Disney (DIS)
Karen Piane
5/4/07
Price: $35.85
P/E: 17.28
EV/EBITDA: 9.912
Market Cap: 73.44B
Company Overview
From Yahoo and Google Finance
The Walt Disney Company, together with its subsidiaries, is a diversified worldwide entertainment
company. The Company operates in four segments: Media Networks, Parks and Resorts, Studio
Entertainment and Consumer Products. The Media Networks segment includes a domestic
broadcast television network, domestic television stations, cable/satellite networks and international
broadcast operations, television production and distribution, domestic broadcast radio networks and
stations, and Internet and mobile operations. The Parks and Resorts segment generates revenues
predominately from the sale of admissions to the theme parks, room nights at the hotels, and rentals
at the resort properties. The Studio Entertainment segment produces and acquires live-action and
animated motion pictures, direct-to-video programming, musical recordings and live-stage plays.
The Consumer Products segment partners with licensees, manufacturers, publishers and retailers
worldwide to design, promote and sell a variety of products based on Disney characters and other
intellectual property.
Media Networks:
ABC television Network and its Cable Networks such as ESPN, ESPN2, ESPN Classic,
ESPNEWS, Disney Channel, International Disney Channels, Toon Disney, Lifetime Television,
A&E, ABC Family, The History Channel, E! Entertainment Television, A&E International,
Lifetime Movie Network, Lifetime Real Women, Jetix Europe, Jetix Latin America, SOAPnet,
Style, The Biography Channel and History International
ABC Radio Network, the ESPN Radio Network, and the Radio Disney Network (the Radio
Networks).
Internet Websites and products like ABC.com, ABCNEWS.com, Disney.com and ESPN.com.
These Internet operations derive revenue from a combination of advertising and sponsorships,
subscription services and e-commerce activities.
Parks and Resorts
Disney owns and operates the Walt Disney World Resort and Disney
Cruise Line in Florida, the Disneyland Resort in California and
ESPN Zone facilities in several states. The Walt Disney Company
manages and has effective ownership interests of 51% and 43%,
respectively, in the Disneyland Resort Paris and Hong Kong
Disneyland, which opened in September 2005. The Company also
licenses the operations of the Tokyo Disney Resort in Japan.
Studio Entertainment
The Studio Entertainment segment produces and acquires live-action
and animated motion pictures, direct-to-video programming, musical
recordings and live-stage plays. The Company distributes produced
and acquired films (including its film and television library) to the
theatrical, home entertainment, pay-per-view, video-on-demand, pay
television and free-to-air television markets.
Consumer Products
The Consumer Products segment develops new intellectual property
within its publishing and interactive gaming divisions. The Company
also engages in retail and online distribution of products based on its
characters and films through The Disney Store and
DisneyShopping.com, respectively. The Disney Store is owned and
operated in Europe, and is franchised in North America and Japan.
Items for purchase include stationery, food, health, beauty, apparel,
toys, consumer electronics, home furnishings and home decor.
Management
Robert A. Iger
President and Chief Executive Officer
Appointed Oct. 1, 2005
In 1974 he began career at ABC. During his time there, ABC became a leader in broadcast
television and expanded into numerous cable and related ventures. In 2000 Iger became Chief
Operating Officer of The Walt Disney Company. Although Iger has only been President and CEO
for a short period of time, he has already had a large positive impact on the company. This can
especially be seen by Disney’s recent acquisition of Pixar. Iger has been noted as having a better
understanding of delegating power and as a result all of the divisions should have more autonomy
and should hopefully prosper because of it.
Thomas O. Staggs
Chief Financial Officer
Appointed January 2000
He oversees the company's worldwide finance organization, corporate strategy and development,
brand management, acquisitions, corporate alliances, investor relations, treasury and risk
management activities, controller functions, information systems, corporate outreach, real estate and
taxes. He has played a large role in the recent joint ventures and corporate transactions, including
the acquisitions of Capital Cities/ABC and Pixar. He has been with Disney since 1990 and was
recently named one of America’s best CFOs and the top CFO in the Entertainment Industry by
Institutional Investor Magazine.
Competition
Competitor
Company Description
News
Corporation
(NWS-A)
Diversified international media/entertainment company.
Filmed entertainment, television, cable network
programming, direct broadcast satellite television,
magazines, newspapers, book publishing.
Dreamworks
Animation
(DWA)
It focuses on the development and production of computer
generated feature films in the US. It produces them for
theatrical, home entertainment, and television markets.
Time Warner
Inc. (TWX)
Media/entertainment company that operates in 5 segments:
AOL, Cable, Filmed Entertainment, Networks, and Publishing.
Implications for DIS
A large competitor of
Disney’s due to its
operations in similar
segments.
Directly competes with
Disney’s animated films.
Has been extremely
successful with movies such
as Shrek.
Could challenge Walt
Disney’s dominance
especially in television and
merchandising.
DIS
NWS.A
DWA
TWX
PE Ratio
17.28
17.53
18.75
20.17
EV/EBITDA
9.912
12.46
19.126
9.858
Market Cap
73.44B
69.26B
3.13B
80.59B
Financials
In 2006 Disney saw record revenues, record cash flow and record net earnings in
addition to operating growth in each of its 4 segments
Revenue reached an all time high of $34 billion which is a 7% increase over the
previous year. Earnings per share increased by 34% to $1.64 showing the growth of
each business.
Valuation
Key metric
DIS
Comparison to
industry
Comparison
to S&P 500
PE Ratio
17.28
24.22
20.28
PE Ratio
(high- last
5 years)
143.09
82.31
36.34
PE Ratio
(low- last
5 years)
16.59
16.49
14.81
15.71
34.29
34.85
Price to
Free Cash
Flow
Disney’s relatively low PE ratio suggests that the company is undervalued and the low P/FCF indicates that
Disney is cheap.
Investment Opportunities

