Financial Review
RECONCILIATIONS
As noted in the footnotes, certain measures used in this financial review are not financial measures defined by GAAP. The following tables reconcile these measures to the most comparable financial measures defined by GAAP.
SEGMENT OPERATING INCOME
| 2002 | 2003 | 2004 | 2005 | 2006 | |
| Segment operating income | $3,047 | $3,512 | $4,860 | $5,137 | $6,491 |
| Corporate and unallocated shared expenses | (417) | (447) | (428) | (536) | (529) |
| Amortization of intangible assets | (21) | (18) | (12) | (11) | (11) |
| Gains on sale of equity investment and businesses | 34 | 16 | — | 26 | 70 |
| Restructuring and impairment (charges) and other credits, net | — | (16) | (64) | (32) | 18 |
| Net interest expense | (453) | (793) | (617) | (597) | (592) |
| Income before income taxes, minority interests and the cumulative effect of accounting changes | $2,190 | $2,254 | $3,739 | $3,987 | $5,447 |
CAPITAL EXPENDITURES
The consolidation of Euro Disney and Hong Kong Disneyland increased reported capital expenditures because the capital expenditures of those operations are now included in our financial results, so for comparability purposes, we also look at capital expenditures excluding capital expenditures of those operations.
| 2002 | 2003 | 2004 | 2005 | 2006 | |
| Media Networks | $ 151 | $ 203 | $ 221 | $ 228 | $ 227 |
| Parks and Resorts | |||||
| Domestic | 636 | 577 | 719 | 726 | 667 |
| International | — | — | 289 | 711 | 248 |
| Studio Entertainment | 37 | 49 | 39 | 37 | 41 |
| Consumer Products | 58 | 44 | 14 | 10 | 16 |
| Corporate | 204 | 176 | 145 | 111 | 100 |
| 1,086 | 1,049 | 1,427 | 1,823 | 1,299 | |
| Less: Capital expenditures of Euro Disney and Hong Kong Disneyland | — | — | (289) | (711) | (248) |
| $1,086 | $1,049 | $1,138 | $1,112 | $1,051 |
FREE CASH FLOW
The Company defines “Free Cash Flow” as cash provided by operations less investments in parks, resorts and other property. Please see the Company’s Consolidated Statements of Cash Flows on page 75 of this Annual Report.
| 2002 | 2003 | 2004 | 2005 | 2006 | |
| Cash provided by operations | $ 2,286 | $ 2,901 | $ 4,370 | $ 4,269 | $ 6,058 |
| Investments in parks, resorts and other property | (1,086) | (1,049) | (1,427) | (1,823) | (1,299) |
| Free cash flow | $ 1,200 | $ 1,852 | $ 2,943 | $ 2,446 | $ 4,759 |
2004 | Before Euro Disney and Hong Kong Disneyland Consolidation | Euro Disney, Hong Kong Disneyland and Adjustments | Total |
| Cash provided by operations | $ 4,283 | $ 87 | $ 4,370 |
| Investments in parks, resorts and other property | (1,138) | (289) | (1,427) |
| Free cash flow | $ 3,145 | $(202) | $ 2,943 |
2005 | Before Euro Disney and Hong Kong Disneyland Consolidation | Euro Disney, Hong Kong Disneyland and Adjustments | Total |
| Cash provided by operations | $ 4,152 | $ 117 | $ 4,269 |
| Investments in parks, resorts and other property | (1,112) | (711) | (1,823) |
| Free cash flow | $ 3,040 | $(594) | $ 2,446 |
2006 | Before Euro Disney and Hong Kong Disneyland Consolidation | Euro Disney, Hong Kong Disneyland and Adjustments | Total |
| Cash provided by operations | $ 5,960 | $ 98 | $ 6,058 |
| Investments in parks, resorts and other property | (1,051) | (248) | (1,299) |
| Free cash flow | $ 4,909 | $(150) | $ 4,759 |
NET BORROWINGS
The Company defines “net borrowings” as total borrowings less cash and cash equivalents. The consolidation of Euro Disney and Hong Kong Disneyland increases net borrowings because the borrowings of those operations are now included in the consolidated borrowings, so for comparability purposes, we also look at net borrowings excluding net borrowings of those operations.
| 2002 | 2003 | 2004 | 2005 | 2006 | |
| Current portion of borrowings | $ 1,663 | $ 2,457 | $ 4,093 | $ 2,310 | $ 2,682 |
| Long-term portion of borrowings | 12,467 | 10,643 | 9,395 | 10,157 | 10,843 |
| Total borrowings | $14,130 | $13,100 | $13,488 | $12,467 | $13,525 |
| Cash and cash equivalents | (1,239) | (1,583) | (2,042) | (1,723) | (2,411) |
| Net borrowings | $12,891 | $11,517 | $11,446 | $10,744 | $11,114 |
| Less: net borrowings of Euro Disney and Hong Kong Disneyland | — | — | (2,454) | (2,418) | (2,643) |
| Net borrowings excluding Euro Disney and Hong Kong Disneyland | $12,891 | $11,517 | $ 8,992 | $ 8,326 | $ 8,471 |
FORWARD LOOKING STATEMENTS
Management believes certain statements in the Financial Review may constitute “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are made on the basis of management’s views and assumptions regarding future events and business performance as of the time the statements are made and management does not undertake any obligation to update these statements. Actual results may differ materially from those expressed or implied. Such differences may result from actions taken by the Company including restructuring or strategic initiatives (including capital investments or asset acquisitions or dispositions) as well as from developments beyond the Company’s control including: adverse weather conditions or natural disasters; health concerns; international, political, or military developments; technological developments; and changes in domestic and global economic conditions, competitive conditions and consumer preferences. Such developments may affect travel and leisure businesses generally and may, among other things, affect the performance of the Company’s theatrical and home entertainment releases, the advertising market for broadcast and cable television programming, expenses of providing medical and pension benefits, demand for our products and performance of some or all of the Company’s businesses either directly or through their impact on those who distribute our products. Additional factors are set forth in the Company’s Annual Report on Form 10-K for the year ended September 30, 2006 under the heading “Item 1-A, Risk Factors.”
