Like other fiscal years, 2001 was a year of many high points and many challenges. But all of it pales in significance in light of one date on the calendar - September 11, when those terrifying images of America under attack were seared into our collective consciousness. It was a day of unspeakable horror. It was a day that changed everything and nothing - "everything" the way an earthquake never leaves you as confident about the stability of the earth mass as before and "nothing" because this is our terra firma, our nation, and it will endure. Just as America will overcome, so too will American business, driven by our ingenuity and creative know-how. The challenges may be great. But so are the opportunities ... opportunities that abound across this nation and, more and more so, around the world.

In the days and weeks following September 11, your company and its cast members responded in a wide range of ways. The Walt Disney Company Foundation/DisneyHand: Survivor Relief Fund was established, and collected more than $700,000 from cast members in addition to a corporate gift of $5 million. ABC News did an extraordinary job covering the crisis non-stop and commercial-free. New York's ESPN Zone handed out meals, bottled water and boxes of clothing to relief workers. Our Miramax film group organized and co-sponsored the Concert for New York, which raised more than $25 million for the Robin Hood Relief Fund. During the telethon, America: A Tribute to Heroes, which aired on all the networks including ABC, 650 reservationists at Walt Disney World took more than 40,000 calls offering donations. The manager of the Jersey City Disney Store, along with his family, spent the entire night of September 11 feeding emergency workers, while the Pentagon Disney Store cast members comforted and entertained anxious guests and their children with spontaneous storybook readings and play groups with Disney toys. The list goes on and on. You should simply know that, along with so many other Americans, the cast members of The Walt Disney Company made a difference.

Looking forward, I would like to discuss the challenges that Disney currently faces, and then outline what I see as the many opportunities that will return us to solid and dependable growth.

The first area of challenge is at our parks. Disney theme parks are among the most distinctive and valuable venues in the travel and entertainment industries. This was certainly evident this past weekend when I spent the day at the Disneyland Resort in California to view the Christmas decorations at Disney's Grand Californian Hotel, to ride the "new" Haunted Mansion with its holiday Nightmare Before Christmas theming, and to shop at Downtown Disney. For good reason, most families share the vacation priorities of Barry Bonds, who, after setting the new major league homerun record, proclaimed, "I'm going to Disney World!"

But it's one thing to want to go to Walt Disney World or Disneyland and another thing to get there. We are now officially in a recession and people have less disposable income for travel. However, when the economy does come back, and as confidence in America's safety continues to grow, there is every reason to believe that the performance at our parks will be stronger than ever. This has been the pattern of every recession in the past. America and Americans always bounce back. And when they do, demand for Disney theme parks only increases. Time and again, we have found that people hardly ever actually cancel their Disney vacations ... they only defer them until the time is right.

For prudent managers, it is not enough simply to wait for an economic and emotional recovery. So, we have been actively adjusting the operations of our parks to optimize bottom-line performance. We have also taken advantage of our broadcast holdings to promote the parks on the ABC network and our local television stations, and we have marketed price promotions, especially for local guests. Most important, we continue to offer an extraordinary entertainment experience. At Walt Disney World, in the fall, we began the 100 Years of Magic celebration, which honors the 100th anniversary of the birth of Walt Disney. As I write this, I am at Disney World, and we are showing the press and the travel industry the new parades in each of the four theme parks and the new attractions. 100 Years of Magic is an exciting entertainment event, and it reminds all of us inside and outside Disney of the company's roots and the decades-long appeal of what we do.

Our Broadcasting business also faces challenges that were partly caused by the overall economic environment. Because of the softness in the economy, advertising rates were down for all of the broadcast networks. ABC was the number-one rated network in primetime during a very healthy overall ad market in 2000. But, this year, it has suffered the one-two punch of a down economy and a drop in ratings. This is why we are heavily focused on developing shows that will help propel ABC back to the top. Of course, there is no formula for creating great content. But, it is what we must do to reap the considerable rewards of owning a broadcast network. Both Bob Iger and I grew up professionally at ABC. This is a business we understand, and one of our top priorities is to develop the kinds of programming that will underpin resurgent long-range success. It is important to keep in mind that ABC remains number one during daytime and is building on that lead, while our news division is building as well, and is getting closer to being able to claim number-one bragging rights.

But primetime does present a problem, and we are determined to solve it. So here's a little primer on the network television business. It takes decades to build a daytime schedule. Daytime is about loyalty and familiarity and quality. Consequently, we are in a rather secure and enviable position as ABC continues to lead solidly when the sun is up. Similarly, in news, it takes years and years to establish the kind of loyalty and trust among the viewing audience that ABC News enjoys. And then there is primetime. You can move from the number-three or number-four network to the number-one network in two years by having one new hit, say, every six months. When I was at ABC in the '70s, we went from last to first. NBC in the '80s had the same kind of success and pushed ABC out of the leadership role. Under Bob Iger in the '90s, ABC recaptured the lead. Now we have to do it again.

The rules for network TV success have remained largely the same as long as there have been networks. But there is no question that the broader TV landscape has changed dramatically in the past two decades because of the advent of cable. In this regard, our company has a major advantage, since our broad range of cable programming services, including the recently added ABC Family, provide outlets both for original programs and for the multi-purposing of programs from our other networks. With ever-increasing consolidation among cable and satellite distributors in the U.S., the addition of ABC Family will further enhance our portfolio of programming services and allow us to reach all demographic groups with both broad-based and narrowly focused channels. Our last major acquisition, of course, was Cap Cities/ABC, which involved a remarkably seamless integration with Disney. Our acquisition of Fox Family in the U.S. and Fox Kids in Europe and Latin America will be even easier. These assets are completely complementary to our existing holdings, and they all go to Disney's "sweet spot" of entertainment for children and families. For this reason, I anticipate a remarkably swift integration into the company, followed by rapid growth and increases in profitability.

Looking at the rest of our company, a great number of steps have been taken to safeguard Disney during these anomalous days. During the year, we trimmed our workforce by approximately 4,000 positions, primarily through voluntary separations. Our Strategic Sourcing (i.e., buying stuff) initiative will save the company at least $200 million annually beginning this year through the implementation of more sensible purchasing policies. The Walt Disney Studios has cut its annual investment in live-action films by $600 million, in part by eliminating unproductive talent deals and streamlining the script development process.

It's not just in the Studios where we're attacking costs. We have scaled back our Internet operations to core initiatives that we expect to achieve profitability by the end of this fiscal year. We have completed the several-year process of closing 51 Disney Stores that were achieving sub-par performance, with current plans to close about 50 more. We are continuing to review individual store performance and expect the number of North America stores to stabilize at a level of between 300 and 400.

None of these cost-cutting efforts represents a one-time approach. Rather, they are part of what has become an ingrained culture of ever-increasing efficiency. It's kind of like going on the treadmill and eating non-fat food. You never seem to get anywhere, but you stay healthier and more alive - and that is getting somewhere very important!

In addition to being lean and disciplined, we are mobilized on a number of fronts to seize and create a range of opportunities that we see across the country and around the world. Indeed, it is outside of the U.S. that some of the greatest growth opportunities can be found. For this reason, I thought it would be useful to survey our company's various strategic efforts under the headings of International and Domestic.