The Walt Disney Company 2008 Annual Report |
| January 26 2009 | |||
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With consumers spending more carefully and spending less, and advertisers doing the same, our media, consumer products and theme park businesses all face significant business challenges. I am confident our brands, products and people will pass the test that lies before them, but our businesses are all affected by an economic downdraft whose duration remains uncertain. We will continue to focus on what creates the most value for our shareholders: delivering high-quality creative content and experiences; balancing respect for our legacy with the demand to be innovative; and maintaining the integrity of our people and products. As stewards of our great Company, we have reason to be optimistic. But we must also be realistic, and it is this blend of realism and optimism that is guiding us during this tumultuous time. When signs of a weakening economy began to surface, our senior management team put in place measures to operate more efficiently and to invest even more prudently. We adopted marketing and pric ing strategies designed to keep our products as attractive as possible, while at the same time underlining our commitment to quality. In this tough climate, even the most forceful measures are unlikely to compensate for the loss of business. In fiscal 2008, despite an economy that weakened as the year progressed, we delivered strong creative and financial results, posting record revenue and earnings per share. Highlighting our financial achievements, revenue hit an all-time high of $37.8 billion, a 7 percent increase over the previous year. Earnings per share, excluding certain items detailed in the footnote on page one, were $2.27, up 18 percent from the previous year. As has been the case for many years, our financial success has been largely due to our creative achievements and in 2008, those achievements were numerous. I could mention many, but instead I’d like to highlight just three. This past summer, Disney•Pixar once again enthralled audiences around the world with an original, unique and memorable film. Wall•E was a commercial, creative and technological success. Director and writer Andrew Stanton and his team created a film for the ages and for all ages, and we are extremely proud of their work. As Americans turned out in record numbers to elect the 44th president of the United States, ABC News, led by anchors Charlie Gibson, Diane Sawyer and George Stephanopoulos, brought the right mixture of excellent reporting and thoughtful analysis to this memorable and historic election, capping months of insightful, interesting and energetic coverage of the American political process. Thanks to our Imagineers, at our parks in California and Florida we opened Toy Story Mania!, an engaging attraction that combines the wonder and lovability of the Toy Story characters with breakthrough technology. The result is yet another theme park experience that distinguishes our Company and causes people to say: “What will they think of next?” or, “Only Disney can do that.” Beyond these individual achievements, we continued to create and support several key franchises. These are stories and characters that can be leveraged across many of our businesses, on many technological platforms, in many territories, and over long periods of time. While we continue to break new creative ground, our substantial investment in such great Disney franchises as Cars, Toy Story, Princesses, Pirates, Mickey Mouse, Winnie the Pooh, High School Musical and Fairies continues to drive strong returns, differentiates us from our competitors and builds long-term shareholder value. Not only do we possess a significant number of such franchises, but our ability to make the most of their success is unrivalled. This comes from a collection of great assets and a commitment to manage them as a whole that is worth far more than the sum of its parts. This defines Disney and, as we have been saying, creates the Disney Difference. We are proud of our businesses, but we balance that pride with keen awareness of the challenges they face, whether secular or cyclical. While we realize perfection is not something that can be delivered all of the time, we at least embrace the value of striving for perfection all of the time. This is true of all of our businesses, whether it be ESPN, ABC, ABC Family, Disney Channel, our Disney Parks and Resorts, Consumer Products, Studio Entertainment or Interactive Media Group. Strategically, we continue to adhere to priorities established a few years ago. A commitment to high-quality creative work, a persistent focus on mastering new technology and selective investment in promising international markets are strategies that have worked for us, and we believe they will continue to position us well for the long term. Moving forward, we will be taking a very pragmatic approach to new investments across the Company, pressing ahead only in those areas we believe offer the greatest opportunity for longterm growth and returns. We will continue to invest in our creative franchises and in developing our highly promising and fast growing video game business. We are also going ahead with the improvement and expansion of Disney's California Adventure at Disneyland Resort, new Disney Vacation Club properties including the Ko Olina project in Hawaii, and two new cruise ships that will be setting sail in 2011 and 2012. Given the environment, we will likely see some interesting acquisition opportunities, and given the strength of our balance sheet, many could be enticing. Rest assured, though, no matter how inexpensive these opportunities may look, we will not relax our standards in terms of the quality of the assets we seek to purchase, their fit within our Company's businesses and core strategies, or their prospects for delivering strong returns. We are committed to upholding the excel lent reputation of the Disney name through continuous refinement and expansion of our social responsibility efforts. Last year, we took several steps in this area that we believe will benefit our employees and Cast Members, our Guests and consumers, our shareholders, our