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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended September 30, 2001 Commission File Number 1-11605

[LOGO]



Incorporated in Delaware I.R.S. Employer Identification No.
500 South Buena Vista Street, Burbank, California 91521 95-4545390
(818) 560-1000


Securities Registered Pursuant to Section 12(b) of the Act:



Name of Each Exchange
Title of Each Class on Which Registered
- ------------------- -------------------
Common Stock, $.01 par value New York Stock Exchange
Pacific Stock Exchange


Securities Registered Pursuant to Section 12(g) of the Act: None.

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes (check mark) No
Indicate by check mark if disclosure of delinquent filers pursuant to Rule
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of November 30, 2001, the aggregate market value of common stock held by
non-affiliates (based on the closing price on such date as reported on the New
York Stock Exchange-Composite Transactions) was $41.7 billion. All executive
officers and directors of the registrant and all persons filing a Schedule 13D
with the Securities and Exchange Commission in respect to registrant's common
stock have been deemed, solely for the purpose of the foregoing calculation, to
be "affiliates" of the registrant.
There were 2,038,612,034 shares of common stock outstanding as of November
30, 2001.

Documents Incorporated by Reference

Certain information required for Part III of this report is incorporated
herein by reference to the proxy statement for the 2002 annual meeting of the
Company's shareholders.



THE WALT DISNEY COMPANY AND SUBSIDIARIES

TABLE OF CONTENTS



Page
----


PART I

ITEM 1. Business.................................................................. 1

ITEM 2. Properties................................................................ 15

ITEM 3. Legal Proceedings......................................................... 16

ITEM 4. Submission of Matters to a Vote of Security Holders....................... 17

PART II

ITEM 5. Market for the Company's Common Stock and Related Stockholder Matters..... 19

ITEM 6. Selected Financial Data................................................... 20

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 21

ITEM 7A. Market Risk............................................................... 37

ITEM 8. Financial Statements and Supplementary Data............................... 38

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.............................................................. 38

PART III

ITEM 10. Directors and Executive Officers of the Company........................... 39

ITEM 11. Executive Compensation.................................................... 39

ITEM 12. Security Ownership of Certain Beneficial Owners and Management............ 39

ITEM 13. Certain Relationships and Related Transactions............................ 39

PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........... 40

SIGNATURES......................................................................... 43

Consolidated Financial Information -- The Walt Disney Company




PART I

ITEM 1. Business

The Walt Disney Company, together with its subsidiaries, is a diversified
worldwide entertainment company with operations in four business segments:
Media Networks, Parks & Resorts, Studio Entertainment and Consumer Products.
The terms "Company" and "we" are used to refer collectively to the parent
company and the subsidiaries through which our various businesses are actually
conducted.

During the year the Company converted all of its outstanding Internet Group
common stock into Disney common stock and changed the reporting structure of
the various components of the Internet Group. Accordingly, the Company no
longer reports separate results for the Internet Group.

Information on revenues, operating income, identifiable assets and
supplemental revenue of the Company's business segments appears in Note 11 to
the Consolidated Financial Statements included in Item 8 hereof. The Company
employed approximately 114,000 people as of September 30, 2001.

MEDIA NETWORKS

Television and Radio Networks
The Company operates the ABC Television Network, which as of September 30,
2001 had 226 primary affiliated stations operating under long-term agreements
reaching 99.9% of all U.S. television households. The ABC Television Network
broadcasts programs in "dayparts" as follows: Monday through Friday Early
Morning, Daytime and Late Night, Monday through Sunday Prime Time, News,
Children's and Sports. We operate the ABC Radio Networks, which reach more than
126 million domestic listeners weekly and consist of more than 8,900 program
affiliations on more than 4,600 radio stations. The ABC Radio Networks also
produce and distribute radio program series for radio stations nationwide and
can be heard in more than 100 countries worldwide. In addition, the ABC Radio
Networks produce and operate Radio Disney, which is intended to appeal to
children ages 6 to 11 and their parents. Radio Disney is carried on 48 stations
that cover more than 54 percent of the U.S. market.

Generally, the television and radio networks pay the cost of producing their
own programs or acquiring broadcast rights from other producers for network
programming and pay varying amounts of compensation to affiliated stations for
broadcasting the programs and commercial announcements included therein.
Network operations derive substantially all of their revenues from the sale to
advertisers of time in network programs for commercial announcements. The
ability to sell time for commercial announcements and the rates received are
primarily dependent on the size and nature of the audience that the network can
deliver to the advertiser as well as overall advertiser demand for time on
network broadcasts.

Television and Radio Stations
We own nine very high frequency (VHF) television stations, five of which are
located in the top ten markets in the United States; one ultra high frequency
(UHF) television station; 36 standard AM radio stations; and 17 FM radio
stations. All of the television stations are affiliated with the ABC Television
Network, and most of the 53 radio stations are affiliated with the ABC Radio
Networks. Our television stations reach 24% of the nation's television
households, calculated using the multiple ownership rules of the Federal
Communications Commission (FCC). Our radio stations reach 15 million people
weekly in the top 20 United States advertising markets. Markets, frequencies
and other station details are set forth in the following tables:

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Television Stations



Expiration Television
date of FCC market
Station and Market Channel authorization ranking/(1)/
------------------ ------- ------------- -----------

WABC-TV (New York, NY) 7 Jun. 1, 2007 1
KABC-TV (Los Angeles, CA) 7 Dec. 1, 2006 2
WLS-TV (Chicago, IL) 7 Dec. 1, 2005 3
WPVI-TV (Philadelphia, PA) 6 Aug. 1, 2007 4
KGO-TV (San Francisco, CA) 7 Dec. 1, 2006 5
KTRK-TV (Houston, TX) 13 Aug. 1, 2006 11
WTVD-TV (Raleigh-Durham, NC) 11 Dec. 1, 2004 29
KFSN-TV (Fresno, CA) 30 Dec. 1, 2006 54
WJRT-TV (Flint, MI) 12 Oct. 1, 2005 64
WTVG-TV (Toledo, OH) 13 Oct. 1, 2005 67


Radio Stations



Frequency Expiration Radio
AM-Kilohertz date of FCC Market
Station and Market FM-Megahertz authorization Ranking/(2)/
------------------ ------------ ------------- -----------

WABC (New York, NY) 770 K Jun. 1, 2006 1
KABC (Los Angeles, CA) 790 K Dec. 1, 2005 2
KSPN (Los Angeles, CA) 1110K Dec. 1, 2005 2
KDIS (Los Angeles, CA) 710 K Dec. 1, 2005 2
WLS (Chicago, IL) 890 K Dec. 1, 2004 3
WMVP (Chicago, IL) 1000 K Dec. 1, 2004 3
WRDZ (Chicago, IL) 1300 K Dec. 1, 2004 3
WPJX (Chicago, IL) 1500 K Dec. 1, 2004 3
KGO (San Francisco, CA) 810 K Dec. 1, 2005 4
KSFO (San Francisco, CA) 560 K Dec. 1, 2005 4
KMKY (San Francisco, CA) 1310 K Dec. 1, 2005 4
WBAP (Dallas-Fort Worth, TX) 820 K Aug. 1, 2005 5
KMKI (Dallas-Fort Worth, TX) 620 K Aug. 1, 2005 5
WWJZ (Philadelphia, PA) 640 K Jun. 1, 2006 6
WMAL (Washington, D.C.) 630 K Oct. 1, 2003 7
WMKI (Boston, MA) 1260 K Apr. 1, 2006 8
KMIC (Houston, TX) 1590 K Aug. 1, 2005 9
WJR (Detroit, MI) 760 K Oct. 1, 2004 10
WDWD (Atlanta, GA) 590 K Apr. 1, 2004 11
WMYM (Miami, FL) 990 K Feb. 1, 2004 12
KKDZ (Seattle, WA) 1250 K Feb. 1, 2006 14
KMIK (Phoenix, AZ) 1580 K Oct 1, 2005 15
KDIZ (Minneapolis, MN) 1440 K Apr. 1, 2005 16
WSDZ (St. Louis, MO) 1260 K Dec. 1, 2004 19
WWMI (Tampa, FL) 1380 K Feb. 1, 2004 21
WEAE (Pittsburgh, PA) 1250 K Aug. 1, 2006 23
KADZ (Denver, CO) 1550 K Apr. 1, 2005 22
KDDZ (Denver, CO) 1690 K Apr. 1, 2005 22
WWMK (Cleveland, OH) 1260 K Oct. 1, 2004 25


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Frequency Expiration Radio
AM-Kilohertz date of FCC Market
Station and Market FM-Megahertz authorization Ranking/(2)/
------------------ ------------ ------------- -----------

KIID (Sacramento, CA) 1470 K Dec. 1, 2005 27
WDDZ (Providence, RI) 1450 K Apr. 1, 2006 35
WGFY (Charlotte, NC) 1480 K Oct. 1, 2003 37
WDYZ (Orlando, FL) 990 K Feb. 1, 2004 39
WDZK (Hartford, CT) 1550 K Apr. 1, 2006 49
WMNE (W. Palm Beach, FL) 1600 K Feb. 1, 2004 47
WDZY (Richmond, VA) 1290 K Apr. 1, 2006 56
WPLJ (FM) (New York, NY) 95.5 M Jun. 1, 2006 1
KLOS (FM) (Los Angeles, CA) 95.5 M Dec. 1, 2005 2
WZZN (FM) (Chicago, IL) 94.7 M Dec. 1, 2004 3
KMEO (FM) (Dallas-Fort Worth, TX) 96.7 M Aug. 1, 2005 5
KSCS (FM) (Dallas-Fort Worth, TX) 96.3 M Aug. 1, 2005 5
KESN (FM) (Dallas-Fort Worth, TX) 103.3 M Aug. 1, 2005 5
WRQX (FM) (Washington, D.C.) 107.3 M Oct. 1, 2003 7
WJZW (FM) (Washington, D.C.) 105.9 M Oct. 1, 2003 7
WDVD(FM) (Detroit, MI) 96.3 M Oct. 1, 2004 10
WDRQ (FM) (Detroit, MI) 93.1 M Oct. 1, 2004 10
WKHX (FM) (Atlanta, GA) 101.5 M Apr. 1, 2004 11
WYAY (FM) (Atlanta, GA) 106.7 M Apr. 1, 2004 11
KQRS (FM) (Minneapolis-St.Paul, MN) 92.5 M Apr. 1, 2005 16
KXXR (FM) (Minneapolis-St.Paul, MN) 93.7 M Apr. 1, 2005 16
WGVX (FM) (Minneapolis-St.Paul, MN) 105.1 M Apr. 1, 2005 16
WGVY (FM) (Minneapolis-St.Paul, MN) 105.3 M Apr. 1, 2005 16
WGVZ (FM) (Minneapolis-St.Paul, MN) 105.7 M Apr. 1, 2005 16

- --------
(1) Based on Nielsen Media Research, U.S. Television Household Estimates,
January 1, 2001
(2) Based on 2001 Arbitron Radio Market Rank

Cable Networks and International Broadcast Operations
Our cable and international broadcast operations are principally involved in
the production and distribution of cable television programming, the licensing
of programming to domestic and international markets and investing in foreign
television broadcasting, production and distribution entities. The Company owns
Disney Channel, Toon Disney, SoapNet, 80% of ESPN, Inc., 37.5% of the A&E
Television Networks, 50% of Lifetime Entertainment Services, 39.6% of E!
Entertainment Television and has various other international investments.

Disney Channel, which has 78 million domestic subscribers, is a cable and
satellite television service. New shows developed for original use by Disney
Channel include comedy, adventure, animated and educational series, as well as
original movies and documentaries. The balance of the programming consists of
products acquired from third parties and products from our own theatrical film
and television programming library.

Disney Channel Worldwide reaches approximately 15 million subscribers.
Programming consists primarily of the Company's theatrical film and television
programming library, as well as products acquired from third parties and
locally produced programming. The Disney Channels in Taiwan and the U.K.
premiered in 1995, followed by the launch of the Disney Channels in Australia
and Malaysia in 1996, France and the Middle East in 1997, Spain and Italy in
1998, Germany in 1999 and a regional Disney Channel for Latin America in 2000.
The most recent Disney Channel launched in Brazil in

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2001. Future launches are planned in Scandinavia, Japan, Portugal and Central
Europe, and we are continuing to explore the development of Disney Channel in
other countries around the world.

Toon Disney is meant to appeal to kids aged two to 11 and features an array
of family-friendly animated programming from the Disney library. Toon Disney
reaches more than 26 million homes. It began carrying national advertising in
2000.

SoapNet was launched in January 2000 and reaches more than 18 million homes.
SoapNet offers a wide variety of soap opera programming 24 hours a day, seven
days a week. SoapNet's primetime schedule features same-day telecasts of the
top-rated ABC Daytime series All My Children, General Hospital, One Life to
Live and Port Charles. The service also airs the popular classic Ryan's Hope
and serial dramas such as Knots Landing, Falcon Crest, Hotel and The Colbys, as
well as an original soap news series, SoapCenter.

ESPN, Inc. operates six domestic television sports networks: ESPN, reaching
nearly 85 million households; ESPN2, at more than 81 million homes; ESPN
Classic, at 42 million homes; ESPNEWS, reaching 26 million households, ESPN
Now, with news and scheduling information; and ESPN Today, an interactive
sports network. ESPN, Inc. programs, owns or has equity interests in 24
international networks, reaching more than 86 million households outside the
United States in more than 146 countries and territories. ESPN, Inc., owns 100%
of ESPN Brazil, ESPN Sur in Argentina and a 50% interest in the ESPN STAR
Sports joint venture, which delivers sports programming throughout most of
Asia, and 30% of NetStar, which owns The Sports Network (TSN) and Le Reseau des
Sports, ESPN Classic Canada, RDS Info Sports and WTSN, among other media
properties in Canada. ESPN, Inc. also holds a 20% interest in Sports-i ESPN in
Japan, the leading all-sports network. ESPN also has several other brand
extensions, including ESPN.com, a leading Internet sports content provider;
ESPN Regional Television; ESPN Radio, which is distributed through ABC Radio to
more than 680 stations (including 190 full time), making it the largest radio
sports network in the U.S.; ESPN The Magazine; SportsTicker, the leading
supplier of real-time sports news and scores; B.A.S.S., the largest fishing
organization in the world; and the ESPN Zone, sports-themed dining and
entertainment facilities managed by Disney Regional Entertainment, included in
the Parks & Resorts segment.

The A&E Television Networks are cable programming services devoted to
cultural and entertainment programming. The A&E cable service reaches more than
83 million subscribers. The History Channel, which is owned by A&E, reaches
nearly 77 million subscribers.

Lifetime Entertainment Services owns Lifetime Television, which reaches 83
million cable subscribers and is devoted to women's lifestyle programming.
During 1998, Lifetime launched the Lifetime Movie Network, a 24-hour digital
channel that is in nearly 20 million homes.

E! Entertainment Television is a cable programming service that reaches
nearly 75 million cable subscribers and is devoted to the world of
entertainment. E! Entertainment Television also launched "style." in October
1998, a 24-hour service devoted to style, beauty and home design, which reaches
15 million subscribers (through both analog and digital systems).

The Company's share of the financial results of the cable and international
broadcast services, other than Disney Channel, ESPN, Inc., Toon Disney and
SoapNet, is reported under the heading "Equity in the income of investees" in
the Company's Consolidated Statements of Income.

Television Production and Distribution
We also develop, produce and distribute television programming to global
broadcasters and cable and satellite operators, including the major television
networks, Disney Channel and other cable

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broadcasters, under the Buena Vista Television, Buena Vista Production,
Touchstone Television and Walt Disney Television labels. Program development is
carried out in collaboration with a number of independent writers, producers
and creative teams, with a focus on the development, production and
distribution of half-hour comedies and one-hour dramas for network prime-time
broadcast. One-hour dramas Once and Again and Felicity and a half-hour comedy,
My Wife & Kids, were all renewed for the 2001/2002 television season. New
prime-time series that premiered in the fall of 2001 included half-hour
comedies According to Jim and Scrubs for NBC; the one-hour drama Alias; and the
one-hour reality program The Amazing Race for CBS.

The Company is also producing original television movies for The Wonderful
World of Disney, which was renewed for the 2001/2002 television season and
continues to air on ABC on Sunday evenings.

We also produce a variety of prime-time specials for exhibition on network
television, as well as live-action syndicated programming, which includes Live!
with Regis and Kelly, and Iyanla, daily talk shows; Ebert & Roeper and the
Movies, a weekly motion picture review program; Your Big Break, a weekly
variety show and game shows such as Win Ben Stein's Money.

We also license and syndicate our television properties in foreign
television markets.

Internet
The Internet operations of the Media Networks groups develop, publish and
distribute content for online services intended to appeal to broad consumer
interest in sports, news, family and entertainment. Internet Web sites and
products include ABC.com, ABCNEWS.com, Enhanced TV, ABCSports.com, ESPN.com,
Disney.com, Family.com and Movies.com.

ABC.com, launched in January 2000, is the official Web site of the ABC
Television Network, while ABCNEWS.com draws on the knowledge and expertise of
ABC News correspondents throughout the world.

Enhanced TV provides interactive television programming and advertising
services during ABC and ESPN telecasts.

ESPN.com, the worldwide leader in online sports, delivers comprehensive
sports news and information to millions of fans each month. During 2001, ESPN
initiatives included ESPNdeportes.com, a Spanish-language sports site, and
ESPNRadio.com, offering live streaming of ESPN Radio Network programs. In
September 2001, ESPN.com announced an alliance with Microsoft's MSN, making
ESPN.com the exclusive sports content provider on the Microsoft Network.

Disney.com offers family entertainment content and services spanning the
breadth of The Walt Disney Company, from DisneyStore.com to theme parks, Walt
Disney Pictures and Radio Disney.

Family.com is an online parenting resource, combining editorial content with
interactive elements such as chats and bulletin boards.

Movies.com was launched in May 2000 as a Web site for movie lovers,
providing dedicated pages that include plot overviews, projected release dates,
detailed cast and credits, production rumors, news updates and links to related
official fan sites for major films in production. In September 2001, the
Company and Fox Inc. entered into a joint venture to utilize Movies.com as a
platform for the distribution of movies and other entertainment content on
demand to consumers in the U.S. The joint venture, Movies.com, is expected to
launch in early 2002, and is expected to provide feature live-action

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films and other content from The Walt Disney Studios, including Miramax Films,
Twentieth Century Fox and others to consumers with enhanced cable systems with
on-demand capabilities as well as all forms of broadband Internet access. The
service is expected to feature movie-related information and promotional video
content.

Competition
The ABC Television Network, Disney Channel, ESPN and our other broadcasting
services compete for viewers primarily with other television networks,
independent television stations, other video media such as cable television,
satellite television program services, videocassettes and DVDs. In the sale of
advertising time, the broadcasting operations compete with other television
networks, independent television stations, suppliers of cable television
programs and other advertising media such as newspapers, magazines and
billboards. The ABC Radio Networks likewise compete with other radio networks
and radio programming services, independent radio stations and other
advertising media.

The Company's television and radio stations are in competition with other
television and radio stations, cable television systems, satellite television
program services, videocassettes, DVDs and other advertising media such as
newspapers, magazines and billboards. Competition occurs primarily in
individual market areas. A television station in one market does not compete
directly with other stations in other market areas.

The growth in the cable industry's share of viewers has resulted in
increased competitive pressures for advertising revenues. In addition, sports
and other programming costs have increased due to increased competition. The
Company's cable networks, including the recently acquired Fox Family Worldwide,
also face competition for carriage by the cable service providers. There is no
guarantee that the Company will be successful in contract renegotiations when
contracts come up for renewal.

Federal Regulation
Television and radio broadcasting are subject to the jurisdiction of the FCC
under the Communications Act of 1934, as amended. The Communications Act
empowers the FCC, among other things, to issue, revoke or modify broadcasting
licenses, determine the location of stations, regulate the equipment used by
stations, adopt regulations necessary to carry out the provisions of the
Communications Act and impose penalties for violation of its regulations. FCC
regulations also restrict the ownership of stations and cable operations in
certain circumstances, and regulate the practices of network broadcasters,
cable providers and competing services.

FCC laws and regulations are subject to change, and the Company generally
cannot predict whether new legislation or regulations, or a change in the
extent of application or enforcement of current laws and regulations, would
have an adverse impact on our operations.

PARKS & RESORTS
The Company operates the Walt Disney World Resort and Disney Cruise Line in
Florida, the Disneyland Resort in California, ESPN Zone facilities in several
states and Anaheim Sports in California. The Company also licenses the
operations of the Tokyo Disneyland Resort in Japan, and licenses and manages
the Disneyland Resort Paris in France.

Walt Disney World Resort
The Walt Disney World Resort is located on approximately 30,500 acres of
land owned by Company subsidiaries 15 miles southwest of Orlando, Florida. The
resort includes four theme parks

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(the Magic Kingdom, Epcot, Disney-MGM Studios and Disney's Animal Kingdom);
hotels and villas; a retail, dining and entertainment complex; a sports
complex; conference centers; campgrounds; golf courses; water parks and other
recreational facilities designed to attract visitors for an extended stay.

We market the entire Walt Disney World destination resort through a variety
of national, international and local advertising and promotional activities. A
number of attractions in each of the theme parks are sponsored by corporate
participants through long-term participation agreements.

Magic Kingdom - The Magic Kingdom, which opened in 1971, consists of Main
Street, USA and six principal areas: Adventureland, Fantasyland, Frontierland,
Liberty Square, Mickey's Toontown Fair and Tomorrowland. These areas feature
themed rides and attractions, restaurants, refreshment areas and merchandise
shops.

Epcot - Epcot, which opened in 1982, consists of two major themed areas:
Future World and World Showcase. Future World dramatizes certain historical
developments and addresses the challenges facing the world today through major
pavilions devoted to high-tech products of the future ("Innoventions"),
communication and technological exhibitions ("Spaceship Earth"), energy,
transportation, imagination, life and health, the land and seas. World Showcase
presents a community of nations focusing on the culture, traditions and
accomplishments of people around the world. World Showcase includes as a
central showpiece the American Adventure, which highlights the history of the
American people. Other nations represented are Canada, China, France, Germany,
Italy, Japan, Mexico, Morocco, Norway and the United Kingdom. Both areas
feature themed rides and attractions, restaurants and merchandise shops.

Disney-MGM Studios - The Disney-MGM Studios, which opened in 1989, consists
of a theme park, an animation studio and a film and television production
facility. The park centers around Hollywood as it was during the 1930's and
1940's and features Disney animators at work and a backstage tour of the film
and television production facilities in addition to themed food service and
merchandise facilities and other attractions. The production facility consists
of three sound stages, merchandise shops and a back lot area and currently
hosts both feature film and television productions as well as the Who Wants to
Be a Millionaire-Play It attraction, which offers guests the opportunity to
play along with their favorite game show in an authentic re-creation of ABC's
Who Wants to Be a Millionaire. Disney-MGM Studios also features Fantasmic!, a
night-time entertainment spectacular.

On October 1, 2001, the Disney-MGM Studios launched its 100 Years of Magic
Celebration, a 15-month celebration of the 100/th/ anniversary of Walt Disney's
birth. The celebration extends to all four Walt Disney World theme parks and
includes new attractions, parades, shows and entertainment for guests of all
ages.

Disney's Animal Kingdom - Disney's Animal Kingdom, which opened in April
1998, consists of a 145-foot Tree of Life as the centerpiece surrounded by six
themed areas: Dinoland U.S.A., Africa, Rafiki's Planet Watch, Asia, Discovery
Island and Camp Minnie--Mickey. Each themed area contains adventure
attractions, entertainment shows, restaurants and merchandise shops. The park
features more than 200 species of animals and 4,000 varieties of trees and
plants on more than 500 acres of land.

Resort Facilities - As of September 30, 2001, the Company owned and operated
13 resort hotels and a complex of villas and suites at the Walt Disney World
Resort, with a total of approximately 20,000 rooms and 318,000 square feet of
conference meeting space. Currently under development is Disney's POP Century
Resort, which is expected to begin opening in 2003. In addition, Disney's Fort
Wilderness camping and recreational area offers approximately 800 campsites and
400 wilderness homes. The resort also offers professional development programs
at the Disney Institute.

