**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

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** **

**FORM 20-F**

 

**ANNUALREPORT PURSUANT TO SECTION 13OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the fiscal year ended September 30, 2004**

 

**Commission file number 33-79548**

 

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**Euro DisneyS.C.A.**

(Exact name of registrant as specified in itscharter)

 
| **N/A**                                               | ** ** | **Republic of France**                           |
|-------------------------------------------------------|------------|--------------------------------------------------|
| (Translation of registrant’s name into  English) |       | (Jurisdiction of incorporation or  organization) |

 

**ImmeublesAdministratifs**

**RouteNationale 34**

**77700 Chessy**

**France**

(Address of principal executive offices)

 

Securities registered or to be registered pursuant to Section 12(b) ofthe Act: **None**

 

Securities registered or to be registered pursuant to Section 12(g) ofthe Act:

 
| **Title of each class**                               | ** ** | **Name of  each exchange on which registered**                                      |
|-------------------------------------------------------|------------|-------------------------------------------------------------------------------------|
| Ordinary Shares of Common Stock par value € 0.01 |       | Euronext Paris, London Stock Exchange, SEAQ International, Brussels  Stock Exchange |

 

Securities for which there is a reporting obligation pursuant toSection 15(d) of the Act: **None**

 

Indicate the number of outstanding shares of each of the issuer’s classesof capital or common stock as of the close of the period covered by the annualreport: 1,082,680,292 shares of common stock, par value € 0.01.

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. **YES****ý.   **NOo

 

Indicate by check mark which financial statement item the registranthas elected to follow. Item 17 ýItem 18 o

 

 

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**TABLE OF CONTENTS**

 
| **PART I**   | ** **                                                 |
|--------------|------------------------------------------------------------|
| ** **   | **PRESENTATION  OF INFORMATION AND ACCOUNTING PRINCIPLES** | ** ** |
| ** **   | ** **                                                 | ** ** |
| ** **   | **ITEM 1.**                                                | ** ** | **IDENTITY  OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS** | ** ** |
| ** **   | ** **                                                 | ** ** | ** ** | ** ** |
| ** **   | **ITEM 2.**                                                | ** ** | **OFFER  STATISTICS AND EXPECTED TIMETABLE** | ** ** |
| ** **   | ** **                                                 | ** ** | ** ** | ** ** |
| ** **   | **ITEM 3.**                                                | ** ** | **KEY  INFORMATION** | ** ** |
| ** **   | ** **                                                 | ** ** | ** ** | ** ** |
| ** **   | **ITEM 4.**                                                | ** ** | **INFORMATION  ON THE COMPANY** | ** ** |
| ** **   | ** **                                                 | ** ** | ** ** | ** ** |
| ** **   | **ITEM 5.**                                                | ** ** | **OPERATING AND FINANCIAL REVIEW AND  PROSPECTS** | ** ** |
| ** **   | ** **                                                 | ** ** | ** ** | ** ** |
| ** **   | **ITEM 6.**                                                | ** ** | **DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES** | ** ** |
| ** **   | ** **                                                 | ** ** | ** ** | ** ** |
| ** **   | **ITEM 7.**                                                | ** ** | **MAJOR SHAREHOLDERS AND RELATED PARTY  TRANSACTIONS** | ** ** |
| ** **   | ** **                                                 | ** ** | ** ** | ** ** |
| ** **   | **ITEM 8.**                                                | ** ** | **FINANCIAL INFORMATION** | ** ** |
| ** **   | ** **                                                 | ** ** | ** ** | ** ** |
| ** **   | **ITEM 9.**                                                | ** ** | **THE OFFER AND LISTING** | ** ** |
| ** **   | ** **                                                 | ** ** | ** ** | ** ** |
| ** **   | **ITEM 10.**                                               | ** ** | **ADDITIONAL INFORMATION** | ** ** |
| ** **   | ** **                                                 | ** ** | ** ** | ** ** |
| ** **   | **ITEM 11.**                                               | ** ** | **QUANTITATIVE AND QUALITATIVE DISCLOSURES  ABOUT MARKET RISK** | ** ** |
| ** **   | ** **                                                 | ** ** | ** ** | ** ** |
| ** **   | **ITEM 12.**                                               | ** ** | **DESCRIPTION OF  SECURITIES OTHER THAN EQUITY SECURITIES** | ** ** |
| ** **   | ** **                                                 | ** ** | ** ** | ** ** |
| **PART II**  | ** **                                                 |
| ** **   | ** **                                                 |
| ** **   | **ITEM 13.**                                               | ** ** | **DEFAULTS, DIVIDEND ARREARAGES AND  DELINQUENCIES** | ** ** |
| ** **   | ** **                                                 | ** ** | ** ** | ** ** |
| ** **   | **ITEM 14.**                                               | ** ** | **MATERIAL  MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS** | ** ** |
| ** **   | ** **                                                 | ** ** | ** ** | ** ** |
| ** **   | **ITEM 15.**                                               | ** ** | **CONTROLS AND  PROCEDURES** | ** ** |
| ** **   | ** **                                                 | ** ** | ** ** | ** ** |
| ** **   | **ITEM 16**                                                | ** ** | **OTHER** | ** ** |
| ** **   | ** **                                                 | ** ** | ** ** | ** ** |
| **PART III** | ** **                                                 |
| ** **   | ** **                                                 |
| ** **   | **ITEM 17.**                                               | ** ** | **FINANCIAL STATEMENTS** | ** ** |
| ** **   | ** **                                                 | ** ** | ** ** | ** ** |
| ** **   | **ITEM 18**                                                | ** ** | **NA** | ** ** |
| ** **   | ** **                                                 | ** ** | ** ** | ** ** |
| ** **   | **ITEM 19.**                                               | ** ** | **FINANCIAL STATEMENTS AND EXHIBITS** | ** ** |

 

2

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**PART I**

 

**PRESENTATION****OF INFORMATION AND ACCOUNTING PRINCIPLES**

 

Euro Disney S.C.A. (the “Company”), including its subsidiaries and consolidatedfinancing companies (together, the “Group”), publishes its consolidatedfinancial statements (“Consolidated Financial Statements”) in euros. Allcurrency amounts in this annual report on Form 20-F (“Annual Report”) areexpressed in euros.

 

The Company prepares its Consolidated Financial Statements inaccordance with accounting principles generally accepted in France (“FrenchGAAP”), which differ in certain significant respects from generally acceptedaccounting principles in the United States of America (“U.S. GAAP”).  Unless otherwise specified, all financialinformation presented in this Annual Report has been derived from or based onthe Consolidated Financial Statements. For a discussion of the principal differences between French GAAP and U.S.GAAP as they relate to the Group’s consolidated results of operations andfinancial position, See Notes 2 and 30 to the Consolidated Financial Statementsin Item 17 “Financial Statements”.

 

The Company’s fiscal year begins on October 1 of a given year and endson September 30 of the following year. References in this annual report to a numbered fiscal year are to thetwelve-month period ended on September 30 of the calendar year that bears suchnumber (so that, for example, fiscal year 2004 is the fiscal year that ends onSeptember 30, 2004).

 

In September 2004, the Company reached agreement with its lenders andThe Walt Disney Company (“TWDC”) on a comprehensive restructuring (the “Restructuring”)of the Group’s financial obligations, intended to provide new cash resources,to reduce or defer cash payment obligations and to provide flexibility forinvestment and development.  TheRestructuring is subject to certain conditions, including the completion of ashare capital increase in an amount of at least €250 million (the “ShareCapital Increase”).  If the conditionsare not met by March 31, 2005, and the Company does not successfully negotiatean alternative arrangement during the subsequent thirty days, most of theprovisions of the Restructuring will become null and void, in which case theCompany will not be able to meet its financial obligations.  The Restructuring is described in detailunder Item 5, “Operating and Financial Review and Prospects – 2004 FinancialRestructuring.”

 

# **ITEM1.**     IDENTITY OF DIRECTORS,SENIOR MANAGEMENT AND ADVISERS

# ** **

Not applicable.

 

# **ITEM2.**     OFFER STATISTICS ANDEXPECTED TIMETABLE

# ** **

Not applicable.

 

**ITEM 3.****     KEYINFORMATION**

 

**A.****            SELECTED FINANCIALDATA**

 

***Five-Year Selected Financial Data***

 

The following table sets forth the Group’s selected consolidatedfinancial data for the five-year period ended September 30, 2004.  This table is qualified by reference to, andshould be read in conjunction with, the Consolidated Financial Statements andthe related notes thereto included in Item 17 “Financial Statements” and Item 5“Operating and Financial Review and Prospects”.

 

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| **(€ in millions, except per share data)**   | ** ** | **2004****(1)** | ** ** | **Pro-Forma  2003****(1)** | ** ** | **As-reported Year Ended September 30,** | ** ** |
|---------------------------------------------------|------------|-----------------|------------|----------------------------|------------|------------------------------------------|------------|
| **2003**                                          | ** ** | **2002**        | ** ** | **2001**                   | ** ** | **2000**                                 |
| **Income Statement Data:**                        |       |            |       |                       |       |                                     |       |   |   |   |   |   |   |
|                                              |       |            |       |                       |       |                                     |       |   |   |   |   |   |   |
| ***In accordance with French GAAP:***             | * *   | * *        | * *   | * *                   | * *   | * *                                 | * *   | * * | * * | * * | * * | * * | * * |
| **Segment Revenues**                              |       |            |       |                       |       |                                     |       |   |   |   |   |   |   |
| Resort activities                                 |       | 1,036.2         |       | 1,023.2                    |       | 1,023.9                                  |       | 1,043.9 |   | 964.3 |   | 940.7 |   |
| Real estate development activities                |       | 11.8            |       | 23.6                       |       | 23.6                                     |       | 27.3 |   | 37.2 |   | 14.5 |   |
| **Total Revenues**                                |       | 1,048.0         |       | 1,046.8                    |       | 1,047.5                                  |       | 1,071.2 |   | 1,001.5 |   | 955.2 |   |
|                                              |       |            |       |                       |       |                                     |       |   |   |   |   |   |   |
| Income (loss) before lease and financial  charges |       | (23.9           | )          | 32.1                       |       | 132.4                                    | (3)   | 175.7 |   | 185.2 |   | 175.8 |   |
| Income (loss) before exceptional items            |       | (129.6          | )          | (79.1                      | )          | (67.9                                    | )          | 4.9 |   | 37.7 |   | 37.5 |   |
| Exceptional income (loss)                         |       | (22.3           | )          | 12.0                       |       | 11.9                                     |       | (38.0 | ) | (7.2 | ) | 1.2 |   |
| Minority interests                                |       | 6.7             |       | 8.8                        |       | —                                   |       | — |   | — |   | — |   |
| Net income (loss)                                 |       | (145.2          | )          | (58.3                      | )          | (56.0                                    | )(3)       | (33.1 | ) | 30.5 |   | 38.7 |   |
|                                              |       |            |       |                       |       |                                     |       |   |   |   |   |   |   |
| ***In accordance with U.S. GAAP:***               |       |            |       |                       |       |                                     |       |   |   |   |   |   |   |
| Revenues                                          |       | 1,049.4         |       | —                     |       | 1,053.4                                  |       | 1,078.3 |   | 1,002.9 |   | 960.7 |   |
| Net loss                                          |       | (77.5           | )(2)       | —                     |       | (54.4                                    | )          | (67.3 | ) | (50.6 | ) | (66.2 | ) |
| Net loss per share *(in €)*(4)               |       | (0.07           | )          | —                     |       | (0.05                                    | )          | (0.06 | ) | (0.05 | ) | (0.07 | ) |

 
| ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** | **As-reported Year Ended September 30,** | ** ** |
|--------------------------------------------------|------------|------------|------------|------------|------------|------------------------------------------|------------|
| **(€ in millions, except per  share data)** | ** ** | **2004**   | ** ** | ** ** | ** ** | **2003**                                 | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
| Pro-Forma U.S. GAAP net loss (5)                 |       | (130.0     | )          | —     |       | (153.6                                   | )          | (144.5 | ) | (122.3 | ) | (135.7 | ) |
|                                             |       |       |       |       |       |                                     |       |   |   |   |   |   |   |
| *Pro-Forma net loss per share  (in €)*(5)   |       | (0.12      | )          | —     |       | (0.15                                    | )          | (0.14 | ) | (0.12 | ) | (0.14 | ) |

 
| **(€ in millions)**                    | ** ** | **2004****(1)** | ** ** | **Pro-  Forma  2003****(1)** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|-----------------|------------|------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| **As-reported September 30,**               |
| **2003**                                    | ** ** | **2002**        | ** ** | **2001**                     | ** ** | **2000**   |
| **Balance Sheet Data:**                     |       |            |       |                         |       |       |       |       |       |       |       |       |       |
|                                        |       |            |       |                         |       |       |       |       |       |       |       |       |       |
| ***In accordance with French GAAP:***       | * *   | * *        | * *   | * *                     | * *   | * *   | * *   | * *   | * *   | * *   | * *   | * *   | * *   |
| Total assets                                |       | 2,876.6         |       | 2,954.4                      |       | 2,583.6    |       | 2,708.6    |       | 3,106.1    |       | 2,793.8    |       |
| Borrowings                                  |       | 2,052.8         | (6)   | 2,448.4                      |       | 867.5      |       | 821.3      |       | 1,141.2    |       | 916.8      |       |
| Equity and quasi-equity                     |       | (59.9           | )          | 85.6                         |       | 1,237.2    |       | 1,397.6    |       | 1,430.7    |       | 1,400.3    |       |
| Minority interests                          |       | 339.6           | (6)        | (41.3                        | )          | —     |       | —     |       | —     |       | —     |       |
| * *                                    | * *   | * *        | * *   | * *                     | * *   | * *   | * *   | * *   | * *   | * *   | * *   | * *   | * *   |
| ***In accordance with U.S. GAAP:***         | * *   | * *        | * *   | * *                     | * *   | * *   | * *   | * *   | * *   | * *   | * *   | * *   | * *   |
| Total assets                                |       | 2,906.6         |       | —                       |       | 2,946.8    |       | 3,076.5    |       | 3,539.0    |       | 3,318.8    |       |
| Borrowings*(Current  and Long-term)**(7)*   |       | 1,950.0         |       | —                       |       | 2,208.9    |       | 2,218.6    |       | 2,565.1    |       | 2,349.8    |       |
| Shareholders’ equity                   |       | (48.7           | )          | —                       |       | 60.4       |       | 112.6      |       | 179.7      |       | 238.1      |       |
|                                        |       |            |       |                         |       |       |       |       |       |       |       |       |       |
| **Common Shares Outstanding (in millions)** |       | 1,082.7         |       | —                       |       | 1,055.9    |       | 1,055.9    |       | 1,055.8    |       | 1,055.8    |       |

 

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*Certainreclassifications have been made to the prior years comparative amounts inorder to conform to the 2004 presentation.*

 

*(1)**              EffectiveOctober 1, 2003, the Group adopted new accounting rules mandated in France withrespect to the consolidation of special purpose financing companies that arenot legally controlled by the Group (See Item 4.C.2 “Financing Companies”).  To enhance comparability, fiscal year 2003French GAAP figures are presented on a pro-forma basis as if this change inaccounting principle was in effect during all of fiscal year 2003.  (See Item 5 “Operating and Financial Reviewand Prospects” — Section B “Results of Operations”).*

 

*(2)**              EffectiveOctober 1, 2003 (first day of fiscal year 2004), the Group implemented FIN 46R,“Consolidation of Variable Interest Entities”. As a result, fiscal year 2004 U.S. GAAP net loss was reduced by € 36.3million reflecting the cumulative impact of adopting this change in accountingprinciple.  (See Note 30 to theConsolidated Financial Statements in Item 17 “Financial Statements).*

 

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*(3)**              French GAAPnet loss for fiscal year 2003 includes the € 11.8 million net impact of achange in accounting principle for major fixed asset renovations and the impactof a conditional waiver of royalties and management fees for the last threequarters of the fiscal year (See Item 5 “Operating and Financial Review andProspects” — Section B “Results of Operations”).*

 

*(4)**              Per share datais based upon the weighted average number of common shares outstanding of 1,062million, 1,056 million, 1,056 million, 1,056 million and 992 million for eachof the years ended September 30, 2004, 2003, 2002, 2001 and 2000, respectively,and does not give effect to the exercise of any contingently issuable shares asthey were anti-dilutive.*

 

*(5)**              The Pro-Formanet loss and pro-forma net loss per share present the U.S. GAAP net loss thatthe Group would have had if royalties and management fees to The Walt DisneyCompany had not been adjusted from their original schedule for modificationsagreed since the inception of the agreements (See Notes 19(b) and 30 to theConsolidated Financial Statements in Item 17 “Financial Statements”).*

 

*(6)**              EffectiveSeptember 30, 2004, Euro Disney Associés, one of the Group’s consolidatedfinancing companies, was recapitalised resulting in a €384.1 million decreasein borrowings and a corresponding increase in minority interests (See Notes11(a) and 14(f) to the Consolidated Financial Statements in Item 17 “FinancialStatements”).*

 

*(7)**              As ofSeptember 30, 2004 and 2003, under U.S. GAAP all borrowings have beenclassified as current pending the implementation of the Group’s Restructuring.(See Note 30 to the Consolidated Financial Statements in Item 17 “FinancialStatements”).*

 

***Exchange Rates***

 

Since the principal market for the Company’scommon stock is the Euronext Paris exchange, fluctuations in the exchange ratebetween the euro and the U.S. dollar will affect the U.S. dollar value of aninvestment in its common stock and dividend and other distribution payments, ifany, thereon.  The following tables setforth, for each of the periods indicated, certain information related to theeuro / U.S. dollar exchange rate for 2000 through 2004 based on the noon buyingrates in the city of New York for cable transfers in euro as certified forcustoms purposes by the Federal Reserve Bank of New York (the “Noon BuyingRates”) expressed in dollars per € 1.00. Such rates are provided solely for the convenience of the reader and arenot necessarily the rates that were used to prepare the Group’s ConsolidatedFinancial Statements nor the selected consolidated financial data includedherein.

 
| **U.S. dollar per euro** | ** ** | **Low** | ** ** | **High** | ** ** |
|--------------------------|------------|---------|------------|----------|------------|
| December 2004            |       | 1.32    |       | 1.36     |       |
| November 2004            |       | 1.27    |       | 1.33     |       |
| October 2004             |       | 1.23    |       | 1.28     |       |
| September 2004           |       | 1.20    |       | 1.23     |       |
| August 2004              |       | 1.20    |       | 1.24     |       |
| July 2004                |       | 1.20    |       | 1.24     |       |
| June 2004                |       | 1.20    |       | 1.23     |       |

 
| **U.S. dollar per euro  Fiscal Year** | ** ** | **Low** | ** ** | **High** | ** ** | **Average****(1)** | ** ** | **End of Period** | ** ** |
|---------------------------------------|------------|---------|------------|----------|------------|--------------------|------------|-------------------|------------|
| 2004                                  |       | 1.14    |       | 1.28     |       | 1.22               |       | 1.23              |       |
| 2003                                  |       | 0.97    |       | 1.19     |       | 1.09               |       | 1.16              |       |
| 2002                                  |       | 0.86    |       | 1.02     |       | 0.92               |       | 0.99              |       |
| 2001                                  |       | 0.83    |       | 0.95     |       | 0.88               |       | 0.91              |       |
| 2000                                  |       | 0.85    |       | 1.09     |       | 0.95               |       | 0.88              |       |

 

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*(1)**              The average ofthe Noon Buying Rates on the last business day of each month during therelevant period.*

 

The Noon Buying Rate on December 31, 2004 for the euro against the U.S.dollar was $1.36 per € 1.00 (€ 0.74 per dollar). No representation is made thatthe euro could have been converted into U.S. dollars at the rates shown hereinor at any other rates for such periods or at such dates.

 

**B.****            CAPITALISATION ANDINDEBTEDNESS**

 

Not applicable.

 

**C.****            REASONS FOR THE OFFERAND USE OF PROCEEDS**

 

Not applicable.

 

5

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**D.****            RISK FACTORS**

 

***Risks Relating to the Restructuring***

 

**If the Company does not complete the ShareCapital Increase by March 31, 2005, the Restructuring might not be implemented,in which case the Group would not be able to meet its financial obligations**

 

Most of the provisions of the documents relating to the Restructuringwill become null and void if the Company does not complete a Share CapitalIncrease with gross proceeds of at least €250 million by March 31, 2005, unlessagreement is reached on an alternative arrangement within the immediatelyfollowing 30 days.  While the Group hasreceived a commitment from TWDC to subscribe to €100 million of the ShareCapital Increase and from certain banks to subscribe for the remainder, thecommitments of the banks are subject to certain conditions, including thatmarket conditions permit the Share Capital Increase to go forward.  If the documents relating to theRestructuring become null and void, then certain amounts owed to TWDC and tothe *Caisse des Dépôts et Consignations (“CDC”)*would become payable through June 30, 2005, and the Group’s other lenders wouldhave the right to require the immediate repayment of amounts due under certainof the Group’s credit agreements.  Unlessthe Group is able to implement an alternative restructuring, the Group would beunable to meet these obligations.

 

In preparing the Consolidated Financial Statements, management has usedthe “going concern assumption” based on management’s belief that theRestructuring will be completed as contemplated.  If the “going concern assumption” had notbeen used, it would have had a significant impact on the valuation of the Group’sassets and liabilities as at September 30, 2004 and the Consolidated Financial Statementsas of and for the fiscal year then ended.

 

**The Share Capital Increase will result insignificant dilution for shareholders who do not exercise their preferentialsubscription rights**

 

The Company will issue a substantial number of new shares in the ShareCapital Increase, which is expected to take the form of a rights offering.  As is customary in rights offerings, the newshares will be offered at a discount compared to the market price of theCompany’s shares at the time the offering is launched.  While all existing shareholders will have theright to subscribe for the new shares, shareholders who do not subscribe willexperience significant dilution.  Theamount of dilution will depend on the price of the new shares, which will bedetermined based on market conditions at the time the Share Capital Increase islaunched.  While shareholders not wishingto subscribe will be able to sell their preferential subscription rights, themarket price of the rights might not be sufficient to compensate for theeconomic effect of the dilution.  The Company currently expects that,subject to certain limited exceptions, the rights will not be exercisable inthe United States.

 

***Risks Relating to the Group***

 

**The Group’s high level of borrowings requires theGroup to devote a large portion of its operating cash flow to service debt, andmay limit its operating flexibility**

 

The Group is highly leveraged. As of September 30, 2004, the Group hadconsolidated borrowings of €2.1 billion and negative shareholders’ equity of€59.9 million (€2.0 billion of consolidated borrowings and €386 million ofpositive shareholders’ equity on a pro-forma basis, adjusting for theimplementation of the Restructuring).  Inaddition, the Group pays significant royalties and management fees toaffiliates of TWDC.

 

Although the Restructuring contains several measures intended to allowincreased capital investment and to protect the Company against disruptions inits liquidity over a long period, the Group’s high degree of leverage and itsundertaking in favor of its lenders can have important consequences for itsbusiness, such as:

 

•                  limitingthe Group’s ability to invest operating cash flow in its business, because itsuses a substantial portion of these funds to pay debt service and because theGroup’s covenants restrict the amount of its investments;

 

•                  limitingthe Group’s ability to make capital investments in new attractions andmaintenance of the Theme Parks and Hotels, both of which are essential to itsbusiness;

 

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•                  limitingthe Group’s ability to borrow additional amounts for working capital, capitalexpenditures, debt service requirements or other purposes; and

 

•                  limitingthe Group’s ability to withstand business and economic downturns, because ofthe high percentage of its operating cash flow that is dedicated to servicingits debt.

 

If the Group cannot pay its debt service, royalties and management feesand meet its other liquidity needs from operating cash flow, the Group couldhave substantial liquidity problems.  Inthose circumstances, the Group might have to sell assets, delay planned investments,obtain additional equity capital or restructure its debt.  Depending on the circumstances at the time,the Group may not be able to accomplish any of these actions on favorableterms, or at all.  The Group’s financingagreements limit its ability to take some actions that could generateadditional cash proceeds.  They alsorequire that the Group meet certain financial covenants.  If the Group defaults on any of its debt, therelevant lenders could accelerate the maturity of the debt and take otheractions that could adversely affect the Group. To avoid a default, the Group may need waivers from third parties, whichmight not be granted.

 

**The Group has recently incurred losses, and expects tocontinue to incur a significant aggregate amount of losses over the nextseveral years**

 

The Group’s net loss for fiscal year2004 totalled €145.2 million, compared to a net loss of €58.3 million in fiscalyear 2003, determined on a pro-forma basis adjusting for certain changes inaccounting principles described herein. Management of the Company expects that even under its growthassumptions, the Group will incur a significant aggregate amount of net lossesover the next several fiscal years. Accordingly, the value of the Company’s shares could be adverselyaffected.

 

**The Group issubject to interest rate risk**

** **

As atSeptember 30, 2004, approximately 33% of the Group’s borrowings was tied tofloating interest rates.  While the Groupattempts to reduce interest rate risks in respect of a substantial portion ofits borrowings through the use of interest rate swaps and other hedgingtechniques, an increase in interest rates could adversely affect the Group’sfinancial condition.

 

**The Group issubject to exchange rate risks**

** **

Aportion of the Group’s purchases and capital investments are denominated inU.S. dollars and could be adversely affected by an increase in the relativevalue of the U.S. dollar against the euro. The Company attempts to reduce the forecasted dollar risk by purchasinghedging instruments, although it cannot be certain that its hedging techniqueswill be fully effective to insulate the Group from the risk of changes in valueof the U.S. dollar.  A weakening of theU.S. dollar (such as that which has recently occurred) also makes touristdestinations in the United States relatively more attractive, increasingcompetitive pressures on the Group and potentially adversely affectingattendance at the Resort.  In addition, asignificant portion of the Group’s guests (19% in fiscal year 2004) come fromthe United Kingdom, which is not part of the euro zone.  An increase in the relative strength of theeuro against the British pound would raise the price of a visit to the resortfor guests visiting from the United Kingdom and could negatively affect theirrates of attendance, per-guest spending and hotel occupancy.

 

**The Company has notpaid any dividends in recent years, and does not expect to pay dividends for asubstantial period of time**

** **

TheCompany will pay no dividends in respect of fiscal year 2004 and does notexpect to pay dividends for a substantial period of time.  The Company’s ability to pay dividends isdependent on the availability of distributable profits under French law, which,in turn, depends on the Company’s operating results, liquidity and financialcondition.  In addition, certain of theCompany’s loan agreements limit or prohibit the payment of dividends in certaincircumstances.

 

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**The Group’srelationship with TWDC – Potential conflicts of interest**

** **

TWDCcurrently owns 40.6% of the Company’s shares and voting rights through anindirect, wholly-owned subsidiary (and is expected to own approximately thesame percentage following the Share Capital Increase).  In addition, following the Restructuring TWDCwill own 18% of Euro Disney Associés S.C.A. (“EDA”) which will be the Group’sprincipal operating subsidiary.  UnderFrench law, the Company’s business (and that of EDA) is managed by a managementcompany (g*érant*) that is appointed by the Company’sgeneral partner (*associé commandité*).  The shareholders elect a supervisory board tooversee the Company, but the supervisory board does not have the power toremove the management company.  Both theCompany’s management company and the Company’s general partner are wholly-ownedindirect subsidiaries of TWDC, and the same will be true of EDA as regards themanagement company and two of its general partners.  The Company pays significant management feesto the management company.  After theRestructuring, the management fees payable by the Company will be reduced, butEDA will pay management fees to the management company similar to thosecurrently paid by the Company.

 

TheGroup also has several business relationships with TWDC that are important tothe Group’s operations.  The Group usesDisney intellectual and industrial property rights, for which the Group paysroyalties to an affiliate of TWDC.  TheCompany’s management company provides and arranges for a variety of additionaltechnical and administrative services, for which it receives a fee and isreimbursed its direct and indirect costs. For example, the designer and construction manager for Walt DisneyStudios Park was an affiliate of TWDC. These relationships create potential conflicts of interest.

 

Whilethe Group believes that its dealings with TWDC and its affiliates arecommercially reasonable, the Group has not solicited bids or independentevaluations of the terms of all of its commercial relationships with TWDC.  All such dealings must be authorized by theCompany’s supervisory board to the extent they involve the Company.  Similar dealings involving EDA after theRestructuring will require prior authorization by EDA’s supervisory boardonly.  EDA’s supervisory board membersare appointed by EDA’s shareholders, with the Company’s management companyvoting the Company’s shares on such matters in EDA’s shareholders’meetings.  Members of the Company’ssupervisory board or EDA’s supervisory board who are affiliated with TWDC arenot entitled to vote on such dealings.

 

***Risks of Investing in the Theme Park ResortBusiness***

 

**Demand for theme park resorts is variable and can be impacted byseasonality as well as economic and geopolitical conditions**

 

DisneylandResort Paris is subject to significant seasonal and daily fluctuations in attendanceand to the effects of general economic conditions.  While the Group has implemented and continuesto implement measures designed to alleviate fluctuations in attendance and tomitigate their impact, the Group cannot be certain that such measures willsufficiently offset fluctuations in demand. In addition, the effectiveness and timing of marketing campaigns canhave a significant impact on attendance levels. Given the discretionary nature of vacation travel and the fact thattravel and lodging expenses often represent a significant expenditure for theaverage consumer, such expenditures may be reduced, deferred or cancelled byconsumers during times of economic downturn or uncertainty.

 

Inaddition, a certain number of events, such as the recent internationalterrorist attacks, the subsequent military actions and the current geopoliticalclimate can adversely affect travel related industries and precipitate suddeneconomic downturns.  Although the Group’smanagement closely monitors its operating trends and has developedcost-reduction strategies to address such risks, such steps, depending on theduration and intensity of the downturn, may be insufficient to prevent itsfinancial performance from being adversely affected.

 

**The Group needs to make significant, regular capital expenditures tocontinue to attract guests**

 

Inorder to continue to attract guests, the Group needs to add new theme parkattractions on a regular basis, which requires significant capitalexpenditures.  If the Group does not makethese capital expenditures (for example, if its creditors do not permit it tomake them pursuant to its financing agreements), this could result in adecrease in attendance, particularly from repeat guests, which could adverselyaffect the Group’s results of operations.

 

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Aspart of the Restructuring, the Group will have the authorization and obligationto implement a €240 million development plan over the next few years.  The development plan will include theconstruction of new attractions, as well as other investments, all designed toincrease attendance.  There can be noassurance, however, that the planned investments will in fact result inincreased attendance at levels anticipated by the Group (or at all), or that,if attendance increases, the additional revenues will be sufficient to permitthe recovery of the amounts invested, a return on such investments or thepayment of the Group’s other financial obligations.

 

**The theme park resort business is competitive,which could limit the Group’s ability to increase prices or to attract guests**

 

TheGroup competes for guests throughout the year with other European andinternational holiday destinations and also other leisure and entertainmentactivities in the Paris region. The parks operated by the Group also competewith other European theme parks.  TheGroup also relies on convention business, which is highly competitive, for aportion of its revenues and to maintain hotel occupancy in off-peak periods.

 

TheGroup’s hotels are subject to competition from the third-party hotels locatedon the Resort Site (2,033 rooms/units as at the date of this Annual Report), incentral Paris and in the Seine-et-Marne area. The Group believes that its hotels are priced at a premium compared tothe market, reflecting among other advantages, their proximity to DisneylandPark and Walt Disney Studios Park, their unique themes and the quality servicethey offer.  The Group is aware, however,that a number of less costly alternatives exist.

 

Competitionlimits the Group’s ability to raise prices, and may require the Group to makesignificant new investments to avoid losing guests to competitors.

 

***Risks of investing in the Company’s  shares***

 

**No U.S. Public Market**

 

There has been no public market in the United States for its shares,and the Company has no present intention to apply to list the shares on anyU.S. exchange.  Therefore, theopportunity for U.S. holders to trade shares may be limited.

 

# **ITEM4.**     INFORMATION ON THECOMPANY

# ** **

# **A.**            HISTORY AND DEVELOPMENT OF THE COMPANY ANDBUSINESS OVERVIEW

# ** **

# **Introduction**

# ** **

The Group is primarily engaged in the development and operation ofDisneyland Resort Paris (the “Resort”), formerly Euro Disneyland.  The Resort commenced operations on April 12,1992 (“Opening Day”) on a 2,000 hectare site (the “Site”), located 32kilometers (approximately 20 miles) east of Paris in Marne-la-Vallée,Seine-et-Marne, France.  DisneylandResort Paris principally consists of Disneyland Park, Walt Disney Studios Park,seven themed hotels, including two convention centers, the Disney Villageentertainment center comprising shopping and restaurant facilities, and a27-hole golf course. The Group’s operating activities also include themanagement and development of the Site, which currently includes approximately1,000 hectares of undeveloped land.  Mostof these facilities (with the exception of the Walt Disney Studios Parkfacilities, two hotels and the golf course, which are owned by the Company) areleased, directly or indirectly, by the Company from special-purpose financingcompanies, which as of October 1, 2003 have been consolidated into thereporting group.  The Group has noownership interest in these entities. Disneyland Resort Paris is modeled on the theme park and resort conceptsdeveloped by The Walt Disney Company for its own theme parks and hotelinfrastructure.

 

Its principal executive offices are located at ImmeublesAdministratifs, Route Nationale 34, 77700 Chessy (Seine-et-Marne), France.  The postal address is BP 100, 77777Marne-la-Vallée Cedex 04, France.  Itstelephone number is (33) (1) 64 74 40 00.

 

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**A.1.****                          Historyof the Group**

 

In March 1987, TWDC entered into an agreement for the creation andoperation of Euro Disneyland in France (the “Master Agreement”) with theRepublic of France and certain other French public authorities.  The Company became a party to the MasterAgreement after its original signature. The Master Agreement sets out a master land-use plan and generaldevelopment program establishing the type and size of facilities that theCompany has the right, subject to certain conditions, to develop at the ResortSite over a 30-year period ending in 2017.

 

The Resort, as it exists today, represents the fulfillment of thefollowing development phases:

 
| **Phase** | ** ** | **Development  Period** | ** ** | **Development Description**                                                                                                                                                                                                                                              |
|-----------|------------|-------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Phase IA  |       | 1989 to 1992            |       | Disneyland Park,  Disneyland Hôtel, Davy Crockett Ranch, golf course, infrastructure and  support facilities.                                                                                                                                                       |
|      |       |                    |       |                                                                                                                                                                                                                                                                     |
| Phase IB  |       | 1989 to 1992            |       | Five themed hotels and Disney Village,  defined as the “Phase IB Facilities”.                                                                                                                                                                                  |
|      |       |                    |       |                                                                                                                                                                                                                                                                     |
| Phase IC  |       | 1992 to 1995            |       | Additional Capacity  Disneyland Park Assets which included among other attractions, *Space Mountain*and*Indiana Jones and the  Temple of Peril: Backwards!*                                                                                                              |
|      |       |                    |       |                                                                                                                                                                                                                                                                     |
|      |       | 1996 to 1997            |       | Disneyland Park  attraction *Honey, I Shrunk the Audience!*  and the Newport Bay Club Convention Centre                                                                                                                                                                  |
|      |       |                    |       |                                                                                                                                                                                                                                                                     |
| Phase II  |       | 1998 to 2004            |       | Val d’Europe new city  development including an international mall, a second urban rail station on  the Resort Site, and the development of a downtown district comprising  offices and housing, the first phase of a business park, and Walt Disney  Studios Park. |

 

The Group experienced significant lossesduring the period from the Opening Day through September 30, 1994. Netoperating losses before the cumulative effect of an accounting change totaledapproximately €625 million for the two-and-a-half-year period endingSeptember 30, 1994. In addition, the Group began to experience serious cashflow difficulties in the course of fiscal year 1993.

 

In March 1994, the Group entered into amemorandum of agreement with major stakeholders outlining the terms of a majorrestructuring of the Group’s obligations and those of the Phase IFinancing Companies and of TWDC.  The1994 Financial Restructuring essentially provided for concessions andcontributions to be made by the Group’s lenders and by TWDC, and for theprepayment of certain outstanding loan indebtedness of the Group and the PhaseI Financing Companies, using the proceeds of a share capital increase of theCompany amounting to €907.0 million.

 

In fiscal year 1999, the Company obtained theapproval of its lenders to obtain the financing necessary for the constructionof Walt Disney Studios Park, which opened on March 16, 2002 adjacent toDisneyland Park. The construction of Walt Disney Studios Park was financedusing the proceeds received from a share capital increase in the amount of€219.5 million in fiscal year 2000 and a new subordinated long-term loan fromthe CDC (€381.1 million).

 

In fiscal year 2003, the Group experienced reducedrevenues as a result of, in particular, a prolonged downturn in European traveland tourism combined with challenging general economic and geopolitical conditionsin key markets of the Group.  While thiswas partially offset by the impact of the opening of Walt Disney Studios Park,the number of visitors and the revenues generated by the new park were belowexpectations.  The Group also recordedincreased losses as a result of reduced revenues, as well as higher operatingcosts and higher marketing and sales expenses related to the opening of WaltDisney Studios Park.

 

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In this context, the Company (on behalf of the Group) once againentered into negotiations with its various lenders with a view to restructuringall the credit agreements.  Afterreceiving successive waivers of covenants in its credit agreements, the Company(on behalf of the Group) entered into a Memorandum of Agreement and variousagreements necessary for the implementation of the Memorandum ofAgreement.  For further information, seeItem 5, “Operating and Financial Review and Prospects” – Section F. “2004Financial Restructuring”.

 

**A.2.****                          StrategicOverview**

 

The Restructuring is an important step in re-establishing the Group’sliquidity, and a necessary condition to allow the Group to pursue itsdevelopment strategy, described below. By reaching agreement on the Restructuring and subject to its effectiveimplementation, the Group has the opportunity to pursue a strategy designed toattract new Theme Park visitors and hotel guests, and to increase repeatvisitation by enhancing guest satisfaction and value perception. Coupled withwhat management hopes will be a strong rebound in the short break and themepark markets in Europe, the Group believes that its development strategy hasthe potential to increase its revenues and improve its financial performance.

 

The Group has designed its development strategy to take advantage ofwhat management believes are significant opportunities to attract and retainvisitors.  The Group’s market researchshows that guest satisfaction levels at the Theme Parks are very high – inrecent surveys, guests indicating that they were “completely satisfied” or “verysatisfied” represented over 80% of the guests surveyed at Disneyland Park, andover 70% at Walt Disney Studios Park (a differential consistent with secondparks in other Disney resorts).  Marketresearch also indicates that there are substantial numbers of European familiesthat have never visited the Resort, but have indicated that they might like todo so in the future.

 

The Group’s strategy to take advantage of this opportunity includes theconstruction of three major new attractions scheduled to open in fiscal years2006, 2007 and 2008, and the enhancement of existing attractions and themagical atmosphere of the Theme Parks. The enhancements will include significant short-term improvements,designed to attract new visitors, while the new attractions are beingconstructed, most prominently the upgrade and re-launch of *SpaceMountain* in Fiscal Year 2005. The principal elements of the Group’s development strategy are thefollowing:

 

•                  ***Revitalize the Disneyland Park experience***

 

With the increase in ongoing capital expenditure authorization providedby the Restructuring, the Group will reinvigorate its long-standing policy ofcontinually upgrading Disneyland Park, starting with the fiscal year 2005upgrade and re-launch of *Space Mountain*,creating a completely new experience in order to provide its visitors with anew twist on this already popular roller coaster ride.

 

The Group also plans to introduce new children’s attractions to furtherpenetrate its European core market. In addition to these major attractions, theGroup will continue its ongoing efforts to enhance guest satisfaction, focusingon overall quality and reduction of waiting times, improved food and beverageexperience and increased merchandising innovation.

 

•                  ***Enhance the Walt Disney Studios Park experience***

 

The Group intends to increase the appeal of Walt Disney Studios Park toyoung children and their families.  Thiswill make the park more attractive to the Group’s core customer base and shouldencourage more visitors to take advantage of the “Park Hopper” ticket (whichpermits guests to visit both theme parks for a single, premium price).  The Group also plans to construct certain ofthe major new attractions at Walt Disney Studios Park, enhancing the overallattractiveness of the park.

 

•                  ***Expand seasonal events and popular shows***

 

Although the Group’s business is seasonal, the Group has successfullyemployed a strategy to reduce the impact of seasonality through the staging ofspecial promotional events in the off-peak season.  The Group intends to add to its popularHalloween and Christmas events with new seasonal features that will include a “*Magic Unlimited*” season in January (allowing repeat rides oncertain attractions without waiting in line), a Kids Carnival season and anEaster season.  The Group also intends tocontinue *The**Legend of the Lion King*show, which proved to be highly popular when it was introduced in June 2004.

 

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The Group intends to capitalize on majorevents with promotional campaigns designed to maximize the number ofvisitors.  For example, in fiscal year2005, the Group will implement a promotional campaign around the re-launch of *Space Mountain*, expected to occur in the spring, at thebeginning of the high season.  The Group alsoplans to mark the 50th anniversary of the original Disneyland Park inCalifornia with a fireworks celebration throughout the summer of 2005.

 

•                  ***Focus on differentiation of the Disney Hotels***

 

The Group intends to focus visitors on the attractiveness of its ownon-site Hotels in order to meet the short-term challenges presented by theopening of the new on-site hotels operated by third-parties in Fiscal Years2003 and 2004.  Its marketing effort willhighlight the proximity of its hotels to the Theme Parks and specialattractions such as Disney character breakfasts.  In addition, the Group has determined thatthe prospective balance between the Theme Parks and Hotel price components ofits travel packages shall give more weight to the ticket prices, and it intendsto modify its policy to achieve a better competitive equilibrium and to improvethe attractiveness of the Disney Hotels in packages booked through touroperators.

 

•                  ***Focus on sales and marketing on first-time visitorsand new distribution channels***

 

The Group will implement sales and marketing efforts designedspecifically to encourage attendance by first-time visitors, taking advantageof the large untapped population base in Europe discussed above.  The marketing effort will include a newcommunication strategy that will familiarize European visitors with the themepark experience, while differentiating the Disneyland Resort Paris experience.  The Group also intends to take advantage ofnew distribution channels by establishing relationships with low-cost airlinesand internet travel sites, as well as developing “calls to action” to triggerbookings when marketable news is released (for example, the re-launch of *Space Mountain*).

 

**A.3.****                Operations by Segment**

 

The Group operates in the following segments:

 

•                  **Resort activities**include theoperation of the Theme Parks, the Hotels and Disney Village, and the variousservices that are provided to guests visiting the Resort destination; and

 

•                  **Real Estate Development activities**include the conceptualization and planning of improvements and additions to theexisting Resort activity, as well as other commercial and residential realestate projects, whether financed internally or through third-party partners.

 

A breakdown of total revenues by major segment andactivity during the past five Fiscal Years is set forth in the table below:

 
| ** **                      | ** ** | ** **  | ** ** | **Pro-Forma** | ** ** | **As-reported** | ** ** |
|---------------------------------|------------|-------------|------------|---------------|------------|-----------------|------------|
| **(€ in millions)**        | ** ** | **2004**    | ** ** | **2003**      | ** ** | **2003**        | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
| Theme Parks                     | ** ** | **531.3**   | ** ** | **508.5**     | ** ** | 508.5           |       | 526.0 |   | 476.4 |   | 459.5 |   |
| Hotels and Disney Village       | ** ** | **405.2**   | ** ** | **416.7**     |       | 416.7           |       | 411.7 |   | 386.5 |   | 370.3 |   |
| Other                           | ** ** | **99.7**    | ** ** | **98.0**      |       | 98.7            |       | 106.2 |   | 101.4 |   | 110.9 |   |
| **Resort Segment**              | ** ** | **1,036.2** | ** ** | **1,023.2**   |       | 1,023.9         |       | 1,043.9 |   | 964.3 |   | 940.7 |   |
|                            |       |        |       |          |       |            |       |   |   |   |   |   |   |
| Real Estate Development Segment | ** ** | **11.8**    | ** ** | **23.6**      |       | 23.6            |       | 27.3 |   | 37.2 |   | 14.5 |   |
|                            |       |        |       |          |       |            |       |   |   |   |   |   |   |
| **Total Revenues**              | ** ** | **1,048.0** | ** ** | **1,046.8**   |       | 1,047.5         |       | 1,071.2 |   | 1,001.5 |   | 955.2 |   |

 

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**A.3.1.****                Resort Segment**

 

**A.3.1.1.****      *Theme Parks***

 

*Theme Parks*

 

Within the Resort segment, theme park activity includes all operationsof Disneyland Park and Walt Disney Studios Park, including merchandise, foodand beverage, special events and all other services provided to guests in theparks.  Theme Park revenue is determinedprimarily by two factors: the number of guests and the total average spendingper guest (which includes the admission price and spending on food, beverageand merchandise).

 

The Theme Parks are operated on a year-round basis. In the first yearsof operations, Disneyland Park experienced significant difficulties inaccommodating all prospective guests during peak days, which resulted in longwait times for attractions, guest dissatisfaction and lost revenues. Despiteprogress, operations continue to be subject to seasonal fluctuations.

 

Beginning in fiscal year 2004, seasonal theme park pricing has beeneliminated and replaced with stable year-round ticket pricing. However,specific packages are regularly offered for specific markets.

 

The Company began offering and promoting a “Park Hopper” ticket forone-day, two-day and three-day periods in October 2003 whereby for anadditional price of €9 over a single-gate, one day admission price, a guest cango back and forth freely between Disneyland Park and Walt Disney Studios Park.

 

The following table summarizes the evolution of thesingle-gate, one-day theme park admission prices, attendance and averagespending per guest:

 
| **Fiscal Year** | ** ** | **Total Guests****(1)****(in millions)** | ** ** | **Total Average  Spending per  Guest****(2)** | ** ** | **Theme Park  Admission Price High Season****(3)** | ** ** | **Theme Park  Admission Price  Low Season****(3)** | ** ** |
|-----------------|------------|------------------------------------------|------------|-----------------------------------------------|------------|----------------------------------------------------|------------|----------------------------------------------------|------------|
| 2004            |       | 12.4                                     |       | €                                        | 42.7       |                                               | €     | 40.0                                               |       | € | 40.0 |   |
| 2003            |       | 12.4                                     |       | €                                        | 40.7       |                                               | €     | 39.0                                               |       | € | 29.0 |   |
| 2002            |       | 13.1                                     |       | €                                        | 40.1       |                                               | €     | 38.0                                               |       | € | 27.0 |   |
| 2001            |       | 12.2                                     |       | €                                        | 38.9       |                                               | €     | 36.0                                               |       | € | 25.9 |   |
| 2000            |       | 12.0                                     |       | €                                        | 38.1       |                                               | €     | 33.5                                               |       | € | 25.2 |   |

 

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*(1)**              IncludesDisneyland Park and, from March 16, 2002, Walt Disney Studios Park.*

 

*(2)**              Average dailyadmission price and spending for food, beverage, merchandise and other servicessold in the Theme Parks, excluding value added tax.*

 

*(3)**              Representsat-gate park admission price for one adult including value added tax at the endof the Fiscal Year.  Starting in FiscalYear 2002, high season pricing generally applied to the whole year with theexception of the period from January to March inclusive.  Since January 2004, a single rate appliesthroughout the year.*

 

*Disneyland Park*

 

Disneyland Park is composed of five “themed lands”: *Main Street U.S.A.*, which transports guests to an Americantown at the turn of the 20th century, with its houses and shops, *Frontierland*, which takes guests on the path of the pioneerswho settled the American West, *Adventureland*,where guests dive into a world of intrigue and mystery, reliving Disney’s mostextraordinary legends and best adventure movies, *Fantasyland*,a magical land where guests find the fairy tale heroes brought to life in Disney’sanimated films, and *Discoveryland*,which lets guests discover different “futures” through the works ofvisionaries, inventors, thinkers and authors of science fiction from allperiods.

 

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There are 43 attractions in Disneyland Park, including upgradedversions of standard features of Disney theme parks around the world such as: *Big Thunder Mountain*, a roller coaster which simulates amining railway train; *Pirates of the Caribbean,*which reproduces a pirate attack on a Spanish fort of the 17thcentury, *Phantom Manor,* a haunted Victorianmansion; *It’s a small world*, the most popularattraction in *Fantasyland*, an exhibition ofdolls from around the world, dressed in their national costumes; and *Honey, I Shrunk the Audience!*, a three-dimensional film withinteractive special effects during which spectators participate in the illusionof being “shrunk”.  Other popularattractions that are unique to Disneyland Park include: *IndianaJones and the Temple of Peril: Backwards!*, a full-loop rollercoaster ride through simulated ancient ruins; and *SpaceMountain - from the Earth to the Moon*, a roller coaster ride themedto the work of Jules Verne in which guests board a spaceship and are catapultedby a giant canon into outer space.

 

Disneyland Park also has five permanent theatres.  Live stage shows are presented in thesevenues throughout the year. Examples from the past and present include*Mulan, the Legend, The Tarzan Encounter* and *Mickey’s Winter Wonderland*,**andmore recently*The Legend of the Lion King*.* *The entertainment inthe Disneyland Park also includes parades and firework displays, such as the *Wonderful World of Disney Parade, Fantillusion Parade* and*Tinkerbell’s Fantasy in the Sky Fireworks*.  As a result of the number of guests that theyattract, shows and parades enable an increase in the guest capacity ofDisneyland Park while at the same time increasing guest satisfaction.

 

In addition to the permanent Disneyland Park attractions, parades andlive stage shows, there are numerous seasonal events throughout the year whichin the past have included a *Festival of Flowers*in April, the*California Dream Festival* inSeptember, the *Halloween Festival* in October, *Guy Fawkes Night* in November, special Christmas festivitiesin December and early January, and the*Lion King Carnival*in February and March. The appearance of Disney characters and theirinteraction with guests is another important aspect of the entertainmentprovided in the theme parks.

 

In fiscal year 2000, an innovative reservation system called *Fastpass* was introduced in Disneyland Park.  A free service available to all guests, *Fastpass* provides an alternative to waiting in line.  Guests choosing *Fastpass*receive a ticket designating a specific window of time during which they mayreturn and enter directly into the pre-show or boarding area. The *Fastpass* system has been installed at five majorattractions:  *SpaceMountain - from the Earth to the Moon, Indiana Jones and the Temple of Peril:Backwards!, Peter Pan’s Flight*, *Big Thunder Mountain*and *Star Tours.*

 

*Walt Disney Studios Park*

 

Walt Disney Studios Park opened to the public on March 16, 2002.  Walt Disney Studios Park is a live-action,animation and television studio, where guests experience movies and televisionboth from behind the scenes and in front of the camera.  Guests discover the world of cinema, see howmovies are made today and step into the future of movie making.  They also have the opportunity to be part ofthe action, and get hands-on experience in animation techniques and specialeffects.

 

Walt Disney Studios Park is a full-day experience, designed for a six-or seven-hour stay and is one of three European parks with a cinema theme (thetwo others being the Warner Brothers Movie World Park in Germany and the WarnerBrothers Movie World park in Spain). Walt Disney Studios Park covers approximately 25 hectares, which isabout half the size of Disneyland Park, and may be expanded in the future.  It is located in front of the TGV/RER train station,in walking distance from Disneyland Park and Disney Village.

 

Guests access Walt Disney Studios Park through a monumental gatedesigned to look like the entry gates of the major Hollywood studios in the1930s.  The main gate provides access toa richly decorated central hub where all the ticketing and guest welcomeservices are located.

 

Walt Disney Studios Park includes nine major attractions, several ofwhich were specifically developed for the park. Examples include: the *Stunt Show Spectacular*,a live show in which stuntmen, facing an audience of up to 3,000 guests,simulate the filming of an action scene involving car and motorcycle chases andother special effects; *Cinemagique*, alyrical and emotional salute to the classics of international cinema; *Armageddon*, a revealing look into the world of film specialeffects while on board a spaceship hit by a meteorite shower; and *Animagique*, featuring some of the greatest moments of almost80 years of Disney animation.

 

The park also features upgraded versions of attractions from DisneyMGM-Studios near Orlando, Florida such as *Rock’n Roller Coaster*,a roller coaster ride themed to the music of Aerosmith and a visit to a musicrecording studio, and *Catastrophe Canyon*,the highlight of the *Studio Tram Tour*,which allows guests to experience a simulated earthquake and the resultingexplosions and floods.

