DBRS Upgrades the Long-Term Rating of The Walt Disney Company to “A”

DBRS has today upgraded the rating on the Senior Notes & Debentures of The Walt Disney Company (Disney or the Company) from A (low) to “A” with a Stable trend. This resolves the Under Review with Positive Implications status that Disney’s rating was placed on March 1, 2007. The upgrade reflects five key factors that include: improved management focus and execution, greater cash flow visibility across its entire Media segment, DBRS’s acknowledgement of increased cost flexibility within the Parks and Resorts segment, enhanced financial flexibility that is indicative of an “A” credit, along with Disney further translating its worldwide brand recognition into additional revenue opportunities, which solidifies Disney’s competitive advantage.

DBRS notes that since the beginning of fiscal 2006, Disney’s results have been positively impacted by the more focused management teams at the senior level and across all its major segments, with the most noticeable example occurring in the Studio Entertainment segment related to Disney-branded films and its animation studios. In addition, DBRS believes that Disney will be able to demonstrate greater cash flow visibility across its entire Media Segment; with ESPN remaining dominant with over 92 million subscribers, while ABC is expected to benefit from primetime shows about to enter syndication. As a result, this segment appears to have resolved most of its past issues relating to conventional TV, with the Company now having the number one programming during peak viewership periods.

After recent discussions with management, DBRS notes that the Company appears to have executed on its post 9/11 strategy of an increased focus on domestic revenue generation (Florida and California residents) within the Parks and Resorts segment. More importantly, DBRS acknowledges that the Company has also implemented greater cost elasticity in its U.S. theme parks to counter economic downturns; which should help sustain profitability during lower demand periods. Therefore, DBRS notes that Disney continues to maintain enhanced financial flexibility augmented by over $3 billion in free cash flow generation that results in above-average credit metrics for a media company; liquidity remains solid and near-term debt maturities are quite minimal.

Finally, DBRS believes that Disney is further solidifying its worldwide brand recognition through revenue cross fertilization via more targeted marketing of its key theme-related brands (e.g., fairies, princesses and pirates) at specific demographics. Therefore, DBRS believes that Disney has put past internal issues behind it and is now focused on creating some of the highest demanded content worldwide, with the Company adopting a strategy of being technologically agnostic and willing to distribute its content over many different platforms while protecting its brands.

DBRS acknowledges that the Company does compete in a highly competitive media space that involves high production costs and investments that sometimes do not materialize. However, several of the key Disney brands transcend generations and have renewable profit potential, through Disney’s ability to release “classic” content in generational intervals and thus create demand for its content over several years, which many of its peers lack. Therefore, the Company has the ability to stem profit pressure through its proven content, if new ideas are not successful. Although its theme parks in France and Hong Kong remain challenged, these are viewed as equity investments and as long as Disney does not provide a material guarantee to their debt, these operations are not expected to impact potential rating improvement.

DBRS does not expect any significant acquisition activity from Disney in the near term, although the Company could divert its sizable free cash flow from share repurchases to make cash acquisitions which would likely not have an impact on its rating. Finally, the Company has recently announced that it will receive two new cruise liners, one in each of 2011 and 2012, which will require substantial capital spending which DBRS believes should not exceed $2 billion in cumulative total. DBRS expects that this could be funded substantially by internally generated cash.

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