794 | ||||||
Borrowings |
500 | | ||||||
Reduction of borrowings |
(308) | (579) | ||||||
Dividends |
(756) | (653) | ||||||
Repurchases of common stock |
(3,029) | (1,489) | ||||||
Exercise of stock options and other |
941 | 772 | ||||||
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Cash used in financing activities |
(2,032) | (1,155) | ||||||
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Impact of exchange rates on cash and cash equivalents |
106 | (220) | ||||||
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Increase/(decrease) in cash and cash equivalents |
797 | (466) | ||||||
Cash and cash equivalents, beginning of period |
2,722 | 3,417 | ||||||
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Cash and cash equivalents, end of period |
$ | 3,519 | $ | 2,951 | ||||
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|
See Notes to Condensed Consolidated Financial Statements
4
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(unaudited; in millions)
Quarter Ended | ||||||||||||||||||||||||
July 2, 2011 | July 3, 2010 | |||||||||||||||||||||||
Disney
Shareholders |
Non-
controlling Interests |
Total
Equity |
Disney
Shareholders |
Non-
controlling Interests |
Total
Equity |
|||||||||||||||||||
Beginning Balance |
$ | 38,650 | $ | 1,662 | $ | 40,312 | $ | 37,480 | $ | 1,489 | $ | 38,969 | ||||||||||||
Net income |
1,476 | 187 | 1,663 | 1,331 | 174 | 1,505 | ||||||||||||||||||
Other comprehensive income: |
||||||||||||||||||||||||
Market value adjustments for hedges and investments |
(2) | | (2) | (22) | | (22) | ||||||||||||||||||
Pension and postretirement medical adjustments |
21 | | 21 | 31 | | 31 | ||||||||||||||||||
Foreign currency translation and other |
9 | 10 | 19 | (43) | (20) | (63) | ||||||||||||||||||
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Other comprehensive income |
28 | 10 | 38 | (34) | (20) | (54) | ||||||||||||||||||
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Comprehensive income |
1,504 | 197 | 1,701 | 1,297 | 154 | 1,451 | ||||||||||||||||||
Equity compensation activity |
211 | | 211 | 436 | | 436 | ||||||||||||||||||
Common stock repurchases |
(1,427) | | (1,427) | (1,249) | | (1,249) | ||||||||||||||||||
Distributions and other |
8 | 117 | 125 | (5) | (1) | (6) | ||||||||||||||||||
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Ending Balance |
$ | 38,946 | $ | 1,976 | $ | 40,922 | $ | 37,959 | $ | 1,642 | $ | 39,601 | ||||||||||||
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See Notes to Condensed Consolidated Financial Statements
5
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (contd)
(unaudited; in millions)
Nine Months Ended | ||||||||||||||||||||||||
July 2, 2011 | July 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 |
3,720 | 287 | 4,007 | 3,128 | 219 | 3,347 | ||||||||||||||||||
Other comprehensive income: |
||||||||||||||||||||||||
Market value adjustments for hedges and investments |
(56) | | (56) | (2) | | (2) | ||||||||||||||||||
Pension and postretirement medical adjustments |
99 | | 99 | 121 | | 121 | ||||||||||||||||||
Foreign currency translation and other |
29 | 18 | 47 | (68) | (34) | (102) | ||||||||||||||||||
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Other comprehensive income |
72 | 18 | 90 | 51 | (34) | 17 | ||||||||||||||||||
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Comprehensive income |
3,792 | 305 | 4,097 | 3,179 | 185 | 3,364 | ||||||||||||||||||
Equity compensation activity |
1,413 | | 1,413 | 1,306 | | 1,306 | ||||||||||||||||||
Dividends |
(756) | | (756) | (653) | | (653) | ||||||||||||||||||
Common stock repurchases |
(3,029) | | (3,029) | (1,489) | | (1,489) | ||||||||||||||||||
Acquisition of Marvel |
| | | 1,887 | 90 | 1,977 | ||||||||||||||||||
Distributions and other |
7 | (152) | (145) | (5) | (324) | (329) | ||||||||||||||||||
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Ending Balance |
$ | 38,946 | $ | 1,976 | $ | 40,922 | $ | 37,959 | $ | 1,642 | $ | 39,601 | ||||||||||||
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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 nine months ended July 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. Disneyland Paris, Hong Kong Disneyland Resort and Shanghai Disney Resort are VIEs, and given the nature of the Companys relationships with these entities, which include management agreements, the Company has consolidated Disneyland Paris, Hong Kong Disneyland Resort and Shanghai Disney Resort 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 | Nine Months Ended | |||||||||||||||
July 2,
2011 |
July 3,
2010 |
July 2,
2011 |
July 3,
2010 |
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Revenues (1 ) : |
||||||||||||||||
Media Networks |
$ | 4,949 | $ | 4,729 | $ | 13,916 | $ | 12,748 | ||||||||
Parks and Resorts |
3,170 | 2,831 | 8,668 | 7,942 | ||||||||||||
Studio Entertainment |
1,620 | 1,639 | 4,892 | 5,110 | ||||||||||||
Consumer Products |
685 | 606 | 2,233 | 1,948 | ||||||||||||
Interactive Media |
251 | 197 | 759 | 573 | ||||||||||||
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$ | 10,675 | $ | 10,002 | $ | 30,468 | $ | 28,321 | |||||||||
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Segment operating income (loss) (1 ) : |
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Media Networks |
$ | 2,094 | $ | 1,885 | $ | 4,684 | $ | 3,915 | ||||||||
Parks and Resorts |
519 | 477 | 1,132 | 1,002 | ||||||||||||
Studio Entertainment |
49 | 123 | 501 | 589 | ||||||||||||
Consumer Products |
155 | 117 | 609 | 493 | ||||||||||||
Interactive Media |
(86) | (65) | (214) | (130) | ||||||||||||
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$ | 2,731 | $ | 2,537 | $ | 6,712 | $ | 5,869 | |||||||||
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(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 increase/(decrease) related to these allocations on segment revenues and operating income as reported in the above table are as follows: |
Quarter Ended | Nine Months Ended | |||||||||||||||
July 2, 2011 | July 3, 2010 | July 2, 2011 | July 3, 2010 | |||||||||||||
Studio Entertainment |
$ | 77 | $ | 51 | $ | 195 | $ | 136 | ||||||||
Consumer Products |
(76) | (50) | (192) | (129) | ||||||||||||
Interactive Media |
(1) | (1) | (3) | (7) | ||||||||||||
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$ | | $ | | $ | - | $ | | |||||||||
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A reconciliation of segment operating income to income before income taxes is as follows:
Quarter Ended | Nine Months Ended | |||||||||||||||
July 2,
2011 |
July 3,
2010 |
July 2,
2011 |
July 3,
2010 |
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Segment operating income |
$ | 2,731 | $ | 2,537 | $ | 6,712 | $ | 5,869 | ||||||||
Corporate and unallocated shared expenses |
(101) | (119) | (335) | (282) | ||||||||||||
Restructuring and impairment charges |
(34) | (36) | (46) | (212) | ||||||||||||
Other income |
| 43 | 75 | 140 | ||||||||||||
Net interest expense |
(88) | (89) | (266) | (322) | ||||||||||||
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Income before income taxes |
$ | 2,508 | $ | 2,336 | $ | 6,140 | $ | 5,193 | ||||||||
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8
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
3. | Acquisitions |
UTV
On May 9, 2008, the Company acquired a 24% interest (bringing its undiluted interest to 37%) in UTV Software Communications Limited (UTV), a media company headquartered and publicly traded in India, for approximately $197 million. In accordance with Indian securities regulations, the Company was required to make an open tender offer to purchase up to an additional 23% of UTVs publicly traded voting shares for a price equivalent to the May 9th, 2008 Indian rupee purchase price. In November 2008, the Company completed the open offer and acquired an incremental 23% of UTVs voting shares for approximately $138 million bringing its undiluted interest to 60%. UTVs founder has a four-year option which expires in November 2012 to buy all or a portion of the shares acquired by the Company during the open-offer period at a price no less than the Companys open-offer price. The Company does not have the right to vote the shares subject to the option until the expiration of the option and accordingly the Companys ownership interest in voting shares is 48%. In January 2010, UTV issued additional shares in exchange for the outstanding noncontrolling interest of one of its subsidiaries diluting the Companys direct interest in UTV to 50% (39% voting interest).
On July 25, 2011, the UTV board of directors approved a proposal submitted by the Company to acquire the publicly held shares of UTV through a delisting offer process. This process is governed by Indian law and will, if completed, involve an offer by the Company to acquire shares publicly traded on the Indian stock exchanges at a price determined through the offer process. The final offer price is subject to the Companys acceptance and is limited in the Companys proposal to 1,000 Indian rupees per share. The Companys proposal also contemplates the purchase of all shares held by the founder of UTV, which constitute 20% of UTV, at the final offer price. The founders shares along with the publicly held shares, constitute all the UTV shares that the Company does not currently own. The transaction is subject to, among other things, Indian regulatory approval, UTV shareholder approval and a price per share that is acceptable to the Company through the delisting offer process. If completed, the Companys interest in UTV would increase to at least 90% and result in a delisting of UTVs shares.
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 $108 million will be paid subject to vesting 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 changes in the estimate of fair value, 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 nine months ended July 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) | 38 | 40 | ||||||||||||||||||
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Balance at July 2, 2011 |
$ | 15,726 | $ | 171 | $ | 5,275 | $ | 1,797 | $ | 1,167 | $ | 24,136 | ||||||||||||
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The carrying amount of goodwill at July 2, 2011 and October 2, 2010 includes accumulated impairments of $29 million at Interactive Media.
The Disney Store Japan
On March 31, 2010, the Company acquired all of the outstanding shares of Retail Networks Company Limited (The Disney Store 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 Statement of Income.
9
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
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 May 12, 2010, the Company sold the rights and assets related to the Power Rangers property for $65 million, resulting in a pre-tax gain of $43 million reported in Other income in the fiscal 2010 Condensed Consolidated Statements of Income.
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 Statement 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.
5. | Borrowings |
During the nine months ended July 2, 2011, the Companys borrowing activity was as follows:
October 2,
2010 |
Additions | Payments |
Other
Activity |
July 2,
2011 |
||||||||||||||||
Commercial paper borrowings |
$ | 1,190 | $ | 620 | $ | | $ | | $ | 1,810 | ||||||||||
U.S. medium-term notes |
6,815 | 500 | | 3 | 7,318 | |||||||||||||||
European medium-term notes |
273 | | (168) | (18) | 87 | |||||||||||||||
Other foreign currency denominated debt |
965 | | | 46 | 1,011 | |||||||||||||||
Other (1) |
651 | | (34) | (84) | 533 | |||||||||||||||
Disneyland Paris borrowings ( 2 ) |
2,113 | | (129) | 144 | 2,128 | |||||||||||||||
Hong Kong Disneyland borrowings ( 3 ) |
473 | | | (122) | 351 | |||||||||||||||
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Total |
$ | 12,480 | $ | 1,120 | $ | (331) | $ | (31) | $ | 13,238 | ||||||||||
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(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 $2.25 billion bank 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 July 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%.
10
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
6. | International Theme Park Investments |
The Company has a 51% effective ownership interest in the operations of Disneyland Paris, a 47% ownership interest in the operations of Hong Kong Disneyland Resort and a 43% ownership interest in the operations of Shanghai Disney Resort, all of which are consolidated in the Companys financial statements.
The following table presents summarized balance sheet information for the Company as of July 2, 2011, reflecting the impact of consolidating the balance sheets of Disneyland Paris, Hong Kong Disneyland Resort, and Shanghai Disney Resort.
Before International
Theme Parks Consolidation |
International
Theme Parks and Adjustments |
Total | ||||||||||
Cash and cash equivalents |
$ | 2,813 | $ | 706 | $ | 3,519 | ||||||
Other current assets |
9,838 | 286 | 10,124 | |||||||||
|
|
|
|
|
|
|||||||
Total current assets |
12,651 | 992 | 13,643 | |||||||||
Investments |
3,774 | (1,269) | 2,505 | |||||||||
Fixed assets |
14,794 | 4,413 | 19,207 | |||||||||
Other assets |
35,623 | 127 | 35,750 | |||||||||
|
|
|
|
|
|
|||||||
Total assets |
$ | 66,842 | $ | 4,263 | $ | 71,105 | ||||||
|
|
|
|
|
|
|||||||
Current portion of borrowings |
$ | 3,850 | $ | 212 | $ | 4,062 | ||||||
Other current liabilities |
8,072 | 632 | 8,704 | |||||||||
|
|
|
|
|
|
|||||||
Total current liabilities |
11,922 | 844 | 12,766 | |||||||||
Borrowings |
6,909 | 2,267 | 9,176 | |||||||||
Deferred income taxes and other long-term liabilities |
8,082 | 159 | 8,241 | |||||||||
Equity |
39,929 | 993 | 40,922 | |||||||||
|
|
|
|
|
|
|||||||
Total liabilities and equity |
$ | 66,842 | $ | 4,263 | $ | 71,105 | ||||||
|
|
|
|
|
|
The following table presents summarized income statement information of the Company for the nine months ended July 2, 2011, reflecting the impact of consolidating the income statements of Disneyland Paris, Hong Kong Disneyland Resort, and Shanghai Disney Resort.
