The Walt Disney Company Press Release:

BURBANK, Calif., Nov 7, 2002 -- The Walt Disney Company today reported earnings for the year and fourth quarter ended September 30, 2002.

On an as-reported basis, revenues for the year increased 1% to $25.3 billion and segment operating income decreased 28% to $2.9 billion. Net income and earnings per share were $1.3 billion and $0.63, respectively, for the year, compared to earnings and earnings per share of $891 million and $0.42, respectively, in the prior fiscal year. The prior-year figures have been adjusted to exclude the cumulative effect of accounting changes and to reflect the new goodwill and intangible asset accounting rules adopted in 2002. The 2002 results include a $216 million pre-tax gain ($0.07 per share) on the sale of investments recorded in the first quarter of the current fiscal year. The prior-year period included restructuring and impairment charges totaling $1.5 billion ($0.52 per share).

On a pro forma basis, revenues for the year decreased from $25.8 billion to $25.4 billion and earnings were $1.1 billion or $0.55 per share, compared to $2.0 billion or $0.97 per share in the prior year.

On an as-reported basis, revenues for the quarter increased 15% to $6.7 billion and segment operating income decreased 2% to $613 million. Net income and earnings per share were $222 million and $0.11, respectively, for the quarter, compared to earnings and earnings per share adjusted to reflect the new goodwill and intangible asset accounting rules of $188 million and $0.09, respectively, in the prior year quarter.

For the quarter, pro forma revenues increased 13% to $6.7 billion, and pro forma earnings were $222 million or $0.11 per share, compared to $250 million or $0.12 per share in the prior-year period.

See Table C for a reconciliation of as-reported earnings per share to pro forma earnings per share. For the fourth quarter of the current year, as-reported and pro forma results were the same in all respects.

"As we come out of a difficult year, the Disney management team remains focused on reaping the benefits of the investments we've made over the last five years, further improving our cost structure and cash flow, and infusing all our products and services with the quality and creativity for which Disney is universally known," said Michael D. Eisner, chairman and CEO. "With our tremendous assets, our unrivaled global brands, and a realistic and experience-driven action plan, we anticipate in fiscal 2003 a return to solid EPS growth in excess of 20 percent.

"As a content-driven company, we are especially encouraged by our recent creative successes on a number of fronts. ABC has seen a positive shift in ratings momentum, especially on Tuesday nights, led by the strength of great new shows for this season, including - 'Eight Simple Rules,' 'Life With Bonnie' and 'Less Than Perfect.' Our studio is performing very strongly thanks to major hits like 'Lilo & Stitch,' 'Signs,' 'Sweet Home, Alabama' and 'The Santa Clause 2.' And our new theme park, Disney's California Adventure, has seen a surge in attendance thanks to the opening of its inventive new fun zone, A Bug's Land. At our Company, creativity has always led the way and it is leading the way yet again."

Basis of Presentation


To enhance comparability, the Company has presented operating results on a pro forma basis, which assumes the events discussed below occurred at the beginning of fiscal 2001, eliminating the one-time impacts of those events.

The Company acquired Fox Family Worldwide, Inc. (subsequently re-named ABC Family Worldwide) on October 24, 2001. The acquisition resulted in a $5.2 billion increase in borrowings, consisting of outstanding debt of ABC Family and new short- and long-term debt issuances. Pro forma interest expense has been adjusted as if these incremental borrowings had been outstanding as of the beginning of fiscal 2001. Additionally, on October 1, 2001, the Company adopted new goodwill and intangible asset accounting rules, and accordingly, no longer amortizes substantially all of its intangible assets. In March 2001, the Company closed the GO.com portal business and converted its Internet Group common stock into Disney common stock.

In addition, the pro forma earnings exclude restructuring and impairment charges, gain on the sale of businesses and the cumulative effect of accounting changes. Current year pro forma earnings have also been adjusted to exclude the first quarter investment gain.

The Company believes that pro forma results provide additional information useful in analyzing the underlying business results. However, pro forma results are not necessarily indicative of the combined results that would have occurred had these events actually occurred at the beginning of fiscal 2001, nor are they necessarily indicative of future results.

Operating Results


Unless otherwise noted, the following discussion reflects pro forma results.

Parks and Resorts


Parks and Resorts revenues for the year decreased 8% to $6.5 billion and segment operating income decreased 26% to $1.2 billion. For the quarter, revenues decreased 1% to $1.7 billion and segment operating income decreased 25% to $235 million.

