david sm13e cn 01

Walt Disney Company - 2009Case 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. Customer2. Products or services3. Markets4. Technology5. Concern for survival, profitability, growth

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall.

http://www.disney.com/

6. Philosophy7. Self-concept8. Concern for public image9. Concern for employees

D. External Audit

Opportunities1. Lower labor cost in overseas market such as China2. Many consumers are shifting to Internet for travel bookings3. 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 entertained6. Technology has improved and entertainment industry can offer on-

demand audios and videos download7. Devaluation of dollar makes travel costs less expensive for

international tourists

Threats1. Weak economy causing drop in consumer disposable income2. More companies have announced additional lay offs, causing increase

in unemployment3. Creative strategic partnership among competitors4. Global warming and other weather related issues5. Uncertainty among consumers and travelers due to weak economy6. Flu is spreading rapidly causing consumers to be hesitant going to

public places7. Creative discounts offered by competitors in entertainment and

hospitality segments8. Compliance with laws and regulations in overseas market9. Security threats such as terrorism10.Value of Dollar increasing, causing less tourists coming to the U.S.

CPM – Competitive Profile Matrix

Walt Disney

CompanyCBS

CorporationNews

Corporation

Critical Success Factors WeightRatin

gWeighted Score

Rating

Weighted Score

Rating

Weighted 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

Note to instructors: The above CPM is concentrated on broadcasting / entertainment segment for Disney and its competitors. Students may conduct CPM analysis based on the hospitality or theme park segment of the company.

External Factor Evaluation (EFE) Matrix

Key External Factors Weight Rating Weighted Score

Opportunities

1. Lower labor cost in overseas market such as China

0.05 3 0.15

2. Many consumers are shifting to Internet for travel bookings

0.07 4 0.28

3. High capital investment causing entry barrier to be difficult

0.08 3 0.24

4. Due to high entry barriers, substitution is limited in some business segments

0.06 4 0.24

5. Due to weak economy and high unemployment rate, consumers are looking for less expensive ways to be entertained

0.08 4 0.32

6. Technology has improved and entertainment industry can offer on-demand audios and videos download

0.08 4 0.32

7. Devaluation of dollar makes travel costs less expensive for international tourists

0.05 4 0.2

Threats

1. Weak economy causing drop in consumer disposable income

0.07 3 0.21

2. More companies have announced additional lay offs, causing increase in unemployment

0.04 2 0.08

3. Creative strategic partnership among competitors

0.03 2 0.06

4. Global warming and other weather related issues

0.06 1 0.06


5. Uncertainty among consumers and travelers due to weak economy

0.07 3 0.21

6. Flu is spreading rapidly causing consumers to be hesitant going to public places

0.03 1 0.03

7. Creative discounts offered by competitors in entertainment and hospitality segments

0.06 3 0.18

8. Compliance with laws and regulations in overseas market

0.06 2 0.12

9. Security threats such as terrorism

0.06 2 0.12

10. Value of Dollar increasing, causing less tourists coming to the U.S.

0.05 2 0.1

Total 1.00 2.92

E. Internal Audit

Strengths

1. Strong financial position in revenue and operating income2. Brand is well known globally3. Strong management team4. Excellent training program for employees 5. Diverse business units, each having several businesses and strategic

alliances6. Some products are sold globally7. Being able to struck deals with other well known organizations8. Well developed and strong technology within the organization

Weaknesses

1. Difficult to manage due to owning too many business unites2. Decrease in cash, increase in accounts receivable and inventory from

2007 to 20083. Increase in correct liabilities from 2007 to 20084. Legal issues due to accidents in the theme parks5. Multiple products from varies segments could cause cannibalization of

existing parks and attractions6. Violation in intellectual property and licensing results in lower royalties7. Strong financial investment is required for most new and innovative

product categories8. 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 21.22Adapted from www.moneycentral.msn.com

Avg P/E Price/ Sales Price/ BookNet Profit

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


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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/

ShareDebt/

EquityReturn on Equity (%)

Return on Assets (%)

Interest 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 4.4Adapted 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 operating income

0.08 4 0.32

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 employees

0.08 3 0.24

5. Diverse business units, each having several businesses and strategic alliances

0.09 4 0.36

6. Some products are sold globally 0.07 3 0.21

7. Being able to struck deals with other well known organizations

0.03 3 0.09


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8. Well developed and strong technology within the organization

0.09 4 0.36

Weaknesses

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

0.05 2 0.1

2. Decrease in cash, increase in accounts receivable and inventory from 2007 to 2008

0.07 1 0.07

3. Increase in correct liabilities from 2007 to 2008

0.05 1 0.05

4. Legal issues due to accidents in the theme parks

0.05 2 0.1

5. Multiple products from varies segments could cause cannibalization of existing parks and attractions

0.06 2 0.12

6. Violation in intellectual property and licensing results in lower royalties

0.06 1 0.06

7. Strong financial investment is required for most new and innovative product categories

0.05 1 0.05

8. High investment requirement for marketing and promotion

0.07 2 0.14

Total 1.00 2.62

F. SWOT Strategies

Strengths Weaknesses1. 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,

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


3. Increase in correct liabilities from 2007 to


each having several businesses and strategic alliances

6. Some products are sold globally



20084. Legal issues due to

accidents in the theme parks





OpportunitiesS-O Strategies

W-O Strategies

1. Lower labor cost in overseas market such as China

2. Many consumers are shifting to Internet for travel bookings




6. Technology has improved and entertainment industry

1. Expand entertainment segment to popular countries where they have strong economy and have positive image for US products and services (S1, S2, S5, S6, O1, O4, O7)

2. Increase advertising and promotion to young generation (coupons and rebate cards) through social networks such as Twitter and Facebook (S1, S2, S8, O2, O5, O6)

1. Sell off low revenue generating segments / products to raise cash and pay off debt (W2, W5, O5)

2. Increase franchising and licensing to improve cash flow and income (W2, W3, W7, O4, O5)

3. Improve security implemented on products to reduce / limit intellectual property and licensing violations (W6, O6)


can offer on-demand audios and videos download


ThreatsS-T Strategies

W-T Strategies

1. Weak economy causing drop in consumer disposable income








9. Security threats such as terrorism

10.Value of Dollar increasing, causing less tourists coming to the U.S.