 

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Since June 2002, the *Disney Cinema Parade*celebrates the steps in the life of a movie from A to Z featuring well-knownDisney characters. To add to the overall park ambience, this parade alsoincludes street entertainers (e.g. movie “look-alikes” and musicians), Disneycharacters centered around the world of animation and special entertainmentsuch as *Sister Act*.

 

As in Disneyland Park, the *Fastpass* systemreduces guest waiting-times at *Rock’n Roller Coaster*and the *Flying Carpets over Agrabah*.  The Company currently allows guests of WaltDisney Studios Park to cross over to Disneyland Park after 5:00 p.m. at noadditional charge.

 

**A.3.1.2.*****      Hotels and Disney Village***

 

Also included in the Resort segment are the Group’s hotels and DisneyVillage operations. Revenues from these activities include room rental, foodand beverage, merchandise, dinner shows, convention revenues and fixed andvariable rent received from third-party partners operating within the Resort.

 

All****of the hotel and resort amenitiesare currently operated on a year-round basis. Hotel operations are subject to significant seasonal fluctuations, aswell as significant fluctuations between weekdays and weekends especially inoff-peak seasons. The fiscal year 1998 opening of a second convention center,the continued success of seasonal promotions such as *Halloween*,*Guy Fawkes* and *Christmas*,and the introduction of travel inclusive packages have helped to reduce thesefluctuations.  The Company believes thatthe successful implementation and marketing of these events is important tomaintaining high average occupancy levels at the hotels.

 

*Hotel Operations*

 

Infiscal year 2004, approximately 27% of total hotel room-nights sold weregenerated in the three-month period from June through August, whileapproximately 24% were generated in the three-month period fromNovember through January, versus 36% and 14% respectively in fiscal year 1993during the same periods.  The Groupcurrently differentiates pricing according to the season and the level ofdemand with a focus on yield optimization.

 

Hotel revenues are determined primarily by two factors: the averageoccupancy rate and per-room spending.

 

| **Fiscal Year** | ** ** | **Average  occupancy rate****(1)** | ** ** | **Total average daily  Spending per occupied room****(2)** | ** ** |
|-----------------|------------|------------------------------------|------------|------------------------------------------------------------|------------|
| 2004            |       | 80.5                               | %          | €                                                     | 186.6      |   |
| 2003            |       | 85.1                               | %          | €                                                     | 183.5      |   |
| 2002            |       | 88.2                               | %          | €                                                     | 175.1      |   |
| 2001            |       | 86.0                               | %          | €                                                     | 168.6      |   |
| 2000            |       | 82.9                               | %          | €                                                     | 165.4      |   |

 

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*(1)**              Number ofrooms occupied per night divided by the number of rooms available during therelevant period.*

 

*(2)**              Average dailyroom price and spending on food, beverage and merchandise and other servicessold in the Hotels, excluding value added tax.*

 

The Group operates seven hotels at the Resort: the Disneyland Hôtel,the Hôtel New York, the Newport Bay Club, the Sequoia Lodge, the HôtelCheyenne, the Hôtel Santa Fe and the Davy Crockett Ranch (the “Hotels”).  Together, the Hotels have a total capacity ofapproximately 5,800 rooms.  Each of theHotels was designed and built with a specific theme and for a particular marketsegment.  The Disneyland Hôtel, which islocated at the entrance of Disneyland Park, and the Hôtel New York arepositioned as deluxe hotels offering service equivalent to that of the besthotels in Paris.  The Newport Bay Cluband the Sequoia Lodge are positioned as “first-class” hotels, while the HôtelCheyenne and the Hôtel Santa Fe were designed as “moderately-priced”hotels.  The Davy Crockett Ranchcampground is comprised of individual bungalows with private kitchens, campingsites, sports and leisure facilities and a retail shop.  Both the Hôtel New York and the Newport BayClub include convention facilities, which provide a total of approximately10,500 square meters of meeting space. Resort amenities also include 12 restaurants, 9 cafés/bars, a 27-holegolf course, 5 swimming pools, 4 fitness centers, tennis courts and anice-skating rink.

 

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A wide range of services is offered at theHotels.  Guests are providedtransportation between each of the Hotels and the train station and are giventhe option to check into the Hotels directly from the Chessy-Marne-la-Valléetrain station or from on board the Eurostar (London) and Thalys (Brussels andCologne) trains arriving at Disneyland Resort Paris.  As part of the check-in process, guests areprovided with room information and welcome booklets and for guests arriving bytrain, the Group also offers a luggage service, which allows them to godirectly to the parks and have their luggage delivered from the train stationto their rooms.  Entertainment is also anintegral part of the Hotel services, including Disney character breakfasts anddinners, character meet-and-greets in the lobbies of certain Hotels,face-painting workshops, and live music in the bars of certain Hotels. Children’sactivity corners have also been set up where children can take part in variousactivities while allowing their parents additional leisure time.

 

In addition to the seven “Euro Disney” Hotels described above, severalnew third-party managed hotels having signed sales and marketing agreements withthe Group are currently operating on the Resort Site.  These hotels which benefit from the EuroDisney “Selected Hotel” or “Associated Hotel” designations, depending on theirlevel of integration in the Resort, are as follows:

 
| ** **                                | ** ** | **Designation** | ** ** | **Category** | ** ** | **Date opened** | ** ** | **Number of Units** | ** ** |
|-------------------------------------------|------------|-----------------|------------|--------------|------------|-----------------|------------|---------------------|------------|
| Hôtel Elysées Val d’Europe |       | Associated      |       | 3            | *          | June 02         |       | 154                 |       |
| My Travel Explorer                        |       | Selected        |       | 3            | *          | March 03        |       | 390                 |       |
| Kyriad                                    |       | Selected        |       | 2            | *          | March 03        |       | 300                 |       |
| Pierre et Vacances Tourist Residence      |       | Associated      |       | 3            | *          | April 03        |       | 291                 |       |
| Holiday Inn                               |       | Selected        |       | 4            | *          | June 03         |       | 396                 |       |
| Marriot Vacation Club                     |       | Associated      |       | 4            | *          | June 03         |       | 97                  |       |
| Mövenpick Dream Castle Hotel         |       | Selected        |       | 4            | *          | July 04         |       | 405                 |       |
| **Total**                                 | ** ** | ** **      | ** ** | ** **   | ** ** | ** **      | ** ** | **2,033**           | ** ** |

 

These hotels benefitfrom transport shuttles to and from the theme parks as well as free parking fortheir guests (Selected Hotels only), and are an important source of guestattendance at the theme parks. For certain of these hotels, the Group has accessto blocks of rooms and receives commissions for selling those rooms to guests.Any revenues earned associated with these agreements is recorded in the “*Other Revenue*” line of the Resort segment.  See Sub-section A.3.2. below entitled “RealEstate Development Segment” for a discussion of hotel capacity developmentprojects currently in process.

 

*Disney Village Operations*

 

Disney Village consists of approximately 30,000 square meters of themeddining, entertainment and shopping facilities. It is a free-entrance venue(except for certain events), situated next to the Chessy-Marne-la-ValléeRER/TGV train station and between the Theme Parks and the Hotels.

 

The over-riding themes of Disney Village are “American Places” and “AmericanEntertainment” in the spirit of a coast-to-coast trip from New York to LosAngeles.  The largest of its facilitiesis an indoor arena seating more than 1,000 guests for dinner and a performanceof*Buffalo Bill’s Wild West Show*.  Other facilities include themed bars withmusic, themed restaurants, including *Café Mickey*, *Planet Hollywood, Rainforest Café, Annette’s Diner, McDonald’s*,and *King Ludwig’s Castle*(opened June 2003),retail shops and a 15-screen multiplex *Gaumont* cinemawith one of the largest screens in Europe.

 

The Group manages certain of the facilities in Disney Village, such asthe *Buffalo Bill’s Wild West Show*,merchandise boutiques and bars,**while othersare managed by third parties on its behalf. For example, certain restaurants are managed on its behalf by GroupeFlo, a French catering company.  Inaddition, certain of the facilities, such as the *PlanetHollywood,**McDonald’s, RainforestCafé* and *King Ludwig’s Castle*restaurants, and the *Gaumont* cinemaare owned and managed by third parties.

 

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**A.3.1.3.*  Foodand beverage***

 

The Group has 68 restaurants and bars throughout the Resort (four ofwhich are operated by third parties). Restaurants are themed both in decorationand menu, based upon their location within the Resort, and offer guests a widevariety of dining experiences including quick service, cafeteria-style, tableservice (including convention catering), and sophisticated French cuisine.  There are also food carts and kiosks locatedthroughout the Resort which offer fast-food. The Group offers guests the optionof a fixed-price menu in all of its table service restaurants.  During Fiscal Years 2001 and 2002, thecapacity of three Disney Village facilities were increased: *Billy Bob’s Country Western Bar*(+94 seats), *The Steakhouse* (+180 seats) and *Annette’sDiner* (+ 90 seats). In fiscal year 2003, the *Rock’n RollAmerica* was transformed into *King Ludwig’s Castle*,a 296 seat restaurant specializing in Bavarian cuisine.

 

**A.3.1.4.*  Merchandising***

 

The Group’s merchandising facilities include 54 boutiques, 4 kiosks anda large number of mobile carts strategically located throughout the Resort,which offer a wide range of both Disney-themed and non-Disney-themedgoods.  The product mix is constantlyre-evaluated in an effort to better adapt to guest preferences and guestmix.  New merchandise development focuseson Disney character products, such as the *Mickey Sorcerer*line, which is popular with guests, and on more variety for the repeatguest.  Other innovative merchandisingoptions include photo locations at four attractions, *Big ThunderMountain*, *Space Mountain - From theEarth to the Moon*, *Pirates of the Caribbean*and *Rock’n’Roller Coaster,* which offer to itsguests the opportunity to purchase candid photos taken of them during theirride.

 

**A.3.2.****      Real Estate DevelopmentSegment**

 

*Real estate development segment*

 

The Group’s activitiesinclude the planning and development of the 1,943 hectare site on which theResort is located, in accordance with the Master Plan.  Development activities include theconceptualization and planning of improvements and additions to the existingResort, as well as other commercial and residential real estate projects to belocated on the Resort Site, whether financed internally or through third-partypartners.

 

The Group’s principal real estate development revenues are derived fromconceptual design services related to third party development projects on theResort Site and from the sale of land development rights or from ground leaseincome from third-party developers.  Suchtransactions not only provide a source of up-front cash inflows but alsocontribute to improving the potential of future Resort and real estatedevelopment projects and to increasing the potential local clientele forDisneyland Resort Paris.

 

The following tablesummarises the financial impact of real estate development activities on thefinancial statements:

 
| **(€ in millions)** | ** ** | **2004**   | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
|--------------------------|------------|------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| Revenues                 |       |       |       |     |       |     |       |     |       |     |       |
| Operating                | ** ** | **11.8**   |       | 23.6     |       | 27.3     |       | 37.2     |       | 14.5     |       |
| Exceptional              | ** ** | **—** |       | 0.1      |       | —   |       | 0.4      |       | 0.6      |       |
| Total Revenues           | ** ** | **11.8**   |       | 23.7     |       | 27.3     |       | 37.6     |       | 15.1     |       |
| Costs and Expenses       | ** ** | **(10.1**  | )          | (13.3    | )          | (15.2    | )          | (13.4    | )          | (11.6    | )          |
| Net Income               | ** ** | **1.7**    |       | 10.4     |       | 12.1     |       | 24.2     |       | 3.5      |       |

 

Real estate development revenues areprimarily related to the following projects:

 

The first phase of development between 1989 and 1997 was essentiallydevoted to the creation of the Resort destination, the second phase between1998 and 2003 focused on the emergence of the development of an urban centerlocated adjacent to the Resort  (Val d’Europe).In addition to Walt Disney Studios Park, this second phase of developmentresulted in:

 

•                  new infrastructure such as a secondRER train station (Val d’Europe) on the Resort Site and a new interchange onthe A4 motorway;

 

•                  an InternationalShopping Mall at Val d’Europe*,* whichcomprises 103,000 square meters of retail space.  The Group owns the land on which the mall islocated and leases it to the developer under a 75-year ground lease;

 

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•                  development ofthe Val d’Europe town center, which currently includes residential, retail andcommercial developments and the Elysées**Val d’Europe**hotel, which opened in June 2002 on land leased from theGroup; and

 

•                  a first phase ofan international business park, which upon completion will comprise an area of40 hectares, strategically positioned near the motorway. Construction andcommercialization of the first seven hectares is currently being carried out byArlington plc, a leading European developer of business parks.

 

*Hotel capacity developments*

 

With the development ofWalt Disney Studios Park, the Group also focused on the expansion of on-siteResort lodging capacity.  A number ofprojects have been completed or are in various stages of progress withthird-party international hotel developers/tour operators for the creation ofadditional hotels and vacation units. These projects have or will be constructed, owned and operated by thirdparties on land purchased from the Group or leased from the Group underlong-term ground leases.  In addition,the Group has and will earn conceptualization fees and other developmentservice fees related to these transactions.

 

As a result of these projects, approximately 1,400 hotel/vacation unitswere opened on the Resort Site in Fiscal Year 2003 and 457 units were opened inFiscal Year 2004, bringing the total on-site capacity to approximately 7,800total room units.

 

The agreements and projects currently in place will result in a totalof approximately 350 additional hotel/vacation units on the Resort Site in thecourse of Fiscal Years 2005 and 2006.

 

*Residential developments*

 

The Group also sells land to third-party residential developers workingon projects in the areas surrounding the Resort, including the commerciallysuccessful middle and high-end housing developments near the golf course in thecommunities of Magny-le-Hongre and Bailly-Romainvilliers.

 

To date, this residential development has been financed by thirdparties.  The Group’s role has beenlimited to overseeing the master planning and architectural design of eachdevelopment, and to selling to selected developers the land development rightsnecessary to realize the projects.  TheGroup does not anticipate significant changes in its role for futureresidential development projects, although the Group may consider expanding itsrole in a certain number of these projects to include an equity participationvia joint ventures with the third-party developers.

 

*Development plans for the coming years*

 

More recently, a third phase of development was signed with the FrenchPublic Authorities on July 9, 2003 and covers the period 2004 through2010.  In this phase of development, thefollowing is anticipated:

 

•                  the expansion ofDisney Village, the development of business tourism and additional hotelcapacity, when needed;

 

•                  the continuationof the Val d’Europe**town centerexpansion (residential and office development);

 

•                  the developmentof new public services such as the development of a high school (*Lycée*) in Serris with international sections, thedevelopment of an university center in Val d’Europe as well as a new module forthe TGV station;

 

•                  the continuationof the international business park development (second phase); and

 

•                  otherresidential developments in the area surrounding the Val d’Europe golf course.

 

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### ***A.4.***         Marketing and Sales Strategy

 

**A.4.1.****    ****Marketing and Sales**

 

*ProductOffer*

 

Disneyland Paris Resort is the number one tourist destination in Europein terms of guest visitation with a product offer that currently includes twotheme parks, 7 themed Hotels (5,800 total rooms), two separate conventionfacilities (totaling 10,500 square meters), a dining, shopping andentertainment center and a 27-hole golf course.

 

With the opening of Walt Disney Studios Park, the Group’s packageoffers were modified to focus on 2-night, 3-day visits.  During Fiscal Year 2003 the Group re-introduceda widely distributed 1-night, 2-day package to accommodate its guests desiringa shorter break.  The Group’s Resortpackages include “Park Hopper” tickets whereby guests can go back and forthfreely between Disneyland Park and Walt Disney Studios Park, which wereintroduced during the course of Fiscal Year 2004.

 

*Strategic Location*

 

Disneyland Resort Paris is located approximately 32 kilometres (20miles) east of Paris, France and benefits from access to a highly developedtransportation network.  In addition toservice to Paris on the French suburban rail system, Disneyland Resort Parishas access to an extensive highway network that links it in less than one hourto both Paris and the two international airports serving the Paris area, andalso makes it easily accessible to most other regions of France.  In addition, the train station that islocated on the Resort Site is one of the most active in France, with aboutforty high speed trains arriving per day and providing service to London inthree hours by the Eurostar train, and to Brussels in 1 hour and 30 minutes,Amsterdam in 4 hours and 30 minutes and Cologne in 4 hours by the Thalystrain.  The strategic geographic locationallows access to a market of 17 million potential guests less than 2 hours awayby road or rail transport and 320 million potential guests less than 2 hoursaway by plane.

 

 

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*Target Markets*

 

The Group has six key proximate markets: France, the United Kingdom,Benelux (Belgium, Luxembourg, the Netherlands) Germany, Italy and Spain.  Within these markets, its primary targetmarket is families with children from 3-15 years old but secondary markets alsoinclude groups, young adults and convention planners.  Each year, its success in marketing tospecific countries and markets is impacted by a variety of strategic decisions,including its pricing policy and its package offers, as well as externalfactors such as the strength of local economies, exchange rates, culturalinterests, and holiday and vacation timing. The introduction of the euro has eliminated exchange rate concerns inall key markets except the United Kingdom.

 

Based on internal surveys, the geographical breakdown of its theme parkguest attendance is as follows:

 
| ** **                              | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-----------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| France                                  |       | 40       | %          | 39       | %          | 40       | %          |
| United Kingdom                          |       | 19       | %          | 22       | %          | 21       | %          |
| Belgium, Luxembourg and the Netherlands |       | 16       | %          | 16       | %          | 15       | %          |
| Spain                                   |       | 8        | %          | 6        | %          | 6        | %          |
| Germany                                 |       | 6        | %          | 6        | %          | 7        | %          |
| Italy                                   |       | 3        | %          | 3        | %          | 3        | %          |
| Other                                   |       | 8        | %          | 8        | %          | 8        | %          |
| **Total**                               |       | 100      | %          | 100      | %          | 100      | %          |

 

*Distribution*

 

The Group distributes its product offer through a wide variety ofchannels. Tour packages, which in many cases include transportation, lodging,food and theme park tickets are distributed through its call centers, on itsinternet site or through third-party distributors.

 

Theme park tickets are sold not only within these packages, but alsothrough tourism intermediaries, directly at the gate and by various retailoutlets (the Disney Stores, FNAC, Virgin Megastores, Auchan, RATP, and atFrench, Belgian and Swiss railway stations, etc.).

 

Hotel bookings can be made by individual guests, either directly orthrough *Euro Disney Vacances S.A*.*S.*, the Group’s in-house tour operator. The call centers, basedat the Resort Site and in the United Kingdom, receive an average ofapproximately 6,100 calls per day from all over Europe. Apart from the UnitedKingdom, all other markets are serviced from the central reservation office atthe Resort Site in Paris, with country-specific telephone numbers. Third-partydistributors, including tour operators with their own packages, for individualsand groups, currently account for the remaining hotel reservations.

 

*Euro Disney Vacances S.A*.*S.* focuses on distribution of short-break packages, withoffices in Paris and other French cities as well as regional offices inAmsterdam, Brussels, Copenhagen, Frankfurt, London and Madrid. These officesprovide a local marketing presence and the necessary travel industry tradesupport. The Group also works with a select number of tour operators in itsmajor markets.

 

In addition, the Group has established special travel alliancepartnerships with the principal European transporters. Travel allianceagreements have been completed with Air France on a pan-European basis and withEurostar and Thalys. These agreements provide carriers with the right to useDisneyland Resort Paris in their advertising campaigns and some with the rightto special joint promotional packages. In return, the Group has the right toprovide airline or train tickets in its short-break packages and to secureallotments. Guest visitation from the United Kingdom, Spain, Italy and Belgiumreflects its relationship with these partners.

 

The Group’s internet site at www.disneylandparis.com is available in 6languages and allows site visitors to learn about its Resort, order a brochure,e-mail reservation requests directly to its reservation center, purchase themepark-tickets, and to book certain packages. The Group is currently working onprojects to expand and improve its ability to sell its products directly toguests on its internet site.

 

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**A.4.2.     Competition**

 

The Group competes for guests throughout the year with theme parks aswell as other European and international holiday destinations (including skiand seaside resorts) and with other leisure and entertainment activities(including museums and cultural activities) in the Paris region. Its Hotelscompete with other hotels on the Site and in the Paris region and conventioncenters all over Europe. Its Resort also competes with major internationaltourist-attracting events and major sporting events, such as the soccer WorldCup, the World Athletics Championships and the Olympic Games.

 

The theme park market in Europe has grown significantly over the lasttwo decades. According to the publication *Amusement Business*,the ten largest European theme parks attracted approximately 36.2 millionguests in 2003. The following table sets forth the attendance of each of theseten destinations.

 

**Theme Parks in Europe**(1)

**(in millions)**

 
| ** **                                                | ** ** | ** **      | **Attendance** | ** ** |
|-----------------------------------------------------------|------------|-----------------|----------------|------------|
| **Theme Park**                                            | ** ** | **Location**    | ** **     | **2003**   | ** ** | **2002** | ** ** |
| Disneyland Resort Paris (fiscal year ended  September 30) |       | France          |           | 12.4       |   | 13.1 |   |
| Tivoli Gardens                                            |       | Denmark         |           | 3.3        |   | 3.8 |   |
| Europa Park                                               |       | Germany         |           | 3.3        |   | 3.3 |   |
| Gardaland                                                 |       | Italy           |           | 3.2        |   | 2.9 |   |
| De Efteling                                               |       | Netherlands     |           | 3.1        |   | 3.0 |   |
| Lieseberg                                                 |       | Sweden          |           | 3.0        |   | 3.1 |   |
| Universal’s Mediterrania (formerly Port  Aventura)   |       | Spain           |           | 2.7        |   | 3.2 |   |
| Bakken                                                    |       | Denmark         |           | 2.7        |   | 2.5 |   |
| Alton Towers                                              |       | United  Kingdom |           | 2.5        |   | 2.5 |   |
|                                                      |       |            |           | 36.2       |   | 37.4 |   |

 

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*(1)**              Source:Amusement Business. Excluding non-gated amusement parks. Most recent dataavailable is 2003.*

 

**A.5.**         **Human Resources Management**

 

To entertain its guests,the Group employs an average of approximately 12,200 employees during fiscalyear 2004. The Group’s employees come from approximately 100 differentcountries and more than 25% of them have been employed since Opening Day. Thetable below presents the average number of persons employed by the Group aswell as the associated employee costs for each of the last five fiscal years:

 
| **Fiscal Year** | ** ** | **Average Number of   Employees** | ** ** | **Total Employee Costs   (€ in millions)** | ** ** |
|-----------------|------------|-----------------------------------|------------|-------------------------------------------------|------------|
| 2004            |       | 12,162                            |       | 366.0                                           |       |
| 2003            |       | 12,223                            |       | 365.7                                           |       |
| 2002            |       | 12,467                            |       | 352.0                                           |       |
| 2001            |       | 11,109                            |       | 307.0                                           |       |
| 2000            |       | 11,432                            |       | 297.6                                           |       |

 

The seasonal nature of the business means that the need for employeesis, to a certain extent, also seasonal. Accordingly, the Group has developed asystem, used in both the theme parks and the Hotels, to optimize scheduling andautomate labor exchange between operations. The system improves efficiency byautomating both scheduling and the corresponding pay systems. In conjunctionwith this system, flexible working contracts have been negotiated with theemployee representatives. Special part-time contracts such as four-day workingweeks, 32-hour weeks or individually negotiated contracts, have beenimplemented. Over the past four Fiscal Years, many temporary jobs have beenturned into flexible long-term contracts with Disneyland Resort Paris,facilitating job security and better training for employees. This newflexibility has helped management to better match the number of employees tothe levels of customer demand.

 

In addition, based upon an assessment of current employment policiesand practices within the Group, negotiations will be undertaken with employeelabor representatives for the purpose of proposing a solution for certaindifficulties in the implementation of required changes in the defined workhours, as well as the treatment of the working hours of management (*cadre*) employees. These negotiations are considered part ofthe normal evolution over time of the Group’s collective bargaining agreementswith employee labor representatives, taking into account changes in the legalenvironment, and should have no significant

 

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impact on the business activities of the Group.

 

An internal university provides permanent training for all employees inmatters of service and entertainment. To improve quality, approximately 54,535training days were provided to employees in 2004. To enhance the diversity ofskills, training classes range from stress management to more specific subjectssuch as the welcoming of guests “Disney Style”. The Group is continuallyseeking to enhance its image as a “teaching” company, recognized foroutstanding training techniques. As an example, in November 2000, the Groupsigned an agreement with certain of its labor unions for the creation of a newprogram aimed at providing employees with a new professional status called“Hôte d’Accueil Touristique” and thus a wider recognition of their skills on anational scale. Its objective is to develop the competencies of approximately800 employees, over a period of fifteen months, through group training thatpermits them to earn four different professional competency certificates.

 

SevenFrench labor unions, the Confédération Générale du Travail (C.G.T.), theConfédération Française Démocratique du Travail (C.F.D.T.), the ConfédérationFrançaise de l’Encadrement – Confédération Générale des Cadres (C.F.E.-C.G.C.), Force Ouvrière (F.O.), the Confédération des Travailleurs Chrétiens(C.F.T.C.), the Syndicat Indépendant du Personnel Euro Disney (S.I.P.) and theUnion Nationale des Syndicats Autonomes (U.N.S.A.), are represented atDisneyland Resort Paris. The Group complies with information andconsultation requirements with respect to the unions and hold other periodicconsultations with employee representatives. Since Opening day, there have beenno significant strikes or work stoppages.

 

In June 1998, the FrenchGovernment enacted a law to reduce the official work week from 39 to 35 hours. Forcompanies that implemented the 35-hour week before July 1, 1999, the Frenchgovernment provided subsidies in the form of lower payroll taxes for each ofthe five years following the date of implementation and has since initiatedother subsidy programs. The Group began operating on the basis of a 35-hourworkweek on June 6, 1999 and is benefiting from such subsidies, which help tooffset the costs of additional employees.

 

The Group has made no distributions under its statutory profit sharingplan. However, since October 1, 1995, the Group has provided employees asupplemental profit sharing plan. Under the latest plan amendment signed March10, 2003 applying to Fiscal Years 2003 and 2004, employees are eligible toreceive a bonus of between 0.2% to 3.0% of their annual salary, if Incomebefore Lease and Net Financial Charges as presented in the ConsolidatedFinancial Statements of the Group reaches certain pre-defined thresholds.

 

The following table summarizes amounts paid under this profit sharingplan for each of the last five fiscal years:

 
| ** **                   | ** ** | **Year ended September 30,** | ** ** |
|------------------------------|------------|------------------------------|------------|
| **(€ in millions)**     | ** ** | **2004**                     | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
| Total Profit Sharing Expense |       | —                       |       | — |   | — |   | 1.9 |   | — |   |

 

In addition, an employee savings plan exists in order to facilitate andencourage individual savings. The Company matches 30% of the first € 3,333 ofeach employee’s contribution to the plan each year.

 

In connection with the screening of new employees, criminal backgroundswere checked by an external firm to assist in ensuring the security of visitorsto the Resort. This practice recently came to the attention of executivemanagement of the Company and, because it may constitute a violation underFrench law, has been suspended. The Company is undertaking a review of thefeasibility of alternative arrangements for obtaining similar security-relatedinformation. While the Company might face fines or litigation based on thesecircumstances, the Company believes that these would not have a materialadverse effect on its financial condition.

 

A.6. Significant Operating Contracts

 

A.6.1. Agreements with French Governmental Authorities

 

On March 24, 1987, TWDC entered into a Master Agreement with theRepublic of France, the Region of Ile-de-France, the Department ofSeine-et-Marne, the EPA-Marne and the Suburban Paris Transportation Authority(“RATP”), for the development of the Resort and other various developmentphases for the 1,943 hectares of undeveloped land located 32 kilometres east ofParis in Marne-la-Vallée, France. The Company and certain other parties becameparties to the Master Agreement after its signature by the original parties. In1988, the EPA-France, which has responsibility for the development of theentirety of the Resort, was created pursuant to the Master Agreement, andbecame a party thereto.

 

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The Master Agreement, as amended from time to time, determines thegeneral outline of each phase of development as well as the legal and initialfinancial structure. It provides that loans with specific terms and conditionsshall be granted. The Master Agreement was modified in the context of theRestructuring. See Item 5 — Sub-section F.2.6. “Other measures”.

 

The significant components thereof are summarized below.

 

*Development planning*

 

The Master Agreement sets out a master plan for the development of theland and a general development program defining the type and size of facilitiesthat the Company has the right to develop, subject to certain conditions, overa 30-year period ending no sooner than 2017. Before beginning any newdevelopment phase, the Company must provide EPA-France and several Frenchpublic authorities with a proposal and other relevant information for approval.On the basis of the information provided, the Company and the authoritiesinvolved develop detailed development programs.

 

After having concluded negotiations for a detailed program for thesecond phase of Val d’Europe urban development on December 9, 1997, the Companyand EPA-France concluded negotiations for a detailed program for the thirdphase of Val d’Europe urban development on July 9, 2003.

 

*Financing of infrastructure*

 

The Master Agreement specifies the infrastructure to be provided by theFrench authorities to the Resort. The relevant French public authorities have acontinuing obligation to finance construction of the primary infrastructure,such as highway interchanges, primary roadways to access the Resort Site, waterdistribution and storage facilities, rain water and waste water treatmentinstallations, waste treatment facilities, gas and electricity distribution systems,as well as telecommunication networks. The Master Agreement also specifies theterms and conditions of the Company’s contribution to the financing of certaininfrastructure. Infrastructure provided by the French governmental authoritiesincluded the extension of the “A” line of the RER suburban rail link (whichlinks Paris and its eastern and western suburbs to Disneyland Resort Paris withtwo stations), the construction of two interchanges linking the Resort directlyto the A4 motorway, a TGV (high speed train) station linking the Resort toother major cities of Europe and the completion of an access road around theResort Site.

 

*Land rights*

 

The Master Agreement provides for the right of the Company, subject tocertain conditions, to acquire the land necessary for the expansion ofDisneyland Resort Paris on the Marne-la-Vallée site. The exercise by theCompany of these acquisition rights is subject to certain developmentdeadlines, which if not met would result in the expiration of these rights. Todate, all minimum development deadlines have been met and no land rights haveexpired unused. The next deadline for the expiration of land right options willbe December 31, 2007.

 

In order to maintain theCompany’s land acquisition rights for the remaining undeveloped land around theResort (approximately 1,000 hectares), the Company is required to pay annualfees to EPA-France of approximately €0.8 million.

 

*Department of Seine-et-Marne tax guarantee*

 

Pursuant to the Master Agreement, the Company, certain entitiesconsolidated in the Company’s financial statements, and the Republic of Franceguaranteed a minimum level of tax revenues to the Department of Seine-et-Marne.If the Department’s tax revenues are less than the amount of charges borne bythe Department for primary and secondary infrastructure during the period from1992 to 2003, the Republic of France and the Company will each reimburse, inequal shares to the Department, the difference between the tax revenuescollected and the charges borne, up to an aggregate amount of approximately€45.0 million (after adjustment for inflation from 1986). Based upon the finalassessment covering the entire period of the guarantee through December 31,2003, the Company will be required to pay the Department €20.3 million underthe terms of the guarantee which will be payable over a ten-year period ineight installments, the first of which is due in fiscal year 2007. Thisliability is recorded in the Group’s consolidated financial statements under“Accounts payable and other liabilities” as at September 30, 2004.

 

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**A.6.2.     Participant Agreements**

 

The Company has entered into long-term participant agreements withcompanies that are leaders in their fields. 13 participant agreements with thefollowing companies are currently in force: Coca-Cola, Esso, France Télécom andits subsidiary Orange, General Motors, Hasbro Inc., Hertz, Kellogg’s, Kodak,McDonald’s, Nestlé and its subsidiary Perrier-Vittel, and Visa. These participantagreements provide the Disneyland Resort Paris participants with the followingrights in exchange for an individually negotiated fee: (i) a presence on theResort Site through the sponsoring of one or more of Disneyland Park, WaltDisney Studios Park or Disney Village’s attractions, restaurants or otherfacilities; (ii) promotional and marketing rights with respect to the categoryof product that is covered by the participant agreement; and (iii) the statusof privileged supplier of the Group. Each participant agreement terminatesautomatically in the event of termination of the License Agreement between TheWalt Disney Company (Netherlands) B.V. and the Company (See Sub-section A.6.3.below entitled “Undertaking and Agreements with The Walt Disney Company andSubsidiaries – License Agreement”).

 

**A.6.3.     Undertakings andAgreements with The Walt Disney Company and Subsidiaries**

 

*Undertakings*

 

In connection with the 1994 FinancialRestructuring, TWDC agreed, so long as certain indebtedness is outstanding tothe Group’s major creditors, to hold at least 34% of the common stock of theCompany until June 10, 1999, at least 25% until June 10, 2004 and at least16.67% until 2016. In connection with the financing of Walt Disney StudiosPark, TWDC has committed to the CDC to hold at least 16.67% of the common stockof the Company until 2027. In connection with the new Restructuring, TWDC hasagreed to hold directly or indirectly at least 39% of the common stock of theCompany until 2016.

 

The Company and Euro DisneylandParticipations S.A.S., an indirect wholly-owned subsidiary of TWDC (which isalso a partner of the Phase IA Financing Company), have agreed to indemnify thepartners of the Phase IA Financing Company as to all liabilities arising forthe Company and the Phase IA Financing Company under the Master Agreement. Tothe extent the resources of the Company and the Phase IA Financing Company areinsufficient to cover any such indemnity, TWDC, through a wholly-ownedsubsidiary, has agreed to indemnify the partners of the Phase IA FinancingCompany up to an additional €76.2 million. In connection with the 1994Financial Restructuring, EDA also undertook certain indemnification obligationsin favor of the partners of the Phase IA Financing Company in respect of certainliabilities arising under the Master Agreement.

 

*Development Agreement*

 

Pursuant to the development agreement datedFebruary 28, 1989 with the Company (the “Development Agreement”), Euro DisneyS.A.S. provides and arranges for other subsidiaries of TWDC to provide avariety of technical and administrative services to the Company. These servicesare in addition to the services Euro Disney S.A.S. is required to provide asthe Management Company and include, among other things, the development ofconceptual designs for existing Theme Parks and future facilities andattractions, the manufacture and installation of specialized show elements, theimplementation of specialized training for operating personnel, the preparationand updating of operations, maintenance and technical manuals, and thedevelopment of a master land use plan and real estate development strategy. Asthe Development Agreement concerns the entire Resort, the services provided byEuro Disney S.A.S. pursuant to the Development Agreement extend to all theinstallations of Walt Disney Studios Park, primarily for the design andconstruction of said installations. Euro Disneyland Imagineering S.A.R.L., anindirect subsidiary of TWDC, was responsible for the management andadministration of the overall design as well as the construction of the ThemeParks, including the design and procurement of the show-and-ride equipment.Most of the other facilities of the Resort were designed under its supervisionwith the administrative and technical assistance of affiliates of TWDCspecialized in the development of hotels, resorts and other retail andcommercial real estate projects in the United States, in accordance with therelated servicing agreements.

 

The Company reimburses Euro Disney S.A.S. for all ofits direct and indirect costs incurred in connection with the provision ofservices under the Development Agreement. These costs include, withoutlimitation: (i) all operating expenses of Euro Disney S.A.S., includingoverhead and implicit funding costs; (ii) all costs incurred directly by EuroDisney S.A.S. or billed to it by third parties; and (iii) certain costs plus10% billed to Euro Disney S.A.S. for services performed by TWDC or any of its affiliates.Such costs vary considerably from one fiscal year to another depending upon theprojects under development.

 

24

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The Development Agreement has an initial termof 30 years and can be renewed for up to three additional 10-year terms at theoption of either party. The Development Agreement may be terminated by EuroDisney S.A.S. or by the Company under certain conditions, in particular in caseof a change of control of the Company and of the Phase IA FinancingCompany, or in case either company were to be liquidated.

 

*Phase II Development Fee*

 

As part of the terms of the 1994 FinancialRestructuring, the payment of a one-time development fee of €182.9 million willbe required upon the satisfaction of certain conditions, including conditionsrelating to Walt Disney Studios Park.  Inorder to obtain the approval of the financing of Walt Disney Studios Park by theGroup’s lenders and the lenders of the Financing Companies from which asubstantial portion of the Group’s operating assets is leased, TWDC agreed in September 1999to amend the terms for the development fee so that it will not be due unlessand until future events occur, including the repayment of existing bank debt(as defined in the agreement) and the achievement of specified cash flowlevels.  The determination as to whetherthe specified cash flow levels have been achieved will be made on the date thatthe CDC loans for Walt Disney Studios Park will have been repaid and, in anycase, no later than November 1, 2029.

 

*License Agreement*

 

Under the License Agreement, between The WaltDisney Company (Netherlands) B.V. and the Company, the Company was granted alicense to use any present or future intellectual or industrial property rightsof TWDC that may be incorporated into attractions and facilities designed fromtime to time by TWDC and made available to the Company.  In addition, the License Agreement authorizesthe sale, at the Resort, of merchandise incorporating or based on intellectualproperty rights owned by, or otherwise available to TWDC.  This license granted to the Company isessential to the pursuit of its business activities, as such rights are indispensableto the continued operation of the Group. These intellectual property rights are registered in the name of TWDC,which is responsible for their protection in France.  Royalties to be paid by the Company for theuse of these rights were originally equal to:

 

(i)                                     10%of gross revenues (net of taxes) from rides, admissions and related fees (suchas parking, tour guide and similar service fees) at all theme parks andattractions;

 

(ii)                                  5%of gross revenues (net of taxes) from merchandise, food and beverage sales inor adjacent to any theme park or other attraction, or in any other facility(with the exception of the Disneyland Hôtel), whose overall design concept isbased predominantly on a TWDC theme;

 

(iii)                               10%of all fees paid by Participants; and

 

(iv)                              5%of gross revenues (net of taxes) from the exploitation of Hotel rooms andrelated revenues at certain Disney-themed accommodations. None of the Group’scurrently existing Hotels at the Disneyland Resort Paris are consideredDisney-themed as defined in the License Agreement, except the Disneyland Hôtel,which is specifically excluded.

 

As part of the 1994Financial Restructuring, TWDC amended the License Agreement and, as a result,no royalties were due for fiscal years 1994 through 1998.  Starting in fiscal year 1999 until fiscalyear 2003 (inclusive), the royalties payable by the Company were calculated atrates equal to 50% of the initial rates stated above.  On March 28, 2003, The Walt DisneyCompany (Netherlands) B.V. agreed to conditionally waive royalties with respectto the last three quarters of fiscal year 2003 and to change the payment termsfor fiscal year 2004 from quarterly to annually in arrears. Beginning in fiscalyear 2004, the Company is responsible for the payment of 100% of the originalroyalty rates as presented above.  Inconnection with the Restructuring, the Company will pay TWDC the royalties forfiscal year 2004 when the Share Capital Increase takes place, and a portion ofthe royalties for fiscal years 2005 through 2014 will be deferred, partially ona conditional basis and partially on an unconditional basis.  See Item 5, “Operating and Financial Reviewand Prospects” – Section F. “2004 Financial Restructuring”.

 

 

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The table below sets out the amount ofroyalties paid (or, in the case of Fiscal Year 2004, to be paid) by the Companywith respect to Fiscal Years 1992 through 2004, as stated in the ConsolidatedFinancial Statements of the Group *(in € millions)*:

 
| **Fiscal Year** | ** ** | **Royalties** | ** ** |
|-----------------|------------|---------------|------------|
| 1992            |       | 30.0          |       |
| 1993            |       | 39.9          |       |
| 1994            |       | —        | (1)        |
| 1995            |       | —        | (1)        |
| 1996            |       | —        | (1)        |
| 1997            |       | —        | (1)        |
| 1998            |       | —        | (1)        |
| 1999            |       | 21.8          | (2)        |
| 2000            |       | 21.5          | (2)        |
| 2001            |       | 21.7          | (2)        |
| 2002            |       | 23.9          | (2)        |
| 2003            |       | 5.6           | (2) (3)    |
| 2004            |       | 47.2          | (4)        |

 

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*(1)**              In accordancewith the terms of the 1994 Financial Restructuring, TWDC waived royalties inrespect of Fiscal Years 1994 through 1998.*

 

*(2)**              In accordancewith the terms of the 1994 Financial Restructuring, from Fiscal Year 1999through Fiscal Year 2003, inclusive the amount of royalties due by the Companywas 50% of the amount originally provided for under the License Agreement.*

 

*(3)**              In Fiscal Year2003, €16.9 million of royalties were conditionally waived.*

 

*(4)**              This amountwill be due and payable upon completion of the Share Capital Increase or at thelatest on April 30, 2005.*

 

The License Agreement has an initial term of30 years and can be renewed for up to three additional 10-year terms at theoption of either party.

 

The License Agreement gives TWDC substantialrights and discretion to approve, monitor and enforce the use of TWDCintellectual properties within the Resort. The License Agreement may be terminated by TWDC upon the occurrence ofcertain events, including the removal or replacement of the Management Company(*Gérant*), a change in control, directlyor indirectly, of the Company, certain affiliates and the Phase IAFinancing Company, the liquidation of such companies, the imposition of laws orregulations that prohibit the Company, certain of its affiliates and thePhase IA Financing Company from performing any of their materialobligations under the License Agreement or the imposition of taxes, duties orassessments that would materially impair the assets, surplus or distributableearnings of the Company or certain of its affiliates.

 

**B.****            BUSINESSOVERVIEW**

 

See above Section A. “History andDevelopment of the Company and Business Overview”.

 

**C.****            ORGANISATIONALSTRUCTURE**

 

The Company is a *société encommandite par actions*(“SCA” - similar in certain respects to amaster limited partnership in the U.S.) organised under the laws of theRepublic of France.  The Company wasoriginally organised and incorporated in Paris on December 17, 1985 underthe name Mivas S.A., in the form of a French *sociétéanonyme* (“SA” - similar to a U.S. corporation), which was closelyheld.  In 1988, EDL Holding Company, aDelaware corporation wholly-owned by The Walt Disney Company and currentlyowner of approximately 40.6% of the shares of the Company’s common stock (39.1%at the end of Fiscal Year 2003), acquired 99% of the shares of Mivas S.A.,whose corporate name was changed to Société d’Exploitation d’Euro DisneylandS.A.  At an extraordinary meeting held inFebruary 1989, the shareholders of Société d’Exploitation d’EuroDisneyland S.A. decided to modify its corporate form from an SA**to an SCA**and to change itscorporate name to Euro Disneyland S.C.A. In November 1989, Euro Disneyland S.C.A. became a publicly heldcompany as a result of a public offering of its common stock in France, theUnited Kingdom and Belgium.  At theannual general meeting of shareholders on February 4, 1991, the Company’spresent corporate name, Euro Disney S.C.A., was adopted.

 

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**C.1.****               OperatingCompanies**

 

*Euro Disney S.C.A.*

 

Euro Disney S.C.A. operates Disneyland Parkand Walt Disney Studios Park, the Disneyland Hôtel, the Davy Crockett Ranch andthe golf course.

 

*EDL Hôtels S.C.A.*

 

EDL Hôtels S.C.A., a directly and indirectlywholly-owned subsidiary of the Company, which operates all of the Hotels exceptthe Disneyland Hôtel and the Davy Crockett Ranch, and also Disney Village, isstructured as a French limited partnership (*société en commandite paractions)* governed by the same principles as the Company.

 

The general partner of EDL Hôtels S.C.A. isEDL Hôtels Participations S.A.S., a French simplified corporation *(société par actions simplifiée)*wholly-owned by theCompany.  The Management Company of EDLHôtels S.C.A. is Euro Disney S.A.S., which is also the Management Company**of the Company.

 

**C.2.****                 FinancingCompanies**

 

Effective October 1, 2003 (first day ofFiscal Year 2004) the Financing Companies described below were included in theconsolidated reporting group. See Item 5 “Operating and Financial Review andProspects” – Section B.1. “Change in Accounting Principle”.

 

*Phase IA Financing Company and EDA*

 

Euro Disneyland S.N.C. (the “Phase IAFinancing Company”), a company incorporated as a French partnership (*société en**nom collectif)*owns Disneyland Park and leases it to EDA, currently a wholly-owned subsidiaryof TWDC, pursuant to a leasing structure entered into in connection with the1994 Financial Restructuring.  EDA, inturn, sub-leases Disneyland Park to the Company.  Also, as part of the 1994 FinancialRestructuring, the Company and the Phase IA Financing Company sold to EDAcertain Disneyland Park assets constructed after the opening of Disneyland Parkfor €213.4 million, which are leased back to the Company by EDA.  Annual lease payments are €2.13 million andthe Company has the option to repurchase these assets and the right to extendthe term of the lease.  See Notes 1-2 and25-1 to the Consolidated Financial Statements in Item 17 “Financial Statements”.   In order to enable the Company to maintainits rights with respect to the assets that it currently leases or subleasesfrom EDA without making option payments, this structure will be substantiallymodified in connection with the Restructuring. See Item 5.”Operating and Financial Review and Prospects” – Section F.“2004 Financial Restructuring.”

 

The partners of the Phase IA FinancingCompany are various banks, financial institutions and companies holding anaggregate participation of 83%, and Euro Disneyland Participations S.A.S., aFrench simplified corporation *(société par actions simplifiée)*and an indirect wholly-owned subsidiary of TWDC, holding aparticipation of 17%.  The Group has noownership interest in the Phase IA Financing Company.  The Company is jointly liable for asignificant portion of the indebtedness of the Phase IA Financing Company(approximately two-thirds of the outstanding indebtedness due under the PhaseIA Credit Facility, as described in Note 14b to the Consolidated FinancialStatements in Item 17).  The partners aresubject to unlimited joint and several liability for the financial obligationsof the Phase IA Financing Company.  Thebanks that are parties to the Phase IA Credit Facility and the CDC with regardsto CDC *Prêts Participatifs*, have effectivelywaived any recourse against the partners of the Phase IA FinancingCompany.  The Phase IA Financing Companyhas generated tax losses due to interest charges during the construction periodand depreciation expenses from Opening Day until December 31, 1996. Thelegal structure of the Phase IA Financing Company enabled its partners to takethese French tax losses directly into their own accounts for French taxpurposes.  In return, the partners agreedto provide subordinated partner advances to the Phase IA Financing Company atan interest rate below the market rate.

 

The Phase IA Financing Company is managed bya management company, Société de Gérance d’Euro Disneyland S.A.S., a Frenchsimplified corporation (*société par actionssimplifiée)*and an indirect wholly–owned subsidiary of TWDC.

 

27

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***Phase IBFinancing Companies***

 

Hôtel New York Associés S.N.C., Newport BayClub Associés S.N.C., Sequoia Lodge Associés S.N.C., Cheyenne Hôtel AssociésS.N.C., Hôtel Santa Fe Associés S.N.C. and Centre de Divertissements AssociésS.N.C. are collectively the “Phase IB Financing Companies”, each of which: (i)rents the land on which the related hotel or Disney Village, as the case maybe, is located, from EDL Hôtels S.C.A.; (ii) owns the related hotel or DisneyVillage, as the case may be and (iii) leases the related hotel or DisneyVillage, to EDL Hôtels S.C.A.; and (iv) is structured as a French limitedpartnership (*société en nom collectif)*governedby the same principles as the Phase IA Financing Company.

 

The partners of the Phase IB FinancingCompanies are various banks and financial institutions that are creditors ofthe Phase IB Financing Companies.  TheGroup has no ownership interest in the Phase IB Financing Companies.  EDL Hôtels S.C.A., an affiliate of theCompany has guaranteed all the obligations of the Phase IB Financing Companieswith respect to the loans extended by their lenders and partners.  The partners of the Phase IB FinancingCompanies are normally subject to unlimited joint and several liability for theobligations of the Phase IB Financing Companies.  However, the creditors of the Phase IBFinancing Companies have waived any recourse against the partners of the PhaseIB Financing Companies.  The Phase IBFinancing Companies have consistently generated tax losses primarily due tointerest charges during the construction period and depreciation expense fromOpening Day until December 31, 1995 with the exception of Centre deDivertissements Associés S.N.C., which generated tax losses until December 31,1998.  The legal structure of the PhaseIB Financing Companies enabled their partners to take these French tax lossesdirectly into their own accounts for French tax purposes.  In return, the partners agreed to providesubordinated partner advances to the Phase IB Financing Companies at aninterest rate below the market rate.

 

Pursuant to the respective by-laws of thePhase IB Financing Companies, the Management Company**ofeach of the Phase IB Financing Companies is EDL Services S.A.S., a wholly–ownedsubsidiary of the Company.

 

*Centre deCongrès Newport S.A.S.*

 

Centre de Congrès Newport S.A.S., an indirectwholly-owned subsidiary of TWDC, entered into a ground lease with EDL HôtelsS.C.A. pursuant to which it financed and acquired the Newport Bay ClubConvention Center and, when completed, leased it back to EDL HôtelsS.C.A..  EDL Hôtels S.C.A. has an optionto repurchase such assets.  See alsoNotes 1-2 and 25-1 to the Consolidated Financial Statements in Item 17 “FinancialStatements”.

 

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**C.3.****                         OwnershipStructure of the Group**.  Thefollowing graphic shows the structure of the Group prior to the newRestructuring.  The modified Groupstructure post-Restructuring is illustrated in the graphics set forth underItem 5, “Operating and Financial Review and Prospects – 2004Restructuring.”

 

 

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**D.****            PROPERTY,PLANT AND EQUIPMENT; CAPITAL EXPENDITURES**

 

The Group’s resort-related facilities arecomprised of the two theme parks (including related support buildings), theseven themed Hotels, Disney Village and the Golf Course.  The Group leases all of these facilitiesexcept Walt Disney Studios Park, Disneyland Hôtel, Davy Crockett Ranch and thegolf course, which the Group owns. See Sub-section C.2. above entitled “FinancingCompanies” for additional information on the Group’s leases.   These facilities are all located inMarne-la-Vallée, France.  The Companybelieves that the Group’s facilities are suitable and adequate for the conductof its business.

 

The Master Agreement provides the Companywith the right, subject to certain conditions, to acquire the land necessaryfor the realization of the Resort and the general availability of the 1,943hectares Marne-la-Vallée site.  The existingResort facilities and related developments in progress, plus all associatedpublic and private infrastructure works, are located on approximately 1,000hectares of this land.

 

For a description of the Group’s capitalexpenditures during the past three Fiscal Years, See Item 5 “Operating andFinancial Review and Prospects” – Section C “Liquidity and CapitalResources — Capital Investment”.

 

### ***ITEM 5***.  OPERATING AND FINANCIAL REVIEW ANDPROSPECTS

 

*The following discussion should be read inconjunction with the Consolidated Financial Statements, the related notesthereto included in Item 17 “Financial Statements” herein and Item 3 “KeyInformation” – Section D “Risk Factors”. The Group’s Consolidated Financial Statements have been prepared inaccordance with French GAAP, which differ in certain respects from U.S.GAAP.  For a discussion of the principaldifferences between French GAAP and U.S. GAAP as they relate to theconsolidated results of operations and financial position, See Note 30 to theConsolidated Financial Statements in Item 17 “Financial Statements”.*

 

**A.****         GENERAL**

 

In Fiscal Year 2004, revenues increasedslightly to total € 1,048.0 million, as increased spending by theme parkvisitors and Hotel guests was mostly offset by lower hotel occupancy rates, aswell as an anticipated decline in real estate development revenues.  Attendance at the theme parks in Fiscal Year2004 remained stable compared to the prior year at approximately 12.4 millionvisitors.

 

The Group incurred an operating loss of €23.9 million in Fiscal Year 2004, which was € 56.0 million below the € 32.1million of pro-forma operating income recorded in the prior year (the pro-formapresentation reflects a change in accounting method that significantly affectedthe scope of consolidation in Fiscal Year 2004, as discussed below). Theincreased loss was primarily due to the resumption of accruing royalties atfull rates and management fees, following the waiver by TWDC of royalties andmanagement fees in the last three quarters of Fiscal Year 2003.  Higher marketing and sales spending partiallyoffset by reduced general and administrative expenses also affected theoperating margin.  Net loss increasedfrom € 58.3 million (on a pro-forma basis) in Fiscal Year 2003 to € 145.2million in Fiscal Year 2004, as a result of the lower operating margin as wellas significant exceptional items.

 

The Group generated €124.6 million ofoperating cash flow in Fiscal Year 2004 despite the net loss, since a portionof the Group’s operating expenses consist of non-cash depreciation andamortization charges, and the Group’s working capital requirements decreased asthe increase in accrued royalties and management fees for Fiscal Year 2004(which are not payable until Fiscal Year 2005), as well as accrued interest onthe CDC loans for Walt Disney Studios Park (which was deferred under the termsof the relevant agreement), did not result in cash outlays.  Under the terms of the Restructuring, theroyalties and management fees for Fiscal Year 2004 will be paid when theRestructuring is implemented.

