Over the past three years, the company has systematically increased its emphasis on cash flow and capital returns for each of its major business units. These metrics, along with a continued focus on ongoing earnings growth, are the primary financial measures used to track and evaluate segment performance and are incorporated in the annual budgeting process, monthly reports, strategic plans and, ultimately, are factored into executive compensation.
The company believes that this focus on the fundamental drivers of shareholder value will have a positive impact on its ongoing operations and financial results. For example, Disney Parks and Resorts have been and will continue to be among the most important symbols of Disney magic, product quality, and guest experience. They are also an important source of future earnings and cash flow growth and are being managed to maximize both of these important aspects of value.
In Studio Entertainment, a successful creative effort coupled with decreased film spending resulted in a 2001 live-action film slate that earned a return on investment above the company's cost of capital. At the same time, Disney continued to deliver pictures that audiences loved, as evidenced by the company's consistent position as number one or number two in annual market share since 1990.
The successful reinvestment of earnings into new and existing businesses is an important source of ongoing shareholder value. However, as Disney has just completed a period of sizable investment in domestic parks and resorts expansion and, given the company's strengthened focus on increasing returns on invested capital, the annual level of capital spending has contracted. For fiscal 2002, capital expenditures are expected to decline by more than $500 million from 2001 levels.
The shareholder value program has already shown signs of success. Over the past years, after-tax cash flow from operations has increased from approximately $1.8 billion in 1998 to just over $3 billion in 2001, an annual growth rate of nearly 20 percent.
Deducting capital expenditures from these figures shows that over the same period, after-tax free cash flow has grown by almost $1.8 billion.
Beyond investing its cash flow in new and existing businesses, the company looks for acquisitions that can create additional value for shareholders. In October 2001, Disney acquired Fox Family Worldwide for $5.2 billion. This acquisition includes the Fox Family Channel, a programming service now known as ABC Family that currently reaches 81 million cable and satellite television subscribers throughout the U.S.; a 76 percent interest in Fox Kids Europe, which reaches more than 24 million subscribers across Europe; Fox Kids channels in Latin America; and the Saban Library and Entertainment Production businesses. These businesses represent an important strategic extension of the company's programming assets and reach.
Disney also seeks to increase returns through the repurchase of its own stock. In 2001, the company invested a total of $1.1 billion to purchase 63.9 million shares of Disney common stock at an average price of $16.62 per share. Since 1983, the company has repurchased nearly 549 million shares at a total cost of just under $4.4 billion. At the November 30 stock price, these shares represent a market value of more than $11 billion.
