Short for: don't expect any major new projects at the resorts requiring hugh investments - among fans also known as rides or sometimes as E-Tickets, even so he keeps the door open to ocassional investments if numbers crash. But note how he speaks of entertainment not experience, hinting at continuing the trend of investing into shows instead of rides.

... During the calendar year, The Walt Disney studios became the first in history to achieve more than $3 billion in worldwide box office. This tremendous success was the outgrowth of a conscious shift in strategy to rigoursly make the right movie for the right price. In 2003, the studio demonstrated that it is possible in the moviemaking world to be fiscally prudent and still pull in crowds.

The movie making industry is known for offering the players fast rollercoaster rides. Isn't it a bit early to announce the positive effects of such a new credo after such a short term of time?

... A striking example of the syngergy between the movie and the brand could be seen at the premiere, which was staged on the banks of the Rivers of America at Disneyland.

Why is Michael Eisner mentioning this event that caused badd mood among the guests and fans of the Disneyland Resort Anaheim, created an uproar among local fans and had, according to numerous websites, most of the Disneyland management up on the barricades too, as it created a logistic nightmare at New Orleans Square and presented a bad show to normal guests for several days? In his current battle with Roy Disney for the sould of the company and the approval of investors (including the fans) is this wise?

... [After a few lines regarding the success of Finding Nemo and Brother Bear, Michael Eisner continues] Earlier in the year, our DisneyToon Studios released two highly successful films made for modest budgets, The Jungle Book 2 and Piglet's Big Movie, franchise movies with a very low-risk, high-return investment profile. Next year, we offer a similar mix of animated films.

The on-going critic in regard of the so called "cheap-quals" (instead of sequals) does not bother Michael Eisner at all, as the bottom line is still positively influenced (at least in short term). Note how he speaks of DisneyToon Studios emphasizing the importance of this part of the company.
Sidenote: With what looks like the end of the Disney/Pixar partnership as negotiations for a renewal of the partnership were broken up on January 29, 2004, so only days after the 2003 Annual Report was released, the heavy emphasizin of the sucess of the Disney/Pixar movie Finding Nemo and the upcoming Disney/Pixar movie further down in the letter may not have the hoped for positive effect on the shareholders as it now also emphasizes the potential damage due to the breakup of the negotiations. This may also contribute to the movement of Roy Disney who has emphasized his positive relationship with Steve Jobs from Pixar compared to the rather frosty relationship Michael Eisner had with Steve Jobs recently.

... [He then introduces Disney's all computer generated animated feature Chicken Little for 2005] No matter what the technology, Disney's animation legacy will continue to dazzle.

Something like this was to be expected - but it is interesting that he bothers with it, even so nowhere in the 2003 Annual Report there is any hint that the production of future classical 2-D animated features has been ceased or is supposed to be ceased. With what possibly looks like the end of the Disney/Pixar partnership in the near future after the breakup of the negotiations on January 29, 2004 (reported by Pixar to the press, not by the Company) the sucess of Chicken Little may be even more pivotal for the future of the core business of animated features at Disney and for the impression the Company gives to investors.

... [After explaining how the Studios are separated from the general business cycle he continues to less insulated areas of business] By comparison, our parks are much more sensitive to general trends in the economy and tourism. Not surprisingly, after a series of great years through most of the '90s and into 2000, attendance at our parks has dipped the past few years as the economy slowed and the number of overseas tourists visiting America declined significantly. Toward the end of fiscal 2003, as the economy showed signs of improvement, we saw encouraging trends in attendance, trends that appear to be continuing into the first weeks of the new fiscal year.

Certainly the "general trends in economy and tourism" (which also includes the not named again impact of 9/11) did influence the Parks and Resorts business, but isn't there a slight chance that other factors as pricing and the number of new attractions in the last year influenced that too? No commenting on the fact that Michael thinks this development was "not surprisingly", even so this would bring up the question why the Company continued to construct a new budget hotel at WDW instead of investing in top-notch world-premier attractions for its resorts worldwide to attract return guests / new guests to counter the expected week years.

... If this continues, then it will have important long-term consequences, since a very high percentage of every incremental dollar generated at our parks goes to the bottom line.

Other words: the Parks and Resorts are still the cash-cow of the company. Too bad that there is only a positive effect on the bottom line, if not too much of the money is reinvested.

... Walt Disney Parks and Resorts has managed through the downturn primarily in two ways. First, we have made better use of existing assets by instituting efficiency measures and by innovative promotions, such as Walt Disney World's Play Four Days and Magical Gatherings programs. Second we have kept enhancing and expanding the product with exciting new attractions, such as Mission: SPACE and Mickey's PhilharMagic at Walt Disney World and Disney's Aladdin - A Musical Spectacular, a bug's land, The Many Adventures of Winnie the Pooh and the-soon-to-open The Twilight Zone™ Tower of Terror at the Disneyland Resort. In addition, we continue to open new resort facilities, such as the Pop Century Resort at Walt Disney World, which makes it easier for families on all budgets to enjoy the full Disney experience of staying "on property".

We all knew there had to be a twist for building a new resort on WDW property, the Pop Century, which sat unopened for ages due to low occupancy rates at the other Disney hotels on-property. But without question a listing of the new attractions does look rather impressive - let's just hope that most shareholders don't ask how far each of these attractions is able to attract new guests, when the last new attractions opened in these theme parks before the here listed ones and wether these attractions may have been necessary to counter negative effects.

... We are also building for tomorrow on the other side of the Pacific Ocean, as work progresses on schedule for Hong Kong Disneyland. The park is now starting to take shape as the infrastructure is being constructed at its magnificent site on Lantau Island and, when completed, will provide us with an important presence in the world's most populous nation.

The Disneyland Resort Paris is not mentioned though.

... Even with all of these additions to our Parks and Resorts inventory, in 2003 we were able to reduce our capital expenditure from the annual levels of the previous five years. This will continue to be the case going forward, which should result in increased free cash flow.

Fans most propably will shudder when reading this part of the letter as it translates once again as: don't expect any major additions to the parks and resorts which require hugh investments as we try to reduce that right now.

... You should also know that we have a very big birthday party coming up. The park that started it all - Disneyland - will be 50 years young on July 17, 2005. So, in the spring in 2005, we will begin an 18-month celebration, which will be observed not just in Anaheim, but in all of our parks. I'll be talking a lot about this in next year's letter, but I thought I'd tell you now so you could mark the date on your calendars!

Announcing future projects is a stable of any good letter to shareholders.

... Disney Channel is yet another franchise factory for our company, thanks to popular shows like That's So Raven, Kim Possible, Lizzie McGuire and Stanley. To further advance the creation of valuable franchices like these, this year we restructured our animation unit so that Walt Disney Television Animation reports directly to Disney Channel. This gets the creators and the distributors to work closely together to better serve their audience. In November we launched an international Disney Channel in Japan, which is one of the most enthusastic nations in the world for all things Disney, so we are quite confident that this newest Disney Channel will be yet another successful one. We expect to add still more Disney Channels in other large Asian and European markets in the years ahead.

Additional Disney Channels in Europe hopefully could help promote the Disneyland Resort Paris further, but so far this synergy effect hasn't been explored too much unfortunately.

... But my favorite radio asset continues to be Radio Disney, which weekly reaches nearly three million children and one and a half million mothers in marekts covering more than 60 percent of the country. Plus, as with Disney Channel, Radio Disney has gone worldwide, with stations in Japan, the United Kingdom, Argentina and Paraguay, and discussions underway to expand further, providing yet more evidence of the international growth potential of the Disney brand.