Before International
Theme Parks Consolidation |
International
Theme Parks and Adjustments |
Total | ||||||||||
Revenues |
$ | 28,924 | $ | 1,544 | $ | 30,468 | ||||||
Cost and expenses |
(22,987) | (1,567) | (24,554) | |||||||||
Restructuring and impairment charges |
(46) | | (46) | |||||||||
Other income |
75 | | 75 | |||||||||
Net interest expense |
(191) | (75) | (266) | |||||||||
Equity in the income of investees |
414 | 49 | 463 | |||||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
6,189 | (49) | 6,140 | |||||||||
Income taxes |
(2,129) | (4) | (2,133) | |||||||||
|
|
|
|
|
|
|||||||
Net income |
$ | 4,060 | $ | (53) | $ | 4,007 | ||||||
|
|
|
|
|
|
11
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 cash flow statement information of the Company for the nine months ended July 2, 2011, reflecting the impact of consolidating the cash flow statements of Disneyland Paris, Hong Kong Disneyland Resort, and Shanghai Disney Resort.
Before International
Theme Parks Consolidation |
International
Theme Parks and Adjustments |
Total | ||||||||||
Cash provided by operations |
$ | 4,812 | $ | 78 | $ | 4,890 | ||||||
Investments in parks, resorts and other property |
(2,351) | (210) | (2,561) | |||||||||
Cash provided by other investing activities |
195 | 199 | 394 | |||||||||
Cash used in financing activities |
(1,984) | (48) | (2,032) | |||||||||
Impact of exchange rates on cash and cash equivalents |
76 | 30 | 106 | |||||||||
|
|
|
|
|
|
|||||||
Increase in cash and cash equivalents |
748 | 49 | 797 | |||||||||
Cash and cash equivalents, beginning of period |
2,065 | 657 | 2,722 | |||||||||
|
|
|
|
|
|
|||||||
Cash and cash equivalents, end of period |
$ | 2,813 | $ | 706 | $ | 3,519 | ||||||
|
|
|
|
|
|
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 is 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% of the initial investment in accordance with its equity ownership percentage. The Company consolidates 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 | Nine Months Ended | Quarter Ended | Nine Months Ended | |||||||||||||||||||||||||||||
July 2,
2011 |
July 3,
2010 |
July 2,
2011 |
July 3,
2010 |
July 2,
2011 |
July 3,
2010 |
July 2,
2011 |
July 3,
2010 |
|||||||||||||||||||||||||
Service cost |
$ | 73 | $ | 66 | $ | 220 | $ | 198 | $ | 4 | $ | 5 | $ | 14 | $ | 16 | ||||||||||||||||
Interest cost |
104 | 99 | 311 | 297 | 17 | 17 | 50 | 52 | ||||||||||||||||||||||||
Expected return on plan assets |
(111) | (104) | (331) | (311) | (6) | (6) | (18) | (19) | ||||||||||||||||||||||||
Amortization of prior year service costs |
3 | 3 | 10 | 10 | | | (1) | (1) | ||||||||||||||||||||||||
Recognized net actuarial loss |
57 | 39 | 171 | 116 | 2 | 2 | 6 | 5 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Net periodic benefit cost |
$ | 126 | $ | 103 | $ | 381 | $ | 310 | $ | 17 | $ | 18 | $ | 51 | $ | 53 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
During the nine months ended July 2, 2011, the Company made contributions to its pension and postretirement medical plans totaling $925 million, which included discretionary contributions above the minimum requirements. The Company does not anticipate making any material contributions to its pension and postretirement medical plans during the remainder of 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 the number of Awards excluded from the diluted earnings per share calculation, as they were anti-dilutive, are as follows:
Quarter Ended | Nine Months Ended | |||||||||||||||
July 2,
2011 |
July 3,
2010 |
July 2,
2011 |
July 3,
2010 |
|||||||||||||
Shares (in millions): |
||||||||||||||||
Weighted average number of common shares outstanding (basic) |
1,883 | 1,945 | 1,891 | 1,917 | ||||||||||||
Weighted average dilutive impact of Awards |
29 | 33 | 33 | 34 | ||||||||||||
Weighted average number of common and common equivalent shares outstanding (diluted) |
1,912 | 1,978 | 1,924 | 1,951 | ||||||||||||
Awards excluded from diluted earnings per share |
10 | 14 | 7 | 39 | ||||||||||||
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 nine months ended July 2, 2011, the Company repurchased 77 million shares of its common stock for approximately $3.0 billion. On March 22, 2011, the Companys Board of Directors increased the amount of shares that can be repurchased to 400 million shares as of that date. As of July 2, 2011, the Company had remaining authorization in place to repurchase approximately 363 million additional shares. The repurchase program does not have an expiration date.
The Company received proceeds of $1.1 billion and $1.1 billion from the exercise of 41 million and 43 million employee stock options during the nine months ended July 2, 2011 and July 3, 2010, respectively.
The par value of the Companys outstanding common stock totaled approximately $27 million.
13
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
Accumulated other comprehensive income (loss), net of tax, is as follows:
July 2,
2011 |
October 2,
2010 |
|||||||
Market value adjustments for investments and hedges |
$ | (151) | $ | (95) | ||||
Foreign currency translation and other |
109 | 80 | ||||||
Unrecognized pension and postretirement medical expense |
(1,767) | (1,866) | ||||||
|
|
|
|
|||||
Accumulated other comprehensive income (loss) (1) |
$ | (1,809) | $ | (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 | Nine Months Ended | |||||||||||||||
July 2,
2011 |
July 3,
2010 |
July 2,
2011 |
July 3,
2010 |
|||||||||||||
Stock options/rights |
$ | 31 | $ | 49 | $ | 131 | $ | 171 | ||||||||
RSUs |
76 | 70 | 232 | 220 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total equity-based compensation expense |
$ | 107 | $ | 119 | $ | 363 | $ | 391 | ||||||||
|
|
|
|
|
|
|
|
Unrecognized compensation cost related to unvested stock options/rights and RSUs totaled approximately $231 million and $703 million, respectively, as of July 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 nine months ended July 2, 2011, and July 3, 2010, were $10.97 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 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
14
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
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 July 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 these 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 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 sales of program rights in the television syndication markets within the Media Networks segment and vacation ownership units within the Parks and Resorts segment.
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 July 2, 2011. 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 $0.5 billion, net of a related allowance for credit losses of approximately 6%, as of July 2, 2011. The activity in the period related to the allowance for credit losses was not material.
Income Taxes
As of the beginning of fiscal year 2011, the Company had gross unrecognized tax benefits, excluding the related accrual for interest, of $680 million. During the nine months ended July 2, 2011, the Company settled certain tax matters and as a result reduced its unrecognized tax benefits by $52 million, excluding interest of $31 million.
15
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
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 $43 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.
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 |
16
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
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 July 2, 2011 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets |
||||||||||||||||
Investments |
$ | 195 | $ | 26 | $ | | $ | 221 | ||||||||
Derivatives (1) |
||||||||||||||||
Interest rate |
| 170 | | 170 | ||||||||||||
Foreign exchange |
| 363 | | 363 | ||||||||||||
Other derivatives |
| 3 | | 3 | ||||||||||||
Residual Interests |
| | 42 | 42 | ||||||||||||
Liabilities |
||||||||||||||||
Derivatives (1) |
||||||||||||||||
Interest rate |
| (16) | | (16) | ||||||||||||
Foreign exchange |
| (431) | | (431) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 195 | $ | 115 | $ | 42 | $ | 352 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
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 $141 million and $206 million have been netted against contracts in an asset position in the Condensed Consolidated Balance Sheet at July 2, 2011 and October 2, 2010, respectively. |
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 nine months of fiscal 2011.
17
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
The Company also has assets and liabilities that are required to be recorded at fair value on a non-recurring basis when certain circumstances occur. During the nine months ended July 2, 2011 and July 3, 2010, the Company recorded impairment charges of $43 million and $147 million, respectively, on film productions, of which $20 million and $111 million were recorded in the current and prior-year third quarters, respectively. These impairment charges are reported in Costs and expenses in the Condensed Consolidated Statements of Income. The film impairment charges compared our estimated fair value using discounted cash flows to the unamortized cost of the films. The discounted cash flow analysis is a level 3 valuation technique. The aggregate carrying values of the films were $94 million and $420 million prior to the impairment charges for the nine months ended July 2, 2011 and July 3, 2010, respectively.
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 and/or interest rates for the same or similar instruments are $13.2 billion and $13.7 billion at July 2, 2011 and October 2, 2010, respectively.
Transfers of Financial Assets
The Company previously sold mortgage receivables arising from sales of its vacation ownership units under a facility that expired on December 4, 2008. The Company continues to service the sold receivables and has a residual interest in those receivables. As of July 2, 2011, the remaining outstanding principal amount for sold mortgage receivables was $253 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 nine months ended July 2, 2011 or July 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.
18
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 July 2, 2011:
Other
Current Assets |
Other Assets |
Other
Accrued Liabilities |
Other Long-
Term Liabilities |
|||||||||||||
Derivatives designated as hedges |
||||||||||||||||
Foreign exchange |
$ | 111 | $ | 10 | $ | (232) | $ | (125) | ||||||||
Interest rate |
2 | 168 | | | ||||||||||||
Other |
2 | | | | ||||||||||||
Derivatives not designated as hedges |
||||||||||||||||
Foreign exchange |
47 | 195 | (73) | (1) | ||||||||||||
Interest rate |
| | | (16) | ||||||||||||
Other |
1 | | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross fair value of derivatives |
163 | 373 | (305) | (142) | ||||||||||||
Counterparty netting |
(105) | (36) | 106 | 35 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Derivatives (1) |
$ | 58 | $ | 337 | $ | (199) | $ | (107) | ||||||||
|
|
|
|
|
|
|
|
The following table summarizes the fair value of the Companys derivative positions as of October 2, 2010:
Other
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.
19
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
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. As of both July 2, 2011 and October 2, 2010, the total notional amount of the Companys pay-floating interest rate swaps was $1.4 billion and $1.5 billion, respectively. The following table summarizes adjustments related to fair value hedges included in net interest expense in the Consolidated Statements of Income.
Quarter Ended | Nine Months Ended | |||||||||||||||
July 2,
2011 |
July 3,
2010 |
July 2,
2011 |
July 3,
2010 |
|||||||||||||
Gain (loss) on interest rate swaps |
$ | 16 | $ | 49 | $ | (61) | $ | 9 | ||||||||
Gain (loss) on hedged borrowings |
(16) | (49) | 61 | (9) |
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 gains 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 July 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, Japanese yen, Canadian dollar and British Pound. 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 July 2, 2011 and October 2, 2010, the notional amounts of the Companys net foreign exchange cash flow hedges were $4.0 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 nine months ended July 2, 2011 and July 3, 2010 were not material. Net deferred losses recorded in AOCI for contracts that will mature in the next twelve months totaled $119 million. The following table summarizes the pre-tax adjustments to AOCI for foreign exchange cash flow hedges.
20
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
Quarter Ended | Nine Months Ended | |||||||||||||||
July 2,
2011 |
July 3,
2010 |
July 2,
2011 |
July 3,
2010 |
|||||||||||||
Gain (loss) recorded in AOCI |
$ | (114) | $ | (20) | $ | (249) | $ | (27) | ||||||||
Reclassification of (gains) losses from AOCI into revenues and costs and expenses |
63 | (22) | 119 | 12 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net change in AOCI |
$ | (51) | $ | (42) | $ | (130) | $ | (15) | ||||||||
|
|
|
|
|
|
|
|
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 July 2, 2011 and October 2, 2010 was $3.1 billion and $2.2 billion, respectively. During the quarters ended July 2, 2011 and July 3, 2010, the Company recognized a net loss of $62 million and a net gain of $126 million, respectively, in costs and expenses on these foreign exchange contracts which offset a net gain of $63 million and a net loss of $158 million on the related economic exposures for the three months ended July 2, 2011 and July 3, 2010, respectively. During the nine months ended July 2, 2011 and July 3, 2010, the Company recognized a net loss of $127 million and a net gain of $179 million, respectively, in costs and expenses on these foreign exchange contracts which offset a net gain of $119 million and a net loss of $262 million on the related economic exposures for the nine months ended July 2, 2011 and July 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 July 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 and commodity swap contracts, 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 amounts of these contracts at July 2, 2011 and October 2, 2010 were $192 million and $218 million, respectively. For the quarter and nine months ended July 2, 2011 and July 3, 2010, the gains and losses 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 $307 million and $306 million on July 2, 2011 and October 2, 2010, respectively.