 

In preparing the consolidated financialstatements, the Group has used the going-concern assumption based on management’sbelief that the conditions necessary to implement the Restructuring will be metwithin the contractual deadlines.  If theprinciple of going concern had not been assumed, it would likely have had asignificant impact on the valuation of assets and liabilities as of September 30,2004.

 

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**B.****            RESULTSOF OPERATIONS**

 

**B.1.****         Changein Accounting Principle**

 

Effective October 1, 2003 (the first dayof Fiscal Year 2004), the Group adopted new accounting rules mandated by Article 133of the French Financial Security Law (*Loi de Sécurité Financière*)with respect to the consolidation of special purpose financing companies thatare not legally controlled by the Group. Under these new rules, the financing companies from which the Groupleases a substantial portion of its operating assets (the “Financing Companies”),have been included in the Group’s consolidated financial statements.  In the past, lease payments to the FinancingCompanies were recorded as incurred, along with disclosure by the Group of theleasing arrangements, contractual commitments for lease rentals, and therelated debt obligations of the Financing Companies.  As a result of the application of newconsolidation rules, these operating assets are now consolidated, resulting inincreased assets and borrowings.  TheGroup’s receivables from the Financing Companies have been eliminated inconsolidation.  In addition, shareholders’equity has been reduced, reflecting primarily past depreciation charges relatedto the operating assets owned by the Financing Companies, which exceeded thelease payments expensed for the same periods. The accounting change also affects the classification and amount ofcosts on the income statement, with increased operating expenses anddepreciation and reduced lease rental expense (consequently, the incomestatement line item formerly entitled “lease and net financial charges” hasbeen renamed “net financial charges”). The accounting change does not affect the legal structure, financialposition or cash flows of the members of the consolidated Group.

 

To enhance comparability, the Group hasprovided financial information on a pro-forma basis in addition to itsas-reported results.  The pro-formainformation has been prepared as if the Fiscal Year 2004 change in accountingprinciple discussed above was in effect during all of fiscal year 2003 (Seealso Notes 2 and 29 to the Consolidated Financial Statements).  The following table summarizes certainfinancial data derived from the Group’s historical and pro-forma consolidatedfinancial statements.

 

**CONSOLIDATEDCONDENSED PRO-FORMA STATEMENTS OF INCOME**

 
| ** **                                 | ** ** | ** **            | ** ** | ** **           | ** ** | ** **             | ** ** | ** **       | ** ** | **Fiscal Year 2004/** | ** ** |
|--------------------------------------------|------------|-----------------------|------------|----------------------|------------|------------------------|------------|------------------|------------|-----------------------|------------|
| ** **                                 | ** ** | ** **            | ** ** | **Fiscal Year 2003** | ** ** | **Pro-Forma 2003**     | ** ** |
| ** **                                 | ** ** | **Fiscal Year  2004** | ** ** | **Pro-  Forma**      | ** ** | **Accounting  Change** | ** ** | **As  Reported** | ** ** | **Variance**          | ** ** |
| **(€ in millions)**                   | ** ** | ** **            | ** ** | ** **           | ** ** | **Amount**             | ** ** | **Percent**      | ** ** |
| **Revenues**                               | ** ** | **1,048.0**           |       | 1,046.8              |       | (0.7                   | )          | 1,047.5          |       | 1.2                   |       | — |   |
|                                       |       |                  |       |                 |       |                   |       |             |       |                  |       |   |   |
| **Costs and Expenses**                     | ** ** | **(1,071.9**          | **)**      | (1,014.7             | )          | (99.6                  | )          | (915.1           | )          | (57.2                 | )          | (6 | )% |
|                                       |       |                  | ** ** |                 |       |                   |       |             |       |                  |       |   |   |
| **Income (Loss) before Financial Charges** | ** ** | **(23.9**             | **)**      | 32.1                 |       | (100.3                 | )          | 132.4            |       | (56.0                 | )          | (175 | )% |
|                                       |       |                  | ** ** |                 |       |                   |       |             |       |                  |       |   |   |
| Net Financial Charges                      | ** ** | **(105.7**            | **)**      | (111.2               | )          | 89.1                   |       | (200.3           | )          | 5.5                   |       | 5 | % |
|                                       |       |                  | ** ** |                 |       |                   |       |             |       |                  |       |   |   |
| **Loss before Exceptional Items**          | ** ** | **(129.6**            | **)**      | (79.1                | )          | (11.2                  | )          | (67.9            | )          | (50.5                 | )          | (64 | )% |
|                                       |       |                  | ** ** |                 |       |                   |       |             |       |                  |       |   |   |
| Exceptional gain (loss), net               | ** ** | **(22.3**             | **)**      | 12.0                 |       | 0.1                    |       | 11.9             |       | (34.3                 | )          | (286 | )% |
|                                       |       |                  | ** ** |                 |       |                   |       |             |       |                  |       |   |   |
| Minority interests                         | ** ** | **6.7**               | ** ** | 8.8                  |       | 8.8                    |       | —           |       | (2.1                  | )          | (24 | )% |
|                                       |       |                  | ** ** |                 |       |                   |       |             |       |                  |       |   |   |
| **Net Loss**                               | ** ** | **(145.2**            | **)**      | (58.3                | )          | (2.3                   | )          | (56.0            | )          | (86.9                 | )          | (149 | )% |

 

*Certain reclassifications have been made tothe 2003 comparative amounts in order to conform to the 2004 presentation.*

 

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**B.2.****         OperatingStatistics**

 

The following table provides informationregarding the key operating indicators of the Group.

 
| ** **       | ** ** | **Theme Parks (1)**                 | ** ** | **Hotels**                  | ** ** |
|------------------|------------|-------------------------------------|------------|-----------------------------|------------|
| **Fiscal Years** | ** ** | **Total Guests  (in millions) (2)** | ** ** | **Spending  per Guest (3)** | ** ** | **Occupancy  Rate (4)** | ** ** | **Spending  per Room (5)** | ** ** |
| 2004             |       | 12.4                                |       | €                      | 42.7       |   | 80.5 | % | € | 186.6 |   |
| 2003             |       | 12.4                                |       | €                      | 40.7       |   | 85.1 | % | € | 183.5 |   |
| 2002             |       | 13.1                                |       | €                      | 40.1       |   | 88.2 | % | € | 175.1 |   |
| 2001             |       | 12.2                                |       | €                      | 38.9       |   | 86.0 | % | € | 168.6 |   |
| 2000             |       | 12.0                                |       | €                      | 38.1       |   | 82.9 | % | € | 165.4 |   |

 

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*(1)**              IncludesDisneyland Park and, from March 16, 2002, Walt Disney Studios Park.*

 

*(2)**              Theme Parkattendance is recorded on a “first click” basis, meaning that a person visitingboth parks in a single day is counted as only one visitor.*

 

*(3)**              Average dailyadmission price and spending for food, beverage and merchandise and otherservices sold in the Theme Parks, excluding VAT.*

 

*(4)**              Average dailyrooms sold as a percentage of total room inventory (total room inventory isapproximately 5,800 rooms).*

 

*(5)**              Average dailyroom price and spending on food, beverage and merchandise and other servicessold in Hotels, excluding VAT.*

 

**B.3.****         Resultsof Operations for Fiscal Year 2004 compared with Fiscal Year 2003**

 

**Revenues**

 

Revenues of the Group were generated from thefollowing sources:

 
| ** **                          | ** ** | ** **            | ** ** | ** **           | ** ** | ** **             | ** ** | ** **        | ** ** | **Fiscal Year 2004/** | ** ** |
|-------------------------------------|------------|-----------------------|------------|----------------------|------------|------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                          | ** ** | ** **            | ** ** | **Fiscal Year 2003** | ** ** | **Pro-Forma 2003**     | ** ** |
| ** **                          | ** ** | **Fiscal Year  2004** | ** ** | **Pro-  Forma**      | ** ** | **Accounting  Change** | ** ** | **As-  Reported** | ** ** | **Variance**          | ** ** |
| **(€ in millions)**            | ** ** | ** **            | ** ** | ** **           | ** ** | **Amount**             | ** ** | **Percent**       | ** ** |
| Theme Parks                         | ** ** | **531.3**             |       | 508.5                |       | —                 |       | 508.5             |       | 22.8                  |       | 5 | % |
| Hotels and Disney Village           | ** ** | **405.2**             |       | 416.7                |       | —                 |       | 416.7             |       | (11.5                 | )          | (3 | )% |
| Other                               | ** ** | **99.7**              |       | 98.0                 |       | (0.7                   | )          | 98.7              |       | 1.7                   |       | 2 | % |
| **Resort Segment**                  | ** ** | **1,036.2**           |       | 1,023.2              |       | (0.7                   | )          | 1,023.9           |       | 13.0                  |       | 1 | % |
|                                |       |                  |       |                 |       |                   |       |              |       |                  |       |   |   |
| **Real Estate Development Segment** | ** ** | **11.8**              |       | 23.6                 |       | —                 |       | 23.6              |       | (11.8                 | )          | (50 | )% |
|                                |       |                  |       |                 |       |                   |       |              |       |                  |       |   |   |
| **Total Revenues**                  | ** ** | **1,048.0**           |       | 1,046.8              |       | (0.7                   | )          | 1,047.5           |       | 1.2                   |       | — |   |

 

**Theme park revenues** increased 5% to € 531.3 million in Fiscal Year 2004 from € 508.5 million in the prior yearas a result of higher per guest spending, coupled with stable attendance.  The higher spending levels reflected threeprincipal factors: an increase in average park admission prices, theintroduction of the “park hopper” ticket (which permits guests to visit boththeme parks for a single price that is €9 higher than the single park price)and the elimination of low season reduced admission pricing.  Merchandise and food and beverage revenues inthe Theme Parks also increased.

 

**Hotel andDisney Village****revenues**decreased 3 % to € 405.2 million in Fiscal Year 2004 from € 416.7 million inthe prior year, reflecting the decrease in hotel occupancy due to increasedcompetition from new on-site capacity at hotels owned and operated by thirdparties.  These hotels are part of theGroup’s overall development plan for the Resort, designed to increase overallhotel capacity to accommodate more visitors of the theme parks withoutrequiring the Group itself to utilise capital to construct additionalhotels.  However, due to the soft demandenvironment, these new hotels had an adverse effect on occupancy at the Group’sHotels.  The impact on revenues of thedecline in occupancy was partially offset by a 2 % increase in average dailyguest spending per room.

 

32

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**Other revenues**(which primarily include participant sponsorships, transportation and othertravel services sold to guests) increased in Fiscal Year 2004 over thepro-forma prior year by € 1.7 million to € 99.7 million, reflecting an increasein transportation and other travel services sold to guests, partially offset byslightly lower participant sponsorship revenues.

 

**Real Estate Development****revenues** decreased by €11.8 million in Fiscal Year 2004compared to the prior year, reflecting a planned reduction in developmentprojects.  Real Estate Developmentrevenues in Fiscal Year 2004 included primarily commercial and residential landsale transactions. In addition, revenues included ground lease income and feesfor services provided to third-party developers that have signed contracts toeither purchase or lease land on the Resort Site for development. Given thesuccessful completion of most of the additional hotel capacity projects inFiscal Year 2003, the decrease reflected this planned reduction in developmentactivity.

 

**Costs andExpenses**

 

Costs and expenses of the Group were composedof:

 
| ** **                          | ** ** | ** **            | ** ** | ** **           | ** ** | ** **             | ** ** | ** **        | ** ** | **Fiscal Year 2004/** | ** ** |
|-------------------------------------|------------|-----------------------|------------|----------------------|------------|------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                          | ** ** | ** **            | ** ** | **Fiscal Year 2003** | ** ** | **Pro-Forma 2003**     | ** ** |
| ** **                          | ** ** | **Fiscal Year  2004** | ** ** | **Pro-  Forma**      | ** ** | **Accounting  Change** | ** ** | **As-  Reported** | ** ** | **Variance**          | ** ** |
| **(€ in millions)**            | ** ** | ** **            | ** ** | ** **           | ** ** | **Amount**             | ** ** | **Percent**       | ** ** |
| Direct operating costs (1)          | ** ** | **664.8**             |       | 655.2                |       | 15.7                   |       | 639.5             |       | 9.6                   |       | 2 | % |
| Marketing and sales expenses        | ** ** | **112.6**             |       | 105.2                |       | —                 |       | 105.2             |       | 7.4                   |       | 7 | % |
| General and administrative expenses | ** ** | **90.0**              |       | 96.7                 |       | —                 |       | 96.7              |       | (6.7                  | )          | (7 | )% |
| Depreciation and amortization       | ** ** | **146.8**             |       | 149.5                |       | 83.9                   |       | 65.6              |       | (2.7                  | )          | (2 | )% |
| Royalties and management fees       | ** ** | **57.7**              |       | 8.1                  |       | —                 |       | 8.1               |       | 49.6                  |       | 612 | % |
| **Total Costs and Expenses**        | ** ** | **1,071.9**           |       | 1,014.7              |       | 99.6                   |       | 915.1             |       | 57.2                  |       | 6 | % |
|                                     |            |                       |            |                      |            |                        |            |                   |            |                       |            |  |  |  |

 

----

(1)              *Includes operating wages andemployee benefits, cost of sales for merchandise and food and beverage,transportation services and real estate land sales and other costs such asutilities, maintenance, renovation expenses, insurance and operating taxes.*

 

Directoperating costs increased € 9.6 million from the pro-forma prior year primarilyreflecting the impact of higher labour costs. Marketing and sales expenses during Fiscal Year 2004 increased €7.4 millionfrom the prior year, reflecting increased advertising during the second half ofthe Fiscal Year, associated largely with the promotion of the popular new show,*The Legend of the Lion King*.  General and administrative expenses incurredduring Fiscal Year 2004 decreased € 6.7 million from the prior year, reflectingdecreased labour expenses.

 

Royaltiesand management fees totalled € 57.7 million in Fiscal Year 2004, € 49.6 millionhigher than the previous year, reflecting the October 1, 2003 (first dayof Fiscal Year 2004) resumption of royalties at full rates and management feessubsequent to the waiver by TWDC of these fees for the last three quarters of fiscalyear 2003.  In fiscal year 2004,royalties totalled € 47.2 million after reinstatement to full contractual rates(fiscal year 1999 through 2003 rates were reduced to half of their originallevels as a result of the 1994 financial restructuring).  The Fiscal Year 2004 charge reflects theaccrual of the royalties and management fees for the year, although cash paymentof these amounts is not due until 2005.

 

33

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## **Operating Marginand EBITDA**

 

The following table sets forth the Group’soperating margin and EBITDA by Segment:

 
|                              |       |                  |       |                 |   |                   |   |              |   | **Fiscal Year 2004/** |   |
|-----------------------------------|------------|-----------------------|------------|----------------------|--------|------------------------|--------|-------------------|--------|-----------------------|--------|
|                              |       |                  |       | **Fiscal Year 2003** |   | **Pro-Forma 2003**     |   |
|                              |       | **Fiscal Year  2004** |       | **Pro-  Forma**      |   | **Accounting  Change** |   | **As-  Reported** |   | **Variance**          |   |
| **(€ in millions)**          |       |                  |       |                 |   | **Amount**             |   | **Percent**       |   |
|                              | ** ** | ** **            |       |                 |   |                   |   |              |   |                  |   |   |   |
| Resort Segment                    | ** ** | **(25.6**             | **)**      | 21.8                 |   | (100.3                 | )      | 122.1             |   | (47.4                 | )      | (217 | )% |
| Real Estate Development Segment   | ** ** | **1.7**               | ** ** | 10.3                 |   | —                 |   | 10.3              |   | (8.6                  | )      | (84 | )% |
| **Operating Margin (1)**          | ** ** | **(23.9**             | **)**      | 32.1                 |   | (100.3                 | )      | 132.4             |   | (56.0                 | )      | (174 | )% |
|                              |       |                  | ** ** |                 |   |                   |   |              |   |                  |   |   |   |
| **Depreciation and amortization** | ** ** | **146.8**             | ** ** | 149.5                |   | 83.9                   |   | 65.6              |   | (2.7                  | )      | (2 | )% |
|                              |       |                  | ** ** |                 |   |                   |   |              |   |                  |   |   |   |
| **EBITDA (2)**                    | ** ** | **122.9**             | ** ** | 181.6                |   | (16.4                  | )      | 198.0             |   | (58.7                 | )      | (32 | )% |
| ***As a Percentage of Revenues*** | ** ** | **12**                | **%**      | 17                   | %      | —                 |   | 19                | %      | —                |   | (5 | )ppt |
|                                   |            |                       |            |                      |        |                        |        |                   |        |                       |        |  |  |  |

 
|                          |       |                  |       | **Fiscal Year 2003** |   | **Fiscal Year 2004/  Pro-Forma 2003** |   |
|-------------------------------|------------|-----------------------|------------|----------------------|--------|---------------------------------------|--------|
|                          |       | **Fiscal Year  2004** |       | **Pro-  Forma**      |   | **Accounting  Change**                |   | **As-  Reported** |   | **Variance** |   |
| **(€ in millions)**      |       |                  |       |                 |   | **Amount**                            |   | **Percent** |   |
| ** **                    | ** ** | ** **            | ** ** |                 |   |                                  |   |   |   |   |   |   |   |
| **Net Loss**                  | ** ** | **(145.2**            | **)**      | (58.3                | )      | (2.3                                  | )      | (56.0 | ) | (86.9 | ) | 149 | % |
|                          |       |                  |       |                 |   |                                  |   |   |   |   |   |   |   |
| *Adjusted for:*               |       |                  |       |                 |   |                                  |   |   |   |   |   |   |   |
| Minority Interests            | ** ** | **(6.7**              | **)**      | (8.8                 | )      | (8.8                                  | )      | 0.0 |   | 2.1 |   | (24 | )% |
| Exceptional (Gain) / Loss     | ** ** | **22.3**              |       | (12.0                | )      | (0.1                                  | )      | (11.9 | ) | 34.3 |   | (286 | )% |
| Net Financial Charges         | ** ** | **105.7**             |       | 111.2                |   | (89.1                                 | )      | 200.3 |   | (5.5 | ) | (5 | )% |
| Depreciation and Amortization | ** ** | **146.8**             |       | 149.5                |   | 83.9                                  |   | 65.6 |   | (2.7 | ) | (2 | )% |
| **EBITDA**                    | ** ** | **122.9**             |       | 181.6                |   | (16.4                                 | )      | 198.0 |   | (58.7 | ) | (32 | )% |

 

----

(1)              *Operating Margin representsIncome (Loss) before net financial charges and exceptional items as presentedin the Consolidated Income Statement.*

 

(2)              *EBITDA represents OperatingMargin before depreciation and amortization*.

 

Because of the substantial increase indepreciation and amortization charges resulting from the consolidation of theFinancing Companies, management has decided to use EBITDA as a tool to evaluatethe performance of the Group’s business. While management believes that EBITDA is a useful tool for evaluatingperformance, it is not a measure of financial performance defined under Frenchgenerally accepted accounting principles, and should not be viewed as asubstitute for operating margin, net income or operating cash flow inevaluating the Group’s financial results. Although management believes that Operating Margin is the closest GAAPmeasure to EBITDA, it has also provided a reconciliation of EBITDA to Net Loss.

 

EBITDA declined during Fiscal Year 2004 as aresult of the lower operating margin in both the Resort and Real Estateoperating segments.  The Resort segmentrecorded an operating loss of € 25.6 million, reflecting a decrease of € 47.4million from the pro-forma prior year performance, primarily reflectingincreased royalties and management fees of € 49.6 million.   Real Estate segment operating margindecreased € 8.6 million to € 1.7 million from € 10.3 million in the prior year,reflecting the planned reduction in development activities discussed above.

 

34

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**Net Financial Charges**

 

Net financial charges were composed of:

 
|                      |       |                  |   |                 |   |                   |   |              |   | **Fiscal Year 2004/** |   |
|---------------------------|------------|-----------------------|--------|----------------------|--------|------------------------|--------|-------------------|--------|-----------------------|--------|
|                      |       |                  |   | **Fiscal Year 2003** |   | **Pro-Forma 2003**     |   |
|                      |       | **Fiscal Year  2004** |   | **Pro-  Forma**      |   | **Accounting  Change** |   | **As-  Reported** |   | **Variance**          |   |
| **(€ in millions)**  |       |                  |   |                 |   | **Amount**             |   | **Percent**       |   |
| Lease rental expense      | ** ** | **—**            |   | —               |   | 193.8                  |   | (193.8            | )      | —                |   | — |   |
| Financial income          | ** ** | **2.8**               |   | 3.8                  |   | (45.1                  | )      | 48.9              |   | (1.0                  | )      | (26 | )% |
| Financial expense         | ** ** | **(108.5**            | **)**  | (115.0               | )      | (59.6                  | )      | (55.4             | )      | 6.5                   |   | 6 | % |
| **Net Financial Charges** | ** ** | **(105.7**            | **)**  | (111.2               | )      | 89.1                   |   | (200.3            | )      | 5.5                   |   | (5 | )% |
|                           |            |                       |        |                      |        |                        |        |                   |        |                       |        |  |  |  |  |

 

Lease rental expense represents paymentsunder financial lease arrangements with the consolidated Financing Companiesand approximates the related debt service payments and operating expenses ofsuch Financing Companies.  Uponconsolidation of the Financing Companies, this expense is eliminated.

 

Financial income, before the consolidation ofthe Financing Companies, was principally composed of interest income earned onlong-term loans provided to the Financing Companies (See Note 4 to theConsolidated Financial Statements) and interest income on cash and short-terminvestments, as well as net gains arising from foreign currencytransactions.  Since the consolidation ofthe Financing Companies, the interest income earned on the long-term loans tothe Financing Companies is eliminated. Financial expense is principallycomposed of interest charges on the long-term borrowings of the Group(including the Financing Companies under the new consolidation method) and thenet impact of interest rate hedging transactions.

 

Net financial charges decreased € 5.5 millionto € 105.7 million in fiscal year 2004. This decrease was primarily attributable to the impact of lower variableinterest rates and related hedging costs, partially offset by the resumption offull interest charges following the end of the interest waiver provisions ofthe 1994 financial restructuring as of September 30, 2003.

 

**Exceptional Income (Loss), net**

 

The Fiscal Year 2004 exceptional loss of €22.3 million primarily includes € 12.6 million of fees and expenses incurred inconnection with the Restructuring negotiations and a € 9.2 million loss relatedto the write-off of equipment within *Visionarium*, anattraction in Disneyland Park, which has been closed so that the building canhouse a new attraction expected to open in Fiscal Year 2006.  See Sub-section F below, entitled “2004Financial Restructuring”.

 

Exceptional income totaled € 11.9 million inFiscal Year 2003.  The Group sold threeapartment developments used to provide housing to employees within closeproximity to the site.  The transactiongenerated € 34.1 million in net sale proceeds and a gain of € 11.0million.  The Group continues to operatethe apartment developments under 9 to 14-year leases with the buyers, with therental expense constituting part of the Group’s operating expenses.

 

**B.4.****         Resultsof Operations for Fiscal Year 2003 Compared with Fiscal Year 2002**

 

*Introduction*

 

The discussion of the Group’s results ofoperations in fiscal years 2002 and 2003, set forth below, is based on theGroup’s Consolidated Financial Statements, which do not take into account theconsolidation of the Financing Companies (which occurred as of the beginning offiscal year 2004). As a result, certain of the fiscal year 2003 figures setforth below do not correspond to the pro-forma or as reported figures reflectedin the comparison of the Group’s results of operations in fiscal years 2003 and2004 set forth above.

 

35

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*French GAAP Major Fixed Asset Renovations*

 

A newaccounting standard relating to liabilities *(Regulation CRC n° 2000-06dated December 7, 2000)*became effective October 1,2002.  As a result, the Group adopted anew accounting policy in accordance with the transition rules of the FrenchAccounting Regulation Committee related to major renovation expenditures.  Under this new policy, the costs of majorfixed asset renovations are no longer capitalised and amortised over fiveyears, but are instead accrued in advance on a straight-line basis as operatingexpense during the period between planned renovations.  The retroactive impact of this change wasrecorded as a charge to equity on October 1, 2002 in the amount of € 104.4million.  As a result of this change,fiscal year 2003 operating expenses increased by € 11.8 million, reflecting a €20.0 million increase in the provision for major renovations, offset by reducedamortisation expenses of € 8.2 million related to renovation expendituresdeferred in the past but which were charged against retained earnings.  The impact of this accounting change isillustrated in more detail below.

 

**Revenues**

 

In fiscal years 2002 and 2003, the Group’srevenues were generated from the following sources:

 
| ** **                           | ** ** | **Fiscal Year** | ** ** | **Variation** | ** ** |
|--------------------------------------|------------|-----------------|------------|---------------|------------|
| **(€ in millions)**             | ** ** | **2003**        | ** ** | **2002**      | ** ** | **Amount** | ** ** | **Percent** | ** ** |
| Theme Parks                          | ** ** | **508.5**       |       | 526.0         |       | (17.5 | ) | (3.3 | )% |
| Hotels and  Disney Village           | ** ** | **416.7**       |       | 411.7         |       | 5.0 |   | 1.2 | % |
| Other                                | ** ** | **98.7**        |       | 106.2         |       | (7.5 | ) | (7.1 | )% |
| **Resort  Segment**                  | ** ** | **1,023.9**     |       | 1,043.9       |       | (20.0 | ) | (1.9 | )% |
|                                 |       |            |       |          |       |   |   |   |   |
| **Real  Estate Development Segment** | ** ** | **23.6**        |       | 27.3          |       | (3.7 | ) | (13.6 | )% |
| ** **                           | ** ** | ** **      |       |          |       |   |   |   |   |
| **Total  Revenues**                  | ** ** | **1,047.5**     |       | 1,071.2       |       | (23.7 | ) | (2.2 | )% |

 

**Themepark revenues** decreased 3.3 % to € 508.5 million infiscal year 2003 from € 526.0 million in the prior year as a result of loweradmission revenues driven by a 5.3% decrease in theme park guests, partiallyoffset by higher park admission prices. Merchandise and food and beverage revenues in the Theme Parks alsodecreased primarily as a result of lower total theme park attendance, partiallyoffset by higher food and beverage spending per guest.

 

**Hoteland Disney Village****revenues**increased 1.2 % to € 416.7 million in fiscal year 2003 from € 411.7 million inthe prior year, reflecting a 4.8% increase in daily average guest spending perroom, partially offset by a 3.1 percentage point decrease in Hotel occupancy,which averaged 85.1% during fiscal year 2003. Disney Village revenues increased 1% in fiscal year 2003 compared to theprior year.

 

**Other revenues**(which primarily include participant sponsorships, transportation and othertravel services sold to guests) decreased € 7.5 million to € 98.7 millionin fiscal year 2003, reflecting primarily lower participant sponsorshiprevenues.

 

**RealEstate Development****revenues**decreased in fiscal year 2003 compared to the prior year, as planned.  Real Estate Development revenues in fiscalyear 2003 included primarily commercial and residential land sale transactions.  In addition, revenues included ground leaseincome and fees earned related to conceptualisation and development assistanceservices provided to third-party developers that have signed contracts toeither purchase or lease land on Disneyland Resort Paris Site for development.

 

36

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**Costs andexpenses**

 

Costs andexpenses were composed of the following:

 
| ** **                           | ** ** | **Fiscal  Year**      | ** ** | ** **                     | ** ** |
|--------------------------------------|------------|-----------------------|------------|--------------------------------|------------|
| **(€ in millions)**             | ** ** | **As-reported  2003** | ** ** | **Accounting  Change  Impact** |       | **Before  Accounting  Change 2003** | ** ** | **2002** | ** ** | **Variation  (before  Accounting Change)** | ** ** |
| **Amount**                           | ** ** | **Percent**           |
| Direct  operating costs (1)          | ** ** | **639.7**             |       | (19.5                          | )          | **620.2** |   | 608.5 |   | 11.7 |   | 1.9 | % |
| Marketing  and sales expenses        | ** ** | **105.2**             |       | —                         |       | **105.2** |   | 95.4 |   | 9.8 |   | 10.3 | % |
| General and  administrative expenses | ** ** | **96.5**              |       | (0.5                           | )          | **96.0** |   | 92.0 |   | 4.0 |   | 4.3 | % |
| Depreciation  and amortization       | ** ** | **65.6**              |       | 9.4                            |       | **75.0** |   | 64.1 |   | 10.9 |   | 17.0 | % |
| Royalties  and management fees       | ** ** | **8.1**               |       | —                         |       | **8.1** |   | 35.5 |   | (27.4 | ) | (77.2 | )% |
| **Total  Costs and Expenses**        | ** ** | **915.1**             |       | (10.6                          | )          | **904.5** |   | 895.5 |   | 9.0 |   | 1.0 | % |

 

----

(1)              *Includes operating wages andemployee benefits, cost of sales for merchandise and food and beverage,transportation services and real estate land sales and other costs suchas utilities, maintenance, renovation expenses, insurance and operating taxes.*

 

Operating margin for the year decreased in both the Resort and RealEstate operating segments.  ResortSegment margin without the accounting change was € 132.7 million, reflecting adecrease of € 30.9 million, while the Real Estate Development Segment margindecreased € 1.8 million to € 10.3 million.

 

Total costs and expenses before the accounting change were € 904.5million in fiscal year 2003 compared to € 895.5 million in the prior year, anincrease of € 9.0 million.  This increasein costs and expenses related to increased direct operating costs (+ € 11.7million), increased marketing, general and administrative expenses (+ € 13.8million), and increased depreciation and amortisation expenses (+ €10.9million), partially offset by decreased royalties and management fees (- € 27.4million).

 

The direct operating costs increase before the accounting changereflected a full year of labour and other expenses of Walt Disney Studios Park,partially offset by decreased cost of sales.

 

Marketing and sales expenses increased € 9.8 million, reflecting anincrease that occurred primarily during the first half of fiscal year2003.  General and administrativeexpenses increased € 4.0 million reflecting increased labour and other expensesbefore the accounting change.

 

Depreciation and amortisation before the accounting change increased €10.9 million, primarily reflecting additional depreciation related to WaltDisney Studios Park.

 

Royalties and management fees totalled € 8.1 million, € 27.4 millionlower than the previous year, reflecting the March 28, 2003 waiver by TWDCof these fees for the last three quarters of fiscal year 2003.

 

**Lease rental expense and net financial charges**

 

Lease rental expense andnet financial charges were composed of:

 
| ** **                | ** ** | **Fiscal Year** | ** ** | **Variation** | ** ** |
|---------------------------|------------|-----------------|------------|---------------|------------|
| **(€ in  millions)** | ** ** | **2003**        | ** ** | **2002**      | ** ** | **Amount** | ** ** | **Percent** | ** ** |
| Lease rental  expense     | ** ** | **193.8**       |       | 188.8         |       | 5.0 |   | 2.6 | % |
| Financial  income         | ** ** | **(49.0**       | **)**      | (59.1         | )          | 10.1 |   | (17.1 | )% |
| Financial  expense        | ** ** | **55.5**        |       | 41.1          |       | 14.4 |   | 35.0 | % |
| **Total**                 | ** ** | **200.3**       |       | 170.8         |       | 29.5 |   | 17.3 | % |

 

The rate of interest forgiveness resultingfrom the 1994 financial restructuring was at its peak during the second half offiscal year 1994 and has progressively decreased since that time.  In fiscal year 1998, substantially allinterest charges were reinstated to normal levels; however, approximately € 6.1million of interest forgiveness per year favorably impacted lease rentalexpense through the end of fiscal year 2003.

 

37

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Lease rental expense and net financialcharges analyzed by nature of expense were composed of:

 
| ** **                                          | ** ** | **Fiscal  Year** | ** ** | **Variation** | ** ** |
|-----------------------------------------------------|------------|------------------|------------|---------------|------------|
| **(€ in millions)**                            | ** ** | **2003**         | ** ** | **2002**      | ** ** | **Amount** | ** ** | **Percent** | ** ** |
| Interest based expenses, debt and lease related (1) | ** ** | **96.5**         |       | 87.0          |       | 9.5 |   | 10.9 | % |
| Interest income on cash and deposit balances        | ** ** | **(2.5**         | **)**      | (2.7          | )          | 0.2 |   | (7.4 | )% |
| Loan repayments included in lease expenses:         |       |             |       |          |       |   |   |   |   |
| - Due to external third parties                     | ** ** | **37.5**         |       | 30.3          |       | 7.2 |   | 23.8 | % |
| - Due to Euro Disney Group                          | ** ** | **52.1**         |       | 41.1          |       | 11.0 |   | 26.8 | % |
| ** **                                          |       | **89.6**         |       | 71.4          |       | 18.2 |   | 25.5 | % |
|                                                |       |             |       |          |       |   |   |   |   |
| Other                                               | ** ** | **16.7**         |       | 15.1          |       | 1.6 |   | 10.6 | % |
| **Total Lease and Net Financial Charges**           | ** ** | **200.3**        |       | 170.8         |       | 29.5 |   | 17.3 | % |

 

----

*(1)**              Net of capitalized interest charges of € 0million and € 9.2 million in fiscal years 2003 and 2002, respectively.*

 

Lease and net financial charges increased to€ 200.3 million from € 170.8 million. This increase was primarily attributable to:

 

•                  Planned increases in lease rentalexpense related to principal repayments on the debt of the financing companiesfrom which the Group leases a significant portion of its operating assets (€18.2 million),

 

•                  Increased interest based expenses of€ 9.5 million as compared to the prior year, during which € 9.2 million ofinterest costs were capitalized and included in the construction costs of WaltDisney Studios Park.

 

**Exceptional income (loss), net**

 

Exceptional income totaled € 11.9 million infiscal year 2003.** **TheGroup sold three apartment developments used to provide housing to employeeswithin close proximity to the Site.  Thetransaction generated € 34.1 million in net sale proceeds and a gain of € 11.0million.  The Group continues to operatethe apartment developments under leases with the buyers.

 

Forfiscal year 2002, exceptional loss, net totalled € 38.0 million, primarilyreflecting € 37.2 million of Walt Disney Studios Park pre-opening costs, € 1.0million of euro implementation costs and € 1.0 million of reorganisationcharges.  These exceptional charges werepartially offset by € 0.7 million of net adjustments to provisions for risksand charges.  The exceptional pre-openingcosts incurred during the year included the costs of hiring and training WaltDisney Studios Park employees during the pre-opening period as well as thecosts of the pre-opening advertising campaigns and the media events that tookplace throughout February and March 2002.

 

38

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**C.****            LIQUIDITYAND CAPITAL RESOURCES**

 

**Capital Investment**

 

The following table sets forth the Group’scapital investments:

 
| ** **               | ** ** | ** **            | ** ** | ** **           | ** ** | ** **              | ** ** | ** **         | ** **  | ** **            | ** ** | **Fiscal Year 2004/** | ** ** |
|--------------------------|------------|-----------------------|------------|----------------------|------------|-------------------------|------------|--------------------|-------------|-----------------------|------------|-----------------------|------------|
| ** **               | ** ** | ** **            | ** ** | **Fiscal Year 2003** | ** ** | ** **              | ** ** | **Pro-Forma 2003** | ** **  |
| ** **               | ** ** | **Fiscal Year  2004** | ** ** | **Pro-  Forma**      | ** ** | **Accounting  Changes** | ** ** | **As  Reported**   | ** **  | **Fiscal Year  2002** | ** ** | **Variance**          | ** ** |
| **(€ in millions)** | ** ** | ** **            | ** ** | ** **           | ** ** | ** **              | **Amount** | ** **         | **Percent** | ** **            |
| Resort Segment           | ** ** | **28.7**              |       | 23.0                 |       | —                  |       | 23.0               |        | 270.4                 |       | 5.7                   |       | 25 | % |
| Real Estate Segment      | ** ** | **0.6**               |       | 1.8                  |       | —                  |       | 1.8                |        | 7.1                   |       | (1.2                  | )          | (67 | )% |
| **Capital Investment**   | ** ** | **29.3**              |       | 24.8                 |       | —                  |       | 24.8               |        | 277.5                 |       | 4.5                   |       | 18 | % |

 

Fiscal year 2004 Resort segment capital expenditures included primarilythe costs of developing and staging the new *Legend of The Lion King*stage show, which is presented several times daily on the *Videopolis*stage in Disneyland Park, improvements to the Halloween and Christmas festivalsand various other improvements to the existing asset base.

 

Fiscal year 2003 capital expenditures for the Resort segment relatedprimarily to the transformation of an existing Disney Village restaurant into *King Ludwig’s Castle*, featuring authentic Bavarian cuisine,completion of the *Fantillusion* parade, which hadits debut at Disneyland Park last year, and various improvements to theexisting asset base.  Investments in theReal Estate segment represented the purchase of land that the Group hassubsequently leased to third parties under long-term ground leases.

 

Effective from October 1, 2002 (the first day offiscal year 2003), the Group adopted new accounting rules related to majorfixed asset renovations.  As a result, majorfixed asset renovations that were previously capitalized as incurred andamortized over a five-year period are now accrued in advance on a straight-linebasis during the period between planned renovations.

 

**Cash Flows and Liquidity**

 

As of September 30, 2004, cash and short-term investments totalled€ 131.4 million (including € 49.1 million of cash and short-term investmentsheld by the Financing Companies that were consolidated as of the beginning offiscal year 2004).  As presented in theGroup’s Consolidated Statements of Cash Flows, cash and cash equivalentsincreased by € 36.7 million from the pro-forma prior year to € 131.3 million asof September 30, 2004. Specifically, this increase in cash and cashequivalents resulted from:

 
| -          Cash Flows from Operating Activities     |   | € | 124.6 million   |   |
|--------------------------------------------------------------------------------------------------|--------|--------|-----------------|--------|
| -          Cash Flows used in Investing  Activities |   | € | (28.8)  million |   |
| -          Cash Flows used in Financing  Activities |   | € | (59.1)  million |   |

 

Cash flows from operating activities remained stable compared to thepro-forma prior year, reflecting the impact of lower net income, which wasoffset by favourable changes in working capital items (principally relating topayables, including royalties and management fees, which did not result in cashpayments).

 

Cash flows used in investing activities totalled € 28.8 million reflecting€ 28.6 million of capital investment expenditures.  Capital investment expenditures relatedprimarily to the projects discussed above under “Capital Investment”.

 

Cash flows used in financing activities totalled € 59.1 millionreflecting debt repayments of  € 66.2million, payments totalling € 15.4 million to increase the debt securitydeposit and fund expenditures relating to the Restructuring, partially offsetby € 22.5 million of additional drawings under the Group’s existing € 167.7million line of credit with TWDC, thereby bringing the outstanding balance ofthe credit line as of September 30, 2004 to € 125.0 million.

 

39

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Based upon available cash and short-terminvestments and the additional resources made available in accordance withtransition measures of the Restructuring, including a new line of credit fromTWDC in the amount of € 150.0 million, management believes the Group will havein the normal course of business the resources necessary to meet fundingrequirements arising until the Restructuring is fully implemented, which isscheduled to occur no later than March 31, 2005.  Absent implementation of the Restructuring byMarch 31, 2005 or an alternative agreement with the lenders and TWDC withinthe 30-day period after March 31, 2005, management believes the Groupwould be unable to meet all of its debt obligations.

 

**Debt**

 

The consolidation of the Financing Companiessubstantially increased the amount of borrowings recorded on the Group’s balancesheet as of September 30, 2004.  Thefollowing table shows the impact of the accounting change on the Group’sborrowings.  All figures are set forth beforetaking into account the impact of the Restructuring.

 
| ** **                       | ** ** | **As-  Reported  September** | ** ** | **Consolidate  Financing** | ** ** | ** **          | ** ** | ** **    |   | ** **  | ** ** |
|----------------------------------|------------|------------------------------|------------|----------------------------|------------|---------------------|------------|---------------|--------|-------------|------------|
| ** **                       | ** ** | ** **                   | ** ** | **Fiscal  Year 2004**      |       | **September  2004** | ** ** |
| **(€ in millions)**         | ** ** | **2003**                     | ** ** | **Companies**              | ** ** | **Increases**       | ** ** | **Decreases** |   | ** **  |
| CDC Senior Loans                 |       | 40.6                         |       | 86.9                       |       | —              |       | —        |   | **127.5**   | ** ** |
| CDC Subordinated Loans           |       | 509.4                        |       | 274.4                      |       | —              |       | —        |   | **783.8**   | ** ** |
| Credit Facility – Phase IA  |       | 114.1                        |       | 263.7                      |       | —              |       | (37.7         | )      | **340.1**   | ** ** |
| Credit Facility – Phase IB  |       | 24.3                         |       | 139.2                      |       | —              |       | (13.0         | )      | **150.5**   | ** ** |
| Partner Advances – Phase IA |       | —                       |       | 304.9                      |       | —              |       | —        |   | **304.9**   | ** ** |
| Partner Advances – Phase IB |       | —                       |       | 96.9                       |       | —              |       | —        |   | **96.9**    | ** ** |
| TWDC Loans                       |       | —                       |       | 276.4                      |       | —              |       | (259.1        | )      | **17.3**    | ** ** |
| TWDC Line of Credit              |       | 102.5                        |       | —                     |       | 22.5                |       | —        |   | **125.0**   | ** ** |
| Other loans                      |       | 15.5                         |       | —                     |       | —              |       | (15.5         | )      | **—**  | ** ** |
| Sub- Total                       |       | 806.4                        |       | 1,442.4                    |       | 22.5                |       | (325.3        | )      | **1,946.0** | ** ** |
| ** **                       | ** ** | ** **                   | ** ** | ** **                 | ** ** | ** **          | ** ** | ** **    |   | ** **  | ** ** |
| Accrued Interest                 |       | 61.1                         |       | 138.5                      |       | 93.7                |       | (186.5        | )      | **106.8**   | ** ** |
|                             |       |                         |       |                       |       |                |       |          |   | ** **  | ** ** |
| **Total Borrowings**             |       | 867.5                        |       | 1,580.9                    |       | 116.2               |       | (511.8        | )      | **2,052.8** | ** ** |

 

Duringfiscal year 2004, the Group made scheduled principal repayments of € 66.2million, offset by € 22.5 million of new drawings on the Group’s existing lineof credit with TWDC.  In addition, in September 2004,EDA an indirect, wholly-owned affiliate of TWDC and one of the consolidatedFinancing Companies, was re-capitalised by TWDC resulting in the transfer ofborrowings (€ 259.1 million) and accrued interest (€ 125.0 million) in thetotal amount of  € 384.1 million tominority interests.  The Company willacquire an 82 % interest in EDA in connection with the Restructuring, asdescribed below.

 

TheGroup’s debt agreements include covenants with respect to its financingarrangements.  These covenants includerestrictions on additional indebtedness and capital expenditures, the provisionof certain financial information and compliance with certain financialthresholds.  The Group has receivedsuccessive waivers of certain of these covenants for fiscal years 2003 and2004.  The covenants have been modifiedin connection with the Restructuring. See below Section F “2004 FinancialRestructuring”.

 

**Equity**

 

Shareholders’ equity decreased to a deficitof € 59.9 million at September 30, 2004, compared to positive shareholders’equity of € 1,084.4 million as-reported at September 30, 2003, reflectingthe net loss for fiscal year 2004 of € 145.2 million and the € 1,151.6 millioncumulative effect of a change in accounting principles related to theconsolidation of the Financing Companies, partially offset by the € 152.2million impact of the issuance of 26.7 million of new shares upon the maturityof the Group’s mandatorily convertible bonds (ORAs) in July 2004.

 

40

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**D.****                          OUTLOOK**

 

The Group believes that the implementation ofits development strategy and the improved financial flexibility from theRestructuring give it a significant opportunity to improve its financialperformance, in what will hopefully be a stronger European travel and tourismmarket.

 

As a result of the Restructuring, the Groupwill benefit from a substantial improvement in its cash position. In addition,the Group’s strategy to increase the number of visitors is intended to boostrevenues, which should result in increased EBITDA margin in the mediumterm.  At the same time, the combinedeffect of full royalties, management fees and interest expense (which willcontinue to accrue despite being partially deferred on a cash basis) anddepreciation and amortization resulting from the consolidation of the FinancingCompanies will continue to affect operating margin and net income.  The Group anticipates that it will recordsignificant net losses for at least the next several years.

 

In fiscal year 2005, management is seeking toachieve attendance growth.  It believesthat its seasonal events and new opportunities, such as the re-launch of SpaceMountain and a new fireworks show celebrating the 50th anniversary ofDisneyland in California, provide an opportunity to increase attendance,although attendance in the first half of fiscal year 2005 might be somewhatadversely impacted by the closure of Space Mountain in order to perform thenecessary improvements, currently planned from January to March of2005.  The Group hopes to improveoccupancy at its Hotels by capturing a larger share of total visitors.  It expects that per guest spending at thetheme parks will increase as a result of regular admission price increases andthe re-balancing of hotel package pricing. The re-balancing, which will not affect the overall package pricing ofvisitors to the Group’s Hotels, will attribute more of package prices to themepark attendance and less to overnight stays at the Hotels.

 

The Group’s targeted revenue growth in fiscalyear 2005, if it is achieved, will be used partially to cover an anticipatedincrease in operating expenses resulting primarily from increased laborexpenses due to an increase in the French minimum wage and reduction ofsubsidies related to the adoption of the 35-hour work week.  The Group will also seek to control marketingand sales expenses in order to meet its objective of maintaining EBITDA marginsat approximately the same level as in fiscal year 2004.

 

The Group’s development strategy will resultin part of the Group’s increased cash resources being devoted to increasedcapital expenditures and spending on major asset renovations.  In fiscal year 2005, the Group expects torecord a substantial increase in capital expenditures, which could totalapproximately € 130.0 million based on the Group’s current budget (compared to€ 29.3 million in fiscal year 2004).  Theincrease will result mainly from the re-launch of Space Mountain, the initialphase of the construction of new attractions and planned improvements in themagical atmosphere of the theme parks. The Group anticipates significant, but somewhat lower, spending infiscal years 2006 and 2007.  Afterwards,capital expenditures will be focused mainly on continued enhancements at thetheme parks and the Hotels.

 

The information, assumptions and estimatesthat the Group has used to determine its objectives are subject to change ormodification due to economic, financial and competitive uncertainties.  In particular, attendance could be affectedby a number of factors, some of which are beyond the Group’s control, includingthe state of the European travel and tourism industry (including the potentialimpact of increased oil prices), geopolitical considerations, factors affectingthe French tourism market (such as weather conditions and the overall economy),the perceived attractiveness of the Resort compared to other traveldestinations, and whether the Group is successful in implementing itsDevelopment Strategy and achieving the objectives of that strategy.  Accordingly, the Group cannot give anyassurance as to whether it will achieve the objectives described in thissection, and it makes no commitment or undertaking to update or otherwiserevise this information.

 

**E.****             OTHERMATTERS**

 

**E.1.****         TabularDisclosure of Contractual Obligations**

 

See below Section F.1.1. “2004 FinancialRestructuring — The Group’s Current Financial Obligations”.

 

**E.2.****         Off-BalanceSheet Obligations – Contingent Commitments**

 

See below Section F.1.1. “2004 FinancialRestructuring — The Group’s Current Financial Obligations”.

 

41

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**E.3.****         AccountingPolicies and Estimates**

 

The Group believes that the application ofthe following accounting policies are important to its financial position andresults of operations, and require judgements and estimates on the part ofmanagement.  For a summary of all of itsaccounting policies, See Note 2 to the Consolidated Financial Statements inItem 17 “Financial Statements”.

 

*Revenue Recognition*

 

The Company has revenue recognition policiesfor its operating segments, which are appropriate to the circumstances of eachbusiness or revenues flow.  It recordsrevenues for the Resort Segment as the related service is provided toguests.  In addition, the Resort Segmentincludes revenues associated with long-term sponsorship contracts, which arerecognized pro-rata over the term of the contracts.  In its Real Estate Development Segment, theGroup recognizes revenue on land sales upon closing of each transaction, whilerevenues related to service contracts and ground leases are recognized when theservice is rendered.

 

*Contingencies and Litigation*

 

The Group is continually involved in certainlegal proceedings and tax audits and, as required, have accrued its estimate ofthe probable costs for the resolution of these claims.  The Group’s estimates are developed inconsultation with outside counsel and are based upon an analysis of potentialresults, assuming a combination of litigation and settlement strategies.  It is possible, however, that future resultsof operations for any particular annual period could be materially affected bychanges in assumptions or the effectiveness of the Group’s strategies relatedto these proceedings.

 

**E.4.****         NewAccounting Pronouncements**

 

*Implementation of International FinancialReporting Standards (IFRS) and other legal requirements*

 

The Group currently prepares its financialstatements in accordance with French GAAP and prepares a reconciliation ofstockholders’ equity, net income and certain other disclosures to U.S.GAAP.  In June 2002, the Council ofMinisters of the European Union approved a new regulation proposed by theEuropean Commission requiring all EU-listed companies, including the Group, toapply International Financial Reporting Standards (“IFRS”) in preparing theirfinancial statements for fiscal years beginning on or after January 1,2005 (this means fiscal year 2006 for the Group). The Group plans to carry out a detailed impact assessment in the firsthalf of fiscal year 2005 to identify:

 

•                       The differences between the Group’scurrent accounting and disclosure policies and IFRS,

•                       The changes to information systemsthat will be required to produce the required information,

•                       The data required to produce theopening IFRS balance sheet as of October 1, 2004.

 

42

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**F.****             2004FINANCIAL RESTRUCTURING**

 

*In this section, all financial statementitems and other figures are as determined under French GAAP*.

 

**F.1.****         GeneralOverview**

 

In September 2004, the Company andcertain companies of the Group signed a Memorandum of Agreement with the Group’smain lenders and TWDC for a comprehensive Restructuring of the Group’sfinancial obligations.  In December 2004,the Company, TWDC and the lenders signed definitive agreements for theimplementation of the Restructuring. Those agreements, and the Restructuring, are subject to certainconditions described below.  TheRestructuring is intended to provide new cash resources, to reduce or defercertain of the Group’s cash payment obligations and to give the Group theflexibility to invest in new attractions and in the development of the Resortand its surrounding areas.

 

The Company began negotiating theRestructuring in light of reduced revenues and increased losses that itincurred beginning in fiscal year 2003. The reduction in revenues was primarily the result of a prolongeddownturn in European travel and tourism combined with challenging generaleconomic and geopolitical conditions in key markets.  While this was partially offset by the impactof the opening of Walt Disney Studios Park, the number of visitors and revenuesgenerated by the new park were below expectations.  The increased losses were a result of reducedrevenues, as well as higher operating costs and marketing expenses inconnection with the opening of the Walt Disney Studios Park.

 

As a result of this situation, the Companydetermined that it would not be able, in the absence of a new restructuring, torestore compliance with certain financial covenants contained in its creditagreements in the near term, or to meet certain of its financialobligations.  The Company also determinedthat, absent such a restructuring, it would not have the financial resources orthe authority under its credit agreements to invest in new attractions andimprovements at the Site.

 

The principal features of the Restructuringcontemplated in the Memorandum of Agreement and the definitive agreements arethe following:

 

•                the Companyconducting a share capital increase (the “Share Capital Increase”) through anequity rights offering, with total gross proceeds of at least €250.0 million(before deduction of equity issuance costs), to be partially subscribed for byTWDC or one of its affiliates, with the remainder underwritten, subject tocertain conditions, by a group of banks;

 

•                  the Companyhaving access to additional financial resources under a new 10-year revolvingcredit line granted by TWDC in the amount of €150.0 million until September 30,2009 and €100.0 million thereafter;

 

•                  the Group’s debtservice obligations being deferred, and its obligation to maintain securitydeposits being eliminated (with its existing security deposits used to prepaycertain debt), in exchange for an increased interest rate on a substantialportion of the Group’s debt;

 

•                  a portion of themanagement fees and royalties payable to affiliates of TWDC being deferred, onan unconditional basis for a amount of €125 million and on a conditional basis foran amount up to €200 million, with the conditional portion depending on theCompany’s financial performance;

 

•                  the Companyacquiring 82% of the issued share capital of EDA in exchange for thecontribution by the Company to EDA of substantially all of its assets andliabilities.  TWDC will indirectly holdthe remainder of EDA’s share capital. The purpose of this transaction is to allow the Company to avoid making€292.1 million of payments (plus €16.0 million of interest) that would havebeen necessary in order for the Company to exercise its option to maintain itsrights to the Disneyland Park and certain of its key attractions under therelevant lease and sub-lease; and

 

•                  the Group willhave the authorization to implement a €240 million plan to develop new ThemePark attractions and to expend more each year on maintaining and improving theexisting asset base.