Again the advent of Radio Disney in the UK may open another way to promote the resort in that market and hopefully with further expansion of the radio network also in more European countries. Plus: a Radio Disney France could be located in the WDS, so that a life show could be broadcasted from the park, as Radio Disney in the US does regularly.

.. One [franchise] that has needed to be modified is the Disney Stores. In part because of the shifting retail environment, in 2002 we sold our Japanese stores to Oriental Land Company, the owner and operator of the Tokyo Disney Resort, and have recently decided to explore the sale of the North American and European stores. We hope to conclude this process in 2004.

This step had been rumoured for quiet some time it needs to be seen which effect it has on long term as the Disney Stores always functioned as an ambassador and marketing tool for the resorts too - in good and base ways.

... As we look to the future, we expect the ongoing digital transformation of the entertainment industry to provide significant drivers of growth for the company. New digital technologies present an enormous opportunity for Disney, so much so that we have informally dubbed this Disney's Digital Decade (I guess now it's been formally dubbed).

In a single paragraph in the middle of his letter to shareholders Michael Eisner dubs a new major project for the coming years - which usually also means: a new vision the Company is supposed to concentrate on. After the "Disney Decade" of which many ambitious goals were never achieved the details on the new decade are rather small so.

... Just as no one envisioned the ubiquitous nature of computers a few years ago, it is impossible to foresee all the possibilities of the Digital Decade, but they are coming and Disney will be there. At the same time that our future lies in once unimaginable technology, it also can be found in the familiar. And there is nothing more familiar, on our company and around the world, than the friendly mouse on the cover of this report. The cover was something of an anniversary present for Mickey, since we just celebrated his 75th year with the company ... To pay homage to the "leader of the club", we have put together a wide-ranging celebration that was kicked off on November 18 at Walt Disney World, where we unveiled 75 remarkable statues of Mickey. Each one was designed by or for a different celebrity or Disney legend, such as Tom Hanks, Elton John, John Travolta, Jamie Lee Curtis and Annette Funicello. The statues will travel on a nationswide tour that ends at Disneyland. They will then be auctioned, with the proceeds going to each celebrity's favorite charity. Other highlights of the celebration include the Mickey's PhilharMagic 3-D attraction at Walt Disney World; Mickey starring along with Goofy and Donald in the video premiere film, The Three Musketeers; a new Mickey Mouse comic book; Mickey and friends U.S. postage stamps; and Mickey and the gang appearing in computer-generated animation for the first time in the video premiere Mickey's Twice Upon a Christmas. In addition to the fact that Mickey deserves all this recognition, these creative tributes will also help to keep him contemporary and relevant for new generations of fans. Ultimately, this is what Disney's growth is all about - new generations of fans. Whether it's infants watching Baby Einstein videos, young girls palying with their Disney Princess dolls, "tweens" watching the Disney Channell, teens seeing Pirates of the Caribbean for the fifth time, men managing their fantasy sports teams on ESPN.com or young families creating memories together at our parks, your company keeps offering fresh, new entertainment that appeals to generations of consumers around the world, while also maintaining and deepening our connection with long-time loyal supporters. This is how it has been since Mickey took the helm in 1928. This is how it will continue to be as he helps us steer into the next 75 years...

Impressive celebration for the 75th anniversary of the Mouse - just that most of these elements of the celebration are not perceived by the guest as being part of the celebration and have not been promoted accordingly. Is this the reaction to the harsh critic coming from fans of the mouse after what they perceived as rather small celebrations?
Totally different topic: "Mickey and the gang appearing in computer-generated animation for the first time in the video premiere ..."?? Haven't Mickey and Donald just been starring in the computer-generated Mickey's PhilharMagic?
Finally the conclusion of the letter with the proposed concentration on "new generations of fans" - the problem here is that the Company is so diversified in the meantime that many of the products so having their own fans are too far away from the Disney brand to create Disney-fans. Eisner's example of the men managing fantasy sports teams on ESPN.com illustrated this perfectly. These men sure can be called fans of fantasy sports and maybe even of ESPN, but besides the fact that ESPN is owned by the Company there is no connection to the Disney brand, so it must be called doubtfull that these men would call themselfes "Disney fans" - which also means they still need to be convinced to try out the offerings of the more classical Disney brands.

The 2003 Annual Report

... 2003 Operating Income Breakdown: 30% Parks and Resorts
... 2003 Revenue Breakdown: 24% Parks and Resorts

... The economic environment had an adverse effect on the Parks and Resorts and Consumer Products segments ... This fiscal discipline has been particularly important given the recent downturn in some of our business segments - most notably Parks and Resorts, where a disruption in travel and tourism was accompanied by significant increasing cost pressures in areas such as employee benefits...

Certainly a core element of the judgment of the performance of this segment of the Company.

... Disney's fiscal 2003 results provided further evidence of the company's success in converting improved performance into increased cash flow and improved capital returns. These efforts were supplemented by carefull stewardship of capital spending. The five years between 1996 and 2001 represented a period of increased levels of investment at the company to strengthen and extend the competitive advantage of Disney's key brands and businesses. During this time, captial spending averaged $2 billion annually, as we transformed Disney's theme park properties around the world into destination resorts by adding new theme parks, over 8,000 hotel rooms and 135,000 square feet of conventions space to the Parks and Resorts portfolio. During this period, we also allocated resources to expand our cable properties, especially ESPN and the Disney Channel, both domestically and internationally. Having completed this phase of investment, we decreased capital spending and shifted our focus toward promoting greater utilization of, and increased financial returns from, the company's expanded asset base ... In 2003, ivestment in the Parks and Resorts segment - the largest draw on capital resources - was $577 million, also below 2002 levels. For 2004 we expect that our capital expenditures will increase somewhat versus 2003 as we allocate more resources towards discretionary projects in response to the improving economic climate and new business opportunities, especially at our theme parks segment. Going forward, we continue to target an average annual capital spending level for domestic theme parks that is meaningfully below $1 billion.

This puts the announcement of Michael Eisner from the Letter to Shareholders in the more concrete frame of the Annual Report: the last five years are now seen as one phase of the internation development of the Parks and Resorts business, which is supposed to significantely cut back on further investments. Which means fewer large scale additions to the parks and resorts in the coming years. A questionable decision in the light of the continuing problems of DCA and WDS.

... In 2003, after a five-year period of unprecedented development, Walt Disney Parks and Resorts entered its next strategic phase, dedicated to driving growth through a combination of initiatives designed to increase returns on existing assets and reach new markets. Since 1998, the legendary artists and engineers at Walt Disney Imagineering have created a record four new theme parks, and in the process, transformed all of Disney's resorts around the globe in multi-day vacation destiantions, complete with world-class lodging, shopping, diverse daytime and nighttime entertainment and at least two Disney parks. Over the next several years, Walt Disney Parks and Resorts will continue to grow by making strategic investments in its entertainment offerings at these properties, building closer relationships with millions of resort guests and exploring new ways to bring the Disney vacation experience to a broader audience. Providing the world’s best family entertainment remained the top strategic priority at Walt Disney Parks and Resorts in 2003, as its Imagineers continued to develop – and thousands of global cast members continued to deliver – the incomparable blend of shows, attractions and guest service that has defined the Disney experience for decades.

