2007 Annual Report
Total Page:16
File Type:pdf, Size:1020Kb
LETTER TO SHAREHOLDERS 02 FINANCIAL REVIEW 10 STUDIO ENTERTAINMENT 14 PARKS AND RESORTS 20 CONSUMER PRODUCTS 28 MEDIA NETWORKS 34 WALT DISNEY INTERNET GROUP 50 WALT DISNEY INTERNATIONAL 52 CORPORATE RESPONSIBILITY 54 FINANCIAL SECTION 57 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 99 ($ in millions, except per share amounts) 2003 2004 2005 2006 2007 Revenues(1) Media Networks $10,360 $11,202 $12,637 $14,100 $15,046 Parks and Resorts 6,412 7,750 9,023 9,925 10,626 Studio Entertainment 7,364 8,713 7,587 7,529 7,491 Consumer Products 2,344 2,511 2,127 2,193 2,347 $26,480 $30,176 $31,374 $33,747 $35,510 Segment Operating Income(1)(2) Media Networks $ 1,356 $ 2,380 $ 3,040 $ 3,480 $ 4,285 Parks and Resorts 946 1,077 1,178 1,534 1,710 Studio Entertainment 620 662 207 729 1,201 Consumer Products 389 547 543 618 631 $ 3,311 $ 4,666 $ 4,968 $ 6,361 $ 7,827 Diluted earnings per share from continuing operations before the cumulative effect of accounting changes $ 0.59 $ 1.07 $ 1.19 $ 1.60 $ 2.24 Earnings per share, discontinued operations 0.06 0.05 0.05 0.03 0.01 Cumulative effect of accounting changes per share (0.03) — (0.02) — — Diluted earnings per share(3)(4) $ 0.62 $ 1.12 $ 1.22 $ 1.64 $ 2.25 Cash provided by continuing operations $ 2,776 $ 4,232 $ 4,139 $ 5,960 $ 5,398 Free cash flow(2) $ 1,727 $ 2,811 $ 2,326 $ 4,668 $ 3,832 (1) During fiscal 2007, the Company concluded the spin-off of the ABC Radio business and now reports ABC Radio as discontinued operations for all periods presented. Previously, the ABC Radio business was included in the Media Networks segment. Prior period information has been reclassified to conform to the current presentation. (2) Aggregate segment operating income and free cash flow are not financial measures defined by Generally Accepted Accounting Principles (GAAP). Reconciliations of non-GAAP financial measures to equivalent GAAP financial measures are available at the end of the Financial Review. (3) Diluted earnings per share may not equal the sum of the column due to rounding. (4) The fiscal 2007 results include gains from the sales of E! Entertainment and Us Weekly ($0.31 per diluted share), favorable adjustments related to prior-year income tax matters ($0.03 per diluted share), and income from the discontinued operations of the ABC Radio business ($0.01 per diluted share), partially offset by an equity-based compensation plan modification charge ($0.01 per diluted share). Collectively, these items resulted in a net benefit of $0.33 per diluted share. The fiscal 2006 results include income from the discontinued operations of the ABC Radio business ($0.03 per diluted share), gains on sales of a Spanish cable equity investment and Discover Magazine ($0.02 per diluted share), favorable adjustments related to prior-year income tax matters ($0.02 per diluted share) and a net benefit associated with the completion of the Pixar acquisition ($0.01 per diluted share). Collectively, these items resulted in a net benefit of $0.09 per diluted share. Excluding these items, EPS increased 24% to $1.92 in 2007 from $1.55 in 2006. 1 To the Shareholders and Cast Members of The Walt Disney Company: I’m delighted to share with you that fiscal 2007 was another outstanding year for your Company, enlivened by significant creative and financial achievements to make all of us proud. Disney’s strong performance — across business divisions and around the world — is a tribute to the men and women of The Walt Disney Company and the great experiences they deliver to consumers. Their passion to excel is admirable, and their commitment to quality is as consistent as it is remarkable. In 2007, we advanced our strategic priorities, strengthening our finan- cial results, growing the value of our brands, enhancing our ability to meet critical challenges and building a solid foundation for future growth. Creativity and innovation are at the root of everything we do, and in 2007 the creativity on display across the Company was simply amazing. Disney Channel was a big source of that great creative energy. High School Musical 2, which premiered in August, was the highest-rated cable movie of all time and extended what has in two years become a true global franchise. Hannah Montana has emerged as one of cable television’s most successful programs, with its star, Miley Cyrus, break- ing out as a top Disney recording artist and concert performer. At our Studios, Pirates of the Caribbean: At World’s End was the No. 1 movie of 2007 in global box office while Ratatouille was the best reviewed film of the year. Ratatouille earned more than $600 million in worldwide box office, making it the third-highest-grossing Pixar movie of all time. And, as I write this letter, Enchanted is enchanting critics and movie goers alike, and we are delighted with its initial success! Robert A. Iger President and Chief Executive Officer, The Walt Disney Company 2 Clockwise: Dancing with the Stars on ABC, Disney•Pixar’s Ratatouille and Disney Channel’s original series Hannah Montana. 