Walt Disney Company - 2009

Case Notes Prepared by: Dr. Mernoush Banton

Case Author: Dr. Mernoush Banton

A. Case Abstract

Walt Disney Company (www.disney.com) is comprehensive business policy and

strategic management case that includes the company’s fiscal year-end
September 2008 financial statements, competitor information and more. The
case time setting is the year 2009. Sufficient internal and external data are
provided to enable students to evaluate current strategies and recommend a
three-year strategic plan for the company. Headquartered in Orlando, Florida,
Walt Disney Company is traded on the New York Stock Exchange under ticker
symbol DIS.

B. Vision Statement (proposed)

Faithful and committed in bringing unparalleled entertainment experiences to our

customers.

C. Mission Statement (actual)

To be one of the world’s leading producers and providers of entertainment

and information. Using our portfolio of brands to differentiate our content,
services and consumer products, we seek to develop the most creative,
innovative and profitable entertainment experiences and related products
in the world.

Mission Statement (Proposed)

To be one of the world’s leading producers and providers of entertainment
and information, we offer value, quality and enjoyment to our customers
through highly dedicated and trained employees (1, 2, 9). Using our
portfolio of brands to differentiate our content, services and consumer
products, we seek to develop the most creative, innovative and profitable
entertainment experiences and related products in the world (3, 4, 5). We
are committed to be socially responsible and to give back to the
community and society whenever possible. (6, 7, 8)

1. Customer
2. Products or services
3. Markets
4. Technology
5. Concern for survival, profitability, growth
 6. Philosophy
7. Self-concept
8. Concern for public image
9. Concern for employees

D. External Audit

Opportunities
1. Lower labor cost in overseas market such as China
2. Many consumers are shifting to Internet for travel bookings
3. High capital investment causing entry barrier to be difficult
4. Due to high entry barriers, substitution is limited in some business
segments
5. Due to weak economy and high unemployment rate, consumers are
looking for less expensive ways to be entertained
6. Technology has improved and entertainment industry can offer on-
demand audios and videos download
7. Devaluation of dollar makes travel costs less expensive for
international tourists

Threats
1. Weak economy causing drop in consumer disposable income
2. More companies have announced additional lay offs, causing increase
in unemployment
3. Creative strategic partnership among competitors
4. Global warming and other weather related issues
5. Uncertainty among consumers and travelers due to weak economy
6. Flu is spreading rapidly causing consumers to be hesitant going to
public places
7. Creative discounts offered by competitors in entertainment and
hospitality segments
8. Compliance with laws and regulations in overseas market
9. Security threats such as terrorism
10. Value of Dollar increasing, causing less tourists coming to the U.S.

CPM – Competitive Profile Matrix

Walt Disney CBS News

Company Corporation Corporation
Weighted Weighted Weighted
Critical Success Factors Weight Rating Score Rating Score Rating Score
Price competitiveness 0.08 4 0.32 3 0.24 2 0.16
Global Expansion 0.10 4 0.40 3 0.30 2 0.20
Organizational Structure 0.06 3 0.18 2 0.12 1 0.06
Employee Morale 0.07 3 0.21 1 0.07 2 0.14
Technology 0.12 4 0.48 3 0.36 2 0.24
Customer Loyalty 0.12 4 0.48 2 0.24 3 0.36
Market Share 0.09 4 0.36 2 0.18 3 0.27
Advertising 0.10 4 0.40 3 0.30 2 0.20
Product Quality 0.07 3 0.21 2 0.14 1 0.07
Product Image 0.10 4 0.40 3 0.30 2 0.20

Financial Position 0.09 4 0.36 3 0.27 2 0.18

Total 1.00 3.80 2.52 2.08

External Factor Evaluation (EFE) Matrix

Key External Factors Weight Rating Weighted

Score

Opportunities
1. Lower labor cost in overseas market such as 0.05 3 0.15
China
2. Many consumers are shifting to Internet for 0.07 4 0.28
travel bookings
3. High capital investment causing entry barrier to 0.08 3 0.24
be difficult
4. Due to high entry barriers, substitution is limited 0.06 4 0.24
in some business segments
5. Due to weak economy and high unemployment 0.08 4 0.32
rate, consumers are looking for less expensive
ways to be entertained
6. Technology has improved and entertainment 0.08 4 0.32
industry can offer on-demand audios and
videos download
7. Devaluation of dollar makes travel costs less 0.05 4 0.2
expensive for international tourists
Threats
1. Weak economy causing drop in consumer 0.07 3 0.21
disposable income
2. More companies have announced additional 0.04 2 0.08
lay offs, causing increase in unemployment
3. Creative strategic partnership among 0.03 2 0.06
competitors
4. Global warming and other weather related 0.06 1 0.06
issues
5. Uncertainty among consumers and travelers 0.07 3 0.21
due to weak economy
6. Flu is spreading rapidly causing consumers to 0.03 1 0.03
be hesitant going to public places
0.06 3 0.18
7. Creative discounts offered by competitors in
entertainment and hospitality segments
0.06 2 0.12
8. Compliance with laws and regulations in
overseas market
0.06 2 0.12