Emphasizing once again the change in conduction the parks and resort business - or for the fan once again the upsetting news of fewer new large scale attractions and instead more marketing and entertainment changes. Not discussed here is the discussion that is regularly fought out on the internet boards by fans: is it wise to invest money in entertainment offerings like festivals and marketing campagains that are running for a limited time only, or to bundle up soem money and use it for the creation of a new attraction / ride that is going to stay operating for several decades? 

E-Ticket Attractions

“E-Ticket” attractions, such as Space Mountain, Pirates of the Caribbean and Splash Mountain, have been among the most thrilling and highly visible symbols of Disney theme parks for nearly 50 years. Building on this tradition, Walt Disney Imagineering set a new standard for “E-Ticket” entertainment in 2003, again bringing Disney’s timeless storytelling together with leading-edge technology to create the most exciting attractions ever. Mission: SPACE, which opened at Epcot in August, launches theme park entertainment to new heights, combining the artistry of Disney with technology to create a space adventure that takes guests who “Choose to Go!” all the way to the surface of Mars. In California, construction continued on The Twilight Zone™ Tower of Terror, a pulse-racing adaptation of the landmark attraction that has thrilled and entertained millions of guests at Disney-MGM Studios in Florida. Guests who brave the creepy façade of the once-glorious Hollywood Tower Hotel board a foreboding freight elevator that ascends 13 stories before plunging to the basement in an unpredictable series of plummets and ascents. The first guest check-in is scheduled for May 2004. Work also started on Soarin’ Over California, which is scheduled to open at Epcot in 2005. This landmark attraction debuted at Disney’s California Adventure and gives guests the ultimate sensation of free flight as they “hang glide” over the most awe-inspiring landscapes of the Golden State. Disney’s Animal Kingdom unveiled plans for its biggest attraction ever during a celebration of the park’s fifth anniversary in April. Scheduled to welcome its first intrepid explorers in 2006, Expedition EVEREST will take guests on a high-speed adventure through the thundering waterfalls and glistening glaciers of the Himalayas.

The Disneyland Resort Paris is naturally omitted in this segment, as it is still not officially a part of the Company. Still what at least the long term observer and the fan will recognize is that there is no long term project listed here for the Disneyland Resort Anaheim.

Live Shows and Spectaculars

Like “E-Ticket” attractions, live shows and spectaculars capture the essence of the Disney experience and are an essential part of the varied entertainment found at Disney destinations throughout the world. These high-impact productions were more exhilarating than ever in 2003, using fresh talent and new theatrical techniques to bring the magic of Disney to life in unprecedented ways. At Disney’s California Adventure, theater critics and audiences alike cheered the arrival of Disney’s Aladdin – A Musical Spectacular, which brings Broadway-caliber entertainment to a theme park for the first time ever and offers guests a brand new way to experience the story of one of the most popular animated films in history. In April, characters from Disney Channel descended on Disney’s California Adventure in the smash hit, Playhouse Disney – Live on Stage!, which invites the park’s youngest guests to dance and sing along with such stars as Bear and Stanley. In October, The Golden Mickeys, a multi-media stage show paying tribute to Walt Disney, premiered to wild applause aboard the Disney Cruise Line, and a new pyrotechnic spectacular called Wishes debuted in the skies over the Magic Kingdom at Walt Disney World. And in 2005, the secrets behind Hollywood’s most astounding stunts will be revealed as an incredible new stunt show – based on the popular Moteurs ... Action! Stunt Show Spectacular at the Disneyland Paris Resort – bursts onto the backlot at Disney-MGM Studios at Walt Disney World.

Finally the first mentioning of the Disneyland Resort Paris! This new emphasize on entertainment offerings fits the new overall politic to reduce investment in the parks and resorts segment by concentrating on new entertainment which is in most cases cheaper to create than a new ride. But a second look a the listed new offerings also shows some potential flaws in a concept relying first of all on new shows for the parks and resorts segments. The Golden Mickeys show on board of the Disney Cruise Line might really dazzle its audience, but is a single guest going to book the cruise for the show? Still new shows need to open in the cruise line theaters regularly to keep the cruise interesting for return guests. In the meantime  the two new shows in Disney's California Adventure are something different - there the question is: do they attract more paying guests to the park that is fighting against low attendance, do they create return visits? After a tremendous success in the first months recent reports indicate that by now most locals and fans have seen Aladdin - A Musical Spectacular and the theater is only modestly filled at most performances. This would indicate that even an outstanding show that got rave reviews from the locals and fans who formed long lines to see it in the first weeks, is not enough to attract measurably new guest numbers to an underperforming park.

Disney Stories in Three Dimensions

For nearly half a century, Disney’s theme parks have been where the company’s stories leap from the screen or climb off the pages to become real. Disneyland park continued this tradition in 2003 with The Many Adventures of Winnie the Pooh. Guests who fell in love with Pooh and his pals in A.A. Milne’s classic books and Walt Disney’s beloved animated movies can now see their fictional friends come to life as they journey through the Hundred Acre Wood in search of hunny. Also in 2003, Mickey’s PhilharMagic, an incredible cinematic experience that brings classic characters to life in 3-D animation for the first time, debuted in the Magic Kingdom at Walt Disney World. A perfect way to commemorate the 75th Anniversary of Mickey Mouse, this landmark collaboration between Imagineering and Walt Disney Feature Animation unfolds on the world’s largest seamless 3-D screen. It showcases perennial favorites such as Mickey Mouse and Donald Duck alongside irresistible characters from The Little Mermaid, Aladdin, The Lion King, Beauty and the Beast and Peter Pan. At Disney’s California Adventure, the computer-generated world of the Disney / Pixar film a bug’s life becomes real at a bug’s land, which opened in October 2002. Being small is big fun in this fascinating playground, where attractions including Flik’s Flyers show kids what life looks like from a bug’s point of view. In late 2004, look for “Experiment 626” – a.k.a. Stitch – to stir up trouble when the irrepressible star of Disney’s hit film Lilo & Stitch descends on the Magic Kingdom at Walt Disney World in Stitch’s Great Escape! Featuring some of the most sophisticated Audio-Animatronics® technology ever developed by Walt Disney Imagineering, this Tomorrowland attraction will put guests right in the middle of the fun when the mischievous Stitch wreaks havoc by defying security measures put in place by the Galactic Federation.

Again on the first reading a really positive paragraph showing that Disney is still opening new attractions in their parks and resorts. But then it must be pointed out that The Many Adventures of Winnie the Pooh are absically a redone version of a ride already found in Walt Disney World and is replacing an Audio-Animatronic show at Disneyland, so not adding an additional attraction to a park who is fighting against capacity problems in the recent years due to a failed Tomorrowland redo. Also Mickey's PhilharMagic and Stitch's Great Escape both replace older attractions at WDW. While Mickey's PhilharMagic takes a totally different approach from the stage show originally presented in the building it still needs to be seen wether Stitch's first ride in any Disney theme park manages to avoid the feeling of being an overlay of the Alien Encounter attraction originally in its place of which it will reuse major elements. Also with the closure of the rather dark and scary Alien Encounter the Magic Kingdom did loose one of the attractions appealing to teenagers, which are a rather hard fought over guest segment since the opening of Universal's Islands of Adventure. 