3 There’s nowhere the excitement and magic Pixar’s creative strength at our parks. Our level of creative excellence, bolstering its of Disney comes to life quite like at our next Pixar attraction, Toy Story Mania!, connections with fans, whether they are Parks and Resorts and 2007 was no excep- opens this year in California and Florida. watching television, listening to the radio tion. The Year of a Million Dreams has been or interacting online. resonating strongly with our Cast Members Our Consumer Products division continued and Guests, so much so we are extending to come up with new ways to showcase At ABC, our primetime schedule has a it into this coming year. At Disneyland, our characters and stories through quality host of successful programs, from the Finding Nemo Submarine Voyage has been products that appeal to a wide range of returning series Grey’s Anatomy, Lost, delighting Guests consumers. Last year, licensed merchandise Desperate Housewives, Dancing with the and stands as sales posted solid growth, led by our Cars Stars, Brothers & Sisters and Ugly Betty, to another great and High School Musical franchises. new shows such as Samantha Who? At example of ABC News, we are proud that World News Our non-Disney-branded Tonight is now the nation’s most-watched businesses also displayed evening news program while our local great dynamism. ESPN, the newscasts are leaders in such key markets preeminent brand in sports as Chicago, Los Angeles and New York. media, sustained its high In 2007, we also strengthened our interna- tional operations, forging new bonds with consumers in some of the world’s most promising markets. We released our first original Disney film in China, The Magic Gourd, built up our management teams in Russia and India and continued to grow in other markets, including Europe and Latin America. At Disney, we use technology to enhance our high-quality content and experiences and deliver them to more people, more places, more often. High School Musical is a hit with kids on every platform from televi- sion and DVD to video games and consumer products. 4 Dreams come true every day Disney.com was already the Internet’s most at Disney theme parks around popular entertainment site among kids and the world. families when we re-launched it last year. The addition of a rich array of videos, as well as casual games and easy access to all Disney businesses, has made it even more so. We are hard at work on an even newer version, to be launched in 2008. ABC.com provided viewers with a growing Maintaining a selection of programs and a higher-quality strong balance experience while ESPN.com is a sports sheet will fan’s paradise, with great personalization continue to features and incredible dimensionality, allow us to allowing the viewer to watch games, check take advan- stats, get the latest news and participate tage of oppor- in fantasy leagues all at the same time. tunities, but any acquisi- Our strategic focus on creativity and inno- tions and their vation translates directly into an impressive timing will be financial performance. For the 2007 fiscal based on year, Disney’s revenue hit an all time high sound financial of $35.5 billion, a 5 percent increase over and strategic the previous year. Net income rose 39 per- logic as well as cent to $4.69 billion, driven by growth at the long-term our Media Networks, Studio Entertainment value of the and Parks and Resorts segments. Earnings acquisition to per share, excluding certain items, grew by Disney. 24 percent to $1.92. We also delivered $3.8 billion in free cash flow and repurchased We don’t take our position for granted. over 200 million shares of Disney stock for We live in a challenging and dynamic envi- approximately $6.9 billion. ronment and feel it is imperative to apply operational and financial discipline and While we are extremely gratified by our to manage costs carefully. While we look financial performance this past year, we forward to continued artistic success, we are also focused on delivering long-term also continuously seek ways to manage shareholder value and on making the right our creative processes and our Company investments to sustain growth, as well as more efficiently. superior returns and our competitive advantage. The Little Mermaid stage play debuted on Broadway in January 2008.