Parks and Resorts results for the year reflected lower theme park attendance, spending and occupied room nights at the Walt Disney World Resort and lower spending at the Disneyland Resort. At the Walt Disney World Resort, declines in attendance and occupied room nights were driven by softness in the travel and tourism industry and in the economy as a whole. Lower spending at both the Walt Disney World Resort and Disneyland Resort primarily reflected special ticketing and other promotional programs throughout the year, along with a higher mix of local guests, who spend less on average per visit. Parks and Resorts results also reflected higher expenses associated with increased employee benefit and insurance costs.

These decreases were partially offset by lower costs at both the Walt Disney World and Disneyland Resorts, resulting from reduced marketing expenses and a combination of both volume-related and permanent cost reduction initiatives.

For the year, Parks and Resorts also benefited from higher royalties from the Tokyo Disney Resort, reflecting the addition of Tokyo DisneySea theme park and Tokyo DisneySea MiraCosta resort hotel, which opened during the fourth quarter of the prior year.

The primary drivers for the quarter were lower attendance at both the Walt Disney World Resort and Disneyland Resort and higher costs at Walt Disney World, partially offset by higher guest spending at Walt Disney World due to ticket and other price increases in the fourth quarter.

Media Networks


Media Networks revenues for the year decreased 4% to $9.8 billion and segment operating income decreased 49% to $990 million. For the quarter, revenues increased 6% to $2.4 billion and segment operating income decreased 60% to $147 million. See Table A for further detail of Media Networks results.

Broadcasting results for the year and the quarter reflected lower advertising revenues due to lower ratings and advertising rates, as well as higher programming costs at the ABC television network. Additionally, the prior year benefited from a gain from the sale of certain film and television properties at ABC Family. The decreases were partially offset by improvements at the Internet Group driven by lower costs resulting from prior-year restructuring initiatives. Increased network programming costs reflected higher primetime series costs and three additional NFL games that aired within fiscal 2002. Results for the year also reflected the impact of the weak advertising market at the Company's owned television stations. These decreases were partially offset by insurance proceeds related to the loss of a broadcast tower in the first quarter of the current year.

Disney's share of operating income from cable television activities, which consists of Disney's cable television networks and cable equity investments, decreased 15% and 35% to $1.1 billion and $201 million for the year and quarter, respectively. See Table B for a detail of operating income from cable television activities.

Cable television results for both the year and the quarter were driven by higher sports programming costs at ESPN and higher advertising costs at both ESPN and Lifetime Television, partially offset by increased cable network affiliate revenues resulting from contractual rate adjustments.

The year was also negatively impacted by the financial difficulties of Adelphia Communications Company and Kirch Media, lower advertising revenues at ESPN and at the cable equity investments and a write-down of an investment in a Latin American cable operator. The decreases for the year were partially offset by improvements in international broadcast operations.

Studio Entertainment


Studio Entertainment revenues for the year increased 11% to $6.7 billion and segment operating income increased 33% to $347 million. For the quarter, revenues increased 52% to $2.0 billion and segment operating income was $149 million, compared to an operating loss of $121 million in the prior-year quarter.

Studio Entertainment results for the year were primarily driven by growth in worldwide home entertainment, partially offset by declines in worldwide theatrical motion picture distribution. Improvements in worldwide home entertainment reflected strong DVD and VHS sales driven by successful animated titles including Disney/Pixar's Monsters, Inc., Snow White and the Seven Dwarfs and Cinderella II: Dreams Come True along with the success of Hayao Miyazaki's Spirited Away, which was distributed in Japan and certain other markets by the Company. Worldwide theatrical motion picture distribution results declined due to weaker performances by live-action titles, despite the success of Monsters, Inc. and Signs.

Studio Entertainment results for the fourth quarter were driven by increases in worldwide home entertainment and domestic theatrical motion picture distribution, partially offset by decreases in international theatrical motion picture distribution.

Increases in worldwide home entertainment for the quarter were driven by the successful release of Monsters, Inc. domestically and internationally, The Rookie domestically and Spirited Away in Japan, as well as higher overall DVD sales. Domestic theatrical motion picture distribution reflected the successful release of Signs and Sweet Home Alabama and the continued performance of Lilo & Stitch. International theatrical motion picture distribution reflected weaker performance of live-action titles in the current quarter compared to the success of Pearl Harbor in the prior-year quarter.