Unforgettable Character Experiences

In 2003, Imagineers continued their tradition of innovation with two technological breakthroughs that will make meeting Disney’s popular characters even more unforgettable. At the Disneyland Resort, Meet Stitch lets guests communicate directly with one of the most eccentric members of the Disney family. Appearing on screen, Stitch interacts with individual guests through animated, real-time conversations on virtually any topic. Forty years after making history with an Audio-Animatronics version of the 16th president of the United States at Disneyland park’s Great Moments with Mr. Lincoln, Imagineering unveiled a new generation of free-standing Audio-Animatronics figures. When Lucky the Dinosaur, the first walk-around character to feature this cutting-edge technology, made his debut at Disney’s California Adventure in August, even paleontologists did a double-take. Walt Disney Parks and Resorts introduced a number of sophisticated new tools in 2003 to build closer relationships with guests and make it even easier and more enjoyable to visit Disney’s vacation destinations.

Imagineering certainly continues to surprise with new technological breakthroughs - the question must be: will there be enough funding not only for future breakthroughs but also to integrate the breakthroughs into the theme parks? Lucky immediately was embraced by guests and the press, but to today it still needs to find a final place to star in in any theme park.

Making Dream Vacations Come True

Several exciting new programs are helping the dream of a perfect Disney vacation come true for guests of all ages and interests. Most companies refer to it as Customer Relationship Management, but at Walt Disney Parks and Resorts, CRM stands for “Creating Relationship Magic,” an ongoing effort to take Disney’s legendary guest service to an even higher level. At the Walt Disney World Resort, CRM processes and technology are making it possible to tailor dining, retail and entertainment offerings to the unique needs and preferences of each guest. Similar capabilities will soon be extended to the Disneyland Resort. Beyond customizing vacations to individual tastes, Walt Disney World is making it easier – and more fun than ever – to travel in groups. Magical Gatherings, a new line of business launched in October 2003, taps into one of the biggest trends in travel with new technology to enable groups of virtually any size to experience the many wonders of Walt Disney World together. Developed in response to recent increases in multi-household leisure travel among friends and extended families, Magical Gatherings helps create an ideal environment for everything from a family reunion to a get-together with college roommates. Web-based planning tools make it possible for large parties to collaborate on itineraries prior to arrival. A variety of special on-property provisions – ranging from bigger restaurant tables to hotel rooms on the same hallway – ensure that no one misses a minute of memories. Disney’s new co-branded VISA card, which The Walt Disney Company launched in March 2003 in partnership with Bank One, is helping make the magic of Disney a reality for more people by enabling guests to earn valuable Disney Dream Reward Dollars toward Disney vacations and other products just by using their credit cards.

Any program improving the experience of guests at the parks and resorts is worth applauding - from an investors point of view these programs are especially important as they create a good impression in the mind of the guest and also help improve the operating of the parks and resorts. But it needs to be pointed out that, however helpful they are, they are seldom actually making the difference wether a guests visits a Disney park and resort or not, as Disney was known for providing outstanding guest service and accomodation special requests also before the new programs were implemented.

Convenience and Accessibility

In order to reduce waiting time, Walt Disney Parks and Resorts continues to implement its patented FASTPASS® technology at Disney parks around the world. This proprietary system allows guests to check in for an attraction in advance and later return to board through a special entrance without waiting. Walt Disney Parks and Resorts has introduced handheld closed-caption and translation devices at Walt Disney World, allowing guests with hearing impairments or limited English fluency to fully enjoy attractions that feature dialogue or narration. Controlled by infrared technology, both devices are automatically timed to attractions, and the translation device – Ears to the World, Disney’s Show Translator© – provides a full range of dramatic effects so the listener does not miss any of the excitement. Advanced technology is used for Pal Mickey, a plush Mickey Mouse “smart” toy that guides guests of all ages through Walt Disney World, enhancing their experiences with advice and entertaining commentary that is activated automatically. Before they even arrive at a Disney destination, guests can visit the “Wild About Safety” Web site, where, as part of an extensive safety communications program launched last May, Timon and Pumbaa from The Lion King educate families about resort safety in a fun and engaging way.

Tokyo Disney Resort

The Tokyo Disney Resort and Disney’s relationship with Oriental Land Co. reached a magical milestone in 2003. Tokyo Disneyland marked its 20th anniversary with an array of festivities that will last until April 2004, including parades, pyrotechnics and musical shows such as Disney’s Dreams on Parade, Blazing Rhythms and Mickey’s Gift of Dreams. As Tokyo Disneyland – the first Disney park outside the United States – celebrated two decades of innovative entertainment, Tokyo DisneySea, which brings the myths and realities of the oceans to life in the grand Disney tradition, marked its second full year of operation.

Disneyland Resort Paris

Disneyland Resort Paris remains Europe’s leading tourist destination, achieving record hotel occupancy rates and welcoming more than 130 million guests since opening in 1992.

The recent downturn in hotel occupancy after the opening of three non-Disney on-site hotels (a fourth to follow late this spring) is not mentioned here.

A July 2003 agreement between Euro Disney S.C.A. and the French public authorities marked the third phase of development of Val d’Europe, continuing a 16-year relationship that has transformed the area surrounding the Disneyland Resort Paris into one of the most important economic hubs of eastern Paris.

Val d'Europe is one of the success stories of Euro Disney S.C.A. which unfortunately is included far to seldom in reports about the company. Certainly it needed to be included here to create a positive impression despite the financial troubles of the resort that will only be mentioned a lot further down in the 2003 Annual Report.

Besides adding a Marriott vacation ownership resort and three other partner hotels in 2003, Euro Disney S.C.A. announced an agreement with Rezidor SAS Hospitality and Orion European Real Estate Fund C.V. to open a four-star, 250-room Radisson SAS Hotel at Disneyland Resort Paris in 2005. Disneyland Resort Paris is also looking forward to the 2004 opening of a new 400-room property to be managed by Mövenpick Hotels & Resorts.

This gives the impression of a continuing success story in conjunction with the earlier mentioning of record hotel occupancy. Again the negative effect on the occupancy in the Disney Hotels in the light of the so far not growing guest numbers is not brought up.

A dazzling twilight spectacular, Disney’s Fantillusion, premiered at Disneyland park in Paris in July, bringing Disney characters, tales and legends to life in a shimmering shower of light.

This highlight of the 2003 season of the resort had to be mentioned here, especially as it also fits wonderfully into the new entertainment based policy in regards of the parks and resorts. Overall the short segment covering the Disneyland Resort Paris manages sucessfully to create a rather positive picture just by omitting certain numbers.

... Disney Store

More people visit the Disney Store annually than visit all of Disney’s parks and resorts. It is the face of Disney in hometowns across the country. Due to the competitive retail environment, The Walt Disney Company announced in May 2003 that it is exploring a range of options for the chain, including the possible sale of stores in North America and Europe. The sale of the Disney Stores in Japan in 2002 was highly successful. It is believed that replicating this model for store operations in North America and Europe will be beneficial for Disney Consumer Products’ business, as well as the future of the stores. In mid-2003, the success of Finding Nemo, combined with a new merchandise assortment that brought back select adult apparel and introduced Disney Channel’s Lizzie McGuire and Disney’s Kim Possible merchandise, assisted in improving the results of the Disney Store chain. The Disney Store continues to remodel stores in various locations around the United States. The stores’ whimsical new look boasts a floor-to-ceiling Mickey cutout entrance, a giant rocket ship, lighter and brighter décor and a magical castle that guests can explore.