21
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
15. | Restructuring and Impairment Charges |
In the current nine months, the Company recorded $46 million of restructuring and impairment charges, of which $34 million were recorded in the current quarter, reflecting severance and facilities costs related to organizational and cost structure initiatives primarily at the Studio Entertainment and Interactive Media segments.
In the prior-year nine months, the Company recorded $212 million of restructuring and impairment charges related to organizational and costs structure initiatives primarily at our Studio Entertainment and Media Networks segments. Impairment charges were $126 million, of which $30 million were recorded in the prior-year third quarter, and consisted of write-offs of capitalized costs primarily related to abandoned film projects, the closure of a studio production facility and the closure of five ESPN Zone locations. Restructuring charges were $86 million, of which $6 million were recorded in the prior-year third quarter, and primarily reflected severance costs.
22
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
Nine-Month Results
Other Financial Information
Financial Condition
Commitments and Contingencies
Other Matters
Market Risk
OVERVIEW
Our summary consolidated results are presented below:
Quarter Ended |
%Change
Better/ (Worse) |
Nine Months Ended |
%Change
Better/ (Worse) |
|||||||||||||||||||||
(in millions, except per share data) |
July 2,
2011 |
July 3,
2010 |
July 2, 2011 |
July 3,
2010 |
||||||||||||||||||||
Revenues |
$ | 10,675 | $ | 10,002 | 7 % | $ | 30,468 | $ | 28,321 | 8 % | ||||||||||||||
Costs and expenses |
(8,229) | (7,723) | (7) % | (24,554) | (23,116) | (6) % | ||||||||||||||||||
Restructuring and impairment charges |
(34) | (36) | 6 % | (46) | (212) | 78 % | ||||||||||||||||||
Other income |
- | 43 | nm | 75 | 140 | (46) % | ||||||||||||||||||
Net interest expense |
(88) | (89) | 1 % | (266) | (322) | 17 % | ||||||||||||||||||
Equity in the income of investees |
184 | 139 | 32 % | 463 | 382 | 21 % | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Income before income taxes |
2,508 | 2,336 | 7 % | 6,140 | 5,193 | 18 % | ||||||||||||||||||
Income taxes |
(845) | (831) | (2) % | (2,133) | (1,846) | (16) % | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Net income |
1,663 | 1,505 | 10 % | 4,007 | 3,347 | 20 % | ||||||||||||||||||
Less: Net income attributable to noncontrolling interests |
(187) | (174) | (7) % | (287) | (219) | (31) % | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Net income attributable to Disney |
$ | 1,476 | $ | 1,331 | 11 % | $ | 3,720 | $ | 3,128 | 19 % | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Diluted earnings per share |
$ | 0.77 | $ | 0.67 | 15 % | $ | 1.93 | $ | 1.60 | 21 % | ||||||||||||||
|
|
|
|
|
|
|
|
Quarter Results
Diluted earnings per share (EPS) increased 15% for the quarter driven by improved operating results, a lower effective income tax rate, and a decrease in weighted average shares outstanding. Improved operating results were primarily due to higher guest spending at our domestic parks and resorts, increased fees from Multi-channel Video Service Providers (MVSP) (Affiliate Fees) at our Cable Networks and lower film cost write-downs. These increases were partially offset by increased operating expenses at our domestic parks and resorts and lower performance at our theatrical business.
In the current quarter, the Company recorded restructuring and impairment charges totaling $34 million primarily relating to severance and facilities costs at our Studio Entertainment business which had a $0.01 negative impact on EPS. The prior-year quarter included restructuring and impairment charges and a gain on the sale of rights and assets related to the Power Rangers property which collectively had no impact on EPS.
Nine-Month Results
Diluted EPS increased 21% for the nine months driven by improved operating results and a lower effective income tax rate. Improved operating results reflected increased Affiliate Fees at our Cable Networks, higher advertising revenue at ESPN, increased guest spending and volumes at our domestic and international parks and resorts, higher licensing
23
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
revenue due to the strength of Cars merchandise and a full period of Marvel, and a decrease in programming and production costs at the ABC Television Network. These increases were partially offset by increased operating expenses at our domestic parks and resorts, higher programming and production costs at ESPN, the inclusion of results for Playdom in the current nine months, which included the impact of acquisition accounting, and lower performance at our theatrical business.
In the current nine months, the Company recorded $46 million of restructuring and impairment charges and $75 million from gains on the sales of businesses (Miramax and BASS). The table below shows the pretax and after tax impact of these items.
Benefit / (Expense) | ||||||||||||
Pretax |
Tax
Effect |
After
Tax |
||||||||||
Restructuring and impairment charges |
$ | (46) | $ | 44 | $ | (2) | ||||||
Gains on sales of businesses |
75 | (107) | (32) | |||||||||
|
|
|
|
|
|
|||||||
$ | 29 | $ | (63) | $ | (34) | |||||||
|
|
|
|
|
|
Restructuring and impairment charges include an impairment of assets that had tax basis significantly in excess of book value resulting in a $44 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 businesses exceeded the $75 million book gain resulting in tax expense of $107 million. These items collectively had a $0.02 negative impact on EPS.
The prior-year nine months included restructuring and impairment charges, gains on the sales of investments in pay television services in Europe, a gain on the sale of rights and assets related to the Power Rangers property 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 nine months ended July 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.
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.
24
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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 |
%
Change
Better/ (Worse) |
Nine months Ended |
%
Change
Better/ (Worse) |
|||||||||||||||||||||
(in millions) |
July 2,
2011 |
July 3,
2010 |
July 2,
2011 |
July 3,
2010 |
||||||||||||||||||||
Revenues: |
||||||||||||||||||||||||
Media Networks |
$ | 4,949 | $ | 4,729 | 5 % | $ | 13,916 | $ | 12,748 | 9 % | ||||||||||||||
Parks and Resorts |
3,170 | 2,831 | 12 % | 8,668 | 7,942 | 9 % | ||||||||||||||||||
Studio Entertainment |
1,620 | 1,639 | (1) % | 4,892 | 5,110 | (4) % | ||||||||||||||||||
Consumer Products |
685 | 606 | 13 % | 2,233 | 1,948 | 15 % | ||||||||||||||||||
Interactive Media |
251 | 197 | 27 % | 759 | 573 | 32 % | ||||||||||||||||||
$ | 10,675 | $ | 10,002 | 7 % | $ | 30,468 | $ | 28,321 | 8 % | |||||||||||||||
Segment operating income (loss) : |
||||||||||||||||||||||||
Media Networks |
$ | 2,094 | $ | 1,885 | 11 % | $ | 4,684 | $ | 3,915 | 20 % | ||||||||||||||
Parks and Resorts |
519 | 477 | 9 % | 1,132 | 1,002 | 13 % | ||||||||||||||||||
Studio Entertainment |
49 | 123 | (60) % | 501 | 589 | (15) % | ||||||||||||||||||
Consumer Products |
155 | 117 | 32 % | 609 | 493 | 24 % | ||||||||||||||||||
Interactive Media |
(86) | (65) | (32) % | (214) | (130) | (65) % | ||||||||||||||||||
$ | 2,731 | $ | 2,537 | 8 % | $ | 6,712 | $ | 5,869 | 14 % | |||||||||||||||
The following table reconciles segment operating income to income before income taxes:
Quarter Ended |
%
Change
Better/ (Worse) |
Nine months Ended |
%
Change
Better/ (Worse) |
|||||||||||||||||||||
(in millions) |
July 2,
2011 |
July 3,
2010 |
July 2,
2011 |
July 3,
2010 |
||||||||||||||||||||
Segment operating income |
$ | 2,731 | $ | 2,537 | 8 % | $ | 6,712 | $ | 5,869 | 14 % | ||||||||||||||
Corporate and unallocated shared expenses |
(101) | (119) | 15 % | (335) | (282) | (19) % | ||||||||||||||||||
Restructuring and impairment charges |
(34) | (36) | 6 % | (46) | (212) | 78 % | ||||||||||||||||||
Other income |
| 43 | nm | 75 | 140 | (46) % | ||||||||||||||||||
Net interest expense |
(88) | (89) | 1 % | (266) | (322) | 17 % | ||||||||||||||||||
Income before income taxes |
$ | 2,508 | $ | 2,336 | 7 % | $ | 6,140 | $ | 5,193 | 18 % | ||||||||||||||
25
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Depreciation expense is as follows:
Quarter Ended |
%
Change
Better/ (Worse) |
Nine months Ended |
%
Change
Better/ (Worse) |
|||||||||||||||||||||
(in millions) |
July 2,
2011 |
July 3,
2010 |
July 2,
2011 |
July 3,
2010 |
||||||||||||||||||||
Media Networks |
||||||||||||||||||||||||
Cable Networks |
$ | 34 | $ | 29 | (17) % | $ | 99 | $ | 87 | (14) % | ||||||||||||||
Broadcasting |
25 | 23 | (9) % | 76 | 71 | (7) % | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total Media Networks |
59 | 52 | (13) % | 175 | 158 | (11) % | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Parks and Resorts |
||||||||||||||||||||||||
Domestic |
219 | 205 | (7) % | 628 | 614 | (2) % | ||||||||||||||||||
International |
83 | 78 | (6) % | 241 | 249 | 3 % | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total Parks and Resorts |
302 | 283 | (7) % | 869 | 863 | (1) % | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Studio Entertainment |
12 | 14 | 14 % | 42 | 42 | - % | ||||||||||||||||||
Consumer Products |
11 | 8 | (38) % | 36 | 22 | (64) % | ||||||||||||||||||
Interactive Media |
3 | 3 | - % | 12 | 16 | 25 % | ||||||||||||||||||
Corporate |
37 | 39 | 5 % | 111 | 103 | (8) % | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total depreciation expense |
$ | 424 | $ | 399 | (6) % | $ | 1,245 | $ | 1,204 | (3) % | ||||||||||||||
|
|
|
|
|
|
|
|
Amortization of intangible assets is as follows:
Quarter Ended |
%
Change
Better/ (Worse) |
Nine months Ended |
%
Change
Better/ (Worse) |
|||||||||||||||||||||
(in millions) |
July 2,
2011 |
July 3,
2010 |
July 2,
2011 |
July 3,
2010 |
||||||||||||||||||||
Media Networks |
$ | 2 | $ | 3 | 33 % | $ | 6 | $ | 7 | 14 % | ||||||||||||||
Parks and Resorts |
| | nm | | | nm | ||||||||||||||||||
Studio Entertainment |
25 | 10 | (>100) % | 56 | 21 | (>100) % | ||||||||||||||||||
Consumer Products |
15 | 13 | (15) % | 43 | 29 | (48) % | ||||||||||||||||||
Interactive Media |
10 | 7 | (43) % | 29 | 18 | (61) % | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total amortization of intangible assets |
$ | 52 | $ | 33 | (58) % | $ | 134 | $ | 75 | (79) % | ||||||||||||||
|
|
|
|
|
|
|
|
Media Networks
Operating results for the Media Networks segment are as follows:
Quarter Ended |
%
Change
Better/ (Worse) |
|||||||||||
(in millions) |
July 2,
2011 |
July 3,
2010 |
||||||||||
Revenues |
||||||||||||
Affiliate Fees |
$ | 2,566 | $ | 2,364 | 9 % | |||||||
Advertising |
1,913 | 1,893 | 1 % | |||||||||
Other |
470 | 472 | % | |||||||||
|
|
|
|
|||||||||
Total revenues |
4,949 | 4,729 | 5 % | |||||||||
Operating expenses |
(2,291) | (2,290) | % | |||||||||
Selling, general, administrative and other |
(687) | (638) | (8) % | |||||||||
Depreciation and amortization |
(61) | (55) | (11) % | |||||||||
Equity in the income of investees |
184 | 139 | 32 % | |||||||||
|
|
|
|
|||||||||
Operating Income |
$ | 2,094 | $ | 1,885 | 11 % | |||||||
|
|
|
|
26
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Revenues
Affiliate Fees increased 9% driven by increases of 5% from contractual rate increases, 1% from subscriber growth, and 1% from favorable foreign currency translation impacts at Cable Networks, and 1% due to new contractual provisions at Broadcasting.
