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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ü No

The aggregate market value of common stock held by non-affiliates (based on the closing price on the last business day of the registrant’s most recently completed second fiscal quarter as reported on the New York Stock Exchange-Composite Transactions) was $58.3 billion. All executive officers and directors of the registrant and all persons filing a Schedule 13D with the Securities and Exchange Commission in respect to registrant’s common stock have been deemed, solely for the purpose of the foregoing calculation, to be “affiliates” of the registrant.

Certain information required for Part III of this report is incorporated herein by reference to the proxy statement for the 2006 annual meeting of the Company’s shareholders.

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

Information on revenues, operating income, identifiable assets and supplemental revenue of the Company’s business segments and by geographical area appears in Note 1 to the Consolidated Financial Statements included in Item 8 hereof. The Company employed approximately 133,000 people as of October 1, 2005.

The Media Networks segment is comprised of domestic broadcast television network, domestic television stations, cable/satellite networks and international broadcast operations, television production and distribution, domestic broadcast radio networks and stations and internet operations.

Generally, the television network produces its own programs or acquires broadcast rights from other producers and rights holders for network programming, and pays varying amounts of compensation to affiliated stations for broadcasting the programs and commercial announcements included therein. The ABC Television Network derives substantially all of its revenues from the sale to advertisers of time in network programs for commercial announcements. The ability to sell time for commercial announcements and the rates received are primarily dependent on the size and nature of the audience that the network can deliver to the advertiser as well as overall advertiser demand for time on network broadcasts.


⁽¹⁾	Based on Nielsen Media Research, U.S. Television Household Estimates, January 1, 2005

Generally, the cable networks produce their own programs or acquire programming rights from other producers and rights holders for network programming. Cable operations derive substantially all of their revenues from affiliate fees charged to cable service providers and/or the sale to advertisers of time in network programs for commercial announcements. The amounts that we can charge to our service providers for our cable services are largely dependent on competition and the quality and quantity of programming that we can provide. Generally, the Company’s cable networks are committed to multi-year carriage agreements with contractually determined prices. The ability to sell time for commercial announcements and the rates received are primarily dependent on the size and nature of the audience that the network can deliver to the advertiser as well as overall advertiser demand.

The Company’s most significantly penetrated cable properties and their ownership percentage and subscribers as of October 1, 2005 are set forth in the following table:


⁽¹⁾	U.S. subscriber counts according to Nielsen Media Research as of October 1, 2005

⁽²⁾	Not rated by Nielsen. Subscriber count represents number of subscribers receiving the service based on internal management reports

The Company has various other international investments in broadcast and cable properties in addition to those listed in the above table.

ESPN. ESPN, Inc. is a cable and satellite television service which operates six domestic television sports networks: ESPN, ESPN2, ESPN Classic, ESPNEWS, ESPN Deportes (a Spanish language network launched in January 2004) and ESPNU (a network devoted to college sports which launched in March 2005). ESPN also operates two high-definition television simulcast services, ESPN HD and ESPN2 HD. ESPN, Inc. owns, has equity interests in, or has distribution agreements with 29 international networks, reaching households in more than 190 countries and territories. In addition, ESPN holds a 50% equity interest in ESPN STAR Sports, which delivers sports programming throughout most of Asia and a 30% equity interest in CTV Specialty Television, Inc., which owns The Sports Network, Le Réseau des Sports, ESPN Classic Canada, the NHL Network and Discovery Canada, among other media properties in Canada.

ESPN also operates several other brand extensions, including ESPN.com, an Internet sports content provider; ESPN Regional Television; ESPN Radio, which is distributed through the ABC Radio Networks; ESPN The Magazine; BASS, the largest fishing organization in the world; and ESPN Enterprises, which develops branded licensing opportunities. In addition, ESPN Zone sports-themed dining and entertainment facilities are operated by and included in the Parks and Resorts segment. ESPN also provides content for newer technologies such as broadband, wireless, and video-on-demand.

Disney Channel. Disney Channel is a cable and satellite television service. Shows developed for initial exhibition on Disney Channel include live-action comedy series such as The Suite Life of Zack & Cody and That’s So Raven; animated programming including American Dragon: Jake Long and The Buzz on Maggie, both produced by Walt Disney Television Animation; and educational preschool series like Higglytown Heroes, JoJo’s Circus and the upcoming Disney’s Little Einsteins for the channel’s Playhouse Disney programming block, as well as projects for its popular Disney Channel Original Movie franchise. The balance of the programming consists of products acquired from third parties and products from our owned theatrical film and television programming library.

The fall 2005 season on Disney Channel saw the return of The Suite Life of Zack & Cody and That’s So Raven with new episodes. Upcoming series premieres include the new live action series Hannah Montana and the new animated series Disney’s The Emperor’s New School, both produced by Disney Channel and set to premiere in early 2006. Many of the children’s live action and animated series produced for the Disney Channel and the Company’s other cable properties are also aired during the

Disney Channel also reaches beyond the United States via its international operations. Programming on these operations consists primarily of the Company’s originally produced series and movies, library theatrical films and television programs, products acquired from third parties and locally produced programming. We continue to explore the further development of Disney Channel in other countries around the world.

International Disney Channels and launch dates are set forth in the following table:


⁽¹⁾	Represents feed extensions from the Asia regional channel

⁽²⁾	Represents feed extensions from the Latin America regional channel

⁽³⁾	Represents feed extensions from the Scandinavian regional channel (note that these three feeds comprise one channel)

⁽⁴⁾	Represents feed extensions from the Australian regional channel

Toon Disney. Toon Disney was launched in 1998 and is intended to appeal to children and features an array of family-friendly, predominantly animated programming from the Disney library. Toon Disney is the primetime home of JETIX, a block consisting of action adventure programming.

SOAPnet. SOAPnet was launched in January 2000 and offers a wide variety of soap opera and related programming 24 hours a day, seven days a week. SOAPnet’s primetime schedule features same-day repeat telecasts of the top-rated daytime series including All My Children, Days of Our Lives, One Life To Live and General Hospital. In addition, the network provides inside access to stars and storylines with original programs, including the Emmy-nominated one-hour talk show, Soap Talk, and the reality series I Wanna Be A Soap Star. SOAPnet also offers primetime classics including Melrose Place, Dynasty, Dallas and Knots Landing.

ABC Family. In October 2001, the Company acquired Fox Family Channel, which was later renamed ABC Family, through its acquisition of Fox Family Worldwide, Inc. ABC Family is a U.S. television programming service which targets adults 18-34 and provides programming that consists of originally produced series and movies, product acquired from third parties and products from our owned theatrical film library.

JETIX. As part of the acquisition of Fox Family Worldwide, Inc., the Company acquired a 76% ownership interest in JETIX Europe, a publicly traded pan-European integrated children’s entertainment company formerly known as Fox Kids Europe, and a 100% ownership interest in JETIX Latin America, formerly known as Fox Kids Latin America, which is operated by Disney Channel Latin America.

A&E Television Networks. The A&E Television Networks are television programming services devoted to cultural and entertainment programming and include A&E, A&E International, The History Channel, History International, a network that provides viewers with a window into non-U.S. perspectives, and The Biography Channel, launched in 1998, which is dedicated to exploration of the lives of exceptional people.

Lifetime Entertainment Services. Lifetime Entertainment Services includes: Lifetime Television, which is devoted to women’s lifestyle programming; the Lifetime Movie Network, a 24-hour movie channel; and Lifetime Real Women, a 24-hour cable network with programming from a woman’s point of view.

E! Entertainment Television. E! Entertainment Television is a television programming service focused on the entertainment world. E! Entertainment Television also includes Style, a 24-hour television service devoted to style, beauty and home design.

The Company’s share of the financial results of A&E, Lifetime, E! Entertainment Television and other broadcast and cable equity investments is reported under the heading “Equity in the income of investees” in the Company’s Consolidated Statements of Income.

We also develop and produce television programming for distribution to global broadcasters and cable and satellite operators, including the major television networks, Disney Channel and other cable and satellite networks, under the Buena Vista Television, Buena Vista Productions, Touchstone Television and Walt Disney Television labels. Program development is carried out in collaboration with a number of independent writers, producers and creative teams, with a focus on the development, production and distribution of half-hour comedies and one-hour dramas for network primetime broadcast. The one-hour dramas produced by Touchstone Television Alias, Desperate Housewives, Grey’s Anatomy, and Lost and the half-hour comedies According to Jim, Hope & Faith, Less Than Perfect, Rodney, and Scrubs (for NBC), were all renewed for the 2005/2006 television season. In addition, According to Jim and Scrubs will enter the domestic syndication market in 2006. New primetime series that premiered in the fall of 2005 included the one-hour dramas Commander in Chief, Criminal Minds (for CBS), Ghost Whisperer (for CBS) and Night Stalker. Planned midseason shows include one-hour

Under the Walt Disney Television and Buena Vista Television labels the Company develops and produces animated children’s television programming for distribution to broadcasters throughout the world, including Disney Channel, the ABC Television Network, and other cable broadcasters.

The Company also licenses its animated television properties in a number of foreign television markets. In addition, we syndicate certain of our television programs abroad.

The Company also produces original television movies for The Wonderful World of Disney, which the ABC Television Network airs on Saturday evenings along with theatricals which air as ABC Movies of the Week

Under the Buena Vista Production label, we produce a variety of primetime specials for exhibition on network television, as well as live-action syndicated programming, which includes Live! with Regis and Kelly and The Tony Danza Show, daily talk shows, Ebert & Roeper, a weekly motion picture review program, and game shows, such as Who Wants to Be a Millionaire.

We operate the ABC Radio Networks, which include the ESPN Network and Radio Disney Network and provide programming to approximately 4,600 affiliated radio stations reaching approximately 108 million domestic listeners weekly. We own 52 standard AM radio stations and 19 FM radio stations. The ABC Radio Networks produce and distribute to affiliates a variety of programs and formats, including ABC News Radio and other news network programming, syndicated talk and music programs, and 24-hour music formats. In addition, the ABC Radio Networks produce Radio Disney, a 24-hour music and talk format intended to appeal to children and their parents. Radio Disney is carried in 54 markets, covering more than 60 percent of the U.S. market. ABC Radio Networks also distributes the ESPN Radio format, which is carried on more than 700 stations, including 306 full-time (five of which are owned by the Company), making it the largest radio sports network in the United States.

Of the Company’s 42 owned radio stations located in the top 20 U.S. radio markets, 24 carry predominantly locally originated music and talk programming, 14 carry the Radio Disney format and four carry the ESPN Radio format. Of the Company’s 29 radio stations in the non-top-20 markets, 26 carry the Radio Disney format, two carry non-ABC programming, and one carries the ESPN Radio format. Our radio stations reach 14 million people weekly in the top 20 United States radio markets.

The business model for the Radio Networks is substantially the same as that for ABC Television Network.


⁽¹⁾	Based on 2005 Arbitron Radio Market Rankings

⁽²⁾	The three radio signals are operated as a single station

The Internet operations of the Media Networks segment develop, publish and distribute content for online and wireless services intended to appeal to broad consumer interest in sports, news, family and entertainment. Internet Web sites and products include ABC.com, ABCNEWS.com, Disney.com, ESPN.com and Enhanced TV. The Company’s Internet operations derive revenue from a combination of advertising and sponsorships, subscription services and e-commerce.

ABC.com is the official Web site of the ABC Television Network, while ABCNEWS.com draws on the knowledge and expertise of ABC News correspondents throughout the world. ABC News offers broadband subscriptions to the 24-hour live Internet news channel, ABC News Now, and to video on demand reports from all ABC News broadcasts through ABCNEWS.com and through alliances with AOL Broadband, Comcast, SBC Yahoo and Real Networks. Content from ABC and ABC News is also available on select domestic cellular carrier networks.

Disney.com is a centralized Disney Web site which integrates many of the Company’s Disney-branded Internet sites including sites for the Disney Channel, Walt Disney Parks and Resorts, and Walt Disney Pictures. Disney Online offers a number of premium broadband services, including Disney Connection and Disney’s Toontown Online, and Disney Mobile Studios produces content which is distributed through mobile carriers and content distributors worldwide. In July 2005, the Walt Disney Internet Group announced plans to develop and launch Disney Mobile, a branded mobile phone service for families.

ESPN.com delivers comprehensive sports news, information and video to millions of fans each month. ESPN360 is a broadband service that delivers live games, highlights, and inside analysis, among other content features. ESPN also distributes mobile content and is developing a mobile phone service for sports fans. ESPN.com averages 14 million users per month.

Enhanced TV provides interactive television programming and advertising services during ABC telecasts, such as Monday Night Football.

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

The Company’s television and radio stations compete with other television and radio stations, cable and satellite programming services, videocassettes, DVDs and other advertising media such as newspapers, magazines, billboards and the Internet. Competition occurs primarily in individual market areas. A television or radio station in one market generally does not compete directly with stations in other market areas.

The growth in the cable/satellite industry’s share of viewers has resulted in increased competitive pressures for advertising revenues. The Company’s cable/satellite networks also face competition for carriage by cable and satellite service operators and distributors. The Company’s contractual agreements with cable and satellite operators are renewed or renegotiated from time to time in the ordinary course of business. Consolidation and other market conditions in the cable and satellite distribution industry and other factors may adversely affect the Company’s ability to obtain and maintain contractual terms for the distribution of its various cable and satellite programming services that are as favorable as those currently in place.

The Company’s Media Networks segment also competes for the acquisition of sports and other programming. The market for programming is very competitive, particularly for sports programming. The Company currently has sports rights agreements with the NFL, NBA, and MLB, as well as for other sporting events, including the College Football Bowl Championship Series, various college football and basketball conferences, the PGA Tour, and the Indy Racing League, including the Indianapolis 500. The current agreement with the NFL expires after the telecast of the 2006 Pro Bowl. Beginning with the 2006/2007 season, Monday Night Football will be telecast on ESPN, and the ABC Television Network will not have rights to televise NFL Monday Night Football in future seasons.

Television and radio broadcasting are subject to extensive regulation by the Federal Communications Commission (FCC) under Federal laws and regulations, including the Communications Act of 1934, as amended. Violation of FCC regulations can result in substantial monetary forfeitures, limited renewals of licenses and, in egregious cases, denial of license renewal or revocation of a license. FCC regulations that affect our Media Networks segment include the following:


	•	Licensing of television and radio stations. Each of the television and radio stations we own must be licensed by the FCC. These licenses are granted for periods of up to eight years, and we must obtain renewal of licenses as they expire in order to continue operating the stations. We (or the acquiring entity in the case of a divestiture) must also obtain FCC approval whenever we seek to have a license transferred in connection with the acquisition or divestiture of a station. The FCC may decline to renew or approve the transfer of a license in certain circumstances. Although we have generally received such renewals and approvals in the past, there can be no assurance that we will always obtain necessary renewals and approvals in the future.

	•	Television and radio station ownership limits. The FCC imposes limitations on the number of television stations and radio stations we can own in a specific market, on the combined number


		of television and radio stations we can own in a single market and on the aggregate percentage of the national audience that can be reached by television stations we own. Currently:


	•	FCC regulations presently permit us to own an additional television station in all of the markets in which we have television stations except Toledo, Ohio; Flint, Michigan; and Raleigh-Durham, North Carolina. We do not own more than one television station in any of the ten markets in which we own a television station.

	•	Federal statutes permit our television stations in the aggregate to reach a maximum of 39% of the national audience (FCC regulations attribute to UHF television stations only 50% of the television households in their market). Our stations reach approximately 24% of the national audience (approximately 23% when calculated using the FCC’s attribution rule).

	•	FCC regulations in some cases impose restrictions on our ability to acquire additional radio or television stations in the markets in which we own radio stations, but we do not believe any such limitations are material to our current operating plans.

In July 2003, the FCC adopted revised limits on television and radio station ownership. The rules adopted generally would relax existing ownership restrictions and would permit entities to own more television and radio stations in some markets, but would also eliminate the 50% discount for calculating households reached by UHF television stations operated by the top four broadcast television networks (including ABC). The new rules, however, were challenged in federal court and were remanded by the court to the FCC to review the rules. As a result, most of the revised rules adopted by the FCC in July 2003 are not in effect. Although it is possible that the FCC may implement more liberal media ownership rules than those currently in effect (other than those governed by statute), we cannot predict whether the revised rules will be implemented and if so, when such rules will become effective.


	•	Dual networks. FCC rules currently prohibit any of the four major television networks – ABC, CBS, Fox and NBC – from being under common ownership or control. The new FCC rules, if implemented, would not modify this limitation.

	•	Regulation of programming. The FCC regulates programming by, among other things, banning “indecent” programming, regulating political advertising, and imposing commercial time limits during children’s programming. Broadcasters face a heightened risk of being found in violation of the indecency prohibition by the FCC because of recent FCC decisions, coupled with the spontaneity of live programming. Recently, the FCC has indicated that it is stepping up enforcement activities as they apply to indecency, and has indicated it would consider license revocation for serious violations. Moreover, legislation has been introduced in Congress that would increase penalties for broadcasting indecent programming. Federal legislation and FCC rules also limit the amount of commercial matter that may be shown on broadcast or cable channels during programming designed for children 12 years of age and younger. In addition, broadcast channels are generally required to provide a minimum of three hours per week of programming that has as a “significant purpose” meeting the educational and informational needs of children 16 years of age and younger. FCC rules also give television station owners the right to reject or refuse network programming in certain circumstances or to substitute programming that the licensee reasonably believes to be of greater local or national importance.

	•	Cable and satellite carriage of broadcast television stations. With respect to cable systems operating within a television station’s Designated Market Area, FCC rules require that every three years each television station elect either “must carry” status, pursuant to which cable operators generally must carry a local television station in the station’s market, or “retransmission consent” status, pursuant to which the cable operator must negotiate with the television station to obtain the consent of the television station prior to carrying its signal. Under the


		Satellite Home Viewer Improvement Act and its successor, the Satellite Home Viewer Extension and Reauthorization Act, satellite carriers are permitted to retransmit a local television station’s signal into its local market with the consent of the local television station. If a satellite carrier elects to carry one local station in a market, the satellite carrier must carry the signals of all local television stations that also request carriage. Certain of the satellite carriage provisions are set to expire on December 31, 2009.

	•	Digital television. FCC rules currently require full-power analog television stations, such as ours, to provide digital service on a second broadcast channel granted specifically for the phase-in of digital broadcasting. FCC rules also regulate digital broadcasting to ensure continued quality carriage of mandated free over-the-air program service. All of the Company’s stations have launched digital facilities, and we are evaluating various options with respect to use of digital channels. Under current law, all broadcasters are required to operate exclusively in digital mode and permanently surrender one of their two channels by December 31, 2006. However, the FCC has the authority in certain circumstances to extend this deadline in a particular market upon the request of a station. Congress is contemplating legislation that would create a “hard date” by which television stations would have to surrender one channel and which would eliminate the FCC extension process.

