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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 1998 Commission File Number 1-
11605
[LOGO OF THE WALT DISNEY COMPANY]
Incorporated in Delaware I.R.S. Employer
Identification No.
500 South Buena Vista Street, Burbank, California 91521
(818) 560-1000 95-4545390
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
on Which Registered
Title of Each Class
New York Stock Exchange
Common Stock, $.01 par value Pacific Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Rule
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
As of November 30, 1998, the aggregate market value of registrant's common
stock held by non-affiliates (based on the closing price on such date as
reported on the New York Stock Exchange-Composite Transactions) was $66.0
billion. All executive officers and directors of registrant and all persons
filing a Schedule 13D with the Securities and Exchange Commission in respect to
registrant's common stock have been deemed, solely for the purpose of the
foregoing calculation, to be "affiliates" of the registrant.
There were 2,050,798,550 shares of common stock outstanding as of December
17, 1998 (including 507,300 shares held by TWDC Stock Compensation Fund, an
affiliate of the Company).
Documents Incorporated by Reference
Certain information required for Part III of this report is incorporated
herein by reference to an amendment to this report on Form 10-K/A to be filed
within 120 days after the end of the fiscal year covered by this report.
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PART I
ITEM 1. BUSINESS
The Walt Disney Company, together with its subsidiaries, is a diversified
worldwide entertainment company with operations in three business segments:
Creative Content, Broadcasting and Theme Parks and Resorts. Information on
revenues, operating income, identifiable assets and supplemental revenue of
the Company's business segments appears in Note 11 to the Consolidated
Financial Statements included in Item 8 hereof. The Company employs
approximately 117,000 people.
On February 9, 1996, the Company completed its acquisition of ABC, Inc.
("ABC"). Information on the acquisition appears in Note 2 to the Consolidated
Financial Statements included in Item 8 hereof. As a result of the
acquisition, a new parent company, with the name "The Walt Disney Company,"
replaced the old parent company of the same name. Unless the context otherwise
requires, the term "Company" is used to refer collectively to the parent
company and the subsidiaries through which its various businesses are actually
conducted.
CREATIVE CONTENT
The Creative Content segment produces live-action and animated motion
pictures, television programs and musical recordings, licenses the Company's
characters and other intellectual property for use in connection with
merchandise and publications and publishes books and magazines. Within the
segment, films and characters are often promoted through the release of
audiocassettes and compact discs and children's books and magazines. In
addition, television programs have been created that contain characters
originated in animated films. Character merchandising and publications
licensing promote the Company's films and television programs, as well as the
Company's other operations. The Company also operates "The Disney Stores,"
which are direct retail distribution outlets for products based on the
Company's characters and films. The Company is also engaged directly in the
home video and television distribution of its film and television library.
The Company is an industry leader in producing and acquiring live-action and
animated motion pictures for distribution to the theatrical, television and
home video markets and produces original television programming for the
network and first-run syndication markets. In addition, the Company produces
music recordings and live stage plays. The Company licenses the name "Walt
Disney," as well as the Company's characters, visual and literary properties
and songs and music, to various consumer manufacturers, retailers, show
promoters and publishers throughout the world. Company subsidiaries also
engage in direct retail distribution through the Disney Stores; publish books,
magazines and comics in the United States and Europe; produce popular music,
children's audio products and computer software for the entertainment market,
as well as film and video products for the educational marketplace.
THEATRICAL FILMS
Walt Disney Pictures and Television, a subsidiary of the Company, produces
and acquires live-action motion pictures that are distributed under the
banners Walt Disney Pictures, Touchstone Pictures and Hollywood Pictures.
Another subsidiary, Miramax Film Corp., acquires and produces motion pictures
that are primarily distributed under the Miramax and Dimension banners. The
Company also produces and distributes animated motion pictures under the
banner Walt Disney Pictures. In addition, the Company distributes films
produced or acquired by certain independent production companies.
During fiscal 1999, the Company expects to distribute approximately 21
feature films under the Walt Disney Pictures, Touchtone Pictures and Hollywood
Pictures banners and approximately 36 films under the Miramax and Dimension
banners, including several live-action family films and one to two full length
animated films, with the remainder targeted to teenagers and adults. In
addition, the
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Company periodically reissues previously released animated films. As of
September 30, 1998, the Company had released 547 full length live-action
features (primarily color), 36 full length animated color features and
approximately 478 cartoon shorts.
The Company distributes and markets its filmed products principally through
its own distribution and marketing companies in the United States and major
foreign markets. In 1998, the Company's international distributor, Buena Vista
International, became the first international distribution company to gross
more than $1 billion at the box office for four consecutive years.
HOME VIDEO
The Company directly distributes home video releases from each of its
banners in the domestic market. In the international market, the Company
distributes both directly and through foreign distribution companies. In
addition, the Company develops, acquires and produces original programming for
direct to video release. For two years in a row, the Company has distributed
seven of the ten top selling home videos. In addition, the Company distributed
three of the five top rental titles in 1998. As of September 30, 1998, 1,247
produced and acquired titles, including 661 feature films and 527 cartoon
shorts and animated features, were available to the domestic marketplace and
1,349 produced and acquired titles, including 715 feature films and 634
cartoon shorts and animated features, were available to the international home
entertainment market.
TELEVISION PRODUCTION AND DISTRIBUTION
The Company develops, produces and distributes television programming to
global broadcasters, cable and satellite operators, including the major
television networks, the Disney Channel and other cable broadcasters, under
the Buena Vista Television, Touchstone Television and Walt Disney Television
labels. Program development is carried out in collaboration with a number of
independent writers, producers and creative teams under various development
arrangements. The Company focuses on the development, production and
distribution of half-hour comedies and one-hour dramas for network prime-time
broadcast. Half-hour comedies Home Improvement, Boy Meets World, Smart Guy and
Unhappily Ever After were all renewed for the 1998/99 television season. New
prime-time series premiering in the fall of 1998 included the half-hour comedy
Sports Night and the one-hour drama Felicity. Midseason orders include the
half-hour comedies The PJ's and Zoe Bean.
The Company is also producing six original television movies for The
Wonderful World of Disney, which was renewed for the 1998/99 television season
and continues to air on ABC on Sunday evenings.
The 1998/99 Saturday morning television season returned with a second year
of the two-hour kids' show, Disney's One Saturday Morning on ABC. Disney's One
Saturday Morning is a show comprised of audience participation segments,
cartoons and pre-recorded comedy segments that "wrap-around" the weekly series
Disney's Doug, Recess and Pepper Ann. Other television animation series on ABC
include the premiere of Disney's Hercules, and the return of Disney's 101
Dalmatians: The Series and The New Adventures of Winnie the Pooh. Midseason on
Saturday morning will feature the premiere of Mouseworks, the first cartoon
series since the 1950's featuring Mickey Mouse and his friends.
The Company also provides a variety of prime-time specials for exhibition on
network television. Additionally, the Company produces first-run animated and
live-action syndicated programming. The Disney Afternoon is a one-and-a-half
hour block, airing five days per week, including Disney's Hercules, Disney's
Doug and Ducktales. Live-action programming includes Live! With Regis and
Kathie Lee, a daily talk show; Honey, I Shrunk the Kids, a weekly family
action hour; Siskel & Ebert, a weekly motion picture review program; Disney
Presents Bill Nye the Science Guy and Sing Me a Story with Belle, weekly
educational programs for children, as well as daily game shows on cable
including Make Me Laugh and Win Ben Stein's Money.
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The Company licenses the theatrical and television film library to the
domestic television syndication market. Television programs in off-network
syndication or cable include Home Improvement, Ellen, Boy Meets World,
Blossom, Dinosaurs, Golden Girls, Brotherly Love and Empty Nest. Major
packages of the Company's feature films and television programming have been
licensed for broadcast over several years.
The Company also licenses its theatrical and television properties in a
number of foreign television markets. In addition, certain of the Company's
television programs are syndicated by the Company abroad, including The Disney
Club, a weekly series that the Company produces for foreign markets.
The Company has licensed to the Encore pay television services, over a
multi-year period, exclusive domestic pay television rights to certain films
released under the Miramax, Touchstone, Hollywood, Dimension and Walt Disney
Pictures banners. In addition, the Company has licensed to the Showtime pay
television services over a multi-year period, exclusive domestic pay
television rights to certain films released under the Dimension banner.
AUDIO PRODUCTS AND MUSIC PUBLISHING
The Company also produces and distributes compact discs, audiocassettes and
records, consisting primarily of soundtracks for animated films and read-along
products, directed at the children's market in the United States, France and
the United Kingdom, and licenses the creation of similar products throughout
the rest of the world. In addition, the Company commissions new music for its
motion pictures and television programs and records and licenses the song
copyrights created for the Company to others for printed music, records,
audiovisual devices and public performances.
Domestic retail sales of compact discs, audiocassettes and records are the
largest source of music-related revenues, while direct marketing, which
utilizes catalogs, coupon packages and television, is a secondary means of
music distribution for the Company.
The Company's Hollywood Records subsidiary develops, produces and markets
recordings from new talent across the spectrum of popular music, as well as
soundtracks from certain of the Company's live-action motion pictures. The
Company's Mammoth Records develops, produces and markets a diverse group of
artists in the popular and alternative music fields. The Company also owns the
Nashville-based music label Lyric Street Records.
WALT DISNEY THEATRICAL PRODUCTIONS
In November 1997, the Broadway production of The Lion King opened at the
newly renovated New Amsterdam Theater. In 1998, The Lion King won six Tony
Awards, including Best Musical. In 1994, the Company produced an adaptation of
its animated feature film Beauty and the Beast for the Broadway stage. The
production celebrated its fourth anniversary on Broadway this year and is
currently touring the United States. The show has also been produced in seven
countries around the world.
CHARACTER MERCHANDISE AND PUBLICATIONS LICENSING
The Company's worldwide licensing activities generate royalties, which are
usually based on a fixed percentage of the wholesale or retail selling price
of the licensee's products. The Company licenses characters based upon both
traditional and newly created film properties. Character merchandise
categories that have been licensed include apparel, toys, gifts, home
furnishings and housewares, stationery and sporting goods. Publication
categories that have been licensed include continuity-series books, book sets,
art and picture books and magazines.
In addition to receiving licensing fees, the Company is actively involved in
the development and approval of licensed merchandise and in the
conceptualization, development, writing and illustration
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of licensed publications. The Company continually seeks to create new
characters to be used in licensed products.
THE DISNEY STORES
The Company markets Disney-related products directly through its retail
facilities operated under "The Disney Store" name. These facilities are
generally located in leading shopping malls and similar retail complexes. The
stores carry a wide variety of Disney merchandise and promote other businesses
of the Company. During fiscal 1998, the Company opened 18 new stores in the
United States and Canada, 8 in Europe and 21 in the Asia-Pacific area. The
Company also closed 2 stores in Europe as part of cost reduction efforts,
bringing the total number of stores to 681 as of September 30, 1998. The
Company expects to open additional stores in the future in selected markets
throughout the United States, as well as in Asian and European countries.
BOOKS AND MAGAZINES
The Company has book imprints in the United States offering books for
children and adults as part of the Buena Vista Publishing Group. The Company
also produces several magazines including Family Fun, Disney Adventures as
well as Discover, a general science magazine. In addition, the Company
produces ESPN The Magazine as part of a joint venture with ESPN, Inc. and The
Hearst Company.
MULTIMEDIA
BUENA VISTA INTERNET GROUP - During the first quarter of 1998, Buena Vista
Internet Group ("BVIG") was formed to coordinate the Company's internet
initiatives. BVIG develops, publishes and distributes content for narrow-band
on-line services, the interactive software market, interactive television
platforms, internet web sites, including Disney.com, Disney's Daily Blast,
ESPN.com, ABCNews.com and the Disney Store Online which offers Disneythemed
merchandise over the internet.
Effective November 18, 1998, the Company acquired 43% of Infoseek
Corporation, an internet search company. In connection with its investment in
Infoseek, BVIG and Infoseek announced the creation of the Go NetworkSYMBOL 212
\f "Symbol" \s 10. The Go Network will be an internet portal serving as an
interactive link through which people can gain access to the internet at
large, as well as every form of information and entertainment that Disney
offers.
DISNEY INTERACTIVE - Disney Interactive is a software business that
licenses, develops and markets entertainment and educational computer software
and video game titles for home and school.
OTHER ACTIVITIES
The Company produces audiovisual materials for the educational market,
including videocassettes and film strips. It also licenses the manufacture and
sale of posters and other teaching aids. The Company markets and distributes,
through various channels, animation cel art and other animation-related
artwork and collectibles. In addition, the Company directly sells merchandise
through The Disney Catalog.
COMPETITIVE POSITION
The success of the Creative Content operations is heavily dependent upon
public taste, which is unpredictable and subject to change. In addition,
filmed entertainment operating results fluctuate due to the timing and
performance of theatrical and home video releases. Release dates are
determined by several factors, including timing of vacation and holiday
periods and competition. Operating results for the licensing and retail
distribution business are influenced by seasonal consumer purchasing behavior
and by the timing and performance of animated theatrical releases.
The Company's Creative Content businesses compete with all forms of
entertainment. A significant number of companies produce and/or distribute
theatrical and television films, exploit
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products in the home video market, provide pay television programming
services, sponsor live theater and/or produce interactive software. The
Company also competes to obtain creative talents, story properties, advertiser
support, broadcast rights and market share, which are essential to the success
of all the Company's Creative Content businesses.
The Company competes in its character merchandising and other licensing,
publishing and retail activities with other licensers, publishers and
retailers of character, brand and celebrity names. Although public information
is limited, the Company believes it is the largest worldwide licenser of
character-based merchandise and producer/distributor of children's audio and
film-related products.
BROADCASTING
TELEVISION AND RADIO NETWORK
The Company operates the ABC Television Network, which as of September 30,
1998 had 224 primary affiliated stations operating under long-term agreements
reaching 99.9% of all U.S. television households. The ABC Television Network
broadcasts programs in "dayparts" and types as follows: Monday through Friday
Early Morning, Daytime and Late Night, Monday through Sunday Prime Time and
News, Children's and Sports. The Company also operates the ABC Radio Networks,
which reach more than 144 million domestic listeners weekly and consist of
over 8,900 program affiliations on more than 4,400 radio stations. The ABC
Radio Networks also produce and distribute a number of radio program series
for radio stations nationwide and can be heard in more than 90 countries
worldwide.
Generally, the networks pay the cost of producing their own programs or
acquiring broadcast rights from other producers for network programming and
pay varying amounts of compensation to affiliated stations for broadcasting
the programs and commercial announcements included therein. Substantially all
revenues from network operations are derived from the sale to advertisers of
time in network programs for commercial announcements. The ability to sell
time for commercial announcements and the rates received are primarily
dependent on the quantitative and qualitative audience that the network can
deliver to the advertiser as well as overall advertiser demand for time in the
network marketplace.
TELEVISION AND RADIO STATIONS
The Company owns nine very high frequency (VHF) television stations, five of
which are located in the top ten markets in the United States; one ultra high
frequency (UHF) television station; fifteen standard (AM) radio stations; and
fifteen frequency modulation (FM) radio stations. All of the television
stations are affiliated with the ABC Television Network, and most of the 30
radio stations are affiliated with the ABC Radio Networks. The Company's
television stations reach 24% of the nation's television households,
calculated using the multiple ownership rules of the Federal Communications
Commission (FCC). The Company's radio stations reach more than 14 million
people weekly in the top twenty United States advertising markets. Markets,
frequencies and other station details are set forth in the following tables:
TELEVISION STATIONS
<TABLE>
<CAPTION>
EXPIRATION TELEVISION
DATE OF FCC MARKET
STATION AND MARKET CHANNEL AUTHORIZATION RANKING (1)
- ------------------ ------- ------------- -----------
<S> <C> <C> <C>
WABC-TV (New York, NY) 7 Jun. 1, 1999 1
KABC-TV (Los Angeles, CA) 7 Dec. 1, 1998 2
WLS-TV (Chicago, IL) 7 Dec. 2, 2005 3
WPVI-TV (Philadelphia, PA) 6 Aug. 1, 1999 4
KGO-TV (San Francisco, CA) 7 Dec. 1, 1998 5
KTRK-TV (Houston, TX) 13 Aug. 1, 2006 11
</TABLE>
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<TABLE>
<CAPTION>
EXPIRATION TELEVISION
DATE OF FCC MARKET
STATION AND MARKET CHANNEL AUTHORIZATION RANKING (1)
- ------------------ ------- ------------- -----------
<S> <C> <C> <C>
WTVD (Raleigh-Durham, NC) 11 Dec. 1, 2004 29
KFSN-TV (Fresno, CA) 30 Dec. 1, 1998 55
WJRT-TV (Flint, MI) 12 Oct. 1, 2005 63
WTVG (Toledo, OH) 13 Oct. 1, 2005 66
RADIO STATIONS
<CAPTION>
FREQUENCY EXPIRATION RADIO
AM-KILOHERTZ DATE OF FCC MARKET
STATION AND MARKET FM-MEGAHERTZ AUTHORIZATION RANKING (2)
- ------------------ ------------ ------------- -----------
<S> <C> <C> <C>
WABC (New York, NY) 770 K June 1, 2006 1
KABC (Los Angeles, CA) 790 K Dec. 1, 2005 2
KDIS (Los Angeles, CA) 710 K Dec. 1, 2005 2
WLS (Chicago, IL) 890 K Dec. 1, 2004 3
KGO (San Francisco, CA) 810 K Dec. 1, 2005 4
KSFO (San Francisco, CA) 560 K Dec. 1, 2005 4
KMKY (San Francisco, CA) 1310 K Dec. 1, 2005 4
WBAP (Dallas-Fort Worth, TX) 820 K Aug. 1, 2005 6
WJR (Detroit-MI) 760 K Oct. 1, 2004 7
WMAL (Washington, DC) 630 K Oct. 1, 2003 8
WDWD (Atlanta, GA) 590 K Apr. 1, 2004 12
KKDZ (Seattle, WA) 1250 K Feb. 1, 2006 13
KDIZ (Minneapolis, MN) 1440 K Apr. 1, 2005 14
WIBV (St. Louis, MO) 1260 K Dec. 1, 2004 18
WMIH (Cleveland, OH) 1260 K Oct. 1, 2004 23
WPLJ (FM) (New York, NY) 95.5 M June 6, 2006 1
KLOS (FM) (Los Angeles, CA) 95.5 M (3)
WXCD (FM) (Chicago, IL) 94.7 M Dec. 1, 2004 3
KSCS (FM) (Dallas-Fort Worth, TX) 96.3 M Aug. 1, 2005 6
WPLT (FM) (Detroit, MI) 96.3 M Oct. 1, 2004 7
WDRQ (FM) (Detroit, MI) 93.1 M Oct. 1, 2001 7
WRQX (FM) (Washington, DC) 107.3 M Oct. 1, 2003 8
WJZW (FM) (Washington, DC) 105.9 M Oct. 1, 2001 8
WKHX (FM) (Atlanta, GA) 101.5 M Apr. 1, 2004 12
WYAY (FM) (Atlanta, GA) 106.7 M Apr. 1, 2004 12
KQRS (FM) (Minneapolis-St.Paul, MN) 92.5 M Apr. 1, 2005 14
KXXR (FM) (Minneapolis-St.Paul, MN) 93.7 M Apr. 1, 2005 14
KZNR (FM) (Minneapolis-St.Paul, MN)) 105.1 M Apr. 1, 2005 14
KZNT (FM) (Minneapolis-St.Paul, MN) 105.3 M Apr. 1, 2005 14
KZNZ (FM) (Minneapolis-St.Paul, MN) 105.7 M Apr. 1, 2005 14
</TABLE>
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(1) Based on Nielsen U.S. Television Household Estimates, September 1998
(2) Based on 1998 Arbitron Radio Market Rank
(3) Renewal application pending
CABLE AND INTERNATIONAL BROADCAST OPERATIONS
The Company's cable and international broadcast operations are principally
involved in the production and distribution of cable television programming,
the licensing of programming to domestic and international markets and
investing in foreign television broadcasting, production and distribution
entities. The Company owns the Disney Channel, Toon Disney, 80% of ESPN, Inc.,
37.5% of the A&E Television Networks, 50% of Lifetime Entertainment Services,
39.6% of E! Entertainment Television and has various other international
investments. During the first quarter of 1998, the Company acquired the
Classic Sports Network.
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The Disney Channel, which has approximately 43 million domestic subscribers,
is a cable and satellite television service. New shows developed for original
use by the Disney Channel include dramatic, adventure, comedy and educational
series, as well as documentaries and first-run television movies. In addition,
entertainment specials include shows originating from both the Walt Disney
World Resort(R) and Disneyland Park(R). The balance of the programming
consists of products acquired from third parties and products from the
Company's theatrical film and television programming library.
Toon Disney, a 24-hour cable and satellite channel airing Disney animation,
was launched April 18, 1998, the fifteenth anniversary of the Disney Channel.
Toon Disney reaches 6 million subscribers.
The Disney Channel International reaches approximately 9 million
subscribers. Programming consists primarily of the Company's theatrical film
and television programming library, as well as products acquired from third
parties and locally produced programming. The Disney Channels in Taiwan and
the U.K. premiered in 1995, followed by the launch of the Disney Channels in
Australia and Malaysia in 1996, the Disney Channels France and Middle East in
1997, the Disney Channel Spain in April 1998, and the Disney Channel Italy in
October 1998. Planned launches include Disney Channels in Germany and Brazil
in October 1999 and the Disney Channel Latin America in January 2000. The
Company continues to explore the development of the Disney Channel in other
countries around the world.
ESPN, Inc. operates ESPN, a cable and satellite sports programming service
reaching 75 million households, ESPN2, which reaches 61 million domestic
subscribers, Classic Sports Network, which reaches more than 15 million homes
and ESPNEWS, a 24-hour sports news service that reaches approximately 10
million subscribers nationwide. ESPN, Inc., owns or has equity interests in
20 international networks, reaching more than 152 million households outside
the U.S. in more than 180 countries and territories. ESPN, Inc., owns 33% of
Eurosport, a pan-European cable and direct-to-home sports programming service,
and 50% of ESPN Brazil. ESPN, Inc. owns a 50% interest in the ESPN STAR joint
venture, which delivers sports programming throughout most of Asia, and 32% of
the NetStar, which owns The Sports Network (TSN) and Les Reseau des Sports,
among other media properties in Canada. ESPN, Inc. also holds a 20% interest
in Sports-i ESPN in Japan, the country's only cable and direct-to-home all-
sports network.
The A&E Television Networks are cable programming services devoted to
cultural and entertainment programming. The A&E cable service reaches 78
million subscribers. The History Channel, which is owned by A&E, reaches 51
million subscribers.
Lifetime Entertainment Services owns Lifetime Television, which reaches 73
million cable subscribers and is devoted to women's lifestyle programming.
During 1998, Lifetime launched the Lifetime Movie Network, a 24-hour digital
channel.
E! Entertainment Television is a cable programming service which reaches 51
million cable subscribers and is devoted to the world of entertainment. E!
Entertainment Television also launched Style in October 1998. Style is a 24-
hour network devoted to style, fashion and design (available to both analog
and digital systems).
The Company's share of the financial results of the cable and international
broadcast services, other than the Disney Channel and ESPN, Inc., is reported
under the heading "Corporate activities and other" in the Company's
Consolidated Statements of Income.
COMPETITIVE POSITION
The ABC Television Network, the Disney Channel, ESPN and other broadcasting
affiliates primarily compete for viewers with the other television networks,
independent television stations, other video media such as cable television,
satellite television program services and videocassettes. In the sale of
advertising time, the broadcasting operations compete with other television
networks,
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independent television stations, suppliers of cable television programs and
other advertising media such as newspapers, magazines and billboards. The ABC
Radio Networks likewise compete with other radio networks and radio
programming services, independent radio stations and other advertising media.
The Company's television and radio stations are in competition with other
television and radio stations, cable television systems, satellite television
program services, videocassettes and other advertising media such as
newspapers, magazines and billboards. Such competition occurs primarily in
individual market areas. A television station in one market does not compete
directly with other stations in other market areas.
There has been a continuing decline in viewership at all major broadcast
networks, including ABC, reflecting the growth in the cable industry's share
of viewers, which has resulted in increased competitive pressures for
advertising revenues. In addition, sports and other programming costs have
increased due to increased competition.
FEDERAL REGULATION
Television and radio broadcasting are subject to the jurisdiction of the
Federal Communications Commission ("FCC") under the Communications Act of
1934, as amended (the "Communications Act"). The Communications Act empowers
the FCC, among other things, to issue, revoke or modify broadcasting licenses,
determine the location of stations, regulate the equipment used by stations,
adopt such regulations as may be necessary to carry out the provisions of the
Communications Act and impose certain penalties for violation of its
regulations.
FCC regulations also restrict the ownership of stations and cable operations
in certain circumstances, and regulate the practices of network broadcasters,
cable providers and competing services. Such laws and regulations are subject
to change, and the Company generally cannot predict whether new legislation or
regulations, or a change in the extent of application or enforcement of
current laws and regulations, would have an adverse impact on the Company's
operations.
RENEWALS
Broadcasting licenses are granted for a maximum period of eight years, and
are renewable upon application therefor if the Commission finds that the
public interest would be served thereby. During certain periods when a renewal
application is pending, other parties may file petitions to deny the
application for renewal of a license. A renewal application is now pending for
KLOS (FM), in Los Angeles. All of the Company's other owned stations have been
granted license renewals by the FCC for maximum terms.
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THEME PARKS AND RESORTS
The Company operates the Walt Disney World Resort in Florida and the
Disneyland Park and two hotels in California. The Company also earns royalties
on revenues generated by the Tokyo Disneyland theme park and has an ownership
interest in Disneyland Paris.
WALT DISNEY WORLD RESORT
The Walt Disney World Resort is located on approximately 30,500 acres of
land owned by Company subsidiaries 15 miles southwest of Orlando, Florida. The
resort includes four theme parks (the Magic Kingdom, Epcot, Disney-MGM
Studios, and Disney's Animal Kingdom), hotels and villas, a retail, dining and
entertainment complex, a sports complex, conference centers, campgrounds, golf
courses, water parks and other recreational facilities designed to attract
visitors for an extended stay. In addition, the resort operates Disney Cruise
Line from Port Canaveral, Florida.
The Company markets the entire Walt Disney World destination resort through
a variety of national, international and local advertising and promotional
activities. A number of attractions in each of the theme parks are sponsored
by corporate participants through long-term participation agreements.
MAGIC KINGDOM - The Magic Kingdom, which opened in 1971, consists of seven
principal areas: Main Street U.S.A., Liberty Square, Frontierland,
Tomorrowland, Fantasyland, Adventureland and Mickey's Toontown Fair. These
areas feature themed rides and attractions, restaurants, refreshment areas and
merchandise shops.
EPCOT - Epcot, which opened in 1982, consists of two major themed areas:
Future World and World Showcase. Future World dramatizes certain historical
developments and addresses the challenges facing the world today through major
pavilions devoted to high-tech products of the future ("Innoventions"),
communication and technological exhibitions ("Spaceship Earth"), and energy,
transportation, imagination, life and health, the land and seas. World
Showcase presents a community of nations focusing on the culture, traditions
and accomplishments of people around the world. World Showcase includes as a
central showpiece the American Adventure, which highlights the history of the
American people. Other nations represented are Canada, China, France, Germany,
Italy, Japan, Mexico, Morocco, Norway and the United Kingdom. Both areas
feature themed rides and attractions, restaurants and merchandise shops.
DISNEY-MGM STUDIOS - The Disney-MGM Studios, which opened in 1989, consists
of a theme park, an animation studio and a film and television production
facility. The park centers around Hollywood as it was during the 1930's and
1940's and features Disney animators at work and a backstage tour of the film
and television production facilities in addition to themed food service and
merchandise facilities and other attractions. The production facility consists
of three sound stages, merchandise shops and a back lot area and currently
hosts both feature film and television productions. In late 1998, Disney-MGM
Studios began featuring Fantasmic!, a night-time entertainment production
spectacular.
DISNEY'S ANIMAL KINGDOM - Disney's Animal Kingdom, which opened in April
1998, consists of a 145-foot Tree of Life as the centerpiece surrounded by
four themed areas: Dinoland U.S.A., Africa, Conservation Station and Camp
Minnie-Mickey. Each themed area contains adventure attractions, entertainment
shows, restaurants and merchandise shops. The park features more than 200
species of animals and 4,000 varieties of trees and plants on more than 500
acres of land. An additional themed area, Asia, is scheduled to open during
1999. Among its attractions will be a river raft thrill ride and viewings of
tigers and various other animals.
RESORT FACILITIES - As of September 30, 1998, the Company owned and operated
13 resort hotels and a complex of villas and suites at the Walt Disney World
Resort, with a total of approximately
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<PAGE>
16,700 rooms and 318,000 square feet of conference meeting space. Currently
under development is phase three of Disney's All-Star Resorts, Disney's All-
Star Movies Resort. This resort will provide an additional 1,920 rooms and is
expected to be completed in early 1999. In addition, Disney's Fort Wilderness
camping and recreational area offers approximately 1,200 campsites and
wilderness homes. The resort also offers professional development and personal
enrichment programs at The Disney Institute.
Recreational amenities and activities available at the resort include five
championship golf courses, miniature golf courses, full-service spas, an
animal sanctuary, tennis, sailing, water skiing, swimming, horseback riding
and a number of other noncompetitive sports and leisure time activities. The
resort also operates three water parks: Blizzard Beach, River Country and
Typhoon Lagoon.
The Company has also developed a 120-acre retail, dining and entertainment
complex known as Downtown Disney, which consists of the Downtown Disney
Marketplace, Pleasure Island and Downtown Disney West Side. In addition to
more than 20 specialty retail shops and restaurants, the Downtown Disney
Marketplace is home to the 50,000-square-foot World of Disney, the largest
Disney retail outlet. Pleasure Island, an entertainment center adjacent to the
Downtown Disney Marketplace, includes restaurants, night clubs and shopping
facilities. Downtown Disney West Side is situated on 66 acres on the west side
of Pleasure Island and includes a DisneyQuest facility and several third-party
retail, dining and entertainment operations.
Disney's Wide World of Sports, which opened in 1997, is a 200-acre sports
complex providing professional caliber training and competition, festival and
tournament events and interactive sports activities. The complex's venues
accommodate more than 30 different sporting events, including baseball,
tennis, basketball, softball, track and field, football and soccer. Its 9,000-
seat stadium is the spring training site for the Atlanta Braves. The tennis
venue is the home of the U.S. Men's Clay Court championships and the sports
fields are home of the NFL Quarterback Challenge. In addition, the Harlem
Globetrotters use the facility for their official training site and holiday
season games. The Amateur Athletic Union hosts more than 30 championship
events per year at the facility.
Under continued phased-in development are Celebration, a 4,900-acre town,
and Disney Cruise Line, a cruise vacation line that includes an 85,000 ton-
ship, the Disney Magic, which sailed its maiden voyage in July 1998. A second
ship, the Disney Wonder, is expected to launch in the second half of 1999.
Both ships cater to children, families and adults with distinctly themed areas
for each group. Additionally, each ship features 875 staterooms, 73% of which
are outside staterooms providing guests with ocean views. The staterooms
generally offer 25% more living space than the current cruise line industry
average. Each cruise vacation includes a visit to Disney's Castaway Cay, a
1,000-acre private Bahamian island in the Abacos. The Company packages cruise
vacations with visits to the Walt Disney World Resort and also offers cruise-
only options.
At the Downtown Disney Marketplace Hotel Plaza, seven independently operated
hotels are situated on property leased from the Company. These hotels have a
capacity of approximately 3,700 rooms. Additionally, two hotels--The Walt
Disney World Swan and the Walt Disney World Dolphin, with an aggregate
capacity of approximately 2,300 rooms--are independently operated on property
leased from the Company near Epcot.
The Disney Vacation Club offers ownership interests in several resort
facilities, including the 497-unit Disney Old Key West Resort and 383 villas
at Disney's BoardWalk Resort at the Walt Disney World Resort, a 175-unit
resort in Vero Beach, Florida, and a 102-unit resort on Hilton Head Island,
South Carolina. A 34-unit expansion at Disney's Old Key West is scheduled to
open in 2000 and a 134-unit expansion adjacent to Disney's Wilderness Lodge is
scheduled for opening in 2001. Available units at each facility are intended
to be sold under a vacation ownership plan and operated partially as rental
property until sold.
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<PAGE>
DISNEYLAND RESORT
The Company owns 330 acres and has under long-term lease an additional 39
acres of land in Anaheim, California. Disneyland, which opened in 1955,
consists of eight principal areas: Toontown, Fantasyland, Adventureland,
Frontierland, Tomorrowland, New Orleans Square, Main Street and Critter
Country. These areas feature themed rides and attractions, restaurants,
refreshment stands and merchandise shops. A number of the Disneyland
attractions are sponsored by corporate participants. The Company markets
Disneyland through international, national and local advertising and
promotional activities. The Company also owns and operates the 1,100-room
Disneyland Hotel and the 500-room Disneyland Pacific Hotel near Disneyland.
The Company completed a substantial renovation of Tomorrowland, including
new rides and attractions, in the third quarter of 1998.
The Company has begun construction on a new theme park, Disney's California
Adventure, projected to open in 2001. The new theme park will be constructed
on property adjacent to Disneyland. Disney's California Adventure will
celebrate the many attributes of the state of California and will feature
Disneyland Center, a themed complex of shopping, dining and entertainment
venues; the Grand Californian, a deluxe 750-room hotel located inside the
park; and an assortment of California-themed areas with associated rides and
attractions.
DISNEY REGIONAL ENTERTAINMENT
Through the Disney Regional Entertainment group, the Company is developing a
variety of new entertainment concepts to be located in metropolitan and
suburban locations in the United States and around the world. These businesses
include sports concepts, interactive entertainment venues, family play centers
and other operations that are based on Disney brands and creative properties.
In January 1998, Disney Regional Entertainment opened its second Club Disney
in California. Club Disney is a community play center designed to entertain
and enrich young families with imaginative play. Club Disney offers a variety
of unique activities, as well as a cafe, exclusive retail merchandise, themed
birthday parties and educational field trips. Club Disney is now operating in
Thousand Oaks and West Covina, California and will open this winter in
Chandler and Glendale, Arizona, both outside Phoenix, and in Lone Tree,
Colorado, outside Denver. Additional Club Disney openings are planned in
various suburban markets.
In 1998 the Company launched its first ESPN Zone in Baltimore's Inner
Harbor. The ESPN Zone is a 35,000 square-foot sports-themed dining and
entertainment experience featuring three integrated components: The Studio
Grill, offering dining in an ESPN studio environment; the Screening Room,
offering fans any game on the air in the ultimate sports viewing environment;
and the Sports Arena, challenging fans with a variety of interactive and
competitive attractions. ESPN Zone is scheduled to open in Chicago's River
North District and New York's Times Square in the summer of 1999.
In the summer of 1998, the first DisneyQuest opened in Downtown Disney at
the Walt Disney World Resort. DisneyQuest is a five story, 100,000 square-foot
facility, where guests of all ages are launched into a wide range of virtual,
interactive adventures. DisneyQuest is scheduled to open in the summer of 1999
in Chicago and in Philadelphia in 2000.
TOKYO DISNEY RESORT
The Company earns royalties on revenues generated by the Tokyo Disneyland
theme park, which is owned and operated by Oriental Land Co., Ltd. ("OLC"), an
unrelated Japanese corporation. The park, which opened in 1983, is similar in
size and concept to Disneyland and is located approximately six miles from
downtown Tokyo, Japan.
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<PAGE>
In the fourth quarter of 1998, OLC commenced construction of a second theme
park designed by Walt Disney Imagineering, which will be called Tokyo
DisneySea. Tokyo DisneySea is scheduled to open in fall 2001, together with a
500-room Disney-branded hotel and monorail system.
OLC is also developing a retail, dining and entertainment complex adjacent
to Tokyo Disneyland in what is known as the Maihama Station Area, which will
include a second 500-room Disney-branded hotel owned and operated by OLC under
license from a Company subsidiary.
Construction costs on the development projects are being borne by OLC, which
is also reimbursing the Company for its design, technical and operational
assistance costs. Under the Company's agreements with OLC, the Company will be
entitled to royalties from Tokyo DisneySea and the new hotels.
DISNEYLAND PARIS
Disneyland Paris is located on a 4,800-acre site at Marne-la-Vallee,
approximately 20 miles east of Paris, France. The theme park, which opened in
1992, features 42 attractions in its five themed lands. Seven themed hotels,
with a total of approximately 5,800 rooms, are part of the resort complex,
together with an entertainment center offering a variety of retail, dining and
show facilities. The project was developed pursuant to a 1987 master agreement
with French governmental authorities by Euro Disney S.C.A., a publicly-held
French company in which the Company currently holds a 39% equity interest and
which is managed by a subsidiary of the Company. The financial results of the
Company's investment in Euro Disney are reported under the heading "Corporate
activities and other" in the Company's Consolidated Statements of Income.
Development of the site continues with the Val d'Europe project at the gates
of Disneyland Paris. Construction of an international shopping mall and the
associated road infrastructure is now underway, with an opening date expected
in the second half of the year 2000.
WALT DISNEY IMAGINEERING
Walt Disney Imagineering provides master planning, real estate development,
attraction and show design, engineering support, production support, project
management and other development services, including research and development
for the Company's operations.
ANAHEIM SPORTS, INC.
Anaheim Sports, Inc. a subsidiary of the Company, owns and operates a
National Hockey League franchise, the Mighty Ducks of Anaheim. In addition, a
Company subsidiary is the managing general partner of Anaheim Angels, L.P.,
the holder of the Anaheim Angels Major League Baseball franchise. The Company
owns a 25% general partnership interest in Anaheim Angels L.P., with an option
to purchase the entire partnership interest on or before March 31, 1999.
COMPETITIVE POSITION
All of the theme parks and most of the associated resort facilities are
operated on a year-round basis. Historically, the theme parks and resort
business experiences fluctuations in park attendance and resort occupancy
resulting from the nature of vacation travel. Peak attendance and resort
occupancy generally occur during the summer months when school vacations occur
and during early-winter and spring holiday periods.
The Company's theme parks and resorts compete with all other forms of
entertainment, lodging, tourism and recreational activities. The profitability
of the leisure-time industry is influenced by various factors that are not
directly controllable, such as economic conditions including business cycle
and exchange rate fluctuations, amount of available leisure time, oil and
transportation prices and weather patterns.
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<PAGE>
ITEM 2. PROPERTIES
The Walt Disney World Resort, Disneyland Park and other properties of the
Company and its subsidiaries are described in Item 1 under the caption Theme
Parks and Resorts. Film library properties are described in Item 1 under the
caption Creative Content. Radio and television stations owned by the Company
are described under the caption Broadcasting.
A subsidiary of the Company owns approximately 51 acres of land in Burbank,
California on which the Company's studios and executive offices are located.
The studio facilities are used for the production of both live-action and
animated motion pictures and television products. In addition, Company
subsidiaries lease office and warehouse space for certain studio and corporate
activities. Other owned properties include a 400,000 square-foot office
building in Burbank, California, which is used for the Company's operations.
A subsidiary of the Company owns approximately 1.8 million square feet of
office and warehouse buildings on approximately 96 acres in Glendale,
California. The buildings are used for the Company's operations and also
contain space leased to third parties.
The Company's broadcasting segment corporate offices are located in a
building owned by a subsidiary of the Company in New York City. A Company
subsidiary also owns the ABC Television Center adjacent to the corporate
offices and ABC Radio Networks' studios, also in New York City.
Subsidiaries of the Company own the ABC Television Center and lease the ABC
Television Network offices in Los Angeles, the ABC News Bureau facility in
Washington, DC and a computer facility in Hackensack, New Jersey, under leases
expiring on various dates through 2034. The Company's 80%-owned subsidiary,
ESPN, Inc., owns ESPN Plaza in Bristol, Connecticut, from which it conducts
its technical operations. The Company owns the majority of its other broadcast
studios and offices and broadcast transmitter sites elsewhere, and those which
it does not own are occupied under leases expiring on various dates through
2039.
A U.K. subsidiary of the Company owns buildings on a four-acre parcel under
long-term lease in London, England. The mixed-use development consists of
140,000 square feet of office space occupied by subsidiary operations, a
27,000 square-foot building leased to a third party and 65,000 square feet of
retail space. A second phase of this development, completed in 1998, includes
a 142,000 square-foot office building occupied by Company subsidiaries in
1999. Company subsidiaries also lease office space in other parts of Europe
and in Asia and Latin America.
The Disney Stores and Disney Regional Entertainment lease retail space for
their operations.
ITEM 3. LEGAL PROCEEDINGS
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.
In re The Walt Disney Company Derivative Litigation. On October 8, 1998, the
Delaware Court of Chancery dismissed an amended and consolidated complaint
filed on May 28, 1997 that named each of the Company's directors as of
December 1996 as defendants. The amended complaint, filed by William and
Geraldine Brehm and thirteen other individuals, had sought, among other
things, a declaratory judgment that the Company's 1995 employment agreement
with its former president, Michael S. Ovitz, was void, or alternatively that
Mr. Ovitz's termination should be deemed a termination "for cause" and any
severance payments to him forfeited. The complaint also sought compensatory or
rescissory damages and injunctive and other equitable relief from the named
defendants, as well as class-action status to pursue a claim for damages and
invalidation of the 1997 election of directors. In its ruling on October 8,
1998, the Delaware court dismissed all counts of the amended complaint.
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<PAGE>
On November 4, 1998, plaintiffs filed a notice of appeal from the court's
decision.
Similar or identical claims have also been filed by the same plaintiffs
(other than William and Geraldine Brehm) in the Superior Court of the State of
California, Los Angeles County, beginning with a claim filed by Richard and
David Kaplan on January 3, 1997. On May 18, 1998, an additional claim was
filed in the same California court by Dorothy L. Greenfield. All of the
California claims have been consolidated and stayed pending final resolution
of the Delaware proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of stockholders during the fourth
quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are elected each year at the
organizational meeting of the Board of Directors which follows the annual
meeting of the stockholders and at other meetings as appropriate. Each of the
executive officers has been employed by the Company in the position or
positions indicated in the list and pertinent notes below. Messrs. Eisner,
Disney and Litvack have been employed by the Company as executive officers for
more than five years.
At September 30, 1998, the executive officers were as follows:
<TABLE>
<CAPTION>
Executive
Officer
Name Age Title Since
------------------ --- ------------------------------------------ ---------
<C> <C> <S> <C>
Michael D. Eisner 56 Chairman of the Board and Chief Executive 1984
Officer
Roy E. Disney 68 Vice Chairman of the Board 1984
Sanford M. Litvack 62 Senior Executive Vice President and Chief 1991
of Corporate Operations
Louis M. Meisinger 56 Executive Vice President and General 1998
Counsel /1/
Peter E. Murphy 35 Executive Vice President and Chief 1998
Strategic
Officer /2/
John F. Cooke 56 Executive Vice President-Corporate Affairs 1995
/3/
Thomas O. Staggs 37 Executive Vice President and Chief 1998
Financial
Officer /4/
</TABLE>
- --------
/1/ Mr. Meisinger, was named Executive Vice President and General Counsel of
the Company on July 6, 1998. Prior to joining the Company, he was a senior
partner with the law firm of Troop, Meisinger, Steuber & Pasich in Los
Angeles, California, a firm he co-founded in 1975. Mr. Meisinger specialized
in the litigation of complex entertainment, commercial and securities
matters.
/2/ Mr. Murphy joined the Company's strategic planning operation in 1988 and
was named Senior Vice President-Strategic Planning and Development of the
Company in July 1995. From August 1997 to May 1998 he served as Chief
Financial Officer of ABC, Inc. He assumed his present position in May 1998.
/3/ Mr. Cooke served as President of the Disney Channel from 1985 until
assuming his present position in February 1995.
/4/ Mr. Staggs joined the Company's strategic planning operation in 1990 and
was named Senior Vice President-Strategic Planning and Development of the
Company in July 1995, serving in that capacity until assuming his present
position in May 1998.
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<PAGE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is listed on the New York and Pacific stock
exchanges (NYSE symbol DIS). The following sets forth the high and low
composite closing sale prices for the fiscal periods indicated, adjusted to
reflect the three-for-one split of the Company's common shares effective June
1998.
<TABLE>
<CAPTION>
Sales Price
-------------------
High Low
--------- ---------
<S> <C> <C>
1998
4th Quarter.......................................... $39 7/8 $24 7/16
3rd Quarter.......................................... 42 3/8 35 1/64
2nd Quarter.......................................... 38 19/64 31 31/64
1st Quarter.......................................... 33 25 59/64
1997
4th Quarter.......................................... $26 63/64 $25 1/16
3rd Quarter.......................................... 28 11/64 23 45/64
2nd Quarter.......................................... 26 3/64 22 29/64
1st Quarter.......................................... 25 21/64 20 53/64
</TABLE>
The Company declared a first quarter dividend of $0.0442 per share and three
subsequent quarterly dividends of $.0525 per share in 1998, and in 1997,
declared a first quarter dividend of $.0367 per share and three subsequent
quarterly dividends of $0.0442 per share.