Advertising revenues reflected increases of $13 million at Cable Networks (from $846 million to $859 million) and $7 million at Broadcasting (from $1,047 million to $1,054 million). Higher Cable Networks advertising revenue was driven by an 8% increase due to higher rates, partially offset by a 5% decrease due to fewer units sold and lower ratings. At Broadcasting an increase of 5% due to higher Network advertising rates was largely offset by decreases of 3% due to lower Network primetime ratings and 2% due to lower political advertising at our owned television stations.
Other revenues reflected lower sales of ABC Studios productions driven by Lost and Ghost Whisperer which were essentially offset by 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).
Costs and Expenses
Operating expenses include programming and production costs which decreased $78 million from $2,003 million to $1,925 million. At Cable Networks, an increase in programming and production costs of $17 million was driven by more episodes of original programming at ABC Family and the Disney Channels largely offset by the absence of costs for the FIFA World Cup at ESPN which was broadcast in the prior year quarter. At Broadcasting, programming and production costs decreased $95 million driven by a lower cost mix of primetime programming reflecting a shift in hours from original scripted programming to reality programming and lower news and daytime production costs due to cost savings initiatives. The decrease in programming and production costs was largely offset by a 1% increase in operating costs 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 included the impact of higher marketing and sales expenses.
Equity in the Income of Investees
Income from equity investees increased to $184 million for the current quarter from $139 million in the prior-year quarter primarily due to lower cricket programming costs at ESPN Star Sports as a result of fewer matches airing in the current quarter and also decreased losses from our UTV investment.
Segment Operating Income
Segment operating income increased 11%, or $209 million, to $2.1 billion. The increase was primarily due to increases at ESPN, the ABC Television Network and at the worldwide Disney Channels. These increases were partially offset by decreases at ABC Family and at our owned television stations.
27
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The following table provides supplemental revenue and segment operating income detail for the Media Networks segment:
Quarter Ended |
% Change
Better/ (Worse) |
Nine months Ended |
% Change
Better/ (Worse) |
|||||||||||||||||||||
(in millions) |
July 2,
2011 |
July 3,
2010 |
July 2,
2011 |
July 3,
2010 |
||||||||||||||||||||
Revenues: |
||||||||||||||||||||||||
Cable Networks |
$ | 3,516 | $ | 3,280 | 7 % | $ | 9,410 | $ | 8,346 | 13 % | ||||||||||||||
Broadcasting |
1,433 | 1,449 | (1) % | 4,506 | 4,402 | 2 % | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
$ | 4,949 | $ | 4,729 | 5 % | $ | 13,916 | $ | 12,748 | 9 % | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Segment operating income : |
||||||||||||||||||||||||
Cable Networks |
$ | 1,844 | $ | 1,676 | 10 % | $ | 3,972 | $ | 3,403 | 17 % | ||||||||||||||
Broadcasting |
250 | 209 | 20 % | 712 | 512 | 39 % | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
$ | 2,094 | $ | 1,885 | 11 % | $ | 4,684 | $ | 3,915 | 20 % | |||||||||||||||
|
|
|
|
|
|
|
|
Restructuring and impairment charges
The Company recorded charges of $1 million and $34 million for the current quarter and prior-year quarter, respectively, which were reported in Restructuring and impairment charges in the Condensed Consolidated Statements of Income. The charges in the prior-year quarter were primarily due to the closure of five ESPN Zone locations.
Parks and Resorts
Operating results for the Parks and Resorts segment are as follows:
Quarter Ended |
% Change
Better/ (Worse) |
|||||||||||
(in millions) |
July 2,
2011 |
July 3,
2010 |
||||||||||
Revenues |
||||||||||||
Domestic |
$ | 2,532 | $ | 2,211 | 15 % | |||||||
International |
638 | 620 | 3 % | |||||||||
|
|
|
|
|||||||||
Total revenues |
3,170 | 2,831 | 12 % | |||||||||
Operating expenses |
(1,913) | (1,706) | (12) % | |||||||||
Selling, general, administrative and other |
(436) | (365) | (19) % | |||||||||
Depreciation and amortization |
(302) | (283) | (7) % | |||||||||
|
|
|
|
|||||||||
Operating Income |
$ | 519 | $ | 477 | 9 % | |||||||
|
|
|
|
Revenues
Parks and Resorts revenues increased 12%, or $339 million, to $3.2 billion due to increases of $321 million at our domestic operations and $18 million at our international operations. Results at both our domestic and international parks and resorts reflected a favorable impact due to a shift in the timing of the Easter holiday relative to our fiscal periods. The current quarter included two weeks of the Easter holiday, while the prior-year quarter included one week of the Easter holiday.
Revenue at our domestic operations reflected an 8% increase due to higher average guest spending, a 4% increase from higher passenger cruise ship days due to the first full quarter of operations from our new cruise ship, the Disney Dream , and a 1% increase due to higher attendance. Higher guest spending was primarily due to higher average ticket prices and daily hotel room rates and increased spending on food, beverage and merchandise.
28
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Revenues at our international operations reflected a 9% increase due to the impact of foreign currency translation as a result of the weakening of the US dollar against the Euro, a 5% increase from higher average guest spending, and a 4% volume increase due to higher attendance and hotel occupancy. Higher guest spending was primarily due to higher average daily hotel room rates and higher average ticket prices. These increases were partially offset by a 10% decrease due to the prior-year sale of a real estate property at Disneyland Paris and a 4% decrease due to the March 2011 earthquake and tsunami in Japan which resulted in temporary suspension of operations at Tokyo Disney Resort and a continuing reduction in volume after reopening.
The following table presents supplemental park and hotel statistics:
Domestic | International (2) | Total | ||||||||||||||||||||||
Quarter Ended | Quarter Ended | Quarter Ended | ||||||||||||||||||||||
July 2,
2011 |
July 3,
2010 |
July 2,
2011 |
July 3,
2010 |
July 2,
2011 |
July 3,
2010 |
|||||||||||||||||||
Parks Increase/(decrease) |
||||||||||||||||||||||||
Attendance |
2 % | (3) % | 7 % | 7 % | 3 % | (1) % | ||||||||||||||||||
Per Capita Guest Spending |
8 % | 5 % | 15 % | (2) % | 9 % | 3 % | ||||||||||||||||||
Hotels (1) |
||||||||||||||||||||||||
Occupancy |
81 % | 82 % | 91 % | 89 % | 83 % | 84 % | ||||||||||||||||||
Available Room Nights (in thousands) |
2,407 | 2,413 | 615 | 615 | 3,022 | 3,028 | ||||||||||||||||||
Per Room Guest Spending |
$262 | $230 | $317 | $267 | $274 | $238 |
(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 $1.44 and $1.27 for the quarters ended July 2, 2011 and July 3, 2010, respectively. |
Costs and Expenses
Operating expenses include operating labor and cost of sales. Operating labor increased by $102 million from $821 million to $923 million driven by labor cost inflation and higher pension and healthcare costs. Cost of sales increased $21 million from $291 million to $312 million driven by volume, partially offset by the absence of costs related to the prior-year real estate sale at Disneyland Paris. Higher operating expenses also reflected the first full quarter of operations from our new cruise ship, the Disney Dream , expansion costs for Disney California Adventure at Disneyland Resort and the unfavorable impact of foreign currency translation as a result of the weakening of the U.S. dollar against the Euro.
The increase in selling, general, administrative and other costs and expenses was driven by higher marketing costs at our domestic parks and resorts, including marketing of our new guest offerings, and at our new resort in Hawaii and labor cost inflation.
The increase in depreciation and amortization was driven by depreciation expense on the Disney Dream.
Segment Operating Income
Segment operating income increased 9%, or $42 million, to $519 million due to increases at our domestic parks and resorts, Disney Cruise Line, and Hong Kong Disneyland Resort, partially offset by decreases at Disneyland Paris and Tokyo Disney Resort.
29
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Studio Entertainment
Operating results for the Studio Entertainment segment are as follows:
Quarter Ended |
% Change
Better/ (Worse) |
|||||||||||
(in millions) |
July 2,
2011 |
July 3,
2010 |
||||||||||
Revenues |
||||||||||||
Theatrical distribution |
$ | 670 | $ | 686 | (2) % | |||||||
Home entertainment |
431 | 469 | (8) % | |||||||||
Television distribution and other |
519 | 484 | 7 % | |||||||||
|
|
|
|
|||||||||
Total revenues |
1,620 | 1,639 | (1) % | |||||||||
Operating expenses |
(875) | (910) | 4 % | |||||||||
Selling, general, administrative and other |
(659) | (582) | (13) % | |||||||||
Depreciation and amortization |
(37) | (24) | (54) % | |||||||||
|
|
|
|
|||||||||
Operating Income |
$ | 49 | $ | 123 | (60) % | |||||||
|
|
|
|
Revenues
The decrease in theatrical distribution, which includes our participation in Marvel titles, reflected the strong performance of Toy Story 3 and Iron Man 2 in the prior-year quarter compared to Cars 2 and Thor in the current quarter. The decrease in revenues due to the performance of these titles was largely offset by an increase in revenues from the performance of Pirates of the Caribbean: On Stranger Tides, which was released in the current quarter, compared to the ongoing performance of Alice in Wonderland , which was released in the second quarter of the prior year, and Prince of Persia: The Sands Of Time, which was released in the prior-year third quarter.
Lower home entertainment revenue reflected a 9% decrease due to the 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 reflected a 5% increase due to higher revenue share from Consumer Products on sales of merchandise based on Studio film properties in the current quarter driven by the strength of Cars merchandise (See Note 2 to the Condensed Consolidated Financial Statements).
Costs and Expenses
Operating expenses include film cost amortization which decreased by $50 million from $503 million to $453 million driven by lower film cost write-downs. Operating expenses also included a 4% decrease due to the change in the transfer pricing arrangement between Studio Entertainment and Media Networks for distribution of Media Networks home entertainment product. These decreases were partially offset by a 4% increase due to higher distribution costs for theatrical releases driven by Pirates of the Caribbean: On Stranger Tides .
The increase in selling, general, administrative and other costs was primarily due to higher marketing expense associated with theatrical releases driven by Pirates of the Caribbean: On Stranger Tides .
Segment Operating Income
Segment operating income decreased from $123 million to $49 million primarily due to lower results at theatrical distribution partially offset by lower film cost write-downs.
Restructuring and impairment charges
The Company recorded charges of $30 million and $5 million in the current and prior-year quarters, respectively, which were reported in Restructuring and impairment charges in the
30
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Condensed Consolidated Statements of Income. The charges in the current quarter were primarily for severance and facilities costs.
Consumer Products
Operating results for the Consumer Products segment are as follows:
Quarter Ended |
% Change
Better/ (Worse) |
|||||||||||
(in millions) |
July 2,
2011 |
July 3,
2010 |
||||||||||
Revenues |
||||||||||||
Licensing and publishing |
$ | 459 | $ | 407 | 13 % | |||||||
Retail and other |
226 | 199 | 14 % | |||||||||
|
|
|
|
|||||||||
Total revenues |
685 | 606 | 13 % | |||||||||
Operating expenses |
(304) | (287) | (6) % | |||||||||
Selling, general, administrative and other |
(200) | (181) | (10) % | |||||||||
Depreciation and amortization |
(26) | (21) | (24) % | |||||||||
|
|
|
|
|||||||||
Operating Income |
$ | 155 | 117 | 32 % | ||||||||
|
|
|
|
Revenues
The increase in licensing and publishing revenue reflected an 18% increase in licensing revenue driven by the strong performance of Cars merchandise and higher revenue from Marvel properties in the current quarter. The increase in revenue from Marvel properties reflected the impact of acquisition accounting which reduced revenue recognition in the prior-year quarter. These increases were partially offset by a decrease of 6% due to a higher revenue share with the Studio Entertainment segment in the current quarter primarily due to the strong performance of Cars merchandise.
Higher retail and other revenues reflected a 17% increase at the Disney Store driven by higher comparable store sales at our stores in North America and Europe.
Costs and Expenses
Operating expenses include cost of goods sold which increased from $115 million to $118 million. Operating expenses also include a 2% increase due to higher labor costs and a 2% increase due to higher rent and occupancy costs at our retail business.
The increase in selling, general, administrative and other costs included promotional costs for Cars merchandise licensing programs.
