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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q


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


For the Quarter Ended June 30, 2002 Commission File Number 1-11605

The Walt Disney Company

Incorporated in Delaware I.R.S. Employer Identification
No. 95-4545390


500 South Buena Vista Street, Burbank, California 91521

(818) 560-1000

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


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


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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.


YES X NO


There were 2,040,923,300 shares of common stock outstanding as of August 5,
2002.



PART I. FINANCIAL INFORMATION
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited; in millions, except per share data)



Three Months Ended Nine Months Ended
June 30, June 30,
------------------ ------------------
2002 2001 2002 2001
------- ------- ------- --------
Revenues $ 5,795 $ 5,960 $ 18,667 $ 19,386
Costs and expenses (5,043) (4,932) (16,661) (16,292)
Amortization of intangible assets (9) (145) (14) (622)
Gain on sale of business 34 - 34 22
Net interest expense and other (185) (80) (288) (287)
Equity in the income of investees 44 86 163 234
Restructuring and impairment charges - (138) - (1,328)
------- ------- ------- --------
Income before income taxes, minority
interests and the cumulative effect
of accounting changes 636 751 1,901 1,113
Income taxes (253) (339) (757) (963)
Minority interests (19) (20) (83) (83)
------- ------- ------- --------
Income before the cumulative effect of
accounting changes 364 392 1,061 67
Cumulative effect of accounting changes:
Film accounting - - - (228)
Derivative accounting - - - (50)
------- ------- ------- --------
Net income (loss) $ 364 $ 392 $ 1,061 $ (211)
======= ======= ======= ========
Earnings (loss) attributed to:
Disney Common Stock $ 364 $ 392 $ 1,061 $ (94)
Internet Group Common Stock - - - (117)
------- ------- ------- --------
$ 364 $ 392 $ 1,061 $ (211)
======= ======= ======= ========
Earnings (loss) per share before
cumulative effect of accounting changes
attributed to:
Disney Common Stock(basic and diluted)$ 0.18 $ 0.19 $ 0.52 $ 0.09
======= ======= ======= ========
Internet Group Common Stock (basic
and diluted) $ n/a $ n/a $ n/a $ (2.72)
======= ======= ======= ========
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
Diluted $ 0.18 $ 0.19 $ 0.52 $ (0.04)
======= ======= ======= ========
Basic $ 0.18 $ 0.19 $ 0.52 $ (0.05)
======= ======= ======= ========
Internet Group Common Stock (basic
and diluted) $ n/a $ n/a $ n/a $ (2.72)
======= ======= ======= ========
Earnings attributed to Disney Common Stock
before the cumulative effect of
accounting changes adjusted for the
impact of SFAS 142 in fiscal
2001 (See Note 6) $ 364 $ 527 $ 1,061 $ 703
======= ======= ======= ========
Earnings per share attributed to Disney
Common Stock before the cumulative
effect of accounting changes adjusted
for the impact of SFAS 142 in fiscal
2001 (See Note 6)
Diluted $ 0.18 $ 0.25 $ 0.52 $ 0.33
======= ======= ======= ========
Basic $ 0.18 $ 0.25 $ 0.52 $ 0.34
======= ======= ======= ========
Average number of common and common
equivalent shares outstanding:
Disney Common Stock:
Diluted 2,046 2,107 2,044 2,103
======= ======= ======= ========
Basic 2,041 2,091 2,040 2,085
======= ======= ======= ========
Internet Group Common Stock
(basic and diluted) n/a n/a n/a 43
======= ======= ======= ========

See Notes to Condensed Consolidated Financial Statements




THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)



June 30, September 30,
2002 2001
------------ -------------
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 2,196 $ 618
Receivables 3,637 3,343
Inventories 656 671
Television costs 1,281 1,175
Deferred income taxes 538 622
Other assets 584 600
------------ ------------
Total current assets 8,892 7,029

Film and television costs 5,443 5,235
Investments 1,841 2,061
Parks, resorts and other property, at cost
Attractions, buildings and equipment 19,421 19,089
Accumulated depreciation (8,264) (7,728)
------------ ------------
11,157 11,361
Projects in progress 915 911
Land 668 635
------------ ------------
12,740 12,907

Intangible assets, net 2,752 2,716
Goodwill, net 17,028 12,106
Other assets 1,527 1,645
------------ ------------
$ 50,223 $ 43,699
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts and taxes payable and other accrued $ 4,916 $ 4,603
liabilities
Current portion of borrowings 585 829
Unearned royalties and other advances 967 787
------------ ------------
Total current liabilities 6,468 6,219

Borrowings 14,664 8,940
Deferred income taxes 2,286 2,730
Other long term liabilities, unearned royalties 3,075 2,756
and other advances
Minority interests 421 382
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 - 12,105 12,096
2.1 billion shares
Common stock - Internet Group, $.01 par
value
Authorized - 1.0 billion shares - -
Retained earnings 12,804 12,171
Accumulated other comprehensive income (40) 10
------------ -----------
24,869 24,277
Treasury stock, at cost, 81.4 million Disney (1,395) (1,395)
shares
Shares held by TWDC Stock Compensation Fund
II, at cost
6.7 million and 8.6 million Disney shares (165) (210)
------------ -----------
23,309 22,672
------------ -----------
$ 50,223 $ 43,699
============= ============


See Notes to Condensed Consolidated Financial Statements





THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)



Nine Months Ended June 30,
---------------------------
2002 2001
------------ ------------
NET INCOME (LOSS) $ 1,061 $ (211)

OPERATING ITEMS NOT REQUIRING CASH
Depreciation 761 735
Equity in the income of investees (163) (234)
Minority interests 83 83
Amortization of intangible assets 14 622
Restructuring and impairment charges - 1,150
Cumulative effect of accounting changes - 278
Gain on sale of business (34) (22)
Other (63) 371

CHANGES IN WORKING CAPITAL (114) (620)
------------ ------------

484 2,363
------------ ------------

Cash provided by operations 1,545 2,152
------------ ------------

INVESTING ACTIVITIES
Investments in parks, resorts
and other property (740) (1,241)
Acquisitions (net of cash acquired) (2,845) (480)
Dispositions 200 132
Proceeds from sale of investments 601 230
Purchase of investments (6) (88)
Other (15) (24)
------------ ------------
Cash used by investing activities (2,805) (1,471)
------------ ------------

FINANCING ACTIVITIES
Borrowings 4,031 1,962
Reduction of borrowings (1,675) (2,423)
Repurchases of common stock - (266)
Commercial paper borrowings, net 865 1,931
Exercise of stock options and other 45 159
Dividends (428) (438)
------------ ------------
Cash provided by financing activities 2,838 925
------------ ------------

Increase in cash and cash equivalents 1,578 1,606
Cash and cash equivalents, beginning of period 618 842
------------ ------------
Cash and cash equivalents, end of period $ 2,196 $ 2,448
============ ============









See Notes to Condensed Consolidated Financial Statements




THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except per share data)


1. These condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP) for interim
financial information and the instructions to Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by GAAP for complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation have been reflected in these condensed
consolidated financial statements. Operating results for the quarter and nine
months are not necessarily indicative of the results that may be expected for
the year ending September 30, 2002. Certain reclassifications have been made in
the fiscal 2001 financial statements to conform to the fiscal 2002 presentation.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended September 30, 2001. In December 1999, DVD Financing, Inc. (DFI), a
subsidiary of Disney Vacation Development, Inc. and an indirect subsidiary of
the Company, completed a receivables 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.

The terms "Company" and "we" are used in this report to refer collectively
to the parent company and the subsidiaries through which our various businesses
are actually conducted.

2. In June 2002, the Financial Accounting and Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 146, Accounting for Costs
Associated with Exit or Disposal Activities (SFAS 146). SFAS 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred and nullifies the guidance of EITF No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in Restructuring), which
recognized a liability for an exit cost at the date of an entity's commitment to
an exit plan. SFAS 146 requires that the initial measurement of a liability be
at fair value. SFAS 146 will be effective for exit or disposal activities that
are initiated after December 31, 2002 with early adoption encouraged. The
Company plans to adopt SFAS 146 effective October 1, 2002 and does not expect
that the adoption will have a material impact on its consolidated results of
operations and financial position.

Effective October 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142).
As a result of adopting SFAS 142, a substantial amount of the Company's goodwill
and intangible assets are no longer amortized. Pursuant to SFAS 142, intangible
assets must be periodically tested for impairment, and the new standard provides
six months to complete the impairment review. During the second quarter of
fiscal 2002, the Company completed its impairment review, which indicated that
there was no impairment. See Note 6.

The Company also adopted Statement of Financial Accounting Standards No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144),
effective October 1, 2001. The adoption of SFAS 144 did not have a material
impact on the Company's consolidated results of operations and financial
position.

Effective October 1, 2000, the Company adopted 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), and recorded one-time after-tax
charges for the adoption of the standards totaling $228 million (or $0.11 per
share) and $50 million (or $0.02 per share), respectively, in the first quarter
of the prior year.

