The Walt Disney Company and Subsidiaries

Fair Value of Financial Instruments  At September 30, 1999 and 1998, the company’s financial instruments included cash, cash equivalents, investments, receivables, accounts payable, borrowings and interest rate, forward and foreign exchange risk management contracts.

    At September 30, 1999 and 1998, the fair values of cash and cash equivalents, receivables, accounts payable and commercial paper approximated carrying values because of the short-term nature of these instruments. The estimated fair values of other financial instruments subject to fair value disclosures, determined based on broker quotes or quoted market prices or rates for the same or similar instruments, and the related carrying amounts are as follows:

Credit Concentrations  The company continually monitors its positions with, and the credit quality of, the financial institutions which are counterparties to its financial instruments, and does not anticipate nonperformance by the counterparties. The company would not realize a material loss as of September 30, 1999 in the event of non-performance by any one counterparty. The company enters into transactions only with financial institution counterparties that have a credit rating of A-or better. The company’s current policy regarding agreements with financial institution counterparties is generally to require collateral in the event credit ratings fall below A-or in the event aggregate exposures exceed limits as defined by contract. In addition, the company limits the amount of investment credit exposure with any one institution. At September 30, 1999, financial institution counterparties had not posted any collateral to the company, and the company was required to collateralize $176 million of its financial instrument obligations.

    The company’s trade receivables and investments do not represent a significant concentration of credit risk at September 30, 1999, due to the wide variety of customers and markets into which the company’s products are sold, their dispersion across many geographic areas, and the diversification of the company’s portfolio among instruments and issuers.

New Accounting Guidance  In June 1998, the Financial Accounting Standards Board (the FASB) issued SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 137, which the company is required to adopt effective October 1, 2000. SFAS 133 will require the company to record all derivatives on the balance sheet at fair value. Changes in derivative fair values will either be recognized in earnings as offsets to the changes in fair value of related hedged assets, liabilities and firm commitments or, for fore-casted transactions, deferred and recorded as a component of other stockholders’ equity until the hedged transactions occur and are recognized in earnings. The ineffective portion of a hedging derivative’s change in fair value will be immediately recognized in earnings. The impact of SFAS 133 on the company’s financial statements will depend on a variety of factors, including future interpretative guidance from the FASB, the future level of forecasted and actual foreign currency transactions, the extent of the company’s hedging activities, the types of hedging instruments used and the effectiveness of such instruments. However, the company does not believe the effect of adopting SFAS 133 will be material to its financial position.

NOTE 13 . COMMITMENTS AND CONTINGENCIES

The company is committed to the purchase of broadcast rights for various feature films, sports and other programming aggregating approximately $13.3 billion as of September 30, 1999, including approximately $7.9 billion related to NFL programming. This amount is substantially payable over the next six years.

    The company has various real estate operating leases, including retail outlets for the distribution of consumer products and office space for general and administrative purposes. Future minimum lease payments under these non-cancelable operating leases totaled $2.2 billion at September 30, 1999, payable as follows:

    Rental expense for the above operating leases during 1999, 1998 and 1997, including overages, common-area maintenance and other contingent rentals, was $385 million, $321 million and $327 million, respectively.

    The company, together with, in some instances, certain of its directors and officers, is a defendant or co-defendant in various legal actions involving copyright, breach of contract and various other claims incident to the conduct of its businesses. Management does not expect the company to suffer any material liability by reason of such actions, nor does it expect that such actions will have a material effect on the company’s liquidity or operating results.

NOTE 14 . RESTRUCTURING CHARGES

In the third quarter of the current year, the company began an across-the-board assessment of its cost structure. The company’s efforts are directed toward leveraging marketing and sales efforts, streamlining operations, identifying new markets and further developing distribution channels, including its Internet sites and cable and television networks.

    In connection with actions taken to streamline operations, restruc-turing charges were recorded in the fourth quarter and amounted to $132 million ($0.04 per share). The restructuring activities primarily related to severance and lease and other contract cancellation costs, primarily in connection with the consolidation of operations in the company’s broadcasting, television production and regional entertainment businesses.