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MANAGEMENT ’ S DISCUSSION AND ANALSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

In the fourth quarter of 1999, the company changed the manner in which it reports its operating segments. In addition, intangible asset amortization has been excluded from segment results and reported as a separate component of operating income (see Notes 1 and 11 to the Consolidated Financial Statements).

    Accordingly, the company now reports five operating segments:
  Media Networks, which is broken into two categories, Broadcasting and Cable Networks. Broadcasting includes the ABC Television Network, the company’s television stations and radio stations, and the ABC, ESPN and Radio Disney Radio Networks. Cable Networks consists of the ESPN-branded cable networks, the Disney Channel and start-up cable operations, including Toon Disney and the soon-to-be launched SoapNet;
  Studio Entertainment, which includes the company’s feature animation and live-action motion picture, home video, television, live stage play, and music production and distribution businesses;
  Theme Parks and Resorts, reflecting the company’s theme park and resort activities except Disneyland Paris, which is accounted for under the equity method and included in Corporate and other activities, its sports team franchises and its DisneyQuest and ESPN Zone regional entertainment businesses;
  Consumer Products, reflecting primarily merchandise licensing, publishing, The Disney Store and Disney Interactive software; and Internet and Direct Marketing, representing the company’s online activities, except for its investment in Infoseek Corporation, and the Disney Catalog.
    Prior years have been restated to conform to the 1999 presentation.

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(2) Earnings per share and average shares outstanding have been adjusted to give effect to the three-for-one split of the company’s common shares in June 1998.
(3) The 1999 results exclude a $345 million gain from the sale of Starwave Corporation, equity in Infoseek loss of $322 million and restructuring charges of $132 million. The 1998 results exclude restructuring charges of $64 million and the 1997 results exclude a $135 million gain from the sale of KCAL (see Notes 2, 14 and 15 to the Consolidated Financial Statements).
(4) During 1997, the company sold KCAL, a Los Angeles television station, completed ABC purchase price allocations and disposed of certain ABC publishing assets. The discussion of 1998 versus 1997 performance below includes comparisons to pro forma results for 1997, which assumes these events occurred as of the beginning of 1996, the year in which ABC was acquired. The company believes pro forma results represent a meaningful comparative standard for assessing net income, changes in net income and earnings trends because the pro forma results include comparable operations in each year presented. The pro forma results are not necessarily indicative of the combined results that would have occurred had these events actually occurred at the beginning of 1996. The discussions of Studio Entertainment, Theme Parks and Resorts and Internet and Direct Marketing segments do not include pro forma comparisons, since the pro forma adjustments did not impact these segments.