Disney Investor Relations - Annual Report 2008

At Disney, we strive to create exceptional entertainment content, experiences and products that are embraced by consumers around the world and to do so in a manner that delivers long-term shareholder value.

We believe the integrated manner in which we manage our brands and franchises gives us the opportunity to generate exceptional returns on our creative content. Our results over the past several years reflect the power of our brands and franchises and our ability to develop and leverage high-quality content across multiple creative platforms and global markets. This franchise development process has enabled us to build an extensive portfolio of brands, led by Disney and ESPN, and properties that include enduring characters like Mickey Mouse and Winnie the Pooh, as well as thriving new ones like Disney Fairies, Cars, Toy Story, High School Musical and Hannah Montana.

Our brands and integrated set of creative assets and businesses provide us with competitive advantages that we feel can deliver long-term value to our shareholders. Disney’s overall business strategy is focused on leveraging and extending these advantages and consists of three major components: investing in the strength of our brands and the quality of our products; leveraging technology to provide consumers with entertainment when and where they want it; and expanding globally to better reach consumers around the world.

Although the U.S. and global economies have clearly deteriorated, we believe we are well positioned to weather the challenges presented by the current economic slowdown. In this challenging environment, we are maintaining financial discipline. At the same time, we remain focused on our core strategies and long-term growth priorities. Our strong balance sheet continues to provide us with the financial strength and flexibility to seize opportunities that can enhance our competitiveness and create superior returns.

We use three primary financial metrics to measure how well we are delivering value for our shareholders: earnings per share, return on invested capital (ROIC) and free cash flow. We’re pleased with our fiscal 2008 results, a year in which we increased each of these key measures. Excluding certain items detailed below, we once again achieved double-digit growth in earnings per share.¹ Since strategic investment and economic cycles can sometimes influence near-term returns, we assess trends in financial metrics over time rather than looking only at short-term results. We are happy to note that an investment in Disney over the past five-year period has yielded a compound annual return of approximately 12%, almost twice the return of the S&P 500.

We recognize that allocating capital profitably and managing our business to drive creative and financial success are the most important ways that we serve the owners of our Company. Our first priority in allocating capital is to fund strategically attractive investments that can drive future growth and provide strong returns over time. These opportunities can include internal investment in existing and new businesses or acquisitions. We plan to continue expanding our creative pipeline of high-quality content and to strengthen our brands and reach on a global basis. These internal growth initiatives include investment in television, films, digital media and video game development. We will also continue to invest in developing local, Disney-branded content and expanding the reach of our Disney and ESPN-branded channels around the world. We recently released films made for China and India and currently have films in production for China, India and Russia.

In addition to internal reinvestments, we look for attractive external investment opportunities that meet our financial and strategic objectives. During the year, we made investments in content companies in India and China. We also made acquisitions to enhance our position in youth-oriented sports and the online sports community. In addition, we acquired three promising start-up companies which help position us to participate in growth opportunities on digital platforms.

1 The fiscal 2008 results include an accounting gain related to the acquisition of the Disney Stores North America and a gain on the sale of movies.com (together $0.01 per diluted share), the favorable resolution of certain prior-year income tax matters ($0.03 per diluted share), and a bad debt charge for a receivable from Lehman Brothers ($0.03 per diluted share). These items collectively resulted in a net benefit of $0.01 per diluted share. The fiscal 2007 results include gains from the sales of E! Entertainment and Us Weekly ($0.31 per diluted share), the favorable resolution of certain prior-year income tax matters ($0.03 per diluted share), income from the discontinued operations of the ABC Radio business ($0.01 per diluted share), and an equity-based compensation plan modification charge ($0.01 per diluted share). Collectively, including the impact of rounding, these items resulted in a net benefit of $0.33 per diluted share. Excluding these items, EPS in 2008 increased 18% to $2.27 from $1.92 in 2007.


	Overview Business Segment Performance Free Cash Flow Shareholder Returns and Outlook Reconciliations At Disney, we strive to create exceptional entertainment content, experiences and products that are embraced by consumers around the world and to do so in a manner that delivers long-term shareholder value. We believe the integrated manner in which we manage our brands and franchises gives us the opportunity to generate exceptional returns on our creative content. Our results over the past several years reflect the power of our brands and franchises and our ability to develop and leverage high-quality content across multiple creative platforms and global markets. This franchise development process has enabled us to build an extensive portfolio of brands, led by Disney and ESPN, and properties that include enduring characters like Mickey Mouse and Winnie the Pooh, as well as thriving new ones like Disney Fairies, Cars, Toy Story, High School Musical and Hannah Montana. Our brands and integrated set of creative assets and businesses provide us with competitive advantages that we feel can deliver long-term value to our shareholders. Disney’s overall business strategy is focused on leveraging and extending these advantages and consists of three major components: investing in the strength of our brands and the quality of our products; leveraging technology to provide consumers with entertainment when and where they want it; and expanding globally to better reach consumers around the world. Although the U.S. and global economies have clearly deteriorated, we believe we are well positioned to weather the challenges presented by the current economic slowdown. In this challenging environment, we are maintaining financial discipline. At the same time, we remain focused on our core strategies and long-term growth priorities. Our strong balance sheet continues to provide us with the financial strength and flexibility to seize opportunities that can enhance our competitiveness and create superior returns. We use three primary financial metrics to measure how well we are delivering value for our shareholders: earnings per share, return on invested capital (ROIC) and free cash flow. We’re pleased with our fiscal 2008 results, a year in which we increased each of these key measures. Excluding certain items detailed below, we once again achieved double-digit growth in earnings per share.¹ Since strategic investment and economic cycles can sometimes influence near-term returns, we assess trends in financial metrics over time rather than looking only at short-term results. We are happy to note that an investment in Disney over the past five-year period has yielded a compound annual return of approximately 12%, almost twice the return of the S&P 500. We recognize that allocating capital profitably and managing our business to drive creative and financial success are the most important ways that we serve the owners of our Company. Our first priority in allocating capital is to fund strategically attractive investments that can drive future growth and provide strong returns over time. These opportunities can include internal investment in existing and new businesses or acquisitions. We plan to continue expanding our creative pipeline of high-quality content and to strengthen our brands and reach on a global basis. These internal growth initiatives include investment in television, films, digital media and video game development. We will also continue to invest in developing local, Disney-branded content and expanding the reach of our Disney and ESPN-branded channels around the world. We recently released films made for China and India and currently have films in production for China, India and Russia. In addition to internal reinvestments, we look for attractive external investment opportunities that meet our financial and strategic objectives. During the year, we made investments in content companies in India and China. We also made acquisitions to enhance our position in youth-oriented sports and the online sports community. In addition, we acquired three promising start-up companies which help position us to participate in growth opportunities on digital platforms. 1 The fiscal 2008 results include an accounting gain related to the acquisition of the Disney Stores North America and a gain on the sale of movies.com (together $0.01 per diluted share), the favorable resolution of certain prior-year income tax matters ($0.03 per diluted share), and a bad debt charge for a receivable from Lehman Brothers ($0.03 per diluted share). These items collectively resulted in a net benefit of $0.01 per diluted share. The fiscal 2007 results include gains from the sales of E! Entertainment and Us Weekly ($0.31 per diluted share), the favorable resolution of certain prior-year income tax matters ($0.03 per diluted share), income from the discontinued operations of the ABC Radio business ($0.01 per diluted share), and an equity-based compensation plan modification charge ($0.01 per diluted share). Collectively, including the impact of rounding, these items resulted in a net benefit of $0.33 per diluted share. Excluding these items, EPS in 2008 increased 18% to $2.27 from $1.92 in 2007.