The Walt Disney Company and Subsidiaries

CONSOLIDATED RESULTS

1999 vs. 1998  Revenues increased 2% to $23.4 billion, driven by growth at Theme Parks and Resorts and Media Networks, partially offset by decreases in the other segments. Excluding the impact of Infoseek, which includes the gain on the sale of Starwave, and fourth quarter restructuring charges, operating income decreased 21% to $3.2 billion, net income decreased 28% to $1.4 billion and diluted earnings per share decreased 27% to $0.66. Results for the year were driven by decreased operating income, increased equity losses from Infoseek, which include amortization of intangible assets of $229 million and a $44 million charge for purchased in-process research and development expenditures, and an increase in restructuring charges recorded in the fourth quarter, as discussed below. These items were partially offset by the gain on the sale of Starwave, as discussed below, and lower net expense associated with Corporate and other activities. Including the restructuring charges and Infoseek, operating income decreased 14% to $3.4 billion and net income and diluted earnings per share decreased 30% to $1.3 billion and $0.62, respectively.

    Decreased operating income reflected lower results in Studio Entertainment, Consumer Products and Media Networks and increased amortization of intangible assets primarily as a result of the company’s second quarter purchase of 75% interest in the Anaheim Angels that it did not previously own. These items were partially offset by improvements from Theme Parks and Resorts. Lower net expense associated with Corporate and other activities reflected improved results from the company’s cable equity investments and Euro Disney, partially offset by increased corporate general and administrative expenses due, in part, to start-up costs associated with a company-wide strategic sourcing initiative designed to consolidate its purchasing power. Net interest expense decreased due to gains from the sale of investments and lower interest rates in the current year, partially offset by higher debt balances.

    In April 1997, the company purchased a significant equity stake in Starwave Corporation (Starwave), an Internet technology company. In connection with the acquisition, the company was granted an option to purchase substantially all the remaining shares of Starwave. The company exercised the option during the third quarter of 1998. Accordingly, the accounts of Starwave have been included in the company’s September 30, 1998 Consolidated Financial Statements. On June 18, 1998, the company reached an agreement for the acquisition of Starwave by Infoseek Corporation (Infoseek), a publicly-held Internet search company, pursuant to a merger. On November 18, 1998, the company completed its acquisition of an initial 43% equity interest in Infoseek (see Notes 2 and 15 to the Consolidated Financial Statements). In that transaction, Infoseek exchanged shares of its common stock for the company’s interest in Starwave and $70 million in cash. As a result of the exchange of its Starwave investment, the company recognized a non-cash gain of $345 million. In connection with its Infoseek investment, the company recorded $229 million of amortization related to goodwill and other identifiable intangible assets and a charge of $44 million for purchased in-process research and development expenditures, which have been reflected in “Equity in Infoseek loss” in the company’s Consolidated Statements of Income.

    Acquired intangible assets are being amortized over a period of two years. The impact of such amortization is expected to be $256 million in 2000 and $23 million in 2001. The company determined the economic useful life of acquired goodwill by giving consideration to the useful lives of Infoseek’s identifiable intangible assets, consisting of developed technology, trademarks and in-place workforce. In addition, the company considered the competitive environment and the rapid pace of technological change in the Internet industry.

    At special meetings on November 17, 1999, the stockholders of the company and Infoseek approved the company’s proposed acquisition of the remaining interest in Infoseek that it did not already own. Accordingly, Infoseek became a wholly-owned subsidiary of the company as of that date. The company combined its Internet and Direct Marketing business with Infoseek to establish a new reporting entity, GO.com, and the company created and issued a new class of common stock to reflect the performance of GO.com. The go.com common stock began trading on the NYSE under the symbol GO on November 18, 1999. Subsequent to the acquisition, the company will separately report earnings per share for GO.com and the Disney Group. The company’s existing class of outstanding common stock will track Disney Group financial performance, which will reflect all of the company’s businesses (other than GO.com), as well as the company’s initial 72% retained interest in GO.com. The remaining 28% interest in GO.com is publicly traded. As a result of its initial 72% interest in GO.com, the company expects this transaction to have a significant negative impact on fiscal 2000 Disney Group earnings per share, including a substantial increase in amortization of intangible assets (see Notes 2 and 15 to the Consolidated Financial Statements).

    The company expects certain trends that affected its 1999 results to continue in fiscal 2000, especially in the first half of the year, primarily in the company’s home video and merchandise licensing businesses. In addition, continued strategic investments in the company’s network television production and cable network businesses, including Toon Disney and the SoapNet, are expected to result in higher costs in fiscal 2000. As a result, the company believes that fiscal 2000 earnings per share should be approximately in line with fiscal 1999 results, excluding restructuring charges discussed below and go.com, as previously discussed. The company remains committed to investing in core markets, pursuing international opportunities, including theme park expansions, achieving operational improvements and leveraging technologies such as DVD and the Internet.