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Recreational amenities and activities available at the resort include five
championship golf courses, miniature golf courses, full-service spas, tennis,
sailing, water skiing, swimming, horseback riding and a number of other
noncompetitive sports and leisure time activities. The resort also operates two
water parks: Blizzard Beach and Typhoon Lagoon.

We have also developed a 120-acre retail, dining and entertainment complex
known as Downtown Disney, which consists of the Marketplace, Pleasure Island
and West Side. In addition to more than 20 specialty retail shops and
restaurants, the Downtown Disney Marketplace is home to the 50,000-square-foot
World of Disney retail store featuring Disney-branded merchandise. Pleasure
Island, an entertainment center adjacent to the Downtown Disney Marketplace,
includes restaurants, night clubs and shopping facilities. Downtown Disney West
Side is situated on 66 acres on the west side of Pleasure Island and includes a
DisneyQuest facility, Cirque du Soleil and several participant retail, dining
and entertainment operations.

Disney's Wide World of Sports, which opened in 1997, is a 200-acre sports
complex providing professional caliber training and competition, festival and
tournament events and interactive sports activities. The complex's venues
accommodate more than 30 different sporting events, including baseball, tennis,
basketball, softball, track and field, football and soccer. Its 9,000-seat
stadium is the spring training site for the Atlanta Braves and home to the
Orlando Rays Minor League Baseball team. In addition, the Harlem Globetrotters
use the facility for their official training site and holiday season games. The
Amateur Athletic Union hosts more than 30 championship events per year at the
facility.

At the Downtown Disney Marketplace Hotel Plaza, seven independently operated
hotels are situated on property leased from the Company. These hotels have a
capacity of approximately 3,700 rooms. Additionally, two hotels, The Walt
Disney World Swan and the Walt Disney World Dolphin, with an aggregate capacity
of approximately 2,300 rooms, are independently operated on property leased
from the Company near Epcot.

The Disney Vacation Club offers ownership interests in several resort
facilities, including 531 units at Disney's Old Key West Resort, 383 units at
Disney's BoardWalk Resort and 136 units at Disney's Wilderness Lodge, all of
which are located at the Walt Disney World Resort, as well as a 175-unit resort
in Vero Beach, Florida, and a 102-unit resort on Hilton Head Island, South
Carolina. A 208-unit expansion adjacent to Disney's Beach Club Resort is
scheduled to open in Fall 2002. Available units at each facility are intended
to be sold under a vacation ownership plan and operated partially as rental
property until sold.

Under continued development is Celebration, an innovative town that combines
architecture, education, health and technology in ways intended to promote a
strong sense of community. Founded in 1994, Celebration is home to more than
20,000 residents, an Osceola County public school, a health facility, an
18-hole public golf course, park and recreation areas and a downtown area
featuring a variety of shops, restaurants and the Celebration Hotel.

Disneyland Resort
The Company owns 441 acres and has under long-term lease an additional 65
acres of land in Anaheim, California. The Disneyland Resort includes two theme
parks (Disneyland and Disney's California Adventure), three hotels and a
retail, dining and entertainment district designed to attract visitors for an
extended stay.

We market the entire Disneyland Resort through international, national and
local advertising and promotional activities as a destination resort. A number
of the attractions and restaurants at each of the theme parks are sponsored by
corporate participants.

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Disneyland - Disneyland, which opened in 1955, consists of Main Street and
seven principal areas: Adventureland, Critter Country, Fantasyland,
Frontierland, New Orleans Square, Tomorrowland and Toontown. These areas
feature themed rides and attractions, restaurants, refreshment stands and
merchandise shops.

Disney's California Adventure - Disney's California Adventure, opened on
February 8, 2001. The park celebrates and pays tribute to the many attributes
of the state of California. This new theme park is adjacent to Disneyland and
includes three principal areas: Golden State, Hollywood Pictures Backlot and
Paradise Pier. These areas include rides, attractions, shows, restaurants,
merchandise shops and refreshment stands.

Resort Facilities - Disneyland Resort includes three Company-owned hotels:
the 1,000-room Disneyland Hotel, 500-room Disney's Paradise Pier Hotel,
(formerly known as the Disneyland Pacific Hotel) and Disney's Grand Californian
Hotel, a deluxe 751-room hotel located adjacent to Disney's California
Adventure park.

As part of the expansion of the Disneyland Resort, the Company also built
Downtown Disney, a themed 300,000-square foot outdoor complex of entertainment,
dining and shopping venues, located adjacent to Disneyland park and Disney's
California Adventure.

Tokyo Disney Resort
The Company earns royalties on revenues generated by the newly expanded
Tokyo Disney Resort, which is owned and operated by Oriental Land Co., Ltd.
(OLC), an unrelated Japanese corporation. The resort is located on
approximately 494 acres of land, six miles east of downtown Tokyo, Japan. The
resort includes two theme parks (Tokyo Disneyland and the new Tokyo DisneySea);
two Disney-branded hotels; five independently operated hotels; several
merchandise shops; and Ikspiari, a retail, dining and entertainment complex.
OLC markets the Tokyo Disney Resort primarily through a variety of local,
domestic and international advertising and promotional activities. Long-term
corporate partners sponsor many of the theme park attractions.

Tokyo Disneyland, which opened in 1983, was the first Disney theme park to
open outside the United States. Tokyo Disneyland consists of Main Street and
seven principal areas: Adventureland, Critter Country, Fantasyland,
Tomorrowland, Toontown, Westernland and World Bazaar.

Tokyo DisneySea, a completely new theme park adjacent to Tokyo Disneyland,
opened to the public on September 4, 2001. The park is divided into seven
unique "ports of call," including Mediterranean Harbor, American Waterfront,
Port Discovery, Lost River Delta, Mermaid Lagoon, Mysterious Island and Arabian
Coast. The recent Resort expansion also includes the addition of the 502-room
Hotel MiraCosta, 504-room Disney Ambassador Hotel, the Disney Resort Line
monorail, and the Bon Voyage merchandise location.

Disneyland Resort Paris
Disneyland Resort Paris is located on a 4,800-acre site at Marne-la-Vallee,
approximately 20 miles east of Paris, France. The existing theme park, The
Disneyland Park, which opened in 1992, consists of Main Street and four
principal areas: Adventureland, Discoveryland, Fantasyland and Frontierland and
features 43 attractions. Seven themed hotels, with a total of approximately
5,800 rooms, are part of the resort complex, together with an entertainment
center offering a variety of retail, dining and show facilities and a high
speed train station and two suburban rail stations. The project was developed
pursuant to a 1987 master agreement with French governmental authorities by
Euro Disney S.C.A. (Euro Disney), a publicly held French company in which the
Company currently holds a 39% equity interest and which is managed by a
subsidiary of the Company. The Company earns royalties on

-9-



revenues generated by the Disneyland Paris theme park, and receives management
fees from Euro Disney, which are both reported as revenues in the Company's
Consolidated Statements of Income. The financial results of the Company's
investment in Euro Disney are reported under the heading "Equity in the income
of investees" in the Company's Consolidated Statements of Income.

Euro Disney is constructing a new theme park, the Walt Disney Studios,
scheduled to open in March 2002. The new park is under construction on property
adjacent to the Disneyland Paris Park and includes four principal themed areas:
Front Lot, Animation Courtyard, Production Courtyard, and Backlot. These areas
include rides, attractions, shows, restaurants, merchandise shops and
refreshment stands.

Development of the site also continues with the Val d'Europe project near
Disneyland Resort Paris. As part of this development, an international shopping
center was opened in October 2000 as well as a second suburban rail station in
May 2001. Additional construction has begun by third-party developers on an
international business park and Downtown District, which will include a
150-room hotel, office space and residential housing. In addition, agreements
have been signed with third-party developers to build three additional hotels,
supplying 1,100 additional rooms on land owned by Euro Disney.

Hong Kong Disneyland
In December, 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 reclamation and 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 certain
circumstances.

Construction and operation of the project will be the responsibility of
Hongkong 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 separate 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
over the next 5 years is limited to U.S. $315 million. As of September 30, 2001
the Company had contributed U.S. $9 million of this amount. Once Hong Kong
Disneyland commences operations, Company subsidiaries will be entitled to
receive management fees and royalties from project operations in addition to
the Company's equity interest.

Disney Cruise Line
Disney Cruise Line, which is operated out of Port Canaveral, Florida, is a
cruise vacation line that includes two 85,000-ton ships, the Disney Magic and
its sister ship the Disney Wonder. Both ships cater to children, families and
adults, with distinctly themed areas and activities for each group. Each ship
features 877 staterooms, 73% of which are outside staterooms providing guests
with ocean views. Each cruise vacation includes a visit to Disney's Castaway
Cay, a 1,000-acre private Bahamian island. The Company packages cruise
vacations with visits to the Walt Disney World Resort and also offers
cruise-only options. On August 12, 2000, the Disney Magic changed its format to
a seven-day cruise vacation, which includes stops at St. Maarten and St. Thomas
as well as Castaway Cay. In May of 2002, the Disney Magic will be adding a
7-day Western Caribbean itinerary to its offering, which will include ports of
call at Key West, Grand Cayman, Cozumel and Castaway Cay.

-10-



Disney Regional Entertainment
Through the Disney Regional Entertainment group, the Company is building on
the popularity of the ESPN brand with the ESPN Zone concept, which combines
three interactive areas under one roof for a complete sports and entertainment
experience: the Studio Grill, offering dining in an ESPN studio environment;
the Screening Room, offering fans any game on the air in an exciting sports
viewing environment; and the Sports Arena, challenging fans with a variety of
interactive and competitive attractions. In 1998, the first ESPN Zone site
opened in Baltimore's Inner Harbor. Two additional locations were opened in
1999, in Chicago River North District and New York's Times Square. In 2000, new
ESPN Zones were added in Atlanta and Washington D.C. In 2001, the Company
opened new ESPN Zone locations in Anaheim, CA at the Disneyland Resort Downtown
Disney District and in Las Vegas, NV at the New York--New York Hotel and
Casino. In fiscal 2002, an additional site is planned for Denver.

Walt Disney Imagineering
Walt Disney Imagineering provides master planning, real estate development,
attraction and show design, engineering support, production support, project
management and other development services, including research and development
for the Company's operations.

Anaheim Sports, Inc.
A Company subsidiary owns and operates a National Hockey League franchise,
the Mighty Ducks of Anaheim. Anaheim Sports, Inc. provides management services
to the Mighty Ducks. In addition, a Company subsidiary owns Anaheim Angels
L.P., the holder of the Anaheim Angels Major League Baseball franchise.

Competition
All of the theme parks and the associated resort facilities are operated on
a year-round basis. Historically, the theme parks and resort business
experience fluctuations in park attendance and resort occupancy resulting from
the nature of vacation travel. Peak attendance and resort occupancy generally
occur during the summer months when school vacations occur and during
early-winter and spring holiday periods.

The Company's theme parks and resorts compete with all other forms of
entertainment, lodging, tourism and recreational activities. The profitability
of the leisure-time industry is influenced by various factors that are not
directly controllable, such as economic conditions including business cycle and
exchange rate fluctuations, travel industry trends, amount of available leisure
time, oil and transportation prices and weather patterns. During fiscal 2001,
the Company's theme park and resort operations were also adversely affected by
significant reductions in domestic and international travel in response to the
September 11/th/ terrorist attacks and their aftermath.

STUDIO ENTERTAINMENT

The Studio Entertainment segment produces live-action and animated motion
pictures, television animation programs, musical recordings and live stage
plays. The Company is an industry leader in producing and acquiring live-action
and animated motion pictures for distribution to the theatrical, television and
home video markets and produces original animated television programming for
network, first-run syndication, pay and international syndication markets. In
addition, television programs have been created that contain characters
originated in animated films. Films and characters are also often promoted
through the release of audiocassettes and compact discs. The Company is also
engaged directly in the home video and television distribution of its film and
television library.

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Theatrical Films
Walt Disney Pictures and Television, a subsidiary of the Company, produces
and acquires live-action motion pictures that are distributed under the banners
Walt Disney Pictures, Touchstone Pictures and Hollywood Pictures. Another
subsidiary, Miramax Film Corp., acquires and produces motion pictures that are
distributed under the Miramax and Dimension banners. The Company also produces
and distributes animated motion pictures under the banner Walt Disney Pictures,
and co-finances and distributes animated motion pictures developed in
conjunction with Pixar, Inc.

During fiscal 2002, we expect to distribute approximately 19 feature films
under the Walt Disney Pictures, Touchstone Pictures and Hollywood Pictures
banners and approximately 29 films under the Miramax and Dimension banners,
including several live-action family films and four full length animated films,
including the large format cinema re-release of Beauty & the Beast, with the
remainder targeted to teenagers and/or adults. In addition, the Company
periodically reissues previously released animated films. As of September 30,
2001, under the banners Walt Disney Pictures, Touchstone Pictures and Hollywood
Pictures, the Company had released 599 full length live-action features
(primarily color), 45 full length animated color features and approximately 484
cartoon shorts.

We distribute and market our filmed products principally through our own
distribution and marketing companies in the United States and major foreign
markets.

Home Video
We distribute home video releases from each of our motion picture banners in
the domestic market. In the international market, we distribute both directly
and through foreign distribution companies. In addition, we develop, acquire
and produce original programming for direct-to-video release. As of September
30, 2001, under the banners Walt Disney Pictures, Touchstone Pictures,
Hollywood Pictures, Miramax and Dimension, 849 produced and acquired titles,
including 707 feature films and 142 cartoon shorts and animated features, were
available to the domestic marketplace and 1,262 produced and acquired titles,
including 831 feature films and 431 cartoon shorts and animated features, were
available to the international home entertainment market.

Television Production and Distribution
The Company develops, produces and distributes animated television
programming to global broadcasters, including the major television networks,
the Disney Channel and other cable broadcasters, under the Walt Disney
Television and Buena Vista Television labels.

The 2001/2002 Saturday morning television season returned with a fifth year
of Disney's One Saturday Morning on ABC. Disney's One Saturday Morning is a
line-up of animated series that includes Disney's Teacher Pet, Disney's Lloyd
in Space, Disney's Recess, Disney's The Weekenders, The New Adventures of
Winnie the Pooh and Disney's House of Mouse. Premiering in January 2002 will be
Disney's Teamo Supremo. Additionally, the Company produces first-run animated
programming for UPN and for syndication. Series airing on UPN include Disney's
Recess, Disney's The Legend of Tarzan, Disney/Pixar's Buzz Lightyear of Star
Command and Disney's The Weekenders.

We also license our theatrical and television animation film library to the
domestic television syndication market. Major packages of the Company's feature
films and animated television programming have been licensed for broadcast over
several years.

The Company also licenses its theatrical and animated television properties
in a number of foreign television markets. In addition, we syndicate certain of
our television programs abroad, including The Disney Club, a weekly series
produced for foreign markets.

-12-



The Company has licensed to the Encore pay television services, over a
multi-year period, exclusive domestic pay television rights to certain films
released under the Walt Disney Pictures, Touchstone Pictures, Hollywood
Pictures, Miramax and Dimension banners. The Company has also entered into
multi-year output deals with DirecTV and iN DEMAND for pay-per-view exhibition.
In addition, the Company has licensed exclusive domestic pay television rights
to certain films released under the Dimension banner to the Showtime pay
television services over a multi-year period.

Audio Products and Music Publishing
The Company also produces and distributes compact discs, audiocassettes and
records, consisting primarily of soundtracks for animated films and read-along
products, directed at the children's market in the United States, France and
the United Kingdom, and licenses the creation of similar products throughout
the rest of the world. In addition, the Company commissions new music for its
motion pictures and television programs, and records and licenses the song
copyrights created for the Company to others for printed music, records,
audiovisual devices and public performances.

Domestic retail sales of compact discs, audiocassettes and records are the
largest source of music-related revenues.

Our Hollywood Records subsidiary develops, produces and markets recordings
from new talent across the spectrum of popular music, as well as soundtracks
from certain live-action motion pictures. Mammoth Records develops, produces
and markets a diverse group of artists in the popular and alternative music
fields. We also own the Nashville-based music label Lyric Street Records.

Walt Disney Theatrical Productions
The Company's award-winning live stage musical division produces musicals
for stages on Broadway and around the world. During 2001, Beauty and the Beast
entered its eighth year on Broadway. To date, the show has been produced in
fourteen international markets and launched its first international tour in
Liverpool, England in November 2001.

The Lion King continues its Broadway run at the New Amsterdam Theatre into
its fourth year. The show is also running in Tokyo; Fukuoka, Japan; London;
Toronto and Los Angeles. A new production opened in Hamburg, Germany in
December 2001, and a U.S. national tour is scheduled to launch in Denver in
April 2002.

Under a license agreement, The Hunchback of Notre Dame entered its third
year in Berlin and has the distinction of being the longest running musical in
Berlin's history.

Throughout 2001, Elton John and Tim Rice's Aida consistently ranked in the
top three Broadway shows in revenues. A U.S. national tour opened in
Minneapolis in March 2001, and a new production opened in Scheveningen, which
is located outside of Amsterdam in October 2001.

The group's Family Entertainment and Events division presented Disney on Ice
in 187 cities in 2001, performing eight productions for more than eight million
guests worldwide.

Publishing
Miramax Film Corp. and Hearst Communications, Inc. jointly publish a general
interest monthly magazine titled Talk. Talk is intended to target primarily
upscale, educated readers between the ages of 25 and 54 and covers current
cultural, social and political issues and personalities.

-13-



Competition
The success of the Studio Entertainment operations is heavily dependent upon
public taste, which is unpredictable and subject to change. In addition, Studio
Entertainment operating results fluctuate due to the timing and performance of
theatrical and home video releases. Release dates are determined by several
factors, including competition and the timing of vacation and holiday periods.

The Studio Entertainment businesses compete with all forms of entertainment.
A significant number of companies produce and/or distribute theatrical and
television films, exploit products in the home video market, provide pay
television programming services and sponsor live theater. We also compete to
obtain creative talents, story properties, advertiser support, broadcast rights
and market share, which are essential to the success of all of our Studio
Entertainment businesses.

CONSUMER PRODUCTS

The Consumer Products segment licenses the Company's characters and other
intellectual property to consumer manufacturers, retailers, show promoters and
publishers throughout the world. Character merchandising and publications
licensing promotes the Company's films and television programs, as well as the
Company's other operations. Company subsidiaries also engage in direct retail
distribution of products based on the Company's characters and films through
"The Disney Stores"; publish books, magazines and comics worldwide; and produce
children's audio products and computer software for the entertainment market,
as well as film and video products for the educational marketplace.

Character Merchandise and Publications Licensing
The Company's worldwide licensing activities generate royalties, which are
usually based on a fixed percentage of the wholesale or retail selling price of
the licensee's products. The Company licenses characters based upon both
traditional and newly created film properties. Character merchandise categories
that have been licensed include apparel, toys, gifts, home furnishings and
housewares, stationery, sporting goods and food, beverage and package goods.
Publication categories that have been licensed include continuity-series books,
book sets, art and picture books and magazines.

In addition to receiving licensing fees, the Company is actively involved in
the development and approval of licensed merchandise and in the
conceptualization, development, writing and illustration of licensed
publications. We continually seek to create new characters to be used in
licensed products.

Disney Stores
The Company markets Disney-related products directly through its retail
facilities operated under the "Disney Store" name. These facilities are
generally located in leading shopping malls and similar retail complexes. The
stores carry a wide variety of Disney merchandise and promote other businesses
of the Company. During fiscal 2001, we opened 2 new stores in Europe and closed
51 stores worldwide. The total number of stores was 693 as of September 30,
2001. The Company is in the process of closing approximately 49 additional
stores.

Books and Magazines
The Company publishes books in the United States and Europe for children and
adults as part of the Buena Vista Publishing Group. The Company also produces
several magazines, including Family Fun, Disney Adventures and Discover, a
general science magazine.

-14-



Disney Interactive
Disney Interactive is a software business that licenses, develops and
markets entertainment and educational computer software and video game titles
for home and school.

Direct Marketing
The direct marketing business operates the Disney Catalog, which markets
Disney-themed merchandise through the direct mail channel. Offerings include
merchandise developed exclusively for the Disney Catalog and DisneyStore.com as
well as products from The Disney Store, other internal Disney units and Disney
licensees. The Disney Catalog also operates its own retail outlet stores for
the purpose of selling overstock merchandise.

DisneyStore.com
DisneyStore.com offers a selection of proprietary Disney merchandise for
online sales. The site is integrated, where appropriate, with the Disney Store
and the Disney Catalog in terms of design, products and marketing efforts.

Other Activities
The Company produces audiovisual materials for the educational market,
including videocassettes and film strips. It also licenses the manufacture and
sale of posters and other teaching aids. The Company also markets and
distributes animation cel art and other animation-related artwork and
collectibles.

Competition
The Company competes in its character merchandising and other licensing,
publishing and retail activities with other licensors, publishers and retailers
of character, brand and celebrity names. Although public information is
limited, we believe the Company is the largest worldwide licensor of
character-based merchandise and producer/distributor of children's audio and
film-related products. Operating results for the licensing and retail
distribution business are influenced by seasonal consumer purchasing behavior
and by the timing and performance of animated theatrical releases.

FOX FAMILY WORLDWIDE ACQUISITION

On October 24, 2001, the Company acquired 100% of the outstanding common
stock of Fox Family Worldwide, Inc. ("FFW") for $5.2 billion, including $2.9
billion in cash, plus the assumption of $2.3 billion in debt. Upon the closing
of the acquisition, the Company renamed FFW, ABC Family Worldwide, Inc. Among
the businesses acquired was the Fox Family Channel, which has been renamed the
ABC Family Channel, a programming service that currently reaches approximately
81 million cable and satellite television subscribers throughout the U.S.; a
76% interest in Fox Kids Europe, a Dutch public subsidiary which reaches more
than 24 million subscribers across Europe; Fox Kids channel in Latin America
and the Saban library and entertainment production businesses. Under the terms
of the agreement, the Fox Kid's Network, a block of children's programming
broadcasted primarily by Fox-affiliated TV stations, and ongoing rights to use
the "Fox" name (other than certain transitional rights) was not included in the
acquired operations.

ITEM 2. Properties

The Walt Disney World Resort, Disneyland Resort and other properties of the
Company and its subsidiaries are described in Item 1 under the caption Parks &
Resorts. Film library properties are described in Item 1 under the caption
Studio Entertainment. Radio and television stations owned by the Company are
described under the caption Media Networks.

-15-



A subsidiary of the Company owns approximately 51 acres of land in Burbank,
California, on which the Company's studios and executive offices are located.
The studio facilities are used for the production of both live-action and
animated motion pictures and television products. The Company completed
construction of a 397,000 square-foot office building in Burbank, California,
in November 2000. Other owned properties include a 400,000 square-foot office
building in Burbank, California, which is used for the Company's operations.

A subsidiary of the Company owns approximately 2.5 million square feet of
office and warehouse buildings on approximately 115 acres in Glendale,
California. The buildings are used for the Company's operations and also
contain space leased to third parties. The Company completed construction of a
142,000 square-foot broadcast facility for KABC-TV in December 2000. In
addition, a subsidiary of the Company has an option to acquire six additional
acres in Glendale, California. This option expires in 2015.

The Media Networks segment corporate offices are located in a building owned
by a subsidiary of the Company in New York City. A subsidiary also owns the ABC
Television Network Operations Center adjacent to the corporate offices and ABC
Radio Networks' studios, also in New York City.

Subsidiaries of the Company own the ABC Television Center and lease the ABC
News Bureau facility in Washington, D.C. under a lease expiring during 2034.
The Company's 80%-owned subsidiary, ESPN, Inc., owns ESPN Plaza in Bristol,
Connecticut, from which it conducts its technical operations. The Company owns
the majority of its other broadcast studios and offices and broadcast
transmitter sites elsewhere, and those, that it does not own are occupied under
leases expiring on various dates through 2039.