As of September 30, 1998, the approximate number of record holders of the
Company's common stock was 658,000.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(In millions, except per share data)
<TABLE>
<CAPTION>
1998 1997(2) 1996(3) 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Statements of income
Revenues $22,976 $22,473 $18,739 $12,151 $10,090
Operating income 4,015 4,447 3,033 2,466 1,972
Net income 1,850 1,966 1,214 1,380 1,110
Per share (1)
Earnings
Diluted 0.89 0.95 0.65 0.87 0.68
Basic 0.91 0.97 0.66 0.88 0.69
Dividends 0.20 0.17 0.14 0.12 0.10
Balance sheets
Total assets $41,378 $38,497 $37,341 $14,995 $13,110
Borrowings 11,685 11,068 12,342 2,984 2,937
Stockholders' equity 19,388 17,285 16,086 6,651 5,508
Statements of cash flows
Cash provided by operations $ 5,115 $ 5,099 $ 3,707 $ 3,510 $ 2,808
Investing activities (5,665) (3,936) (12,546) (2,288) (2,887)
Financing activities 360 (1,124) 8,040 (332) (97)
</TABLE>
- --------
(1) The earnings and dividends per share have been adjusted to give effect to
the three-for-one split of the Company's common shares effective June
1998. See Note 8 to the Consolidated Financial Statements.
(2) 1997 results include a $135 million gain from the sale of KCAL-TV. The
diluted earnings per share impact of the gain was $0.04. See Note 2 to the
Consolidated Financial Statements.
(3) 1996 results include a $300 million non-cash charge pertaining to the
implementation of SFAS 121 Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of, and a $225 million
charge for costs related to the acquisition of ABC. The earnings per share
impacts of these charges were $0.10 and $0.07, respectively. See Notes 2
and 11 to the Consolidated Financial Statements.
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company acquired the operations of ABC, Inc. ("ABC") on February 9,
1996. During 1997, the Company sold KCAL, a Los Angeles television station,
completed its final ABC purchase price allocation and determination of the
related intangible assets and disposed of certain ABC publishing assets. To
enhance comparability, certain information for 1997 and 1996 is presented on a
"pro forma" basis, which assumes that these events occurred at the beginning
of 1996. 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.
CONSOLIDATED RESULTS
(in millions, except per share data)
<TABLE>
<CAPTION>
PRO FORMA
AS REPORTED (unaudited)
------------------------- ----------------
1998 1997 1996 1997 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues:
Creative Content $10,302 $10,937 $10,159 $10,098 $ 9,564
Broadcasting 7,142 6,522 4,078 6,501 6,009
Theme Parks and Resorts 5,532 5,014 4,502 5,014 4,502
------- ------- ------- ------- -------
Total $22,976 $22,473 $18,739 $21,613 $20,075
======= ======= ======= ======= =======
Operating income: (1)
Creative Content $ 1,403 $ 1,882 $ 1,561 $ 1,693 $ 1,435
Broadcasting 1,325 1,294 782 1,285 1,084
Theme Parks and Resorts 1,287 1,136 990 1,136 990
Gain on sale of KCAL -- 135 -- -- --
Accounting change -- -- (300) -- (300)
------- ------- ------- ------- -------
Total 4,015 4,447 3,033 4,114 3,209
Corporate activities and other (236) (367) (309) (367) (249)
Net interest expense (622) (693) (438) (693) (698)
Acquisition-related costs -- -- (225) -- --
------- ------- ------- ------- -------
Income before income taxes 3,157 3,387 2,061 3,054 2,262
Income taxes (1,307) (1,421) (847) (1,282) (988)
------- ------- ------- ------- -------
Net income $ 1,850 $ 1,966 $ 1,214 $ 1,772 $ 1,274
======= ======= ======= ======= =======
Earnings per share: (3)
Diluted $ 0.89 $ 0.95 $ 0.65 $ 0.86 $ 0.62
======= ======= ======= ======= =======
Basic $ 0.91 $ 0.97 $ 0.66 $ 0.88 $ 0.63
======= ======= ======= ======= =======
Net income excluding non-
recurring items (2) $ 1,850 $ 1,886 $ 1,534 $ 1,772 $ 1,457
======= ======= ======= ======= =======
Earnings per share excluding non-
recurring items: (2) (3)
Diluted $ 0.89 $ 0.92 $ 0.83 $ 0.86 $ 0.70
======= ======= ======= ======= =======
Basic $ 0.91 $ 0.93 $ 0.84 $ 0.88 $ 0.72
======= ======= ======= ======= =======
Amortization of intangible assets
included in operating income $ 431 $ 439 $ 301 $ 413 $ 413
======= ======= ======= ======= =======
Average number of common and
common equivalent shares
outstanding: (3)
Diluted 2,079 2,060 1,857 2,060 2,067
======= ======= ======= ======= =======
Basic 2,037 2,021 1,827 2,021 2,037
======= ======= ======= ======= =======
- --------
(1) Includes depreciation and amortization (excluding film costs) of:
Creative Content............... $ 219 $ 222 $ 186 $ 187 $ 145
Broadcasting................... 543 508 382 521 521
Theme Parks and Resorts........ 444 408 358 408 358
------- ------- ------- ------- -------
$ 1,206 $ 1,138 $ 926 $ 1,116 $ 1,024
======= ======= ======= ======= =======
</TABLE>
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<PAGE>
(2) The 1997 results include a $135 million gain from the sale of KCAL. See
Note 2 to the Consolidated Financial Statements. The 1996 results include
two non-recurring charges. The Company adopted Statement of Financial
Accounting Standards No. 121 Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of, which resulted in the
Company recognizing a $300 million non-cash charge. In addition, the
Company recognized a $225 million charge for costs related to the
acquisition of ABC. See Notes 2 and 11 to the Consolidated Financial
Statements.
(3) 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.
The following discussion of 1998 versus 1997 and 1997 versus 1996
performance includes comparisons to pro forma results for 1997 and 1996. 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 discussion of the Theme Parks and Resorts segment does not include pro
forma comparisons, since the pro forma adjustments did not impact this
segment.
CONSOLIDATED RESULTS
1998 VS. 1997
Compared to 1997 pro forma results, revenues increased 6% to $23 billion,
driven by growth in all business segments. Net income and diluted earnings per
share increased 4% and 3% to $1.9 billion and $.89, respectively. These
results were driven by a reduction in net expense associated with corporate
activities and other and lower net interest expense, partially offset by
decreased operating income. The reduction in net expense associated with
corporate activities and other was driven by improved results from the
Company's equity investments, including A&E Television and Lifetime
Television, and a gain on the sale of the Company's interest in Scandinavian
Broadcasting System. Decreased net interest expense reflected lower average
debt balances during the year. Lower operating income was driven by a decline
in Creative Content results, partially offset by improvements from Theme Parks
and Resorts and Broadcasting.
As reported revenues increased 2% and net income and diluted earnings per
share decreased by 6%. The as reported results reflect the items described
above as well as the impact of the disposition of certain ABC publishing
assets and the sale of KCAL in 1997.
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
shareholders of both Infoseek and Starwave approved the merger. As a result of
the merger and the Company's purchase of additional shares of Infoseek common
stock pursuant to the merger agreement, the Company owns approximately 43% of
Infoseek's outstanding common stock. In addition, pursuant to the merger
agreement, the Company purchased warrants 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. Effective as of the
November 18, 1998 closing date of the transaction, the Company will record a
significant non-cash gain, a write-off for purchased in-process research and
development costs and an increase in investments, reflecting the Company's
share of the fair value of Infoseek's intangible assets. The Company is
currently performing the necessary valuations to determine the gain, the
research and development write-off and the amount of and amortization period
for the intangible assets. Thereafter, the Company will account for its
investment in Infoseek under the equity method. The merger is not expected to
have a material effect on the Company's financial position.
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<PAGE>
1997 VS. 1996
Compared to 1996 pro forma results, pro forma revenues increased 8% to $21.6
billion, reflecting growth in all business segments. Pro forma net income and
diluted earnings per share, excluding non-recurring items, increased 22% and
23% to $1.8 billion and $.86, respectively. These results were driven by
increased operating income across all business segments, partially offset by
an increase in corporate activities and other driven by certain non-recurring
items in both years. 1997 reflects settlements with former senior executives
and 1996 reflects certain gains at ABC, primarily related to the sale of an
investment in a cellular communications company.
As reported revenues increased 20%, reflecting increases in all business
segments and the impact of the acquisition of ABC. Net income, excluding the
non-recurring items discussed above, increased 23%, driven by increased
operating income for each business segment. Diluted earnings per share,
excluding the non-recurring items, increased 11%, reflecting net income
growth, partially offset by the impact of additional shares issued in
connection with the acquisition. Results for 1997 included a full period of
ABC's operations.
BUSINESS SEGMENT RESULTS
CREATIVE CONTENT
1998 VS. 1997
Revenues increased 2% or $204 million to $10.3 billion compared with pro
forma 1997, driven by growth of $204 million in television distribution, $136
million in the Disney Stores, $54 million in domestic publishing and $51
million in domestic character merchandise licensing. These increases were
partially offset by declines in worldwide home video and theatrical motion
picture distribution of $330 million. Growth in television distribution
revenue was driven by higher volume of television programming and theatrical
releases distributed to the worldwide television market. Increased revenues at
the Disney Stores reflected an increase in comparable store sales in North
America and Europe and continued worldwide expansion, partially offset by a
decrease in comparable store sales in Asian markets. The increase in domestic
publishing revenues resulted from the success of book titles such as Don't
Sweat the Small Stuff and the launch of ESPN The Magazine. Character
merchandise licensing growth was driven primarily by the continued strength of
Winnie the Pooh in the domestic market, partially offset by declines
internationally, primarily due to softness in Asian markets. Lower worldwide
home video revenues reflected difficult comparisons to the prior year, which
benefited from the strength of Toy Story, The Hunchback of Notre Dame and 101
Dalmatians, compared to the current year release of Lady & the Tramp, Hercules
and The Little Mermaid, as well as economic weaknesses in Asian markets. In
worldwide theatrical motion picture distribution, while current year revenues
reflected successful box-office performances of Armageddon, Disney's highest-
grossing live-action film, and Mulan, its most recent animated release,
revenues were lower overall due to difficult comparisons to the prior year,
which benefited from the strong performances of 101 Dalmatians, Ransom and The
English Patient.
On an as reported basis, revenues decreased $635 million or 6%, reflecting
the items described above, as well as the impact of the disposition of certain
ABC publishing assets in the prior year.
Operating income decreased 17% or $290 million to $1.4 billion compared with
pro forma 1997 results, reflecting declines in worldwide theatrical motion
picture distribution and international home video. These declines were
partially offset by growth in television distribution, increases in domestic
merchandise licensing, Disney Store growth in North America and Europe and
improved results in domestic home video, driven by the success of The Little
Mermaid, Lady & the Tramp and Peter Pan. Costs and expenses, which consist
primarily of production cost amortization, distribution and selling expenses,
product costs, labor and leasehold expenses, increased 6% or $494 million. The
increase was driven by increased write-downs related to domestic theatrical
live-action releases and an increase in production costs for theatrical and
television product, as well as an increase in the number of shows produced for
network television and syndication. Production cost increases are reflective
of industry
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trends: as competition for creative talent has increased, costs within the
industry have increased at a rate significantly above inflation. Cost and
expense increases were also due to increased activity related to internet
start-up businesses. In addition, current year costs and expenses reflected
charges totaling $64 million related to strategic downsizing in the Company's
consumer product business, particularly in response to Asian economic
difficulties, and consolidation of certain studio operations in its filmed
entertainment business. Increased expenses for the year were partially offset
by declines in distribution and selling expenses in the home video and
domestic theatrical motion picture distribution markets reflecting lower
volume, declines within television distribution due to the termination of a
network production joint venture and a decrease in development and other
operating expenses at Disney Interactive.
On an as reported basis, operating income decreased $479 million or 25%,
reflecting the items described above, as well as the impact of the disposition
of certain ABC publishing assets in the prior year.
1997 VS. 1996
Pro forma revenues increased 6% or $534 million to $10.1 billion compared
with pro forma 1996, driven by growth of $210 million in the Disney Stores,
$143 million in character merchandise licensing, $104 million in television
distribution and $88 million in home video. Growth at the Disney Stores
reflected continued worldwide expansion with 106 new stores opening in 1997.
Increases in character merchandise licensing reflected the strength of Winnie
the Pooh and Toy Story domestically, and standard characters and 101
Dalmatians worldwide. The increase in television revenues was driven by an
increase in the distribution of film and television product in the
international television market. Home video results reflected the successful
performance of Toy Story, The Hunchback of Notre Dame and 101 Dalmatians
worldwide and Bambi and Sleeping Beauty domestically.
On an as reported basis, revenues increased $778 million or 8%, reflecting
the items described above, as well as increased revenues from ABC's publishing
assets up to the date of disposition. Additionally, 1997 included a full
period of revenues from certain ABC Television production operations.
Pro forma operating income increased 18% or $258 million to $1.7 billion
compared with pro forma 1996, reflecting improved results for theatrical
distribution, character merchandise licensing and television distribution,
partially offset by a reduction in home video results. Costs and expenses,
increased 3% or $276 million, reflecting increased amortization in the home
video market and continued expansion of the Disney Stores, offset by a
reduction in distribution costs in the domestic theatrical market and the
write-off of certain theatrical development projects in the prior year.
On an as reported basis, operating income increased $321 million or 21%,
reflecting the items described above as well as higher operating income from
ABC's publishing assets up to the date of disposition.
BROADCASTING
1998 VS. 1997
Revenues increased 10% or $641 million to $7.1 billion compared with pro
forma 1997 results, reflecting a $427 million increase at ESPN and the Disney
Channel, a $110 million increase at the television network and an $81 million
increase at the television stations. A strong advertising market resulted in
increased revenues at ESPN and the television stations and subscriber growth
contributed to revenue increases at ESPN and the Disney Channel. Television
network growth was driven by higher sports advertising revenues, primarily
attributable to the 1998 soccer World Cup.
On an as reported basis, revenues increased $620 million or 10%, reflecting
the items described above, partially offset by the impact of the sale of KCAL
in the prior year.
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Operating income increased 3% or $40 million to $1.3 billion compared with
pro forma 1997 results reflecting increased revenues at ESPN, the Disney
Channel and the television stations, partially offset by lower results at the
television network and start-up and operating losses from new business
initiatives. Results at the television network reflected the impact of lower
ratings and increased costs and expenses. Costs and expenses, which consist
primarily of programming rights and amortization, production costs,
distribution and selling expenses and labor costs, increased 12% or $601
million, reflecting increased programming and production costs at ESPN, higher
program amortization at the television network, reflecting a reduction in
benefits from the ABC acquisition, increased costs related to the NFL contract
(see discussion below) and start-up and operating costs related to new
business initiatives.
On an as reported basis, operating income increased $31 million or 2%,
reflecting the items described above, partially offset by the impact of the
sale of KCAL in the prior year.
The Company has continued to invest in its existing cable television
networks and in new cable ventures to diversify and expand the available
distribution channels for acquired and Company programming. During 1998, the
Company acquired the Classic Sports Network, a cable network devoted to
memorable sporting events, invested in a number of international cable
ventures and continued its international expansion of the Disney Channel.
The Company's cable operations continue to provide strong earnings growth.
The Company's results for 1998 reflect an increase in pretax income of $148
million or 18% for mature cable properties compared with 1997 results,
including the Company's share of earnings from ESPN, the Disney Channel, A&E
Television and Lifetime Television. These increases were partially offset by
the Company's recognition of its proportionate share of losses associated with
start-up cable ventures. Start-up cable ventures are generally operations that
are in the process of establishing distribution channels and a subscriber base
and that have not reached their full level of normalized operations. These
include various domestic and international ESPN and Disney Channel start-up
cable ventures. The Company's pretax income reflected an increase of 20% from
all cable properties.
The financial results of ESPN and the Disney Channel are included in
Broadcasting operating income. The Company's share of all other cable
operations and the ESPN minority interest deduction are reported in "Corporate
activities and other" in the Consolidated Statements of Income.
There has been a continuing decline in viewership at all major broadcast
networks, including ABC, reflecting the growth in the cable industry's share
of viewers. In addition, there have been continuing increases in the cost of
sports and other programming.
During the second quarter of 1998, the Company entered into a new agreement
with the National Football League (the "NFL") for the right to broadcast NFL
football games on the ABC Television Network and ESPN. The contract provides
for total payments of approximately $9 billion over an eight-year period,
commencing with the 1998 season. The programming rights fees under the new
contract are significantly higher than those required by the previous contract
and the fee increases exceed the estimated revenue increases over the contract
term. The higher fees under the new contract reflect various factors,
including increased competition for sports programming rights and an increase
in the number of games to be broadcast by ESPN. The Company is pursuing a
variety of strategies, including marketing efforts, to reduce the impact of
the higher costs. The contract's impact on the Company's results over the
remaining contract term is dependent upon a number of factors, including the
strength of advertising markets, effectiveness of marketing efforts and the
size of viewer audiences.
The cost of the NFL contract is charged to expense based on the ratio of
each period's gross revenues to estimated total gross revenues. Estimates of
total gross revenues can change significantly and accordingly, they are
reviewed periodically and amortization is adjusted if necessary. Such
adjustments could have a material effect on results of operations in future
periods.
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1997 VS. 1996
Pro forma revenues increased 8% or $492 million to $6.5 billion compared
with pro forma 1996, driven by increases of $336 million at ESPN and the
Disney Channel, and $74 million at the television network. The increases at
ESPN and the Disney Channel were due primarily to higher advertising revenues
and affiliate fees due primarily to expansion, subscriber growth and improved
advertising rates. Growth in revenues at the television network was primarily
the result of improved performance of sports, news and latenight programming,
partially offset by a decline in primetime ratings.
On an as reported basis, revenues increased $2.4 billion or 60%, reflecting
a full period of ABC's broadcasting operations in 1997.
Pro forma operating income increased 19% or $201 million to $1.3 billion
compared with pro forma 1996, reflecting increases in revenues at ESPN and the
Disney Channel, as well as improved results at the television stations,
partially offset by decreases at the television network. Results at the
television network reflected the impact of lower ratings, partially offset by
benefits arising from the period's sporting events, improvements in children's
programming, continued strength in the advertising market and decreased
program amortization. Costs and expenses increased 6% or $291 million. This
increase reflected increased programming rights and production costs, driven
by international growth at ESPN and increases at the television network,
partially offset by benefits arising from reductions in program amortization
and other costs at the television network, primarily attributable to the
acquisition.
On an as reported basis, operating income increased $512 million or 65%,
reflecting a full period of ABC's broadcasting operations in 1997.
The Company's results for 1997 reflect an increase in pretax income of $182
million or 28% for mature cable properties compared with 1996 results. These
increases were partially offset by the Company's recognition of its
proportionate share of losses associated with start-up cable ventures.
Overall, the Company's pretax income increased 29% in 1997 from all cable
properties.
THEME PARKS AND RESORTS
1998 VS. 1997
Revenues increased 10% or $518 million to $5.5 billion, driven by growth at
the Walt Disney World Resort, reflecting contributions of $256 million, from
increased guest spending and record attendance, growth of $106 million from
higher occupied room nights and $76 million from Disney Cruise Line. Higher
guest spending reflected strong per capita spending, due in part to new food,
beverage and merchandise offerings throughout the resort, and higher average
room rates. Increased occupied room nights reflected additional capacity
resulting from the opening of Disney's Coronado Springs Resort in August 1997.
Record theme park attendance resulted from growth in domestic and
international tourist visitation due to the opening of the new theme park,
Disney's Animal Kingdom. Disneyland's revenues for the year increased slightly
as higher guest spending was largely offset by reduced attendance driven
primarily by difficult comparisons to the prior year's Main Street Electrical
Parade farewell season and construction of New Tomorrowland in the first half
of 1998.
Operating income increased 13% or $151 million to $1.3 billion, resulting
primarily from higher guest spending, increased occupied room nights and
record attendance at the Walt Disney World Resort, partially offset by start-
up and operating costs associated with Disney's Animal Kingdom and Disney
Cruise Line. Costs and expenses, which consist principally of labor, costs of
merchandise, food, and beverages sold, depreciation, repairs and maintenance,
entertainment and marketing and sales expenses, increased 9% or $367 million.
Increased costs and expenses were driven by higher theme park attendance,
start-up and operating costs at the new theme park and Disney Cruise Line.
1997 VS. 1996
Revenues increased 11% or $512 million to $5.0 billion, reflecting growth at
the Walt Disney World Resort, which celebrated its 25th Anniversary. Growth at
the resort included $272 million from greater
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guest spending, $111 million from increased occupied rooms and $97 million due
to record theme park attendance. Higher guest spending reflected increased
merchandise and food and beverage sales, higher admission prices and increased
room rates at hotel properties. Increased merchandise spending reflected sales
of the 25th Anniversary products and the performance of the World of Disney,
the largest Disney retail outlet, which opened in October 1996. The increase
in occupied rooms reflected higher occupancy and a complete year of operations
at Disney's BoardWalk Resort, which opened in the fourth quarter of 1996.
Occupied rooms also increased due to the opening of Disney's Coronado Springs
Resort in August 1997. Record theme park attendance resulted from growth in
domestic tourist visitation. Disneyland's revenues for the year were flat due
to higher guest spending offset by reduced attendance from the prior-year's
record level.
Operating income increased 15% or $146 million to $1.1 billion, resulting
primarily from higher guest spending, increased occupied rooms and record
theme park attendance at the Walt Disney World Resort. Costs and expenses
increased 10% or $366 million. Increased operating costs were associated with
growth in theme park attendance and occupied rooms, higher guest spending and
increased marketing and sales expenses primarily associated with Walt Disney
World Resort's 25th Anniversary celebration. Additional cost increases
resulted from theme park and resort expansions including Disney's Animal
Kingdom and Disney Cruise Line, which both began operations in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates significant cash from operations and has substantial
borrowing capacity to meet its operating and discretionary spending
requirements. Cash provided by operations was comparable to the prior year, at
$5.1 billion.
In 1998, the Company invested $3.3 billion to develop and produce film and
television properties and $2.3 billion to design and develop new theme park
attractions, resort properties, real estate developments and other properties.
1997 investments totaled $3.1 billion and $1.9 billion, respectively.
The $246 million increase in investment in film and television properties
was primarily driven by higher live-action and animation spending. Live-action
production spending was driven by increases at Miramax and higher animation
spending reflected an increase in the number of films in production.
The $392 million increase in investment in theme parks, resorts and other
properties resulted primarily from initiatives including Disney's California
Adventure and Disney Cruise Line. Capital spending is expected to increase in
1999, driven by increased spending for Disney's California Adventure.
The Company acquires shares of its stock on an ongoing basis and is
authorized as of September 30, 1998 to purchase up to an additional 400
million shares. This amount reflects an increase in the repurchase
authorization and the three-for-one split of the Company's common shares, both
effected in June 1998. During 1998, a subsidiary of the Company acquired
approximately 1.1 million shares of the Company's common stock for
approximately $30 million. The Company also used $412 million to fund dividend
payments during the year.
During 1998, total borrowings increased to $11.7 billion. The Company
borrowed approximately $1.8 billion in 1998, with effective interest rates,
including the impact of interest rate swaps, ranging from 5.2% to 6.8% and
maturities in fiscal 1999 through fiscal 2008. Certain of these financing
agreements are denominated in foreign currencies, and the Company has entered
into cross-currency swap agreements effectively converting these obligations
into U.S. dollar denominated LIBOR-based variable rate debt instruments. In
August 1998, the Company filed a new U.S. registration statement, which
replaced the existing U.S. shelf registration statement, and provides for
issuance of up to $5.0 billion of debt. As of September 30, 1998, the Company
had the ability to borrow under the U.S. shelf registration statement and a
euro medium-term note program, which collectively permitted the issuance of up
to approximately $5.8 billion of additional debt. In addition, the Company has
$5.2 billion available under bank facilities to support its commercial paper
activities.
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The Company's financial condition remains strong. The Company believes that
its cash, other liquid assets, operating cash flows and access to capital
markets, taken together, provide adequate resources to fund ongoing operating
requirements and future capital expenditures related to the expansion of
existing businesses and development of new projects.
OTHER MATTERS
YEAR 2000
The Y2K Problem. The Company is devoting significant resources throughout
its business operations to minimize the risk of potential disruption from the
"year 2000 ("Y2K') problem." This problem is a result of computer programs
having been written using two digits (rather than four) to define the
applicable year. Any information technology ("IT") systems that have time-
sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000, which could result in miscalculations and system failures.
The problem also extends to many "non-IT" systems; that is, operating and
control systems that rely on embedded chip systems. In addition, like every
other business enterprise, the Company is at risk from Y2K failures on the
part of its major business counterparts, including suppliers, distributors,
licensees and manufacturers, as well as potential failures in public and
private infrastructure services, including electricity, water, gas,
transportation and communications.
System failures resulting from the Y2K problem could adversely affect
operations and financial results in all of the Company's business segments.
Failures may affect security, payroll operations or employee and guest health
and safety, as well as such routine but important operations as billing and
collection. In addition, the Company's business segments face more specific
risks. For example:
The Company's Theme Parks and Resorts operations could be significantly
impeded by failures in hotel and cruise line reservation and operating
systems; in theme park operating systems, including those controlling
individual rides, attractions, parades and shows; and in security, health and
safety systems.
In the Creative Content segment, Y2K failures could interfere with critical
systems in such areas as the production, duplication and distribution of
motion picture and home video product and the ordering, distribution and sale
of merchandise at the Company's retail stores and catalog operations.
In the Broadcasting segment, at-risk operations include satellite
transmission and communication systems. Y2K failures in such systems could
adversely affect the Company's television and radio networks, including cable
services, as well as its owned and operated stations.
Addressing the Problem. The Company has developed a six-phase approach to
resolving the Y2K issues that are reasonably within its control. All of these
efforts are being coordinated through a senior-level task force chaired by the
Company's Chief Information Officer ("CIO"), as well as individual task forces
in each major business unit. As of September 30, 1998, approximately 400
employees were devoting more than half of their time to Y2K efforts, in
addition to approximately 400 expert consultants retained on a full-time basis
to assist with specific potential problems. The CIO reports periodically to
the Audit Review Committee of the Board of Directors with respect to the
Company's Y2K efforts.
The Company's approach to and the anticipated timing of each phase are
described below.
Phase 1 - Inventory. The first phase entails a worldwide inventory of all
hardware and software (including business and operational applications,
operating systems and third-party products) that may be at risk, and
identification of key third-party businesses whose Y2K failures might most
significantly impact the Company. The IT system inventory process has been
completed, and the inventories of key third-party businesses and of internal
non-IT systems are expected to be completed by December 31, 1998.
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Phase 2 - Assessment. Once each at-risk system has been identified, the Y2K
task forces assess how critical the system is to business operations and the
potential impact of failure, in order to establish priorities for repair or
replacement. Systems are classified as "critical," "important" or "non-
critical." A "critical" system is one that, if not operational, would cause
the shutdown of all or a portion of a business unit within two weeks, while an
"important" system is one that would cause such a shutdown within two months.
This process has been completed for all IT systems, resulting in the
identification of nearly 600 business systems that are "critical" to continued
functioning and more than 1,000 that are either "important" or are otherwise
being monitored. The assessment process for internal non-IT systems and for
key third-party businesses is expected to be completed by mid-1999. Systems
that are known to be critical or important are receiving top priority in
assessment and remediation.
Phase 3 - Strategy. This phase involves the development of appropriate
remedial strategies for both IT and non-IT systems. These strategies may
include repairing, testing and certifying, replacing or abandoning particular
systems (as discussed under Phases 4 and 5 below). Selection of appropriate
strategies is based upon such factors as the assessments made in Phase 2, the
type of system, the availability of a Y2K-compliant replacement and cost. The
strategy phase has been completed for all IT systems. For some non-IT embedded
systems, strategy development is continuing. At the Company's theme parks, the
majority of ride and show control systems have been tested and certified. A
strategy for addressing embedded systems in office buildings is being
developed in concert with building managers and systems vendors and should be
completed by spring 1999. The process of analysis, certification or
replacement or "workaround" for embedded systems in office buildings is
expected to consume the first half of 1999. Strategies for other embedded
systems, such as satellite communications systems, are being developed and are
also expected to be complete by mid-1999.
Phase 4 - Remediation. The remediation phase involves creating detailed
project plans, marshalling necessary resources and executing the strategies
chosen. For IT systems, this phase is approximately 75% complete for critical
and important systems, and is expected to be completed (including
certification) by July 31, 1999. For non-critical systems, most corrections
are expected to be completed by December 31, 1999. For those systems that are
not expected to be reliably functional after January 1, 2000, detailed manual
workaround plans will be developed prior to the end of 1999.
Phase 5 - Testing and Certification. This phase includes establishing a test
environment, performing systems testing (with third parties if necessary), and
certifying the results. The certification process entails having functional
experts review test results, computer screens and printouts against pre-
established criteria to ensure system compliance. The Company expects all
critical and important IT systems to be certified by July 31, 1999. Testing
for non-IT systems has been initiated; however, due to the Company's reliance
on many third-party vendors for these systems, the Company cannot estimate
precisely when this phase will be completed. The majority of embedded systems
at the Company's theme parks are expected to be certified by December 31,
1998. The Company's target for all critical and important non-IT systems is
July 1999.
The Company has initiated written and telephonic communications with key
third-party businesses, as well as public and private providers of
infrastructure services, to ascertain and evaluate their efforts in addressing
Y2K compliance. It is anticipated that the majority of testing and
certification with these entities will occur in 1999.
Phase 6 - Contingency Planning. This phase involves addressing any remaining
open issues expected in 1999 and early 2000. As a precautionary measure, the
Company is currently developing contingency plans for all systems that are not
expected to be Y2K compliant by March 1999. A variety of automated as well as
manual fallback plans are under consideration, including the use of electronic
spreadsheets, resetting system dates to 1972, a year in which the calendar
coincides with that of 2000, and manual workarounds. The Company estimates
that all of these plans will be completed by December 1999.
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Costs. As of September 30, 1998, the Company had incurred costs of
approximately $136 million related to its Y2K project, of which $82 million
has been capitalized. The estimated additional costs to complete the project
are currently expected to be approximately $125 million, of which $60 million
is expected to be capitalized. A significant portion of these costs have not
been incremental, but rather reflect redeployment of internal resources from
other activities. The Company does not expect these redeployments to have a
material adverse effect on other ongoing business operations of the Company
and its subsidiaries, although it is possible that certain maintenance and
upgrading processes will be delayed as the result of the priority being given
to Y2K remediation. All of the costs of the Y2K project are being borne out of
the Company's operating cash flow.
Based upon its efforts to date, the Company believes that the vast majority
of both its IT and its non-IT systems, including all critical and important
systems, will remain up and running after January 1, 2000. Accordingly, the
Company does not currently anticipate that internal systems failures will
result in any material adverse effect to its operations or financial
condition. During 1999, the Company will also continue and expand its efforts
to ensure that major third-party businesses and public and private providers
of infrastructure services, such as utilities, communications services and
transportation, will also be prepared for the year 2000, and to develop
contingency plans to address any failures on their part to become Y2K
compliant. At this time, the Company believes that the most likely "worst-
case" scenario involves potential disruptions in areas in which the Company's
operations must rely on such third parties whose systems may not work properly
after January 1, 2000. In addition, the Company's international operations may
be adversely affected by failures of businesses in other parts of the world to
take adequate steps to address the Y2K problem. While such failures could
affect important operations of the Company and its subsidiaries, either
directly or indirectly, in a significant manner, the Company cannot at present
estimate either the likelihood or the potential cost of such failures.
The nature and focus of the Company's efforts to address the Year 2000
problem may be revised periodically as interim goals are achieved or new
issues are identified. In addition, it is important to note that the
description of the Company's efforts necessarily involves estimates and
projections with respect to activities required in the future. These estimates
and projections are subject to change as work continues, and such changes may
be substantial.
CONVERSION TO THE EURO CURRENCY
On January 1, 1999, certain member countries of the European Union are
scheduled to establish fixed conversion rates between their existing
currencies and the European Union's common currency (euro). The Company
conducts business in member countries. The transition period for the
introduction of the euro will be between January 1, 1999 and June 30, 2002.
The Company is addressing the issues involved with the introduction of the
euro. The more important issues facing the Company include: converting
information technology systems; reassessing currency risk; negotiating and
amending licensing agreements and contracts; and processing tax and accounting
records.
Based upon progress to date the Company believes that use of the euro will
not have a significant impact on the manner in which it conducts its business
affairs and processes its business and accounting records. Accordingly,
conversion to the euro is not expected to have a material effect on the
Company's financial condition or results of operations.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
safe harbor for forward-looking statements made by or on behalf of the
Company. The Company and its representatives may from time to time make
written or oral statements that are "forward-looking," including statements
contained in this report and other filings with the Securities and Exchange
Commission and in reports to the Company's stockholders. All statements that
express expectations and projections with respect to future matters, including
the launching or prospective development of
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new business initiatives; anticipated motion picture or television releases;
internet or theme park and resort projects; "Year 2000" remediation efforts;
and preparations for the introduction of the euro, are forward-looking
statements within the meaning of the Act. These statements are made on the
basis of management's views and assumptions, as of the time the statements are
made, regarding future events and business performance. There can be no
assurance, however, that management's expectations will necessarily come to
pass.
Factors that may affect forward-looking statements. For an enterprise as
large and complex as the Company, a wide range of factors could materially
affect future developments and performance, including the following:
Changes in Company-wide or business-unit strategies, which may result in
changes in the types or mix of businesses in which the Company is involved
or chooses to invest;
Changes in U.S., global or regional economic conditions, which may affect
attendance and spending at the Company's theme parks and resorts, purchases
of Company-licensed consumer products and the performance of the Company's
broadcasting and motion picture operations;
Changes in U.S. and global financial and equity markets, including
significant interest rate fluctuations, which may impede the Company's
access to, or increase the cost of, external financing for its operations
and investments;
Increased competitive pressures, both domestically and internationally,
which may, among other things, affect the performance of the Company's
theme park, resort and regional entertainment operations and lead to
increased expenses in such areas as television programming acquisition and
motion picture production and marketing;
Legal and regulatory developments that may affect particular business
units, such as regulatory actions affecting environmental activities,
consumer products, broadcasting or internet activities or the protection of
intellectual properties, the imposition by foreign countries of trade
restrictions or motion picture or television content requirements or
quotas, and changes in international tax laws or currency controls;
Adverse weather conditions or natural disasters, such as hurricanes and
earthquakes, which may, among other things, impair performance at the
Company's theme parks and resorts;
Technological developments that may affect the distribution of the
Company's creative products or create new risks to the Company's ability to
protect its intellectual property;
Labor disputes, which may lead to increased costs or disruption of
operations in any of the Company's business units; and
Changing public and consumer taste, which may affect the Company's
entertainment, broadcasting and consumer products businesses.
This list of factors that may affect future performance and the accuracy of
forward-looking statements is illustrative, but by no means exhaustive.
Accordingly, all forward-looking statements should be evaluated with the
understanding of their inherent uncertainty.
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ITEM 7A. MARKET RISK
The Company is exposed to the impact of interest rate changes, foreign
currency fluctuations and changes in the market values of its investments.
POLICIES AND PROCEDURES
In the normal course of business, the Company employs established policies
and procedures to manage its exposure to changes in interest rates and
fluctuations in the value of foreign currencies using a variety of financial
instruments.
The Company's objective in managing its exposure to interest rate changes is
to limit the impact of interest rate changes on earnings and cash flows and to
lower its overall borrowing costs. To achieve its objectives, the Company
primarily uses interest rate swaps to manage net exposure to interest rate
changes related to its portfolio of borrowings. The Company maintains fixed
rate debt as a percentage of its net debt between a minimum and maximum
percentage, which is set by policy.
The Company's objective in managing the exposure to foreign currency
fluctuations is to reduce earnings and cash flow volatility associated with
foreign exchange rate changes to allow management to focus its attention on
its core business issues and challenges. Accordingly, the Company enters into
various contracts that change in value as foreign exchange rates change to
protect the value of its existing foreign currency assets, liabilities,
commitments and anticipated foreign currency revenues. The Company uses option
strategies that provide for the sale of foreign currencies to hedge probable,
but not firmly committed, revenues. The principal currencies hedged are the
Japanese yen, French franc, German mark, British pound, Canadian dollar and
Italian lira. By policy, the Company maintains hedge coverage between minimum
and maximum percentages of its anticipated foreign exchange exposures for
periods not to exceed five years. The gains and losses on these contracts
offset changes in the value of the related exposures.
It is the Company's policy to enter into foreign currency and interest rate
transactions only to the extent considered necessary to meet its objectives as
stated above. The Company does not enter into foreign currency or interest
rate transactions for speculative purposes.
VALUE AT RISK
The Company utilizes a "Value-at-Risk" ("VAR") model to determine the
maximum potential one-day loss in the fair value of its interest rate and
foreign exchange sensitive financial instruments. The VAR model estimates were
made assuming normal market conditions and a 95% confidence level. There are
various modeling techniques which can be used in the VAR computation. The
Company's computations are based on the interrelationships between movements
in various currencies and interest rates (a "variance/co-variance" technique).
These interrelationships were determined by observing interest rate and
foreign currency market changes over the preceding quarter for the calculation
of VAR amounts at year-end and over each of the four quarters for the
calculation of average VAR amounts during the year. The model includes all of
the Company's debt as well as all interest rate and foreign exchange
derivative contracts. The values of foreign exchange options do not change on
a one-to-one basis with the underlying currencies, as exchange rates vary.
Therefore, the hedge coverage assumed to be obtained from each option has been
adjusted to reflect its respective sensitivity to changes in currency values.
Anticipated transactions, firm commitments and receivables and accounts
payable denominated in foreign currencies, which certain of these instruments
are intended to hedge, were excluded from the model.
The VAR model is a risk analysis tool and does not purport to represent
actual losses in fair value that will be incurred by the Company, nor does it
consider the potential effect of favorable changes in market factors. (See
Note 12 to the Consolidated Financial Statements regarding the Company's
financial instruments at September 30, 1998 and 1997.)
-28-
<PAGE>
The estimated maximum potential one-day loss in fair value, calculated using
the VAR model, follows (in millions):
<TABLE>
<CAPTION>
Interest Rate Currency
Sensitive Financial Sensitive Financial Combined
Instruments Instruments Portfolio
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
VAR as of September 30, 1998 $32 $29 $56
Average VAR during the year 21 26 32
ended September 30, 1998
</TABLE>
The higher VAR combined portfolio exposure at September 30, 1998 is
primarily due to the volatile financial market environment existing at year
end. Since the Company utilizes currency sensitive derivative instruments to
hedge anticipated foreign currency transactions, a loss in fair value for
those instruments is generally offset by increases in the value of the
underlying anticipated transactions.
NEW ACCOUNTING GUIDANCE
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities ("SFAS 133"), which the Company is required to adopt effective
October 1, 1999. 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 forecasted
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Supplemental Data on page 36.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-29-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
DIRECTORS
Information regarding directors appearing under the caption "Election of
Directors" in the Company's Proxy Statement for the 1999 Annual Meeting of
Stockholders (the "1999 Proxy Statement") is hereby incorporated by reference.
Information regarding executive officers is included in Part I of this Form
10-K as permitted by General Instruction G(3).
ITEM 11. EXECUTIVE COMPENSATION
Information appearing under the captions "How are directors compensated?"
and "Executive Compensation" in the 1999 Proxy Statement is hereby
incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information setting forth the security ownership of certain beneficial
owners and management appearing under the caption "Stock Ownership" in the
1999 Proxy Statement is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain related transactions appearing under the
caption "Certain Relationships and Related Transactions" in the 1999 Proxy
Statement is hereby incorporated by reference.
-30-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits and Financial Statements and Schedules
(1) Financial Statements and Schedules
See Index to Financial Statements and Supplemental Data at page 36.
(2) Exhibits
The documents set forth below are filed herewith or incorporated herein
by reference to the location indicated.
<TABLE>
<CAPTION>
EXHIBIT LOCATION
------- --------
<C> <C> <S>
3(a) Restated Certificate of Incorporation Exhibit 3(a) to the Form 8-
of the Company B/A Registration Statement,
dated Jan. 23, 1996, of the
Company
3(b) Bylaws of the Company Exhibit 4.2 to Amendment No.
1 to the Form S-3
Registration Statement, dated
Aug. 3, 1998, of the Company
4(a) Form of Registration Rights Agreement Exhibit B to Exhibit 2.1 to
entered into or to be entered into the Form 8-K, dated July 31,
with certain stockholders 1995, of Disney Enterprises,
Inc. ("DEI")
4(b) Rights Agreement, dated as of Nov. 8, Exhibit 4.2 to the Form S-4
1995 Registration Statement, dated
Nov. 13, 1995 (No. 33-64141)
of the Company
4(c) Five-Year Credit Agreement, dated as Exhibit 4(d) to the 1996 Form
of Oct. 30, 1996 10-K of the Company
4(d) Indenture, dated as of Nov. 30, 1990, Exhibit 2 to the Current
between DEI and Bankers Trust Report on Form 8-K, dated
Company, as Trustee Jan. 14, 1991, of DEI
4(e) Indenture, dated as of Mar. 7, 1996, Exhibit 4.1(a) to the Form 8-
between the Company and Citibank, K, dated Mar. 7, 1996, of the
N.A., as Trustee Company
4(f) Other long-term borrowing instruments
are omitted pursuant to Item 601(b)
(4) (iii) of Regulation S-K. The
Company undertakes to furnish copies
of such instruments to the Commission
upon request.
10(a) (i) Agreement on the Creation and the Exhibits 10(b) and 10(a),
Operation of Euro Disneyland en respectively, to the Form 8-
France, dated Mar. 25, 1987, and (ii) K, dated Apr. 24, 1987, of
Letter relating thereto of the DEI
Chairman of Disney Enterprises, Inc.,
dated Mar. 24, 1987
10(b) Composite Limited Recourse Financing Exhibit 10(b) to the 1997
Facility Agreement, dated as of Apr. Form 10-K of the Company
27, 1988, between DEI and TDL Funding
Company, as amended
10(c) Employment Agreement, dated as of Exhibit 10.2 to the Form 10-Q
Jan. 8, 1997, between the Company and for the period ended Dec. 31,
Michael D. Eisner 1996, of the Company
</TABLE>
-31-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT LOCATION
------- --------
<C> <C> <S>
10(d) (i) Profit Participation Contract, Exhibits 1 and 3,
dated Dec. 14, 1979, with E. Cardon respectively, to the 1980
Walker and (ii) Amendment thereto, Form 10-K of DEI
dated Aug. 8, 1980
10(e) Form of Indemnification Agreement for Annex C to the Proxy
certain officers and directors of DEI Statement for the 1988 Annual
Meeting of DEI
10(f) 1995 Stock Option Plan for Non- Exhibit 20 to the Form S-8
Employee Directors Registration Statement (No.
33-57811), dated Feb. 23,
1995, of DEI
10(g) 1990 Stock Incentive Plan and Rules Exhibits 28(a) and 28(b),
respectively, to the Form S-8
Registration Statement
(No. 33-39770), dated Apr. 5,
1991, of DEI
10(h) Amended and Restated 1990 Stock Appendix B-2 to the Joint
Incentive Plan and Rules Proxy Statement/Prospectus
included in the Form S-4
Registration Statement
(No. 33-64141), dated Nov.
13, 1995, of DEI
10(i) 1995 Stock Incentive Plan and Rules Appendix B-1 to the Joint
Proxy Statement/Prospectus
included in the Form S-4
Registration Statement
(No. 33-64141), dated Nov.