 

43

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The Restructuring is subject to, and certainportions of the Restructuring will become effective upon, the completion of theShare Capital Increase and the reorganization described below, no later than March 31,2005.  If those transactions do not occurby March 31, 2005, the parties to will have 30 days to negotiate analternative arrangement.  If thenegotiations do not succeed, most of the provisions of the Memorandum ofAgreement and the related definitive agreements will become null and void.

 

Once effective, the Restructuring is intendedto provide significant liquidity, including protective measures intended tomitigate the adverse impact of business volatility (through conditionaldeferrals of expenditures), as well as capital to invest in new rides andattractions.

 

**F.1.1.****     ****The Group’s Current FinancialObligations**

 

The operating assets of the Group arefinanced using equity, borrowings and financial lease contracts. The lessorsunder the financial lease contracts are special purpose financing companies,which have been consolidated in the Group’s consolidated financial statementssince October 1, 2003 (the first day of fiscal year 2004).  As a result, the liabilities under the leasecontracts themselves are eliminated in the consolidation process, while theborrowings of the financing companies are reflected as debt in the Group’sconsolidated balance sheet.

 

The Group’s financial obligations in respectof these borrowings were undertaken in several phases, corresponding generallyto those described in Item 4  “Informationon the Company” – Section A.1 “History of the Group”.  The CDC is one of the principal lenders tothe Group, holding both senior loans and subordinated loans (including loansextended in 1999 to finance the construction of Walt Disney Studios Park).  The creditors in respect of other loans arebank syndicates.  The Group also benefitsfrom advances made by the partners of the special purpose financing companiesfrom which the Group leases assets (those partners are mainly banks, as well asother financing entities).  The Groupalso has use of a credit line granted by TWDC.

 

The Group’s obligations in respect of theseloans and other commitments are described in more detail in Note 13, 14, 19b,24 and 25 to the Group’s Consolidated Financial Statements.  The table below sets out the debt and leasestructure as well as other long-term obligations as at September 30, 2004,prior to taking into account the Restructuring.

 

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| ** **                                                   | ** ** | ** **          | ** ** | **Principal Payments Due** | ** ** |
|--------------------------------------------------------------|------------|---------------------|------------|----------------------------|------------|
| **(€ in millions)**                                     | ** ** | **September  2004** | ** ** | **Less than  1 year**      | ** ** | **1-3  years** | ** ** | **3-5  years** | ** ** | **More than  5 years** | ** ** |
| *CDC Loans*                                                  |       |                |       |                       |       |   |   |   |   |   |   |
| Phase I Loans – Senior                                  |       | 127.5               |       | 0.6                        |       | 1.7 |   | 2.1 |   | 123.1 |   |
| Phase I Loans – Subordinated                            |       | 402.7               |       | 2.0                        |       | 5.2 |   | 6.9 |   | 388.6 |   |
| Walt Disney Studios Park Loans – Subordinated           |       | 381.1               |       | —                     |       | — |   | — |   | 381.1 |   |
|                                                         |       | 911.3               |       | 2.6                        |       | 6.9 |   | 9.0 |   | 892.8 |   |
|                                                         |       |                |       |                       |       |   |   |   |   |   |   |
| *Phase IA Asset Financing (primarily Disneyland  Park)* |       |                |       |                       |       |   |   |   |   |   |   |
| Credit Facility (1)                                          |       | 340.1               |       | 65.0                       |       | 126.5 |   | 148.6 |   | — |   |
| Partner Advances                                             |       | 304.9               |       | —                     |       | — |   | — |   | 304.9 |   |
|                                                         |       | 645.0               |       | 65.0                       |       | 126.5 |   | 148.6 |   | 304.9 |   |
|                                                         |       |                |       |                       |       |   |   |   |   |   |   |
| *Phase IB Asset Financing (Hotels and Disney  Village)* |       |                |       |                       |       |   |   |   |   |   |   |
| Credit Facility (1)                                          |       | 150.5               |       | 14.2                       |       | 32.5 |   | 40.3 |   | 63.5 |   |
| Partner Advances                                             |       | 96.9                |       | —                     |       | 3.6 |   | 4.8 |   | 88.5 |   |
| TWDC – Newport Bay Club Convention Center               |       | 17.3                |       | —                     |       | — |   | — |   | 17.3 |   |
|                                                         |       | 264.7               |       | 14.2                       |       | 36.1 |   | 45.1 |   | 169.3 |   |
|                                                         |       |                |       |                       |       |   |   |   |   |   |   |
| Existing TWDC Credit Line                                    |       | 125.0               |       | 125.0                      |       | — |   | — |   | — |   |
|                                                         |       |                |       |                       |       |   |   |   |   |   |   |
| Total Borrowings                                             |       | 1,946.0             |       | 206.8                      |       | 169.5 |   | 202.7 |   | 1,367.0 |   |
|                                                         |       |                |       |                       |       |   |   |   |   |   |   |
| Off-balance sheet lease options(2)                           |       | 292.1               |       | —                     |       | 105.2 |   | 53.4 |   | 133.5 |   |
| Contingent obligations(3)                                    |       | 207.5               |       | —                     |       | — |   | 24.6 |   | 182.9 |   |
| Operating Lease Obligations (4)                              |       | 82.7                |       | 16.2                       |       | 25.6 |   | 15.1 |   | 25.8 |   |
| Retirement indemnities obligation(5)                         |       | 8.6                 |       | —                     |       | — |   | — |   | 8.6 |   |
| Purchase Obligations (6)                                     |       | 2.6                 |       | 1.0                        |       | 1.6 |   | — |   | — |   |
| Other Long-Term Obligations (7)                              |       | 22.5                |       | —                     |       | 0.7 |   | 2.3 |   | 19.5 |   |
|                                                         |       |                |       |                       |       |   |   |   |   |   |   |
| **Total Contractual Obligations (8)**                        |       | 2,562.0             |       | 224.0                      |       | 302.6 |   | 298.1 |   | 1,737.3 |   |

 

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*(1)**              UnderFrench law, the legally controlled group (the Company and its subsidiaries) isjointly liable or has guaranteed these obligations under the terms of therelated credit agreements (See Note 24 to the Consolidated Financial Statementsin Item 17 – “Financial Statements”).*

 

*(2)**              Representsoff-balance sheet obligations linked to the Disneyland Park and ACP Assetsleases as described in Note 25-1 to the Consolidated Financial Statements inItem 17 – “Financial Statements”.*

 

*(3)**              Includes€24.6 million corresponding to TWDC waiver of royalties and management fees(See Note 19b to the Consolidated Financial Statements in Item 17 – “FinancialStatements”) and €182.9 million corresponding to TWDC development fees subjectto conditions (See Note 24 to the Consolidated Financial Statements in Item 17– “Financial Statements”).*

 

*(4)**              Representsoperating lease commitments as described in Note 25-2 to the ConsolidatedFinancial Statements in Item 17 – “Financial Statements”).*

 

*(5)**              Representsthe actuarially calculated obligation for employee retirement indemnities.  The obligation was calculated using anestimated inflation rate of 2.0%, a discount rate of 5.25% and a laborinflation rate between 2.75% and 3.25% and assuming that retirement dates areat the initiative of the employee.  Theentire obligation has been reported in the “More than 5 years” column as theGroup does not expect a significant number of retirements in the next fivefiscal years. (See Notes 2 and 26 to the Consolidated Financial Statements inItem 17 – “Financial Statements”)*

 

*(6)**              Representsthe maximum potential risk under purchase obligations with the Group’ssponsorship participants.*

 

*(7)**              Representsa guarantee provided to the Seine-et-Marne Department (local governmentalbody). (See Note 13b to the Consolidated Financial Statements in Item 17 – “FinancialStatements”)*

 

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*(8)**              Comprisedof the following :*

 
| **(€ in  millions)**                    | *** *** | *** *** | *** *** |
|----------------------------------------------|--------------|--------------|--------------|
| *Liabilities  recorded on the balance sheet* |         | 1,968.5      |         |
| *Off-balance  sheet obligations*             |         | 593.5        |         |
|                                         | * *     | 2,562.0      | * *     |

 

In addition, the Group has certaincontractual commitments including performance guarantees and other contingentliabilities totaling approximately € 26.6 million, assuming the maximumpotential obligation.

 

**F.1.2.*****     *Impactof the Restructuring on Group Cash Flow**

 

The Restructuring is intended to improve theGroup’s liquidity situation significantly by providing new financial resourcesand deferring payment obligations.  Oncethe Restructuring becomes effective, the principal cash impacts on the Groupwill be the following:

 

•                  theGroup will have available €400.0 million in new financial resources in fiscalyear 2005: €250.0 million from the Share Capital Increase (before deductingunderwriting commissions and other costs linked to this Share Capital Increase)and €150.0 million from the TWDC New Credit Line. The amount of the TWDC NewCredit Line will be reduced to €100.0 million after September 30, 2009,and it will expire on  September 30,2014;

 

•                  thecash payments that the Group will be required to make in fiscal year 2005 inrespect of its credit agreements and the existing TWDC Credit Line (whosematurity date was initially June 10, 2004 and has been deferred as part ofthe Restructuring) will be reduced by €241.4 million (after taking into accountthe increased interest that the Group will be required to pay).  In addition, the Group will realizereductions in cash outflow from similar deferrals through fiscal year 2009, asshown in the table below;

 

•                  theGroup’s cash payments in respect of management fees and royalties due to TWDCsubsidiaries will be reduced by €25.0 million per year up to and includingfiscal year 2007, by between €25.0 million and up to €50.0 million per year infiscal years 2008, 2009 and 2010, depending on financial performance of theGroup, and by up to €25.0 million per year from fiscal years 2011 up to andincluding fiscal year 2015, depending on the financial performance of theGroup; and

 

•                  followingthe legal restructuring described below under which EDA will become a subsidiaryof the Company, the Group will realize significant cash savings in respect ofamounts it otherwise would have had to pay to EDA to exercise its option tomaintain its rights to the Disneyland Park and to certain of its keyattractions.  These savings include €78.7million that the Company would have had to make over approximately a two-yearperiod starting in June 2006 to exercise the option to maintain its rightsin respect of the Disneyland Park.  Thecash savings also relate to €213.4 million of lease-related payments that theCompany would have had to make over an eight-year period starting in July 2007to exercise the option to maintain its rights over the “ACP Assets,” which arecertain attractions constructed after the opening of Disneyland Park (including*Space Mountain*) , which the Companycurrently leases from EDA.

 

The following table sets out the impact ofthe Restructuring, assuming it is implemented, on the cash flows of the Groupin comparison to its pre-Restructuring contractual obligations.  The table includes the impact of increasedinterest rates on debt service as described below in Sub-section F.2.2entitled “Modifications to existing credit agreements - Other modifications toterms of credit agreements”.  For thesake of clarity, the table does not take into account the impact that deferralsof principal repayments, management fees and royalties and interest expenseswill have on interest payments and interest income on cash balances.  These deferrals will improve the Group’sliquidity situation and potentially create supplementary financial income, butwill also have the effect of increasing the Group’s borrowings and interestexpenses.  In addition, the table doesnot take into account the capital investment expenditures in connection withthe new development and investment plan, described above in Sub-section F.2.5below entitled “*Terms of the Restructuring - New developmentand investment plan*”.  It alsodoes not take into account the exceptional expenses linked to the Restructuringthat remain to be paid in fiscal year 2005.

 

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**SIGNIFICANT IMPACTS OF THE RESTRUCTURING ON GROUP CASH FLOW**

 

Impacts : Positive / (Negative)

 
| ** **                                                   | ** ** | **Fiscal Year ending September 30,** | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------------------------------------|------------|-------------------------------------------|------------|------------|------------|------------|------------|
| **(€ in millions)**                                     | ** ** | **2005**                                  | ** ** | **2006**   | ** ** | **2007**   | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** | **2013** | ** ** | **2014** | ** ** | **2015** | ** ** | **There-  after** | ** ** | **Net  Impact** | ** ** |
|                                                         |       |                                      |       |       |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **ADDITIONAL CAPITAL AND CREDIT  RESOURCES:**                |       |                                      |       |       |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Share Capital Increase (1)                                   |       | 230.0                                     |       | —     |       | —     |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   | — |   | — |   | 230.0 |   |
| TWDC New Credit Line (2)                                     |       | 150.0                                     |       | —     |       | —     |       | — |   | — |   | (50.0 | ) | — |   | — |   | — |   | — |   | (100.0 | ) | — |   | — |   |
| Sub-Total                                                    |       | 380.0                                     |       | —     |       | —     |       | — |   | — |   | (50.0 | ) | — |   | — |   | — |   | — |   | (100.0 | ) | — |   | 230.0 |   |
|                                                         |       |                                      |       |       |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **CASH SAVINGS AND ADDITIONAL  COSTS:**                      | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Savings on Obligations Pursuant  to Legal Reorganization (3) |       | —                                    |       | 13.9       |       | 91.3       |       | 26.7 |   | 26.7 |   | 26.7 |   | 26.7 |   | 26.7 |   | 26.7 |   | 26.7 |   | — |   | — |   | 292.1 |   |
| Waiver by TWDC on Existing TWDC  Credit Line                 |       | 10.0                                      |       | —     |       | —     |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   | — |   | — |   | 10.0 |   |
| Waiver by CDC of certain Future  Interest Expense            |       | —                                    |       | 2.5        |       | 2.5        |       | 2.5 |   | 2.5 |   | 2.5 |   | 2.5 |   | 2.5 |   | 2.5 |   | — |   | — |   | — |   | 20.0 |   |
| Impact of Increased Interest  Rates (4)                      |       | (9.3                                      | )          | (9.7       | )          | (9.7       | )          | (9.3 | ) | (7.6 | ) | (5.7 | ) | (3.8 | ) | (1.8 | ) | (1.0 | ) | (0.9 | ) | (0.4 | ) | (3.5 | ) | (62.7 | ) |
| Sub-Total                                                    |       | 0.7                                       |       | 6.7        |       | 84.1       |       | 19.9 |   | 21.6 |   | 23.5 |   | 25.4 |   | 27.4 |   | 28.2 |   | 25.8 |   | (0.4 | ) | (3.5 | ) | 259.4 |   |
|                                                         |       |                                      |       |       |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **LONG-TERM DEFERRALS OF CASH  EXPENDITURES (5):**           |       |                                      |       |       |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Rescheduling of Bank Debt  Service Requirements              |       | 129.8                                     | (6)        | 76.0       |       | 93.4       |       | 47.5 |   | 8.5 |   | (35.1 | ) | (28.0 | ) | (54.3 | ) | (47.7 | ) | 2.2 |   | 7.3 |   | (199.6 | ) | — |   |
| Deferral of Repayment of  Existing TWDC Credit Line          |       | 110.0                                     |       | —     |       | —     |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   | — |   | (110.0 | ) | — |   |
| Deferral of Management Fees and  Royalties                   |       | —                                    |       | 25.0       |       | 25.0       |       | 25.0 |   | 25.0 |   | 25.0 |   | — |   | — |   | — |   | — |   | — |   | (125.0 | ) | — |   |
| Deferral NBC Convention Center  Lease Payments               |       | 0.9                                       |       | 1.2        |       | 1.2        |       | 1.4 |   | 1.4 |   | 0.5 |   | 0.5 |   | 0.5 |   | 0.5 |   | 0.5 |   | 0.5 |   | (9.1 | ) | — |   |
| Sub-Total                                                    |       | 240.7                                     |       | 102.2      |       | 119.6      |       | 73.9 |   | 34.9 |   | (9.6 | ) | (27.5 | ) | (53.8 | ) | (47.2 | ) | 2.7 |   | 7.8 |   | (443.7 | ) | — |   |
|                                                         |       |                                      |       |       |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Total Unconditional Impacts**                              | ** ** | **621.4**                                 | ** ** | **108.9**  | ** ** | **203.7**  | ** ** | **93.8** | ** ** | **56.5** | ** ** | **(36.1** | **)** | **(2.1** | **)** | **(26.4** | **)** | **(19.0** | **)** | **28.5** | ** ** | **(92.6** | **)** | **(447.2** | **)** | **489.4** | ** ** |
|                                                         |       |                                      |       |       |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **MAXIMUM CONDITIONAL DEFERRALS  OF CASH EXPENDITURES (5):** |       |                                      |       |       |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ** **                                                   | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Conditional Deferral of  Management Fees and Royalties       |       | —                                    |       | —     |       | —     |       | 25.0 |   | 25.0 |   | 25.0 |   | 25.0 |   | 25.0 |   | 25.0 |   | 25.0 |   | 25.0 |   | (200.0 | ) | — |   |
| Conditional Deferral of CDC  Interest                        |       | —                                    |       | 20.1       |       | 20.1       |       | 20.1 |   | 20.1 |   | 20.1 |   | 20.1 |   | 20.1 |   | 20.1 |   | 22.6 |   | 22.6 |   | (206.0 | ) | — |   |
| Sub-Total                                                    |       | —                                    |       | 20.1       |       | 20.1       |       | 45.1 |   | 45.1 |   | 45.1 |   | 45.1 |   | 45.1 |   | 45.1 |   | 47.6 |   | 47.6 |   | (406.0 | ) | — |   |
|                                                         |       |                                      |       |       |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Total Unconditional and  Conditional Impacts**             | ** ** | **621.4**                                 | ** ** | **129.0**  | ** ** | **223.8**  | ** ** | **138.9** | ** ** | **101.6** | ** ** | **9.0** | ** ** | **43.0** | ** ** | **18.7** | ** ** | **26.1** | ** ** | **76.1** | ** ** | **(45.0** | **)** | **(853.2** | **)** | **489.4** | ** ** |

 

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(1)              After deduction of estimated Share CapitalIncrease costs of  €20.0 million.

(2)              Asat December ****31, 2004, €5.0 million has beendrawn on this line.

(3)              Excludesinterest savings of approximately €16.0 million.

(4)              Representscost of increased interest rates negotiated as part of the Restructuring usingthe post-restructuring maturity schedule, but excluding the impact that thecreation of new debt from the deferrals will have on interest charges.

(5)              Excludesimpact of annual interest on the deferred amounts, which will be added toborrowings and paid starting in Fiscal Year 2023.

(6)              Represents the net impact of the elimination ofthe debt security deposits (€100 million) and the deferrals of the debtrepayments (net of the €110 million prepayments) and the deferral of €58million of accrued interest.

 

 

47

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**F.1.3.****                    Impact of theRestructuring on the Group’s Debt Maturity Profile**

 

The tablebelow sets out the scheduled principal maturities of the Group’s borrowings asat September 30, 2004 before and after the Restructuring (assuming it willbe fully implemented):

 
| ** **           | *** *** | **Scheduled  maturities  (€ in millions)** | *** *** | *** ***               | *** *** |
|----------------------|--------------|-------------------------------------------------|--------------|----------------------------|--------------|
| **Fiscal Year**      | ** **   | **Before****Restructuring**                     | ** **   | **After****Restructuring** | ** **   | **Change** | ** ** |
|                 |         |                                            |         |                       |         |   |   |
| 2005                 |         | 206.8                                           | (1)          | 110.0                      | (2)          | 96.8 |   |
| 2006                 |         | 76.0                                            |         | —                     |         | 76.0 |   |
| 2007                 |         | 93.4                                            |         | —                     |         | 93.4 |   |
| 2008                 |         | 107.6                                           |         | 60.1                       |         | 47.5 |   |
| 2009                 |         | 95.0                                            |         | 86.5                       |         | 8.5 |   |
| Thereafter           |         | 1,367.2                                         |         | 1,737.4                    |         | (370.2 | ) |
| Sub-total            |         | 1,946.0                                         |         | 1,994.0                    |         | (48.0 | ) |
|                 |         |                                            |         |                       |         |   |   |
| Accrued Interest     |         | 106.8                                           |         | 48.8                       |         | 58.0 |   |
|                 |         |                                            |         |                       |         |   |   |
| **Total Borrowings** |         | 2,052.8                                         |         | 2,042.8                    |         | 10.0 |   |

 

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*(1)**              Fiscal Year2005 scheduled maturities before Restructuring include €125.0 millionrepresenting the amount outstanding under the Existing TWDC Credit Line.  After Restructuring, €10.0 million of thisamount will be the subject of a debt forgiveness, €110.0 million will beconverted into long-term subordinated debt (included in the “Thereafter”amount) and the remaining €5.0 million has been reimbursed by a drawing onthe TWDC New Line of Credit.*

 

*(2)**              Amountcorresponds to the prepayments described in Sub-section F.2.2 belowentitled “Modifications to Existing Credit Agreements — Payments to occur whenthe Share Capital Increase is completed”.*

 

**F.1.4.*****     *Impactof the Restructuring on the Group’s Financial Statements**

 

The measures contemplated in theRestructuring will significantly impact the cash flows and financial positionof the Group.  Certain of the financialstatement impacts will be recorded immediately upon the completion of theRestructuring while others will be realized over a period of several years asfollows:

 

•                  the ShareCapital Increase will increase the Group’s cash and shareholders’ equity infiscal year 2005;

 

•                  the deferrals ofprincipal repayments and increases in the margin paid over EURIBOR on certaintranches of the Group’s debt will increase interest charges over the remainingterm of this debt until 2013;

 

•                  the paymentdeferrals of management fees and royalties due to TWDC subsidiaries and CDCinterest expense, will increase long-term subordinated debt, which will alsoincrease annual interest expenses. However, these payment deferrals will not reduce the annual expensesrecorded in the Group’s consolidated income statement for management fees,royalties and CDC interest expense, as the amount corresponding to thesedeferred amounts, even though they will have been deferred, will be accrued asexpenses;

 

•                  the waiver ofdebts by certain creditors will increase the Group’s net results and cashflows; and

 

•                  the changes inthe Group’s organizational structure relating to EDA will increase retainedearnings and result in a corresponding decrease in minority interests, in orderto reflect the respective ownership interests of the Company and TWDC in EDA’sshare capital following the completion of the reorganization.

 

A more detailed analysis of these impacts on the Group’s balance sheetas of September 30, 2004 and net income in Fiscal Year 2004 is presentedbelow in the Sub-section F.4 entitled “Pro-Forma Financial Information”.

 

48

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**F.2.****         Termsof the Restructuring**

 

This Sub-section summarizes the main aspects ofthe Restructuring.  The Memorandum ofAgreement and the related definitive agreements, which set forth the detailedprovisions relating to the Restructuring, have been filed with the Securitiesand Exchange Commission as an exhibit to this Annual Report.

 

The Restructuring (and the entry into effect ofcertain documents executed December 1, 2004 relating to the implementationof the Restructuring) is subject to the condition that the Share CapitalIncrease and legal reorganization described below be completed by March 31,2005, and certain elements of the Restructuring will only come into force onthe date on which those operations are completed.  If this does not occur, then the parties willhave 30 days to negotiate an alternative arrangement, failing which most of theRestructuring measures (including the deferral of the Group’s debt paymentobligations accepted by its creditors) will not take effect or will become nulland void.

 

**F.2.1.****      New Capitaland Credit Resources**

 

*Share capital increase*

 

The Company will conduct the Share Capital Increase inthe amount of at least €250 million (including issue premium), before deductingunderwriting commissions and related expenses (estimated at a total ofapproximately  €20 million).  The Share Capital Increase was approved bythe general shareholders’ meeting of the Company on December 17,2004.  The Company hopes to complete theShare Capital Increase as soon as possible, and in any event by March 31,2005, assuming market conditions permit the offering to take place in that timeframe.

 

TWDC has undertaken to subscribe, or to cause anaffiliate to subscribe, for new shares in the Share Capital Increase in aminimum amount of €100 million (including issue premium).  Certain of the banks that are parties to theRestructuring have agreed to underwrite the remainder of the Share CapitalIncrease (except to the extent that any other shareholder of the Companycommits to subscribe for new shares), subject to certain conditions, includingin particular that all required regulatory approvals be obtained and thatmarket conditions permit the share capital increase to go forward.

 

*New credit line*

 

TWDC has made available to the Company as of October 1,2004 a new revolving credit line (the “TWDC New Credit Line”) for a term of 10years, bearing interest at the rate of 1, 3 or 6-month EURIBOR (depending onthe interest period chosen by the Company), and with a maximum principal amountof €150 million.  This amount will bereduced to €100 million from October 1, 2009.  As at December 31, 2004, the Company hasdrawn €5 million under the TWDC New Credit Line.

 

If the conditions for full implementation ofthe Restructuring are not satisfied by March 31, 2005, and the parties arenot able to negotiate an alternative arrangement during the subsequent 30-dayperiod, then the TWDC New Credit Line will terminate, and amounts outstandingwill become due and payable. Notwithstanding this, the repayment of such amounts, up to a maximum of€57.7 million (corresponding to the difference between the original amount ofthe Existing TWDC Credit Line of €167.7 million, and the portion of this amountthat will be converted into long-term debt of €110.0 million.  See sub-section F.2.2 below entitled “Modificationsto Existing Credit Agreements - *Deferral of payments*”)will be subordinated, so that payments may not be made in the event that, andfor so long as, any amounts due and payable under the Group’s credit agreements(other than the CDC Walt Disney Studios Park Loans and the Phase IA PartnerAdvances) have not been paid.

 

**F.2.2.*****     *Modificationsto Existing Credit Agreements**

 

The Memorandum of Agreement provides for a number ofmodifications to the Company’s existing debt and lease agreements.  These modifications concern in particular theprovisions governing payment of debt service during the transition period untilthe conditions to full implementation of the Restructuring are met, provisionsgoverning prepayments to be made once those conditions are met, and provisionsthat will apply (or remain effective, in the case of certain provisions thathave been conditionally effective since June 10 and October 1, 2004)upon full implementation of the Restructuring.

 

49

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Thedefinitive agreements relating to the modifications were signed on December 1,2004 and are subject to the conditions precedent relating to the implementationof the Restructuring.

 

*Paymentsof debt service until full implementation of the Restructuring*

 

TheGroup will be required to make payments under most of its credit agreementsuntil the conditions to full implementation of the financial Restructuring aremet.  The Company expects that the Group’sown resources (including proceeds from the TWDC New Credit Line) will besufficient to allow these payments to be made. Certain payments described in the next Sub-section will be made asspecifically set forth in that Sub-section.

 

Since October 1, 2004,principal payments under the Phase IA Credit Facility, the Phase IB CreditFacility and tranche C of the Phase IB Partner Advances Agreement(€18.8 million) have been and will continue to be made from fundscurrently held as a security deposit for the benefit of the Group’s lenders(which amounted to €100.6 million as at September 30, 2004, includingaccrued interest).  From October 1,2004 through March 31, 2005, €27.9 million of principal will be due inrespect of these facilities.  Inaddition, until October 31, 2004, principal payments under the senior CDCPhase I Loans (amounting to €0.2 million) were made from interest incomeaccrued on the security deposit.

 

*Paymentsto occur when the Share Capital Increase is completed*

 

On the date on which the ShareCapital Increase is completed, the Group will make certain prepayments inrespect of part of the principal amount outstanding under some of its creditagreements (which will require the Group to pay related penalties in anaggregate amount of €0.3 million), as well as certain additional payments, asfollows:

 

•                 the Company will prepay €10.0million due in respect of the CDC Phase I Loans;

 

•                 the Company will pay the 2004interest instalment, normally due on December 31, 2004, under the CDC WaltDisney Studios Park Loans, in the amount of €19.6 million; and

 

•                 the remaining balance of thesecurity deposit will be used to prepay part of the principal amountoutstanding under the Phase IA Credit Facility, the Phase IB Credit Facilityand tranche C of the Phase IB Partner Advances Agreement, in an amount equal tothe difference between €100.0 million and the amount withdrawn from thesecurity deposit prior to full implementation of the Restructuring (asdescribed in the Sub-section “*Payments of debt serviceuntil full implementation of the Restructuring*” above).

 

*Deferralof payments*

 

The Memorandum of Agreementprovides for significant deferrals of payments in respect of the Group’s creditagreements.  Certain of those deferralstook effect beginning on October 1, 2004, but will become null and void ifthe Share Capital Increase is not completed by March 31, 2005 andrenegotiations are not successful within the 30 following days, and otherdeferrals do not take effect until completion of the Share Capital Increase(and would never take effect if the Share Capital Increase were not to occur byMarch 31, 2005 and renegotiations were unsuccessful within the 30following days).  The payment deferralsprovided for in the Memorandum of Agreement include the following:

 

•                 the principal repayment dates or commitment reduction dates under thePhase IA Credit Facility will be deferred by three and a half years, with thefinal principal repayment date falling on May 31, 2012 (instead of November 30,2009);

 

•                 the principal repayment dates in respect of the Phase IB Credit Facilityand of tranche C of the Phase IB Partner Advances Agreement (€18.8 million asof September 30, 2004) will be deferred by three and a half years and the finalmaturity date will occur on November 5, 2012 (instead of February 5,2012 and February 5, 2014, respectively);

 

•                 the principal repayment datesfalling from 2004 to 2016 in respect of the CDC Phase I Loans will be deferredby three and a half years (principal instalments from 2017 through 2023 willremain unchanged);

 

•                 the principal repayment dates underthe Phase IA Partner Advances and the Phase IB Partner Advances (other thantranche C) will be deferred automatically as a result of the deferrals referredto above;

 

50

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•                 the €58.0 million of interestaccrued with respect to the calendar years 2001 to 2003 under the CDC WaltDisney Studios Park Loans, payment of which had been deferred in accordancewith the terms of the contracts relating to these loans, will be converted intoa long term loan, repayable in 2023, and subject to the same terms andconditions as the existing tranches of those loans;

 

•                 interest accrued from fiscal year2005 through fiscal year 2014 under the CDC Walt Disney Studios Park Loansincluding the new €58.0 million long-term loan referred to above (in theaggregate, €22.6 million of interest per year) will be subject to conditionaldeferral. The maximum amount of such conditional deferral will be €20.1 millionper year from fiscal years 2005 through 2012 (as €2.5 million will bepermanently forgiven in each of such fiscal years) and €22.6 million per yearfor fiscal years 2013 and 2014.  Theamount of such conditional deferral will depend on an annual performanceindicator that is defined as earnings before interest, taxes, depreciation andamortisation, subject to a number of adjustments described below (the “PerformanceIndicator”), in comparison to an annual reference level for the PerformanceIndicator.  See Sub-section F.2.7entitled “Performance Indicator” below. Deferred interest will be converted into a long-term subordinated debtobligation, bearing interest at 5.15% per annum (interest being capitalisedthrough January 1, 2017 and payable annually thereafter), payable afterthe Group’s senior debt and subordinated debt (other than the CDC Walt DisneyStudios Park Loans) have been repaid in full, starting in 2023;

 

•                 the amount outstanding under theExisting TWDC Credit Line, *i.e.* €110.0million (after taking into account the forgiveness of €10.0 million thatoccurred on October 1, 2004), will be converted into a long-termsubordinated debt obligation, bearing interest at 12-month EURIBOR (capitalisedthrough January 1, 2017), payable after the Group’s senior debt andsubordinated debt (other than the CDC Walt Disney Studios Park Loans) have beenrepaid in full, starting in 2023; and

 

•                 the portion of the rent paymentrepresenting principal amortisation under the financial lease for the NewportBay Club Convention Centre will be deferred by five years (with the 2017 finalmaturity date remaining unchanged).

 

*OtherModifications to terms of credit agreements*

 

Inaddition to the payment deferrals referred to above, the terms of the Group’scredit agreements will be modified in a number of respects upon satisfaction ofthe conditions to full implementation of the Restructuring.  The significant modifications include thefollowing:

 

•                  the margin over EURIBOR applicableunder the Phase IA Credit Facility, the Phase IB Credit Facility and tranche Cof the Phase IB Partners Advances Agreement will be increased to 3% per annum(instead of an average of 1%) effective retroactively to October 1,2004.  The interest accrued at theincreased rates will be paid for the first time when the Share Capital Increaseis completed and then on each interest payment date thereafter;

 

•                  the annual interest rate applicableto the CDC Phase I Loans (currently fixed at 5.15%) will be increased to 7.15%on €48.3 million of principal, effective retroactively to October 1,2004.  The interest accrued at theincreased rates will be paid for the first time when the Share Capital Increaseis completed and on each interest payment date thereafter;

 

•                  no further security deposits will berequired to be maintained in favor of the Group’s creditors;

 

•                  From January 1, 2005 until December 31, 2007,prepayment under the Phase IA Credit Facility, the Phase IB Credit Facility andtranche C of the Phase IB Partner Advances Agreement can be made in whole only,and then only up to the following percentages of the then outstanding principalamount:

 

•                  from January 1, 2005 to December 31, 2005:103%;

•                  from January 1, 2006 to December 31, 2006:102%; and

•                  from January 1, 2007 to December 31, 2007:101%;

 

51

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Inaddition, the Group will undertake to implement the investment programdescribed below in Section F.2.5, “New Development and Investment Plan,”and to furnish a quarterly report on the program to the lenders, together witha report of an independent expert.

 

TheRestructuring will also result in a change in the financial covenants of theGroup.  The gross operating profit ratiocovenant will be deleted and will be replaced by a debt service coverage ratiorequirement.  From fiscal year 2006through fiscal year 2014, inclusive the debt service coverage ratio requirementwill apply only if the Performance Indicator for a given fiscal year is belowits annual reference level for purposes of this covenant, as described below inSub-section F.2.7, “Performance Indicator.”  Thereafter, the debt service coverage ratiorequirement will apply without regard to the Performance Indicator until therepayment in full of the CDC loans for Walt Disney Studios Park.

 

Thedebt service coverage ratio is defined as the ratio of :

 

•                  the Group’s Performance Indicator fora given year, less any royalties and management fees payable toaffiliates of TWDC that are not deferred, less the amount of certain  expenditures for major renovations andcertain other capital investments, less any corporate income tax paid, pluscertain financial investment income, to

 

•                  the Group’s total debt serviceobligations.

 

Forany fiscal year in which the ratio applies, the Group will be required tomaintain a forecast ratio calculated on the basis of the debt serviceobligations for that fiscal year (fiscal year “N”) based on the Euribor ratefor fiscal year N, and on the basis of the debt service obligations for theimmediately following year (fiscal year “N+1”), based on the adjusted Euriborrate for fiscal year N+1.  The requireddebt service coverage ratio levels are set forth in the following table:

 
| **Fiscal  Year** | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** | **2013** | ** ** | **2014** | ** ** | **2015** | ** ** | **2016** | ** ** | **2017  and  beyond** | ** ** |
|------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|-----------------------|------------|
| DSCR N           |       |     |       | 1,80     |       | 2,35     |       | 1,45     |       | 1,20     |       | 1,05     |       | 1,00     |       | 1,00     |       | 1,10     |       | 2,60     |       | 1,40     |       | 3,10     |       | 1,30                  |       |
| DSCR N+1         |       |     |       | 2,45     |       | 1,30     |       | 1,20     |       | 1,00     |       | 1,00     |       | 1,00     |       | 1,05     |       | 2,50     |       | 1,05     |       | 2,90     |       | 1,30     |       | 1,30                  |       |

 

If therequired debt service coverage ratio is not met in respect of a given fiscalyear in which the ratio applies, the Group’s lenders may require the immediaterepayment of the Group’s financial debt. However, the Group may restore the ratio to its required level byraising additional equity capital or subordinated debt, or by obtainingforgiveness or deferral of amounts that would otherwise be payable.

 

The Group’smaximum authorized investments will also be modified. Current investments (meaning capital and major fixed asset renovationexpenditures, excluding development investment) are currently limited toapproximately 3% of consolidated revenues (excluding revenues from participantagreements).  After theRestructuring, the maximum amount of current investments will be €81.7 millionin fiscal year 2005, €62.3 million in fiscal year 2006, €51.8 million in fiscalyear 2007, €51.5 million in fiscal year 2008 and €68.7 million in fiscal year2009, with the amounts potentially subject to adjustment upwards or downwardsdepending on revenues recorded.  Afterfiscal year 2009, if the Group has not exhausted the cash flow benefits amountof potential deferrals of interest on the CDC loans for Walt Disney StudiosPark and royalties and management fees, current investments may be made in anamount up to 5% of consolidated revenues for the prior fiscal year (excludingrevenues from participant agreements), subject to a maximum amount of 25% ofthe reference Performance Indicator for the prior fiscal year.

 

TheGroup will also have the right to sign financial leases for the purpose offinancing authorized investments in an amount of up to €10 million per year,subject to a maximum outstanding amount at any time (on a cumulative basis withother non-financial debt) of €50 million.

 

**F.2.3.*****                 *Managementfees and royalties payable to TWDC**

 

*Deferralsof management fees and royalties payable to TWDC*

 

The Memorandum of Agreementcontemplates both conditional and unconditional deferrals of management feesand royalties payable by the Company to TWDC, as follows:

 

52

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•                  €25.0 million of management fees and royalties due in respect of each offiscal years 2005 through 2009 will be unconditionally deferred and convertedinto a subordinated long-term debt obligation, bearing interest at an annualrate of 12-month EURIBOR (capitalized through January 1, 2017), payableafter the Group’s senior debt and subordinated debt (other than the CDC WaltDisney Studios Park Loans) have been repaid, starting in 2023;  and

 

•                  additional management fees and, as necessary, royalties, in a maximumaggregate amount of €25.0 million per year with respect to fiscal years 2007through 2014, will be subject to a conditional deferral.  The amount of such conditional deferral willdepend on the Performance Indicator for the relevant fiscal year, as describein Sub-section F.2.7, “Performance Indicator.”  Deferred amounts will be converted into asubordinated, long-term debt obligation with the same terms as those applicableto the unconditionally deferred amounts.

 

*Payment due upon completionof the Share Capital Increase*

 

Managementfees and royalties due by the Company in respect of fiscal year 2004, in theamount of €57.7million, will be due and payable upon completion of the Share CapitalIncrease.  If the Share Capital Increasedoes not occur by March 31, 2005 and the parties to the Memorandum ofAgreement are unable to negotiate an alternative arrangement during thesubsequent 30-day period, then such royalties and management fees will be dueand payable upon the expiration of such 30-day period.

 

**F.2.4.*****                 *Eliminationof lease and sub-lease-related payments pursuant to the legal reorganization**

 

EDAcurrently leases the Disneyland Park from Euro Disneyland SNC, a specialpurpose finance company (also known as the “Phase IA Financing Company”), undera finance lease (*crédit-bail*, the “Disneyland ParkLease”) and sub-leases the Disneyland Park to the Company under a sub-lease(the “Disneyland Park Sub-Lease”).  EDAis also the owner of the ACP Assets, which consist of certain key attractionsof the Disneyland Park constructed after the Disneyland Park first opened(including *Space Mountain*).  EDA leases these ACP Assets to the Companyunder a separate lease (the “ACP Lease”). Both EDA and Euro Disneyland SNC have been consolidated in the Group’sconsolidated financial statements since October 1, 2003.

 

In order to recover its rightswith respect to the Disneyland Park Lease, the Company would need to pay to EDAa lease option fee provided for in the Disneyland Park Sub-Lease of €78.7million over approximately a two-year period starting in June 2006 plus avariable interest rate based on EURIBOR.  If this option were exercised, the Companywould become the primary lessee (instead of EDA) of the Disneyland Park, ofwhich Euro Disneyland SNC is the owner. Additionally, in order to reacquire title to the ACP Assets, the Companywould be required to pay a repurchase price under the ACP Lease of €213.4million payable in eight annual instalments starting in July 2007, plusinterest at a rate of 1% per annum.

 

To avoid the need to makethese payments to maintain its rights to the Disneyland Park and the ACPAssets, the Company will implement a legal reorganisation pursuant to which itwill contribute substantially all of its assets and liabilities to EDA,receiving 82% of the share capital of EDA in exchange for the Contribution.  TWDC will hold indirectly 18% of the sharecapital of EDA.

 

Following completion of thistransaction, the Disneyland Park Sub-Lease and the ACP Lease between EDA andthe Company will terminate as a result of EDA’s becoming both the lessor andlessee thereunder, and as a result no further payments will be due in respectof those arrangements.  The Company willbecome a holding company, the main asset of which will be its 82% shareholdingin EDA, while EDA will become the principal operating company of the Group.

 

**F.2.5.*****                 *New Developmentand Investment Plan**

 

The Memorandum of Agreementprovides the Group with the necessary bank authorisations for a €240.0 millioncapital development program to be carried out between fiscal years 2005 and2009 primarily consisting of investments in Theme Park attractions.  These new investments will include a newattraction in the Disneyland Park and new attractions focused on families withsmall children as well as a major new attraction in the Walt Disney StudiosPark.  See Item 4, “Information on theCompany” – Section A.2. “Strategic Overview.”  The timing for completion of theseexpenditures is currently planned as follows:

 

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| **Fiscal Year**    | ** ** | **(millions  of €)** | ** ** |
|--------------------|------------|---------------------------|------------|
| 2005 (and  before) |       | 75                        |       |
| 2006               |       | 75                        |       |
| 2007               |       | 50                        |       |
| 2008               |       | 30                        |       |
| 2009 (and  beyond) |       | 10                        |       |
| **Total**          | ** ** | **240**                   | ** ** |

 

In addition, the Memorandum ofAgreement provides the Group with greater flexibility in determining theappropriate level of recurring capital expenditures, as described above in Sub-section F.2.2,“Modifications of Existing Credit Agreements – Other Modifications to Terms ofCredit Agreements.”

 

**F.2.6.*****                 *Othermeasures**

 

*Maintenance of TWDC’s interest in the Company’scapital*

 

TWDC has undertaken to hold,directly or indirectly, at least 39% of the common stock of the Company until December 31,2016.

 

*Amendment of the MasterAgreement*

 

Thelegal reorganization necessitated some technical amendments to the MasterAgreement, and these amendments were made pursuant to an amendment agreementsigned on December 22, 2004.

 

**F.2.7.****                  PerformanceIndicator**

 

The financial obligations of the Groupfollowing the Restructuring will be determined on the basis of a financialPerformance Indicator for each fiscal year, which is approximately equal to theGroup’s earnings before interest, taxes, depreciation and amortization,adjusted for certain items.  ThePerformance Indicator will be used to determine:

 

•                  the amount of interest on the CDC Walt Disney Studios Park Loans that isto be deferred in respect of each fiscal year;

 

•                  the amount of royalties and management fees payable to affiliates ofTWDC that is to be deferred in respect of each fiscal year; and

 

•                  the Group’s compliance with its financial covenant requirements.

 

In each case, the relevant determination willbe made by comparing the actual Performance Indicator for a given fiscal yearto a reference Performance Indicator for that year (the “Reference PerformanceIndicator”).  There are three separateReference Performance Indicators, one for each calculation.  The Reference Performance Indicators havebeen established solely for purposes of the contractual obligations to whichthey apply, and do not reflect a prediction or forecast of the future operatingperformance of the Group.

 

The Performance Indicator for a given fiscalyear will be equal to the Group’s consolidated net income (loss), afterprofit or loss allocated to minority interests, as reported in the consolidatedaudited financial statements for such fiscal year determined in accordance withgenerally accepted accounting principles and rules in France, consistentlyapplied:

 

•                  plus minority interests as reportedin the consolidated statement of income;

 

•                  plus net income tax expense orbenefit (current and deferred);

 

•                  less income (loss) from affiliatesaccounted for under the equity method;

 

•                  less the net impact of all waiversof debt or commercial or financial payables, etc. which may be granted by TWDCor its subsidiaries;

 

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•                  plus the net impact (positive ornegative) of depreciation and movements in reserves on tangible, intangibleassets (including goodwill) and deferred charges as well as exceptionalreserves and impairment charges on these asset categories;

 

•                  plus the net impact (positive ornegative) of movements in: (i) current asset reserves (for example, receivablesand inventories); (ii) provisions for risks and charges and (iii) provisionsrecorded in exceptional earnings;

 

•                  plus operating expenses related toactual expenditures for major fixed asset renovations;

 

•                  less net gains and losses on thesale or abandonment of tangible or intangible assets;

 

•                  less financial income net offinancial charges, excluding charges related to bank card commissions;

 

•                  plus management fees and royaltiespayable to TWDC expensed for such fiscal year.

 

CDC Walt Disney Studios Park Loans

 

If the Performance Indicator for a given fiscalyear is less than the Reference Performance Indicator set forth below for suchfiscal year, then interest on the CDC Walt Disney Studios Park Loans will bedeferred in an amount for such fiscal year equal to the excess of the ReferencePerformance Indicator over the Performance Indicator.  For purposes of the conditional deferral ofinterest on the CDC Walt Disney Studio Park Loans, Reference PerformanceIndicator will be equal to €230.6 million, €263.9 million, €257.5 million,€280.4 million, €288.1 million, €292.2 million, €315.6 million, €327.7 million,€340.8 million and €355.6 million for each of fiscal years 2005 through 2014,respectively.

 

Royaltiesand Management Fees

 

If thePerformance Indicator for a given fiscal year is less than the ReferencePerformance Indicator set forth below for such fiscal year, then royalties andmanagement fees otherwise due to affiliates of TWDC will be deferred in anamount equal to the excess (up to a maximum of €25.0 million) of the ReferencePerformance Indicator over the Performance Indicator.  For purposes of the conditional deferral ofroyalties and management fees, the Reference Performance Indicator will be€282.5 million, €305.4 million, €313.1 million, €317.2 million, €340.6 million,€352.7 million, €365.8 million and €380.6 million for each of fiscal years 2007through 2014, respectively.

 

FinancialCovenants

 

If the Performance Indicatorfor a given fiscal year from fiscal year 2006 through fiscal year 2014 is lessthan the Reference Performance Indicator set forth below, then the Group willbe required to comply with the debt service coverage ratios described in Sub-section E.2.2,“Modifications of Existing Credit Agreements – Other Modifications to Terms ofCredit Agreements.”  For purposes of thisfinancial covenant, the Reference Performance Indicator will be €243.7 million,€237.3 million, €260.2 million, €267.9 million, €272.0 million, €295.4 million,€307.5 million, €318.1 million and €332.9 million for each of fiscal years 2006through 2014, respectively

 

Changesin Accounting Principles

 

In theevent of a change in accounting principles and rules (in particular inconnection with the implementation of IFRS beginning in fiscal year 2006)and/or changes in the scope of consolidation of the Group, the PerformanceIndicator and, if necessary, the Reference Performance Indicator will beadjusted to reflect the accounting change.

 

**F.3.****                            Presentationof the Group’s Legal Reorganization**

 

Asdescribed above, in order to avoid making substantial cash payments to maintainits right to continue operating certain of its key assets, the Group willimplement a legal reorganization.  In thereorganization, substantially all of the operating activities of the Companywill be transferred to EDA, which will become the Company’s principal operatingsubsidiary. The Company will become a holding company, the main asset of whichwill be its 82% shareholding in EDA.

 

Thecharts below present a summary of the Group’s legal structure before and afterthe legal reorganization:

 

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**F.3.1.  Existing Legal Structure**

 

 

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*** Including Kingdom 5-KR-135, Ltd (PrinceAlwaleed) (15.9%)**

 

56

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**F.3.2.      NewLegal Structure**

 

 

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***Including Kingdom 5-KR-135, Ltd (Prince Alwaleed) (15.9%)**

 

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**F.3.4. Structure and Timing of the Legal Reorganization**

 

The legal reorganization will be implemented throughthe contribution (*apport partiel d’actif*) by theCompany of substantially all of its assets and liabilities to EDA.  In addition to the Company’s operatingassets, the contribution will include €205 million in cash, equal to the netproceeds of the Share Capital Increase, after deducting an amount sufficient topay the Company’s ongoing administrative expenses following thereorganization.  All of the Company’semployees will be transferred to EDA, except for a limited number of employeeswho will be responsible for the Company’s day-to-day administration.

 

Thecontribution is scheduled to take place on the date of the Share CapitalIncrease.  However, for French accountingand tax purposes, the contribution will take effect retroactively as of October 1,2004.

 

Inexchange for the contribution, the Company will receive approximately 82% ofthe outstanding share capital of EDA. The contribution has been the subject of a statutory appraisal performedby independent contribution auditors as required by French law.  The report of the contribution auditors, aswell as an English translation of the report, are included in the materialsmade available to the general shareholders’ meeting of the Company that tookplace on December 17, 2004, and are available on the Company’s website,www.Eurodisney.com.  The report does notform a part of, and is not included in, this Annual Report on Form 20-F.

 

**F.3.5.****                 ****Accounting treatment of theContribution**

 

EDA has been included within the scope ofconsolidation of the Group since October 1, 2003, as a consolidatedspecial purpose financing company.  Thecompletion of the contribution will not affect the individual values of theassets and liabilities, which will retain their historical consolidated bookvalues.  The only significant accountingimpact of the contribution on the consolidated financial statements of theGroup will be an increase in retained earnings and an equivalent decrease inminority interests, in order to reflect the Company’s 82% ownership interest inEDA following the contribution.

 

**F.3.6.  Corporate governance**

 

EDA is aFrench *société en commandite par actions* (SCA),the same type of legal entity as the Company.  See Item 10, “Additional Information ,” Section B - “Memorandum and Articles of Association” for adescription of the governance structure of an SCA under French law.

 

As is the casewith the Company, EDA will be managed by a management company, appointed by EDA’sgeneral partners.  The management companyof EDA is Euro Disney S.A.S., an affiliate of TWDC.  Euro Disney S.A.S. is also the Company’smanagement company.  Following thecontribution, Euro Disney S.A.S. will receive a management fee from EDAcalculated in the same manner as the management fee it currently receives fromthe Company, and the management fee payable by the Company will be a fixed to€25,000 per year.  The management feepayable by EDA will be subject to the conditional and unconditional deferralprovisions agreed in the Restructuring, as described above.

 

Following thecontribution, the Company will hold approximately 82% of the voting rights atEDA’s shareholders meetings, and as a result will have the right to name themembers of EDA’s Supervisory Board.  EDA’sgeneral partners will include a wholly-owned subsidiary of the Company (whichwill have 82% of the voting rights of the general partners) and twowholly-owned subsidiaries of TWDC (which together will have the remaining 18%of the voting rights).

 

Because EDAwill be the principal operating subsidiary of the Company after thecontribution, and the Company will be a holding company, the by-laws of EDA,the Company and the Company’s subsidiary that will be a general partner of EDAwill be amended to reproduce certain shareholder protection measures currentlyin the by-laws of the Company:

 

•                  EDA’sby-laws will provide that any significant agreement between EDA and themanagement company or an affiliate of the management company (such as TWDC)will require the approval of the Supervisory Board of EDA.   Any officer or employee of the managementcompany or its affiliates that is a member of the Supervisory Board will nothave the right to vote on any such agreement.

 

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•                  EDA’sby-laws will provide that the EDA extraordinary shareholders meeting mustapprove matters with respect to EDA that the Company’s extraordinaryshareholders meeting must currently approve with respect to the Company, suchas changing EDA’s share capital, dissolving EDA, effecting a merger of EDA orcertain other extraordinary transactions. The Company’s by-laws will require the Company’s management company toobtain approval of the Company’s shareholders before voting at EDA’sextraordinary shareholders meetings with respect to these matters.

 

•                  Theby-laws of the Company’s subsidiary that will be a general partner of EDA(holding 82% of the voting rights of the general partners) will provide thatthe Company’s approval will be required before EDA’s management company can beremoved or appointed, or before the general partner votes on certain matterssubmitted to EDA’s extraordinary shareholders meeting (those matters requiregeneral partner approval as well as shareholder approval under Frenchlaw).  The Company’s by-laws will requirethe Company’s management company to obtain approval of the Company’sshareholders before approving most such actions by EDA’s general partner.

 

While these provisions will replicate at EDA’slevel many of the protections currently afforded at the Company’s level to theCompany’s shareholders, the protections will not be identical.

 

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**F.4.****                           ****Pro-Forma FinancialInformation**

 

*The pro-forma financial information below hasbeen presented because the Group believes it is useful to the reader inunderstanding the anticipated impact of the Restructuring on its balance sheetprepared in accordance with French GAAP. In addition, similar information hasbeen provided in the Company’s public documents filed in France. The pro-formafinancial information has not been prepared to comply with Article 11 ofRegulation S-X. In addition, the Company has not reconciled nor has it madedeterminations with respect to what the accounting for the Restructuring willbe in accordance with U.S. GAAP. The accounting for the Restructuring inaccordance with U.S. GAAP could differ significantly from that to be applied (andreflected in the pro-forma financial information) under French GAAP.*

 

Thepro-forma consolidated balance sheet of the Group, set out below, presents theanticipated impact that the Restructuring would have had on the Group’s September 30,2004 balance sheet, prepared as if all conditions of the Memorandum ofAgreement had been met and the Restructuring measures had become effective asat that date.

