2015 Spencer-RIMS

Risk Management Challenge

2015 Spencer-RIMS Risk Management Challenge

Case Study
TABLE OF CONTENTS
The 2015 Spencer-RIMS Risk Management Challenge

Page 3

Introduction to The Walt Disney Company

Page 4

Company Overview

Page 6

Performance by Business Segment

Page 7

Risk Management Strategy

Page 14

The Walt Disney Company

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The 2015 Spencer-RIMS Risk Management

Challenge
Team Challenge: Risk consulting and brokerage services for The Walt Disney Company as
defined below.

No more than ten page proposal with risk management recommendations regarding:

Identification and assessment of key risks that Disney should focus on

o A key risk is a pure risk with a significant degree of severity and meaningful
degree of occurrence viewed in light of the Companys goals, cash flows and assets
o Seven key risks should be identified

Recommended risk treatments and alternatives to be considered for each of the key risks

Materials provided:

Overview of The Walt Disney Company (TWDC)

References for additional information publically available

Note: This list is not exhaustive and participants are encouraged to source credible and
reliable information that may be available

The Walt Disney Company

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Introduction to The Walt Disney Company

The Walt Disney Company is a diversified multinational media corporation headquartered at the
Walt Disney Studios in Burbank, California. It is the world's second largest broadcasting and cable
company in terms of revenue, after Comcast. Disney was founded on October 16, 1923, by Walt
Disney and Roy O. Disney as the Disney Brothers Cartoon Studio, and established itself as a leader
in the American animation industry before diversifying into live-action film production, television,
and theme parks. After operating at various times as The Walt Disney Studio and Walt Disney
Productions, the company changed to its current name in 1986, expanding into theatrical
productions, radio, music, publishing, and online media. In 1995 the company acquired Cap
Cities/ABC, adding ESPN, the ABC Television Network and the A&E cable channels into its
portfolio of assets.
Further acquisitions include PIXAR Animation Studios (2006), Marvel Entertainment Inc. (2009)
and Lucasfilm (2012).
The company is best known for the products of its film studio and production companies and its
theme parks and resorts, now located in France, Florida, California, Hong Kong and, soon to be
completed, Shanghai. The company has been a component of the Dow Jones Industrial Average
since May 6, 1991.
Further information and performance data can be found at:

http://thewaltdisneycompany.com/

Disneys driving passion is to be one

of the world's leading producers and
providers of entertainment and information,
using its portfolio of brands to differentiate
its content, services and consumer products.
The company's primary financial goals are
to maximize earnings and cash flow, and to
allocate capital profitability toward growth
initiatives that will drive long-term
shareholder value.

Cinderellas Castle at Disneys Magic Kingdom, Walt Disney World

The Walt Disney Company

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The Walt Disney Company Today

The Walt Disney Company (TWDC) is known throughout the world as a leader in the
entertainment industry. With corporate headquarters in Burbank, California, TWDC
employs over 175,000 individuals world-wide and is divided into five major business
segments:

Media Networks
Studio Entertainment
Theme Parks & Resorts
Consumer Products
Disney Interactive Media Group (DIMG)

Each segment consists of integrated, well-connected businesses that operate in concert to

maximize
business opportunities and promote growth worldwide.

The Walt Disney Company

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Company Overview

At the time of the submission of the 2015 Risk Management Challenge, The Walt Disney
Company had not completed its financial results for the fiscal year-ending September 30,
2014; results based on FY2013 are in line with current results and are provided below.

2013 BUSINESS RESULTS

Disneys fiscal 2013 financial results were the third

consecutive year of record performance, which reflects the
impact of our acquisitions and capital investments and the
Companys long-term strategy focused on exceptional
creativity, innovative use of technology and global growth.

Core Business Priorities:

Creating exceptional high-quality family content

that people want to experience
Using new innovative technology to maximize the
engagement and accessibility of that content
Growing our brands and businesses in promising
international markets to extend the impact of
that entertainment

FY 2013 Financial
Highlights:

Revenues increased
7% to $45 billion

Net income was a
record $6.6B, an
increase of 8% from
the prior fiscal year

Diluted EPS
increased 8% to a
record $3.38

2013 FINANANCIAL RESULTS

The Walt Disney Company

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Performance by Business Segment

MEDIA NETWORKS
The Media Networks segment includes broadcast and cable television networks, television
production and distribution operations, domestic television stations and radio networks and
stations. The Company also has an interest in Hulu LLC (Hulu), a joint venture that
distributes film and television content on the internet.