3. On October 24, 2001, the Company acquired Fox Family Worldwide, Inc.
(FFW) for $5.2 billion, funded with $2.9 billion of new long-term borrowings
plus the assumption of $2.3 billion of FFW long-term debt. Upon the closing of
the acquisition, the Company changed FFW's name to ABC Family Worldwide, Inc.
(ABC Family). Among the businesses acquired was the Fox Family Channel, which
has been renamed ABC Family Channel, a programming service that currently
reaches approximately 84 million cable and satellite television subscribers
throughout the U.S.; a 76% interest in Fox Kids Europe, which reaches more than
31 million subscribers across Europe; Fox Kids channels in Latin America, and
the Saban library and entertainment production businesses.





THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except per share data)

Our motivation for the acquisition was to acquire a fully integrated cable
channel with a significant international presence and therefore increase
shareholder value. We believe that we can reach this objective through the use
of new strategies which include cross promotion with our other television
properties, repurposing a portion of the programming of the ABC Television
Network, utilizing programming from the Disney and ABC libraries, developing
original programming and by reducing operating costs.

The acquisition of ABC Family has been accounted for in accordance with
Statement of Financial Accounting Standards No. 141, Business Combinations. The
cost of the acquisition was allocated to the assets acquired and liabilities
assumed based on estimates of their respective fair values at the date of
acquisition. Fair values were determined by internal studies and independent
third party appraisals. The purchase price allocation presented below is
preliminary and subject to refinements based on the completion of certain third
party appraisals.

The following table summarizes the preliminary purchase price allocation of
ABC Family's assets acquired and liabilities assumed at the date of acquisition.



Receivables $ 186
Programming costs 329
Other assets 519
Intangible assets 46
Goodwill 4,945
--------
Total assets 6,025
--------

Accounts payable and accrued (532)
liabilities
Other liabilities (248)
Minority interest (49)
--------
Total liabilities (829)
--------
Fair value of net
assets acquired 5,196
Borrowings and preferred
stock assumed (2,371)
--------
Cash purchase price, net
of cash acquired $ 2,825
========


The excess of the purchase price over the fair value of the identifiable
net assets acquired of approximately $4.9 billion was allocated to goodwill that
was assigned to the Cable Networks reporting unit within the Media Networks
segment. None of this amount is expected to be deductible for tax purposes.

The Company's condensed consolidated results of operations have
incorporated ABC Family's activity on a consolidated basis from October 24,
2001, the date of acquisition. On a pro forma basis, adjusting only for the
assumption that the acquisition of ABC Family and related incremental borrowings
had occurred at the beginning of fiscal 2001, revenues for the nine months ended
June 30, 2002 and 2001 are $18,698 million and $19,896 million, respectively.
Pro forma and as-reported net income (loss) and earnings (loss) per share for
both periods were approximately the same assuming that the new goodwill
accounting rules had been in effect with respect to the incremental acquisition
goodwill. The unaudited pro forma information is not necessarily indicative of
the results of operations had the acquisition actually occurred at the beginning
of fiscal 2001, nor is it necessarily indicative of future results.






THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except per share data)

4. The ABC Family acquisition resulted in an initial increase in the
Company's borrowings totaling $5.2 billion, including senior notes originally
issued by FFW valued at $1.1 billion, with an effective interest rate of 8.4%
maturing in 2008; FFW preferred stock valued at $400 million with an effective
cost of capital of 5.25% and commercial paper with an effective interest rate,
including the impact of interest rate swaps, of 5.1%. The senior notes are
callable at a premium beginning November 1, 2002.

As of June 30, 2002, total borrowings were $15.2 billion. Net borrowings,
which consists of total borrowings less cash and cash equivalents totaled $13.1
billion at June 30, 2002.

5. During the first quarter of fiscal 2002, the Company sold its remaining
shares of Knight-Ridder, Inc. received in connection with the disposition of
certain publishing operations in fiscal 1997. The pre-tax gain of $216 million
on the sale is reported in "net interest expense and other" in the Condensed
Consolidated Statements of Income.

6. Pursuant to SFAS 142, substantially all of the Company's intangible
assets will no longer be amortized, and the Company is required to perform an
annual impairment test for goodwill and intangible assets. Goodwill and
intangible assets are allocated to various reporting units, which are either the
operating segment or one reporting level below the operating segment. The
Company's reporting units for purposes of applying the provisions of SFAS 142
are: Cable Networks, Television Broadcasting, Radio, Studio Entertainment,
Consumer Products and Parks and Resorts. SFAS 142 requires the Company to
compare the fair value of the reporting unit to its carrying amount on an annual
basis to determine if there is potential impairment. If the fair value of the
reporting unit is less than its carrying value, an impairment loss would be
recorded to the extent that the fair value of the goodwill within the reporting
unit is less than its carrying value. The impairment test for intangible assets
consists of comparing the fair value of the intangible asset to its carrying
amount. If the carrying amount of the intangible asset exceeds its fair value,
an impairment loss is recognized. Fair values for goodwill and intangible assets
are determined based on discounted cash flows or appraised values as
appropriate.

The following table provides a reconciliation of reported net loss for the
prior-year nine months to adjusted earnings had SFAS 142 been applied as of the
beginning of fiscal 2001:




Nine Months
Ended June 30, 2001
--------------------
Earnings
Amount per
share
--------- --------
Reported net loss attributed to Disney $ (94) $ (0.04)
Common Stock
Cumulative effect of accounting changes 278 0.13
--------- --------
Reported earnings attributed to Disney
Common Stock before the cumulative effect
of accounting changes 184 0.09
Add back amortization (net of tax):
Goodwill 481 0.23
Indefinite life intangible assets 38 0.01
--------- --------
Adjusted earnings attributed to Disney
Common Stock before the cumulative
effect of accounting changes $ 703 $ 0.33
========= ========







THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except per share data)

The changes in the carrying amount of goodwill for the nine months ended
June 30, 2002, are as follows:



Media
Networks Other Total
-------- --------- ---------
Balance as of October 1, 2001 $ 12,042 $ 64 $ 12,106
Goodwill acquired during the
period 4,945 9 4,954
Investment impairment adjustment (32) - (32)
-------- --------- ---------
Balance as of June 30, 2002 $ 16,955 $ 73 $ 17,028
======== ========= =========


The Media Networks segment goodwill includes goodwill attributed to the
cable equity investees. During the quarter, the Company determined that an
investment in a Latin American cable operator had experienced a permanent
decline in value and recorded an impairment loss of $32 million representing the
goodwill associated with that investment. The impairment loss has been recorded
in "Equity in the income of investees" in the Condensed Consolidated Statements
of Income.

Amortizable intangible assets at June 30, 2002 consisted of intellectual
copyrights of $295 million amortized over 10-31 years, and stadium facility
leases and other of $132 million amortized primarily over 33 years. Intangible
assets with indefinite lives at June 30, 2002 were FCC licenses of $1,363
million and ESPN trademark and other of $962 million.

7. The Company has a 39% interest in Euro Disney S.C.A., which operates the
Disneyland Resort Paris. The Walt Disney Studios Paris, Euro Disney's second
theme park, opened on March 16, 2002. Since the opening of Walt Disney Studio
Paris, attendance and occupancy has increased compared to the prior year, with
hotel occupancy growth exceeding expectations. However, overall theme park
attendance has been below expectations.

As of June 30, 2002, the total of the Company's investment, accounts and
notes receivable from Euro Disney totaled $453 million, including investments
and advances associated with Walt Disney Studios Paris and $51 million (53
million Euros) that Euro Disney has drawn under a $163 million (168 million
Euros) line of credit with the Company. It is expected that Euro Disney will
draw additional amounts under the credit line.

As of June 30, 2002, Euro Disney had, on a US GAAP basis, total assets of
$3.1 billion (3.2 billion Euros) and total liabilities of $3.0 billion (3.1
billion Euros), including borrowings of $2.2 billion (2.2 billion Euros).

8. Diluted earnings per share amounts are calculated using the treasury
stock method and are based upon the weighted average number of common and common
equivalent shares outstanding during the period. For the quarter ended June 30,
2002 and 2001, options for 125 million and 62 million shares, respectively, were
excluded from the Disney diluted earnings per share calculation as they were
anti-dilutive. For the nine months ended June 30, 2002 and 2001, options for 138
million and 65 million shares, respectively, were excluded.






THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except per share data)

9. Comprehensive income (loss) is as follows:



Three Months Nine Months
Ended June 30, Ended June 30,
----------------- ----------------
2002 2001 2002 2001
------- ------- ------- ------
Net income (loss) $ 364 $ 392 $ 1,061 $ (211)
Cumulative effect of adoption of SFAS
133, net of tax - - - 60
Market value adjustments for investments
and hedges, net of tax (100) (24) (84) 32
Foreign currency translation, net of tax (4) 16 34 13
------- ------- ------- ------
Comprehensive income (loss) $ 260 $ 384 $ 1,011 $ (106)
======= ======= ======= ======


10. The following table reflects pro forma net income (loss) and earnings
(loss) per share had the Company elected to record an expense for employee stock
options pursuant to the provisions of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation:




Three Months Ended Nine Months Ended
June 30, June 30,
-------------------- --------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Net income (loss) attributed to
Disney common stock:
As reported $ 364 $ 392 $ 1,061 $ (94)
Pro forma after option expense 284 315 837 (302)
Diluted earnings (loss) per share
attributed to Disney common stock:
As reported 0.18 0.19 0.52 (0.04)
Pro forma after option expense 0.14 0.15 0.41 (0.14)


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 pro
forma amounts assume that the Company had been following the fair value approach
since the beginning of fiscal 1996.





THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except per share data)

11. The operating segments reported below are the segments of the Company
for which separate financial information is available and for which segment
operating income amounts are evaluated regularly by executive management in
deciding how to allocate resources and in assessing performance.



Three Months Nine Months
Ended June 30, Ended June 30,
----------------- -----------------
2002 2001 2002 2001
------- ------- ------- ------
Revenues:
Media Networks $ 2,126 $ 2,169 $ 7,298 $ 7,394
------- ------- ------- -------

Parks and Resorts 1,847 1,946 4,805 5,320
------- ------- ------- -------

Studio Entertainment
Third parties 1,343 1,317 4,641 4,646
Intersegment 22 10 52 48
------- ------- ------- -------
1,365 1,327 4,693 4,694
------- ------- ------- -------
Consumer Products
Third parties 479 528 1,923 2,026
Intersegment (22) (10) (52) (48)
------- ------- ------- -------
457 518 1,871 1,978
------- ------- ------- -------
$ 5,795 $ 5,960 $18,667 $19,386
======= ======= ======= =======
Segment operating income:
Media Networks $ 288 $ 439 $ 839 $ 1,410
Parks and Resorts 467 560 934 1,273
Studio Entertainment 22 65 198 381
Consumer Products 51 58 312 314
------- ------- ------- -------
$ 828 $ 1,122 $ 2,283 $ 3,378
======= ======= ======= =======


We evaluate the performance of the Company's 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:



Three Months Nine Months
Ended June 30, Ended June 30,
----------------- -----------------
2002 2001 2002 2001
------- ------- ------- -------
Segment operating income $ 828 $ 1,122 $ 2,283 $ 3,378
Corporate and unallocated shared expenses (76) (94) (277) (284)
Amortization of intangible assets (9) (145) (14) (622)
Gain on sale of business 34 - 34 22
Net interest expense and other (185) (80) (288) (287)
Equity in the income of investees 44 86 163 234
Restructuring and impairment charges - (138) - (1,328)
------- ------- ------- --------
Income before income taxes, minority
interests and the cumulative effect of
accounting changes $ 636 $ 751 $ 1,901 $ 1,113
======= ======== ======== ========







THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except per share data)

12. 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. Except for the matters described below, management does not
expect a material impact to its results of operations, financial position or
cash flows by reason of these actions.

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.

Stephen Slesinger, Inc. v. The Walt Disney Company. In this lawsuit, filed
on February 27, 1991 and pending in the Los Angeles County Superior Court, the
plaintiff claims that a Company subsidiary defrauded it and breached a 1983
licensing agreement with respect to certain Winnie the Pooh properties, by
failing to account for and pay royalties on revenues earned from the sale of
Winnie the Pooh movies on videocassette and from the exploitation of Winnie the
Pooh merchandising rights. The plaintiff seeks damages for the licensee's
alleged breaches as well as confirmation of the plaintiff's interpretation of
the licensing agreement with respect to future activities. The plaintiff also
seeks the right to terminate the agreement on the basis of the alleged past
breaches. The Company disputes that the plaintiff is entitled to any damages or
other relief of any kind, including termination of the licensing agreement. The
claim is currently scheduled for trial in March 2003. If each of the plaintiff's
claims were to be confirmed in a final judgment, damages could total as much as
several hundred million dollars and adversely impact the value to the Company of
any future exploitation of the licensed rights. However, given the number of
outstanding issues and the uncertainty of their ultimate disposition, management
is unable to predict the magnitude of any potential determination of the
plaintiff's claims.

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

13. The Company's contractual commitments other than leases were
approximately $15.3 billion, including approximately $800 million for available
programming as of June 30, 2002. These amounts include approximately $11.7
billion for sports programming rights. The commitments include obligations under
a six-year agreement entered into on January 22, 2002, with the National
Basketball Association (NBA) to broadcast more than 100 regular and post-season
games per year, including the NBA finals, beginning with the 2002-03 season. The
agreement included distribution rights for related NBA programming and content
and extended several existing agreements.

14. The Internal Revenue Service (IRS) is currently examining the Company's
federal income tax returns for 1993 through 1995. While the audit is not
complete, the IRS has recently indicated its intention to challenge certain of
the Company's tax positions. We believe that the Company's tax positions comply
with applicable tax law and intend to defend the Company's positions vigorously.
The ultimate disposition of these matters could require the Company to make
additional payments to the IRS. Nonetheless, we believe that the Company has
adequately provided for any foreseeable payments related to these matters and
consequently do not anticipate any material earnings impact from the ultimate
resolution of these matters.





THE WALT DISNEY COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


SEASONALITY

The Company's businesses are subject to the effects of seasonality.
Consequently, the operating results for the quarter and nine months ended June
30, 2002 for each business segment, and for the Company as a whole, are not
necessarily indicative of results to be expected for the full year.

Media Networks revenues are influenced by advertiser demand and the
seasonal nature of programming, and generally peak in the spring and fall.

Studio Entertainment revenues fluctuate based upon the timing of theatrical
motion picture, home video (VHS and DVD) and television releases. Release dates
for theatrical, home video and television products are determined by several
factors, including timing of vacation and holiday periods and competition in the
market.

Parks and Resorts revenues fluctuate with changes in theme park attendance
and resort occupancy resulting from the seasonal 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.

Consumer Products revenues are influenced by seasonal consumer purchasing
behavior and the timing of animated theatrical releases.

AS-REPORTED RESULTS OF OPERATIONS

Net income for the quarter decreased 7%, or $28 million, to $364 million
and earnings per share attributed to Disney common stock decreased 5%, or $0.01,
to $0.18. Results for the prior-year quarter included restructuring and
impairment charges totaling $138 million. The current quarter includes a pre-tax
gain ($34 million or $0.01 per share) on the sale of the Disney Store business
in Japan and the cessation of amortization of goodwill and certain intangible
assets, due to the adoption of SFAS 142, effective October 1, 2001. Earnings and
earnings per share attributed to Disney common stock after adjusting for the
impact of SFAS 142 for the prior-year quarter were $527 million and $0.25,
respectively.

Excluding the year-over-year impact of the restructuring charges, results
for the current quarter reflected lower segment operating income and equity in
the income of investees and higher net interest expense and other, partially
offset by decreased corporate and unallocated shared expenses. Decreased segment
operating income primarily reflected lower Media Networks, Parks and Resorts and
Studio Entertainment results. Lower equity in the income of investees reflected
the write-down of an investment in a Latin American cable operator ($32 million
or $0.01 per share), higher advertising costs at Lifetime Television and
declines at the cable affiliates driven by the soft advertising market.
Increases in net interest expense and other were driven by higher average debt
balances, primarily due to the incremental borrowings related to the ABC Family
acquisition and gains on the sale of certain investments in the prior-year
quarter, partially offset by lower interest rates. Decreased corporate and
unallocated shared expenses reflected a gain on the sale of certain properties
in the U.K. ($26 million or $0.01 per share), partially offset by higher costs
for new financial and human resources information technology systems intended to
improve productivity and reduce costs.

For the nine months, net income was $1.1 billion, compared to a net loss of
$211 million in the prior-year period. Net income and earnings per share
attributed to Disney common stock were $1.1 billion and $0.52, respectively, for
the current-year period, compared to a net loss and loss per share of $94
million and $0.04 in the prior-year period. Results for the current period
include a pre-tax gain ($216 million or $0.07 per share) on the sale of the
remaining shares of Knight-Ridder, Inc., a pre-tax gain on the sale of the
Disney Store business in Japan ($34 million or $0.01 per share), operations of
ABC Family acquired on October 24, 2001, incremental interest expense for
borrowings related to that acquisition and the cessation of amortization of
goodwill and certain intangible assets, due to the adoption of SFAS 142
effective October 1, 2001. The prior-year period included restructuring and





THE WALT DISNEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(continued)


impairment charges ($1.3 billion or $0.48 per share) attributed to Disney common
stock and the cumulative effect of accounting changes ($278 million or $0.13 per
share). Earnings and earnings per share attributed to Disney common stock before
the cumulative effect of accounting changes adjusted for the impact of SFAS 142
for the prior-year period were $703 million and $0.33, respectively.

Excluding the year-over-year impact of the restructuring charges, results
for the nine months were driven by lower segment operating income and equity in
income of investees. Decreased segment operating income reflected lower Media
Networks, Parks and Resorts and Studio Entertainment results. Lower equity in
the income of investees reflected the write-down of an investment in a Latin
American cable operator, decreases at the cable services resulting from the soft
advertising market and higher advertising costs at Lifetime Television. Net
interest expense and other reflected higher average debt balances due to the
acquisition of ABC Family offset by the gain on the sale of Knight-Ridder, Inc.
shares and lower interest rates. Corporate and unallocated shared expenses
reflected the gain on the sale of certain properties in the U.K., decreases due
to timing of expenses and the roll-out of the Disney Club in the prior-year
period, partially offset by higher costs for strategic initiatives designed to
promote the Disney brand and costs for new financial and human resources
information technology systems.

