Management continues to instill a fundamental attitude about efficiency and cost containment throughout the company’s businesses and to weave this attitude into the fabric of day-to-day operations. Despite continued upward pressure on costs, over the past several years the company has undertaken initiatives that account for more than $1 billion in annualized cost cuts.

One of the largest-single contributors to this effort was Disney’s Strategic Sourcing and Procurement group, established in 1999 to leverage Disney’s buying power and increase the sophistication of its supply chain and procurement practices. Strategic Sourcing passed the target of $300 million in annualized savings in 2002, more than a year ahead of schedule. The company expects the impact of Strategic Sourcing and Procurement on Disney’s cost structure to continue to grow as this discipline becomes increasingly pervasive across a larger percentage of company spending with suppliers. As a result, cost savings will continue to increase over the next several years.

A largely voluntary reduction of roughly 4,000 employees in 2001 also helped Disney’s cost containment into 2002. The company currently benefits from approximately $350 million in annual savings as a result of this reduction in workforce.

Similarly, other business-by-business cost-containment efforts have yielded more than $400 million in additional annual savings over the last three years.

In addition to the more than $1 billion of permanent reductions cited above, in 2002 business units also worked to reduce variable operating expenses to mitigate the effects of a slower U.S. economy and disruptions in travel and tourism.

At Parks and Resorts, several hundred cost-containment programs were put into place at Walt Disney World and at Disneyland, yielding a reduction in operating expenses of almost a quarter of a billion dollars in 2002. These programs included freezing hiring and salary increases, voluntarily reducing hours worked and closing selected entertainment and food and beverage offerings in response to lower demand.

Although the majority of these savings were volume-related and therefore temporary, the success of these programs reflects both the flexibility of Disney’s theme park operations and the company’s commitment to making effective cost control a fundamental part of its business culture. Disney will manage its cost base aggressively and anticipates that these efforts will continue to be an essential element in improving the company’s profitability.