business partners and the communities in which we live and work. We expanded globally our initiative to associate our brands and characters with healthier foods, bringing fresh Disneybranded fruits, vegetables and dairy products to families in dozens of countries. We’ve completed our first Companywide greenhouse gas inventory and set reduction targets for emissions in order to minimize the Company’s impact on the planet. And we celebrated the 25th anniversary of our Disney VoluntEARS program with employees contributing a record 495,000 hours on a wide range of projects benefiting children and caregivers around the world. We will also soon be publishing our first comprehensive corporate responsibility report, which will provide greater detail and greater insight into how we approach crucial issues related to the environment, community, workplace, products and our responsibility to kids and families. We are fortunate at Disney to have a very diverse board of directors, whose broad interests and experiences are helping to guide the Company in this complex environment. I’m especially grateful to John E. Pepper, Jr., our non-executive Chairman of the Board, and the wisdom, integrity and generosity of spirit that he brings to our Company. We are also fortunate to have a truly outstanding and committed group of people working for this Company. I’m impressed and amazed on a daily basis by the passion they put into making sure our Guests and consumers not only have a special experience, but are transported from their everyday lives to worlds that could only be created by Disney. So, on behalf of our employees and Cast Members, I’d like to thank you personally for your continued support. It’s a real honor to uphold the Disney legacy and to continue to create memorable and magical experiences for kids of all ages. Together, we look forward to doing our very best for you every day, everywhere and in every way. Read The Walt Disney Company 2008 Annual Report Online LETTER TO SHAREHOLDERS Download The Walt Disney Company 2008 Annual Report PDF format, 14.8MB, 104Pages. FINANCIAL REVIEW We believe the integrated manner in which we manage our brands and franchises gives us the opportunity to generate exceptional returns on our creative content. Our results over the past several years refl ect the power of our brands and franchises and our ability to develop and leverage high-quality content across multiple creative platforms and global markets. This franchise development process has enabled us to build an extensive portfolio of brands, led by Disney and ESPN, and properties that include enduring characters like Mickey Mouse and Winnie the Pooh, as well as thriving new ones like Disney Fairies, Cars, Toy Story, High School Musical and Hannah Montana. Our brands and integrated set of creative assets and businesses provide us with competitive advantages that we feel can deliver long-term value to our shareholders. Disney’s overall business strategy is focused on leveraging and extending these advantages and consists of three major components: investing in the strength of our brands and the quality of our products; leveraging technology to provide consumers with entertainment when and where they want it; and expanding globally to better reach consumers around the world. Although the U.S. and global economies have clearly deteriorated, we believe we are well positioned to weather the challenges presented by the current economic slowdown. In this challenging environment, we are maintaining financial discipline. At the same time, we remain focused on our core strategies and long-term growth priorities. Our strong balance sheet continues to provide us with the fi nancial strength and flexibility to seize opportunities that can enhance our competitiveness and create superior returns. We use three primary financial metrics to measure how well we are delivering value for our shareholders: earnings per share, return on invested capital (ROIC) and free cash flow. We’re pleased with our fiscal 2008 results, a year in which we increased each of these key measures. Excluding certain items detailed below, we once again achieved double-digit growth in earnings per share. Since strategic investment and economic cycles can sometimes influence nearterm returns, we assess trends in financial metrics over time rather than looking only at short-term results. We are happy to note that an investment in Disney over the past five-year period has yielded a compound annual return of approximately 12%, almost twice the return of the S&P 500. We recognize that allocating capital profi tably and managing our business to drive creative and financial success are the most important ways that we serve the owners of our Company. Our first priority in allocating capital is to fund strategically attractive investments that can drive future growth and provide strong returns over time. These opportunities can include internal investment in existing and new businesses or acquisitions. We plan to continue expanding our creative pipeline of high-quality content and to strengthen our brands and reach on a global basis. These internal growth initiatives include investment in television, films, digital media and video game development. We will also continue to invest in developing local, Disney-branded content and expanding the reach of our Disney and ESPN-branded channels around the world. We recently released fi lms made for China and India and currently have fi lms in production for China, India and Russia. In addition to internal reinvestments, we look for attractive external investment opportunities that meet our financial and strategic objectives. During the year, we made investments in content companies in India and China. We also made acquisitions to enhance our position in youth-oriented sports and the online sports community. In addition, we acquired three promising start-up companies which help position us to participate in growth opportunities on digital platforms. BUSINESS SEGMENT PERFORMANCE As consumer choice in entertainment expands, quality content and strong brands like Disney and ESPN become increasingly valuable as a means of differentiating our products. For some time now, ESPN