CURRENT OUTLOOK

The down turn in the international and domestic travel and tourism industry
as well as the economy as a whole is impacting the Company's businesses and
accordingly, attendance and occupancy at its domestic parks and resorts
continues to be negatively impacted. Additionally, the Company is experiencing
softness, thus far in the fourth quarter, in attendance and advanced reservation
trends at domestic and international theme parks. Given these trends, the
Company currently expects that earnings and earnings per share for the fourth
quarter will likely be somewhat lower than prior-year pro forma amounts.



PRO FORMA RESULTS OF OPERATIONS

To enhance comparability, the unaudited pro forma information that follows
presents consolidated results of operations as if the acquisition of ABC Family,
the conversion of the Internet Group common stock into Disney common stock, the
closure of the GO.com portal business and the adoption of new goodwill and
intangible asset accounting rules had occurred at the beginning of fiscal 2001.
Pro forma net interest and other has been adjusted as if the incremental $5.2
billion of borrowings related to the ABC Family acquisition had been outstanding
as of the beginning of the periods presented. The unaudited pro forma
information is not necessarily indicative of the results of operations had these
events actually occurred at the beginning of fiscal 2001, nor is it necessarily
indicative of future results.




Three Months Nine Months
Ended Ended
June 30, June 30,
---------------- ----------------
(unaudited; in millions, 2002 2001 Change 2002 2001 Change
except per share data)
------- ------- ------ -------- ------- ------
Revenues $ 5,795 $ 6,147 (6)% $ 18,698 $19,883 (6)%
Costs and expenses (5,043) (5,072) 1 % (16,688) (16,606) -
Amortization of
intangible assets (9) (5) (80)% (14) (18) 22 %
Gain on sale of business 34 - n/m 34 22 55 %
Net interest expense
and other (185) (134) (38)% (300) (450) 33 %
Equity in the income
of investees 44 88 (50)% 163 241 (32)%
Restructuring and
impairment charges - (138) n/m - (466) n/m
------- ------- ------- -------
Income before income taxes, 636 886 (28)% 1,893 2,606 (27)%
minority interests and the
cumulative effect of
accounting changes
Income taxes (253) (343) 26 % (754) (1,031) 27 %
Minority interests (19) (20) 5 % (83) (83) -
------- ------- ------- -------

Income before the
cumulative effect of
accounting changes 364 523 (30)% 1,056 1,492 (29)%
Cumulative effect of
accounting changes:
Film accounting - - - - (228) n/m
Derivative accounting - - - - (50) n/m
------- ------- -------- -------

Net income $ 364 $ 523 (30)% $ 1,056 $ 1,214 (13)%
======= ======= ======== =======
Earnings per share before the
cumulative effect of
accounting changes
(basic and diluted) $ 0.18 $ 0.25 (28)% $ 0.52 $ 0.71 (27)%
======= ======= ======== =======
Earnings per share including
the cumulative effect of
accounting changes
(basic and diluted) (1) $ 0.18 $ 0.25 (28)% $ 0.52 $ 0.58 (10)%
======= ======= ======== =======
Earnings before the cumulative
effect of accounting changes,
excluding the investment
gain in fiscal 2002,
restructuring and impairment
charges and gain on the
sale of business $ 343 $ 610 (44)% $ 899 $ 1,791 (50)%
======= ======= ======== =======
Earnings per share before the
cumulative effect of accounting
changes, excluding the investment
gain in fiscal 2002, restructuring
and impairment charges and
gain on sale of business:
Diluted $ 0.17 $ 0.29 (41)% $ 0.44 $ 0.85 (48)%
======= ======= ======== =======
Basic $ 0.17 $ 0.29 (41)% $ 0.44 $ 0.86 (49)%
======= ======= ======== =======
Average number of common and
common equivalent shares
outstanding:
Diluted 2,046 2,107 2,044 2,108
======= ======= ======== =======
Basic 2,041 2,091 2,040 2,090
======= ======= ======== =======

(1) The per share impacts of the film and derivative accounting changes for the
prior year were $(0.11) and $(0.02), respectively.





THE WALT DISNEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(continued)

The following table provides a reconciliation of as-reported earnings per
share attributed to Disney common stock to pro forma earnings per share.



Three Months Nine Months
Ended June 30, Ended June 30,
----------------- -----------------
(unaudited) 2002 2001 2002 2001
------- -------- -------- -------
As-reported earnings (loss) per share
attributed to Disney common stock $ 0.18 $ 0.19 $ 0.52 $(0.04)

Adjustment to attribute 100% of Internet
Group operating results to Disney common
stock (72% included in as-reported amounts
through January 29, 2001) - - - (0.06)

Adjustment to exclude pre-closure GO.com
portal operating results and amortization of
intangible assets - - - 0.40

Adjustment to exclude GO.com restructuring
and impairment charges - - - 0.09

Adjustment to exclude goodwill and intangible
assets amortization pursuant to SFAS 142 - 0.06 - 0.19

Adjustment to exclude the cumulative effect
of accounting changes - - - 0.13
------- -------- -------- -------

Pro forma earnings per share before the
cumulative effect of accounting changes 0.18 0.25 0.52 0.71

Adjustment to exclude restructuring and
impairment charges - 0.04 - 0.14

Adjustment to exclude gain on the sale of
business (0.01) - (0.01) -

Adjustment to exclude fiscal 2002 investment
gain - - (0.07) -
------- -------- -------- -------

Pro forma earnings per share before the
cumulative effect of accounting changes,
excluding the investment gain in fiscal
2002 and restructuring and impairment
charges and gain on the sale of business $ 0.17 $ 0.29 $ 0.44 $ 0.85
======= ======== ======== =======


- -----------------------------------------------

The impact of the gain on sale of a business on fiscal 2001 and the pro forma
impact of ABC Family on both periods was less than $0.01.





THE WALT DISNEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-(continued)


Business Segment Results - Quarter



Three Months Ended June 30,
-----------------------------------------------
(unaudited, in millions) As Reported Pro Forma
----------------- -----------------
Revenues: 2002 2001 2002 2001 % Change
------- ------- ------- ------- ---------
Media Networks $ 2,126 $ 2,169 $ 2,126 $ 2,350 (10)%
Parks and Resorts 1,847 1,946 1,847 1,946 (5)%
Studio Entertainment 1,365 1,327 1,365 1,327 3%
Consumer Products 457 518 457 524 (13)%
------- ------- ------- -------
$ 5,795 $ 5,960 $ 5,795 $ 6,147 (6)%
======= ======= ======= =======
Segment operating income:
Media Networks $ 288 $ 439 $ 288 $ 483 (40)%
Parks and Resorts 467 560 467 560 (17)%
Studio Entertainment 22 65 22 65 (66)%
Consumer Products 51 58 51 61 (16)%
------- ------- ------- -------
$ 828 $ 1,122 $ 828 $ 1,169 (29)%
======= ======= ======= =======


The Company evaluates the performance of its operating segments based on
segment operating income. The following table reconciles segment operating
income to income before income taxes and minority interests.



Three Months Ended June 30,
---------------------------------------------
As Reported Pro Forma
---------------- -----------------
(unaudited, in millions) 2002 2001 2002 2001 % Change
------ ------- ------- ------- --------
Segment operating income $ 828 $ 1,122 $ 828 $ 1,169 (29)%
Corporate and unallocated
shared expenses (76) (94) (76) (94) 19%
Amortization of intangible
assets (9) (145) (9) (5) (80)%
Gain on sale of business 34 - 34 - n/m
Net interest expense and other (185) (80) (185) (134) (38)%
Equity in the income of
investees 44 86 44 88 (50)%
Restructuring and impairment
charges - (138) - (138) n/m
------- ------- -------- -------
Income before income taxes,
minority interests and the
cumulative effect of
accounting changes $ 636 $ 751 $ 636 $ 886 (28)%
======= ======= ======= =======


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



Three Months Ended June 30,
----------------------------------------------
As Reported Pro Forma
----------------- -----------------
(unaudited, in millions) 2002 2001 2002 2001 % Change
------- ------- ------- ------- ---------
Media Networks $ 334 $ 482 $ 334 $ 530 (37)%
Parks and Resorts 629 731 629 731 (14)%
Studio Entertainment 35 76 35 76 (54)%
Consumer Products 66 78 66 81 (19)%
------- ------- ------- -------
$ 1,064 $ 1,367 $ 1,064 $ 1,418 (25)%
======= ======= ======= =======








THE WALT DISNEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(continued)


We believe 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 operating income
detail for the Media Networks segment:



(unaudited, in millions) Pro Forma
---------------------------------
Three Months Ended June 30, 2002 2001 % Change
---------- --------- ---------
Revenues:
Broadcasting $ 1,203 $ 1,432 (16)%
Cable Networks 923 918 1%
---------- ---------
$ 2,126 $ 2,350 (10)%
========== =========
Segment operating income:
Broadcasting $ 76 $ 242 (69)%
Cable Networks 212 241 (12)%
---------- ---------
$ 288 $ 483 (40)%
========== =========


On a pro forma basis, Media Networks revenues decreased 10%, or $224
million, to $2.1 billion, driven by decreases of $229 million at Broadcasting.
The decrease at Broadcasting was driven by declines at the ABC television
network and the Company's owned television stations due to lower ratings and
lower advertising rates. Additionally, the prior year included revenues from a
non-recurring sale of a film library at ABC Family. Revenues at the Cable
Networks were essentially flat, as increased affiliate revenues reflecting
increased subscribers at both ESPN and the Disney Channel and higher rates at
ESPN were offset by declines in revenue due to the financial difficulties of
Adelphia Communications Company (Adelphia) in the United States and KirchMedia &
Company (Kirch) in Germany, as well as lower advertising revenues due to the
weak advertising market.