 

Pro-Forma Consolidated Balance Sheet

As at September 30, 2004

 
| **(€ in  millions)**                           | ** ** | **As-Reported** | ** ** | **Adjustments** | ** ** | **Pro-Forma** | ** ** |
|-----------------------------------------------------|------------|-----------------|------------|-----------------|------------|---------------|------------|
|                                                |       |            |       |            |       |          |       |
| **Fixed Assets and Financial Assets**               |       | 2,511.6         |       | (100.0          | )(1)       | 2,411.6       |       |
|                                                |       |            |       |            |       |          |       |
| **Current assets**                                  |       | 305.4           |       | 213.7           | (2)   | 519.1         |       |
|                                                |       |            |       |            |       |          |       |
| **Deferred charges**                                |       | 59.6            |       | (2.8            | )(3)       | 56.8          |       |
|                                                |       |            |       |            |       |          |       |
| **Total Assets**                                    |       | 2,876.6         |       | 110.9           |       | 2,987.5       |       |
|                                                |       |            |       |            |       |          |       |
| **Shareholders’ equity (deficit)**             |       |            |       |            |       |          |       |
| Share capital and premium                           |       | 1,246.4         |       | 230.0           | (3)        | 1,476.4       |       |
| Retained earnings (accumulated deficit)             |       | (1,306.3        | )          | 215.6           | (4)        | (1,090.7      | )          |
|                                                |       | (59.9           | )          | 445.6           |       | 385.7         |       |
|                                                |       |            |       |            |       |          |       |
| **Minority interests**                              |       | 339.6           |       | (214.7          | )(4)       | 124.9         |       |
|                                                |       |            |       |            |       |          |       |
| **Provisions for risks and charges**                |       | 98.2            |       | ––    |       | 98.2          |       |
|                                                |       |            |       |            |       |          |       |
| **Borrowings**                                      |       | 2,052.8         |       | (120.0          | )(5)       | 1,932.8       |       |
|                                                |       |            |       |            |       |          |       |
| **Current liabilities and deferred revenues**       |       | 445.9           |       | ––    |       | 445.9         |       |
|                                                |       |            |       |            |       |          |       |
| **Total Shareholders’ Equity and Liabilities** |       | 2,876.6         |       | 110.9           |       | 2,987.5       |       |

 

The followingelements of the Restructuring have been taken into account in setting out thepro-forma consolidated balance sheet:

 

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(1)              Represents theprepayment of outstanding borrowings with the remaining balance of the debtsecurity deposit as of September 30, 2004 in the amount of €100.0 million.

 

(2)              Representsestimated impact on current assets (€ in millions):

 
| Proceeds  from Share Capital Increase                            |   | 250.0 |   |
|------------------------------------------------------------------|--------|-------|--------|
| Share  Capital Increase costs to be incurred in Fiscal Year 2005 |   | (17.2 | )      |
| Restructuring costs (exceptional expenses)                       |   | (9.1  | )      |
| Prepayment of CDC Phase I Loans                                  |   | (10.0 | )      |
|                                                             |   | 213.7 |   |

 

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(3)              Representsestimated net proceeds from Share Capital Increase (€ in millions):

 
| Proceeds  from Share Capital Increase                            |   | 250.0 |   |
|------------------------------------------------------------------|--------|-------|--------|
| Share Capital  Increase costs incurred in Fiscal Year 2004       |   | (2.8  | )      |
| Share  Capital Increase costs to be incurred in Fiscal Year 2005 |   | (17.2 | )      |
|                                                             |   | 230.0 |   |

 

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(4)              Impact ofthe legal reorganization and the Contribution on retained earnings and minorityinterests of EDA as at October 1, 2004 (€ in millions):

 
| ** **                                                                                       | ** ** | **Retained  Earnings** | ** ** | **Minority  Interests** | ** ** | **Total**    | ** ** |
|--------------------------------------------------------------------------------------------------|------------|------------------------|------------|-------------------------|------------|--------------|------------|
| Reclassification  of minority interests in EDA to retained earnings based upon 82% / 18% split   |       | 216.5                  |       | (216.5                  | )          | –– |       |
| Restructuring  costs to be incurred in Fiscal Year 2005 before allocation to minority  interests |       | (9.1                   | )          | ––            |       | (9.1         | )          |
| Debt  forgiveness in respect of Existing TWDC Credit Line                                        |       | 8.2                    |       | 1.8                     |       | 10.0         |       |
|                                                                                             |       | 215.6                  |       | (214.7                  | )          | 0.9          |       |

 

(5)              Representsthe impact on borrowings (€ in millions):

 
| Prepayment  of borrowings                                 |   | 110.0 |   |
|-----------------------------------------------------------|--------|-------|--------|
| Debt forgiveness  in respect of Existing TWDC Credit Line |   | 10.0  |   |
|                                                      |   | 120.0 |   |

 

The Restructuringwill also have an impact on the Group’s consolidated income statement,principally resulting from changes in interest expenses and one-time itemsrelating to the implementation of the Restructuring.  The following table sets forth the Group’scurrent estimate of the impact of the Restructuring on the consolidated incomestatement for fiscal year 2005, before the allocation to minority interests (€in millions):

 
| **Debit / (Credit)**                                                                                 | ** ** | ** ** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|------------|------------|
| Additional  interest expenses due to increased interest rates                                        |       | 9.3        | ** ** |
| Restructuring  costs (exceptional) to be incurred in Fiscal Year 2005                                |       | 9.1        |       |
| Debt  forgiveness *(abandon de créance)* in respect  of Existing TWDC Credit Line (exceptional) |       | (10.0      | )          |
| Debt  forgiveness *(abandon de créance)* by CDC in  respect of expenses (financial)             |       | (2.5       | )          |
| Total Impact  on Group Results                                                                       |       | 5.9        |       |

 

NOTE:  Consistent with the Sub-section F.1.2above entitled “Impact of the Restructuring on Group cash flow”, the incomestatement impact presented above for fiscal year 2005 excludes the impact thatchanges in the timing of principal repayments creation of new debt and changesin cash flows will have on interest expenses.

 

Thelegal reorganization will also have an impact on the Company’s unconsolidatedfinancial statements, as the Company will record an exceptional non-cash chargeof approximately €774 million, resulting primarily from an adjustment to fairmarket value of off-balance sheet obligations relating to the lease andsub-leases between the Company and EDA. Under French law this obligation is not recorded in the Company’sunconsolidated balance sheet, but must be taken into account in determining theaccounting value of the contributed assets and liabilities.  This exceptional charge will have no impacton the Company’s consolidated financial statements.

 

**G.         FORWARD-LOOKINGSTATEMENTS**

 

The Private SecuritiesLitigation Reform Act of 1995 (the “Act”) provides a safe harbor forforward-looking statements made by or on behalf of the Group.  The Group and its representatives may fromtime to time make written or oral statements that are “forward-looking”,including statements contained in this report and other filings with theSecurities and Exchange Commission and in reports to the Group’sshareholders.  All statements thatexpress expectations and projections with respect to future matters, includingthe launching or prospective development of new business initiatives; themepark and resort projects; and the implementation of the euro, areforward-looking statements within the meaning of the Act.  These statements are made on the basis ofmanagement’s views and assumptions, as of the time the statements are made,regarding future events and business performance.  There can be no assurance, however, thatmanagement’s expectations will necessarily come to pass.

 

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*Factorsthat may affect forward-looking statements.*

 

A wide range of factors could materiallyaffect future developments and performance, including the following:

 

•                  whetherthe Group is able to satisfy the remaining conditions for implementation of theRestructuring before March 31, 2005, the expiration date of the debtcovenant waivers thee lenders have granted to the Group;

 

•                  changesin strategies, which may result in changes in the types or mix of businesses inwhich the Group is involved or chooses to invest;

 

•                  changesin European and global or regional economic and political conditions, which mayaffect attendance and spending at the Group’s Theme Parks and hotels;

 

•                  changesin European and global financial and equity markets, including significantinterest rate fluctuations, which may impede the Group’s access to, or increasethe cost of, external financing for its operations and investments;

 

•                  increasedcompetitive pressures, both domestically and internationally, which may, amongother things, affect the performance of the Group’s Theme Parks and hotels andlead to increased expenses in such areas as marketing;

 

•                  labordisputes, which may lead to increased cost or disruption of operations; and

 

•                  changingpublic and consumer taste, which may affect the Group’s entertainment andmerchandising businesses.

 

This list of factors that may affect futureperformance and the accuracy of forward-looking statements is illustrative, butby no means exhaustive, and should be read in conjunction with Item 3 “KeyInformation – Section D “Risk Factors”. Accordingly, all forward-looking statements should be evaluated with theunderstanding of their inherent uncertainty.

 

### ***ITEM 6***.                       DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

**A.****                          DIRECTORSAND SENIOR MANAGEMENT**

 

**ExecutiveOfficers of the Management Company’s Executive Officers**

 

As discussed in Item 10 “AdditionalInformation” — Section B.1 - “The Management Company (*Gérant*)”, Euro Disney S.A.S. manages the Company.

 

The management and administration bodies of the Management Company arethe following:

 

**Chairman and Chief Executive Officer**(président): André Lacroix

 

**President and Chief Operating Officer**(directeur général): Karl Holz

 

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The executive officers of the ManagementCompany are currently as follows:

 
| **Name**                | ** ** | **Age** | ** ** | **Position**                                                     | ** ** |
|-------------------------|------------|---------|------------|------------------------------------------------------------------|------------|
|                    |       |    |       |                                                             |       |
| André Lacroix      |       | 44      |       | Chairman and Chief Executive Officer                             |       |
|                    |       |    |       |                                                             |       |
| Karl Holz               |       | 53      |       | President and  Chief Operating Officer                           |       |
|                    |       |    |       |                                                             |       |
| Dominique  Cocquet      |       | 57      |       | Senior Vice President – Development and  External Relations |       |
|                    |       |    |       |                                                             |       |
| Philippe Gas            |       | 41      |       | Senior Vice President – Human Resources                     |       |
|                    |       |    |       |                                                             |       |
| Jeffrey R.  Speed       |       | 42      |       | Senior Vice President – Chief Financial  Officer            |       |
|                    |       |    |       |                                                             |       |
| Andrew de Csilléry |       | 37      |       | Vice President – Strategic Planning and  Pricing Policy     |       |
|                    |       |    |       |                                                             |       |
| Federico J. Gonzalez    |       | 40      |       | Vice President – Marketing                                  |       |
|                    |       |    |       |                                                             |       |
| François  Pinon    |       | 42      |       | Vice President – General Counsel                            |       |
|                    |       |    |       |                                                             |       |
| Norbert  Stiekema       |       | 40      |       | Vice President – Sales and Distribution                     |       |

 

•                  **André Lacroix** Chairman and Chief Executive Officer, wasappointed to this position in July 2003. Prior to joining Euro Disney, he spent 7 years with Burger King, wherehe was President of Burger King International, responsible for development,profitability, and management of the brand outside North America.  Prior to his Burger King experience, heworked for Pepsi-Cola, Colgate-Palmolive and Ernst & Young.

 

•                  **Karl Holz**, President and Chief Operating Officer, wasappointed to this position in September 2004.  He spent eight years with TWDC, where he wasVice President of Downtown Disney, and then Senior Vice President of WaltDisney World Operations, before being promoted President of Disney Cruise Linein 2003.  Prior to joining TWDC, heserved in various positions as Regional Vice President for Sky Chefs AirportConcession, Inc., President and Chief Executive Officer of Concession Air,Inc., and also as Vice President of theme park operations at Knott’s Berry Farmin the United States.

 

•                  **Dominique Cocquet**, Senior Vice President – Development andExternal Relations, joined Euro Disney in 1989 Assistant Director Finance –Real Estate Development.  He was promotedin 1992 to the rank of Vice President in charge of Development and ExternalRelations, and supervised the doubling of the capacity of Disney Village, thecreation of Walt Disney Studios Park, the opening of 2,200 additional hotelrooms, and the development of the Val d’Europe community.

 

•                  **Philippe Gas**, Senior Vice President Human Resources, wasappointed in September 2003.  Hepreviously worked at Euro Disney from 1991 to 1997.  In June 2000, Philippe served asRegional Vice President for Asia Pacific Human Resources for TWDC.  Prior to this position, he was Director ofInternational Human Resources in Burbank, California.

 

•                  **Jeffrey R. Speed**, Senior Vice President and Chief Financial Officer, was appointed to this position in July 2003.  Prior to joining Euro Disney, he spent 10years with TWDC, most recently serving as Vice President and AssistantTreasurer.  In this role, he hadworld-wide responsibility for corporate finance, syndication of credit facilities,and banking and rating agency relationships. Prior to joining TWDC, he spent 9 years with Price Waterhouse.

 

•                  **Andrew de Csillery**, Vice President – Strategic Planning andPricing Policy, was appointed to this position in February 2004.  Following a career as a consultant withTouche Ross and Gemini Consulting, he joined the Bass PLC hotel group (whichbecame Six Continents PLC and is now Intercontinental Hotels Group) as VicePresident of Operations for the South Pacific and New Zealand region, afterhaving occupied a number of positions of growing responsibility in the strategydivision of that group.

 

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•                  **Federico J. Gonzalez**, Vice President – Marketing, wasappointed to this position in the fall of 2004. For nearly 16 years, he occupied a number of different positions withinthe Procter & Gamble group, starting as Brand Manager (Spain), followed bythree years at the group’s European headquarters in Brussels and two years asDirector of Marketing for the Northern Europe region, before being promoted toGeneral Manager (Portugal).

 

•                  **François Pinon**, Vice President and General Counsel, wasappointed in April 1, 2004. From 1989 to 1995, he worked at EuroDisney.  In 1995, he joined Solidere, aLebanese company in charge of Beirut reconstruction, as Senior Counsel.  In 1997, he became General Counsel of EDSFrance. He returned to Euro Disney in 2000 as Deputy Legal Counsel.

 

•                  **Norbert Stiekema**, Vice President – Sales and Distribution,was appointed to this position in March 2004.  He spent the most part of his professionallife at the Dutch airline company KLM as Director General of Germany.  Prior to that, he occupied various posts forthat company in France, Holland and Italy.

 

**B.****                          COMPENSATION**

 

Aggregate compensation paid by the Group tothe members of the Board of Directors and the officers of the ManagementCompany as a group (including the executive officers and Board membersmentioned in above Section A “Directors and Senior Management”, provided theyheld the same positions last year or who were directors and/or officers of theManagement Company for all or part of fiscal year 2004) was approximately € 4.0million in fiscal year 2004, € 4.4 in fiscal year 2003 and € 2.8 in fiscal year2002, excluding stock options.  Includedin these amounts are welcome and departure packages, which totaledapproximately € 0.2 million, during fiscal year 2004. Officers of theManagement Company and certain other management employees are eligible forparticipation in the Group’s discretionary bonus programs at varying levels.The aggregate amount set aside or accrued by the Group to provide pension,retirement or similar benefits for the same executive officers and directors inrespect of fiscal year 2004 was € 0.3 million. As of September 30, 2004,these same officers held together a total of 1.9 million Euro Disney S.C.A.stock options.  The Group bears the costof all compensation paid to the executive officers of the Management Company.

 

The aggregate compensation paid by the Groupto members of the Supervisory Board during fiscal year 2004 was € 106,755.Compensation paid to each member is proportional to attendance at meetings. Theindividual compensation paid to each member of the Supervisory Board isprovided below in Item 10 “Additional Information” — Section B.2 “TheSupervisory Board”.

 

In accordance with the disclosurerequirements in France, the Group reported no fiscal year 2004 stock optiontransactions with members of the Board of Directors and Executive Officers ofthe Management Company.

 

**C.****                          BOARDPRACTICES**

 

See discussionbelow in Item 10 “Additional Information” — Section B.2 “The SupervisoryBoard”.

 

**D.****                          EMPLOYEES**

 

See discussionabove in Item 4 “Information on the Company” — Section A.5 - “HumanResource Management”.

 

**E.****                            SHAREOWNERSHIP**

 

No member ofthe Board of Directors or executive officers of the Management Company (*Gérant*) and no members of the Supervisory Board beneficiallyown 1% or more of the shares of the Company, either directly or potentiallythrough the exercise of stock options.

 

**ITEM 7****.****               MAJORSHAREHOLDERS AND RELATED PARTY TRANSACTIONS**

 

**A.****                          MAJORSHAREHOLDERS**

 

Set forth below as of September 30,2004, are the number of shares of common stock and percentages owned by eachperson that is known to the Company to own more than 5% of the outstandingshares of the Company’s common stock:

 

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| **Title of Class** | ** ** | **Identity of Person or Group** | ** ** | **Amount Owned**      | ** ** | **Percent of Class (1)** | ** ** |
|--------------------|------------|---------------------------------|------------|-----------------------|------------|--------------------------|------------|
|               |       |                            |       |                  |       |                     |       |
| Common Stock       |       | EDL Holding  Company (2)        |       | 439.3  million shares |       | 40.6                     | %          |
|               |       |                            |       |                  |       |                     |       |
| Common Stock       |       | Kingdom  5-KR-135 Ltd. (3)      |       | 172.5  million shares |       | 15.9                     | %          |

 

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*(1)**              Based on1,082,680,292 shares of common stock outstanding as of September 30, 2004.*

 

*(2)**              EDL HoldingCompany is an indirect wholly-owned subsidiary of The Walt Disney Company.*

 

*(3)**              A companywhose shares are held by trusts for the benefit of HRH Prince Alwaleed and hisfamily.*

 

In connection with the Financial Restructuring, TheWalt Disney Company has agreed, so long as certain indebtedness is outstandingto the Group’s major creditors, to hold at least 16.67% of the Company’s commonstock until 2016.  In connection with thefinancing of Walt Disney Studios Park, The Walt Disney Company has committed tothe CDC to hold at least 16.67% of the Company’s common stock until 2027.  See also Item 4 “Information on the Company”— Section A.6.3 - “Undertakings and Agreements with The Walt DisneyCompany and Subsidiaries” and Section C “Organizational Structure” andItem 10 “Additional Information”  Section B - “Memorandum andArticles of Association”.

 

As of September 30, 2004, the totalnumber of shares of common stock held by the executive officers and members ofthe supervisory board as a group was, to the Group’s knowledge, 10,103 shares.

 

**B.****                          RELATED -PARTY TRANSACTIONS**

 

During the three years ending September 30,2004, the following amounts were incurred under related party transactions withThe Walt Disney Company and its subsidiaries (See in Item 4 “Information on theCompany” —Section A.6.3 - “Undertakings and Agreements with The WaltDisney Company and Subsidiaries” and Item 10 “Additional Information” — Section B.1“The Management Company (the *Gérant*)” for afull description of these contracts and agreements):

 
| **(€ in millions)** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|--------------------------|------------|----------|------------|----------|------------|----------|------------|
| Development  Agreement   | ** ** | **26.2** |       | 30.6     |       | 92.4     |       |
| License  Agreement (1)   | ** ** | **47.2** |       | 5.6      |       | 24.0     |       |
| Management  Fees (1)     | ** ** | **10.5** |       | 2.5      |       | 11.5     |       |

 

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*(1)**              SeeNote 19-b to the Consolidated Financial Statements in Item 17 – “Financial Statements”.*

 

On March 28, 2003, the Group entered into agreements with theManagement Company and The Walt Disney (Netherlands) B.V. to pay managementfees and royalties on a fiscal year-end basis rather than quarterly for thesecond, third and fourth quarters of fiscal year 2003 and for all of fiscalyear 2004.  In addition, with respect tothe last three quarters of fiscal year 2003, the combined royalties andmanagement fees will not exceed the maximum amount that could be paid by theCompany while maintaining compliance with the gross operating income covenantunder certain of the Company’s debt agreements. Any portion of the royalties or management fees not paid in respect offiscal year 2003 as a result of the foregoing may in the future become payable ifand to the extent that income before lease and net financial charges excludingdepreciation and amortization for any year from fiscal year 2004 through fiscal2008 exceeds € 450 million.

 

The terms of management compensation and the License Agreement will beamended in the context of the Restructuring. See Item 5 “Operating andFinancial Review and Prospects” – Section F “2004 Financial Restructuring”

 

**C.****                          INTERESTSOF EXPERTS AND COUNSEL**

 

Notapplicable.

 

66

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**ITEM 8****.****               FINANCIALINFORMATION**

 

**A.****                          CONSOLIDATEDSTATEMENTS AND OTHER FINANCIAL INFORMATION**

 

**A.1.****                Financial statements**

 

Please See Item 17 “Financial Statements” fora list of all financial statements filed as part of this Annual Report.

 

**A.2.****               Legalproceedings**

 

The Group isparty to various legal proceedings in France involving some remaining claimsrelated to the construction of Disneyland Resort Paris and certain otherlitigation arising in connection with the operation of the Resort.  Management believes that the Group has madeappropriate provisions with respect to these legal proceedings, and that such proceedings, either individually or in theaggregate,****will not have a material adverseimpact on its financial position business or results.

 

**A.3.****                Dividends**

 

The payment of dividends on common stock fromdistributable profits may be recommended by the Management Company for approvalby the shareholders at the annual general meeting, which must be held withinsix months after the end of the fiscal year. No dividends were declared or paid in respect of the fiscal years ended September 30,1997 through 2004 and the Company does not expect to pay dividends for asubstantial period of time.

 

The ability of the Company to pay dividendsin the future is dependent upon the availability of distributable profits andliquidity of the Company.  During thecoming years, the Company’s priority will be to implement the investment planauthorized by the Restructuring and to reduce the level of its debt viascheduled principal repayments. Additionally, under certain circumstances, including the event ofpayment default, certain of the Group’s debt agreements prohibit the payment ofdividends.

 

The distributable profit consists of the profitfor the fiscal year, reduced by the prior losses together with the amounts thatare to be allocated to the reserves required by law or the by-laws andincreased by the profits carried forward. At least 5% of net income each year, if any, must be put into a legalreserve.  This transfer shall cease to berequired when the cumulative legal reserve reaches one-tenth of the sharecapital.  The legal reserve isdistributable only upon the Company’s liquidation.  The Management Company may propose to theshareholders’ general meeting, prior to the distribution of dividends toshareholders, the allocation of all or part of the profits of a fiscal year toother reserve accounts, to the extent and under the conditions determined bylaw.

 

In addition,the Company’s by-laws provide that 0.5% of net income each year be paid to theGeneral Partner. Thereafter, distributable profits shall be allocated in the followingorder:

 

(i)    the amount, if any, that theannual ordinary general meeting, upon the proposal of the Management Company,shall decide to allocate to reserves or to be carried forward as retainedearnings; and

 

(ii)   thebalance of distributable profits remaining, if any, to the shareholderspro-rata in proportion to their respective holdings of shares of common stock.

 

Dividendsmust be paid within nine months of the end of the fiscal year and are payableto holders, on the date of payment, of shares of common stock outstanding atthe time such dividends were approved for distribution by theshareholders.  Dividends not claimedwithin five years of the date of payment are forfeited to the Republic ofFrance.  The shareholders have the rightin an ordinary general meeting to authorize the grant to each shareholder of anoption to receive all or part of any annual or interim dividends in either cashor shares of common stock.

 

**B.****                                    SIGNIFICANTCHANGES**

### *** ***

### ***At the CombinedGeneral Meeting of Shareholder’s held on December 17, 2004, theshareholders approved the resolutions required to implement the Restructuring***.

 

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### ***ITEM 9***.                       THE OFFER AND LISTING

 

**A.****                          OFFERAND LISTING DETAILS**

 

The tablebelow sets forth, for the period mentioned, the reported high and low quotedprices for the common stock on Euronext Paris S.A. (formerly the Paris stockexchange).

 
| ** **          | ** ** | **Price Per Share** | ** ** |
|---------------------|------------|---------------------|------------|
| **Fiscal Year**     | ** ** | **High**            | ** ** | **Low** | ** ** |
| ** **          | ** ** | **€**          | ** ** | **€** | ** ** |
| *2000*              |       | 1.27                |       | 0.56 |   |
| *2001*              |       | 1.27                |       | 0.47 |   |
| *2002*              |       | 0.99                |       | 0.40 |   |
| *2003*              |       | 0.76                |       | 0.34 |   |
| First  Quarter      |       | 0.58                |       | 0.40 |   |
| Second  Quarter     |       | 0.53                |       | 0.35 |   |
| Third  Quarter      |       | 0.68                |       | 0.34 |   |
| Fourth  Quarter     |       | 0.76                |       | 0.47 |   |
| *2004*              |       | 0.64                |       | 0.22 |   |
| First  Quarter      |       | 0.64                |       | 0.41 |   |
| Second  Quarter     |       | 0.62                |       | 0.42 |   |
| Third  Quarter      |       | 0.51                |       | 0.31 |   |
| Fourth  Quarter     |       | 0.40                |       | 0.22 |   |
|                |       |                |       |   |   |
| June 2004      |       | 0.42                |       | 0.31 |   |
| July 2004      |       | 0.40                |       | 0.30 |   |
| August 2004    |       | 0.30                |       | 0.22 |   |
| September 2004 |       | 0.38                |       | 0.26 |   |
| October 2004   |       | 0.33                |       | 0.27 |   |
| November 2004  |       | 0.31                |       | 0.26 |   |
| December  2004      |       | 0.28                |       | 0.23 |   |

 

On December 31, 2004, the closing priceof the currently outstanding shares of common stock on Euronext Paris was 0.24euro**,**equivalent to U.S. $0.33 per share,as calculated by using the Noon Buying Rates.

 

**B.****                          PLAN OFDISTRIBUTION**

 

Notapplicable.

 

**C.****                          MARKETS**

 

**C.1.****                Common Stock**

 

The principal trading market for the commonstock is Euronext Paris.  In addition,the common stock is listed and traded on the Brussels Stock Exchange and istraded on SEAQ International in London. Sterling Depository Receipts, each representing one share of commonstock, are listed and traded on the London Stock Exchange.  The Sterling Depository Receipts currentlysettle through the Residual Settlement in the Crest system.  There is no active public market in theUnited States for the common stock, and the common stock is not listed on anyU.S. securities exchange.

 

Under French Law, listed companies maypurchase their own shares in certain limited circumstances. French law alsorequires the Company to file a copy of any shareholders’ resolution authorizingsuch transactions and an information memorandum regarding certain matters withthe *Autorité des Marchés Financiers* (the “AMF”),the administrative agency of the French government responsible for overseeingthe French securities markets, prior to engaging in such transactions, as wellas a monthly report of any purchases and sales thereafter.  Purchases and sales of the shares of commonstock may not account for more than 25% of the total daily trading volume in suchshares in any given period and, except during a public offering, may beperformed on the Company’s behalf by only one intermediary per stock exchangesession.

 

Common stock held by the Company, if any, isdeemed to be outstanding under French law but is not entitled to any dividends,voting rights or preferential subscription rights.

 

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**C.2.****                Warrants**

 

As part of the 1994 financial restructuring, theGroup issued 290 million warrants, enabling the holders of such warrants tosubscribe for 1.069 shares of its common stock at a price of € 6.10 for everythree warrants held.  The warrants had aterm of ten years and expired in July 2004.

 

**D.****                          SELLINGSHAREHOLDERS**

 

Not applicable

 

**E.****                            DILUTION**

 

Not applicable.

 

**F.****                            EXPENSESOF THE ISSUE**

 

Not applicable.

 

 

**ITEM 10****.****ADDITIONAL INFORMATION**

 

**A.****                          SHARECAPITAL**

 

Not applicable.

 

**B.****                          MEMORANDUMAND ARTICLES OF ASSOCIATION**

 

Euro Disney S.C.A. is organised as a limitedpartnership (s*ociété en commandite par actions or*“S.C.A.”) governed principally by Chapter II of the French Commercial Code anddecree no. 67-236 of March 23, 1967 on commercial companies.  The Company was originally structured andincorporated in 1985 in the form of a French corporation (*sociétéanonyme* or “S.A.”).  In 1988,EDL Holding Company, currently the owner of approximately 40.6% of the sharecapital of the Company, acquired 99% of the share capital of the Company.  An extraordinary general meeting of theshareholders of the Company held on February 24, 1989 decided to modifyits corporate form from an S.A. to an S.C.A. In November 1989, Euro Disneyland S.C.A. became a publicly heldcompany as a result of a public offering of its common stock in France, theUnited Kingdom and Belgium.  At theannual general meeting of the shareholders held on February 4, 1991, theCompany’s present corporate name, Euro Disney S.C.A., was adopted.  In 1994, the Company registered with the USSecurities and Exchange Commission as a non-listed “Foreign Registrant”.

 

According to French law, the statutorymanagement of the Company is the *Gérant* (in thiscase a company, Euro Disney S.A.S.) and the members of the supervisoryboard.  Together they constitute the *mandataires sociaux*.

 

The four primary participants in the Company’s legal and governancestructure are:

 

•              the general partner (the” General Partner”);

•              the limited partners or shareholders;

•              the management company (*gérant*); and

•              the supervisory board.

 

**B.1.****                TheManagement Company (the *Gérant)***

 

Under French law, theprimary responsibility of the Management Company is to manage the Company atall times in the Company’s best interests.

 

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Euro Disney S.A.S., aFrench simplified corporation, was appointed as sole Management Company at theextraordinary shareholder’s meeting held on February 24, 1989.  Euro Disney S.A.S. was formed as a Frenchcorporation and was transformed into a simplified corporation at theextraordinary shareholders’ meeting held on August 6, 2004.  The Management Company is an indirect 100% ownedsubsidiary of TWDC and its purpose is to manage the Company as well as EDLHôtels S.C.A.  Under the Company’sby-laws, the Management Company has the power to take any and all action in thename of the Company within the scope of the Company’s corporate purpose and tobind the Company in all respects.  In thecontext of the Restructuring, Euro Disney S.A.S. has been appointed asManagement Company of EDA.

 

If the Management Company**ceasesto hold office for any reason, the General Partner, currently an indirect 99.9%owned subsidiary of TWDC, has the exclusive right to appoint a successor.  The Management Company**mayresign on giving six-months’ notice to the supervisoryboard and otherwise may only be removed from office in the followingcircumstances:

 

•                  for incapacity, including bankruptcy or judicialreorganization by the General Partner,

 

•                  for any other reason with the consent of both theGeneral Partner and holders of a two-third majority of the share capital of theCompany in an extraordinary meeting; or

 

•                  by a court on the grounds of legitimate cause*(cause légitime)*.

 

Under theby-laws of the Company, the Management Company is entitled to annual feesconsisting of a base management fee and a management incentive fee, and is alsoentitled to a fee payable on the sale of hotels, each as described below. Inaddition, the by-laws provide that the Management Company is entitled to bereimbursed by the Company for all its direct and indirect expenses incurred inthe execution of its responsibilities. No amendment may be made to the entitlements of the Management Companywith respect to compensation or reimbursement of expenses except by amendmentto the Company’s by-laws, which would require the approval of the GeneralPartner and the shareholders.

 

As part ofthe Restructuring, the Management Company’s management fee will be reduced to€25,000 per year.  At the same time, amanagement fee will become payable to the management company of EDA (which willbe the Company’s principal subsidiary), in an amount calculated in the samemanner as the management fee payable to the Management Company prior to theRestructuring, as described below.

 

***Base Management Fee***

 

The basemanagement fee was originally equal to 3% (initially scheduled to increase to6% in 1997) of the total revenues of the Group, as defined in the by-laws ofthe Company, less 0.5% of the net income for the relevant fiscal year.

 

As part of the1994 Financial Restructuring, the Management Company permanently waived itsbase management fee for fiscal years 1992 through 1994.  In addition, the Company’s by-laws wereamended, at an extraordinary general meeting of the shareholders held on June 8,1994, such that the base management fee would equal the following percentagesof the total revenues of the Group:

 
| - from October 1,  1993 to September 30, 1998: |   | 0   | % |
|----------------------------------------------------------|--------|-----|---|
| - from October 1,  1998 to September 30, 2008: |   | 1.0 | % |
| - from October 1,  2008 to September 30, 2013: |   | 1.5 | % |
| - from October 1,  2013 to September 30, 2018: |   | 3.0 | % |
| - and from October 1,  2018:                        |   | 6.0 | % |

 

Beginning on October 1, 2008, the rightof the Management Company to receive payment of that portion of the basemanagement fee in excess of an amount equal to 1% of revenues, as defined, willbe contingent upon (i) the Company’s achieving a positive consolidated netincome before taxes for the fiscal year to which such fee relates, after takinginto account all of such compensation, and upon (ii) the Company’s legalability to distribute dividends for such fiscal year.  In addition, that portion of the basemanagement fee in excess of an amount equal to 3% of the total revenues, asdefined, for any fiscal year will not be due or payable until after certain indebtednessof the Company and the Phase I Financing Companies has been repaid in full, andmay not exceed 40% of the Company’s consolidated after-tax profits for suchfiscal year (calculated on the basis of the base management fee of 3%).  Certain of the Company’s debt agreements alsoprovide for deferral of payment of the base management fee under specifiedcircumstances.  Base management feesgranted to the Management Company by the Group were €10.5 million for fiscalyear 2004.

 

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***Management Incentive Fee***

 

In connectionwith the 1994 Financial Restructuring, the by-laws of the Company were amendedat a shareholders’ extraordinary general meeting held on June 8, 1994 toprovide that the management incentive fee for a given fiscal year be fixed at30% of any portion of pre-tax cash flow, as defined in the Company’s by-laws,in excess of 10% of the total consolidated gross fixed assets and the Phase IFinancing Companies, as defined in the Company’s by-laws, for that fiscalyear.  Certain of the debt agreements ofthe Company provide for deferral of the management incentive fee underspecified circumstances.  No fees havebeen payable to date under this agreement and the Company does not anticipateany liability for this fee in the foreseeable future.

 

***Hotel Sale Fee***

 

There is alsopayable to the Management Company, on the sale of any of the hotels, a feeequal to 35% of pre-tax net revenue, as defined, received by the Company fromany such sale.  This fee was not changedby the 1994 Financial Restructuring.

 

**B.2.****                TheSupervisory Board**

 

The members ofthe Company’s supervisory board are elected by the shareholders.  The by-laws provide for a minimum of threemembers, each of whom must be a shareholder. The supervisory board requires, under its own charter, that each of itsmembers hold at least 1,000 shares of the Company.  The supervisory board may be convened at anytime for any purpose related to the Company’s interests, either by the chairmanof the supervisory board, the Management Company, the General Partner, or atleast one-half of the members of the supervisory board.  The vote of a majority (and at least two) ofthe members present at a meeting where one-half of the members are presentconstitutes a valid action by the supervisory board.  In the event of a tie, the chairman of theSupervisory board has the deciding vote.

 

Therole of the supervisory board is to monitor the general affairs and themanagement of the Company, in the best interest of the shareholders, as well asto monitor the transparency and quality of the information communicated to theshareholders.  Pursuant to French law,the supervisory board is entitled to receive the same information and has the samerights as the statutory auditors of the Company.  The supervisory board must present to theannual general meeting of the shareholders a report indicating anyirregularities or inaccuracies, if any, in the annual accounts.

 

Thesupervisory board must approve all agreements between the Management Companyand the Company, as well as all related party contracts within the meaning of Article L.226-10 of the French Commercial Code and any amendments thereto, and mustreport on such agreements, contracts and amendments thereto at the next generalmeeting of the shareholders following their conclusion.  In addition, the by-laws provide thatsupervisory board approval is required to enable the Management Company toenter into any material agreements on behalf of the Company with TWDC or anysubsidiary thereof, or before deciding any material amendment to suchagreements.  The by-laws also providethat any employees of the Management Company, of any person affiliated with theManagement Company or of the supervisory board will be disqualified from votingon such agreements or any amendments thereto.

 

*Supervisoryboard operations in Fiscal Year 2004*

 

The members of the supervisory board areelected for a term of three years, from the date of the annual general meetingof shareholders called to elect or re-elect them.  The supervisory board currently consists ofseven members, five of whom are independent of the Group and TWDC.  The supervisory board met six times duringfiscal year 2004 with an attendance rate of 79%.  At these meetings the supervisory boardreceived presentations of the Group’s earnings, strategy and operations.  In addition, the supervisory board receivedstatus updates on the Restructuring negotiations between the Group, TWDC andthe Group’s lenders, and in its September 2004 meeting approved management’splan to legally reorganize the Group as part of the Restructuring.  In its November 2004 meeting thesupervisory board reviewed the financial communications of the Group for thefiscal year.

 

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*Financialaccounts committee*

 

On November 12, 1997, the supervisoryboard created a financial accounts committee, whose purpose is to optimize thework of the supervisory board in the following key areas:

 

•                  review of annual and semi-annual financial communications;

 

•                  review and monitoring of significant accounting issues anddisclosures;

 

•                  review and monitoring of the internal and external auditfunctions;

 

•                  review and monitoring of financial and liquidity risks; and

 

•                  assistingthe supervisory board in preparing its annual reports to shareholders.

 

The committee is currently composed of threeindependent supervisory board members, with Antoine Jeancourt-Galignani servingas Chairman.  Committee meetings includethe committee members, representatives from the Company’s financial management,legal and internal audit functions, as well as the statutory auditors.   This committee met four times in fiscal year2004 concerning the Group’s financial accounting and disclosure issues andinternal controls.  In addition to theserecurring topics, the committee was provided detailed updates on the terms ofthe Restructuring and its estimated impact on the future liquidity, financialposition and future results of the Company and the Group.

 

*Nominations committee*

 

On November 8, 2002, the supervisoryboard created a nominations committee, whose role is to propose futurecandidates for approval as members of the supervisory board.  The members of the nominations committee metduring fiscal year 2004 to consider the nomination of new members to theSupervisory board.

 

**Composition of the supervisory board**

 
| **Name**                        | ** ** | **Position** | ** ** | **Current term of office  expired / will expire  during the annual  general shareholders’  meeting related to  Fiscal Year** | ** ** | **Fiscal  Year 2004  Compensation (3)(€)** | ** ** |
|---------------------------------|------------|--------------|------------|-----------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|
|                            |       |         |       |                                                                                                                              |       |                                            |       |
| Antoine Jeancourt-Galignani (1) |       | Chairman     |       | 2007                                                                                                                              |       | 45 735                                          |       |
|                            |       |         |       |                                                                                                                              |       |                                            |       |
| Sir David  Paradine Frost (6)   |       | Member       |       | 2004                                                                                                                              |       | 15 245                                          |       |
|                            |       |         |       |                                                                                                                              |       |                                            |       |
| Philippe Labro (2)              |       | Member       |       | 2007                                                                                                                              |       | 22 887                                          |       |
|                            |       |         |       |                                                                                                                              |       |                                            |       |
| Jens Odewald  (1)               |       | Member       |       | 2005                                                                                                                              |       | 7 623                                           |       |
|                            |       |         |       |                                                                                                                              |       |                                            |       |
| Laurence Parisot (1)            |       | Member       |       | 2005                                                                                                                              |       | 15 265                                          |       |
|                            |       |         |       |                                                                                                                              |       |                                            |       |
| James A.  Rasulo(4)             |       | Member       |       | 2005                                                                                                                              |       | ––                                    |       |
|                            |       |         |       |                                                                                                                              |       |                                            |       |
| Thomas O.  Staggs (2) (4)       |       | Member       |       | 2007                                                                                                                              |       | ––                                    |       |
|                            |       |         |       |                                                                                                                              |       |                                            |       |
| Martin  Robinson (5)            |       | Member       |       | 2007                                                                                                                              |       | ––                                    |       |

 

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*(1)**                        Memberof the financial accounts committee.*

*(2)**                        Memberof the nominations committee.*

*(3)**                        Compensationallocated to each member is proportional to his or her attendance atsupervisory board meetings.*

*(4)**                        TWDCemployees are not paid by the Group for serving on the supervisory board.*

*(5)**                        Electedas a member of the supervisory board on December 17, 2004.*

*(6)**                        Termof office not renewed at the shareholders’ general meeting held on December 17,2004.*

 

**Antoine Jeancourt-Galignani**,Chairman of the supervisory board, was elected to the supervisory board in1989.  He was appointed Chairman in September 1995.  He has presided thefinancial accounts committee since its founding in November 1997 and isthe designated financial expert of the committee.  He is currently President of the board of directorsof Gecina.

 

**Philippe Labro**waselected as a member of the supervisory board in 1996 and has been a member ofthe nomination committee since November 2002.  He was Vice President and General Manager ofthe RTL France radio station.  He iscurrently Project Director, Design and Operations of PhLCommunication S.A.R.L.

 

**Jens Odewald** waselected as a member of the supervisory board in 1989 and has been a member ofthe financial accounts committee since November 1997.  He is currently Chairman and ManagingDirector of Odewald and Compagnie GmbH.

 

**Laurence Parisot** waselected as a member of the supervisory board in 2000 and has been member of thefinancial accounts committee since June 2000.  She is currently Chairman and Chief ExecutiveOfficer of IFOP.

 

**James A. Rasulo** waselected as a member of the supervisory board on March 2003.  He is currently President for Disney Parksand Resorts world-wide.

 

**Thomas O. Staggs,** was electedas a member of the supervisory board in March 2002 and has been a memberof the nominations committee since November 2002.  He is currently Senior Executive VicePresident Finance and Chief Financial Officer of TWDC.

 

**Martin Robinson**waselected as a member of the supervisory board in December 2004.  He is currently Executive Chairman of CenterParks UK Plc.

 

The aggregate compensation paid by the Group to the members of theSupervisory Board during fiscal year 2004 was  € 106,755. Compensation paid toeach member is proportional to attendance at meetings.

 

**B.3.****                TheGeneral Partner**

 

The General Partner of the Company has unlimitedliability for all debts and liabilities of the Company.

 

The General Partner is EDL Participations S.A.S. (“EDLParticipations”), a French indirect wholly-owned subsidiary of TWDC.  This company modified its corporate form froma *société anonyme*to a *société par actions simplifiée*in August 2004.  EDL Participations cannot be removed asGeneral Partner without its consent and cannot dispose of any part of itsinterest as General Partner without the prior approval of a vote of holders ofa simple majority of shares of common stock represented at a generalshareholders’ meeting.  A unanimous voteof the shareholders is required to approve a transfer of EDL Participations’entire interest.

 

Any resolution submitted for the vote of theshareholders at an ordinary or extraordinary meeting may be passed only withthe prior approval of the General Partner, except for those relating to theelection, resignation or dismissal of the members of the supervisory board.

 

The General Partner is entitled to a distribution eachyear equal to 0.5% of the Company’s after-tax profits.

 

73

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**B.4.****                TheShareholders**

 

The shareholders are convened to the general meetings of shareholdersand deliberate in accordance with the legal and regulatory requirements in effect.During each general meeting, each shareholder is entitled to a number of votesequal to the number of shares that he or she holds or represents. In lieu ofattending a meeting in person, each shareholder may give a proxy to anothershareholder or his or her spouse, vote by mail, or send to the Company a blankproxy, under the conditions provided by law and regulations.

 

Matters requiring a resolution passed by the holders of a simplemajority of shares of common stock at an ordinary general meeting include,without limitation:

 

•                  election to the supervisory board;

 

•                  approval of the consolidated an unconsolidated accountsof the Company, including payment of any dividend proposed by the ManagementCompany; and

 

•                  approval of any agreement (other than agreements entered into in theordinary course of business on normal commercial terms) or any amendmentthereto, entered into directly or through intermediaries between the Companyand the Management Company or any member of the supervisory board or any Company’sshareholder holding more than 10% of the voting rights, or if this shareholderis a company, the controlling company thereof within the meaning of Article L.233-3 of the French Commercial Code, as well as any agreement into which anyone of these persons is indirectly interested or which is entered into betweenthe Company and a company in which the Management Company or a member of theCompany’s supervisory board or a member of the Management Company board ofdirectors has ownership or holds a position of general partner, manager,director, chief officer or member of the supervisory board. Shareholders withan interest in the contract or transaction are not prohibited from voting onsuch contract or transaction, unless they hold one of the positions set forthabove.

 

Any resolution submitted forthe vote of the shareholders at an ordinary or extraordinary meeting may bepassed only with the prior approval of the General Partner, except for thoserelating to the election, resignation or dismissal of the members of thesupervisory board.

 

A resolution passed by holders of a two-thirds majority of the sharesof common stock (together with any approval required of the General Partner, asdescribed above) is required to approve any amendment to the by-laws, includingany increase or reduction of the share capital of the Company, any merger ordemerger or any conversion to another form of corporate organization.

 

**B.5.****               Ownership LevelsExceeding Certain Percentages**

 

The Company’s by-laws provide that any personor entity, acting alone or in concert with others, who holds or ceases to hold,directly or indirectly, a portion of the share capital (or voting rights, ifthe number of shares does not correspond to the number of voting rights) equalto, or greater than, 2% or a multiple of such portion, must notify the Companyby certified mail, return receipt requested, within fifteen days from the dayany of such thresholds is crossed, the total number of shares and voting rightsit owns directly and in concert, as well as the number of securities grantingaccess in the future to the capital of the Company and the voting rightspotentially attached thereto.

 

Any person or entity that fails to complywith such notification requirements, upon the request, recorded in the minutesof the shareholders’ meeting, of one or more shareholders holding at least 2%of its share capital made at the general shareholders’ meeting, will bedeprived of voting rights with respect to the shares in excess of the relevantthreshold for all shareholders’ meetings until expiration of the time-periodprovided for by applicable law or regulation following the date ofnotification.

 

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**C.****                                    MATERIALCONTRACTS**

 

See discussion above in Item 4 “Informationon the Company” — Section A.6 “Significant Operating Contracts”.

 

**D.****                                    EXCHANGECONTROLS**

 

Acquisitions and disposals of shares ofcommon stock and/or other rights to shares of common stock (except for theacquisition of shares of common stock representing a controlling interest) andthe payment of dividends by the Company may, under regulations in force at thedate hereof, be effected without exchange control restrictions in France.  In addition, there is no limitation on theright of non-French residents or non-French shareholders to hold or vote commonstock of a French company.  Theremittance of all dividends to foreign shareholders must be effected through aFrench bank or other licensed financial intermediary.

 

A declaration must be filed, upon realizationof the investment, with the French authorities for the acquisition, by anynon-European Union person or group of persons acting in concert, of acontrolling interest (normally 20% or more of the share capital) in theCompany. Prior exchange control consent is no longer required in France.

 

**E.****                                      TAXATION**

 

**E.1.****                            FrenchTaxation**

 

The following generally summarizes thematerial French tax consequences of purchasing, owning and disposing of the Company’sshares. The statements relating to French tax laws set forth below are based onthe laws in force as of the date hereof, and are subject to any changes inapplicable laws and tax treaties after such date.

 

This discussion is intended only as a descriptivesummary and does not purport to be a complete analysis or listing of allpotential tax effects of the purchase, ownership or disposition of the Company’sshares.

 

The following summary does not address thetreatment of shares that are held by a resident of France (except for purposesof describing related tax consequences for other holders) or in connection witha permanent establishment or fixed base through which a holder carries onbusiness or performs personal services in France, or by a person that owns,directly or indirectly, 5% or more of the stock of the Company.  Moreover, the following discussion of the taxtreatment of dividends only deals with distributions made as from January 1,2005.

 

## **Taxation ofDividends on Shares**

 

#### **Withholding tax**

 

In France, dividends are paid out ofafter-tax income. Dividends paid to non-residents normally are subject to a 25%French withholding tax. However, non-resident holders that are entitled to andcomply with the procedures for claiming benefits under an applicable tax treatymay be subject to a reduced rate (generally 15%) of French withholding tax. Ifa non-resident holder establishes its entitlement to treaty benefits prior tothe payment of a dividend, then French tax generally will be withheld at the reducedrate provided under the treaty.

 

#### **Elimination of the *avoir fiscal*mechanism**

 

The French Finance Law for 2004 significantlychanged the tax treatment of dividends. Prior to the reform, certain qualifying French resident shareholderswere entitled to a tax credit, known as the *avoir fiscal*,on dividends received from French companies. The French Finance Law for 2004 eliminated the *avoir fiscal*mechanism with effect as of January 1, 2005.

 

Dividends paid to non-residents were notnormally eligible for the *avoir fiscal*.  However, France has entered into tax treatieswith certain countries under which qualifying residents complying with theprocedures for claiming benefits under an applicable tax treaty could beentitled, in addition to a reduced rate of withholding tax, to a refund of the *avoir fiscal*, net of applicable withholding tax.  As a result of the reform, qualifyingnon-individual shareholders will no longer be entitled to *avoir fiscal*refunds with respect to distributions made from 2004 on and qualifyingindividual non-residents will no longer be entitled to *avoir fiscal*refunds with respect to distributions made from 2005 on.

 

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#### **New Tax Credit**

 

From 2005 on, French resident individualswill only be taxed on half of the dividends they receive and, in addition tothe annual allowance that is already applicable, will be entitled to a taxcredit equal to 50% of the dividend (the “Tax Credit”). The Tax Credit willhave a cap of €230 for married couples and members of a union agreement subjectto joint taxation and €115 for single persons, widows or widowers, divorcees ormarried persons subject to separate taxation. French resident individuals will not be entitled to the *avoir fiscal*with respect to distributions made from 2005on.

 

Dividends paid to non-residents are notnormally eligible for the Tax Credit described above.  However, qualifying non-resident individualswho were previously entitled to a refund of the *avoir fiscal*(net of applicable withholding tax) under a tax treaty entered intobetween France and their country of residence, subject to compliance with theprocedures for claiming benefits under such treaty, may benefit, under the sameconditions as for the *avoir fiscal*,from a refund of the Tax Credit (net of applicable withholding tax).  The French tax authorities have not yetissued guidance with respect to the refund of the Tax Credit to non-residentindividuals.  Claiming such refund, ifpossible, may entail compliance with cumbersome formalities.

 

#### **Elimination of the *précompte*- 25%-equalization tax**

 

Until December 31, 2004, dividends paidout of profits that had not been taxed at the ordinary corporate tax rates orwere earned and taxed more than five years before the distribution, weresubject to an equalization tax called the *précompte.* Non-resident shareholders entitled to thebenefits of the tax treaty, but not to a refund of the *avoir fiscal*,could generally obtain a refund of the *précompte*(netof applicable withholding tax)*.*As a resultof the reform, distributions made from 2005 on will no longer trigger any *précompte*.

 

A temporary equalization tax will apply todistributions made in 2005 out of profits that have not been taxed at theordinary corporate tax rates, or which were earned and taxed more than fiveyears before the distribution. This equalization tax will be equal to 25% ofthe amount of the dividends.  Thisequalization tax will not be refundable to non-resident shareholders, as itwill be refunded to the distributing corporation in three equal installments inthe three fiscal years following the distribution in certain cases.

 

Distributions made from 2006 on will not giverise to any equalization tax liability.

 

# **Taxation on Sale or Disposition of Shares**

# ** **

Subject to the more favorable provisions of arelevant tax treaty, holders that are not residents of France for tax purposes,do not hold shares in connection with the conduct of a business or professionin France, and have not held more than 25% of the Company’s dividend rights (*droits aux bénéfices sociaux*), directly or indirectly, atany time during the preceding five years, are not subject to French income taxor capital gains tax on the sale or disposition of shares.

 

A 1% ad valorem registration duty (subject toa maximum of €3,049 per transfer) applies to certain transfers of shares inFrench companies. As from January 1, 2006, the rate of such registrationduty will be 1.10% (subject to a maximum of €4,000 per transfer) This duty doesnot apply to transfers of shares in listed companies that are not evidenced bya written agreement, or if any such agreement is executed outside France.

 

# **Estate and Gift Tax**

# ** **

France imposes estate and gift tax on sharesof a French corporation that are acquired by inheritance or gift. The taxapplies without regard to the tax residence of the transferor. However, Francehas entered into estate and gift tax treaties with a number of countriespursuant to which, assuming certain conditions are met, residents of the treatycountry may be exempted from such tax or obtain a tax credit.

 

# **Wealth Tax**

# ** **

Individuals who are not residents of Francefor purposes of French taxation are not subject to a wealth tax *(impôt de solidarité sur la fortune)* in France as a resultof owning an interest in the share capital of a French corporation, providedthat such ownership interest is less than 10% of the corporation’s sharecapital and does not enable the shareholder to exercise influence over thecorporation.  Double taxation treatiesmay provide for a more favorable tax treatment.