has focused on building its competitive advantage by capitalizing on its broad collection of sports rights across multiple platforms. ESPN continues to expand its scope and depth with recent agreements for college sports rights with the Southeastern Conference and the Bowl Championship Series, and for golf with the British Open Championship. Disney Channel continued to build on its creative momentum, with successful series like Hannah Montana, Mickey Mouse Clubhouse and Handy Manny and original movies like Camp Rock. These properties not only raise brand awareness for Disney around the globe, but also enable other businesses to generate revenue through music, concerts, theatrical film releases, video games and merchandise derived from them. At Broadcasting, results at the ABC Television Network were comparable to the prior year. However, Broadcasting operating income was down due to lower advertising revenue at our owned TV stations. In the face of a difficult market, our TV stations continue to outperform the competition in ratings, with eight of our 10 stations ranking No.1 in their respective markets. The continued demand for ABC Studios' shows, such as Desperate Housewives, Lost and Grey's Anatomy, in syndication and in international markets, demonstrates that in a highly competitive environment, quality matters. STUDIO ENTERTAINMENT Our commitment to creativity and innovation is best illustrated by Disney.Pixar Animation, which has a proven ability to deliver consistently high-quality animation, as demonstrated by this year's highly successful film, Wall.E. We also continue to capitalize on and extend the life of enduring properties like Cars and Toy Story through themed attractions at Parks and Resorts, Consumer Products merchandise and movie sequels. PARKS AND RESORTS Over the past years, we have successfully developed a flexible pricing strategy, innovative marketing initiatives and increased accessibility to our resorts at different price points. In addition, we have diversified through expansion in Disney Vacation Club. We believe the unique relationship consumers have with Disney's brands and characters is a powerful differentiator for our Parks and Resorts. In the next few years, we plan to invest further in our parks business to create new immersive experiences, particularly at Disney's California Adventure at Disneyland Resort. We are also expanding our successful Disney Vacation Club and Disney Cruise Line, both of which generate robust double-digit margins. In so doing, the segment can continue to help us increase our free cash flow potential, while generating attractive capital returns. CONSUMER PRODUCTS The increase in earned royalties contributed to double-digit growth in both revenue and operating income for the segment. We acquired over 200 Disney Stores in North America in the third quarter of 2008, which increased revenue and modestly reduced profits at Consumer Products for the fiscal year. The stores provide us with an important direct touch-point with some of Disney's best customers, giving us the ability to reinforce our brand, support our many franchises and help us deepen our consumer relationships. For the past few years, we have steadily increased our investment in video game publishing. We believe video gaming presents a key growth opportunity, especially as it enables us to create incremental returns from Disney's characters, fi lms and brands. Our continued investment also refl ects our confi dence in our pipeline of outstanding creative content in the years to come. FREE CASH FLOW Our solid balance sheet has afforded us access to capital in markets around the world, even in the face of a deteriorating global credit environment. We enjoy an attractive average effective interest rate on our debt portfolio of 3.6% with a weighted average maturity of approximately 6 years. SHAREHOLDER RETURNS Disney also has a consistent track record of returning value to shareholders through annual dividends. In December 2008, Disney’s Board of Directors declared a cash dividend of $0.35 per share or approximately $650 million in total. This marks the 53rd consecutive year that Disney has paid a dividend. OUTLOOK At the same time, we are not immune to the difficult U.S. and global economic environment. We are committed to managing through this period with fi nancial discipline. We are also committed to building upon the strength of our asset base and competitive positioning. We continue to believe that the power of our brands, our diversified franchise portfolio, our creative strength and the integrated approach we take to managing our businesses position us well to grow our earnings over the long term and deliver substantial shareholder value for years to come. Thomas O. Staggs Bookmark
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Comments (1)
peter kellermann
said:
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To the Shareholders and Cast Members of The Walt Disney Company: It has been a very long time since our country has faced the kind of economic turmoil we are currently experiencing, and The Walt Disney Company, while strong, is certainly not immune to the difficult market conditions that exist today. 
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12-29-09 to the walt disney company, i am hoping you could help with the following. i'm interested in visiting new york city and am trying to find out the history/information of the following below. i am writing concerning about the new amsterdam theatre at 214 west 42nd street in new york, ny. if the following is still in existance at the new amsterdam, would it be possible to get a tour and/or view this section of the theatre along with the rest of the theatre's interior/facade when i come to new york with prior special arrangement/specail permission please? i read that at the new amsterdam theatre at 214 west 42nd street that there are or were murals in the smoking rooms. are the murals still in existance at the new amsterdam (and if not there, are they in exis- tance elsewhere)? Is there any possiblility of a tour of this location please? any help is appreciated. thank you. peter kellermann |
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