Consumer Products


Consumer Products revenues for the year decreased 7% to $2.4 billion and segment operating income decreased 6% to $394 million. Revenues for the quarter decreased 8% to $569 million while segment operating income decreased 8% to $82 million.

Results for the year were driven by decreases in worldwide merchandise licensing revenues and lower sales at Disney Interactive, due to weaker performances of personal computer CD-ROM and video game titles. These declines were partially offset by increases at the Disney Store, primarily due to higher comparative store sales and cost savings, and growth at the Disney Catalog driven by strong online sales and cost reductions.

Results for the quarter were driven by costs associated with the closure of certain Disney Stores and other downsizing initiatives, as the overall earnings from continuing Disney Stores, licensing, and publishing were roughly flat with the prior year.

Corporate and Unallocated Shared Expenses


Corporate and unallocated shared expense increased 3% to $417 million for the year and increased 15% to $140 million for the quarter. The increase for both the year and the quarter reflected costs for new financial and human resources information technology systems intended to improve productivity and reduce costs. The year also reflected higher litigation costs, partially offset by a gain on the sale of certain properties in the U.K.

Net Interest Expense and Other


Net interest expense and other is detailed as follows:
Quarter Ended Year End
September 30 September 30
------------- -------------
2002 2001 2002 2001
------ ------ ------ ------
Interest expense $(170) $(198) $(734) $(764)
Interest income 6 13 23 26
Investment income (loss) (1) (2) 246 101
----- ----- ----- -----
Net interest expense and other $(165) $(187) $(465) $(637)
===== ===== ===== =====


Net interest expense and other decreased 27% to $465 million for the year and 12% to $165 million for the quarter. The decrease for the year was due to a $216 million gain in the first quarter on the sale of the remaining shares of Knight-Ridder, Inc. that the Company received in connection with the disposition of certain publishing operations in fiscal 1997, partially offset by lower interest rates for the year. On an as-reported basis, net interest expense and other increased 9% to $453 million for the year and 27% to $165 million for the quarter, due to incremental borrowings in connection with the ABC Family acquisition.

The Company's investment portfolio includes commercial aircraft leveraged leasing investments made between 1992 and 1994 totaling $289 million, which are diversified across three air carriers (United Airlines, Delta Airlines and Federal Express) and eleven aircraft. Risk of loss under these transactions is primarily related to the ability of the airlines to make underlying lease payments or, should the airlines be unable to pay such payments, our ability to generate sufficient cash flows either through the sale of the aircraft or secondary lease transactions to recover our net investment. We continue to monitor our investment in commercial aircraft leasing transactions given the current status of the airline industry and United Airlines, specifically. The inability of any of the airlines to make their lease payments could result in material charges related to a write-down of our investment in these airline transactions and cash payments of tax liabilities.

Equity in the Income of Investees


Income from equity investees, consisting primarily of Euro Disney, A&E Television, Lifetime Television and E! Entertainment Television, decreased 27% to $225 million for the year and 10% to $62 million for the quarter. The decrease for both the year and the quarter reflected higher advertising costs at Lifetime Television. The year also reflected declines at A&E Television driven by the soft advertising market, as well as the write-down of an investment in a Latin American cable operator.

Stock Option Accounting


Table D provides supplemental disclosure of the impact of stock options had the Company elected to adopt the fair value approach of expensing stock options pursuant to Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation.

Accounting Changes


Effective October 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142). As a result of adopting SFAS 142, a substantial amount of the Company's intangible assets are no longer amortized. Pursuant to SFAS 142, intangible assets that are no longer subject to amortization must be periodically tested for impairment. During the first quarter, the Company made its assessments related to each reporting unit's intangible asset categorization and performed an impairment review, which indicated that the Company's intangible assets were not impaired.

Effective October 1, 2000, the Company adopted AICPA Statement of Position No. 00-2, Accounting by Producers or Distributors of Films (SOP 00-2), and Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), and recorded one-time after-tax charges for the adoption of the standards totaling $228 million (or $0.11 per share) and $50 million (or $0.02 per share), respectively, in fiscal year 2001.