Operating Income
Segment operating income increased 32% to $155 million driven by an increase at our licensing business.
Interactive Media
Operating results for the Interactive Media segment are as follows:
Quarter Ended |
% Change
Better/ (Worse) |
|||||||||||
(in millions) |
July 2,
2011 |
July 3,
2010 |
||||||||||
Revenues |
||||||||||||
Game sales and subscriptions |
$ | 196 | $ | 146 | 34 % | |||||||
Advertising and other |
55 | 51 | 8 % | |||||||||
|
|
|
|
|||||||||
Total revenues |
251 | 197 | 27 % | |||||||||
Operating expenses |
(205) | (137) | (50) % | |||||||||
Selling, general, administrative and other |
(119) | (115) | (3) % | |||||||||
Depreciation and amortization |
(13) | (10) | (30) % | |||||||||
|
|
|
|
|||||||||
Operating Income |
$ | (86) | (65) | (32) % | ||||||||
|
|
|
|
31
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Revenues
Higher game sales and subscriptions revenue reflected a 16% increase due to higher unit sales of console games and an increase of 14% driven by higher online game sales due to the inclusion of Playdom in the current quarter. Increased console games sales reflected the performance of Lego Pirates of the Caribbean and Cars 2 in the current quarter compared to Toy Story 3 and Split Second in the prior-year quarter.
Costs and Expenses
Operating expenses include product development costs which increased $10 million from $87 million to $97 million driven by the inclusion of Playdom, partially offset by a decrease at our console games business. Operating expenses also included a 37% increase due to higher cost of sales driven by fees paid to the developer of Lego Pirates of the Caribbean .
The increase in selling, general, administrative and other expenses was driven by the inclusion of Playdom, including the impact of acquisition accounting, partially offset by lower marketing costs at our console games business. The prior-year release of Split Second required significant marketing support as it was not based on an existing film property.
Operating Loss
Segment operating loss was $86 million compared to $65 million in the prior-year quarter driven by the inclusion of Playdom, partially offset by an improvement at our console games business.
Restructuring and impairment charges
The Company recorded charges of $7 million and credits of $3 million in the current and prior-year quarters, respectively, which were reported in Restructuring and impairment charges in the Condensed Consolidated Statements of Income. The charges in current quarter were primarily for severance costs.
BUSINESS SEGMENT RESULTS Nine Month Results
Media Networks
Operating results for the Media Networks segment are as follows:
Nine months Ended |
% Change
Better/ (Worse) |
|||||||||||
(in millions) |
July 2,
2011 |
July 3,
2010 |
||||||||||
Revenues |
||||||||||||
Affiliate Fees |
$ | 6,368 | $ | 5,835 | 9 % | |||||||
Advertising |
5,902 | 5,350 | 10 % | |||||||||
Other |
1,646 | 1,563 | 5 % | |||||||||
|
|
|
|
|||||||||
Total revenues |
13,916 | 12,748 | 9 % | |||||||||
Operating expenses |
(7,678) | (7,330) | (5) % | |||||||||
Selling, general, administrative and other |
(1,836) | (1,719) | (7) % | |||||||||
Depreciation and amortization |
(181) | (165) | (10) % | |||||||||
Equity in the income of investees |
463 | 381 | 22 % | |||||||||
|
|
|
|
|||||||||
Operating Income |
$ | 4,684 | $ | 3,915 | 20 % | |||||||
|
|
|
|
32
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Revenues
Affiliate Fee growth of 9% was driven by increases of 6% from higher contractual rates and 1% from subscriber growth at Cable Networks and an increase of 1% due to new contractual provisions at Broadcasting.
Higher advertising revenues were due to an increase of $452 million at Cable Networks from $2,253 million to $2,705 million and an increase of $100 million at Broadcasting from $3,097 million to $3,197 million. The increase at Cable Networks was driven by a 15% increase due to higher rates and a 4% increase due to higher units sold. The increase at Broadcasting reflected increases of 7% due to higher Network advertising rates, primarily at primetime, and 1% due to higher local television advertising, partially offset by a decrease of 5% due to lower Network ratings primarily at primetime and daytime.
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, partially offset by lower sales of ABC Studios productions driven by the absence of Ghost Whisperer and Lost .
Costs and Expenses
Operating expenses include programming and production costs which increased $151 million from $6,334 million to $6,485 million. At Cable Networks, an increase in programming and production spending of $381 million was driven by higher sports rights costs due to the addition of college football programming including Bowl Championship Series games and more episodes of original programming at the Disney Channels. At Broadcasting, programming and production costs decreased $230 million driven by lower production cost amortization due to decreased sales of ABC Studios productions, a 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 higher marketing and sales costs at our Cable Network businesses.
Equity in the Income of Investees
Income from equity investees increased to $463 million in the current nine-month period from $381 million in the prior-year nine month period driven an increase at A&E/Lifetime due to higher advertising and affiliate revenues, partially offset by higher marketing and programming costs.
Segment Operating Income
Segment operating income increased 20%, or $769 million, to $4.7 billion. The increase was primarily due to increases at ESPN, the ABC Television Network, the worldwide Disney Channels, the owned television stations and ABC Family.
Restructuring and impairment charges
The Company recorded charges of $78 million for the prior-year nine month period which were reported in Restructuring and impairment charges in the Condensed Consolidated Statement of Income. The charges were primarily for severance costs and the closure of five ESPN Zone locations.
33
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Parks and Resorts
Operating results for the Parks and Resorts segment are as follows:
Nine months Ended |
% Change
Better/ (Worse) |
|||||||||||
(in millions) |
July 2,
2011 |
July 3,
2010 |
||||||||||
Revenues |
||||||||||||
Domestic |
$ | 6,938 | $ | 6,263 | 11 % | |||||||
International |
1,730 | 1,679 | 3 % | |||||||||
|
|
|
|
|||||||||
Total revenues |
8,668 | 7,942 | 9 % | |||||||||
Operating expenses |
(5,418) | (4,967) | (9) % | |||||||||
Selling, general, administrative and other |
(1,249) | (1,110) | (13) % | |||||||||
Depreciation and amortization |
(869) | (863) | (1) % | |||||||||
|
|
|
|
|||||||||
Operating Income |
$ | 1,132 | 1,002 | 13 % | ||||||||
|
|
|
|
Revenues
Parks and Resorts revenues increased 9%, or $726 million, to $8.7 billion due to an increase of $675 million at our domestic operations and an increase of $51 million at our international operations.
Revenue growth at our domestic operations reflected a 6% increase driven by higher average guest spending and a 3% increase due to volume driven by higher passenger cruise ship days as a result of the launch of our new cruise ship, the Disney Dream , in January 2011 and higher attendance. Higher guest spending was primarily due to higher average ticket prices, daily hotel room rates and food, beverage and merchandise spending.
Revenue growth at our international operations reflected a 4% increase due to higher average guest spending and a 4% increase driven by volume due to higher attendance and hotel occupancy. These improvements were partially offset by a 3% decrease due to the prior year sale of the real estate property at Disneyland Paris and 3% decrease due to the March 2011 earthquake and tsunami in Japan which resulted in the temporary suspension of operations at Tokyo Disney Resort and a continuing reduction in volume after reopening.
The following table presents supplemental park and hotel statistics:
Domestic | International (2) | Total | ||||||||||||||||||||||
Nine months Ended | Nine months Ended | Nine months Ended | ||||||||||||||||||||||
July 2,
2011 |
July 3,
2010 |
July 2,
2011 |
July 3,
2010 |
July 2,
2011 |
July 3,
2010 |
|||||||||||||||||||
Parks Increase/(decrease) |
||||||||||||||||||||||||
Attendance |
1 % | 1 % | 6 % | (2) % | 3 % | 0 % | ||||||||||||||||||
Per Capita Guest Spending |
7 % | 2 % | 2 % | 6 % | 6 % | 3 % | ||||||||||||||||||
Hotels (1) |
||||||||||||||||||||||||
Occupancy |
82 % | 81 % | 87 % | 83 % | 83 % | 81 % | ||||||||||||||||||
Available Room Nights (in thousands) |
7,209 | 7,214 | 1,845 | 1,845 | 9,054 | 9,059 | ||||||||||||||||||
Per Room Guest Spending |
$246 | $229 | $280 | $263 | $253 | $236 |
(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 $1.39 and $1.38 for nine months ended July 2, 2011 and July 3, 2010, respectively. |
34
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Costs and Expenses
Operating expenses include operating labor which increased by $211 million from $2,431 million to $2,642 million driven by inflation and higher pension and healthcare costs. Operating expenses also include cost of sales which increased $79 million from $819 million to $898 million driven by volume, partially offset by the absence of costs related to the prior-year real estate sale at Disneyland Paris. Operating expenses also increased due to promotional, launch and operating costs in connection with our new cruise ship, the Disney Dream , and expansion costs for Disney California Adventure at Disneyland Resort.
The increase in selling, general, administrative and other costs and expenses was driven by higher marketing costs at our domestic parks and resorts, including marketing of our new guest offerings, and at our new resort in Hawaii, labor cost inflation, and costs associated with the additional cruise ship.
Segment Operating Income
Segment operating income increased 13%, or $130 million, to $1.1 billion due to increases at our domestic parks and resorts and Hong Kong Disneyland Resort, partially offset by decreases at Tokyo Disney Resort, Disneyland Paris and Disney Cruise Line.
Studio Entertainment
Operating results for the Studio Entertainment segment are as follows:
Nine months Ended |
% Change
Better/ (Worse) |
|||||||||||
(in millions) |
July 2,
2011 |
July 3,
2010 |
||||||||||
Revenues |
||||||||||||
Theatrical distribution |
$ | 1,295 | $ | 1,583 | (18) % | |||||||
Home entertainment |
2,010 | 2,083 | (4) % | |||||||||
Television distribution and other |
1,587 | 1,444 | 10 % | |||||||||
|
|
|
|
|||||||||
Total revenues |
4,892 | 5,110 | (4) % | |||||||||
Operating expenses |
(2,433) | (2,622) | 7 % | |||||||||
Selling, general, administrative and other |
(1,860) | (1,836) | (1) % | |||||||||
Depreciation and amortization |
(98) | (63) | (56) % | |||||||||
|
|
|
|
|||||||||
Operating Income |
$ | 501 | $ | 589 | (15) % | |||||||
|
|
|
|
Revenues
The decrease in theatrical distribution revenue reflected lower worldwide performance of current period titles. Additionally, the prior-year period benefitted from the ongoing international performance of UP which was released in fiscal 2009. Significant titles in the current period included Pirates of the Caribbean: On Stranger Tides, Tangled, Tron: Legacy , Thor and Cars 2 while the prior-year period included Alice in Wonderland, Toy Story 3, Disneys A Christmas Carol , Prince of Persia: The Sands Of Time, Princess and the Frog and Iron Man 2.
Lower home entertainment revenue reflected a 10% decrease due to the change in the transfer pricing arrangement for Studio distribution of Media Networks home entertainment product, partially offset by 4% growth due to higher unit sales and 2% growth due to higher net effective pricing. Net effective pricing is the wholesale selling price adjusted for discounts, sales incentives and returns. 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 end of the first quarter of the prior year.
Costs and Expenses
Operating expenses include film cost amortization which decreased $49 million from $1,240 million to $1,191 million driven by lower film cost write-downs, partially offset by the addition of Marvel which was acquired at the end of the first quarter of the prior year. Operating
35
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
expenses also include participation and distribution costs which decreased $119 million. Participation costs reflected the strong performance of Alice in Wonderland in the prior-year period, while lower distribution costs were due to the change in the transfer pricing arrangement for Studio distribution of Media Networks home entertainment product.
The increase in selling, general, administrative and other costs were driven by the inclusion of Marvel which was acquired at the end of the first quarter of the prior year, executive contract termination costs and higher bad debt expense, partially offset by lower marketing expenses at our theatrical and home entertainment businesses.
Segment Operating Income
Segment operating income decreased 15%, or $88 million, to $501 million primarily due to lower results at our theatrical business, partially offset by lower film cost write-downs.
Restructuring and impairment charges
The Company recorded charges of $31 million and $127 million for the current and prior-year periods, respectively, which were reported in Restructuring and impairment charges in the Condensed Consolidated Statements of Income. The charges in the current period were primarily for severance and related costs. The charges in the prior-year period were primarily for the write-off of capitalized costs related to abandoned film projects, the closure of a production facility, and severance costs.
