SUMMARY FINANCIAL HIGHLIGHTS ($ in millions, except per share amounts) 2001 2002 2003 2004 2005 Revenues Media Networks $ 9,569 $ 9,733 $10,941 $11,778 $13,207 Parks and Resorts 7,004 6,465 6,412 7,750 9,023 Studio Entertainment 6,009 6,691 7,364 8,713 7,587 Consumer Products 2,590 2,440 2,344 2,511 2,127 $25,172 $25,329 $27,061 $30,752 $31,944 Segment operating income1 Media Networks $ 1,758 $ 986 $ 1,213 $ 2,169 $ 2,749 Parks and Resorts 1,586 1,169 957 1,123 1,178 Studio Entertainment 260 273 620 662 207 Consumer Products 401 394 384 534 520 4,005 2,822 3,174 4,488 4,654 Stock option expense 203 Segment operating income adjusted to exclude the impact of stock option expense1 $ 4,005 $ 2,822 $ 3,174 $ 4,488 $ 4,857 Diluted earnings per share before the cumulative effect of accounting changes $ 0.11 $ 0.60 $ 0.65 $ 1.12 $ 1.24 Stock option expense per share 0.08 Diluted earnings per share before the cumulative effect of accounting changes and adjusted to exclude the impact of stock option expense1 $ 0.11 $ 0.60 $ 0.65 $ 1.12 $ 1.32 Cash provided by operations $ 3,048 $ 2,286 $ 2,901 $ 4,370 $ 4,269 Free cash flow 1 $ 1,253 $ 1,200 $ 1,852 $ 2,943 $ 2,446 Effect of Euro Disney and Hong Kong Disneyland consolidation 202 594 Free cash flow excluding Euro Disney and Hong Kong Disneyland1 $ 1,253 $ 1,200 $ 1,852 $ 3,145 $ 3,040 SEGMENT OPERATING DILUTED EARNINGS PER SHARE INCOME1 BEFORE THE CUMULATIVE EFFECT OF ACCOUNTING CHANGES $5,000 $4,8572 $1.50 $4,488 $1.323 $4,005 $4,000 $1.20 $1.12 $3,174 $3,000 $2,822 $0.90 $0.65 $0.60 $2,000 $0.60 $1,000 $0.30 $0.11 $0 $0 $ In Millions 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005 1 These items are not financial measures defined by Generally Accepted Accounting Principles (GAAP). Reconciliations of (a) total segment operating income to income before income taxes, minority interests and the cumulative effect of accounting changes, (b) free cash flow to cash provided by operations and (c) free cash flow excluding Euro Disney and Hong Kong Disneyland to cash provided by operations are provided at the end of this Financial Review. The reconciliation of the other items to the most comparable financial measures defined by GAAP is set forth in the tables above. 2 Segment operating income for 2005 is adjusted to exclude the impact of stock option expense and is not a financial measure defined by GAAP. The reconciliation to total segment operating income is set forth in the table above. 3 Diluted earnings per share before the cumulative effect of accounting change for 2005 is adjusted to exclude the impact of stock option expense and is not a financial measure defined by GAAP. The reconciliation to diluted earnings per share before the cumulative effect of accounting change is set forth in the table above. 1 o the Shareholders and Cast Members of The Walt Disney Company I’m writing this first letter to you during the holiday season, strength and our success, and the fuel that will power us into a period of reflection, celebration and gratitude, and I cannot the future. Fostering and encouraging that creativity – from help but think how appropriate the timing is. I certainly have movies to television, from animation to live-action, from theme a lot to be thankful for since step- parks to consumer products to our ping into my new role a few online business – is our top priority. months ago. I’m both humbled and As digital technology platforms grateful to be part of a company proliferate, their ability to penetrate that is so meaningful to so many. markets and attract consumers is Above all else, I am thankful for the reliant upon the kind of branded, tremendous creativity, commit- in-demand, high quality, creative ment and hard work of the men content for which Disney has and women who make up The Walt always been known. Disney Company, one of the most loved and respected companies in Since the Disney Brothers Studio the world. In fiscal year 2005, the first opened its doors as an anima- Disney team reinforced its position tion company 82 years ago, we’ve as an industry leader in quality, seen seismic shifts in the technol- creativity and innovation, while ogy of entertainment – and we’ve generating double-digit earnings been at the forefront of a few of growth for our shareholders. these shifts ourselves. From silent movies to talking pictures to televi- This is noteworthy, because it sion to home video, Disney has was also a year of transition. grown as entertainment options After more than two decades have expanded. Now, innovations at the helm of this organization, such as video-on-demand and high Michael Eisner stepped down as definition television – delivered to chief executive officer on October 