On a pro forma basis, segment operating income decreased 40%, or $195
million, to $288 million, primarily driven by decreases of $166 million at
Broadcasting, resulting from decreased revenues. Costs and expenses, which
consist primarily of programming rights costs and amortization, production
costs, distribution and selling expenses and labor costs, decreased by 2%, or
$29 million, for the quarter. Decreased costs were driven by proceeds from an
insurance settlement ($41 million or $0.01 per share), lower costs at the
Internet Group web sites reflecting the prior-year restructuring and lower
distribution costs, partially offset by higher prime-time programming costs at
the ABC television network, higher bad debt expense due to the financial
difficulties of Adelphia and Kirch and higher sports programming costs at ESPN.

As-reported revenues decreased 2% or $43 million, to $2.1 billion and
segment operating income decreased 34% to $288 million. As-reported amounts for
the prior-year period exclude ABC Family operations.

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



(unaudited, in millions) Pro Forma
---------------------------------
Three Months Ended June 30, 2002 2001 % Change
---------- --------- ---------
Operating income:
Cable Networks $ 212 $ 241 (12)%
Equity investments:
A&E Television, Lifetime
Television and
E! Entertainment Television 168 207 (19)%
Other 15 54 (72)%
---------- ---------
Operating income from cable
television activities 395 502 (21)%
Partner share of operating income (161) (192) 16%
---------- ---------
Disney share of operating income $ 234 $ 310 (25)%
========== =========


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 interest in cable television operating income. Cable Networks are
reported in "Segment operating income" in the Condensed Consolidated
Statements of Income. Equity investments are accounted for under the equity
method, and the Company's proportionate share of the net income of its
cable equity investments is reported in "Equity in the income of investees"
in the Condensed Consolidated Statements of Income.

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 decreased 25%, or
$76 million, to $234 million, reflecting the impact of Adelphia and Kirch,
higher programming costs at ESPN and the weak advertising market at both ESPN
and the cable equity investees, partially offset by higher cable network
affiliate revenues. Additionally, the quarter reflected a write-down of an
investment in a Latin American cable operator.

Parks and Resorts

Revenues decreased 5%, or $99 million, to $1.8 billion, driven primarily by
decreases of $61 million at the Walt Disney World Resort and $39 million at the
Disneyland Resort, partially offset by increased royalties of $11 million from
the Tokyo Disney Resort. At both the Walt Disney World Resort and Disneyland
Resort, decreased revenues reflected lower attendance and guest spending driven
by decreases in international and domestic visitation resulting from the
continued disruption in travel and tourism and softness in the economy,
partially offset by strong local attendance due to the success of the Annual
Passport Program and other local ticketing initiatives. Lower guest spending at
both Walt Disney World and Disneyland was primarily driven by a higher mix of
lower spending local guests, as well as various promotional programs. Increased
royalties at the Tokyo Disney Resort were due primarily to the opening of the
Tokyo DisneySea theme park and the Tokyo DisneySea Hotel MiraCosta in the fourth
quarter of the prior year.

Segment operating income decreased 17%, or $93 million, to $467 million,
reflecting revenue declines at both the Walt Disney World Resort and Disneyland
Resort, partially offset by higher royalties from the Tokyo Disney Resort. 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, were comparable to the prior year as higher
operating costs for new properties and increased fixed costs at Walt Disney
World driven by increases in employee benefits costs, offset the impact of cost
savings at both Walt Disney World and Disneyland.

Studio Entertainment

Revenues increased 3%, or $38 million, to $1.4 billion, driven by increases
of $117 million in television distribution and $29 million in worldwide home
video, partially offset by decreases of $112 million in domestic theatrical
motion picture distribution. Increases in television distribution reflected the
stronger domestic performance of live-action titles and higher syndication
revenues in the current quarter. In worldwide home video, the increase in
domestic home video was driven by the strong performance of Snow Dogs, The
Others and Serendipity, partially offset by decreases in international home
video, reflecting the prior-year success of Lady and the Tramp II: Scamp's
Adventure, Little Mermaid II: Return to the Sea and The Tigger Movie. In
domestic theatrical motion picture distribution, The Rookie and the late-quarter
timing of the release of Lilo & Stitch faced difficult comparisons to prior-year
quarter titles, which included Pearl Harbor and Spy Kids.

Segment operating income decreased 66%, or $43 million, to $22 million,
driven by declines in domestic theatrical motion picture distribution and
revenue declines in international home video, partially offset by revenue
increases in domestic television distribution. Costs and expenses, which consist
primarily of production cost amortization, distribution and selling expenses,
product costs and participation costs, increased 6%, or $81 million. Cost
increases in domestic home video reflected higher marketing and distribution
costs for Snow Dogs, Pearl Harbor, The Many Adventures of Winnie the Pooh and
The Others. In domestic theatrical motion picture distribution, cost decreases
reflected lower distribution expense driven by Pearl Harbor, which was released
in the prior-year quarter, partially offset by higher write-offs in the current
quarter.

Consumer Products

On a pro forma basis, revenues decreased 13%, or $67 million, to $457
million, reflecting decreases of $26 million at the Disney Store, $25 million at
Disney Interactive and $24 million in merchandise licensing. The decrease at the
Disney Store was due to the sale of its Disney Store Japan business during the
quarter as well as the impact of store closures domestically. These decreases
were partially offset by positive comparative store sales at continuing stores
in North America. Decreased revenues at Disney Interactive reflected weaker
performing personal computer CD-ROM and video game titles. The declines in
merchandise licensing were driven by soft performance in North America, Europe
and Latin America.

On a pro forma basis, segment operating income decreased 16%, or $10
million, to $51 million, reflecting revenue declines at merchandise licensing
and Disney Interactive, partially offset by increases at the Disney Store and
the Disney Catalog. Costs and expenses, which consist primarily of labor,
product costs, including product development costs, distribution and selling
expenses and leasehold expenses, decreased 12% or $57 million. The decrease was
driven by lower costs at the Disney Store primarily due to the sale of the
Disney Stores in Japan and the closure of certain Disney Store locations
domestically. The decline also reflected cost reductions at the Disney Catalog
and lower sales volumes at Disney Interactive, partially offset by increases due
to higher sales volume at the continuing Disney Stores.

As-reported revenues and segment operating income decreased 12% to $457
million and $51 million, respectively. As-reported amounts exclude ABC Family
operations in the prior-year period.







THE WALT DISNEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(continued)


Business Segment Results - Nine Months




Nine Months Ended June 30,
----------------------------------------------
(unaudited, in millions) As Reported Pro Forma
----------------- -----------------
Revenues: 2002 2001 2002 2001 % Change
------- ------- ------- ------- --------
Media Networks $ 7,298 $ 7,394 $ 7,328 $ 7,866 (7)%
Parks and Resorts 4,805 5,320 4,805 5,320 (10)%
Studio Entertainment 4,693 4,694 4,693 4,694 -
Consumer Products 1,871 1,978 1,872 2,003 (7)%
------- ------- ------- -------
$18,667 $19,386 $18,698 $19,883 (6)%
======= ======= ======= =======
Segment operating income:
Media Networks $ 839 $ 1,410 $ 843 $ 1,577 (47)%
Parks and Resorts 934 1,273 934 1,273 (27)%
Studio Entertainment 198 381 198 381 (48)%
Consumer Products 312 314 312 330 (5)%
------- ------- ------- -------
$ 2,283 $ 3,378 $ 2,287 $ 3,561 (36)%
======= ======= ======= =======


The Company evaluates the performance of its operating segments based on
segment operating income. The following table reconciles segment operating
income to income before income taxes and minority interests.