The foregoing is a brief summary of certain provisions of the Communications Act and other legislation and of specific FCC rules and policies. This summary focuses on provisions material to our business. Reference should be made to the Communications Act, other legislation, FCC rules and public notices and rulings of the FCC for further information concerning the nature and extent of the FCC’s regulatory authority.

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

The Company owns and operates the Walt Disney World Resort and Disney Cruise Line in Florida, the Disneyland Resort in California and ESPN Zone facilities in several states. The Company manages and has effective ownership interests of 51% and 43%, respectively, in the Disneyland Resort Paris in France and Hong Kong Disneyland, which opened September 2005. The Company also licenses the operations of the Tokyo Disney Resort in Japan. The Company’s Walt Disney Imagineering unit designs and develops new theme park concepts and attractions as well as resort properties.

The businesses in the Parks and Resorts segment generate revenues predominately from the sale of admissions to the theme parks, room nights at the hotels and rentals at the resort properties. Costs consist primarily of the fixed cost base for physical properties and base level staffing necessary to operate the theme park and resort properties. In addition to the fixed cost base, there is a variable cost component that increases or decreases with the volume of business.

The Walt Disney World Resort is located 15 miles southwest of Orlando, Florida on approximately 30,500 acres of owned land. The resort includes theme parks (the Magic Kingdom, Epcot, Disney-MGM Studios and Disney’s Animal Kingdom); hotels; vacation ownership units; a retail, dining and entertainment complex; a sports complex; conference centers; campgrounds; golf courses; water parks and other recreational facilities designed to attract visitors for an extended stay.

The entire Walt Disney World Resort is marketed through a variety of national, international and local advertising and promotional activities. Several attractions in each of the theme parks are sponsored by corporate participants.

Magic Kingdom – The Magic Kingdom, which opened in 1971, consists of seven themed lands: Main Street USA, Adventureland, Fantasyland, Frontierland, Liberty Square, Mickey’s Toontown Fair and Tomorrowland. Each land provides a unique guest experience, featuring themed rides and attractions, live Disney character interaction, restaurants, refreshment areas and merchandise shops. Additionally, there are daily parades and a nighttime fireworks extravaganza Wishes.

Epcot – Epcot, which opened in 1982, consists of two major themed areas: Future World and World Showcase. Future World dramatizes certain historical developments and addresses the challenges facing the world today through major pavilions devoted to showcasing science and technology improvements, communication, energy, transportation, using your imagination, life and health, nature and food production, the ocean environment, and space. World Showcase presents a community of nations focusing on the culture, traditions and accomplishments of people around the world. Countries represented with pavilions include the United States, Canada, China, France, Germany, Italy, Japan, Mexico, Morocco, Norway and the United Kingdom. Both areas feature themed rides and attractions, restaurants and merchandise shops.

Disney-MGM Studios – Disney-MGM Studios, which opened in 1989, consists of a theme park, a radio studio and a film and television production facility. The park centers on Hollywood as it was during the 1930’s and 1940’s and provides various attractions, themed food service and merchandise facilities. The production facility consists of three sound stages, merchandise shops and a back lot area and currently hosts both feature film and television productions. Disney-MGM Studios also features Fantasmic!, a nighttime entertainment spectacular.

Disney’s Animal Kingdom – Disney’s Animal Kingdom, which opened in 1998, consists of a 145-foot Tree of Life centerpiece surrounded by six themed areas: Dinoland U.S.A., Africa, Rafiki’s Planet Watch, Asia, Discovery Island and Camp Minnie – Mickey. Each themed area contains adventure attractions, entertainment shows, restaurants and merchandise shops. The park features more than 300 species of mammals, birds, reptiles and amphibians and 3,000 varieties of trees and plants on more than 500 acres of land.

Resort Facilities – As of October 1, 2005, the Company owned and operated 17 resort hotels at the Walt Disney World Resort, with a total of approximately 22,000 rooms and 318,000 square feet of conference meeting space. In addition, Disney’s Fort Wilderness camping and recreational area offers approximately 800 campsites.

The Disney Vacation Club (DVC) offers ownership interests in seven resort facilities, located at the Walt Disney World Resort, as well as in Vero Beach, Florida, and Hilton Head Island, South Carolina. Available units at each facility are offered for sale under a vacation ownership plan and are operated as rental property until the units are sold. Disney’s Saratoga Springs Resort & Spa in Orlando, Florida opened its first phase of vacation ownership properties in May 2004. Upon the completion of Saratoga Springs, the Walt Disney World Resort will have nearly 2,400 vacation ownership units.

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

We have also developed a 120-acre retail, dining and entertainment complex known as Downtown Disney, which consists of the Marketplace, Pleasure Island and West Side. A number of the Downtown Disney facilities are operated by third parties who pay rent and license fees to the Company. In addition to more than 20 specialty retail shops and restaurants, the Downtown Disney Marketplace is home to the 50,000-square-foot World of Disney retail store featuring Disney-branded merchandise. Pleasure Island, a nighttime entertainment center adjacent to the Downtown Disney Marketplace, includes restaurants, nightclubs and shopping facilities. Downtown Disney West Side is

Disney’s Wide World of Sports, which opened in 1997, is a 220 acre sports complex providing professional caliber training and competition, festival and tournament events and interactive sports activities. The complex’s venues accommodate more than 30 different sporting events, including baseball, tennis, basketball, softball, track and field, football and soccer. Its stadium is the spring training site for MLB’s Atlanta Braves and has a seating capacity of 9,000. Additionally, the complex is the pre-season training site of the NFL’s Tampa Bay Buccaneers, and the NBA’s Orlando Magic. The Amateur Athletic Union hosts approximately 30 championship events per year at the facility.

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

The entire Disneyland Resort is marketed through international, national and local advertising and promotional activities as a destination resort. A number of the attractions and restaurants at each of the theme parks are sponsored by other corporations through long-term agreements.

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

Disney’s California Adventure – Disney’s California Adventure, which opened in 2001, is adjacent to Disneyland and includes four principal areas: Golden State, Hollywood Pictures Backlot, Paradise Pier and “a bug’s land”. These areas include rides, attractions, shows, restaurants, merchandise shops and refreshment stands.

Resort Facilities – Disneyland Resort includes three Company-owned hotels: the 1,000-room Disneyland Hotel, 500-room Disney’s Paradise Pier Hotel and Disney’s Grand Californian Hotel, a deluxe 750-room hotel located adjacent to Disney’s California Adventure.

The Resort also includes Downtown Disney, a themed 310,000 square foot outdoor complex of entertainment, dining and shopping venues, located adjacent to both Disneyland Park and Disney’s California Adventure. A number of the Downtown Disney facilities are operated by third parties who pay rent and license fees to the Company.

The Company has a 51% effective ownership interest in the Disneyland Resort Paris, which is a 4,800 acre development located in Marne-la-Vallée, approximately 20 miles east of Paris, France. Euro Disney S.C.A., a publicly-traded French entity and its subsidiaries operate the Disneyland Resort Paris, which includes the Disneyland Park; the Walt Disney Studios Park; seven themed hotels with approximately 5,800 rooms; two convention centers; the Disney Village, a shopping, dining and entertainment center; and a 27-hole golf facility. Of the 4,800 acres comprising the site, 2,400 acres have been developed to date. The project is being developed pursuant to a 1987 master agreement with the French governmental authorities.

Disneyland Park – Disneyland Park, which opened in 1992, consists of Main Street and four principal themed areas: Adventureland, Discoveryland, Fantasyland and Frontierland. These areas include themed rides, attractions, shows, restaurants, merchandise shops and refreshment stands.

Walt Disney Studios Park – Walt Disney Studios Park opened in March 2002 adjacent to Disneyland Park. The park takes guests into the worlds of cinema, animation and television and includes four principal themed areas: Front Lot, Animation Courtyard, Production Courtyard and Backlot. These areas each include themed rides, attractions, shows, restaurants, merchandise shops and refreshment stands.

Development of the site continues with the Val d’Europe project, a planned community near Disneyland Resort Paris. The already completed phases of the site include a town center, which consists of a shopping center; a 150-room hotel; office, commercial and residential space; and a regional train station. Third parties operate these developments on land leased or purchased from Euro Disney S.C.A. and its subsidiaries. In September 2003, Euro Disney S.C.A. signed an agreement with the regional development authority to begin the third phase of development. Included in this phase will be an expansion of Disney Village and projects aimed at increasing Val d’Europe’s capacity to welcome new residents.

In addition, there are several on-site hotels which were opened in 2003 and 2004 that are owned and operated by third party developers that provide approximately 2,080 rooms. Agreements have been signed with additional third party developers to provide approximately 300 additional on-site hotel rooms and/or time share units over the next two years.

In fiscal 2005, Euro Disney S.C.A. completed a financial restructuring, which provided for an increase in capital and refinancing of its borrowings. Subject to certain deferrals, Euro Disney S.C.A. is required to pay royalties and management fees to certain wholly-owned subsidiaries of The Walt Disney Company based on performance of the operations of the park. Pursuant to the financial restructuring, the Company has agreed to conditionally and unconditionally defer certain management fees and royalties and convert them into long-term subordinated debt. See Note 4 to the Consolidated Financial Statements for further discussion.

In 1999, the Company and the Government of the Hong Kong Special Administrative Region signed a master project agreement for the development and operation of Hong Kong Disneyland. Phase I of the development, located on 311 acres of land on Lantau Island, includes the Hong Kong Disneyland theme park. The resort also includes the 400-room Hong Kong Disneyland Hotel, and the 600-room Hollywood Hotel. The master project agreement permits further phased buildout of the development under certain circumstances. The Company owns its interest in Hong Kong Disneyland through Hongkong International Theme Parks Limited, an entity in which the Hong Kong Government owns a 57% interest and a subsidiary of the Company owns the remaining 43%. A separate Hong Kong subsidiary of the Company is responsible for managing Hong Kong Disneyland. Based on the current exchange rate between the Hong Kong dollar and U.S. dollar, the Company’s equity contribution obligation is limited to U.S. $314 million. As of October 1, 2005, the Company had contributed U.S. $279 million and the remaining $35 million is payable over the next year. Hong Kong Disneyland commenced operations in September 2005 and Company subsidiaries are entitled to receive management fees and royalties in addition to the Company’s equity interest.

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

Tokyo DisneySea – Tokyo DisneySea, adjacent to Tokyo Disneyland, opened in 2001. The park is divided into seven unique “ports of call,” including Mediterranean Harbor, American Waterfront, Port Discovery, Lost River Delta, Mermaid Lagoon, Mysterious Island and Arabian Coast.

The resort includes the 502-room Tokyo Disney Sea Hotel MiraCosta, the 504-room Disney Ambassador Hotel, as well as the Disney Resort Line monorail, which links theme parks and resort hotels with Ikspiari; a retail, dining and entertainment complex and with Bon Voyage, a Disney-themed merchandise location.

The Company earns royalties on revenues generated by the Tokyo Disney Resort, which is owned and operated by Oriental Land Co., Ltd. (OLC), a Japanese corporation in which the Company has no investment. OLC markets the Tokyo Disney Resort primarily through a variety of local, domestic and international advertising and promotional activities. In addition, third parties sponsor many of the theme park attractions under long-term arrangements.

Disney Cruise Line, which is operated out of Port Canaveral, Florida, is a cruise vacation line that includes two 85,000-ton ships, the Disney Magic and the Disney Wonder. Both ships cater to children, families and adults, with distinctly themed areas and activities for each group. Each ship features 877 staterooms, 71% of which are outside staterooms providing guests with ocean views. Cruise vacations often include a visit to Disney’s Castaway Cay, a 1,000-acre private Bahamian island. The Company packages three, four, and seven day cruise vacations with visits to the Walt Disney World Resort and also offers cruise-only options.

The ESPN Zone concept combines three interactive areas under one roof for a complete sports and entertainment experience: the Studio Grill, offering dining in an ESPN studio environment; the Screening Room, offering fans an exciting sports viewing environment; and the Sports Arena, challenging guests with a variety of interactive and competitive attractions. The Company currently operates eight ESPN Zone restaurants located in Anaheim, California; Atlanta, Georgia; Baltimore, Maryland; Chicago, Illinois; Denver, Colorado; Las Vegas, Nevada; New York, New York and Washington DC.

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

The Company’s theme parks and resorts compete with all other forms of entertainment, lodging, tourism and recreational activities. The profitability of the leisure-time industry is influenced by

The Studio Entertainment segment produces and acquires live-action and animated motion pictures, animated direct-to-video programming, musical recordings and live stage plays.

The Company distributes produced and acquired films (including its film and television library) to the theatrical, home entertainment, pay-per-view, video-on-demand, pay television and free-to-air television markets. Each of these market windows is discussed in more detail below.

Walt Disney Pictures and Television, a subsidiary of the Company, produces and acquires live-action motion pictures that are distributed primarily under the Walt Disney Pictures and Touchstone Pictures banners. Another subsidiary, Miramax Film Corp., acquires and produces motion pictures that are distributed under the Miramax banner. The Company distributed motion pictures under the Dimension banner through September 30, 2005. All new releases under the Dimension banner after September 30, 2005 are now owned and distributed by The Weinstein Company, a third party company operated by the former co-chairmen of Miramax. The Company retains a license to continue to use the Dimension banner on titles that were released prior to September 30, 2005. The Company also produces and distributes animated motion pictures under the banner Walt Disney Pictures, and co-finances and distributes animated motion pictures developed in conjunction with Pixar, Inc. The Company’s relationship with Pixar is discussed in more detail below in the section labeled “Relationship with Pixar.”

During fiscal 2006, we expect to distribute in domestic markets approximately 18 feature films under the Walt Disney Pictures and Touchstone Pictures banners and approximately 7 films under the Miramax banner. These expected releases include several live-action family films and full-length animated films, with the remainder targeted to teenagers, families and/or adults. As of October 1, 2005, the Company had released domestically 870 full-length live-action features (primarily color), 73 full-length animated color features, approximately 540 cartoon shorts and 53 live action shorts under the Walt Disney Pictures, Touchstone Pictures, Hollywood Pictures, Miramax and Dimension banners.

We distribute and market our filmed products principally through our own distribution and marketing companies in the U.S. In the international market, we distribute our filmed products both directly and through independent foreign distribution companies. Films released theatrically in the U.S. can be released simultaneously theatrically in international territories or generally up to six months later.

The Company incurs significant marketing and advertising costs before and throughout the theatrical release of a film in an effort to generate public awareness of the film, to increase the public’s intent to view the film and to help generate significant consumer interest in the subsequent home entertainment and other ancillary markets. These costs are expensed as incurred, and therefore we typically incur losses in the theatrical markets on a film, including the quarters before the theatrical release of the film.

In the domestic market, we distribute home entertainment releases under each of our motion picture banners. In the international market, we distribute home entertainment releases under each of our motion picture banners both directly and through independent foreign distribution companies. In addition, we develop, acquire and produce original programming for direct-to-video release.

The domestic and international home entertainment window typically starts four to six months after each theatrical release with the issuance of DVD and VHS versions of each title (primarily DVD). Domestically, most titles are sold simultaneously to both “rentailers,” such as Blockbuster Inc., and retailers, such as Wal-Mart Stores, Inc. and Best Buy Co., Inc. Upon a title’s home entertainment release, consumers are afforded the option to rent for a limited period of time, typically two to seven days, or purchase the titles outright (“sell-through”).

In the international home entertainment market, titles are either released simultaneously in the rental and retail channels or with a rental window before the retail window, depending on local market regulations, DVD hardware penetration and demand for DVDs. The international market has experienced a trend in the compression of, or in some cases the disappearance of, the rental window.

As of October 1, 2005, under the banners Walt Disney Pictures, Touchstone Pictures, Hollywood Pictures, Miramax and Dimension, 1,174 produced and acquired titles, including 1,005 live action titles and 169 cartoon shorts and animated features, were available to the domestic home entertainment marketplace and 2,508 produced and acquired titles, including 2,029 live action titles and 479 cartoon shorts and animated features, were available to the international home entertainment market.

Pay-Per-View (PPV): Generally about two months after the home entertainment window begins, the studio’s television distributor, Buena Vista Television, licenses titles to cable, satellite and internet platforms for showing on a pay-per-view basis. PPV services, such as iN DEMAND and DirecTV, deliver one-time rentals electronically to consumers’ televisions at a price comparable to that of physical media rentals. Video on Demand (VOD) is an extension of PPV, and currently shares the PPV window. The PPV/ VOD window generally lasts about three months.

Pay Television (Pay 1): There are generally two pay television windows. The first window is generally fifteen months in duration and follows the PPV/ VOD window. The Company has licensed exclusive domestic pay television rights to certain films released under the Walt Disney Pictures, Touchstone Pictures, Hollywood Pictures, Miramax and Dimension banners to the Encore pay television services over a multi-year period.

Free Television (Free 1): The Pay 1 window is followed by a free television window wherein telecasts are accessible to consumers without charge. This free window may last up to 84 months. Motion pictures are usually sold in the Free 1 window on an ad hoc basis to major networks and basic cable services. For films released theatrically prior to October 1, 2004, the Studio maintained only one output arrangement with the ABC Television Network, covering branded live action and animated product to be broadcast in the Wonderful World of Disney slot. Films released after that date can be sold on an ad hoc basis to other networks besides ABC.

Pay Television 2 (Pay 2) and Free Television 2 (Free 2): In the U.S., Free 1 is generally followed by a twelve month Pay 2 window, included under our license arrangement with Encore, and finally by a Free 2 window. The Free 2 window is a syndication window where films are licensed both to basic cable networks and to station groups, such as Tribune Co. Major packages of the Company’s feature films and animated television programming have been licensed for broadcast under multi-year agreements.

International Television: The Company also licenses its theatrical and television properties outside of the U.S. The typical windowing sequence is broadly consistent with the domestic cycle such that titles premiere on television in PPV/ VOD, then air in pay TV before airing in free TV. Windowing strategies are developed in response to local market practices and conditions, and the exact sequence and length of each window can vary country by country.

Certain properties may be re-licensed in one or more of the above television windows.

Walt Disney Records produces and distributes compact discs and music DVDs in the United States. Music categories include infant, children’s, read-along, teens, all-family and soundtracks from animated and other films distributed under the Walt Disney Pictures banner. We also license the creation of similar products throughout the rest of the world. Our Hollywood Records subsidiary, under the Hollywood Records and Buena Vista Records labels, develops, produces and markets recordings from new talent across the spectrum of popular music, as well as soundtracks from certain live-action motion pictures. We also own the Nashville-based music label Lyric Street Records, which produces and markets recordings in the genre of country music.