Consumer Products
Operating results for the Consumer Products segment are as follows:
Nine months Ended |
% Change
Better/ (Worse) |
|||||||||||
(in millions) |
July 2,
2011 |
July 3,
2010 |
||||||||||
Revenues |
||||||||||||
Licensing and publishing |
$ | 1,373 | $ | 1,238 | 11 % | |||||||
Retail and other |
860 | 710 | 21 % | |||||||||
|
|
|
|
|||||||||
Total revenues |
2,233 | 1,948 | 15 % | |||||||||
Operating expenses |
(1,001) | (903) | (11) % | |||||||||
Selling, general, administrative and other |
(544) | (501) | (9) % | |||||||||
Depreciation and amortization |
(79) | (51) | (55) % | |||||||||
|
|
|
|
|||||||||
Operating Income |
$ | 609 | 493 | 24 % | ||||||||
|
|
|
|
Revenues
The increase in licensing and publishing revenue reflected a 7% increase driven by the strong performance of Cars, Tangled and Toy Story merchandise and a 6% increase resulting from the acquisition of Marvel which was acquired at the end of the first quarter of the prior year.
Higher retail and other revenues were primarily due to a 10% increase due to the acquisition of The Disney Store Japan at the end of the second quarter of fiscal 2010 and an 8% increase due to higher comparable store sales at the Disney Store in North America and Europe.
Costs and Expenses
Operating expenses include an increase of $46 million in cost of goods sold, from $395 million to $441 million, driven by the acquisitions of The Disney Store Japan at the end of the second quarter of fiscal 2010 and Marvel at the end of the first quarter of the prior year. Operating expenses also included a 3% increase due to higher labor costs and a 2% increase due to
36
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
higher occupancy costs, primarily at our retail business 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 24%, or $116 million, to $609 million primarily due to increases in our licensing and North American retail businesses.
Restructuring and impairment charges
The Company recorded charges of $2 million in the prior-year period which were reported in Restructuring and impairment charges in the Condensed Consolidated Statement of Income.
Interactive Media
Operating results for the Interactive Media segment are as follows:
Nine months Ended |
% Change
Better/ (Worse) |
|||||||||||
(in millions) |
July 2,
2011 |
July 3,
2010 |
||||||||||
Revenues |
||||||||||||
Game sales and subscriptions |
$ | 600 | $ | 428 | 40 % | |||||||
Advertising and other |
159 | 145 | 10 % | |||||||||
|
|
|
|
|||||||||
Total revenues |
759 | 573 | 32 % | |||||||||
Operating expenses |
(550) | (410) | (34) % | |||||||||
Selling, general, administrative and other |
(382) | (259) | (47) % | |||||||||
Depreciation and amortization |
(41) | (34) | (21) % | |||||||||
|
|
|
|
|||||||||
Operating Income |
$ | (214) | (130) | (65) % | ||||||||
|
|
|
|
Revenues
Game sales and subscriptions revenue growth reflected a 15% increase due to higher net effective pricing of console games and a 13% increase due to higher console game unit sales, reflecting the strong performance of Epic Mickey and Lego Pirates of the Caribbean . Additionally, the inclusion of Playdom in the current nine months contributed to higher game sales and subscription revenues.
Higher advertising and other revenue was driven by our mobile phone service in Japan.
Costs and Expenses
Operating expense included a $52 million increase in product development expense from $235 million to $287 million primarily due to the acquisition of Playdom. Operating expenses also included a 16% increase due to higher cost of sales driven by fees paid to the developer of Lego Pirates of the Caribbean and higher console games unit sales.
The increase in selling, general, administrative and other costs was primarily due to the inclusion of Playdom, including the impact of acquisition accounting.
37
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Operating Loss
Segment operating loss was $214 million compared to $130 million in the prior-year nine month period as an improvement at our console game business was more than offset by the inclusion of Playdom results in the current period, including the impact of acquisition accounting.
Restructuring and impairment charges
The Company recorded charges of $19 million and credits of $3 million in the current and prior-year nine-month periods, respectively, which were reported in Restructuring and impairment charges in the Condensed Consolidated Statements of Income. The charges in the current nine-month period were for severance costs.
OTHER FINANCIAL INFORMATION
Corporate and Unallocated Shared Expenses
Corporate and unallocated shared expenses are as follows:
Quarter Ended |
% Change
Better/ (Worse) |
Nine months Ended |
% Change
Better/ (Worse) |
|||||||||||||||||||||
(in millions) |
July 2,
2011 |
July 3,
2010 |
July 2,
2011 |
July 3,
2010 |
||||||||||||||||||||
Corporate and unallocated shared expenses |
$ | 101 | $ | 119 | 15 % | $ | 335 | $ | 282 | (19) % |
Corporate and unallocated shared expenses decreased for the quarter primarily due to the timing of expenses. For the nine months, corporate and unallocated shared expenses increased 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) |
Nine months Ended |
% Change
Better/ (Worse) |
|||||||||||||||||||||
(in millions) |
July 2,
2011 |
July 3,
2010 |
July 2,
2011 |
July 3,
2010 |
||||||||||||||||||||
Interest expense |
$ | (113) | $ | (103) | (10) % | $ | (324) | $ | (368) | 12 % | ||||||||||||||
Interest and investment income |
25 | 14 | 79 % | 58 | 46 | 26 % | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Net interest expense |
$ | (88) | $ | (89) | 1 % | $ | (266) | $ | (322) | 17 % | ||||||||||||||
|
|
|
|
|
|
|
|
The decrease in interest for the year 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 and nine months was primarily due to gains on sales of investments.
38
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Income Taxes
The effective income tax rate is as follows:
Quarter Ended |
Change
Better/ (Worse) |
Nine months Ended |
Change
Better/ (Worse) |
|||||||||||||||||
July 2,
2011 |
July 3,
2010 |
July 2,
2011 |
July 3,
2010 |
|||||||||||||||||
Effective Income Tax Rate |
33.7% | 35.6% | 1.9 ppt | 34.7% | 35.5% | 0.8 ppt |
The decrease in the effective income tax rate for the current-year quarter reflects the benefit of an increase in the domestic production deduction rate.
The decrease in the effective tax rate for the nine months ended July 2, 2011 was primarily due to the absence of a charge related to the health care reform legislation and a benefit from an increase in the domestic production deduction rate, partially offset by a decrease in favorable resolutions of prior-year tax matters. During the nine months ended July 3, 2010, the Company recorded 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) |
Nine months Ended |
% Change
Better/ (Worse) |
|||||||||
(in millions) |
July 2,
2011 |
July 3,
2010 |
July 2,
2011 |
July 3,
2010 |
||||||||
Net income attributable to noncontrolling interests |
$ 187 | $ 174 | (7) % | $ 287 | $ 219 | (31) % |
The increase in net income attributable to noncontrolling interests for the quarter and nine months was due to improved operating results at ESPN and Hong Kong Disneyland Resort, partially offset by lower operating results at Disneyland Paris. Net income attributable to noncontrolling interests is determined based on income after royalties, financing costs and income taxes.
FINANCIAL CONDITION
The change in cash and cash equivalents is as follows:
Nine months Ended |
Change
Better/ (Worse) |
|||||||||||
(in millions) |
July 2,
2011 |
July 3,
2010 |
||||||||||
Cash provided by operations |
$ | 4,890 | $ | 4,372 | $ | 518 | ||||||
Cash used in investing activities |
(2,167) | (3,463) | 1,296 | |||||||||
Cash used in financing activities |
(2,032) | (1,155) | (877) | |||||||||
Impact of exchange rates on cash and cash equivalents |
106 | (220) | 326 | |||||||||
|
|
|
|
|
|
|||||||
Increase/(decrease) in cash and cash equivalents |
$ | 797 | $ | (466) | $ | 1,263 | ||||||
|
|
|
|
|
|
39
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Operating Activities
Cash provided by operations increased 12% to $4.9 billion in the current nine months from $4.4 billion in the prior-year nine month period. The increase was primarily due to higher operating cash receipts driven by higher revenues at our Media Networks, Parks and Resorts, Interactive Media and Consumer Products businesses and the timing of receivable collections at our Media Networks and Consumer Products businesses. These increases were partially offset by higher cash payments at Corporate and at our Parks and Resorts, Interactive Media and Consumer Products businesses. The increase in cash payments at Corporate was driven by higher contributions to our pension plans. The increase in cash payments at Parks and Resorts was driven by labor cost inflation, costs associated with our new cruise ship, the Disney Dream , higher marketing and sales expenses 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 nine month period. The increase in cash payments at Consumer Products was primarily due to the acquisitions 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 nine months ended July 2, 2011 and July 3, 2010 are as follows:
Nine months Ended | ||||||||
(in millions) |
July 2,
2011 |
July 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 |
2,392 | 2,518 | ||||||
Broadcast programming |
3,575 | 3,375 | ||||||
|
|
|
|
|||||
5,967 | 5,893 | |||||||
|
|
|
|
|||||
Amortization: |
||||||||
Film and television production |
(2,730) | (2,710) | ||||||
Broadcast programming |
(3,453) | (3,214) | ||||||
|
|
|
|
|||||
(6,183) | (5,924) | |||||||
|
|
|
|
|||||
Change in film and television production and programming costs |
(216) | (31) | ||||||
Other non-cash activity |
30 | 108 | ||||||
Ending balances: |
||||||||
Production and programming assets |
5,005 | 5,556 | ||||||
Programming liabilities |
(730) | (763) | ||||||
|
|
|
|
|||||
$ | 4,275 | $ | 4,793 | |||||
|
|
|
|
40
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 nine months ended July 2, 2011 and July 3, 2010, investment in parks, resorts and other properties were as follows:
Nine months Ended | ||||||||
(in millions) |
July 2,
2011 |
July 3,
2010 |
||||||
Media Networks |
||||||||
Cable Networks |
$ | 79 | $ | 60 | ||||
Broadcasting |
86 | 52 | ||||||
|
|
|
|
|||||
Total Media Networks |
165 | 112 | ||||||
|
|
|
|
|||||
Parks and Resorts |
||||||||
Domestic |
1,799 | 851 | ||||||
International |
270 | 148 | ||||||
|
|
|
|
|||||
Total Parks and Resorts |
2,069 | 999 | ||||||
|
|
|
|
|||||
Studio Entertainment |
86 | 65 | ||||||
Consumer Products |
63 | 41 | ||||||
Interactive Media |
16 | 13 | ||||||
Corporate |
162 | 83 | ||||||
|
|
|
|
|||||
Total investments in parks, resorts and other property |
$ | 2,561 | $ | 1,313 | ||||
|
|
|
|
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 development of Shanghai Disney Resort.
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 nine months, proceeds from dispositions were $564 million primarily due to the sale of Miramax, partially offset by acquisitions totaling $172 million which included payments related to the acquisition of Playdom, Inc.
During the prior-year nine month period, acquisitions totaled $2.3 billion due to the acquisition of Marvel Entertainment, Inc.
41
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Financing Activities
Cash used in financing activities was $2.0 billion for the current nine month period compared to $1.2 billion for the prior-year nine-month period. The change of $877 million was primarily due to higher repurchases of common stock, partially offset by higher net borrowings.
During the nine months ended July 2, 2011, the Companys borrowing activity was as follows:
October 2,
2010 |
Additions | Payments |
Other
Activity |
July 2,
2011 |
||||||||||||||||
Commercial paper borrowings |
$ | 1,190 | $ | 620 | $ | | $ | | $ | 1,810 | ||||||||||
U.S. medium-term notes |
6,815 | 500 | | 3 | 7,318 | |||||||||||||||
European medium-term notes |
273 | | (168) | (18) | 87 | |||||||||||||||
Other foreign currency denominated debt |
965 | | | 46 | 1,011 | |||||||||||||||
Other (1) |
651 | | (34) | (84) | 533 | |||||||||||||||
Disneyland Paris borrowings ( 2 ) |
2,113 | | (129) | 144 | 2,128 | |||||||||||||||
Hong Kong Disneyland borrowings ( 3 ) |
473 | | | (122) | 351 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 12,480 | $ | 1,120 | $ | (331) | $ | (31) | $ | 13,238 | ||||||||||
|
|
|
|
|
|
|
|
|
|
(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. |
The Companys bank facilities as of July 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 the 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 July 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 nine months ended July 2, 2011, the company repurchased 77 million shares of its common stock for approximately $3.0 billion. On March 22, 2011, the Companys Board of Directors increased the amount of shares that can be repurchased to 400 million shares as of that date. As of July 2,
42
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
2011, the Company had remaining authorization in place to repurchase approximately 363 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 July 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 July 2, 2011, by a significant margin. The Companys bank facilities also specifically exclude certain entities, such as Disneyland Paris, Hong Kong Disneyland and Shanghai Disney Resort, from any representations, covenants or events of default.