A U.K. subsidiary of the Company owns buildings on a four-acre parcel under
long-term lease in London, England. The mixed-use development consists of
office space occupied by subsidiary operations and office and retail space
leased by third parties. Company subsidiaries also lease office space in other
parts of Europe and in Asia and Latin America.

The Disney Stores and Disney Regional Entertainment lease retail and
warehouse space for their operations. In addition, Company subsidiaries lease
office and warehouse space for certain studio and corporate activities.

The Company's recently acquired FFW leases office and production facilities,
including approximately 300,000 square-feet of office space on Wilshire
Boulevard in Los Angeles, California.

ITEM 3. Legal Proceedings

The Company, together with, in some instances, certain of its directors and
officers, is a defendant or co-defendant in various legal actions involving
copyright, breach of contract and various other claims incident to the conduct
of its businesses. Management does not expect the Company to suffer any
material liability by reason of such actions.

In re The Walt Disney Company Derivative Litigation. William and Geraldine
Brehm and 13 other individuals filed an amended and consolidated complaint on
May 28, 1997 in the Delaware Court of Chancery seeking, among other things, a
declaratory judgment against each of the Company's directors as of December
1996 that the Company's 1995 employment agreement with its former president,
Michael S. Ovitz, was void, or alternatively that Mr. Ovitz's termination
should be deemed a termination "for cause" and any severance payments to him
forfeited. On October 8, 1998, the Delaware Court of Chancery dismissed all
counts of the amended complaint. Plaintiffs appealed, and on February 9, 2000,
the Supreme Court of Delaware affirmed the dismissal but ruled also that

-16-



plaintiffs should be permitted to file an amended complaint in accordance with
the Court's opinion. Subsequently, plaintiffs have taken preparatory steps
toward such a filing.

Similar or identical claims have also been filed by the same plaintiffs
(other than William and Geraldine Brehm) in the Superior Court of the State of
California, Los Angeles County, beginning with a claim filed by Richard and
David Kaplan on January 3, 1997. On May 18, 1998, an additional claim was filed
in the same California court by Dorothy L. Greenfield, who, on September 25,
2001, sought leave to amend her claim to allege that the Company's 2000
employment agreements with Michael D. Eisner and Robert A. Iger are excessive,
and that the Company's directors as of January and June 2000 breached their
duties to the Company by approving the agreements. All of the California claims
have been consolidated and stayed pending final resolution of the Delaware
proceedings.

All Pro Sports Camps, Inc., Nicholas Stracick and Edward Russell v. Walt
Disney Company, Walt Disney World Co., Disney Development Company and Steven B.
Wilson. On January 8, 1997, the plaintiff entity and two of its principals or
former principals filed a lawsuit against the Company, two of its subsidiaries
and a former employee in the Circuit Court for Orange County, Florida. The
plaintiffs asserted that the defendants had misappropriated from them the
concept used for the Disney's Wide World of Sports complex at the Walt Disney
World Resort. On August 11, 2000, a jury returned a verdict against the Company
and its two subsidiaries in the amount of $240 million. Subsequently, the Court
awarded plaintiffs an additional $100.00 in exemplary damages based on
particular findings by the jury. The Company has filed an appeal from the
judgment and believes that there are substantial grounds for complete reversal
or reduction of the verdict.

Management believes that it is not currently possible to estimate the
impact, if any, that the ultimate resolution of these matters will have on the
Company's results of operations, financial position or cash flows.

ITEM 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of shareholders during the fourth
quarter of the fiscal year covered by this report.

Executive Officers of the Company
The executive officers of the Company are elected each year at the
organizational meeting of the Board of Directors, which follows the annual
meeting of the shareholders and at other meetings as appropriate. Each of the
executive officers has been employed by the Company in the position or
positions indicated in the list and pertinent notes below. Messrs. Eisner and
Disney have been employed by the Company as executive officers for more than
five years.

At September 30, 2001, the executive officers of the Company were as follows:



Executive
Name Age Title Officer Since
- ------------------ --- --------------------------------------------------- -------------

Michael D. Eisner 59 Chairman of the Board and Chief Executive Officer 1984
Roy E. Disney 71 Vice Chairman of the Board 1984
Robert A. Iger 50 President and Chief Operating Officer/1/ 2000
Peter E. Murphy 38 Senior Executive Vice President and Chief Strategic 1998
Officer/2/
Thomas O. Staggs 40 Senior Executive Vice President and Chief Financial 1998
Officer/3/
Louis M. Meisinger 59 Executive Vice President and General Counsel/4/ 1998


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- --------
1 Mr. Iger was appointed to his present position in January 2000, having
served (from February 1999 until January 2000) as President of Walt Disney
International and Chairman of the ABC Group. Mr. Iger previously held a
number of increasingly responsible positions at ABC, Inc. and its
predecessor Capital Cities/ABC, Inc., culminating in service as President
and Chief Operating Officer of ABC, Inc. from 1994 to 1999.
2 Mr. Murphy joined the Company's strategic planning operation in 1988 and was
named Senior Vice President-Strategic Planning and Development of the
Company in 1995. From August 1997 to May 1998 he served as Chief Financial
Officer of ABC, Inc. In May 1998 he was named Executive Vice President and
Chief Strategic Officer. In October 1999, Mr. Murphy was promoted to Senior
Executive Vice President.
3 Mr. Staggs joined the Company's strategic planning operation in 1990 and was
named Senior Vice President-Strategic Planning and Development of the
Company in 1995. In May 1998, he was named Executive Vice President and
Chief Financial Officer. In October 1999, Mr. Staggs was promoted to Senior
Executive Vice President.
4 Mr. Meisinger was named Executive Vice President and General Counsel of the
Company in July 1998. Prior to joining the Company, he was a senior partner
with the law firm of Troop, Meisinger, Steuber & Pasich in Los Angeles,
California, a firm he co-founded in 1975. Mr. Meisinger specialized in the
litigation of complex entertainment, commercial and securities matters.

-18-



PART II

ITEM 5. Market for the Company's Common Stock and Related Stockholder Matters

The Company's common stock is listed on the New York and Pacific stock
exchanges under the ticker symbol "DIS". On March 20, 2001, the Company
converted all of its outstanding Internet Group common stock (NYSE symbol DIG)
into Disney common stock. Each outstanding share of Internet Group common stock
was converted into 0.19353 of a share of Disney common stock, resulting in the
issuance of approximately 8.6 million shares of Disney common stock.

The following sets forth the high and low composite closing sales prices for
the fiscal periods indicated.



Sales Price
-------------
Disney/(1)/
-------------
High Low
------ ------

2001
4th Quarter $28.74 $16.98
3rd Quarter 34.50 27.10
2nd Quarter 33.38 26.91
1st Quarter 41.38 26.44

2000
4th Quarter $42.50 $35.75
3rd Quarter 43.63 38.75
2nd Quarter 41.75 29.88
1st Quarter 29.31 23.50

- --------
(1) First quarter of fiscal 2000 per share market data for the period October
1, 1999 through November 17, 1999 represents the activity of The Walt
Disney Company common stock. Effective November 18, 1999, The Walt Disney
Company common stock was reclassified as Disney common stock and Walt
Disney Internet Group common stock was issued to reflect the performance of
the Company's Internet and direct marketing businesses. On March 20, 2001,
the Company converted all of its outstanding Internet Group common stock
into Disney common stock.

The Company declared a fourth quarter dividend of $0.21 per share on
November 27, 2001 related to fiscal 2001. The Company declared a fourth quarter
dividend of $0.21 per Disney share on November 28, 2000 related to fiscal 2000.

As of September 30, 2001, the approximate number of record holders of common
stock was 909,000.

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ITEM 6. Selected Financial Data

(In millions, except per share data)



2001/(2)/ 2000/(3)/ 1999/(4)/ 1998/(5)/ 1997/(6)/
-------- -------- -------- -------- --------

Statements of income
Revenues $25,269 $25,418 $23,455 $22,999 $22,490
Income before the cumulative effect of accounting
changes 120 920 1,300 1,850 1,966
Per share --/(1)/
Disney attributed (loss) earnings
Diluted $ (0.02) $ 0.57 $ 0.62 $ 0.89 $ 0.95
Basic (0.02) 0.58 0.63 0.91 0.97
Dividends/(7)/ 0.21 0.21 0.21 0.20 0.17
Balance sheets
Total assets $43,699 $45,027 $43,679 $41,378 $38,497
Borrowings 9,769 9,461 11,693 11,685 11,068
Stockholders' equity 22,672 24,100 20,975 19,388 17,285
Statements of cash flows
Cash provided by operations $ 3,048 $ 3,755 $ 2,568 $ 1,780 $ 2,010
Investing activities (2,015) (1,091) (2,290) (2,330) (847)
Financing activities (1,257) (2,236) 9 360 (1,124)

- --------
(1) The earnings and dividends per share have been adjusted to give effect to
the three-for-one split of Disney's common shares effective June 1998.
(2) The 2001 results include cumulative effect of accounting changes related to
film and derivative accounting changes totaling $228 million and $50
million, respectively and restructuring charges of $1.5 billion. See Notes
1 and 14 to the Consolidated Financial Statements. The diluted earnings per
Disney share impact of these items were $0.11, $0.02 and $0.52,
respectively.
(3) The 2000 results include pre-tax gains of $243 million, $93 million and
$153 million from the sale of Fairchild Publications, Eurosport and
Ultraseek, respectively. See Note 2 to the Consolidated Financial
Statements. The impact of income taxes substantially offset certain of the
gains. The diluted earnings per Disney share impact of these items were
$0.00, $0.02 and $0.01, respectively. The results also include a $92
million restructuring and impairment charge. The diluted earnings per
Disney share impact of the charge was $0.01. See Note 14 to the
Consolidated Financial Statements.
(4) The 1999 results include a gain from the sale of Starwave Corporation of
$345 million, equity in Infoseek loss of $322 million and restructuring and
impairment charges of $172 million. See Notes 2 and 14 to the Consolidated
Financial Statements. The diluted earnings per Disney share impact of these
items were $0.10, ($0.09) and ($0.05), respectively.
(5) The 1998 results include restructuring and impairment charges totaling $83
million. The diluted earnings per Disney share impact of the charges was
$0.03.
(6) The 1997 results include a $135 million gain from the sale of KCAL-TV. The
diluted earnings per Disney share impact of the gain was $0.04.
(7) The 2001 dividend was declared on November 27, 2001, to be paid on December
21, 2001, to holders of record as of December 7, 2001. See Note 8 to the
Consolidated Financial Statements.

-20-



ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

CONSOLIDATED RESULTS
(in millions, except per share data)



AS-REPORTED RESULTS OF OPERATIONS 2001 2000 1999
- --------------------------------- -------- -------- --------

Revenues $ 25,269 $ 25,418 $ 23,455
Costs and expenses (21,670) (21,660) (20,030)
Amortization of intangible assets (767) (1,233) (456)
Gain on sale of businesses 22 489 345
Net interest expense and other (417) (497) (612)
Equity in the income of investees 300 208 (127)
Restructuring and impairment charges (1,454) (92) (172)
-------- -------- --------
Income before income taxes, minority interests and the cumulative
effect of accounting changes 1,283 2,633 2,403
Income taxes (1,059) (1,606) (1,014)
Minority interests (104) (107) (89)
-------- -------- --------
Income before the cumulative effect of accounting changes 120 920 1,300
Cumulative effect of accounting changes:
Film accounting (228) -- --
Derivative accounting (50) -- --
-------- -------- --------
Net (loss) income $ (158) $ 920 $ 1,300
======== ======== ========
Earnings (loss) attributed to:
Disney Common Stock/(1)/ $ (41) $ 1,196 $ 1,300
Internet Group Common Stock (117) (276) --
-------- -------- --------
$ (158) $ 920 $ 1,300
======== ======== ========
Earnings (loss) per share before the cumulative effect of accounting
changes attributed to:
Disney Common Stock
Diluted $ 0.11 $ 0.57 $ 0.62
======== ======== ========
Basic $ 0.11 $ 0.58 $ 0.63
======== ======== ========
Internet Group Common Stock (basic and diluted) $ (2.72) $ (6.18) n/a
======== ======== ========
Cumulative effect of accounting changes per Disney share
Film Accounting $ (0.11) $ -- $ --
Derivative Accounting (0.02) -- --
-------- -------- --------
$ (0.13) --- --
======== ======== ========
Earnings (loss) per share attributed to:
Disney Common Stock/(1)/
Diluted $ (0.02) $ 0.57 $ 0.62
======== ======== ========
Basic $ (0.02) $ 0.58 $ 0.63
======== ======== ========
Internet Group Common Stock (basic and diluted) $ (2.72) $ (6.18) n/a
======== ======== ========
Average number of common and common equivalent shares
outstanding:
Disney Common Stock
Diluted 2,100 2,103 2,083
======== ======== ========
Basic 2,085 2,074 2,056
======== ======== ========
Internet Group Common Stock (basic and diluted) 43 45 n/a
======== ======== ========

- --------
(1) Including Disney's retained interest in the Internet Group. Disney's
as-reported retained interest in the Internet Group reflects 100% of
Internet Group losses through November 17, 1999, approximately 72% for the
period from November 18, 1999 through January 28, 2001 (the last date prior
to the announcement of the conversion of the Internet Group common stock)
and 100% thereafter.

-21-



Consolidated Results

2001 vs. 2000
As-reported net loss was $158 million compared to net income of $920 million
in the prior year. Net loss and loss per share attributed to Disney common
stock were $41 million and $0.02, respectively, compared to net income and
earnings per share attributed to Disney common stock of $1.2 billion and $0.57,
respectively, in the prior year. The current year as-reported net loss includes
charges from the cumulative effect of accounting changes ($278 million or $0.13
per Disney share) and restructuring and impairment charges ($1.45 billion or
$0.52 per Disney share). As-reported results also include pre-tax gains on the
sale of Infoseek Japan K.K. ($22 million) in 2001, and Fairchild Publications
($243 million), Ultraseek Corporation ($153 million) and Eurosport ($93
million) in 2000. Excluding the charges and gains mentioned above, earnings per
share attributed to Disney common stock was $0.63 and $0.56 for the current and
prior year, respectively. Results for the year also reflected lower
amortization of intangible assets and net interest expense and other and higher
equity in the income of investees, partially offset by decreased segment
operating income and higher corporate and unallocated shared expenses. Lower
amortization of intangible assets reflected the write-off of intangible assets
associated with the closure of the GO.com portal business in the second quarter
of the current year, certain intangible assets becoming fully amortized in the
first quarter and a reduction in intangible assets related to the sale of
Fairchild Publications, Ultraseek and Eurosport in fiscal 2000. Decreases in
net interest expense and other were driven by gains on the sale of certain
investments, lower interest rates and lower average debt balances throughout
most of the year. Higher equity in the income of investees reflected improved
results from cable equity investments including Lifetime Television, The
History Channel and A&E Television and certain international cable equity
investments, partially offset by start-up losses incurred in connection with
new investments. Decreased segment operating income reflected lower Media
Networks and Parks & Resorts results, partially offset by improvements at
Studio Entertainment and Consumer Products. Increased corporate and unallocated
shared expenses were driven by costs associated with several strategic
initiatives designed to improve overall company-wide efficiency and promote the
Disney brand.

On October 24, 2001, the Company acquired Fox Family Worldwide, Inc. ("FFW")
for $5.2 billion, including $2.9 billion in cash, plus the assumption of $2.3
billion in debt (see Note 15 to the Consolidated Financial Statements).

The Company anticipates that the income statement for 2002 will include the
impact of FFW merger-related and integration expenses; amortization of
intangible assets, to the extent identified, valued and deemed to have
determinable lives as part of the purchase price allocation; increased interest
expense from the financing of the acquisition and increased revenues and
expenses from the acquired operations.

The balance sheet impact of the acquisition is expected to reflect FFW's
historical carrying amounts, excluding the Fox Kid's Network, modified by
purchase accounting adjustments to reflect the difference between FFW's
historical carrying amounts and fair value; significant additional intangible
assets, including goodwill; additional assets and liabilities that reflect the
fair value of contingencies, executory contracts and other commitments, and
increased debt from funding for the purchase.

2000 vs. 1999
As-reported earnings and earnings per share attributed to Disney common
stock, decreased 8% to $1.2 billion and $0.57, respectively, driven by higher
amortization of intangible assets and income taxes, partially offset by
increased segment operating income and equity in the income of investees and
lower net interest expense and other. Increased amortization of intangible
assets resulted from

-22-



intangible assets associated with the acquisition of Infoseek Corporation
(Infoseek). Higher segment operating income was driven by growth at Media
Networks and Parks & Resorts, partially offset by decreases in the other
segments. Equity in the income of investees increased due to higher Infoseek
equity losses in fiscal 1999 as well as improved results from the Company's
cable equity investments. Net interest expense and other decreased due to lower
average debt balances, partially offset by higher interest rates in fiscal
2000. Lower average debt balances reflected increased cash flow.

Fiscal 2000 includes lower restructuring and impairment charges, discussed
more fully below, and higher gain on the sale of businesses. The increase in
the gain on sale of businesses reflects gains on the sale of Fairchild,
Ultraseek and Eurosport totaling $243 million, $153 million and $93 million,
respectively, in fiscal 2000 as compared to the gain on the sale of Starwave
totaling $345 million in fiscal 1999. As-reported net income including
restructuring and impairment charges and gain on the sale of business was $920
million, including a loss of $276 million attributed to the Internet Group.
As-reported earnings attributed to Disney common stock were $1.2 billion or
$0.57 per share in fiscal 2000 versus $1.3 billion or $0.62 per share in fiscal
1999.

Restructuring and Impairment Charges
The Company recorded restructuring and impairment charges for the years
ended September 30, 2001, 2000 and 1999 summarized as follows (in millions):



Year Ended September 30,
------------------------
2001 2000 1999
------ ---- ----

GO.com intangible assets impairment $ 820 $-- $ --
GO.com severance, fixed asset write-offs and other 58 -- --
Investment impairments 254 61 --
Workforce reduction and other 111 -- 132
Chicago DisneyQuest closure 94 -- --
Asset impairment 63 31 40
Disney Store closures 54 -- --
------ --- ----
Total restructuring and impairment charges $1,454 $92 $172
====== === ====


In 2001, the Company recorded restructuring and impairment charges totaling
$1.45 billion. The GO.com charge is for the closure of the GO.com portal
business and includes a non-cash write-off of intangible assets totaling $820
million (see Note 2 to the Consolidated Financial Statements). The investment
impairment charge is for other-than-temporary declines in the fair value of
certain Internet investments. The workforce reduction charges are primarily for
severance costs and are discussed more fully below. The DisneyQuest and Disney
Store closure charges are for the closure of the Chicago DisneyQuest facility
and approximately 100 Disney Stores and includes the write-down of fixed assets
and leasehold improvements, leasehold termination costs, severance and other
related closure costs. The asset impairment charge is for certain long-lived
assets, primarily at the Disney Store and Disney Catalog. These assets were
evaluated for impairment under a held for use model due to declining cash
flows. Fair value was generally determined based on discounted cash flows.

During the third quarter of fiscal 2001, the Company initiated a plan to
eliminate 4,000 full-time jobs through a combination of voluntary and
involuntary reductions. The reduction affected

-23-



employees in all business units and geographic regions. The $111 million of
costs associated with the workforce reduction consist primarily of severance
costs and write-offs of idled facilities. As of September 30, 2001, the Company
had substantially completed its workforce reduction and paid termination
benefits totaling $92 million.

As of September 30, 2001, approximately $118 million of the restructuring
and impairment charges remained as an accrued liability on the balance sheet,
of which $19 million related to the workforce reduction and $21 million is from
prior-year restructuring charges. The majority of this amount is expected to be
paid in fiscal 2002.

In 2000, impairment charges amounted to $92 million, primarily related to
write-downs of certain Internet investments and an asset impairment write-down
at toysmart.com in connection with its closure.

In 1999, the Company recorded restructuring and impairment charges totaling
$172 million. The charges included $132 million for severance and other charges
and $40 million related to long-lived asset impairments. The restructuring
charges included severance and lease and other contract cancellation costs,
primarily related to the consolidation of operations in the Company's
broadcasting, television production and regional entertainment businesses as
well as non-cash charges for write-downs of underutilized assets.

Fiscal 2002 Outlook
The Company expects that the events of September 11th and their aftermath
coupled with the already soft economy will continue to influence its operating
results into fiscal 2002. This impact is likely to be most significant in
certain of the Media Networks operations and Parks & Resorts. The Media
Networks advertising-supported businesses, such as the television and radio
network and stations, are expected to have declines in revenues due to the soft
advertising marketplace, continued ratings decreases and a potential increase
in news preemptions and higher news production costs. In Cable, the slow
economy and a surplus of inventory are resulting in downward pressure on
advertising rates. Parks & Resorts operations are likely to be affected by the
downturn in leisure travel and lower consumer confidence especially as compared
to the record setting first quarter the segment achieved in the prior year. To
date, Walt Disney World attendance is down roughly 25% versus the first quarter
of last year. We expect hotel occupancy to be down by approximately 20 and 15
percentage points for Walt Disney World and Disneyland, respectively, compared
to the first quarter of last year. Additionally, the Company expects that soft
retail sales and weak consumer confidence are likely to affect its Consumer
Products business.

As such, the Company believes that its operating income in the first quarter
of fiscal 2002 could be somewhat less than half that of the strong first
quarter results of the prior year. The Company expects that the first quarter
will represent the most difficult year-over-year comparison. While the future
is uncertain, the Company should experience an improved business climate in the
last three fiscal quarters of 2002, with operating income declines of as much
as 10 to 15 percent for those later three periods combined versus the prior
year.

The Company is taking a variety of measures to mitigate these impacts,
including a planned reduction of fiscal 2002 capital expenditures. In the Parks
& Resorts businesses, mitigation efforts include reducing man-hours, closing
non-essential food and beverage locations, instituting a hiring freeze and
delaying non-essential refurbishments. In Media Networks, all businesses are
undertaking aggressive cost reduction initiatives.


-24-



In November 1999, the Company sold Fairchild Publications which it had
acquired in connection with the ABC acquisition in 1996. In November 1998, the
Company acquired a 43% interest in Infoseek, a publicly traded Internet search
company and then in November 1999 acquired the remaining 57% of Infoseek,
launched GO.com and created the Disney Internet Group tracking stock. On March
20, 2001, the Company converted its Internet Group Common Stock into Disney
Common Stock and closed the GO.com portal business. To enhance comparability,
the unaudited pro forma information that follows presents consolidated results
of operations as if the Fairchild disposition, the completion of the Infoseek
acquisition, the conversion of the Internet Group common stock, the closure of
the GO.com portal business and the adoption of SOP 00-2 (see Notes 1 and 2 to
the Consolidated Financial Statements) had occurred at the beginning of fiscal
2000, eliminating the one-time impact of those events. The unaudited pro forma
information is not necessarily reflective of the results of operations had
these events actually occurred at the beginning of fiscal 2000, nor is it
necessarily indicative of future results.

Management believes that pro forma operating results provide additional
information useful in analyzing the underlying business results. However, pro
forma operating results should be considered in addition to, not as a
substitute for, as-reported results of operations.