Nine Months Ended June 30,
------------------------------------------------
As Reported Pro Forma
----------------- -----------------
(unaudited, in millions) 2002 2001 2002 2001 % Change
------- ------- ------- ------- --------
Segment operating income $ 2,283 $ 3,378 $ 2,287 $ 3,561 (36)%
Corporate and unallocated
shared expenses (277) (284) (277) (284) 2 %
Amortization of intangible
assets (14) (622) (14) (18) 22 %
Gain on sale of businesses 34 22 34 22 55 %
Net interest expense and other (288) (287) (300) (450) 33 %
Equity in the income of
investees 163 234 163 241 (32)%
Restructuring and impairment
charges - (1,328) - (466) n/m
------- ------- ------- -------
Income before income taxes,
minority interests and the
cumulative effect of
accounting changes $ 1,901 $ 1,113 $ 1,893 $ 2,606 (27)%
======= ======= ======= =======


Segment EBITDA is as follows:



Nine Months Ended June 30,
------------------------------------------------
As Reported Pro Forma
----------------- -----------------
(unaudited, in millions) 2002 2001 2002 2001 % Change
------- ------- ------- ------- --------
Media Networks $ 976 $ 1,542 $ 981 $ 1,715 (43)%
Parks and Resorts 1,418 1,726 1,418 1,726 (18)%
Studio Entertainment 232 416 232 416 (44)%
Consumer Products 356 383 356 399 (11)%
------- ------- ------- -------
$ 2,982 $ 4,067 $ 2,987 $ 4,256 (30)%
======= ======= ======= =======




THE WALT DISNEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(continued)


We believe 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 operating income
detail for the Media Networks segment:



(unaudited, in millions) Pro Forma
---------------------------------
Nine Months Ended June 30, 2002 2001 % Change
---------- --------- ---------
Revenues:
Broadcasting $ 3,913 $ 4,747 (18)%
Cable Networks 3,415 3,119 9%
---------- ---------
$ 7,328 $ 7,866 (7)%
========== =========
Segment operating (loss) income:
Broadcasting $ (13) $ 696 n/m
Cable Networks 856 881 (3)%
---------- ---------
$ 843 $ 1,577 (47)%
========== =========


On a pro forma basis, revenues decreased 7%, or $538 million, to $7.3
billion, reflecting a decrease of 18%, or $834 million, at Broadcasting,
partially offset by an increase of 9%, or $296 million, at the Cable Networks.
The decrease at Broadcasting was driven by declines at the ABC television
network and the Company's owned television stations due to lower ratings and
lower advertising rates. Additionally, the prior year included revenues from a
non-recurring sale of a film library at ABC Family. Increases at the Cable
Networks were driven by higher affiliate revenues reflecting higher rates at
ESPN and subscriber growth at both ESPN and Disney Channel, partially offset by
lower advertising revenues due to the soft advertising market and lower
affiliate revenues due to the financial condition of Adelphia and Kirch.

On a pro forma basis, segment operating income decreased 47%, or $734
million, to $843 million, driven by decreases of $709 million at Broadcasting,
primarily due to decreased revenues. Cable operating income decreased 3%, or $25
million, to $856 million as revenue gains were offset by cost increases. Costs
and expenses increased 3%, or $196 million, driven by higher sports programming
costs at ESPN, principally for NFL broadcasts, partially offset by proceeds from
an insurance settlement.

As-reported revenues decreased 1%, or $96 million, to $7.3 billion and
segment operating income decreased 40% to $839 million. As-reported amounts
include a partial period of ABC Family operations in the current period and
losses associated with the GO.com portal (which was closed on January 29, 2001)
in the prior-year period.









THE WALT DISNEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(continued)

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:




(unaudited, in millions) Pro Forma
---------------------------------
Nine Months Ended June 30, 2002 2001 % Change
---------- --------- ---------
Operating income:
Cable Networks $ 856 $ 881 (3)%
Equity investments:
A&E Television, Lifetime
Television and
E! Entertainment Television 462 563 (18)%
Other 116 176 (34)%
---------- ---------
Operating income from cable
television activities 1,434 1,620 (11)%

Partner share of operating income (489) (588) 17%
---------- ---------
Disney share of operating income $ 945 $ 1,032 (8)%
========== =========


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 interest in cable television operating income. Cable Networks are
reported in "Segment operating income" in the Condensed Consolidated
Statements of Income. Equity investments are accounted for under the equity
method, and the Company's proportionate share of the net income of its
cable equity investments is reported in "Equity in the income of investees"
in the Condensed Consolidated Statement of Income.

The Company's share of cable television operating income decreased 8%, or
$87 million, to $945 million. The decrease was driven by lower revenues due to
the weak advertising market at both ESPN and the cable equity affiliates, higher
sports programming costs at ESPN and higher advertising expense at the cable
equity affiliates, partially offset by higher affiliate revenues at the Cable
Networks. Additionally, the current period reflects the write-down of an
investment in a Latin American cable operator.

Parks and Resorts

Revenues decreased 10%, or $515 million, to $4.8 billion, driven primarily
by decreases of $512 million at the Walt Disney World Resort and $15 million at
the Disneyland Resort, partially offset by increased royalties of $43 million
from the Tokyo Disney Resort. At the Walt Disney World Resort, decreased
revenues reflected lower attendance, guest spending and hotel occupancy driven
by decreases in international and domestic visitation resulting from the
continued disruption in travel and tourism and softness in the economy,
partially offset by the strength of local attendance due to local ticketing
initiatives. Lower guest spending was driven by ticket and other promotional
programs. At the Disneyland Resort, decreased revenues reflected lower guest
spending driven by ticket and other promotional programs, partially offset by
the increased attendance and occupied room nights driven by the opening of
Disney's California Adventure, Downtown Disney District and the Grand
Californian Hotel during the second quarter of the prior year, as well as the
strength of local attendance due primarily to the success of the Annual Passport
program and other ticketing initiatives. The increased royalties at Tokyo Disney
Resort were due to the opening of the Tokyo DisneySea theme park and the Tokyo
DisneySea Hotel MiraCosta in the fourth quarter of the prior year.

Segment operating income decreased 27%, or $339 million, to $934 million,
driven by revenue declines at the Walt Disney World Resort and Disneyland
Resort, partially offset by decreased costs and expenses and increased royalties
from the Tokyo Disney Resort. Costs and expenses decreased 4%, or $176 million,
driven primarily by volume decreases and productivity and cost reduction
initiatives across all segment businesses and the absence of pre-opening costs
for Disney's California Adventure.

Studio Entertainment

Revenues remained flat at $4.7 billion, driven by a decrease of $120
million in worldwide theatrical motion picture distribution, partially offset by
an increase of $104 million in television distribution. In worldwide theatrical
motion picture distribution, revenue decreases reflected the performances of
current-period titles, including Disney/Pixar's Monsters Inc., Lilo & Stitch,
Snow Dogs and The Rookie, which faced difficult comparisons to the strong
performances of prior-year titles, which included Pearl Harbor, Unbreakable, 102
Dalmatians and The Emperor's New Groove. Increases in television distribution
reflected stronger domestic performance of live-action titles and higher
syndication revenues in the current-year period. Worldwide home video sales were
comparable to the prior-year period.

Segment operating income decreased 48%, or $183 million, to $198 million,
driven by declines at worldwide theatrical motion picture distribution and cost
increases at worldwide home video. Cost and expenses increased 4% or $182
million. Increased costs in worldwide home video reflected higher marketing and
distribution costs for Pearl Harbor, Princess Diaries, Snow White and the Seven
Dwarfs, Atlantis and Cinderella II: Dreams Come True, partially offset by lower
participation costs reflecting Disney/Pixar's Toy Story 2 in the prior-year
period and by lower production amortization costs. Higher costs in television
distribution reflected higher production cost amortization and participation
costs related to revenue increases for the television syndication of Home
Improvement. In worldwide theatrical motion picture distribution, cost decreases
were driven by lower production cost amortization, partially offset by increased
participation costs attributable to Monsters, Inc. and higher write-offs in the
current year.

Consumer Products

On a pro forma basis, revenues decreased 7%, or $131 million, to $1.9
billion, reflecting declines of $73 million in merchandise licensing, $65
million at Disney Interactive and $18 million at the Disney Store, partially
offset by increases of $17 million in publishing operations. The decline in
merchandise licensing reflected lower guarantee payments in the current year and
soft merchandise licensing performance both domestically and internationally.
Lower revenues at Disney Interactive were due to weaker performing personal
computer CD-ROM and video game titles. At the Disney Store, favorable
comparative store sales in North America were more than offset by lower revenues
in Japan due to the sale of the business to Oriental Land Co. Higher publishing
revenues were driven by the successful releases during the current year,
including Lucky Man: A Memoir by Michael J. Fox and Hope Through Heartsongs.

On a pro forma basis, segment operating income decreased 5%, or $18
million, to $312 million, reflecting declines at merchandise licensing and
Disney Interactive, partially offset by increases at the Disney Store and Disney
Catalog. Costs and expenses decreased 7% or $113 million, primarily driven by
lower costs at the Disney Store due to the sale of the Japan business, closures
of Disney Store locations domestically and lower advertising costs. Decreased
costs also reflected lower Disney Interactive and merchandise licensing sales
volumes as well as cost reductions at the Disney Catalog. These decreases were
partially offset by volume increases at the continuing Disney Stores and at
publishing.

As-reported revenues decreased 5% to $1.9 billion and segment operating
income decreased $2 million to $312 million. As-reported amounts exclude ABC
Family operations in the prior year and a partial period in the current year.

STOCK OPTION ACCOUNTING

The Financial Accounting Standards Board (FASB) is currently reviewing the
accounting standards for stock-based compensation and are considering if changes
to the existing rules should be made. Under the current provisions of SFAS 123,
the Company has elected to continue using the intrinsic-value method of
accounting for stock-based awards granted to employees in accordance with
Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to
Employees (APB 25). Accordingly, the Company has not recognized compensation
expense for its stock-based awards to employees in its Condensed Consolidated
Statements of Income. Companies electing to remain with the accounting in APB 25
must make pro forma disclosures, as if the fair value based method of accounting
had been applied.