Acquisition of Pixar in 2006. According to research performed by Disney, Pixar had
become the chosen brand of excellence for mothers with children below age 12. Therefore
the acquisition appears to have been a smart move on Disney’s part. This year Cars was
very successful but with Pixar on board there is a lot of potential for growth in Disney’s
animated films.

This past year Disney began better establishing itself in emerging international markets like
China, Russia, and India. In India Disney acquired leading Indian children’s channel
Hungama, and an equity interest in UTV Softwar, (integrated media company specializing
in Indian filmed entertainment and television production). In Latin America Disney
produced local versions of High School Musical and Desperate Housewives. There are
plans to expand Disney’s presence on television in Russia and at the same time leverage
their retail, theatrical and new media sectors. In 2007, the company is determined to
continue allocating resources to these areas. Specifically, they expect to increase capital
expenditure, focusing mostly on Theme Parks, and digital initiatives in media networks.
Iger commented that there’s not a market in the world they can’t enter and not be successful.
He has high ambitions for expansion.

As people continue to buy higher quality electronics, Disney should see a lot of the benefits
through an increase in consumption. As evidence of this, last quarter 130 million DVD’s
were purchased (which was much more than expected).

There are also small projects popping up all over the place.
o Disney is beefing up Family.com. The site will now include a ParentPedia (play on
Wikipedia) and will offer the ability for users to create private and public groups
very similar to MySpace.
o Disney Mobile- launched in 2006- 1st mobile phone service for kids that gives
parental control. Though it has been launched there is still a lot of growth potential
as Disney will soon turn focus more on marketing/developing the service.
o Disney recently launched Disney princess inspired bridal gowns. They range in the
prices of $1,100 to $3,500. They will be available in boutiques in North America,
Japan, and Europe starting in June. The different Disney princesses inspired the
dresses.
The growth of media companies is really dependent on creativity. Recently, Disney seems to be at
the forefront of creative projects.
Investment Risks

If there is a downturn in the economy, the media industry is often one of the first areas to
suffer. However, in times of economic stress Disney should still perform better than its
competitors because of its optimistic nature and focus on children.