CONSOLIDATED RESULTS
(unaudited; in millions, except per share data)



PRO FORMA RESULTS OF OPERATIONS 2001 2000 % Change
- ------------------------------- -------- -------- --------

Revenues $ 25,256 $ 25,356 --
Costs and expenses (21,624) (21,584) --
Amortization of intangible assets (586) (633) 7 %
Gain on sale of businesses/(1)/ 22 246 (91)%
Net interest expense and other (417) (493) 15%
Equity in the income of investees 300 249 20%
Restructuring and impairment charges (576) (92) n/m
-------- --------
Income before income taxes, minority interests and the cumulative effect of
accounting changes 2,375 3,049 (22)%
Income taxes (1,114) (1,402) 21%
Minority interests (104) (107) 3 %
-------- --------
Income before the cumulative effect of accounting changes 1,157 1,540 (25)%
Cumulative effect of accounting changes:
Film accounting (228) --
Derivative accounting (50) --
-------- --------
Net income $ 879 $ 1,540 (43)%
======== ========
Earnings per share before the cumulative effect of accounting changes:
Diluted $ 0.55 $ 0.73 (25)%
======== ========
Basic $ 0.55 $ 0.74
======== ========
Earnings per share including the cumulative effect of accounting changes:
Diluted $ 0.42 $ 0.73 (42)%
======== ========
Basic $ 0.42 $ 0.74
======== ========
Earnings before the cumulative effect of accounting changes, excluding
restructuring and impairment charges and gain on the sale of businesses: $ 1,525 $ 1,518 --
======== ========
Earnings per share before the cumulative effect of accounting changes,
excluding restructuring and impairment charges and gain on the sale of
businesses:
Diluted $ 0.72 $ 0.72 --
======== ========
Basic $ 0.73 $ 0.73 --
======== ========
Average number of common and common equivalent shares outstanding:
Diluted 2,104 2,111
======== ========
Basic 2,089 2,082
======== ========

- --------
(1) Includes the gain on sale of Infoseek Japan K.K. in 2001 and the gain on
the sales of Ultraseek Corporation and Eurosport ($153 million and $93
million, respectively) in 2000.

-25-



The following table provides a reconciliation of as-reported income (loss)
per share attributed to Disney common stock to pro forma earnings per share
before the cumulative effect of accounting changes, excluding restructuring and
impairment charges and gains on the sale of businesses.



Year Ended
September 30,
--------------
2001 2000
(unaudited) ------ ------

As-reported (loss) income per share attributed to Disney common stock $(0.02) $ 0.57
Adjustment to attribute 100% of Internet Group operating results to Disney common
stock (72% included in as-reported amounts for the period from November 18, 1999
through January 28, 2001) (0.06) (0.13)
Adjustment to exclude pre-closure GO.com portal operating results and amortization
of intangible assets 0.09 0.35
Adjustment to exclude GO.com restructuring and impairment charges 0.41 --
Adjustment to include pre-acquisition Infoseek operating results -- (0.04)
Adjustment to exclude the cumulative effect of accounting changes 0.13 --
Adjustment to reflect the impact of the new Film Accounting rules -- (0.02)
------ ------
Pro forma earnings per share before the cumulative effect of accounting changes 0.55 0.73
Adjustment to exclude restructuring and impairment charges 0.17 0.03
Adjustment to exclude gain on the sale of businesses -- (0.04)
------ ------
Pro forma earnings per share before the cumulative effect of accounting changes,
excluding restructuring and impairment charges and gain on the sale of businesses $ 0.72 $ 0.72
====== ======


2001 vs. 2000
On a pro forma basis, net income and earnings per share before the
cumulative effect of accounting changes, excluding restructuring and impairment
charges and gain on the sale of businesses remained flat at $1.5 billion and
$0.72, respectively. Pro forma results for the current and prior periods have
been adjusted to reflect the disposition of Fairchild Publications, the
acquisition of Infoseek, the conversion of the Internet Group common stock into
Disney common stock, the closure of the GO.com portal business and the adoption
of the new film accounting rules as if these transactions occurred at the
beginning of fiscal 2000, excluding the one-time impacts of these events. On a
pro forma basis, restructuring and impairment charges exclude the impact of the
GO.com portal closure of $878 million.

Including the restructuring and impairment charges, gains on sale of
businesses and the cumulative effect of accounting changes, pro forma net
income and earnings per share decreased 43% and 42% to $879 million and $0.42
per share, respectively.

BUSINESS SEGMENT RESULTS

The Company has changed the reporting structure of the various components of
its Internet operations and as a result, the Internet Group will no longer be
reported as a separate segment. The ESPN, ABC, Disney and family-branded
Internet Web sites will be reported in the Media Networks segment and
DisneyVacations.com will be reported in the Parks & Resorts segment. Also
during the year, the Disney Store Catalog and the Disney Store Online were
reassigned from the Internet Group to Consumer Products. These changes have
been reflected in the fiscal 2001 financial statements and prior-year amounts
have been reclassified to reflect the current year presentation.


-26-





Pro Forma
(unaudited) As Reported
--------------- % -----------------------
(in millions) 2001 2000 Change 2001 2000 1999
- ------------------------------- ------- ------- ------ ------- ------- -------

Revenues:
Media Networks $ 9,556 $ 9,788 (2)% $ 9,569 $ 9,836 $ 8,012
Parks & Resorts 7,004 6,809 3 % 7,004 6,809 6,141
Studio Entertainment 6,106 6,011 2 % 6,106 6,011 6,176
Consumer Products 2,590 2,748 (6)% 2,590 2,762 3,126
------- ------- ------- ------- -------
$25,256 $25,356 -- $25,269 $25,418 $23,455
======= ======= ======= ======= =======
Segment operating income: /(1)/
Media Networks $ 1,791 $ 2,048 (13)% $ 1,758 $ 1,985 $ 1,512
Parks & Resorts 1,586 1,615 (2)% 1,586 1,615 1,494
Studio Entertainment 260 76 n/m 260 126 162
Consumer Products 401 385 4 % 401 386 592
------- ------- ------- ------- -------
$ 4,038 $ 4,124 (2)% $ 4,005 $ 4,112 $ 3,760
======= ======= ======= ======= =======


The Company evaluates the performance of its operating segments based on
segment operating income. A reconciliation of segment operating income to
income before income taxes, minority interests and the cumulative effect of
accounting changes is as follows:



Pro Forma
(unaudited) As Reported
-------------- ------------------------
(in millions) 2001 2000 2001 2000 1999
- ------------------------------------------------------ ------ ------ ------- ------- ------

Segment operating income $4,038 $4,124 $ 4,005 $ 4,112 $3,760
Corporate and unallocated shared expenses (406) (352) (406) (354) (335)
Amortization of intangible assets (586) (633) (767) (1,233) (456)
Gain on sale of businesses 22 246 22 489 345
Net interest expense and other (417) (493) (417) (497) (612)
Equity in the income of investees 300 249 300 208 (127)
Restructuring and impairment charges (576) (92) (1,454) (92) (172)
------ ------ ------- ------- ------
Income before income taxes, minority interests and the
cumulative effect of accounting changes $2,375 $3,049 $ 1,283 $ 2,633 $2,403
====== ====== ======= ======= ======

- --------
(1) Segment earnings before interest, income taxes, depreciation and
amortization (EBITDA) is as follows:



Pro Forma
(unaudited) As Reported
------------- --------------------
(in millions) 2001 2000 2001 2000 1999
- -------------------- ------ ------ ------ ------ ------

Media Networks $1,964 $2,197 $1,934 $2,154 $1,647
Parks & Resorts 2,190 2,197 2,190 2,197 1,992
Studio Entertainment 307 130 307 180 226
Consumer Products 491 494 491 495 720
------ ------ ------ ------ ------
$4,952 $5,018 $4,922 $5,026 $4,585
====== ====== ====== ====== ======


-27-



Management believes that segment EBITDA provides additional information
useful in analyzing the underlying business results. However, segment EBITDA is
a non-GAAP financial metric and should be considered in addition to, not as a
substitute for, reported segment operating income.

Media Networks
The following table provides supplemental revenue and segment operating
income detail for the Media Networks segment (in millions).



Pro Forma As
(unaudited) Reported
------------- --------
2001 2000 1999
------ ------ --------

Revenues:
Broadcasting $5,713 $6,279 $5,139
Cable Networks 3,843 3,509 2,873
------ ------ ------
$9,556 $9,788 $8,012
====== ====== ======
Segment Operating Income:
Broadcasting $ 728 $1,033 $ 571
Cable Networks 1,063 1,015 941
------ ------ ------
$1,791 $2,048 $1,512
====== ====== ======


2001 vs. 2000
Revenues decreased 2%, or $232 million, to $9.6 billion, driven by decreases
of $566 million at Broadcasting, partially offset by increases of $334 million
at the Cable Networks. The decrease at Broadcasting was driven by lower ratings
and the soft advertising market at the ABC television network and the Company's
owned television stations and radio operations. Additionally, revenue declines
at the television network reflected lower sports advertising revenues due to
ABC airing the Super Bowl in the prior year. The increase at the Cable Networks
was driven by annual contractual rate adjustments at ESPN combined with
subscriber growth at ESPN, the Disney Channel domestically and internationally,
partially offset by the soft advertising market during the year. Subscriber
growth at the Disney Channel reflected increasing satellite (DBS) and digital
subscribers and the continuing conversion of the Disney Channel from a premium
to a basic service.

Segment operating income decreased 13%, or $257 million, to $1.8 billion,
driven by a decrease of $305 million at Broadcasting resulting primarily from
decreased revenues and higher programming costs, partially offset by an
increase of $48 million at the Cable Networks, driven by revenue growth. Costs
and expenses, which consist primarily of programming rights and amortization,
production costs, distribution and selling expenses and labor costs, remained
flat for the year, but increased as a percentage of revenue. The Company
experienced higher programming costs at ESPN, the primetime ABC television
network and the Company's owned television stations and radio operations and
start-up costs at the international Disney Channels, offset by lower sports
programming costs at the ABC television network due to higher costs for the
Super Bowl and two additional National Football League (NFL) regular season
games in the prior year and lower costs at the Internet Group due to the
closure of toysmart.com in the prior year and cost saving initiatives.

The Company has various contractual commitments for the purchase of
broadcast rights for sports and other programming including the NFL, Major
League Baseball (MLB) and the National Hockey League (NHL). The costs of these
contracts have increased significantly in recent years. The Company has
implemented a variety of strategies, including marketing efforts, to reduce the
impact of the higher

-28-



costs. The impact of these contracts on the Company's results over the
remaining term of the contracts is dependent upon a number of factors,
including the strength of advertising markets, effectiveness of marketing
efforts and the size of viewer audiences.

The costs of these contracts are charged to expense based on the ratio of
each period's gross revenues to estimated total gross revenues over the
remaining contract period. Estimates of total gross revenues can change
significantly and, accordingly, they are reviewed periodically and amortization
and carrying amounts are adjusted, if necessary. Such adjustments could have a
material effect on results of operations in future periods.

The Company has investments in cable operations that are accounted for as
unconsolidated equity investments. The table below presents operating income
from cable television activities, which comprise the Cable Networks and the
Company's cable equity investments (in millions).



Pro Forma (unaudited)
--------------------
2001 2000 %Change
------ ------ -------

Operating Income:
Cable Networks $1,063 $1,015 5 %
Equity Investments:
A&E Television and Lifetime Television 693 614 13 %
Other/(1)/ 178 211 (16)%
------ ------
Operating Income from Cable Television Activities 1,934 1,840 5 %
Partner Share of Operating Income (705) (639) (10)%
------ ------
Disney Share of Operating Income/(1)/ $1,229 $1,201 2 %
====== ======

- --------
Note: Operating income from cable television activities presented in this
table represents 100% of both the Company's owned cable businesses and its
cable equity investees. The Disney share of operating income represents the
Company's ownership interest in cable television operating income. Cable
Networks are reported in "Segment operating income" in the statements of
income. Equity investments are reported in "Equity in the income of
investees" in the statements of income.

(1) Amounts include the gain on the sale of Eurosport in fiscal 2000. Excluding
Disney's share of the gain, cable television operating income for the year
ended September 30, 2000 was $1,126 million.

We believe that operating income from cable television activities provides
additional information useful in analyzing the underlying business results.
However, operating income from cable television activities is a non-GAAP
financial metric and should be considered in addition to, not as a substitute
for, segment operating income.

The Company's share of cable television operating income increased 2%, or
$28 million, to $1.2 billion. Excluding the prior-year gain on Eurosport, the
Company's share of cable television operating income increased 9%, reflecting
higher affiliate revenues at the cable networks driven by annual contractual
rate adjustments and strong subscriber growth, including the conversion of the
Disney Channel from a premium to a basic service, and profit increases from
cable equity investments, partially offset by higher programming costs and the
soft advertising market at the cable network.

2000 vs. 1999

Revenues increased 23%, or $1.8 billion, to $9.8 billion, driven by
increases of $1.2 billion at Broadcasting and $636 million at the Cable
Networks. Broadcasting revenue growth reflected

-29-



increased advertising revenues at the television networks and the Company's
owned television stations due to a strong advertising market, the continued
success of Who Wants to Be a Millionaire and higher overall ratings on network
programming. Television station revenue growth also benefited from higher spot
advertising rates driven by the ABC Television Network placing first in the May
and February sweeps. Additionally, the strong advertising market resulted in
revenue growth at the radio networks and stations. Revenue growth also
reflected higher advertising and sponsorship revenues at the Internet Group, as
well as the operations of Infoseek, which were consolidated into the Internet
Group beginning November 1999. Cable Network revenue growth reflected increased
advertising revenues driven by a strong advertising market and higher affiliate
fees reflecting contractual rate increases and subscriber growth. International
expansion at the Disney Channel also contributed to increased revenues.

Segment operating income increased 31%, or $473 million, to $2.0 billion,
driven by increases of $399 million at Broadcasting and $74 million at the
Cable Networks, resulting from revenue growth at both Broadcasting and Cable
Networks, partially offset by increased costs and expenses. Costs and expenses,
which consist primarily of programming rights and amortization, production
costs, distribution and selling expenses and labor costs, increased 21%, or
$1.4 billion, driven by higher sports programming costs at the television and
cable networks, principally related to NFL, MLB and NHL broadcasts. In
addition, higher costs and expenses reflected start-up costs associated with
the launch of various international Disney Channels and the January launch of
SoapNet. Costs and expenses at the Internet Group also increased due to Website
development expenses, growth in infrastructure due to the expansion of the
business, the operations of toysmart.com and the operations of Infoseek.

Parks & Resorts

2001 vs. 2000
Revenues increased 3%, or $195 million, to $7.0 billion, driven primarily by
growth of $278 million at the Disneyland Resort, $44 million from Disney Cruise
Line and $20 million in higher royalties from Tokyo Disneyland, partially
offset by a decrease of $187 million at the Walt Disney World Resort. At the
Disneyland Resort, the opening of Disney's California Adventure, Downtown
Disney and the Grand Californian Hotel during the second quarter drove
increased attendance, higher occupied room nights and increased guest spending.
Disney Cruise Line's results reflected the strength of the 7-day cruise package
that was introduced in the fourth quarter of the prior year. At Walt Disney
World, decreased revenues were driven by decreased attendance and lower
occupied room nights reflecting the prior year success of the Millennium
Celebration, partially offset by increased guest spending. Both the Disneyland
Resort and Walt Disney World Resort were impacted by park closures on September
11/th/ and from lower attendance and hotel occupancy due to cancellations and
reduced travel during the last three weeks of September.

Segment operating income decreased 2%, or $29 million, to $1.6 billion,
driven by increased costs at the Disneyland Resort, partially offset by revenue
growth at Disneyland, continued growth at Disney Cruise Line and on going
productivity improvements and cost reduction initiatives at Walt Disney World.
Costs and expenses, which consist principally of labor, costs of merchandise,
food and beverages sold, depreciation, repairs and maintenance, entertainment
and marketing and sales expense, increased 4% or $224 million. Higher costs at
the Disneyland Resort were due to the opening of Disney's California Adventure,
Downtown Disney and the Grand Californian Hotel.

2000 vs. 1999
Revenues increased 11%, or $668 million, to $6.8 billion, driven by growth
of $383 million at the Walt Disney World Resort, reflecting increased guest
spending, record attendance and record occupied

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room nights; $129 million from Disney Cruise Line, reflecting full-year
operations from both cruise ships, the Disney Magic and the Disney Wonder,
compared to just the Disney Magic for the first three and a half quarters of
the prior year; and $35 million from increased attendance and guest spending at
Disneyland. Increased guest spending and record attendance at the Walt Disney
World Resort were driven by the ongoing Millennium Celebration and record
occupied room nights reflected the opening of the All-Star Movies Resort in the
second quarter of the prior year. At Disneyland, the 45/th/ Anniversary
Celebration and the strength of the annual passport program drove increased
attendance and guest spending.

Segment operating income increased 8%, or $121 million, to $1.6 billion,
driven by revenue growth at the Walt Disney World Resort, improved results at
Disney Cruise Line and higher guest spending and attendance at Disneyland,
partially offset by increased costs and expenses. Costs and expenses, which
consist principally of labor, costs of merchandise, food and beverages sold,
depreciation, repairs and maintenance, entertainment and marketing and sales
expenses, increased 12%, or $547 million, driven by increased volume at the
Walt Disney World Resort resulting from the ongoing Millennium Celebration,
expanded operations at Disney Cruise Line as a result of the addition of the
second ship and increased volume at Disneyland due to the 45/th/ Anniversary
Celebration, as well as pre-opening costs at Disney's California Adventure.

Studio Entertainment

2001 vs. 2000
Revenues increased 2%, or $95 million, to $6.1 billion, driven by growth of
$316 million in worldwide home video and $126 million in stage plays, partially
offset by a decline of $306 million in worldwide theatrical motion picture
distribution. Improvements in worldwide home video revenues reflected strong
DVD and VHS performance driven by successful animated titles including
Disney/Pixar's Toy Story 2, Dinosaurs, The Emperor's New Groove and Lady & the
Tramp II and stronger performing live-action titles including Spy Kids, Scary
Movie, Gone in 60 Seconds and Remember the Titans. Growth in stage plays
reflected performances of The Lion King in additional cities and improved
performance of Aida. In worldwide theatrical motion picture distribution, the
success of Pearl Harbor, Spy Kids and Princess Diaries, faced difficult
comparisons to prior year titles, which included Toy Story 2, Tarzan, Dinosaur,
Scary Movie and The Sixth Sense.

On a pro forma basis, segment operating income increased $184 million, to
$260 million, due to increases in worldwide home video and stage plays. Costs
and expenses, which consist primarily of production cost amortization,
distribution and selling expenses, product costs, labor and leasehold expenses,
decreased 1%, or $89 million, driven by decreases in worldwide theatrical
motion picture distribution, partially offset by increases in worldwide home
video. In worldwide theatrical motion picture distribution, cost decreases
reflected lower distribution expenses and production costs amortization in the
current year as well as higher participation expenses in the prior year, due to
Toy Story 2 and The Sixth Sense. The increased costs in worldwide home video
reflected higher distribution expense and production costs amortization driven
by an increase in VHS and DVD unit sales and higher participation costs due to
the success of Toy Story 2 in the current year. Stage plays operating expenses
also increased due to more productions in the current year.

On an as-reported basis, segment operating income increased $134 million, to
$260 million, reflecting the items described above, as well as the impact of
SOP 00-2 in the current year, which resulted in higher distribution and
marketing costs as compared to the prior year.

2000 vs. 1999
Revenues decreased 3%, or $165 million, to $6.0 billion, driven by declines
of $206 million in network television production and distribution, $168 million
in worldwide home video and $58

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million in domestic theatrical motion picture distribution, partially offset by
growth of $197 million in international theatrical motion picture distribution
and $88 million in stage plays. The decline in network television production
and distribution revenues primarily reflected the end of production of Home
Improvement in the prior year, which was a significant contributor to revenues.
The decline in worldwide home video revenues reflected fewer unit sales in the
current year, despite the successful releases of Tarzan and Little Mermaid II:
Return to Sea, as the prior year included the combination of Lion King II:
Simba's Pride, Mulan, Armageddon and Disney/Pixar's A Bug's Life. In domestic
theatrical motion picture distribution, the success of Scary Movie, Dinosaur
and Toy Story 2 faced difficult comparisons to the prior year. Growth in
international theatrical motion picture distribution revenues reflected the
performances of Toy Story 2, Tarzan and The Sixth Sense. Stage plays revenues
increased due to expansion of The Lion King into additional cities, the launch
of Aida and the re-launch of the Beauty and the Beast national tour.

Segment operating income decreased 22%, or $36 million, to $126 million, due
to declines in worldwide home video and network television production and
distribution, partially offset by growth in international theatrical motion
picture distribution and stage plays. Costs and expenses, which consist
primarily of production cost amortization, distribution and selling expenses,
product costs, labor and leasehold expenses, decreased 2% or $129 million.
Production cost amortization decreased in network television production and
distribution reflecting the production of Home Improvement in the prior year.
In worldwide home video, distribution and selling costs and production cost
amortization decreased due to a reduction in videotape unit sales compared to
the prior year. The Sixth Sense, which drove higher participation costs in
domestic theatrical motion picture distribution in the prior year, had a
similar impact in international theatrical motion picture distribution in the
current year. Cost increases in international theatrical motion picture
distribution also reflected higher overall production cost amortization. Stage
plays operating expenses also increased driven by revenue increases.

Consumer Products

2001 vs. 2000
On a pro forma basis, revenues decreased 6%, or $158 million, to $2.6
billion, primarily reflecting declines of $157 million at the Disney Stores,
which were driven by lower comparative store sales in North America.

On an as-reported basis, revenues decreased 6% or $172 million, to $2.6
billion, reflecting the items described above, as well as the impact of the
disposition of Fairchild Publications in the first quarter of the prior year.

Segment operating income increased 4%, or $16 million, to $401 million,
primarily driven by benefits from cost reduction initiatives, partially offset
by declines at the Disney Stores in North America. Costs and expenses, which
consist primarily of labor, product costs, including product development costs,
distribution and selling expenses and leasehold expenses, decreased 7% or $174
million, primarily due to lower sales volume at the Disney Stores in North
America, decreased catalog circulation and advertising costs and the impact of
cost reduction initiatives including the Disney Store in Europe.

2000 vs. 1999
Revenues decreased 12%, or $364 million, to $2.8 billion, reflecting
declines of $163 million at Fairchild Publications, $135 million in worldwide
merchandise licensing and publishing, partially offset by growth of $22 million
at Disney Interactive. Revenues decreased at Fairchild Publications as it was
sold in the first quarter of fiscal 2000. Lower merchandise licensing and
publishing revenues were primarily attributable to declines domestically and in
Europe. Disney Interactive revenues increased

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due to the success of the Who Wants to Be a Millionaire video games, Pooh
learning titles and the Toy Story 2 action game.

Segment operating income decreased 35%, or $206 million, to $386 million,
reflecting declines in worldwide merchandise licensing and publishing and the
sale of Fairchild Publications, partially offset by increases at the Disney
Stores, primarily driven by a reduction in costs, and at Disney Interactive.
Costs and expenses decreased 6% or $158 million. Cost decreases at the Disney
Stores, which reflected write-downs of inventory in the prior year, were
partially offset by an increase in advertising costs.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operations decreased 19%, or $707 million, to $3.0 billion,
reflecting decreased pretax income before non-cash charges, increased payments
for television broadcast rights, primarily due to the timing of the NFL
payments and increased license fees for Primetime programming and the timing of
the payments of accounts payable. These decreases were partially offset by
lower income tax payments. Additionally, the prior year included proceeds from
the sale of receivables at Disney Vacation Club. These decreases were partially
offset by higher net income before non-cash charges.

During the year, the Company invested $1.8 billion in parks, resorts and
other properties. These expenditures reflected continued expansion activities
related to Disney's California Adventure and certain resort facilities at the
Walt Disney World Resort. The decrease from the prior year was primarily due to
lower spending on Disney's California Adventure, which opened in February 2001.

During the year, the Company invested $480 million to acquire the copyright
for certain intellectual property, radio station and publishing assets and the
rights to a music library.

In fiscal 2001, investing activities also included $137 million of cash
proceeds generated primarily from the sale of Infoseek Japan, K.K.
Additionally, cash proceeds from the sale of investments resulted primarily
from the sale of Knight-Ridder, Inc. shares which were acquired in connection
with the disposition of certain publishing operations. During fiscal 2000,
investing activities included cash proceeds from the sale of Fairchild
Publications and Eurosport. Fiscal 2000 cash proceeds from the sale of
investments were driven by the sale of Inktomi shares acquired through the
disposition of Ultraseek.