The following table reflects pro forma net income (loss) and earnings
(loss) per share had the Company elected to record an expense for employee stock
options pursuant to the provisions of SFAS 123:



Three Months Ended Nine Months Ended
June 30, June 30,
-------------------- --------------------
(in millions, except for per 2002 2001 2002 2001
share data) --------- --------- --------- ---------
Net income (loss) attributed to
Disney common stock:
As reported $ 364 $ 392 $ 1,061 $ (94)
Pro forma after option expense 284 315 837 (302)
Diluted earnings (loss) per share
attributed to Disney common stock:
As reported 0.18 0.19 0.52 (0.04)
Pro forma after option expense 0.14 0.15 0.41 (0.14)


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 pro
forma amounts assume that the Company had been following the fair value approach
since the beginning of fiscal 1996.

Fully diluted shares outstanding and diluted earnings per share include the
effect of in-the-money stock options calculated based on the average share price
for the period. The dilution from employee options increases as the Company's
share price increases, as shown below:



Percentage Hypothetical
Total Incremental of Average Q3 2002
Disney In-the-Money Diluted Shares EPS Impact
Share Price Options Shares (1) Outstanding (3)
------------- ------------- ------------- ------------- -------------
-----------------------------------------------------------------------------
$ 22.79 96 million -- (2) $ 0.00
-----------------------------------------------------------------------------
25.00 103 million 5 million 0.24% 0.00
30.00 135 million 16 million 0.78% 0.00
40.00 210 million 41 million 2.00% (0.01)
50.00 218 million 60 million 2.93% (0.01)


(1) Represents the incremental impact on fully diluted shares outstanding
assuming the average share prices indicated, using the treasury stock method.
Under the treasury stock method, the tax effected proceeds that would be
received from the exercise of all in-the-money options are assumed to be used to
repurchase shares

(2) Fully diluted shares outstanding for the quarter ended June 30, 2002 total
2,046 million and include the dilutive impact of in-the-money options at the
average share price for the period of $22.79. At the average share price of
$22.79, the dilutive impact of in-the-money options was 5 million shares for the
quarter

(3) Based upon Q3 2002 earnings of $364 or $0.18 per share





THE WALT DISNEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(continued)


FINANCIAL CONDITION

For the nine months ended June 30, 2002, cash provided by operations
decreased $607 million to $1.5 billion, reflecting lower pre-tax income before
non-cash charges, partially offset by lower tax payments, decreased film and
television production spending and a reduction in television broadcast rights,
primarily due to higher amortization of NFL programming rights relative to
payments at ESPN.

During the nine months, the Company invested $740 million in parks, resorts
and other properties. Investments in parks, resorts and other properties by
segment are as follows:




Nine Months Ended
June 30
--------------------
(in millions) 2002 2001
-------- --------
Media Networks $ 98 $ 133
Parks and Resorts 427 1,000
Studio Entertainment 39 50
Consumer Products 32 32
Corporate and unallocated
shared expenditures 144 26
--------- --------
$ 740 $ 1,241
========= ========



Decreased Parks and Resorts capital expenditures reflected the completion
of Disney's California Adventure, which opened in February 2001, and certain
other resort properties in Florida. Higher corporate capital expenditures were
due to investments in various company-wide systems initiatives which are
intended to improve productivity and reduce costs.

On October 24, 2001, the Company acquired ABC Family for $5.2 billion,
funded with $2.9 billion of new long-term borrowings, plus the assumption of
$2.3 billion of borrowings (of which $1.1 billion was subsequently repaid).

During the nine months, the Company received proceeds totaling $601 million
from the sale of investments, primarily the remaining shares of Knight-Ridder,
Inc. that the Company received in connection with the disposition of certain
publishing assets in fiscal 1997. Additionally, the Company received aggregate
proceeds of $200 million from the sale of the Disney Store business in Japan and
the sale of certain real estate properties in the U.K. and Florida.

During the nine months, the Company increased its commercial paper
borrowings by $865 million and issued debt with proceeds of $4.0 billion,
consisting of $2.7 billion of global bonds, $355 million of retail callable
bonds and medium-term notes and $989 million of foreign currency denominated
notes. These borrowings have effective interest rates, including the impact of
cross-currency and interest rate swaps, ranging from 1.9% to 7.0% and mature in
fiscal 2005 through fiscal 2032. During the nine months, the Company repaid
approximately $624 million of term debt, which either matured, was repurchased
or was called during the quarter. Additionally, during the nine months the
Company repaid approximately $1.1 billion of debt assumed in the acquisition of
ABC Family.

Commercial paper borrowings outstanding as of June 30, 2002 totaled $1.6
billion, with maturities of up to one year, supported by a $2.25 billion bank
facility that expires in 2003 and a $2.25 billion bank facility that expires in
2005. Net commercial borrowings (total commercial paper less money market
securities held by the Company) at June 30, 2002 totaled approximaely $300
million. These bank facilities allow for borrowings at LIBOR-based rates plus a
spread, depending upon the Company's public debt rating. As of June 30, 2002,
the Company had not borrowed any amounts under these bank facilities.






THE WALT DISNEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(continued)

The Company has a 39% interest in Euro Disney S.C.A., which operates the
Disneyland Resort Paris. As of June 30, 2002, Euro Disney has drawn $51 million
(53 million Euros) under a $163 million (168 million Euros) line of credit with
the Company and it is expected that Euro Disney will draw additional amounts
under the credit line during fiscal 2002. As of June 30, 2002, Euro Disney had,
on a US GAAP basis, total assets of $3.1 billion (3.2 billion Euros) and total
liabilities of $3.0 billion (3.1 billion Euros), including borrowings of $2.2
billion (2.2 billion Euros).

The Company also paid $428 million in dividends during the first quarter of
the current year.

In January 2002, the ABC Television Network and ESPN reached a six-year
agreement with the NBA to televise more than 100 regular and post-season games.
At June 30, 2002, contractual commitments for sports programming rights totaled
$11.7 billion, primarily for NFL, NBA, college football, MLB and NHL. Total
contractual commitments other than leases, including commitments to purchase
broadcast programming, totaled $15.3 billion, including approximately $800
million for available programming. Substantially all of this amount is payable
over the next six years.

We expect that the ABC Television Network, ESPN, ABC Family, The Disney
Channels and the Company's television and radio stations will continue to enter
into programming commitments to purchase the broadcast rights for various
feature films, sports and other programming.

Over the past year, significant changes have occurred in the commercial
insurance market which are impacting the cost and availability of the Company's
insurance coverage. The Company has successfully renewed all of our significant
policies in this current fiscal year, though the premiums and deductibles have
increased.

During the third quarter, the Company established Buena Vista Insurance
Company (BVIC), a wholly owned captive insurance company. BVIC provides
insurance coverage to various of the Company's businesses for certain components
of loss exposure.

As disclosed in the Notes to the Condensed Consolidated Financial
Statements (see Notes 12 and 14), the Company has exposure for certain legal and
tax matters. Management believes that it is currently not possible to estimate
the impact, if any, that the ultimate resolution of these matters will have on
the Company's financial position or cash flows.

We believe that the Company's 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. In August 2002, Standard and Poor's Ratings Service
(Standard and Poor's) placed the Company's A- long-term corporate credit rating
on credit watch with negative implications. Moody's Investor Services (Moody's)
placed the A3 long-term credit rating on review for possible downgrade. At the
same time, Standard and Poor's affirmed the Company's A2 short-term credit
rating and Moody's affirmed the Company's P-2 short-term credit rating.

OTHER MATTERS

Accounting Policies and Estimates

We believe that the application of the following accounting policies, which
are important to our financial position and results of operations, requires
significant judgments and estimates on the part of management. For a summary of
all of our accounting policies, including the accounting policies discussed
below, see Note 1 of the Consolidated Financial Statements in the 2001 Annual
Report.

Film and Television Revenues and Costs

We expense the cost of film and television production and participations as
well as multi-year sports rights over the applicable product life cycle based
upon the ratio of the current period's gross revenues to the estimated remaining
total gross revenues. These estimates are calculated on an individual production
basis for film and television and on an individual contract basis for sports
rights. Estimates of total gross revenues can change due to a variety of
factors, including the level of market acceptance, advertising rates and
subscriber fees.

Television network and station rights for theatrical movies, series and
other programs are charged to expense based on the number of times the program
is expected to be shown. Estimates of usage of television network and station
programming can change based on competition and audience acceptance.
Accordingly, revenue estimates and planned usage are reviewed periodically and
are revised if necessary. A change in revenue projections or planned usage could
have an impact on our results of operations.

Costs of film and television productions and programming costs for our
television and cable networks are subject to valuation adjustments pursuant to
the applicable accounting rules. The values of the television program licenses
and rights are reviewed using a daypart methodology. The Company's dayparts are:
early morning, daytime, late night, prime time, news, children's and sports. A
daypart is defined as an aggregation of programs broadcast during a particular
time of day or programs of a similar type. Estimated values are based upon
assumptions about future demand and market conditions. If actual demand or
market conditions are less favorable than our projections, film, television and
programming cost write-downs may be required.

Revenue Recognition

The Company has revenue recognition policies for its various operating
segments, which are appropriate to the circumstances of each business. See Note
1 of the Consolidated Financial Statements in the 2001 Annual Report for a
summary of these revenue recognition policies.