In addition, each of our labels commissions new music for the Company’s motion pictures and television programs, and records the songs and licenses the song copyrights to others for printed music, records, audiovisual devices and public performances and digital distribution.

Disney Music Publishing controls the copyrights of thousands of musical compositions derived from the Company’s motion picture, television, record and theme park properties, as well as musical compositions written by songwriters under exclusive contract. It is responsible for the management, protection, growth and licensing of the Disney song catalog on a worldwide basis, including licensing for printed music, records, audio-visual works and new media.

Disney Theatrical Productions develops, produces and licenses stage musicals worldwide. To date, the Company’s shows have included Beauty and the Beast, The Lion King, Elton John and Tim Rice’s Aida, On the Record, and Mary Poppins (a co-production with Cameron Mackintosh Ltd). The Company generally elects to produce its own shows in the United States, the United Kingdom and Australia and licenses its shows to local producers in other territories. As of October 1, 2005, Disney Theatrical Productions had 14 productions running worldwide. One new production scheduled to open in fiscal 2006 is the world premiere of Tarzan® in New York in May 2006.

Disney Live Family Entertainment licenses the live entertainment touring productions of Disney On Ice and Disney Live! In fiscal 2005, eight different productions of Disney On Ice toured in more than 30 countries worldwide. In September 2005, Disney On Ice launched its 26th ice show, Disney Presents Pixar’s The Incredibles In A Magic Kingdom Adventure. Disney Live!, our newest brand of live touring stage shows, continues the worldwide roll-out of its first stage show production Disney Live! Winnie The Pooh with the United States premiere in September 2005, Mexico premiere in January 2006 and Japan in March 2006. Both Disney On Ice and Disney Live! are licensed to Feld Entertainment.

The Company entered into a feature film agreement with Pixar in 1991, which resulted in the release of its first film with Pixar, Toy Story, in November 1995. In 1997, the Company extended its relationship with Pixar by entering into a co-production agreement, under which Pixar agreed to produce, on an exclusive basis, five original computer-animated feature films for distribution by the Company. Both parties agreed to co-finance and co-brand the films and share equally in the profits of each picture and any related merchandise or ancillary products, after the Company recovers all marketing costs and receives a distribution fee. The first four films under the extension were A Bug’s Life, Monsters, Inc., Finding Nemo and The Incredibles. Pixar is currently in production on the final film under the agreement, Cars. The Company retains the right to produce sequels to the films that it co-produced with Pixar, and Pixar has the right to participate in these productions.

The success of Studio Entertainment operations is heavily dependent upon public taste and preferences. In addition, Studio Entertainment operating results fluctuate due to the timing and performance of releases in the theatrical, home entertainment and television markets. Release dates are determined by several factors, including competition and the timing of vacation and holiday periods.

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

The Company’s ability to exploit and protect rights in its content, including its motion pictures, television programs and sound recordings, is affected by the strength and effectiveness of intellectual property laws in the United States and abroad. Inadequate laws or enforcement mechanisms to protect intellectual property in a country can adversely affect the results of the Company’s operations, despite the Company’s strong efforts to protect its intellectual property rights throughout the world. In addition, some technological advances, such as peer-to-peer technology and some features of digital video recorders, and other factors have made infringement easier and faster and enforcement more challenging. Therefore, the Company devotes significant resources to protecting its intellectual property against unauthorized use in the United States and foreign markets.

The Company’s businesses are also subject to the risk of challenges by third parties claiming infringement of their proprietary rights. Regardless of their validity, such claims may result in substantial costs and diversion of resources, which could have an adverse effect on the Company.

See further discussion under “Consumer Products – Competition, Seasonality and Intellectual Property Protection” below.

The Consumer Products segment partners with licensees, manufacturers, publishers and retailers throughout the world to design, promote and sell a wide variety of products based on existing and new Disney characters and other intellectual property. In addition to leveraging the Company’s film and television properties, Consumer Products develops new intellectual property within its publishing and interactive gaming divisions with the potential of being leveraged across the company. The Company also engages in retail, direct mail and online distribution of products based on the Company’s characters and films through The Disney Store, the Disney Catalog and DisneyDirect.com, respectively. The Disney Store is owned and operated internationally and is franchised in North America. As discussed in Note 3 to the Consolidated Financial Statements, the Company sold The Disney Store chain in North America in November 2004.

The Company’s worldwide merchandise licensing operations are divided among four lines of business: Disney Hardlines, which includes product categories such as consumer electronics, stationery, food and personal care products; Disney Softlines, which includes apparel, accessories and footwear; Disney Toys; and Disney Home, which includes product categories such as furnishings, décor and accessories. In addition, Disney Publishing licenses books, magazines and continuity programs. Through these lines of business, the Company earns royalties, which are usually based on a fixed percentage of the wholesale or retail-selling price of the products. The Company licenses characters from its film, television and other properties. Some of the major properties licensed by the Company include Mickey Mouse, Winnie the Pooh and Disney Princess. The Company has also

The Company publishes children’s books and magazines in multiple countries and languages, reaching more than 100 million readers each month. Disney publishes both Disney branded and non-Disney branded titles through its U.S. children’s book group (which includes Hyperion and Disney Press), Disney Libri in Italy, and Disney Hachette JV in France. During 2005, the Company’s U.S. children’s book group published several titles including Fairy Dust and the Quest for the Egg, by Newbery Honor-winning author Gail Carson Levine, Knuffle Bunny: A Cautionary Tale, by Caldecott Honor-winning author Moe Willems, and Artemis Fowl: The Opal Deception, by Eoin Colfer. The U.S. magazine business includes such titles as Disney Adventure and FamilyFun. The global children’s magazine business includes titles such as W.I.T.C.H., which has several international editions published in multiple countries worldwide.

Buena Vista Games (BVG) creates, develops, markets and distributes multi-platform video games worldwide. BVG primarily focuses on multi-platform games derived from the Company’s creative content, such as The Chronicles of Narnia, Chicken Little, Nightmare Before Christmas and Kingdom Hearts. In addition to its historical focus on licensed products, BVG is expanding its efforts with internally developed and published games.

The Company markets Disney-themed products directly through retail facilities operated under The Disney Store name. These facilities are generally located in leading shopping malls and other retail complexes. The stores carry a wide variety of Disney merchandise and promote other businesses of the Company. The Company owns and operates 104 stores primarily in Europe. In fiscal 2005, 315 stores in North America were sold to a wholly owned subsidiary of The Children’s Place, which operates them under a licensing arrangement. See Note 3 to the Consolidated Financial Statements for discussion on the sale of the Disney Store chain in North America.

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

The Company’s licensing businesses, as well as its media networks, studio entertainment and theme park and resort operations, are affected by the Company’s ability to exploit and protect its intellectual property, including trademarks, trade names, copyrights, patents and trade secrets, throughout the world. As a result, domestic and foreign laws protecting intellectual property rights

are important to the Company. The right and ability to enforce intellectual property rights against infringement are essential to the Company’s businesses. These businesses are also subject to the risk of challenges by third parties claiming infringement of their proprietary rights. Regardless of their validity, such claims may result in substantial costs and diversion of resources which could have an adverse effect on the Company’s licensing operations.

Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are available without charge on our website, www.disney.com/investors, as soon as reasonably practicable after they are filed electronically with the SEC. We are providing the address to our Internet site solely for the information of investors. We do not intend the address to be an active link or to otherwise incorporate the contents of the website into this report.

For an enterprise as large and complex as the Company, a wide range of factors could materially affect future developments and performance. In addition to the factors affecting specific business operations identified in connection with the description of these operations and the financial results of these operations elsewhere in this report, the most significant factors affecting our operations include the following:

Changes in U.S., global or regional economic conditions could adversely affect the profitability of any of our businesses.

A decrease in economic activity in the United States or in other regions of the world in which we do business could adversely affect demand for any of our businesses, thus reducing our revenue and earnings. A decline in economic conditions could reduce attendance and spending at one or more of our parks and resorts, purchase of or prices for advertising on our broadcast or cable networks or owned stations, prices that cable operators will pay for our cable programming, performance of our theatrical and home entertainment releases and purchases of Company-licensed consumer products. In addition, an increase in price levels generally, or in price levels in a particular sector such as the energy sector, could result in a shift in consumer demand away from the entertainment and consumer products we offer, which could also adversely affect our revenues and, at the same time, increase our costs. Changes in exchange rates for foreign currencies may reduce international demand for our products, increase our labor or supply costs in non-United States markets or reduce the United States dollar value of revenue we receive from other markets.

Changes in public and consumer tastes and preferences for entertainment and consumer products could reduce demand for our entertainment offerings and products and reduce profitability.

Each of our businesses creates entertainment or consumer products whose success depends substantially on consumer tastes and preferences that change in often unpredictable ways. The success of our businesses depends on our ability to consistently create and distribute filmed entertainment, broadcast and cable programming, theme park attractions, resort facilities and consumer products that meet the changing preferences of the broad consumer market. Many of our businesses increasingly depend on worldwide acceptance of our offerings and products, and their success therefore depends on our ability to successfully predict and adapt to changing consumer tastes and preferences outside as well as inside the United States. Moreover, we must often invest substantial amounts in film production, broadcast and cable programming, theme park attractions or resort facilities before we learn the extent to which products will earn consumer acceptance. If our entertainment offerings and products do not achieve sufficient consumer acceptance, our revenue from advertising sales (which are based in part on ratings for the programs in which advertisements

Changes in technology and in consumer consumption patterns may affect demand for our entertainment products or the cost of producing or distributing products.

The media and entertainment businesses in which we participate depend significantly on our ability to acquire, develop, adopt and exploit new technologies to distinguish our products and services from those of our competitors. In addition, new technologies affect the demand for our products and the time and manner in which consumers acquire and view some of our entertainment products. For example:


	•	the success of our offerings in the home entertainment market depends in part on consumer preferences with respect to home entertainment formats, including DVD players and personal video recorders, as well as the availability of alternative home entertainment offerings and technologies;

	•	technological developments offer consumers an expanding array of entertainment options and if consumers favor options we have not yet fully developed rather than the entertainment products we offer, our sales may be adversely affected.

The unauthorized use of our intellectual property rights may increase the cost of protecting these rights or reduce our revenues.

The success of our businesses is highly dependent on maintenance of intellectual property rights in the entertainment products and services we create. New technologies such as peer-to-peer technology, high speed digital transmission (including digital distribution of theatrical films) and some features of digital video recorders have made infringement of our intellectual property in films and television programming easier and faster and enforcement of intellectual property rights more challenging. There is evidence that unauthorized use of intellectual property rights in the entertainment industry generally is a significant and rapidly growing phenomenon. These developments require us to devote substantial resources to protecting our intellectual property against unauthorized use and present the risk of increased losses of revenue as a result of sales of unauthorized products.

A variety of uncontrollable events may reduce demand for our products and services or impair our ability to provide or increase the cost of providing products and services.

Demand for our products and services, particularly our theme parks and resorts, is highly dependent on the general environment for travel and tourism. The environment for travel and tourism as well as demand for other entertainment products can be significantly adversely affected in the United States, globally or in specific regions as a result of a variety of factors beyond our control, including: adverse weather conditions or natural disasters (such as excessive heat or rain, hurricanes and earthquakes); health concerns; international, political or military developments; and terrorist attacks. These events, and others such as fluctuations in travel and energy costs and computer virus attacks or other widespread computing or telecommunications failures, may also damage our ability to provide our products and services. These events could therefore reduce our revenue or result in a reduction in demand for or ability to provide products and services or increase our costs to the extent damage is not covered by insurance or is subject to self-insurance.

Sustained increases in costs of pension and post-retirement medical and other employee health and welfare benefits may reduce our profitability.

With more than 133,000 employees, our profitability is substantially affected by costs of pension benefits and current and post-retirement medical benefits. In recent years, we have experienced significant increases in these costs as a result of macro-economic factors beyond our control, including

increases in health care costs, declines in investment returns on plan assets and changes in discount rates used to calculate pension and related liabilities. At least some of these macro-economic factors may continue to put upward pressure on the cost of providing pension and medical benefits. Although we have actively sought to control increases in these costs, there can be no assurance that we will succeed in limiting cost increases, and continued upward pressure could reduce the profitability of our businesses.

Changes in our business strategy or restructuring of our businesses may increase our costs or otherwise affect the profitability of our businesses.

As changes in our business environment occur we may need to adjust our business strategies to meet these changes or we may otherwise find it necessary to restructure our operations or particular businesses or assets. In addition, external events including acceptance of our theatrical offerings and changes in macro-economic conditions may impair the value of our assets. When these changes or events occur, we may incur costs to change our business strategy and may need to write down the value of assets. We may also need to invest in new businesses that have short-term returns that are negative or low and whose ultimate business prospects are uncertain. In any of these events, our costs may increase, we may have significant charges associated with the write-down of assets or returns on new investments may be lower than prior to the change in strategy or restructuring.

Macro-economic factors may impede access to or increase the cost of financing our operations and investments.

Changes in U.S. and global financial and equity markets, including market disruptions and significant interest rate fluctuations, may make it more difficult for us to obtain financing for our operations or investments or increase the cost of obtaining financing. In addition, our borrowing costs can be affected by short and long-term debt ratings assigned by independent rating agencies which are based, in significant part, on the Company’s performance as measured by credit metrics such as interest coverage and leverage ratios. A decrease in these ratings could increase our cost of borrowing or make it more difficult for us to obtain financing.

Increased competitive pressures may reduce our revenues or increase our costs.

We face substantial competition in each of our businesses from alternative providers of the products and services we offer and from other forms of entertainment, lodging, tourism and recreational activities. We also must compete to obtain human resources, programming and other resources we require in operating our business. For example:


	•	Our broadcast and cable networks and stations compete for viewers with other broadcast, cable and satellite services as well as with home video products and Internet usage.

	•	Our broadcast and cable networks and stations compete for the sale of advertising time with other broadcast, cable and satellite services, as well as newspaper, magazines, billboards and the Internet.

	•	Our cable networks compete for carriage of their programming with other programming providers.

	•	Our broadcast and cable networks compete for the acquisition of creative talent and sports and other programming with other broadcast and cable networks.

	•	Our theme parks and resorts compete for guests with all other forms of entertainment, lodging, tourism and recreation activities.

	•	Our studio operations compete for customers with all other forms of entertainment.


	•	Our studio operations, broadcast and cable networks and publishing businesses compete to obtain creative and performing talent, story properties, advertiser support, broadcast rights and market share.

	•	Our consumer products segment competes in the character merchandising and other licensing, publishing, interactive and retail activities with other licensors, publishers and retailers of character, brand and celebrity names.

Competition in each of these areas may divert consumers from our creative or other products, or to other products or other forms of entertainment, which could reduce our revenue or increase our marketing costs. Competition for the acquisition of resources can increase the cost of producing our products and services.

Our results may be adversely affected if long-term programming or carriage contracts are not renewed on sufficiently favorable terms.

We enter into long-term contracts for both the acquisition and the distribution of media programming and products, including contracts for the acquisition of programming rights for sporting events and other programs, and contracts for the distribution of our programming to cable and satellite operators. As these contracts expire, we must renew or renegotiate the contracts, and if we are unable to renew them on acceptable terms, we may lose programming rights or distribution rights. Even if these contracts are renewed, the cost of obtaining programming rights may increase (or increase at faster rates than our historical experience) or the revenue from distribution of programs may be reduced (or increase at slower rates than our historical experience). With respect to the acquisition of programming rights, particularly sports programming rights, the impact of these long-term contracts on our results over the term of the contracts depends on a number of factors, including the strength of advertising markets, effectiveness of marketing efforts and the size of viewer audiences. There can be no assurance that revenues from programming based on these rights will exceed the cost of the rights plus the other costs of producing and distributing the programming.

Changes in regulations applicable to our businesses may impair the profitability of our businesses.

Our broadcast networks and television stations are highly regulated, and each of our other businesses is subject to a variety of United States and overseas regulations. These regulations include:


	•	United States FCC regulation of our television and radio networks and owned stations, including licensing of stations, ownership limits, prohibitions on “indecent” programming and restrictions on commercial time in children’s programming and regulation of our broadcasting businesses in non-United States markets. Additional information regarding FCC regulation is provided in “Item 1 – Business – Media Networks, Federal Regulation.”

	•	Environmental protection regulations.

	•	Federal, state and foreign privacy and data protection laws and regulations.

	•	Regulation of the safety of consumer products and theme park operations.

	•	Imposition by foreign countries of trade restrictions or motion picture or television content requirements or quotas.

	•	Domestic and international tax laws or currency controls.

Changes in any of these regulatory areas may require us to spend additional amounts to comply with the regulations, or may restrict our ability to offer products and services that are profitable.

A significant number of employees in various of our businesses are covered by collective bargaining agreements, including employees of our theme parks and resorts as well as writers, directors, actors, production personnel and others employed in our media networks and studio operations. In addition, the employees of licensees who manufacture and retailers who sell our consumer products may be covered by collective labor agreements with their employers. A labor dispute involving our employees or the employees of our licensees or retailers who sell our consumer products may disrupt our operations and reduce our revenues, and resolution of disputes with our employees may increase our costs.

Provisions in our corporate documents and Delaware state law could delay or prevent a change of control, even if that change would be beneficial to shareholders.

Our Restated Certificate of Incorporation contains a provision regulating the ability of shareholders to bring matters for action before annual and special meetings and authorizes our Board of Directors to issue and set the terms of preferred stock. The regulations on shareholder action could make it more difficult for any person seeking to acquire control of the Company to obtain shareholder approval of actions that would support this effort. The issuance of preferred stock could effectively dilute the interests of any person seeking control or otherwise make it more difficult to obtain control. In addition, we are subject to the anti-takeover provisions of the Delaware General Corporation Law, which could have the effect of delaying or preventing a change of control in some circumstances.

The seasonality of certain of our businesses could exacerbate negative impacts on our operations.


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

	•	Revenues in our Parks and Resorts segment 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.

	•	Revenues in our Studio Entertainment segment fluctuate based on the timing of theatrical motion picture, home entertainment and television releases. Release dates for theatrical, home entertainment and television products are determined by several factors, including timing of vacation and holiday periods and competition in the market.

	•	Revenues in our Consumer Products segment are influenced by seasonal consumer purchasing behavior and the timing of animated theatrical releases and generally peak in our first fiscal quarter due to the holiday season.

Accordingly, if a short term negative impact on our business occurs during a time of high seasonal demand (such as hurricane damage to our parks during the summer travel season), the effect could have a disproportionate effect on the results of that business for the year.

The Company has received no written comments regarding its periodic or current reports from the staff of the Securities and Exchange Commission that were issued 180 days or more preceding the end of its 2005 fiscal year and that remain unresolved.