13, 1995, of DEI
10(j) (i) 1987 Stock Incentive Plan and Exhibits 1(a), 1(b), 2(a),
Rules, (ii) 1984 Stock Incentive Plan 2(b), 3(a), 3(b) and 4,
and Rules, (iii) 1981 Incentive Plan respectively, to the
and Rules and (iv) 1980 Stock Option Prospectus contained in the
Plan Form S-8 Registration
Statement (No. 33-26106),
dated Dec. 20, 1988, of DEI
10(k) Contingent Stock Award Rules under Exhibit 10(t) to the 1986
DEI's 1984 Stock Incentive Plan Form 10-K of DEI
10(l) Bonus Performance Plan for Executive Filed herewith
Officers
10(m) Performance-Based Compensation Plan Included in the Proxy
for the Company's Chief Executive Statement dated Jan. 9, 1997,
Officer for the 1997 Annual Meeting
of the Company
10(n) Key Employees Deferred Compensation Exhibit 10(p) to the 1997
and Retirement Plan Form 10-K of the Company
10(o) Group Personal Excess Liability Exhibit 10(x) to the 1997
Insurance Plan Form 10-K of the Company
10(p) Family Income Assurance Plan (summary Exhibit 10(y) to the 1997
description) Form 10-K of the Company
10(q) Disney Salaried Savings and Exhibit 10(s) to the 1995
Investment Plan Form 10-K of DEI
10(r) First Amendment to the Disney Exhibit 10(r) to the 1997
Salaried Savings and Investment Plan Form 10-K of the Company
10(s) Second Amendment to the Disney Exhibit 10(s) to the 1997
Salaried Savings and Investment Plan Form 10-K of the Company
10(t) ABC, Inc. Savings and Investment File herewith
Plan, as amended
10(u) Employee Stock Option Plan of Capital Exhibit 10(f) to the 1992
Cities/ABC, Inc., as amended Form 10-K of Capital
Cities/ABC, Inc.
10(v) 1991 Stock Option Plan of Capital Exhibit 6(a)(i) to the Form
Cities/ABC, Inc., as amended 10-Q for the period ended
Mar. 31, 1996, of the Company
</TABLE>
-32-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT LOCATION
------- --------
<C> <C> <S>
21 Subsidiaries of the Company Filed herewith.
23 Consent of PricewaterhouseCoopers LLP Included herein at page 37.
27 Financial Data Schedule Filed herewith.
28(a) Financial statements of the Disney Included in Form 10-K/A,
Salaried Savings and Investment Plan dated June 29, 1998, of the
for the year ended Dec. 31, 1998 Company
28(b) Financial statements of the ABC Included in Form 10-K/A,
Salaried Savings and Investment Plan dated June 29, 1998, of the
for the year ended Dec. 31, 1997 Company
99 Pro forma financial information for Exhibit 99 to the 1997 Form
1997 events. 10-K of the Company
</TABLE>
(b) Reports on Form 8-K
(i) The Company filed a Current Report on Form 8-K on August 6, 1998 in
connection with the effectiveness of its registration statement on Form
S-3 with respect to the issuance of up to an aggregate of
$5,000,000,000 of debt securities, preferred stock, common stock and
warrants.
-33-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
THE WALT DISNEY COMPANY
-----------------------------------------------------
(Registrant)
Date: December 18, 1998 By: MICHAEL D. EISNER
-----------------------------------------------------
(Michael D. Eisner, Chairman of the Board and Chief
Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Principal Executive Officer
MICHAEL D. EISNER Chairman of the Board and December 18, 1998
- -------------------------------- Chief Executive Officer
(Michael D. Eisner)
Principal Financial and Accounting
Officers
THOMAS O. STAGGS Executive Vice President and December 18, 1998
- -------------------------------- Chief Financial Officer
(Thomas O. Staggs)
JOHN J. GARAND Senior Vice President- December 18, 1998
- -------------------------------- Planning and Control
(John J. Garand)
Directors
REVETA F. BOWERS Director December 18, 1998
- --------------------------------
(Reveta F. Bowers)
ROY E. DISNEY Director December 18, 1998
- --------------------------------
(Roy E. Disney)
MICHAEL D. EISNER Director December 18, 1998
- --------------------------------
(Michael D. Eisner)
JUDITH ESTRIN Director December 18, 1998
- --------------------------------
(Judith Estrin)
STANLEY P. GOLD Director December 18, 1998
- --------------------------------
(Stanley P. Gold)
SANFORD M. LITVACK Director December 18, 1998
- --------------------------------
(Sanford M. Litvack)
IGNACIO E. LOZANO, JR. Director December 18, 1998
- --------------------------------
(Ignacio E. Lozano, Jr.)
GEORGE J. MITCHELL Director December 18, 1998
- --------------------------------
(George J. Mitchell)
</TABLE>
-34-
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
THOMAS S. MURPHY Director December 18, 1998
- -----------------------------
(Thomas S. Murphy)
RICHARD A. NUNIS Director December 18, 1998
- -----------------------------
(Richard A. Nunis)
LEO J. O'DONOVAN, S.J. Director December 18, 1998
- -----------------------------
(Leo J. O'Donovan, S.J.)
SIDNEY POITIER Director December 18, 1998
- -----------------------------
(Sidney Poitier)
IRWIN E. RUSSELL Director December 18, 1998
- -----------------------------
(Irwin E. Russell)
ROBERT A.M. STERN Director December 18, 1998
- -----------------------------
(Robert A.M. Stern)
ANDREA VAN DE KAMP Director December 18, 1998
- -----------------------------
(Andrea Van de Kamp)
E. CARDON WALKER Director December 18, 1998
- -----------------------------
(E. Cardon Walker)
RAYMOND L. WATSON Director December 18, 1998
- -----------------------------
(Raymond L. Watson)
GARY L. WILSON Director December 18, 1998
- -----------------------------
(Gary L. Wilson)
</TABLE>
-35-
<PAGE>
THE WALT DISNEY COMPANY AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants and Consent of Independent Accountants.. 37
Consolidated Financial Statements of The Walt Disney Company and
Subsidiaries
Consolidated Statements of Income for the Years Ended September 30,
1998, 1997 and 1996.................................................... 38
Consolidated Balance Sheets as of September 30, 1998 and 1997........... 39
Consolidated Statements of Cash Flows for the Years Ended September 30,
1998, 1997 and 1996.................................................... 40
Consolidated Statements of Stockholders' Equity for the Years Ended
September 30, 1998, 1997 and 1996...................................... 41
Notes to Consolidated Financial Statements.............................. 42
Quarterly Financial Summary............................................. 60
</TABLE>
Schedules other than those listed above are omitted for the reason that they
are not applicable or the required information is included in the financial
statements or related notes.
-36-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of The Walt Disney Company
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of The Walt Disney Company and its subsidiaries (the "Company") at
September 30, 1998 and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended September 30, 1998,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
November 19, 1998
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the prospectuses
constituting part of the Registration Statements on Form S-8 (Nos. 33-26106,
33-35405 and 33-39770) and Form S-3 (Nos. 33-49891 and 333-52659) of The Walt
Disney Company of our report dated November 19, 1998 which appears above.
PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
December 18, 1998
-37-
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)
<TABLE>
<S> <C> <C> <C>
Year Ended September 30 1998 1997 1996
- -----------------------------------------------------------------------------
Revenues $ 22,976 $ 22,473 $ 18,739
Costs and expenses (18,961) (18,161) (15,406)
Gain on sale of KCAL -- 135 --
Accounting change -- -- (300)
-------- -------- --------
Operating income 4,015 4,447 3,033
Corporate activities and other (236) (367) (309)
Net interest expense (622) (693) (438)
Acquisition-related costs -- -- (225)
-------- -------- --------
Income before income taxes 3,157 3,387 2,061
Income taxes (1,307) (1,421) (847)
-------- -------- --------
Net income $ 1,850 $ 1,966 $ 1,214
======== ======== ========
Earnings per share
Diluted $ 0.89 $ 0.95 $ 0.65
======== ======== ========
Basic $ 0.91 $ 0.97 $ 0.66
======== ======== ========
Average number of common and common equivalent
shares outstanding
Diluted 2,079 2,060 1,857
======== ======== ========
Basic 2,037 2,021 1,827
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
-38-
<PAGE>
CONSOLIDATED BALANCE SHEETS
(In millions)
<TABLE>
<S> <C> <C>
September 30 1998 1997
- ----------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $ 127 $ 317
Receivables 3,999 3,329
Inventories 899 853
Film and television costs 3,223 2,186
Deferred income taxes 463 482
Other assets 664 486
------- -------
Total current assets 9,375 7,653
Film and television costs 2,506 2,215
Investments 1,814 1,914
Theme parks, resorts and other property, at cost
Attractions, buildings and equipment 14,037 11,787
Accumulated depreciation (5,382) (4,857)
------- -------
8,655 6,930
Projects in progress 1,280 1,928
Land 411 93
------- -------
10,346 8,951
Intangible assets, net 15,769 16,011
Other assets 1,568 1,753
------- -------
$41,378 $38,497
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts and taxes payable and other accrued liabilities $ 4,767 $ 4,748
Current portion of borrowings 2,123 897
Unearned royalties and other advances 635 631
------- -------
Total current liabilities 7,525 6,276
Borrowings 9,562 10,171
Deferred income taxes 2,488 2,161
Other long term liabilities, unearned royalties and other
advances 2,415 2,604
Stockholders' Equity
Preferred stock, $.01 par value
Authorized--100 million shares
Issued--none
Common stock, $.01 par value
Authorized--3.6 billion shares
Issued--2.1 billion shares and 2.0 billion shares 8,995 8,548
Retained earnings 10,981 9,543
Cumulative translation and other 13 (12)
------- -------
19,989 18,079
Treasury stock, at cost, 29 million shares and 24 million
shares (593) (462)
Shares held by TWDC Stock Compensation Fund, at cost--
0.4 million shares and 13 million shares (8) (332)
------- -------
19,388 17,285
------- -------
$41,378 $38,497
======= =======
</TABLE>
See Notes to Consolidated Financial Statements
-39-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
<TABLE>
<S> <C> <C> <C>
Year Ended September 30 1998 1997 1996
- ------------------------------------------------------------------------------
NET INCOME $ 1,850 $ 1,966 $ 1,214
ITEMS NOT REQUIRING CASH OUTLAYS
Amortization of film and television costs 2,514 1,995 1,786
Depreciation 809 738 672
Amortization of intangible assets 431 439 301
Gain on sale of KCAL -- (135) --
Accounting change -- -- 300
Other (75) (15) 22
CHANGES IN
Receivables (664) (177) (297)
Inventories (46) 8 (13)
Other assets 179 (441) (399)
Accounts and taxes payable and accrued
liabilities 218 608 56
Film and television costs television broadcast
rights (447) (179) 58
Deferred income taxes 346 292 (78)
Investments in trading securities -- -- 85
------- ------- --------
3,265 3,133 2,493
------- ------- --------
CASH PROVIDED BY OPERATIONS 5,115 5,099 3,707
------- ------- --------
INVESTING ACTIVITIES
Film and television costs (3,335) (3,089) (2,760)
Investments in theme parks, resorts and other
property (2,314) (1,922) (1,745)
Acquisitions (213) (180) --
Proceeds from sale of marketable securities and
other investments 238 31 409
Purchases of marketable securities (13) (56) (18)
Investment in and loan to E! Entertainment (28) (321) --
Proceeds from disposal of publishing operations -- 1,214 --
Acquisition of ABC, net of cash acquired -- -- (8,432)
Proceeds from disposal of KCAL -- 387 --
------- ------- --------
(5,665) (3,936) (12,546)
------- ------- --------
FINANCING ACTIVITIES
Borrowings 1,830 2,437 13,560
Reduction of borrowings (1,212) (4,078) (4,872)
Repurchases of common stock (30) (633) (462)
Dividends (412) (342) (271)
Exercise of stock options and other 184 180 85
Proceeds from formation of REITs -- 1,312 --
------- ------- --------
360 (1,124) 8,040
------- ------- --------
(Decrease) Increase in Cash and Cash Equivalents (190) 39 (799)
Cash and Cash Equivalents, Beginning of Year 317 278 1,077
------- ------- --------
Cash and Cash Equivalents, End of Year $ 127 $ 317 $ 278
======= ======= ========
Supplemental disclosure of cash flow information:
Interest paid $ 555 $ 777 $ 379
======= ======= ========
Income taxes paid $ 1,107 $ 958 $ 689
======= ======= ========
</TABLE>
See Notes to Consolidated Financial Statements
-40-
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In millions, except per share data)
<TABLE>
<CAPTION>
TWDC
Cumulative Stock
Common Retained Translation Treasury Compensation
Shares Stock Earnings and Other Stock Fund Total
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
SEPTEMBER 30, 1995 1,573 $1,240 $ 6,976 $ 38 $(1,603) $ -- $ 6,651
Impact of ABC
acquisition 464 7,206 -- -- 1,603 -- 8,809
Exercise of stock
options, net 9 144 -- -- -- -- 144
Common stock
repurchased (24) -- -- -- (462) -- (462)
Dividends ($.14 per
share) -- -- (271) -- -- -- (271)
Cumulative translation
and other -- -- -- 1 -- -- 1
Net income -- -- 1,214 -- -- -- 1,214
----- ------ ------- ---- ------- ----- -------
BALANCE AT
SEPTEMBER 30, 1996 2,022 8,590 7,919 39 (462) -- 16,086
Exercise of stock
options, net 15 (42) -- -- -- 301 259
Common stock
repurchased (24) -- -- -- -- (633) (633)
Dividends ($.17 per
share) -- -- (342) -- -- -- (342)
Cumulative translation
and other -- -- -- (51) -- -- (51)
Net income -- -- 1,966 -- -- -- 1,966
----- ------ ------- ---- ------- ----- -------
BALANCE AT
SEPTEMBER 30, 1997 2,013 8,548 9,543 (12) (462) (332) 17,285
Common stock issued 4 160 -- -- -- -- 160
Exercise of stock
options, net 34 287 -- -- (131) 354 510
Common stock
repurchased (1) -- -- -- -- (30) (30)
Dividends ($.20 per
share) -- -- (412) -- -- -- (412)
Cumulative translation
and other -- -- -- 25 -- -- 25
Net income -- -- 1,850 -- -- -- 1,850
----- ------ ------- ---- ------- ----- -------
BALANCE AT
SEPTEMBER 30, 1998 2,050 $8,995 $10,981 $ 13 $ (593) $ (8) $19,388
===== ====== ======= ==== ======= ===== =======
</TABLE>
See Notes to Consolidated Financial Statements
-41-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in millions, except per share amounts)
1 Description of the Business and Summary of Significant Accounting Policies
The Walt Disney Company, together with its subsidiaries (the "Company"), is
a diversified international entertainment organization with operations in the
following businesses.
CREATIVE CONTENT
The Company produces and acquires live-action and animated motion pictures
for distribution to the theatrical, home video and television markets. The
Company also produces original television programming for the network and
first-run syndication markets. The Company distributes its filmed product
through its own distribution and marketing companies in the United States and
most foreign markets.
The Company licenses the name "Walt Disney," as well as the Company's
characters, visual and literary properties and songs and music, to various
consumer manufacturers, retailers, show promoters and publishers throughout
the world. The Company also engages in direct retail distribution principally
through the Disney Stores, and produces books and magazines for the general
public in the United States and Europe. In addition, the Company produces
audio and computer software products for the entertainment market, as well as
film, video and computer software products for the educational marketplace.
Buena Vista Internet Group ("BVIG") coordinates the Company's internet
initiatives. BVIG develops, publishes and distributes content for narrow-band
on-line services, the interactive software market, interactive television
platforms, internet web sites, including Disney.com, Disney's Daily Blast,
ESPN.com, ABCNews.com and the Disney Store Online, which offers Disneythemed
merchandise over the internet.
BROADCASTING
The Company operates the ABC Television Network, which has affiliated
stations providing coverage to U.S. television households. The Company also
owns television and radio stations, most of which are affiliated with either
the ABC Television Network or the ABC Radio Networks. The Company's cable and
international broadcast operations are principally involved in the production
and distribution of cable television programming, the licensing of programming
to domestic and international markets and investing in foreign television
broadcasting, production and distribution entities. Primary domestic cable
programming services, which operate through subsidiary companies and joint
ventures, are ESPN, the A&E Television Networks, Lifetime Entertainment
Services and E! Entertainment Television. The Company provides programming for
and operates cable and satellite television programming services, including
the Disney Channel and Disney Channel International.
THEME PARKS AND RESORTS
The Company operates the Walt Disney World Resort(R) in Florida, and
Disneyland Park(R), the Disneyland Hotel and the Disneyland Pacific Hotel in
California. The Walt Disney World Resort includes the Magic Kingdom, Epcot,
Disney-MGM Studios and Disney's Animal Kingdom, thirteen resort hotels and a
complex of villas and suites, a retail, dining and entertainment complex, a
sports complex, conference centers, campgrounds, golf courses, water parks and
other recreational facilities. In addition, the resort operates Disney Cruise
Line from Port Canaveral, Florida. Disney Regional Entertainment designs,
develops and operates a variety of new entertainment concepts based on Disney
brands and creative properties, operating under the names Club Disney, ESPN
Zone and DisneyQuest. The Company earns royalties on revenues generated by the
Tokyo Disneyland(R) theme park near Tokyo, Japan, which is owned and operated
by an unrelated Japanese corporation. The
-42-
<PAGE>
Company also has an investment in Euro Disney S.C.A., a publicly-held French
entity that operates Disneyland Paris. The Company's Walt Disney Imagineering
unit designs and develops new theme park concepts and attractions, as well as
resort properties. The Company also manages and markets vacation ownership
interests in the Disney Vacation Club. Included in Theme Parks and Resorts are
the Company's National Hockey League franchise, the Mighty Ducks of Anaheim,
and its ownership interest in the Anaheim Angels, a Major League Baseball
team.
SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of
The Walt Disney Company and its subsidiaries after elimination of intercompany
accounts and transactions.
Accounting Changes
During the first quarter, the Company adopted Statement of Financial
Accounting Standards No. 128 Earnings Per Share ("SFAS 128"), which specifies
the method of computation, presentation and disclosure for earnings per share
("EPS"). SFAS 128 requires the presentation of two EPS amounts, basic and
diluted. Basic EPS is calculated by dividing net income by the weighted
average number of common shares outstanding for the period. Diluted EPS
includes the dilution that would occur if outstanding stock options and other
dilutive securities were exercised and is comparable to the EPS the Company
has historically reported. The diluted EPS calculation excludes the effect of
stock options when their exercise prices exceed the average market price over
the period.
During 1997, the Company adopted SFAS 123 Accounting for Stock-Based
Compensation ("SFAS 123"), which requires disclosure of the fair value and
other characteristics of stock options (see Note 9). The Company has chosen
under the provisions of SFAS 123 to continue using the intrinsic-value method
of accounting for employee stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to
Employees ("APB 25").
During 1996, the Company adopted SFAS 121 Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121")
(see Note 11).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
footnotes thereto. Actual results could differ from those estimates.
Revenue Recognition
Revenues from the theatrical distribution of motion pictures are recognized
when motion pictures are exhibited. Revenues from video sales are recognized
on the date that video units are made widely available for sale by retailers.
Revenues from the licensing of feature films and television programming are
recorded when the material is available for telecasting by the licensee and
when certain other conditions are met.
Broadcast advertising revenues are recognized when commercials are aired.
Revenues from television subscription services related to the Company's
primary cable programming services are recognized as services are provided.
Revenues from participants and sponsors at the theme parks are generally
recorded over the period of the applicable agreements commencing with the
opening of the related attraction.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and marketable securities
with original maturities of three months or less.
-43-
<PAGE>
Investments
Debt securities that the Company has the positive intent and ability to hold
to maturity are classified as "held-to-maturity" and reported at amortized
cost. Debt securities not classified as held-to-maturity and marketable equity
securities are classified as either "trading" or "available-for-sale," and are
recorded at fair value with unrealized gains and losses included in earnings
or stockholders' equity, respectively. All other equity securities are
accounted for using either the cost method or the equity method. The Company's
share of earnings or losses in its equity investments accounted for under the
equity method is included in "Corporate activities and other" in the
consolidated statements of income.
Inventories
Carrying amounts of merchandise, materials and supplies inventories are
generally determined on a moving average cost basis and are stated at the
lower of cost or market.
Film and Television Costs
Film and television costs are stated at the lower of cost, less accumulated
amortization, or net realizable value. Television broadcast program licenses
and rights and related liabilities are recorded when the license period begins
and the program is available for use.
Film and television production and participation costs are expensed based on
the ratio of the current period's gross revenues to estimated total gross
revenues from all sources on an individual production basis. Television
network and station rights for theatrical movies and other long-form
programming are charged to expense primarily on accelerated bases related to
the usage of the programs. Television network series costs and multi-year
sports rights are charged to expense based on the ratio of the current
period's gross revenues to estimated total gross revenues from such programs.
Estimates of total gross revenues can change significantly due to a variety
of factors, including the level of market acceptance of film and television
products, advertising rates and subscriber fees. Accordingly, revenue
estimates are reviewed periodically and amortization is adjusted if necessary.
Such adjustments could have a material effect on results of operations in
future periods.
Theme Parks, Resorts and Other Property
Theme parks, resorts and other property are carried at cost. Depreciation is
computed on the straight-line method based upon estimated useful lives ranging
from three to fifty years.
Intangible/Other Assets
Intangible assets are amortized over periods ranging from two to forty
years. The Company continually reviews the recoverability of the carrying
value of these assets using the methodology prescribed in SFAS 121. The
Company also reviews long-lived assets and the related intangible assets for
impairment whenever events or changes in circumstances indicate the carrying
amounts of such assets may not be recoverable. Recoverability of these assets
is determined by comparing the forecasted undiscounted net cash flows of the
operation to which the assets relate, to the carrying amount, including
associated intangible assets, of such operation. If the operation is
determined to be unable to recover the carrying amount of its assets, then
intangible assets are written down first, followed by the other long-lived
assets of the operation, to fair value. Fair value is determined based on
discounted cash flows or appraised values, depending upon the nature of the
assets.
Risk Management Contracts
In the normal course of business, the Company employs a variety of off-
balance-sheet financial instruments to manage its exposure to fluctuations in
interest and foreign currency exchange rates, including interest rate and
cross-currency swap agreements, forward, option, swaption and spreadlock
contracts and interest rate caps.
-44-
<PAGE>
The Company designates and assigns the financial instruments as hedges of
specific assets, liabilities or anticipated transactions. When hedged assets
or liabilities are sold or extinguished or the anticipated transactions being
hedged are no longer expected to occur, the Company recognizes the gain or
loss on the designated hedging financial instruments.
The Company classifies its derivative financial instruments as held or
issued for purposes other than trading. Option premiums and unrealized losses
on forward contracts and the accrued differential for interest rate and cross-
currency swaps to be received under the agreements are recorded in the balance
sheet as other assets. Unrealized gains on forward contracts and the accrued
differential for interest rate and cross-currency swaps to be paid under the
agreements are included in accounts and taxes payable and other accrued
liabilities. Realized gains and losses from hedges are classified in the
income statement consistent with the accounting treatment of the items being
hedged. The Company accrues the differential for interest rate and cross-
currency swaps to be paid or received under the agreements as interest and
exchange rates shift as adjustments to net interest expense over the lives of
the swaps. Gains and losses on the termination of swap agreements, prior to
their original maturity, are deferred and amortized to net interest expense
over the remaining term of the underlying hedged transactions.
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, 1998, 1997 and 1996, options for 18 million,
15 million and 39 million shares, respectively, were excluded from diluted
earnings per share.
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 1997 and 1996 financial
statements to conform to the 1998 presentation, including the change in format
from an unclassified balance sheet to a classified balance sheet, which
separately presents the current and non-current portions of assets and
liabilities. Consistent with the classification of television broadcast rights
as current assets, payments for such rights are now reclassified as operating
cash flows.
2 Acquisition and Dispositions
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
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<PAGE>
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 acquisition of ABC in 1996 and the sale of KCAL, the finalization of
purchase price allocation and the disposition of certain ABC publishing assets
in 1997 had occurred at the beginning of the respective years presented. 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 years presented, nor is it necessarily indicative of future
results.
<TABLE>
<CAPTION>
Year Ended
September 30,
----------------
1997 1996 (a)
------- --------
<S> <C> <C>
Revenues $21,613 $20,075
Net income 1,772 1,274
Earnings per share
Diluted $ 0.86 $ 0.62
Basic $ 0.88 $ 0.63
</TABLE>
- --------
(a) 1996 includes the impact of a $300 million non-cash charge related to the
initial adoption of a new accounting standard (see Note 11). The charge
reduced diluted earnings per share by $.09 for the year.
3Investment 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, 1998, the Company's recorded investment in
Euro Disney was $340 million. The quoted market value of the Company's Euro
Disney shares at September 30, 1998 was approximately $452 million.
In connection with the financial restructuring of Euro Disney in 1994, Euro
Disney Associes 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, 1998 of
FF 8.3 billion ($1.5 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 $1.1
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.
Also as part of the restructuring, the Company agreed to arrange for the
provision of a 10-year unsecured standby credit facility of approximately $201
million, upon request, bearing interest at PIBOR. As of September 30, 1998,
Euro Disney had not requested that the Company establish this facility. The
Company also agreed, as long as any of the restructured debt is outstanding,
to maintain ownership of at least 34% of the outstanding common stock of Euro
Disney until June 1999, at least 25% for the subsequent five years and at
least 16.67% for an additional term thereafter.
-46-
<PAGE>
4Film and Television Costs
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------
<S> <C> <C>
Theatrical film costs
Released, less amortization $2,035 $1,691
In-process 2,041 1,855
------ ------
4,076 3,546
------ ------
Television costs
Released, less amortization 374 276
In-process 589 279
------ ------
963 555
------ ------
Television broadcast rights 690 300
------ ------
5,729 4,401
Less: current portion 3,223 2,186
------ ------
Non-current portion $2,506 $2,215
====== ======
</TABLE>
Based on management's total gross revenue estimates as of September 30,
1998, approximately 82% of unamortized film and television costs (except in-
process) are expected to be amortized during the next three years.
5Borrowings
The Company's borrowings at September 30, 1998 and 1997, including interest
rate swaps designated as hedges, are summarized below.
<TABLE>
<CAPTION>
1998
---------------------------------------------------------------
STATED INTEREST RATE AND CROSS- EFFECTIVE
INTEREST CURRENCY SWAPS (F) INTEREST SWAP
BALANCE RATE (E) PAY FLOAT PAY FIXED RATE (G) MATURITIES
------- -------- ------------ ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Commercial paper due
1999 (a) $2,225 5.5% $ -- $ 2,225 6.2% 1999
U.S. dollar notes and
debentures due
1999-2093 (b) 6,321 6.6% 2,886 675 6.4% 1999-2012
Dual currency and
foreign notes due
1999-2003 (c) 1,678 5.8% 1,678 -- 5.4% 1999-2003
Senior participating
notes due 2000-2001 (d) 1,195 2.7% -- -- N/A N/A
Other due 1999-2027 266 5.2% -- -- N/A N/A
------
11,685 5.8% -- -- 6.2%
Less current portion 2,123
------ ------------ ------------
TOTAL LONG-TERM
BORROWINGS $9,562 $ 4,564 $ 2,900
====== ============ ============
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
1997
----------------------------------------------------------------
Stated Interest rate and cross- Effective
Interest currency swaps (f) Interest Swap
Balance Rate (e) Pay Float Pay Fixed Rate (g) Maturities
------- -------- ------------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Commercial paper due
1998 (a) $ 2,019 5.8% $ -- $ 950 6.2% 1999
U.S. dollar notes and
debentures due
1998-2093 (b) 5,796 6.7% 2,086 -- 6.5% 1998-2012
Dual currency and
foreign notes due
1998-2001 (c) 1,854 5.2% 1,812 -- 5.4% 1998-2001
Senior participating
notes due 2000-2001 (d) 1,145 2.7% -- -- n/a n/a
Other due 1998-2027 254 8.2% -- -- n/a n/a
-------
11,068 5.9% -- -- 6.3%
Less current portion 897
------- ------------- -----------
Total long-term
borrowings $10,171 $ 3,898 $ 950
======= ============= ===========
</TABLE>
- --------
(a) The Company has established bank facilities totaling $5.2 billion which
expire in one to four years. Under the bank facilities, the Company has
the option to borrow at various interest rates. Commercial paper is
classified as long-term since the Company intends to refinance these
borrowings on a long-term basis through continued commercial paper
borrowings supported by available bank facilities.
(b) Includes $771 million in 1998 and $821 million in 1997 representing
minority interest in a real estate investment trust established by the
Company.
(c) Denominated principally in U.S. dollars, Japanese yen, Australian dollars
and Italian lira.
(d) The average coupon rate is 2.7% on $1.3 billion face value of notes.
Additional interest may be paid based on the performance of designated
portfolios of films. The effective interest rates at September 30, 1998
and 1997 were 6.8% and 6.3%, respectively.
(e) The stated interest rate represents the weighted average coupon rate for
each category of borrowings. For floating rate borrowings, interest rates
are based upon the rates at September 30, 1998 and 1997; these rates are
not necessarily an indication of future interest rates.
(f) Amounts represent notional values of interest rate swaps.
(g) The effective interest rate reflects the effect of interest rate and
cross-currency swaps entered into with respect to certain of these
borrowings as indicated in the "Pay Float" and "Pay Fixed" columns.
Borrowings, excluding commercial paper and minority interest, have the
following scheduled maturities:
<TABLE>
<S> <C>
1999 $2,123
2000 2,074
2001 2,054
2002 --
2003 92
Thereafter 2,346
</TABLE>
The Company capitalizes interest on assets constructed for its theme parks,
resorts and other property, and on theatrical and television productions in
process. In 1998, 1997 and 1996, respectively, total interest costs incurred
were $824 million, $841 million and $545 million, of which $139 million, $100
million and $66 million were capitalized.
-48-
<PAGE>
6Income Taxes
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------
<S> <C> <C> <C>
Income before income taxes
Domestic (including U.S.
exports) $ 3,114 $ 3,193 $1,822
Foreign subsidiaries 43 194 239
------- ------- ------
$ 3,157 $ 3,387 $2,061
======= ======= ======
Income tax provision
Current Federal $ 698 $ 1,023 $ 389
State 119 203 101
Foreign (including
withholding) 139 190 235
------- ------- ------
956 1,416 725
------- ------- ------
Deferred
Federal 303 21 106
State 48 (16) 16
------- ------- ------
351 5 122
------- ------- ------
$ 1,307 $ 1,421 $ 847
======= ======= ======
Components of Deferred Tax
Assets and Liabilities 1998 1997
- -----------------------------------------------------
Deferred tax assets
Accrued liabilities $(1,051) $(1,257)
Other, net (61) (89)
------- -------
Total deferred tax
assets (1,112) (1,346)
======= =======
Deferred tax liabilities
Depreciable, amortizable
and other property 2,396 2,413
Licensing revenues 249 193
Leveraged leases 313 279
Investment in Euro
Disney 129 90
------- -------
Total deferred tax
liabilities 3,087 2,975
------- -------
Net deferred tax liability
before valuation
allowance 1,975 1,629
Valuation allowance 50 50
------- -------
Net deferred tax liability $ 2,025 $ 1,679
======= =======
Reconciliation of
Effective Income Tax Rate 1998 1997 1996
- -----------------------------------------------------
Federal income tax rate 35.0% 35.0% 35.0%
Nondeductible amortization
of intangible assets 4.4 4.4 5.1
State taxes, net of
federal income tax
benefit 3.4 3.6 3.7
Other, net (1.4) (1.0) (2.7)
------- ------- ------
41.4% 42.0% 41.1%
======= ======= ======
</TABLE>
In 1998, 1997 and 1996, income tax benefits attributable to employee stock
option transactions of $327 million, $81 million and $44 million,
respectively, were allocated to stockholders' equity.
-49-
<PAGE>
7Pension and Other Benefit Programs
The Company maintains pension plans and postretirement medical benefit plans
covering most of its domestic employees not covered by union or industry-wide
plans. Employees hired after January 1, 1994 are not eligible for the
postretirement medical benefits. Pension benefits are generally based on years
of service and/or compensation. The following chart summarizes the balance
sheet impact, as well as the benefit obligations, assets, funded status and
rate assumptions associated with the pension and postretirement medical
benefit plans.
<TABLE>
<CAPTION>
Postretirement
Pension Plans Benefit Plans
---------------- ----------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Reconciliation of funded status of the
plans and the amounts included in the
Company's consolidated balance sheets:
Projected benefit obligations
Beginning obligations $(1,438) $(1,402) $ (293) $ (271)
Service cost (71) (73) (11) (10)
Interest cost (109) (106) (22) (21)
Actuarial gains (losses) (247) 9 (2) 5
Benefits paid 63 62 10 9
Other 9 72 (3) (5)
------- ------- ------- -------
Ending obligations (1,793) (1,438) (321) (293)
------- ------- ------- -------
Fair value of plans' assets
Beginning fair value 1,726 1,442 162 138
Actual return on plans' assets 294 304 26 22
Employer contributions 75 110 7
Participants' contributions 1 1 - 11
Benefits paid (63) (62) (10) (9)
Expenses (15) (9) -- --
Other (4) (60) -- --
------- ------- ------- -------
Ending fair value 2,014 1,726 185 162
------- ------- ------- -------
Funded status of the plans 221 288 (136) (131)
Unrecognized net gain (loss) (80) (219) (30) (20)
Unrecognized prior service benefit (cost) (11) (2) 1 (34)
Other 33 28 -- --
------- ------- ------- -------
Net balance sheet asset (liability) $ 163 $ 95 $ (165) $ (185)
======= ======= ======= =======
Rate Assumptions
Discount rate 6.8% 7.8% 6.8% 7.8%
Rate of return on plans' assets 10.5% 10.5% 10.5% 10.5%
Salary increases 4.4% 5.4% N/A n/a
Annual increase in cost of benefits N/A n/a 6.4% 6.7%
</TABLE>
The projected benefit obligations and the accumulated benefit obligations
for the pension plans with accumulated benefit obligations in excess of plan
assets were $96 million and $74 million for 1998, and $79 million and $50
million for 1997.
The annual increase in cost of postretirement benefits is assumed to
decrease .3 percentage points per year until reaching 4.9%.
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<PAGE>
Assumed health care cost trend rates have a significant effect on the
amounts reported for the postretirement medical benefit plans. The effects of
a one percentage point decrease in the assumed health care cost trend rates on
total service and interest cost components and on postretirement benefit
obligations are $9 million and $70 million, respectively. The effects of a one
percentage point increase in the assumed health care cost trend rates on total
service and interest cost components and on postretirement benefit obligations
are ($7) million and ($53) million, respectively.
The Company's accumulated pension benefit obligations at September 30, 1998
and 1997 were $1.6 billion and $1.3 billion, of which 97.7% and 97.8% were
vested, respectively.
The income statement costs of the pension plans for 1998, 1997 and 1996
totaled $12 million, $45 million and $58 million, respectively. The discount
rate, rate of return on plan assets and salary increase assumptions for the
pension plans were 7.8%, 10.0% and 5.6%, respectively, in 1996. The income
statement credits for the postretirement benefit plans for 1998, 1997 and 1996
were $13 million, $18 million and $16 million, respectively. The discount
rate, rate of return on plan assets and annual increase in cost of
postretirement benefits assumptions were 7.8%, 10.0% and 7.0%, respectively,
in 1996.
The market values of the Company's shares held by the pension plan master
trust as of September 30, 1998 and 1997 were $71 million and $75 million,
respectively.
8Stockholders' Equity
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 repurchase 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 pursuant
to the repurchase program to acquire shares of the Company for the purpose of
funding certain stock-based compensation. Any shares acquired by the fund that
are not utilized must be disposed of by December 31, 1999.
The Company has a stockholder rights plan, expiring June 30, 1999, which
becomes operative upon certain events involving the acquisition of 25% or more
of the Company's common stock by any person or group in a transaction not
approved by the Company's Board of Directors. Upon the occurrence of such an
event, each right, unless redeemed by the Board, entitles its holder to
purchase for $350 an amount of common stock of the Company, or in certain
circumstances the acquirer, having a $700 market value. In connection with the
rights plan, 7 million shares of preferred stock were reserved.
9Stock 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,
1998, totaled 119 million.
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<PAGE>
The following table summarizes information about stock option transactions
(shares in millions):
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
WEIGHTED Weighted Weighted
AVERAGE Average Average
EXERCISE Exercise Exercise
SHARES PRICE Shares Price Shares Price
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year 183 $17.44 189 $15.84 105 $11.20
Awards canceled (10) 20.98 (18) 19.32 (6) 17.10
Awards granted 27 33.07 27 25.64 96 19.63
Awards exercised (37) 9.06 (15) 11.14 (9) 10.53
Awards transferred (ABC) -- -- 3 11.05
--- --- --- ------
Outstanding at September 30 163 $21.70 183 $17.44 189 $15.84
=== === ===
Exercisable at September 30 51 $16.34 63 $11.77 51 $ 9.40
=== === ===
</TABLE>
The following table summarizes information about stock options outstanding
at September 30, 1998 (shares in millions):
<TABLE>
<CAPTION>
Outstanding Exercisable
-------------------------------------- -------------------
Weighted Weighted
Range of Weighted Average Average Average
Exercise Number Remaining Years of Exercise Number Exercise
Prices of Options Contractual Life Price of Options Price
-------- ---------- ------------------ -------- ---------- --------
<S> <C> <C> <C> <C> <C>
$ 2-$ 5 2 0.28 $ 5.71 2 $ 5.71
$ 5-$10 7 2.19 8.55 6 8.58
$10-$15 20 5.01 13.41 14 13.27
$15-$20 24 6.72 18.33 16 18.44
$20-$25 60 7.79 21.54 11 21.33
$25-$30 26 9.10 26.48 2 26.64
$30-$35 9 8.82 31.76 --
$35-$40 12 9.56 38.02 --
$40-$45 3 8.01 42.21 --
--- ---
163 51
=== ===
</TABLE>
During 1997, the Company adopted SFAS 123 and pursuant to its provisions,
elected to continue using the intrinsic-value method of accounting for stock-
based awards granted to employees in accordance with APB 25. Accordingly, the
Company has not recognized compensation expense for its stock-based awards to
employees. The following table reflects pro forma net income and earnings per
share had the Company elected to adopt the fair value approach of SFAS 123:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Net income:
As reported $1,850 $1,966 $1,214
Pro forma 1,749 1,870 1,185
Diluted earnings per share:
As reported 0.89 0.95 0.65
Pro forma 0.84 0.91 0.64
</TABLE>
These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over
the vesting period, and additional options may be granted in future years.
-52-
<PAGE>
The weighted average fair values of options at their grant date during 1998,
1997 and 1996, where the exercise price equaled the market price on the grant
date, were $10.82 and $9.09, and $7.67, respectively. The weighted average
fair values of options at their grant date during 1998 and 1996, where the
exercise price exceeded the market price on the grant date, were $8.55 and
$6.20, respectively. No such options were granted during 1997. The estimated
fair value of each option granted is calculated using the Black-Scholes
option-pricing model. The weighted average assumptions used in the model were
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate 5.4% 6.4% 6.2%
Expected years until exercise 6.0 6.1 7.1
Expected stock volatility 23% 23% 23%
Dividend yield .71% .71% .69%
</TABLE>
10Detail of Certain Balance Sheet Accounts
<TABLE>
<S> <C> <C>
1998 1997
- ---------------------------------------------------------------------------
Current Receivables
Trade, net of allowances $ 3,447 $ 3,002
Other 552 327
------- -------
$ 3,999 $ 3,329
======= =======
Accounts and taxes payable and other accrued liabilities
Accounts payable $ 3,792 $ 3,560
Income taxes payable -- 383
Payroll and employee benefits 853 684
Other 122 121
------- -------
$ 4,767 $ 4,748
======= =======
Intangible assets
Cost in excess of ABC's net assets acquired $14,248 $14,307
Trademark 1,100 1,100
FCC licenses 1,100 1,100
Other 474 211
Accumulated amortization (1,153) (707)
------- -------
$15,769 $16,011
======= =======
</TABLE>
-53-
<PAGE>
11 Segments
<TABLE>
<S> <C> <C> <C>
Business Segments 1998 1997 1996
- ---------------------------------------------------------
Revenues
Creative Content $10,302 $10,937 $10,159
Broadcasting 7,142 6,522 4,078
Theme Parks and Resorts 5,532 5,014 4,502
------- ------- -------
$22,976 $22,473 $18,739
======= ======= =======
Operating income
Creative Content $ 1,403 $ 1,882 $ 1,561
Broadcasting 1,325 1,294 782
Theme Parks and Resorts 1,287 1,136 990
KCAL gain -- 135 --
Accounting change -- -- (300)
------- ------- -------
$ 4,015 $ 4,447 $ 3,033
======= ======= =======
Capital expenditures
Creative Content $ 221 $ 301 $ 359
Broadcasting 245 152 113
Theme Parks and Resorts 1,693 1,266 1,196
Corporate 155 203 77
------- ------- -------
$ 2,314 $ 1,922 $ 1,745
======= ======= =======
Depreciation expense
Creative Content $ 209 $ 187 $ 163
Broadcasting 122 104 104
Theme Parks and Resorts 444 408 358
Corporate 34 39 47
------- ------- -------
$ 809 $ 738 $ 672
======= ======= =======
Identifiable assets
Creative Content $ 9,509 $ 8,832 $ 8,837
Broadcasting 20,099 19,036 19,576
Theme Parks and Resorts 9,214 8,051 7,066
Corporate 2,556 2,578 1,862
------- ------- -------
$41,378 $38,497 $37,341
======= ======= =======
Supplemental revenue data
Creative Content
Theatrical product $ 5,085 $ 5,595 $ 5,472
Consumer products 3,452 3,076 2,518
Broadcasting
Advertising 5,287 4,937 3,092
Theme Parks and Resorts
Merchandise, food and beverage 1,780 1,754 1,555
Admissions 1,739 1,603 1,493
</TABLE>
-54-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Geographic Segments 1998 1997 1996
- ------------------------------------------------
Revenues
United States $18,106 $17,868 $14,422
United States export 1,036 874 746
Europe 2,215 2,073 2,086
Rest of world 1,619 1,658 1,485
------- ------- -------
$22,976 $22,473 $18,739
======= ======= =======
Operating income
United States $ 3,468 $ 3,712 $ 2,229
Europe 369 499 633
Rest of world 390 397 382
Unallocated expenses (212) (161) (211)
------- ------- -------
$ 4,015 $ 4,447 $ 3,033
======= ======= =======
Identifiable assets
United States $39,462 $36,706 $35,477
Europe 1,468 1,275 1,495
Rest of world 448 516 369
------- ------- -------
$41,378 $38,497 $37,341
======= ======= =======
</TABLE>
During the second quarter of 1996, the Company implemented SFAS 121. This
accounting standard changed the method that companies use to evaluate the
carrying value of such assets by, among other things, requiring companies to
evaluate assets at the lowest level at which identifiable cash flows can be
determined. The implementation of SFAS 121 resulted in the Company recognizing
a $300 million non-cash charge related principally to certain assets included
in the Theme Parks and Resorts segment.
12 Financial Instruments
Investments
As of September 30, 1998 and 1997, the Company held $126 million and $137
million, respectively, of securities classified as available for sale. In
1998, 1997 and 1996, realized gains and losses on available-for-sale
securities, determined principally on an average cost basis, and unrealized
gains and losses on available-for-sale securities were not material.
Interest Rate Risk Management
The Company is exposed to the impact of interest rate changes. The Company's
objective is to manage the impact of interest rate changes on earnings and
cash flows and on the market value of its investments and borrowings. The
Company maintains fixed rate debt as a percentage of its net debt between a
minimum and maximum percentage, which is set by policy.
The Company uses interest rate swaps and other instruments to manage net
exposure to interest rate changes related to its borrowings and to lower its
overall borrowing costs. Significant interest rate risk management instruments
held by the Company at September 30, 1998 and 1997 included pay-floating and
pay-fixed swaps, interest rate caps and swaption contracts. Pay-floating swaps
effectively converted medium-term obligations to LIBOR-based or commercial
paper variable rate instruments. These swap agreements expire in one to 14
years. Pay-fixed swaps and interest rate caps effectively converted floating
rate obligations to fixed rate instruments. These instruments expire within
one year. Swaption contracts were designated as hedges of floating rate debt
and expired in 1998.
-55-
<PAGE>
The following table reflects incremental changes in the notional or
contractual amounts of the Company's interest rate contracts during 1998 and
1997. Activity representing renewal of existing positions is excluded.
<TABLE>
<CAPTION>
September 30, Maturities/ SEPTEMBER 30,
1997 Additions Expirations Terminations 1998
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Pay-floating swaps $ 2,086 $ 950 $ (50) $ (100) $ 2,886
Pay-fixed swaps 950 6,000 (4,050) -- 2,900
Interest rate caps -- 3,100 (2,000) -- 1,100
Swaption contracts 300 -- (300) -- --
------- -------- -------- ------- -------
$ 3,336 $ 10,050 $ (6,400) $ (100) $ 6,886
======= ======== ======== ======= =======
<CAPTION>
September 30, Maturities/ September 30,
1996 Additions Expirations Terminations 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Pay-floating swaps $ 1,520 $ 2,479 $ -- $(1,913) $ 2,086
Pay-fixed swaps 900 850 (200) (600) 950
Swaption contracts -- 1,100 -- (800) 300
Option contracts -- 593 -- (593) --
Spreadlock contracts -- 470 (470) -- --
------- -------- -------- ------- -------
$ 2,420 $ 5,492 $ (670) $(3,906) $ 3,336
======= ======== ======== ======= =======
</TABLE>
The impact of interest rate risk management activities on income in 1998,
1997 and 1996, and the amount of deferred gains and losses from interest rate
risk management transactions at September 30, 1998 and 1997 were not material.