We record reductions to revenues for estimated future returns of
merchandise, primarily home video, DVD and software products, and for customer
programs and sales incentives. These estimates are based upon historical return
experience, current economic trends and projections of customer demand for and
acceptance of our products. Differences may result in the amount and timing of
our revenue for any period if actual performance varies from our estimates.

Goodwill, Intangible Assets, Long-lived Assets and Investments

Effective October 1, 2001, we adopted SFAS 142, as described more fully in
Note 6 of the Condensed Consolidated Financial Statements. SFAS 142 requires
that goodwill and other intangible assets be tested for impairment within six
months of the date of adoption and then on a periodic basis thereafter. During
the first half of the current fiscal year, we completed our impairment testing
and determined that there were no impairment losses related to goodwill and
other intangible assets. In assessing the recoverability of goodwill and other
intangible assets, projections regarding estimated future cash flows and other
factors are made to determine the fair value of the respective assets. If these
estimates or related projections change in the future, we may be required to
record impairment charges for these assets.

Long-lived assets include certain long-term investments. The fair value of
the long-term investments is dependent on the performance of the companies we
invest in, as well as volatility inherent in the external markets for these
investments. In assessing potential impairment for these investments, we will
consider these factors as well as forecasted financial performance of our
investees. If these forecasts are not met, impairment charges may be required.

Contingencies and Litigation

We are currently involved in certain legal proceedings and, as required,
have accrued our estimate of the probable costs for the resolution of these
claims. This estimate has been developed in consultation with outside counsel
and is based upon an analysis of potential results, assuming a combination of
litigation and settlement strategies. It is possible, however, that future
results of operations for any particular quarterly or annual period could be
materially affected by changes in our assumptions or the effectiveness of our
strategies related to these proceedings.

Income Tax Audits

The IRS is currently examining the Company's federal income tax returns for
1993 through 1995. While the audit is not complete, the IRS has recently
indicated its intention to challenge certain of the Company's tax positions. We
believe that the Company's tax positions comply with applicable tax law and
intend to defend the Company's positions vigorously. The ultimate disposition of
these matters could require the Company to make additional payments to the IRS.
Nonetheless, we believe that the Company has adequately provided for any
foreseeable payments related to these matters and consequently do not anticipate
any material earnings impact from the ultimate resolution of these matters.

Accounting Changes

In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS
146). SFAS 146 requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred and nullifies the
guidance of EITF No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in Restructuring), which recognized a liability for an exit cost
at the date of an entity's commitment to an exit plan. SFAS 146 requires that
the initial measurement of a liability be at fair value. SFAS 146 will be
effective for exit or disposal activities that are initiated after December 31,
2002 with early adoption encouraged. The Company plans to adopt SFAS 146
effective October 1, 2002 and does not expect that the adoption will have a
material impact on its consolidated results of operations and financial
position.

Effective October 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142).
As a result of adopting SFAS 142, a substantial amount of the Company's
intangible assets are no longer amortized. Pursuant to SFAS 142, intangible
assets must be periodically tested for impairment, and the new standard provides
six months to complete the impairment review. During the second quarter of
fiscal 2002, the Company completed its initial impairment review, which
indicated that there was no impairment. See Note 6 to the Condensed Consolidated
Financial Statements.

The Company also adopted Statement of Financial Accounting Standards No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144),
effective October 1, 2001. The adoption of SFAS 144 did not have a material
impact on the Company's consolidated results of operations and financial
position.





THE WALT DISNEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(continued)

MARKET RISK

Interest Rate Risk Management

The Company is exposed to the impact of interest rate changes. Our
objective is to manage the impact of interest rate changes on earnings and cash
flows and on the market value of the Company's investments and borrowings. We
maintain fixed-rate debt as a percentage of our net debt between a minimum and
maximum percentage, which is set by policy.

We use interest rate swaps and other instruments to manage net exposure to
interest rate changes related to our borrowings and investments and to lower the
Company's overall borrowing costs. We do not enter into interest rate swaps for
speculative purposes. Significant interest rate risk management instruments held
by the Company during the quarter included pay-floating and pay-fixed swaps.
Pay-floating swaps, which expire in one to 30 years, effectively convert medium-
and long-term obligations to LIBOR-indexed variable rate instruments. Pay-fixed
swaps, which expire in one to three years, effectively convert floating-rate
obligations to fixed-rate instruments.

Foreign Exchange Risk Management

The Company transacts business in virtually every part of the world and is
subject to risks associated with changing foreign exchange rates. Our objective
is to reduce earnings and cash flow volatility associated with foreign exchange
rate changes to allow management to focus its attention on our 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 and liabilities, commitments and
anticipated foreign currency revenues. By policy, we maintain hedge coverage
between minimum and maximum percentages of its anticipated foreign exchange
exposures for periods of up to five years. The gains and losses on these
contracts offset changes in the value of the related exposures. It is our policy
to enter into foreign currency transactions only to the extent considered
necessary to meet these objectives. The Company does not enter into foreign
currency transactions for speculative purposes.

We use forward and option strategies that provide for the sale of foreign
currencies to hedge probable, but not firmly committed, revenues. We also use
forward contracts to hedge foreign currency assets and liabilities. These
forward and option contracts mature within three years. While these hedging
instruments are subject to fluctuations in value, such fluctuations should
offset changes in the value of the underlying exposures being hedged. The
principal currencies hedged are the European euro, Japanese yen, British pound
and Canadian dollar. Cross-currency swaps are used to hedge foreign
currency-denominated borrowings.

Other Derivatives

The Company holds warrants in both public and private companies. These
warrants, although not designated as hedging instruments, are deemed derivatives
if they contain a net-share settlement clause. During the quarter, the Company
recorded the change in fair value of certain of these instruments to current
earnings.

FORWARD LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 (the Act) 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 Securities and Exchange Commission and in reports to our
shareholders. All statements that express expectations and projections with
respect to future matters may be affected by changes in the Company's strategic
direction, as well as by developments beyond the Company's control. These
developments may include changes in global, political or economic conditions
that may, among other things, affect the international performance of the
Company's theatrical and home video releases, television programming and
consumer products; regulatory and other uncertainties associated with the
Internet and other technological developments, and the launching or prospective
development of new business initiatives. All forward-looking statements are made
on the basis of management's views and assumptions, as of the time the
statements are made, regarding future events and business performance. There can
be no assurance, however, that our expectations will necessarily come to pass.





THE WALT DISNEY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-(continued)

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. A list of such factors is set forth
in the Company's Annual Report on Form 10-K for the year ended September 30,
2001 under the heading "Factors that may affect forward-looking statements."






PART II. OTHER INFORMATION


Item 1. 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. Except as set forth below, management does not expect a
material impact to its results of operations, financial position or cash flows
by reason of these actions.

Stephen Slesinger, Inc. v. The Walt Disney Company. In this lawsuit, filed
on February 27, 1991 and pending in the Los Angeles County Superior Court, the
plaintiff claims that a Company subsidiary defrauded it and breached a 1983
licensing agreement with respect to certain Winnie the Pooh properties, by
failing to account for and pay royalties on revenues earned from the sale of
Winnie the Pooh movies on videocassette and from the exploitation of Winnie the
Pooh merchandising rights. The plaintiff seeks damages for the licensee's
alleged breaches as well as confirmation of the plaintiff's interpretation of
the licensing agreement with respect to future activities. The plaintiff also
seeks the right to terminate the agreement on the basis of the alleged past
breaches. The Company disputes that the plaintiff is entitled to any damages or
other relief of any kind, including termination of the licensing agreement. The
claim is currently scheduled for trial in March 2003. If each of the plaintiff's
claims were to be confirmed in a final judgment, damages could total as much as
several hundred million dollars and adversely impact the value to the Company of
any future exploitation of the licensed rights. However, given the number of
outstanding issues and the uncertainty of their ultimate disposition, management
is unable to predict the magnitude of any potential determination of the
plaintiff's claims.

During the period covered by this report, there were no material
developments in the other proceedings previously reported in the Company's
annual report on Form 10-K for fiscal year 2001, In re The Walt Disney Company
Derivative Litigation and All Pro Sports Camps, Inc. et al. v. Walt Disney
Company et al.

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







PART II. OTHER INFORMATION


ITEM 6. Exhibits and Reports on Form 8-K


(a) Exhibits

99(a)Certification by Michael D. Eisner, Chairman of the Board and Chief
Executive Officer of the Company, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99(b)Certification by Thomas O. Staggs, Senior Executive Vice President and
Chief Financial Officer of the Company, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


(b) Reports on Form 8-K

The following current report on Form 8-K was filed by the Company during
the Company's third fiscal quarter:

(1) Current report on Form 8-K, dated June 17, 2002, as amended by current
report on Form 8-K/A dated June 28, 2002, setting forth the impact of
adopting Statement of Financial Accounting Standards No. 142 Goodwill and
Other Intangible Assets (SFAS 142) for the fiscal years ended September 30,
1999, 2000 and 2001.







SIGNATURE


Pursuant to the requirements 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)


By: /s/ THOMAS O. STAGGS

(Thomas O. Staggs, Senior Executive Vice President
and Chief Financial Officer)


August 9, 2002
Burbank, California