1. the home through broadcast, Under his leadership, The Walt cable, and satellite – have created Disney Company expanded from a more demand for content. And, a movie studio and a small theme new level of convenience is now park business into a multinational revolutionizing consumer choices – entertainment enterprise, reaching thanks to the next generation of hundreds of millions of people DVD, digital video recorders, online worldwide and providing them purchases on PCs, and iPods – with incredible entertainment that is creating equally revolutionary experiences, wonderful sports opportunities for our Company. television, and high quality news and information. He left us a Robert A. Iger, president and chief executive officer, In order to thrive in this new era strong platform on which to build The Walt Disney Company. and to deliver long-term growth the next generation of Disney and increased shareholder value, success, and I am personally grateful for his wide-ranging we have established three strategic priorities: creative innova- contributions. I, along with the rest of the Company, also tion, global expansion, and application of technology. wish him well on his new adventures, which I am sure will be successful, fulfilling and noteworthy. The Walt Disney Company had a great year creatively in 2005. The ABC television network has raised the bar for quality televi- Creativity continues to be the essence of Disney, even as our sion, delivering five of the Top10 series so far this season businesses expand across borders and media platforms. It is among Adults 18-49 – the age group for which advertisers pay the foundation for almost everything we do, the source of our a premium – including Lost, Grey’s Anatomy and the number one program in this demographic, Desperate Housewives. 2 This April, the fearsome legend of the yeti comes to life when the thrilling new Expedition Everest attraction opens at Disney’s Animal Kingdom at Walt Disney World. Our theme park operations marked Disneyland’s 50th anni- versary by introducing several fantastic new attractions that thrilled our Guests and helped make The Happiest Celebration on Earth truly memorable at our theme parks in the U.S. and around the world. Our launch of Hong Kong Disneyland in September was a triumph of creativity – from the feng shui design of the park to the innovative new attractions unveiled there. Expedition Everest, an entirely new and thrilling enter- tainment experience, will open at Disney’s Animal Kingdom in spring 2006. Disney’s highly acclaimed theatrical production of Mary Poppins has been playing to sell-out crowds in London, and Broadway is eagerly anticipating its arrival in 2006. And a new stage adap- tation of Tarzan®, with new music by Phil Collins, will swing onto the Great White Way this spring. In November, we introduced our first fully computer-animated film, Chicken Little, which was enthusiastically embraced by millions of moviegoers around the world. And our animation team has an exciting slate of films underway that will continue Disney’s great tradition of storytelling in the computer ani- mated film format. 3 In addition, The Walt Disney Studios, along with our partners at Disney’s Chicken Little was a hit in Walden Media, released The Chronicles of Narnia: The Lion, the theaters around the world. Witch and the Wardrobe to an impressive worldwide opening week- end of more than $100 million at the box office. The tremendous results of this dazzling film enhanced Disney’s reputation as a leader in quality creative family entertainment and opened the door for future features based on the magical world created by C.S. Under our second strategic priority of global expansion, we are Lewis. And coming in summer 2006 is the highly anticipated Cars, working to create and expand relationships with millions of new from the creative team at Pixar. consumers around the world. Disney creativity not only delights our audiences, it also allows us to China has the world’s largest population and one of the fastest establish franchises that generate ongoing returns by transcending growing economies, which makes it an extremely attractive any one business, as evidenced by the film pictured on the cover of market for Disney. Disney’s animated characters are popular this report – Pirates of the Caribbean 2: Dead Man’s Chest. Not throughout the country; Mickey Mouse Magazine is the num- only is Pirates expected to be one of this summer’s blockbusters, ber one children’s magazine in China. This past year marked a with a second sequel already in the works, it shows positive signs major milestone in our approach to China, with the successful of being a true franchise property.