9. Security threats such as terrorism

0.05 2 0.1
10. Value of Dollar increasing, causing less tourists
coming to the U.S.
Total 1.00 2.92

E. Internal Audit
Strengths

1. Strong financial position in revenue and operating income

2. Brand is well known globally
3. Strong management team
4. Excellent training program for employees
5. Diverse business units, each having several businesses and strategic
alliances
6. Some products are sold globally
7. Being able to struck deals with other well known organizations
8. Well developed and strong technology within the organization

Weaknesses

1. Difficult to manage due to owning too many business unites

2. Decrease in cash, increase in accounts receivable and inventory from
2007 to 2008
3. Increase in correct liabilities from 2007 to 2008
4. Legal issues due to accidents in the theme parks
5. Multiple products from varies segments could cause cannibalization of
existing parks and attractions
6. Violation in intellectual property and licensing results in lower royalties
7. Strong financial investment is required for most new and innovative
product categories
8. High investment requirement for marketing and promotion

Financial Ratio Analysis (October 2009)

Growth Rates % Disney Industry S&P 500
Sales (Qtr vs year ago qtr) -6.90 -8.50 -9.20
Net Income (YTD vs YTD) -34.20 -8.00 -4.70
Net Income (Qtr vs year ago qtr) -25.70 -37.50 -9.30
Sales (5-Year Annual Avg.) 6.94 6.11 13.12
Net Income (5-Year Annual Avg.) 27.04 11.72 12.60
Dividends (5-Year Annual Avg.) NA 4.37 11.59

Price Ratios Disney Industry S&P 500

Current P/E Ratio 16.4 7.7 32.3
P/E Ratio 5-Year High NA 0.8 13.4
P/E Ratio 5-Year Low NA 0.1 1.9
Price/Sales Ratio 1.44 1.17 1.89
Price/Book Value 1.47 1.28 4.29
Price/Cash Flow Ratio 10.20 4.60 12.90

Profit Margins % Disney Industry S&P 500

Gross Margin 15.6 28.9 37.8
Pre-Tax Margin 15.1 -11.9 10.0
Net Profit Margin 9.6 -9.6 6.8
5Yr Gross Margin (5-Year Avg.) 16.3 28.8 37.5
5Yr PreTax Margin (5-Year Avg.) 16.5 10.4 16.4
5Yr Net Profit Margin (5-Year Avg.) 10.8 6.8 11.4

Financial Condition Disney Industry S&P 500

Debt/Equity Ratio 0.40 0.49 1.42
Current Ratio 1.3 1.4 1.5
Quick Ratio 1.2 1.2 1.2
Interest Coverage NA -8.4 26.6
Leverage Ratio 1.8 2.0 5.3
Book Value/Share 18.85 19.73 21.22
Adapted from www.moneycentral.msn.com

Net Profit
Avg P/E Price/ Sales Price/ Book
Margin (%)
09/08 14.20 1.69 1.85 11.7
 09/07 15.00 2.03 2.19 13.2
09/06 16.90 1.87 1.98 9.8
10/05 22.20 1.58 1.82 7.8
09/04 21.00 1.52 1.70 7.6
09/03 28.40 1.52 1.68 4.9
09/02 33.40 1.20 1.29 4.9
09/01 259.60 1.53 1.63 0.9
09/00 61.40 3.13 3.24 4.7

Book Value/ Debt/ Return on Return on Interest

Share Equity Equity (%) Assets (%) Coverage
09/08 $17.73 0.46 13.7 7.1 10.4
09/07 $15.67 0.50 15.2 7.7 10.4
09/06 $15.42 0.43 10.4 5.5 7.5
10/05 $13.06 0.49 9.4 4.6 6.3
09/04 $13.05 0.53 9.0 4.4 5.9
09/03 $11.82 0.57 5.6 2.7 3.4
09/02 $11.61 0.62 5.3 2.5 3.0
09/01 $11.23 0.45 0.5 0.3 2.4
09/00 $11.65 0.39 3.8 2.0 4.4
Adapted from www.moneycentral.msn.com