Disneyland Paris has annual covenants under its debt agreements that limit its investment and financing activities and require it to meet certain financial performance covenants. Disneyland Paris was in compliance with these covenants for fiscal 2010.
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
43
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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.
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
44
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
payments 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 four-year time period based on estimated 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.
45
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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 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
46
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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 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 future 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.
47
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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, Japanese yen, Canadian dollar and British Pound. 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.
48
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 July 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 third quarter of fiscal 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
49
PART II. OTHER INFORMATION
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.
50
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 July 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
Number of Shares that May Yet Be Purchased Under the Plans or Programs (2) |
||||||||||||
April 3, 2011 May 2, 2011 |
8,342,336 | $ | 42.00 | 8,268,800 | 389 million | |||||||||||
May 3, 2011 June 2, 2011 |
13,395,178 | 41.58 | 13,298,415 | 376 million | ||||||||||||
June 3, 2011 July 2, 2011 |
13,574,574 | 39.08 | 13,492,000 | 363 million | ||||||||||||
Total |
35,312,088 | 40.71 | 35,059,215 | 363 million | ||||||||||||
(1) |
252,873 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. |
51
ITEM 5. Other Information
On August 4, 2011, effective January 1, 2012, the Company adopted the Disney Key Employees Retirement Savings Plan (the Key Savings Plan). The Key Savings Plan provides contribution credits for executive level salaried employees equal to the contributions that would have been made under the Companys concurrently adopted Disney Retirement Savings Plan (the Savings Plan), a tax-qualified defined contribution plan for employees beginning service after December 31, 2011, had contributions under the Savings Plan not been limited by the compensation and contribution limits of the Internal Revenue Code.
Under the Key Savings Plan, the Company contributes from 3% to 9% of an employees compensation depending on the employees age and years of service with the Company, less amounts contributed to the Savings Plan. The compensation base used for determining the amount of compensation includes base salary, regular bonus, equity compensation in lieu of bonus, overtime and commissions, and is limited to a maximum of $1,000,000 per year. Contributions begin after one year of service and are fully vested after three years of service or upon a change in control. Distributions will be made at the earlier of a change in control or termination of employment and will be paid in a lump sum or in ten annual installments if the distribution made on account of termination of employment. The Key Savings Plan provides benefits in addition to those available under the Companys existing defined contribution plans, and is only available to employees who are hired, rehired or transferred into eligible salaried position with the Company after December 31, 2011, and who are thus ineligible to participate in the Disney Salaried Retirement Plan, the ABC, Inc. Retirement Plan, the Amended and Restated Key Employees Deferred Compensation and Retirement Plan and the Amended and Restated Benefit Equalization Plan of ABC, Inc.
The Key Savings Plan is attached as Exhibit 10.1 to this Report and is incorporated herein by reference.
ITEM 6. Exhibits
See Index of Exhibits.
52
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 |
August 9, 2011
Burbank, California
53
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 | Disney Key Employees Retirement Savings Plan | 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 July 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 | Filed herewith |
* 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.
54
Exhibit 10.1
Disney Key Employees Retirement Savings Plan
Effective as of January 1, 2012
Contents
Article 1. Introduction |
1 | |||
1.1 Background and History |
1 | |||
1.2 Purpose of the Plan |
1 | |||
1.3 Status of the Plan |
1 | |||
Article 2. Definitions and Construction |
3 | |||
2.1 Definitions |
3 | |||
2.2 Gender and Number |
8 | |||
2.3 Headings |
8 | |||
2.4 Requirement to Be in Written Form |
8 | |||
2.5 Severability |
9 | |||
2.6 Applicable Law |
9 | |||
Article 3. Participation and Vesting |
10 | |||
3.1 Participation |
10 | |||
3.2 Duration |
10 | |||
3.3 Transfers |
10 | |||
3.4 Vesting |
10 | |||
Article 4. Participant Accounts |
12 | |||
4.1 Participant Accounts |
12 | |||
4.2 Determination of Credits to Participant Accounts |
12 | |||
4.3 Hypothetical Investment of Accounts |
13 | |||
Article 5. Distribution of Participant Accounts |
14 | |||
5.1 General |
14 | |||
5.2 Time of Payment |
14 | |||
5.3 Amount and Form of Payment |
14 | |||
Article 6. Rehires and Other Special Situations |
16 | |||
6.1 Effect and Applicability |
16 | |||
6.2 Code Section 409A Aggregation Rules |
16 | |||
6.3 Effect of Rehire or Return to Work After Separation from Service |
16 | |||
6.4 Additional Contribution Credits Following a Change in Control |
17 | |||
6.5 Permissible Delays or Accelerations |
17 | |||
Article 7. Death Benefit |
18 | |||
7.1 Amount of Death Benefit |
18 | |||
7.2 Time and Form of Payment for Death Benefit |
18 |
i
Article 8. Financing and Administration |
19 | |||
8.1 Financing |
19 | |||
8.2 Plan Administrative Committee |
19 | |||
8.3 Duties of Committee |
19 | |||
8.4 Meetings |
20 | |||
8.5 Actions by the Committee |
20 | |||
8.6 Compensation and Bonding |
20 | |||
8.7 Establishment of Rules and Interpretation of Plan |
20 | |||
8.8 Limitation of Liability |
21 | |||
8.9 Indemnification |
21 | |||
8.10 Claims Procedures |
21 | |||
8.11 Limitation on Actions |
23 | |||
8.12 Class Action Forum |
24 | |||
8.13 Records |
25 | |||
Article 9. Amendment and Termination |
26 | |||
9.1 Amendments |
26 | |||
9.2 Termination of Plan |
26 | |||
9.3 Successors |
26 | |||
9.4 Prohibition on Changes Due to Code Section 409A |
27 | |||
9.5 Additional Participating Employers |
27 | |||
Article 10. Miscellaneous Provisions |
28 | |||
10.1 Good-Faith Valuation Binding |
28 | |||
10.2 Taxation |
28 | |||
10.3 Withholding |
28 | |||
10.4 Offset for Obligations to the Company or an Affiliate |
28 | |||
10.5 No Enlargement of Employment Rights |
28 | |||
10.6 Non-Alienation |
29 | |||
10.7 No Examination or Accounting |
29 | |||
10.8 Incompetency |
29 | |||
10.9 Notice of Address |
29 | |||
10.10 Data |
30 | |||
10.11 Service of Legal Process |
30 | |||
10.12 Qualified Military Service |
30 | |||
10.13 Counterparts |
30 |
ii
Section 1.1
Article 1. Introduction
1.1 Background and History
Effective January 1, 2012, The Walt Disney Company (Company) is establishing the Disney Key Employees Retirement Savings Plan (Plan) to provide retirement income to certain employees and to equalize the benefits of certain employees participating in the Disney Retirement Savings Plan (the Qualified Plan).
1.2 Purpose 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 Qualified 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.
1.3 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 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 shall provide benefits |
1
Section 1.3
for an individual unless the individual is, as of the date the agreement is executed, an Eligible Employee as this term is defined in the Qualified 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 amounts credited to such Eligible Employees Account, 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 than, 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. |
2
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) | Account means a record-keeping account maintained for a Participant under the Plan to track Employer contribution amounts credited to the Participant under Plan section 4.2 and adjustments for hypothetical investment gains and losses pursuant to Plan section 4.3. A Participants Account may be divided into subaccounts, as determined by the Committee. |
(b) | Account Value means the value of a Participants Account as of a given Valuation Date. A Participants Account Value as of a Valuation Date shall be determined by: |
(1) | Crediting the Participants Account with any Employer contribution credited to the Participant under Plan section 4.2 since the immediately preceding Valuation Date; |
(2) | Increasing or reducing the Participants Account by hypothetical investment gains and losses, determined pursuant to Plan section 4.3, since the immediately preceding Valuation Date; and |
(3) | Reducing the Participants Account by any payments made under the Plan on behalf of the Participant since the immediately preceding Valuation Date. |
(c) | Affiliate generally means any corporation or other entity that is required to be aggregated with the Company under Code sections 414(b) or (c). |
(d) | Beneficiary means any person, persons, or entity named by a Participant by written designation filed with the Committee to receive benefits payable in the event of the Participants death, provided that if the Participant has a Spouse and he designates someone other than his Spouse as the Beneficiary, the Participant must file a spousal consent with the Committee. Any Beneficiary designation or spousal consent shall be made in the form and manner prescribed by the Committee. If any Participant fails to designate a Beneficiary, or if the Beneficiary designated by a deceased Participant dies before the Participant, the Participants Beneficiary shall be: |
(1) | The Participants surviving Spouse, if any, and if not; |
(2) | The Participants surviving Domestic Partner, if any, and if not; |
3
Section 2.1
(3) | The Participants surviving natural and legally-adopted children, if any, and if not; |
(4) | The Participants surviving parents, if any, and if not; |
(5) | The Participants surviving siblings, if any, and if not; |
(6) | The Participants estate. |
(e) | Benefit Valuation Date means the Valuation Date as of which the Account Value is determined for purposes of the first payment made as a result of a given Payment Event and, unless otherwise explicitly provided, such date shall be: |
(1) | With respect to a Participant whose Payment Event is a Separation from Service: |
(A) | If the Participant is not a Specified Employee on the date of his Separation from Service, the first day of the fourth calendar month following the calendar month in which the Participants Separation from Service occurs or, if that is not a business day, the first business day thereafter; or |
(B) | If the Participant is a Specified Employee on the date of his Separation from Service, the first day of the calendar month following the calendar month containing the date that is six months after the date of the Participants Separation from Service or, if that is not a business day, the first business day thereafter; and |
(2) | With respect to a Participant whose Payment Event is a Change in Control, the first business day following the date of the Change in Control; and |
(3) | With respect to a Beneficiary, the first day of the fourth calendar month following the calendar month in which the Participants death occurs or, if that is not a business day, the first business day thereafter. |
(f) | Board means the Board of Directors of the Company. |
(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 13d3 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 |
4
Section 2.1
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; |
(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. |
5
Section 2.1
(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) | Death Benefit means the benefit described in Article 7. |
(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) | Eligible Employee means a salaried Employee of an Employer who is an Eligible Employee and a Participant, as those terms are defined in the Qualified 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 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) | Employer Contributions means the contributions made to the Qualified Plan on behalf of an Eligible Employee. |
(q) | ERISA means the Employee Retirement Income Security Act of 1974, as amended. |
(r) | Investment Funds means hypothetical investment funds that mirror the Investment Funds available, from time to time, for investment of contributions and accounts under the Qualified Plan. |
(s) | 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. |
(t) | 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. |
(u) |
Payment Date means the date on which any vested Account is payable to the Participant under Plan section 5.2 or, if the Participant has died before his vested |
6
Section 2.1
Account has been paid in full, the date on which any Death Benefit is payable to the Participants Beneficiary under Plan section 7.2. Notwithstanding any other Plan provision to the contrary and solely for purposes of determining compliance with Code section 409A and related Treasury Regulations, 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. |
(v) | 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 a Participant, the earlier of: |
(A) | The Participants Separation from Service, or |
(B) | A Change in Control; |
(2) | With respect to a Beneficiary, the Participants death. |
(w) | Plan means the Disney Key Employees Retirement Savings Plan, as contained herein and as amended from time to time. |
(x) | Qualified Plan means the Disney Retirement Savings Plan, as in effect from time to time. The Qualified Plan constitutes a qualified employer plan as defined under Treasury Regulations section 1.409A-1(a)(2). |
(y) | 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 |
7
Section 2.2
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.
(z) | Specified Employee means any person determined to be a specified employee under Code section 409A and Treasury Regulations section 1.409A-1(i). |
(aa) | 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). |
(bb) | Treasury Regulations means the regulations promulgated by the United States Department of the Treasury under the Code. |
(cc) | Valuation Date means each business day on which the New York Stock Exchange is open. |
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, 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.
8
Section 2.5
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.
9
Section 3.1
Article 3. Participation and Vesting
3.1 Participation
Each Eligible Employee for whom Employer contributions under the Qualified Plan, for any calendar year, are limited by Code section 415 and/or Code section 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 shall provide for participation by an individual unless the individual is, as of the date the agreement is executed, an Eligible Employee as this term is defined in the Qualified Plan on that date.
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 payments hereunder.