The population is getting older and the birth rate is declining. Although this is true, Disney
has been working towards expanding its demographics. Its resorts have been developing
more adult friendly features such as elaborate golf courses, adult only areas, and better wine
selections. Disney is attempting to make its parks into an affair that is appealing to children,
parents, and grandparents.
Investment Recommendation
Although media companies are risky, Disney has proven itself to be a consistently strong company
with an incredible brand name. Following its rapid growth in the late 1990’s, Disney hit a dry spell
and has been trying to climb back up ever since. In the last few years Disney has been successful.
It has been growing and expanding at a consistent rate. I believe now is the absolute perfect time to
buy. Disney has been around so long that many do not expect it to surge forward once again. Yet
at this moment Disney has a great combination of management, creativity, financial health and the
key insight in order to break expectations by bursting through and bringing significant growth to the
company. My recommendation is to buy at the current price of $35.85 with a target price of $43.
INCOME STATEMENT
All numbers in thousands
View: Annual Data | Quarterly Data
PERIOD ENDING
30-Sep-06
1-Oct-05
30-Sep-04
Total Revenue
34,285,000
31,944,000
30,752,000
Cost of Revenue
28,807,000
27,837,000
-
5,478,000
4,107,000
30,752,000
Research Development
-
-
-
Selling General and Administrative
-
-
26,704,000
6,000
64,000
Gross Profit
Operating Expenses
Non Recurring
(18,000)
Others
-
-
-
Total Operating Expenses
-
-
-
5,496,000
4,101,000
3,984,000
114,000
491,000
12,000
6,153,000
4,592,000
4,368,000
706,000
605,000
629,000
Income Before Tax
5,447,000
3,987,000
3,739,000
Income Tax Expense
1,890,000
1,241,000
1,197,000
Operating Income or Loss
Income from Continuing Operations
Total Other Income/Expenses Net
Earnings Before Interest And Taxes
Interest Expense
Minority Interest
Net Income From Continuing Ops
(183,000)
(177,000)
(197,000)
3,374,000
2,569,000
2,345,000
Discontinued Operations
-
-
-
Extraordinary Items
-
-
-
Effect Of Accounting Changes
-
Other Items
-
-
-
3,374,000
2,533,000
2,345,000
-
-
-
$3,374,000
$2,533,000
$2,345,000
Non-recurring Events
Net Income
Preferred Stock And Other Adjustments
Net Income Applicable To Common Shares
(36,000)
-
BALANCE SHEET
All numbers in thousands
View: Annual Data | Quarterly Data
PERIOD ENDING
30-Sep-06
1-Oct-05
30-Sep-04
Assets
Current Assets
Cash And Cash Equivalents
2,411,000
1,723,000
2,042,000
-
-
-
Net Receivables
5,299,000
5,334,000
5,330,000
Inventory
1,109,000
1,136,000
1,259,000
743,000
652,000
738,000
Total Current Assets
9,562,000
8,845,000
9,369,000
Long Term Investments
1,815,000
1,226,000
1,292,000
Property Plant and Equipment
17,167,000
16,968,000
22,420,000
Goodwill
22,505,000
16,974,000
16,966,000
8,142,000
8,158,000
2,815,000
-
-
-
807,000
987,000
1,040,000
-
-
-
59,998,000
53,158,000
53,902,000
Accounts Payable
5,917,000
5,339,000
5,623,000
Short/Current Long Term Debt
2,682,000
2,310,000
4,093,000
Other Current Liabilities
1,611,000
1,519,000
1,343,000
Total Current Liabilities
10,210,000
9,168,000
11,059,000
Long Term Debt
11,135,000
10,157,000
9,395,000
Other Liabilities
2,516,000
3,945,000
3,619,000
Deferred Long Term Liability Charges
2,974,000
2,430,000
2,950,000
Minority Interest
1,343,000
1,248,000
798,000
-
-
-
28,178,000
26,948,000
27,821,000
-
-
-
Short Term Investments
Other Current Assets
Intangible Assets
Accumulated Amortization
Other Assets
Deferred Long Term Asset Charges
Total Assets
Liabilities
Current Liabilities
Negative Goodwill
Total Liabilities
Stockholders' Equity
Misc Stocks Options Warrants
Redeemable Preferred Stock
-
-
-
Preferred Stock
-
-
-
Common Stock
22,377,000
13,288,000
12,447,000
Retained Earnings
20,630,000
17,775,000
15,732,000
Treasury Stock
(11,179,000)
Capital Surplus
Other Stockholder Equity
(8,000)
(4,281,000)
(572,000)
(1,862,000)
(236,000)
Total Stockholder Equity
31,820,000
26,210,000
26,081,000
Net Tangible Assets
$1,173,000
$1,078,000
$6,300,000
CASH FLOW
All numbers in thousands
View: Annual Data | Quarterly Data
PERIOD ENDING
Net Income
30-Sep-06
1-Oct-05
30-Sep-04
3,374,000
2,533,000
2,345,000
Depreciation
1,436,000
1,339,000
1,210,000
Adjustments To Net Income
1,164,000
752,000
866,000
(157,000)
(115,000)
(135,000)
237,000
Operating Activities, Cash Flows Provided By or Used In
Changes In Accounts Receivables
Changes In Liabilities
(78,000)
277,000
Changes In Inventories
(63,000)
22,000
(84,000)
Changes In Other Operating Activities
(52,000)
(85,000)
(89,000)
Total Cash Flow From Operating Activities
6,058,000
4,269,000
4,370,000
Capital Expenditures
(1,299,000)
(1,823,000)
(1,427,000)
Investments
1,154,000
Investing Activities, Cash Flows Provided By or Used In
Other Cashflows from Investing Activities
Total Cash Flows From Investing Activities
-
(53,000)
(82,000)
132,000
(4,000)
(227,000)
(1,691,000)
(1,484,000)
(519,000)
(490,000)
(430,000)
(5,565,000)
(1,708,000)
(68,000)
(699,000)
(2,203,000)
Financing Activities, Cash Flows Provided By or Used In
Dividends Paid
Sale Purchase of Stock
Net Borrowings
Other Cash Flows from Financing Activities
Total Cash Flows From Financing Activities
Effect Of Exchange Rate Changes
Change In Cash and Cash Equivalents
941,000
(5,143,000)
$688,000
(2,897,000)
($319,000)
(2,701,000)
$185,000