DISNEY COMEBACK FORECAST.

Byline: Greg Hernandez Staff Writer

BURBANK - Putting the best spin on what was a dismal year for The Walt Disney Co., Chairman and CEO Michael D. Eisner assured shareholders in a letter released Thursday that the media conglomerate is positioned to bounce back in 2002.

``I cannot guarantee what our growth will be. But I do respond with a knowing smile to financial analysts, Disney family members, large investors and journalists when asked,'' Eisner stated. ``We believe we are on the right track. Frankly, with the Disney brand and the great assets of our company, it isn't easy to fail. It's much easier to succeed. And we will.''

In his letter, included in the company's just-released 2001 Annual Report, Eisner expressed his disappointment that the overall equity of the company did not rise as it has in past years.

Disney shares hit a six-year-low $15.50 in September but have since climbed back into the $20 range. Disney gained 67 cents Thursday to close at $22.12. The terrorist attacks of Sept. 11 only exacerbated Disney's woes with theme parks and advertising - the streams of revenue on which the company relies most - taking even bigger hits.

``We are a public company, and we want you to own a growth company,'' Eisner wrote to shareholders. ``At the same time, I don't think about The Walt Disney Company quarter to quarter. I think about The Walt Disney Company quarter to quarter to quarter to quarter to quarter; in other words, over the long term.''

Wall Street had predicted the flat year for Disney but most analysts remained optimistic about the company's long-range prospects because of its many assets and strong brand identity.

Since advertising and tourism travel were strongly affected by the economy and external events, analysts have been much more interested in Disney's strategic plans for the future than the lackluster year that just passed.

Eisner detailed some of those plans for the coming year and beyond as well as the company's trouble spots.

With attendance at Florida's Walt Disney World and Disneyland in Anaheim down significantly, Eisner also acknowledged that the company's newest theme park, Disney's California Adventure, has faced major attendance struggles since it launched next to Disneyland last February.

``Unfortunately, we launched it in a year of abnormal rain (for Southern California), a softening economy, a California energy crisis and, of course, the uncertainty following September 11,'' Eisner stated. ``Unlike Tokyo DisneySea , the crowds that the expansion has attracted have not been of the magnitude we had hoped for in its inaugural year.''

But he added that the long-term investment in Anaheim, which also included the opening of the Downtown Disney entertainment complex, will pay dividends in the long run.

``We now have a vastly improved asset in Anaheim, which - as the economy improves, and the lights stay on, and the Bug's Life children's land opens this fall, and The Twilight Zone Tower of Terror opens in a few years - will turn the park, like our others, into the blockbuster we all know it is.''

While domestic theme parks struggled, Eisner pointed out some bright spots internationally with the opening of the Tokyo DisneySea theme park, adjacent to Tokyo Disneyland. Also in Asia, work is progressing on Hong Kong Disneyland. In Europe, an all-new theme park adjacent to Disneyland Paris, called Walt Disney Studios Paris, is in the works. It is modeled after the Disney-MGM Studios at Walt Disney World.

``We are now officially in a recession and people have less disposable income for travel,'' Eisner stated. ``However, when the economy does come back, and as confidence in America's safety continues to grow, there is every reason to believe that the performance at our parks will be stronger than ever. This has been the pattern of every recession in the past.''

On the television front, Eisner pointed out that while ABC has struggled mightily with its ratings in prime time, it continues to dominate with its daytime programming. Its news division is also edging closer to ratings leader NBC.

But ABC went from being the top-rated network in the evening to dead last among the ``big four'' networks in the most recent ratings sweeps period. Its once-dominant ``Who Wants to Be a Millionaire'' program has tumbled in the ratings and much of the prime time schedule has suffered as a result.

Analysts have pointed to ABC as a major trouble spot for Disney that must be remedied in order for the company to regain its footing.

Eisner blamed the situation on the soft ad market but acknowledged that the network needs to create ``great content'' in order to rebuild.

``Prime time does present a problem, and we are determined to solve it,'' he stated. ``You can move from the number three or number four network to the number one network in two years by having one new hit, say, every six months.''

``When I was at ABC in the '70s, we went from last to first,'' he added. ``NBC in the '80s had the same kind of success and pushed ABC out of the leadership role. Under (Walt Disney Co. President) Bob Iger in the '90s, ABC recaptured the lead. Now we have to do it again.''

Also falling from first to fourth in 2001 was Disney's film studio, which had been the top grossing studio in the United States for each of the previous three years. It is currently enjoying the phenomenal success of the blockbuster ``Monsters, Inc.'' and had major hits in 2001 with ``Pearl Harbor'' and ``The Princess Diaries'' but also had several misfires and postponed the release of the Chris Rock movie ``Bad Company'' after Sept. 11.

Eisner touted upcoming releases such as the animated film ``Lilo & Stitch,'' the delayed ``Bad Company,'' ``The Rookie'' with Dennis Quaid as a 38-year-old high school baseball coach who tries out for the major leagues, ``Country Bears,'' based on popular attraction at several Disney theme parks, and ``Signs,'' a film starring Mel Gibson and directed by M. Night Shyamalan who led Disney to box office gold twice in recent years with ``The Sixth Sense'' and ``Unbreakable.''

In the area of home video, Eisner touted Disney's major successes with the DVD releases and record sales of ``Snow White and the Seven Dwarfs'' and ``Pearl Harbor.''

Eisner also outlined cost-savings measures, which include: trimming the work force by approximately 4,000 positions, primarily through voluntary separations; the implementation of more sensible purchasing policies expected to save at least $200 million; a $600 million cut in the annual investment in live-action films accomplished in part by eliminating unproductive talent deals and streamlining the script development process; scaling back Internet operations; completing the process of closing 51 Disney Stores that were achieving sub-par performance with plans to close about 50 more.

``In addition to being lean and disciplined, we are mobilized on a number of fronts to seize and create a range of opportunities that we see across the country and around the world,'' Eisner stated.

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(color) Michael D. Eisner, chairman and CEO of The Walt Disney Co., says stockholders can expect a brighter 2002

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The Walt Disney Company

SOURCE: The Walt Disney Company

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