Global Finance at Disney

It would seem that the functions of a Corporate Treasury Department would have little in common with producing The Little Mermaid, Tokyo Disneyland or The Experimental Prototypical Community of Tomorrow (EPCOT).

After all, doing deals on Wall Street is a far cry from riding Space Mountain in the Magic Kingdom. Yet while the business and operational sides of any company are obviously different, the philosophy that underlies them at the Walt Disney Company is not. Disney's commitment to creativity has not only meant great films and memorable vacations for millions, but also a legacy of financial success.

The Treasury department, Disney's chief financial arm, is charged with the ongoing task of increasing shareholder value by taking an ambitious and innovative approach to finance. This is accomplished through three broad areas of financial management: corporate finance, cash and investment management, and foreign exchange.

Corporate finance primarily refers to the way in which a company raises and structures capital. There are, of course, various reasons why a corporation may seek funding. Some choose to raise money for strategic purposes, while sometimes it is done because the economics seem especially attractive. Whatever motivation a company may have, the Treasurer and his or her team face the challenge of accomplishing its objectives in the most efficient way possible. That is, they must determine how funds from the marketplace (e.g. lenders, investors) can be attracted to a particular venture at the least possible cost. This is typically a very complicated question, and one that we face all the time at Disney due to the unique nature and enormous growth of the various businesses. Building theme parks and hotels and making movies are capital-intensive and often risky enterprises, qualities which make their financing especially important. Disney's financial success and international appeal, moreover, have opened avenues of financing which many coporations are unable to pursue.

Given our strong position in the entertainment industry and global financial centers, Treasury has pursued innovative ways to increase shareholder value in the financings of theme parks on three continents and of the films produced under the Disney, Touchstone and Hollywood Pictures labels. We have pioneered the use of international souces of funds, structured deals around complex accounting and tax regulations, and shared the business' returns with individual and institutional investors.

The maximization of these returns within prudent investment guidelines is the focus of cash and investment management. Generally speaking, Treasury is able to invest the company's funds aggressively because of Disney's healthy financial standing and its strong appeal on Wall Street. Managing a short-term portfolio of considerable size, Treasury plays an active role in the equity, fixed-income and other financial markets. While outperforming the rate of return of most market indices, Treasury also trades in derivative financial instruments. Despite the growing efficiency of worldwide markets, Treasury has in the past year still found means of arbitraging its money by locking in profits with little or no transaction risk involved.

Since joining Disney as a treasury analyst after graduation, I have experienced a terrific introduction to a career in finance by being part of imaginative and enterprising deals like those mentioned above. More than anything, it has been an educational experience and one taught by those on the cutting edge of finance. As part of the first analyst class hired into the Treasury department, I have been especially fortunate in the amount of contact I have had with more senior levels of management within the department and throughout the company.

My chief responsibilities have been in foreign exchange. The principal goal of "FX", as it is frequently called, is to maximize the earnings of the company's international operations given the volatility of exchange rates. The difficulty that we face lies in the frustration that even when Disney's business is rapidly expanding abroad, more French francs, German marks and Japanese yen might not necessarily mean more dollars (which is ultimately what counts to an American company) if exchange rates are moving in an undesirable direction.

FX is becoming increasingly important as American companies enter foreign markets. This became evident early this year, when after five years of falling in value the dollar rebounded sharply. In less than three months, it strengthened by 20% against the European currencies. That would mean, for example, that even if foreign revenues skyrocketed by 20% in the same time period, the net gain would be completely offset by the radical shift in exchange rates. Minimizing currency risk is known as hedging, which involves strategies relating to the sale or purchase of a currency at specific points in the future at predetermined rates. As you may suspect, therefore, managing the inherent unpredictability of FX requires flexible and creative thinking.

My work in Disney's Treasury Department has been a great learning experience, but not just in the sense of learning the principles of trading, investing and financing. Above all, I have come away with the realization that finance, and business more generally, can be an unbelievably creative exercise. With the expansion of American businesses into the evolving international marketplace, it will only become more so