SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported):
October 1, 2002
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THE WALT DISNEY COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OF JURISDICTION OF INCORPORATION)
1-11605 95-4545390
(COMMISSION FILE NUMBER) (IRS EMPLOYER IDENTIFICATION NO.)
500 South Buena Vista Street, Burbank, California 91521
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(818) 560-1000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Not applicable
(FORMER NAME OR ADDRESS, IF CHANGED SINCE LAST REPORT)
Item 9. Regulation FD Disclosure.
On October 1, 2002, the Registrant's Chairman and Chief Executive Officer
made a presentation concerning the Registrant's operations and plans to the
Goldman Sachs "Communacopia" conference in New York City. A copy of the text of
the presentation is furnished herewith as Exhibit 99.
The Registrant believes that certain statements in the presentation 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. Actual results may differ
materially from those expressed or implied. Information concerning factors that
could cause actual results to differ materially from those in forward-looking
statements is contained from time to time in the Registrant's filings with the
United States Securities and Exchange Commission, including the Registrant's
annual report on Form 10-K for the year ended September 30, 2001. Copies of
these filings may be obtained by contacting the Registrant or the SEC.
Item 7. Financial Statements and Exhibits.
(c) Exhibit
99 Presentation by Michael D. Eisner, Chairman and Chief Executive Officer
of the Registrant.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE WALT DISNEY COMPANY
By: /s/ David K. Thompson
David K. Thompson
Senior Vice President,
Assistant General Counsel
and Corporate Secretary
Dated: October 1, 2002
EXHIBIT 99
GOLDMAN SACHS COMMUNACOPIA CONFERENCE
NEW YORK CITY, NEW YORK
OCTOBER 1, 2002
Presentation by Michael D. Eisner,
Chairman and Chief Executive Officer,
The Walt Disney Company
Good morning. Today I stand before you in my veteran phase, thoroughly
invigorated and energized about the future of our company.
I would like to discuss with you how we are approaching that future through
the management of Disney's resources and capital. I'm not here to discuss
projections about the next quarter or two. However, since this is the first day
of our new fiscal year, let me say that our expectations are for strong
double-digit EPS growth in 2003.
I came to Disney at a time when the market did not fully appreciate the
potential of this company. I believe that we are once again at a point where
there is a disconnect between Disney's underlying strength and potential and the
market's perception of its strength and potential. Indeed, today Disney has far
greater reach and depth as a media and entertainment company than at any time in
its extraordinary existence.
This is not to say that the market is irrational. Our recent performance
has been unacceptable ... and I am here today to outline how we plan to return
to the kind of bottom line results for which we have been known. But, I do
believe that the market has overreacted on the downside. This is also part of my
CEO cycle ... as, when things are bad, the market overstates how bad. That said,
you never hear me or any of my peers complain when the market overreacts on the
upside.
Before I go into specifics about our growth plans, let me give you a sense
of our overall strategic view of The Walt Disney Company. Like every company
you'll hear from at this conference, we set our sights on delivering steady
growth in shareholder value. And, like every other company, we intend to do so
by strengthening our competitive advantage.
In business, competitive advantage can be established in a number of ways -
by being a low cost provider, by having a technological edge, by being first
into a market or, at our company, by maintaining strong and differentiated
brands, most notably the Disney brand and ESPN.
There are two principal attributes that make a brand powerful from a
business perspective. It must be unique ... and it must be relevant. Uniqueness
is the quality that determines the ability to use the brand to differentiate
one's products. The Disney brand is one of the most unique brands in the world.
Through considerable effort and investment, ESPN has become increasingly unique
despite the tough competition in the sports programming business. However, to be
commercially powerful, a brand must also be relevant and appealing. Clearly,
both Disney and ESPN pass this test. Disney has a monopoly of the heart. ESPN
embodies the edgy and irreverent excitement of sports.
All of this may seem obvious, but it is critical to understanding how we
think about allocating time and capital in running our company. The last five
years have been disappointing in terms of earnings and stock price and I take
responsibility for this fact. But, this has also been a period of investment in
building and extending our key brands ... investment that I am confident will
pay off well in the years ahead.
