The Walt Disney Company Reports on 2Q Earnings

BURBANK, Calif. – The Walt Disney Company today reported earnings for its second fiscal quarter and six months ended March 28, 2009. Diluted earnings per share (EPS) for the second quarter were $0.33 including restructuring and impairment charges which had a $0.10 per share impact on EPS. Excluding these items, EPS decreased 26% to $0.43 from $0.58 in the prior-year quarter.

For the six month period, diluted EPS was $0.78. In addition to the restructuring and impairment charges, EPS for the six month period included a gain on the sale of our investment in two pay television services in Latin America. Collectively, these items adversely affected EPS by $0.07 per share for the six months. Excluding these items, EPS decreased 30% to $0.85 from $1.21 in the prior year six months.

“We had a difficult second quarter due to the weak economy and other factors,” said Robert A. Iger, president and CEO, The Walt Disney Company. “At the same time, we remain focused on our core business strategy and believe our creativity, brands and businesses will serve us well as the economy recovers.”

Media Networks
Media Networks revenues for the quarter increased 2% to $3.6 billion and segment operating income decreased 4% to $1.3 billion.

Cable Networks
Operating income at Cable Networks increased 5% to $1.1 billion for the quarter due to growth at ESPN, ABC Family and the domestic Disney Channel. The growth at ESPN was driven by higher affiliate revenue primarily due to contractual rate increases partially offset by decreased advertising revenues and higher programming costs. The decrease in advertising revenues was due to a decrease in
sold inventory, partially offset by higher rates. Operating income growth at ABC Family reflected higher advertising and affiliate revenue, both of which were driven by higher rates, along with higher sold advertising units, while growth at the domestic Disney Channel was driven by higher affiliate revenue due to higher rates.

Broadcasting
Operating income at Broadcasting decreased 38% to $162 million for the quarter primarily due to lower advertising sales at the owned television stations and higher programming costs at the ABC Television Network due to an increase in production expenses, partially offset by increased sales of ABC Studios productions in international markets, led by Ugly Betty, Desperate Housewives and Criminal Minds.

Higher production expenses reflected more production activity during the current quarter compared to the prior-year quarter which was affected by the Writers’ Guild of America work stoppage.

Parks and Resorts
Parks and Resorts revenues for the quarter decreased 12% to $2.4 billion and segment operating income decreased 50% to $171 million. Lower operating income was due to decreases at the Walt Disney World Resort, Disney Vacation Club, Disneyland Resort and Disneyland Resort Paris. Operating income comparisons were unfavorably impacted by the shift of the Easter holiday from the second quarter in fiscal 2008 to the third quarter in fiscal 2009.

Domestic Operations
Lower operating income at the Walt Disney World Resort and Disneyland Resort was primarily due to decreased guest spending, partially offset by lower costs. Decreased guest spending at the Walt Disney World Resort was due to lower average daily hotel room rates, lower average ticket prices and decreased merchandise spending. At Disneyland Resort, decreased guest spending was primarily due to lower average ticket prices and decreased merchandise spending.

Lower costs reflected savings from cost mitigation activities and lower cost of merchandise, food and beverages sold, partially offset by labor and other cost inflation. Lower operating income at Disney Vacation Club reflected unfavorable impacts associated with securitized ownership interests, higher per unit cost of sales, decreased sales of term extensions on certain existing properties and lower rentals of vacation club units.

International Operations
At Disneyland Resort Paris, lower operating income was primarily due to decreased guest spending and attendance. The decrease in guest spending reflected lower average ticket prices, lower average daily hotel room rates and decreased merchandise spending.

Studio Entertainment
Studio Entertainment revenues for the quarter decreased 21% to $1.4 billion and segment operating income decreased 97% to $13 million. The decrease in segment operating income was primarily due to decreases in domestic home entertainment and worldwide theatrical distribution. The decrease in domestic home entertainment was driven by lower unit sales reflecting the performance of current quarter titles, which included High School Musical 3: Senior Year, Beverly Hills Chihuahua and Bolt, as compared to Enchanted,
Game Plan and No Country for Old Men in the prior-year quarter.

The decrease in worldwide theatrical distribution reflected a lower performing slate of titles in the current quarter in both domestic and international markets and higher distribution expense for future quarter releases in domestic markets. Significant current quarter titles domestically included Bedtime Stories, Race to Witch Mountain and Confessions of a Shopaholic while the prior-year quarter included National Treasure 2: Book of Secrets, Hannah Montana/Miley Cyrus: Best of Both Worlds and Enchanted.

Significant current quarter titles internationally included Confessions of a Shopaholic, Bolt and Bedtime Stories compared to the strong performance of Enchanted and National Treasure 2: Book of Secrets in the prior-year quarter.

Consumer Products
Consumer Products revenues for the quarter increased 9% to $496 million, and segment operating income decreased 24% to $97 million. The revenue increase was due to the acquisition of the Disney Stores North America in the third quarter of 5 fiscal 2008, partially offset by a decrease in earned royalty revenue at Merchandise Licensing.

Lower segment operating income was due to the acquisition of the Disney Stores North America and lower earned royalty revenue across multiple product categories at Merchandise Licensing. At the Disney Stores North America, the increase in revenues due to the acquisition was more than offset by the related operating costs and the absence of royalties from the former licensee.

Interactive Media
Interactive Media revenues for the quarter decreased 17% to $129 million and segment operating loss was essentially flat at $61 million as a decrease in revenues at Disney Interactive Studios was largely offset by increased revenues from our mobile phone service business in Japan, which was launched in the second quarter of fiscal 2008, lower marketing expenses at Disney Interactive Studios and Disney Online and lower administrative costs at Disney Online. The decline in revenues at Disney Interactive Studios was driven by lower sales of self-published video games reflecting the strong performance of Turok in the prior-year quarter.

OTHER FINANCIAL INFORMATION
Restructuring and Impairment Charges The Company recorded $305 million of charges in the current quarter which included non-cash impairment charges of $203 million and restructuring costs of $102 million. The most significant of the impairment charges were $108 million related to radio FCC licenses and $46 million related to an investment in an Indian media company. The restructuring charges consisted of severance and other related costs as a result of various organizational and cost structure initiatives across our
businesses, roughly half of which related to the Parks and Resorts segment.

FORWARD-LOOKING STATEMENTS
Management believes certain statements in this earnings release may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are made on the basis of management’s views and assumptions regarding future events and business performance as of the time the statements are made. Management does not undertake any obligation to update these statements.

Actual results may differ materially from those expressed or implied. Such differences may result from actions taken by the Company, including restructuring or strategic initiatives (including capital investments or asset acquisitions or dispositions), as well as from developments beyond the Company’s control, including:

* changes in domestic and global economic conditions, competitive conditions and consumer preferences;
* adverse weather conditions or natural disasters;
* health concerns;
* international, political, or military developments; and
* technological developments.

Such developments may affect travel and leisure businesses generally and may, among other things, affect:
* the performance of the Company’s theatrical and home entertainment releases;
* the advertising market for broadcast and cable television programming;
* expenses of providing medical and pension benefits;
* demand for our products; and
* performance of some or all company businesses either directly or through their impact on those who distribute our products.

Additional factors are set forth in the Company’s Annual Report on Form 10-K for the year ended September 27, 2008 under Item 1A, “Risk Factors,” and subsequent reports.

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