 

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**E.2.****                            Taxationof U.S. Investors**

 

The following is a summary of the materialFrench and U.S. federal income tax consequences of the purchase, ownership anddisposition of the Company’s shares if you are a holder that is a resident ofthe United States for purposes of the income tax convention between the UnitedStates and France (the “Treaty”) and are fully eligible for benefits under theTreaty (a “U.S. holder”). You generally will be entitled to Treaty benefits inrespect of the Company’s shares if you are:

 

•                  the beneficialowner of the shares (and the dividends paid with respect thereto);

•                  an individualresident of the United States, a U.S. corporation, or a partnership, estate ortrust to the extent its income is subject to taxation in the United States inits hands or in the hands of its partners or beneficiaries;

•                  not also aresident of France for French tax purposes; and

•                  not subject toan anti-treaty shopping article that applies in limited circumstances.

 

Special rules apply to pension funds andcertain other tax-exempt investors.

 

This summary does not purport to be acomprehensive description of all of the tax considerations that may be relevantto any particular investor, and does not discuss tax considerations that arisefrom rules of general application or that are generally assumed to be known byinvestors. In particular, the summary does not deal with shares that are notheld as capital assets, and does not address the tax treatment of holders thatare subject to special rules, such as banks, insurance companies, dealers insecurities or currencies, regulated investment companies, persons that electmark-to-market treatment, persons holding shares as a position in a syntheticsecurity, straddle or conversion transaction, persons that own, directly orindirectly, 5% or more of the Company’s voting stock or 10% or more of itsoutstanding capital and persons whose functional currency is not the U.S.dollar. The summary is based on laws, treaties, regulatory interpretations andjudicial decisions in effect on the date hereof, all of which are subject tochange.

 

This summary does not discuss the treatmentof shares that are held in connection with a permanent establishment or fixedbase through which a holder carries on business or performs personal servicesin France.

 

Moreover, the following discussion of the taxtreatment of dividends only deals with distributions made as from January 1,2005.

 

You should consult your own tax advisersregarding the tax consequences of the purchase, ownership and disposition ofshares in the light of your particular circumstances, including the effect ofany state, local or other national laws.

 

**Dividends**

** **

As discussed in more detail above under “FrenchTaxation”, the French Finance Law for 2004 significantly changed the French taxtreatment of distributions and dividends paid by French companies.

 

Generally, dividend distributions tonon-residents of France are subject to French withholding tax at a 25% rate andare not eligible for the benefit of the Tax Credit available to French residentindividuals, as described above.

 

However, under the Treaty, you may claim thebenefit of a reduced dividend withholding tax rate of 15%.

 

In addition, if you are an individual U.S.holder, subject to the discussion above, you may be entitled to a refund of theTax Credit, less a 15% withholding tax, provided that you are subject to U.S.federal income tax on the Tax Credit and the dividend to which it relates.  The French tax authorities have not yetissued guidance with respect to the refund of the Tax Credit to non-residentindividuals.  Claiming such refund, ifpossible, may entail compliance with cumbersome formalities.

 

U.S. holders that are legal entities, pensionfunds or other tax-exempt holders are no longer entitled to tax credit paymentsfrom the French Treasury.

 

French withholding tax will be withheld atthe 15% Treaty rate if you have established before the date of payment that youare a resident of the United States under the Treaty and, if you are not anindividual, that you are the owner of all the rights relating to the fullownership of the shares (including, but not limited to, dividend rights).

 

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The gross amount of dividend and Tax Creditpayments that you receive (prior to deduction of French withholding tax)generally will be subject to U.S. federal income taxation as foreign sourcedividend income. Subject to certain exceptions for positions that are hedged orheld for less than 61 days, an individual U.S. holder generally will be subjectto U.S. taxation at a maximum rate of 15% in respect of dividends receivedbefore 2009 if the dividends are “qualified dividends”.  Dividends that the Company pays will betreated as qualified dividends if the Company was not, in the year prior to theyear in which the dividend was paid, and is not, in the year in which thedividend is paid, a passive foreign investment company (“PFIC”), foreignpersonal holding company (“FPHC”) or foreign investment company (“FIC”).  Based on its audited financial statements andrelevant market and shareholder data, the Company believes that it is nottreated as a PFIC, FPHC or FIC for U.S. federal income tax purposes withrespect to its 2004 taxable year.  Inaddition, based on the Company’s audited financial statements and currentexpectations regarding the value and nature of its assets, the sources andnature of its income, and relevant market and shareholder data, the Companydoes not anticipate becoming a PFIC, FPHC or FIC for its 2005 taxableyear.  Dividends will not be eligible forthe dividends received deduction generally allowed to U.S. corporations.

 

French withholding tax at the 15% Treaty ratewill be treated as a foreign income tax that, subject to generally applicablelimitations under U.S. law, is eligible for credit against your U.S. federalincome tax liability or, at your election, may be deducted in computing taxableincome. Foreign tax credits will not be allowed for withholding taxes imposedin respect of certain short-term or hedged positions in securities. You shouldconsult your own tax advisers concerning the implications of these rules in thelight of your particular circumstances.

 

Dividends paid in euro will be included inyour income in a U.S. dollar amount calculated by reference to the exchangerate in effect on the date you receive the dividend, regardless of whether thepayment is in fact converted into U.S. dollars. If such a dividend is convertedinto U.S. dollars on the date of receipt, you generally should not be requiredto recognize foreign currency gain or loss in respect of the dividend income.

 

### ***Procedures for Claiming Treaty Benefits***

### *** ***

The French tax authorities are expected toissue new guidelines setting out formalities to be complied with bynon-resident shareholders, including U.S. holders, in order to obtain thereduced withholding tax rate on distributions made as from 2005 and, inparticular, confirming whether the use of the simplified certificate describedbelow will continue to apply. Furthermore, as noted above, the French taxauthorities have not yet issued guidance with respect to the refund of the TaxCredit to non-resident individuals.

 

In any event, you should be entitled tobenefit from a reduced rate of withholding tax of 15%, provided that youcomplete and file with the French tax authorities an application for refund onForm RF 1B EU-No. 5053 prior to the payment of the dividend.

 

Individual U.S. holders could claim Treatybenefits under a simplified procedure with respect to dividend distributionsmade in 2004.  In order to use thesimplified procedure, you must complete and deliver to the French taxauthorities a certificate stating that:

 

•                  you are a U.S.resident within the meaning of the Treaty;

•                  you do notmaintain a permanent establishment or fixed base in France with which theholding giving rise to the dividend is effectively connected;

•                  you own all therights attached to the full ownership of the shares (including dividendrights); and

•                  you meet all therequirements of the Treaty for obtaining the benefit of the reduced rate ofwithholding tax and the refund of the *avoir fiscal*.

 

Non-individual U.S. holders, formerlyentitled to a refund of the *avoir fiscal*pursuantto the Treaty, were also entitled to the benefit of this simplified procedurewith respect to dividend distributions made in 2004, subject to compliance withcertain additional requirements (even if the benefit of the *avoir fiscal*was no longer available to them).

 

In principle, the simplified procedure willno longer be available with respect to distributions paid as from 2005, unlessthe tax authorities renew the procedure in the new guidelines.

 

Copies of the simplified certificate and theForm RF 1B EU-No. 5053 are available from the U.S. Internal Revenue Service andfrom the *Centre des Impôts des Non-Résidents* (9rue d’Uzès, 75094 Paris Cedex 2).

 

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If the form (orthe simplified certificate, as applicable) is not filed prior to the dividendpayment, a withholding tax will be levied at the 25% rate, and you would haveto claim a refund for the excess by filing an application in this respect atthe latest by December 31 of the second year following the year in whichthe dividend is paid.

 

The French withholding tax refund will not bepaid before January 15 following the end of the calendar year in which thedividend is paid.

 

### ***Capital Gains***

### *** ***

Under the Treaty, you will not be subject toFrench tax on any gain derived from the sale or exchange of shares, unless thegain is effectively connected with a permanent establishment or fixed basemaintained by you in France.

 

For U.S. federal income tax purposes, gain orloss you realize on the sale or other disposition of the shares will be capitalgain or loss, and will be long-term capital gain or loss if the shares wereheld for more than one year. The net amount of long-term capital gainrecognized by an individual U.S. holder before January 1, 2009 generallyis subject to taxation at a maximum rate of 15%. Your ability to offset capitallosses against ordinary income is limited.

 

### ***French Estate and Gift Tax***

### *** ***

Under the estate and gift tax conventionbetween the United States and France, a transfer of shares by gift or by reasonof the death of a U.S. holder entitled to benefits under that convention willnot be subject to French gift or inheritance tax, so long as the donor ordecedent was not domiciled in France at the time of the transfer, and theshares were not used or held for use in the conduct of a business or professionthrough a permanent establishment or fixed base in France.

 

### ***French Wealth Tax***

### *** ***

The French wealth tax does not generallyapply to shares of a U.S. holder if the holder is a resident of the UnitedStates for purposes of the Treaty.

 

### ***U.S. Information Reporting and Backup Withholding Rules***

### *** ***

Payments of dividends and sales proceeds that are madewithin the United States or through certain U.S.-related financialintermediaries are subject to information reporting and may be subject tobackup withholding unless the holder (i) is a corporation or other exemptrecipient or (ii) provides a taxpayer identification number and certifies thatno loss of exemption from backup withholding has occurred. Holders that are notU.S. persons generally are not subject to information reporting or backupwithholding. However, such a holder may be required to provide a certificationof its non-U.S. status in connection with payments received within the UnitedStates or through a U.S.-related financial intermediary.

 

**F.****                                      DIVIDENDSAND PAYING AGENTS**

 

Not applicable.

 

**G.****                                    STATEMENTSBY EXPERTS**

 

Not applicable.

 

**H.****                                    DOCUMENTSON DISPLAY**

 

The Group files reports, including annualreports on Form 20-F, with the Securities and Exchange Commission pursuant tothe rules and regulations of the SEC that apply to the Group. You may read andcopy any materials filed with the SEC at its public reference rooms inWashington, D.C., at 450 Fifth Street, N.W., Washington, D.C. 20549 and inChicago, at 500 West Madison Street, Chicago, Illinois 60661. Please call theSEC at 1-800-SEC-0330 for further information on the public reference rooms.Any filings the Group makes electronically will be available to the public overthe internet at the SEC’s web site at http://www.sec.gov.  You may also review documents included asexhibits to this and previous filings at the corporate headquarters, ImmeublesAdministratifs, Route Nationale 34, Chessy, Seine-et-Marne.

 

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**I.****                                         SUBSIDIARYINFORMATION**

 

Not applicable.

 

**ITEM 11****. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

The Group is are exposed to the impact of interest and foreign currencyexchange rate changes.  In the normal courseof business, the Group employs established policies and procedures to manageits exposure to changes in interest and foreign currency exchange rates usingprimarily swaps and forward rate agreements. It is its policy to enter into interest and foreign currency ratetransactions only to the extent considered necessary to meet itsobjectives.  The Group does not enterinto interest and foreign currency rate transactions for speculative purposes.

 

Group has significant variable rate debt.  With respect to these interest rate sensitiveobligations, a hypothetical 10 % increase in interest rates, as of September 30,2004 and 2003, would have a € 1.0 million and € 0.4 million, respectively,unfavorable impact on near-term annual cash flows.  This amount excludes the positive cash flowimpact such a change in interest rates would have on short-term investmentincome.

 

The Group’s exposure to foreign currency risk arises primarily fromBritish pound denominated sales and U.S. dollar denominated purchases.  The Group primarily utilizes foreign exchangeforward contracts to hedge these expenditures. With respect to these foreign exchange rate sensitive instruments, ahypothetical 10 % adverse change in the U.S. dollar and British pound exchangerates (correlation between currencies is not taken into account) as of September 30,2004 and 2003 would result in a € 1.1 million and € 6.9 million decrease intheir market value, respectively.  Noamount of this decrease would impact earnings since the loss on theseinstruments would be offset by an equal gain on the underlying exposure beinghedged.

 

### ***ITEM 12***.                                              DESCRIPTION OF SECURITIES OTHER THANEQUITY SECURITIES

### *** ***

Not applicable

 

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##### **PART II**

#####  

**ITEM 13****.****            DEFAULTS,DIVIDEND ARREARAGES AND DELINQUENCIES**

### *** ***

Not applicable

 

**ITEM 14****.****            MATERIAL MODIFICATIONSTO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS**

 

Not applicable

 

**ITEM 15****.****            CONTROLSAND PROCEDURES**

 

The Group carried out an evaluation under thesupervision and with the participation of its management, including theManagement Company’s Chief Executive Officer and Chief Financial Officer, of theeffectiveness of its disclosure controls and procedures. There are inherentlimitations to the effectiveness of any system of disclosure controls andprocedures, including the possibility of human error and the circumvention oroverriding of the controls and procedures. Accordingly, even effectivedisclosure controls and procedures can only provide reasonable assurance ofachieving their control objectives. Based upon its evaluation, the ChiefExecutive Officer and Chief Financial Officer of the Management Companyconcluded that, as of the end of the period covered by this report, thedisclosure controls and procedures were effective to provide reasonableassurance that information required to be disclosed in the reports the Groupfiles and submit under the Exchange Act is recorded, processed, summarized andreported as and when required.

 

Effective for the fiscal year ended September 30,2004, the French Financial Security Law issued in France requires the Group toprovide additional disclosures regarding internal controls. An Englishtranslation of these disclosures is included as an exhibit to this AnnualReport.  These disclosures were preparedto meet the requirements of French law, and are not equivalent to a report oninternal controls over financial reporting contemplated in Section 404 ofthe Sarbanes-Oxley Act of 2002 (See Exhibit 13.2 in Item 19 “FinancialStatements and Exhibits” — Section B, “Exhibits”).

 

## **ITEM16.A**.                                  AUDITCOMMITTEE FINANCIAL EXPERT

## ** **

At its January 28,2004 meeting, the Financial Accounts Committee designated AntoineJeancourt-Galignani as the “Committee Financial Expert”.

 

## **ITEM 16.B.**                                  CODEOF ETHICS

## ** **

The Group applies the “Standards of BusinessConduct” required by The Walt Disney Company to its Chairman and ChiefExecutive Officer, Chief Financial Officer and Chief Accounting Officer.  These standards include guidelines on bothethical and legal business conduct.  TheGroup is are currently in the process of adapting this code for futureapplication to all of its employees.  Acopy of this document can be found on the TWDC internet site at www.disney.com.

 

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**ITEM 16.C.****                                PRINCIPALACCOUNTANT FEES AND SERVICES**

 

Fees incurred for the consolidated and statutory audits ofthe Group were:

 
| *** ***                           | *** *** | **PricewaterhouseCoopers** | *** *** | **Caderas Martin(2)** | *** *** |
|----------------------------------------|--------------|----------------------------|--------------|-----------------------|--------------|
| ** **                             | ** **   | **Fiscal Year**            | ** **   | **Percent**           | ** **   | **Fiscal Year** | ** ** | **Percent** | ** ** |
| **(€ in  thousands)**             | ** **   | **2004**                   | ** **   | **2003**              | ** **   | **2004** | ** ** | **2003** | ** ** | **2004** | ** ** | **2003** | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                             | ** **   | ** **                 | ** **   | ** **            | ** **   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Consolidated  and Statutory Audits (1) |         | 635.8                      |         | 894.1                 |         | 78 | % | 77 | % | 96.0 |   | 65.0 |   | 100 | % | 100 | % |
| Audit  Related Fees(3)                 |         | 183.5                      |         | 275.0                 |         | 22 | % | 23 | % | — |   | — |   | — |   | — |   |
| Sub-total                              |         | 819.3                      |         | 1 169.1               |         | 100 | % | 100 | % | 96.0 |   | 65.0 |   | 100 | % | 100 | % |
|                                   |         |                       |         |                  |         |   |   |   |   |   |   |   |   |   |   |   |   |
| Other  Services                        |         | —                     |         | —                |         | — |   | — |   | — |   | — |   | — |   | — |   |
|                                   |         |                       |         |                  |         |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                  |         | 819.3                      |         | 1 169.1               |         | 100 | % | 100 | % | 96.0 |   | 65.0 |   | 100 | % | 100 | % |

 

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*(1)**              Includes €120,000 ofaudit fees for Fiscal Years 2004 and 2003, respectively, related to theFinancing Companies and Management Company audits which are contractuallyre-invoiced to the Group.*

 

*(2)**              The mandate of Mr.François Martin, the second incumbent statutory auditor, expired at the end ofthe annual general meeting of May 5, 2003 deciding on the accounts of theFiscal Year ended September 30, 2002. During this meeting, the firm Caderas Martin was appointed for asix-year term of office.  Mr. FrançoisMartin is a partner of the firm Caderas Martin.*

 

*(3)**              During Fiscal Year2004, €183,500 of audit-related fees were incurred in connection withaccounting and disclosure issues linked to the Restructuring.  During Fiscal Year 2003, €275,000 ofaudit-related fees were incurred in connection with financial covenantcompliance related issues.  No taxservices were performed by the external auditors during the periods presented.*

 

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##### **PART III**

#####  

**ITEM 17****.    FINANCIAL STATEMENTS**

 

Please See Item 19 “Financial Statements andExhibits” for a list of all financial statements filed as part of this Form20-F.

 

**ITEM 18****.****            FINANCIALSTATEMENTS**

 

Not applicable

 

**ITEM 19****.****            FINANCIALSTATEMENTS AND EXHIBITS**

 

**A.****                                    FINANCIALSTATEMENTS**

 

The Group is filing the following financialstatements, together with the report of PricewaterhouseCoopers Audit related tothe statements, as part of this Annual Report:

 
| Report of Independent Registered Public Accounting Firm                                           | ** ** |
|---------------------------------------------------------------------------------------------------|------------|
| Consolidated Balance Sheets as of September 30, 2004 and 2003                                |       |
| Consolidated Statements of Income for the  Years Ended September 30, 2004, 2003 and 2002     |       |
| Consolidated Statements of Cash Flows for  the Years Ended September 30, 2004, 2003 and 2002 |       |
| Notes to the  Consolidated Financial Statements                                                   |       |

 

**B.****           ****EXHIBITS**

 
| 1        |   | Amended Company by-laws(1)                                                                                                                                                                                                                                                      |   |
|----------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 4.1      |   | Restructuring proposal vote request letter  dated September 20, 2004 from the Company to the various creditors named  therein  (1)* *                                                                                                                            |   |
| 4.2      |   | Agent bank response letter dated September 23,  2004 from the CDC (1)* *                                                                                                                                                                                              |   |
| 4.3      |   | Agent bank response letter dated September 28,  2004 from BNP Paribas (1)* *                                                                                                                                                                                          |   |
| 4.4      |   | Agent bank response letter dated September 28,  2004 from CALYON (1)* *                                                                                                                                                                                               |   |
| 4.5      |   | Memorandum of Agreement dated June 8,  2004, as amended by a letter dated September 20, 2004 from the Company  to the creditors (See Exhibit 4.1) and approved in a letter dated September 30,  2004 (1)                                                         |   |
| 4.6      |   | Contribution Agreement dated September 30,  2004, as amended on November 8, 2004* *(1)                                                                                                                                                                           |   |
| 4.7      |   | 2004 Standby Revolving Credit Agreement  with TWDC dated September 30, 2004                                                                                                                                                                                                |   |
| 4.8      |   | Remuneration  Agreement dated December 1, 2004 * *(1)                                                                                                                                                                                                                 |   |
| 4.9      |   | Letter dated December 1, 2004 from  TWDC relating to the debt forgiveness under the 1994 Standby Revolving Credit  Agreement                                                                                                                                               |   |
| 4.10     |   | Amendment Agreement n°2 to the *Convention sur le rang*dated December 1, 2004 between  BNP Paribas and the CDC* *(1)                                                                                                                                             |   |
| 4.11     |   | Amendment to the Financial Lease (*crédit-bail*) between Centre de Congrès Newport S.A.S. and  EDL Hôtels SCA* *(1)                                                                                                                                         |   |
| 4.12     |   | Fourth Amendment to the License Agreement  between The Walt Disney (Netherlands) BV and the Company dated November 30,  2004 – Letter dated December 1, 2004 from Disney Enterprises, Inc. to  BNP Paribas, CALYON and the CDC relating to the License Agreement |   |
| 4.13 (a) |   | Amendment  and Restatement Agreement – Phase IA Advances dated December 1, 2004 (1)                                                                                                                                                                                   |   |
| 4.13 (b) |   | April 26, 1989 Phase IA Advances  Agreement Amended and Restated (1)                                                                                                                                                                                                       |   |
| 4.14 (a) |   | Amendment and Restatement Agreement – Phase  IB Advances dated December 1, 2004 (1)                                                                                                                                                                                   |   |
| 4.14 (b) |   | March 25, 1991 Phase IB Advances  Agreement Amended and Restated (1)                                                                                                                                                                                                       |   |
| 4.15(a)  |   | Amendment and Restatement Agreement – Phase  IB Credit dated December 1, 2004 (1)                                                                                                                                                                                     |   |
| 4.15 (b) |   | March 25, 1991 Phase IB Credit Agreement  Amended and Restated (1)                                                                                                                                                                                                         |   |
| 4.16 (a) |   | Amendment and Restatement Agreement – Phase  IA Credit dated December 1, 2004 (1)                                                                                                                                                                                     |   |
| 4.16 (b) |   | September 5,  1989 Phase IA Credit Agreement Amended and Restated (1)                                                                                                                                                                                                      |   |
| 4.17 (a) |   | Amendment  and Restatement Agreement – Common Agreement dated December 1, 2004 (1)                                                                                                                                                                                    |   |
| 4.17 (b) |   | August 10, 1994 Common Agreement –  Amended and Restated (1)                                                                                                                                                                                                          |   |

 

83

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| 4.17 (c) |   | Schedule V (Covenants) to the August 10,  1994 Common Agreement – Amended and Restated (1)                                                                                                                                                     |   |
|----------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 4.18 (a) |   | Amendment to the Subordination Agreement  dated December 1, 2004 between Euro Disney Associés SCA, BNP Paribas,  CALYON and the CDC (1)                                                                                                             |   |
| 4.18 (b) |   | October 19,  1999 Subordination Agreement Amended and Restated (1)                                                                                                                                                                                       |   |
| 4.19     |   | Letter dated  December 1, 2004 from Euro Disney Associés SCA to CALYON on behalf on  the partners of Euro Disneyland SNC (1)                                                                                                                        |   |
| 4.20     |   | Letter dated December 1, 2004 from The  Walt Disney (Netherlands) BV to BNP Paribas, CALYON and the CDC relating to  the deferral of royalties – Letter from The Walt Disney (Netherlands) BV to  the Company relating to the deferral of royalties |   |
| 4.21     |   | Amended and Restated Agreement on the  Granting of Ordinary Loans dated December 1, 2004 between the Company,  Euro Disneyland SNC and the CDC (1)                                                                                                       |   |
| 4.22     |   | Amended and Restated Agreement on the  Granting of Participating Loans dated December 1, 2004 between the  Company, Euro Disneyland SNC and the CDC (1)                                                                                                  |   |
| 4.23     |   | Amended and Restated Loan Agreement Tranche  A dated December 1, 2004 between the Company and the CDC (1)                                                                                                                                                |   |
| 4.24     |   | Amended and Restated Loan Agreement Tranche  B dated December 1, 2004 between the Company and the CDC (1)                                                                                                                                                |   |
| 4.25     |   | Amended and Restated Loan Agreement Tranche  C dated December 1, 2004 between the Company and the CDC (1)                                                                                                                                                |   |
| 4.26     |   | Amended and Restated Loan Agreement Tranche  D dated December 1, 2004 between the Company and the CDC (1)                                                                                                                                                |   |
| 4.27     |   | Letter dated December 1, 2004 from the  CDC to Euro Disney Associés SCA relating to the Tranche E loan agreement –  Tranche E Loan Agreement Model (1)                                                                                         |   |
| 4.28     |   | Subordinated Long-Term CDC Debt Agreement  Model (1)                                                                                                                                                                                                          |   |
| 4.29     |   | Amendment to the Master Agreement dated December 22,  2004 between the Company, the Republic of France and other French public  constituencies (1)                                                                                                       |   |
| 8        |   | List of subsidiaries (incorporated by  reference from Note 1-1 to the Company’s consolidated financial statements)                                                                                                                                       |   |
| 12.1     |   | Chairman and Chief Executive Officer  certification pursuant to Section 302 of the SOX Act                                                                                                                                                               |   |
| 12.2     |   | Chief Financial Officer certification  pursuant to Section 302 of the SOX Act                                                                                                                                                                            |   |
| 13.1     |   | Chairman and Chief Executive Officer and  Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350                                                                                                                                       |   |
| 15.1     |   | Internal Control Description pursuant to  the French Financial Security Law                                                                                                                                                                                   |   |

 

----

*(1)**              Exhibittranslated from French.*

 

84

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**SIGNATURES**

 

Pursuant to the requirements of Section 12of the Securities Exchange Act of 1934, the registrant certifies that it meetsall of the requirements for filing on Form 20-F and has duly caused this AnnualReport to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 

 
| Date: January 10, 2005 |   |                                       |   |
|-----------------------------|--------|--------------------------------------------|--------|
|                        |   |                                       |   |
|                        |   |                                       |   |
|                        |   | Euro Disney S.C.A.                         |   |
|                        |   |                                       |   |
| By:                         |   | /s/ ANDRE LACROIX                          |   |
|                        |   | André Lacroix                         |   |
|                        |   | The Management Company, Euro Disney S.A.S. |   |
|                        |   | Chairman of the Board and                  |   |
|                        |   | Chief Executive Officer                    |   |
|                             |        |                                            |        |  |  |  |  |

 

85

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**Report ofIndependent** Registered Public Accounting Firm

** **

To the Shareholders of Euro Disney S.C.A.:

 

We have audited the accompanying consolidated balance sheets of EuroDisney S.C.A. and its subsidiaries as of September 30 2004 and 2003, andthe related consolidated statements of income and of cash flows for each of thethree fiscal years in the period ended September 30, 2004, all expressedin euros and prepared in conformity with accounting principles generallyaccepted in France. These financial statements are the responsibility of theCompany’s management. Our responsibility is to express an opinion on thesefinancial statements based on our audits.

 

We conducted our audits in accordance with the standards of the PublicCompany Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accounting principlesused and significant estimates made by management, as well as evaluating theoverall financial statement presentation. We believe that our audits provide areasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to abovepresent fairly, in all material respects, the financial position of Euro DisneyS.C.A. and its subsidiaries at September 30, 2004 and 2003, and theresults of their operations and their cash flows for each of the three fiscalyears in the period ended September 30, 2004 in conformity with accountingprinciples generally accepted in France.

 

The accompanying consolidated financialstatements have been prepared assuming the Group will continue as a goingconcern. We draw your attention to the significant uncertainty described inNote 1-3, which raises substantial doubt about the Group’s ability to continueas a going concern. Management’s plans in regard to these matters are alsodescribed in Note 1-3 and Note 2. The consolidated financial statements do notinclude any adjustments that might result from the outcome of this uncertainty.

 

Accounting principles generally accepted in Francevary in certain significant respects from accounting principles generallyaccepted in the United States of America. Information relating to the nature and effect of such differences ispresented in Note 30 to the consolidated financial statements.

 

As discussedin Note 2 to the consolidated financial statements, the Group changed itsmethod of consolidation for certain companies in which it is not a direct orindirect shareholder or partner, effective October 1, 2003.

 

Asdiscussed in Note 2 to the consolidated financial statements, the Group changedits method of accounting for costs associated with major renovations effective October 1,2002.

 

 

PricewaterhouseCoopers Audit

 

 

Jean-Christophe Georghiou

 

 

Paris, France

November 8,2004.

86

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**EURO DISNEY S.C.A. AND SUBSIDIARIES**

 

**CONSOLIDATED BALANCE SHEETS**

 
| ** **                                          | ** ** | ** ** | ** ** | **As-Reported**     | ** ** |
|-----------------------------------------------------|------------|------------|------------|---------------------|------------|
| **(€ in millions)**                            | ** ** | **Notes**  | ** ** | **September  2004** | ** ** | **September  2003** | ** ** | **September  2002** | ** ** |
| ** **                                          | ** ** | ** ** | ** ** | ** **          | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Fixed Assets**                                    | ** ** | ** ** | ** ** | ** **          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Intangible assets                                   | ** ** | ** ** |       | **52.4**            |       | 57.6 |   | 61.7 |   |
| Tangible assets                                     |       | 3          | ** ** | **2,343.9**         |       | 928.0 |   | 1,004.3 |   |
| Financial assets                                    |       | 4          | ** ** | **115.3**           |       | 1,332.2 |   | 1,323.5 |   |
| ** **                                          |       | ** ** |       | **2,511.6**         |       | 2,317.8 |   | 2,389.5 |   |
| **Other Assets**                                    |       |       |       |                |       |   |   |   |   |
| Inventories                                         |       | 5          | ** ** | **41.5**            |       | 41.8 |   | 38.7 |   |
| Accounts receivable:                                |       |       |       |                |       |   |   |   |   |
| Trade                                               |       | 6          | ** ** | **72.7**            |       | 76.9 |   | 100.6 |   |
| Other                                               |       | 7          | ** ** | **59.8**            |       | 45.9 |   | 70.7 |   |
| Short-term investments                              |       | 8          | ** ** | **120.8**           |       | 34.9 |   | 14.2 |   |
| Cash                                                | ** ** | ** ** |       | **10.6**            |       | 11.2 |   | 8.2 |   |
| ** **                                          |       | ** ** |       | **305.4**           |       | 210.7 |   | 232.4 |   |
|                                                |       |       |       |                |       |   |   |   |   |
| **Deferred Charges**                                |       | 9          | ** ** | **59.6**            |       | 55.1 |   | 86.7 |   |
|                                                |       |       |       |                |       |   |   |   |   |
| **Total Assets**                                    | ** ** | ** ** |       | **2,876.6**         |       | 2,583.6 |   | 2,708.6 |   |
|                                                |       |       |       |                |       |   |   |   |   |
| **Shareholders’ Equity (Deficit)**             |       |       |       |                |       |   |   |   |   |
| Share capital                                       |       | 10         | ** ** | **10.8**            |       | 802.5 |   | 804.9 |   |
| Share premium                                       |       | 10         | ** ** | **1,235.6**         |       | 291.4 |   | 289.0 |   |
| Retained earnings (Accumulated deficit)             |       | 10         | ** ** | **(1,306.3**        | **)**      | (9.5 | ) | 150.9 |   |
| ** **                                          |       | ** ** |       | **(59.9**           | **)**      | 1,084.4 |   | 1,244.8 |   |
|                                                |       |       |       |                |       |   |   |   |   |
| **Minority Interests**                              |       | 11         | ** ** | **339.6**           |       | — |   | — |   |
|                                                |       |       |       |                |       |   |   |   |   |
| **Quasi-Equity**                                    |       | 12         | ** ** | **—**          |       | 152.8 |   | 152.8 |   |
|                                                |       |       |       |                |       |   |   |   |   |
| **Provisions for Risks and Charges**                |       | 13         | ** ** | **98.2**            |       | 120.1 |   | 35.5 |   |
|                                                |       |       |       |                |       |   |   |   |   |
| **Borrowings**                                      |       | 14         | ** ** | **2,052.8**         |       | 867.5 |   | 821.3 |   |
|                                                |       |       |       |                |       |   |   |   |   |
| **Current Liabilities**                             |       |       |       |                |       |   |   |   |   |
| Payable to related companies                        |       | 15         | ** ** | **73.3**            |       | 56.9 |   | 82.5 |   |
| Accounts payable and accrued liabilities            |       | 16         | ** ** | **284.3**           |       | 214.3 |   | 277.0 |   |
| ** **                                          |       | ** ** |       | **357.6**           |       | 271.2 |   | 359.5 |   |
|                                                |       |       |       |                |       |   |   |   |   |
| **Deferred Revenues**                               |       | 17         | ** ** | **88.3**            |       | 87.6 |   | 94.7 |   |
|                                                |       |       |       |                |       |   |   |   |   |
| **Total Shareholders’ Equity and Liabilities** | ** ** | ** ** |       | **2,876.6**         |       | 2,583.6 |   | 2,708.6 |   |

 

87

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**EURO DISNEY S.C.A. AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OFINCOME**

 
| ** **                                                | ** ** | ** ** | ** ** | **Fiscal  Year** | ** ** | **As-Reported  Fiscal Year** | ** ** |
|-----------------------------------------------------------|------------|------------|------------|------------------|------------|------------------------------|------------|
| **(€ in millions)**                                  | ** ** | **Notes**  | ** ** | **2004**         | ** ** | **2003**                     | ** ** | **2002** | ** ** |
|                                                      |       |       |       |             | ** ** |                         |       |   |   |
| **Revenues**                                              |       | 18         | ** ** | **1,048.0**      | ** ** | 1,047.5                      |       | 1,071.2 |   |
|                                                      |       |       |       |             | ** ** |                         |       |   |   |
| **Costs and Expenses**                                    |       | 19         | ** ** | **(1,071.9**     | **)**      | (915.1                       | )          | (895.5 | ) |
|                                                      |       |       |       |             | ** ** |                         |       |   |   |
| **Income (Loss) before Lease and Financial Charges**      | ** ** | ** ** |       | **(23.9**        | **)**      | 132.4                        |       | 175.7 |   |
|                                                      |       |       |       |             | ** ** |                         |       |   |   |
| **Net Financial Charges**                                 |       |       |       |             | ** ** |                         |       |   |   |
| Lease rental expense                                      |       | 25         | ** ** | **—**       | ** ** | (193.8                       | )          | (188.8 | ) |
| Financial income                                          | ** ** | ** ** |       | **2.8**          | ** ** | 49.0                         |       | 59.1 |   |
| Financial expense                                         | ** ** | ** ** |       | **(108.5**       | **)**      | (55.5                        | )          | (41.1 | ) |
| ** **                                                |       | ** ** |       | **(105.7**       | **)**      | (200.3                       | )          | (170.8 | ) |
|                                                      |       |       |       |             | ** ** |                         |       |   |   |
| **Income (Loss) before Exceptional Items**                | ** ** | ** ** |       | **(129.6**       | **)**      | (67.9                        | )          | 4.9 |   |
|                                                      |       |       |       |             | ** ** |                         |       |   |   |
| Exceptional income / (loss), net                          |       | 20         | ** ** | **(22.3**        | **)**      | 11.9                         |       | (38.0 | ) |
|                                                      |       |       |       |             | ** ** |                         |       |   |   |
| Minority interests                                        | ** ** | ** ** |       | **6.7**          | ** ** | —                       |       | — |   |
|                                                      |       |       |       |             | ** ** |                         |       |   |   |
| **Net Loss**                                              | ** ** | ** ** |       | **(145.2**       | **)**      | (56.0                        | )          | (33.1 | ) |
|                                                      |       |       |       |             | ** ** |                         |       |   |   |
| Average number of common shares outstanding (in millions) |       | 10         | ** ** | **1,062**        | ** ** | 1 056                        |       | 1 056 |   |
|                                                      |       |       |       |             | ** ** |                         |       |   |   |
| **Loss per Share (in €)**                            |       | 2          | ** ** | **(0.14**        | **)**      | (0.05                        | )          | (0.03 | ) |

 

88

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**EURO DISNEY S.C.A. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

 
| ** **                                                            | ** ** | ** ** | ** ** | **Fiscal  Year** | ** ** | **As-Reported  Fiscal Year** | ** ** |
|-----------------------------------------------------------------------|------------|------------|------------|------------------|------------|------------------------------|------------|
| **(€ in millions)**                                              | ** ** | **Notes**  | ** ** | **2004**         | ** ** | **2003**                     | ** ** | **2002** | ** ** |
|                                                                  |       |       |       |             | ** ** |                         |       |   |   |
| **Net Loss**                                                          | ** ** | ** ** |       | **(145.2**       | **)**      | (56.0                        | )          | (33.1 | ) |
|                                                                  |       |       |       |             | ** ** |                         |       |   |   |
| **Minority Interests**                                                |       | 11         | ** ** | **(6.7**         | **)**      | —                       |       | — |   |
|                                                                  |       |       |       |             | ** ** |                         |       |   |   |
| *Operating Items Not Requiring Cash Outlays:*                         |       |       |       |             | ** ** |                         |       |   |   |
| Depreciation and amortization                                         |       | 19         | ** ** | **146.8**        | ** ** | 65.6                         |       | 64.0 |   |
| Loan repayments received from Phase I Financing Companies             | ** ** | ** ** |       | **—**       | ** ** | 52.1                         |       | 41.1 |   |
| Other                                                                 | ** ** | ** ** |       | **24.2**         | ** ** | (10.6                        | )          | 0.9 |   |
| *Changes in:*                                                         |       |       |       |             | ** ** |                         |       |   |   |
| Receivables                                                           | ** ** | ** ** |       | **(2.7**         | **)**      | 48.6                         |       | 28.0 |   |
| Inventories                                                           | ** ** | ** ** |       | **0.3**          | ** ** | (3.1                         | )          | (1.7 | ) |
| Payables and other accrued liabilities                                | ** ** | ** ** |       | **107.9**        | ** ** | (8.5                         | )          | (50.5 | ) |
| **Cash Flows from Operating Activities**                              | ** ** | ** ** |       | **124.6**        | ** ** | 88.1                         |       | 48.7 |   |
|                                                                  |       |       |       |             | ** ** |                         |       |   |   |
| Proceeds from the sale of fixed assets                                | ** ** | ** ** |       | **—**       | ** ** | 45.4                         |       | 1.4 |   |
| Capital expenditures for tangible and intangible assets               |       | 3          | ** ** | **(28.6**        | **)**      | (72.9                        | )          | (262.5 | ) |
| Increase in deferred charges, net                                     | ** ** | ** ** |       | **—**       | ** ** | —                       |       | (10.5 | ) |
| Other                                                                 | ** ** | ** ** |       | **(0.2**         | **)**      | (1.3                         | )          | 1.9 |   |
| **Cash Flows used in Investing Activities**                           | ** ** | ** ** |       | **(28.8**        | **)**      | (28.8                        | )          | (269.7 | ) |
|                                                                  |       |       |       |             | ** ** |                         |       |   |   |
| Proceeds from borrowings                                              |       | 14         | ** ** | **22.5**         | ** ** | 40.0                         |       | 63.3 |   |
| Repayments of borrowings                                              |       | 14         | ** ** | **(66.2**        | **)**      | (15.0                        | )          | (381.8 | ) |
| (Increase)/Decrease in debt and other security deposits               |       | 4          | ** ** | **(10.5**        | **)**      | (59.6                        | )          | 12.4 |   |
| Restructuring costs                                                   | ** ** | ** ** |       | **(4.9**         | **)**      | —                       |       | — |   |
| **Cash Flows used in Financing Activities**                           | ** ** | ** ** |       | **(59.1**        | **)**      | (34.6                        | )          | (306.1 | ) |
|                                                                  |       |       |       |             | ** ** |                         |       |   |   |
| Change in cash and cash equivalents                                   | ** ** | ** ** |       | **36.7**         | ** ** | 24.7                         |       | (527.1 | ) |
| Change in accounting principle (1)                                    |       | 2          | ** ** | **48.6**         | ** ** | —                       |       | — |   |
| Cash and cash equivalents, beginning of period                        | ** ** | ** ** |       | **46.0**         | ** ** | 21.3                         |       | 548.4 |   |
| **Cash and Cash Equivalents, end of period**                          | ** ** | ** ** |       | **131.3**        | ** ** | 46.0                         |       | 21.3 |   |
|                                                                  |       |       |       |             | ** ** |                         |       |   |   |
| **Supplemental Cash Flow Information:**                               |       |       |       |             | ** ** |                         |       |   |   |
| Interest paid                                                         | ** ** | ** ** |       | **61.1**         | ** ** | 20.3                         |       | 42.7 |   |
| Lease rental expense paid, net                                        | ** ** | ** ** |       | **—**       | ** ** | 95.0                         |       | 92.9 |   |
|                                                                  |       |       |       |             | ** ** |                         |       |   |   |
| **Non-Cash Transactions:**                                            |       |       |       |             | ** ** |                         |       |   |   |
| Conversion of ORAs and OBSAs into equity                              |       | 12         | ** ** | **152.5**        | ** ** | —                       |       | — |   |
| Transfer of EDA borrowings and accrued interest to minority interests |       | 11         | ** ** | **384.1**        | ** ** | —                       |       | — |   |
|                                                                  |       |       |       |             | ** ** |                         |       |   |   |
| ** **                                                            | ** ** | ** ** | ** ** | **September**    | ** ** |
| ** **                                                            | ** ** | ** ** | ** ** | **2004**         | ** ** | **2003**                     | ** ** | **2002** | ** ** |
| **Reconciliation to Balance Sheet:**                                  |       |       |       |             | ** ** |                         |       |   |   |
| Cash                                                                  | ** ** | ** ** |       | **10.6**         | ** ** | 11.2                         |       | 8.2 |   |
| Short-term investments                                                | ** ** | ** ** |       | **120.8**        | ** ** | 34.9                         |       | 14.2 |   |
| Bank overdrafts (recorded in accounts payable and accruals)           | ** ** | ** ** |       | **(0.1**         | **)**      | (0.1                         | )          | (1.1 | ) |
| **Cash and Cash Equivalents, end of period (2)**                      | ** ** | ** ** |       | **131.3**        | ** ** | 46.0                         |       | 21.3 |   |

 

----

*(1) Represents cash and short-term investment of theconsolidated Financing Companies as of September 30, 2003.*

*(2) Includes € 49.1 million of cash and short-terminvestment of the consolidated Financial Companies as of September 30,2004.*

 

89

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**1****                ****DESCRIPTION OF THE BUSINESSAND THE FINANCIAL NEGOTIATIONS**

 

**1-1**** ****Description of the Business**

 

EuroDisney S.C.A. (the “Company”) and its subsidiaries (the “Legally ControlledGroup”) and consolidated financing companies (collectively, the “Group”)commenced operations with the official opening of Disneyland Resort Paris on April 12,1992 (“Opening Day”).  The Group operatesDisneyland Resort Paris, which includes two theme parks (collectively, the “ThemeParks”), Disneyland Park and Walt Disney Studios Park, which opened to thepublic on March 16, 2002, seven themed hotels, two convention centres, theDisney Village entertainment centre and a golf course in Marne-la-Vallée,France.  In addition, the Group managesthe real estate development and expansion of the related infrastructure of theapproximately 2,000 hectares of land encompassing the Disneyland Resort Parisand surrounding areas.

 

TheCompany, a publicly held French company, is 40.6% owned by EDL Holding Company,an indirect, wholly-owned subsidiary of The Walt Disney Company (“TWDC”) andmanaged by Euro Disney S.A.S. (the Company’s *Gérant*),an indirect, wholly-owned subsidiary of TWDC. The General Partner is EDL Participations S.A.S., also an indirect,wholly-owned subsidiary of TWDC. Entities included in the fiscal year 2004 consolidated financialstatements and their primary operating activities are as follows:

 
| **Company**                                         | ** ** | **% of Ownership** | ** ** | **Primary Operating  Activity**                                                                                                             |
|-----------------------------------------------------|------------|--------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------|
| Euro Disney  S.C.A.                                 |       | Parent             |       | Operator of  the Theme Parks, Disneyland Hôtel, Davy Crockett Ranch and golf course, and  manager of real estate development           |
| EDL Hôtels  S.C.A.                             |       | 99.9               |       | Operator of  5 of the 7 themed hotels plus the Disney Village, collectively, the Phase IB  Facilities                                       |
| EDL Services  S.A.S.                                |       | 100.0              |       | Management  company of the Phase IB Financing Companies                                                                                     |
| EDL Hôtels  Participations S.A.S               |       | 100.0              |       | General  Partner of EDL Hôtels S.C.A. and ED Resort Services S.A.S.                                                                    |
| Euro Disney  Vacances S.A.S                         |       | 100.0              |       | Tour  operator selling Disneyland Resort Paris holiday packages, principally to  guests from Germany, Benelux, the United Kingdom and Italy |
| Euro Disney  Vacaciones S.A.                        |       | 99.9               |       | Spanish  subsidiary of Euro Disney Vacances S.A.S. (company currently inactive)                                                             |
| Val d’Europe  Promotion S.A.S.                 |       | 100.0              |       | Real estate  developer                                                                                                                      |
| Les Villages  Nature de Val d’Europe S.A.R.L.  |       | 50.0               |       | Joint  venture with Pierre &Vacances Group to establish a feasibility study                                                             |
| S.E.T.E.M.O.  Imagineering S.A.R.L.                 |       | 100.0              |       | Provides  studies and supervision of construction for theme parks attractions                                                               |
| ED Spectacles  S.A.R.L.                             |       | 100.0              |       | Operator of  Buffalo Bill’s Wild West Show                                                                                             |
| Débit de Tabac  S.N.C.                         |       | 100.0              |       | Tobacco  retailer at Disney Village                                                                                                         |
| Convergence  Achats S.A.R.L.                        |       | 50.0               |       | Joint  venture created with Groupe Flo to negotiate food purchasing contracts                                                               |
| Euro Disney  Commandité S.A.S.                 |       | 100.0              |       | General  Partner of Euro Disney Associés S.C.A.                                                                                        |
| ED Resort  Services S.A.S.                          |       | 100.0              |       | Company  currently inactive                                                                                                                 |
| ED Finances  1 S.N.C.                               |       | 100.0              |       | Company  currently inactive                                                                                                                 |
| ED Finances  2 S.N.C.                               |       | 100.0              |       | Company  currently inactive                                                                                                                 |
| ED Finances  3 S.N.C.                               |       | 100.0              |       | Company  currently inactive                                                                                                                 |
| ED Finances  4 S.N.C.                               |       | 100.0              |       | Company  currently inactive                                                                                                                 |
| Euro  Disneyland S.N.C. (1)                         |       | 0.0                |       | Financing  company for Phase IA assets                                                                                                      |
| Euro Disney  Associés S.C.A. (1) (2)           |       | 0.0                |       | Financing  company for Phase IA assets and Additional Capacity Disneyland Park Assets                                                       |
| Hôtel  New-York Associés S.N.C. (1)       |       | 0.0                |       | Financing  company for Phase IB Facilities                                                                                                  |
| Newport Bay  Club Associés S.N.C. (1)          |       | 0.0                |       | Financing  company for Phase IB Facilities                                                                                                  |
| Sequoia  Lodge Associés S.N.C. (1)             |       | 0.0                |       | Financing  company for Phase IB Facilities                                                                                                  |
| Hôtel Cheyenne Associés S.N.C. (1)        |       | 0.0                |       | Financing  company for Phase IB Facilities                                                                                                  |
| Hôtel Santa  Fe Associés S.N.C. (1)       |       | 0.0                |       | Financing  company for Phase IB Facilities                                                                                                  |
| Centre de  Divertissements Associés S.N.C. (1) |       | 0.0                |       | Financing  company for Phase IB Facilities                                                                                                  |
| Centre de  Congrès Newport S.A.S. (1)          |       | 0.0                |       | Financing  company for Newport Bay Club Convention Centre assets                                                                            |

 

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*(1)**             **Effective October 1,2003 these entities were consolidated as a result of the adoption of newaccounting rules related to financing companies (See Note 2)*

*(2)**             **Formerly Euro DisneylandAssociés SNC, was transformed into Euro Disneyland Associés S.C.A. on September 30,2004.*

 

Upon achange in U.S. GAAP, the Company is now consolidated by TWDC, based in Burbank,California.

 

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**1-2 Disneyland Resort Paris Financing**

 

TheLegally Controlled Group owns Walt Disney Studios Park, the Disneyland Hôtel,the Davy Crockett Ranch, the golf course, the underlying land thereof and theland on which the five other hotels and the Disney Village entertainment centreare located and leases substantially all the remaining operating assets asfollows:

 

***Phase IA***

In 1989, various agreements were signed betweenthe Company and Euro Disneyland S.N.C. (the “Phase IA Financing Company”) forthe development and financing of Disneyland Park.  Pursuant to the original sale/leasebackagreement, all of the assets of Disneyland Park and the underlying land, as ofOpening Day, were sold by the Company to the Phase IA Financing Company andsimultaneously leased back to the Company. In 1994, the Company cancelled its original agreement with the Phase IAFinancing Company and established certain new agreements.  Under this new lease structure, the Phase IAFinancing Company is leasing substantially all of Disneyland Park assets toEuro Disney Associés S.C.A. (“EDA”), an indirect, wholly-owned affiliate ofTWDC, which is in turn sub-leasing those assets to the Company.  The Group has no ownership interest in thePhase IA Financing Company or EDA.

 

***Phase IB***

In1991, various agreements were signed for the development and financing of fivehotels: Hôtel New York, Newport Bay Club, Sequoia Lodge, Hôtel Cheyenne and HôtelSanta Fe, and the Disney Village entertainment centre (collectively, the “PhaseIB Facilities”).  Pursuant tosale/leaseback agreements, the Phase IB Facilities were sold by the Company tosix special purpose companies that were established for the financing of PhaseIB (the “Phase IB Financing Companies”) and are being leased back to theoperator, EDL Hôtels S.C.A.  The Grouphas no ownership interest in the Phase IB Financing Companies.

 

Hereafter,reference to the  “Phase I SNCs” includesthe Phase IA Financing Company and the Phase IB Financing Companies.

 

***Additional Capacity Disneyland Park Assets***

In1994, the Company entered into a sale/leaseback agreement with EDA for certainDisneyland Park assets which were constructed subsequent to Opening Day.  Pursuant to this agreement, these assets weresold by the Company and the Phase IA Financing Company to EDA and are beingleased back to the Company.

 

***Newport Bay Club Convention Centre***

In1996, various agreements were signed with Centre de Congrès Newport S.A.S., anindirect, wholly-owned affiliate of TWDC for the development and financing of asecond convention centre located adjacent to the Newport Bay Club hotel.  Pursuant to sale/leaseback agreements, theassets of the Newport Bay Club Convention Centre were sold as they wereconstructed by EDL Hôtels S.C.A. to Centre de Congrès Newport S.A.S. and areleased back to the operator, EDL Hôtels S.C.A.

 

Hereafter,reference to the “Financing Companies” includes the Phase IA Financing Company,the Phase IB Financing Companies, EDA and Centre de Congrès Newport S.A.S.

 

**1-3 Financial Restructuring**

 

In September 2004,the Group reached final agreement with its lenders and The Walt Disney Companyon a comprehensive restructuring of the Group’s financial situation (the “Restructuring”).  The Restructuring, which is subject tocertain conditions described below, will allow the Group to restore liquidityand to obtain capital to further grow and develop its activities.

 

The Groupbegan negotiating the Restructuring in light of reduced revenues and increasedlosses that it incurred beginning in fiscal year 2003.  The reduction in revenues was primarily theresult of a prolonged downturn in European travel and tourism, combined withchallenging general economic and geopolitical conditions in key markets.  While this was partially offset by the impactof the opening of Walt Disney Studios Park, the number of visitors and revenuesfrom the new park were below expectations. The increased losses were a result of reduced revenues, as well ashigher operating costs due to the opening of Walt Disney Studios Park andhigher marketing and sales expenses.

 

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As a result of thissituation, the Company determined that it would not be in compliance withcertain financial covenants contained in its credit agreements and that in theabsence of a new Restructuring, it would not be able to restore compliance inthe near term, or to meet certain of its financial obligations.  At the time it began negotiations with itslenders, it obtained limited waivers of covenant violations and certainsecurity deposit obligations, which were successively renewed as thenegotiations progressed.  The Companyalso determined that, absent a Restructuring, it would not have the financialresources or the authority under its credit agreements to invest in newattractions and improvements at the Resort.

 

The principalfeatures of the Restructuring are the following:

 

•                  The Company will conduct a sharecapital increase of at least € 250 million, before deduction of equity issuancecosts, to be partially, directly or indirectly, subscribed by TWDC, with theremainder to be underwritten by a group of banks, subject to certainconditions.

 

•                  The Company will have access toadditional financial resources under a new € 150 million credit line to begranted by TWDC.

 

•                  The Group’s debt service obligationswill be deferred partially on an unconditional basis and partially on aconditional basis, and its obligation to maintain security deposits will beeliminated (with its existing security deposit used to prepay debt), inexchange for which the Company will pay an increased interest rate on some ofits debt.

 

•                  A portion of the management fees androyalties payable to affiliates of TWDC will be deferred, partially on anunconditional basis (€ 125 million) and partially on a conditional basis (€ 200million), with the conditional portion depending on the Company’s financialperformance.

