Tom Staggs' Speech
Tom Staggs
Senior Executive Vice President & CFO
The Walt Disney Company
In 1999, excluding the impact of some one-time restructuring charges and transaction impacts, your company delivered revenues of $23.4 billion ... operating income of just over $3.2 billion ... and net income of $1.4 billion ... which resulted in earnings per share of $0.66. Our cash flow for the year came to a total of $5.6 billion.
While still evidencing the strong financial condition of the Walt Disney Company, these results fell short of our prior year's performance. We are not satisfied with this performance and you have heard from us today about specific steps we are taking in key businesses to improve on those results. These specific actions are underscored and supported by two key company-wide initiatives, which will also improve future performance.
In April of 1999, we announced an across-the-board assessment of the company's cost structure aimed at improving the efficiency of Disney's business without impeding future growth. To-date we have identified over 100 areas where we believe we can improve our cost structure.
Beginning in 2001 and thereafter, we believe that our cost- cutting initiatives will allow us to achieve savings of $500 million per year. And, as the impact of the strategic sourcing initiative that Michael discussed grows, we have the potential to exceed that annual savings figure over time.
Nevertheless, we are not laboring under the impression that we can cost-cut our way to the type of long-term earnings growth that we all expect. And earnings growth continues to be one of the primary objectives of this company. Additionally, we are mindful of the fact that growth in earnings coupled with an attractive return on investment is required to create value for you, our shareholders.
With this in mind, the company is increasing its focus on prudent capital allocation and driving higher returns on its invested capital.
Across the company, we are taking steps to increase the focus on value creation and allocation of capital in the day-to-day management of our businesses. And we will focus on these measures in evaluating and compensating our executives.
We expect this focus to increase not only earnings, but also our cash flow and Returns on Invested Capital.
Q1 Results
Since we recently reported earnings for our first fiscal quarter, I would like to briefly go over some of the quarter's highlights. Our most recent results were better than Wall Street had expected and they are encouraging on several fronts. To underscore what I mean, let me talk first talk about Disney separate and apart from the results at GO.com and then I will discuss GO.
For the first fiscal quarter of 2000:
- Pro forma revenues for Disney, excluding GO.com, were $6.8 billion
- Total Operating Income was $1.1 billion up 8%.
- Net Income was $515 million, 7% higher
- And fully diluted earnings per share were $0.25, up nearly 9% versus the prior year.
These increases, while respectable, are not particularly astounding by historical Disney standards. However, inside those results is evidence of the momentum that we have started to build.
Media Networks was the main driver of our first quarter performance, delivering operating income of $642 million which is an increase of 73% over the same quarter of last year.
Clearly, we benefited from an extraordinarily strong ad market across all properties, but improved ratings also played a role. "Good Morning America" and "20/20" have improved, and of course, "Who Wants to be a Millionaire?"
Although we do not necessarily count on the robust ad market to continue indefinitely, the successful quarter at the network underscores the degree of operating leverage inherent in the nature of our broadcast assets. The key to accessing that leverage is and will continue to be great programming (like "Millionaire") and that is what this company is all about.
You should also know that these strong results include continued investment in our cable businesses in the form of international Disney Channels, Toon Disney and our most recent launch, SoapNet. We believe these new business extensions will be meaningful drivers of growth and shareholder value down the road.
As expected, our first quarter results for the Studio Entertainment division continued to reflect the issues in Home Video we have discussed. We've only just begun to introduce our gold library titles into the market and while sales are consistent with our expectations, we do not expect these staggered releases to compensate for the fact that we will not release a major library title from our Platinum Collection this year.