Foreign Exchange Risk Management
The Company transacts business in virtually every part of the world and is
subject to risks associated with changing foreign exchange rates. The
Company's objective is to reduce earnings and cash flow volatility associated
with foreign exchange rate changes to allow management to focus its attention
on its core business issues and challenges. Accordingly, the Company enters
into various contracts which change in value as foreign exchange rates change
to protect the value of its exiting foreign currency assets and liabilities,
commitments and anticipated foreign currency revenues. By policy, the Company
maintains hedge coverage between minimum and maximum percentages of its
anticipated foreign exchange exposures for periods not to exceed five years.
The gains and losses on these contracts offset changes in the value of the
related exposures.
It is the Company's policy to enter into foreign currency transactions only
to the extent considered necessary to meet its objectives as stated above. The
Company does not enter into foreign currency transactions for speculative
purposes.
The Company uses option strategies which provide for the sale of foreign
currencies to hedge probable, but not firmly committed, revenues. While these
hedging instruments are subject to fluctuations in value, such fluctuations
are offset by changes in the value of the underlying exposures being hedged.
The principal currencies hedged are the Japanese yen, French franc, German
mark, British pound, Canadian dollar and Italian lira. The Company also uses
forward contracts to hedge foreign currency assets, liabilities and foreign
currency payments the Company is committed to make in connection with the
construction of a cruise ship (see Note 13). Cross-currency swaps are used to
hedge foreign currency-denominated borrowings.
-56-
<PAGE>
At September 30, 1998 and 1997, the notional amounts of the Company's
foreign exchange risk management contracts, net of notional amounts of
contracts with counterparties against which the Company has a legal right of
offset, the related exposures hedged and the contract maturities are as
follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------- ----------------------------
FISCAL Fiscal
NOTIONAL EXPOSURES YEAR Notional Exposures Year
AMOUNT HEDGED MATURITY Amount Hedged Maturity
-------- --------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Option contracts $2,966 $1,061 1999-2000 $3,460 $1,633 1998-1999
Forward contracts 2,053 1,773 1999-2000 2,284 1,725 1998-1999
Cross-currency swaps 1,678 1,678 1999-2003 1,812 1,812 1998-2001
------ ------ ------ ------
$6,697 $4,512 $7,556 $5,170
====== ====== ====== ======
</TABLE>
Gains and losses on contracts hedging anticipated foreign currency revenues
and foreign currency commitments are deferred until such revenues are
recognized or such commitments are met, and offset changes in the value of the
foreign currency revenues and commitments. At September 30, 1998 and 1997, the
Company had deferred gains of $245 million and $486 million respectively, and
deferred losses of $118 million and $220 million, respectively, related to
foreign currency hedge transactions. Deferred amounts to be recognized can
change with market conditions and will be substantially offset by changes in
the value of the related hedged transactions. The impact of foreign exchange
risk management activities on operating income in 1998 and in 1997 was a net
gain of $227 million and $166 million, respectively.
Fair Value of Financial Instruments
At September 30, 1998 and 1997, the Company's financial instruments included
cash, cash equivalents, investments, receivables, accounts payable, borrowings
and interest rate and foreign exchange risk management contracts.
At September 30, 1998 and 1997, 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:
<TABLE>
<CAPTION>
1998 1997
------------------ ------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Investments $ 686 $ 765 $ 769 $ 1,174
Borrowings $(10,914) $(11,271) $(10,313) $(10,290)
Risk management contracts:
Foreign exchange forwards $ 49 $ 18 $ 43 $ 93
Foreign exchange options 58 178 177 367
Interest rate swaps 30 181 20 54
Cross-currency swaps 25 (89) 17 (77)
-------- -------- -------- --------
$ 162 $ 288 $ 257 $ 437
======== ======== ======== ========
</TABLE>
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, 1998 in the
event of nonperformance by any one counterparty. The Company enters into
transactions only with financial institution counterparties which have a
credit rating of A- or better.
-57-
<PAGE>
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 credit exposure with
any one institution. At September 30, 1998, financial institution
counterparties posted collateral of $83 million to the Company, and the
Company was not required to collateralize its financial instrument
obligations.
The Company's trade receivables and investments do not represent significant
concentration of credit risk at September 30, 1998, 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
Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities ("SFAS 133"), which the Company is required to adopt effective
October 1, 1999. 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 forecasted
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.
13 Commitments and Contingencies
Pursuant to an agreement with a shipyard for the construction of a cruise
ship for its Disney Cruise Line, the Company is committed to make payments
totaling approximately $290 million in 1999.
The Company is committed to the purchase of broadcast rights for various
feature films, sports and other programming aggregating approximately $14.7
billion as of September 30, 1998. 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 billion at September 30, 1998, payable
as follows:
<TABLE>
<S> <C>
1999 $272
2000 259
2001 236
2002 214
2003 183
Thereafter 819
</TABLE>
Rental expense for the above operating leases during 1998, 1997 and 1996,
including overages, common-area maintenance and other contingent rentals, was
$321 million, $327 million and $233 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
-58-
<PAGE>
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.
14 Subsequent Event
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
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
shareholders of both Infoseek and Starwave approved the merger. As a result of
the merger and the Company's purchase of additional shares of Infoseek common
stock pursuant to the merger agreement, the Company owns approximately 43% of
Infoseek's outstanding common stock. In addition, pursuant to the merger
agreement, the Company purchased warrants 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. Effective as of the
November 18, 1998 closing date of the transaction, the Company will record a
significant non-cash gain, a write-off for purchased in-process research and
development costs and an increase in investments, reflecting the Company's
share of the fair value of Infoseek's intangible assets. The Company is
currently performing the necessary valuations to determine the gain, the
research and development write-off and the amount of and amortization period
for the intangible assets. Thereafter, the Company will account for its
investment in Infoseek under the equity method. The merger is not expected to
have a material effect on the Company's financial position.
-59-
<PAGE>
QUARTERLY FINANCIAL SUMMARY
(In millions, except per share data)
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
December 31 March 31 June 30 September 30
- ------------------------------------------------------------------------
1998
Revenues $6,339 $5,242 $5,248 $6,147
Operating income 1,492 849 923 751
Net income 755 384 415 296
Earnings per share (/1/)
Diluted 0.37 0.18 0.20 0.14
Basic 0.37 0.19 0.20 0.14
1997
Revenues $6,278 $5,481 $5,194 $5,520
Operating income (/2/) 1,562 864 1,060 961
Net income (/2/) 749 333 473 411
Earnings per share (/1/)(/2/)
Diluted 0.36 0.16 0.23 0.20
Basic 0.37 0.16 0.23 0.20
</TABLE>
- --------
(1) Amounts have been adjusted to give effect to the three-for-one split of
the Company's common shares effective June 1998. See Note 8 to the
Consolidated Financial Statements.
(2) Reflects a $135 million gain on the sale of KCAL in the first quarter. The
earnings per share impact of this gain was $0.04. See Note 2 to the
Consolidated Financial Statements.
-60-
<PAGE>
[DISNEY RECYCLING LOGO]
<PAGE>
EXHIBIT 10(l)
THE WALT DISNEY COMPANY
ANNUAL BONUS PERFORMANCE PLAN
FOR EXECUTIVE OFFICERS
Section 1. PURPOSE OF PLAN
The purpose of the Plan is to promote the success of the Company by
providing to participating executives bonus incentives that qualify as
performance-based compensation within the meaning of Section 162(m) of the Code.
SECTION 2. DEFINITIONS AND TERMS
2.1 Accounting Terms. Except as otherwise expressly provided or the
----------------
context otherwise requires, financial and accounting terms are used as defined
for purposes of, and shall be determined in accordance with, generally accepted
accounting principles, as from time to time in effect, as applied and reflected
in the consolidated financial statements of the Company, prepared in the
ordinary course of business.
2.2 Specific Terms. The following words and phrases as used herein
--------------
shall have the following meanings unless a different meaning is plainly required
by the context:
"Base Salary" in respect of any Performance Period means the aggregate
-----------
base annualized salary of a Participant from the Company and all affiliates of
the Company at the time Participant is selected to participate for that
Performance Period, exclusive of any commissions or other actual or imputed
income from any Company-provided benefits or perquisites, but prior to any
reductions for salary deferred pursuant to any deferred compensation plan or for
contributions to a plan qualifying under Section 401(k) of the Code or
contributions to a cafeteria plan under Section 125 of the Code.
"Base Salary Multiple" means an amount equal to ten times Base Salary
--------------------
or, in the case of the Chief Executive Officer, twenty times Base Salary.
"Bonus" means a cash payment or a payment opportunity as the context
-----
requires.
<PAGE>
"Business Criteria" means any one or any combination of Net Income,
-----------------
Return on Equity, Return on Assets, or EPS.
"CapCities Acquisition" means the acquisition of Capital Cities/ABC,
---------------------
Inc by the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time
----
to time.
"Committee" means the Performance Plan Subcommittee which has been
---------
established to administer the Plan in accordance with Section 3.1 and Section
162(m) of the Code.
"Company" means The Walt Disney Company and any successor, whether by
-------
merger, ownership of all or substantially all of its assets, or otherwise.
"EPS" for any Year means earnings per share of the Company, as
---
reported in the Company's Consolidated Statement of Income set forth in the
audited annual financial statements of the Company for the Year.
"Executive" means a key employee (including any officer) of the
---------
Company who is (or in the opinion of the Committee may during the applicable
Performance Period become) an "executive officer" as defined in Rule 3b-7 under
the Securities Exchange Act of 1934.
"Net Income" for any Year means the consolidated net income of the
----------
Company, as reported in the audited financial statements of the Company for the
Year.
"Participant" means an Executive selected to participate in the Plan
-----------
by the Committee.
"Performance Period" means the Year or Years with respect to which the
------------------
Performance Targets are set by the Committee.
"Performance Target(s)" means the specific objective goal or goals
---------------------
(which may be cumulative and/or alternative) that are timely set in writing by
the Committee for each Executive for the Performance Period in respect of any
one or more of the Business Criteria.
"Plan" means this Annual Bonus Performance Plan for Executive Officers
----
of the Company, as amended from time to time.
<PAGE>
"Return on Assets" means Net Income divided by the average of the
----------------
total assets of the Company at the end of the four fiscal quarters of the Year,
as reported by the Company in its consolidated financial statements.
"Return on Equity" means the Net Income divided by the average of the
----------------
common stockholders equity of the Company at the end of each of the four fiscal
quarters of the Year, as reported by the Company in its consolidated financial
statements.
"Section 162(m)" means Section 162(m) of the Code, and the regulations
--------------
promulgated thereunder, all as amended from time to time.
"Shares" means shares of common stock of the Company or any securities
------
or property, including rights into which the same may be converted by operation
of law or otherwise.
"Year" means any one or more fiscal years of the Company commencing on
----
or after October 1, 1996 that represent(s) the applicable Performance Period and
end(s) no later than September 30, 2001.
SECTION 3. ADMINISTRATION OF THE PLAN
3.1 The Committee. The Plan shall be administered by a Committee
-------------
consisting of at least three members of the Board of Directors of the Company,
duly authorized by the Board of Directors of the Company to administer the Plan,
who (i)Eare not eligible to participate in the Plan and (ii)Eare "outside
directors" within the meaning of Section 162(m).
3.2 Powers of the Committee. The Committee shall have the sole
-----------------------
authority to establish and administer the Performance Target(s) and the
responsibility of determining from among the Executives those persons who will
participate in and receive Bonuses under the Plan and, subject to Sections 4 and
5 of the Plan, the amount of such Bonuses, and the time or times at which and
the form and manner in which Bonuses will be paid (which may include elective or
mandatory deferral alternatives) and shall otherwise be responsible for the
administration of the Plan, in accordance with its terms. The Committee shall
have the authority to construe and interpret the Plan (except as otherwise
provided herein) and any agreement or other document relating to any Bonus under
the Plan, may adopt rules and regulations governing the administration of the
Plan, and shall exercise all other duties and powers conferred on it by the
Plan, or which are
<PAGE>
incidental or ancillary thereto. For each Performance Period, the Committee
shall determine, at the time the Business Criteria and the Performance Target(s)
are set, those Executives who are selected as Participants in the Plan.
3.3 Requisite Action. A majority (but not fewer than two) of the
----------------
members of the Committee shall constitute a quorum. The vote of a majority of
those present at a meeting at which a quorum is present or the unanimous written
consent of the Committee shall constitute action by the Committee.
3.4 Express Authority (and Limitations on Authority) to Change Terms
----------------------------------------------------------------
and Conditions of Bonus; Acceleration or Deferral of Payment. Without limiting
- ------------------------------------------------------------
the Committee's authority under other provisions of the Plan, but subject to any
express limitations of the Plan and Section 5.8, the Committee shall have the
authority accelerate a Bonus (after the attainment of the applicable Performance
Target(s)) and to waive restrictive conditions for a Bonus (including any
forfeiture conditions, but not Performance Target(s)), in such circumstances as
the Committee deems appropriate. In the case of any acceleration of a Bonus
after the attainment of the applicable Performance Target(s), the amount payable
shall be discounted to its present value using an interest rate equal to Moody's
Average Corporate Bond Yield for the month preceding the month in which such
acceleration occurs. Any deferred payment shall be subject to Section 4.9 and,
if applicable, Section 4.10.
SECTION 4. BONUS PROVISIONS.
4.1 Provision for Bonus. Each Participant may receive a Bonus if and
--------------------
only if the Performance Target(s) established by the Committee, relative to the
applicable Business Criteria, are attained. The applicable Performance Period
and Performance Target(s) shall be determined by the Committee consistent with
the terms of the Plan and Section 162(m). Notwithstanding the fact that the
Performance Target(s) have been attained, the Company may pay a Bonus of less
than the amount determined by the formula or standard established pursuant to
Section 4.2 or may pay no Bonus at all, unless the Committee otherwise expressly
provides by written contract or other written commitment.
4.2 Selection of Performance Target(s). The specific Performance
----------------------------------
Target(s) with respect to the Business Criteria must be established by the
Committee in advance of the deadlines applicable under Section 162(m) and while
the performance relating to the Performance Target(s) remains substantially
<PAGE>
uncertain within the meaning of Section 162(m). At the time the Performance
Target(s) are selected, the Committee shall provide, in terms of an objective
formula or standard for each Participant, and for any person who may become a
Participant after the Performance Target(s) are set, the method of computing the
specific amount that will represent the maximum amount of Bonus payable to the
Participant if the Performance Target(s) are attained, subject to Sections 4.1,
4.3, 4.7, 5.1 and 5.8.
4.3 Maximum Individual Bonus. Notwithstanding any other provision
------------------------
hereof, no Executive shall receive a Bonus under the Plan for the Year in excess
of $15 million, or, if less, his or her Base Salary Multiple. No Executive
shall receive aggregate bonuses under this Plan in excess of $75 million in the
case of the Chief Executive Officer or $50 million in the case of any other
Executive. The foregoing limits shall be subject to adjustments consistent with
Section 3.4.
4.4 Selection of Participants. For each Performance Period, the
-------------------------
Committee shall determine, at the time the Business Criteria and the Performance
Target(s) are set, those Executives who will participate in the Plan.
4.5 Effect of Mid-Year Commencement of Service. To the extent
------------------------------------------
compatible with Sections 4.2 and 5.8, if services as an Executive commence after
the adoption of the Plan and the Performance Target(s) are established for a
Performance Period, the Committee may grant a Bonus that is proportionately
adjusted based on the period of actual service during the Year; the amount of
any Bonus paid to such person shall not exceed that proportionate amount of the
applicable maximum individual bonus under Section 4.3.
4.6 Changes Resulting From Accounting Changes. Subject to Section
-----------------------------------------
5.8, if, after the Performance Target(s) are established for a Performance
Period, a change occurs in the applicable accounting principles or practices,
the amount of the Bonuses paid under this Plan for such Performance Period shall
be determined without regard to such change.
4.7 Committee Discretion to Determine Bonuses. The Committee has the
-----------------------------------------
sole discretion to determine the standard or formula pursuant to which each
Participant's Bonus shall be calculated (in accordance with Section 4.2),
whether all or any portion of the amount so calculated will be paid, and the
specific amount (if any) to be paid to each Participant, subject in all cases to
the terms, conditions and limits of the Plan and of any other written commitment
authorized by the Committee. To
<PAGE>
this same extent, the Committee may at any time establish additional conditions
and terms of payment of Bonuses (including but not limited to the achievement of
other financial, strategic or individual goals, which may be objective or
subjective) as it may deem desirable in carrying out the purposes of the Plan
and may take into account such other factors as it deems appropriate in
administering any aspect of the Plan. The Committee may not, however, increase
the maximum amount permitted to be paid to any individual under Section 4.2 or
4.3 of the Plan or award a Bonus under this Plan if the applicable Performance
Target(s) have not been satisfied.
4.8 Committee Certification. No Executive shall receive any payment
-----------------------
under the Plan unless the Committee has certified, by resolution or other
appropriate action in writing, that the amount thereof has been accurately
determined in accordance with the terms, conditions and limits of the Plan and
that the Performance Target(s) and any other material terms previously
established by the Committee or set forth in the Plan were in fact satisfied.
4.9 Time of Payment; Deferred Amounts. Any Bonuses granted by the
---------------------------------
Committee under the Plan shall be paid as soon as practicable following the
Committee's determinations under this Section 4 and the certification of the
Committee's findings under Section 4.8. Any such payment shall be in cash or
cash equivalent or in such other form of equal value on such payment date
(including Shares or share equivalents as contemplated by Section 4.10) as the
Committee may approve or require, subject to applicable withholding requirements
and Section 4.10. Notwithstanding the foregoing, the Committee, in its sole
discretion (but subject to any prior written commitments and to any conditions
consistent with Sections 3.4, 4.3, 4.10 and 5.8 that it deems appropriate),
defer the payout or vesting of any Bonus and/or provide to Participants the
opportunity to elect to defer the payment of any Bonus under a nonqualified
deferred compensation plan and as contemplated by Section 4.10. In the case of
any deferred payment of a Bonus after the attainment of the applicable
Performance Target(s), any amount in excess of the amount otherwise payable
shall be based on either Moody's Average Corporate Bond Yield over the deferral
period or one or more predetermined actual investments (including Shares) such
that the amount payable at the later date will be based upon actual returns,
including any decrease or increase in the value of the investment(s), unless the
alternative deferred payment is otherwise exempt from the limitations under
Section 162(m).
<PAGE>
4.10 Share Payouts. Any Shares payable under the Plan shall be
-------------
pursuant to a combined Award under the Plan and the Company's 1995 Stock
Incentive Plan, as amended or another stockholder approved stock incentive plan
of the Company (the "Stock Plan"). The number of Shares or stock units (or
similar deferred award representing a right to receive Shares) awarded in lieu
of all or any portion of a cash bonus under the Plan shall be equal to the
largest whole number of Shares which have an aggregate fair market value no
greater than the amount of cash otherwise payable as of the date such cash
payment would have been paid. For this purpose, "fair market value" shall mean
the average of the high and low prices of Company common stock on such date.
Any stock units (or similar rights) shall thereafter be subject to adjustments
as contemplated by the Stock Plan. Dividend equivalent rights as earned may be
accrued and payable in additional stock units, cash or Shares or any combination
thereof, in the Committee's discretion.
SECTION 5. GENERAL PROVISIONS
5.1 No Right to Bonus or Continued Employment. Neither the
-----------------------------------------
establishment of the Plan nor the provision for or payment of any amounts
hereunder nor any action of the Company (including, for purposes of this Section
5.1, any predecessor or subsidiary), the Board of Directors of the Company or
the Committee in respect of the Plan, shall be held or construed to confer upon
any person any legal right to receive, or any interest in, a Bonus or any other
benefit under the Plan, or any legal right to be continued in the employ of the
Company. The Company expressly reserves any and all rights to discharge an
Executive in its sole discretion, without liability of any person, entity or
governing body under the Plan or otherwise. Notwithstanding any other provision
hereof and notwithstanding the fact that the Performance Target(s) have been
attained and/or the individual maximum amounts pursuant to Section 4.2 have been
calculated, the Company shall have no obligation to pay any Bonus hereunder nor
to pay the maximum amount so calculated or any prorated amount based on service
during the period, unless the Committee otherwise expressly provides by written
contract or other written commitment.
5.2 Discretion of Company, Board of Directors and Committee. Any
-------------------------------------------------------
decision made or action taken by the Company or by the Board of Directors of the
Company or by the Committee arising out of or in connection with the creation,
amendment, construction, administration, interpretation and effect of the Plan
shall be within the absolute discretion of such entity and
<PAGE>
shall be conclusive and binding upon all persons. No member of the Committee
shall have any liability for actions taken or omitted under the Plan by the
member or any other person.
5.3 Absence of Liability. A member of the Board of Directors of the
--------------------
Company or a member of the Committee of the Company or any officer of the
Company shall not be liable for any act or inaction hereunder, whether of
commission or omission.
5.4 No Funding of Plan. The Company shall not be required to fund or
------------------
otherwise segregate any cash or any other assets which may at any time be paid
to Participants under the Plan. The Plan shall constitute an "unfunded" plan of
the Company. The Company shall not, by any provisions of the Plan, be deemed to
be a trustee of any property, and any obligations of the Company to any
Participant under the Plan shall be those of a debtor and any rights of any
Participant or former Participant shall be no greater than those of a general
unsecured creditor.
5.5 Non-Transferability of Benefits and Interests. Except as
---------------------------------------------
expressly provided by the Committee, no benefit payable under the Plan shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge, and any such attempted action be void and no such
benefit shall be in any manner liable for or subject to debts, contracts,
liabilities, engagements or torts of any Participant or former Participant.
This Section 5.5 shall not apply to an assignment of a contingency or payment
due after the death of the Executive to the deceased Executive's legal
representative or beneficiary.
5.6 Law to Govern. All questions pertaining to the construction,
-------------
regulation, validity and effect of the provisions of the Plan shall be
determined in accordance with the laws of the State of California.
5.7 Non-Exclusivity. Subject to Section 5.8, the Plan does not limit
---------------
the authority of the Company, the Board or the Committee, or any subsidiary of
the Company to grant awards or authorize any other compensation under any other
plan or authority, including, without limitation, awards or other compensation
based on the same Performance Target(s) used under the Plan. In addition,
Executives not selected to participate in the Plan may participate in other
plans of the Company.
5.8 Section 162(m) Conditions; Bifurcation of Plan. It is the intent
----------------------------------------------
of the Company that the Plan and Bonuses paid hereunder satisfy and be
interpreted in a manner, that, in the case of Participants who are or may be
persons whose compensation
<PAGE>
is subject to Section 162(m), satisfies any applicable requirements as
performance-based compensation. Any provision, application or interpretation of
the Plan inconsistent with this intent to satisfy the standards in Section
162(m) of the Code shall be disregarded. Notwithstanding anything to the
contrary in the Plan, the provisions of the Plan may at any time be bifurcated
by the Board or the Committee in any manner so that certain provisions of the
Plan or any Bonus intended (or required in order) to satisfy the applicable
requirements of Section 162(m) are only applicable to persons whose compensation
is subject to Section 162(m).
SECTION 6. AMENDMENTS, SUSPENSION OR TERMINATION OF PLAN
The Board of Directors or the Committee may from time to time amend,
suspend or terminate in whole or in part, and if suspended or terminated, may
reinstate, any or all of the provisions of the Plan. Notwithstanding the
foregoing, no amendment may be effective without Board of Directors and/or
shareholder approval if such approval is necessary to comply with the applicable
rules of Section 162(m) of the Code.
<PAGE>
CERTIFICATION
The undersigned Secretary of the Company certifies that the foregoing
constitutes a complete and correct copy of the Plan as amended on December 15,
1997 by the Performance Plan Subcommittee of the Board of Directors of The Walt
Disney Company.
_________________________
Secretary
Date:__________________
<PAGE>
EXHIBIT 10(t)
ABC, INC.
SAVINGS & INVESTMENT PLAN
(APRIL 1, 1998, RESTATEMENT)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PREAMBLE............................................................... 1
ARTICLE I: DEFINITIONS AND CONSTRUCTION............................. 2
1.01 Definitions............................................. 2
1.02 Construction............................................ 8
ARTICLE II: MEMBERSHIP............................................... 10
2.01 Membership.............................................. 10
2.02 Duration of Membership.................................. 10
2.03 Reemployment............................................ 10
2.04 Enrollment.............................................. 10
2.05 Veterans' Benefits...................................... 10
ARTICLE III: COMPENSATION............................................. 11
3.01 Compensation............................................ 11
3.02 Compensation Limit...................................... 11
ARTICLE IV: SERVICE.................................................. 12
4.01 Service................................................. 12
4.02 Service of Part-Time Employees.......................... 12
4.03 Other Service-Crediting Provisions...................... 12
4.04 Interruption of Service................................. 12
4.05 Leaves of Absence....................................... 13
4.06 Employment With a Successor Company..................... 14
4.07 Fractional Months of Service............................ 14
4.08 Non-duplication......................................... 14
ARTICLE V: CONTRIBUTIONS............................................ 15
5.01 Pre-Tax Contributions................................... 15
5.02 After-Tax Contributions................................. 15
5.03 Change in Contribution Rate............................. 16
5.04 Company Matching Contributions.......................... 16
5.05 Contributions Contingent on Deductibility............... 16
5.06 Rollover Contributions.................................. 16
5.07 Return of Employer Contributions........................ 17
5.08 Two Separate Contracts.................................. 17
ARTICLE VI: LIMITATIONS ON CONTRIBUTIONS............................. 18
6.01 Limit on Pre-Tax Contributions.......................... 18
6.02 Actual Deferral Percentage Test......................... 18
6.03 Actual Contribution Percentage Test..................... 18
6.04 Prohibition on Multiple Use............................. 18
6.05 Maximum Contributions................................... 19
6.06 Imposition of Limitations............................... 19
6.07 Return of Excess Deferrals and Excess Contributions..... 19
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE VII: INVESTMENTS AND ACCOUNTS................................. 24
7.01 Trust and Trustee....................................... 24
7.02 The Fund................................................ 24
7.03 Investment Funds........................................ 24
(1) The Walt Disney Company Common Stock Fund.......... 24
(2) Loan Fund.......................................... 24
7.04 Allocation of Contributions............................. 25
7.05 Change in Allocation.................................... 25
7.06 Valuation............................................... 26
7.07 Accounts................................................ 26
7.08 Risk of Loss............................................ 26
7.09 Interests in the Funds.................................. 26
7.10 Sole Source of Benefits................................. 26
7.11 ERISA Section 404(c) Requirements....................... 27
ARTICLE VIII: VOTING OF AND TENDER OR EXCHANGE OFFERS FOR COMMON
STOCK............................................................. 28
8.01 Voting.................................................. 28
8.02 Tender and Exchange Offers.............................. 28
8.03 Conversions............................................. 30
ARTICLE IX: VESTING.................................................. 31
9.01 Immediately Vested Accounts............................. 31
9.02 Company Matching Account................................ 31
9.03 Forfeiture.............................................. 31
9.04 Old Company Matching Account............................ 32
ARTICLE X: LOANS.................................................... 33
10.01 Eligibility............................................. 33
10.02 Application Procedure................................... 33
10.03 Promissory Note......................................... 33
10.04 Maximum Amount.......................................... 33
10.05 Minimum Amount.......................................... 33
10.06 Term.................................................... 34
10.07 Interest Rate........................................... 34
10.08 Repayment............................................... 34
10.09 Prepayment.............................................. 34
10.10 Security................................................ 34
10.11 Default................................................. 34
10.12 Treatment as Investment................................. 34
10.13 Ordering Rules.......................................... 35
10.14 Fees.................................................... 35
ARTICLE XI: WITHDRAWALS.............................................. 36
11.01 After-Tax Contribution Account.......................... 36
11.02 Pre-Tax Contribution Account............................ 36
11.03 Hardship Withdrawals.................................... 36
11.04 Notice.................................................. 36
11.05 Dollar Limitations...................................... 37
</TABLE>
<PAGE>
<TABLE>
<S> <C>
11.06 Priority of Accounts.................................... 37
11.07 Source of Funds......................................... 37
11.08 Valuation............................................... 37
11.09 Outstanding Loan........................................ 38
11.10 Inactive Employees...................................... 38
ARTICLE XII: DISTRIBUTIONS............................................ 39
12.01 Severance from Service Required......................... 39
12.02 Notice Regarding Form and Payment of Distributions...... 39
12.03 Normal Form of Payment.................................. 40
12.04 Optional Forms of Payment............................... 40
12.05 Mandatory Lump Sum...................................... 41
12.06 Distribution Date....................................... 42
12.07 Death................................................... 42
12.08 Designation of Beneficiary.............................. 42
12.09 Payment Medium.......................................... 43
12.10 Risk of Loss............................................ 43
12.11 Minimum Required Distributions.......................... 43
12.12 Direct Rollover......................................... 44
ARTICLE XIII: ADMINISTRATION........................................... 45
13.01 Employee Benefits Committee............................. 45
13.02 Chairman and Secretary.................................. 45
13.03 Committee Meetings and Votes............................ 45
13.04 Evidence of Action of the Committee..................... 45
13.05 Records and Reports..................................... 45
13.06 Powers and Duties of the Committee...................... 45
13.07 Professional Assistance................................. 45
13.08 Allocation and Delegation of Committee Responsibilities. 45
13.09 Compensation and Expenses............................... 45
13.10 Investment Responsibilities............................. 45
13.11 Plan Administrator...................................... 47
13.12 Multiple Fiduciary Capacities........................... 47
ARTICLE XIV: BENEFIT CLAIMS PROCEDURE................................. 48
14.01 Claims Procedure........................................ 48
14.02 Review Procedure........................................ 48
14.03 Required Information.................................... 48
ARTICLE XV: AMENDMENT, MERGER, AND TERMINATION OF THE PLAN........... 49
15.01 Amendment of the Plan................................... 49
15.02 Merger or Consolidation of the Plan..................... 49
15.03 Termination of the Plan................................. 49
(a) Reservation of Right to Terminate.................. 49
(b) Date of Termination................................ 49
(c) Rights of Affected Members......................... 49
15.04 Design Decisions........................................ 49
ARTICLE XVI: MISCELLANEOUS............................................ 50
16.01 Employment Rights Not Affected by Plan.................. 50
</TABLE>
<PAGE>
<TABLE>
<S> <C>
16.02 Booklets and Brochures Subject to Plan Provisions....... 50
16.03 Doubt as to Identity.................................... 50
16.04 Liability Limited....................................... 50
16.05 Overpayments............................................ 50
16.06 Incapacity.............................................. 50
16.07 Assignment and Liens.................................... 51
(a) Nonalienability of Benefits........................ 51
(b) Exception for Qualified Domestic Relations Orders.. 51
(1) Establishment of Procedures................... 51
(2) Disposition of Benefits Pending Determination. 51
(3) Multiple Spouses.............................. 51
(4) Restrictions on Distributions................. 51
(c) General Limitation................................. 51
16.08 Withholding Taxes....................................... 52
16.09 Titles and Headings Not to Control...................... 52
16.10 Notice of Process....................................... 52
16.11 Nonreversion............................................ 52
16.12 Governing Law........................................... 52
16.13 Interpretation of Plan and Trust........................ 52
16.14 Severability............................................ 52
16.15 Complete Statement of Plan.............................. 52
ARTICLE XVII: TOP-HEAVY PLAN PROVISIONS................................ 53
17.01 Application of Article XVII............................. 53
17.02 Definitions Concerning Top-Heavy Status................. 53
(1) Aggregation Group.................................. 53
(2) Annual Compensation................................ 53
(3) Company Plan....................................... 53
(4) Key Employee....................................... 53
(5) Required Aggregation Group......................... 53
(6) Top-Heavy.......................................... 53
(7) Top-Heavy Determination Date....................... 53
(8) Top-Heavy Ratio.................................... 53
(9) Top-Heavy Year..................................... 53
17.03 Calculation of Top-Heavy Ratio.......................... 54
(1) Determination of Accrued Benefits.................. 54
(2) Aggregation........................................ 54
17.04 Effect of Top-Heavy Status.............................. 54
(a) Minimum Contribution............................... 54
(b) Accelerated Vesting................................ 54
(c) Reduction in Section 415 Limits.................... 54
(d) Inapplicability to Union Employees................. 54
17.05 Effect of Discontinuance of Top-Heavy Status............ 55
17.06 Intent of Article XVII.................................. 55
SCHEDULE I............................................................. 56
SCHEDULE II............................................................ 57
SCHEDULE III........................................................... 58
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SCHEDULE IV............................................................ 59
SCHEDULE V............................................................. 60
SCHEDULE VI............................................................ 61
SCHEDULE VII........................................................... 62
SCHEDULE VIII.......................................................... 63
SCHEDULE IX............................................................ 64
SCHEDULE X............................................................. 66
SCHEDULE XI............................................................ 68
SCHEDULE XII........................................................... 69
SCHEDULE XIII.......................................................... 70
SCHEDULE XIV........................................................... 71
SCHEDULE XV............................................................ 72
SCHEDULE XVI........................................................... 73
SCHEDULE XVII.......................................................... 74
SCHEDULE XVIII......................................................... 75
SCHEDULE XIX........................................................... 76
SCHEDULE XX............................................................ 77
SCHEDULE XXI........................................................... 78
SCHEDULE XXII.......................................................... 79
SCHEDULE XXIII......................................................... 80
SCHEDULE XXIV.......................................................... 82
SCHEDULE XXV........................................................... 83
SCHEDULE XXVI.......................................................... 85
SCHEDULE XXVII......................................................... 87
</TABLE>
<PAGE>
ABC, INC. SAVINGS & INVESTMENT PLAN
(April 1, 1998, Restatement)
PREAMBLE
This document amends and restates in its entirety the ABC, Inc.
Savings & Investment Plan (the "Plan"), effective as of April 1, 1998. The most
recent previous restatement of the Plan was effective as of June 1, 1994. The
Plan has been amended from time to time since June 1, 1994. This restatement
incorporates all such previous amendments to the Plan and reflects changes in
the laws, rules and regulations that apply to the Plan through February 28,
1998.
The purposes of the Plan are to provide eligible employees with
opportunities for (i) convenient and regular personal savings; (ii) sharing in
contributions by the Company; and (iii) receiving benefits from the Fund, based
on the contributions by the Company and the Member and the performance of the
Fund's investments.
Except as otherwise specifically provided herein, this restatement
shall apply only to contributions to the Plan, and the operation of the Plan,
from and after April 1, 1998. The operation of the Plan before April 1, 1998,
shall be determined under the applicable instruments then in effect, except as
otherwise provided herein.
In general, the Plan as in effect before the effective date of any
amendment shall continue to apply to those who terminated employment before such
date. In no event shall any amendment (including any amendment made by this
restatement) cause a Member's accrued benefit under the Plan to be less on the
date the amendment was adopted (the "Amendment Date") than it was immediately
before the Amendment Date.
The provisions of Articles I through XVII of the Plan are modified by
the provisions of the Schedules attached to the Plan. To the extent that the
provisions of the Schedules are inconsistent with the provisions of Articles I
through XVII of the Plan, the provisions of the Schedules shall supersede the
conflicting provisions in Articles I through XVII.
Effective April 1, 1998 (except to the extent that a particular
provision of the Plan or the Schedule of Effective Dates specifies a different
effective date), the Plan is hereby amended and restated to read in its entirety
as follows:
<PAGE>
2
ARTICLE I
DEFINITIONS AND CONSTRUCTION
----------------------------
1.01 Definitions. For purposes of the Plan, unless a different meaning is
-----------
plainly required by the context or is expressly provided, the following words
and phrases, when used in capitalized form in the Plan, shall be defined as
follows:
(a) "Account" - a Member's After-Tax Contribution Account, Pre-Tax
-------
Contribution Account, Company Matching Account, and, if applicable, Old Company
Matching Account, maintained in accordance with Section 7.07.
(b) "Affiliate" -
---------
(1) a member of a controlled group of corporations of which the
Company is a member, as determined under Section 414(b) of the Code;
(2) an unincorporated trade or business that is under common control
with the Company, as determined under Section 414(c) of the Code;
(3) a member of any affiliated service group that includes the
Company, as determined under Section 414(m) of the Code;
(4) except to the extent otherwise provided in Treasury Regulations,
a leasing organization with respect to the periods of service performed by an
individual who is a leased employee, within the meaning Section 414(n) of the
Code, with respect to the Company or an Affiliate (determined without regard to
this paragraph (4)); and
(5) any entity that is required to be aggregated with the Company
pursuant to Treasury Regulations under Section 414(o) of the Code;
provided that an entity described in this Section shall not be considered an
Affiliate during the period preceding the date on which it becomes, or after the
date on which it ceases to be, an Affiliate within the meaning of this Section.
(c) "After-Tax Contributions" - Member contributions made in accordance
-----------------------
with Section 5.02 (or any predecessor thereof).
(d) "After-Tax Contribution Account" - the bookkeeping account, maintained
------------------------------
in accordance with Section 7.07, that reflects the current value of the Member's
After-Tax Contributions.
(e) "Alternate Payee" - an alternate payee within the meaning of Section
---------------
414(p)(8) of the Code and Section 206(d)(3)(K) of ERISA.
(f) "Beneficiary" - a person to whom a death benefit is payable in
-----------
accordance with Article XII.
(g) "Board of Directors" or "Board" - the Board of Directors of the
------------------ -----
Corporation (or the
<PAGE>
3
Executive Committee of the Board of Directors) as constituted from time to time.
(h) "Break in Service" - in the case of a Full-Time Employee, the period
----------------
following a Severance from Service and preceding reemployment by the Company or
an Affiliate; and in the case of a Part-Time Employee, any Computation Period
during which a Part-Time Employee does not complete at least 501 Hours of
Service.
(i) "Code" - the Internal Revenue Code of 1986, as from time to time
----
amended.
(j) "Committee" - the Employee Benefits Committee provided for in Section
---------
13.01.
(k) "Common Stock" - the common stock of Disney.
------------
(l) "Company" - the Corporation and any subsidiary or affiliate of the
-------
Corporation that, with the approval of the Board of Directors and subject to
such conditions as the Board of Directors may impose, adopts the Plan; provided
that an entity shall cease to be part of the Company, and shall cease to
participate in the Plan, after the date on which it ceases to be a member of the
controlled group of corporations that includes the Corporation, as determined
under Section 414(b) of the Code. An entity will be considered to have adopted
the Plan with the approval of the Board of Directors if it takes significant
action that is consistent with the adoption of the Plan, the Board or Committee
is aware of the action, and neither objects to the action.
(m) "Company Matching Account" - the bookkeeping account, maintained in
------------------------
accordance with Section 7.07, that reflects the current value of the Company
Matching Contributions made with respect to the Member on or after the Merger
Date.
(n) "Company Matching Contribution" - contributions made to the Plan by
-----------------------------
the Company pursuant to Section 5.04 (or any predecessor thereof).
(o) "Compensation" - the amount paid by the Company to a Member who is an
------------
Eligible Employee, determined in accordance with Article III.
(p) "Computation Period" - the Plan Year. Notwithstanding the foregoing,
------------------
solely for purposes of Section 2.01, the Computation Period shall be, initially,
the 12-consecutive-month period beginning on the first day for which the
Employee is entitled to be credited with an Hour of Service described in Section
1.01(cc)(1)(i) (the "Employment Commencement Date"), and thereafter shall be the
Plan Year (beginning with the Plan Year that includes the first anniversary of
his Employment Commencement Date); provided that, solely for purposes of Section
2.01, an Employee who is credited with 1,000 Hours of Service in both the
initial Computation Period and in the Plan Year that includes the first
anniversary of his Employment Commencement Date shall be credited with two years
of Service.
(q) "Corporation" - ABC, Inc., and any successor thereto.
-----------
(r) "Deferred Retirement Date" - in the case of a Member who is employed
------------------------
by the Company or an Affiliate after his Normal Retirement Date, the first day
of the month coincident with or next following his Severance from Service.
<PAGE>
4
(s) "Disabled" - the Member's continuous inability, because of sickness or
--------
accident, to engage in any and every duty of his occupation.
(t) "Disney" - The Walt Disney Company, a Delaware Corporation.
------
(u) "Distribution Date" - the date as of which a withdrawal or
-----------------
distribution is made hereunder.
(v) "Eligible Employee" - an Employee who is a staff or talent employee of
-----------------
the Company and who is remunerated in U.S. currency, except that an individual
described by any of the following paragraphs shall not be an Eligible Employee:
(1) an Employee of the Company who is represented by a union unless
the union and the Employer have entered into a collective bargaining or other
agreement that provides that the Employee shall participate in the Plan; or
(2) an Employee of the Company if at the time of the adoption of the
Plan by the Employer, or thereafter, the Employer elects to exclude some or all
employees described in Section 410(b)(3)(C) of the Code and the Employee is
excluded from the Plan by reason of such election; or
(3) an individual who is hired for what is intended by the Company to
be a temporary period for a position in connection with a special event, such as
Olympics coverage or Presidential election coverage; or
(4) an individual who is hired in a position for a specific prime time
program or series produced by the Entertainment Division of the ABC Television
Network; or
(5) an individual who is employed by the Company pursuant to an
agreement that provides that the individual shall not be eligible to participate
in the Plan; or
(6) an Employee who is not classified as an employee by the Company,
but who is treated as an Employee by reason of being treated as a "common law"
employee of the Company pursuant to the standards prescribed by Internal Revenue
Service Revenue Ruling 87-41 or any successor thereto; or
(7) an Employee who is an Employee by reason of being treated as a
"leased employee" of the Company pursuant to Section 414(n) or (o) of the Code;
or
(8) an Employee whose basic compensation for services on behalf of the
Company is not paid directly by the Company.
Notwithstanding the provisions of paragraphs (3) and (4) of this Section
1.01(v), an Employee described in either of said paragraphs shall be treated as
an Eligible Employee to the extent that the terms of a collective bargaining
agreement to which the Company is a party require the Employee to be treated as
an Eligible Employee. Expiration of a collective bargaining agreement shall not
by itself affect an Employee's status as an Eligible Employee pending execution
of a new collective bargaining agreement.
<PAGE>
5
(w) "Employee" - a person who is an employee of the Company or an
--------
Affiliate, including a "leased employee" (within the meaning of Section 414(n)
or (o) of the Code).
(x) "Employer" - the Corporation or a subsidiary or affiliate of the
--------
Corporation that is part of the Company.
(y) "ERISA" - the Employee Retirement Income Security Act of 1974, as from
-----
time to time amended.
(z) "Full-Time Employee" - an Employee who is designated as full-time by
------------------
the Employer or Affiliate that employs him under standards uniformly applicable
to similarly situated Employees.
(aa) "Fund" - the assets of the Plan held by the Trustee.
----
(bb) "Highly Compensated Employee" - an Employee who is a highly
---------------------------
compensated active employee within the meaning of Section 414(q) of the Code and
the Treasury Regulation thereunder, the provisions of which are hereby
incorporated herein by this reference, and any former Employee who had a
separation year before the determination year and who was an active Highly
Compensated Employee for either such former Employee's separation year or any
determination year ending on or after the Employee's 55th birthday. For
purposes of determining who is a Highly Compensated Employee under the Plan in
accordance with Section 414(q) of the Code and this Section 1.01(bb), the
following definitions and rules shall apply:
(1) "compensation" means compensation within the meaning of Treasury
Regulation Section 1.415-2(d)(2) and (3), including all elective or salary-
reduction contributions to a cafeteria plan or a cash or deferred arrangement;
(2) "determination year" means the Plan Year for which such
determination is made; and
(3) "separation year" means the determination year in which the
Employee Severs from Service.
(cc) "Hour of Service" -
---------------
(1) each hour for which an Employee is directly or indirectly paid or
entitled to payment by the Company or an Affiliate (i) for the performance of
duties or (ii) for reasons other than the performance of duties (irrespective of
whether the employment relationship has terminated) due to vacation, holiday,
illness, incapacity (including disability), layoff, jury duty, military duty, or
leave of absence;
(2) each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Company or an Affiliate,
excluding any hours credited under paragraph (1), above; and
(3) solely for the purpose of determining whether a Break in Service
has occurred, hours, not in excess of 501, that would have been credited
normally (or, if undeterminable, at the rate of eight hours per work day) but
for an Employee's absence from work by reason of (i) the Employee's
<PAGE>
6
pregnancy, (ii) the birth of the Employee's child, (iii) the placement of a
child with the Employee in connection with the Employee's adoption of the child,
or (iv) the Employee's caring for such a child immediately following such birth
or placement. Hours of Service described in this paragraph (3) shall be credited
to the Computation Period in which the absence begins, if necessary to avoid a
Break in Service, or if not so necessary, to the immediately following
Computation Period. Hours of Service under this paragraph (3) shall be credited
only if the Employee timely furnishes to the Employee's Employer (or the
appropriate Affiliate if the Employee is employed by an Affiliate) such
information as it requires to establish the reason for and the length of the
absence.