 

•                  The Company will avoid makingpayments in the amount of € 292.1 million, (plus € 16 million of interest thatwould have been payable) to EDA, to exercise its option to maintain its rightsto the Disneyland Park and certain of its key attractions (which are currentlyleased from EDA), by instead acquiring 82% of the share capital of EDA inexchange for the contribution of substantially all of the Company’s assets andliabilities (TWDC will indirectly hold the remaining 18% of EDA).

 

•                  The Group will have theauthorisation to implement a € 240 million plan to develop new Theme Park attractionsand to expend more each year on maintaining and improving the existing assetbase.

 

The Restructuringagreement (the “Memorandum of Agreement”) is subject to definitivedocumentation, pending which the waiver of certain covenant violations underthe Company’s credit agreements has been extended to December 1,2004.  The Restructuring is subject to,and certain portions of the Restructuring will become effective upon, thecompletion of the share capital increase and the legal Restructuring describedabove, no later than March 31, 2005. If those transactions do not occur by March 31, 2005, the partieswill have 30 days to negotiate a new arrangement.  If the negotiations do not succeed, most ofthe provisions of the Memorandum of Agreement will become null and void andmanagement believes the Group would be unable to meet all of its debtobligations.

 

Once effective (i.e., no longer subject to conditions), theRestructuring will provide significant liquidity, protective measures intendedto mitigate the adverse impact of business volatility (through conditionaldeferrals of expenditures) as well as capital to invest in newattractions.  Additionally, theRestructuring’s effect on the Group’s balance sheet will be increased cash andshareholders’ equity resulting from the share capital increase.  Prospectively, the Group’s statement ofincome will be affected by the interest impact of debt and royalties andmanagement fees deferrals and increased cash, as well as a larger minorityinterest.  Increased minority interestwill reflect the retained ownership in EDA by indirect, wholly-owned TWDCsubsidiaries after the contribution of most of the Company’s assets andliabilities.

 

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**2****                ****SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES**

 

**Basis of Preparation**

 

The Group’s consolidated financial statements are prepared inconformity with French accounting rules and regulations in accordance with the *Règlements n° 99-02 of the Comité de la Réglementation Comptable*(CRC-French Regulatory Board).  Suchprinciples have been consistently applied in relation to those used in thepreparation of the consolidated financial statements for the fiscal year ended September 30,2004, 2003 and 2002, except with respect to the changes in accountingprinciples described below, which affect the comparability of the yearsreported.

 

The Group, in preparing the consolidated financial statements has usedthe going-concern assumption based on management’s belief that the conditionsnecessary to implement the Restructuring will be met within the contractualdeadlines.  If the principle of goingconcern had not been assumed, it would likely have had a significant impact onthe valuation of assets and liabilities as of September 30, 2004.

 

***Accounting Changes***

Effective from the beginning of fiscal year 2004 (October 1,2003), the Group adopted new accounting rules mandated by Article 133 ofthe Financial Security Law (*Loi de SécuritéFinancière)*with respect to the consolidation of financing companiesthat are not legally controlled by the Group. Under these new rules, the Financing Companies, from which the Companyleases a substantial portion of its operating assets, have been included in theGroup’s consolidated accounts.  In thepast, lease payments to the Financing Companies were recorded as incurred,along with disclosure by the Group of the leasing arrangements, contractualcommitments for lease rentals, and the related debt obligations of theFinancing Companies. As a result of the new consolidation rules, theseoperating assets are now consolidated resulting in increased fixed assets andborrowings. The Group’s receivables from the Financing Companies have beeneliminated in consolidation and shareholders’ equity has been reduced. Thereduction in the consolidated shareholders’ equity primarily reflects pastdepreciation charges related to the operating assets owned by the FinancingCompanies, which were greater than the lease payments expensed for the sameperiods. The accounting change also affects the classification and amount ofcosts reported in the income statement, resulting in increased operatingexpenses and depreciation and reduced lease rental expense.

 

The new accounting standardrelating to liabilities *(Règlement CRC n° 2000-06dated December 7, 2000)*became effective October 1,2002.  As a result, the Group adopted anew accounting policy in accordance with the transition rules of the *Comité de la Réglementation Comptable 2002-10* related tomajor renovation expenditures.  Underthis new policy, the costs of major fixed asset renovations are no longercapitalised and amortised over five years, but are instead accrued in advanceon a straight-line basis as operating expense during the period between plannedrenovations.  The retroactive impact ofthis change was recorded as a charge to equity on October 1, 2002 in theamount of € 104.4 million.  As a resultof this change, fiscal year 2003 operating expenses increased by € 11.8million, reflecting a € 20.0 million increase in the provision for majorrenovations, offset by reduced amortisation expenses of € 8.2 million relatedto renovation expenditures deferred in the past but which were charged againstretained earnings.

 

To enhancecomparability, the Group has provided in Note 28 financial information on apro-forma basis in addition to its as-reported results.  The pro-forma information has been preparedassuming that the changes in accounting principles described above were ineffect during all of fiscal years presented.

 

***Principles of Consolidation and Use ofEstimates***

All significant intercompany accounts and transactions have beeneliminated. The preparation of these consolidated financial statements requiresmanagement to make estimates and assumptions that affect the amounts presentedin the consolidated financial statements and footnotes thereto. Actual resultscould differ from those estimates. Certain reclassifications to the 2003 and 2002 comparative amounts havebeen made to conform to the 2004 presentation.

 

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***Revenue Recognition***

The Group has revenue recognition policies for its operating segments,which are appropriate to the circumstances of each business or revenueflow.  The Group records revenues for theResort Segment as the related service is provided to guests.  In addition, the Resort Segment includesrevenues associated with long-term sponsorship contracts, which are recognisedpro-rata over the term of the contracts. In the Real Estate Development Segment, revenue is recognised on landsales upon closing of each transaction, while revenues related to servicecontracts and ground leases are recognised when the service is rendered.

 

***Leased Assets***

The Group leases a significant portion of its operating assets fromspecial purpose Finance Companies. Until the required implementation of theaccounting change described above, pursuant to options available under Frenchaccounting principles, the Group accounted for these transactions as operatingleases in the statement of income on the line Lease Rental Expense. Effectiveas of October 1, 2003, the Financing Companies were consolidated into thefinancial statements of the Group.  Allother leasing contracts are reported as operating expenses using operatinglease accounting.

 

***Fixed Assets***

Intangible assets consist of software costs, licensee rights and filmproduction costs for theme park attractions and are carried at cost.  Amortisation is computed on the straight-linemethod over periods ranging from two to twenty years.  Tangible assets are carried at cost.  Depreciation is computed on the straight-linemethod based upon estimated useful lives, as follows:

 
|                                                       |   | **Estimated useful lives** |
|------------------------------------------------------------|--------|----------------------------|
| Secondary  infrastructure                                  |   | 40 years                   |
| Buildings                                                  |   | 10 to 40 years             |
| Leasehold  improvements, furniture, fixtures and equipment |   | 2 to 25 years              |

 

Interest costs incurred for the construction of fixed assets and theacquisition and development of land are capitalised using the weighted averageinterest rate on the Group’s borrowings. Projects under development are capitalised at the point technical andeconomic feasibility has been established.

 

***Inventories***

Inventories are stated at the lower of cost or market value, with costdetermined on a weighted-average cost basis.

 

***Income Taxes***

The Group files a consolidated tax return.  The Group provides for deferred income taxeson temporary differences between financial and tax reporting.  The Group uses the liability method underwhich deferred taxes are calculated applying currently enacted tax ratesexpected to be in effect when the temporary differences will reverse.

 

***Debt Issue Costs***

Costs of the issuance of debt are capitalised and amortised on astraight-line basis over the life of the related debt. Upon repurchase and/orretirement of debt, a pro-rata amount of the unamortized issue costs isexpensed and included as part of the gain or loss resulting from thetransaction.

 

***Pension and Retirement Benefits***

Contributions to state funded retirement plans and the Group’ssupplemental defined contribution pension plan are expensed as incurred and nofuture commitments exist with respect to these plans.  Retirement indemnities paid under the Group’scollective bargaining agreement are expensed as paid.  The future commitment with respect to theseindemnities is disclosed in Note 26.

 

***Risk Management Contracts***

In the normalcourse of business, the Group employs a variety of off-balance sheet financialinstruments to manage its exposure to fluctuations in interest and foreigncurrency exchange rates, including interest rate and cross-currency swapagreements, forward and option contracts. The Group designates and assigns the financial instruments as hedges forspecific assets, liabilities or anticipated transactions. When hedged assets orliabilities are sold or extinguished or the anticipated transactions beinghedged are no longer expected to occur, the Group recognises the gain or losson the designated hedging financial instruments.  The Group accrues the differential forinterest rate and cross-currency swaps to be paid or received under theagreements and shifts in exchange rates as interest income or expense over thelives of the swaps. Gains and losses on the termination of swap agreements,prior to their original maturity, are deferred and amortised over the remainingoriginal term of the instruments.  Gainsand losses arising from foreign currency forward and option contracts arerecognised as offsets of gains and losses resulting from the items beinghedged.

 

94

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***Foreign Currency Transactions***

Transactions denominated in foreign currencies are recorded in euros atthe exchange rate prevailing at the month-end prior to the transactiondate.  Assets and liabilities denominatedin foreign currencies are stated at their equivalent value in euros at theexchange rate prevailing as of the balance sheet date.  Net exchange gains or losses resulting fromthe translation of assets and liabilities in foreign currencies at the balancesheet date are deferred as translation adjustments.  Provision is made for all unrealised exchangelosses to the extent not hedged.

 

***Operating Subsidies***

Operating subsidies are recorded as operating income at the point theamount is contractually due and definitive.

 

***Earnings per Share and Diluted Earnings perShare***

Earnings per share and diluted earnings per share of common stock arecomputed on the basis of the weighted average number of shares outstandingduring the fiscal year.  Diluted earningsper share excludes all potential shares that could be created by outstandinginstruments to issue future shares of common stock as their effect on thecalculation is anti-dilutive.

 

***Statement of Cash Flows***

The statement of cash flows measures changes in cash and cashequivalents.  Cash and cash equivalentsconsist of cash on hand and short-term investments with original maturities ofthree months or less.  Short-terminvestments are stated at the lower of cost or market value.

 

***Recent Accounting Pronouncements***

The Group will be required to prepare its consolidated financialstatements under International Financial Reporting Standards (“IFRS”) beginningin fiscal year 2006.  The Group plans tocarry out a detailed impact assessment in First Half 2005 to identify:

 

•                  The differences between the Group’scurrent accounting and disclosure policies and IFRS,

•                  The changes to information systemsthat will be required to produce the required information,

•                  The data required to produce theopening IFRS balance sheet as of October 1, 2004.

 

**3****                ****TANGIBLE ASSETS**

 
| **(€ in millions)**          | ** ** | **As-Reported  September ********2003** | ** ** | **Consolidate  Financing   Companies** | ** ** | **Fiscal  Year 2004** |       | **September  2004** | ** ** |
|-----------------------------------|------------|----------------------------------------------|------------|----------------------------------------|------------|-----------------------|------------|---------------------|------------|
| **Additions**                     | ** ** | **Deductions**                               | ** ** | **Transfers  Adjustments**             |
| Land and secondary infrastructure |       | 345.9                                        |       | 201.8                                  |       | —                |       | —              |       | 0.7 |   | **548.4** | ** ** |
| Buildings and attractions         |       | 715.7                                        |       | 2,242.6                                |       | —                |       | (18.4               | )          | 6.6 |   | **2,946.5** | ** ** |
| Furniture, fixtures and equipment |       | 221.2                                        |       | 373.9                                  |       | 0.9                   |       | (0.6                | )          | 16.1 |   | **611.5** | ** ** |
| Construction in progress          |       | 22.0                                         |       | —                                 |       | 27.6                  |       | —              |       | (25.9 | ) | **23.7** | ** ** |
| Subtotal                          |       | 1,304.8                                      |       | 2,818.3                                |       | 28.5                  |       | (19.0               | )          | (2.5 | ) | **4,130.1** | ** ** |
| ** **                        | ** ** | ** **                                   | ** ** | ** **                             | ** ** | ** **            | ** ** | ** **          | ** ** | ** ** |   | ** ** | ** ** |
| Accumulated depreciation          |       | (376.8                                       | )          | (1,285.3                               | )          | (133.8                | )          | 9.7                 |       | — |   | **(1,786.2** | **)** |
|                              |       | 928.0                                        |       | 1,533.0                                |       | (105.3                | )          | (9.3                | )          | (2.5 | ) | **2,343.9** | ** ** |

 

Fixedassets with a net book value of € 1,737.8 million at September 30, 2004,are either mortgaged or pledged as security under loan agreements includingsubstantially all the operating assets of the Group except Walt Disney StudiosPark.  In fiscal years 2004 and 2003,there was no interest capitalised on assets under construction.

 

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**4****                ****FINANCIAL ASSETS**

 
| ** **                                         | ** ** | **As-Reported** | ** ** | **Consolidate** | ** ** | ** **            | ** ** | ** **     | ** ** |
|----------------------------------------------------|------------|-----------------|------------|-----------------|------------|-----------------------|------------|----------------|------------|
| ** **                                         | ** ** | **September**   | ** ** | **Financing**   | ** ** | **Fiscal  Year 2004** | ** ** | **September**  | ** ** |
| **(€ in millions)**                           | ** ** | **2003**        | ** ** | **Companies**   | ** ** | **Additions**         | ** ** | **Deductions** | ** ** | **2004** | ** ** |
| Phase IA Financing Company loan receivable (a)     |       | 886.4           |       | (886.4          | )          | —                |       | —         | ** ** | **—** | ** ** |
| Phase IB Financing Companies loans  receivable (b) |       | 346.6           |       | (346.6          | )          | —                |       | —         | ** ** | **—** | ** ** |
| Other (c)                                          |       | 99.2            |       | 5.2             |       | 10.9                  |       | —         | ** ** | **115.3** | ** ** |
|                                               |       | 1,332.2         |       | (1,227.8        | )          | 10.9                  |       | —         | ** ** | **115.3** | ** ** |

 

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(a)*             **Phase IA Financing Companyloan receivable*

Pursuantto the original Disneyland Park financing agreements and the 1994 financialrestructuring, the Company provided a long-term subordinated loan of € 1,010.1million to the Phase IA Financing Company. The loan bears interest at EURIBOR. However, pursuant to the 1994 financial restructuring, the applicableinterest rate on the outstanding balance was temporarily reduced and returnedto the contractual rate beginning in fiscal year 2004.  In addition, effective October 1, 1999,the Phase IA Financing Company and the Company agreed to certain modificationsof the terms of the loan, including an acceleration of the principal repayment schedule anda modification of the contractual interest rate. Under the revised terms, theapplicable rate is EURIBOR plus a variable margin. Accordingly, the effectiverates on the loan for fiscal years 2004 and 2003 were 2.95 % and 3.37 %,respectively. Principal repayments commenced in fiscal year 1998 and arescheduled to continue through fiscal year 2013. Principal repayments in fiscalyears 2004 and 2003 were € 52.3 million and € 40.5 million, respectively.  Scheduled principal repayments in fiscal year2005 are € 58.3 million. Under the new lease structure established in 1994 (SeeNotes 1-2 and 25-1), this long-term subordinated loan is pledged assecurity.  Upon the Restructuringbecoming effective, the timing of cash receipts from the Phase 1A FinancingCompany loan receivable will be affected by the change in the timing of theCompany’s debt service payments to EDA and the Phase 1A Financing Company.  Due to the change in accounting principlediscussed in Note 2 above, the Phase IA Financing Company loan receivable isnow eliminated upon consolidation of the Financing Companies.

 

(b)*             **Phase IB FinancingCompanies loans receivable*

Pursuantto the original Phase IB financing agreements and the 1994 financialrestructuring, EDL Hôtels S.C.A. provided long-term subordinated loans of €390.4 million to the Phase IB Financing Companies. The loans bear interest at afixed rate of 6%. However, pursuant to the 1994 financial restructuring, theapplicable interest rate on the outstanding balance was temporarily reduced to4% and returned, beginning in fiscal year 2004, to the contractual rate.Principal repayments commenced in fiscal year 1998 and are scheduled tocontinue through fiscal year 2016. Principal repayments in fiscal years 2004and 2003 were € 14.8 million and € 11.6 million, respectively. Scheduledprincipal repayments in fiscal year 2005 are € 16.5 million.  Upon the Restructuring becoming effective,the timing of cash receipts from the Phase 1B Financing Companies loansreceivable will be affected by the change in the timing of the Control Group’sdebt service payments to the Phase IB Financing Companies.  Due to the change in accounting principlediscussed in Note 2 above, the Phase IB Financing Companies loans receivableare now eliminated upon consolidation of the Financing Companies.

 

(c)*             **Other*

Other consists primarily of € 100.6 million and€ 90.1 million of long-term bank guarantee deposits as of September 30,2004 and 2003. In accordance with certain conditions stipulated in connectionwith the 1994 financial restructuring, the Group is required to maintainsecurity deposits as pledges for the benefit of certain lenders until all oftheir debt pursuant to the financing agreements has been paid and otherobligations by both the lenders and the Group have been satisfied.  The agreement requires the security depositsto be recalculated each quarter as the greater of certain amounts, includingthe debt service for the next six months or half debt service for the followingtwelve months.  Effective November 3,2003, the lenders agreed to reduce the debt security deposit for the first twoquarters of fiscal year 2004 to a fixed amount of € 60.0 million, which waslater increased on April 20, 2004 to € 100 million.  Once the terms of the Restructuring becomeeffective, the security deposit will be applied to outstanding debt principalof the Group’s senior debt, and the Group will no longer be required tomaintain these debt security deposits. For additional information on the Restructuring See Note 1-3.

 

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**5****                ****INVENTORIES**

 

Inventories consistprimarily of merchandise, food and beverage and supplies. These amounts arestated net of allowance for obsolete and slow moving items of € 3.9 million and€ 2.5 million at September 30, 2004 and 2003, respectively.

 

**6****                ****TRADE ACCOUNTS RECEIVABLE**

 

Trade accountsreceivable are due primarily from tour operators and travel agents (arisingfrom sales of Theme Park entrance tickets, hotel and meeting rooms and otheramenities) as well as billings for participant fees.  As of September 30, 2004 and 2003, thereserve for potentially uncollectible accounts was € 2.0 million and € 2.2million, respectively.  As of September 30,2004 and 2003, trade receivables included long-term receivables amounting to €2.2 million and € 3.6 million, respectively.

 

**7****                ****OTHER ACCOUNTS RECEIVABLE**

 
| ** **               | ** ** | **As-Reported** | ** ** | **Consolidate** | ** ** | **Fiscal  Year** | ** ** | ** **    | ** ** |
|--------------------------|------------|-----------------|------------|-----------------|------------|------------------|------------|---------------|------------|
| ** **               | ** ** | **September**   | ** ** | **Financing**   | ** ** | **2004**         | ** ** | **September** | ** ** |
| **(€ in millions)** | ** ** | **2003**        | ** ** | **Companies**   | ** ** | **Change**       | ** ** | **2004**      | ** ** |
| VAT                      |       | 27.7            |       | 4.8             |       | 5.5              | ** ** | **38.0**      | ** ** |
| Other                    |       | 18.2            |       | 2.3             |       | 1.3              | ** ** | **21.8**      | ** ** |
|                     |       | 45.9            |       | 7.1             |       | 6.8              | ** ** | **59.8**      | ** ** |

 

Other includes advance payments to vendors and miscellaneous non-tradereceivables.  All amounts are due withinone year.

 

**8****                ****CASH AND SHORT-TERMINVESTMENTS**

 

The Group’s September 30, 2004 and 2003 cash and short-terminvestments include € 49.1 million and € 48.6 million, respectively, of cashand short-term investments of the consolidated Financing Companies, which arenot available to the Legally Controlled Group for operational uses.

 

Short-term investments consist primarily of cash equivalents such asmoney market instruments and certificates of deposit, carried at cost, whichapproximated market value at September 30, 2004 and 2003.

 

**9****                ****DEFERRED CHARGES**

 
| **(€ in millions)**                              | ** ** | **As-Reported  September  2003** | ** ** | **Consolidate  Financing  Companies** | ** ** | ** ** | ** ** | **September  2004** | ** ** |
|-------------------------------------------------------|------------|----------------------------------|------------|---------------------------------------|------------|------------|------------|---------------------|------------|
| **Fiscal Year 2004**                                  |
| **Additions**                                         | ** ** | **Deductions**                   |
| Financial contributions to public  infrastructure (a) |       | 51.9                             |       | —                                |       | —     |       | (4.3                | )          | **47.6** | ** ** |
| Other (b)                                             |       | 3.2                              |       | 8.5                                   |       | 2.8        |       | (2.5                | )          | **12.0** | ** ** |
|                                                  |       | 55.1                             |       | 8.5                                   |       | 2.8        |       | (6.8                | )          | **59.6** |   |

 

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*(a)**             **Financial contributions to public infrastructure*

Financial contributions to public infrastructure consist primarily of apayment of  € 34.3 million made by theGroup to the S.N.C.F. (Société Nationale des Chemins de Fer Français), theFrench national railway company, as part of its financial commitment to theconstruction of the T.G.V. (high speed train) railway station located withinDisneyland Resort Paris. This contribution is being amortised over a period oftwenty years (beginning on the opening of the T.G.V. station in 1994).  Remaining amounts relate to various financialcontributions paid or payable by the Group for the construction of primaryinfrastructure, such as roadways and water, gas and electricity distributionsystems. These amounts are being amortised over a period of twenty years.  Contributions to public infrastructure arestated net of accumulated amortisation of € 37.6 million and € 33.3 million at September 30,2004 and 2003, respectively.

 

97

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*(b)**             **Other*

The balance as of September 30,2003, other primarily includes deferred debt issuance coststhat are amortised to interest expense over the term of the related loan.  Fiscal year 2004 additions represent deferredequity issuance costs that will be offset against the share premium generatedby the proceeds of the share capital increase contemplated in the Restructuring(See Note 1-3).

 

**10****         ****SHAREHOLDERS’ EQUITY (DEFICIT)**

 
| ** **                                                     | ** ** | ** **                         | ** ** | **(€ in millions)** | ** ** |
|----------------------------------------------------------------|------------|------------------------------------|------------|--------------------------|------------|
| ** **                                                     | ** ** | **Number**** ****of  Shares** | ** ** | **Share********Capital** | ** ** | **Share********Premium** | ** ** | **Retained  Earnings/  (Deficit)** | ** ** |
| ** **                                                     | ** ** | **(in  thousands)**                | ** ** | ** **               | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Balance  at September 30, 2002**                        | ** ** | **1,055,938**                      | ** ** | **804.9**                | ** ** | **289.0** | ** ** | **150.9** | ** ** |
|                                                           |       |                               |       |                     |       |   |   |   |   |
| Change in nominal value per share                              |       | —                             |       | (2.4                     | )          | 2.4 |   | — |   |
| Cumulative effect of change in accounting  principle  (Note 2) |       | —                             |       | —                   |       | — |   | (104.4 | ) |
| Net loss                                                       |       |                               |       |                     |       |   |   | (56.0 | ) |
| **Balance at September 30, 2003**                         | ** ** | **1,055,938**                      | ** ** | **802.5**                | ** ** | **291.4** | ** ** | **(9.5** | **)** |
|                                                           |       |                               |       |                     |       |   |   |   |   |
| Cumulative effect of change in accounting  principle  (Note 2) |       | —                             |       | —                   |       | — |   | (1,151.6 | ) |
| Reduction of nominal value per share                           |       | —                             |       | (792.0                   | )          | 792.0 |   | — |   |
| Conversion of ORAs and warrants                                |       | 26,742                             |       | 0.3                      |       | 152.2 |   | — |   |
| Net loss                                                       |       | —                             |       | —                   |       | — |   | (145.2 | ) |
| **Balance at September 30, 2004**                         | ** ** | **1,082,680**                      | ** ** | **10.8**                 | ** ** | **1,235.6** | ** ** | **(1,306.3** | **)** |

 

•                  *Number of shares*

The number ofshares above represent the Company’s issued, outstanding and fully paid shares,at the respective dates.

 

•                  *Share capital and sharepremium*

The Company’sexisting share capital as of September 30, 2002 was rounded from a nominalamount per share of € 0.7622451... to a nominal amount per share of € 0.76which resulted in a transfer of € 2.4 million to share premium from sharecapital in accordance with Resolution 12 of the Combined General Shareholder’sMeeting held on May 5, 2003.

 

In accordance withResolution 7 of the Combined General Shareholder’s Meeting held on March 25,2004, the Company’s share capital was decreased in an amount of € 792 millionby reducing from € 0.76 to € 0.01 the nominal value of each of the sharesexisting on the effective date of July 9, 2004.

 

The Company issued26,725,580 new shares upon the maturity and conversion of the ORAs on July 11,2004 (See Note 12) and 16,988 new shares upon exercise of 47,826 warrants.

 

•                  *Retained earnings /(deficit)*

At September 30, 2004 and 2003, the Company’s retained earningsincluded a legal reserve of € 16.9 million, which is not available fordistribution.

 

Effective as of October 1, 2002 (the first day of fiscal year2003) the Group adopted new accounting rules for major fixed asset renovationexpenditures.  As of October 1, 2003(the first day of fiscal year 2004), the Group implemented mandatory newaccounting rules concerning the consolidation of special purpose financecompanies.  The retroactive earningsimpact of these changes was recorded as an adjustment to retained earnings (SeeNote 2).

 

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*Warrants*

As part of the 1994 financial restructuring, the Company issued 290million warrants, enabling the holders of such warrants to subscribe for 1.069shares of the Company’s common stock at a price of  € 6.10 for every three warrants held.  The warrants had a term of ten years andexpired in July 2004.

 

**11****         ****MINORITY INTERESTS**

 

Effective October 1, 2003, the change in accounting principledescribed in Note 2, required the consolidation of the Financing Companies intothe financial statements of the Group. Minority interests represent the portion of the consolidated FinancingCompanies equity for which the Legally Controlled Group has no rights orobligations:

 
| **(€ in millions)**                   | ** ** | **As-Reported  September  2003** | ** ** | **Consolidate  Financing  Companies** | ** ** | **Fiscal  Year 2004** | ** ** | **September****2004** | ** ** |
|--------------------------------------------|------------|----------------------------------|------------|---------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| **Net  Result  Allocation**                | ** ** | **Other**                        |
| EDA (a)                                    |       | —                           |       | (83.3                                 | )          | (6.8                  | )          | 384.8                 | ** ** | **294.7** | ** ** |
| Centre de Congrès Newport  S.A.S. (b) |       | —                           |       | 7.7                                   |       | 0.1                   |       | —                | ** ** | **7.8** | ** ** |
| Phase I Financing Companies (c)            |       | —                           |       | 34.3                                  |       | —                |       | 2.8                   | ** ** | **37.1** | ** ** |
|                                       |       | —                           |       | (41.3                                 | )          | (6.7                  | )          | 387.6                 | ** ** | **339.6** | ** ** |

 

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(a)*             **EDA*

As a result of the consolidation of EDA, a wholly-owned affiliate ofTWDC, a minority interest balance of € 83.3 million was recorded by the Grouprepresenting the portion of EDA’s net accumulated losses for which the LegallyControlled Group had no obligations.  Inorder to enable the Restructuring and notably the legal reorganisationdisclosed in Note 1-3, effective September 30, 2004, EDA was recapitalizedby its partners who received an equity interest in the amount of € 384.1million in EDA as reimbursement for loans and accrued interest due to them asof this date.  Other also includes € 0.7million of variable Phase I lease payments that are legally for the benefit ofthe partners of EDA and are therefore reflected in operating expenses.  EDA remains consolidated by the Group as of September 30,2004.

 

(b)*             **Centre de Congrès Newport S.A.S.*

As a result of the consolidation of this entity, a wholly-ownedaffiliate of TWDC, a minority interest balance of € 7.8 million was recorded bythe Group representing Centre de Congrès Newport S.A.S.’s share capital and theportion of its net accumulated losses for which the Legally Controlled Grouphad no rights or obligations.

 

(c)*             **Phase I Financing Companies*

Minority interests represents the share capital and variable Phase Ilease payments that are legally for the benefit of the partners of the Phase IAFinancing Company and are therefore reflected in operating expenses.

 

**12****         ****QUASI-EQUITY**

 

As part of the 1994financial restructuring, the Company issued 2,500,121 bonds redeemable inshares (“ORAs”) with a nominal value per bond of € 60.98, a coupon rate of 1%per annum and a ten-year term.  The ORAsmatured on July 11, 2004 and were redeemed by the issuance of 26.7 millionshares of the Company’s common stock.

 

99

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**13****         ****PROVISIONSFOR RISKS AND CHARGES**

 
| ** **                                       | ** ** | **As-Reported** | ** ** | **Consolidate** | ** ** | ** **            | ** ** | ** **    | ** ** | ** ** | ** ** |
|--------------------------------------------------|------------|-----------------|------------|-----------------|------------|-----------------------|------------|---------------|------------|------------|------------|
| ** **                                       | ** ** | **September**   | ** ** | **Financing**   | ** ** | **Fiscal  Year 2004** | ** ** | **September** | ** ** |
| **(€ in millions)**                         | ** ** | **2003**        | ** ** | **Companies**   | ** ** | **Additions**         | ** ** | **Reversals** | ** ** | **2004**   | ** ** |
| Provisions for major fixed asset renovations (a) |       | 85.6            |       | —          |       | 27.6                  |       | (25.4         | )          | **87.8**   | ** ** |
| Other provisions (b)                             |       | 34.5            |       | —          |       | 5.4                   |       | (29.5         | )          | **10.4**   | ** ** |
|                                             |       | 120.1           |       | —          |       | 33.0                  |       | (54.9         | )          | **98.2**   |       |

 

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(a)*             **Provision for major fixedasset renovations*

Fiscal year 2004additions represent the adjustment of the provision based upon estimated futurerenovation expenditures as of September 30, 2004.  Fiscal year 2004 reversals represented thecost of major fixed asset renovations completed during the fiscal year.

 

(b)*             **Other provisions*

At September 30,2003, provisions for risks and charges primarily included provisions forvarious charges, claims and litigation, including € 22.5 million for aguarantee to the Department of Seine-et-Marne. During fiscal year 2004, the negotiations concerning the payment of theguarantee were finalised, with the Group agreeing to pay the amount over aten-year period in eight instalments the first of which is due in fiscal year2007.  As a result, the provision hasbeen reversed and the liability recorded in the caption Accounts Payable andAccrued Liabilities.  There were no otherindividually material additions or reversals during the year.

 

**14****         ****BORROWINGS**

 
| **(€ in millions)**            | ** **               | **Stated  Interest  Rate(1)** | ** **                        | ** ** | ** **        | **Pro-Forma  Sept 2003(3)** | ** **     | **Variance** | ** ** | **September 2004** | ** ** |
|-------------------------------------|--------------------------|-------------------------------|-----------------------------------|------------|-------------------|-----------------------------|----------------|--------------|------------|-------------------------|------------|
| **September 2004**             | ** **               | ** **                    | **Effective  Interest  Rate (5)** |
| **Borrowings**                      | **Interest  Rate Swaps** |
| **Lease(2)**                        | ** **               | **Direct**                    | ** **                        | **Total**  | **Pay  Fixed(4)** | ** **                  | **Maturities** |
|                                |                     |                          |                              |       |              |                        |           |         |       |                    |       |   |   |   |   |   |   |   |   |
| CDC Senior Loans (a)                |                     | 5.15                          | %                                 | 86.9       |              | 40.6                        | ** **     | **127.5**    |       | 127.5                   |       | — |   | — |   | — |   | 5.15 | % |
| CDC Subordinated Loans(a)           |                     | 5.15                          | %                                 | 274.4      |              | 509.4                       | ** **     | **783.8**    |       | 783.8                   |       | — |   | — |   | — |   | 5.15 | % |
| Credit Facility – Phase IA(b)  |                     | 2.99                          | %                                 | 234.7      |              | 105.4                       | ** **     | **340.1**    |       | 377.8                   |       | (37.7 | ) | — |   | — |   | 2.99 | % |
| Credit Facility – Phase IB(c)  |                     | 3.15                          | %                                 | 128.1      |              | 22.4                        | ** **     | **150.5**    |       | 163.5                   |       | (13.0 | ) | 60.0 |   | 2005 |   | 3.89 | % |
| Partner Advances – Phase IA(d) |                     | 3.00                          | %                                 | 304.9      |              | —                      | ** **     | **304.9**    |       | 304.9                   |       | — |   | — |   | — |   | 3.00 | % |
| Partner Advances – Phase IB(e) |                     | 3.05                          | %                                 | 96.9       |              | —                      | ** **     | **96.9**     |       | 96.9                    |       | — |   | — |   | — |   | 3.05 | % |
| TWDC Loans(f)                       |                     | 2.35                          | %                                 | 17.3       |              | —                      | ** **     | **17.3**     |       | 276.4                   |       | (259.1 | ) | — |   | — |   | 2.35 | % |
| TWDC Line of Credit(g)              |                     | 2.39                          | %                                 | —     |              | 125.0                       | ** **     | **125.0**    |       | 102.5                   |       | 22.5 |   | — |   | — |   | 2.39 | % |
| Other loans                         |                     | —                        |                              | —     |              | —                      | ** **     | **—**   |       | 15.5                    |       | (15.5 | ) | — |   | — |   | — |   |
| Sub-total                           |                     | 3.98                          | %                                 | 1,143.2    |              | 802.8                       | ** **     | **1,946.0**  |       | 2,248.8                 |       | (302.8 | ) | 60.0 |   |   |   | 4.04 | % |
|                                |                     |                          |                              |       |              |                        |           |         |       |                    |       |   |   |   |   |   |   |   |   |
| Accrued Interest                    |                     |                          |                              | 20.0       |              | 86.8                        | ** **     | **106.8**    |       | 199.6                   |       | (92.8 | ) |   |   |   |   |   |   |
|                                |                     |                          |                              |       |              |                        |           |         |       |                    |       |   |   |   |   |   |   |   |   |
| **Total  Borrowings**               |                     |                          |                              | 1,163.2    |              | 889.6                       | ** **     | **2,052.8**  |       | 2,448.4                 |       | (395.6 | ) |   |   |   |   |   |   |

 

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*(1)**             **Thestated interest rate represents the weighted average interest rate for eachborrowing.  For variable rate borrowings,interest rates are based upon the rates as of September 30, 2004, plus theapplicable margin.  These rates are notnecessarily an indication of future interest rates.*

*(2)**             **Representsthe borrowings of the consolidated Financing Companies.*

*(3)**             **Representsthe borrowings balance on a pro-forma basis as if the Group had consolidatedthe Financing Companies at that date. These debt balances underlie the Group’scontractual lease commitments.*

*(4)**             **Amountsrepresent notional values of interest rate swaps.*

*(5)**             **Theeffective interest rate reflects the impact of interest rate swaps on thestated interest rate as of September 30, 2004*

 

*(a)*              *Caissedes Dépôts et Consignations (“CDC”) loans*

The Group has € 911.3million of senior and subordinated loans outstanding to the CDC, which includes€ 530.2 million under the Phase I Loans and € 381.1 million under the WaltDisney Studios Park Loans.

 

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Under the CDC Phase ILoan agreements, the CDC granted the Company and the Phase IA Financing Company € 127.5 million senior debt and € 402.7million subordinated debt.  The seniordebt is secured by the Disneyland Park, Disneyland Hôtel, Davy Crockett Ranch,other related facilities and the underlying land thereof.  The subordinated debt is unsecured.  The loans originally bore interest at a fixedrate of 7.85%; however, effective as of September 30, 1999, the terms ofthese loans were modified so as to reduce the fixed interest rate to 5.15%,defer principal repayments and extend the final maturity date from fiscal year2015 to fiscal year 2024.  At September 30,2004 and 2003, accrued interest related to these loans was € 25.0 million. Onceeffective, the Restructuring will result in the deferral of principal paymentsfalling in 2004 through 2016 under the Phase I Loans by 3.5 years.  Additionally, the interest rate on € 48.3million of principal will be increased by two percentage points.

 

Under the Walt DisneyStudios Park Loans, on September 30, 1999, the CDC granted the Company €381.1 million of subordinated loans to finance a portion of the construction costsof Walt Disney Studios Park.  The creditagreement includes four loan tranches, two of € 76.2 million each maturing infiscal years 2015 and 2021, respectively, and two of € 114.3 million, eachmaturing in fiscal years 2025 and 2028, respectively.  The loans bear interest at a fixed rate of5.15% per annum, unless interest or principal payments were to be deferredunder the provisions of the loans, during which time the interest rate on thedeferred amounts is EURIBOR plus 200 basis points (4.15 % as of September 30,2004) or 5.15%, whichever is greater. The timing of interest payments depends on the amount of the Company’ssurpluses in cash and short-term investments at each scheduled annual repaymentdate.  The annual interest payments dueas of December 31, 2001, 2002 and 2003 in the total amount of € 57.9million (including interest on the deferred interest) have been deferred inaccordance with the provisions of the loans. At September 30, 2004 and 2003, accrued interest related to theseloans was € 73.4 million and € 51.1 million, respectively, including the abovedescribed deferral.  Once effective, theRestructuring will result in the deferred interest payments for December 31,2001, 2002 and 2003 of € 57.9 million to be converted into subordinatedlong-term debt, not payable until the repayment of the credit facilities andpartners advances of the Phase I SNC’s and the CDC Senior Loans.

 

*(b)**             **CreditFacility - Phase IA*

Pursuant to credit agreements with a syndicate of international banks,the Company and the Phase IA Financing Company originally borrowed € 972.6million (€ 504.0 million of which was prepaid as part of the 1994 financialrestructuring).  The obligations underthis credit facility are secured by Disneyland Park, Disneyland Hôtel, DavyCrockett Ranch, other related facilities and the underlying land thereof.  Principal repayments commenced in fiscal year2000 with final repayment scheduled in fiscal year 2009.  The loans bear interest at EURIBOR plus amargin, which has varied over time. During fiscal year 2004 the interest rate applicable to these loans wasEURIBOR plus an average of 0.84% (2.99% as of September 30, 2004).  Once effective, the Restructuring will resultin the deferral of principal payments by 3.5 years with final maturity being nolater than May 31, 2012.  Additionally,the stated interest rate on the loans will be increased to three percentagepoints over EURIBOR.

 

*(c)**             **CreditFacility - Phase IB*

Pursuant to the credit agreements with a syndicate of international banks,EDL Hôtels S.C.A. and the Phase IB Financing Companies borrowed € 410.1 million(€ 210.3 million of which was prepaid as part of the 1994 financialrestructuring). The obligations under this credit facility are secured by thePhase IB Facilities.  Regular principalrepayments commenced in fiscal year 1998 with final repayment scheduled infiscal year 2012.  The loans bearinterest at EURIBOR plus a margin, which has varied over time.  During fiscal year 2004 the interest rateapplicable to these loans was EURIBOR plus 1% (3.15% as of September 30,2004).  Once effective, the Restructuringwill result in the deferral of principal payments by 3.5 years with finalmaturity being no later than November 5, 2012.  Additionally, the stated interest rate on theloans will be increased to three percentage points over EURIBOR.

 

*(d)**                **Partner Advances - Phase IA*

Pursuantto loan agreements, the Phase IA Financing Company borrowed € 304.9 millionfrom the partners of the Phase IA Financing Company at a fixed rate of 3%.  These advances are unsecured and subordinatedto the CDC Phase I Loans and the Credit Facility – Phase IA.  Principal repayments will not begin until thePhase IA Financing Company realises taxable income.  Pursuant to the 1994 financial restructuring,these loans were the subject of continuing interest forgiveness in fiscal year2003 and thus bore interest at a fixed rate after forgiveness of 1.38%.  As of October 1, 2003 (the first day offiscal year 2004) the interest rate on these advances returned to thecontractual fixed interest rate of 3%. Once effective, the Restructuring will delay the principal payments onthe partner advances by 3.5 years, as the timing of such payments is affectedby the timing of payments on the Credit Facility – Phase IA.

 

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*(e)**                **Partner Advances - Phase IB*

Pursuant to loanagreements, the Phase IB Financing Companies borrowed € 121.9 million (€ 25.0million of which was prepaid as part of the 1994 financial restructuring) fromthe partners of the Phase IB Financing Companies.  The advances consist of € 18.8 million ofbank borrowings bearing interest at EURIBOR plus 1.125% (3.28% at September 30,2004) and € 78.0 million bearing interest at a fixed rate of 3%.  These advances are secured by the Phase IBFacilities.  For the fixed-rate portionof the Partner Advances, principal repayments will not begin until the Phase IBFinancing Companies realise taxable income. Pursuant to the 1994 financial restructuring, the fixed rate portion ofthese advances was the subject of continuing interest forgiveness in fiscalyear 2003 and thus bore interest at a fixed rate after forgiveness of1.95%.  As of October 1, 2003 (thefirst day of fiscal year 2004) the interest rate on this portion of theseadvances returned to the contractual fixed interest rate of 3%.  Once effective, the Restructuring will delaythe principal payments on the partner advances by 3.5 years, as the timing ofsuch payments is affected by the timing of payments on the Credit Facility -Phase IB.  Additionally, the advancesconsisting of € 18.8 million of bank borrowings will have a final maturity of November 5,2012.

 

*(f)**               **TWDCLoans*

TWDC Loans representamounts borrowed by the Financing Companies (EDA and Centre de Congrès NewportS.A.S.), both 100% indirect subsidiaries of TWDC, which since October 1, 2003(the first day of fiscal year 2004) have been included in the Group’sconsolidated financial statements.

 

As of October 1,2003, the EDA loan from TWDC totalled € 259.1 million and was provided by TWDCprimarily to finance the Additional Capacity Disneyland Park Assets.  The loan bore interest at a variable rate notto exceed 6% (4% as of September 30, 2004) and was scheduled to mature infiscal year 2009.  In order to enable theRestructuring and notably the legal reorganisation disclosed in Note 1-3,effective September 30, 2004, EDA repaid this loan in full by issuing anequity interest of  € 384.1 million toTWDC for the then outstanding principal balance of € 259.1 million plus relatedaccrued interest of € 125.0 million.  SeeNote 25-1 for disclosure of the Legally Controlled Group’s lease commitment toEDA pending the realisation of the proposed legal reorganisation that willresult in, if executed, the cancellation of the Additional Capacity Asset Leasecommitment for the Legally Controlled Group

 

In addition, TWDCmade available to Centre de Congrès Newport S.A.S. a loan, maturing in fiscalyear 2017, to finance the construction of the Newport Bay Club ConventionCentre which opened in fiscal year 1998. The outstanding balance under this loan as of September 30, 2004 is€ 17.3 million and bears interest at EURIBOR plus 0.20% (2.35% as of September 30,2004).  As of September 30, 2004accrued interest related to this loan was € 4.6 million.

 

*(g)**             **TWDCLine of Credit*

As part of the 1994 financial restructuring, TWDC agreed to makeavailable, until June 2004, a subordinated unsecured € 167.7 millionstandby revolving credit facility to the Group, which bears interest at EURIBOR(2.39% as of September 30, 2004). During fiscal year 2004, TWDC agreed to extend this line of credit toaccommodate the negotiations for the Restructuring.  Upon the effective date of the Restructuring,€ 10.0 million of this credit line will be forgiven by TWDC and € 110.0 millionconverted into subordinated long-term debt, not payable until the repayment ofthe debt and partners advances of the Phase I SNC’s and the CDC SeniorLoans.  The terms of the Restructuringcontemplates a new line of credit from TWDC in the amount of € 150 million,which will be available during the Restructuring transition period.

 

**Debt Covenants**

The Group’s debtagreements include covenants between the Group and the lenders.  These covenants primarily consist ofrestrictions on additional indebtedness and capital expenditures, the provisionof certain financial information and compliance with certain financial ratiothresholds.  In the case ofnon-compliance of these covenants, the lenders can demand accelerated repaymentof the debt.  The Group has receivedsuccessive waivers of certain of these financial covenants for the fiscal year2003 and 2004 reporting periods, which will remain in effect until theeffective date of the Restructuring (See Note 1-3).

 

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**Debt Maturity Schedule**

The table below summarises the scheduled principalmaturities of the Group’s borrowings as of September 30, 2004 before andafter the Restructuring (assuming it is fully implemented and taking intoaccount the above mentioned waivers from the lenders)*(€in millions)*:

 
| **Fiscal year**  | ** ** | **Before  Restructuring** | ** ** | **After  Restructuring** | ** ** | **Change** | ** ** |
|------------------|------------|---------------------------|------------|--------------------------|------------|------------|------------|
| 2005             |       | 206.8                     | (1)        | 110.0                    | (2)        | (96.8      | )          |
| 2006             |       | 76.0                      |       | —                   |       | (76.0      | )          |
| 2007             |       | 93.4                      |       | —                   |       | (93.4      | )          |
| 2008             |       | 107.6                     |       | 60.1                     |       | (47.5      | )          |
| 2009             |       | 95.0                      |       | 86.5                     |       | (8.5       | )          |
| Thereafter       |       | 1,367.2                   |       | 1,737.4                  |       | 370.2      |       |
|             |       | 1,946.0                   |       | 1,994.0                  |       | 48.0       |       |
|             |       |                      |       |                     |       |       |       |
| Accrued Interest |       | 106.8                     |       | 48.8                     |       | (58.0      | )          |
|             |       |                      |       |                     |       |       |       |
|             |       | 2,052.8                   |       | 2,042.8                  |       | (10.0      | )          |

 

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*(1)**             **The“Before Restructuring” figure includes € 125.0 million in respect of theexisting TWDC credit line.*

*(2)**             **Theamount of € 110.0 million represents the prepayments contemplated by theMemorandum of Agreement.*

 

**15****         ****PAYABLETO RELATED COMPANIES**

 

Payables to relatedcompanies principally include payables to wholly-owned subsidiaries of TWDC forroyalties and management fees (See Note 19) and other costs associated with theoperation of the Resort. All amounts are due within one year.

 

**16****         ****ACCOUNTSPAYABLE AND ACCRUED LIABILITIES**

 
| ** **                    | ** ** | **As-Reported** | ** ** | **Consolidate** | ** ** | **Fiscal  Year** | ** ** | ** **    | ** ** |
|-------------------------------|------------|-----------------|------------|-----------------|------------|------------------|------------|---------------|------------|
| ** **                    | ** ** | **September**   | ** ** | **Financing**   | ** ** | **2004**         | ** ** | **September** | ** ** |
| **(€ in millions)**      | ** ** | **2003**        | ** ** | **Companies**   | ** ** | **Change**       | ** ** | **2004**      | ** ** |
| Suppliers                     |       | 113.8           |       | 0.2             |       | 16.6             | ** ** | **130.6**     | ** ** |
| Payroll and employee benefits |       | 64.5            |       | 0.3             |       | 0.5              | ** ** | **65.3**      | ** ** |
| VAT                           |       | 9.7             |       | 14.6            |       | (0.8             | )          | **23.5**      | ** ** |
| Other                         |       | 26.3            |       | 11.0            |       | 27.6             | ** ** | **64.9**      | ** ** |
|                          |       | 214.3           |       | 26.1            |       | 43.9             | ** ** | **284.3**     | ** ** |

 

As of September 30,2004, accounts payable and accrued liabilities included non-current payablesamounting to € 22.8 million.

 

**17****         ****DEFERREDREVENUES**

 

Deferred revenuesconsist primarily of pre-paid rent income received on long-term ground leasecontracts with third-party developers and participant revenues that are beingrecognised as income straight-line over the term of the related contract, aswell as amounts invoiced to guests in advance of their visit.

 

The Group’s deferredrevenues as of September 30, 2004 have the following scheduled revenuerecognition:

 
| **(€ in millions)** | ** ** | ** ** | ** ** |
|--------------------------|------------|------------|------------|
| 2005                     |       | 42.8       |       |
| 2006                     |       | 4.3        |       |
| 2007                     |       | 2.8        |       |
| 2008                     |       | 2.7        |       |
| 2009                     |       | 2.6        |       |
| Thereafter               |       | 33.1       |       |
|                     |       | 88.3       |       |

 

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**18****         ****REPORTEDSEGMENTS**

 

The Group hastwo reportable segments: the Resort Segment, which includes the operations ofthe Theme Parks, Hotels and Disney Village, and the Real Estate Segment. TheGroup evaluates the performance of its segments based primarily on incomebefore lease, net financial charges and exceptional items. The Group does notevaluate the performance of its segments based upon their respective fixedasset values.  The accounting policies ofthese segments are the same as those described in Note 2 “Summary ofSignificant Accounting Policies”.

 

The tablebelow presents as-reported information by segment (comparison of fiscal year2004 amounts with prior year as-reported amounts is affected by the change inaccounting principle described in Note 2 and 28):

 
| ** **                                           | ** ** | **Year  ended September** | ** ** |
|------------------------------------------------------|------------|---------------------------|------------|
| **(€ in millions)**                             | ** ** | **2004**                  | ** ** | **2003** | ** ** | **2002** | ** ** |
| **Segment Revenues**                                 |       |                      |       |   |   |   |   |
| Resort Segment                                       | ** ** | **1,036.2**               |       | 1,023.9 |   | 1,043.9 |   |
| Real Estate Segment                                  | ** ** | **11.8**                  |       | 23.6 |   | 27.3 |   |
| **Total**                                            | ** ** | **1,048.0**               |       | 1,047.5 |   | 1,071.2 |   |
|                                                 |       |                      |       |   |   |   |   |
| **Segment Costs and Expenses**                       |       |                      |       |   |   |   |   |
| Resort Segment                                       | ** ** | **(1,061.8**              | **)**      | (901.8 | ) | (880.3 | ) |
| Real Estate Segment                                  | ** ** | **(10.1**                 | **)**      | (13.3 | ) | (15.2 | ) |
| **Total Costs and Expenses**                         | ** ** | **(1,071.9**              | **)**      | (915.1 | ) | (895.5 | ) |
|                                                 |       |                      | ** ** |   |   |   |   |
| **Segment Income before Net Financial Charges**      |       |                      | ** ** |   |   |   |   |
| Resort Segment                                       | ** ** | **(25.6**                 | **)**      | 122.1 |   | 163.1 |   |
| Real Estate Segment                                  | ** ** | **1.7**                   | ** ** | 10.3 |   | 12.1 |   |
| **Total Income (Loss) before Net Financial Charges** | ** ** | **(23.9**                 | **)**      | 132.4 |   | 175.7 |   |

 

**19****         ****COSTSAND EXPENSES**

 

The tablebelow presents as-reported costs and expenses of the Group by category.(Comparison of fiscal year 2004 amounts with prior year as-reported amounts isaffected by the change in accounting principle described in Notes 2 and 28):

 
| ** **                          | ** ** | **Year  ended September** | ** ** |
|-------------------------------------|------------|---------------------------|------------|
| **(€ in millions)**            | ** ** | **2004**                  | ** ** | **2003** | ** ** | **2002** | ** ** |
| Direct operating costs (a)          | ** ** | **664.8**                 |       | 639.5 |   | 608.5 |   |
| Marketing and sales expenses        | ** ** | **112.6**                 |       | 105.2 |   | 95.4 |   |
| General and administrative expenses | ** ** | **90.0**                  |       | 96.7 |   | 92.0 |   |
| Depreciation and amortisation       | ** ** | **146.8**                 |       | 65.6 |   | 64.1 |   |
| Royalties and management fees (b)   | ** ** | **57.7**                  |       | 8.1 |   | 35.5 |   |
| ** **                          |       | **1,071.9**               |       | 915.1 |   | 895.5 |   |

 

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*(a)**             **Direct Operating Costs*

Directoperating costs include operating wages and employee benefits, cost of salesfor merchandise and food and beverage, transportation services and real estateland sales and other costs such as utilities, maintenance, renovationsexpenses, insurance and operating taxes.

 

*(b)**             **Royalties and ManagementFees*

Royaltiesrepresent primarily payments to a wholly-owned indirect subsidiary of TWDCunder a license agreement that grants the Group the right to use any present orfuture intellectual or industrial property of TWDC incorporated in attractionsor other facilities including the right to sell merchandise incorporatingintellectual property rights owned by TWDC. Management fees are payable to Euro Disney S.A.S., the Company’s *Gérant*, as specified in the Company’s by-laws.  Royalties and management fees are basedprimarily upon operating revenues.