It should not be surprising that this investment has coincided with the
decline in our fiscal fortunes for the simple reason that we have also had to
manage through a recession and the post-9/11 drop in tourism. At Disney, we map
out our strategies in rolling five-year plans, but we have yet to be able to
divine the long-term future of the broader business cycles. So, we simply stay
focused on what is best for the long-term future of our company.
Consequently, our results these past five years are worse than if we hadn't
invested. But, there can be little question that our results in the next five
years will be strengthened by the fact we did invest. These investments have
protected, buttressed and built our Disney and ESPN brands to secure their
competitive advantage for a very long time.
Let me give you one specific example. There is perhaps no single asset
which is more symbolically significant than Disneyland. It was the first theme
park and, in the eyes of many, it is still be best because of the wealth of
experiences that await guests within its berm. However, outside the berm, the
area was going downhill. If something was not done, our flagship would be
floating in a sea of urban decay. So, we brought a hockey team to Anaheim, kept
the Angels from moving to another city and renovated the stadium in order to
help the overall Anaheim economy and strengthen our relationship with the local
community, which allowed us to expand the resort with a new theme park, new
hotel, new shopping area and the creation of a garden district around these
assets, complete with improved transportation access. It was a comprehensive
solution, which is now in place and will allow the Disneyland Resort to thrive
for as close to forever as we can foresee. And when you can count on a
competitive advantage "forever," you have laid the groundwork for serious
long-term financial returns. Do we wish the expansion had opened during boom
times rather than a recession? Of course. But, this will become an irrelevant
footnote as Disneyland and California Adventure attract satisfied guests from
throughout Southern California and around the world long into the future.
Here's a quick rundown of some of the other investments in our Disney brand
that have been made:
Since 1996, we've grown the Disney Channel from 18 million subscribers to
more than 80 million currently. Internationally, we've nearly tripled our Disney
Channel subscribers from just over 6 million to 18 million households, with 16
channels reaching 69 countries.
Toon Disney launched just two years ago. It is already in 32 million homes.
Next up in our growing suite of Disney cable properties is Playhouse Disney, to
be born out of a programming block that we've incubated on the Disney Channel
over the last several years.
Radio Disney, launched in 1996 is now heard on 49 stations in nearly 60% of
the country and is already profitable in its own right.
Disney Theatrical Productions has gone from one show -- Beauty and the
Beast -- to four shows that can be seen in 12 productions in six countries.
Disney Animation has put out 13 animated sequels theatrically or
direct-to-video since 1994. Combined, these pictures are expected to contribute
profits of approximately $1 billion over their lifetime as well as generating
returns in the high double-digits ... and even sometimes in the triple digits.
Disney Internet Group has established deals to provide Disney-branded
content to six major cellular telephone and pager services, including NTT
DoCoMo, CSL, Hutchison Telecom, T-Motion International, Bell South, and Taiwan
Cellular Corporation.
In Florida, we launched the Disney Cruise Line, which has an operating
profit per passenger day that is among the highest in the industry and which
generates some of our best guest satisfaction ratings.
The Walt Disney Studios has broadened the audience for Disney live action
films with hits like "Remember the Titans," "The Princess Diaries" and "The
Rookie."
And, around the world, we have opened four new theme parks since 1998 and
added 8,500 hotel rooms, with 135,000 square feet of convention space just in
Orlando. Today, Walt Disney World is the #1 tourist attraction in North America;
Disneyland Resort in Paris is the #1 tourist attraction in Europe; and Tokyo
Disneyland Resort is the #1 attraction in Asia.
Just as we have expanded the Disney brand, we have worked equally hard to
build ESPN's market position and brand power. In 1996, ESPN had two domestic
channels and 107 million subscribers. Today, there are four ESPN channels
reaching 247 million subscribers. Last week, we announced the launch of ESPN
Deportes, a 24-hour, Spanish-language sports network scheduled for the third
quarter of 2003, and ESPN HD. All of these cable services will benefit from the
fact that we now have contracts with all four major sports leagues.
ESPN International now reaches 120 million homes in 145 countries and
territories and ESPN.com is the leading stand-alone sports site. ESPN The
Magazine, launched in 1998, now reaches two million readers worldwide and ESPN
Radio, launched in 2001, now has more than 700 affiliates around the country,
including 190 affiliates broadcasting ESPN 24 hours per day. We have developed
the X Games and the Skins Game. And, there are now ESPNZones in eight cities
around the country.