3.3 Transfers
(a) | Transfers to Eligible Employee Status. An Employee who transfers employment such that he becomes an Eligible Employee and satisfies the requirements of Plan section 3.1 shall be a Participant in the Plan as of the date he satisfies such requirements. |
(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 Account 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 Account, remain a Participant in the Plan and be eligible to make investment election changes under Plan section 4.3 until the date his vested Account is distributed from the Plan. |
(3) | To the extent the Participant has no vested interest in his Account under the Plan but remains employed by an Affiliate, the Participant shall remain a Participant in the Plan and be eligible to make investment election changes under Plan section 4.3 until the date he ceases to be employed by the Company and all Affiliates at a time when he has no vested interest in his Account under the Plan. If he remains employed by an Affiliate until his Account under the Plan vests, his status as a Participant shall be determined under paragraph (2). |
3.4 Vesting
(a) |
Vested Benefit. A Participant who is vested under the Qualified Plan shall be 100 percent vested in his Account and shall be entitled to a benefit from the Plan. Except as provided otherwise in subsection (b), if a Participant has a Separation from |
10
Section 3.4
Service prior to becoming vested under the Qualified Plan, his Account 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 Account (if he is not already 100 percent vested) upon the Change in Control. |
11
Section 4.1
Article 4. Participant Accounts
4.1 Participant Accounts
For record-keeping purposes only, the Committee shall maintain, or cause to be maintained, records showing the balance of the Account (including any subaccounts) maintained for a Participant from time to time under the Plan. Periodically, each Participant shall be furnished with a statement setting forth the Participants Account Value under the Plan as of a specified Valuation Date.
4.2 Determination of Credits to Participant Accounts
(a) | Employer Contribution Credit Amount. For each calendar year, an Eligible Employees Account shall be credited with an Employer contribution equal to the excess (if any) of the gross contribution amount described in paragraph (1) over the actual Qualified Plan contribution amount described in paragraph (2): |
(1) | The gross contribution amount equals the aggregate amount of Employer Contributions that would have been allocated to the Eligible Employees Qualified Plan account for the calendar year if those contributions were determined: |
(A) | Without regard to the limits imposed by Code section 415; |
(B) | As if the annual compensation cap imposed by Code section 401(a)(17) for the calendar year were $1,000,000; and |
(C) | By taking into account any equity in lieu of bonus received by the Participant during the calendar year as if it were contribution-eligible compensation under the Qualified Plan. |
(2) | The gross contribution amount described in paragraph (1) shall be reduced by the total Employer Contributions actually allocated to the Eligible Employees Qualified Plan account for such calendar year. |
(b) | Timing of Credit to Account. The annual Employer contribution credit described in subsection (a) shall be determined and credited to the Eligible Employees Account: |
(1) | If the Eligible Employee does not die or have a Separation from Service during the calendar year, as of the date Employer Contributions are actually credited to his Qualified Plan account for the fourth quarter of the calendar year; or |
(2) | If the Eligible Employee dies or has a Separation from Service during the calendar year, as of the date Employer Contributions are actually credited to the Eligible Employees Qualified Plan account for the calendar quarter during which the Participants death or Separation from Service occurs, as applicable. |
12
Section 4.3
4.3 Hypothetical Investment of Accounts
(a) | Hypothetical Investment Options Available. A Participants Account shall be adjusted for hypothetical investment gains and losses as if the Participants Account had been invested in the Investment Funds, in accordance with his investment elections under subsection (b). |
(b) | Election of Investment Options. |
(1) | Initial Election for Future Contribution Credits . A Participant shall elect, in such form and at such time in advance as may be prescribed by the Committee, the percentages (in multiples of 1%) in which Employer contributions credited to his Account shall be deemed to be invested among any or all of the Investment Funds at the time such contribution amounts are credited. If the Participant makes no election, the Participant shall be deemed to have elected the default investment fund under the Qualified Plan. |
(2) | Change in Election for Future Contribution Credits . A Participant may elect, in such form and at such time in advance as may be prescribed by the Committee, to change the percentages in which future Employer contribution credits to his Plan Account shall be deemed to be invested among any or all of the Investment Funds at the time such contribution amounts are credited. However, any rules, limitations, or restrictions on investment election changes that apply under the Qualified Plan shall also apply to changes in investment elections under the Plan. |
(3) | Transfer Among Investment Options . A Participant may elect, in such form and at such time in advance as may be prescribed by the Committee, to transfer amounts in his Plan Account between or among any of the Investment Funds. However, any rules, limitations, or restrictions applicable to transfers into or out of investment options under the Qualified Plan shall also apply to transfers into or out of Investment Funds under the Plan. |
13
Section 5.1
Article 5. Distribution of Participant Accounts
5.1 General
A Participants Account, if vested pursuant to Plan section 3.4, shall be payable, for reasons other than the Participants death, at the time and in the form determined in this Article 5. A Participant shall not receive payment of his Account if he does not become vested under Plan section 3.4.
5.2 Time of Payment
(a) | Default Time of Payment. Except as otherwise provided under the terms of the Plan, the Participant shall be entitled to a payment of his vested Account in the form provided in Plan section 5.3 as of the Payment Date for the applicable Payment Event, as determined below: |
(1) | If the Payment Event is the Participants Separation from Service, then the Payment Date is the first business day following the Benefit Valuation Date; or |
(2) | If the Payment Event is a Change in Control, then the Payment Date shall occur, as determined by the Committee in its sole discretion, within 90 days following the date on which the Change in Control occurs, provided that the Participant shall not be permitted to designate the taxable year of the payment. |
(b) | 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. |
(c) | Continued Payments. Once a Participants Payment Date has occurred, the payment of his Account shall not be delayed or accelerated, except as provided for in accordance with Plan section 6.5 or in Article 7. |
5.3 Amount and Form of Payment
(a) | Applicable Form of Payment and Payment Amount. |
(1) |
If a Participants Account is payable due to a Separation from Service under Plan section 5.2(a)(1), the Participants Account shall be paid to him in ten annual installments, beginning on the applicable Payment Date (described in Plan section 5.2(a)(1)) and continuing to be paid on each subsequent anniversary of the applicable Payment Date (or, if the anniversary is not a business day, the first business day thereafter) until ten installments have been paid. The amount of the first installment shall be determined by dividing the Participants Account Value as of the Benefit Valuation Date by ten and the amount of each subsequent installment shall be determined by dividing the Participants Account Value as of the Valuation Date immediately preceding the date on which the installment is to be paid by the then remaining number of |
14
Section 5.3
installments. Each installment shall be deducted from the Investment Funds in which the Participants Account is deemed to be invested on the installment payment date, ratably or in such other manner as may be prescribed by administrative procedures established by the Committee. This installment option is treated as an entitlement to a single payment for purposes of Treasury Regulations section 1.409A-2(b)(2)(iii). |
(2) | If a Participants Account is payable due to a Change in Control under Plan section 5.2(a)(2), the Participants Account Value as of the Benefit Valuation Date shall be paid to the Participant on the applicable Payment Date (described in Plan section 5.2(a)(2)) in the form of a single lump sum payment. |
(b) | Benefit Payments. All benefit payments hereunder shall be made in cash. No adjustments shall be made to the amount of any lump sum or installment after the applicable Valuation Date. |
(c) | Death of Participant After Separation from Service or Change in Control . If the death of a Participant (including a Specified Employee) occurs before the Payment Date for any payment under this Article 5, payment shall be made to the Participants Beneficiary in accordance with Article 7. |
15
Section 6.1
Article 6. Rehires and Other Special Situations
6.1 Effect and Applicability
This Article provides additional information and rules covering special situations under which a Participants vested Account may become payable. In the event of a conflict between a provision of this Article and any other Plan provision, the provision of this Article shall govern with respect to the Participants or circumstances specified in this Article and the other Plan provisions 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 an account balance plan. No such agreement entered into shall provide benefits for an individual unless the individual is, as of the date the agreement is executed, an Eligible Employee as this term is defined in the Qualified Plan on that date. To the extent any Participant is entitled to a deferral of compensation under any such account balance plan, then, only to the extent required by Code section 409A and related Treasury Regulations, the separate account balance plan shall be aggregated with the Plan.
6.3 Effect of Rehire or Return to Work After Separation from Service
(a) | Resumption of Eligible Employee Status. If a Participant becomes eligible for payment of benefits on account of a Separation from Service and: |
(1) | Is subsequently rehired as or transfers to a position as an Eligible Employee; |
(2) | Returns to work as an Eligible Employee following the leave of absence that resulted in the Separation from Service; or |
(3) | Increases his level of bona fide services as an Eligible Employee following the Separation from Service, such that he may have a subsequent Separation from Service, |
the provisions of this Plan section 6.3 shall apply.
(b) | Payments Relating to Prior Separation. If a Participant described in subsection (a) resumes Eligible Employee status before he receives all payments due under the Plan as a result of his Separation from Service, the payments related to such Separation from Service shall continue to be made as if the applicable event described in subsection (a) had not occurred. |
(c) | Eligibility for Additional Contributions During Year of Separation. If the applicable event described in subsection (a) occurs during the same calendar year as the Participants Separation from Service: |
16
Section 6.4
(1) | his Employer contribution (if any) with respect to his employment as an Eligible Employee during the calendar year and prior to the Separation from Service shall be determined and credited under Plan section 4.2 as if the applicable event described in subsection (a) had not occurred, and |
(2) | his Employer contribution (if any) with respect to his employment as an Eligible Employee during the calendar year and after the Separation from Service shall equal the total Employer contribution that would have been credited to the Participant under Plan section 4.2 for the calendar year if the Separation from Service were disregarded, reduced by the Employer contribution described in paragraph (1). |
(d) | Separate Accounting for Additional Employer Contributions. If a Participant described in subsection (a) has additional Employer contributions credited to his Account for his employment as an Eligible Employee following his Separation from Service, the Committee shall, if necessary, establish a separate subaccount within the Participants Account for such additional Employer contributions (and related hypothetical investment gains and losses). This separate subaccount shall be paid to the Participant or his Beneficiary upon a subsequent Payment Event in accordance with Article 5 or Article 7, as applicable, disregarding any subaccount maintained for amounts credited to the Participant for his employment as an Eligible Employee prior to his Separation from Service. |
6.4 Additional Contribution Credits Following a Change in Control
If a Participant has a Payment Event due to a Change in Control and additional Employer contributions are subsequently credited to his Account, the Participants Account attributable to such additional Employer contributions (and related hypothetical investment gains and losses) shall be paid to the Participant upon a subsequent Payment Event in accordance with Article 5 or Article 7, as applicable.
6.5 Permissible Delays or Accelerations
If the Company or Committee determines that a delay or an acceleration of any payment to the Participant under the Plan 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 in accordance with the terms of Code section 409A and related Treasury Regulations in its sole discretion as it deems advisable.
17
Section 7.1
Article 7. Death Benefit
7.1 Amount of Death Benefit
In the event of a Participants death before he receives payment of his entire vested Account under Article 5, the Participants Beneficiary shall be entitled to a Death Benefit. The Death Benefit shall equal the Participants Account Value as of the Benefit Valuation Date.
7.2 Time and Form of Payment for Death Benefit
(a) | Time of Payment of Death Benefit. The Beneficiarys Payment Date for the Death Benefit payable pursuant to Plan section 7.1 shall be the first business day following the Benefit Valuation Date. |
(b) | Form of Payment of Death Benefit. The Death Benefit payable pursuant to Plan section 7.1 shall be paid to the Beneficiary in the form of a single lump sum payment in cash. No adjustments shall be made to the amount of any lump sum after the Benefit Valuation Date. |
(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 may be applied. |
18
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 or Beneficiary any interest, lien, or claim in or against any specific assets of the Company or any Affiliate. The Participant 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 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 Qualified 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 payment on their behalf. In addition, the Committee may retain counsel, employ agents, and
19
Section 8.4
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, Employees, Eligible Employees, Spouses, 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. |
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
20
Section 8.8
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; |
(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 |
21
Section 8.10
(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; |
(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 |
22
Section 8.11
(4) | A statement regarding the Claimants right to bring a civil action under ERISA section 502(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: |
(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, |
23
Section 8.12
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 |
(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). |
24
Section 8.13
(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, compensation, absences, and all other relevant matters may be conclusively relied on by the Committee.
25
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 amount credited to the Participants Account 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 Accounts and any 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 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
26
Section 9.4
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 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 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. Benefits 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. |
27
Section 10.1
Article 10. Miscellaneous Provisions
10.1 Good-Faith Valuation Binding
In determining the Participants vested Account Value, 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 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 amount payable to 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.
28
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 vested Account 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 Account. |
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
29
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 August 4, 2011, but effective as of January 1, 2012.
By: |
/s/ Barbara Kellams |
|
Barbara A. Kellams | ||
Vice-President Counsel | ||
The Walt Disney Company |
30
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: August 9, 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: August 9, 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 July 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 August 9, 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 July 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 August 9, 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. |