FORWARD-LOOKING STATEMENTS


Some of the statements in this press release 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. Differences may result from actions taken by the Company, strategic initiatives and actions, as well as from developments beyond the Company's control, including domestic and international economic conditions and political and military developments that may affect travel and leisure businesses; changes in consumer spending patterns and interests that may, among other things, affect the performance of the Company's theatrical and home entertainment releases; developments in the advertising market for broadcast and cable television programming; and changing trends affecting the appeal of branded consumer products. Changes in domestic competitive conditions and technological developments may also affect performance of all significant Company businesses. For more information on factors that may affect future performance, please refer to the discussion of "Forward-Looking Statements" in the Company's most recent annual report on Form 10-K.

Editor's Note: Due to the length of this announcement, and for formatting issues, I have left off the numerical charts. The Company makes available its quarterly earnings releases, annual report to shareholders, fact book and SEC filings on its Investor Relations Web site located at http://www.disney.com/investors

OK, for most of you, this is probably a big, confusing mess....

And the lack of being able to easily transfer the charts doesn't help.

But let's look at the highlights, mainly looking at the Parks and Resorts segment of the company.

Parks and Resorts revenues for the year decreased 8% to $6.5 billion and segment operating income decreased 26% to $1.2 billion. For the quarter, revenues decreased 1% to $1.7 billion and segment operating income decreased 25% to $235 million.

First off, we have two sets of numbers, one is the Fourth Quarter results, which is the period of July 1st thru September 30th. And the full year, which is October 1st thru September 30th (which is a fiscal year, versus a Calendar year - January 1st thru December 31st.)

The easy way of thinking of revenue is thinking about a cash register. All the money rung up, PRIOR to looking at any expenses.

Segment operating income is what people used to call Gross Profit, the Revenue minus the expenses (Labor Costs, merchandise, equipment, etc.). Basically all the expenses it takes to run the Parks and Resorts (which includes the Disney Hotels).

Then the company takes all the Gross Profit for each of it's segments (divisions) and takes away the Corporate expenses, income taxes and other costs that are not easily divided into each division to come up with Net Profit, which is broken down to how much money was made per individual share.

So let's look at the Fourth Quarter for the Parks and Resorts.

Revenue - This year (2002) they brought in $1.66 billion. Last year (2001) they brought in $1.684 billion, which means they brought in 1% less money than last year for the same three months (July, August and September.)

Gross Profit - This year they brought in $235 million profit, versus last year's $313 million, a drop in profits of 25%.

Another way of looking at it is the percentage of "profit". For the fourth quarter of 2002, the Parks and Resorts made 14.16% profit on the revenue it brought in. In 2001, they made 18.57%.

So last year they made about 19 cents for every dollar they rung up on the register. This year, they made just 14 cents.

Now let's look at the full year.

Revenue - This year (Oct. 2001 - Sept. 2002) they brought in $6.465 billion. Last year (Oct. 2000 - Oct. 2001) they brought in $7.004 billion, which means they brought in 8% less money than last year.

Gross Profit - This year they brought in $1.169 billion profit, versus last year's $1.586 billion, a drop in profits of 26%.

Another way of looking at it is the percentage of "profit". For the current year, the Parks and Resorts made 18.08% profit on the revenue it brought in. In 2001, they made 22.64%.

So last year they made about 23 cents for every dollar they rung up on the register. This year, they made just 18 cents.

Parks and Resorts results for the year reflected lower theme park attendance, spending and occupied room nights at the Walt Disney World Resort and lower spending at the Disneyland Resort. At the Walt Disney World Resort, declines in attendance and occupied room nights were driven by softness in the travel and tourism industry and in the economy as a whole. Lower spending at both the Walt Disney World Resort and Disneyland Resort primarily reflected special ticketing and other promotional programs throughout the year, along with a higher mix of local guests, who spend less on average per visit. Parks and Resorts results also reflected higher expenses associated with increased employee benefit and insurance costs.

These decreases were partially offset by lower costs at both the Walt Disney World and Disneyland Resorts, resulting from reduced marketing expenses and a combination of both volume-related and permanent cost reduction initiatives.

For the year, Parks and Resorts also benefited from higher royalties from the Tokyo Disney Resort, reflecting the addition of Tokyo DisneySea theme park and Tokyo DisneySea MiraCosta resort hotel, which opened during the fourth quarter of the prior year.

The primary drivers for the quarter were lower attendance at both the Walt Disney World Resort and Disneyland Resort and higher costs at Walt Disney World, partially offset by higher guest spending at Walt Disney World due to ticket and other price increases in the fourth quarter.