Media Networks comprise a vast array of

broadcast, cable, radio and publishing
businesses. Key areas include: Disney-ABC
Television Group, ESPN Inc., ABC owned
television stations, and a supporting
headquarters group. Marketing, research,
sales and communications functions also exist
within the segment.

MEDIA NETWORK PERFORMANCE - 2013
For the year, operating income in the Media Networks segment increased 5% to $20.4
billion and operating income increased 3% to $6.8 billion. The growth in operating income
at Cable Networks was due to affiliate and advertising revenues growth at ESPN, the
domestic Disney Channels and A&E Television Networks (AETN).
Disney Junior finished 2013 as the number-one channel in the United States among children
2-5, and has already emerged as a global preschool entertainment brand, fueled by a new
generation of original characters beloved by children around the world. Sofia, Jake and Doc
McStuffins have now joined Mickey, Minnie and Pooh as favorite Disney friends of
millions of young kids from Milwaukee to Mumbai.
ESPN continues to lead the digital media sports space, leading in audience share, total visits,
total minutes, and average audience per minute, among other measures. The brands
groundbreaking WatchESPN service is now available to more than 55 million U.S. homes,
allowing fans to stream live sports programming on a variety of devices. In month alone,
ESPN reached more than 68 million fans across digital platforms.

The Walt Disney Company

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Good Morning America took the top spot as the number one morning news show in the
country and ABCNews/Yahoo became the number one source of news and information on
the web. Likewise, a compelling mix of national and local content delivered across a variety
of platforms made ABC-owned stations local market leaders and set WABC apart as the
most watched television station in the nation yet again.

STUDIO ENTERTAINMENT

The Studio Entertainment segment produces and acquires live-action and animated motion
pictures, direct-to-video content, musical recordings and live stage plays.
The Company distributes produced and acquired films (including its film and television
library) in the theatrical, home entertainment and television markets primarily under the
Walt Disney Pictures, Pixar, Marvel, Touchstone and Lucasfilm banners. The Company
produces and distributes Indian movies worldwide through its UTV banner.

The Walt Disney Studios is the

foundation on which Disney was built,
and at its heart are world-renowned
animated features and live-action
motion pictures. Since the creation of
Mickey Mouse and Snow White and
the Seven Dwarfs, the Disney name
quickly became synonymous with
quality entertainment for the whole
family.

STUDIO ENTERTAINMENT PERFORMANCE - 2013

Studio Entertainment revenues for the year increased 3% to $6.0 billion due to growth from
television/ subscription video on demand (TV/ SVOD) distribution and two Disney feature
animation releases, Wreck-It-Ralph and Planes. Segment operating income decreased $61
million to $661 million primarily due to lower results at our home entertainment business.
In 2013 we followed the phenomenal success of last years Marvels: The Avengers with yet
another blockbuster, Iron Man 3. This film was the highest grossing movie of 2013, earning
Marvel Studios the distinction of being the first film studio in history to ever release two
movies in a row that each exceeded a billion dollars at the box office. The success of both
Iron Man 3 and Thor: The Dark World, added to other creative triumphs across our studios,
helping to deliver the best box office results in Disney history -- more than $4.7 billion in
total ticket sales in calendar year 2013
The Walt Disney Company

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Released over Thanksgiving of 2013, Frozen has already exceeded

$1 billion at the global box office, earned the Golden Globe and
Oscars for best animated feature film and best original song. Its
also the first soundtrack from a Disney animated movie to reach
number one on the charts since 1995.

The Walt Disney Company

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THEME PARKS AND RESORTS

The Theme Parks and Resorts segment includes Walt Disney World Resort in Florida, the
Disneyland Resort in California, Aulani, a Disney Resort & Spa in Hawaii, the Disney
Vacation Club, the Disney Cruise Line and Adventures by Disney. The Company manages
and has effective ownership interests of 51% in Disneyland Paris, 48% in Hong Kong
Disneyland Resort and 43% in Shanghai Disney Resort, each of which is consolidated in our
financial statements. The Company also licenses the operations of the Tokyo Disney Resort
in Japan. The Companys Walt Disney Imagineering unit designs and develops new theme
park concepts and attractions as well as resort properties.
.