During 1998, the Company's Board of Directors decided to move to an annual,
rather than quarterly, dividend policy to reduce costs and simplify payments to
the more than 2.7 million stockholders of Disney common stock. Accordingly,
there was no dividend payment during the year ended September 30, 1999. The
Company paid a $434 million dividend ($0.21 per Disney share) during the first
quarter of fiscal 2000 applicable to fiscal 1999 and paid a $438 million
dividend ($0.21 per Disney share) during the first quarter of the current year
applicable to fiscal 2000. On November 27, 2001, the Board of Directors
declared a cash dividend, applicable to fiscal 2001, of $0.21 per share, to be
paid on December 21, 2001, to stockholders at the close of business December 7,
2001.

During the year, the Company repaid approximately $2.8 billion of term debt,
which either matured or was called during the year, and reduced its commercial
paper borrowings by $186 million. These repayments were funded by proceeds of
$3.1 billion consisting of $2.5 billion of Global bonds and $50 million of
fixed-rate notes issued under the U.S. shelf registration, and $530 million of
fixed-rate notes issued under the Euro Medium-term Note Program. These
borrowings have effective interest rates, including the impact of interest rate
swaps, ranging from 3.5% to 5.9% and maturities in fiscal 2003 through fiscal
2016. See Note 5 of the Consolidated Financial Statements for more detailed
information regarding the Company's borrowings.

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In August 2001, the Company filed a new U.S. shelf registration statement,
which replaced the existing U.S. shelf registration statement. As of September
30, 2001, the Company had the ability to borrow under the U.S. shelf
registration statement and a Euro Medium-term Note Program, which collectively
permitted the issuance of up to approximately $8.1 billion of additional debt
or various other securities.

Commercial paper borrowings outstanding as of September 30, 2001 totaled
$754 million, with maturities of up to one year, supported by a $2.25 billion
bank facility due in 2002 and a $2.25 billion bank facility due in 2005. These
bank facilities allow for borrowings at the LIBOR-based rates plus a spread,
depending upon the Company's public debt rating. As of September 30, 2001, the
Company had not borrowed against these bank facilities.

Total commitments to purchase broadcast programming approximated $13.2
billion at September 30, 2001, including approximately $10.1 billion related to
sports programming rights, primarily NFL, College Football and MLB.
Substantially all of this amount is payable over the next five years.

The Company expects the ABC Television Network, ESPN and the Company's
television and radio stations to continue to enter into programming commitments
to purchase the broadcast rights for various feature films, sports and other
programming.

During the year, the Company acquired approximately 63.9 million shares of
Disney common stock and 1.8 million shares of Internet Group common stock for
approximately $1.1 billion and $10 million, respectively. As of September 30,
2001, the Company was authorized to purchase up to approximately 330 million
shares of Disney common stock.

On October 24, 2001, the Company acquired Fox Family Worldwide for $5.2
billion, including $2.9 billion in cash and the assumption of $2.3 billion in
debt and preferred stock. The Company funded the acquisition with cash on hand
as well as short and long-term debt issuances. In connection with the
acquisition, the Company acquired programming commitments totaling
approximately $1 billion, including approximately $675 million for certain MLB
games through 2006.

Following the acquisition of Fox Family Worldwide, the Company had
commercial paper borrowings outstanding of approximately $3.8 billion supported
by bank facilities totaling $4.5 billion and capacity to raise an additional
$7.1 billion under its U.S. Shelf Registration and its Euro Medium-term Note
Program.

The Company believes that its financial condition is strong and that its
cash, other liquid assets, operating cash flows, access to equity capital
markets and borrowing capacity, taken together, provide adequate resources to
fund ongoing operating requirements and future capital expenditures related to
the expansion of existing businesses and development of new projects. However,
the Company's operating cash flow and access to the capital markets can be
impacted by macroeconomic factors outside of its control. In addition to
macroeconomic factors, the Company's borrowing costs can be impacted by short
and long-term debt ratings assigned by independent rating agencies, which are
based, in significant part, on certain credit measures such as interest
coverage and leverage ratios.

OTHER MATTERS

Conversion to the Euro Currency
On January 1, 1999, certain member countries of the European Union
established fixed conversion rates between their existing currencies and the
European Union's common currency (euro). The transition period for the
introduction of the euro ends January 1, 2002. Issues facing the Company as a
result of the introduction of the euro include converting information
technology systems, reassessing currency risk, negotiating and amending
licensing agreements and contracts, and processing tax and

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accounting records. The Company is continuing to address these issues and does
not expect the euro to have a material effect on the Company's financial
condition or results of operations.

Accounting Changes
Effective October 1, 2000, the Company adopted AICPA Statement of Position
No. 00-2, Accounting by Producers or Distributors of Films (SOP 00-2). The
Company's results of operations and financial position reflect the impact of
the new standard commencing October 1, 2000 and the Company recorded a one-time
after-tax charge of $228 million representing the cumulative effect of the
adoption of SOP 00-2 in its consolidated financial statements for the year
ended September 30, 2001.

In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133 Accounting for Derivative
Instruments and Hedging Activities (SFAS 133), subsequently amended by SFAS No.
137 and SFAS No. 138. SFAS 133 requires the Company to record all derivatives
on the balance sheet at fair value. Changes in derivative fair values will
either be recognized in earnings as offsets to the changes in fair value of
related hedged assets, liabilities and firm commitments or, for forecasted
transactions, deferred and recorded as a component of other accumulated
comprehensive income until the hedged transactions occur and are recognized in
earnings. The ineffective portion of a hedging derivative's change in fair
value will be immediately recognized in earnings.

As a result of adopting SFAS 133 as of October 1, 2000, and in accordance
with the transition provisions, the Company recorded a one-time after-tax
charge of $50 million, or $0.02 per share, in its Consolidated Statements of
Income representing the cumulative effect of the adoption and an after-tax
unrealized gain of $60 million to accumulated other comprehensive income (AOCI).

In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 141, Business Combinations (SFAS 141) and Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142). They also
issued Statement of Financial Accounting Standards No. 143, Accounting for
Obligations Associated with the Retirement of Long-Lived Assets (SFAS 143), and
Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS 144), in August and October
2001, respectively.

SFAS 141 requires all business combinations initiated after June 30, 2001 be
accounted for under the purchase method. SFAS 141 superseded APB Opinion No.
16, Business Combinations, and Statement of Financial Accounting Standards No.
38, Accounting for Preacquisition Contingencies of Purchased Enterprises and is
effective for all business combinations initiated after June 30, 2001.

SFAS 142 addresses the financial accounting and reporting for acquired
goodwill and other intangible assets. Under the new rules, the Company is no
longer required to amortize goodwill and other intangible assets with
indefinite lives but will be subject to periodic testing for impairment. SFAS
142 supersedes APB Opinion No. 17, Intangible Assets. Effective October 1,
2001, the Company will adopt SFAS 142 and is evaluating the effect that such
adoption may have on its consolidated results of operations and financial
position.

As a result of adoption, a substantial amount of its intangible assets will
no longer be amortized and accordingly, the Company's effective tax rate is
expected to decrease substantially in fiscal 2002. The impact of intangible
asset amortization that would not have been amortized pursuant to SFAS 142
during fiscal 2001 on diluted earnings per share was $0.26.

SFAS 143 establishes accounting standards for the recognition and
measurement of an asset retirement obligation and its associated asset
retirement cost. It also provides accounting guidance for

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legal obligations associated with the retirement of tangible long-lived assets.
SFAS 143 is effective in fiscal years beginning after June 15, 2002, with early
adoption permitted. The Company expects that the provisions of SFAS 143 will
not have a material impact on its consolidated results of operations and
financial position upon adoption. The Company plans to adopt SFAS 143 effective
October 1, 2002.

SFAS 144 establishes a single accounting model for the impairment or
disposal of long-lived assets, including discontinued operations. SFAS 144
superseded Statement of Financial Accounting Standards No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
and APB Opinion No. 30, Reporting the Results of Operations--Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions. The provisions of SFAS 144 are
effective in fiscal years beginning after December 15, 2001, with early
adoption permitted and, in general, are to be applied prospectively. The
Company plans to adopt SFAS 144 effective October 1, 2001 and does not expect
that the adoption will have a material impact on its consolidated results of
operations and financial position.

Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor
for forward-looking statements made by or on behalf of the Company. We may from
time to time make written or oral statements that are "forward-looking,"
including statements contained in this report and other filings with the
Securities and Exchange Commission and in reports to our stockholders. Such
statements may, for example, express expectations or projections about future
actions that we may take, including restructuring or strategic initiatives or
about developments beyond our control including changes in domestic or global
economic conditions. These statements are made on the basis of management's
views and assumptions as of the time the statements are made. There can be no
assurance, however, that our expectations will necessarily come to pass.

Factors that may affect forward-looking statements. For an enterprise as
large and complex as the Company, a wide range of factors could materially
affect future developments and performance, including the following:

Changes in Company-wide or business-unit strategies, which may result in
changes in the types or mix of businesses in which the Company is involved
or chooses to invest;

Changes in U.S., global or regional economic conditions, which may affect
attendance and spending at the Company's parks and resorts, purchases of
Company-licensed consumer products, the advertising market for broadcast and
cable television programming and the performance of the Company's theatrical
and home entertainment releases;

Changes in U.S. and global financial and equity markets, including market
disruptions and significant interest rate fluctuations, which may impede the
Company's access to, or increase the cost of, external financing for its
operations and investments;

Increased competitive pressures, both domestically and internationally,
which may, among other things, affect the performance of the Company's parks
and resorts operations and lead to increased expenses in such areas as
television programming acquisition and motion picture production and
marketing;

Legal and regulatory developments that may affect particular business units,
such as regulatory actions affecting environmental activities, consumer
products, theme park safety, broadcasting or Internet activities or the
protection of intellectual property; the imposition by foreign countries of
trade restrictions or motion picture or television content requirements or
quotas, and changes in international tax laws or currency controls;

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Adverse weather conditions or natural disasters, such as hurricanes and
earthquakes, which may, among other things, impair performance at the
Company's parks and resorts;

Technological developments that may affect the distribution of the Company's
creative products or create new risks to the Company's ability to protect
its intellectual property;

Labor disputes, which may lead to increased costs or disruption of
operations in any of the Company's business units;

Changing public and consumer taste, which may among other things, affect the
Company's entertainment, broadcasting and consumer products businesses
generally or the Company's parks and resorts operating specifically, or
result in increases in broadcasting losses or loss of advertising revenue;
and

International, political and military developments that may affect among
other things, travel and leisure businesses generally or the Company's parks
and resorts operations specifically, or result in increases in broadcasting
costs or loss of advertising revenue.

This list of factors that may affect future performance and the accuracy of
forward-looking statements is illustrative, but by no means exhaustive.
Accordingly, all forward-looking statements should be evaluated with the
understanding of their inherent uncertainty.

ITEM 7A. Market Risk

The Company is exposed to the impact of interest rate changes, foreign
currency fluctuations and changes in the market values of its investments.

Policies and Procedures
In the normal course of business, the Company employs established policies
and procedures to manage its exposure to changes in interest rates, foreign
currencies and the fair market value of certain of its investments in debt and
equity securities using a variety of financial instruments.

Our objective in managing exposure to interest rate changes are to limit the
impact of interest rate changes on earnings and cash flows and to lower overall
borrowing costs. To achieve these objectives, we primarily use interest rate
swaps to manage net exposure to interest rate changes related to the Company's
portfolio of borrowings. The Company maintains fixed rate debt as a percentage
of its net debt between a minimum and maximum percentage, which is set by
policy.

Our objective in managing exposure to foreign currency fluctuations is to
reduce earnings and cash flow volatility in order to allow management to focus
on core business issues and challenges. Accordingly, the Company enters into
various contracts that change in value as foreign exchange rates change to
protect the value of its existing foreign currency assets, liabilities,
commitments and forecasted foreign currency revenues. The Company utilizes
option strategies and forward contracts that provide for the sale of foreign
currencies to hedge probable, but not firmly committed, revenues. The Company
also uses forward contracts to hedge foreign currency assets and liabilities in
the same principal currencies. The principal currencies hedged are the European
euro, British pound, Japanese yen and Canadian dollar. By policy, the Company
maintains hedge coverage between minimum and maximum percentages of its
forecasted foreign exchange exposures for periods not to exceed five years. The
gains and losses on these contracts offset changes in the value of the related
exposures.

In addition, we use various financial instruments to minimize the exposure
to changes in fair market value of certain investments in debt and equity
securities.

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It is the Company's policy to enter into foreign currency and interest rate
transactions and other financial instruments only to the extent considered
necessary to meet its objectives as stated above. The Company does not enter
into these transactions for speculative purposes.

Value at Risk
The Company utilizes a "Value-at-Risk" (VAR) model to determine the maximum
potential one-day loss in the fair value of its interest rate, foreign exchange
and qualifying equity sensitive financial instruments. The VAR model estimates
were made assuming normal market conditions and a 95% confidence level. Various
modeling techniques can be used in a VAR computation. The Company's
computations are based on the interrelationships between movements in various
interest rates, currencies and equity prices (a "variance/co-variance"
technique). These interrelationships were determined by observing interest
rate, foreign currency and equity market changes over the preceding quarter for
the calculation of VAR amounts at year-end and over each of the four quarters
for the calculation of average VAR amounts during the year. The model includes
all of the Company's debt as well as all interest rate and foreign exchange
derivative contracts and qualifying equity investments. The values of foreign
exchange options do not change on a one-to-one basis with the underlying
currencies, as exchange rates vary. Therefore, the hedge coverage assumed to be
obtained from each option has been adjusted to reflect its respective
sensitivity to changes in currency values. Forecasted transactions, firm
commitments and receivables and accounts payable denominated in foreign
currencies, which certain of these instruments are intended to hedge, were
excluded from the model.

The VAR model is a risk analysis tool and does not purport to represent
actual losses in fair value that will be incurred by the Company, nor does it
consider the potential effect of favorable changes in market factors. See Note
12 to the Consolidated Financial Statements regarding the Company's financial
instruments at September 30, 2001 and 2000.

The estimated maximum potential one-day loss in fair value, calculated using
the VAR model, is as follows (unaudited, in millions):



Interest Currency Equity
Rate Sensitive Sensitive Sensitive
Financial Financial Financial Combined
Instruments Instruments Instruments Portfolio
-------------- ----------- ----------- ---------

VAR as of September 30, 2001 $21 $13 $ 7 $29
Average VAR during the year ended
September 30, 2001 $14 $15 $ 6 $20
Highest VAR during the year ended
September 30, 2001 $21 $16 $10 $29
Lowest VAR during the year ended
September 30, 2001 $ 6 $13 $ 3 $16


ITEM 8. Financial Statements and Supplementary Data

See Index to Financial Statements and Supplemental Data on page 45.

ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.

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PART III

ITEM 10. Directors and Executive Officers of the Company

Directors

Information regarding directors appearing under the caption "Election of
Directors" in the Company's Proxy Statement for the 2002 Annual Meeting of
Shareholders is hereby incorporated by reference.

Information regarding executive officers is included in Part I of this Form
10-K as permitted by General Instruction G(3).

ITEM 11. Executive Compensation

Information appearing under the captions "How are directors compensated?"
and "Executive Compensation" in the 2002 Proxy Statement is hereby incorporated
by reference.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management

Information setting forth the security ownership of certain beneficial
owners and management appearing under the caption "Stock Ownership" in the 2002
Proxy Statement is hereby incorporated by reference.

ITEM 13. Certain Relationships and Related Transactions

Information regarding certain related transactions appearing under the
caption "Certain Relationships and Related Transactions" in the 2002 Proxy
Statement is hereby incorporated by reference.

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PART IV

ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) Exhibits and Financial Statements and Schedules

(1) Financial Statements and Schedules

See Index to Financial Statements and Supplemental Data at page 45.

(2) Exhibits

The documents set forth below are filed herewith or incorporated herein
by reference to the location indicated.



Exhibit Location
------- --------


3(a) Amended and Restated Certificate of Annex C to the Joint Proxy Statement/
Incorporation of the Company Prospectus included in the Registration
Statement on Form S-4 (No. 333-88105) of
the Company, filed Sept. 30, 1999

3(b) Bylaws of the Company Exhibit 3 to the Form 10-Q of the Company
for the period ended Mar. 30, 2000

4(a) Form of Registration Rights Agreement Exhibit B to Exhibit 2.1 to the Current
entered into or to be entered into with Report on Form 8-K of Disney
certain stockholders Enterprises, Inc. ("DEI"), dated July 31,
1995

4(b) Five-Year Credit Agreement, dated as of Exhibit 4(b) to the 2000 Form 10-K of the
Mar. 8, 2000 Company

4(c) Indenture, dated as of Nov. 30, 1990, Exhibit 2 to the Current Report on Form 8-K
between DEI and Bankers Trust Company, of DEI, dated Jan. 14, 1991
as Trustee

4(d) Indenture, dated as of Mar. 7, 1996, between Exhibit 4.1(a) to the Current Report on Form
the Company and Citibank, N.A., as Trustee 8-K of the Company, dated Mar. 7, 1996

4(e) Senior Debt Securities Indenture, dated as of Exhibit 4.1 to the Current Report on Form 8-
September 24, 2001, between the Company K of the Company, dated September 24,
and Wells Fargo Bank, N.A., as Trustee 2001

4(f) Other long-term borrowing instruments are
omitted pursuant to Item 601(b) (4) (iii) of
Regulation S-K. The Company undertakes to
furnish copies of such instruments to the
Commission upon request.

10(a) (i) Agreement on the Creation and the Exhibits 10(b) and 10(a), respectively, to the
Operation of Euro Disneyland en France, Current Report on Form 8-K of DEI, dated
dated Mar. 25, 1987, and (ii) Letter relating Apr. 4, 1987
thereto of the Chairman of Disney
Enterprises, Inc., dated Mar. 24, 1987

10(b) Composite Limited Recourse Financing Exhibit 10(b) to the 1997 Form 10-K of the
Facility Agreement, dated as of Apr. 27, Company
1988, between DEI and TDL Funding
Company, as amended


-40-






10(c) Employment Agreement, dated June 29, Exhibit 10(a) to the Form 10-Q of the
2000, between the Company and Michael D. Company for the period ended June 30, 2000
Eisner

10(d) Employment Agreement, dated Jan. 24, Exhibit 10 to the Form 10-Q of the Company
2000, between the Company and Robert A. for the period ended Mar. 30, 2000
Iger

10(e) Employment Agreement, dated as of Jan. 1, Filed as Exhibit 10(e) to the 2000 Form 10-K
2001, between the Company and Sanford M. of the Company
Litvack, together with Life Insurance and
Key Plan agreements ancillary thereto

10(f) Form of Indemnification Agreement for Annex C to the Proxy Statement for the 1988
certain officers and directors Annual Meeting of DEI

10(g) 1995 Stock Option Plan for Non-Employee Exhibit 20 to the Form S-8 Registration
Directors State-ment (No. 33-57811) of DEI, dated
Feb. 23, 1995

10(h) Amended and Restated 1990 Stock Incentive Appendix B-2 to the Joint Proxy Statement/
Plan and Rules Prospectus included in the Form S-4
Registration Statement (No. 33-64141) of
DEI, dated Nov. 13, 1995

10(i) Amended and Restated 1995 Stock Incentive Exhibit 4.3 to the Form S-8 Registration
Plan and Rules Statement (No. 333-74624) of the Company,
dated December 6, 2001

10(j) (i) 1987 Stock Incentive Plan and Rules and Exhibits 1(a), 1(b), 2(a) and 2(b),
(ii) 1984 Stock Incentive Plan and Rules respectively, to the Prospectus contained in
the Form S-8 Registration Statement (No. 33-
26106) of DEI, dated Dec. 20, 1988

10(k) Contingent Stock Award Rules under DEI's Exhibit 10(t) to the 1986 Form 10-K of DEI
1984 Stock Incentive Plan

10(l) Amendment, dated June 26, 2000, to the Exhibit 10(b) to the Form 10-Q of the
Company's Stock Incentive Plans Company for the period ended June 30, 2000

10(m) Bonus Performance Plan for Executive Exhibit 10(1) to the 1998 Form 10-K of the
Officers Company

10(n) Exhibit 4.3 to the Form S-8 Registration
1997 Non-Employee Directors Stock and Statement (No. 333-31012) of the Company,
Deferred Compensation Plan dated Feb. 24, 2000

10(o) Key Employees Deferred Compensation and Exhibit 10(p) to the 1997 Form 10-K of the
Retirement Plan Company

10(p) Group Personal Excess Liability Insur-ance Exhibit 10(x) to the 1997 Form 10-K of the
Plan Company

10(q) Family Income Assurance Plan (summary Exhibit 10(y) to the 1997 Form 10-K of the
description) Company

10(u) Employee Stock Option Plan of Capital Exhibit 10(f) to the 1992 Form 10-K of
Cities/ABC, Inc., as amended Capital Cities/ABC, Inc.


-41-






10(v) 1991 Stock Option Plan of Capital Cities/ Exhibit 6(a)(i) to the Form 10-Q of the
ABC, Inc., as amended Company for the period ended Mar. 31,
1996

21 Subsidiaries of the Company Filed herewith

23 Consent of PricewaterhouseCoopers LLP Included herein at page 46


(b) Reports on Form 8-K

The following current reports on Form 8-K were filed by the Company during
the Company's fourth fiscal quarter:

(i) Report filed July 30, 2001 (reporting agreement to acquire the common
stock of Fox Family Worldwide, Inc.);

(ii) Report filed September 21, 2001 (reporting repurchase of 50 million
shares of the Company's common stock);

(iii) Report filed September 24, 2001 (reporting issuance of the Company's
3.90% Global Notes due 2003 and 4.50% Global Notes due 2004, as well as
commencement of the Company's $6,500,000,000 medium-term note program).

-42-



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

THE WALT DISNEY COMPANY
------------------------------------------------------
(Registrant)

Date: December 10, 2001 By: MICHAEL D. EISNER
--------------------------------------------------------
(Michael D. Eisner, Chairman of the Board and Chief
Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.



Signature Title Date
--------- ----- ----


Principal Executive Officer Chairman of the Board and Chief December 10, 2001
MICHAEL D. EISNER Executive Officer
- ---------------------------------------------
(Michael D. Eisner)

Principal Operating Officer President and Chief December 10, 2001
ROBERT A. IGER Operating Officer
- ---------------------------------------------
(Robert A. Iger)

Principal Financial and Accounting Officers Senior Executive Vice President December 10, 2001
THOMAS O. STAGGS and Chief Financial Officer
- ---------------------------------------------
(Thomas O. Staggs)

JOHN J. GARAND Executive Vice President - December 10, 2001
- --------------------------------------------- Planning and Control
(John J. Garand)

Directors

REVETA F. BOWERS Director December 10, 2001
- ---------------------------------------------
(Reveta F. Bowers)

JOHN E. BRYSON Director December 10, 2001
- ---------------------------------------------
(John E. Bryson)

ROY E. DISNEY Director December 10, 2001
- ---------------------------------------------
(Roy E. Disney)

MICHAEL D. EISNER Director December 10, 2001
- ---------------------------------------------
(Michael D. Eisner)

JUDITH L. ESTRIN Director December 10, 2001
- ---------------------------------------------
(Judith L. Estrin)

STANLEY P. GOLD Director December 10, 2001
- ---------------------------------------------
(Stanley P. Gold)


-43-



Signature Title Date
--------- ----- ----

MONICA C. LOZANO Director December 10, 2001
- --------------------------
(Monica C. Lozano)

GEORGE J. MITCHELL Director December 10, 2001
- --------------------------
(George J. Mitchell)

THOMAS S. MURPHY Director December 10, 2001
- --------------------------
(Thomas S. Murphy)

LEO J. O'DONOVAN, S.J. Director December 10, 2001
- --------------------------
(Leo J. O'Donovan, S.J.)