Notwithstanding the foregoing, no more than 501 Hours of Service shall
be credited under paragraph (1)(ii) of this Section 1.01(cc) to an Employee on
account of any single continuous period during which the Employee performs no
duties (whether or not that period occurs in a single Computation Period); an
hour for which an Employee is directly or indirectly paid, or entitled to
payment, on account of a period during which no duties are performed is not
required to be credited to the Employee if the payment is made or due under a
plan maintained solely for the purpose of complying with applicable workers'
compensation or unemployment compensation or disability insurance laws; and
Hours of Service shall not be credited for a payment that solely reimburses an
Employee for medical or medically related expenses incurred by the Employee.
An individual who is a "leased employee" (within the meaning of
Section 414(n) or (o) of the Code) of the Company or an Affiliate shall be
credited with Hours of Service to the same extent as if he had been employed and
paid by the Company or the Affiliate for which he performs services; provided
that a leased employee shall not be credited with Hours of Service for any
period during which the safe harbor requirement of Section 414(n)(5) of the Code
is satisfied with respect to such leased employee.
The provisions of Labor Regulation Section 2530.200b-2(b) and (c) are
incorporated herein by this reference.
Notwithstanding anything in this Section 1.01(cc) to the contrary, and
except as otherwise required by Labor Regulation Section 2530.200b-3(e), an
Employee's Hours of Service shall be determined exclusively by crediting the
Employee with 10 Hours of Service for each day in which the Employee completes
at least one Hour of Service and without regard to whether the Employee actually
completes more (or less) than 10 Hours of Service on that day.
(dd) "Investment Committee" - the Investment and Administrative Committee
--------------------
of The Walt Disney Company Sponsored Qualified Benefit Plans and Key Employees
Deferred Compensation and Retirement Plan.
(ee) "Investment Fund" - an investment fund maintained pursuant to Section
---------------
7.03.
(ff) "Investment Manager" - a Plan fiduciary (other than the Trustee) that
------------------
(i) has the power to manage, acquire, or dispose of any asset of the Plan; (ii)
has acknowledged in writing that it is a fiduciary with respect to the Plan; and
(iii) is registered as an investment adviser under the Investment Advisers Act
of 1940, is a bank as defined in that Act, or is an insurance company qualified
to perform services described in clause (i) of this Section 1.01(ff) under the
laws of more than one State.
(gg) "Labor Regulation" - a regulation issued by the Secretary of Labor
----------------
under ERISA.
<PAGE>
7
(hh) "Leave of Absence" - a temporary period of absence (of up to two
----------------
years) from employment with the Company and the Affiliates that is approved by
the Employer or an Affiliate in accordance with rules that shall be applied
uniformly, so that all Employees in similar circumstances are treated alike.
Any Employee who leaves the Company and the Affiliates directly to perform
service in the armed forces of the United States under conditions entitling him
to reemployment rights under the laws of the United States shall be regarded as
being on a Leave of Absence during his absence from the Company and the
Affiliates; provided that if the Employee fails to make application for
reemployment with the Company or an Affiliate within the period specified by
such laws for the preservation of reemployment rights, the Employee shall be
regarded as having Separated from Service on the date the Leave of Absence
began.
(ii) "Limitation Year" - the calendar year.
---------------
(jj) "Loan" - a loan by the Plan to a Member in accordance with Article X.
----
(kk) "Lump-Sum Distribution" - a Voluntary Lump-Sum Distribution or a
---------------------
Mandatory Lump-Sum Distribution.
(ll) "Mandatory Lump-Sum Distribution" - a single payment made in
-------------------------------
accordance with Section 12.05 or 12.07.
(mm) "Member" - an Eligible Employee who becomes a Member pursuant to
------
Article II, or a former Eligible Employee who previously became a Member
pursuant to Article II, but only for so long as such Eligible Employee or former
Eligible Employee is considered a Member in accordance with Section 2.02.
(nn) "Merger" - the merger of the Corporation with DCB Merger Corp., a
------
Delaware corporation.
(oo) "Merger Date" - the effective date of the Merger.
-----------
(pp) "Normal Retirement Age" - age 65.
---------------------
(qq) "Normal Retirement Date" - the first day of the month coincident with
----------------------
or next following the attainment of Normal Retirement Age.
(rr) "Old Company Matching Account" - the bookkeeping account, maintained
----------------------------
in accordance with Section 7.07, that reflects the current value of the Company
Matching Contributions made with respect to the Member before the Merger Date.
(ss) "Optional Form of Payment" - a form of payment described in Section
------------------------
12.04.
(tt) "Part-Time Employee" - an Employee who is not a Full-Time Employee.
------------------
(uu) "Plan" - the ABC, Inc. Savings & Investment Plan, as the same may be
----
amended from time to time.
<PAGE>
8
(vv) "Plan Administrator" - the Corporation when acting in its capacity as
------------------
the "administrator" of the Plan pursuant to Section 13.11.
(ww) "Plan Year" - the calendar year.
---------
(xx) "Pre-Tax Contributions" - contributions made to the Plan by the
---------------------
Company at the election of the Member pursuant to Section 5.01 (or any
predecessor thereof).
(yy) "Pre-Tax Contribution Account" - the bookkeeping account, maintained
----------------------------
in accordance with Section 7.07, that reflects the current value of the Pre-Tax
Contributions made with respect to a Member.
(zz) "Predecessor Company" - an entity or predecessor thereof, prior, in
-------------------
either case, to its becoming, or to its becoming part of, the Company or an
Affiliate, as determined by the Board of Directors.
(aaa) "Qualified Domestic Relations Order" - a qualified domestic
----------------------------------
relations order within the meaning of Section 206(d)(3) of ERISA and Section
414(p) of the Code.
(bbb) "Retirement" - the Member's retirement under the terms of a defined
----------
benefit Tax-Qualified Plan maintained, or contributed to, by the Company or an
Affiliate.
(ccc) "Rollover Contributions" - contributions to the Plan pursuant to
----------------------
Section 5.06 (or any predecessor thereof).
(ddd) "Section" - a section of the Plan, except that where, in context,
-------
the term "Section" plainly refers to a statutory or regulatory provision,
"Section" shall refer to a section of the pertinent statute or regulation (e.g.,
----
Section 401(a) of the Code or Section 3(16)(A) of ERISA).
(eee) "Service" - a Member's service with the Company or an Affiliate,
-------
computed in accordance with Article IV and used to determine vesting or
eligibility for membership under the Plan.
(fff) "Sever from Service" - incur a Severance from Service.
------------------
(ggg) "Severance from Service" - the earlier of (1) the date an Employee
----------------------
terminates employment with the Company and the Affiliates by reason of a quit,
discharge, retirement, or death and (2) the first anniversary of the date the
Employee is first absent (but not on a Leave of Absence) from employment by the
Company and the Affiliates for any other reason.
(hhh) "Schedule" - a schedule appearing at the end of the Plan.
--------
(iii) "Successor Company" - a former part of the Company, a former
-----------------
Affiliate, or a former part of an Affiliate, after the date on which it ceases
to be a part of the Company, an Affiliate, or a part of an Affiliate.
(jjj) "Surviving Spouse" - the individual to whom a Member is married on
----------------
the date of the Member's death.
(kkk) "Tax-Qualified Plan" - a plan that is, or that has been determined
------------------
by the Internal
<PAGE>
9
Revenue Service to be, qualified under Section 401(a) or 403(a) of the Code.
(lll) "Treasury Regulation" - a regulation issued by the Secretary of the
-------------------
Treasury under the Code.
(mmm) "Trust" - any trust that holds all or part of the Fund. Any such
-----
trust may also hold the assets of plans other than this Plan.
(nnn) "Trust Agreement" - the agreement or agreements entered into by the
---------------
Corporation evidencing the Trust, as the same may be amended from time to time.
(ooo) "Trustee" - the trustee or trustees acting under the Trust
-------
Agreement.
(ppp) "Valuation Date" - the last business day of each calendar month and
--------------
any other date or dates designated by the Committee for the valuation of
Accounts.
(qqq) "Value" - the value of an Account, determined in accordance with
-----
Section 7.07.
(rrr) "Voluntary Lump-Sum Distribution" - a single payment made in
-------------------------------
accordance with Article XII (other than a Mandatory Lump-Sum Distribution or a
distribution made in accordance with Section 12.04).
1.02 Construction. Unless the contrary is plainly required by the
------------
context, wherever any words are used herein in the masculine gender, they shall
be construed as though they were also used in the feminine gender, and vice
versa, and wherever any words are used herein in the singular form, they shall
be construed as though they were also used in the plural form, and vice versa.
<PAGE>
10
ARTICLE II
MEMBERSHIP
----------
2.01 Membership. An individual who was a Member on March 31, 1998, shall
----------
be a Member on April 1, 1998. Every other Employee shall be eligible to become a
Member as of the first day of the month that coincides with or next follows his
completion of one year of Service, but only if he is an Eligible Employee on
that date. If he is not an Eligible Employee on that date, he shall be eligible
to become a Member on the first day of the first calendar month thereafter on
which he is an Eligible Employee.
2.02 Duration of Membership. Once an Eligible Employee has become a
----------------------
Member, he shall continue to be a Member until his entire nonforfeitable accrued
benefit under the Plan has been distributed or his death, whichever occurs
first. Once his entire nonforfeitable accrued benefit under the Plan has been
distributed or his death occurs, a Member shall cease to be a Member.
2.03 Reemployment. If a current or former Member is no longer an
------------
Eligible Employee, he shall cease to be eligible to participate actively in the
Plan, but if he is reemployed by the Company as an Eligible Employee, he shall
be eligible to participate actively in the Plan on the first day of the first
calendar month occurring on or after the date on which he again performs an Hour
of Service (within the meaning of Section 1.01(cc)(1)(i)) for the Company as an
Eligible Employee.
2.04 Enrollment. An Eligible Employee who is eligible to become a Member
----------
in accordance with the preceding provisions of this Article II may become a
Member by enrolling in the Plan in such manner and form, and at such time, as
the Committee shall prescribe. Similarly, a Member who has ceased to participate
actively in the Plan, but who is eligible to resume active participation, may
resume active participation in the Plan by re-enrolling in the Plan in such
manner and form, and at such time, as the Committee shall prescribe.
2.05 Veterans' Benefits. Notwithstanding any provision of this Plan to
------------------
the contrary, in the case of reemployments initiated on or after December 12,
1994, contributions, benefits and service credit with respect to qualified
military service shall be provided in accordance with Section 414(u) of the
Code.
<PAGE>
11
ARTICLE III
COMPENSATION
------------
3.01 Compensation.
------------
(a) Except as provided in Section 3.01(b), "Compensation" means amounts
paid by the Company to a Member who is an Eligible Employee as basic salary and
as commissions and sales bonuses, if any, and amounts contributed on behalf of
the Member to a cafeteria plan or a cash or deferred arrangement and not
included in the Member's gross income for federal income tax purposes under
Section 125 or 402(e)(3) of the Code, but excluding bonuses (other than sales
bonuses), incentive compensation, profit participation, and compensation for
overtime or extended work week and any other items of remuneration.
(b) In the case of a Member who is represented by a union,
"Compensation" means the amount of covered compensation prescribed by the
collective bargaining agreement with the Employer pursuant to which he is
treated as an Eligible Employee.
3.02 Compensation Limit. In addition to other applicable limitations
------------------
that may be set forth in the Plan, and notwithstanding any other contrary
provision of the Plan, annual Compensation taken into account under the Plan for
the purpose of calculating the contributions to the Plan by or in respect of a
Member for any Plan Year shall not exceed the applicable compensation limit
under Section 401(a)(17) of the Code and the Treasury Regulation interpreting
that Section, adjusted for changes in the cost of living as provided in that
Section and the applicable Treasury Regulation. Effective January 1, 1989, the
annual compensation used in determining contributions for periods beginning on
or after that date was $200,000 (indexed). Effective January 1, 1994, the annual
compensation used in determining contributions for periods beginning on or after
that date is $150,000 (indexed).
<PAGE>
12
ARTICLE IV
SERVICE
-------
4.01 Service. Except as otherwise provided in this Article IV, a Full-
-------
Time Employee's Service shall be the sum of the years and fractions of a year of
service credited as follows:
(a) The Employee's service through December 31, 1983, if any, as
determined under the Plan as in effect on December 31, 1983, or under the Plan
as in effect on January 1, 1984, whichever results in the greater number of
years of Service; plus
(b) The Employee's years and fractions of a year in completed months as
an Employee of the Company or an Affiliate (but only from the date it became an
Affiliate) after December 31, 1983, until he Severs from Service (provided that
if an Employee completes an Hour of Service, within the meaning of Section
1.01(cc)(1)(i), before the first anniversary of his Severance from Service, the
Severance from Service shall be deemed not to have occurred for purposes of this
Section 4.01(b)).
4.02 Service of Part-Time Employees. Except as otherwise provided in
------------------------------
this Article IV, a Part-Time Employee's Service shall be determined as follows
and without regard to the provisions of Section 4.01:
(a) A year of Service shall include any Computation Period beginning
before January 1, 1976, if such period qualified as a year of Service under the
Plan as in effect on either December 31, 1975, or January 1, 1976.
(b) A year of Service shall include any Computation Period beginning
after December 31, 1975, in which the Employee completes 1,000 or more Hours of
Service with the Company and the Affiliates.
4.03 Other Service-Crediting Provisions.
----------------------------------
(a) To the extent determined by the Board of Directors, the Member's
Service shall include his service as an employee of a Predecessor Company if the
Member was an employee of the Predecessor Company when it became, or became a
part of, the Company and the Affiliates.
(b) An individual who is a "leased employee" (within the meaning of
Section 414(n) or (o) of the Code) of the Company or an Affiliate shall be
credited with Service to the same extent as if he had been employed and paid by
the Company or Affiliate for which he performs services; provided that a leased
employee shall not be credited with Service for any period during which the safe
harbor requirement of Section 414(n)(5) of the Code is satisfied with respect to
the leased employee.
4.04 Interruption of Service.
-----------------------
(a) Employment before January 1, 1976, shall be disregarded in
determining Service if such employment would have been disregarded under the
rules of the Plan with regard to breaks in service as such rules were in effect
on December 31, 1975.
(b) If a Full-Time Employee Severs from Service before having acquired a
nonforfeitable
<PAGE>
13
interest in the Value of his Company Matching Account, and if he thereafter
returns to employment with the Company or an Affiliate at a time when his Break
in Service equals or exceeds the greater of (i) five years and (ii) his years of
Service, upon his subsequent return to employment with the Company or an
Affiliate, his prior Service shall be disregarded for all purposes.
(c) If a Full-Time Employee Severs from Service and returns to
employment with the Company or an Affiliate as an Employee, and Section 4.04(b)
does not apply, all of his Service shall be added together except for such
Service as is disregarded pursuant to the other provisions of this Section 4.04
(by reason of prior or subsequent breaks in service) or Section 4.08; provided
that for purposes of determining a Member's nonforfeitable interest in his
Company Matching Account, periods of Service shall not be added together
pursuant to this Section before the Employee completes one year of Service
following his resumption of employment.
(d) If a Part-Time Employee incurs a Break in Service before having
acquired a nonforfeitable interest in the Value of his Company Matching Account,
and if he thereafter returns to employment with the Company or an Affiliate at a
time when his Break in Service equals or exceeds the greater of (i) five years
and (ii) his years of Service, upon his subsequent return to employment with the
Company or an Affiliate, his prior Service shall be disregarded for all
purposes.
(e) If a Part-Time Employee incurs a Break in Service and returns to
employment with the Company or an Affiliate as an Employee, and Section 4.04(d)
does not apply, all of his Service shall be added together except for such
Service as is disregarded pursuant to the other provisions of this Section 4.04
(by reason of prior or subsequent breaks in service) or Section 4.08; provided
that for purposes of determining a Member's nonforfeitable interest in his
Company Matching Account, periods of Service shall not be added together
pursuant to this Section before the Employee completes one year of Service
following his resumption of employment.
(f) For purposes of this Section 4.04, all references to the Member's
Company Matching Account shall be deemed to refer both to the Member's Company
Matching Account and to the Member's Old Company Matching Account, if any.
4.05 Leaves of Absence.
-----------------
(a) The period of a Leave of Absence shall be included in determining an
Employee's Service. An Employee shall be deemed to remain an Employee during
any Leave of Absence, provided that he returns to employment as an Employee on
or before the expiration of the Leave or any extension thereof or shall die
during such Leave.
(b) If a period of family or medical leave is not otherwise treated as a
Leave of Absence pursuant to this Section 4.05, the Employee shall be credited
with Service during such period, and shall participate in any Plan changes that
become effective during such period, but only to the extent required by the
Family and Medical Leave Act of 1993.
(c) If a Full-Time Employee is absent from employment with the Company
and the Affiliates by reason of (i) the Employee's pregnancy, (ii) the birth of
the Employee's child, (iii) the placement of a child with the Employee in
connection with the Employee's adoption of the child, or (iv) the Employee's
caring for such a child immediately following such birth or placement, the
period between the first and second anniversaries of his period of absence shall
be treated neither as a period
<PAGE>
14
of Service (unless the Employee is otherwise on a Leave of Absence during such
period) nor as a Break in Service; provided that this Section 4.05(c) shall
apply only if the Employee timely furnishes to the Employee's Employer (or the
appropriate Affiliate if the Employee is employed by an Affiliate) such
information as it requires to establish the reason for and the length of the
absence.
4.06 Employment With a Successor Company.
-----------------------------------
(a) Except as provided in Section 4.06(b), a Member's Service shall not
include the Member's years and fractions of a year in completed months as an
employee of a Successor Company.
(b) The Board of Directors may adopt an amendment to the Plan pursuant
to which Members shall continue to accrue Service, to the extent specified in
the amendment, for employment with a particular Successor Company identified in
the amendment.
(c) For purposes of any provision of the Plan that permits a Member to
receive a distribution on or after his Severance from Service, the Member shall
not be entitled to receive such a distribution during either of the following
periods:
(1) Any period during which the Member continues to accrue Service
with a Successor Company pursuant to a written amendment described in Section
4.06(b).
(2) With respect to the Member's Pre-Tax Account, any period during
which the Member remains employed by a Successor Company or by a member of the
Successor Company's controlled group (within the meaning of Section 414(b), (c),
(m), or (o) of the Code) except to the extent that a distribution is permitted
by Section 401(k)(2)(B)(i)(II) of the Code and the Treasury Regulation
thereunder.
4.07 Fractional Months of Service. Fractional years and months of
----------------------------
Service (and fractional years and months of a Break in Service) completed by a
Full-Time Employee shall be aggregated. For this purpose, 12 months shall be
deemed to equal one year, and 30 days shall be deemed to equal one month.
4.08 Non-duplication. Notwithstanding anything to the contrary in this
---------------
Article IV, a Member shall not receive credit under the Plan for a single period
of service more than once for computing Service.
<PAGE>
15
ARTICLE V
CONTRIBUTIONS
-------------
5.01 Pre-Tax Contributions.
---------------------
(a) A contribution made pursuant to this Section 5.01 shall be known as
a "Pre-Tax Contribution." Subject to the limitations imposed by this Article V
and Article VI, each Member may elect that his Employer shall contribute monthly
to the Plan a whole percentage of his Compensation (designated by the Member)
equal to not less than 1 percent nor more than 10 percent of his Compensation
for the Plan Year; provided that such elected whole percentage (of not less than
1 percent nor more than 10 percent) shall be applied separately to the Member's
Compensation in each payroll period; and provided further that combined Pre-Tax
and After-Tax Contributions on a Member's behalf for any payroll period may not
exceed 10 percent of the Member's Compensation in that payroll period.
(b) Contributions pursuant to this Section 5.01 shall be made only with
respect to amounts that the Member could otherwise elect to receive in cash and
that are not currently available to the Employee as of the date of his election.
(c) The Pre-Tax Contributions for a calendar month shall be transmitted
to the Trustee as soon as practicable after the end of that month, and the
Member's Compensation shall be reduced by the amount of the Pre-Tax
Contributions made on his behalf. Pre-Tax Contributions made on behalf of a
Member shall be credited to his Pre-Tax Contribution Account as soon as
practicable after the Pre-Tax Contributions are received by the Trustee.
(d) If the limitation imposed by Section 6.01 prevents the Employer from
making a Pre-Tax Contribution on behalf of a Member, the Member shall
automatically be deemed to have elected to make an After-Tax Contribution equal
to the amount of the Pre-Tax Contribution that the Employer was prevented from
making except to the extent that the Committee determines that such After-Tax
Contributions would cause the Plan to exceed (or to continue to exceed) the
actual percentage contribution test imposed by Section 6.03 or to violate (or to
continue to violate) the prohibition against multiple use imposed by Section
6.04.
5.02 After-Tax Contributions.
-----------------------
(a) A contribution made pursuant to this Section 5.02 shall be known as
an "After-Tax Contribution." Subject to the limitations imposed by this Article
V and Article VI, each Member may elect to contribute to the Plan a whole
percentage of his Compensation (designated by the Member) equal to not less than
1 percent nor more than 10 percent of the Member's Compensation for the Plan
Year; provided that such elected whole percentage (of not less than 1 percent
nor more than 10 percent) shall be applied separately to the Member's
Compensation in each payroll period; and provided further that combined Pre-Tax
and After-Tax Contributions on a Member's behalf for any payroll period may not
exceed 10 percent of the Member's Compensation in that payroll period.
(b) After-Tax Contributions shall be made exclusively by payroll
deduction in a manner to be determined by the Committee.
<PAGE>
16
(c) The After-Tax Contributions for a calendar month shall be paid to
the Trustee as soon as practicable after the end of that month. After-Tax
Contributions shall be credited to the Member's After-Tax Contribution Account
as soon as practicable after the After-Tax Contributions are received by the
Trustee.
5.03 Change in Contribution Rate.
---------------------------
(a) Subject to Sections 5.01 and 5.02, a Member may change the rate at
which future Pre-Tax Contributions and/or After-Tax Contributions are made on
the Member's behalf by notifying the Company in such manner and form, and at
such time, as the Company shall require. The change shall become effective as
soon as administratively possible after such notice is received.
(b) This Section 5.03 also applies to a Member who wishes to elect to
suspend future Pre-Tax Contributions and/or After-Tax Contributions and to an
Eligible Employee who wishes to commence Pre-Tax Contributions and/or After-Tax
Contributions. A Member who has elected to suspend Pre-Tax Contributions and/or
After-Tax Contributions may elect to resume making such contributions in
accordance with the preceding provisions of this Section 5.03.
5.04 Company Matching Contributions.
------------------------------
(a) A contribution made pursuant to this Section 5.04 shall be known as
a "Company Matching Contribution." Subject to the limitations imposed by Article
VI, each Member's Employer shall make Company Matching Contributions to the Plan
in an amount equal to 50 percent of so much of the combined Pre-Tax
Contributions and After-Tax Contributions on behalf of the Member as do not
exceed five percent of the Member's Compensation.
(b) The Company Matching Contributions for a Plan Year shall be made by
the Company to the Trustee by the due date for the filing of the Company's
federal income tax return for the Plan Year (including any extensions thereof)
or at such earlier date or dates as the Company may determine in its sole
discretion. Company Matching Contributions made on behalf of a Member shall be
credited to his Old Company Contribution Account (for Company Matching
Contributions made before the Merger Date) or to his Company Matching Account
(for Company Matching Contributions made on or after the Merger Date) as soon as
practicable after the Company Matching Contributions are received by the
Trustee.
5.05 Contributions Contingent on Deductibility. Each Pre-Tax
-----------------------------------------
Contribution and each Company Matching Contribution shall be made on the
condition that it is deductible under Section 404 of the Code in the taxable
year of the Employer with respect to which the contribution is made.
5.06 Rollover Contributions
----------------------
(a) A contribution made pursuant to this Section 5.06 shall be known as
a "Rollover Contribution." At the discretion of the Committee, an individual who
becomes an Eligible Employee as the direct result of the acquisition of a
Predecessor Company by the Company may elect to contribute or to transfer to the
Fund, in cash, all or part of his account balance under a Tax-Qualified Plan
maintained by the Predecessor Company, but only if the contribution or transfer
meets such conditions as the Committee may establish and only if the Committee
determines that, in the case of a contribution, the amount to be contributed
qualifies as an "eligible rollover distribution" within the meaning of Section
402(c)(4) of the Code, or, in the case of a transfer, that the transfer will not
cause
<PAGE>
17
the Plan to become subject, in whole or in part, to the joint and survivor
annuity and qualified preretirement survivor annuity requirements imposed by
Sections 401(a)(11)(A) and 417 of the Code, unless otherwise authorized by the
Committee.
(b) A Member's Rollover Contribution shall be allocated among the
segments of the Member's Account as determined by the Committee in its sole
discretion.
(c) Company Matching Contributions shall not be made with respect to
Rollover Contributions.
5.07 Return of Employer Contributions. If a Pre-Tax Contribution or a
--------------------------------
Company Matching Contribution was made (i) by reason of a mistake of fact, or
(ii) on the condition that it was currently deductible as provided in Section
5.05 and such amount is subsequently determined not to be currently deductible
as provided in Section 5.05, the contribution (adjusted for any investment
losses allocable thereto, but not for any investment gains allocable thereto)
shall be refunded to the Company; provided that in the case of a contribution
described in clause (i), the refund may be made only within one year after the
payment of the contribution; and provided further that in the case of a
contribution described in clause (ii), the refund may be made only within one
year after the disallowance of the deduction and may be made only to the extent
that the deduction was disallowed.
5.08 Two Separate Contracts. Contributions to the Plan shall be made
----------------------
pursuant to two separate contracts for purposes of Section 72(e) of the Code.
After-Tax Contributions made after December 31, 1986, plus any gains and minus
any losses thereon, shall be allocated to one contract (the "first contract"),
and all other contributions to the Plan, plus any gains and minus any losses
thereon, shall be allocated to the other contract (the "second contract"). If a
Member withdraws After-Tax Contributions from the Plan pursuant to Article XI,
the withdrawal shall be made first from the second contract (until all of the
Member's After-Tax Contributions thereunder have been withdrawn) and then from
the first contract.
<PAGE>
18
ARTICLE VI
LIMITATIONS ON CONTRIBUTIONS
----------------------------
6.01 Limit on Pre-Tax Contributions. For Plan Years beginning on or
------------------------------
after January 1, 1987, the aggregate elective deferrals (as defined in Section
402(g)(3) of the Code) made on behalf of each Member under the Plan shall not
exceed:
(a) $7,000 (as adjusted by the Secretary of the Treasury or his delegate
for increases in the cost of living pursuant to Section 402(g) of the Code,
provided that no such adjustment shall be taken into account hereunder before
the Plan Year in which it becomes effective), reduced by
(b) the sum of any of the following amounts that were contributed on
behalf of the Member for the Plan Year under a plan, contract, or arrangement
other than this Plan:
(1) any employer contribution under a qualified cash or deferred
arrangement (as defined in Section 401(k) of the Code) to the extent not
includable in the Member's gross income for the taxable year under Section
402(a)(8) of the Code (determined without regard to Section 402(g) of the Code);
(2) any employer contribution to the extent not includable in the
Member's gross income for the taxable year under Section 402(h)(1)(B) of the
Code (determined without regard to Section 402(g) of the Code); and
(3) any employer contribution to purchase an annuity contract under
Section 403(b) of the Code under a salary reduction agreement (within the
meaning of Section 3121(a)(5)(D) of the Code);
provided that no contribution described in this subsection (b) shall be taken
into account for the purpose of reducing the dollar limit in subsection (a),
above, if the plan, contract, or arrangement is not maintained by the Company or
an Affiliate unless the Member has filed a notice with the Committee, in such
manner and former, at such time, and containing such information concerning the
contribution as the Committee shall require.
6.02 Actual Deferral Percentage Test. For Plan Years beginning after
-------------------------------
December 31, 1986, the Plan shall satisfy the actual deferral percentage test
set forth in Section 401(k)(3) of the Code and Treasury Regulation Section
1.401(k)-1(b), the provisions of which are hereby incorporated herein by this
reference. For Plan Years beginning after December 31, 1996, the actual deferral
percentage test shall be applied using the prior year testing method set forth
in Section 401(k)(3) of the Code and the Treasury Regulations and other guidance
issued thereunder.
6.03 Actual Contribution Percentage Test. For Plan Years beginning after
-----------------------------------
December 31, 1986, the Plan shall satisfy the actual contribution percentage
test set forth in Section 401(m)(2) of the Code and Treasury Regulation Section
1.401(m)-1(b), the provisions of which are hereby incorporated herein by this
reference. For Plan Years beginning after December 31, 1996, the actual
contribution percentage test shall be applied using the prior year testing
method set forth in Section 401(m)(2) of the Code and the Treasury Regulations
and other guidance issued thereunder.
<PAGE>
19
6.04 Prohibition on Multiple Use. For Plan Years beginning after
---------------------------
December 31, 1988, the Plan shall not violate the prohibition against multiple
use of the alternative methods of compliance with Section 401(k) and (m) of the
Code. The prohibition is set forth in Section 401(m)(9) of the Code and Treasury
Regulation Section 1.401(m)-2, the provisions of which are hereby incorporated
herein by this reference.
6.05 Maximum Contributions.
---------------------
(a) In addition to any other limitation set forth in the Plan and
notwithstanding any other provision of the Plan, in no event shall the annual
additions to a Member's Account under the Plan, together with the aggregate
annual additions to the Member's accounts under all other defined contribution
plans required to be aggregated with the Plan under the provisions of Section
415 of the Code, increase to an amount that exceeds the maximum amount permitted
under Section 415 of the Code, the provisions of which are incorporated herein
by this reference.
(b) For Plan Years beginning before January 1, 2000, if the sum of the
Member's defined benefit plan fraction and defined contribution plan fraction
(as defined in Section 415(e) of the Code) exceeds 1.0 for a Limitation Year
(except to the extent permitted under any transition rule described in Section
1106(i) of the Tax Reform Act of 1986 (and any other transition rules that
preserved the Member's existing accrued benefit upon the adoption of Section 415
of the Code or upon any subsequent amendment to Section 415), or under Treasury
Regulations or other guidance under Section 415), the Company shall cause the
annual additions to the Member's Account under the Plan to be reduced to the
extent necessary to comply with the limitation imposed by Section 415(e).
(c) If the limitations imposed by this Section 6.05 apply to a Member
who is entitled to benefits and/or annual additions under one or more tax-
qualified plans with which the Plan is aggregated for purposes of Section 415 of
the Code, the benefits and/or annual additions under the Plan and such other
plan or plans shall be reduced in the following order, to the extent necessary
to prevent the Member's benefits and/or annual additions from exceeding the
limitations imposed by this Section (after the application of Section 6.07(a)):
(1) Benefits under all defined benefit plans in which the Member
participated and with which the Plan is aggregated for purposes of Section 415
of the Code, in an order based on the chronology of the accrual of the benefits,
beginning with the benefit that accrued last and ending with the benefit that
accrued first; and
(2) Annual additions under the Plan and all defined contribution
plans in which the Member participated and with which the Plan is aggregated for
purposes of Section 415 of the Code, in an order based on the chronology of the
annual additions to the plans, beginning with the last annual addition and
ending with the first annual addition.
6.06 Imposition of Limitations. The Committee may limit the amount of a
-------------------------
Member's Pre-Tax Contributions and After-Tax Contributions during a Plan Year to
the extent that the Committee determines that the imposition of such a limit is
necessary or appropriate to ensure that the Plan will satisfy the requirements
of this Article. Any such limitation may be imposed either at the beginning of
the Plan Year, during the Plan Year, or both, as determined by the Committee in
its discretion.
6.07 Return of Excess Deferrals and Excess Contributions.
---------------------------------------------------
<PAGE>
20
(a) If a Member's Pre-Tax Contributions or After-Tax Contributions cause
the annual additions to a Member's Account to exceed the limit imposed by
Section 6.05, such excess contributions (plus or minus any gains or losses
thereon) shall be returned to the Member (with priority being given first to the
Pre-Tax Contributions and After-Tax Contributions for which no Company Matching
Contributions were made and then to After-Tax Contributions rather than to Pre-
Tax Contributions). Contributions returned pursuant to this subsection (a)
shall be disregarded in applying the limits imposed by Sections 6.01 through
6.04.
(b) After any excess annual additions (plus or minus any gains or losses
thereon) with respect to a Plan Year have been distributed as provided in
subsection (a), above, if a Member's elective deferrals (as defined in Section
402(g)(3) of the Code) with respect to a Plan Year exceed the limit imposed by
Section 402(g) of the Code (as incorporated in Section 6.01), the following
rules shall apply to such excess (the Member's "excess deferrals"):
(1) Not later than the first January 31 following the close of the
Plan Year, the Member may allocate to the Plan all or any portion of the
Member's excess deferrals for the Plan Year (provided that the amount of the
excess deferrals allocated to the Plan shall not exceed the amount of the
Member's Pre-Tax Contributions to the Plan for the Plan Year that have not been
withdrawn or distributed) and may notify the Employer, in writing, of the amount
allocated to the Plan.
(2) If excess deferrals have been made to the Plan on behalf of a
Member for a Plan Year, the Member shall be deemed to have allocated such excess
deferrals to the Plan pursuant to subsection (b)(1), above, and the Plan shall
distribute such excess deferrals pursuant to subsection (b)(3), below.
(3) As soon as practicable, but in no event later than the first
April 15th following the close of the Plan Year, the Plan shall distribute to
the Member the amount allocated or deemed allocated to the Plan under subsection
(b)(1) or (b)(2), above (plus or minus any gains or losses thereon). The
distribution described in this subsection (b)(3) shall be made notwithstanding
any other provision of the Plan.
(c) After any excess annual additions (plus or minus any gains or losses
thereon) with respect to a Plan Year have been distributed as provided in
subsection (a), above, after any excess deferrals (plus or minus any gains or
losses thereon) with respect to a Plan Year have been distributed as provided in
subsection (b), above, and after any action pursuant to Section 6.06 with
respect to the Plan Year has been taken, if the actual deferral percentage for
the Plan Year of those Members who are Highly Compensated Employees exceeds the
limit imposed by Section 6.02, the following rules apply:
(1) The amount of the excess contributions for the Plan Year
(determined in accordance with paragraph (3), below), plus or minus any gains or
losses thereon, shall be distributed to Members who are Highly Compensated
Employees on the basis of the portion of the excess contributions attributable
to each such Member (determined in accordance with paragraph (4), below). This
distribution shall be made as soon as practicable, but in no event later than
the close of the Plan Year following the close of the Plan Year with respect to
which the excess contributions were made. The gains or losses on excess
contributions shall be determined by multiplying the total annual earnings
(positive or negative) for the Plan Year in the Member's Pre-Tax Contribution
Account by a fraction, the numerator of which is the amount of the excess
contributions and the denominator of which is the
<PAGE>
21
value of the Member's Pre-Tax Contribution Account as of the last day of the
Plan Year, reduced by any positive earnings (or increased by any negative
earnings) credited to the Member's Pre-Tax Contribution Account for the Plan
Year.
(2) In accordance with Treasury Regulations, and subject to such other
rules as the Committee shall prescribe, a Member who is a Highly Compensated
Employee may elect, in such manner and at such time as the Committee shall
prescribe, to treat as an After-Tax Contribution the portion of the excess
contributions attributable to him (determined in accordance with paragraph (4),
below), except to the extent that such After-Tax Contribution would cause the
Plan to exceed (or to continue to exceed) the contribution percentage limit
imposed by Section 6.03 or to violate (or to continue to violate) the
prohibition against multiple use imposed by Section 6.04.
(3) The amount of the excess contributions for a Plan Year is the
total of the amounts (if any) by which the Pre-Tax Contributions of each Highly
Compensated Employee for the Plan Year would have to be reduced in order that
each Highly Compensated Employee's actual deferral ratio not exceed the highest
permitted actual deferral ratio under the Plan. To calculate the highest
permitted actual deferral ratio under the Plan, the actual deferral ratio of the
Highly Compensated Employee with the highest actual deferral ratio is reduced by
the amount required to cause his actual deferral ratio to equal the actual
deferral ratio of the Highly Compensated Employee with the next highest actual
deferral ratio. If a lesser reduction would enable the Plan to satisfy the
actual deferral percentage test (determined in accordance with Section 6.02) if
only the actual deferral ratio as so reduced were taken into account, only the
lesser reduction may be made. This process shall be repeated until the Plan
would satisfy the actual deferral percentage test if only the actual deferral
ratios as so reduced were taken into account. The highest actual deferral ratio
remaining under the Plan after the foregoing leveling process has been completed
shall be the highest permitted actual deferral ratio.
(4) The portion of the excess contributions for a Plan Year
(determined in accordance with paragraph (3), above) that is attributable to a
Highly Compensated Employee is determined by (i) reducing the amount of the Pre-
Tax Contributions of the Highly Compensated Employee with the largest amount of
Pre-Tax Contributions for the Plan Year by the amount required to cause the
amount of his Pre-Tax Contributions to equal the amount of the Pre-Tax
Contributions of the Highly Compensated Employee with the next largest amount of
Pre-Tax Contributions for the Plan Year, (ii) treating the amount of the
reduction as the portion of the excess contributions that is attributable to the
first Highly Compensated Employee, and (iii) continuing in the same manner until
all excess contributions for the Plan Year have been attributed to a Highly
Compensated Employee.
The distribution described in paragraph (1), above, shall be made
notwithstanding any other provision of the Plan. The distribution described in
paragraph (1), above, or recharacterized under paragraph (2), above, for a Plan
Year with respect to a Member shall be reduced by any excess deferral previously
distributed from the Plan to such Member for the Member's taxable year ending
with or within such Plan Year. Paragraphs (3) and (4) shall be interpreted and
applied in accordance with Section 401(k)(3) of the Code and the Treasury
Regulations and other guidance issued thereunder.
(d) If a Member's Pre-Tax Contributions or After-Tax Contributions (plus
or minus any gains or losses thereon) are returned to him pursuant to the
provisions of this Section 6.07, any Company Matching Contributions (plus or
minus any gains or losses thereon) with respect to such returned Pre-Tax
Contributions or After-Tax Contributions shall be immediately forfeited. Any
such forfeitures shall be applied to reduce the Company's obligation to make
Company Matching
<PAGE>
22
Contributions pursuant to Article V.
(e) After any excess deferrals (plus or minus any gains or losses
thereon), and any excess contributions (plus or minus any gains or losses
thereon), with respect to a Plan Year have been distributed and/or
recharacterized, in accordance with subsections (a), (b), (c), and (d), above,
and after any action pursuant to Section 6.06 with respect to the Plan Year has
been taken, if the contribution percentage for the Plan Year of those Members
who are Highly Compensated Employees exceeds the actual contribution percentage
limit imposed by Section 6.03, the following rules shall apply:
(1) The amount of the excess aggregate contributions for the Plan
Year (determined in accordance with paragraph (3), below), plus or minus any
gains or losses thereon, shall be distributed (or, if forfeitable, shall be
forfeited) as soon as practicable and in any event before the close of the Plan
Year following the close of the Plan Year with respect to which the excess
aggregate contributions were made. The gains or losses on excess aggregate
contributions shall be determined by multiplying the total annual earnings
(positive or negative) for the Plan Year in the Member's After-Tax Contribution
and Company Matching Accounts by a fraction, the numerator of which is the
amount of the excess aggregate contributions and the denominator of which is the
value of the Member's After-Tax Contribution and Company Matching Accounts as of
the last day of the Plan Year, reduced by any positive earnings (or increased by
any negative earnings) credited to the Member's After-Tax Contribution and
Matching Contribution Accounts for the Plan Year.
(2) Any distribution in accordance with paragraph (2), above, shall
be made to Members who are Highly Compensated Employees on the basis of the
portion of the excess aggregate contributions attributable to each such Member
(determined in accordance with paragraph (4), below). Such distributions shall
be made notwithstanding any other provision of the Plan.
(3) The amount of the excess aggregate contributions for a Plan Year
is the total of the amounts (if any) by which the After-Tax and Company Matching
Contributions of each Highly Compensated Employee for the Plan Year would have
to be reduced in order that each Highly Compensated Employee's actual
contribution ratio not exceed the highest permitted actual contribution ratio
under the Plan. To calculate the highest permitted actual contribution ratio
under the Plan, the actual contribution ratio of the Highly Compensated Employee
with the highest actual contribution ratio is reduced by the amount required to
cause his actual contribution ratio to equal the actual contribution ratio of
the Highly Compensated Employee with the next highest actual contribution ratio.
If a lesser reduction would enable the Plan to satisfy the actual contribution
percentage test (determined in accordance with Section 6.03) if only the actual
contribution ratio as so reduced were taken into account, only the lesser
reduction may be made. This process shall be repeated until the Plan would
satisfy the actual contribution percentage test if only the actual contribution
ratios as so reduced were taken into account. The highest actual contribution
ratio remaining under the Plan after the foregoing leveling process has been
completed shall be the highest permitted actual contribution ratio.
(4) The portion of the excess aggregate contributions for a Plan
Year (determined in accordance with paragraph (3), above) that is attributable
to a Highly Compensated Employee is determined by (i) reducing the amount of the
After-Tax and Company Matching Contributions of the Highly Compensated Employee
with the largest amount of After-Tax and Company Matching Contributions for the
Plan Year by the amount required to cause the amount of his After-Tax and
Company Matching Contributions to equal the amount of the After-Tax and Company
Matching
<PAGE>
23
Contributions of the Highly Compensated Employee with the next largest amount of
After-Tax and Company Matching Contributions for the Plan Year, (ii) treating
the amount of the reduction as the portion of the excess aggregate contributions
that is attributable to the first Highly Compensated Employee, and (iii)
continuing in the same manner until all excess aggregate contributions for the
Plan Year have been attributed to a Highly Compensated Employee.
The determination of the excess aggregate contributions under this subsection
for any Plan Year shall be made after taking the measures called for by the
preceding subsections of this Section 6.07. Paragraphs (3) and (4) shall be
interpreted and applied in accordance with Section 401(m)(2) of the Code and the
Treasury Regulations and other guidance issued thereunder.
(f) If, after all the actions required or permitted by Section 6.06 and
the preceding provisions of this Section 6.07 have been taken, the Pre-Tax
Contributions, After-Tax Contributions, and Company Matching Contributions of
those Members who are Highly Compensated Employees cause the Plan to violate the
prohibition against multiple use imposed by Section 6.04, the contribution
percentage of those Members shall be reduced to the extent necessary to cause
the Plan to comply with that prohibition, and the excess aggregate contributions
shall be distributed (or, if forfeitable, shall be forfeited) in the manner
described in subsection (e), above.
<PAGE>
24
ARTICLE VII
INVESTMENTS AND ACCOUNTS
------------------------
7.01 Trust and Trustee. The Corporation has entered into a Trust
-----------------
Agreement with the Trustee, in such form and containing such provisions as the
Corporation deems appropriate. The Trust Agreement shall be deemed to form a
part of the Plan, and any and all rights or benefits that may accrue to any
person under the Plan shall be subject to all of the provisions of the Trust
Agreement.
7.02 The Fund. All contributions under the Plan shall be made to the
--------
Fund held by the Trustee.
7.03 Investment Funds.
----------------
(a) The Investment Committee shall have the authority to direct the
Trustee to maintain the assets of the Fund in multiple Investment Funds so as to
provide alternative investment vehicles for the assets of the Plan. Such
separate funds shall include, but are not limited to, the Investment Funds
described below. Additional funds may be established by the Investment
Committee, which shall have sole discretion to determine the number and
character of such additional Investment Funds. The Investment Committee, in its
sole discretion, shall have the authority to limit or eliminate the availability
of any of the Investment Funds established pursuant to this Article VII,
including but not limited to the Investment Funds described below.
(1) The Walt Disney Company Common Stock Fund - This Investment Fund
-----------------------------------------
shall be invested, without distinction between principal and income, principally
in The Walt Disney Company Common Stock. Portions of this Investment Fund may be
invested by the Trustee in high-grade short-term obligations and money market
instruments for purposes of liquidity to meet exchange and distribution
requirements. The Trustee shall regularly purchase, or cause to be purchased,
Common Stock in the open market in accordance with a non-discretionary
purchasing program. Each Member's proportional interest in this Investment Fund
shall be measured in units of participation, rather than shares of Common Stock.