Wherever the Guest experience takes place - in our
on the high seas, on a guided tour of exotic
parks,
locales, through our vacation ownership program -remain dedicated to the promise that our Cast
we
members turn the ordinary into the extraordinary.
dreams come true every day is central to our
Making
global growth strategy.


THEME PARKS AND RESORTS PERFORMANCE - 2013

Parks and Resorts annual revenues increased 9% to $14.1 billion and segment operating
income increased 17% to $2.2 billion due to increased guest spending at our domestic parks
and resorts and Hong Kong Disneyland Resort as well as sales of The Villas at Disneys
Grand Floridian Resort & Spa, the newest Disney Vacation Club.
In 2013 we introduced an historic technological
innovation to enhance the guest experience at our
Walt Disney World Resort with the launch of
Disneys MyMagic+, featuring a variety of online
tools to help guests get the most out of their time
with us, including convenient MagicBands
serving as park tickets, hotel keys and a convenient
form of payment all rolled into one. We began
testing the program in January with a small number
of our guests, and have gradually expanded
throughout the year with full roll out completed in 2014.

The Walt Disney Company

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The transformation of Disneys California Adventure at the Disneyland Resort with the
completion of Cars Land, the expansion of Fantasyland at Walt Disney World, the addition
of three new lands to Hong Kong Disneyland and the incredible celebration of Tokyo
Disneylands 30th anniversary led to record attendance at these parks in fiscal 2013.

CONSUMER PRODUCTS

The Consumer Products segment engages with licensees, publishers and retailers throughout
the world to design, develop, publish, promote and sell a wide variety of products based on
existing and new characters through its Merchandise Licensing, Publishing and Retail
businesses.
In addition to leveraging the Companys film and television properties, Consumer Products
also develops new intellectual property, which can be used across the Companys other
businesses.

Disney Consumer Products and affiliates (DCP) extend

the Disney brand to merchandise ranging from apparel,
toys, home dcor and books and magazines to interactive
games, foods and beverages, stationery, electronics and
fine art. This is accomplished through DCP's various
lines of business which include: Disney Toys, Disney
Apparel, Accessories & Footwear, Disney Food, Health
& Beauty, Disney Home and Disney Stationery.

CONSUMER PRODUCTS PERFORMANCE 2013

For the year, revenues increased 9% to $3.6 billion and segment operating income increased
19% to $1.1 billion. The increase in operating income was due to growth at our
Merchandise Licensing, Retail and Publishing businesses. The increase at Merchandise
Licensing was driven by the performance of Disney Junior, Monsters University, Mickey
and Minnie, Iron Man and Planes merchandise.
In fiscal 2013, retail sales for Disney Junior merchandise
grew significantly, exceeding $1.8 billion for the year, and all
indications point to continued growth of this dynamic new
branded business.
The Walt Disney Company

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Merchandise licensing results also increased for the year due to the inclusion of Lucasfilm.
At our Retail business, higher operating income for the year was due to comparable store
sales growth in North America and Japan and higher online sales in North America. At
Publishing, higher operating income for the year was due to the strength of Marvel comics.
In fiscal 2013 The Disney Stores delivered their best performance to date and with doubledigit growth across all lines of business and Disney Consumer Products delivered operating
income of more than $1 billion for the first time in the companys history.

INTERACTIVE MEDIA

The Interactive segment creates and delivers branded entertainment and lifestyle content
across interactive media platforms. The primary operating businesses of Interactive are
Interactive Games which produces multi-platform games for global distribution, and
Interactive Media, which develops branded online services..
Disney Interactive Media Group (DIMG) derives revenues from a combination of wholesale
sales, licensing, advertising, sponsorships, subscription services and online game
accessories. DIMG also manages the Companys Disney-branded mobile phone business in
Japan which provides mobile phone service and content to consumers.

DIMG core businesses include Disney Interactive

Studios, which self publishes and distributes a
broad portfolio of multi-platform video games,
mobile games and interactive entertainment
worldwide; and Disney Online, which produces
the No. 1 Community-Family & Parenting Web
site and a suite of online virtual worlds for kids
and families.

