The Walt Disney Company and Subsidiaries

    The projected benefit obligations, accumulated benefit obligations and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $110 million, $83 million and $0 for 1999, respectively, and $96 million, $74 million and $0 for 1998, respectively.

    The accumulated postretirement benefit obligations and fair value of plan assets for postretirement plans with accumulated postretirement benefit obligations in excess of plan assets were $231 million and $72 million for 1999, respectively, and $254 million and $67 million for 1998, respectively.

    Assumed health care cost trend rates have a significant effect on the amounts reported for the postretirement medical benefit plans. A one percentage point decrease in the assumed health care cost trend rates would reduce total service and interest costs and postretirement benefit obligations by $9 million and $44 million, respectively. A one percentage point increase in the assumed health care cost trend rates would increase total service and interest costs and postretirement benefit obligations by $13 million and $59 million, respectively. The annual increase in cost of postretirement benefits is assumed to decrease .3 percentage points per year until reaching 4.9%.

    The company’s accumulated pension benefit obligations at September 30, 1999 and 1998 were $1.6 billion, of which 97.6% and 97.7% were vested, respectively. In addition, the company contributes to various pension plans under union and industry-wide agreements.

    The income statement expenses of pension plans for 1999, 1998 and 1997 totaled $11 million, $12 million and $45 million, respectively. The discount rate, rate of return on plan assets and salary increase assumptions for the pension plans were 7.8%, 10.5% and
5.4%, respectively, in 1997. The income statement expense (credits) for postretirement benefit plans for 1999, 1998 and 1997 were $10 million, $(13) million and $(18) million, respectively. The discount rate, rate of return on plan assets and annual increase in cost of postretirement benefits assumptions were 7.8%, 10.5% and 6.7%, respectively, in 1997.

    The market values of the company’s shares held by the pension plan master trust as of September 30, 1999 and 1998 were $73 million and $71 million, respectively.

    For eligible employees, the company has savings and investment plans which allow eligible employees to allocate up to 10% or 15% of salary through payroll deductions depending on the plan in which the employee participates. The company matches 50% of the employee’s pre-tax contributions, up to plan limits. In 1999, 1998 and 1997, the costs of such plans were $29 million, $31 million and $32 million, respectively.

NOT E 8. STOCKHOLDERS’ EQUITY

During 1998, the company’s Board of Directors decided to move to an annual, rather than quarterly, dividend policy to reduce costs and simplify payments to the more than 2.7 million shareholders of company common stock. Accordingly, there was no dividend payment during the year ended September 30, 1999. On November 4, 1999, the Board of Directors declared an annual cash dividend of 21 cents per share applicable to fiscal 1999. The dividend is payable December 17, 1999 to shareholders of Disney common stock at the close of business November 16, 1999.

    In June 1998, the company effected a three-for-one split of its common stock, by means of a special stock dividend. Stockholders’ equity has been restated to give retroactive recognition to the stock split in prior periods by reclassifying from retained earnings to common stock the par value of additional shares issued pursuant to the split. In connection with the common stock split, the company amended its corporate charter to increase the company’s authorized common stock from 1.2 billion shares to 3.6 billion shares. The Board of Directors also approved an increase in the company’s share repur-chase authorization to 133.3 million shares of common stock pre-split or 400 million post-split. All share and per share data included herein have been restated to reflect the split.

    In 1996, the company established the TWDC Stock Compensation Fund (Fund) pursuant to the repurchase program to acquire shares of the company for the purpose of funding certain stock-based compensation. All shares acquired by the Fund were disposed of and the Fund was dissolved in April 1999. The company has established TWDC Stock Compensation Fund II (Fund II) to fund certain future stock-based compensation. Any shares acquired by Fund II that are not utilized must be disposed of by December 31, 2002.

NOTE 9 . STOCK INCENTIVE PLANS

Under various plans, the company may grant stock options and other awards to key executive, management and creative personnel at exercise prices equal to or exceeding the market price at the date of grant. In general, options become exercisable over a five-year period from the grant date and expire 10 years after the date of grant. In certain cases for senior executives, options become exercisable over periods up to 10 years and expire up to 15 years after date of grant. Shares available for future option grants at September 30, 1999, totaled 108 million.

    The following table summarizes information about stock option transactions (shares in millions):