Such units shall represent a proportionate interest in all of the assets of this
Investment Fund, which includes shares of Common Stock, short-term investments
and at all times, receivables for dividends and/or Common Stock sold and
payables for Common Stock purchased. A Net Asset Value ("NAV") per unit will be
determined as of each Valuation Date for each unit outstanding in this
Investment Fund. The NAV shall be adjusted by gains or losses realized on sales
of this Investment Fund, appreciation or depreciation in the market price of
those shares owned, interest on the short-term investments held by this
Investment Fund, expenses that pursuant to the Investment Committee's direction
the Trustee accrues from this Investment Fund, and commissions on purchases and
sales of Common Stock. Dividends received by this Investment Fund are reinvested
in additional shares of Common Stock (to the extent it is unnecessary to retain
such dividends as cash to maintain the target liquidity percentage) and Members
will receive additional units.
(2) Loan Fund - The Loan Fund shall consist principally of cash or
---------
cash equivalents and promissory notes received in connection with loans made
pursuant to Article X. The Loan Fund shall not be available to receive
contributions and transfers of funds at the direction of a Member, but shall be
administered solely in connection with loans to Members pursuant to Article X.
(b) Notwithstanding anything in the Plan to the contrary, the Trustee
may, in its discretion,
<PAGE>
25
and in accordance with the provisions of the Trust Agreement, hold all or part
of the assets allocated to one or more of the Investment Funds in cash or cash
equivalents.
(c) Dividends, interest, and other distributions with respect to assets
allocated to an Investment Fund shall be allocated to, and reinvested in, that
Investment Fund. Expenses incurred by the Trustee with respect to an Investment
Fund shall be allocated to that Investment Fund.
7.04 Allocation of Contributions.
---------------------------
(a) All Pre-Tax, After-Tax, and Rollover Contributions shall be
allocated by the Member among the Investment Funds (other than the Loan Fund) in
writing at the time and in the manner prescribed by the Committee. A Member may
elect to have his Pre-Tax, After-Tax, and Rollover Contributions allocated in
any proportion to any one or more of the Investment Funds (other than the Loan
Fund). Except as provided in Section 12.04(g), all Company Matching
Contributions shall be allocated to The Walt Disney Company Common Stock Fund.
(b) If a Member fails to make an allocation in accordance with this
Section 7.04 with respect to any portion of the Member's Pre-Tax, After-Tax, and
Rollover Contributions, but has made an allocation election with respect to any
other portion of his contributions, the unallocated portion of the Member's
contributions shall be allocated by the Committee in the same manner as the
Member's most recent allocation election with respect to the allocated portions
of the Member's contributions.
(c) If a Member fails to make any allocation in accordance with this
Section 7.04 with respect to his Pre-Tax, After-Tax, and Rollover Contributions,
such unallocated funds shall be allocated by the Committee to such Investment
Fund as the Committee may prescribe in its discretion.
(d) The Committee shall implement (or cause to be implemented) a
Member's investment directions in accordance with the terms of this Article VII
and such procedures as are prescribed by the Committee.
7.05 Change in Allocation.
--------------------
(a) A Member may change a direction previously given pursuant to Section
7.04 by submitting a notification to the Committee, in such manner and form, and
at such time, as the Committee shall prescribe, directing such a change.
(b) By submitting a notification to the Committee in such manner and
form, and at such time, as the Committee shall prescribe, a Member may direct
that all or part of the Value of the Member's Account attributable to a
particular Investment Fund be liquidated and transferred to any of the other
available Investment Funds (other than the Loan Fund); provided that, except as
provided in Section 12.04(g), the Member's Company Matching Account shall be
invested at all times entirely in The Walt Disney Company Common Stock Fund.
(c) If distribution of the Value of a Member's Account is deferred
pursuant to Article XII past the Valuation Date coincident with or next
following the date on which he terminates employment with the Company and the
Affiliates, the Member may continue to direct the investment of his Account in
accordance with subsection (b), above.
<PAGE>
26
(d) If all or part of a Member's Account is reallocated in accordance
with subsection (b) or (c), above, the Member's Account shall be debited and
credited with the appropriate amounts in a manner consistent with Section 7.07
in order to reflect the reallocation.
7.06 Valuation.
---------
(a) As of each Valuation Date, the Trustee shall determine the fair
market value of the assets in each Investment Fund.
(b) The Trustee shall make the valuations called for by subsection (a),
above, in accordance with sound and accepted banking and trust accounting
practices. Such valuations shall reflect the current fair market value of the
assets in each Investment Fund (as determined by the Trustee), the Pre-Tax
Contributions, After-Tax Contributions, Rollover Contributions, and Company
Matching Contributions received by the Trustee with respect to each Member since
the most recent Valuation Date, and the withdrawals and distributions with
respect to each Member since the most recent Valuation Date.
7.07 Accounts.
--------
(a) A Pre-Tax Contribution Account, an After-Tax Contribution Account,
and a Company Matching Account shall be established for each Member. In
addition, an Old Company Matching Account shall be established for each Member
or Beneficiary for whom, immediately before the Merger Date, there was in effect
a Company Matching Account (as that term was defined by the Plan immediately
before the Merger Date). The Member's interest in each Investment Fund that is
allocable to the Pre-Tax Contributions made on behalf of the Member shall be
credited to his Pre-Tax Contribution Account. The Member's interest in each
Investment Fund that is allocable to the Member's After-Tax Contributions shall
be credited to his After-Tax Contribution Account. The Member's interest in each
Investment Fund that is allocable to Company Matching Contributions made before
the Merger Date shall be credited to his Old Company Matching Account. The
Member's interest in The Walt Disney Company Common Stock Fund that is allocable
to Company Matching Contributions with respect to the Member made on or after
the Merger Date shall be credited to his Company Matching Account. The Member's
interest in each Investment Fund that is allocable to any Rollover Contribution
with respect to the Member shall be credited to the Member's Pre-Tax
Contribution Account, After-Tax Contribution Account, Old Company Matching
Account, and/or Company Matching Account, as determined by the Committee in its
discretion.
(b) The Value of each Member's Account shall reflect the current fair
market value and the gains, losses, income, and expenses of the Investment Funds
to which the Account is allocated and the amount of any withdrawals,
distributions, and loans (including loan repayments) with respect to the Member.
7.08 Risk of Loss. The Plan and the Company do not guarantee that the
------------
fair market value of the Investment Funds, or of any particular Investment Fund,
will be equal to or greater than the amounts allocated thereto. The Plan and the
Company do not guarantee that the Value of the Accounts will be equal to or
greater than the contributions credited thereto. The Members assume all risk of
any decrease in the value of the Investment Funds and the Accounts.
7.09 Interests in the Funds. No Member, Surviving Spouse, or Beneficiary
----------------------
shall have any
<PAGE>
27
claim, right, title, or interest in or to any specific assets of any Investment
Fund or of the Fund until distribution of such assets is made to the Member,
Surviving Spouse, or Beneficiary. No Member, Surviving Spouse, or Beneficiary
shall have any claim, right, title, or interest in or to the Fund, except as and
to the extent expressly provided herein.
7.10 Sole Source of Benefits. Members, Surviving Spouses, and
-----------------------
Beneficiaries shall look only to the Trust for the payment of benefits under the
Plan, and except as otherwise required by law, the Company assumes no
responsibility or liability therefor.
7.11 ERISA Section 404(c) Requirements. The Plan is designed to be a
---------------------------------
plan described in Section 404(c) of ERISA. Accordingly, the Plan must satisfy,
among other requirements, subsections (a), (b) and (c) below.
(a) Choice of Broad Range of Investment Alternatives. Members shall
------------------------------------------------
be able to choose from at least three investment alternatives. The three
alternatives shall constitute a broad range of choices ("core alternatives")
which (i) are diversified, (ii) demonstrate materially different risk and return
characteristics, (iii) in the aggregate, enable a Member to achieve a portfolio
with risk and return characteristics at any point within the range normally
appropriate by choosing among the core alternatives, and (iv) tend to minimize,
through diversification and in combination with the other alternatives, the
overall risk to the Member's portfolio.
(b) Frequency of Investment Instructions. The Member shall provide
------------------------------------
investment instructions to a person designated by the Company as an agent for
this purpose. The agent is obligated to comply with the instructions of the
Member, except as permitted by law. The Member shall have the ability to
provide investment instructions for each investment alternative as frequently as
is appropriate given the volatility of the investment, but no less frequently
than once within any three month period.
(c) Provision of Sufficient Information to Member or Beneficiary.
------------------------------------------------------------
The Member or Beneficiary shall be provided information sufficient to make
informed decisions regarding the investment alternatives under the Plan. Such
information shall (i) explain that the Plan is intended to be in compliance with
Section 404(c)of ERISA and that Plan fiduciaries may be relieved of liability
for losses that arise from the Member's investment choices, (ii) describe all
investment alternatives, including a general description of the investment
objectives of each alternative and the level of diversification in each
alternative, (iii) explain that Members may review any prospectuses or similar
materials made available to the Plan for each alternative, (iv) identify any
designated investment manager, (v) explain the circumstances under which a
Member may give investment instructions along with any limitations on those
instructions, (vi) describe any transaction fees, charge or expenses to a
Member's Account in connection with the purchase or sale of any investment
alternative, (vii) provide the name, address and telephone number of the Plan
fiduciary responsible for providing information on request, with a description
of such information available upon request, (viii) explain the established
procedures designed to provide for the confidentiality of information concerning
the purchase, holding or sale of employer securities, (ix) provide a copy of the
most recent prospectus in the case of an initial purchase of an alternative
subject to the Securities Act of 1933, and (x) provide any materials provided to
the Plan which relate to the exercise of voting, tender of similar rights passed
through to Members. Information which must be provided on request in accordance
with Department of Labor Regulations section 2550.404c-1(b)(2) includes certain
information relating to financial reports of investment alternatives, operating
expenses of the alternatives, overall investment performance of the
alternatives, and information relating to the shares of an investment in the
requesting Member's Account.
<PAGE>
28
Additional information may be available upon request.
If Section 404(c) of ERISA does not apply to any direction, instruction or
election given or made by a Member or Beneficiary under the Plan, the Member of
Beneficiary shall be a named fiduciary of the Plan with respect to such
direction, instruction or election.
<PAGE>
29
ARTICLE VIII
VOTING OF AND TENDER OR EXCHANGE OFFERS FOR COMMON STOCK
--------------------------------------------------------
8.01 Voting.
------
(a) Each Member with an interest in The Walt Disney Company Common Stock
Fund shall have the right to direct the Trustee as to the manner in which the
Trustee is to vote (including not to vote) that number of shares of Common Stock
reflecting the Member's proportional interest in The Walt Disney Company Common
Stock Fund (both vested and unvested). Directions from a Member to the Trustee
concerning the voting of Common Stock shall be communicated in writing, or by
mailgram or similar means. These directions shall be held in confidence by the
Trustee and shall not be divulged to the Corporation, or any officer or employee
thereof, or any other person. Upon its receipt of the directions, the Trustee
shall vote the shares of Common Stock reflecting the Member's proportional
interest in The Walt Disney Company Common Stock Fund as directed by the Member.
With respect to the shares of Common Stock reflecting a Member's proportional
interest in The Walt Disney Company Common Stock Fund for which it has received
no directions from the Member, the Trustee shall vote such shares in the same
proportion (for, against and abstention) on each issue as it votes those shares
reflecting Members' proportional interests in The Walt Disney Company Common
Stock Fund for which the Trustee received voting directions from Members.
Notwithstanding the above, with respect to such shares for which the Trustee has
received no voting directions, in the event of a tender offer, the Trustee shall
vote such shares in accordance with voting directions received from the
Corporation.
(b) The Trustee shall vote that number of shares of Common Stock that
are not reflected in the Members' proportional interests in The Walt Disney
Company Common Stock Fund in the same ratio (for, against and abstention) on
each issue as it votes those shares reflecting Members' proportional voting
interests in The Walt Disney Company Common Stock Fund for which it receives
voting directions from Members. Notwithstanding the above, in the event of a
tender offer, the Trustee shall vote such unallocated shares in accordance with
voting directions received from the Corporation.
8.02 Tender and Exchange Offers.
--------------------------
(a) Upon the commencement of a tender offer for Common Stock, the
Corporation shall notify each Member with an interest in The Walt Disney Company
Common Stock Fund of the tender offer and utilize its best efforts to timely
distribute or cause to be distributed to the Member the same information that is
distributed to shareholders of the Corporation in connection with the tender
offer, and, after consulting with the Trustee shall provide and pay for a means
by which the Member may direct the Trustee whether or not to tender the Company
Stock reflecting the Member's proportional interest in The Walt Disney Company
Common Stock Fund (both vested and nonvested). The Trustee shall certify to the
Corporation that the materials have been mailed or otherwise sent to such
Members.
(b) Each Member shall have the right to direct the Trustee to tender or
not to tender some or all of the shares of Common Stock reflecting the Member's
proportional interest in The Walt Disney Company Common Stock Fund (both vested
and nonvested). Directions from a Member to the Trustee concerning the tender of
Common Stock shall be communicated in writing, or by mailgram or such similar
means as is agreed upon by the Trustee and the Corporation under subsection (a),
above. These directions shall be held in confidence by the Trustee and shall not
be divulged to the Corporation, or
<PAGE>
30
any officer or employee thereof, or any other person except to the extent that
the consequences of such directions are reflected in reports regularly
communicated to any such persons in the ordinary course of the performance of
the Trustee's services hereunder. The Trustee shall tender or not tender shares
of Common Stock as directed by the Member. The Trustee shall not tender shares
of Common Stock reflecting a Member's proportional interest in The Walt Disney
Company Common Stock Fund for which it has received no direction from the
Member.
(c) The Trustee shall tender that number of shares of Common Stock that
are not reflected in the Members' proportional interests in The Walt Disney
Company Common Stock Fund which is determined by multiplying the total number of
such shares by a fraction of which the numerator is the number of shares of
Common Stock reflecting such Members' proportional interests in The Walt Disney
Company Common Stock Fund credited to Members' Accounts for which the Trustee
received directions from Members to tender (and which have not been withdrawn as
of the date of this determination) and of which the denominator is the total
number of shares of Common Stock reflected in the proportional interests of all
Members under the Plan.
(d) A Member who has directed the Trustee to tender some or all of the
shares of Common Stock reflecting the Member's proportional interest in The Walt
Disney Company Common Stock Fund may, at any time before the tender offer
withdrawal date, direct the Trustee to withdraw some or all of the tendered
shares reflecting the Member's proportional interest, and the Trustee shall
withdraw the directed number of shares from the tender offer before the tender
offer withdrawal deadline. Before the withdrawal deadline, if any shares of
Common Stock not reflected in the Members' proportional interests in The Walt
Disney Company Common Stock Fund have been tendered, the Trustee shall
redetermine the number of shares of Common Stock that would have been tendered
under subsection (c), above, if the date of the foregoing withdrawal were the
date of determination, and withdraw from the tender offer the number of shares
of Common Stock not reflected in the Members' proportional interests in The Walt
Disney Company Common Stock Fund necessary to reduce the amount of tendered
Common Stock not reflected in the Members' proportional interests in The Walt
Disney Company Common Stock Fund to the amount so redetermined. A Member shall
not be limited as to the number of directions to tender or withdraw that the
Member may give to the Trustee.
(e) A direction by a Member to the Trustee to tender shares of Common
Stock reflecting the Member's proportional interest in The Walt Disney Company
Common Stock Fund shall not be considered an election under the Plan by the
Member to withdraw, or to have distributed, any or all of his withdrawable
interest in the Plan. The Trustee shall credit to each proportional interest of
the Member from which the tendered shares were taken the proceeds received by
the Trustee in exchange for the shares of Common Stock tendered from that
interest. Pending receipt of directions from the Member or the Committee, in
accordance with the Plan, as to which of the remaining Investment Funds the
proceeds should be invested in, the Trustee shall invest the proceeds in such
Investment Fund as the Committee may prescribe in its discretion.
(f) For purposes of this Section, the number of shares of Common Stock
deemed "credited" to or "reflected" in a Member's proportional interest shall be
determined as of the last preceding Valuation Date. The trade date is the date
the transaction is valued.
(g) With respect to all rights other than the right to vote, the right
to tender, and the right to withdraw shares previously tendered, in the case of
Common Stock credited to a Member's proportional interest in The Walt Disney
Company Common Stock Fund, the Trustee shall follow the
<PAGE>
31
directions of the Member and if no such directions are received, the directions
of the Committee. The Trustee shall have no duty to solicit directions from
Members. With respect to all rights other than the right to vote and the right
to tender, in the case of Common Stock not reflected in Members' proportional
interests in The Walt Disney Company Common Stock Fund, the Trustee shall follow
the directions of the Committee.
(h) All of the provisions of this Section 8.02 shall apply to exchange
offers as well as to tender offers.
8.03 Conversions. All of the provisions of this Article VIII shall apply
-----------
to securities received as a result of a conversion of Common Stock.
<PAGE>
32
ARTICLE IX
VESTING
-------
9.01 Immediately Vested Accounts. A Member shall have at all times a
---------------------------
nonforfeitable interest in the Value of his Pre-Tax Contribution Account and in
the Value of his After-Tax Contribution Account.
9.02 Company Matching Account
------------------------
(a) Before January 1, 1995, one-third of the Value of a Member's Company
Matching Account attributable to Company Matching Contributions allocated to his
Company Matching Account for a particular Plan Year (the "Contribution Year")
shall be nonforfeitable at the end of the Contribution Year if the Member is an
active Employee on the last day of the Contribution Year. Two-thirds of the
Value of the Member's Company Matching Account attributable to the Company
Matching Contributions allocated to his Company Matching Account for the
Contribution Year shall be nonforfeitable at the end of the Plan Year
immediately following the Contribution Year if the Member is an active Employee
on the last day of that Plan Year. The entire Value of the Member's Company
Matching Account attributable to Company Matching Contributions allocated to his
Company Matching Account for the Contribution Year shall be nonforfeitable at
the end of the second Plan Year following the Contribution Year if the Member is
an active Employee on the last day of that Plan Year.
(b) On and after January 1, 1995, one-half of the Value of a Member's
Company Matching Account attributable to Company Matching Contributions
allocated to his Company Matching Account for any Contribution Year shall be
nonforfeitable at the end of that Contribution Year if the Member is an active
Employee on the last day of the Contribution Year. The entire Value of the
Member's Company Matching Account attributable to Company Matching Contributions
allocated to his Company Matching Account for that Contribution Year shall be
nonforfeitable at the end of the Plan Year immediately following that
Contribution Year if the Member is an active Employee on the last day of that
Plan Year.
(c) A Member shall have a nonforfeitable interest in the Value of his
Company Matching Account upon the first to occur of the following:
(1) his completion of five years of Service;
(2) his Retirement;
(3) his attainment of Normal Retirement Age before he Severs from
Service; or
(4) his Severance from Service by reason of death or Disability.
9.03 Forfeiture.
----------
(a) Notwithstanding any provision of Section 9.02 to the contrary, if
any portion of the Value of a Member's Company Matching Account is forfeitable
when the Member Severs from Service for a reason other than death, Disability,
or Retirement, such portion shall be forfeited immediately.
<PAGE>
33
(b) If all or part of the Value of a Member's Company Matching Account
is forfeited, and the Member is subsequently reemployed by the Company or an
Affiliate without incurring a Break in Service of five years or more, the
forfeited portion of the Value of his Company Matching Account shall be restored
in full (but without adjustment for any subsequent gains or losses) if the
Member repays to the Plan, within five years from the date of such reemployment,
the full amount of any previous distributions to him from the Plan. Any amount
restored or repaid pursuant to this Section 9.03(b) shall be credited to the
Account to which such amount was credited when it was previously forfeited or
distributed, as the case may be.
(c) Notwithstanding any provision of this Article IX, Company Matching
Contributions (plus or minus any gains or losses thereon) may be forfeited
pursuant to the provisions of Section 6.07.
(d) Forfeitures shall be applied to reduce the Company's obligation to
make Company Matching Contributions pursuant to the provisions of Article V.
9.04 Old Company Matching Account. On and after the Merger Date, all
----------------------------
references in this Article IX to a Member's Company Matching Account shall be
deemed to refer both to the Member's Company Matching Account and to the
Member's Old Company Matching Account, if any.
<PAGE>
34
ARTICLE X
LOANS
-----
10.01 Eligibility. A Member shall be eligible to borrow from the Plan in
-----------
accordance with this Article X if (i) the Member is actively employed by the
Company or an Affiliate when the Loan is made, (ii) the Member's Account does
not show that the Member has an outstanding Loan, and (iii) the Member will not
be in default on the Loan under Section 10.11(a)(6) or (7) immediately after the
Loan is made.
10.02 Application Procedure. A Member may apply for a Loan by making
---------------------
application in accordance with such procedures as the Committee may prescribe
from time to time.
10.03 Promissory Note. A Member may obtain a Loan only if he executes a
---------------
promissory note in a form approved by the Committee.
10.04 Maximum Amount. The maximum amount a Member may borrow from the
--------------
Plan is the smallest of:
(a) 50% of the Value of his nonforfeitable interest in his Account
(determined as of the date the Loan is made), disregarding any amount subject to
a Qualified Domestic Relations Order;
(b) (1) $50,000 minus
(2) the sum of
(i) the outstanding balance of any loans from all other Tax-
Qualified Plans maintained by the Company and the
Affiliates on the date the Loan is made, and
(ii) the excess of
(A) the highest outstanding balance of all prior plan
loans (including both Loans and loans from any other
Tax-Qualified Plans maintained by the Company and the
Affiliates) during the one-year period ending on the
day before the date the current Loan is made, over
(B) the outstanding balance of all prior plan loans from
Tax-Qualified Plans maintained by the Company and the
Affiliates on the date the current Loan is made; and
(c) the sum of the Value of the Member's Pre-Tax Contribution Account
and the Value of the Member's After-Tax Contribution Account, as of the date the
Loan is processed;
provided that in no event may a Loan be made in an amount that will require
payroll deductions to be made from the Member's compensation that exceeds the
amount of the Member's net cash pay from the Company or an Affiliate (after
taking into account all other payroll deductions and employment and
<PAGE>
35
withholding taxes).
10.05 Minimum Amount. A Loan must be in an amount of at least $1,000.
--------------
10.06 Term. The term of a Loan may be for 12, 24, 36, 48, or 60 months,
----
as elected by the Member.
10.07 Interest Rate. The interest rate for a Loan shall be fixed on the
-------------
date the Loan is approved and shall remain constant during the term of the Loan.
The Committee shall establish either the interest rate or the methodology for
determining the interest rate.
10.08 Repayment. A Loan must be repaid in level installments of principal
---------
and interest by payroll deduction beginning with the Member's paycheck for the
first payroll period beginning at least 30 days after the date the Loan is
processed. If the Member is subsequently granted an unpaid leave of absence or
is transferred to an Affiliate or a position or location within the Company that
is not covered by the Plan (or ceases to have sufficient compensation from which
the Loan payment can be made), the Member must continue to make timely level
installment payments of principal and interest, by certified check, bank check,
or money order.
10.09 Prepayment. A Member may prepay a Loan, in full, at any time and
----------
without penalty by certified check, bank check, or money order. Partial
prepayment of a Loan is not permitted.
10.10 Security. A Member's obligation to repay a Loan shall be secured by
--------
the portion of the Value of his nonforfeitable Account equal to the principal
amount of the Loan. No other property shall be accepted as security for the
Loan.
10.11 Default.
-------
(a) A Member shall default on a Loan if any of the following events
occurs:
(1) the Member's Severance from Service for any reason (including
the Member's death);
(2) the Member's failure to make any payment of principal or
interest on the Loan on the date the payment is due;
(3) the Member's failure to perform or observe any covenant, duty,
or agreement under the promissory note evidencing the Loan;
(4) receipt by the Plan of an opinion of counsel to the effect that
(i) the Plan will, or could, lose its status as a Tax-Qualified Plan unless the
Loan is repaid or (ii) the Loan violates, or might violate, any provision of
ERISA;
(5) the occurrence of an event of default with respect to any other
loan to the Member under any other plan maintained by the Company or an
Affiliate;
(6) any portion of the Member's Account that secures the Loan
becomes payable to the Member, his Surviving Spouse or Beneficiary, an Alternate
Payee, or any other person;
<PAGE>
36
(7) the Member makes an assignment for the benefit of creditors,
files a petition in bankruptcy, is adjudicated insolvent or bankrupt, or becomes
a subject of any wage earner plan under federal or state bankruptcy or
insolvency law, or there is commenced against the Member any bankruptcy,
insolvency, or similar proceeding that remains undismissed for a period of 60
days (or the Member by an act indicates his consent to, approval of, or
acquiescence in any such proceeding); or
(8) the termination of the Plan.
(b) If a default on a Loan occurs, the entire outstanding balance of the
Loan shall be immediately due and payable.
(c) If a default on a Loan occurs, but the Member does not pay the
entire outstanding balance of the Loan (together with accrued and unpaid
interest) by the 60th day after the last day of the month in which the default
occurs, the Member's nonforfeitable interest in his Account shall be applied
immediately, to the extent lawful and to the extent the Member's Account is then
available for withdrawal or distribution in accordance with the applicable
provisions of the Plan, to pay the entire outstanding balance of the Loan
(together with accrued and unpaid interest); provided that in the case of a
default described in Section 10.11(a)(1), the Plan shall distribute the Member's
promissory note to the Member (or, if the Member has died, to the Member's
Beneficiary) in full satisfaction of the Plan's liability to the Member (or his
Beneficiary) with respect to that portion of the Member's nonforfeitable
interest in his Account equal to the outstanding balance of the Loan (including
accrued and unpaid interest). Notwithstanding the foregoing, no portion of the
Member's Pre-Tax Contribution Account shall be distributed or applied to pay an
outstanding Loan before the date on which it is otherwise distributable or
withdrawable under the Plan.
(d) Any failure by the Committee to enforce the Plan's rights with
respect to a default on a Loan shall not constitute a waiver of such rights
either with respect to that default or any other default.
10.12 Treatment as Investment. A Loan shall be treated by the Plan as a
-----------------------
separate investment of a portion of the borrowing Member's Account. All interest
received by the Plan with respect to a Member's Loan shall be credited to the
Member's Account, and all losses and expenses incurred by the Plan with respect
to the Loan (including, without limitation, any collection expenses in the event
of default) shall be charged against the Member's Account.
10.13 Ordering Rules.
--------------
(a) The funds used to finance a Loan shall be derived from the borrowing
Member's Account in the following sequence (to the extent necessary to obtain
the amount necessary to finance the Loan): (i) the Member's Pre-Tax
Contribution Account (to the extent attributable to Pre-Tax Contributions for
which Company Matching Contributions were not made), (ii) the Member's Pre-Tax
Contribution Account (to the extent attributable to Pre-Tax Contributions for
which Company Matching Contributions were made), (iii) the Member's After-Tax
Contribution Account (to the extent attributable to After-Tax Contributions for
which Company Matching Contributions were not made), and (iv) the Member's
After-Tax Contribution Account (to the extent attributable to After-Tax
Contributions for which Company Matching Contributions were made).
(b) Each repayment of principal and interest shall be (i) credited to
the portion(s) of the Account from which the funds used to finance the Loan were
derived, in proportion to the ratio of the amount derived from that portion to
the total amount derived from the Member's Account to finance
<PAGE>
37
the Loan, and (ii) invested in the Investment Funds in accordance with the
Member's directions regarding the current Pre-Tax and After-Tax Contributions on
his behalf to the Plan (or, if Pre-Tax and After-Tax Contributions are not
currently being made on the Member's behalf, in accordance with the most recent
directions given by the Member with respect to the investment of Pre-Tax or
After-Tax Contributions).
10.14 Fees. A Member who receives a Loan shall pay such fees as the
----
Committee may establish from time to time. The amount, nature and manner of
payment of the fees will be established from time to time by the Committee.
<PAGE>
38
ARTICLE XI
WITHDRAWALS
-----------
11.01 After-Tax Contribution Account. Subject to the restrictions imposed
------------------------------
by this Article XI, a Member who is employed by the Company or an Affiliate may
withdraw all or part of the Value of his After-Tax Contribution Account at any
time.
11.02 Pre-Tax Contribution Account. Subject to the restrictions imposed
----------------------------
by this Article XI, a Member who has attained age 59 1/2 and who is employed by
the Company or an Affiliate may withdraw all or part of the Value of his Pre-Tax
Contribution Account at any time.
11.03 Hardship Withdrawals.
--------------------
(a) Subject to the restrictions imposed by this Article XI, if a Member
satisfies the requirements of subsections (b) and (c), below, the Member may
withdraw all or part of the Value of his Pre-Tax Contribution Account (excluding
any gains on Pre-Tax Contributions other than gains credited to his Pre-Tax
Contribution Account as of December 31, 1988) and his nonforfeitable interest in
the Value of his Company Matching Account and his Old Company Matching Account,
if any.
(b) A Member may make a withdrawal pursuant to this Section 11.03 only
if he requires the withdrawal for
(1) costs directly related to the purchase of his principal
residence, or a major rehabilitation of the living quarters in his principal
residence, but excluding mortgage payments,
(2) the payment of medical expenses described in Section 213(d) of
the Code previously incurred by the Member, the Member's spouse, or any
dependents of the Member (as defined in Section 152 of the Code), or expenses
necessary for these persons to obtain medical care described in Section 213(d)
of the Code,
(3) the payment of tuition, related educational fees, and room and
board expenses for the next 12 months of post-secondary education for the
Member, or the Member's spouse, children, or dependents (as defined in Section
152 of the Code), or
(4) payments necessary to prevent the eviction of the Member from
the Member's principal residence or foreclosure on the mortgage on that
residence.
(c) A Member may make a withdrawal pursuant to this Section 11.03 only
if
(1) the amount of the withdrawal does not exceed the amount required
to meet the need shown by the Member pursuant to Section 11.03(b),
(2) the Member has obtained (or is concurrently obtaining) all
distributions, withdrawals, and loans available under the Plan and all other
plans maintained by the Company and the Affiliates, and
(3) the need shown by the Member pursuant to Section 11.03(b) cannot
be satisfied
<PAGE>
39
from other resources reasonably available to the Member (including the resources
of his spouse and minor children).
(d) If a Member seeks to make a withdrawal pursuant to this Section, the
Committee shall require the Member to present such evidence and certifications
as the Committee considers necessary to determine whether the Member meets the
requirements of this Section.
11.04 Notice. The Committee shall provide each Member who, before
------
attaining Normal Retirement Age, applies for a withdrawal pursuant to this
Article XI with a written, nontechnical explanation of the Member's right to
defer receipt of the withdrawal until Normal Retirement Age. The notice shall be
furnished no less than 30 days and no more 90 days before the date as of which
the withdrawal is scheduled to be made; provided that the withdrawal may be made
less than 30 days after the Member receives the notice if the notice informs the
Member of his right to a period of at least 30 days after receiving the notice
to consider whether to elect the withdrawal and if the Member, after being
informed of this right, affirmatively elects to make the withdrawal.
11.05 Dollar Limitations. A withdrawal pursuant to this Article may be
------------------
made in any whole dollar amount, except than a withdrawal may not be made for an
amount that is less than $250.
11.06 Priority of Accounts. Withdrawals pursuant to this Article shall
--------------------
be made in the following sequence:
(a) first, from the Member's After-Tax Contribution Account pursuant to
Section 11.01, and after exhaustion of the After-Tax Contribution Account, and
(b) then, from the Member's Pre-Tax Contribution Account pursuant to
Section 11.02 and Section 11.03 (to the extent then available), and after
exhaustion of the Pre-Tax Contribution Account (to the extent then available),
and
(c) then, from the Member's Old Company Matching Account (to the extent
of the Member's nonforfeitable interest therein) pursuant to Section 11.03 (to
the extent then available), and
(d) last, from the Member's Company Matching Account (to the extent of
the Member's nonforfeitable interest therein) pursuant to Section 11.03 (to the
extent then available).
11.07 Source of Funds.
---------------
(a) A withdrawal pursuant to this Article shall be derived from the
Investment Funds in which the applicable portion of the Member's Account is
invested, in proportion to the percentage of the applicable portion of the
Account that is invested in each Investment Fund.
(b) A withdrawal from any Investment Fund other than The Walt Disney
Company Common Stock Fund shall be paid in cash.
(c) A withdrawal from The Walt Disney Company Common Stock Fund shall be
made in shares of Common Stock (except that the value of fractional shares shall
be distributed in cash); provided that a Member may elect to receive such a
withdrawal entirely in cash.
11.08 Valuation. For purposes of this Article XI, the Value of a Member's
---------
Account shall be
<PAGE>
40
determined as of the Valuation Date determined in accordance with the following
rules:
(a) If the Member's request for a withdrawal is received by the time
prescribed by the Committee, the Valuation Date shall be the Valuation Date
coincident with or immediately preceding the date on which the request is
received or as soon thereafter as practicable; and
(b) If the Member's request for a withdrawal is not received by the time
prescribed by the Committee, the Valuation Date shall be the Valuation Date that
next follows the date on which the request is received or as soon thereafter as
practicable;
provided that if the Member has not waived the 30-day waiting period in
accordance with Section 11.04, the Valuation Date shall be the Valuation Date
that coincides with or next follows the expiration of the 30-day waiting period
or as soon thereafter as practicable.
11.09 Outstanding Loan. Notwithstanding any other provision of this
----------------
Article, if a Member's Account shows that the Member has an outstanding balance
under a Loan, the Member shall not be permitted to make a withdrawal pursuant to
this Article of any portion of the Member's Account that secures the Loan.
11.10 Inactive Employees. An Employee who becomes a Member for the first
------------------
time on or after January 1, 1995, shall be entitled to make a withdrawal
pursuant to this Article XI only if he is actively employed by the Company or an
Affiliate on the date he applies for the withdrawal.
<PAGE>
41
ARTICLE XII
DISTRIBUTIONS
-------------
12.01 Severance from Service Required. Except to the extent otherwise
-------------------------------
required by Section 12.11, a distribution shall not be made to a Member pursuant
to this Article XII before the Member Severs from Service.
12.02 Notice Regarding Form and Payment of Distributions.
--------------------------------------------------
(a) Subject to the provisions of subsections (b) and (c), below, in the
case of a Member whose Distribution Date precedes his Normal Retirement Date,
the Committee shall provide the Member with a written, nontechnical explanation
of the items described in subparagraphs (i) and (ii), below, no more than 90
days, and no less than 30 days, before his Distribution Date:
(i) In the case of a Member described in Section 12.04(a), the
material features of the Normal Form of Payment and the Optional Forms of
Payment to which the Member is entitled, or that he could elect to receive,
under the Plan; and
(ii) The Member's right to defer commencement of such benefit until
as late as his Normal Retirement Date.
(b) Notwithstanding subsection (a), above, the Distribution Date may
occur less than 30 days after the Member receives the notice required by
subsection (a) if the notice informs the Member of his right to a period of at
least 30 days after receiving the notice to consider whether to elect the
distribution and if the Member, after being informed of this right,
affirmatively consents to the distribution.
(c) Notwithstanding the foregoing, no notice pursuant to this Section
12.02 shall be required in the case of a Member who is required to receive a
distribution in the form of a Mandatory Lump-Sum Distribution in accordance with
Section 12.05.
12.03 Normal Form of Payment. Except as otherwise provided in this
----------------------
Article XII or in an applicable Schedule, the normal form of payment under the
Plan shall be a Voluntary Lump-Sum Distribution based on the Value of the
Member's nonforfeitable interest in his Account as of the Valuation Date
determined in accordance with the following rules:
(a) If the Member's request for a distribution is received by the time
prescribed by the Committee, the Valuation Date shall be the Valuation Date
coincident with or next following the date on which the request is received or
as soon thereafter as practicable; and
(b) If the Member's request for a distribution is not received by the
time prescribed by the Committee, the Valuation Date shall be the Valuation Date
that next follows the date on which the request is received or as soon
thereafter as practicable;
provided that if the Member has not waived the 30-day waiting period in
accordance with Section 12.02, the Valuation Date shall be the Valuation Date
that coincides with or next follows the expiration of the 30-day waiting period
or as soon thereafter as practicable.
<PAGE>
42
12.04 Optional Forms of Payment.
-------------------------
(a) Subject to the provisions of Sections 12.05 and 12.11, a Member who
first became a Member before April 1, 1994, and who Severs from Service (i) by
reason of Retirement or Disability or (ii) at or after attaining Normal
Retirement Age may elect to receive the Value of his nonforfeitable interest in
his Account in a series of annual installments.
(b) The period for which installments are paid pursuant to this Section
shall be any whole number of years from a minimum of one year to a maximum
period equal to the lesser of (i) the Member's life expectancy as determined
under Section 401(a)(9) of the Code and the Treasury Regulations thereunder and
(ii) ten years.
(c) Subject to the provisions of Section 12.11, the date as of which
installment payments begin pursuant to this Section shall be any day selected by
the Member, beginning after the Member Severs from Service and no later than the
last day of the first Plan Year commencing after the later of (i) the date on
which the Member attains Normal Retirement Age and (ii) the date on which the
Member Severs from Service.
(d) If annual installment payments are made to a Member pursuant to this
Section, the amount of each payment shall be equal to the Value of his Account,
as of the applicable Valuation Date, multiplied by a fraction, the numerator of
which is one and the denominator is the remaining number of installments
(including the installment then to be paid). The Valuation Date for the first
installment payment shall be determined in accordance with Section 12.03, and
the Valuation Date for each subsequent installment payment shall occur on an
anniversary thereof or as soon thereafter as practicable.
(e) If a Member has elected to receive installment payments pursuant to
this Section, the election shall be irrevocable as of the Member's Distribution
Date; provided that a Member may elect to accelerate (and to receive in a lump
sum) the payment of all (but not less than all) remaining installments at any
time.
(f) If a Member who elects to receive installment payments pursuant to this
Section dies after his initial Distribution Date but before the Value of his
nonforfeitable interest in his Account has been fully distributed, the Member's
Beneficiary shall be entitled to receive, at the Beneficiary's election, either
(i) the remaining installments on the dates they were originally scheduled to be
paid (or as soon thereafter as practicable) or (ii) the Value of the Member's
nonforfeitable interest in his Account (determined as of the date of the
distribution) in a lump-sum payment as of a Valuation Date that occurs as soon
as practicable following the Member's death and the Committee's receipt of all
information and documentation that it requires before making the distribution.
The Beneficiary's election shall be made in such manner and form, and at such
time, as the Committee shall prescribe.
(g) A Member who elects to receive installment payments pursuant to this
Section may, concurrently with such election, elect that all or part of the
Value of his Company Matching Account attributable to The Walt Disney Company
Common Stock Fund be liquidated and transferred to any of the other available
Investment Funds (other than the Loan Fund).
12.05 Mandatory Lump Sum. If, as of any date after a Member Severs from
------------------
Service, the
<PAGE>
43
Value of the Member's nonforfeitable interest in his Account does not exceed
$5,000, the Member shall receive an immediate Mandatory Lump-Sum Distribution
equal to such Value. For purposes of this Section 12.05, if the Value of the
Member's nonforfeitable interest in his Account at the time of any distribution
to the Member exceeds $5,000, the Value of the Member's nonforfeitable interest
in his Account at the time of any subsequent distribution to the Member also
shall be deemed to exceed $5,000. If a Mandatory Lump-Sum Distribution pursuant
to this Section 12.05 is delayed for administrative reasons, and the Member dies
on or after his Distribution Date, but before the Mandatory Lump-Sum
Distribution is paid to him, the Mandatory Lump-Sum Distribution shall be paid
to his personal representative.
12.06 Distribution Date.
-----------------
(a) Except as otherwise provided in this Section 12.06 or Section 12.04,
12.05, or 12.11, the Distribution Date of a Member who is entitled to a
distribution pursuant to this Article shall be his Normal Retirement Date.
(b) (1) A Member who Severs from Service before his Normal Retirement
Date may designate any date thereafter and on or before his Normal Retirement
Date as his Distribution Date. A Member may make an election under this Section
12.06(b) only if the election meets the requirements imposed by paragraph (2),
below.
(2) A Member may make an election under this Section, or revoke any
such election, before his Distribution Date, but only after the Member receives
the notice required by Section 12.02. Any such election, and any revocation of
a previous election, shall be made in a form satisfactory to the Committee and
delivered to the Committee within the period prescribed by the preceding
sentence.
(3) A Member may not make an election under this Section, or revoke
an election previously made under this Section, on or after the Member's
Distribution Date.
(c) Subject to the provisions of Sections 12.05 and 12.11, a Member who
Severs from Service by reason of Retirement or Disability or after attaining
Normal Retirement Age may elect that his Distribution Date shall be a date
(designated by the Member) that occurs in the Plan Year following the Plan Year
in which his Severance from Service occurs.
(d) Subject to the provisions of Sections 12.06(c) and 12.11, the
Distribution Date of a Member who Severs from Service after his Normal
Retirement Date shall occur as soon as practicable after his Severance from
Service.
(e) Unless the Member elects otherwise in writing, the Member's
Distribution Date shall not occur later than the 60th day after the close of the
Plan Year in which the latest of the following occurs: (i) the Member's
attainment of Normal Retirement Age, (ii) the tenth anniversary of the year in
which the Member commenced participation in the Plan, or (iii) the Member
terminates employment with the Company and the Affiliates. This subsection is
designed solely to comply with the provisions of Section 401(a)(14) of the Code
and Section 206(a) of ERISA; this subsection does not give a Member the right to
postpone the Distribution Date beyond the date otherwise required by the terms
of the Plan.
<PAGE>
44
(f) Notwithstanding any other provision of the Plan, a payment shall not
be considered to be made after the Distribution Date merely because actual
payment is reasonably delayed for the calculation and/or distribution of the
benefit amount if all payments due are actually made.
(g) If a Voluntary Lump-Sum Distribution pursuant to this Article XII is
delayed for administrative reasons, and the Member dies after his Distribution
Date, but before the Voluntary Lump-Sum Distribution is paid to him, the
Voluntary Lump-Sum Distribution shall be paid to his personal representative.
(h) If a Pre-Tax Contribution, After-Tax Contribution, or Company
Matching Contribution is credited to a Member's Account after the Value of his
Account has been distributed in its entirety pursuant to this Article XII, the
Value of the Member's Account (reflecting such contribution) shall be
distributed in accordance with the generally applicable provisions of this
Article XII and without regard to any election made by the Member with respect
to the prior distribution.
12.07 Death. Except as otherwise provided in Sections 12.05 and 12.06(g),
-----
upon the death of a Member, the Value of the Member's nonforfeitable interest in
his Account shall be distributed to his Beneficiary as of the Valuation Date
coincident with or next following the Member's Normal Retirement Date or as of
such earlier Valuation Date as the Beneficiary may elect (on or before such
Valuation Date) in such form and manner, and at such time, as the Committee
shall prescribe; provided that if, as of any date after the Member's death, the
Value of the Member's Account does not exceed $5,000, the Beneficiary shall
receive an immediate Mandatory Lump-Sum Distribution equal to such Value in
accordance with Section 12.05.
12.08 Designation of Beneficiary.
--------------------------
(a) Subject to the remaining provisions of this Section, a Member may
designate a Beneficiary under the Plan at any time.
(b) Subject to the remaining provisions of this Section, a Member may
revoke a prior designation of a Beneficiary at any time by filing a written
notice of revocation with the Committee and may designate a new Beneficiary by
filing a written designation with the Committee. No such revocation or
designation shall be effective unless and until it is received by the Committee
before the Member's death in a form and manner that is acceptable to the
Committee.
(c) Subject to the remaining provisions of this Section, if a Member
designates his spouse as his Beneficiary, that designation shall not be revoked
or otherwise altered or affected by any
(1) change in the marital status of the Member and such spouse,
(2) agreement between the Member and such spouse, or
(3) judicial decree (such as a divorce decree) affecting any rights
that the Member and such spouse might have as a result of their marriage,
separation, or divorce (except to the extent that a Qualified Domestic Relations
Order directs the designation of a Beneficiary),
until and unless the Member revokes his prior designation of Beneficiary and
designates a Beneficiary in accordance with this Section, it being the intent of
the Plan that any change in the designation of a
<PAGE>
45
Beneficiary hereunder may be made by the Member only in accordance with the
provisions of this Section or pursuant to a Qualified Domestic Relations Order.
(d) Notwithstanding the preceding provisions of this Section, a Member's
designation of a Beneficiary other than his Surviving Spouse shall be effective
only with the written consent of such Surviving Spouse, witnessed by a
representative of the Plan or a notary public, unless the Committee determines
that spousal consent cannot be obtained because there is no Surviving Spouse,
because the Surviving Spouse cannot be located, or because of other
circumstances specified by the Secretary of the Treasury. The consent of a
spouse to a Member's designation of a Beneficiary shall be effective only with
respect to that spouse and shall not be effective with respect to any subsequent
spouse. In the absence of spousal consent in accordance with this Section, a
Member who is married on the date of his death shall be deemed to have
designated his Surviving Spouse as his Beneficiary unless and to the extent that
such designation is inconsistent with a Qualified Domestic Relations Order.