INTERACTIVE MEDIA PERFORMANCE - 2013

For the year, revenues increased 26% to $1.1 billion and segment operating results
improved by $129 million to a loss of $87 million. Improved operating results for the year
were due to increases at our Japan mobile businesses and console games, primarily driven
by the fourth quarter release of Disney Infinity.

The Walt Disney Company

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Our new video game platform, Disney Infinity, gives millions of players around the world
the power to mix and match characters, stories and settings from Disney and Pixars most
popular franchises to create a personal gaming experience unique to each of them. More
than three million units have been sold worldwide since its release.
Japan mobile results benefited from the full year impact of
a licensing agreement that started in February 2012, which
drove an increase in handset sales and subscribers. Disney
Interactive has also become a leading publisher of mobile
games, delivering seven number-one titles on Apples app
store in fiscal 2013 and launched Disney Animated, a
premium interactive iPad app that beat out more than
100,000 other new apps to earn Apples iPad App of the
Year honor for 2013.

Recent Acquisitions: Maker Studios

On May 7, 2014, the Company acquired Maker Studios, Inc. (Maker), a leading network of
online video content on YouTube, for approximately $500 million of cash consideration, subject
to certain conditions and adjustments. Maker shareholders may also receive up to $450 million
of additional cash if Maker achieves certain performance targets for calendar years 2014 and
2015.
The Company has recognized a $198 million liability for the fair value of the contingent
consideration (determined by a probability weighting of potential payouts). Subsequent changes
in the estimated fair value, if any, will be recognized in earnings. The Company is in the process
of finalizing the valuation of the assets acquired, liabilities assumed and the fair value of the
contingent consideration.
The majority of the purchase price has initially been allocated to goodwill, which is not
deductible for tax purposes. Goodwill reflects the synergies expected from enhancing the
presence of Disney's franchises and brands through the use of Maker's distribution platform,
advanced technology and business intelligence capability. The revenue and net income of Maker,
which are included in the Company's Condensed Consolidated Statement of Income from the
closing through June 28, 2014, are not material.


Source: The Walt Disney Company; June, 2014 Form 10-Q

The Walt Disney Company

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RISK MANAGEMENT STRATEGY

How we approach risk

The corporate philosophy for managing risk at The Walt Disney Company is to pursue an
aggressive, pro-active strategy of risk engineering, safety and loss mitigation. At our
primary business units and throughout subsidiaries, the Company has an extensive team of
professionals and resources dedicated to this mission.

RISK MANAGEMENT VISION
While The Walt Disney Company does transfer risk,

this is primarily used to address catastrophic
To minimize risks and the
exposures; any risk transfer programs include
associated costs within The Walt
significant Disney retentions.
Disney Company by providing
quality and professional
In 2002, The Walt Disney Company formed two
technical services which foster
captive insurance companies, Buena Vista Insurance
the safest environment possible
Company and Alameda Insurance Company, to
for Cast Members, Guests and
support its philosophy of risk retention.
property. We are chartered to

pioneer new and futuristic
Strategic Partnerships
approaches while acting as a
in Loss control
catalyst for change.

The Walt Disney Company believes strongly in longterm strategic business partnerships. This philosophy is evident throughout our risk
management programs, and a key example can be seen in the relationship with FM Global
that spans over six decades. FM Globals engineering and loss control resources, practices
and expertise have been integrated in both design and operations throughout the Company.

The Walt Disney Company: A premier highly-protected risk

All major construction projects completed by The Walt Disney Company are built in
accordance with FM Global Engineering construction and protection specifications.
The close working relationship is clearly evident in the dedication of a full-time FM
engineer at The Walt Disney World property, as well as robust support services at other
locations.

The Walt Disney Company

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LOSS CONTROL PHILOSOPHY IN BUSINESS OPERATIONS

Loss control is integrated throughout the Disney business units. These efforts are focused
on training and developing our staff to meet their loss control responsibilities, as well as
providing processes and facilities that support and encourage their efforts.

This can be illustrated by the model below:

People

Experience
Quality
Education & Certification
Training & Preparation

Processes

Facilities

Effective Organization
Advance Planning
Safety/Loss Prevention
Cost Allocation Systems

Design to FM standards
Integrate Safety Systems
Constant Improvement

http://thewaltdisneycompany.com/citizenship/act-

responsibly
The Walt Disney Company

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