DBRS Confirms The Walt Disney Company at “A”, Stable Trend

DBRS has today confirmed its rating of The Walt Disney Company’s (Disney or the Company) Senior Notes & Debentures at “A”. The trend remains Stable. The confirmation is based on the Company’s strong business risk profile, with a diversified group of media businesses and a robust financial risk profile.

DBRS notes that Disney continues to benefit from two prevailing factors that support the breadth and depth of its operations and sustain its strong and stable business risk profile. Firstly, Disney benefits from its ability to create relevant and engaging content that targets various consumer demographics. This is either new in-house original content or an expansion on existing franchises (e.g., Disney Princesses and Pirates of the Caribbean) or content and creative talent that it has acquired (e.g., Cars and Toy Story, among other franchises gained upon acquiring Pixar in May 2006). Secondly, Disney has an unmatched distribution and marketing capability that gives it the ability to effectively monetize content across its multiple platforms, both domestically and on a global basis.

These factors, along with a diverse revenue base, provide stable revenue generation. This diversity includes affiliate fees, advertising, attendance and occupancy, box office and DVD sales and merchandising and licensing. This continues to drive good levels of EBITDA in all of the Company’s operating segments, including its Disney’s Media Networks, Parks and Resorts and Studio Entertainment segments, which generate over 90% of the Company’s revenue and EBITDA.

Despite these factors, DBRS acknowledges that Disney continues to operate in a highly competitive and dynamic media space with sizable production costs and investments. This, along with possible near-term impacts from an economic downturn in 2008, the recent Writers Guild of America (WGA) work stoppage, a possible Screen Actors Guild work stoppage (should contracts not be renewed prior to expiry on June 30, 2008), additional investments in its domestic and international parks and resorts and possible extended payback periods at Disneyland Resort Paris and Hong Kong Disneyland, could temper consolidated EBITDA growth in 2008.

However, DBRS believes that the impact from the recently settled WGA work stoppage will be modest, with any impact being near term. In DBRS’s opinion, this process may cause the studios to reflect on the quantity of shows being developed and produced. A focus on increasing quality may better position the broadcast networks to compete with other linear media such as cable television. DBRS notes that any impact from the economy felt in Disney’s advertising revenue (roughly 20% of total revenue) is likely to be cyclical and should not impact the structural nature of its advertising-supported operations. In terms of its domestic Parks and Resorts business, the Company has indicated it should be in a better position to adjust its fixed costs to an economic downturn (versus 2001) and that a continued weak U.S. dollar may attract more domestic visitors as well as lead to an increase in foreign visitors.

From a financial perspective, DBRS notes that Disney’s free cash flow generation remains strong (DBRS expects the Company to report $3 billion in F2008, slightly below F2007) with growth in cash flow from operations able to mostly cover higher capex levels (focused on its domestic parks and cruise line expansion). While free cash flow and higher debt levels have funded the Company’s sizable share repurchases over the past three-plus years, leverage has remained strong, with debt levels remaining commensurate with EBITDA and cash flow from operations. DBRS expects leverage to remain strong in 2008, despite greater investment in its businesses and ongoing share repurchase activity.

Note:
All figures are in U.S. dollars unless otherwise noted.