Internal Factor Evaluation (IFE) Matrix

Key Internal Factors Weight Rating Weighted

Score

Strengths
1. Strong financial position in revenue and 0.08 4 0.32
operating income
2. Brand is well known globally 0.05 3 0.15

3. Strong management team 0.05 4 0.2

4. Excellent training program for 0.08 3 0.24

employees
5. Diverse business units, each having 0.09 4 0.36
several businesses and strategic
alliances
6. Some products are sold globally 0.07 3 0.21

7. Being able to struck deals with other 0.03 3 0.09

well known organizations
8. Well developed and strong technology 0.09 4 0.36
within the organization
Weaknesses
1. Difficult to manage due to owning too 0.05 2 0.1
many business unites
2. Decrease in cash, increase in accounts 0.07 1 0.07
receivable and inventory from 2007 to
2008
3. Increase in correct liabilities from 2007 0.05 1 0.05
to 2008
4. Legal issues due to accidents in the 0.05 2 0.1
theme parks
5. Multiple products from varies segments 0.06 2 0.12
could cause cannibalization of existing
parks and attractions
6. Violation in intellectual property and 0.06 1 0.06
licensing results in lower royalties
7. Strong financial investment is required 0.05 1 0.05
for most new and innovative product
categories
8. High investment requirement for 0.07 2 0.14
marketing and promotion
Total 1.00 2.62

F. SWOT Strategies

Strengths Weaknesses
1. Strong financial position 1. Difficult to manage due
in revenue and to owning too many
operating income business unites
2. Brand is well known 2. Decrease in cash,
globally increase in accounts
 3. Strong management
team
4. Excellent training
program for employees
5. Diverse business units,
each having several
businesses and
strategic alliances
6. Some products are sold
globally
7. Being able to struck
deals with other well
known organizations
8. Well developed and
strong technology within
the organization
Opportunities
S-O Strategies
1. Lower labor cost in 1. Expand entertainment 1. Sell off low revenue
overseas market such segment to popular
as China countries where they
2. Many consumers are have strong economy
shifting to Internet for and have positive image
travel bookings for US products and 2. Increase franchising and
3. High capital investment services (S1, S2, S5,
causing entry barrier to S6, O1, O4, O7)
be difficult 2. Increase advertising and
4. Due to high entry promotion to young 3. Improve security
barriers, substitution is generation (coupons
limited in some and rebate cards)
business segments through social networks
5. Due to weak economy such as Twitter and
and high unemployment Facebook (S1, S2, S8,
rate, consumers are O2, O5, O6)
looking for less
receivable and
inventory from 2007 to
2008
3. Increase in correct
liabilities from 2007 to
2008
4. Legal issues due to
accidents in the theme
parks
5. Multiple products from
varies segments could
cause cannibalization of
existing parks and
attractions
6. Violation in intellectual
property and licensing
results in lower royalties
7. Strong financial
investment is required
for most new and
innovative product
categories
8. High investment
requirement for
marketing and
promotion
W-O Strategies
generating segments /
products to raise cash
and pay off debt (W2,
W5, O5)
licensing to improve
cash flow and income
(W2, W3, W7, O4, O5)
implemented on
products to reduce / limit
intellectual property and
licensing violations (W6,
O6)
 expensive ways to be
entertained
6. Technology has
improved and
entertainment industry
can offer on-demand
audios and videos
download
7. Devaluation of dollar
makes travel costs less
expensive for
international tourists
Threats W-T Strategies
S-T Strategies
1. Weak economy causing 1. Negotiate with 1. Consolidate or
drop in consumer employees and union reorganize the
disposable income representative for pay organizational structure
2. More companies have cut to eliminate laying for additional cost
announced additional off staff and improve savings and to improve
lay offs, causing cash flow. Use the financial performance
increase in savings and offer better (W1, W2, W3, T1, T2,
unemployment discounts to customers T10)
3. Creative strategic (S3, S4, T1, T2, T5, T7)
partnership among 2. Improve security
competitors measure in theme parks
4. Global warming and and hospitality locations
other weather related by using surveillance
issues cameras (S8, T9)
5. Uncertainty among
consumers and
travelers due to weak
economy
6. Flu is spreading rapidly
causing consumers to
be hesitant going to
public places
7. Creative discounts
offered by competitors
in entertainment and
hospitality segments
8. Compliance with laws
and regulations in
overseas market
9. Security threats such as
terrorism
10. Value of Dollar
 increasing, causing less
tourists coming to the
U.S.