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

The Company and its subsidiaries own and lease properties throughout the world. The table below provides a brief description of the significant properties and the related business segment.


⁽¹⁾	Corp – Corporate, CP – Consumer Products and TP&R – Theme Parks and Resorts

Milne and Disney Enterprises, Inc. v. Stephen Slesinger, Inc. On November 5, 2002, Clare Milne, the granddaughter of A. A. Milne, author of the Winnie the Pooh books, and the Company’s subsidiary Disney Enterprises, Inc. (DEI) filed a complaint against Stephen Slesinger, Inc. (SSI) in the United States District Court for the Central District of California. On November 4, 2002, Ms. Milne served notices to SSI and DEI terminating A. A. Milne’s prior grant of rights to Winnie the Pooh, effective November 5, 2004, and granted all of those rights to DEI. In their lawsuit, Ms. Milne and DEI seek a declaratory judgment, under United States copyright law, that Ms. Milne’s termination notices were valid; that SSI’s rights to Winnie the Pooh in the United States terminated effective November 5, 2004; that upon termination of SSI’s rights in the United States, the 1983 licensing agreement that is the subject of the Stephen Slesinger, Inc. v. The Walt Disney Company lawsuit terminated by operation of law; and that, as of November 5, 2004, SSI was entitled to no further royalties for uses of Winnie the Pooh. SSI filed (a) an answer denying the material allegations of the complaint and (b) counterclaims seeking a declaration that (i) Ms. Milne’s grant of rights to DEI is void and

unenforceable and (ii) DEI remains obligated to pay SSI royalties under the 1983 licensing agreement. SSI also filed a motion to dismiss the complaint or, in the alternative, for summary judgment. Subsequently, the Court ruled that Milne’s termination notices are invalid and dismissed SSI’s counterclaims as moot. Following further motions SSI filed an amended answer and counterclaims and a third-party complaint against Harriet Hunt (heir to E. H. Shepard, illustrator of the original Winnie the Pooh stories), who had served a notice of termination and a grant of rights similar to Ms. Milne’s. By order dated August 3, 2004, the Court granted SSI leave to amend its answer to assert counterclaims against the Company allegedly arising from the Milne and Hunt terminations and the grant of rights to DEI for (a) unlawful and unfair business practices; and (b) breach of the 1983 licensing agreement. In November 2004, the District Court granted a motion by Milne to dismiss her complaint for the purpose of obtaining a final appealable order of dismissal, so as to permit her appeal to the Court of Appeals to proceed. Oral argument of that appeal was heard on September 13, 2005.

In re The Walt Disney Company Derivative Litigation. William and Geraldine Brehm and thirteen other individuals filed an amended and consolidated complaint on May 28, 1997 in the Delaware Court of Chancery seeking, among other things, a declaratory judgment against each of the Company’s directors as of December 1996 that the Company’s 1995 employment agreement with its former president Michael S. Ovitz, was void, or alternatively that Mr. Ovitz’s termination should be deemed a termination “for cause” and any severance payments to him forfeited. On October 8, 1998, the Delaware Court of Chancery dismissed all counts of the amended complaint. Plaintiffs appealed, and on February 9, 2000, the Supreme Court of Delaware affirmed the dismissal but ruled also that plaintiffs should be permitted to file an amended complaint in accordance with the Court’s opinion. The plaintiffs filed their amended complaint on January 3, 2002. On February 6, 2003, the Company’s directors’ motion to dismiss the amended complaint was converted by the Court to a motion for summary judgment and the plaintiffs were permitted to take discovery. The Company and its directors answered the amended complaint on April 1, 2003. On May 28, 2003, the Court (treating as a motion to dismiss the motion for summary judgment into which it had converted the original motion on February 6, 2003) denied the directors’ motion to dismiss the amended complaint. Trial commenced on October 20, 2004 and on August 9, 2005, the Delaware Court of Chancery issued an order entering judgment against the plaintiffs and in favor of all defendants on all counts. Plaintiffs have appealed from the order.

Similar or identical claims have also been filed by the same plaintiffs (other than William and Geraldine Brehm) in the Superior Court of the State of California, Los Angeles County, beginning with a claim filed by Richard and David Kaplan on January 3, 1997. On May 18, 1998, an additional claim was filed in the same California court by Dorothy L. Greenfield. All of the California claims were consolidated and stayed pending final resolution of the Delaware proceedings. The Claim filed by Dorothy L. Greenfield was voluntarily dismissed with prejudice on October 24, 2005.

Stephen Slesinger, Inc. v. The Walt Disney Company. In this lawsuit, filed on February 27, 1991 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 breaches. If each of the plaintiff’s claims were to be confirmed in a final judgment, damages as argued by the plaintiff 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. On March 29, 2004, the Court granted the Company’s motion for terminating sanctions against the plaintiff for a host of discovery abuses, including the withholding, alteration, and theft of documents and other information, and, on April 5, 2004, dismissed plaintiff’s case with

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

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

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

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


⁽¹⁾	Mr. Eisner was replaced by Mr. Iger as Chief Executive Officer effective October 2, 2005. Mr. Eisner also served as Chairman of the Board from 1984 through March 2004.

⁽²⁾	Mr. Iger was appointed President and Chief Executive Officer effective October 2, 2005. He was President and Chief Operating Officer from January 2000, having served (from February 1999 until January 2000) as President of Walt Disney International and Chairman of the ABC Group. Mr. Iger previously held a number of increasingly responsible positions at ABC, Inc. and its predecessor Capital Cities/ ABC, Inc., culminating in service as President and Chief Operating Officer of ABC, Inc. from 1994 to 1999.

⁽³⁾	Mr. Braverman was named Executive Vice President and General Counsel of the Company in January 2003 and promoted to Senior Executive Vice President and General Counsel of the Company in October 2003. Prior to his appointment as General Counsel of the Company, Mr. Braverman had been Executive or Senior Vice President and General Counsel of ABC, Inc. since August 1996 and also Deputy General Counsel of the Company since August 2001.

⁽⁴⁾	Ms. McCarthy was named Executive Vice President, Corporate Finance and Real Estate in June 2005 and has been Treasurer since January 2000. Prior to her appointment as Executive Vice President, Corporate Finance and Real Estate, Ms. McCarthy was Senior Vice President and Treasurer from January 2000 to June 2005.

On October 3, 2005, Kevin A. Mayer was designated an executive officer of the Company. Mr. Mayer, 43, has served as Executive Vice President, Corporate Strategy, Business Development and Technology, of the Company since June 2005. Prior to that, he was Partner and Head of the Global Media and Entertainment Practice of L.E.K. Consulting LLC, a consulting firm, from February 2002, and Chairman and Chief Executive Officer of Clear Channel Interactive, a division of Clear Channel Worldwide, a media company, from September 2000 to December 2001.

The Company’s common stock is listed on the New York and Pacific stock exchanges under the ticker symbol “DIS”. The following table shows, for the periods indicated, the high and low sales prices per share of common stock as reported in the Bloomberg Financial markets services.

The Company declared a dividend of $0.27 per share on December 1, 2005 with respect to fiscal 2005, and a dividend of $0.24 per share on December 1, 2004, with respect to fiscal 2004.

As of October 1, 2005, the approximate number of common shareholders of record was 986,187.

The following table provides information about Company purchases of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act during the quarter ended October 1, 2005:


⁽¹⁾	460,064 shares were purchased on the open market to provide shares to participants in the Walt Disney Investment Plan and Employee Stock Purchase Plan. These purchases were not made pursuant to a publicly announced repurchase plan or program.

⁽²⁾	Under a share repurchase program most recently reaffirmed by the Company’s Board of Directors on April 21, 1998, and implemented effective June 10, 1998, the Company was authorized to repurchase up to 400 million shares of its common stock. The repurchase program does not have an expiration date.


⁽¹⁾	During fiscal 2005, the Company adopted Statement of Financial Accounting Standards No. 123R, Share Based Payment (SFAS 123R), which resulted in $253 million of pre-tax expense, or ($0.08) per diluted share. See Note 2 to the Consolidated Financial Statements. In addition, as shown in the table on page 35, the 2005 results include certain items which affected comparability. The impact on diluted earnings per share of these items was an aggregate favorable impact of $0.03 per share. The amounts do not reflect the cumulative effect of adopting Emerging Issues Task Force (EITF) Topic D-108, Use of the Residual Method to Value Acquired Assets Other Than Goodwill, which was a non-cash charge of $57 million ($36 million after-tax or $0.02 per diluted share). See Note 2 to the Consolidated Financial Statements.

⁽²⁾	During fiscal 2004, the Company adopted FASB Interpretation No. 46R, Consolidation of Variable Interest Entities (FIN 46), and as a result, consolidated the balance sheets of Euro Disney and Hong Kong Disneyland as of March 31, 2004 and the income and cash flow statements beginning April 1, 2004, the beginning of the Company’s fiscal third quarter. Under FIN 46 transition rules, Euro Disney and Hong Kong Disneyland’s operating results continued to be accounted for on the equity method for the six-month period ended March 31, 2004. In addition, as shown in the table on page 35, the 2004 results include certain items which affected comparability. The impact on diluted earnings per share of these items was an aggregate favorable impact of $0.04 per share.

⁽³⁾	As shown in the table on page 35, the 2003 results include certain items which affected comparability. The impact on diluted earnings per share of these items was an aggregate unfavorable impact of $0.01 per share. The amounts do not reflect the cumulative effect of adopting EITF 00-21, Revenue Arrangements with Multiple Deliverables, which was an after-tax charge of $71 million or ($0.03) per diluted share. See Note 2 to the Consolidated Financial Statements.

⁽⁴⁾	The 2002 results include a $216 million pre-tax gain on the sale of investments and a $34 million pre-tax gain on the sale of the Disney Stores in Japan. These items had a $0.06 and $0.01 impact on diluted earnings per share, respectively. During fiscal 2002, the Company acquired Fox Family


	Worldwide, Inc. for $5.2 billion. Effective at the beginning of fiscal 2002, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets and, accordingly, ceased amortization of goodwill and substantially all other intangible assets.

⁽⁵⁾	The 2001 results include restructuring and impairment charges totaling $1.5 billion pre-tax. The charges were primarily related to the closure of GO.com, investment write downs and a work force reduction. The diluted earnings per share impact of these charges was ($0.52). The amounts do not reflect the cumulative effect of required accounting changes related to film and derivative accounting which were after-tax charges of $228 million and $50 million, respectively or ($0.11) and ($0.02) per diluted share, respectively.


⁽¹⁾	The calculation of diluted earnings per share assumes the conversion of the Company’s convertible senior notes issued in April 2003 into 45 million shares of common stock, and adds back related after-tax interest expense of $21 million for fiscal 2005 and 2004, and $10 million for fiscal year 2003.


	•	Consolidated Results
	•	Business Segment Results – 2005 vs. 2004
	•	Corporate and Other Non-Segment Items – 2005 vs. 2004
	•	Pension and Benefit Costs
	•	Business Segment Results – 2004 vs. 2003
	•	Corporate and Other Non-Segment Items – 2004 vs. 2003
	•	Liquidity and Capital Resources
	•	Contractual Obligations, Commitments and Off Balance Sheet Arrangements
	•	Accounting Policies and Estimates
	•	Accounting Changes
	•	Forward-Looking Statements

Revenues for the year increased 4%, or $1.2 billion, to $31.9 billion. The increase in revenues was due to growth at Media Networks and Parks and Resorts, partially offset by a decline at Studio Entertainment. The Media Networks growth was driven by higher affiliate fees at Cable Networks and higher advertising revenues. The increase at Parks and Resorts was due to an additional six months of Euro Disney revenues in fiscal 2005 compared to fiscal 2004, and higher occupied room nights, theme park attendance and guest spending at the domestic resorts. The decline at Studio was primarily due to an overall decline in DVD unit sales.

Net income for the year increased 8%, or $188 million, to $2.5 billion. The increase in net income was primarily due to growth at Media Networks, partially offset by a decrease at Studio Entertainment (see Business Segment Results below for further discussion). Additionally, we adopted Statement of Financial Accounting Standards No. 123R, Share Based Payment (SFAS 123R), which increased expense for the year by $253 million ($160 million after-tax or $0.08 per share). Diluted earnings per share before the cumulative effect of an accounting change for the valuation of certain FCC licenses was $1.24, an increase of 11%, or $0.12, compared to the prior-year earnings per share of $1.12. We adopted Emerging Issues Task Force Topic D-108, Use of the Residual Method to Value Acquired Assets Other Than Goodwill (EITF D-108), which resulted in a cumulative effect of accounting change totaling $57 million ($36 million after-tax or $0.02 per share) relating to the valuation of certain FCC licenses (see Note 2 to the Consolidated Financial Statements). Diluted earnings per share after the cumulative effect of the accounting change was $1.22.

In addition to the items discussed above, results for fiscal 2005, 2004 and 2003 included items in the following table which affect the comparability of the results from year to year and had aggregate favorable/(unfavorable) impacts of $0.03 per share, $0.04 per share and ($0.01) per share, respectively, as follows (in millions, except for per share data):


⁽¹⁾	Total diluted earnings per share impact for the year ended October 1, 2005 does not equal the sum of the column due to rounding.

Cash flow from operations in fiscal 2005 allowed us to continue making capital investments in our properties and reduce our borrowings, which in turn reduced our interest expense. During fiscal 2005, we generated cash flow from operations of $4.3 billion which funded capital expenditures totaling $1.8 billion. In addition, we repurchased $2.4 billion of our common stock and had a net repayment of borrowings of $699 million.

Revenues for the year increased 14% or $3.7 billion, to $30.8 billion. The increase in revenues for the year was due to growth in segment revenues in all of the operating segments (see Business Segment Results below for further discussion).

Net income for fiscal 2004 was $2.3 billion, which was $1.1 billion higher than fiscal 2003. The increase in net income for fiscal 2004 was driven by growth at all of the operating segments. Diluted earnings per share for fiscal 2004 was $1.12, an increase of $0.47 compared to the prior-year earnings per share of $0.65 before the cumulative effect of an accounting change. As shown in the preceding table, results for fiscal 2004 and 2003 included certain items which affected comparability. These items had an aggregate favorable impact of $0.04 per share on fiscal 2004 results and an aggregate unfavorable impact of $0.01 per share on fiscal 2003 results.

Additionally, we made an accounting change effective as of the beginning of fiscal 2003 to adopt a new accounting rule for multiple element revenue accounting (EITF 00-21, see Note 2 to the Consolidated Financial Statements) which changed the timing of revenue recognition of NFL programming at ESPN resulting in an after-tax charge of $71 million for the cumulative effect of the change. Diluted earnings per share after this cumulative effect was $0.62 for fiscal 2003.

The Company evaluates the performance of its operating segments based on segment operating income and management uses aggregate segment operating income as a measure of the overall performance of the operating businesses. The Company believes that information about aggregate segment operating income assists investors by allowing them to evaluate changes in the operating results of the Company’s portfolio of businesses separate from factors other than business operations that affect net income. The following table reconciles segment operating income to income before income taxes, minority interests and the cumulative effect of accounting changes.


⁽¹⁾	Represents 100% of Euro Disney and Hong Kong Disneyland’s depreciation expense for all periods since the Company began consolidating the results of operations and cash flows of these businesses beginning April 1, 2004.

Segment depreciation expense is included in segment operating income and corporate depreciation expense is included in corporate and unallocated shared expenses.

The following table provides supplemental revenue and segment operating income detail for the Media Networks segment:

Media Networks revenues increased 12%, or $1.4 billion, to $13.2 billion, consisting of a 13% increase, or $852 million, at the Cable Networks, and an 11% increase, or $577 million, at Broadcasting.

Increased Cable Networks revenues were primarily due to growth of $690 million from cable and satellite operators and $172 million in advertising revenues. Revenues from cable and satellite operators are generally derived from fees charged on a per subscriber basis, and the increase in the current year was due to contractual rate increases and subscriber growth at ESPN and the Disney Channels. Increased advertising revenue was due to higher rates at ESPN and higher ratings at ABC Family.

The Company’s contractual arrangements with cable and satellite operators are renewed or renegotiated from time to time in the ordinary course of business. A number of these arrangements are currently in negotiation. Consolidation in the cable and satellite distribution industry and other factors may adversely affect the Company’s ability to obtain and maintain contractual terms for the distribution of its various cable and satellite programming services that are as favorable as those currently in place. If this were to occur, revenues from Cable Networks could increase at slower rates than in the past or could stabilize or decline. Certain of the Company’s existing contracts with cable and satellite operators as well as contracts in negotiation include annual live programming commitments. In these cases, revenues subject to the commitment, which are collected ratably over the year, are deferred until the annual commitments are satisfied which generally results in higher revenue recognition in the second half of the year.

Increased Broadcasting revenues were due to growth at the ABC Television Network and Television Production and Distribution. ABC Television Network revenues increased primarily due to higher primetime advertising revenue resulting from higher ratings and advertising rates. The growth at Television Production and Distribution was driven by higher license fee revenues from domestic markets as a result of the syndication of My Wife and Kids and higher revenue in international markets from sales of Desperate Housewives and Lost.

Costs and expenses, which consist primarily of programming rights costs, production costs, participation costs, distribution and marketing expenses, labor costs and general and administrative costs, increased 9%, or $849 million, to $10.5 billion consisting of an 11% increase, or $491 million, at the Cable Networks, and a 7% increase, or $358 million, at Broadcasting. The increase at Cable Networks was driven by increases at ESPN from higher general and administrative expenses, increased production costs and investments in new business initiatives, including ESPN branded mobile phone service. Higher general and administrative expenses, programming expenses and marketing costs at the Disney Channels also contributed to the increase at Cable Networks. The increase at Broadcasting was driven by higher production and participation costs at TV Production and Distribution. The adoption of SFAS 123R increased expenses in fiscal year 2005 at Cable Networks and at Broadcasting by $36 million and $64 million, respectively.

The Company has various contractual commitments for the purchase of television rights for sports and other programming, including the NBA, NFL, MLB, and various college football and basketball conferences and football bowl games. The costs of these contracts have increased significantly in recent years. We enter into these contractual commitments with the expectation that, over the life of the contracts, revenue from advertising during the programming and affiliate fees will exceed the costs of the programming. While contract costs may initially exceed incremental revenues and negatively impact operating income, it is our expectation that the combined value to our networks from all of these contracts will result in long-term benefits. The actual impact of these contracts on the Company’s results over the 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 initial five-year period of the Company’s contract to televise NFL games was non-cancelable and ended with the telecast of the 2003 Pro Bowl. In February 2003, the NFL did not exercise its renegotiation option and as a result, the Company’s NFL contract was extended for an additional three years ending with the telecast of the 2006 Pro Bowl. The aggregate fee for the three-year period is $3.7 billion. ESPN recognized its portion of the costs of the initial five-year term of the contract at levels that increased each year commensurate with expected increases in NFL revenues. As a result, ESPN experienced its highest level of NFL programming costs during fiscal 2003. The implementation

of the contract extension resulted in a $180 million reduction in NFL programming costs at ESPN in fiscal 2004 as compared to fiscal 2003. The majority of this decrease was in the first quarter of fiscal 2004. These costs were relatively level in fiscal 2005 and will remain relatively level in fiscal 2006. Cash payments under the contract were $1.2 billion for fiscal 2005 and fiscal 2004.