What these expansions and investments in Disney and ESPN have in common is
that they have focused on building on the uniqueness and relevance of our
brands. And, they have created a protective moat around these assets. In the
case of the Disneyland Resort and Walt Disney World, the moat is literal as well
as figurative, but in every case, these assets are safer and more secure so they
can thrive in the years to come. It is their enduring nature that makes Disney
and ESPN true and reliable brands.
Of course, we have businesses outside of Disney and ESPN. But, they really
must be considered in the context of these two main brands.
First and foremost is the ABC Television Network and our ten owned
affiliated stations. The Network and our stations enhance our Disney and ESPN
cable businesses; and vice versa. Our stations deliver significant value to
cable and satellite operators and, by and large, instead of paying a fee for
carrying our stations, such operators have opted instead to recognize that value
by providing carriage for various of our cable channels. And consider the
programming match between the cable programming networks that we have either
developed or acquired and the dayparts of the ABC Television Network. That match
affords us unique opportunities to attract content, to amortize our programming
costs and to expand awareness and viewership of our programming. Children's
programming and Sunday night Disney shows relate to Disney Channel and Toon
Disney. ABC's hugely successful Daytime dramas made it possible to launch and
program SoapNet. The Network now supplies programming to SoapNet and SoapNet, in
turn, helps maintain the loyal audience base that has always been so critical to
the ongoing success of that daypart on the Network. ABC Sports is an important
promotional and programming partner with ESPN. The two, in tandem, strengthen
each other. We think ownership of both ABC Family and the Network provides
exciting possibilities of using Network primetime programming in a way that
builds viewer awareness and excitement about a program and enhances the success
of both platforms. And as for news, we're number one and we are working on other
initiatives in that area.
In fact, the reason that we bought Cap Cities rather than CBS in 1995 was
because it offered the potential for far greater integration with our Disney
assets, as well as bringing with it the powerhouse of ESPN. This all combines to
create a fundamentally new model for managing the ABC network that integrates at
every level with our cable properties.
It is important when considering ABC to keep this model in mind. The
ancillary benefits of any business, however real, do not make up for the
underperformance of that business. And, let's be clear, ABC has underperformed.
At the beginning of the year, we identified several steps necessary to establish
a new direction at the network. The first was to put in a creative executive,
Susan Lyne, in whom we have a great degree of confidence. The second was to
announce a schedule that could drive a successful upfront. The third was to
generate enough buzz going into the fall to get viewers to sample our shows,
which they clearly have done. I am enough of a veteran to know that the network
won't rise to number-one in a single season. This is why we have made clear that
our near-term goal is to achieve a clear shift in momentum, as we build toward a
leading primetime schedule.
The early returns are encouraging. The addition of John Madden seems to
have significantly lifted the Monday Night Football franchise. Despite three of
the first four games having been blow-outs, ratings are up 9% in the 18-49
demographic and 33% in the especially hard-to-reach male 18-34 age group. On
Tuesday's, "Eight Simple Rules for Dating My Teenage Daughter" has all the
markings of a true hit. If has been number one against its competition for two
weeks and, if its ratings hold, it represents a nearly 50% increase in its
timeslot. We also have strong hopes for "Life with Bonnie" and "Less Than
Perfect." On Wednesday night, our returning show, "My Wife & Kids" easily beat
out "Bernie Mac" and seems to have established itself as a long-term favorite,
as has "Alias" and "The Practice" on Sunday night.
Of course, some of the new shows aren't going to make it. This is the
nature of the business. But, our goal was measurable improvement this season,
and the early indications are that this is what we are going to deliver. This,
in turn, will give us a base on which to achieve more success during Sweeps, the
mid-season, summer and next fall.
You are right to monitor our progress in this area, because the upside
potential is enormous. We feel we can only go up over time.