If the results are improving again and the new look is a sucess it needs to be questioned why a sale of the Disney Stores should be advisable especially as the report states correctly that they are perceived by guests as a face of the brand in their home town - which not only in cojunction with the huge number of guests the stores attract make the stores a perfect marketing instrument for the different offerings of Disney but also means that the look and the quality of the Disney Stores needs to be controlled and guaranteed after a sale perfectly to avoid any possible damage. Sidenote: the described "whimsical new look" once again difers from the "new" look only tested two years ago with more cool neon colors which was also used as a basic concept for the Disneyland Resort Paris store in the mall of Val d'Europe.

... The business unit [Media Networks - Cable] has become an important new engine of franchise growth and a valuable synergy partner for the company. Recent hit programming such as ESPN Original Entertainment’s movies and series and Disney Channel’s Lizzie McGuire, Disney’s Kim Possible, Rolie Polie Olie and Stanley have turned into profitable franchises for other divisions of the company through feature films, theme park attractions, records, books, merchandise and other products.

Again this fits into the new overall strategy to emphasize new entertainment offerings instead of new rides in the theme parks. The mentioned franchises and cable tv contents lend themselfes much better to shows and events than to new rides, especially as tastes and with them hits and franchises on TV change quite regularly.

... Disney’s international cable holdings include 22 Disney Channels, three Playhouse Disney channels, three Toon Disney channels, and more than a dozen Fox Kids channels, as well as 25 ESPN cable networks and syndicated programming in 140 countries and territories. In 2003, Disney Channels were launched in Denmark, Norway, Sweden, New Zealand and Japan.

From a European view point the launch of the Disney Channel in Denmark, Norway and Sweden is of special interest. With the Disney Channel already on air in the UK, Germany and France this should provide a perfect platform to promote the Disneyland Resort Paris, especially as studio facilities in the WDS are existing and would allow for easy production of shows inside the resort. This synergy effect has not been fully exploited so far, but the Company maybe could offer a certain promotional service on these stations as part of its liabilities in a deal to save Euro Disney.

Walt Disney Television Animation was integrated into the cable networks group in 2003, bringing programming and production expertise together under the same leadership. The television animation studio is more active than at any other time in its 20-year history, with three television series in production, including Disney’s Kim Possible, Lilo & Stitch: The Series, and Dave the Barbarian, which premiered in January 2004, and more than a dozen other projects in development.

While not very popular among many fans due to the so called "cheap-quels" Walt Disney Television Animation is not only providing a major element of the animated output of Disney in the recent past, but also sucessfull original content. This should not be forgotten when judging the division, especially as there are also the DisneyToon Studios responsible for the "cheap-quels" as Jungle Book 2.

... Internationally, Radio Disney currently airs in Japan, the United Kingdom, Argentina and Paraguay, and discussions are underway to bring Radio Disney service to a number of other countries.

As with the Disney Channel the expansion of Radio Disney to Europe should be welcomed by the fan of the Disneyland Resort Paris and be seen as an option to further promote the resort to an audience which seems interested in Disney products in the first place. An integration of Radio Disney into the resort in some way, e.g. with a broadcasting studio in the WDS which allows guests to observe actual broadcasting should be considered too.

... 

...

Parks and Resorts
2003 vs. 2002

Revenues at Parks and Resorts decreased 1%, or $53 million, to $6.4 billion. The decrease was driven primarily by decreases of $57 million due to the sale of the Anaheim Angels baseball team during the third quarter of fiscal 2003, $51 million from decreased revenues from Euro Disney, and $14 million from the Walt Disney World Resort. These decreases were partially offset by an increase of $83 million at the Disneyland Resort. The decrease in revenues from Euro Disney reflected the cessation of billing and recognition of revenues from royalty and management fees commencing with the second quarter of fiscal 2003 due to Euro Disney's financial difficulties. The Company likely will not recognize revenues from royalties and management fees in fiscal 2004.

"Finally" the financial crisis of Euro Disney S.C.A. is mentioned the first time. More interesting is the fact that the Company does not expect any revenues from Euro Disney in fiscal 2004 at all. Translation: any rescue operation most propably will include a cessation of these payments to the Company at least for 2004 and not just a further reduction. Of interest is also the amount payed in 2002 - it is rather small but that is due to the fact, that the 1994 refinancing deal included slowly increasing royalty and management fees that are not supposed to be at the original 100% level yet.

Revenues at the Walt Disney World Resort were down marginally and reflected lower theme park attendance and hotel occupancy, compared to the prior year, partially offset by increased per capity guest spending at the theme parks and hotel properties. Decreased theme park attendance and hotel occupancy at the Walt Disney World Resort reflected continued softness in travel and tourism. Guest spending increases reflected ticket price increases and fewer promotional programs offered during the year.

The cut back on promotional programs mentioned here shows the trust that management still has into their product Walt Disney World. They expect numbers to pick up even without expensive promotional offers - even so they did delay the opening of the new Pop Century quite a bit.

At the Disneyland Resort, increased revenues were primarily driven by higher theme park attendance and hotel occupancy. These increases were driven by the success of certain promotional programms offered during the year, as well as the opening of new attractions and entertainment venues at both the Disneyland Park and Disney's California Adventure during the current year.

Note that the plans to transform the Disneyland Anaheim into a destination resorts with more guests staying on property even so a wide selection of off-site hotels within walking distance of the theme parks is posing tough competition finally seems to start bringing in results. The new attractions and entertainment venues as a cause for increased attendance so seem questionable. Reports on the numerous unofficial websites covering the Disneyland Resort Anaheim mostly stress that the new attractions while generating huge lines of AP-holders in the first weeks have more or less fallen into the normal attendance patterns and are not attracting outstanding crowds. From a tactical point of view it might have been a not so good idea too to claim that the new attractions helped the attendance. This now forces the Company to produce another measurable attendance increase in the resort (and not just in DCA by shifting guests from one gate to the other) after the opening of ToT, as that one is presented to the shareholders in the 2003 Annual Report as such an outstanding addition to the resort.

Across our domestic theme parks, attendance and per capita guest spending increased 1% compared to the prior year. Hotel occupancy was 77% on 8,341,030 rooms in fiscal 2003 compared to 76% on 8,533,135 rooms in fiscal 2002. Per room guest spending was $210 and $204 in fiscal 2003 and 2002, respectively.

Time for some maths... 77% of 8,341,030 rooms that is 6,422,593.1 rooms that were occupied all the time in 2003 compared to 76% of 8,533,135 which is 6,485,182.6 rooms that were occupied all the time in 2002. In other words: the actual number of rooms solidely booked has SHRUNK, only the occupancy rate as percentage of available rooms has gone up as several resorts were closed for lengthy refurbishments. While a higher occupancy rate with fewer rooms means less expenses for better bookings, this would only be true if the missing rooms wouldn't be added again after the end of refubirshments - not to mention the new rooms to be added with the new Disney Vacation Club Resort Saratoga Springs in WDW.

Costs and expenses, which consist principally of labor, cost of merchandise, food and beverages sold, depreciation, repairs and maintenance, entertainment, marketing and sales expense, increased 3%, or $159 million compared to the prior year. The increase in costs and expenses was primarily due to higher costs at the Walt Disney World Resort and the Disneyland Resort, partially offset by cost decreases due to the sale of the Anaheim Angels during the third quarter. Higher costs at Walt Disney World and Disneyland were primarily driven by higher spending on employee benefits, repairs and maintenance, marketing, informations systems, insurance, and depreciation. Employee benefits costs in fiscal 2004 are expected to increase due to higher fiscal 2004 pension and postretirement medical costs as discussed under "Consolidated Results" above.
Segment operating income decreased 18%, or $212 million, to $957 million, primarily due to higher costs and expenses at the Walt Disney World Resort and the decreased revenues from Euro Disney. Revenue increases at the Disneyland Resort were offset by higher costs and expenses.