G. SPACE Matrix

FS
Conservative 7
Aggressive

CS IS
-7 -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 7

-1

-2

-3

-4

-5

-6

-7 Competitive
Defensive

ES

Financial Stability (FS) Environmental Stability (ES)

Return on Investment 3 Unemployment -5
Leverage 3 Technological Changes -5
Liquidity 4 Price Elasticity of Demand -4
Working Capital 4 Competitive Pressure -3
Cash Flow 5 Barriers to Entry -1
Financial Stability (FS) Average 3.8 Environmental Stability (ES) Average -3.6

Competitive Stability (CS) Industry Stability (IS)

Market Share -2 Growth Potential 4
Product Quality -2 Financial Stability 3
Customer Loyalty -5 Ease of Market Entry 5
Competition’s Capacity Utilization -4 Resource Utilization 5
Technological Know-How -5 Profit Potential 4

Competitive Stability (CS) Average -3.6 Industry Stability (IS) Average 4.2

Y-axis: FS + ES = 3.8 + (-3.6) = 0.2

X-axis: CS + IS = (-3.6) + (4.2) = 0.6
H. Grand Strategy Matrix

Rapid Market Growth

Quadrant I
Quadrant II

Strong
Weak
Competitive
Competitive
Position
Position

Quadrant IV
Quadrant III Slow Market Growth

1. Market development
2. Market penetration
3. Product development
4. Forward integration
5. Backward integration
6. Horizontal integration
7. Related diversification

I. The Internal-External (IE) Matrix

The IFE Total Weighted Score

Strong Average Weak

3.0 to 4.0 2.0 to 2.99 1.0 to 1.99
 I II III

High
3.0 to 3.99

IV IV VI

The EFE
Total Medium Walt Disney
Weighted 2.0 to 2.99 Company
Score

VII VIII IX

Low
1.0 to 1.99

J. QSPM

Increase
advertising
and
Expand promotion to
entertainment young
segment to generation
popular (coupons
countries and rebate
where they cards)
have strong through
economy and social
have positive networks
image for US such as
products and Twitter and
services Facebook
Key Factors Weight AS TAS AS TAS

Opportunities
1. Lower labor cost in overseas market such 0.05 4 0.2 1 0.05
 as China
2. Many consumers are shifting to Internet 0.07 --- --- --- ---
for travel bookings
3. High capital investment causing entry 0.08 --- --- --- ---
barrier to be difficult
4. Due to high entry barriers, substitution is 0.06 --- --- --- ---
limited in some business segments
5. Due to weak economy and high 0.08 3 0.24 1 0.08
unemployment rate, consumers are
looking for less expensive ways to be
entertained
6. Technology has improved and 0.08 2 0.16 4 0.32
entertainment industry can offer on-
demand audios and videos download
7. Devaluation of dollar makes travel costs 0.05 4 0.2 1 0.05
less expensive for international tourists
Threats
1. Weak economy causing drop in consumer 0.07 1 0.07 2 0.14
disposable income
2. More companies have announced 0.04 4 0.16 1 0.04
additional lay offs, causing increase in
unemployment
3. Creative strategic partnership among 0.03 --- --- --- ---
competitors
4. Global warming and other weather related 0.06 --- --- --- ---
issues
5. Uncertainty among consumers and 0.07 --- --- --- ---
travelers due to weak economy
6. Flu is spreading rapidly causing 0.03 --- --- --- ---
consumers to be hesitant going to public
places
7. Creative discounts offered by competitors 0.06 3 0.18 1 0.06
in entertainment and hospitality segments
8. Compliance with laws and regulations in 0.06 --- --- --- ---
overseas market
9. Security threats such as terrorism 0.06 --- --- --- ---
10. Value of Dollar increasing, causing less 0.05 1 0.05 4 0.2
tourists coming to the U.S.
TOTAL 1.00 1.26 0.94
Strengths
1. Strong financial position in revenue and 0.08 4 0.32 3 0.24
operating income
2. Brand is well known globally 0.05 --- --- --- ---
3. Strong management team 0.05 --- --- --- ---
4. Excellent training program for employees 0.08 --- --- --- ---
5. Diverse business units, each having 0.09 --- --- --- ---
several businesses and strategic alliances
6. Some products are sold globally 0.07 --- --- --- ---
7. Being able to struck deals with other well 0.03 3 0.09 2 0.06
known organizations
8. Well developed and strong technology 0.09 1 0.09 4 0.36
within the organization
Weaknesses
1. Difficult to manage due to owning too 0.05 1 0.05 3 0.15
many business unites
2. Decrease in cash, increase in accounts 0.07 --- --- --- ---
receivable and inventory from 2007 to
2008
3. Increase in correct liabilities from 2007 to 0.05 --- --- --- ---
2008
4. Legal issues due to accidents in the 0.05 --- --- --- ---
theme parks
5. Multiple products from varies segments 0.06 --- --- --- ---
could cause cannibalization of existing
parks and attractions
6. Violation in intellectual property and 0.06 --- --- --- ---
licensing results in lower royalties
7. Strong financial investment is required for 0.05 1 0.05 4 0.2
most new and innovative product
categories
8. High investment requirement for 0.07 3 0.21 1 0.07
marketing and promotion
SUBTOTAL 1.00 0.81 1.08
SUM TOTAL ATTRACTIVENESS SCORE 2.07 2.02