This brings me to the newest extension of the ABC brand - ABC Family. When
we bought it last year, we clearly paid more for these assets than we would
today, given the subsequent downturn in the business environment. But, if we
could always predict the unpredictable, we wouldn't broadcast blow-out games on
Monday night. Regardless, we now have an asset that is strategically valuable
and one that we will be building in the years to come. Since we purchased ABC
Family, it has posted double-digit growth each quarter in households, total
viewers and across all key demographics, including Teens 12-17, Adults 18-34 and
Adults 18-49. So, all the arrows are pointed in the right direction. And, this
fall, the president of ABC Family, Angela Shapiro, is going to outline a number
of exciting initiatives to strengthen the identity of the channel and help build
it into a major cable asset.
Going forward, let me first state the truism that lean times make for lean
organizations. During the last few years, we have instituted a number of
initiatives that have substantially reduced overhead and improved margins. The
savings that have resulted will power growth in the future.
With this in mind, one week ago the Disney Board of Directors approved an
action plan to accelerate growth at our company, which focuses on long-term
success based on the enduring uniqueness and appeal of our Disney and ESPN
brands.
However, while the new plan continues to be guided by the importance of our
brands, it represents a fundamental shift of emphasis. Whereas the hallmark of
the last five years has been investment, the next five years will be primarily
about marketing the fruits of that investment. One natural outgrowth should be a
strong increase in free cash flow. Needless to say, we will continue to put
resources in new opportunities as they emerge, but we now have a wide-ranging
infrastructure supporting Disney and ESPN that will allow us to hold down
capital expenditure at the same time we expect to increase cash flow by building
the audiences for the branded businesses we have created.
Within these businesses, we will continue to work to create the finest
content possible. After all, it's called the Entertainment Industry for a
reason. We're here to entertain people. If we do this, we will be successful.
Our downturn has been largely due to two forces, one out of our control and one
in our control. The force out of our control, of course, has been the downturn
in the economy in general and tourism in particular. Inevitably, this trend will
reverse. The force in our control is that some of our entertainment hasn't been
entertaining enough, especially at the ABC Network. This is a trend that we
believe already has reversed.
Consider what has just occurred in just the last two weeks. In addition to
the encouraging performance of ABC primetime, we saw the debut of "Monsters,
Inc." on video, which broke the all-time first-day and first-week sales records
for any video ever.
Then, just this past weekend, "Sweet Home Alabama," a modestly budgeted
film featuring a rising young star, did an amazing $35.6 million at the U.S. box
office, earning more at the box office than it cost to make and setting a record
for a September opening. This is an auspicious start of the fall movie season,
after we finished a strong second during the summer box office, on the strength
of entertainment that appealed to two ends of the spectrum - "Lilo & Stitch" and
"Signs."
Looking ahead, among the promising titles are "Treasure Planet," which
takes the Robert Louis Stevenson classic, "Treasure Island," to the stars ...
"The Santa Clause 2," which has Tim Allen reprising his role from the 1994 hit -
"Pirates of the Caribbean," produced by Jerry Bruckheimer ... and, next summer,
"Finding Nemo," produced with our partners at Pixar.
At our parks, we may be entertaining fewer people than we'd like, but we
are entertaining them nonetheless. Our guest surveys are as positive as they've
ever been. The longer the downturn lasts, the greater the pent-up demand will
be.
As we just announced, overseeing the parks going forward will be Jay
Rasulo. Jay is indicative of the ongoing depth of our executive bench and I know
he will lead the parks as we seek to capitalize on the assets we've put in
place.
Looking ahead, some of the greatest opportunities for the ESPN and Disney
brands are ones that we are actively positioning ourselves for, but cannot yet
know. I am referring to the all-but-inevitable boost we will get from new
technological developments. Just as home video became an enormous earnings
driver in the '80s and '90s, we can expect some other form of entertainment
delivery will provide a major boost in the next few years.
All of these plans, strategies, and trends combine to make me as bullish
about the company's prospects as at anytime since I arrived at Disney.
We have a healthy and transparent balance sheet, an increasingly lean and
cost-conscious culture, a management team that boasts both strength and depth,
and entertainment assets that are some of the finest in the world. And, thanks
to Disney and ESPN, we have brands that give us a clear, sustainable competitive
edge the importance of which will only grow when the general economy begins to
expand.
Our goals are clear, our sights are set. We know what we have to do and we
are doing it. We believe this current cycle is nearing its end and Disney's best
days are yet to come. Thank you.