So, basically the Parks had a poor fourth quarter and year as compared to last year, but still made a profit in both the fourth quarter and the year.

Here is a link of a phone call for stock analysts that has Michael Eisner, Bob Iger, and Tom Staggs discussing the Fourth Quarter results, and future plans and projections.

http://www.videonewswire.com/event.asp?id=8144

Here are a few of the points being made in the phone call.

Michael Eisner talks about how they are going from investing and building in the parks and other assets, to capitalizing on those investments. (Translation: Don't expect any big spending anytime soon).

Bob Iger talks about the direct to video and Theatrical sequels, and taking advantage of investing less in new films. Since Tarzan, the average cost of producing an animated film has been cut in half.

(He mentions the following sequels to be released in 2003, Theatrical - Jungle Book 2 and Piglet's Big Movie; Direct to Video - Dumbo, Lilo & Stitch, and 101 Dalmatians)

Disney Stores to target and feature Plush and Disney Princess products.

ABC is not expected to make a profit in either the first or second quarter of the 2003 fiscal year (partially due to the cost of NFL games, including the Super Bowl).

Tom Staggs talked about WDW having a 11% decline in attendance in fiscal year 2002.

There is still shorter than normal advance booking by guests to the theme parks and hotels, making predicting future theme park attendance hard to predict.

The second half of the phone call is questions by stock analysts to the Disney corporate executives.

Q: How long will it take to for ABC to reach break even, 2, 4 or 6 years???

A: They are crawling out of a hole bigger than they ever wanted (hoped)... Can't really say...

Q: Two Part question; Advance booking trends at the parks, and Winnie the Pooh situation update.

A: Some positive trends, but still only booking 14 to 30 days in advance, instead of the normal 60 day range. Really impossible to say if they will continue. As far as "Pooh", Michael passed the question regarding the complicated legal case to the general council for Disney. He talked about the recent court issues, including the order to have a new accounting of the past numbers, plus the Sonny Bono copyright issue and the action of taking it to court to get a judicial review. They will continue to sell and market Pooh as they have done in the past, with no changes predicted due to the court cases.

Q: Two Part question, the first deals with how Disney plans to increase their earning per share growth to over 20% in regards to the theme parks, and the second deals with sports right fees and amortization.

A: Didn't really say anything about the parks, just how they are positioning in general and are hoping to deliver the growth.

The Super Bowl will not make a profit (The costs of the rights, plus production fees will be more than revenue from the ads sales.)

Q: Cable margins, and NBA selling rate.

A: The reduced cable margins will remain short term, due to the increased sports right fees. And they will NOT mention the percentage, but admitted that they are not sold out.

Q: Cost cuts and selling off units.

A: Second question first, Non- Sports assets are fairly safe, unless an GREAT price is offered. As for the Sports teams, they want to sell off all or parts as soon as possible. And repeated that the teams MUST stay in Anaheim as part of the sales agreement. Cost cuts somehow got related to the war of Iraq, not much said.

Q: Domestic visitation of the theme parks is softening, is that Price competition that Disney is participating in, or loss of share to competitors

A: Disney talks about "Local" visitation, not domestic (ie all of america, but just those who live near the parks). Didn't answer the question. They are bringing back the local marketing campaigns. (ie. they stopped most discounting at WDW during the summer, but now will once again rely more on the local visitor to try and make up for the loss of the non-local guests)

Q: Foreign tourism

A: Europe vs Latin America vs Asia - Strongest segments United Kingdom and Mexico, and Asia is starting to rebound. But no meaningful shift.

Q: Home video and DVD's

A: Lion King will the premium release in 2003. Additional footage will be added similar to the Beauty and the Beast DVD release.

Q: What happens when the Bachelor ends its run in a couple of weeks (what will replace it?).

A: Christmas specials, and then a 7 or 8 week special dealing with the female runner up from last year's Bachelor, and having her look for a mate, then an all new Bachelor.

Q: Tax rates and hotel rates

A: Tax rates will remain the about the same, and there has been a decline of the average daily rate charged by Disney hotels.

Please note, I avoided discussing the truly financial questions, and focused on the information that effects the Disney consumer, plus some information that easily translates and would be interesting to the average person. If you are interested in more information, you can hear the entire 1 hour conversation at the link listed at the top of the message.