... Investments in Parks, Resorts and Other Properties

The five years between 1996 and 2001 represented a period of increased levels of capital investment at the Company, as we sought to strengthen and extend the competitive advantage of our key brands and businesses. During the period, capital spending averaged approximately $2 billion annually as we invested capital to transform our parks and resorts properties around the world by adding new theme parks and theme park attractions, hotel rooms and convention space. Having substantially completed this phase of investment, we have since decreased captial spending. During the year, the Company invested $1.0 billion in parks, resorts and other properties. Investments in parks, resorts and other properties by segment are as follows:

... 

...

Capital expenditures for the Parks and Resorts segment are principally for theme park and resort expansion, new rides and attractions, recurring capital and capital improvements. The decrease in fiscal 2003 as compared to fiscal 2002 was primarily due to the completion in the prior year of a new resort facility at Walt Disney World. Signigicant new attractions that were in process in fiscal 2003 included Tower of Terror at Disney's California Adventure, Mission Space at Epcot and Mickey's PhilharMagic at Walt Disney World. In addition to new attractions, fiscal 2003 spending included certain information systems projects at Walt Disney World.

The years 1996 to 2001 are now declared as the expansion pahse of the Parks and Resorts segment of the Company - that would be mighty fine, if this declaration would not be used to explain and cover the drastic reduction of capital investment in this segment in 2002, 2003 and for the coming years. Declaring the expansion phase as having sucessfully been finished and at the same time reducing the new investment creates the impression with the shareholder that the company now has entered a phase to receive the just earnings from exceptionell earlier spending. But looking at the state of the major new projects from the 5 year expansion phase it is clearly obvious that further investments to protect the original investments are necessary as the new parks have not been accepted by guests as it would be necessary. Also this creates the false impression guests would continue to flock to the parks (at least those they are visiting already) even if no major investments in new offerings at these parks in the form of rides are being made. This is the assumption of the current management, but conventional wisedom needs to question it, as the loyal fan and guest base already started to grow restless with the reduced investment in new rides and competing parks are investing in new rides.

... Other Investing Activities

... The Company also made equity contributions to Hong Kong Disneyland totaling $47 million and received proceeds of $166 million from the sale of the Angels and certain utility infrastructure at Walt Disney World.

Just $47 million so far for Hong Kong Disneyland - depending on whom you listen too, that either shows what a favorable contract the Company was able to negotiate (official line), or that the park will be a rather cut back version of a Magic Kingdom (many fans' line).

... Contractual Obligations, Commitments and Off Balance Sheet Arrangements

... Euro Disney
The Company has a 39% interest in Euro Disney S.C.A., which operates the Disneyland Resort Paris. As of September 30, 2003, the Company's investment in and accounts and notes receivable from Euro Disney totaled $494 million, including $117 million drawn under a line of credit which is due in June 2004. The maximum amount available under the line is 168 million Euros ($192 million at September 30, 2003 exchange rates).

The combination of the Company's investment in Euro Disney S.C.A. and the outstanding payments of Euro Disney to the Company hide the hard numbers how much money Euro Disney actually owes the Company and how much the original investment of the Company into its Paris project is still worth. Rather convenient solution in the light of the fact that depending on the refinancing deals the Company may loose most or all of the still outstanding payments anyway. The credit line information had been made public by Euro Disney already in their last statements. Still it is interesting to note once again the date the credit is due on: June 2004. This makes it nearly 100% sure that no repayment will happen when it is due, as certainly the lenders will not accept such a huge amount of money flowing back to the Company shortly after a refinancing deal in which all lenders will have to write off or at least extend the maturity of Euro Disney's debt.

... The slowdown in the European travel and tourism industry has negatively affected Euro Disney's results of operations and cash flow. In response to this situation, Euro Disney initiated discussions with its lenders and the Company to obtain waivers of its fiscal 2003 loan covenants and to obtain supplemental financing to address Euro Disney's cash requirements.

The explanation for the current financial crisis is rather one dimensional by blaming just external factors. But then this is the only way to keep the management of the Company away from any possible responsibility for the situation - even so the Company's management could have warned Euro Disney, if the slow down and its negative effect on guest attendance and hotel occupancy was not a surprise as was claimed earlier in the 2003 Annual Report.
In fact the current financial crises while certainl owing at least partially to the travel and tourism industry's slowdown needs to be also blamed on the opening of the WDS which not only created huge additional debt but also increased operational costs which were not offset by higher guest numbers as the park has widely been labeled as not sufficient, not fulfilling the expectations of many guests into a Disney product and too much "cut back". Also the financial restructuring from 1994 needs to be blamed that has Euro Disney still paying off original debts and in the last years also paying rising royalties and management fees to the Company once again. The tight financial situation created by these preconditions was then further aggrevated by the travel slowdown, by a rather ineffective marketing that only under the new CEO Andre Lacroix has been undergoing close scrutiny again and also by the fact that numerous other European theme parks are expanding fast into complete destination resorts with hotels priced below the Disneyland Resort Paris even so they regularly add new attractions, something that was impossible for Euro Disney at its Disneyland Park due to its financial situation and the obligations toward the WDS. But as already explained such a slightly more realistic explanation of the situation would blame responsibility for it on the Company's management as it was cloesely involved in the 1994 for refinancing deal and in the creation of the WDS.

... As a result of an agreement entered into on March 28, 2003, the Company did not charge Euro Disney royalties and management fees for the period from January 1, 2003 to September 30, 2003. During the last three quearters of fiscal 2002, the Company's royalty and management fee income from Euro Disney totaled $27 million. Additionally, the Company agreed to allow Euro Disney to pay its royalties and management fees annually in arrears for fiscal 2004, instead of quarterly.

That is the actual contract contend as far as it can be judged from the outside. But Euro Disney did explain, when the agreement was found, that the annual payments propably will not occur as planned by the wording of the contract as the new contract has to honor the 1994 refinancing deal that prohibits payments over a certain amount going toward the Company to protect the interest of the lending banks. Which means these payments will be delayed even further.

On November 3, 2003, Euro Disney obtained waivers from its lenders, effective through March 31, 2004, with respect to covenants for fiscal 2003. The agreemenet is expected to give Euro Disney, its lenders and the Company time to find a resolution to Euro Disney's financial situation. In conjunction with the bank waivers, the Company has provided a new 45 million Euros ($52 million at September 30, 2003 exchange rates) subordinated credit facility, which can be drawn on through March 31, 2004 only after Euro Disney's existing line of credit with the Company is fully drawn. Repayment of any amount drawn down on the new credit facility is subject to Euro Disney meeting certain financial tresholds or the prior repayment of all of Euro Disney's existing debt to its lenders.

Currently it does not look as if Euro Disney would draw the new line of credit but it is a last resort for the worst case and also presented the Company's dedication to finding a solution for the financial crisis at the Disneyland Resort Paris without sacrificing Euro Disney S.C.A. - an important gesture toward the other lenders.

Euro Disney is currently engaged in discussions with its agent banks and the Company to obtain supplemental financing to address its cash requirements. Such financing may include an extension or change in the terms associated with the Company's credit line or additional commitments from the Company. If a resolution to Euro Disney's future financing needs is not obtained by March 31, 2004, the waivers would expire and Euro Disney's lenders could accelerate the maturity of Euro Disney's debt. Should that occur, Euro Disney would be unable to meet all of its debt obligations.