(e) After a Member's death, the Member's Beneficiary shall have the same
rights and options under the Plan as a Member who is a former Employee of the
Company and the Affiliates, including the right to designate a Beneficiary. For
example, a Beneficiary shall not have the right to make contributions to the
Plan or to obtain a Loan from the Plan.
12.09 Payment Medium.
--------------
(a) A distribution pursuant to this Article shall be derived from the
Investment Funds in which the applicable Account is invested, in proportion to
the percentage of the Account invested in each Investment Fund.
(b) A distribution from any Investment Fund other than The Walt Disney
Company Common Stock Fund shall be paid in cash.
(c) A distribution from The Walt Disney Company Common Stock Fund shall
be made in shares of Common Stock (except that the value of fractional shares
shall be distributed in cash); provided that the distributee may elect to
receive such a distribution entirely in cash.
12.10 Risk of Loss. The Value of a Member's nonforfeitable interest in
------------
his Account shall continue to be adjusted to reflect the investment performance
of the Investment Fund(s) in which his Account is invested (and shall therefore
remain subject to the risk of loss) during the period between the Member's
Severance from Service and the date when the Member's nonforfeitable interest in
his Account has been distributed in full.
12.11 Minimum Required Distributions.
------------------------------
(a) The Plan is designed to satisfy the requirements of Section
401(a)(9) of the Code and the Treasury Regulations thereunder without regard to
the provisions of this Section 12.11. Nevertheless, to ensure that the Plan
complies with those requirements, this Section 12.11 has been added to the Plan.
The sole purpose of this Section 12.11 is to limit the manner in which benefits
are paid under the Plan to accord with the requirements of Section 401(a)(9) of
the Code and the Treasury Regulations thereunder. This Section 12.11 should be
interpreted in a manner consistent with that purpose. The provisions of this
Section 12.11 shall override any distribution options under the Plan that are
inconsistent with the requirements of Section 401(a)(9) of the Code and the
Treasury
<PAGE>
46
Regulations thereunder. This Section 12.11 does not confer any rights or
benefits upon any person.
(b) Notwithstanding any other provision of the Plan, except as provided
in the following subsection (c) the distribution of the Value of a Member's
nonforfeitable interest in his Account shall commence not later than April 1 of
the calendar year following the later of (1) the calendar year in which he
attains age 70 1/2 and (2) the calendar year in which he retires from employment
with the employer maintaining the Plan.
(c) Clause (2) of the preceding subsection (b) shall not apply to a
Member who is a 5% owner (as defined in Section 416(i)(1)(B) of the Code) with
respect to the Plan Year ending with or within the calendar year in which he
reaches age 70 1/2. In addition, a Member who became a Member before January 1,
1997, and attains age 70 1/2 before January 1, 1999, may irrevocably elect, at
the time and in the manner prescribed by the Committee, to disregard clause (2).
Members who were receiving distributions as of December 31, 1996, that were
required by this Section as in effect on that date shall not have any right
based on clause (2) to stop such distributions.
(d) Unless the mode of distribution is a single payment, the Value of a
Member's nonforfeitable interest in his Account shall be paid over a period not
extending beyond the Member's life or life expectancy, or the joint lives or
joint life expectancies of the Member and his Spouse or joint annuitant. If the
Member's entire benefit is to be distributed over a period longer than one year,
then the amount to be distributed each year shall be no less than the amount
prescribed by the Treasury Regulations under Section 401(a)(9) of the Code.
(e) If a Member dies before his Distribution Date, any benefit payable
after his death shall be distributed to his Surviving Spouse in accordance with
this Article XII and shall not begin later than the April 1 following the date
on which the Member would have attained age 70 1/2 (or, if later, the first day
of the month coincident with or next following the Member's death).
(f) Payments shall not be made under the Plan pursuant to any payment
schedule authorized by the Plan unless the payment schedule satisfies the
incidental benefit requirement set forth in Section 401(a)(9)(G) of the Code and
the Treasury Regulation thereunder.
(g) This Section 12.11 shall not apply to any method of distribution
designated in writing by a Member under the terms of the Plan (or any
predecessor thereof) before January 1, 1985, in accordance with Section
242(b)(2) of the Tax Equity and Fiscal Responsibility Act of 1982.
12.12 Direct Rollover. If a Member, a Surviving Spouse, or an Alternate
---------------
Payee named in a Qualified Domestic Relations Order is entitled to receive an
"eligible rollover distribution" (within the meaning of Section 402(c)(4) of the
Code) from the Plan on or after January 1, 1993, the Plan shall, at the election
of the recipient, make a direct rollover of the taxable portion of the
distribution to an eligible retirement plan. Notwithstanding the foregoing, the
recipient may not make a direct rollover if the Corporation reasonably expects
the total of such "eligible rollover distributions" from the Plan to the
recipient to be less than $200 in the Plan Year; and if a recipient elects to
have only a portion of an "eligible rollover distribution" paid to an eligible
retirement plan in a direct rollover, that portion must be at least $500. This
Section 12.12 is intended, and shall be construed, solely to satisfy the direct
rollover requirements of Section 401(a)(31) of the Code: it shall not confer any
rights other than those required under Section 401(a)(31) and the Treasury
Regulation thereunder.
<PAGE>
47
ARTICLE XIII
ADMINISTRATION
--------------
13.01 Employee Benefits Committee. The Employee Benefits Committee shall
---------------------------
consist of not less than three persons who shall be appointed by the Board of
Directors. The members of the Committee may, but need not, be employees,
officers, or directors of the Company or an Affiliate. The number of members of
the Committee may be increased from time to time by the Board, and such new
members shall be appointed by the Board, provided that the total number of
members shall at all times be not less than three. Before becoming a member of
the Committee, any person appointed to the Committee must accept his appointment
in writing. Any member of the Committee may be removed by the Board at any time
with or without cause. Any member of the Committee may resign by submitting a
written resignation to the Board, and such resignation shall be effective on the
date of receipt or on any subsequent date specified therein. A vacancy on the
Committee shall be filled by the Board.
13.02 Chairman and Secretary. The Committee shall select a Chairman and
----------------------
may select a Secretary (who may, but need not be, a member of the Committee) to
keep its records and to assist it in the performance of its duties.
13.03 Committee Meetings and Votes. The Committee shall hold meetings at
----------------------------
such time and place and upon such notice as the Committee may from time to time
determine. A majority of the members of the Committee at the time in office
shall constitute a quorum. All actions by the Committee shall be by majority
vote of the Committee members present at such a meeting, but the Committee may
also act without a meeting by consent of a majority of its members evidenced by
a resolution signed by a majority of the members then in office. No member of
the Committee shall have any right to vote or decide upon any matter relating
solely to himself or solely to his rights or benefits under the Plan.
13.04 Evidence of Action of the Committee. The Committee may authorize
-----------------------------------
one or more of its members to sign on its behalf any instructions, notices, or
certifications to the Trustee or to any other person.
13.05 Records and Reports. The Committee shall maintain records of its
-------------------
actions and determinations in administering the Plan. All such records, together
with such other documents as may be necessary for the administration of the
Plan, shall be preserved by the Committee.
13.06 Powers and Duties of the Committee. The Committee shall be a named
----------------------------------
fiduciary of the Plan and shall have the authority to control and manage the
operation and administration of the Plan. The Committee shall have such
discretionary power as may be necessary to carry out the provisions of the Plan
and to perform its duties hereunder, including, without limiting the generality
of the foregoing, the discretionary power to:
(a) promulgate and enforce such rules and regulations as it shall deem
necessary or appropriate for the administration of the Plan;
(b) interpret the Plan and decide all matters arising thereunder,
including the right to remedy possible ambiguities, inconsistencies, and
omissions;
<PAGE>
48
(c) resolve questions relating to individuals' eligibility for
participation in the Plan, vesting, forfeitures, the amounts and manner of
distribution, and the status of persons as Employees, Eligible Employees,
Members, spouses, Surviving Spouses, Beneficiaries, and Alternate Payees;
(d) require any person to furnish such documentation, information, or
other matter as the Committee may require for the proper administration of the
Plan and as a prerequisite to any payment or distribution by the Plan;
(e) direct that the Fund be used to pay the reasonable administration
expenses of the Plan;
(f) employ or retain one or more persons to render advice with respect
to its responsibilities under the Plan;
(g) employ or retain one or more persons to assist in the administration
of the Plan; and
(h) impose reasonable restrictions (including temporary prohibitions) on
Members' contribution elections, changes in contribution elections, investment
elections, changes in investment elections, loans, withdrawals, and
distributions to accommodate the administrative requirements of the Plan.
All decisions of the Committee relating to matters within its
jurisdiction shall be final.
13.07 Professional Assistance. The Committee may engage accountants,
-----------------------
attorneys, actuaries, physicians, and such other personnel as it deems necessary
or advisable for the proper administration of the Plan. The fees and costs of
such services shall be paid by the Company unless they are paid out of the Fund.
The Committee shall be entitled to obtain and act on the basis of all tables,
valuations, certificates, opinions, and reports furnished by any accountant,
attorney, actuary, physician, or other person so engaged.
13.08 Allocation and Delegation of Committee Responsibilities. The
-------------------------------------------------------
Committee may allocate among any of the members of the Committee any of the
responsibilities of the Committee under the Plan or delegate to any person
(including a third-party administrator) not a member of the Committee authority
to carry out any of the responsibilities of the Committee under the Plan. Any
such allocation or delegation shall be made pursuant to a written instrument
executed by each of the members of the Committee then in office or pursuant to a
contract between a third-party administrator and the Corporation and approved by
the Committee. Unless such written instrument or contract specifies otherwise,
the one or more persons to whom responsibility is allocated or delegated
pursuant to this Section shall have the same discretionary powers in carrying
out such responsibility as the Committee itself would have had it carried out
the responsibility itself.
13.09 Compensation and Expense. The members of the Committee shall serve
------------------------
without compensation from the Plan, but the Fund shall reimburse the Committee
members for all reasonable expenses incurred in the administration of the Plan
except to the extent that the expenses are borne by the Company.
13.10 Investment Responsibilities. The Investment Committee shall have
---------------------------
the discretionary authority and power to:
<PAGE>
49
(a) manage (including the power to acquire and dispose of) any assets
under the Plan;
(b) appoint an Investment Manager or Managers to manage (including the
authority and power to acquire and dispose of) any assets of the Plan, including
the power to replace or terminate any such Investment Managers;
(c) appoint or direct the appointment of one or more named fiduciaries
that do not qualify as Investment Managers to manage (including the power to
acquire and dispose of) any assets of the Plan, including the power to replace
or terminate any such named fiduciaries;
(d) designate one or more investment companies, or other common,
collective, or mutual funds, as Investment Funds pursuant to Section 7.03,
including the power to replace or eliminate any such Investment Funds;
(e) allocate investment responsibilities among the Trustee, the
Investment Managers, any named fiduciaries appointed pursuant to subsection (c)
of this Section 13.10, and the Investment Committee itself;
(f) periodically review and evaluate the performance of the Trustee, the
Investment Funds, the Investment Managers, and any named fiduciaries appointed
pursuant to subsection (c) of this Section 13.10; and
(g) employ or retain one or more persons to render advice with respect
to its responsibilities under the Plan.
13.11 Plan Administrator. The Corporation shall be the "administrator" of
------------------
the Plan for purposes of Section 3(16)(A) of ERISA.
13.12 Multiple Fiduciary Capacities. Any person or group of persons may
serve in more than one fiduciary capacity under the Plan.
<PAGE>
50
ARTICLE XIV
BENEFIT CLAIMS PROCEDURE
------------------------
14.01 Claims Procedure. A claim for benefits under the Plan by a Member,
----------------
Surviving Spouse, Beneficiary, Alternate Payee, or any other person shall be
filed by submitting to a person (the "claim administrator") designated by the
Committee a written application on a form designated by the Committee. The claim
administrator shall, within a reasonable time, consider the claim and shall
issue his determination in writing. If the claim is denied in whole or in part
by the claim administrator, the claim administrator shall, within a reasonable
time, provide the claimant with a written notice setting forth in a manner
calculated to be understood by the claimant:
(a) The specific reason or reasons for the denial of the claim;
(b) Specific reference to pertinent Plan provisions on which the denial
is based;
(c) A description of any additional material or information necessary
for the claimant to perfect the claim and an explanation of why such material or
information is necessary; and
(d) An explanation of the Plan's claim review procedure.
14.02 Review Procedure. The Committee shall provide each claimant with a
----------------
reasonable opportunity to appeal a denial of the claim to the Committee for a
full and fair review. The claimant or his duly authorized representative shall
be permitted to request a review upon written application to the Committee to
review pertinent documents, and to submit issues and comments in writing. The
Committee may establish such time limits within which claimants may request
review of denied claims as are reasonable in relation to the nature of the
benefit that is the subject of the claim and to other attendant circumstances,
but which in no event shall be less than 60 days after receipt by the claimant
of written notice of denial of his claim. The decision by the Committee with
respect to the claim shall be made not later than 60 days after receipt of the
request for review, unless special circumstances require an extension of time
for processing, in which case a decision shall be rendered as soon as possible
but not later than 120 days after receipt of the request for review. The
decision on review shall be in writing, shall include specific reasons for the
decision and specific references to the pertinent Plan provisions on which the
decision is based, and shall be written in a manner calculated to be understood
by the claimant. To the extent permitted by law, the decision of the claim
administrator (if no review is properly requested) or the decision of the
Committee on review, as the case may be, shall be final and binding on all
parties if it is supported by the facts that were considered and is reasonably
based on the applicable provisions of law, the Plan, and the Trust Agreement.
14.03 Required Information. Any person eligible to receive benefits
--------------------
hereunder shall furnish to the claim administrator or the Committee any
information or evidence requested by the claim administrator or the Committee
and reasonably required for the proper administration of the Plan. Failure on
the part of any person to comply with any such request within a reasonable
period of time shall be sufficient grounds for delay in the payment of any
benefits that may be due under the Plan until such information or evidence is
received by the claim administrator or the Committee. The claim administrator or
the Committee may recoup from the payments to any person any amount previously
paid to such person to which he was not entitled under the provisions of the
Plan.
<PAGE>
51
ARTICLE XV
AMENDMENT, MERGER, AND TERMINATION OF THE PLAN
----------------------------------------------
15.01 Amendment of the Plan. The Board of Directors by duly adopted
---------------------
written resolution may modify or amend the Plan in whole or in part,
prospectively or retroactively, at any time and from time to time. The officers
of the Corporation may take all actions necessary or appropriate to implement or
effectuate any modification or amendment to the Plan described herein.
15.02 Merger or Consolidation of the Plan. To the extent that Section
-----------------------------------
414(l) of the Code applies, the Plan may not be merged or consolidated with, and
its assets or liabilities may not be transferred to, any other plan unless each
Member would receive a benefit immediately after the merger, consolidation, or
transfer (if each plan then terminated) that is equal to or greater than the
benefit he would have been entitled to receive immediately before the merger,
consolidation, or transfer (if the Plan had then terminated); provided that the
foregoing provisions of this Section 15.02 shall not apply if such alternative
requirements as may be imposed by the Treasury Regulations under Section 414(l)
of the Code are satisfied.
15.03 Termination of the Plan.
-----------------------
(a) Reservation of Right to Terminate. While the Plan was established as a
---------------------------------
permanent program and the Company expects to continue the Plan indefinitely, the
Corporation reserves the right to terminate the Plan, partially or in its
entirety, at any time by a written resolution of the Board of Directors.
(b) Date of Termination. If the Board of Directors adopts a resolution
-------------------
to terminate the Plan, the Plan shall be terminated as of a date to be specified
in the resolution.
(c) Rights of Affected Members. In the event of the termination or
--------------------------
partial termination of the Plan, or the discontinuance of contributions to the
Plan, the rights of all affected Members to benefits accrued to the date of such
termination, partial termination, or discontinuance, to the extent funded as of
such date, shall be nonforfeitable. The benefits accrued to the date of such a
termination, partial termination, or discontinuance shall be determined on the
basis of the assumption that the employment of every affected Member terminated
on such date (or, if earlier, on the date on which his employment actually
terminated). In the event of a termination of the Plan, the benefits accrued to
the date of the termination shall be funded only to the extent of the assets in
the Fund as of such date; and in the event of a partial termination of the Plan,
the benefits accrued by the affected Members shall be funded only to the extent
that they would have been funded in the event of a complete termination of the
Plan occurring on the date of the partial termination. For purposes of this
subsection (c), the Members affected by the termination or partial termination
of the Plan, or a discontinuance of contributions to the Plan, shall not include
any former Member who does not have a balance in his Account on the date of the
termination, partial termination, or discontinuance.
15.04 Design Decisions. Decisions regarding the design of the Plan shall
be made in a settlor capacity and shall not be governed by the fiduciary
responsibility provisions of ERISA.
<PAGE>
52
ARTICLE XVI
MISCELLANEOUS
-------------
16.01 Employment Rights Not Affected by Plan. The adoption and
maintenance of the Plan shall not be deemed to constitute a contract between the
Company and any Employee. Nothing herein contained shall be deemed to give to
any Employee the right to be retained in the employ of the Company or to
interfere with the right of the Company to discharge any Employee at any time,
nor shall it be deemed to give the Company the right to require the Employee to
remain in its employ, nor shall it interfere with the Employee's right to
terminate his employment.
16.02 Booklets and Brochures Subject to Plan Provisions. The Company
-------------------------------------------------
shall from time to time issue to Members one or more booklets or brochures
summarizing the Plan. In the event of any conflict between the terms of the Plan
document and Trust Agreement and the terms of the booklets and brochures, the
terms of the Plan document and Trust Agreement shall control.
16.03 Doubt as to Identity.
--------------------
(a) If at any time any doubt exists as to the identity or whereabouts of
any person entitled to payment hereunder or the amount or time of such payment,
the Corporation may direct the Trustee either (i) to hold such sum in trust,
uninvested, and without interest, until distribution is ordered by a court of
competent jurisdiction, or (ii) to pay such sum into court in accordance with
appropriate rules of law.
(b) If, after reasonable efforts, the Committee is unable to determine
the whereabouts of any person entitled to payment hereunder within three years
after such sum first becomes payable, the Account of such person shall be
forfeited and shall be treated as an actuarial gain that shall be used to reduce
Company Matching Contributions to the Plan in accordance with Article V. For
purposes of the preceding sentence, notice by registered mail sent to such
person's most recent address (as reflected in the Plan records) at least once in
each of three successive years shall constitute reasonable efforts to locate
such person. If, however, such person subsequently makes proper claim to the
Company for such sum, the forfeited benefit shall be reinstated, and shall be
distributed in accordance with the terms of the Plan.
16.04 Liability Limited. Except as and to the extent otherwise provided
-----------------
by applicable law, no liability whatever shall attach to or be incurred by the
shareholders, directors, officers, or employees of the Company or any Affiliate
under or by reason of any of the terms and conditions contained in the Plan or
in any of the contracts procured pursuant thereto or implied therefrom.
16.05 Overpayments. If any overpayment of benefits is made under the
Plan, the amount of the overpayment may be set off against further amounts
payable to or on account of the person who received the overpayment until the
overpayment has been recovered. The foregoing remedy is not intended to be
exclusive.
16.06 Incapacity. If any person is unable to care for his affairs because
----------
of illness or accident, unless a duly qualified guardian or other legal
representative has been appointed, any payment due from the Plan to that person
may be paid, for the benefit of such person, to his spouse, parent, brother,
sister, or other person deemed by the Committee to have incurred expenses for
such person.
<PAGE>
53
16.07 Assignment and Liens.
--------------------
(a) Nonalienability of Benefits. Subject to subsections (b) and (c),
---------------------------
below, the right of any person to any benefit or payment under the Plan shall
not be subject to alienation, transfer, assignment, or encumbrance, or otherwise
subject to lien, and any such attempt to alienate, transfer, assign, or encumber
any benefit or payment under the Plan shall be null and void.
(b) Exception for Qualified Domestic Relations Orders. Subsection (a),
-------------------------------------------------
above, shall not apply to payments made pursuant to a Qualified Domestic
Relations Order. The following rules shall apply with respect to Qualified
Domestic Relations Orders:
(1) Establishment of Procedure. The Committee shall establish
--------------------------
reasonable written procedures to determine the qualified status of domestic
relations orders and to administer distributions under orders determined to be
Qualified Domestic Relations Orders, which procedures may include, without
limitation, the adoption of one or more model Qualified Domestic Relations
Orders. Such procedures shall be consistent with the requirements of Section
206(d) of ERISA and Sections 401(a)(13) and 414(p) of the Code. The Committee
shall promptly notify the affected Member and any other Alternate Payee of the
receipt of a domestic relations order and the procedures for determining the
qualified status of domestic relations orders. Within a reasonable period after
the receipt of such order, the Committee shall determine whether such order is a
Qualified Domestic Relations Order and shall notify the Member and each
Alternate Payee of such determination.
(2) Disposition of Benefits Pending Determination. During any
---------------------------------------------
period in which the qualified status of a domestic relations order is being
determined (by the Committee, by a court, or otherwise), the Committee shall
make arrangements to account separately for the amounts that would have been
payable to each Alternate Payee if the order had been determined to be a
Qualified Domestic Relations Order. If within 18 months of the receipt of the
order, the order (or modification thereof) is determined to be a Qualified
Domestic Relations Order, the Plan shall pay the amounts that have been
separately accounted for to the person or persons entitled thereto. If within 18
months of the receipt of the order, it is determined that the order is not
qualified, or the issue as to whether the order is qualified is not resolved by
the end of the 18-month period, then the Plan shall pay the amounts that have
been separately accounted for to the person or persons, if any, who would have
been entitled to payment of such amounts if there had been no order. Any
determination that an order is qualified which is made after the close of the
18-month period shall apply prospectively only.
(3) Multiple Spouses. If, as a result of a Qualified Domestic
----------------
Relations Order, a Member is treated as having more than one spouse, the amount
of benefits payable with respect to the Member under the Plan shall not exceed
the amount of benefits that would be payable if he had only one spouse.
(4) Restrictions on Distributions. If a Qualified Domestic
-----------------------------
Relations Order requires distribution to an Alternate Payee of all or a portion
of the Value of a Member's nonforfeitable interest in his Account, such
distribution shall be made without regard to the restriction set forth in
Section 12.01.
(c) General Limitation. This Section 16.07 is intended to satisfy the
------------------
requirements of Section 206(d) of ERISA and Sections 401(a)(13) and 414(p) of
the Code. This Section 16.07 shall not
<PAGE>
54
be construed in a manner that would impose limitations that are more stringent
than those required by Section 206(d) of ERISA and Sections 401(a)(13) and
414(p) of the Code. Thus, this Section 16.07 shall not restrict the alienation,
transfer, assignment, or encumbrance of any benefit or payment under the Plan to
the extent such alienation, transfer, assignment, or encumbrance is permitted
under Section 206(d) of ERISA and Sections 401(a)(13) and 414(p) of the Code,
and the regulations thereunder. If Congress should provide by statute, or the
United States Labor Department, the United States Treasury Department, or the
Internal Revenue Service should provide by regulation, ruling, or other guidance
of general applicability, that any restriction set forth in this Section 16.07
is no longer necessary for the Plan to meet the requirements of Section 206(d)
of ERISA or Section 401(a) of the Code or any other applicable provision of
ERISA or the Code then in effect, such restriction shall become void and shall
no longer apply, without the necessity of further amendment to the Plan.
16.08 Withholding Taxes. The Committee may make any appropriate
-----------------
arrangements to deduct from all amounts paid under the Plan any taxes reasonably
determined to be required to be withheld by any government or government agency.
The Member, Surviving Spouse, Beneficiary, or Alternate Payee, as the case may
be, shall bear all taxes on amounts paid under the Plan to the extent that no
taxes are withheld, irrespective of whether withholding is required.
16.09 Titles and Headings Not to Control. The titles to articles and the
----------------------------------
headings of sections, subsections, paragraphs, and subparagraphs in the Plan are
placed herein for convenience of reference only, and in the event of any
conflict, the text of the Plan, rather than such titles or headings, shall
control.
16.10 Notice of Process. In any action or proceeding involving the Fund,
-----------------
or any property constituting part or all thereof, or the administration thereof,
the Company, the Committee, and the Trustee shall be the only necessary parties,
and no Member, spouse, Surviving Spouse, Beneficiary, Alternate Payee, or other
person having or claiming to have an interest in the Fund or under the Plan
shall be entitled to any notice of process unless such notice is required by
federal law.
16.11 Nonreversion. Except as provided in Section 5.07, all Plan assets
------------
shall be used for the exclusive benefit of Members, their Surviving Spouses,
Beneficiaries, and Alternate Payees and for the payment of the reasonable
expenses of administering the Plan and shall not revert to the Company.
16.12 Governing Law. The Plan shall be construed, administered and
-------------
regulated in accordance with the provisions of ERISA and, to the extent not
preempted thereby, in accordance with the laws of the State of New York.
16.13 Interpretation of Plan and Trust. It is the Company's intention
--------------------------------
that the Plan shall be a qualified profit-sharing plan under Section 401(a) of
the Code, that the Trust shall be exempt from federal income tax under Section
501(a) of the Code, and that the Plan and the Trust Agreement shall satisfy the
applicable requirements of ERISA. The Plan and the Trust Agreement shall be
construed to effectuate the foregoing intention.
16.14 Severability. If any provision of the Plan should be held illegal
------------
or invalid for any reason, such illegality or invalidity shall not affect the
remaining parts of the Plan, and the Plan shall be construed and enforced as if
such illegal or invalid provision had never been inserted herein.
16.15 Complete Statement of Plan. This document is a complete statement
--------------------------
of the Plan and, as
<PAGE>
55
of April 1, 1998, supersedes all prior plans. The Plan may be amended, modified,
or terminated only in writing and then only as provided in Sections 15.01 and
15.03.
<PAGE>
56
ARTICLE XVII
TOP-HEAVY PLAN PROVISIONS
-------------------------
17.01 Application of Article XVII. This Article XVII shall apply only if
---------------------------
the Plan is Top-Heavy, as defined below. If, as of any Top-Heavy Determination
Date, as defined below, the Plan is Top-Heavy, the provisions of Section 17.04
shall take effect as of the first day of the Plan Year next following the Top-
Heavy Determination Date and shall continue to be in effect until the first day
of any subsequent Plan Year following a Top-Heavy Determination Date as of which
it is determined that the Plan is no longer Top-Heavy.
17.02 Definitions Concerning Top-Heavy Status. In addition to the
---------------------------------------
definitions set forth in Article I, the following definitions shall apply for
purposes of this Article XVII, and shall be interpreted in accordance with the
provisions of Section 416 of the Code and the Treasury Regulations thereunder:
(1) Aggregation Group - a group of Company Plans consisting of each
-----------------
Company Plan in the Required Aggregation Group and each other Company Plan
selected by the Corporation for inclusion in the Aggregation Group that would
not, by its inclusion, prevent the group of Company Plans included in the
Aggregation Group from continuing to meet the requirements of Sections 401(a)(4)
and 410 of the Code.
(2) Annual Compensation - compensation for a calendar year within
-------------------
the meaning of Treasury Regulation Section 1.415-2(d)(11)(ii) to the extent that
such compensation does not exceed the annual compensation limit in effect for
the calendar year under Section 401(a)(17) of the Code.
(3) Company Plan - any Tax-Qualified Plan of the Companies.
------------
(4) Key Employee - any employee of the Companies who satisfies
------------
the criteria set forth in Section 416(i)(1) of the Code.
(5) Required Aggregation Group - one or more Company Plans
--------------------------
comprising each Company Plan in which a Key Employee is a participant and each
Company Plan that enables any Company Plan in which a Key Employee is a
participant to meet the requirements of Section 401(a)(4) or 410 of the Code.
(6) Top-Heavy - the Plan is included in an Aggregation Group under
---------
which, as of the Top-Heavy Determination Date, the sum of the present value of
the cumulative accrued benefits of the Key Employees under all defined benefit
plans in the Aggregation Group and the aggregate value of the accounts of Key
Employees under all defined contribution plans in the Aggregation Group exceeds
60 percent of the analogous sum determined for all employees. The determination
of whether the Plan is Top-Heavy shall be made in accordance with Section
416(g)(2)(B) of the Code and the Treasury Regulations thereunder.
(7) Top-Heavy Determination Date - the December 31 immediately
----------------------------
preceding the Plan Year for which the determination is made.
(8) Top-Heavy Ratio - the percentage calculated in accordance with
---------------
paragraph (6),
<PAGE>
57
above, and Section 416(g)(2) of the Code and the Treasury Regulations
thereunder.
(9) Top-Heavy Year - a Plan Year for which the Plan is Top-Heavy.
--------------
17.03 Calculation of Top-Heavy Ratio. The Top-Heavy Ratio with respect to
------------------------------
any Plan Year shall be determined in accordance with the following rules:
(1) Determination of Accrued Benefits. The accrued benefit of any
---------------------------------
current Member shall be calculated, as of the most recent valuation date that is
within a 12-month period ending on the Top-Heavy Determination Date, as if the
Member had voluntarily terminated employment as of such valuation date. Such
valuation date shall be the same valuation date used for computing plan costs
for purposes of the minimum funding provisions of Section 412 of the Code.
Unless, as of the valuation date, the Plan provides for a nonproportional
subsidy, the actuarial present value of the accrued benefit shall reflect a
retirement income commencing at age 65 (or attained age, if later). If, as of
the valuation date, the plan provides for a nonproportional subsidy, the benefit
shall be assumed to commence at the age at which the benefit is most valuable.
(2) Aggregation. The Plan shall be aggregated with all Company
-----------
Plans included in the Aggregation Group.
17.04 Effect of Top-Heavy Status.
--------------------------
(a) Minimum Contribution. Notwithstanding Article V, as of the last day
--------------------
of each Top-Heavy Year, the Company shall make, for each Member, (i) the Company
contributions it otherwise would have made under the Plan for such Top-Heavy
Year, or if greater, (ii) contributions for such Top-Heavy Year that, when added
to the contributions made by the Company for such Member (and any forfeitures
allocated to his accounts) for such Top-Heavy Year under all other defined
contribution plans of the Company, aggregate three percent of his Compensation;
provided that the Plan shall meet the requirements of this subsection (a) and
subsection (b), below, without taking into account Pre-Tax Contributions or
other employer contributions attributable to a salary reduction or similar
arrangement.
(b) Accelerated Vesting. A Member who has completed at least three years
-------------------
of Service and who is credited with an Hour of Service in a Top-Heavy Year shall
have a nonforfeitable interest in his Account. For purposes of determining
whether the Member's interest in his Account is nonforfeitable under the
preceding sentence, Section 411(a)(3)(B) and (a)(3)(D) of the Code (relating to
suspension of benefits and forfeitures upon withdrawal of mandatory
contributions, respectively) shall not apply.
(c) Reduction in Section 415 Limits. For purposes of applying Section
-------------------------------
6.05, the provisions of Section 415(e)(2)(B) and (e)(3)(B) of the Code shall be
applied by substituting "1.0" for "1.25" therein. If application of the
preceding sentence would otherwise cause a Member to exceed the limits imposed
by Section 6.05, then application of the preceding sentence shall be suspended
with respect to the Member until he no longer exceeds the limits of Section
6.05, as modified by the preceding sentence. In accordance with Section
416(h)(3) of the Code and the Treasury Regulation thereunder, during the period
of such suspension there shall be no Company contributions, forfeitures, or
voluntary nondeductible contributions allocated to the Member's accounts under
the Plan or any other defined contribution plan of the Companies and no accruals
for the Member under any defined benefit plan of the Companies. In addition,
during the period of such suspension, for purposes of applying Section 6.05 to
the Member, Section 415(e)(6)(B)(i) of the Code shall be applied as modified
<PAGE>
58
by Section 416(h)(4) of the Code.
(d) Inapplicability to Union Employees. The preceding provisions of
----------------------------------
this Section 17.04 shall not apply with respect to any employee included in a
unit of employees covered by an agreement that the Secretary of Labor finds to
be a collective bargaining agreement between employee representatives and the
Company, if there is evidence that retirement benefits were the subject of good
faith bargaining between such employee representatives and the Company.
17.05 Effect of Discontinuance of Top-Heavy Status. If, for any Plan Year
--------------------------------------------
after a Top-Heavy Year, the Plan is no longer Top-Heavy, the provisions of
Section 17.04 shall not apply with respect to such Plan Year, except that:
(1) The accrued benefit of any Member shall not be reduced on
account of the operation of this Section 17.05;
(2) Each Member shall remain fully vested in any portion of the
Member's accrued benefit that was fully vested before the Plan ceased to be Top-
Heavy; and
(3) Any Member who was a Member in a Top-Heavy Year and who has
completed at least three years of Service as of the first day of the Plan Year
in which the Plan is no longer Top-Heavy may elect to remain subject to the
provisions of Section 17.04(b).
17.06 Intent of Article XVII. This Article XVII is intended to satisfy
----------------------
the requirements imposed by Section 416 of the Code and shall be construed in a
manner that will effectuate this intent. This Article XVII shall not be
construed in a manner that would impose requirements on the Plan that are more
stringent than those imposed by Section 416 of the Code.
IN WITNESS WHEREOF, ABC, Inc. has caused this instrument to be signed
by its duly authorized officer and its corporate seal to be hereunto affixed on
the __________ day of March, 1998.
ABC, INC.
By_____________________________________
<PAGE>
59
SCHEDULE I
SPECIAL PROVISIONS APPLICABLE TO CERTAIN FORMER EMPLOYEES
---------------------------------------------------------
OF ABC RECORDS, INC.
--------------------
Any Employee of ABC Records, Inc. who Severed from Service as a result
of the sale of the assets of ABC Records, Inc. to MCA Inc. on March 4, 1979,
shall be fully vested in the Value of his Account which is attributable to
Company Matching Contributions allocated to his Account as of the date of such
Severance from Service.
<PAGE>
60
SCHEDULE II
SPECIAL PROVISIONS APPLICABLE TO CERTAIN FORMER EMPLOYEES OF
------------------------------------------------------------
R. L. WHITE COMPANY, INC.
-------------------------
Any Employee of R. L. White Company, Inc. who Severed from Service as
a result of the closing of the Information Systems division or the Multiple
Listing Services division of R. L. White Company, Inc. on or about March 31,
1982, or the closing of the remainder of R. L. White Company, Inc. on or about
June 30, 1982, shall be fully vested in the Value his Account which is
attributable to the Company Matching Contributions allocated to his Account as
of the date of such Severance from Service.
<PAGE>
61
SCHEDULE III
SPECIAL PROVISIONS APPLICABLE TO MEMBERS ON JULY 1, 1983
--------------------------------------------------------
Notwithstanding anything in the Plan to the contrary, any Employee who
is a Member, or is eligible to become a Member on July 1, 1983, may make any
number of elections with respect to his contributions and/or the investment of
the Value of his Account attributable to his contributions, and such elections
shall not be considered for purposes of the restrictions on the number of such
elections permitted in any period of time by the Plan; provided that such
elections are made on or before August 31, 1983, and are effective no earlier
than July 1, 1983, and no later than September 1, 1983.
Notwithstanding anything in the Plan to the contrary, all suspensions
of a Member's right to contribute to the Plan that are in effect on July 1,
1983, shall be deemed to be terminated on such date, and any Member who had
incurred such a suspension shall be eligible to make contributions to the Plan
as of and from July 1, 1883, or such later date as may be permitted for the
resumption of contributions and selected by the Member.
<PAGE>
62
SCHEDULE IV
SPECIAL PROVISIONS APPLICABLE TO FORMER MEMBERS OF THE ABC
----------------------------------------------------------
LEISURE MAGAZINES, INC. RETIREMENT SAVINGS PLAN
-----------------------------------------------
Effective January 1, 1984, notwithstanding any other Section of the
Plan, the following provisions shall apply to any former member of the ABC
LEISURE MAGAZINES, INC. RETIREMENT SAVINGS PLAN (the "LM Plan"), which was
merged into the Plan on or about January 1, 1984, and who is now a Member of the
Plan:
(a) (1) If the Member was fully vested under the LM Plan in the amount
credited to his account which was attributable to Company Contributions (as
defined in the LM Plan) immediately before the merger, he shall be fully vested
in the Value of his Account which is attributable to Company Matching
Contributions
(i) as of the effective date of the merger; and
(ii) after the effective date of the merger; and
(2) If the Member was not fully vested under the LM Plan in the amount
credited to his account which was attributable to Company Contributions (as
defined in the LM Plan) immediately before the merger, he shall be vested in the
Value of his Account which is attributable to Company Matching Contributions to
not less than the same extent that he would have been vested had there been no
merger and the provisions of the LM Plan still governed.
(b) The Member's Service and Hours of Service shall include all Years of
Service and Hours of Service (as defined in Section 1 of the LM Plan) credited
to the Member under the LM Plan immediately before the merger.
(c) The last paragraph of Section 3 of the Plan (as in effect at the time
of the merger) shall not apply to any amounts attributable to Company
Contributions (as defined in the LM Plan) credited to his Account immediately
before the merger.
<PAGE>
63
SCHEDULE V
SPECIAL PROVISIONS APPLICABLE TO CERTAIN FORMER EMPLOYEES OF
------------------------------------------------------------
SILVER SPRINGS, INC. AND WEEKI-WACHEE SPRING, INC.
--------------------------------------------------
Any Employee of Silver Springs, Inc. and Weeki-Wachee Spring, Inc. on
the date of the sale of the stock of ABC Leisure Attractions, Inc. (scheduled to
occur on or about May 25, 1984) shall be fully vested in the Value of his
Account which is attributable to Company Matching Contributions as of the date
of such sale and shall be deemed to have Severed from Service as of such date.
<PAGE>
64
SCHEDULE VI
SPECIAL PROVISIONS APPLICABLE TO EMPLOYEES OF ABC RADIO
-------------------------------------------------------
DALLAS, INC.
------------
In the case of any Employee of ABC Radio Dallas, Inc. who was employed
by KIXK(FM) on July 16, 1984, Service shall include service with KIXK(FM) before
its acquisition by American Broadcasting Companies, Inc. on July 16, 1984.
Contributions of Members and Company Matching Contributions made on
behalf of such Members shall be made based on the Member's Compensation received
on and after October 1, 1984.
<PAGE>
65
SCHEDULE VII
SPECIAL PROVISIONS APPLICABLE TO CERTAIN EMPLOYEES OF STATIONS
--------------------------------------------------------------
WABC-AM, WPLJ-FM, WLS-AM/FM, WRIF-FM, KSRR-FM, KTKS-FM, KABC
------------------------------------------------------------
-AM, KLOS-FM, KGO-AM AND WXYZ-TV AND CERTAIN EMPLOYEES OF
---------------------------------------------------------
THE ABC RADIO DIVISION STAFF AND THE ABC OWNED RADIO STATIONS
-------------------------------------------------------------
STAFF
-----
Any Eligible Employee of stations WABC-AM, WPLJ-FM, WLS-AM/FM, WRIF-
FM, KSRR-FM, KTKS-FM, KABC-AM, KLOS-FM, KGO-AM AND WXYZ-TV and any Employee of
the ABC Owned Radio Station Staff and the ABC Radio Division Staff, with the
exception of the President, ABC Radio, who Severed from Service as a result of
the divestiture by the Company of any of the said stations and in connection
with the merger of American Broadcasting Companies, Inc. and Capital Cities
Communications, Inc. on or about the merger date or sale date, if later, shall
be fully vested in the Value of his Account which is attributable to Company
Matching Contributions.
<PAGE>
66
SCHEDULE VIII
SPECIAL PROVISIONS APPLICABLE TO CERTAIN FORMER EMPLOYEES OF
------------------------------------------------------------
ABC CONSUMER MAGAZINES, INC.
----------------------------
Any Employee of ABC Consumer Magazines, Inc. who Severed from Service
as a result of the sale of Modern Photography and High Fidelity Magazines to
Diamandis Communications, Inc. on June 6, 1989, shall be fully vested in the
Value of his Account which is attributable to Company Matching Contributions.
<PAGE>
67
SCHEDULE IX
SPECIAL PROVISIONS APPLICABLE TO FORMER MEMBERS OF THE
------------------------------------------------------
SATELLITE MUSIC NETWORK INC. 401(k) PLAN
----------------------------------------
1. "Service" shall include all of an Employee's service with Satellite
Music Network, Inc. before January 1, 1990.
2. The Value of the Account attributable to Company Matching Contributions
of any Member who was a participant in the Satellite Music Network, Inc. 401(k)
Plan ("SMN Plan") on December 31, 1989, and who became eligible to participate
in this Plan on January 1, 1990, shall be fully vested at all times.
3. Each Member's entire interest in the SMN Plan which is transferred to
this Plan upon the effectiveness of the merger (the "Merger") of the SMN Plan
and this Plan ("Entire SMN Interest") shall be fully vested at all times.
4. Each Member shall have the following investment elections with respect
to his Entire SMN Interest:
(a) A special transfer election, effective as of the date of the Merger, in
accordance with which his Entire SMN Interest may be invested in the same way
that Tax Deferred Contributions may be invested under Section 5(c) of the Plan
(as then in effect). If a Member fails to make this special transfer election,
his Entire SMN Interest shall be invested in fund (C) (as then in effect) as the
effective date of the Merger.
(b) Regular investment elections in accordance with which his Entire SMN
Interest may be invested in the same way that Pre-Tax Contributions may be
invested under the Plan.
5. Except as provided in the next sentence, each Member's Entire SMN
Interest shall be treated as if it were comprised entirely of Pre-Tax
Contributions for all purposes of the Plan including, but not limited to, the
application of the loan provisions of the Plan. The portion of a Member's
Entire SMN Interest that is attributable to employer discretionary contributions
shall be treated as Company Matching Contributions for the purpose of applying
the withdrawal rules of Section 11.03.
6. Any Member may obtain a Loan from the Plan with respect to his Entire
SMN Interest without regard for the length of time he has been a Member.
7. (a) In addition to any method of retirement or termination benefit
distribution that may be available under the Plan, a Member may elect to receive
the distribution of his Entire SMN Interest in the form of payments over a
period certain in monthly, quarterly, semiannual, or annual cash installments.
The period over which such payments shall be made shall not extend beyond the
Member's life expectancy (or the life expectancy of the Member and his
designated beneficiary).
(b) In addition to any method of death benefit distribution that may be
available under the Plan, a deceased Member's beneficiary may elect to receive
the distribution of the Member's Entire SMN Interest in the form of payments in
monthly, quarterly, semiannual, or annual cash installments over a period to be
determined by the Member or his beneficiary.
<PAGE>
68
(i) After the commencement of the distribution of such periodic
installments, the Member's beneficiary may direct the Committee to reduce the
period over which such periodic installments are to be made, and the amount of
each such installment shall be adjusted accordingly.
(ii) At the election of the Member's beneficiary, the Committee shall
cause the payment of any installment to be accelerated.
(c) No method of benefit distribution may be elected under this Section
unless it is in accordance with the requirements of Section 12.11.
(d) For the purpose of this Section, the life expectancy of a Member and
his spouse may, at the Member's or the spouse's election, be redetermined in
accordance with the Treasury Regulations under Section 401(a)(9) of the Code.
Such election, once made, shall be irrevocable. If no election is made by the
date benefits must commence to be distributed under Section 401(a)(9) of the
Code, such life expectancies shall not be subject to recalculation.
8. (a) A Member who has attained age 59 1/2 may at any time elect to
withdraw any or all of his Entire SMN Interest.
(b) A Member who has not attained age 59 1/2 may at any time elect to
withdraw any or all of the portions of his Entire SMN Interest (i) attributable
to employer discretionary contributions and (ii) consisting of Tax Deferred
Contributions if such withdrawal complies with the rules of Section 11.03.
<PAGE>
69
SCHEDULE X
SPECIAL PROVISIONS APPLICABLE TO FORMER MEMBERS OF THE
------------------------------------------------------
INSTITUTIONAL INVESTOR, INC. EMPLOYEE SAVINGS PLAN
--------------------------------------------------
1. "Service" shall include all of an Employee's service with Institutional
Investor, Inc. before April 1, 1990.
2. The Value of the Account attributable to Company Matching Contributions
of any Member who was a participant in the Institutional Investor, Inc. Employee
Savings Plan ("II Plan") on March 31, 1990, and who became eligible to
participate in this Plan on April 1, 1990, shall be fully vested at all times.