The Company entered into a new agreement with the NFL for the right to broadcast NFL Monday Night football games on ESPN. The contract provides for total payments of approximately $8.87 billion over an eight-year period, commencing with the 2006-2007 season. The payment terms of the new contract provide for average increases in the annual payments of approximately 4% per year. We expect that our expense recognition of the costs of the new contract will reflect this payment schedule. The Company has rights to 21 games in the 2006-2007 season, which begins in the fourth quarter of the Company’s fiscal year 2006. Additionally, subsequent to the end of the fiscal year, the Company entered into an eight-year agreement with NASCAR pursuant to which ABC and ESPN will have the right to televise certain NASCAR races and related programming beginning in 2007. The agreement is subject to termination by the ESPN and NASCAR boards of directors through December 10, 2005.

Segment operating income increased 27%, or $580 million, to $2.7 billion for the year due to an increase of $361 million at the Cable Networks and an increase of $219 million at Broadcasting. The increase at Cable Networks was due to growth at ESPN from higher affiliate revenues and advertising revenues, partially offset by higher costs and expenses at ESPN. The increase at Broadcasting was driven by higher primetime advertising revenues at the ABC Television Network and higher license fee revenues from syndication of My Wife and Kids and international sales of Lost and Desperate Housewives at Television Production and Distribution.

The Company launched MovieBeam, an on-demand electronic movie rental service in three domestic cities in October 2003. The Company suspended service in April 2005 while evaluating its go-forward business model and negotiating a refinancing of the business with strategic and financial investors. If successful, a refinancing transaction may result in the Company making a further investment in the business while retaining only a minority interest in MovieBeam. Based on continuing negotiations with investors, the Company has concluded that any such refinancing will not be sufficient to recover all of its investment related to the MovieBeam venture and has recognized $56 million ($35 million after-tax or $0.02 per share) of impairment charges during the year ended October 1, 2005.

Revenues at Parks and Resorts increased 16%, or $1.3 billion, to $9.0 billion. The Company began consolidating the results of Euro Disney and Hong Kong Disneyland at the beginning of the third quarter of fiscal 2004, which resulted in fiscal 2004 segment results including only six months of operations of these businesses while fiscal 2005 includes a full year of operations. The impact of fiscal 2005 including an additional six months of operations as compared to fiscal 2004 accounted for an 8% or $672 million increase in Parks and Resorts revenue for the year, which represents the revenues of Euro Disney and Hong Kong Disneyland for the first half of fiscal 2005. Excluding the impact of including the additional six months of Euro Disney and Hong Kong Disneyland operations, fiscal 2005 revenues grew 8%, or $601 million, primarily due to growth of $364 million at the Walt Disney World Resort and $213 million at the Disneyland Resort.

At the Walt Disney World Resort, increased revenues were due to higher occupied room nights, theme park attendance and guest spending, and increased sales at Disney’s Vacation Club. Increased

occupied room nights reflected increased visitation to the resort reflecting the ongoing recovery in travel and tourism, the popularity of Disney as a travel destination and the availability of additional rooms in both the first and second quarters of the prior year. During the third quarter, the Company launched two programs, Disney’s Magical Express and Extra Magic Hours, which are designed to increase occupancy at the Walt Disney World hotels. Increased theme park attendance reflected increased international and domestic guest visitation, driven by the Happiest Celebration on Earth promotion which celebrates the 50th anniversary of Disneyland. Higher guest spending was primarily due to higher food and beverage purchases, ticket price increases and fewer promotional offers compared to the prior year.

At the Disneyland Resort, increased revenues were driven by higher guest spending and attendance at the theme parks due to increased ticket prices and the 50th anniversary celebration, respectively.

Across our domestic theme parks, both attendance and per capita theme park guest spending increased by 5%. Attendance at the Walt Disney World Resort increased 5% while per capita theme park guest spending increased 2%. Attendance at the Disneyland Resort increased 4% while per capita theme park guest spending increased 14%. Operating statistics for our domestic hotel properties are as follows:

The increase in available room nights was primarily due to the opening of Disney’s Pop Century Resort, which has approximately 2,900 rooms, late in the first quarter of fiscal 2004 and the re-opening of approximately 1,000 rooms in the French Quarter portion of the Port Orleans hotel in the second quarter of fiscal 2004. Per room guest spending consists of the average daily hotel room rate as well as guest spending on food, beverages, and merchandise at the hotels.

Costs and expenses increased 18%, or $1.2 billion, to $7.8 billion. As noted above, fiscal 2005 included an additional six months of Euro Disney and Hong Kong Disneyland operations, which accounted for an 11% or $722 million increase in costs and expenses for the year. In addition, the adoption of SFAS 123R increased expenses by $42 million in fiscal year 2005. The remaining increase of $454 million was primarily due to higher costs at Walt Disney World and Disneyland and increased pre-opening costs at Hong Kong Disneyland. Walt Disney World incurred higher volume-related expenses, increased costs associated with new attractions and service programs, information technology and higher fixed costs. Disneyland incurred higher volume-related expenses and marketing and sales costs associated with the 50th anniversary celebration and higher fixed costs.

Segment operating income increased 5%, or $55 million, to $1.2 billion primarily due to growth at Walt Disney World and Disneyland. These increases were partially offset by a decrease of $50 million due to the impact of fiscal 2005 including an additional six months of Euro Disney and Hong Kong Disneyland operations as compared to fiscal 2004 (which represents the results of Euro Disney and Hong Kong Disneyland for the first half of fiscal 2005), higher pre-opening expenses at Hong Kong

Revenues decreased 13%, or $1.1 billion, to $7.6 billion, primarily due to a decrease of $1.1 billion in worldwide home entertainment. The decline in revenues at worldwide home entertainment was due to an overall decline in DVD unit sales resulting from a lower performing slate of current year titles, including a decline in the ratio of home video unit sales to the related total domestic box-office results for feature films. Successful current year titles included Disney/ Pixar’s The Incredibles, National Treasure, Bambi Platinum Release and Aladdin Platinum Release, while the prior year included Disney/ Pixar’s Finding Nemo, Pirates of the Caribbean and The Lion King Platinum Release.

Costs and expenses, which consist primarily of production cost amortization, distribution and selling expenses, product costs and participation costs, decreased 8%, or $671 million, due to lower costs in worldwide theatrical motion picture distribution and in worldwide home entertainment. The decline in costs and expenses at worldwide theatrical distribution was primarily due to lower distribution costs and lower production cost amortization. Distribution costs were lower as the prior year included higher profile films that had extensive marketing campaigns to launch the films. The decrease in production cost amortization was driven by lower film cost write-offs. These cost decreases were partially offset by increased production cost amortization and distribution costs at Miramax due to an increased number of releases and higher write-offs. Lower costs in worldwide home entertainment were primarily due to lower distribution costs, production cost amortization and participation costs. Distribution costs and production cost amortization were lower as a result of decreased unit sales. Participation costs were down as the prior year included Finding Nemo and Pirates of the Caribbean, which had higher participation costs due to better performance than current year titles. Pixar receives an equal share of profits (after distribution fees) as co-producer of Finding Nemo and The Incredibles. The adoption of SFAS 123R increased expenses by $41 million in fiscal year 2005.

In March 2005, the Company entered into agreements with Miramax co-chairmen, Bob and Harvey Weinstein, and their new production company. Pursuant to those agreements, the Company, among other things, substantially resolved all economic issues relating to the Weinsteins’ existing employment agreements; terminated the Weinsteins’ existing employment agreements and entered into new employment agreements with them through September 30, 2005; sold interests in certain films in various stages of production to the Weinsteins’ new company; and provided it with the opportunity to acquire certain development projects, as well as sequel rights to certain library product. The Company retains certain co-financing, distribution and participation rights in several of these properties. The Company also retains the Miramax and Dimension film libraries and the name “Miramax Films,” while the Weinsteins have taken the Dimension name to their new company. No material charges were recorded as a result of the execution of the agreements and the Company does not currently anticipate that it will incur material charges in connection with the remaining Miramax projects.

In August 2005, the Company entered into a film financing arrangement with a group of investors whereby the investors will fund up to approximately $500 million for 40% of the production and marketing costs of a slate of up to thirty-two live-action films, excluding certain titles such as The Chronicles of Narnia and, in general, sequels to previous films, in return for approximately 40% of the future net cash flows generated by these films. By entering into this transaction, the Company is able to share the risks and rewards of the performance of its live-action film production and distribution activity with outside investors.

The increase in Merchandise Licensing was due to higher revenues across all lines of business and recognition of contractual minimum guarantee revenues which increased by $49 million in fiscal 2005 compared to fiscal 2004. The increase at Buena Vista Games was due to the performance of The Incredibles licensed products, recognition of contractual minimum guarantee revenue, which increased by $17 million in fiscal 2005 compared to fiscal 2004, and higher sales of Game Boy Advance games.

Costs and expenses decreased 19%, or $370 million, to $1.6 billion, due to a decrease of $528 million related to the sale of The Disney Store North America chain, partially offset by higher product development spending at Buena Vista Games, increased operating expenses at Merchandise Licensing and $20 million of stock option expense associated with the adoption of SFAS 123R in fiscal year 2005.

Effective November 21, 2004, the Company sold substantially all of The Disney Store chain in North America under a long-term licensing arrangement to a wholly-owned subsidiary of The Children’s Place (TCP). The Company received $100 million for the working capital transferred to the buyer at the closing of the transaction. During fiscal 2005, the Company recorded a loss on the working capital that was transferred to the buyer and additional restructuring and impairment charges related to the sale (primarily for employee retention and severance and lease termination costs) totaling $32 million. Pursuant to the terms of sale, The Disney Store North America retained its lease obligations related to the stores transferred to the buyer and became a wholly owned subsidiary of TCP. TCP is required to pay the Company a royalty on substantially all of the physical retail store sales beginning on the second anniversary of the closing date of the sale.

During the years ended September 30, 2004 and 2003, the Company recorded $64 million and $16 million, respectively, of restructuring and impairment charges related to The Disney Stores. The bulk of these charges were impairments of the carrying value of fixed assets related to the stores to be sold.

The following table provides revenue and operating (loss) income for The Disney Store North America:

Corporate and unallocated shared expenses increased 25%, or $108 million, for the year primarily due to the favorable resolution of certain legal matters that reduced expenses in the prior year and stock option expense associated with the adoption of SFAS 123R. The adoption of SFAS 123R in fiscal 2005 increased expenses by $50 million.

Excluding an increase of $36 million due to the consolidation of Euro Disney and Hong Kong Disneyland for a full twelve months in fiscal 2005 compared to six months in fiscal 2004, interest expense decreased 10%, or $60 million for the year primarily due to lower average debt balances, partially offset by higher effective interest rates.

Aircraft leveraged lease charges increased as a result of the write-off of our leveraged lease investment with Delta Air Lines, Inc. (Delta) after Delta’s bankruptcy filing in September 2005. In fiscal 2004, we took a partial write-down of our investment with Delta consistent with our agreement with Delta to reduce lease payments. In the event of a material modification to the Delta aircraft leases or foreclosure of the Delta aircraft by the debt holders, certain tax payments of up to $100 million could be accelerated. The expected tax payments are currently reflected on our balance sheet as a deferred tax liability and are not expected to result in a further charge to earnings. As of October 1, 2005, our remaining aircraft leverage lease investment totaled approximately $52 million with FedEx Corp.

The current year interest and investment income included $19 million in gains from the sale of investments.

Net interest expense was also impacted by a $61 million gain (primarily non-cash) that was recorded by Euro Disney as a result of the restructuring of Euro Disney’s borrowings. See Note 4 to the Consolidated Financial Statements.

Equity in the income of investees increased 30%, or $111 million, for fiscal 2005 due to the absence of equity losses from Euro Disney which was accounted for under the equity method through the second quarter of fiscal year 2004, and higher affiliate revenue at Lifetime Television.

The effective tax rates reflect the release of reserves as a result of the favorable resolution of certain tax matters in both fiscal 2005 and fiscal 2004. In addition, fiscal 2005 reflects the favorable impact of a one-time deduction under the American Jobs Creation Act of 2004 related to the repatriation of foreign earnings. Excluding these benefits, the effective income tax rates were 35.1% and 35.2% for fiscal years 2005 and 2004, respectively. As more fully discussed in Note 7 to the Consolidated Financial Statements, the 2005 effective income tax rate reflects the first year of a three-year phase-out of an exclusion for certain extraterritorial income attributable to foreign trading gross receipts.

Pension and post-retirement medical benefit plan costs affect results in all of our segments, with the majority of these costs being borne by the Parks and Resorts segment. These costs decreased from $374 million in fiscal 2004 to $314 million in fiscal 2005. The decrease in fiscal 2005 was due primarily to an increase in the discount rate used to measure the present value of plan obligations. The discount rate assumption increased from 5.85% to 6.30% reflecting trends in prevailing market interest rates at our June 30, 2004 valuation date.

We expect pension and post-retirement medical costs to increase to $462 million in fiscal 2006. The increase is primarily due to a decrease in the discount rate assumption from 6.30% to 5.25%, reflecting decreases in prevailing market interest rates on our June 30, 2005 valuation date. The assumed discount rate for pension plans reflects the market rates for high-quality corporate bonds currently available. The Company’s discount rate was determined by considering the average of pension yield curves constructed of a large population of high quality corporate bonds. The resulting discount rate reflects the matching of plan liability cash flows to the yield curves.

During fiscal 2005, the Company contributed $303 million to its pension and postretirement medical plans which included voluntary contributions above the minimum requirements for the pension plans. The Company currently expects to contribute, at a minimum, $61 million to its pension and postretirement medical plans during fiscal 2006. The Company may make additional contributions into its pension plans in fiscal 2006 depending on how the funded status of those plans change

Due to an increase in the present value of pension obligations, pension obligations exceed plan assets for a number of our pension plans. In this situation, the accounting rules require that we record an additional minimum pension liability. The additional minimum pension liability adjustment at year end fiscal 2005 and fiscal 2004 is as follows:

The increase in the additional minimum pension liability in fiscal 2005 was primarily due to the decrease in the discount rate from 6.30% to 5.25%. The accounting rules do not require that changes in the additional minimum pension liability adjustment be recorded in current period earnings, but rather they are recorded directly to equity through accumulated other comprehensive income. Expense recognition under the pension accounting rules is based upon long-term trends over the expected life of the Company’s workforce. See Note 8 to the Consolidated Financial Statements for further discussion.

Increased Cable Networks revenues were driven by increases of $696 million in revenues from cable and satellite operators and $236 million in advertising revenues. Increased advertising revenue was primarily at ESPN due to higher advertising rates and at ABC Family due to higher ratings. The increase in revenues from cable and satellite operators in fiscal 2004 reflected both contractual rate adjustments and to a lesser extent subscriber growth.

Decreased Broadcasting revenues were driven by a decrease of $147 million at the Television Production and Distribution businesses partially offset by an increase of $63 million at the ABC Television Network. The decrease in Television Production and Distribution revenues was primarily due to lower syndication revenue and license fees. The increase at the ABC Television Network was driven by higher advertising revenues reflecting higher rates due to an improved advertising marketplace, partially offset by lower ratings and a decrease due to airing the Super Bowl in fiscal 2003.

Costs and expenses decreased 1%, or $119 million, to $9.6 billion. The decrease reflected lower costs at Broadcasting, partially offset by higher costs at Cable. The decrease at Broadcasting was due to lower programming costs partially offset by higher pension and other administrative costs as well as higher MovieBeam operating costs. Higher costs at Cable reflected increased programming, pension and administrative costs, partially offset by lower bad debt expense.

Lower programming costs at Broadcasting were driven by lower sports programming costs primarily due to the airing of the Super Bowl in fiscal 2003, lower license fees for primetime series and fewer primetime movies. Additionally, fiscal 2003 included higher news production costs due to the coverage of the military conflict in Iraq.

Higher programming costs at Cable Networks were primarily due to higher rights and production costs at ESPN, partially offset by lower NFL amortization due to commencing the three year option period as described under “Sports Programming Costs” above. The decrease in bad debt expense at the Cable Networks reflected the favorable impact of a bankruptcy settlement with a cable operator in Latin America in the second quarter of fiscal 2004.

Cost recognition for NFL programming at the ABC Television Network in fiscal 2004 decreased by $300 million as compared to fiscal 2003. The decrease at the ABC Television Network is primarily due to the absence of the Super Bowl, which was aired in fiscal 2003, as well as fewer games in fiscal 2004. The absence of the Super Bowl and the lower number of games at the ABC Television Network also resulted in lower revenue from NFL broadcasts in fiscal 2004. Cash payments under the contract in fiscal 2004 totaled $1.2 billion as compared to $1.3 billion in fiscal 2003.

Segment operating income increased 79%, or $956 million, to $2.2 billion reflecting increases of $748 million at the Cable Networks and $208 million at Broadcasting. Growth at the Cable Networks reflected higher affiliate revenues, higher advertising revenue and lower NFL programming costs, partially offset by higher rights and production costs and higher administrative expenses. Increased segment operating income at Broadcasting reflected higher advertising revenues at the ABC Television Network and lower programming and production costs, partially offset by higher administrative expenses.

Revenues at Parks and Resorts increased 21%, or $1.3 billion, to $7.8 billion. The increase was driven by increases of $715 million due to the consolidation of Euro Disney and Hong Kong Disneyland (primarily Euro Disney), $609 million from the Walt Disney World Resort, and $95 million from the Disneyland Resort. These increases were partially offset by a decrease of $61 million resulting from the sale of the Anaheim Angels baseball team during the third quarter of fiscal 2003.

At the Walt Disney World Resort, increased revenues were primarily driven by higher theme park attendance, occupied room nights, and per capita spending at the theme parks, partially offset by lower per room guest spending at the hotels. Higher theme park attendance was driven by increased resident, domestic, and international guest visitation, reflecting the continued success of “Mission: SPACE”, Mickey’s PhilharMagic and Disney’s Pop Century Resort, and improvements in travel and tourism. Guest spending decreases at the hotels reflected a higher mix of hotel guest visitation at the lower priced value resorts.

At the Disneyland Resort, increased revenues were primarily due to higher guest spending at the theme parks and hotel properties.