This is the bad message here - if no solution is found by the end of March Euro Disney won't be able to fulfill its obligations. But we knew that already. Except one little point: the lenders would only be able to accelerate the maturity of the debt as of that day. This means: in theory the lenders could give Euro Disney another reprieve to bring negotiations to a positive end just by not accelerating the maturity immediately on April 1, 2003.

The Company believes that Euro Disney will ultimately obtain the requisite loan modifications and additional financing; however, there can be no assurance that this will be the case. Should Euro Disney be unable to obtain loan modifications and / or additional financing, some or all of the Company's $494 million Euro Disney investment and receivables would likely become impaired. Additionally, it is possible that financing modifications and / or the form of the resolution could result in a partial impairment of the Company's Euro Disney investment and receivables.

Basically the Company can't say anything else here. As it is not only deeply financially involved (deeper than suggested here as the further 2003 Annual Report will explain) but also the Disneyland Resort Paris is a major element of the Company's image in Europe anything like a insolvency of Euro Disney S.C.A. would not only put pressure on next year's Company results but also heavily damage the image of the Company in the public and its standing with lender banks worldwide on which the Company still relies for other projects as e.g. Hong Kong Disneyland.

... As of September 30, 2003, Euro Disney had, on a US GAAP basis, total assets of $3.4 billion and total liabilities of $3.3 billion, including borrowings totaling $2.5 billion. See Notes 2 and 4 to the Consolidated Financial Statements for additional information related to Euro Disney's financial position and results of operations as well as the potential impact of FASB Interpretation No. 46.

While in theory with that the liabilities are not larger than the total assets the bad ratio that Euro Disney S.C.A. sports also means that the interest of those on the receiving end of the liabilities should be interested in a positive outturn for Euro Disney's future - if only because the assets would fetch significantly under their book-estimate if sold one by one to recoupe investments after a failure of Euro Disney due to the nature of the assets.

... In connection with a financial restructuring of Euro Disney in 1994, Euro Disney Associes S.N.C. (Disney SNC), a wholly owned affiliate of the Company, entered into a lease arrangement with a financing company with a cancelable term of 12 years related to substantially all of the Disneyland Park assets, and the entered into a 12-year sublease agreement with Euro Disney on substantially the same terms. Remaining lease rentals at September 30, 2003 of approximately $544 million receivable from Euro Disney under the sublease approximate the amounts payable by Disney SNC under the lease. At the conclusion of the sublease term, Euro Disney will have the option of assuming Disney SNC's rights and obligations under the lease for a payment of $90 million over the ensuing 15 months. If Euro Disney does not exercise its option, Disney SNC may purchase the assets, continue to lease the assets or elect to terminate the lease. In the event the lease is terminated, Disney SNC would be obligated to make a termination payment to the lessor equal to 75% of the lessor's them outstanding debt related to the Disneyland Park assets, which payment would be approximately $1.3 billion. Disney SNC would then have the right to sell or lease the assets on behalf of the lessor to satisfy the ramining debt, with any excess proceeds payable to Disney SNC.

This means: in the case of total failure of Euro Disney S.C.A. the Company would not only have to write off most of its investment in and accounts and notes receivable from Euro Disney totaling $494 million, but also would have to finance its 100% owned affiliate Disney SNC to pay the outstanding lease payments (as its contract is not cancelable) and then decide wether it wants to continue the lease further (which would mean that it would need to find / create a new operating company for the Disneyland Resort Paris and help finance such a company) or wether it would want to terminate the lease and pay the approximately $1.3 billion to the lessor, which the Company once again would have to finance for Disney SNC. This is an extreme capital risk for the Company (especially as also in the latest picture Disney SNC would be left with the assets and would have to find a way to either sell or lease them to repay further outstanding debt on the assets). This should guarantee more or less that the Company will do its best to assure that Euro Disney S.C.A. does not falter before the end of the lease and then does exercise its assumption option order or that the assumption is realized through a different company financed through the refinancing deal still to be negotiated.

... Notwithstanding Euro Disney's financial difficulties, the Company believes it is unlikely that Disney SNC would be required to pay the 75% lease termination payment as the Company currently expects that in order for Euro Disney to continue its business it will either exercise its assumption option in 2006 or that the assumption of the lease by Euro Disney will otherwise be provided for in the resolution to Euro Disney's financial situations.

As explained above the Company needs to hope for that and certainly will fight to achieve this goal if not for the image damage a failure of Euro Disney S.C.A. would create then to avoid the huge payments the Company would have to finance through Disney SNC. Interesting to note so, that the Company points out the option that the refinancing deal for Euro Disney may not leave it with enough cash ($90 million payable over fifteen months as of 2006) or cash free disposable to exercise its assumption but instead a new way may be found - which would mean that Euro Disney S.C.A. would still be at the lower end of a sublease and not gaining final control over the assets even so this would have a positive impact on its credit ratings and therefore on the interest payable on loans.

... Investments

... Euro Disney
The Company has a 39% interest in Euro Disney S.C.A., which operates the Disneyland Resort Paris. As of September 30, 2003, the Company's investment in and accounts and notes receivable from Euro Disney totaled $494 million, including $117 million drawn under a line of credit which is due in June 2004. The maximum amount available under the line is 168 million Euros ($192 million at September 30, 2003 exchange rates).
The slowdown in the European travel and tourism industry has negatively affected Euro Disney's results of operations and cash flow. In response to this situation, Euro Disney initiated discussions with its lenders and the Company to obtain waivers of its fiscal 2003 loan covenants and to obtain supplemental financing to address Euro Disney's cash requirements.
As a result of an agreement entered into on March 28, 2003, the Company did not charge Euro Disney royalties and management fees for the period from January 1, 2003 to September 30, 2003. During the last three quarters of fiscal 2002, the Company's royalty and management fee income from Euro Disney totaled $27 million. Additionally, the Company agreed to allow Euro Disney to pay its royalties and management fees annually in arrears for fiscal 2004 instead of quarterly.
On November 3, 2003, Euro Disney obtained waivers from its lenders, effective through March 31, 2004, with respect to covenants for fiscal 2003. The agreement is expected to give Euro Disney, its lenders and the Company time to find a resolution to Euro Disney's financial situation. In conjunction with the bank waivers, the Company has provided a new 40 million Euros ($52 million at September 30, 2003 exchange rates) subordinated credit facility, which can be drawn on through March 31, 2004 only after Euro Disney's existing line of credit with the Company is fully drawn. Repayment of any amount drawn down on the new credit facility is subject to Euro Disney meeting certain financial tresholds or the prior repayment of all of Euro Disney's existing debt to its lenders.
Euro Disney is currently engaged in discussions with its agent banks and the Company to obtain supplemental financing to address its cash requirements. Such financing may include an extension or change in the terms associated with the Company's credit line or additonal commitments from the Company. If a resolution to Euro Disney's future financing needs is not obtained by March 31, 2004, the waivers would expire and Euro Disney's lenders could accelerate the maturity of Euro Disney's debt. Should that occur, Euro Disney would be unable to meet all of its debt obligations. The Company believes that Euro Disney will ultimately obtain the requisite loan modifications and additional financing; however, there can be no assurance that this will be the case. Should Euro Disney be unable to obtain loan modifications and/or additional financing, some or all of the Company's $494 million Euro Disney investment and receivables would likely become impaired. Additionally, it is possible that financing modifications and/or the form of the resolution could result in a partial impairment of the Company's Euro Disney investment and receivables.
In connection with a financial restructuring of Euro Disney in 1994, Euro Disney Associes S.N.C. (Disney SNC), a wholly owned affiliate of the Company, entered into a lease arrangement with a financing company with a noncancelable term of 12 years related to substantially all of the Disneyland Park assets, and then entered into a 12-year sublease agreement with Euro Disney on substantially the same terms. Remaining lease rentals at September 30, 2003 of approximately $544 million receivable from Euro Disney under the sublease approximate the amounts payable by Disney SNC under the lease. At the conclusion of the sublease term, Euro Disney will have the option of assuming Disney SNC's rights and obligations under the lease for a payment of $90 million over the ensuing 15 months. If Euro Disney does not exercise its option, Disney SNC may purchase the assets, continue to lease the assets or elect to terminate the lease. In the event the lease is terminated, Disney SNC would be obligated to make a termination payment to the lessor equal to 75% of the lessor's then outstanding debt related to the Disneyland Park assets, which payment would be approximately §1.3 billion. Disney SNC would then have the right to sell or lease the assets on behalf of the leessor to satisfy the remaining debt, with any excess proceeds payable to Disney SNC. Notwithstanding Euro Disney's financial difficulties, the Company believes it is unlikely that Disney SNC would be required to pay the 75% lease termination payment as the Company currently expects that in order for Euro Disney to continue its business it will either exercise its assumption option in 2006 or that the assumption of the lease by Euro Disney will otherwise be provided for in the resolution to Euro Disney's financial situation.