3. Each Member's entire interest in the II Plan which is transferred to
this Plan upon the effectiveness of the merger (the "Merger") of the II Plan and
this Plan ("Entire II Plan Interest") shall be fully vested at all times.
4. Each Member shall have the following investment elections with respect
to his Entire II Plan Interest:
(a) A special transfer election, effective as of the date of the Merger, in
accordance with which his Entire II Plan Interest may be invested in the same
way that Tax Deferred Contributions may be invested under Section 5(c) of the
Plan (as then in effect). If a Member fails to make this special transfer
election, his Entire II Plan Interest shall be invested in fund (C) (as then in
effect) at the effective date of the Merger.
(b) Regular investment elections in accordance with which his Entire II
Plan Interest may be invested in the same way that Pre-Tax Contributions may be
invested under the Plan.
5. Except as provided in this Section, each Member's Entire II Plan
Interest shall be treated as if it were comprised entirely of Pre-Tax
Contributions for all purposes of the Plan including, but not limited to, the
application of the loan provisions of the Plan and the Plan's restrictions on a
Member's ability to make in-service withdrawals. Notwithstanding the foregoing:
(a) The portion of a Member's Entire II Plan Interest that is attributable
to employer matching contributions shall be treated as Company Matching
Contributions for the purpose of applying the withdrawal rules of Section 11.03
unless such contributions were taken into account in meeting the actual deferral
percentage test of Section 401(k)(3) of the Code (the "ADP Test").
(b) The portion of a Member's Entire II Plan Interest that is attributable
to his own voluntary contributions shall be treated as After-Tax Contributions.
6. Any Member may obtain a Loan from the Plan with respect to his Entire
II Plan Interest without regard for the length of time he has been a Member.
7. (a) In addition to any method of retirement or termination benefit
distribution that may be available under the Plan, a Member may elect to receive
the distribution of his Entire II Plan Interest in the form of payments over a
period certain in monthly, quarterly, semiannual, or annual cash
<PAGE>
70
installments. The period over which such payments shall be made shall not extend
beyond the Member's life expectancy (or the life expectancy of the Member and
his designated beneficiary).
(b) In addition to any method of death benefit distribution that may be
available under the Plan, a deceased Member's beneficiary may elect to receive
the distribution of the Member's Entire II Plan Interest in the form of payments
in monthly, quarterly, semiannual, or annual cash installments over a period to
be determined by the Member or his beneficiary.
(i) After the commencement of the distribution of such periodic
installments, the Member's beneficiary may direct the Committee to reduce the
period over which such periodic installments are to be made, and the amount of
each such installment shall be adjusted accordingly.
(ii) At the election of the Member's beneficiary, the Committee shall
cause the payment of any installment to be accelerated.
(c) No method of benefit distribution may be elected under this Section
unless it is in accordance with the requirements of Section 12.11.
(d) For the purpose of this Section, the life expectancy of a Member and
his spouse may, at the Member's or the spouse's election, be redetermined in
accordance with the Treasury Regulations under Section 401(a)(9) of the Code.
Such election, once made, shall be irrevocable. If no election is made by the
date benefits must commence to be distributed under Section 401(a)(9) of the
Code, such life expectancies shall not be subject to recalculation.
8. (a) A Member who has attained age 59 1/2 may at any time elect to
withdraw any or all of his Entire II Plan Interest.
(b) A Member who has not attained age 59 1/2 may at any time elect to
withdraw any or all of the portions of his Entire II Plan Interest attributable
to employer matching contributions (unless such contributions were taken into
account in meeting the ADP Test) and consisting of Tax Deferred Contributions if
such withdrawal complies with the rules of Section 11.03.
<PAGE>
71
SCHEDULE XI
SPECIAL PROVISIONS APPLICABLE TO FORMER MEMBERS OF THE
------------------------------------------------------
EMPLOYEE STOCK OWNERSHIP PLAN OF AMERICAN BROADCASTING
------------------------------------------------------
COMPANIES, INC.
---------------
1. Any individual who was a Member of the Employee Stock Ownership Plan of
American Broadcasting Companies, Inc. (the "ESOP") on July 15, 1991, the
effective date of the Merger of the ESOP into this Plan (the "Merger Effective
Date"), shall be a Member of this Plan on and after the Merger Effective Date.
2. All benefits under the ESOP at the Merger Effective Date shall be
credited in full under this Plan on and after the Merger Effective Date. Any
and all rights provided to Members in the ESOP at the Merger Effective Date
shall be preserved to such Members under this Plan on and after the Merger
Effective Date.
<PAGE>
72
SCHEDULE XII
SPECIAL PROVISIONS APPLICABLE TO FORMER MEMBERS OF THE
------------------------------------------------------
INTERNATIONAL MEDICAL NEWS GROUP PROFIT SHARING PLAN
----------------------------------------------------
1. "Service" shall include all of an Employee's service with International
Medical News Group and/or Mercury Press before February 6, 1992.
2. The Value of the Account attributable to Company Matching Contributions
of any Member who was a participant in the International Medical News Group
Profit Sharing Plan (the "IMNG Plan") on December 31, 1991, and who became
eligible to participate in this Plan on January 1, 1992, shall be fully vested
at all times.
3. Each Member's entire interest in the IMNG Plan which was transferred to
this Plan upon the effectiveness of the merger (the "Merger") of the IMNG Plan
and this Plan ("Entire IMNG Interest") shall be fully vested at all times.
4. Each Member shall have the following investment elections with respect
to his Entire IMNG Interest:
(a) A special transfer election, effective as of the date of the Merger, in
accordance with which his Entire IMNG Interest may be invested in the same way
that Tax Deferred Contributions may be invested under Section 5(c) of the Plan
(as then in effect). If a Member fails to make this special transfer election,
his Entire IMNG Interest shall be invested in fund (C) (as then in effect) at
the effective date of the Merger.
(b) Regular investment elections in accordance with which his Entire IMNG
Interest may be invested in the same way that Pre-Tax Contributions may be
invested under the Plan.
5. Except as provided in paragraph 4, above, each Member's Entire IMNG
Interest shall be treated as if it were comprised entirely of Company Matching
Contributions for all purposes of the Plan.
6. Any Member may obtain a Loan from the Plan with respect to his Entire
IMNG Interest without regard for the length of time he has been a Member.
7. In addition to any method or form or time of retirement, death or
termination benefit distribution available under the Plan, a Member (or, in the
case of death, the Member's Beneficiary) may elect to receive (or commence to
receive) the distribution of the Member's Entire IMNG Interest within the 60-day
period following the end of the Plan Year in which he retires, dies or Severs
from Service in the form of either (a) a lump-sum distribution or (b) a series
of not more than ten annual installments, determined in accordance with Article
XII.
<PAGE>
73
SCHEDULE XIII
SPECIAL PROVISIONS APPLICABLE TO FORMER EMPLOYEES OF RADIO
----------------------------------------------------------
STATIONS KRXY-AM AN -FM
-----------------------
Any former employee of Radio Station KRXY-AM or of Station KRXY-FM
whose service with KRXY Radio, Inc. was terminated as a result of either (a) the
sale of all or substantially all of the assets of KRXY Radio, Inc. pursuant to
the agreement between KRXY Radio, Inc. and Jefferson Pilot Communications
Company ("Jefferson") dated August 20, 1992, (the "Sales Agreement") or (b) the
implementation of the Time Management Brokerage Agreement between KRXY Radio,
Inc. and Jefferson from and after August 31, 1992, shall be fully vested in the
Value of his Account which is attributable to Company Matching Contributions,
effective as of the date of the termination of his or her employment with KRXY
Radio, Inc.
<PAGE>
74
SCHEDULE XIV
SPECIAL PROVISIONS APPLICABLE TO EMPLOYEES OF WORD,
---------------------------------------------------
INCORPORATED, AND WORD DIRECT MARKETING SERVICES, INC.
------------------------------------------------------
1. All employees of Word, Incorporated and of Word Direct Marketing
Services, Inc. shall be treated for all purposes of the Plan as having Severed
from Service as of November 30, 1992.
2. Each Member to whom paragraph 1 of this Schedule applies shall be fully
vested in his Account as of November 30, 1992.
<PAGE>
75
SCHEDULE XV
SPECIAL PROVISIONS APPLICABLE TO EMPLOYEES OF
---------------------------------------------
DISCRIMINATING DISTRIBUTION ENTERPRISES, INC.
---------------------------------------------
1. Effective February 1, 1994, Discriminating Distribution Enterprises,
Inc. adopted the Plan and became a part of the Company within the meaning of
Section 1.01(l).
2. The Service of each individual who is employed by Discriminating
Distribution Enterprises, Inc. on February 1, 1994, shall include all employment
with Devillier Donegan Enterprises, Inc. before February 1, 1994, that would
constitute "Service" if such employment had been with the Corporation.
<PAGE>
76
SCHEDULE XVI
SPECIAL PROVISIONS APPLICABLE TO EMPLOYEES OF
---------------------------------------------
CAPITAL CITIES/ABC VIDEO PRODUCTIONS, INC.
------------------------------------------
1. Effective June 1, 1994, Capital Cities/ABC Video Productions, Inc.
adopted the Plan and became a part of the Company within the meaning of Section
1.01(l).
2. The Service of each individual who is employed by Capital Cities/ABC
Video Productions, Inc. on June 1, 1994, shall include all employment with DIC
Animation City, Inc. and DIC Entertainment, L.P. before June 1, 1994, that would
constitute "Service" if such employment had been with the Corporation.
<PAGE>
77
SCHEDULE XVII
SPECIAL PROVISIONS APPLICABLE TO EMPLOYEES OF CREATIVE SPORTS,
--------------------------------------------------------------
INC. AND CREATIVE POST AND TRANSFER, INC.
-----------------------------------------
1. Creative Sports, Inc. and Creative Post and Transfer, Inc. have adopted
the Plan, and shall become a part of the Company within the meaning of Section
1.01(l), effective January 1, 1995.
2. The Service of each individual who is employed by Creative Sports, Inc.
or Creative Post and Transfer, Inc. on January 1, 1995, shall include all
employment with Creative Sports, Inc., Creative Post and Transfer, Inc., and
Creative Production Services, Inc. before January 1, 1995, that would constitute
"Service" if such employment had been with the Corporation.
<PAGE>
78
SCHEDULE XVIII
SPECIAL PROVISIONS APPLICABLE TO EMPLOYEES OF WORLDWIDE
-------------------------------------------------------
TELEVISION NEWS CORPORATION
---------------------------
1. Worldwide Television News Corporation has adopted the Plan, and shall
become a part of the Company within the meaning of Section 1.01(l), as of
February 1, 1995.
2. The Service of each individual who is employed by Worldwide Television
News Corporation on February 1, 1995, shall include all employment with
Worldwide Television News Corporation before February 1, 1995, that would
constitute "Service" if such employment had been with the Corporation.
<PAGE>
79
SCHEDULE XIX
TRANSITION RULES ADOPTED IN CONNECTION WITH THE JUNE 1, 1994
------------------------------------------------------------
PLAN RESTATEMENT
----------------
1. The restatement of the Plan as of June 1, 1994 (the "Restatement")
shall not cause a Member's accrued benefit to be less on the date the
Restatement was adopted (the "1994 Restatement Date") than it was immediately
before the 1994 Restatement Date.
2. If a Member had a nonforfeitable interest in his Matching Account on
the day immediately preceding the 1994 Restatement Date, the Member shall
thereafter be deemed to have a nonforfeitable interest in his Matching Account,
notwithstanding the provisions of the Plan that became effective as of June 1,
1994.
3. If a Member had completed at least three years of Service on the 1994
Restatement Date, whether the Member has completed at least five years of
Service for purposes of Section 9.02(c)(1) shall be determined under the
provisions of the Plan in effect on the 1994 Restatement Date or the provisions
of the Plan in effect on the immediately preceding day, whichever produces the
more favorable result for the Member.
<PAGE>
80
SCHEDULE XX
SPECIAL PROVISIONS APPLICABLE TO EMPLOYEES OF SPORTSTICKER,
-----------------------------------------------------------
INC.
----
1. SportsTicker, Inc. has adopted the Plan, and shall become a part of the
Company within the meaning of Section 1.01(l), effective January 5, 1995.
2. The Service of each individual who is employed by SportsTicker, Inc. on
January 5, 1995, shall include all employment with SportsTicker, Inc., and
SportsTicker Enterprises, L.P., a Delaware limited partnership, before January
5, 1995, that would constitute "Service" if such employment had been with the
Corporation.
<PAGE>
81
SCHEDULE XXI
SPECIAL PROVISIONS APPLICABLE TO EMPLOYEES OF WTVG, INC. AND
------------------------------------------------------------
WJRT, INC.
----------
1. WTVG, Inc. ("WTVG") and WJRT, Inc. ("WJRT") have adopted the Plan, and
shall become a part of the Company within the meaning of Section 1.01(l), as of
October 1, 1995.
2. The Service of each individual who is employed by WTVG on October 1,
1995, shall include all employment with WTVG before October 1, 1995, that would
constitute "Service" if such employment had been with the Corporation.
3. The Service of each individual who is employed by WJRT on October 1,
1995, shall include all employment with WJRT before October 1, 1995, that would
constitute "Service" if such employment had been with the Corporation.
4. If on September 30, 1995, an individual then employed by WTVG had
satisfied the requirements for eligibility to participate in the WTVG, Inc.
Employees Savings & Retirement Plan, the individual shall be deemed to have
satisfied the one year of Service requirement imposed by Section 2.01.
5. If on September 30, 1995, an individual then employed by WJRT had
satisfied the requirements for eligibility to participate in the WJRT 401(k)
Plan & Trust, the individual shall be deemed to have satisfied the one year of
Service requirement imposed by Section 2.01.
6. On January 1, 1996, or as soon thereafter as practicable, the WTVG,
Inc. Employees Savings & Retirement Plan shall be merged with and into the Plan.
The Plan shall separately account for the portion of the Accounts of each Member
or Beneficiary that is attributable to allocations made under the WTVG, Inc.
Employees Savings & Retirement Plan before the merger (as adjusted to reflect
subsequent investment experience). The terms on which a Member or Beneficiary
is entitled to a withdrawal or distribution with respect to the portion of his
Accounts that is attributable to such allocations under the WTVG, Inc. Employees
Savings & Retirement Plan shall be governed by the provisions of that plan as in
effect immediately before the merger into the Plan, which provisions are hereby
incorporated by reference.
7. On January 1, 1996, or as soon thereafter as practicable, the WJRT
401(k) Plan & Trust shall be merged with and into the Plan. The Plan shall
separately account for the portion of the Accounts of each Member or Beneficiary
that is attributable to allocations made under the WJRT 401(k) Plan & Trust
before the merger (as adjusted to reflect subsequent investment experience).
The terms on which a Member or Beneficiary is entitled to a withdrawal or
distribution with respect to the portion of his Accounts that is attributable to
such allocations under the WTVG, Inc. Employees Savings & Retirement Plan shall
be governed by the provisions of that plan as in effect immediately before the
merger into the Plan, which provisions are hereby incorporated by reference.
8. Notwithstanding paragraphs 6 and 7 of this Schedule, a Member or
Beneficiary described in either of such paragraphs shall be entitled to elect
any withdrawal or distribution option offered under the generally applicable
provisions of the Plan with respect to the portion of his Accounts that is
attributable to the WTVG, Inc. Employees Savings & Retirement Plan or the WJRT
401(k) Plan
<PAGE>
82
& Trust (the "predecessor plan"), but only if the Member or Beneficiary complies
with the provisions of the predecessor plan that, in accordance with paragraphs
6 and 7, govern the election of withdrawal and distribution options.
<PAGE>
83
SCHEDULE XXII
SPECIAL PROVISIONS APPLICABLE TO EMPLOYEES OF INTERNATIONAL
-----------------------------------------------------------
MEDICAL NEWS GROUP
------------------
Each Member who was employed by the International Medical News Group
of Capital Cities Media, Inc. on January 26, 1996, shall be fully vested in his
Account as of January 26, 1996.
<PAGE>
84
SCHEDULE XXIII
MERGER WITH THE WALT DISNEY COMPANY
-----------------------------------
1. This Schedule governs the disposition of the Capital Cities/ABC, Inc.
Common Stock Fund and the treatment of each Member's Old Company Matching
Account and Company Matching Account following the Merger. For purposes of this
Schedule, the term "Capital Cities/ABC, Inc. Common Stock Fund" shall have the
meaning given to that term by the Plan as in effect immediately before the
Merger Date.
2. Each Member with an interest in the Capital Cities/ABC, Inc. Common
Stock Fund shall have the right to instruct the Trustee whether such Member
wishes to make a Standard Election, a Stock Election, or a Cash Election for
each share of Common Stock represented by the Member's interest in the Capital
Cities/ABC, Inc. Common Stock Fund. The terms and conditions under which a
Member may provide such an instruction to the Trustee shall be determined by the
Trustee in its discretion. If a Member does not provide such an instruction to
the Trustee in accordance with such terms and conditions, the Member's interest
in the Capital Cities/ABC, Inc. Common Stock Fund shall be governed by the Cash
Election. For purposes of this Schedule, the terms "Standard Election," "Stock
Election," and "Cash Election" shall have the meanings given to them by the
Amended and Restated Agreement and Plan of Reorganization, dated as of July 31,
1995 by and between The Walt Disney Company and the Corporation.
3. The Trustee shall make a Standard Election, a Stock Election, and/or a
Cash Election with respect to the shares of Common Stock in the Capital
Cities/ABC, Inc. Common Stock Fund in accordance with the instructions it has
received (or is deemed to have received) from Members in accordance with
paragraph 2 of this Schedule.
4. Any cash received by the Trustee as a result of the Merger in respect
of the Member's interest in the Capital Cities/ABC, Inc. Common Stock Fund shall
be transferred to the Fidelity Retirement Money Market Fund described in Section
7.03(a)(2) of the Plan (as in effect before April 1, 1998).
5. Any Common Stock received by the Trustee as a result of the Merger in
respect of the Member's interest in the Capital Cities/ABC, Inc. Common Stock
Fund shall be held initially in The Walt Disney Company Common Stock Fund.
6. Any cash and Common Stock received by the Trustee as a result of the
Merger in respect of a Member's interest in the Capital Cities/ABC, Inc. Common
Stock Fund shall be credited to the Member's Old Company Matching Account to the
extent that the Member's interest in the Capital Cities/ABC, Inc. Common Stock
Fund was credited to the Member's Company Matching Account immediately before
the Merger.
7. Any cash and Common Stock received by the Trustee as a result of the
Merger in respect of a Member's interest in the Capital Cities/ABC, Inc. Common
Stock Fund shall be credited to the Member's After-Tax Contribution Account or
Pre-Tax Contribution Account to the extent that the Member's interest in the
Capital Cities/ABC, Inc. Common Stock Fund was credited to the Member's After-
Tax Contribution Account or Pre-Tax Contribution Account, as the case may be,
immediately before the Merger.
<PAGE>
85
8. Changes in the allocation of amounts credited to a Member's Old Company
Matching Account (adjusted to reflect subsequent investment experience) among
the Investment Funds shall be governed by the provisions of Section 7.05 of the
Plan.
9. Notwithstanding any provision of the Plan to the contrary, Pre-Tax
Contributions, After-Tax Contributions, and Rollover Contributions for the month
preceding the month in which the Merger Date occurs, to the extent such
contributions otherwise would have been allocated to the Capital Cities/ABC,
Inc. Common Stock Fund, and all Company Matching Contributions for the month
preceding the month in which the Merger Date occurs, shall be allocated to the
Fidelity Retirement Money Market Fund described in Section 7.03(a)(2) of the
Plan (as in effect before April 1, 1998). Changes in the allocation of such
contributions (adjusted to reflect subsequent investment experience) shall be
governed by the provisions of Section 7.05 of the Plan.
10. Notwithstanding any provision of the Plan to the contrary, the
Committee may suspend, curtail, or postpone certain Plan operations (including,
but not limited to, distributions, withdrawals, and loans from the Plan)
following approval of the Merger by the shareholders of the Company to the
extent that the Committee determines that such action is necessary or
appropriate to take into account the unavailability to the Plan of complete,
accurate, and current information regarding Capital Cities/ABC, Inc. Common
Stock Fund and The Walt Disney Company Common Stock Fund during the period
following approval of the Merger by the shareholders of the Company.
<PAGE>
86
SCHEDULE XXIV
SPECIAL PROVISIONS APPLICABLE TO EMPLOYEES WITH SERVICE FOR
-----------------------------------------------------------
THE WALT DISNEY COMPANY
-----------------------
1. Effective February 9, 1996 (the "Merger Date"), the Corporation was
acquired by The Walt Disney Company.
2. Notwithstanding any other provision of the Plan to the contrary,
effective on and after the Merger Date, the Service of an Employee shall include
all employment before the Merger Date with The Walt Disney Company or a related
entity employment with which was or would have been required to be taken into
account for vesting purposes under Section 411 of the Code and Section 203 of
ERISA under a plan maintained by The Walt Disney Company (together, the "Disney
Control Group"), but only if:
(a) Such employment would constitute Service if it had been with the
Corporation;
(b) Such employment could not have been disregarded under Section
411(a)(4)(B) of the Code and Section 203(b)(1)(B) of ERISA (years in which an
employee declines to contribute to a plan requiring employee contributions)
under any plan maintained by the Disney Control Group; and
(c) The Employee commences employment with the Company or an Affiliate on
or after the Merger Date and either (i) was fully vested under a defined
contribution plan maintained by the Disney Control Group on his last date of
employment with the Disney Control Group or (ii) commences employment with the
Company or an Affiliate no more than five years after his last date of
employment with the Disney Control Group.
Compensation attributable to such employment shall not be taken into account in
determining the Employee's Compensation, unless such compensation would be taken
into account for that purpose without regard to this section 2.
<PAGE>
87
SCHEDULE XXV
SPECIAL PROVISIONS APPLICABLE TO EMPLOYEES AFFECTED BY SALES
------------------------------------------------------------
OF PUBLISHING BUSINESSES
------------------------
1. Before May 9, 1997, certain subsidiaries and affiliates of the
Corporation carried on certain publishing businesses. Between May 9 and
September 24, 1997, stock in certain of those subsidiaries and affiliates (the
"Publishing Businesses") was sold to certain purchasers (the "Purchasers").
None of the Purchasers was related to the Corporation. Each of the sales that
affected Members of the Plan (the "Sales") and the closing date of the Sale is
listed below:
<TABLE>
<CAPTION>
Transaction Closing Date
----------- ------------
<S> <C>
Sale of ABC Media, Inc. to Knight-Ridder, Inc. May 9, 1997
Sale of NILS Holding Company to CCH Incorporated July 31, 1997
Sale of Great Lakes Media, Inc. to 21st Century Newspapers Acquisition, Inc. August 21, 1997
Sale of Legal Com of Delaware, Inc. to Dolan Media Company August 27, 1997
Sale of Institutional Investor, Inc. to Euromoney Publications PLC August 28, 1997
Sale of Chilton Holding Company, Inc., Hitchcock Holding Company, Inc. and
Chilton Media, Inc. to Reed Elsevier, Inc. September 3, 1997
Sale of Farm Progress Holding Company, Inc. to Rural Press (USA) Limited September 5, 1997
Sale of Sutton Industries, Inc. and Pennypower of Kansas, Inc. to
Harte-Hanks Communications, Inc. September 24, 1997
</TABLE>
2. (a) Effective as of the closing date of each Sale (i) each Publishing
Business sold in the Sale shall cease to be a participating employer in the Plan
(if it ever was) and (ii) except to the extent provided in subsection (b) below,
individuals employed by the Publishing Business shall cease to be eligible to
participate in or to receive any additional allocations under the Plan (if he
ever was or did).
(b) Notwithstanding subsection (a) above, effective as of the closing date
of the Sale to Dolan Media Company and the Sale to Rural Press (USA) Limited,
the Account of each transferred employee who was eligible to participate in the
Plan shall be credited with a matching contribution that is equal to the maximum
matching contribution (half the maximum matching contribution in the case of the
Sale to Dolan Media Company) to which he would have been entitled on account of
contributions made after the closing date if he had remained employed by the
Company or an Affiliate (whichever is appropriate) through February 9, 1998,
based on expected earnings that the employee would have earned through such date
as determined by the Committee. For this purpose, a "transferred employee"
shall mean an employee of the Publishing Business on the closing date.
3. Effective as of the closing date of each Sale (except the Sale to
Knight-Ridder, Inc.), the Account balance (including any additional allocation
based on section 2 above) of each Member (including an employee who would have
satisfied the eligibility requirements to become a Member between the closing
date and February 9, 1998) employed on the closing date by a Publishing Business
sold in the Sale, and his beneficiary, shall be fully vested.
4. (a) The Account balance of each Member employed on or before the
closing date by a Publishing Business sold to Knight-Ridder, Inc. was
transferred to the defined contribution plan specified in the sales agreement
with Knight-Ridder, Inc., the relevant terms of which hereby are
<PAGE>
88
incorporated by reference, in a trustee-to-trustee transfer on August 30, 1997
(August 29, 1997, in the case of active employees). The transfers were carried
out in the manner specified in the sales agreement. Consistent with Articles VII
and VIII, the Company continued to administer each account until the date of the
transfer. Consistent with Section 10.01, Members whose accounts were transferred
were not allowed to obtain new loans from the Plan after the closing date.
Outstanding loans were transferred along with other assets in the Accounts.
(b) Consistent with Section 12.01, after the Sale to CCH Incorporated, each
Member employed on the closing date by a Publishing Business sold in the Sale
was permitted to make a direct rollover of his Account balance to the defined
contribution plan specified in the sales agreement with CCH Incorporated, the
relevant terms of which hereby are incorporated by reference, in the manner
specified in that plan and the sales agreement.
(c) Notwithstanding Section 10.11(a)(1), a Member employed on the closing
date by a Publishing Business sold to 21st Century Newspapers Acquisition, Inc.
shall not be considered in default on a loan from the Plan solely because his
employment is terminated as a result of the Sale. Such a Member shall be
permitted to repay any loan from the Plan by making direct payments to the Plan
in the manner specified in Section 10.08.
(d) The Account balance of each Member employed on or before the closing
date by a Publishing Business sold to Dolan Media Company was transferred to the
defined contribution plan specified in the sales agreement with Dolan Media
Company, the relevant terms of which hereby are incorporated by reference, in a
trustee-to-trustee transfer. The transfers were carried out in the manner
specified in the sales agreement. Outstanding loans were transferred along with
other assets in the Accounts.
(e) The Account balance of each Member employed on or before the closing
date by a Publishing Business sold to Euromoney Publications PLC was transferred
to the defined contribution plan specified in the sales agreement with Euromoney
Publications PLC, the relevant terms of which hereby are incorporated by
reference, in a trustee-to-trustee transfer. The transfers were carried out in
the manner specified in the sales agreement. Outstanding loans were transferred
along with other assets in the Accounts.
(f) Consistent with Section 12.01, after the Sale to Reed Elsevier, Inc.,
each Member employed on the closing date by a Publishing Business sold in the
Sale was permitted to make a direct rollover of his Account balance to the
defined contribution plan specified in the sales agreement with Reed Elsevier,
Inc., the relevant terms of which hereby are incorporated by reference, in the
manner specified in that plan and the sales agreement.
(g) Consistent with Section 12.01, after the Sale to Rural Press (USA)
Limited, each Member employed on the closing date by a Publishing Business sold
in the Sale was permitted to make a direct rollover of his Account balance to
the defined contribution plan specified in the sales agreement with Rural Press
(USA) Limited, the relevant terms of which hereby are incorporated by reference,
in the manner specified in that plan and the sales agreement.
(h) The Account balance of each Member employed on or before the closing
date by a Publishing Business sold to Harte-Hanks Communications, Inc. was
transferred to the defined contribution plan specified in the sales agreement
with Harte-Hanks Communications, Inc., the relevant
<PAGE>
89
terms of which hereby are incorporated by reference, in a trustee-to-trustee
transfer. The transfers were carried out in the manner specified in the sales
agreement. Outstanding loans were transferred along with other assets in the
Accounts.
<PAGE>
90
SCHEDULE XXVI
VOLUNTARY EMPLOYEE CONTRIBUTIONS TO
-----------------------------------
PUBLISHING PENSION PLAN
-----------------------
1. Certain participants in the Fairchild Publications, Inc. Publishing
Pension Plan (the "Publishing Plan") were permitted to make employee
contributions under the provisions of Article 15 of the Publishing Plan as in
effect up to and including March 31, 1990. Effective after March 31, 1990, no
participants were permitted to make employee contributions to the Publishing
Plan. Employee contributions to the Publishing Plan were invested in the
"Voluntary Employee Contribution Fund." An individual account (the "Voluntary
Employee Contribution Account") was maintained within the Voluntary Employee
Contribution Fund in the name of each participant who had made employee
contributions (the "Contributing Participants").
2. Effective as of April 1, 1998, the Voluntary Employee Contribution
Fund, including all of its constituent Voluntary Employee Contribution Accounts,
shall be transferred to and made a part of the Plan. The Voluntary Employee
Contribution Fund shall be allocated initially to the Fidelity Retirement Money
Market Fund described in Section 7.03(a)(2) of the Plan (as in effect before
April 1, 1998). After the transfer, amounts credited to each Employee's
Voluntary Employee Contribution Account shall continue to be separately
accounted for under the Plan. Except as otherwise specifically provided in this
Schedule, such amounts shall be treated in the same manner as After-Tax
Contributions for which no Company Matching Contributions are made, including,
for example, for purposes of Article VII (Investments and Accounts) and Article
XII (Distributions). Terms used in this Schedule that are not otherwise defined
in the Plan and this Schedule shall have the same meaning as they do under the
Publishing Plan.
3. Notwithstanding anything to the contrary in the Plan:
(a) A Contributing Participant may, at any time before his Termination of
Employment, elect to withdraw some or all of his Voluntary Employee
Contributions, but not the amount of any earnings thereon, with payment thereof
to be made in a single sum in cash within 60 days after the end of the month in
which the Contributing Participant requests such withdrawal. Such election, to
be effective, must be in writing and, if the Contributing Participant has a
Spouse at the withdrawal date, must be consented to by his Spouse. A Spouse's
consent to an election for a withdrawal must acknowledge the effect of the
election (including the form in which the benefit is to be paid) and must be
witnessed by a representative of the Plan or a notary public. Notwithstanding
this consent requirement, an election by a Contributing Participant shall be
deemed valid if he establishes to the satisfaction of the Committee that such
written consent cannot be obtained because there is no Spouse or the Spouse
cannot be located. A Spouse's consent made under this provision will not be
valid with respect (i) to a Spouse other than the Spouse who signed the consent,
or (ii) to a changed withdrawal date. A revocation of an election to a
withdrawal may be made by a Contributing Participant without the consent of the
Spouse at any time before the withdrawal is made. Notices of withdrawals of
Voluntary Employee Contributions and Spouses' consents to such withdrawals shall
be made in such form as the Committee shall specify.
(b) Except as otherwise provided in subsection (c) or (d) below, and
subject to Sections 12.05 and 12.07 of the Plan, the distribution of a
Contributing Participant's Account Balance shall be made in the form of:
<PAGE>
91
(1) a Qualified Joint and Survivor Annuity if on the distribution
commencement date the Contributing Participant is living and he has a Spouse,
(2) a Life Annuity to the Contributing Participant if on the
distribution commencement date he is living and does not have a Spouse,
(3) a Life Annuity to the Surviving Spouse, if any, if the
Contributing Participant is not living on the distribution commencement date, or
(4) three annual cash installments to the Contributing Participant's
Beneficiary if the Contributing Participant has died before the distribution
commencement date and there is no Surviving Spouse.
Any form of payment described in paragraph (1), (2) or (3) shall be the
Actuarial Equivalent of the Contributing Participant's Account Balance on the
distribution commencement date. The amount of any installment payment pursuant
to paragraph (4) above shall be equal to the total amount of the Account Balance
then remaining to be paid divided by the remaining number of installments due
(including the installment then to be paid).
(c) A Contributing Participant (but not a Surviving Spouse) may elect to
have distribution of his Account Balance made on the first day of any month
following whichever is the later to occur of (i) his Termination of Employment
or (ii) the 55th anniversary of his date of birth in one of the optional forms
set forth in Section 7.4 of the Publishing Plan, rather than in the form set
forth in subsection (b) above. The procedures for the election of such an
optional form shall be as set forth in Article XII of the Plan, provided that an
election by a Contributing Participant who has a Spouse shall be subject to the
notice and consent requirements of Section 7.5 of the Publishing Plan. The
optional forms of payment available under this subsection (c) shall be in
addition to and not in lieu of any optional forms of payment available under
Article XII of the Plan.
(d) The Surviving Spouse of a deceased Contributing Participant may elect
to have distribution of the Contributing Participant's Account Balance made on
the first day of any month following whichever is the later to occur of (i) the
Contributing Participant's date of death or (ii) the 55th anniversary of his
date of birth in one of the following Actuarial Equivalent alternative forms,
rather than in the form set forth in subsection (b) above:
(1) in the form of a single sum in cash; or
(2) in the form of a Life Annuity with the provision that, in the
event of the Spouse's death before receiving at least 120 monthly installments,
payment of such benefit shall be continued to the beneficiary designated by the
Spouse until a total of 120 monthly installments have been made to the Spouse
and beneficiary combined.
The optional forms of payment available under this subsection (d) shall be in
addition to and not in lieu of any optional forms of payment available under
Article XII of the Plan.
<PAGE>
92
SCHEDULE XXVII
SCHEDULE OF EFFECTIVE DATES
---------------------------
This Schedule sets forth the effective dates (not otherwise specified
in the Plan) of those provisions of the Plan that have been amended since March
24, 1989, to reflect changes in applicable law. Amendments to the Plan that are
not identified in this Schedule (including amendments that are not legally
required) shall be effective as of the dates set forth in the instruments
adopting the amendments (including the last restatement of the Plan) or in the
particular provisions of the Plan that are affected by the amendments, and
otherwise as of April 1, 1998.
PROVISIONS ADDED OR AMENDED EFFECTIVE JANUARY 1, 1985
- -----------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Plan (S) 12.11(c) Minimum distribution provision amended to provide that
Code (S) 401(a)(9) & a Member is considered to be a 5% owner if he was a 5%
IRS Notice 87-28 owner at any time after the end of the year in which he
reached age 65 1/2.
Plan (S) 9.03(b) Provision governing repayment of prior distributions
Code (S) 411(a)(7)(C) & amended to provide that the repayment must be made
IRS Notice 87-28 before the earlier of (i) the date on which the Member
incurs a five-year break in service, and (ii) the fifth
anniversary of the date on which the Member is re-hired.
Plan (S) 16.07(b)(4) QDRO provisions amended to provide that an alternate
Code (S) 414(p)(10) & payee may elect to receive a distribution at a time
IRS Notice 87-28 when a distribution to the Member would be prohibited.
PROVISIONS ADDED OR AMENDED EFFECTIVE JANUARY 1, 1987
- -----------------------------------------------------
Plan (S) 16.13 Plan amended to state that it is intended to be a
Code (S) 401(a)(27)(B) profit-sharing plan.
Plan (S) 1.01(i) Definition of "Internal Revenue Code" updated to
refer to the 1986 Code.
Plan (S) 1.01(bb) Definition of "highly compensated employee" amended
Code (S) 414(q) to incorporate the new statutory definition in
Section 414(q).
Plan (S) 6.01 Limit on elective deferrals amended to incorporate
Code (S) 402(g) the new $7,000 limit.
Plan (S) 6.05 Section 415 limits amended to reflect the fact that
Code (S) 415(c) & all employee after-tax contributions count as annual
IRS Notice 87-21 additions, and to incorporate the statutory limits
by
</TABLE>
<PAGE>
93
<TABLE>
<CAPTION>
<S> <C>
reference.
Plan (S) 6.02 Actual deferral percentage provisions amended to
Code (S) 401(k)(3) incorporate the reduced statutory deferral limits.
Plan (S) 6.03 New section added to incorporate the contribution
Code (S) 401(m) percentage limit applicable to employee after-tax
contributions and employer matching contributions.
Plan (S) 6.07(b) New section added to permit the return of elective
Code (S) 402(g) deferrals that exceed the $7,000 limit.
Plan (S) 6.07(c)(2) New section added to permit recharacterization of
Code (S) 401(k)(8)(A)(ii) & elective deferrals that exceed the actual deferral
Treas. Reg. (S) 1.401(k)-1(f) percentage limit.
Plan (S) 6.07(c)(1) New section added to permit distribution of elective
Code (S) 401(k)(8)(A)(i) deferrals that exceed the actual deferral percentage
limit.
Plan (S) 6.07(e) New section added to permit distribution of employee
Code (S) 401(m)(6) after-tax contributions and employer matching
contributions that exceed the contribution
percentage limit.
Plan (S) 5.08 Provisions governing the withdrawal of after-tax
Code (S) 72(e)(8) & contributions amended to reflect the pro-rata basis
IRS Notice 87-13 recovery rule and the transition rule for pre-1987
contributions.
PROVISIONS ADDED OR AMENDED EFFECTIVE DECEMBER 22, 1987
- -------------------------------------------------------
Plan (S) 5.07 Provision governing return of contributions amended to
ERISA (S) 403(c)(2)(B) eliminate provision allowing the return of
Rev. Rul. 91-4 contributions conditioned on the qualification of the
Plan.
PROVISIONS ADDED OR AMENDED EFFECTIVE JANUARY 1, 1988
- -----------------------------------------------------
Plan (S) 6.01 Elective deferral limit amended to provide that a
Code (S) 401(a)(30) Member's deferrals under the Plan, and under any other
plan sponsored by a member of the controlled group, may
not exceed $7,000 (indexed).
Plan (S) 6.07(b) Corrective provisions amended to provide that the Plan
Code (S) 401(a)(30) will automatically distribute deferrals that exceed the
limit specified in section 401(a)(30).
</TABLE>
PROVISIONS ADDED OR AMENDED EFFECTIVE AUGUST 22, 1988
- -----------------------------------------------------
<PAGE>
94
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<CAPTION>
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Plan (S)(S) 11.04, 12.02 Distribution provisions amended to provide that if a
Code 411(a)(11) & Treas. Reg. Member's vested account exceeds $3,500, he must receive
(S) 1.411(a)-11(c)(2) a voluntary distribution notice 30-90 days before a
distribution.
PROVISIONS ADDED OR AMENDED EFFECTIVE JANUARY 1, 1989
- -----------------------------------------------------
Plan (S)(S) 1.01(o), 3.02 Definition of compensation amended to incorporate
Code (S) 401(a)(17) the $200,000 limit.
Plan (S) 1.01(bb) Definition of highly compensated employee revised to
Code (S) 414(q) reflect the amendments made by the Tax Reform Act of
1986.
Plan (S) 6.04 New section added to preclude multiple use of the
Code (S) 401(m)(9) & Treas. alternative limit in the actual deferral percentage
Reg. (S) 1.401(m)-2 test and the actual contribution percentage test.
Plan (S) 6.07 Section amended to clarify calculation of excess
Code (S) 401(k), 401(m) contributions and excess aggregate contributions.
Plan (S) 12.11 Minimum distribution rules amended to provide that
Code (S) 401(a)(9) distributions generally must commence by April 1
following the year in which the Member reaches age
70 1/2, even if the Member is still actively
employed.
Plan (S) 11.03 Hardship withdrawal provisions amended to provide
Treas. Reg. (S) 1.401(k)-1(d) that Members may not withdraw post-1988 earnings on
section 401(k) contributions.
PROVISIONS ADDED OR AMENDED EFFECTIVE JANUARY 1, 1990
- -----------------------------------------------------
Plan Art. X Plan loan provisions amended to incorporate the
29 C.F.R. (S) 2550.408b-1 substantive rules in the final plan loan regulations.
PROVISIONS ADDED OR AMENDED EFFECTIVE JANUARY 1, 1993
- -----------------------------------------------------
Plan (S) 12.12 New section added to provide for the direct rollover of
Code (S) 401(a)(31) eligible rollover distributions from the Plan to an
eligible retirement plan.
PROVISIONS ADDED OR AMENDED EFFECTIVE AUGUST 5, 1993
- ----------------------------------------------------
Plan (S) 4.05(b) Definition of service amended to provide credit for family
</TABLE>
<PAGE>
95
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<CAPTION>
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29 C.F.R. (S) 825.215 and medical leave.
PROVISIONS ADDED OR AMENDED EFFECTIVE JANUARY 1, 1994
- -----------------------------------------------------
Plan (S)(S) 1.01(o), 3.02 Definition of compensation amended to reflect the
Code (S) 401(a)(17) reduction in the annual limit from $200,000 (indexed)
to $150,000 (indexed).
Plan (S)(S) 11.04, 12.02(b) Notice and consent provisions amended to provide that a
IRS Notice 93-26 participant may elect to receive a distribution less
than 30 days after he receives the applicable
distribution notice.
PROVISIONS ADDED OR AMENDED EFFECTIVE JUNE 1, 1994
- --------------------------------------------------
Plan (S) 7.03 Participant-directed investment provisions amended
ERISA (S) 404(c) & to offer a wider range of investment options.
29 C.F.R. (S) 2550.404c-1
Plan (S) 7.04 Provision governing changes in investment elections
ERISA (S) 404(c) & for future contributions amended to permit frequent
29 C.F.R. (S) 2550.404c-1 changes.
Plan (S) 7.05 Provision governing transfer of funds between
ERISA (S) 404(c) & available investment options amended to permit
29 C.F.R. (S) 2550.404c-1 frequent transfers.
Plan (S) 11.03 Hardship withdrawal provisions for section 401(k)
Treas. Reg. (S) 1.401(k)-1(d) & contributions amended to incorporate the new
IRS Notice 88-127 regulatory safe harbors.
PROVISIONS ADDED OR AMENDED EFFECTIVE FOR CALENDAR YEARS BEGINNING ON OR AFTER
- ------------------------------------------------------------------------------
JANUARY 1, 1997
- ---------------
Plan (S) 12.11 Minimum distribution requirements amended to
Code (S) 401(a)(9) eliminate the requirement that distributions
commence before an employee retires and make other
related changes
PROVISIONS ADDED OR AMENDED EFFECTIVE FOR PLAN YEARS BEGINNING ON OR AFTER
- --------------------------------------------------------------------------
JANUARY 1, 1997
- ---------------
Plan (S) 1.01(bb) Definition of highly compensated employee revised to
Code (S) 414(q) reflect the amendments made by the Small Business
Job
</TABLE>
<PAGE>
96
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<CAPTION>
<S> <C>
Protection Act of 1996.
Plan (S)(S) 1.01(bb), 3.02 Family aggregation rules eliminated.
Code (S)(S) 401(a)(17), 414(q)
Plan (S) 6.07 Section amended to require allocation of excess
Code (S) 401(k) contributions among highly compensated employees
based on the amount of each employee's elective
contributions.
Plan (S) 6.07 Section amended to require allocation of excess
Code (S) 401(m) aggregate contributions among highly compensated
employees based on the amount of each employee's
after-tax and matching contributions.
</TABLE>
<PAGE>
EXHIBIT 21
THE WALT DISNEY COMPANY AND SUBSIDIARIES
<TABLE>
<S> <C>
Name of subsidiary State of Incorporation
---------------------------------------------------------------
ABC, Inc. New York
ABC Holding Company Inc. Delaware
American Broadcasting Companies, Inc. Delaware
Buena Vista Home Video, Inc. California
Buena Vista International, Inc. California
Buena Vista Television California
Disney Enterprises, Inc. Delaware
Lake Buena Vista Communities, Inc. Delaware
Miramax Film Corp. New York
The Disney Channel California
The Disney Store, Inc. California
Walt Disney Pictures and Television California
Walt Disney World Co. Delaware
WCO Parent Corporation Delaware
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND CONDENSED CONSOLIDATED STATEMENT OF
INCOME FOUND ON THE COMPANY'S FORM 10-K FOR THE TWELVE MONTHS ENDED SEPTEMBER
30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 127
<SECURITIES> 1,814
<RECEIVABLES> 3,999
<ALLOWANCES> 0
<INVENTORY> 899
<CURRENT-ASSETS> 9,375
<PP&E> 15,728
<DEPRECIATION> 5,382
<TOTAL-ASSETS> 41,378
<CURRENT-LIABILITIES> 7,525
<BONDS> 9,562
0
0
<COMMON> 8,995
<OTHER-SE> 10,393
<TOTAL-LIABILITY-AND-EQUITY> 41,378
<SALES> 22,976
<TOTAL-REVENUES> 22,976
<CGS> 0
<TOTAL-COSTS> 18,961
<OTHER-EXPENSES> 236
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 622
<INCOME-PRETAX> 3,157
<INCOME-TAX> 1,307
<INCOME-CONTINUING> 1,850
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,850
<EPS-PRIMARY> 0.89
<EPS-DILUTED> 0.89
</TABLE>