Across our domestic theme parks, attendance increased 7% and per capita guest spending increased 6% compared to fiscal 2003. Attendance and per capita guest spending at the Walt Disney World Resort increased 10% and 4%, respectively. Attendance at the Disneyland Resort remained flat while per capita guest spending increased 7%. Operating statistics for our hotel properties are as follows (unaudited):

The increase in available room nights reflected the opening of the value priced Disney’s Pop Century Resort in the first quarter of fiscal 2004. Per room guest spending consists of the average daily hotel room rate as well as guest spending on food, beverages, and merchandise at the hotels. The decline in per room guest spending reflects a higher mix of hotel guest visitation at the lower priced value resorts.

Costs and expenses increased 21%, or $1.2 billion, compared to fiscal 2003. The increase in costs and expenses was primarily due to the consolidation of Euro Disney and Hong Kong Disneyland, which increased costs and expenses by $651 million, as well as higher operating costs at both domestic resorts. Higher operating costs were driven by volume increases as well as higher employee benefits, marketing and sales costs, depreciation expense, and information technology costs. Higher employee benefits costs reflected increased pension and post-retirement medical costs, which grew $137 million at the domestic resorts. Higher marketing costs were driven by the opening of “Mission: SPACE” at Epcot and Disney’s Pop Century Resort at Walt Disney World, and by the Twilight Zone^TM Tower of Terror and the 50th anniversary celebration at Disneyland. Higher depreciation reflects new resort properties and theme park attractions as well as new information technology systems. These increases were partially offset by cost decreases due to the sale of the Anaheim Angels during the third quarter of fiscal 2003.

Worldwide home entertainment revenues increased due to higher DVD unit sales in fiscal 2004, which included Disney/ Pixar’s Finding Nemo, Pirates of the Caribbean, The Lion King Platinum Release and Brother Bear compared to fiscal 2003, which included Lilo & Stitch and Beauty and the Beast. Revenues in television distribution increased due to higher pay television sales due to better performances of live-action titles. Worldwide theatrical motion picture distribution revenue decreased

due to the performance of fiscal 2004 titles, which included Home on the Range, The Alamo and King Arthur, which faced difficult comparisons to the strong performances of fiscal 2003 titles, which included Finding Nemo (domestically) and Pirates of the Caribbean. Partially offsetting the decrease was the successful performance of Finding Nemo internationally in fiscal 2004.

Costs and expenses increased 19%, or $1.3 billion, compared to fiscal 2003. Higher costs and expenses were due to increases in worldwide home entertainment and worldwide theatrical motion picture distribution. Higher costs and expenses in worldwide home entertainment reflected higher distribution costs and production cost amortization for fiscal 2004 titles, primarily due to the increased unit sales volume for Finding Nemo and Pirates of the Caribbean. In addition, participation expense was higher in fiscal 2004 because of participation arrangements with Finding Nemo and Pirates of the Caribbean. Higher costs in worldwide theatrical motion picture distribution were due to increased distribution costs for fiscal 2004 titles, which included King Arthur, Brother Bear and The Village, and increased production cost amortization, including higher film cost write-downs, for fiscal 2004 titles which included Home on the Range and The Alamo. These increases were partially offset by lower production and development write-offs and lower participation expense as fiscal 2003 included participation payments for the domestic theatrical release of Finding Nemo and the worldwide theatrical release of Pirates of the Caribbean. Cost and expenses for television distribution were comparable year over year.

Higher Merchandise Licensing revenues were due to higher sales of hardlines, softlines and toys which were driven by the strong performance of Disney Princess and certain film properties. The increase at Publishing primarily reflected the strong performance of Finding Nemo and other childrens books and W.I.T.C.H. magazine and book titles across all regions.

Corporate and unallocated shared expenses decreased 3% in fiscal 2004 to $428 million. Fiscal 2004 corporate and unallocated shared expenses reflected the favorable resolution of certain legal matters, partially offset by higher legal and other administrative costs.

Excluding an increase of $51 million due to the consolidation of Euro Disney and Hong Kong Disneyland in fiscal 2004, interest expense decreased 13%, or $88 million, in fiscal 2004. Lower interest expense for fiscal 2004 was primarily due to lower average debt balances.

Interest and investment income (loss) was income of $28 million in fiscal 2004 compared to a loss of $13 million in fiscal 2003. Fiscal 2004 reflected higher interest income while fiscal 2003 included a loss on the early repayment of certain borrowings.

In fiscal 2004, we took a partial write-down of our investment with Delta due to our agreement with Delta to reduce lease payments. In fiscal 2003, we wrote off our investment in aircraft leveraged lease with United Airlines as a result of their bankruptcy filing.

The increase in equity in the income of our investees in fiscal 2004 reflected increases at Lifetime Television, due to lower programming and marketing expenses, as well as increases at A&E and E! Entertainment due to higher advertising revenues.

The effective income tax rate decreased from 35.0% in fiscal 2003 to 32.0% in fiscal 2004. The decrease in the fiscal 2004 effective income tax rate is primarily due to tax reserve adjustments including a $120 million reserve release as a result of the favorable resolution of certain federal income tax issues.

Cash and cash equivalents decreased by $319 million during the year ended October 1, 2005. The change in cash and cash equivalents is as follows:

The Company’s Studio and Media Networks segments incur costs to acquire and produce television and feature film programming. Film and television production costs include all internally produced content such as live action and animated feature films, animated direct-to-video programming, television series, television specials, theatrical stage plays or other similar product. Programming costs include film or television product licensed for a specific period from third parties for airing on the Company’s broadcast, cable networks and television stations. Programming assets are generally recorded when the programming becomes available to us with a corresponding increase in programming liabilities. Accordingly, we analyze our programming assets net of the related liability.


⁽¹⁾	Represents 100% of Euro Disney and Hong Kong Disneyland’s capital expenditures for all periods since the Company began consolidating the results of operations and cash flows of these two businesses effective with the beginning of the third quarter of fiscal 2004.

Capital expenditures for the Parks and Resorts segment are principally for theme park and resort expansion, new rides and attractions and recurring capital and capital improvements. The international park spending in 2005 primarily reflects Hong Kong Disneyland construction costs where capital expenditures totaled $591 million compared to the prior year amount of $251 million which

Capital expenditures at Media Networks primarily reflect investments in facilities and equipment for expanding and upgrading broadcast centers, production facilities and television station facilities.

Corporate and unallocated shared capital expenditures were primarily for information technology software and hardware.

During fiscal 2004, the Company purchased certain financial investments totaling $67 million, made equity contributions to Hong Kong Disneyland totaling $46 million in the first six months of the year prior to consolidation, and acquired the film library and intellectual property rights for the Muppets and Bear in the Big Blue House for $68 million ($45 million in cash).

During fiscal 2003, the Company invested $130 million primarily for the acquisition of a radio station. The Company also made equity contributions to Hong Kong Disneyland totaling $47 million and received proceeds of $166 million collectively from the sale of the Anaheim Angels and certain utility infrastructure at Walt Disney World.

During the year ended October 1, 2005, the Company’s borrowing activity was as follows:


⁽¹⁾	Other activity primarily includes adjustments related to interest rate hedging activity.

⁽²⁾	Other activity included a $130 million reduction of Euro Disney senior debt using cash security deposits and a $33 million decrease due to foreign currency translation as a result of the appreciation of the U.S. dollar against the Euro.

These bank facilities allow for borrowings at LIBOR-based rates plus a spread, which depends on the Company’s public debt rating and can range from 0.175% to 0.575%. As of October 1, 2005, the Company had not borrowed under these bank facilities. The Company also has the ability to issue up to $500 million of letters of credit under the facility expiring in 2009, which if utilized, reduces available borrowing. As of October 1, 2005, letters of credit in an aggregate amount of $210 million had been issued under this facility.

The Company expects to use commercial paper borrowings up to the amount of its unused bank facilities, in conjunction with term-debt issuance and operating cash flow, to retire or refinance other borrowings before or as they come due.

On January 18, 2005, the Company filed a shelf registration statement which allows the Company to borrow up to $5 billion using various types of debt instruments such as fixed or floating rate notes, U.S. dollar or foreign currency denominated notes, redeemable notes, global notes and dual currency or other indexed notes. The Company subsequently established a domestic medium-term note program under this shelf registration, which permits issuance of $5 billion of debt instruments, of which none have been issued at October 1, 2005. In addition to the shelf, the Company also has a European medium-term note program, which permits issuance of approximately $4 billion of additional debt instruments, of which $0.2 billion has been utilized at October 1, 2005.

The Company declared an annual dividend of $0.27 per share on December 1, 2005 related to fiscal 2005. The dividend is payable on January 6, 2006 to shareholders of record on December 12, 2005. The Company paid a $490 million dividend ($0.24 per share) during the second quarter of fiscal 2005 applicable to fiscal 2004; paid a $430 million dividend ($0.21 per share) during the second quarter of fiscal 2004 applicable to fiscal 2003; and paid a $429 million dividend ($0.21 per share) during the first quarter of fiscal 2003 applicable to fiscal 2002.

During fiscal 2005, the Company repurchased 91 million shares of Disney common stock for $2.4 billion. During fiscal 2004, the Company repurchased 15 million shares of Disney common stock for approximately $335 million. No shares of Disney common stock were repurchased during fiscal 2003. As of October 1, 2005, the Company had authorization to repurchase approximately 225 million additional shares, of which the Company has repurchased 47 million shares for $1.1 billion subsequent to year-end through December 2, 2005.

We believe that the Company’s financial condition is strong and that its cash balances, other liquid assets, operating cash flows, access to debt and 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 the Company’s performance as measured by certain credit metrics such as interest coverage and leverage ratios. As of October 1, 2005, Moody’s Investors Service’s long and short-term debt ratings for the Company were Baal and P-2, respectively, with positive outlook for the long-term rating; and Standard & Poor’s long and short-term debt ratings for the Company were A- and A-2, respectively, with stable outlook. The Company’s bank facilities contain only one financial covenant, relating to interest coverage, which the Company met on October 1, 2005, by a significant margin. The Company’s bank facilities also specifically exclude certain entities, including Euro Disney and Hong Kong Disneyland, from any representations, covenants or events of default.

Hong Kong Disneyland is subject to financial covenants under its loan agreements beginning in fiscal year 2006. Euro Disney has covenants under its debt agreements that limit its investing and financing activities. Beginning with fiscal year 2006, Euro Disney must meet financial performance covenants that will necessitate earnings growth. Management currently expects operating results to be sufficient to meet these covenants. There can be no assurance that the foregoing financial covenants will be met at any given time in the future.

The Company has various contractual obligations which are recorded as liabilities in our consolidated financial statements. Other items, such as certain purchase commitments and other executory contracts are not recognized as liabilities in our consolidated financial statements but are required to be disclosed. For example, the Company is contractually committed to acquire broadcast programming and make certain minimum lease payments for the use of property under operating lease agreements.

The following table summarizes our significant contractual obligations and commercial commitments on an undiscounted basis at October 1, 2005 and the future periods in which such obligations are expected to be settled in cash. In addition, the table reflects the timing of principal and interest payments on outstanding borrowings. Additional details regarding these obligations are provided in footnotes to the financial statements, as referenced in the table:


⁽¹⁾	Amounts exclude market value adjustments totaling $213 million, which are recorded on the balance sheet. Amounts include interest payments based on contractual terms and current interest rates for variable rate debt.


⁽²⁾	Other commitments primarily comprise creative talent and employment agreements including obligations to actors, producers, sports personnel, television and radio personalities and executives.

⁽³⁾	Comprised of the following:

The Company also has obligations with respect to its pension and post retirement medical benefit plans. See Note 8 to the Consolidated Financial Statements.

During the year, the Company entered into agreements with two suppliers to outsource certain information technology functions and support services. The transition of services to the new suppliers began in late July 2005. The terms of these agreements extend five to seven years with an option for the Company to extend for an additional two to three years. The Company will retain all responsibility and authority for systems architecture, technology strategy, and product standards under the agreements. Payments under these agreements are excluded from the table above because the payments vary depending on usage, but the Company anticipates spending approximately $1.3 billion for these services over the next seven years, which is less than what we estimate we would have spent had we not outsourced these functions.

The Company has a sole-source arrangement in the United States and a number of international markets with a third-party manufacturer to meet the Company’s DVD manufacturing and warehousing requirements which expires December 31, 2006. Payments under this arrangement are excluded from the table above since there are neither fixed nor minimum quantities under the arrangement. Total payments for fiscal 2005 were approximately $0.7 billion.

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 our significant accounting policies, including the accounting policies discussed below, see Note 2 to the Consolidated Financial Statements.

We expense the cost of film and television production and participations as well as certain 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 or on a straight-line basis, as appropriate. 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 significantly due to a variety of factors, including advertising rates, the level of market acceptance of the production and trends in consumer behavior.

For film productions, estimated remaining gross revenue from all sources includes revenue that will be earned within ten years of the date of the initial theatrical release. For television series, we include revenues that will be earned within ten years of the delivery of the first episode, or if still in production, five years from the date of delivery of the most recent episode, if later. For acquired film libraries, remaining revenues include amounts to be earned for up to twenty years from the date of acquisition.

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 applicable accounting rules. The net realizable value of the television broadcast program licenses and rights are reviewed using a daypart methodology. A daypart is defined as an aggregation of programs broadcast during a particular time of day or programs of a similar type. The Company’s dayparts are: early morning, daytime, late night, primetime, news, children and sports (includes network and cable). The net realizable values of other cable programming assets are reviewed on an aggregated basis for each cable channel. 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.

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. If we underestimate the level of returns in a particular period, we may record less revenue in later periods when returns exceed the predicted amount. Conversely, if we overestimate the level of returns for a period, we may have additional revenue in later periods when returns are less than predicted.

Revenues from advance theme park ticket sales are recognized when the tickets are used. For non-expiring, multi-day tickets and tickets sold through bulk distribution channels, we recognize revenue based on estimated usage patterns which are derived from historical usage patterns. A change in these estimated usage patterns could have an impact on the timing of revenue recognition.

The Company’s pension and postretirement medical benefit obligations and related costs are calculated using actuarial concepts, within the framework of Statement of Financial Accounting Standards No. 87 Employer’s Accounting for Pensions and Statement of Financial Accounting Standards No. 106, Employer’s Accounting for Postretirement Benefits Other than Pensions, respectively. Two critical assumptions, the discount rate and the expected return on plan assets, are important elements of expense and/or liability measurement. We evaluate these critical assumptions annually. Other assumptions include the healthcare cost trend rate and employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation increase.

The discount rate enables us to state expected future cash payments for benefits as a present value on the measurement date. The guideline for setting this rate is a high-quality long-term corporate bond rate. A lower discount rate increases the present value of benefit obligations and increases pension expense. We decreased our discount rate to 5.25% in 2005 from 6.30% in 2004 to reflect market interest rate conditions at our June 30, 2005 measurement date. The assumed discount rate for pension plans reflects the market rates for high-quality corporate bonds currently available. The Company’s discount rate was determined by considering the average of pension yield curves constructed of a large population of high quality corporate bonds. The resulting discount rate reflects the matching of plan liability cash flows to the yield curves. A one percent decrease in the assumed discount rate would increase total net periodic pension and postretirement medical expense for fiscal 2006 by $167 million and would increase the projected benefit obligation at October 1, 2005 by $1.1 billion, respectively. A one percent increase in the assumed discount rate would decrease these amounts by $139 million and $919 million, respectively.

To determine the expected long-term rate of return on the plan assets, we consider the current and expected asset allocation, as well as historical and expected returns on each plan asset class. A lower expected rate of return on pension plan assets will increase pension expense. Our long-term expected return on plan assets was 7.50% in both 2005 and 2004, respectively. A one percent change in the long-term return on pension plan asset assumption would impact fiscal 2006 annual pension and postretirement medical expense by approximately $36 million. See Note 8 to the Consolidated Financial Statements.

Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142) requires that goodwill and other intangible assets be tested for impairment on an annual basis. We completed our impairment testing as of October 1, 2005 and determined that there were no impairment losses related to goodwill and other intangible assets prior to the implementation of Emerging Issues Task Force Topic D-108, Use of the Residual Method to Value Acquired Assets Other than Goodwill (EITF D-108), as described under “Accounting Changes” below. In assessing the recoverability of goodwill and other intangible assets, market values and projections regarding estimated future cash flows and other factors are used 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.

SFAS 142 requires the Company to compare the fair value of each reporting unit to its carrying amount on an annual basis to determine if there is potential goodwill impairment. If the fair value of a reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the fair value of the goodwill within the reporting unit is less than the carrying value of its goodwill. For purposes of performing the impairment test for goodwill as required by SFAS 142 we established the following reporting units: Cable Networks, Television Broadcasting, Radio, Studio Entertainment, Consumer Products and Parks and Resorts.

To determine the fair value of our reporting units, we generally use a present value technique (discounted cash flow) corroborated by market multiples when available and as appropriate, except

for the Television Network, a business within the Television Broadcasting reporting unit. The Television Broadcasting reporting unit includes the Television Network and the owned and operated television stations. These businesses have been grouped together because their respective cash flows are dependent on one another. For purposes of our impairment test, we used a revenue multiple to value the Television Network. We did not use a present value technique or a market multiple approach to value the Television Network as a present value technique would not capture the full fair value of the Television Network and there is little comparable market data available due to the scarcity of television networks. We applied what we believe to be the most appropriate valuation methodology for each of the reporting units. If we had established different reporting units or utilized different valuation methodologies, the impairment test results could differ.

SFAS 142 requires the Company to compare the fair value of an indefinite-lived intangible asset to its carrying amount. If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized. Fair values for goodwill and other indefinite-lived intangible assets are determined based on discounted cash flows, market multiples or appraised values as appropriate.

The Company has cost and equity investments. The fair value of these investments is dependent on the performance of the investee companies, as well as volatility inherent in the external markets for these investments. In assessing potential impairment for these investments, we consider these factors as well as forecasted financial performance of our investees. If these forecasts are not met, impairment charges may be required.

We are currently involved in certain legal proceedings and, as required, have accrued estimates of the probable and estimable losses for the resolution of these claims. These estimates have been developed in consultation with outside counsel and are 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. See Note 13 to the Consolidated Financial Statements for more detailed information on litigation exposure.

As a matter of course, the Company is regularly audited by federal, state and foreign tax authorities. From time to time, these audits result in proposed assessments. During the fourth quarter of fiscal 2005, the Company reached settlements with the Internal Revenue Service regarding all assessments proposed with respect to its federal income tax returns for 1996 through 2000, and a settlement with the California Franchise Tax Board regarding assessments proposed with respect to its state tax returns for 1994 through 2003. These favorable settlements resulted in the Company releasing $102 million in tax reserves which are no longer required with respect to these matters. During the fourth quarter of fiscal 2004, the Company reached a settlement with the Internal Revenue Service regarding all assessments proposed with respect to its federal income tax returns for 1993 through 1995. The favorable settlement resulted in the Company releasing $120 million in tax reserves that are no longer required with respect to these matters. During the fourth quarter of fiscal 2003, the Company favorably resolved certain state income tax audit issues and released $56 million of related tax reserves.