K. Recommendations

Expand into more European or S. American countries where the economy is

stronger, the GDP is growth, unemployment is stable and disposable income is
on the rise. Most European and S. American countries have favorable
perception toward American businesses and are eager to buy US products or
use the services. Struck a deal with local government for tax benefits for hiring
more locals.

L. EPS/EBIT Analysis

$ Amount Needed: $400 million

Stock Price: $32.07
Tax Rate: 36.01%
Interest Rate: 4.5% (Average)
# Shares Outstanding: 1.9 Billion

Common Stock Financing Debt Financing

Recession Normal Boom Recession Normal Boom
EBIT $8,450,000,000 $10,000,000,000 $12,000,000,000 $8,450,000,000 $10,000,000,000 $12,000,000,000
Interest 0 0 0 19,000,000 19,000,000 19,000,000
EBT 8,450,000,000 10,000,000,000 12,000,000,000 8,431,000,000 9,981,000,000 11,981,000,000
Taxes 3,042,000,000 3,600,000,000 4,320,000,000 3,035,160,000 3,593,160,000 4,313,160,000
EAT 5,408,000,000 6,400,000,000 7,680,000,000 5,395,840,000 6,387,840,000 7,667,840,000
# Shares 1,912,472,716 1,912,472,716 1,912,472,716 1,900,000,000 1,900,000,000 1,900,000,000
EPS 2.83 3.35 4.02 2.84 3.36 4.04

70 Percent Stock - 30 Percent Debt 70 Percent Debt - 30 Percent Stock

Recession Normal Boom Recession Normal Boom
EBIT $8,450,000,000 $10,000,000,000 $12,000,000,000 $8,450,000,000 $10,000,000,000 $12,000,000,000
Interest 15,200,000 15,200,000 15,200,000 3,800,000 3,800,000 3,800,000
EBT 8,434,800,000 9,984,800,000 11,984,800,000 8,446,200,000 9,996,200,000 11,996,200,000
Taxes 3,036,528,000 3,594,528,000 4,314,528,000 3,040,632,000 3,598,632,000 4,318,632,000
EAT 5,398,272,000 6,390,272,000 7,670,272,000 5,405,568,000 6,397,568,000 7,677,568,000
# Shares 1,908,730,901 1,908,730,901 1,908,730,901 1,903,741,815 1,903,741,815 1,903,741,815
EPS 2.83 3.35 4.02 2.84 3.36 4.03

M. Epilogue

As part of its ongoing effort to promote healthy lifestyles and nutrition for kids and
families, Disney today announced that it will develop a program in collaboration
with First Lady Michelle Obama supporting "Let's Move," her newly announced
campaign to create a healthier generation. Disney will create a series of PSAs
featuring the First Lady and leading Disney Channel stars to inspire healthier
eating habits, physical activity and more. The messages will be featured across
Disney's kid and family targeted media platforms, including Disney Channel,
Disney XD, Radio Disney, and Disney.com and will begin airing later this year.
"Having been at the forefront of making healthier lifestyle choices appealing to
kids and families, Disney is delighted to work with the First Lady to promote
exercise, nutrition and healthy living," said Robert A. Iger, president and CEO,
The Walt Disney Company. (Disney.com)

Advancing its strategy of delivering great branded content to people around the
world, Robert A. Iger, President and Chief Executive Officer of The Walt Disney
Company announced that Disney has completed its acquisition of renowned
character franchise company, Marvel Entertainment Inc. "We're thrilled to
welcome to the Disney family the talented team at Marvel," said Iger. "We believe
the creative and business potential of this combination is substantial and can
help us grow both our top and bottom line, leading to a significant increase in
long-term shareholder value." Under the terms of the agreement and based on
the closing price of Disney on Thursday, December 31, Marvel shareholders will
receive a total of $30 a share in cash plus approximately 0.7452 Disney shares
for each Marvel share they own. Marvel's assets include a library of over 5,000
characters featured in a variety of media over 70 years and businesses, including
licensing, movie production and publishing. (Disney.com)