Cash flows from hedges are classified in the statement of cash flows under the same category as the cash flows from the related assets, liabilities or anticipated transactions (see Notes 5 and 12).

Earnings Per Share  Diluted earnings per share amounts are based upon the weighted average number of common and common equivalent shares outstanding during the year. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect. The difference between basic and diluted earnings per share, for the company, is solely attributable to stock options. For the years ended September 30, 1999, 1998 and 1997, options for 28 million, 18 million and 15 million shares, respectively, were excluded from diluted earnings per share because they were anti-dilutive.

    Earnings per share amounts have been adjusted for all years presented, to reflect the three-for-one split of the company’s common shares effective June 1998 (see Note 8).

Reclassifications  Certain reclassifications have been made in the 1998 and 1997 financial statements to conform to the 1999 presentation, including changes in segment information as a result of adopting SFAS 131.

NOTE 2 . ACQUISITIONS AND DISPOSITIONS

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, which the company exercised during the quarter ended June 30, 1998. Thereafter, the accounts of Starwave were included in the company’s 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, the purchase of additional shares of Infoseek common stock for $70 million and the purchase of warrants for $139 million, enabling it, under certain circumstances, to achieve a majority stake in Infoseek. These warrants vest over a three-year period and expire in five years. On November 18, 1998, the shareholders of both Infoseek and Starwave approved the acquisition. As a result of the acquisition and the company’s purchase of additional shares of Infoseek common stock pursuant to the merger agreement, the company acquired approximately 43% of Infoseek’s outstanding common stock.

    Upon completion of this transaction, the company recognized a non-cash gain of $345 million. The gain reflected the market value of the Infoseek shares received under a partial sale accounting model. As a result of its investment in Infoseek, the company recorded intangible assets of $460 million, including $421 million of goodwill, which are being amortized over an estimated useful life of two years. The company determined the economic useful life of the 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.

    The company accounts for its investment in Infoseek under the equity method of accounting. For the year ended September 30, 1999, the company recorded $229 million of amortization related to intangible assets, and a charge of $44 million for purchased in-process research and development expenditures. The amortization of intangible assets and the charge for research and development expenditures have been reflected in “Equity in Infoseek loss” in the company’s Consolidated Statements of Income. As of September 30, 1999, the company’s recorded investment in Infoseek was $495 million. The quoted market value of the company’s Infoseek shares at September 30, 1999 was approximately $815 million.

    On November 17, 1999, Infoseek became a wholly-owned subsidiary of the company (see Note 15).

    On February 9, 1996, the company completed its acquisition of ABC. The aggregate consideration paid to ABC shareholders consisted of $10.1 billion in cash and 155 million shares of company common stock valued at $8.8 billion based on the stock price as of the date the transaction was announced. As a result of the ABC acquisition, the company sold its independent Los Angeles television station, KCAL, during the first quarter of 1997 for $387 million, resulting in a gain of $135 million.

    The company completed its final purchase price allocation and determination of related goodwill, deferred taxes and other accounts during the second quarter of 1997.

    During the third and fourth quarters of 1997, the company disposed of most of the publishing businesses acquired with ABC to various third parties for consideration approximating their carrying amount. Proceeds consisted of $1.2 billion in cash, $1.0 billion in debt assumption and preferred stock convertible to common stock with a market value of $660 million.

    The unaudited pro forma information below presents results of operations as if the finalization of purchase price allocation and the disposition of certain ABC publishing assets in 1997 had occurred at the beginning of that year. The unaudited pro forma information is not necessarily indicative of the results of operations of the combined company had these events occurred at the beginning of the year presented, nor is it necessarily indicative of future results.

NOTE 3 . INVESTMENT IN EURO DISNEY

Euro Disney S.C.A. (Euro Disney) operates the Disneyland Paris theme park and resort complex on a 4,800-acre site near Paris, France. The company accounts for its 39% ownership interest in Euro Disney using the equity method of accounting. As of September 30, 1999, the company’s recorded investment in Euro Disney was $296 million. The quoted market value of the company’s Euro Disney shares at September 30, 1999 was approximately $433 million.

    In connection with the financial restructuring of Euro Disney in 1994, Euro Disney Associés S.N.C. (Disney SNC), a wholly-owned affiliate of the company, entered into a lease arrangement with a noncancelable term of 12 years (the Lease) related to substantially all of the Disneyland Paris theme park assets, and then entered into a 12-year sublease agreement (the Sublease) with Euro Disney. Remaining lease rentals at September 30, 1999 of FF 7.5 billion ($1.2 billion) receivable from Euro Disney under the Sublease approximate the amounts payable by Disney SNC under the Lease. At the conclusion of the Sublease term, Euro Disney will have the option to assume Disney SNC’s rights and obligations under the Lease. If Euro Disney does not exercise its option, Disney SNC may purchase the assets, continue to lease the assets or elect to terminate the Lease, in which case Disney SNC would make a termination payment to the lessor equal to 75% of the lessor’s then outstanding debt related to the theme park assets, estimated to be $1.2 billion; Disney SNC could then sell or lease the assets on behalf of the lessor to satisfy the remaining debt, with any excess proceeds payable to Disney SNC.