Compensation expense for stock options is estimated on the grant date using a Black-Scholes option-pricing model. The weighted average assumptions used in the Black-Scholes model were 4.75, 6.0 and 6.0 years for the expected term and 27%, 40% and 40% for the expected volatility for fiscal years 2005, 2004 and 2003, respectively. Future expense amounts for any particular quarterly or annual period could be affected by changes in our assumptions or changes in market conditions.

In connection with the adoption of SFAS 123R (see Note 2 to the Consolidated Financial Statements), the Company reviewed and updated, among other things, its forfeiture, expected term and volatility assumptions. The weighted average expected option term for 2005 reflects the application of the simplified method set out in SEC Staff Accounting Bulletin No. 107 (SAB 107), which was issued in March 2005. The simplified method defines the life as the average of the contractual term of the options and the weighted average vesting period for all option tranches.

Estimated volatility for fiscal 2005 also reflects the application of SAB 107 interpretive guidance and, accordingly, incorporates historical and implied share-price volatility, with implied volatility derived from exchange traded options on the Company’s common stock and other traded financial instruments, such as the Company’s convertible debt. Volatility for 2004 and 2003 was estimated based upon historical share-price volatility. See Note 10 to the Consolidated Financial Statements for more detailed information.

In the fourth quarter of fiscal 2005, the Company adopted Statement of Financial Accounting Standards No. 123R, Share-Based Payment (SFAS 123R), which revises SFAS 123, Accounting for Stock-Based Compensation and supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). SFAS 123R requires that new, modified and unvested share-based payment transactions with employees, such as stock options and restricted stock, be recognized in the financial statements based on their fair value and recognized as compensation expense over the vesting period. The Company adopted SFAS 123R effective October 1, 2004, using the modified retrospective method. This method allows the restatement of interim financial statements in the year of adoption based on the amounts previously calculated and reported in the pro forma footnote disclosures required by SFAS 123. However, fiscal years prior to 2005 have not been restated. The adoption of SFAS 123R in fiscal 2005 resulted in the recognition of stock option expense of $253 million and $53 million of net capitalized compensation costs, a reduction in net income of $160 million (net of tax benefits of $93 million), a reduction in basic and diluted earnings per share of $0.08, a reduction of $24 million in cash flows from operating activities and an increase of $24 million in cash flows from financing activities.

The following table shows the fiscal 2005 quarterly after-tax effect of the adoption of the new accounting standard.


⁽¹⁾	Amounts represent income before the cumulative effect of accounting change related to EITF D-108 discussed below.

⁽²⁾	EPS does not equal the sum of the column due to rounding.

⁽³⁾	EPS for the year does not equal the sum of the quarters due to rounding.

Prior to fiscal 2005, employee stock options were accounted for under the intrinsic value method in accordance with APB 25 and its related interpretations, and were generally granted at market value. Accordingly, compensation expense for stock option awards was generally not recognized in the Consolidated Statements of Income. The following table reflects pro forma net income and earnings per share for the years ended September 30, 2004 and 2003, had the Company elected to adopt the fair value approach of SFAS 123 as reported in the footnotes to the Company’s financial statement for those years. The 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 or options may be cancelled in future years.


⁽¹⁾	Does not include restricted stock unit (RSU) expense which is reported in net income. See Note 10 to the Consolidated Financial Statements.

The impact of stock options and RSUs for fiscal 2005, and on a pro forma basis for fiscal 2004 and 2003 as if the Company had been expensing stock options as disclosed in our footnotes pursuant to SFAS 123, on income and earnings per share was as follows (in millions, except per share amounts):

In September 2004, the Emerging Issues Task Force (EITF) issued Topic No. D-108, Use of the Residual Method to Value Acquired Assets Other than Goodwill(EITF D-108). EITF D-108 requires that a direct value method be used to value intangible assets acquired in business combinations completed after September 29, 2004. EITF D-108 also requires the Company to perform an impairment test using a direct value method on all intangible assets that were previously valued using the residual method. Any impairments arising from the initial application of a direct value method are reported as a cumulative effect of accounting change. For radio station acquisitions subsequent to the acquisition of Capital Cities/ ABC, Inc. in 1996, the Company applied the residual value method to value the acquired FCC licenses. We adopted EITF D-108 for the fiscal year ended October 1, 2005 and recorded

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 152, Accounting for Real Estate Time-Sharing Transactions (SFAS 152). The FASB issued this statement as a result of guidance provided in American Institute of Certified Public Accountants Statement of Position 04-2, Accounting for Real Estate Time-Sharing Transactions (SOP 04-2), which applies to all real estate time-sharing transactions. SFAS 152 is effective for fiscal years beginning after June 15, 2005. We expect that the impact of adoption will not be material to our financial statements.

In January 2003, the FASB issued Interpretation No. 46R, Consolidation of Variable Interest Entities (FIN 46R). Variable interest entities (VIEs) are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision making ability. All VIEs with which the Company is involved must be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes.

In connection with the adoption of FIN 46R, the Company concluded that Euro Disney and Hong Kong Disneyland are VIEs and that we are the primary beneficiary. As a result, the Company began consolidating Euro Disney and Hong Kong Disneyland’s balance sheets on March 31, 2004, the end of the Company’s second quarter of fiscal 2004, and the income and cash flow statements beginning April 1, 2004, the beginning of the third quarter of fiscal 2004. Under FIN 46R transition rules, the operating results of Euro Disney and Hong Kong Disneyland continued to be accounted for on the equity method for the six months ended March 31, 2004. See Note 4 to the Consolidated Financial Statements.

We have concluded that the rest of our equity investments do not require consolidation as either they are not VIEs, or in the event that they are VIEs, we are not the primary beneficiary. The Company also has variable interests in certain other VIEs that have not been consolidated because the Company is not the primary beneficiary. These VIEs do not involve any material exposure to the Company.

The Company adopted EITF No. 00-21, Revenue Arrangements with Multiple Deliverables (EITF 00-21), effective at the beginning of fiscal 2003. EITF 00-21 addresses revenue recognition for revenues derived from a single contractual arrangement that contains multiple products or services. The rule provides additional requirements to determine when such revenues may be recorded separately for accounting purposes. Previously, the Company had recognized the NFL broadcast portion of ESPN’s affiliate revenue when the NFL games were aired, as ESPN’s affiliate contracts provided a basis for allocating such revenue between NFL and non-NFL programming. Since the cost of the NFL rights had also been recognized as the games were aired, the Company recognized both the NFL revenues and NFL costs in the quarters the games were aired.

Under EITF 00-21’s requirements for separating the revenue elements of a single contract, beginning in fiscal 2003 the Company no longer allocates ESPN’s affiliate revenue between NFL and non-NFL programming for accounting purposes. As a consequence, the Company no longer matches all NFL revenue with NFL costs, as ESPN affiliate revenue (including the NFL portion) is generally recognized ratably throughout the year, while NFL contract costs continue to be recognized in the quarters the games are aired. This accounting change impacts only the timing of revenue recognition and has no impact on cash flow. As a result of this change, the Media Networks segment reports

The Company elected to adopt this new accounting rule using the cumulative effect approach and recorded an after-tax charge of $71 million for the cumulative effect of a change in accounting as of the beginning of fiscal year 2003. This amount represented the revenue recorded for NFL games in the fourth quarter of fiscal year 2002, which has been recorded ratably over fiscal 2003 under the new accounting method.

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 and assumes conversion of the convertible senior notes (see Note 6 to the Consolidated Financial Statements). The dilution from outstanding employee options would increase if the Company’s share price increases, as shown below:


⁽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 assumed 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 year ended October 1, 2005 total 2,089 million and include the dilutive impact of in-the-money options at the average share price for the period of $26.76 and the assumed conversion of the convertible senior notes. At the average share price of $26.76, the dilutive impact of in-the-money options was 16 million shares for the year.

⁽³⁾	Based upon fiscal 2005 income before the cumulative effect of accounting change of $2.6 billion or $1.24 diluted earnings per share before the cumulative effect of accounting change.

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the Company. We may from time to time make written or oral statements that are “forward-looking,” including statements contained in this report and other filings with the Securities and Exchange Commission and in reports to our shareholders. Such statements may, for example, express expectations or projections about future actions that we may take, including restructuring or strategic initiatives, or about developments beyond our control including changes in domestic or global economic conditions. These statements are made on the basis of management’s views and assumptions as of the time the statements are made and we undertake no obligation to update these statements. There can be no assurance, however, that our expectations will necessarily come to pass. Significant factors affecting these expectations are set forth under Item 1A – Risk Factors of this Report on Form 10-K.

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

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

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

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

The Company utilizes a VAR model to estimate the maximum potential one-day loss in the fair value of its interest rate, foreign exchange and market sensitive equity financial instruments. The VAR model estimates were made assuming normal market conditions and a 95% confidence level. Various modeling techniques can be used in a VAR computation. The Company’s computations are based on the interrelationships between movements in various interest rates, currencies and equity prices (a variance/co-variance technique). These interrelationships were determined by observing interest rate, foreign currency and equity market changes over the preceding quarter for the calculation of VAR amounts at year end fiscal 2005. The model includes all of the Company’s debt as well as all interest rate and foreign exchange derivative contracts and market sensitive equity investments. Forecasted transactions, firm commitments and receivables and accounts payable denominated in foreign currencies, which certain of these instruments are intended to hedge, were excluded from the model.

The VAR model is a risk analysis tool and does not purport to represent actual losses in fair value that will be incurred by the Company, nor does it consider the potential effect of favorable changes in market factors.

VAR on a combined basis decreased from $31 million at September 30, 2004 to $21 million at October 1, 2005. The majority of the decrease is due to lower volatility and a lower market value of interest rate sensitive instruments.

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

The VAR for Euro Disney and Hong Kong Disneyland is immaterial as of October 1, 2005. In calculating the VAR it was determined that credit risks are the primary driver for changes in the value of Euro Disney’s debt rather than interest rate risks. Accordingly, we have excluded Euro Disney’s borrowings from the VAR calculation.

Evaluation of Disclosure Controls and Procedures – We have established disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the officers who certify the Company’s financial reports and to other members of senior management and the Board of Directors.

Based on their evaluation as of October 1, 2005, the principal executive officer and principal financial officer of the Company have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

Management’s Report on Internal Control Over Financial Reporting – Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control – Integrated Framework, our management concluded that our internal control

Changes in Internal Controls – In July 2005, the Company outsourced certain information technology functions and support services to two suppliers. The outsourced services primarily include management of applications, mainframes and servers. The Company retains all responsibility and authority for systems architecture, technology strategy and product standards. In connection with this outsourcing arrangement, management has implemented controls and monitoring over supplier processes that management believes are adequate to meet the Company’s control objectives over processes that could have a significant impact on the Company’s internal control over financial reporting. There have been no other significant changes in our internal control over financial reporting or in factors affecting internal control over financial reporting during the fiscal year ended October 1, 2005, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Information regarding Section 16(a) compliance, the Audit Committee, the Company’s code of ethics and background of the directors appearing under the captions “Section 16(a) Beneficial Ownership Reporting Compliance,” “Committees,” “Corporate Governance Guidelines and Code of Ethics” and “Election of Directors” in the Company’s Proxy Statement for the 2006 annual meeting of Shareholders is hereby incorporated by reference.

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

Information appearing under the captions “Director Compensation” and “Executive Compensation” (other than the Report of the Compensation Committee) in the 2006 Proxy Statement is hereby incorporated by reference.

Information setting forth the security ownership of certain beneficial owners and management appearing under the caption “Stock Ownership” and information appearing under the caption “Stock Options” in the 2006 Proxy Statement is hereby incorporated by reference.

Information regarding certain related transactions appearing under the captions “Certain Relationships and Related Party Transactions” and “Executive Compensation” in the 2006 Proxy statement is hereby incorporated by reference.

Information appearing under the captions “Auditor Fees and Services” and “Policy for Approval of Audit and Permitted Non-Audit Services” in the 2006 Proxy Statement is hereby incorporated by reference.


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


*	A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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

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

All schedules are omitted for the reason that they are not applicable or the required information is included in the financial statements or notes.

We have completed integrated audits of The Walt Disney Company’s 2005 and 2004 consolidated financial statements and of its internal control over financial reporting as of October 1, 2005 and an audit of its 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions on The Walt Disney Company’s 2005, 2004 and 2003 consolidated financial statements and on its internal control over financial reporting as of October 1, 2005, based on our audits, are presented below.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, shareholders’ equity and cash flows present fairly, in all material respects, the financial position of The Walt Disney Company and its subsidiaries (the Company) at October 1, 2005 and September 30, 2004, and the results of their operations and their cash flows for each of the three years in the period ended October 1, 2005 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

During the year ended October 1, 2005, the Company adopted SFAS No. 123R Share-Based Payment and began expensing share-based awards as of October 1, 2004. The Company also adopted EITF Topic D-108 Use of the Residual Method to Value Acquired Assets Other Than Goodwill, changing to the “direct method” of valuing all FCC licenses. During the year ended September 30, 2004, the Company adopted FASB Interpretation 46R, Consolidation of Variable Interest Entities and, accordingly, began consolidating Euro Disney and Hong Kong Disneyland as of March 31, 2004. During the year ended September 30, 2003, the Company adopted EITF No. 00-21, Revenue Arrangements with Multiple Elements, changing the timing of revenue from certain contracts. These accounting changes are discussed in Note 2 to the consolidated financial statements.

Also, in our opinion, management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of October 1, 2005 based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October 1, 2005, based on criteria established in Internal Control – Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about

whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Walt Disney Company, together with the subsidiaries through which the Company’s businesses are conducted (the Company), is a diversified worldwide entertainment company with operations in the following business segments: Media Networks, Parks and Resorts, Studio Entertainment and Consumer Products.

The Company operates the ABC Television Network and ten owned television stations and the ABC Radio Networks and 71 owned radio stations. Both the television and radio networks have affiliated stations providing coverage to households throughout the United States. Most of the owned television and radio stations are affiliated with either the ABC Television Network or the ABC Radio Networks. The Company has cable/satellite and international broadcast operations which are principally involved in the production and distribution of cable television programming, the licensing of programming to domestic and international markets and investing in foreign television broadcasting, production and distribution entities. Primary cable/satellite programming services, which operate through consolidated subsidiary companies, are the ESPN-branded networks, Disney Channel, International Disney Channel, SOAPnet, Toon Disney, ABC Family Channel and JETIX channels in Europe and Latin America. Other programming services that operate through joint ventures, and are accounted for under the equity method, include A&E Television Networks, Lifetime Entertainment Services and E! Entertainment Television. The Company also produces original television programming for network, first-run syndication, pay and international syndication markets along with original animated television programming for network, pay and international syndication markets. Additionally, the Company operates ABC-, ESPN-, and Disney-branded Internet Web site businesses.

The Company owns and operates the Walt Disney World Resort in Florida and the Disneyland Resort in California. The Walt Disney World Resort includes four theme parks (the Magic Kingdom, Epcot, Disney-MGM Studios and Disney’s Animal Kingdom), seventeen resort hotels, a retail, dining and entertainment complex, a sports complex, conference centers, campgrounds, golf courses, water parks and other recreational facilities. In addition, Disney Cruise Line is operated out of Port Canaveral, Florida. The Disneyland Resort includes two theme parks (Disneyland and Disney’s California Adventure), three resort hotels and Downtown Disney. The Company earns royalties on revenues generated by the Tokyo Disneyland Resort, which includes two theme parks and two Disney-branded hotels, near Tokyo, Japan, and is owned and operated by an unrelated Japanese corporation. The Company manages and has a 40% equity interest in Euro Disney S.C.A. (Euro Disney), a publicly-held French entity that is a holding company for Euro Disney Associés S.C.A. (Disney S.C.A.), in which the Company has a direct 18% interest. Consequently, the Company has a 51% effective ownership interest in Disney S.C.A., the primary operating company of Disneyland Resort Paris, which includes the Disneyland Park, the Walt Disney Studios Park, seven themed hotels, two convention centers, the Disney Village, a shopping, dining and entertainment center and a 27-hole golf facility. The Company also manages and has a 43% equity interest in Hong Kong Disneyland, which opened September 2005. During fiscal 2004, the Company began consolidating the results of Euro Disney and Hong Kong Disneyland (see Notes 2 and 4). The Company’s Walt Disney Imagineering unit designs and develops new theme park concepts and attractions, as well as resort properties. The Company also manages and markets vacation ownership interests through the Disney

The Company produces and acquires live-action and animated motion pictures for worldwide distribution to the theatrical, home entertainment and television markets. The Company distributes these products through its own distribution and marketing companies in the United States and most foreign markets primarily under the Walt Disney Pictures, Touchstone Pictures, Miramax and Dimension (for titles released prior to September 30, 2005) banners. The Company also produces stage plays and musical recordings.

The Company licenses the name “Walt Disney,” as well as the Company’s characters and visual and literary properties, to various manufacturers, retailers, show promoters and publishers throughout the world. The Company also engages in retail distribution, principally through The Disney Store. The Company publishes books and magazines for children and families, computer software products for the entertainment market, as well as film, video and computer software products for the educational marketplace. The Company’s Direct Marketing business operates The Disney Catalog, which markets Disney-themed merchandise through the direct mail channel. Catalog offerings include merchandise developed exclusively for The Disney Catalog and DisneyDirect.com, which is an internet shopping site, as well as other internal Disney businesses and Disney licensees.