SIDNEY POITIER Director December 10, 2001
- --------------------------
(Sidney Poitier)

ROBERT A.M. STERN Director December 10, 2001
- --------------------------
(Robert A.M. Stern)

ANDREA L. VAN DE KAMP Director December 10, 2001
- --------------------------
(Andrea L. Van de Kamp)

RAYMOND L. WATSON Director December 10, 2001
- --------------------------
(Raymond L. Watson)

GARY L. WILSON Director December 10, 2001
- --------------------------
(Gary L. Wilson)

-44-



THE WALT DISNEY COMPANY AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA



Page
----

Report of Independent Accountants and Consent of Independent Accountants........ 46
Consolidated Financial Statements of The Walt Disney Company and Subsidiaries
Consolidated Statements of Income for the Years Ended September 30, 2001,
2000 and 1999.............................................................. 47
Consolidated Balance Sheets as of September 30, 2001 and 2000................ 48
Consolidated Statements of Cash Flows for the Years Ended September 30,
2001, 2000 and 1999........................................................ 49
Consolidated Statements of Stockholders' Equity for the Years Ended
September 30, 2001, 2000 and 1999.......................................... 50
Notes to Consolidated Financial Statements................................... 51
Quarterly Financial Summary.................................................. 77


Schedules other than those listed above are omitted for the reason that they
are not applicable or the required information is included in the financial
statements or notes.

-45-



REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of The Walt Disney Company

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, stockholders' equity, and cash flows present
fairly, in all material respects, the financial position of The Walt Disney
Company and its subsidiaries (the Company) at September 30, 2001 and 2000, and
the results of their operations and their cash flows for each of the three
years in the period ended September 30, 2001, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

PRICEWATERHOUSECOOPERS LLP

Los Angeles, California
November 7, 2001

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-26106, 33-35405, 33-39770, 33-57811, 333-91571,
333-31012 and 333-74624), Form S-3 (33-67870) and Form S-3/A (333-52659 and
333-34167) of The Walt Disney Company of our report dated November 7, 2001
related to the consolidated financial statements of The Walt Disney Company
which appear in the Form 10-K.

PRICEWATERHOUSECOOPERS LLP

Los Angeles, California
December 7, 2001

-46-



CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)



Year Ended September 30 2001 2000 1999
- ---------------------------------------------------------------------------------------------------
Revenues $ 25,269 $ 25,418 $ 23,455
Costs and expenses (21,670) (21,660) (20,030)
Amortization of intangible assets (767) (1,233) (456)
Gain on sale of businesses 22 489 345
Net interest expense and other (417) (497) (612)
Equity in the income of investees 300 208 (127)
Restructuring and impairment charges (1,454) (92) (172)
-------- -------- --------
Income before income taxes, minority interests and the cumulative
effect of accounting changes 1,283 2,633 2,403
Income taxes (1,059) (1,606) (1,014)
Minority interests (104) (107) (89)
-------- -------- --------
Income before the cumulative effect of accounting changes 120 920 1,300
Cumulative effect of accounting changes:
Film accounting (228) -- --
Derivative accounting (50) -- --
-------- -------- --------
Net (loss) income $ (158) $ 920 $ 1,300
======== ======== ========
Earnings (loss) attributed to:
Disney Common Stock:/ (1)/ $ (41) $ 1,196 $ 1,300
Internet Group Common Stock (117) (276) --
-------- -------- --------
$ (158) $ 920 $ 1,300
======== ======== ========
Earnings (loss) per share before the cumulative effect of accounting
changes attributed to:
Disney Common Stock:/ (1)/
Diluted $ 0.11 $ 0.57 $ 0.62
======== ======== ========
Basic $ 0.11 $ 0.58 $ 0.63
======== ======== ========
Internet Group Common Stock (basic and diluted) $ (2.72) $ (6.18) n/a
======== ======== ========
Cumulative effect of accounting changes per Disney Share
Film Accounting $ (0.11) $ -- $ --
Derivative Accounting (0.02) -- --
-------- -------- --------
$ (0.13) $ -- $ --
======== ======== ========
Earnings (loss) per share attributed to:
Disney Common Stock:/(1)/
Diluted $ (0.02) $ 0.57 $ 0.62
======== ======== ========
Basic $ (0.02) $ 0.58 $ 0.63
======== ======== ========
Internet Group Common Stock (basic and diluted) $ (2.72) $ (6.18) n/a
======== ======== ========
Average number of common and common equivalent shares
outstanding:
Disney Common Stock:
Diluted 2,100 2,103 2,083
======== ======== ========
Basic 2,085 2,074 2,056
======== ======== ========
Internet Group (basic and diluted) 43 45 n/a
======== ======== ========

- --------
(1) Including Disney's retained interest in the Internet Group. Disney's
as-reported retained interest in the Internet Group reflects 100% of
Internet Group losses through November 17, 1999, approximately 72% for the
period from November 18, 1999 through January 28, 2001 (the last date prior
to the announcement of the conversion of the Internet Group common stock)
and 100% thereafter.

See Notes to Consolidated Financial Statements

-47-



CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)



September 30 2001 2000
- ------------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $ 618 $ 842
Receivables 3,343 3,599
Inventories 671 702
Television costs 1,175 1,162
Deferred income taxes 622 623
Other assets 600 635
------- -------
Total current assets 7,029 7,563
Film and television costs 5,235 5,339
Investments 2,061 2,270
Parks, resorts and other property, at cost
Attractions, buildings and equipment 19,089 16,610
Accumulated depreciation (7,728) (6,892)
------- -------
11,361 9,718
Projects in progress 911 1,995
Land 635 597
------- -------
12,907 12,310
Intangible assets, net 14,540 16,117
Other assets 1,927 1,428
------- -------
$43,699 $45,027
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and other accrued liabilities $ 4,603 $ 5,161
Current portion of borrowings 829 2,502
Unearned royalties and other advances 787 739
------- -------
Total current liabilities 6,219 8,402
Borrowings 8,940 6,959
Deferred income taxes 2,730 2,833
Other long term liabilities, unearned royalties and other advances 2,756 2,377
Minority interests 382 356
Commitments and contingencies
Stockholders' Equity
Preferred stock, $.01 par value
Authorized--100 million shares, Issued - none
Common stock
Common stock--Disney, $.01 par value
Authorized--3.6 billion shares, Issued - 2.1 billion shares 12,096 9,920
Common stock--Internet Group, $.01 par value
Authorized--1.0 billion shares
Issued--45.3 million shares as of September 30, 2000 -- 2,181
Retained earnings 12,171 12,767
Accumulated other comprehensive income 10 (28)
------- -------
24,277 24,840
Treasury stock, at cost, 81.4 million and 31 million Disney shares (1,395) (689)
Shares held by TWDC Stock Compensation Fund II, at cost
Disney--8.6 million and 1.1 million shares (210) (40)
Internet Group--0.9 million shares as of September 30, 2000 -- (11)
------- -------
22,672 24,100
------- -------
$43,699 $45,027
======= =======


See Notes to Consolidated Financial Statements

-48-



CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)



Year Ended September 30 2001 2000 1999
- ----------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (158) $ 920 $ 1,300
OPERATING ITEMS NOT REQUIRING CASH
Depreciation 987 962 851
Amortization of intangible assets 767 1,233 456
Cumulative effect of accounting changes 278 -- --
Restructuring and impairment charges 1,247 92 70
Gain on sale of businesses (22) (489) (345)
Equity in the income of investees (300) (208) 127
Minority interests 104 107 89
Other 187 303 205
CHANGES IN
Receivables 279 205 376
Inventories 54 65 103
Other assets 33 183 (165)
Accounts and taxes payable and other accrued liabilities (283) (41) 388
Film and television costs (183) 192 (867)
Deferred income taxes 58 231 (20)
------- ------- -------
3,206 2,835 1,268
------- ------- -------
Cash provided by operations 3,048 3,755 2,568
------- ------- -------
INVESTING ACTIVITIES
Investments in parks, resorts and other property (1,795) (2,013) (2,134)
Acquisitions (net of cash acquired) (480) (34) (319)
Dispositions 137 913 --
Proceeds from sale of investments 235 207 202
Purchases of investments (88) (82) (39)
Investments in Euro Disney -- (91) --
Other (24) 9 --
------- ------- -------
Cash used by investing activities (2,015) (1,091) (2,290)
------- ------- -------
FINANCING ACTIVITIES
Borrowings 3,070 1,117 2,306
Reduction of borrowings (2,807) (2,494) (2,031)
Repurchases of common stock (1,073) (166) (19)
Commercial paper borrowings, net (186) (741) (451)
Exercise of stock options and other 177 482 204
Dividends (438) (434) --
------- ------- -------
Cash (used) provided by financing activities (1,257) (2,236) 9
------- ------- -------
(Decrease) increase in cash and cash equivalents (224) 428 287
Cash and cash equivalents, beginning of year 842 414 127
------- ------- -------
Cash and cash equivalents, end of year $ 618 $ 842 $ 414
======= ======= =======
Supplemental disclosure of cash flow information:
Interest paid $ 625 $ 583 $ 659
======= ======= =======
Income taxes paid $ 881 $ 1,170 $ 721
======= ======= =======


See Notes to Consolidated Financial Statements

-49-



CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In millions, except per share data)



TWDC Stock
Accumulated Compensation
Shares Common Stock Other Compre- Fund /(1)/
---------- --------------- Retained hensive Treasury ----------- Stockholders'
DIS DIG DIS DIG Earnings Income Stock DIG DIG Equity Total

- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1998 2,050 -- $ 8,995 $ -- $10,981 $ 13 $ (593) $ (8) $ -- $19,388
Exercise of stock options, net 14 -- 329 -- -- -- (12) 17 -- 334
Common stock reissued 1 -- -- -- -- -- -- 10 -- 10
Common stock repurchased (1) -- -- -- -- -- -- (19) -- (19)
Other comprehensive income
(net of tax benefit of $30
million) -- -- -- -- -- (38) -- -- -- (38)
Net income -- -- -- -- 1,300 -- -- -- -- 1,300
----- --- ------- ------- ------- ---- ------- ----- ---- -------
BALANCE AT SEPTEMBER 30, 1999 2,064 -- 9,324 -- 12,281 (25) (605) -- -- 20,975
Common stock issued -- 44 -- 2,149 -- -- -- -- -- 2,149
Exercise of stock options, net 27 2 596 32 -- -- (84) 115 -- 659
Common stock repurchased (5) (1) -- -- -- -- -- (155) (11) (166)
Dividends ($0.21 per Disney
share) -- -- -- -- (434) -- -- -- -- (434)
Other comprehensive income
(net of tax benefit of $2
million) -- -- -- -- -- (3) -- -- -- (3)
Net income -- -- -- -- 920 -- -- -- -- 920
----- --- ------- ------- ------- ---- ------- ----- ---- -------
BALANCE AT SEPTEMBER 30, 2000 2,086 45 9,920 2,181 12,767 (28) (689) (40) (11) 24,100
Common stock issued
(cancellation) -- (1) -- (22) -- -- -- -- -- (22)
Exercise of stock options, net 8 -- 17 -- -- -- -- 208 -- 225
Common stock repurchased (64) (2) -- -- -- -- (706) (357) (10) (1,073)
Conversion of DIG shares 8 (42) 2,159 (2,159) -- -- -- (21) 21 --
Dividends ($0.21 per Disney
share) -- -- -- -- (438) -- -- -- -- (438)
Other comprehensive income
(net of tax expense of $23
million) -- -- -- -- -- 38 -- -- -- 38
Net loss -- -- -- -- (158) -- -- -- -- (158)
----- --- ------- ------- ------- ---- ------- ----- ---- -------
BALANCE AT SEPTEMBER 30,
2001 2,038 -- $12,096 $ -- $12,171 $ 10 $(1,395) $(210) $ -- $22,672
===== === ======= ======= ======= ==== ======= ===== ==== =======

- --------
(1) The TWDC Stock Compensation Fund was established pursuant to the repurchase
program to acquire shares of Company common stock for the purpose of
funding certain stock-based compensation (See Note 8).

Comprehensive income (loss) is as follows:



2001 2000 1999
----- ---- ------

Net income (loss) $(158) $920 $1,300
Cumulative effect of adoption of SFAS 133, net of tax 60 -- --
Cumulative translation and other adjustments, net of tax (22) (3) (38)
----- ---- ------
Comprehensive income (loss) $(120) $917 $1,262
===== ==== ======


See Notes to Consolidated Financial Statements

-50-



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in millions, except per share amounts)

1 Description of the Business and Summary of Significant Accounting Policies

The Walt Disney Company, together with its subsidiaries (the Company), is a
diversified worldwide entertainment company with operations in the following
businesses: Media Networks, Parks & Resorts, Studio Entertainment and Consumer
Products. During the year, the Company changed the reporting structure of the
businesses that comprise the Internet Group and, accordingly, no longer reports
the Internet Group as a separate business segment.

MEDIA NETWORKS
The Company operates the ABC Television Network and the ABC Radio Networks,
which have affiliated stations providing coverage to households throughout the
United States. The Company also owns television and radio stations, most of
which are affiliated with either the ABC Television Network or the ABC Radio
Networks. The Company's cable and international broadcast operations are
principally involved in the production and distribution of cable television
programming, the licensing of programming to domestic and international markets
and investing in foreign television broadcasting, production and distribution
entities. Primary cable programming services, which operate through
consolidated subsidiary companies, are ESPN-branded networks, the Disney
Channel, Disney Channel Worldwide, SoapNet and Toon Disney. Other programming
services that operate through joint ventures, and are accounted for under the
equity method, include A&E Television Networks, Lifetime Entertainment Services
and E! Entertainment Television. The Company also produces original television
programming for network, first-run syndication, pay and international
syndication markets. Additionally, the Company operates ABC, ESPN, Disney and
family-branded Internet web site businesses.

PARKS & RESORTS
The Company operates the Walt Disney World Resort in Florida and the
Disneyland Resort in California. The Walt Disney World Resort includes the
Magic Kingdom, Epcot, Disney-MGM Studios and Disney's Animal Kingdom, thirteen
resort hotels and a complex of villas and suites, a retail, dining and
entertainment complex, a sports complex, conference centers, campgrounds, golf
courses, water parks and other recreational facilities. In addition, Disney
Cruise Line is operated out of Port Canaveral, Florida. The Disneyland Resort
includes Disneyland, Disney's California Adventure, the Disney's Grand
Californian Hotel, Disneyland Hotel, Disney's Paradise Pier Hotel and Downtown
Disney. Disney's Regional Entertainment designs, develops and operates
sports-themed dining and entertainment facilities operating as ESPN Zone. The
Company earns royalties on revenues generated by the Tokyo Disneyland Resort,
which includes two theme parks and two Disney-branded hotels, near Tokyo,
Japan, and is owned and operated by an unrelated Japanese corporation. The
Company has an investment in Euro Disney S.C.A. (Euro Disney), a publicly held
French entity that operates Disneyland Resort Paris and earns royalties on
Disneyland Resort Paris revenues. A Company subsidiary also receives management
fees from Euro Disney. The Company's Walt Disney Imagineering unit designs and
develops new theme park concepts and attractions, as well as resort properties.
The Company also manages and markets vacation ownership interests in the Disney
Vacation Club. Included in Parks & Resorts are the Company's National Hockey
League franchise, the Mighty Ducks of Anaheim, and the Anaheim Angels, a Major
League Baseball team.

-51-



STUDIO ENTERTAINMENT
The Company produces and acquires live-action and animated motion pictures
for distribution to the theatrical, home video and television markets. The
Company also produces original animated television programming for network,
first-run syndication, pay and international syndication markets, stage plays
and musical recordings. The Company distributes these products through its own
distribution and marketing companies in the United States and most foreign
markets under the Walt Disney Pictures, Touchstone Pictures, Hollywood
Pictures, Miramax and Dimension banners.

CONSUMER PRODUCTS
The Company licenses the name "Walt Disney," as well as the Company's
characters, visual and literary properties, to various consumer manufacturers,
retailers, show promoters and publishers throughout the world. The Company also
engages in direct retail distribution, principally through the Disney Stores,
and produces books and magazines for the general public in the United States
and Europe. In addition, the Company produces audio and computer software
products for the entertainment market, as well as film, video and computer
software products for the educational marketplace. The Company's Direct
Marketing business operates the Disney Catalog, which markets Disney-themed
merchandise through the direct mail channel. Catalog offerings include
merchandise developed exclusively for the Disney Catalog and DisneyStore.com,
as well as products from the Disney Store, other internal Disney partners and
Disney licensees.

SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation
The consolidated financial statements of the Company include the accounts of
The Walt Disney Company and its subsidiaries after elimination of intercompany
accounts and transactions. In December 1999, DVD Financing, Inc. (DFI), a
subsidiary of Disney Vacation Development, Inc. and an indirect subsidiary of
the Company, completed a receivable sale transaction. In connection with this
sale, DFI prepares separate financial statements, although its separate assets
and liabilities are also consolidated in these financial statements.

Accounting Changes
Effective October 1, 2000, the Company adopted two new accounting
pronouncements, AICPA Statement of Position No. 00-2, Accounting by Producers
or Distributors of Films (SOP 00-2) and Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities
(SFAS 133), subsequently amended by Statement of Financial Accounting Standards
No. 138 (SFAS 138).

SOP 00-2 establishes new accounting standards for producers and distributors
of films, which resulted in changes in revenue recognition and accounting for
exploitation costs, including advertising and marketing expenses and
development and overhead costs. As a result of the adoption of SOP 00-2, the
Company recorded a one-time after-tax charge of $228 million, or $0.11 per
share, representing the cumulative effect of the adoption. The charge
represents costs that were capitalized as of September 30, 2000, that would
have been expensed under the new rules. The adoption of SOP 00-2 did not have a
material impact on the current fiscal year's operating results.

SFAS 133 and SFAS 138 require that the Company record all derivatives on the
balance sheet at fair value. There are two types of derivatives into which the
Company enters: hedges of fair value exposure and hedges of cash flow exposure.
Hedges of fair value exposure are entered into in order to hedge the fair value
of a recognized asset or liability, or a firm commitment. Hedges of cash flow
exposure are entered into in order to hedge a forecasted transaction or the
variability of cash flows to be paid related to a recognized liability. On the
date on which the derivative contract is executed, the

-52-



Company designates the derivative as either a fair value hedge or a cash flow
hedge. Changes in derivative fair values that are designated as fair value
hedges are recognized in earnings as offsets to the changes in fair value of
related hedged assets, liabilities and firm commitments. Changes in the
derivative fair values that are designated as cash flow hedges are deferred and
recorded as a component of accumulated other comprehensive income (AOCI) until
the hedged transactions occur and are recognized in earnings. The ineffective
portion of a hedging derivative's change in fair value is immediately
recognized in earnings. Derivatives that are executed for risk management
purposes but not designated as hedges under SFAS 133 and SFAS 138 are recorded
at their market value and recognized in current earnings.

The Company formally documents all relationships between hedging instruments
and hedged items, as well as its risk management objectives and strategies for
undertaking various hedge transactions. The Company links all hedges that are
designated as fair value hedges to specific assets or liabilities on the
balance sheet or to specific firm commitments. The Company links all hedges
that are designated as cash flow hedges to forecasted transactions or to
floating-rate liabilities on the balance sheet. The Company also assesses, both
at the inception of the hedge and on an on-going basis, whether the derivatives
that are used in hedging transactions are highly effective in offsetting
changes in fair values or cash flows of hedged items. Should it be determined
that a derivative is not highly effective as a hedge, the Company will
discontinue hedge accounting prospectively.

As a result of adopting SFAS 133 as of October 1, 2000, and in accordance
with the transition provisions, the Company recorded a one-time after-tax
charge of $50 million, or $0.02 per share, in its Consolidated Statements of
Income representing the cumulative effect of the adoption, and an after-tax
unrealized gain of $60 million to AOCI. Amounts expected to be reclassified to
earnings over the next twelve months are not material. The Company reclassified
a $16 million after-tax gain from AOCI to earnings during fiscal 2001, which
was offset by net losses on items being hedged. The adoption of SFAS 133 did
not have a material impact on the current fiscal year's operating results.

During the year, the Company recorded the change in value related to cash
flow hedges to AOCI, which was not material. In addition, the Company
reclassified deferred losses related to certain cash flow hedges from AOCI to
earnings, due to the uncertainty of the timing of the original forecasted
transaction.

During the year, the Company recorded the change in fair market value
related to fair value hedges and the ineffectiveness related to cash flow
hedges to earnings. These amounts were not material.

In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, Business Combinations (SFAS 141), and
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets (SFAS 142). They also issued Statement of Financial
Accounting Standards No. 143, Accounting for Obligations Associated with the
Retirement of Long-Lived Assets (SFAS 143), and Statement of Financial
Accounting Standards No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS 144), in August and October 2001, respectively.

SFAS 141 requires all business combinations initiated after June 30, 2001 be
accounted for under the purchase method. SFAS 141 supersedes APB Opinion No.
16, Business Combinations, and Statement of Financial Accounting Standards No.
38, Accounting for Preacquisition Contingencies of Purchased Enterprises, and
is effective for all business combinations initiated after June 30, 2001.

SFAS 142 addresses the financial accounting and reporting for acquired
goodwill and other intangible assets. Under the new rules, the Company is no
longer required to amortize goodwill and other intangible assets with
indefinite lives, but will be subject to periodic testing for impairment.

-53-



SFAS 142 supersedes APB Opinion No. 17, Intangible Assets. Effective October 1,
2001, the Company will adopt SFAS 142 and is evaluating the effect that such
adoption may have on its consolidated results of operations and financial
position. However, the Company expects that a substantial amount of its
intangible assets will no longer be amortized.

SFAS 143 establishes accounting standards for the recognition and
measurement of an asset retirement obligation and its associated asset
retirement cost. It also provides accounting guidance for legal obligations
associated with the retirement of tangible long-lived assets. SFAS 143 is
effective in fiscal years beginning after June 15, 2002, with early adoption
permitted. The Company expects that the provisions of SFAS 143 will not have a
material impact on its consolidated results of operations and financial
position upon adoption. The Company plans to adopt SFAS 143 effective October
1, 2002.

SFAS 144 establishes a single accounting model for the impairment or
disposal of long-lived assets, including discontinued operations. SFAS 144
superseded Statement of Financial Accounting Standards No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
(SFAS 121), and APB Opinion No. 30, Reporting the Results of Operations--
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions. The provisions of
SFAS 144 are effective in fiscal years beginning after December 15, 2001, with
early adoption permitted, and in general are to be applied prospectively. The
Company plans to adopt SFAS 144 effective October 1, 2001 and does not expect
that the adoption will have a material impact on its consolidated results of
operations and financial position.

Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
footnotes thereto. Actual results may differ from those estimates.

Revenue Recognition
Revenues from the theatrical distribution of motion pictures are recognized
when motion pictures are exhibited. Revenues from video sales are recognized on
the date that video units are made widely available for sale by retailers.
Revenues from the licensing of feature films and television programming are
recorded when the material is available for telecasting by the licensee and
when certain other conditions are met.

Broadcast advertising revenues are recognized when commercials are aired.
Revenues from television subscription services related to the Company's primary
cable programming services are recognized as services are provided.

Internet advertising revenues are recognized on the basis of impression
views in the period the advertising is displayed, provided that no significant
obligations remain and collection of the resulting receivable is probable.
Direct marketing and Internet-based merchandise revenues are recognized upon
shipment to customers.

Merchandise licensing advance and guarantee payments are recognized when the
underlying royalties are earned.

Revenues from advance theme park ticket sales are recognized when the
tickets are used. Revenues from participants at the theme parks are generally
recorded over the period of the applicable agreements commencing with the
opening of the related attraction.

-54-



Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and marketable securities
with original maturities of three months or less.

Investments
Debt securities that the Company has the positive intent and ability to hold
to maturity are classified as "held-to-maturity" and reported at amortized
cost. Debt securities not classified as held-to-maturity and marketable equity
securities are classified as either "trading" or "available-for-sale," and are
recorded at fair value with unrealized gains and losses included in earnings or
stockholders' equity, respectively. All other equity securities are accounted
for using either the cost method or the equity method.

The Company continually reviews its investments to determine whether a
decline in fair value below the cost basis is other than temporary. If the
decline in fair value is judged to be other than temporary, the cost basis of
the security is written down to fair value and the amount of the write-down is
included in the Consolidated Statements of Income.

Inventories
Carrying amounts of merchandise, materials and supplies inventories are
generally determined on a moving average cost basis and are stated at the lower
of cost or market.