1. Negotiate with employees and union representative for pay cut to eliminate laying off staff and improve cash flow. Use the savings and offer better discounts to customers (S3, S4, T1, T2, T5, T7)

2. Improve security measure in theme parks and hospitality locations by using surveillance cameras (S8, T9)

1. Consolidate or reorganize the organizational structure for additional cost savings and to improve financial performance (W1, W2, W3, T1, T2, T10)


G. SPACE Matrix

Financial Stability (FS) Environmental Stability (ES)Return on Investment 3 Unemployment -5Leverage 3 Technological Changes -5Liquidity 4 Price Elasticity of Demand -4Working Capital 4 Competitive Pressure -3Cash 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


FS

CS

ES

IS654321

Conservative Aggressive

CompetitiveDefensive

1

2

3

4

5

6

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

7

-7

-6

-5

-4

-3

-2

-1

Product Quality -2 Financial Stability 3Customer Loyalty -5 Ease of Market Entry 5Competition’s Capacity Utilization -4 Resource Utilization 5Technological 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) = 0.2X-axis: CS + IS = (-3.6) + (4.2) = 0.6


H. Grand Strategy Matrix

1. Market development2. Market penetration3. Product development4. Forward integration5. Backward integration6. Horizontal integration7. Related diversification

I. The Internal-External (IE) Matrix

The IFE Total Weighted Score

Strong3.0 to 4.0

Average2.0 to 2.99

Weak1.0 to 1.99


Weak Competitive

Position

Quadrant II Quadrant I

Quadrant IVQuadrant III

StrongCompetitive

Position

Rapid Market Growth

Slow Market Growth

High3.0 to 3.99

I II III

Medium2.0 to 2.99

IV IV

Walt Disney Company

VI

Low1.0 to 1.99

VII VIII IX

J. QSPM

Expand entertainment

segment to popular

countries where they have strong

economy and have positive image for US products and

services

Increase advertising

and promotion to

young generation (coupons

and rebate cards)

through social

networks such as

Twitter and 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


The EFE Total

Weighted Score

as China2. Many consumers are shifting to Internet

for travel bookings0.07 --- --- --- ---


0.08 --- --- --- ---


0.06 --- --- --- ---


0.08 3 0.24 1 0.08

6. Technology has improved and entertainment industry can offer on-demand audios and videos download

0.08 2 0.16 4 0.32


0.05 4 0.2 1 0.05

Threats 1. Weak economy causing drop in consumer

disposable income0.07 1 0.07 2 0.14


0.04 4 0.16 1 0.04


0.03 --- --- --- ---


0.06 --- --- --- ---


0.07 --- --- --- ---


0.03 --- --- --- ---


0.06 3 0.18 1 0.06


0.06 --- --- --- ---

9. Security threats such as terrorism 0.06 --- --- --- ---10.Value of Dollar increasing, causing less

tourists coming to the U.S.0.05 1 0.05 4 0.2

TOTAL 1.00 1.26 0.94Strengths 1. Strong financial position in revenue and

operating income0.08 4 0.32 3 0.24

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

several businesses and strategic alliances0.09 --- --- --- ---

6. Some products are sold globally 0.07 --- --- --- ---



0.03 3 0.09 2 0.06


0.09 1 0.09 4 0.36

Weaknesses 1. Difficult to manage due to owning too

many business unites0.05 1 0.05 3 0.15


0.07 --- --- --- ---

3. Increase in correct liabilities from 2007 to 2008

0.05 --- --- --- ---

4. Legal issues due to accidents in the theme parks

0.05 --- --- --- ---


0.06 --- --- --- ---


0.06 --- --- --- ---


0.05 1 0.05 4 0.2


0.07 3 0.21 1 0.07

SUBTOTAL 1.00 0.81 1.08SUM 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 millionStock Price: $32.07Tax 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 $12,000,000,000Interest 0 0 0 19,000,000 19,000,000 19,000,000EBT 8,450,000,000 10,000,000,000 12,000,000,000 8,431,000,000 9,981,000,000 11,981,000,000Taxes 3,042,000,000 3,600,000,000 4,320,000,000 3,035,160,000 3,593,160,000 4,313,160,000EAT 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 1,900,000,000EPS 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 BoomEBIT $8,450,000,000 $10,000,000,000 $12,000,000,000 $8,450,000,000 $10,000,000,000 $12,000,000,000Interest 15,200,000 15,200,000 15,200,000 3,800,000 3,800,000 3,800,000EBT 8,434,800,000 9,984,800,000 11,984,800,000 8,446,200,000 9,996,200,000 11,996,200,000Taxes 3,036,528,000 3,594,528,000 4,314,528,000 3,040,632,000 3,598,632,000 4,318,632,000EAT 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 1,903,741,815EPS 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)


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