The paragraphs above, even so slightly rewritten in minor phrasings, have the same content as the excerpted section above. The information had to be repeated due to regulations in regard of the content and structure of Annual Reports of publicly traded companies under U.S. GAAP.

A summary of U.S. GAAP financial information for Euro Disney as of and for the years ended September 30, 2003 is as follows:

This is a screenshot of the 2003 Annual Report of the Company resized to better fit into the page and reduce loading time. Click on the screenshot for a 1:1 screenshot of the document for easier reading of the figures. The differences of the results as displayed here to the figures released by Euro Disney S.C.A. is explained by the different accounting standards. Still this is interesting, as the results released so far for fiscal 2003 by Euro Disney (which has not yet released its 2003 Annual Report) did not give such a good overview.
Interesting to note is the fact that the net loss basically stayed unchanged since fiscal 2002 even so cost and expenses did increase heavily due to the fact that fiscal 2003 is the first full fiscal year with operating costs of WDS included. The same factor also contributed to the huge increase of revenues from fiscal 2002 to fiscal 2003 - which basically means: the amount of cash movin through Euro Disney S.C.A. has been increased but it is not (yet) able to increase its earnings/profits / reduce its loss as the WDS did not reach the attendance level originally expected by Jay Rasulo in rather positive forecasts but still putting the full operatinal costs onto the bill. As a positive development the increase of cash and cash equivalents needs to be seen, but that that has become necessary as with the operation of a second theme park the amount of cash circulating naturally had to be increased.
What looks like a huge increase in the "Current portion of borrowings"-entry is not any new borrowing, in fact this increase is only a change in accounting necessary under U.S. GAAP due to the fact that these debts may become mature shortly (as of March 31, 2003) if not a long term solution to the current financial crisis is found. In 2002 the borrowings were still listed further down the sheet as "Borrowings". 

... Hong Kong Disneyland
In 1999, the Company and the Government of the Hong Kong Special Administrative Region signed a master project agreement for the development and operation of Hong Kong Disneyland. Phase I of the development, which will be located on 309 acres of land on Lantau Island, includes the Hong Kong Disneyland theme park and one or more hotels. Subject to the Government's completion of infrastructure by specified target dates, Hong Kong Disneyland is currently targeted to open in 2005/2006. The master project agreement permits further phased buildout of the development under cerain circumstances.
Construction and operation of the project will be the responsibility of Hong Kong International Theme Parks Limited, an entity in which the Hong Kong Government owns a 57% interest and a subsidiary of the Company owns the remaining 43%. A seperate Hong Kong subsidiary of the Company is responsible for managing Hong Kong Disneyland. Based on the current exchange rate between the Hong Kong and U.S. dollars, the Company's equity contribution obligation is limited to U.S. $316 million. As of September 30, 2003 the Company had contributed U.S. $73 million and the remaining $243 million is payable over the next three years. Once Hong Kong Disneyland commences operations, the Company will be entitled to receive management fees and royalties in addition to the Company's equity interest.

Note first that the operational company does not bare the name Disney in it any more, different from the situation in France, and also that the original stake of the Company is only 43% while it started of with a 49% stake in Euro Disney S.C.A. that was only reduced later during the refinancing in 1994. This may also mirror the fact that the equity contribution of the Company is rather small. The statement that the Company has contributed $73 million so far is not contradicting the earlier also excerpted statement in the report "the Company also made equity contributions to Hong Kong Disneyland totaling $47 million" as the $47 million are only the contributions in fiscal 2003 while $73 million are the total contributions over the whole period the project is running so far. As in the case of Euro Disney S.C.A. the company will receive management fees and royalties once the resort operates.

... Impact of FIN 46 on Equity Investments
As discussed in Note 2, the implementation of FIN 46 will likely require the Company to consolidate both Euro Disney and Hong Kong Disneyland for financial reporting purposes in the first quarter of fiscal 2004. The following tables present consolidated results of operations and financial position for the Company as of and for the year ended September 30, 2003 as if Euro Disney and Hong Kong Disneyland had been consolidated based on our current analysis and understanding of FIN 46.

This is a screenshot of the 2003 Annual Report of the Company resized to better fit into the page and reduce loading time. Click on the screenshot for a 1:1 screenshot of the document for easier reading of the figures. As the 2003 Annual Report of the Company already explains this has been included as it is expected that due to financial regulations the Company may have to treat Euro Disney S.C.A. and Hong Kong Disneyland as if they were actually a part of the Company. This does not have any effect on how these companies are actually governed or who owns them and is only an accounting rule. But: if the understanding of the rule in question held currently by the Company proofs to be correct and the Company has to consolidate Euro Disney S.C.A. and Hong Kong Disneyland (which in fact would be Hong Kong International Theme Parks Limited to stay correct) regularly in the future this will have an impact on the bottom line / the results as they are presented to the public and in the main part of the Annual Report and not only somewhere hidden in the notes. This means the Company will have an even increased interest that both companies perform well which should translate into an even closer relationship of the Company and Euro Disney in the sense that the Company should put even more effort into the refinancing currently under negotiations for Euro Disney - which should be considered a positive sign for fans of the Disneyland Resort Paris.

... Commitments and Contingencies

...

While refraining from any closing comment / statement, as the statements and comments to the excerpts of the 2003 Annual Report of The Walt Disney Company surely can stand on their own it needs to be pointed out that under the headline Commitments and Contigencies three lawsuits are listed that could have a negative effect on the Company. All three concern the legal fight over the breach of the license contract that Stephen Slesinger, Inc. claims in regard of the rights for Winnie the Pooh which the Company licensed from it. A negative final ruling would not only force the Company to pay what Slesinger Inc. claims are held back license payments but also could lead to a termination of the license contract therefore depriving the Company and with it the parks and resorts segment of future sales of Pooh merchandising while at the same time also basically practically ruling out the future use of the character in the parks and resorts.