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

The following segment results include allocations of certain costs, including certain information technology, pension, legal and other shared services costs, which are allocated based on various metrics designed to correlate with consumption. In addition, while all significant intersegment transactions have been eliminated, Studio Entertainment revenues and operating income include an allocation of Consumer Products revenues, which is meant to reflect royalties on Consumer Products sales of merchandise based on certain Studio film properties. These allocations are agreed-upon


				Name of Each Exchange
Title of Each Class				on Which Registered

Common Stock, $.01 par value				New York Stock Exchange and Pacific Stock Exchange
7% Quarterly Interest Bonds due 2031				New York Stock Exchange


		Page

PART I

ITEM 1.	Business		1

ITEM 1A.	Risk Factors		21

ITEM 1B.	Unresolved Staff Comments		25

ITEM 2.	Properties		26

ITEM 3.	Legal Proceedings		26

ITEM 4.	Submission of Matters to a Vote of Security Holders		28

Executive Officers of the Company			28

PART II

ITEM 5.	Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		30

ITEM 6.	Selected Financial Data		31

ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		33

ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk		63

ITEM 8.	Financial Statements and Supplementary Data		64

ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		64

ITEM 9A.	Controls and Procedures		64

ITEM 9B.	Other Information		65

PART III

ITEM 10.	Directors and Executive Officers of the Company		66

ITEM 11.	Executive Compensation		66

ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		66

ITEM 13.	Certain Relationships and Related Transactions		66

ITEM 14.	Principal Accountant Fees and Services		66

PART IV

ITEM 15.	Exhibits and Financial Statement Schedules		67

SIGNATURES			71

Consolidated Financial Information — The Walt Disney Company			73


					Television
			Analog		Market
Market	TV Station		Channel		Ranking⁽¹⁾

New York, NY		WABC-TV		7		1
Los Angeles, CA		KABC-TV		7		2
Chicago, IL		WLS-TV		7		3
Philadelphia, PA		WPVI-TV		6		4
San Francisco, CA		KGO-TV		7		6
Houston, TX		KTRK-TV		13		11
Raleigh-Durham, NC		WTVD-TV		11		29
Fresno, CA		KFSN-TV		30		58
Flint, MI		WJRT-TV		12		65
Toledo, OH		WTVG-TV		13		70


			Subscribers
Property	Ownership %		(in millions)

ESPN⁽¹⁾		80.0		90
ESPN2⁽¹⁾		80.0		89
ESPN Classic⁽¹⁾		80.0		58
ESPNEWS⁽¹⁾		80.0		46
Disney Channel⁽¹⁾		100.0		87
International Disney Channels⁽²⁾		100.0		42
Toon Disney⁽¹⁾		100.0		50
SOAPnet⁽¹⁾		100.0		44
ABC Family Channel⁽¹⁾		100.0		89
JETIX Europe⁽²⁾		74.4		42
JETIX Latin America⁽²⁾		100.0		12
A&E⁽¹⁾		37.5		90


			Subscribers
Property	Ownership %		(in millions)

The History Channel⁽¹⁾		37.5		89
The Biography Channel⁽¹⁾		37.5		35
History International⁽¹⁾		37.5		35
A&E International⁽²⁾		37.5		60
Lifetime Television⁽¹⁾		50.0		90
Lifetime Movie Network⁽²⁾		50.0		46
Lifetime Real Women⁽²⁾		50.0		14
E! Entertainment Television⁽¹⁾		39.6		87
Style⁽¹⁾		39.6		41


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


Channel	Launch Date

Taiwan		March 1995
UK		October 1995
Australia		June 1996
Malaysia⁽¹⁾		October 1996
France		March 1997
Middle East		April 1997
Spain		April 1998
Italy		October 1998
Germany		October 1999
Philippines⁽¹⁾		January 2000
Singapore⁽¹⁾		February 2000
Brunei⁽¹⁾		February 2000
North Latin America⁽²⁾		July 2000
South Latin America⁽²⁾		July 2000
Brazil		April 2001
Portugal		November 2001
South Korea⁽¹⁾		March 2002
Indonesia⁽¹⁾		July 2002
Sweden⁽³⁾		February 2003
Norway⁽³⁾		February 2003
Denmark⁽³⁾		February 2003
Japan		November 2003
New Zealand⁽⁴⁾		December 2003
Hong Kong⁽¹⁾		March 2004
India		December 2004


Location	Property/ Approximate Size	Use	Business Segment⁽¹⁾

Burbank, CA	Land (51 acres) & Buildings (2,400,000 ft²)	Owned Office/Production/Warehouse	Corp/Studio/Media/CP
Burbank, CA & surrounding cities	Buildings (1,100,000 ft²)	Leased Office/ Warehouse	Corp/ Studio/ Media/CP
Glendale, CA & surrounding cities	Land (125 acres) & Buildings (2,300,000 ft²)	Owned Office/Warehouse (includes 660,000 ft²sublet to third party tenants)	Corp/ Studio/ Media/CP/ TP&R
Glendale, CA	Building (300,000 ft²)	Leased Office/ Warehouse (includes 80,000 ft²sublet to third party tenants)	Corp/CP
Los Angeles, CA	Land (22 acres) & Building (600,000 ft²)	Owned Office/ Production/ Technical	Media
New York, NY	Land (6.5 acres) & Building (1,400,000 ft²)	Owned Office/ Production/ Technical	Media
New York, NY	Buildings (800,000 ft²)	Leased Office/ Production/ Warehouse (includes 10,000 ft ²sublet to third party tenants)	Corp/ Studio/ Media/CP
Bristol, CT	Land (74 acres) & Buildings (600,000 ft²)	Owned Office/ Production/ Technical	Media
Bristol, CT	Buildings (400,000 ft²)	Leased Office/ Warehouse/ Technical	Media
USA & Canada	Buildings (Multiple sites and sizes)	Office/ Production/ Transmitter/ Retail/ Warehouse (includes 25,000 ft²sublet to third party tenants)	Studio/ CP/Media
England	Building (330,000 ft²)	Owned Office/ Retail	Corp/ Studio/ Media/CP
Europe, Asia, Australia & Latin America	Buildings (Multiple sites and sizes)	Office/ Retail/ Warehouse	Corp/ Studio/ Media/CP


				Executive
Name	Age		Title	Officer Since

Michael D. Eisner		63	Chief Executive Officer⁽¹⁾		1984
Robert A. Iger		54	President and Chief Operating Officer⁽²⁾		2000
Thomas O. Staggs		44	Senior Executive Vice President and Chief Financial Officer		1998
Alan N. Braverman		57	Senior Executive Vice President, General Counsel and Secretary⁽³⁾		2003
Christine M. McCarthy		50	Executive Vice President, Corporate Finance and Real Estate and Treasurer⁽⁴⁾		2005


ITEM 5.	Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities



	Sales Price

	High		Low

2005
4th Quarter	$	26.50	$	22.90
3rd Quarter		29.00		24.96
2nd Quarter		29.99		27.05
1st Quarter		28.03		22.51
2004
4th Quarter	$	25.50	$	20.88
3rd Quarter		26.65		21.39
2nd Quarter		28.41		22.90
1st Quarter		23.76		20.36


					Total Number of
					Shares Purchased
					as Part of		Maximum Number of
	Total Number				Publicly		Shares that May Yet Be
	of Shares		Average Price		Announced Plans		Purchased Under the
Period	Purchased⁽¹⁾		Paid per Share		or Programs		Plans or Programs⁽²⁾

July 3, 2005 – July 30, 2005		138,609	$	25.52		—		267 million
July 31, 2005 – August 27, 2005		13,137,630	$	25.98		13,000,400		254 million
August 28, 2005 – October 1, 2005		29,523,525	$	24.55		29,339,300		225 million

Total		42,799,764	$	24.99		42,339,700		225 million


				2005⁽¹⁾			2004⁽²⁾			2003⁽³⁾			2002⁽⁴⁾			2001⁽⁵⁾


Statements of income
	Revenues			$	31,944		$	30,752		$	27,061		$	25,329		$	25,172
	Income before the cumulative effect of accounting change				2,569			2,345			1,338			1,236			120
	Per common share
		Earnings before the cumulative effect of accounting change:
			Diluted	$	1.24		$	1.12		$	0.65		$	0.60		$	0.11
			Basic		1.27			1.14			0.65			0.61			0.11
		Dividends			0.24			0.21			0.21			0.21			0.21
Balance sheets
	Total assets			$	53,158		$	53,902		$	49,988		$	50,045		$	43,810
	Borrowings				12,467			13,488			13,100			14,130			9,769
	Shareholders’ equity				26,210			26,081			23,791			23,445			22,672
Statements of cash flows
	Cash provided (used) by:
		Operating activities		$	4,269		$	4,370		$	2,901		$	2,286		$	3,048
		Investing activities			(1,691	)		(1,484	)		(1,034	)		(3,176	)		(2,015	)
		Financing activities			(2,897	)		(2,701	)		(1,523	)		1,511			(1,257	)


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



											change

											2005			2004
											vs.			vs.
		2005			2004			2003			2004			2003

Revenues		$	31,944		$	30,752		$	27,061			4	%		14	%
Costs and expenses			(27,837	)		(26,704	)		(24,348	)		4	%		10	%
Gain on sale of businesses and restructuring and impairment charges			(6	)		(64	)		—			(91	)%		nm
Net interest expense			(597	)		(617	)		(793	)		(3	)%		(22	)%
Equity in the income of investees			483			372			334			30	%		11	%

Income before income taxes, minority interests and the cumulative effect of accounting changes			3,987			3,739			2,254			7	%		66	%
Income taxes			(1,241	)		(1,197	)		(789	)		4	%		52	%
Minority interests			(177	)		(197	)		(127	)		(10	)%		55	%

Income before the cumulative effect of accounting changes			2,569			2,345			1,338			10	%		75	%
Cumulative effect of accounting changes			(36	)		—			(71	)		nm			nm

Net income		$	2,533		$	2,345		$	1,267			8	%		85	%

Earnings per share before the cumulative effect of accounting changes:
	Diluted⁽¹⁾	$	1.24		$	1.12		$	0.65			11	%		72	%

	Basic	$	1.27		$	1.14		$	0.65			11	%		75	%

Cumulative effect of accounting changes per share		$	(0.02	)	$	—		$	(0.03	)		nm			nm

Earnings per share:
	Diluted⁽¹⁾	$	1.22		$	1.12		$	0.62			9	%		81	%

	Basic	$	1.25		$	1.14		$	0.62			10	%		84	%

Average number of common and common equivalent shares outstanding:
	Diluted		2,089			2,106			2,067

	Basic		2,028			2,049			2,043


ITEM 1.	Business


ITEM 6.	Selected Financial Data



								change

								2005			2004
								vs			vs
(in millions)		2005		2004		2003		2004			2003

Revenues:
	Networks	$	13,207	$	11,778	$	10,941		12	%		8	%
	Parks and Resorts		9,023		7,750		6,412		16	%		21	%
	Studio Entertainment		7,587		8,713		7,364		(13	)%		18	%
	Consumer Products		2,127		2,511		2,344		(15	)%		7	%

		$	31,944	$	30,752	$	27,061		4	%		14	%

Segment operating income:
	Media Networks	$	2,749	$	2,169	$	1,213		27	%		79	%
	Parks and Resorts		1,178		1,123		957		5	%		17	%
	Studio Entertainment		207		662		620		(69	)%		7	%
	Consumer Products		520		534		384		(3	)%		39	%

		$	4,654	$	4,488	$	3,174		4	%		41	%



	East Coast						West Coast						Total Domestic
	Resorts						Resorts						Resorts


	Year Ended						Year Ended						Year Ended

	Oct. 1,			Sept. 30,			Oct. 1,			Sept. 30,			Oct. 1,			Sept. 30,
	2005			2004			2005			2004			2005			2004

Occupancy		83	%		77	%		90	%		87	%		83	%		78	%
Available Room Nights (in thousands)		8,777			8,540			810			816			9,587			9,356
Per Room Guest Spending	$	199		$	198		$	272		$	253		$	206		$	204



	Minimum Liability
	at Fiscal Year End
					Increase
	2005		2004		in 2005

Pretax	$	1,124	$	415	$	709
Aftertax	$	709	$	261	$	448



	East Coast						West Coast						Total Domestic
	Resorts						Resorts						Resorts


	Year Ended						Year Ended						Year Ended
	September 30,						September 30,						September 30,

	2004			2003			2004			2003			2004			2003

Occupancy		77	%		76	%		87	%		83	%		78	%		77	%
Available Room Nights (in thousands)		8,540			7,550			816			816			9,356			8,366
Per Room Guest Spending	$	198		$	202		$	253		$	245		$	204		$	206


			September 30,							Other			October 1,
(in millions)			2004		Additions		Payments			Activity			2005

Commercial paper			$	100	$	654	$	—		$	—		$	754
	U.S. medium-term notes and other U.S. dollar denominated debt⁽¹⁾			7,573		—		(778	)		(167	)		6,628
	Convertible senior notes			1,323		—		—			—			1,323
	Privately placed debt			254		—		(96	)		—			158
	European medium-term notes			1,099		—		(886	)		—			213
	Preferred stock			373		—		—			(10	)		363
	Film financing arrangement			—		75		—			—			75
	Euro Disney borrowings⁽²⁾			2,221		—		(15	)		(170	)		2,036
	Hong Kong Disneyland borrowings			545		347		—			25			917

		Total	$	13,488	$	1,076	$	(1,775	)	$	(322	)	$	12,467


		Committed		Capacity		Unused
(in millions)		Capacity		Used		Capacity

Bank facilities expiring 2009		$	2,250	$	210	$	2,040
Bank facilities expiring 2010			2,250		—		2,250

	Total	$	4,500	$	210	$	4,290



		Payments Due by Period

				Less than		1-3		4-5		More than
(in millions)		Total		1 Year		Years		Years		5 Years

Borrowings (Note 6)⁽¹⁾		$	18,916	$	2,855	$	3,110	$	1,214	$	11,737
Operating lease commitments (Note 13)			1,636		279		457		320		580
Capital lease obligations (Note 13)			934		44		129		88		673
Sports programming commitments (Note 13)			15,837		2,524		4,275		3,418		5,620
Broadcast programming commitments (Note 13)			3,720		1,650		1,006		619		445

	Total sports and other broadcast programming commitments		19,557		4,174		5,281		4,037		6,065
Other⁽²⁾			2,079		887		808		288		96

Total contractual obligations⁽³⁾		$	43,122	$	8,239	$	9,785	$	5,947	$	19,151


Liabilities recorded on the balance sheet	$	13,635
Commitments not recorded on the balance sheet		29,487

	$	43,122



	Three Months						Three Months						Three Months						Three Months
	Ended Jan. 1,						Ended April 2,						Ended July 2,						Ended Oct. 1,						Year Ended
	2005						2005						2005						2005						Oct. 1, 2005
(in millions, except
per share data)	Income			EPS			Income			EPS			Income			EPS			Income			EPS⁽²⁾			Income			EPS

Results prior to SFAS 123R adoption⁽¹⁾	$	723		$	0.35		$	698		$	0.33		$	851		$	0.41		$	457		$	0.23		$	2,729		$	1.32
Impact of accounting change		(37	)		(0.02	)		(41	)		(0.02	)		(40	)		(0.02	)		(42	)		(0.02	)		(160	)		(0.08	)

Results subsequent to SFAS 123R adoption⁽¹⁾	$	686		$	0.33		$	657		$	0.31		$	811		$	0.39		$	415		$	0.20		$	2,569		$	1.24


(in millions, except per share data)		2004			2003

Net income
	As reported	$	2,345		$	1,267
	Less stock option expense, net of tax⁽¹⁾		(255	)		(294	)

	Pro forma after option expense	$	2,090		$	973

Diluted earnings per share
	As reported	$	1.12		$	0.62
	Pro forma after option expense		1.00			0.48
Basic earnings per share
	As reported	$	1.14		$	0.62
	Pro forma after option expense		1.02			0.48



			Pro Forma
	As Reported
	2005		2004		2003

Stock option compensation expense	$	253	$	405	$	466
RSU compensation expense		127		66		20

Total equity based compensation expense	$	380	$	471	$	486

Reduction in net income, net of tax	$	240	$	297	$	307

Reduction in diluted earnings per share	$	0.11	$	0.14	$	0.15


Average		Total					Percentage of			Hypothetical
Disney		In-the-Money		Incremental			Average Shares			FY 2005 EPS
Share Price		Options		Diluted Shares⁽¹⁾			Outstanding			Impact⁽³⁾

$	26.76		132 million		—	⁽²⁾		—		$	0.00
	30.00		161 million		7 million			0.34	%		(0.00	)
	40.00		219 million		34 million			1.63	%		(0.02	)
	50.00		226 million		53 million			2.54	%		(0.03	)


ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk


	Interest Rate		Currency
	Sensitive		Sensitive		Equity Sensitive
	Financial		Financial		Financial		Combined
Fiscal Year 2005	Instruments		Instruments		Instruments		Portfolio

Year end VAR	$	24	$	12	$	1	$	21
Average VAR	$	29	$	14	$	1	$	28
Highest VAR	$	32	$	16	$	1	$	36
Lowest VAR	$	24	$	12	$	0	$	21
Beginning of year VAR (year end fiscal 2004)	$	33	$	17	$	0	$	31


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


ITEM 10.	Directors and Executive Officers of the Company


ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


ITEM 13.	Certain Relationships and Related Transactions


	See Index to Financial Statements and Supplemental Data at page 73.


	Exhibit	Location

3(a)	Amended and Restated Certificate of Incorporation of the Company	Annex C to the Joint Proxy Statement/ Prospectus included in the Registration Statement on Form S-4 (No. 333-88105) of the Company, filed Sept. 30, 1999
3(b)	Bylaws of the Company	Exhibit 3.1 to the Report on Form 8-K of the Company dated August 18, 2005
4(a)	Five-Year Credit Agreement, dated as of February 25, 2004	Exhibit 10(a) to the Form 10-Q of the Company for the period ended March 31, 2004
4(b)	Letter Amendment dated as of February 23, 2005, to Five-Year Credit Agreement dated as of February 25, 2004	Exhibit 10(b) to the Current Report on Form 8-K of the Company dated February 25, 2005
4(c)	Five-Year Credit Agreement dated as of February 23, 2005	Exhibit 10(a) to the Current Report on Form 8-K of the Company dated February 25, 2005
4(d)	364-day Credit Agreement dated as of February 25, 2004	Exhibit 10(b) to the Form 10-Q of the Company for the period ended March 31, 2004
4(e)	Indenture, dated as of Nov. 30, 1990, between DEI and Bankers Trust Company, as Trustee	Exhibit 2 to the Current Report on Form 8-K of DEI, dated Jan. 14, 1991
4(f)	Indenture, dated as of Mar. 7, 1996, between the Company and Citibank, N.A., as Trustee	Exhibit 4.1(a) to the Current Report on Form 8-K of the Company, dated March 7, 1996
4(g)	Senior Debt Securities Indenture, dated as of September 24, 2001, between the Company and Wells Fargo Bank, N.A., as Trustee	Exhibit 4.1 to the Current Report on Form 8-K of the Company, dated September 24, 2001
4(h)	Other long-term borrowing instruments are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. The Company undertakes to furnish copies of such instruments to the Commission upon request
10(a)	(i) Agreement on the Creation and the Operation of Euro Disneyland en France, dated Mar. 25, 1987, and (ii) Letter relating thereto of the Chairman of Disney Enterprises, Inc., dated Mar. 24, 1987	Exhibits 10(b) and 10(a), respectively, to the Current Report on Form 8-K of DEI, dated Apr. 4, 1987