To Disney Owners and Fellow Employees:

Michael D. Eisner Chairman and Chief Executive Officer

Last week I was trying to write this letter in the living room of my family's farmhouse in Saxtons River, Vermont, where I have been going for the Thanksgiving holidays for 35 years. At my side was the cover of the annual report with its hundred and one dalmatians staring at me, begging me to begin. But I was stuck. The Florida/Florida State football game, broadcast on ABC, was in the background and I found myself looking up every time I saw a McDonald's/dalmatians commercial. Cute dalmatians everywhere, each one saying, "Get to work." But then there was this overwhelmingly positive review from a Boston television station for our movie The English Patient that I had to listen to, and of course I had to take a call from Florida reporting excellent attendance at Walt Disney World. I then called our European headquarters to learn that The Hunchback of Notre Dame opened with extraordinary results in 12 territories, including France, Germany, Belgium, Switzerland and Holland. This motivated me to make more calls: dialing, still not typing. I found out The Rock would likely become the biggest home video rental of all time and that Toy Story's video release was selling at superb rates. Finally I got the call that unlocked my procrastination. 101 Dalmatians was a smash. It would break every possible record at the box office for the Thanksgiving break. It was huge, massive! Now, as soon as the Mighty Ducks hockey game against the Chicago Blackhawks at the Pond in Anaheim on ESPN was over, I would finally begin to work. We wouldn't have to change the cover of our annual report. The Dalmatians had come through!

As I started to write, I thought about how thankful I was for not only Disney's good fortune, but for the continuity of the gathering of my family and the sense of support I get from it. At the same time, I am aware that nothing stays the same. The joy of welcoming new members into our family, by birth and by marriage, is offset by losses. This summer, my mother and mother-in-law passed away. Jane, my wife, and I feel the losses keenly. And perhaps that is why I find myself in a more reflective mood than usual.

I have thought a great deal about Disney's future in recent years. It has been more than three years since I walked into the late Frank Wells' office and said to him, "We really have to start thinking about reinventing Disney—again." The last two companies I worked for, ABC in the '60s and early '70s and Paramount in the '70s and early '80s, had become number one in their respective industries, only to begin to stagnate after a decade of success. Some executives grew complacent and self-satisfied. Talking about past successes replaced original thinking and risk-taking. I had found over my career that managing your way out of failure is often easier than managing sustained success. I wanted to get control of the seven-year itch before it became a rash—I wanted to be decisive. I wanted to give specific direction to our employees.

It was like a parenting conversation. You know (kind of) what your children should do, (kind of) the direction they should go, and how to (kind of) explain new math. But you have to do it with authority and confidence. I knew it was time to move executives around, in order to re-excite them about their work and their lives. I knew we would have to change the company, take some chances, enter new businesses, even make outside acquisitions. I also knew that we would have to continue to nurture and protect the Disney brand and to reaffirm core values such as our commitment to quality and service, which had made us so successful in the first place. And I knew that reinvention represented a delicate balancing act. After a lot of talk, I finally suggested to Frank that we should write a book. By doing so we would document what we were doing and place discipline and a timetable behind it. I just knew that I would be most effective with a deadline to meet, a hurdle to jump. A book would provide both.

Frank died a year into the book. We never expected the reinvention to take a tragic step. But it did. I have continued writing the book, now in its third year and finally reaching completion. It has evolved, but basically it is still subtly about change. It is about creating change before change creates you. Writing the book has prompted me not only to look forward, at new opportunities and challenges, but backward—both at the remarkable company that Walt built and the lessons I learned during the two decades I spent at ABC and Paramount and my first decade at Disney. Those reflections have helped in planning where The Walt Disney Company should go in the future.

Over the last decade the Disney Company has grown 610 percent, and almost half of that growth has come from businesses that did not exist in 1985. This year we closed the acquisition of Capital Cities/ABC, which further adds to the size and breadth of the company.

The list of businesses that are new to Disney since 1984 includes:

· international film distribution;

· television broadcasting;

· television station ownership;

· expanded ownership of cable systems;

· radio and radio network broadcasting;

· ownership of radio stations;

· newspaper, magazine and book publishing;

· The Disney Stores;

· the convention business;

· live theatrical entertainment;

· home video production;

· interactive computer programs and games;

· online computer programs;

· sites on the World Wide Web;

· ownership of professional sports teams;

· telephone company partnership (Americast) to produce and provide programming for distribution over home telephone lines; and coming over the next 12 to 18 months,

· Disney Regional Entertainment, which will include a variety of new Disney entertainment and education ventures at locations around the country and the world; and

· Disney Cruise Line.

We have had a staff lunch every Monday for the last 12 years. This is the place where we talk about our achievements, agonize over our failures and plot our future. It is pretty much a free-for-all where anything can be said and no feelings should be hurt. It is here where our company creates synergy, and now with the acquisition of ABC, the avenues of additional cross-pollination are awesome. For every ten bad ideas, there is one good one; and for every ten good ones, there is one that is practical. And if we get one practical good idea every fourth lunch, we will grow and change the company. I don't think a business school could teach this kind of management. It's a little loose. But it works for us. So we'll keep it.

The experience of accomplishment or quiet appreciation (who am I kidding? I never stop talking about it) really struck home for me during the kick-off of Walt Disney World's 25th anniversary and celebration, which continues throughout 1997. During a round of openings and dedication ceremonies in which I traveled around our giant Florida property, I was suddenly aware of how much the resort has grown and changed since I first joined Disney in 1984.

In 1971, the year the Magic Kingdom opened, Walt Disney World consisted of one theme park and a total of 1,808 hotel rooms on property.

By the time I came aboard a dozen years ago, there were two theme parks, 6,373 rooms on property, one small water park and 26,000 square feet of convention space.

The Walt Disney World I visit today has three theme parks, 23,421 rooms on property, two very large water parks in addition to the original, two nighttime entertainment centers and two vacation club complexes. It also has 234,000 square feet of convention space, six championship golf courses and an Indy Car race track.

And the growth continues. Next year we will add 2,000 more rooms and a 95,000-square-foot convention center at the new Disney's Coronado Springs Hotel, not to mention our giant new sports complex, which will be home to the U.S. Amateur Athletic Union (AAU), the spring training site for the Atlanta Braves and the training site for the Harlem Globetrotters.

And to top it off we will open our largest theme park ever, Disney's Animal Kingdom, in early 1998. That is the same year we also will launch our two new Disney cruise ships, which will allow us to offer vacations that combine visits to Walt Disney World with a Caribbean cruise. Meanwhile, we are finally moving forward on a second theme park called Disney's California Adventure adjacent to Disneyland in Anaheim, and plans are also in advanced stages for Tokyo DisneySea, a second theme park adjacent to Tokyo Disneyland.

Our theme parks and resorts segment remains a strong growth business. The Disney style of vacationing with its diverse range of entertainment, educational and athletic experiences that can be found nowhere else continues to grow in popularity among people of all ages from every part of the world. So long as we design with unlimited imagination, attain the highest levels of quality in our execution and maintain our standards for the finest hospitality —goals to which we are firmly committed—our theme parks and resorts will continue to grow and flourish. (continued)