Film and Television Costs
Film and television costs that are produced for sale to third parties are
stated at the lower of cost, less accumulated amortization, or fair value.
Programming costs for the Company's television and cable networks are stated at
the lower of cost, less accumulated amortization, or net realizable value.
Television broadcast program licenses and rights and related liabilities are
recorded when the license period begins and the program is available for use.

Film and television production and participation costs are expensed based on
the ratio of the current period's gross revenues to estimated total gross
revenues from all sources on an individual production basis. Television network
and station rights for theatrical movies and other long-form programming are
charged to expense primarily on accelerated bases related to the usage of the
programs. Television network series costs and multi-year sports rights are
charged to expense based on the ratio of the current period's gross revenues to
estimated total gross revenues from such programs.

Estimates of total gross revenues can change significantly due to a variety
of factors, including the level of market acceptance of film and television
products, advertising rates and subscriber fees. Accordingly, revenue estimates
are reviewed periodically and amortization is adjusted, if necessary. Such
adjustments could have a material effect on results of operations in future
periods. The net realizable value of television broadcast program licenses and
rights is reviewed using a daypart methodology.

Parks, Resorts and Other Property
Parks, resorts and other property are carried at cost. Depreciation is
computed on the straight-line method based upon estimated useful lives ranging
from three to fifty years.

-55-



Intangible and Other Assets
Intangible assets are amortized over periods ranging from two to forty
years. The Company continually reviews the recoverability of the carrying value
of these assets using the methodology prescribed in SFAS 121. The Company also
reviews long-lived assets and the related intangible assets for impairment
whenever events or changes in circumstances indicate the carrying amounts of
such assets may not be recoverable. Upon such an occurrence, recoverability of
these assets is determined by comparing the forecasted undiscounted net cash
flows of the operation to which the assets relate, to the carrying amount,
including associated intangible assets, of such operation. If the operation is
determined to be unable to recover the carrying amount of its assets, then
intangible assets are written down first, followed by the other long-lived
assets of the operation, to fair value. Fair value is determined based on
discounted cash flows, appraised values or management's estimates, depending
upon the nature of the assets.

Risk Management Contracts
In the normal course of business, the Company employs a variety of financial
instruments to manage its exposure to fluctuations in interest, foreign
currency exchange rates and investments in equity and debt securities,
including interest rate and cross-currency swap agreements; forward, option and
swaption contracts, and interest rate caps.

The Company designates and assigns the financial instruments as hedges of
forecasted transactions, specific assets, or specific liabilities. When hedged
assets or liabilities are sold or extinguished or the forecasted transactions
being hedged are no longer expected to occur, the Company recognizes the gain
or loss on the designated hedging financial instruments.

Option premiums and unrealized losses on forward contracts and the accrued
differential for interest rate and cross-currency swaps to be received under
the agreements are recorded in the balance sheet as other assets. Unrealized
gains on forward contracts and the accrued differential for interest rate and
cross-currency swaps to be paid under the agreements are included in accounts
payable and other accrued liabilities. Realized gains and losses from hedges
are classified in the income statement consistent with the accounting treatment
of the items being hedged. The Company accrues the differential for interest
rate and cross-currency swaps to be paid or received under the agreements as
interest and exchange rates shift as adjustments to net interest expense over
the lives of the swaps. Gains and losses on the termination of effective swap
agreements, prior to their original maturity, are deferred and amortized to net
interest expense over the remaining term of the underlying hedged transactions.

Cash flows from hedges are classified in the Consolidated Statements of Cash
Flows under the same category as the cash flows from the related assets,
liabilities or forecasted transactions (see Notes 5 and 12).

Earnings Per Share
The Company presents both basic and diluted earnings per share (EPS)
amounts. Basic EPS is calculated by dividing net income by the weighted average
number of common shares outstanding during the year. Diluted EPS amounts are
based upon the weighted average number of common and common equivalent shares
outstanding during the year. Common equivalent shares are excluded from the
computation in periods in which they have an anti-dilutive effect. The
difference between basic and diluted EPS, for the Company, is solely
attributable to stock options. The Company uses the treasury stock method to
calculate the impact of outstanding stock options. Stock options for which the
exercise price exceeds the average market price over the period have an
anti-dilutive effect on EPS and, accordingly, are excluded from the calculation.

-56-



For the years ended September 30, 2001, 2000 and 1999, options for 81
million, 20 million and 28 million shares, respectively, were excluded from the
diluted EPS calculation for Disney common stock because they were anti-dilutive.

Stock Options
The Company uses the intrinsic-value method of accounting for stock-based
awards granted to employees and, accordingly, does not recognize compensation
expense for its stock-based awards to employees in the Consolidated Statements
of Income. See Note 9 for pro forma information on the impact of the fair-value
method of accounting for stock options.

Reclassifications
Certain reclassifications have been made in the 2000 and 1999 financial
statements to conform to the 2001 presentation.

2 Acquisitions and Dispositions

On March 20, 2001, the Company converted all of its outstanding Internet
Group common stock into Disney common stock, resulting in the issuance of
approximately 8.6 million shares of Disney common stock. For the year ended
September 30, 2001, as-reported earnings attributed to Disney common stock
reflect approximately 72% of Internet Group losses from October 1, 2000 through
January 28, 2001 (the last date prior to the announcement of the conversion),
and 100% thereafter. In addition, the Company has ceased the operations of the
GO.com portal business, which resulted in restructuring and impairment charges
of $878 million in the current year (see Note 14).

In November 1999, the Company sold Fairchild Publications, which it had
acquired as part of the 1996 acquisition of ABC, Inc., generating a pre-tax
gain of $243 million.

The Company's consolidated results of operations have incorporated
Infoseek's activity, on a consolidated basis, from November 18, 1999, the date
on which the Company completed its acquisition of Infoseek, and the activity of
Fairchild Publications through the date of its disposal. The unaudited pro
forma information below presents combined results of operations as if the
disposition of Fairchild Publications, the acquisition of Infoseek, the
conversion of the Internet Group common stock into Disney common stock, the
closure of the GO.com portal business and the adoption of the new film
accounting rules (see Note 1) had occurred at the beginning of fiscal 2000,
excluding the one-time impacts of those events. The pro forma amounts below for
the prior year exclude charges for purchased in-process research and
development costs of $23 million related to the Infoseek acquisition. The
unaudited pro forma information is not necessarily indicative of the results of
operations had these events actually occurred at the beginning of fiscal 2000,
nor is it necessarily indicative of future results.



Year Ended September 30,
(unaudited)
------------------------
(in millions, except for per share data) 2001 2000
- ---------------------------------------- ------- -----------

Revenues $25,256 $25,356
Income before cumulative effect of accounting changes $ 1,157 $ 1,540
Net income $ 879 $ 1,540
Diluted earnings per share excluding cumulative effect of accounting
changes $ 0.55 $ 0.73
Diluted earnings per share including cumulative effect of accounting
changes $ 0.42 $ 0.73


-57-



The gain on the sale of Fairchild Publications is reported in the line "gain
on sale of businesses" in the Consolidated Statements of Income. Also reported
in this line item are pre-tax gains on the sales of Starwave Corporation in
fiscal 1999 ($345 million), Eurosport and Ultraseek Corporation in fiscal 2000
($93 million and $153 million, respectively) and Infoseek Japan K.K. in the
current year ($22 million).

3 Investment in Euro Disney

Euro Disney operates the Disneyland Paris theme park and resort complex on a
4,800-acre site near Paris, France. The Company accounts for its 39% ownership
interest in Euro Disney using the equity method of accounting. As of September
30, 2001, the Company's recorded investment in Euro Disney, including accounts
and notes receivable, was $344 million.

In connection with the 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 noncancelable term of 12 years related
to substantially all of the Disneyland Paris theme park assets, and then
entered into a 12-year sublease agreement with Euro Disney. Remaining lease
rentals at September 30, 2001 of approximately $801 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 to assume Disney SNC's rights and obligations under the lease. 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 which case
Disney SNC would make a termination payment to the lessor equal to 75% of the
lessor's then outstanding debt related to the theme park assets, estimated to
be $1.1 billion; Disney SNC could then sell or lease the assets on behalf of
the lessor to satisfy the remaining debt, with any excess proceeds payable to
Disney SNC.

Also, as part of the restructuring, the Company agreed to arrange for the
provision of a 10-year unsecured standby credit facility of approximately $152
million, upon request, bearing interest at the Paris Interbank Offered Rate
(PIBOR). As of September 30, 2001, there were no amounts outstanding under this
facility. However, it is expected that Euro Disney will draw on this line of
credit during fiscal 2002. The Company also agreed, as long as any of the
restructured debt is outstanding, to maintain ownership of at least 25% of the
outstanding common stock of Euro Disney through June 2004 and at least 16.67%
for an additional term thereafter.

After a five-year waiver resulting from the restructuring, royalties and
management fees from Euro Disney were partially reinstated beginning fiscal
year 1999. As a result, the Company earned approximately $28 million, $30
million and $33 million in royalties and management fees in fiscal year 2001,
2000 and 1999, respectively. Royalties are to be fully reinstated beginning in
fiscal year 2004, with management fees progressively reinstated through fiscal
year 2018.

In November 1999, Euro Disney stockholders approved an increase in share
capital through an equity rights offering. The offering raised $238 million.
The net proceeds were used to partially finance the construction of a second
theme park, The Walt Disney Studios, adjacent to the Disneyland Paris theme
park. The Company subscribed to approximately $91 million of the equity rights
offering, maintaining its 39% interest in Euro Disney. The Walt Disney Studios
is expected to open in March 2002.

-58-



4 Film and Television Costs



2001 2000
------ ------

Theatrical film costs
Released, less amortization $2,324 $2,571
Completed, not released 445 274
In-process 1,103 1,225
In development or pre-production 143 145
------ ------
4,015 4,215
------ ------
Television costs
Released, less amortization 649 682
Completed, not released 62 42
In-process 407 328
In development or pre-production 41 33
------ ------
1,159 1,085
------ ------
Television broadcast rights 1,236 1,201
------ ------
6,410 6,501
Less current portion 1,175 1,162
------ ------
Non-current portion $5,235 $5,339
====== ======


Based on management's total gross revenue estimates as of September 30,
2001, approximately 54% of completed and unamortized film, television costs and
television broadcast rights (excluding amounts allocated to acquired film
libraries) are expected to be amortized during fiscal 2002, and approximately
80% during the next three years. As of September 30, 2001, the Company
estimated that approximately $154 million of accrued participation liabilities
will be payable in fiscal year 2002.

-59-



5 Borrowings

The Company's borrowings at September 30, 2001 and 2000, including interest
rate swaps designated as hedges, are summarized below.



2001
-------------------------------------------------------------------

Interest rate and cross-
currency swaps (f)
Stated ------------------------ Effective
Interest Pay Pay Interest
Balance Rate (e) Float Fixed Rate (g) Swap Maturities
------- -------- ------ ----- --------- ---------------

Commercial paper due 2002 (a) $ 754 3.9% $ -- $700 5.6% 2002-2004
U.S. dollar notes and debentures
due 2002-2093 (h) (i) 8,921 5.9% 4,227 -- 4.8% 2002-2021
Dual currency and foreign notes
due 2003 (c) 42 14.0% 42 -- 3.5% 2003
Other due 2002-2027 52 4.3% -- -- n/a n/a
------
9,769 5.8% -- --
Less current portion 829 -- --
------ ------ ----
Total long-term borrowings $8,940 $4,269 $700
====== ====== ====


2000
-------------------------------------------------------------------

Interest rate and cross-
currency swaps (f)
Stated ------------------------ Effective
Interest Pay Pay Interest
Balance Rate (e) Float Fixed Rate (g) Swap Maturities
------- -------- ------ ----- --------- ---------------

Commercial paper due 2001(a) $ 940 6.5% $ -- $900 5.5% 2001-2002
U.S. dollar notes and debentures
due 2001-2093 (b) (h) 7,578 6.4% 3,472 -- 6.8% 2001-2030
Dual currency and foreign notes
due 2001-2003 (c) 146 6.9% 146 -- 6.5% 2001-2003
Senior participating notes due
2001 (d) 469 4.2% -- -- n/a n/a
Other due 2001-2027 328 6.4% -- -- n/a n/a
------
9,461 6.3% -- --
Less current portion 2,502 -- --
------ ------ ----
Total long-term borrowings $6,959 $3,618 $900
====== ====== ====

- --------
(a) As of September 30, 2001, the Company has established bank facilities
totaling $4.5 billion, which expire in one to four years. Under the bank
facilities, the Company has the option to borrow at various interest rates.
Commercial paper is classified as long-term since the Company intends to
refinance these borrowings on a long-term basis through continued
commercial paper borrowings supported by available bank facilities.
(b) Includes $571 million in 2000 of minority interest in a real estate
investment trust established by the Company.
(c) Amounts at September 30, 2001 are denominated in South African rands.
Amounts at September 30, 2000 are denominated in Swiss francs and South
African rands.
(d) Additional interest was paid based on the performance of designated
portfolios of films. The effective interest rate was 6.5% at September 30,
2000.
(e) The stated interest rate represents the weighted-average coupon rate for
each category of borrowings. For floating rate borrowings, interest rates
are based upon the rates at September 30, 2001 and 2000; these rates are
not necessarily an indication of future interest rates.
(f) Amounts represent notional values of interest rate swaps.
(g) The effective interest rate reflects the effect of interest rate and
cross-currency swaps entered into with respect to certain of these
borrowings as indicated in the "Pay Float" and "Pay Fixed" columns.
(h) Includes $102 million in 2001 and 2000 of mandatorily redeemable preferred
stock maturing in 2004.
(i) Includes a $230 million write-up in 2001 due to market value adjustments
for debt with qualifying hedges that are recorded as assets on the balance
sheet.

-60-



Borrowings, excluding market value adjustments and commercial paper have the
following scheduled maturities:



2002 $ 829
2003 760
2004 2,657
2005 845
2006 1,522
Thereafter 2,172
------
$8,785
======


The Company capitalizes interest on assets constructed for its parks,
resorts and other property, and on theatrical and television productions in
process. In 2001, 2000 and 1999, respectively, total interest costs incurred
were $606 million, $702 million and $826 million, of which $94 million, $132
million and $109 million were capitalized.

-61-



6 Income Taxes



2001 2000 1999
- ------------------------------------------------------------------------------------------------------
Income Before Income Taxes, Minority Interests and the Cumulative Effect of
Accounting Changes
Domestic (including U.S. exports) $ 1,076 $ 2,509 $2,288
Foreign subsidiaries 207 124 115
------- ------- ------
$ 1,283 $ 2,633 $2,403
======= ======= ======
Income Tax Provision
Current
Federal $ 721 $ 977 $ 715
State 82 182 140
Foreign (including withholding) 198 177 174
------- ------- ------
1,001 1,336 1,029
------- ------- ------
Deferred
Federal (8) 247 (21)
State 66 23 6
------- ------- ------
58 270 (15)
------- ------- ------
$ 1,059 $ 1,606 $1,014
======= ======= ======
Components of Deferred Tax Assets and Liabilities
Deferred tax assets
Accrued liabilities $(1,087) $ (990)
Foreign subsidiaries (156) (149)
Loss and credit carryforwards (195) (117)
------- -------
Total deferred tax assets (1,438) (1,256)
------- -------
Deferred tax liabilities
Depreciable, amortizable and other property 2,663 2,541
Licensing revenues 115 132
Leveraged leases 316 323
Investment in Euro Disney 232 207
Other, net 166 209
------- -------
Total deferred tax liabilities 3,492 3,412
------- -------
Net deferred tax liability before valuation allowance 2,054 2,156
Valuation allowance 54 54
------- -------
Net deferred tax liability $ 2,108 $ 2,210
======= =======
Reconciliation of Effective Income Tax Rate
Federal income tax rate 35.0% 35.0% 35.0%
Nondeductible amortization of intangible assets 18.1 14.8 5.8
State taxes, net of federal income tax benefit 7.5 5.1 4.0
Dispositions 1.4 7.5 --
Impairment of intangible assets 20.6 -- --
Foreign sales corporation (1.9) (1.2) (1.3)
Other, net 1.8 (0.2) (1.3)
------- ------- ------
82.5% 61.0% 42.2%
======= ======= ======


-62-



Deferred tax assets at September 30, 2001 and 2000 were reduced by a
valuation allowance relating to a portion of the tax benefits attributable to
certain net operating losses (NOLs) reflected on state tax returns of Infoseek
and its subsidiaries for periods prior to the Infoseek acquisition on November
18, 1999 (see Note 2), where applicable state tax laws limit the utilization of
such NOLs. Since the valuation allowance relates to acquired deferred tax
assets, the subsequent realization of these tax benefits would result in the
application of the allowance amount as a reduction to goodwill.

At September 30, 2001, approximately $191 million of foreign tax credit
carryforwards was available as credits against future income taxes. Foreign tax
credit carryforwards will expire between the years 2003 and 2006.

In 2001, 2000 and 1999, income tax benefits attributable to employee stock
option transactions of $48 million, $197 million and $96 million, respectively,
were allocated to stockholders' equity.

-63-



7 Pension and Other Benefit Programs

The Company maintains pension and postretirement medical benefit plans
covering most of its domestic employees not covered by union or industry-wide
plans. Employees hired after January 1, 1994 are not eligible for
postretirement medical benefits. With respect to its qualified defined benefit
pension plans, the Company's policy is to fund, at a minimum, the amount
necessary on an actuarial basis to provide for benefits in accordance with the
requirements of the Employee Retirement Income Security Act of 1974. Pension
benefits are generally based on years of service and/or compensation.

The following chart summarizes the balance sheet impact, as well as the
benefit obligations, assets, funded status and rate assumptions associated with
the pension and postretirement medical benefit plans.



Postretirement
Pension Plans Benefit Plans
---------------- -------------
2001 2000 2001 2000
------- ------- ----- -----

Reconciliation of funded status of the plans and the amounts
included in the Company's Consolidated Balance Sheets:
Projected benefit obligations
Beginning obligations $(1,825) $(1,779) $(413) $(291)
Service cost (90) (87) (13) (10)
Interest cost (143) (131) (33) (21)
Amendments (10) -- -- (24)
Actuarial gains (losses) (146) 89 (139) (80)
Benefits paid 83 78 13 13
Curtailment gains -- 5 -- --
------- ------- ----- -----
Ending obligations $(2,131) $(1,825) $(585) $(413)
======= ======= ===== =====
Fair value of plans' assets
Beginning fair value $ 2,773 $ 2,211 $ 256 $ 203
Actual return on plans' assets (230) 674 (23) 58
Employer contributions 7 5 9 8
Participants' contributions 2 1 -- --
Benefits paid (83) (78) (13) (13)
Expenses (19) (40) -- --
------- ------- ----- -----
Ending fair value $ 2,450 $ 2,773 $ 229 $ 256
======= ======= ===== =====
Funded status of the plans $ 319 $ 948 $(356) $(157)
Unrecognized net (gain) loss (129) (779) 145 (38)
Unrecognized prior service cost 11 1 4 5
------- ------- ----- -----
Net balance sheet asset (liability) $ 201 $ 170 $(207) $(190)
======= ======= ===== =====
Amounts recognized in the balance sheet consist of:
Prepaid benefit cost $ 357 $ 310 $ 34 $ 31
Accrued benefit liability (156) (140) (241) (221)
------- ------- ----- -----
$ 201 $ 170 $(207) $(190)
======= ======= ===== =====
Rate Assumptions:
Discount rate 7.5% 8.0% 7.5% 8.0%
Rate of return on plans' assets 9.5% 10.0% 9.5% 10.0%
Salary increases 5.0% 5.5% n/a n/a
Annual increase in cost of benefits n/a n/a 10.0% 7.5%


-64-



The projected benefit obligations, accumulated benefit obligations and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $151 million, $119 million and $0 for 2001,
respectively, and $126 million, $94 million and $0 for 2000, respectively.

The accumulated postretirement benefit obligations and fair value of plan
assets for postretirement plans with accumulated postretirement benefit
obligations in excess of plan assets were $441 million and $79 million for
2001, respectively, and $319 million and $90 million for 2000, respectively.

Assumed health care cost trend rates have a significant effect on the
amounts reported for the postretirement medical benefit plans. A one percentage
point decrease in the assumed health care cost trend rates would reduce total
service and interest costs and postretirement benefit obligations by $13
million and $98 million, respectively. A one percentage point increase in the
assumed health care cost trend rates would increase total service and interest
costs and postretirement benefit obligations by $18 million and $129 million,
respectively. The annual increase in cost of postretirement benefits is assumed
to decrease 1.0 percentage point per year for 5 years until reaching 5.0%.

The Company's accumulated pension benefit obligations at September 30, 2001
and 2000 were $1.9 billion and $1.6 billion, respectively, of which 97.7% were
vested. In addition, the Company contributes to various pension plans under
union and industry-wide agreements.

The income statement expenses (credits) of pension plans for 2001, 2000 and
1999 totaled $(24) million, $(3) million and $11 million, respectively. The
discount rate, rate of return on plan assets and salary increase assumptions
for the pension plans were 7.5%, 10.5% and 5.1%, respectively, in 1999. The
income statement expense for postretirement benefit plans for 2001, 2000 and
1999 were $26 million, $6 million and $10 million, respectively. The discount
rate, rate of return on plan assets and annual increase in cost of
postretirement benefits assumptions were 7.5%, 10.5% and 6.1%, respectively, in
1999.

The market values of the Company's shares held by the pension plan master
trust as of September 30, 2001 and 2000 were $52 million and $107 million,
respectively.

For eligible employees, the Company has savings and investment plans which
allow eligible employees to allocate up to 10% or 15% of salary through payroll
deductions depending on the plan in which the employee participates. The
Company matches 50% of the employee's pre-tax contributions, up to plan limits.
In 2001, 2000 and 1999, the costs of these plans were $32 million, $30 million
and $29 million, respectively.

8 Stockholders' Equity

On March 20, 2001, the Company converted all of its outstanding Internet
Group common stock into Disney common stock, resulting in the issuance of
approximately 8.6 million shares of Disney common stock.

For the year, the Company repurchased a total of 63.9 million shares of
Disney common stock for approximately $1.1 billion. Under its share repurchase
program, the Company was authorized to repurchase approximately 330 million
additional Disney shares as of September 30, 2001. Also pursuant to its share
repurchase program, the Company repurchased a total of 1.8 million Internet
Group shares for approximately $10 million during 2001.

-65-



In December 1999, the Company established the TWDC Stock Compensation Fund
II (Fund II) pursuant to the repurchase program to acquire shares of both
Disney and Internet Group common stock for the purpose of funding certain
future stock-based compensation. Any shares acquired by Fund II that are not
utilized must be disposed of by December 31, 2002. In 1996, the Company
established the TWDC Stock Compensation Fund (Fund) pursuant to the repurchase
program to acquire shares of Company common stock for the purpose of funding
certain stock-based compensation. All shares acquired by the Fund were disposed
of and the Fund was dissolved in April 1999.

On November 27, 2001, the Board of Directors declared a cash dividend of
$0.21 per share applicable to fiscal 2001. The dividend is payable December 21,
2001 to stockholders at the close of business December 7, 2001. The Company
paid a $434 million dividend ($0.21 per Disney share) during the first quarter
of fiscal 2000 applicable to fiscal 1999 and paid a $438 million dividend
($0.21 per Disney share) during the first quarter of the current year
applicable to fiscal 2000.

9 Stock Incentive Plans

Under various plans, the Company may grant stock options and other awards to
key executive, management and creative personnel at exercise prices equal to or
exceeding the market price at the date of grant. In general, options for common
stock become exercisable over a five-year period from the grant date and expire
10 years after the date of grant. In certain cases for senior executives,
options become exercisable over periods up to 10 years and expire up to 15
years after date of grant. Shares available for future option grants at
September 30, 2001, totaled 124 million.

On November 26, 2000, one of the Company's stock incentive plans expired,
reducing the number of Disney shares available for future option grants by 21
million.

