Since 1996, the company has invested significant capital to either buy or build assets to fortify the leading market position of its key Disney and ESPN businesses, and to effectively safeguard both the uniqueness and the relevance of these key branded products.

This capital investment has created a large-scale infrastructure to support both Disney and ESPN operations. Going forward, the company expects that the competitive advantage these investments yield – and the associated extension of the company’s branded operations such as new theme parks, hotels, cable networks, radio networks and a cruise line – will enhance Disney’s ability to deliver greater investment returns in the future.

Having largely completed its cycle of capital investment in theme parks, the company’s overall capital spending for 2002 declined to approximately $1.1 billion from $1.8 billion in 2001. In theme parks alone, capital spending decreased by more than $600 million.

Additionally, the company’s successful efforts to maintain reduced film investment levels continued into 2002. The total of Disney’s direct production costs, overhead and promotion and advertising spending for its 2002 live-action slate across all of its film labels, including Miramax, was roughly $300 million below the company’s peak levels in 1998.

The adoption of new digital techniques that greatly streamline the production process has also resulted in reduced costs in Disney’s animation division. Given the long production lead time on these films, management expects to see the full impact of these cuts over the next several years. While total film development expenditures for the Studios segment will vary year to year depending upon the mix of films released, the company is targeting an ongoing investment level for Studio Entertainment that is roughly in line with 2002 figures.

With the completion of most large-scale discretionary capital spending at theme parks and ongoing control of investment spending at the Studios and in other operations, management anticipates improved asset utilization and strong free cash flow in the years to come.