The following table summarizes information about stock option transactions,
including the conversion of all the DIG shares into DIS shares effective March
2001 (shares in millions):



2001 2000 1999
--------------- --------------- ---------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ --------

Outstanding at beginning of year 162 $ 27.24 159 $24.29 163 $21.70
Awards canceled (13) 8.35 (18) 29.56 (9) 27.35
Awards granted 43 29.71 49 32.92 20 32.97
Awards exercised (9) 18.72 (28) 18.94 (15) 13.92
Options converted /(1)/ 5 102.61 -- -- -- --
----- ----- -----
Outstanding at September 30 188 $ 29.54 162 $27.24 159 $24.29
===== ===== =====
Exercisable at September 30 66 $ 25.64 51 $21.22 57 $19.01
===== ===== =====

- --------
(1) Represents conversion of all outstanding DIG options that were converted
into options to purchase DIS options on March 20, 2001 (See Note 2).

-66-



The following table summarizes information about stock options outstanding
at September 30, 2001 (shares in millions):



Outstanding Exercisable
-------------------------------------------- -------------------------
Weighted Average Weighted Weighted
Range of Exercise Number Remaining Years of Average Number Average
Prices of Options Contractual Life Exercise Price of Options Exercise Price
- ------ ---------- ------------------ -------------- ---------- --------------

$ 10-$ 14 6 2.1 $ 13.65 6 $ 13.65
$ 15-$ 19 14 3.3 18.26 12 18.33
$ 20-$ 24 38 5.3 21.52 22 21.60
$ 25-$ 29 34 7.5 27.10 11 26.88
$ 30-$ 34 69 8.7 31.55 8 32.94
$ 35-$ 39 13 6.9 37.31 5 37.52
$ 40-$ 44 11 9.0 40.98 1 40.50
$ 45-$395 3 8.0 113.05 1 117.84
---------- ----------
188 66
========== ==========


The following table reflects pro forma net income (loss) and earnings (loss)
per share had the Company elected to adopt the fair value approach of Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (in millions, except for per share data):



2001 2000 1999
------ ------ ------

Attributed net income (loss):
As reported $ (41) $1,196 $1,300
Pro forma (325) 958 1,169
Diluted earnings (loss) per share attributed to Disney common stock:
As reported (0.02) 0.57 0.62
Pro forma (0.15) 0.46 0.56


These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over
the vesting period, and additional options may be granted in future years.

The weighted average fair values of options at their grant date during 2001,
2000 and 1999, where the exercise price equaled the market price on the grant
date, were $10.25, $12.49 and $11.11, respectively. The estimated fair value of
each Disney option granted is calculated using the Black-Scholes option-pricing
model. The weighted average assumptions used in the model were as follows:



2001 2000 1999
---- ---- ----

Risk-free interest rate 5.0% 6.5% 5.3%
Expected years until exercise 6.0 6.0 6.0
Expected stock volatility 27% 26% 25%
Dividend yield .70% .59% .69%


-67-



10 Detail of Certain Balance Sheet Accounts



2001 2000
------- -------

Current receivables
Accounts receivable $ 3,144 $ 3,416
Income taxes receivable 122 94
Other 282 295
Allowance for doubtful accounts (205) (206)
------- -------
$ 3,343 $ 3,599
======= =======
Other current assets
Prepaid expenses $ 444 $ 493
Other 156 142
------- -------
$ 600 $ 635
======= =======
Intangible assets
Cost in excess of net assets acquired $14,073 $15,746
Trademarks 1,102 1,112
FCC licenses 1,100 1,100
Other 1,117 1,080
Accumulated amortization (2,852) (2,921)
------- -------
$14,540 $16,117
======= =======
Accounts payable and other accrued liabilities
Accounts payable $ 3,822 $ 4,278
Payroll and employee benefits 710 778
Other 71 105
------- -------
$ 4,603 $ 5,161
======= =======


11 Segments

The Company is in the leisure and entertainment business and has operations
in four major segments: Media Networks, Parks & Resorts, Studio Entertainment
and Consumer Products, as described in Note 1. The Company has changed the
reporting structure of the various components of its Internet operations and as
a result, the Internet Group is no longer reported as a separate segment. The
ESPN, ABC, Disney and family-branded Internet Web sites are reported in the
Media Networks segment and DisneyVacations.com is reported in the Parks &
Resorts segment. Also during the year, the Disney Store Catalog and the Disney
Store Online were reassigned from the Internet Group to Consumer Products.
Prior-year amounts have been reclassified to reflect the current year
presentation.

The operating segments reported below are the segments of the Company for
which separate financial information is available and for which operating
results are evaluated regularly by executive management in deciding how to
allocate resources and in assessing performance. The accounting policies of the
business segments are the same as those described in the summary of significant
accounting policies.

-68-



Segment operating results evaluated include earnings before corporate and
unallocated shared expenses, amortization of intangible assets, gain on sale of
businesses, net interest expense and other, equity in the income of investees,
restructuring and impairment charges, income taxes and minority interests.
Corporate and unallocated shared expenses principally consist of executive
management and certain unallocated administrative support functions.

The following segment results include allocations of certain costs,
including certain information technology costs, pension, legal and other shared
services, which are allocated based on consumption. In addition, while all
significant intersegment transactions have been eliminated, Studio
Entertainment revenues and operating income include an allocation of Consumer
Products revenues, which is meant to reflect a portion of Consumer Products
revenues attributable to certain film properties. These allocations are
agreed-upon amounts between the businesses and may differ from amounts that
would be negotiated in an arm's-length transaction.



Business Segments 2001 2000 1999
- ----------------------------------------------------------------------------
Revenues
Media Networks $ 9,569 $ 9,836 $ 8,012
------- ------- -------
Parks & Resorts 7,004 6,809 6,141
------- ------- -------
Studio Entertainment
Third parties 6,049 5,930 6,100
Intersegment 57 81 76
------- ------- -------
6,106 6,011 6,176
------- ------- -------
Consumer Products
Third parties 2,647 2,843 3,202
Intersegment (57) (81) (76)
------- ------- -------
2,590 2,762 3,126
------- ------- -------
Total consolidated revenues $25,269 $25,418 $23,455
======= ======= =======
Segment operating income
Media Networks $ 1,758 $ 1,985 $ 1,512
Parks & Resorts 1,586 1,615 1,494
Studio Entertainment 260 126 162
Consumer Products 401 386 592
------- ------- -------
Total segment operating income $ 4,005 $ 4,112 $ 3,760
======= ======= =======


-69-





Business Segments 2001 2000 1999
- ------------------------------------------------------------------------------------------------
Segment operating income $ 4,005 $ 4,112 $3,760
Corporate and unallocated shared expenses (406) (354) (335)
Amortization of intangible assets (767) (1,233) (456)
Gain on sale of businesses 22 489 345
Net interest expense and other (417) (497) (612)
Equity in the income of investees 300 208 (127)
Restructuring and impairment charges (1,454) (92) (172)
------- ------- ------
Income before income taxes, minority interests and the cumulative
effect of accounting changes $ 1,283 $ 2,633 $2,403
======= ======= ======
Capital expenditures
Media Networks $ 207 $ 249 $ 168
Parks & Resorts 1,278 1,524 1,699
Studio Entertainment 36 50 51
Consumer Products 70 73 114
Corporate 204 117 102
------- ------- ------
Total consolidated capital expenditures $ 1,795 $ 2,013 $2,134
======= ======= ======
Depreciation expense
Media Networks $ 176 $ 169 $ 135
Parks & Resorts 604 582 498
Studio Entertainment 47 54 64
Consumer Products 90 109 128
Corporate 70 48 26
------- ------- ------
Total consolidated depreciation expense $ 987 $ 962 $ 851
======= ======= ======
Amortization expense
Media Networks $ 748 $ 1,209 $ 428
Parks & Resorts 15 21 21
Studio Entertainment 3 1 1
Consumer Products 1 2 6
------- ------- ------
Total consolidated amortization expense $ 767 $ 1,233 $ 456
======= ======= ======
Identifiable assets
Media Networks/(1)/ $20,357 $21,932
Parks & Resorts/(1)/ 11,369 10,884
Studio Entertainment 6,614 7,298
Consumer Products 1,041 1,173
Corporate/(2)/ 4,318 3,740
------- -------
Total Consolidated Assets $43,699 $45,027
======= =======
Supplemental revenue data
Media Networks
Advertising $ 5,988 $ 6,637 $5,486
Parks & Resorts
Merchandise, food and beverage 2,046 2,094 1,860
Admissions 2,050 2,006 1,878


-70-





Geographic Segments 2001 2000 1999
- -------------------------------------------------------
Revenues
United States and Canada $20,970 $21,113 $19,243
Europe 2,612 2,756 2,587
Asia Pacific 1,237 1,154 1,235
Latin America and Other 450 395 390
------- ------- -------
$25,269 $25,418 $23,455
======= ======= =======
Segment operating income
United States and Canada $ 3,045 $ 3,332 $ 2,934
Europe 533 471 409
Asia Pacific 437 320 383
Latin America and Other (10) (11) 34
------- ------- -------
$ 4,005 $ 4,112 $ 3,760
======= ======= =======
Identifiable assets
United States and Canada $41,850 $43,083
Europe 1,428 1,545
Asia Pacific 292 281
Latin America and Other 129 118
------- -------
$43,699 $45,027
======= =======

- --------
(1) Identifiable assets include amounts associated with equity method
investments as follows:



Media Networks $ 792 $ 759
Parks & Resorts 357 344

(2) Primarily deferred tax assets, other investments, fixed and other assets

12 Financial Instruments

Investments
As of September 30, 2001 and 2000, the Company held $92 million and $330
million, respectively, of securities classified as available-for-sale. As of
September 30, 2001 and September 30, 2000, the Company also held $756 million
and $796 million, respectively, of non-public cost method investments. Realized
gains and losses are determined principally on an average cost basis. In 2001,
2000 and 1999, the Company recognized $87 million, $41 million and $70 million,
respectively, in net gains on sales of securities.

In addition, in 2001 and 2000, the Company recorded non-cash charges of $241
million and $37 million, respectively, to reflect other-than-temporary losses
in value of certain investments. In 2001, 2000 and 1999, unrealized gains and
losses on available-for-sale securities were not material.

During 2001 and 2000, the Company hedged certain investment holdings using
forward sale contracts. The contracts, with notional amounts totaling $530
million and $663 million in 2001 and 2000, respectively, expire in three years.

-71-



Interest Rate Risk Management
The Company is exposed to the impact of interest rate changes. The Company's
objective is to manage the impact of interest rate changes on earnings and cash
flows and on the market value of its investments and borrowings. The Company
maintains fixed rate debt as a percentage of its net debt between a minimum and
maximum percentage, which is set by policy.

Significant interest rate risk management instruments held by the Company
during 2001 and 2000 included pay-floating and pay-fixed swaps. Pay-floating
swaps effectively convert medium and long-term obligations to LIBOR rate
indexed variable rate instruments. These swap agreements expire in one to 20
years. Pay-fixed swaps effectively convert floating rate obligations to fixed
rate instruments. The pay-fixed swaps expire in one to three years. In addition
to the $700 million of pay-fixed swaps disclosed in Note 5, as of September 30,
2001, the Company held $500 million of pay-fixed swaps that were de-designated
as hedges. As of September 30, 2000, the Company held $186 million of
pay-floating swaps and $786 million of pay-fixed swaps that were de-designated
as hedges. The change in market values related to these swaps from the time
they were de-designated as hedges, has been included in earnings.

The impact of interest rate risk management activities on income in 2001,
2000 and 1999 was not material. The amount of deferred gains and losses from
interest rate risk management transactions at September 30, 2001 was not
material.

Foreign Exchange Risk Management
The Company transacts business globally and is subject to risks associated
with changing foreign exchange rates. The Company's objective is to reduce
earnings and cash flow volatility associated with foreign exchange rate changes
to allow management to focus attention on core business issues and challenges.
By policy, the Company maintains hedge coverage between minimum and maximum
percentages of its forecasted foreign exchange exposures for periods not to
exceed five years. The gains and losses on these contracts offset changes in
the value of the related exposures.

It is the Company's policy to enter into foreign currency transactions only
to the extent considered necessary to meet its objectives as stated above. The
Company does not enter into foreign currency transactions for speculative
purposes.

The Company enters into various contracts that change in value as foreign
exchange rates change to protect the value of its existing foreign currency
assets and liabilities, commitments and forecasted foreign currency revenues.
The Company uses option strategies and forward contracts that provide for the
sale of foreign currencies to hedge forecasted revenues. The Company also uses
forward contracts to hedge foreign currency assets and liabilities. While these
hedging instruments are subject to fluctuations in value, such fluctuations are
offset by changes in the value of the underlying exposures being hedged. The
principal currencies hedged are the European euro, British pound, Japanese yen
and Canadian dollar. Cross-currency swaps are used to hedge foreign
currency-denominated borrowings.

Gains and losses on contracts hedging forecasted foreign currency revenues
are recorded to AOCI, and reclassified to current earnings when such revenues
are recognized, and offset changes in the value of the foreign currency
revenues. At September 30, 2001 and 2000, the Company had deferred gains of $91
million and $24 million, respectively, and deferred losses of $24 million and
$7 million, respectively, related to foreign currency hedge transactions.
Deferred amounts to be recognized can change with market conditions and will be
substantially offset by changes in the value of the related hedged
transactions. The impact of foreign exchange risk management activities on
operating income in 2001 and in 2000 was a net gain of $142 million and $195
million, respectively.

-72-



Fair Value of Financial Instruments
At September 30, 2001 and 2000, the Company's financial instruments included
cash, cash equivalents, investments, receivables, accounts payable, borrowings
and interest rate, forward and foreign exchange risk management contracts.

At September 30, 2001 and 2000, the fair values of cash and cash
equivalents, receivables and accounts payable approximated carrying values
because of the short-term nature of these instruments. The estimated fair
values of other financial instruments subject to fair value disclosures,
determined based on broker quotes or quoted market prices or rates for the same
or similar instruments, and the related carrying amounts are as follows (in
millions):



2001 2000
---------------- ----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------- -------- -------

Investments $ 405 $ 621 $ 732 $ 989
Borrowings $(9,769) $(9,991) $(8,890) $(8,760)
Risk management contracts:
Foreign exchange forwards $ 65 $ 65 $ 16 $ 22
Foreign exchange options 20 20 27 39
Interest rate swaps 240 240 2 (83)
Forward sale contracts (3) (3) -- 41
Cross-currency swaps (20) (20) 5 (45)
------- ------- ------- -------
$ 302 $ 302 $ 50 $ (26)
======= ======= ======= =======


Credit Concentrations
The Company continually monitors its positions with, and the credit quality
of, the financial institutions that are counterparties to its financial
instruments, and does not anticipate nonperformance by the counterparties. The
Company would not realize a material loss as of September 30, 2001 in the event
of nonperformance by any one counterparty. The Company enters into transactions
only with financial institution counterparties that have a credit rating of A-
or better. The Company's current policy regarding agreements with financial
institution counterparties is generally to require collateral in the event
credit ratings fall below A- or in the event aggregate exposures exceed limits
as defined by contract. In addition, the Company limits the amount of
investment credit exposure with any one institution.

The Company's trade receivables and investments do not represent a
significant concentration of credit risk at September 30, 2001 due to the wide
variety of customers and markets into which the Company's products are sold,
their dispersion across many geographic areas, and the diversification of the
Company's portfolio among instruments and issuers.

13 Commitments and Contingencies

The Company has various contractual commitments, including certain
guarantees, which are primarily for the purchase of broadcast rights for
various feature films, sports and other programming aggregating approximately
$13.4 billion as of September 30, 2001, including approximately $10.1 billion
related to sports programming rights, primarily NFL, College Football and MLB.
This amount is substantially payable over the next five years.

-73-



The Company has various real estate operating leases, including retail
outlets and distribution centers for consumer products and office space for
general and administrative purposes. Future minimum lease payments under these
non-cancelable operating leases totaled $1.8 billion at September 30, 2001,
payable as follows (in millions):



2002 $239
2003 217
2004 190
2005 156
2006 184
Thereafter 786


Rental expense for the above operating leases during 2001, 2000 and 1999,
including common-area maintenance and contingent rentals, was $420 million,
$482 million and $385 million, respectively.

The Company, together with, in some instances, certain of its directors and
officers, is a defendant or co-defendant in various legal actions involving
copyright, breach of contract and various other claims incident to the conduct
of its businesses.

All Pro Sports Camps, Inc., Nicholas Stracick and Edward Russell v. Walt
Disney Company, Walt Disney World Co., Disney Development Company and Steven B.
Wilson. On January 8, 1997, the plaintiff entity and two of its principals or
former principals filed a lawsuit against the Company, two of its subsidiaries
and a former employee in the Circuit Court for Orange County, Florida. The
plaintiffs asserted that the defendants had misappropriated from them the
concept used for the Disney's Wide World of Sports complex at the Walt Disney
World Resort. On August 11, 2000, a jury returned a verdict against the Company
and its two subsidiaries in the amount of $240 million. Subsequently, the Court
awarded plaintiffs an additional $100.00 in exemplary damages based on
particular findings by the jury. The Company has filed an appeal from the
judgment and believes that there are substantial grounds for complete reversal
or reduction of the verdict.

Management believes that it is not currently possible to estimate the
impact, if any, that the ultimate resolution of these matters will have on the
Company's results of operations, financial position or cash flows.

14 Restructuring and Impairment Charges

The Company recorded restructuring and impairment charges for the years
ended September 30, 2001, 2000 and 1999 summarized as follows (in millions):



Year Ended
September 30,
-----------------
2001 2000 1999
------ ----- ----

GO.com intangible assets impairment $ 820 $ -- $ --
GO.com severance, fixed asset write-offs and other 58 -- --
Investment impairments 254 61 --
Workforce reduction and other 111 -- 132
Chicago DisneyQuest closure 94 -- --
Asset impairment 63 31 40
Disney Store closures 54 -- --
------ ----- ----
Total restructuring and impairment charges $1,454 $ 92 $172
====== ===== ====


-74-



In 2001, the Company recorded restructuring and impairment charges totaling
$1.45 billion. The GO.com charge is for the closure of the GO.com portal
business and includes a non-cash write-off of intangible assets totaling $820
million (see Note 2). The investment impairment charge is for
other-than-temporary declines in the fair value of certain Internet
investments. The workforce reduction charges are primarily for severance costs
and are discussed more fully below. The DisneyQuest and Disney Store closure
charges are for the closure of the Chicago facility and approximately 100
Disney Stores and includes the write-down of fixed assets and leasehold
improvements, leasehold termination costs, severance and other related closure
costs. The asset impairment charge is for certain long-lived assets, primarily
at the Disney Store and Disney Catalog. These assets were evaluated for
impairment under a held for use model due to declining cash flows. Fair value
was generally determined based on discounted cash flows.

During the third quarter of fiscal 2001, the Company initiated a plan to
eliminate 4,000 full-time jobs through a combination of voluntary and
involuntary reductions. The reduction affected employees in all business units
and geographic regions. The $111 million of costs associated with the workforce
reduction consist primarily of severance costs and write-offs of idled
facilities. As of September 30, 2001, the Company had substantially completed
its workforce reduction and paid termination benefits totaling $92 million.

As of September 30, 2001, approximately $118 million of the restructuring
and impairment charges remained as an accrued liability on the balance sheet,
of which $19 million related to the workforce reduction and $21 million is from
prior-year restructuring charges. The majority of this amount is expected to be
paid in fiscal 2002.

In 2000, impairment charges amounted to $92 million, primarily related to
write-downs of certain Internet investments and an asset impairment write-down
at toysmart.com in connection with its closure.

In 1999, the Company recorded restructuring and impairment charges totaling
$172 million. The charges included $132 million for severance and other charges
and $40 million for long-lived asset impairments. The restructuring charges
included severance and lease and other contract cancellation costs, primarily
related to the consolidation of operations in the Company's broadcasting,
television production and regional entertainment businesses as well as non-cash
charges for write-downs of underutilized assets.

15 Subsequent Event

On October 24, 2001, the Company acquired 100% of the outstanding common
stock of Fox Family Worldwide, Inc. ("FFW") for $5.2 billion, including $2.9
billion in cash, plus the assumption of $2.3 billion in debt and preferred
stock. Upon the closing of the acquisition, the Company changed FFW's name to
ABC Family Worldwide, Inc. Among the businesses acquired was the Fox Family
Channel, which has been changed to the ABC Family Channel, a programming
service that currently reaches approximately 81 million cable and satellite
television subscribers throughout the U.S.; a 76% interest in Fox Kids Europe,
a Dutch public subsidiary that reaches more than 24 million subscribers across
Europe; Fox Kids channel in Latin America and the Saban library and
entertainment production businesses. Under the terms of the agreement, the Fox
Kid's Network, a block of children's programming broadcasted primarily by
Fox-affiliated TV stations, and ongoing rights to use the "Fox" name (other
than certain transitional rights) were not included in the acquired operations.
Also in connection with the acquisition, the Company acquired programming
commitments totaling approximately $1 billion, including approximately $675
million for certain MLB games through 2006.

-75-



The Company's motivation for the acquisition was to increase shareholder
value. The Company believes that it can reach this objective by improving the
programming of acquired cable channels through the use of new strategies,
including repurposing the programming of the ABC Television Network, and by
reducing operating costs through consolidation.

The acquisition of FFW is being accounted for as a purchase, in accordance
with SFAS 141. The Company is in the process of identifying and valuing the
intangible assets of FFW by reporting unit. The allocation of the purchase
price has not yet been completed.

The following table summarizes FFW's carrying amounts for assets acquired
and liabilities assumed as of September 30, 2001, without adjustments for the
Company's purchase accounting (in millions, unaudited).



Cash $ 87
Receivables 269
Programming costs 657
Other assets 82
-------
Total assets acquired 1,095
Accounts payable and accrued
liabilities (482)
Borrowings and preferred stock (2,230)
Minority interest (49)
-------
$(1,666)
=======


-76-



QUARTERLY FINANCIAL SUMMARY
(In millions, except per share data)



(unaudited) December 31 March 31 June 30 September 30
- -------------------------------------------------------------------------------------------------
2001/(1)(2)/
Revenues $ 7,433 $ 6,049 $ 5,975 $ 5,812
Segment operating income 1,231 1,025 1,122 627
Net income (loss) 242 (567) 392 53
Earnings (loss) per share attributed to:
Disney
Diluted $ 0.16 $ (0.26) $ 0.19 $ 0.03
Basic 0.16 (0.26) 0.19 0.03
Internet Group (basic and diluted) (2.29) (0.45) n/a n/a
2000/(3)(4)(5)/
Revenues $ 6,940 $ 6,307 $ 6,053 $ 6,118
Segment operating income 1,147 859 1,200 906
Net income 315 77 361 167
Earnings (loss) per share attributed to:/ (4)/
Disney
Diluted $ 0.17 $ 0.08 $ 0.21 $ 0.11
Basic 0.17 0.08 0.21 0.12
Internet Group (basic and diluted) (0.95) (1.87) (1.75) (1.61)

- --------
(1) Net income does not reflect one-time after-tax charges for the adoption of
SOP 00-2 (Film Accounting) totaling $228 million ($0.11 per share) and SFAS
133 (Derivative Accounting) totaling $50 million ($0.02 per share),
respectively, in the first quarter of 2001. See Note 1 to the Consolidated
Financial Statements.
(2) Reflects restructuring and impairment charges of $194 million, $996
million, $138 million and $126 million in the first, second, third and
fourth quarter of 2001, respectively. The earnings per Disney share impact
of the charges were $0.00, $0.44, $0.04 and $0.04, respectively. See Note
14 to the Consolidated Financial Statements.
(3) Reflects a $243 million pre-tax gain on the sale of Fairchild Publications
in the first quarter of 2000. There was no earnings per Disney share
impact, as the income taxes on the transaction largely offset the pre-tax
gain.
(4) Reflects a $93 million pre-tax gain on the sale of the Company's interest
in Eurosport, a European sports cable service, in the third quarter of
2000. The earnings per Disney share impact of the gain was $0.02.
(5) Reflects a $153 million pre-tax gain on the sale of Ultraseek Corporation
in the fourth quarter of 2000. The earnings per Disney share impact was
$0.01.

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