 

104

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In fiscal year 1999,after a five-year waiver resulting from the 1994 financial restructuring,royalties were reinstated at half their original rate and management fees werereinstated at a reduced rate.  Royaltieswere fully reinstated beginning October 1, 2003 (the first day of fiscalyear 2004) and management fees will progressively increase through fiscal year2018.  Fiscal year 2004 royaltiestotalled € 47.2 million and management fees totalled € 10.5 million.

 

On March 28,2003, TWDC agreed to waive royalties and management fees payable to it for thesecond, third and fourth quarters of fiscal year 2003.  As a result, fiscal year 2003 royalties andmanagement fees were reduced by the  €24.6 million waiver and totalled € 8.1 million (€ 5.6 million for royaltiesand  € 2.5 million for managementfees)  The waived amount may in thefuture become payable if and to the extent that income before lease andfinancial charges excluding depreciation and amortisation for any year fromfiscal year 2004 through fiscal year 2008 exceeds € 450 million . TWDC furtheragreed that fiscal year 2004 royalties and management fees will be paid on afiscal year-end basis rather than quarterly.

 

Once implemented, theterms of the Restructuring will impact the Group’s obligations for royaltiesand management fees as described above (See Note 1-3).

 

**20****         ****EXCEPTIONAL INCOME (LOSS)**

 
| ** **                                                            | ** ** | **Year  ended September** | ** ** |
|-----------------------------------------------------------------------|------------|---------------------------|------------|
| **(€ in millions)**                                              | ** ** | **2004**                  | ** ** | **2003** | ** ** | **2002** | ** ** |
| Restructuring costs (a)                                               | ** ** | **(12.6**                 | **)**      | **—** |   | **—** |   |
| Fixed asset sales / write-offs (b)                                    | ** ** | **(9.4**                  | **)**      | 11.6 |   | (0.6 | ) |
| Movements in provisions for risks and asset  valuation reserves (net) | ** ** | **(1.4**                  | **)**      | (0.5 | ) | 0.7 |   |
| Pre-opening costs – Walt Disney Studios  Park (c)                | ** ** | **—**                |       | **—** |   | (37.2 | ) |
| Other                                                                 | ** ** | **1.1**                   |       | 0.8 |   | (0.9 | ) |
| ** **                                                            |       | **(22.3**                 | **)**      | 11.9 |   | (38.0 | ) |

 

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*(a)**             **Costsof the Restructuring*

During fiscal year 2004, the Group incurred € 12.6million of costs related to the negotiation of the Restructuring includingprimarily fees and expenses paid to its lenders and other third parties inconnection with the negotiations of the Restructuring.

 

*(b)**             **Fixedasset sales / write-offs*

In fiscal year 2004, the Group recorded a € 9.2million write-off of equipment within an attraction in Disneyland Park that isbeing replaced.

 

In fiscal year 2003,the Group sold three apartment developments used to provide housing toemployees within close proximity to the site. The transaction generated a gain of € 11.0 million.  The Group continuesto operate the apartment developments under leases with the buyers.

 

*(c)**             **Pre-openingcosts – Walt Disney Studios Park*

During fiscalyear 2002, the Group incurred € 37.2 million of pre-opening expenses related toWalt Disney Studios Park. These expenses included the costs of hiring andtraining employees for the park during the pre-opening period, costs of thepre-opening advertising campaign and the media events which took place in February andMarch 2002.

 

105

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**21****         ****INCOME TAXES**

 

Income tax expense iscalculated using the statutory tax rate in effect as of the balance sheetdate.  For fiscal years 2004 and 2003,this rate was approximately 35.4%. During fiscal years 2004, 2003 and 2002, noincome tax was payable as no taxable income was generated by the Group.  Accordingly, the Group’s effective tax rate for these periods was 0%.

 

At September 30,2004, unused tax loss carryforwards were approximately € 900 million and can becarried forward indefinitely.  Due to theuncertainty of the ultimate realisation of these tax benefits, the Group hasnot recorded any deferred tax assets.

 

**22****         ****STOCK OPTIONS**

 

In 1994, the Company’sshareholders approved the implementation of an employee stock option plan (the “1994Plan”) authorising the issuance of stock options for acquisition of up to 2.5%of the Company’s outstanding common stock. Through September 30, 2004, the Company had granted a total of7,366,330 options, net of cancellations and exercises, (to acquire one share ofcommon stock each) to certain managers and employees at a market exercise pricewhich represented the average closing market price over the preceding 20trading days.  The options are valid for10 years from their issuance date and become exercisable over 5 years in equalinstalments beginning one year from the date of grant. Upon termination ofemployment, any unvested options are cancelled. However, options that areexercisable as of the date of termination, may be exercised within a specifiedperiod of time or else they are cancelled.

 

In March 1999,the Company’s shareholders approved the implementation of a second employeestock option plan, with substantially the same terms as the 1994 Plan,authorising the issuance of stock options for acquisition of up to 2.5 % of theCompany’s outstanding common stock.  Theoptions granted under that plan are valid for 8 years from their issuancedate.  Through September 30, 2004,the Company had granted a total of 19,182,800 options, net of cancellations andexercises, under this plan.

 

In May 2003, theCompany’s shareholders approved the implementation of a third employee stockoption plan, with substantially the same terms as the two previous ones,authorising the issuance of stock options for acquisitions of up to 2.5% of thecompany’s outstanding common stock.  Theoptions granted under that plan are valid for 8 years from their issuancedate.  As of September 30, 2004, theCompany had not granted any options under this plan.

 

A summary of theCompany’s stock option activity for the years ended September 30, 2004 and2003, is as follows:

 
| ** **                              | ** ** | **Number  of Options** | ** ** | **Weighted-average  Exercise Price** | ** ** |
|-----------------------------------------|------------|------------------------|------------|--------------------------------------|------------|
| ** **                              | ** ** | **(in  thousands)**    | ** ** | **(in  €)**                     | ** ** |
| **Balance  at September 30, 2002** | ** ** | **33,347**             | ** ** | **1.02**                             | ** ** |
|                                    |       |                   |       |                                 |       |
| Options granted                         |       | —                 |       | —                               |       |
| Options exercised                       |       | —                 |       | —                               |       |
| Options cancelled                       |       | (4,037                 | )          | 0.96                                 |       |
| **Balance at September 30, 2003**  | ** ** | **29,310**             | ** ** | **1.02**                             | ** ** |
|                                    |       |                   |       |                                 |       |
| Options granted                         |       | —                 |       | —                               |       |
| Options exercised                       |       | —                 |       | —                               |       |
| Options cancelled                       |       | (2,761                 | )          | 0.99                                 |       |
| **Balance at September 30, 2004**  | ** ** | **26,549**             | ** ** | **1.03**                             | ** ** |

 

The following tablesummarises information about stock options at September 30, 2004:

 
| ** **                   | ** ** | **Options  Outstanding**               | ** ** | **Options  Exercisable**                                      | ** ** |
|------------------------------|------------|----------------------------------------|------------|---------------------------------------------------------------|------------|
| **Range of  Exercise Price** | ** ** | **Number  of  Shares (in  thousands)** | ** ** | **Weighted-average  Remaining  Contractual Life (in  years)** | ** ** | **Weighted-average  Exercise Price** | ** ** | **Number  of  Shares (in  thousands)** | ** ** | **Weighted-average  Exercise Price** | ** ** |
| € 0.77 – 1.00      |       | 11,782                                 |       | 5                                                             |       | € | 0.80 |   | 8,174 |   | € | 0.80 |   |
| € 1.01 – 2.00      |       | 14,168                                 |       | 4                                                             |       | € | 1.16 |   | 9,723 |   | € | 1.19 |   |
| € 2.01 – 2.50      |       | 599                                    |       | 1                                                             |       | € | 2.32 |   | 599 |   | € | 2.32 |   |
|                         |       | 26,549                                 |       | 4                                                             |       | € | 1.03 |   | 18,496 |   | € | 1.06 |   |

 

106

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**23****         ****FINANCIALINSTRUMENTS**

 

**23-1Interest rate risk management transactions**

 

The Group usesinterest rate swaps and other instruments to manage its exposure to changes ininterest rates.  The impact of changes ininterest rates affects financial income and expense of the Group.

 

The following tablesummarises the underlying notional amounts of borrowings subject to interestrate hedging contracts during the years ended September 30, 2004 and2003.  
| **(€ in millions)**                | ** ** | **Underlying  Borrowings** | ** ** |
|-----------------------------------------|------------|----------------------------|------------|
| **Balance at September 30, 2002**  |       | 563.8                      |       |
|                                    |       |                       |       |
| Additions                               |       | 485.0                      |       |
| Maturities/Terminations                 |       | (517.1                     | )          |
| **Balance  at September 30, 2003** |       | 531.7                      |       |
|                                    |       |                       |       |
| Additions                               |       | —                     |       |
| Maturities/Terminations                 |       | (471.7                     | )          |
| **Balance  at September 30, 2004** |       | 60.0                       |       |

 

During fiscal year 2001, the Group entered into several interest rateswap agreements which became effective at or near September 30, 2001 andhad a term of 2 years expiring at or near September 30, 2003.  These agreements required the Group to payfixed interest rates ranging from 3.79% to 4.69% and to receive interestpayments based upon 3-month EURIBOR on the outstanding notional amounts.

 

During fiscal year 2003, the Group entered into several interest rateswap agreements which became effective at or near September 30, 2003 andhad a term of approximately one year with the last contracts expiring in November 2004.  Those agreements required the Group to payfixed interest rates ranging from 2.05% to 3.56% and to receive interest paymentsbased upon 3-month or 6-month Euribor on the outstanding notional amounts.

 

The total interestrate differential resulting from interest rate hedging instruments was a lossof € 5.6 million and € 9.1 million in fiscal year 2004 and fiscal year 2003,respectively.  The fair value of thesecontracts is estimated to be the same as the cost or gain to the Group toterminate its interest rate hedging contracts. At September 30, 2004 taking into account the prevailing interestrate environment and credit worthiness of counterparties, this amount was nil(loss of € 5.5 million at September 30, 2003).

 

**23-2 Currency riskmanagement transactions**

 

The Group’s exposureto foreign currency risk relates principally to variations in the value of theU.S. dollar and British pound.

 

The Group’s objectiveis to reduce earnings and cash flow volatility associated with foreign exchangerate changes to allow management to focus its attention on its core businessissues and challenges.  Accordingly, theGroup enters into various contracts that change in value as foreign exchangerates change to protect the value of its existing foreign currency assets andliabilities, commitments and anticipated foreign currency revenues andexpenses.

 

At September 30,2004 and 2003, the Group had € 17.2 million and € 70.6 million, respectively,of foreign currency hedge contracts outstanding, consisting of forward exchangecontracts and options.  The fair value ofthese contracts is estimated to be the same as the cost or gain to the Group ofterminating its foreign exchange contracts. This amount was a loss of € 0.2 million at September 30, 2004 and2003.

 

**23-3Concentrations of credit risk**

 

Management believesno significant concentration of credit risk exists with respect to the Group’sfinancial instruments. The Group utilises a variety of off-balance sheetinstruments for hedging purposes.  At September 30,2004 and 2003, the Group was not required to collateralize their respectiveobligations under the terms of these hedging contracts.

 

107

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**24****         ****COMMITMENTSAND CONTINGENCIES**

 

There are variouslegal proceedings and claims against the Group relating to construction andother activities incident to the conduct of its business.  Management has established provisions forsuch matters and does not expect the Group to suffer any material additionalliability by reason of such actions, nor does it expect that such actions willhave a material effect on its liquidity or operating results.

 

The Company isjointly liable for all Phase IA Financing Company obligations under the PhaseIA credit agreement until their scheduled maturity date in November 2009.  These obligations total € 234.7 million as ofSeptember 30, 2004.

 

EDL Hôtels S.C.A. hasguaranteed all Phase IB Financing Companies’ obligations under the Phase IBcredit facility and the Phase IB partner advances until their scheduledmaturity date (2016 at the latest). These obligations total € 225.0 million as of September 30, 2004.

 

As part of the termsof the 1994 financial restructuring, the Company was required to pay a one-timedevelopment fee of € 182.9 million to TWDC upon the satisfaction of certainconditions, including conditions relating to the launch and financing of asecond phase of development.  In order toobtain the approval for the financing of Walt Disney Studios Park from thelenders, TWDC agreed to amend the terms and conditions of the development feeso that it will not be due until future events occur, including the repaymentof the existing bank debt of the Company and of the CDC Walt Disney Studios Parkloans and the achievement by the Group of specified cash flow levels.

 

**25****         ****LEASEDASSETS**

 

The Group owns WaltDisney Studios Park, Disneyland Hôtel, the Davy Crockett Ranch, the golfcourse, the underlying land thereof and the land on which the other five hotelsand Disney Village are located, and leases substantially all of the remainingoperating assets. Prior to fiscal year 2004, pursuant to options availableunder French accounting principles, the Group did not capitalise these leases,but rather accounted for them as operating leases.  Starting in fiscal year 2004, the Group wasrequired to consolidate the Financing Companies that own the leased assets (SeeNote 2).

 

**25-1 Disneyland Park and Hotel Leases**

 

Description

 

TheGroup leases Disneyland Park, the Phase IB Facilities and the Newport Bay ClubConvention Centre, directly or indirectly, from eight special-purpose FinancingCompanies, all of which were consolidated into the financial statements of theGroup as of October 1, 2003 (the first day of fiscal year 2004) (See Note2).  The following discussion summarisesthe significant terms of each lease all of which will be impacted by theRestructuring becoming effective:

 

**•****                 ****Disneyland Park - Phase IALease**

Originally, pursuantto the Phase IA financing agreements, the Company leased Disneyland Parkdirectly from the Phase IA Financing Company under a *crédit-bail*(financial lease) which commenced on Opening Day and was to end when theunderlying borrowings and interest were repaid in full by the Phase IA FinancingCompany.  Pursuant to the terms of the1994 financial restructuring, a new leasing structure for Disneyland Parkassets was implemented.

 

Under the new leasestructure, effective June 30, 1994, the original financial lease wascancelled and a new financial lease established whereby the Phase IA FinancingCompany leases Disneyland Park to EDA with terms similar to the originalfinancial lease*.*The Company, in turn, issub-leases Disneyland Park from EDA for a term of 12 years with rentsubstantially equal to the amount invoiced by the Phase IA Financing Company toEDA.  At the end of the sub-lease term,the Company will have the option to acquire the leasehold position of EDA uponpayment of an option fee of approximately € 78.7 million. If the Company doesnot exercise this option and thereby elects to discontinue leasing DisneylandPark, EDA may continue to lease the assets, with an ongoing option to purchasethem for an amount approximating the balance of the Phase IA Financing Company’sthen outstanding debt. Alternatively, EDA could terminate the lease, in whichcase EDA would pay the Phase IA Financing Company an amount equal to 75% of itsthen outstanding debt, and could then sell or lease the assets on behalf of thePhase IA Financing Company, in order to satisfy the remaining debt, with anyexcess proceeds payable to EDA.

 

108

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**•****                 ****DisneylandPark - Additional Capacity Assets Lease**

As part of the 1994financial restructuring, EDA purchased certain tangible fixed assets,principally Disneyland Park attractions constructed subsequent to Opening Day,for their book value of € 213.4 million and subsequently leased the assets backto the Company for a period of 12 years for a fixed annual lease paymentof  € 2.1 million.  At the end of the lease term, the Companywill have the option to purchase the assets for € 213.4 million.  If this option is exercised, TWDC has agreedto provide financing over an eight-year term at an interest rate of 1% perannum.  As an alternative to thispurchase option, the Company may enter into a new 12-year financial lease forthese assets with EDA at the end of the original lease term, with termssubstantially similar to those of the financing for the purchase optiondescribed above.  At the end of thissecond lease term, the Company will have the option to purchase the leasedassets for a nominal amount.

 

**•****                 ****Hotel- Phase IB Facilities Leases**

EDL Hôtels S.C.A. leasesthe Phase IB Facilities from the six Phase IB Financing Companies. The leaseswill terminate in February 2011. The Group has the option to acquire at any time during the term of thelease the leased assets for an amount approximating the balance of the Phase IBFinancing Companies’ outstanding debt.

 

**•****                 ****Hotel- Newport Bay Club Convention Centre Lease**

EDL Hôtels S.C.A. hassale-leaseback agreements with Centre de Congrès Newport S.A.S., for theNewport Bay Club Convention Centre.  Thelease began in November 1997 and has a term of 20 years, at the end ofwhich EDL Hôtels S.C.A. has the option to repurchase the convention centre fora nominal amount.  Annual lease paymentamounts are based upon the construction costs of the asset and an interest rateof 6 month EURIBOR + 20 basis points.

 

***LeasePayments, Commitments and Book Value of Leased Assets***

As the Groupconsolidates the Financing Companies from which it leases the above describedassets, the historical cost and depreciation of the assets (See Note 3) andrelated secured indebtedness (except for EDA, See Note 14) are included in theGroup’s consolidated financial statements.

 

For information,payments due under these lease contracts were € 215.1****millionand € 193.8 million for the years ended September 30, 2004 and 2003,respectively.  The rental payments underthese leases consists of the lessor’s debt service payments (principal andinterest), including those related to the long-term loans granted by the Group(See in Note 4), and any operating costs (primarily property taxes) incurred bythe lessor.  Thus, lease rental expensefluctuates principally with the lessor’s interest expense variations, due tovariable interest rates and interest forgiveness rate changes, and the timingof principal repayments on the leasing entities’ debt.

 

The book value anddepreciation of the leased assets, which are included in the balance sheet ofthe Group are summarised as follows:

 
| ** **                        | ** ** | **September 2004** | ** ** | ** **                    | ** ** |
|-----------------------------------|------------|-------------------------|------------|-------------------------------|------------|
| **(€ in millions)**          | ** ** | **Historical  Cost**    | ** ** | **Accumulated  Depreciation** | ** ** | **Net  Book  Value** | ** ** | **Estimated  Useful Lives** | ** ** |
| Intangible assets                 |       | 15.6                    |       | 15.4                          |       | 0.2 |   | 10 years |   |
| Land and secondary infrastructure |       | 201.8                   |       | 89.5                          |       | 112.3 |   | 25 to 40 years |   |
| Buildings and attractions         |       | 2,224.3                 |       | 896.5                         |       | 1,327.8 |   | 25 to 40 years |   |
| Furniture, fixtures and equipment |       | 373.9                   |       | 372.5                         |       | 1.4 |   | 5 to 10 years |   |
|                              |       | 2,815.6                 |       | 1,373.9                       |       | 1,441.7 |   |   |   |

 

Depreciation expense,included in the Group’s income statement for the leased assets, was € 83.6million and € 83.9 million for the years ended September 30, 2004 and2003, respectively.

 

109

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**25-2Other Leases**

 

The Group has otheroperating leases, primarily for office and computer equipment and vehicles, forwhich total rental expense was € 30.8 million and € 27.9 million for the yearsended****September 30, 2004 and 2003,respectively.  Future minimum rentalcommitments under these non-cancellable operating leases as of September 30,2004 are as follows:

 
| **(€ in millions)** | *** *** | *** *** | *** *** |
|--------------------------|--------------|--------------|--------------|
| 2005                     |         | 16.2         |         |
| 2006                     |         | 15.1         |         |
| 2007                     |         | 10.6         |         |
| 2008                     |         | 9.2          |         |
| 2009                     |         | 5.8          |         |
| Thereafter               |         | 25.8         |         |
|                     |         | 82.7         |         |

 

**26****         ****EMPLOYEES**

 

The weighted-averagenumber of employees employed by the Group was:

 
| ** ** | ** ** | **Fiscal  Year** | ** ** |
|------------|------------|------------------|------------|
| ** ** | ** ** | **2004**         | ** ** | **2003** | ** ** | **2002** | ** ** |
| Cadres     | ** ** | **2,376**        |       | 2,328 |   | 2,287 |   |
| Non-cadres | ** ** | **9,786**        |       | 9,895 |   | 10,180 |   |
| ** ** |       | **12,162**       |       | 12,223 |   | 12,467 |   |

 

Total employee costs for the years ended September 30,2004, 2003 and 2002 were € 366.0 million, € 365.7 million and €352.0 million,respectively.

All employeesparticipate in state funded pension plans in accordance with French laws andregulations.  Certain employees alsoparticipate in a supplemental defined contribution plan.  Contributions to all plans are based on grosswages and are shared between the employees and the Group. Contributions paid bythe Group are expensed as incurred.  Inaddition, retirement indemnities are paid under the terms of the Group’scollective bargaining agreement.

 

A new collectivebargaining agreement became effective in April 2001, which among otherthings increased the retirement benefits provided by the Group to itsemployees.  Under the agreement, aretirement indemnity ranging from one-half a month to 3 months of gross wagesis provided to employees who retire from the Group at the age of 60 or olderafter completing at least 1 year of service.

 

As of September 30,2004, the future commitment with respect to these retirement indemnities wasestimated to be € 8.6 million compared to € 8.3 million as of September 30,2003.

 

**27****         ****DIRECTORS’FEES**

 

During the yearsended September 30, 2004 and 2003, fees paid to members of the Company’sSupervisory Board were € 106,755 and € 160,071, respectively.  TWDC employees are not paid for serving onthe Company’s Supervisory Board.

 

110

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**28****         ****SUPPLEMENTALPRO-FORMA FINANCIAL INFORMATION**

 

The reconciliationbelow presents consolidated financial information on a pro-forma basis as ifthe changes in accounting principles discussed in Note 2 were in effect duringall of the periods presented.  Thechanges in accounting principle are summarised below :

 

**Consolidation of FinancingCompanies (effective from first day of fiscal year 2004)**

 

Effective from thebeginning of fiscal year 2004 (October 1, 2003), the Group adopted newaccounting rules mandated by the Financial Security Law (Article 133 ofthe *Loi de Sécurité Financière)*with respectto the consolidation of financing companies that are not legally controlled bythe Group.  Under these new rules, theFinancing Companies, from which the Company leases a substantial portion of itsoperating assets, have been included in the Group’s consolidated accounts.  In the past, lease payments to the FinancingCompanies were recorded as incurred, along with disclosure by the Group of theleasing arrangements, contractual commitments for lease rentals, and therelated debt obligations of the Financing Companies. As a result of the newconsolidation rules, these operating assets are now consolidated resulting inincreased fixed assets and borrowings. The Group’s receivables from theFinancing Companies have been eliminated in consolidation and shareholders’equity has been reduced. The reduction in the consolidated shareholders’ equityprimarily reflects past depreciation charges related to the operating assetsowned by the Financing Companies, which were greater than the lease paymentsexpensed for the same periods. The accounting change also affects theclassification and amount of costs reported in the income statement, resultingin increased operating expenses and depreciation and reduced lease rentalexpense.

 

**Major Fixed AssetRenovation Expenditures (effective from first day of fiscal year 2003)**

 

The new accounting standard relating to liabilities *(RèglementCRC n° 2000-06 dated December 7, 2000)*became effective October 1,2002.  As a result, the Group adopted anew accounting policy in accordance with the transition rules of the *Comité de la Réglementation Comptable 2002-10* related tomajor renovation expenditures.  Underthis new policy, the costs of major fixed asset renovations are no longercapitalised and amortised over five years, but are instead accrued in advanceon a straight-line basis as operating expense during the period between plannedrenovations.  The retroactive impact ofthis change was recorded as a charge to equity on October 1, 2002 in theamount of € 104.4 million.  As a resultof this change, fiscal year 2003 operating expenses increased by € 11.8million, reflecting a € 20.0 million increase in the provision for majorrenovations, offset by reduced amortisation expenses of € 8.2 million relatedto renovation expenditures deferred in the past, but which were charged againstretained earnings.

 

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**Reconciliation of As-Reported and Pro-Forma**

**CONSOLIDATED BALANCE SHEETS**

 
| ** **                                          | ** ** | **September 2003** | ** ** | **September 2002** | ** ** |
|-----------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| **(€ in millions)**                            | ** ** | **As-********Reported** | ** ** | **Accounting  Change**  | ** ** | **Pro-  Forma** | ** ** | **As-********Reported** | ** ** | **Accounting  Changes** | ** ** | **Pro-  Forma** | ** ** |
| ** **                                          | ** ** | ** **              | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Fixed Assets**                                    |       |                    |       |                    |       |   |   |   |   |   |   |   |   |
| Intangible assets                                   |       | 57.6                    |       | 1.3                     |       | 58.9 |   | 61.7 |   | 2.6 |   | 64.3 |   |
| Tangible assets                                     |       | 928.0                   |       | 1 533.0                 |       | 2 461.0 |   | 1 004.3 |   | 1 615.7 |   | 2 620.0 |   |
| Financial assets                                    |       | 1 332.2                 |       | (1 227.7                | )          | 104.5 |   | 1 323.5 |   | (1 280.0 | ) | 43.5 |   |
|                                                |       | 2 317.8                 |       | 306.6                   |       | 2 624.4 |   | 2 389.5 |   | 338.3 |   | 2 727.8 |   |
| **Other Assets**                                    |       |                    |       |                    |       |   |   |   |   |   |   |   |   |
| Inventories                                         |       | 41.8                    |       | —                  |       | 41.8 |   | 38.7 |   | — |   | 38.7 |   |
| Accounts receivable:                                |       |                    |       |                    |       |   |   |   |   |   |   |   |   |
| Trade                                               |       | 76.9                    |       | —                  |       | 76.9 |   | 100.6 |   | — |   | 100.6 |   |
| Other                                               |       | 45.9                    |       | 7.1                     |       | 53.0 |   | 70.7 |   | 5.0 |   | 75.7 |   |
| Short-term investments                              |       | 34.9                    |       | 48.6                    |       | 83.5 |   | 14.2 |   | 48.4 |   | 62.6 |   |
| Cash                                                |       | 11.2                    |       | —                  |       | 11.2 |   | 8.2 |   | — |   | 8.2 |   |
|                                                |       | 210.7                   |       | 55.7                    |       | 266.4 |   | 232.4 |   | 53.4 |   | 285.8 |   |
|                                                |       |                    |       |                    |       |   |   |   |   |   |   |   |   |
| **Deferred Charges**                                |       | 55.1                    |       | 8.5                     |       | 63.6 |   | 86.7 |   | (16.1 | ) | 70.6 |   |
|                                                |       |                    |       |                    |       |   |   |   |   |   |   |   |   |
| **Total Assets**                                    |       | 2 583.6                 |       | 370.8                   |       | 2 954.4 |   | 2 708.6 |   | 375.6 |   | 3 084.2 |   |
|                                                |       |                    |       |                    |       |   |   |   |   |   |   |   |   |
| **Shareholders’ Equity (Deficit)**             |       |                    |       |                    |       |   |   |   |   |   |   |   |   |
| Share capital                                       |       | 802.5                   |       | —                  |       | 802.5 |   | 804.9 |   | — |   | 804.9 |   |
| Share premium                                       |       | 291.4                   |       | —                  |       | 291.4 |   | 289.0 |   | — |   | 289.0 |   |
| Retained earnings (Accumulated  deficit)            |       | (9.5                    | )          | (1 151.6                | )          | (1 161.1 | ) | 150.9 |   | (1 253.7 | ) | (1 102.8 | ) |
|                                                |       | 1 084.4                 |       | (1 151.6                | )          | (67.2 | ) | 1 244.8 |   | (1 253.7 | ) | (8.9 | ) |
|                                                |       |                    |       |                    |       |   |   |   |   |   |   |   |   |
| **Minority Interests**                              |       | —                  |       | (41.3                   | )          | (41.3 | ) | — |   | (35.8 | ) | (35.8 | ) |
|                                                |       |                    |       |                    |       |   |   |   |   |   |   |   |   |
| **Quasi-Equity**                                    |       | 152.8                   |       | —                  |       | 152.8 |   | 152.8 |   | — |   | 152.8 |   |
|                                                |       |                    |       |                    |       |   |   |   |   |   |   |   |   |
| **Provisions for Risks and Charges**                |       | 120.1                   |       | —                  |       | 120.1 |   | 35.5 |   | 77.3 |   | 112.8 |   |
|                                                |       |                    |       |                    |       |   |   |   |   |   |   |   |   |
| **Borrowings**                                      |       | 867.5                   |       | 1 580.9                 |       | 2 448.4 |   | 821.3 |   | 1 606.3 |   | 2 427.6 |   |
|                                                |       |                    |       |                    |       |   |   |   |   |   |   |   |   |
| **Current Liabilities**                             |       |                    |       |                    |       |   |   |   |   |   |   |   |   |
| Payable to related companies                        |       | 56.9                    |       | (43.3                   | )          | 13.6 |   | 82.5 |   | (42.5 | ) | 40.0 |   |
| Accounts payable and accrued  liabilities           |       | 214.3                   |       | 26.1                    |       | 240.4 |   | 277.0 |   | 24.0 |   | 301.0 |   |
|                                                |       | 271.2                   |       | (17.2                   | )          | 254.0 |   | 359.5 |   | (18.5 | ) | 341.0 |   |
|                                                |       |                    |       |                    |       |   |   |   |   |   |   |   |   |
| **Deferred Revenues**                               |       | 87.6                    |       | —                  |       | 87.6 |   | 94.7 |   | — |   | 94.7 |   |
|                                                |       |                    |       |                    |       |   |   |   |   |   |   |   |   |
| **Total Shareholders’ Equity and Liabilities** |       | 2 583.6                 |       | 370.8                   |       | 2 954.4 |   | 2 708.6 |   | 375.6 |   | 3 084.2 |   |

 

112

----

 

**Reconciliation of As-Reported and Pro-Forma**

**CONSOLIDATED STATEMENTS OF INCOME**

 
| ** **                                                 | ** ** | **Fiscal Year 2003** | ** ** | **Fiscal Year 2002** | ** ** |
|------------------------------------------------------------|------------|----------------------|------------|----------------------|------------|
| ** **                                                 | ** ** | **As-**              | ** ** | **Accounting**       | ** ** | **Pro-** | ** ** | **As-** | ** ** | **Accounting Changes** | ** ** | **Pro-** | ** ** |
| **(€ in millions)**                                   | ** ** | **Reported**         | ** ** | **Change****(1)**    | ** ** | **Forma** | ** ** | **Reported** | ** ** | **Consolidation****(1)** | ** ** | **Renovations****(2)** | ** ** | **Forma** | ** ** |
| ** **                                                 | ** ** | ** **           | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Revenues**                                               |       | 1 047.5              |       | (0.7                 | )          | 1 046.8 |   | 1 071.2 |   | (0.7 | ) | — |   | 1 070.5 |   |
|                                                       |       |                 |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| **Costs and Expenses**                                     |       | (915.1               | )          | (99.6                | )          | (1 014.7 | ) | (895.5 | ) | (99.8 | ) | (12.0 | ) | (1 007.3 | ) |
|                                                       |       |                 |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| **Income (Loss) before Financial Charges**                 |       | 132.4                |       | (100.3               | )          | 32.1 |   | 175.7 |   | (100.5 | ) | (12.0 | ) | 63.2 |   |
|                                                       |       |                 |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| **Net Financial Charges**                                  |       |                 |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Lease rental expense                                       |       | (193.8               | )          | 193.8                |       | — |   | (188.8 | ) | 188.8 |   | — |   | — |   |
| Financial income                                           |       | 48.9                 |       | (45.1                | )          | 3.8 |   | 59.1 |   | (53.6 | ) | — |   | 5.5 |   |
| Financial expense                                          |       | (55.4                | )          | (59.6                | )          | (115.0 | ) | (41.1 | ) | (65.3 | ) | — |   | (106.4 | ) |
|                                                       |       | (200.3               | )          | 89.1                 |       | (111.2 | ) | (170.8 | ) | 69.9 |   | — |   | (100.9 | ) |
|                                                       |       |                 |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| **Loss before Exceptional Items**                          |       | (67.9                | )          | (11.2                | )          | (79.1 | ) | 4.9 |   | (30.6 | ) | (12.0 | ) | (37.7 | ) |
|                                                       |       |                 |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Exceptional income (loss), net                             |       | 11.9                 |       | 0.1                  |       | 12.0 |   | (38.0 | ) | — |   | — |   | (38.0 | ) |
|                                                       |       |                 |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| **Minority Interests**                                     |       | —               |       | 8.8                  |       | 8.8 |   | — |   | 10.0 |   | — |   | 10.0 |   |
|                                                       |       |                 |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| **Net Loss**                                               |       | (56.0                | )          | (2.3                 | )          | (58.3 | ) | (33.1 | ) | (20.6 | ) | (12.0 | ) | (65.7 | ) |
|                                                       |       |                 |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| Average number of common shares  outstanding (in millions) |       | 1 056                |       | —               |       | 1 056 |   | 1 056 |   | — |   | — |   | 1 056 |   |
|                                                       |       |                 |       |                 |       |   |   |   |   |   |   |   |   |   |   |
| **Loss per Share (in €)**                             |       | (0.05                | )          | —               |       | (0.05 | ) | (0.03 | ) | — |   | — |   | (0.06 | ) |

 

**COSTS ANDEXPENSES BY CATEGORY**

 
| ** **                           | ** ** | **Fiscal Year 2003** | ** ** | **Fiscal Year 2002** | ** ** |
|--------------------------------------|------------|----------------------|------------|----------------------|------------|
| ** **                           | ** ** | **As**               | ** ** | **Accounting**       | ** ** | **Pro-** | ** ** | **As** | ** ** | **Accounting Changes** | ** ** | **Pro-** | ** ** |
| **(€ in millions)**             | ** ** | **Reported**         | ** ** | **Change(1)**        | ** ** | **Forma** | ** ** | **Reported** | ** ** | **Consolidation(1)** | ** ** | **Renovations(2)** | ** ** | **Forma** | ** ** |
| Direct operating costs               |       | 639.5                |       | 15.7                 |       | 655.2 |   | 608.5 |   | 15.9 |   | 19.9 |   | 644.3 |   |
| Marketing and sales expenses         |       | 105.2                |       | —               |       | 105.2 |   | 95.4 |   | — |   | — |   | 95.4 |   |
| General and administrative  expenses |       | 96.7                 |       | —               |       | 96.7 |   | 92.0 |   | — |   | — |   | 92.0 |   |
| Depreciation and amortisation        |       | 65.6                 |       | 83.9                 |       | 149.5 |   | 64.1 |   | 83.9 |   | (7.9 | ) | 140.1 |   |
| Royalties and management fees        |       | 8.1                  |       |                 |       | 8.1 |   | 35.5 |   | — |   | — |   | 35.5 |   |
| **Total Costs and Expenses**         |       | 915.1                |       | 99.6                 |       | 1 014.7 |   | 895.5 |   | 99.8 |   | 12.0 |   | 1 007.3 |   |

 

----

*(1)**             **Representsimpact of change in accounting principle with respect to the consolidation ofthe Financing Companies that are not legally controlled by the Company.*

 

*(2)**             **Representsimpact of change in accounting principle with respect to major fixed assetrenovations.*

 

113

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**Reconciliation of As-Reported and Pro-Forma**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

 
| ** **                                               | ** ** | **Fiscal Year 2003** | ** ** | **Fiscal Year 2002**   | ** ** |
|----------------------------------------------------------|------------|----------------------|------------|------------------------|------------|
| **(€  in millions)**                                | ** ** | **As-  Reported**    | ** ** | **Accounting  Change** | ** ** | **Pro-  Forma** | ** ** | **As-  Reported** | ** ** | **Accounting  Changes** | ** ** | **Pro-  Forma** | ** ** |
|                                                     |       |                 |       |                   |       |   |   |   |   |   |   |   |   |
| **Net Loss**                                             |       | (56.0                | )          | (2.3                   | )          | (58.3 | ) | (33.1 | ) | (32.6 | ) | (65.7 | ) |
|                                                     |       |                 |       |                   |       |   |   |   |   |   |   |   |   |
| **Minority interests**                                   |       | —               |       | (8.8                   | )          | (8.8 | ) | — |   | (10.0 | ) | (10.0 | ) |
|                                                     |       |                 |       |                   |       |   |   |   |   |   |   |   |   |
| *Operating Items Not Requiring Cash Outlays:*            | * *   | * *             | * *   | * *               | * *   | * * | * * | * * | * * | * * | * * | * * | * * |
| Depreciation and amortisation                            |       | 65.6                 |       | 83.8                   |       | 149.4 |   | 64.0 |   | 76.1 |   | 140.1 |   |
| Loans repayments received from  Phase I Financing Co     |       | 52.1                 |       | (52.1                  | )          | — |   | 41.1 |   | (41.1 | ) | — |   |
| Other                                                    |       | (10.6                | )          | 2.3                    |       | (8.3 | ) | 0.9 |   | 3.3 |   | 4.2 |   |
| *Changes in:*                                            | * *   | * *             | * *   | * *               | * *   | * * | * * | * * | * * | * * | * * | * * | * * |
| Receivables                                              |       | 48.6                 |       | (2.2                   | )          | 46.4 |   | 28.0 |   | 1.9 |   | 29.9 |   |
| Inventories                                              |       | (3.1                 | )          | —                 |       | (3.1 | ) | (1.7 | ) | — |   | (1.7 | ) |
| Payables and other accrued  liabilities                  |       | (8.5                 | )          | 15.9                   |       | 7.4 |   | (50.5 | ) | 22.4 |   | (28.1 | ) |
| **Cash Flows from Operating Activities**                 |       | 88.1                 |       | 36.6                   |       | 124.7 |   | 48.7 |   | 20.0 |   | 68.7 |   |
|                                                     |       |                 |       |                   |       |   |   |   |   |   |   |   |   |
| Proceeds from the sale of fixed  assets                  |       | 45.4                 |       | —                 |       | 45.4 |   | 1.4 |   | — |   | 1.4 |   |
| Capital expenditures for  tangible and intangible assets |       | (72.9                | )          | 0.2                    |       | (72.7 | ) | (262.5 | ) | (1.0 | ) | (263.5 | ) |
| Increase in deferred charges,  net                       |       | —               |       | —                 |       | — |   | (10.5 | ) | 10.5 |   | — |   |
| Other                                                    |       | (1.3                 | )          | —                 |       | (1.3 | ) | 1.9 |   | (4.6 | ) | (2.7 | ) |
| **Cash Flows used in Investing Activities**              |       | (28.8                | )          | 0.2                    |       | (28.6 | ) | (269.7 | ) | 4.9 |   | (264.8 | ) |
|                                                     |       |                 |       |                   |       |   |   |   |   |   |   |   |   |
| Proceeds from new borrowings                             |       | 40.0                 |       | —                 |       | 40.0 |   | 63.3 |   | 1.0 |   | 64.3 |   |
| Repayments of borrowings                                 |       | (15.0                | )          | (36.6                  | )          | (51.6 | ) | (381.8 | ) | (29.4 | ) | (411.2 | ) |
| (Increase) / Decrease in debt  security deposits         |       | (59.6                | )          | —                 |       | (59.6 | ) | 12.4 |   | — |   | 12.4 |   |
| **Cash Flows used in Financing Activities**              |       | (34.6                | )          | (36.6                  | )          | (71.2 | ) | (306.1 | ) | (28.4 | ) | (334.5 | ) |
|                                                     |       |                 |       |                   |       |   |   |   |   |   |   |   |   |
| Change in cash and cash  equivalents                     |       | 24.7                 |       | 0.2                    |       | 24.9 |   | (527.1 | ) | (3.5 | ) | (530.6 | ) |
| Cash and cash equivalents,  beginning of period          |       | 21.3                 |       | 48.4                   |       | 69.7 |   | 548.4 |   | 51.9 |   | 600.3 |   |
| **Cash and Cash Equivalents, end of period**             |       | 46.0                 |       | 48.6                   |       | 94.6 |   | 21.3 |   | 48.4 |   | 69.7 |   |
|                                                     |       |                 |       |                   |       |   |   |   |   |   |   |   |   |
| **Supplemental Cash Flow Information:**                  |       |                 |       |                   |       |   |   |   |   |   |   |   |   |
| Interest paid                                            |       | 20.3                 |       | 36.9                   |       | 57.2 |   | 42.7 |   | 11.7 |   | 54.4 |   |
| Lease rental expense paid, net                           |       | 95.0                 |       | (95.0                  | )          | — |   | 92.9 |   | (92.9 | ) | — |   |

 
| ** **                                                   | ** ** | **September 2003** | ** ** | **September 2002** | ** ** |
|--------------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                                                   | ** ** | **As-  Reported**       | ** ** | **Accounting  Change**  | ** ** | **Pro-  Forma** | ** ** | **As-  Reported** | ** ** | **Accounting  Changes** | ** ** | **Pro-  Forma** | ** ** |
| **Reconciliation to Balance Sheet:**                         |       |                    |       |                    |       |   |   |   |   |   |   |   |   |
| Cash                                                         |       | 11.2                    |       | —                  |       | 11.2 |   | 8.2 |   | — |   | 8.2 |   |
| Short-term investments                                       |       | 34.9                    |       | 48.6                    |       | 83.5 |   | 14.2 |   | 48.4 |   | 62.6 |   |
| Bank overdrafts (recorded in  accounts payable and accruals) |       | (0.1                    | )          | —                  |       | (0.1 | ) | (1.1 | ) | — |   | (1.1 | ) |
| **Cash and Cash Equivalents, end of period (1)**             |       | 46.0                    |       | 48.6                    |       | 94.6 |   | 21.3 |   | 48.4 |   | 69.7 |   |

 

----

*(1)**             **Includes € 48.6 million and€ 48.4 million of cash and short-term investments of the consolidated FinancingCompanies as September 30, 2003 and 2002, respectively.*

 

114

----

 

**29****         ****SUBSEQUENT EVENTS -UNAUDITED**

 

As described in Note1-3, in September 2004, the Group reached final agreement with its lendersand TWDC on the Restructuring, subject to certain conditions.  Two of these conditions, the signature of thelegal documentation required by the Memorandum of Agreement and shareholderapproval of the terms of the Restructuring were completed on December 1,2004 and December 17, 2004, respectively. The terms of the Memorandum of Agreement, including the continuingwaiver of certain debt covenants for fiscal year 2003 and 2004, remain subjectto certain additional conditions including the completion of a capital increaseof at least € 250 million before March 31, 2005.

 

**30****         ****DISCLOSURES CONCERNING THEGROUP’S RESULTS UNDER U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES**

 

The Company files anannual report on Form 20-F with the Securities and Exchange Commission (“SEC”)in the United States within six months of September 30 each year.  As explained in the summary of significantaccounting policies, the consolidated financial statements have been preparedin accordance with accounting principles generally accepted in France (“FrenchGAAP”).  French GAAP varies in certainsignificant respects from accounting principles generally accepted in theUnited States (“U.S. GAAP”) particularly in connection with the interestholidays granted to the Group during the 1994 financial restructuring.  Thus the computation of interest expenseunder French GAAP differs significantly from U.S. GAAP.

 

The reconciliationsof net income and equity between French and U.S. GAAP are shown below, followedby a condensed consolidated balance sheet prepared under U.S. GAAP.  A description of the accounting principleswhich materially differ also follows:

 

**Reconciliation of Net Loss**

 
| ** **                                                           | ** ** | **Fiscal  Year** | ** ** |
|----------------------------------------------------------------------|------------|------------------|------------|
| **(€ in millions)**                                             | ** ** | **2004**         | ** ** | **2003** | ** ** | **2002** | ** ** |
| **Net Loss, as-reported under French GAAP**                          | ** ** | **(145.2**       | **)**      | (56.0 | ) | (33.1 | ) |
|                                                                 |       |             | ** ** |   |   |   |   |
| Lease and interest adjustments                                       | ** ** | **18.6**         | ** ** | 6.8 |   | (35.7 | ) |
| Major fixed asset renovations adjustment                             | ** ** | **4.7**          | ** ** | 7.6 |   | — |   |
| Other                                                                | ** ** | **8.1**          | ** ** | (12.8 | ) | 1.5 |   |
| **U.S.  GAAP Loss before Cumulative Effect of Change in Accounting** | ** ** | **(113.8**       | **)**      | (54.4 | ) | (67.3 | ) |
|                                                                 |       |             | ** ** |   |   |   |   |
| Impact of change in accounting principle                             | ** ** | **36.3**         | ** ** | — |   | — |   |
|                                                                 |       |             | ** ** |   |   |   |   |
| **Net Loss  under U.S. GAAP**                                        | ** ** | **(77.5**        | **)**      | (54.4 | ) | (67.3 | ) |
|                                                                 |       |             | ** ** |   |   |   |   |
| Comprehensive  Income Items:                                         |       |             | ** ** |   |   |   |   |
| Interest  rate hedges                                                | ** ** | **5.2**          | ** ** | 2.1 |   | 0.7 |   |
|                                                                 |       |             | ** ** |   |   |   |   |
| **Comprehensive  Loss under U.S. GAAP**                              | ** ** | **(72.3**        | **)**      | (52.3 | ) | (66.6 | ) |

 

**Reconciliationof Shareholders’ Equity**

 
| ** **                                                   | ** ** | **September** | ** ** |
|--------------------------------------------------------------|------------|---------------|------------|
| **(€ in millions)**                                     | ** ** | **2004**      | ** ** | **2003** | ** ** | **2002** | ** ** |
| **Shareholders’ Equity, as-reported under French GAAP** | ** ** | **(59.9**     | **)**      | 1,084.3 |   | 1,244.8 |   |
|                                                         |       |          | ** ** |   |   |   |   |
| Cumulative lease and interest adjustments                    | ** ** | **(84.0**     | **)**      | (1,290.5 | ) | (1,297.7 | ) |
| Effect of revaluing the ORAs and capital  lease obligation   | ** ** | **—**    | ** ** | 178.1 |   | 178.1 |   |
| Cumulative major fixed asset renovations  adjustment         | ** ** | **116.7**     | ** ** | 112.0 |   | — |   |
| Cumulative land investment grant adjustment                  | ** ** | **(11.9**     | **)**      | (11.7 | ) | (11.6 | ) |
| Other                                                        | ** ** | **(9.6**      | **)**      | (11.8 | ) | (1.0 | ) |
|                                                         |       |          | ** ** |   |   |   |   |
| **Shareholders’  Equity under U.S. GAAP**               | ** ** | **(48.7**     | **)**      | **60.4** | ** ** | **112.6** | ** ** |

 

115

----

 

**Summary Balance Sheet underU.S. GAAP**

 
| ** **                        | ** ** | **September** | ** ** |
|-----------------------------------|------------|---------------|------------|
| **(€ in millions)**          | ** ** | **2004**      | ** ** | **2003** | ** ** |
| Current assets                    | ** ** | **305.4**     | ** ** | 256.9 |   |
| Other assets                      | ** ** | **136.0**     | ** ** | 111.8 |   |
| Fixed assets                      | ** ** | **2,465.2**   | ** ** | 2,578.1 |   |
| **Total Assets**                  | ** ** | **2,906.6**   | ** ** | 2,946.8 |   |
|                              |       |          | ** ** |   |   |
| Current liabilities               | ** ** | **2,457.4**   | ** ** | 2,633.8 |   |
| Non-current liabilities           | ** ** | **158.3**     | ** ** | 214.2 |   |
| Long-term borrowings              | ** ** | **—**    | ** ** | — |   |
| Minority Interests                | ** ** | **339.6**     | ** ** | 38.4 |   |
| Shareholders’ equity         | ** ** | **(48.7**     | **)**      | 60.4 |   |
| **Total  Liabilities and Equity** | ** ** | **2,906.6**   | ** ** | 2,946.8 |   |

 

**Reconciliation ofBorrowings**

 
| ** **                                                              | ** ** | **September** | ** ** |
|-------------------------------------------------------------------------|------------|---------------|------------|
| **(€ in millions)**                                                | ** ** | **2004**      | ** ** | **2003** | ** ** |
| Total Borrowings, as-reported under French  GAAP(1)                     | ** ** | **1,946.0**   | ** ** | 806.4 |   |
| Unconsolidated Phase I SNCs debt and lease  financing arrangements      | ** ** | **4.0**       | ** ** | 1,400.9 |   |
| Total Borrowings                                                        | ** ** | **1,950.0**   | ** ** | 2,207.3 |   |
|                                                                    |       |          | ** ** |   |   |
| U.S. GAAP adjustments to revalue lease  financing arrangements and ORAs | ** ** | **—**    | ** ** | 1.6 |   |
|                                                                    |       |          | ** ** |   |   |
| Current portion of long-term borrowings(2)                              | ** ** | **(1,950.0**  | **)**      | (2,208.9 | ) |
|                                                                    |       |          | ** ** |   |   |
| **Total Long-term Borrowings under U.S. GAAP**                          | ** ** | **—**    | ** ** | — |   |

 

----

*(1)**        **Borrowings, excludingaccrued interest*

 

*(2)**        **All borrowings have beenclassified as current pending implementation of the Group’s financialrestructuring (See Note 1-3).*

 

**Descriptionof U.S. GAAP Reconciling Items**

 

***Lease and change in accounting principleadjustments***

 

The Group leasessubstantially all of its operating assets under various agreements. UnderFrench GAAP until October 1, 2003 (the first day of fiscal year 2004), theGroup did not capitalise these leases but rather accounted for them asoperating leases. Under U.S. GAAP, the underlying assets and liabilities andrelated depreciation and interest expense were reflected in the Group’sfinancial statements.

 

In January 2003,the Financial Accounting Standards Board (FASB) issued FASB Interpretation No.46, *Consolidation of Variable Interest Entities*(FIN46) and amended it by issuing FIN 46R in December 2003.  Variable interest entities (VIEs) areprimarily entities that lack sufficient equity to finance their activitieswithout additional financial support from other parties or whose equity holderslack adequate decision making ability. All VIEs with which the Company is involved must be evaluated todetermine the primary beneficiary of the risks and rewards of the VIEs.  The primary beneficiary is required toconsolidate the VIEs for financial reporting purposes.

 

In connection withthe adoption of FIN 46R, it was concluded that the Financing Companies fromwhich the Group leases substantially all of its operating assets were VIEs andthat the Group was the primary beneficiary. Under previously existing U.S. GAAP, the principal assets andliabilities of the Financing Companies were already consolidated under U.S.GAAP, except EDA and Centre de Congrès Newport S.A.S.  As a result, EDA and Centre de CongrèsNewport S.A.S. have been included in the U.S. GAAP consolidated group beginningOctober 1, 2003 (the first day of fiscal year 2004).  The lease contracts with these two entitieswere reflected as capital leases before the implementation of FIN 46R.  The cumulative effect of this change inaccounting principle as of September 30, 2004 was income of € 36.3million.

 

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***Interestadjustments***

 

Under U.S. GAAP, allinterest charges relating to debt instruments whose interest rates arescheduled to change or have interest “holidays” or forgiveness periods, arerequired to be calculated in accordance with the “effective interest method”.  This method calculates the estimated interestcharges over the life of the debt, and allocates this amount evenly over theterm of the debt using an effective yield. During fiscal years 2004 and 2003, this adjustment resulted in lessinterest expense under U.S. GAAP than that reported under French GAAP, asinterest expense calculated using this method differs from actual interestpaid.

 

***Majorfixed asset renovations adjustment***

 

During fiscal year2003, the Group adopted new accounting rules in France related to major fixedasset renovations (See Note 2).  UnderFrench GAAP, the retroactive impact of this change was recorded as a € 104.4million charge to shareholder’s equity as of October 1, 2002.  Under U.S. GAAP, the Group continues to defermajor fixed asset renovation costs and amortises them over a period of fiveyears.

 

***Bonds redeemable in shares (“ORAs”)***

 

Under French GAAP,the ORAs were originally recorded at face value as quasi-equity. Under U.S.GAAP, the ORAs were recorded at their discounted fair value upon issuance andincluded in the Group’s outstanding borrowings. The ORAs matured on July 11, 2004 and were redeemed in shares ofthe Company (See Note 12) and their carrying value of € 38.2 was transferred toshareholders’ equity.  The differencebetween the discounted fair value of the ORAs at their issuance and theirmaturity value was amortised to interest expense.  As of September 30, 2004 and 2003, thecarrying value of the ORAs included in U.S. GAAP borrowings was € 0 million and€ 39.7 million, respectively.

 

***Land investment grant subsidies adjustment***

 

Under French GAAP,government subsidies received with respect to the purchase of the land on theResort Site have been recorded as unearned revenue and recognised asexceptional income over 10 years.  UnderU.S. GAAP these subsidies have been recorded as a reduction of the book valueof the related land.

 

***Otheradjustments***

 

During fiscal year 2003,the Group sold and leased back three employee housing developments, whichgenerated a € 11.0 million gain under French GAAP.  Under U.S. GAAP, this gain will be recognisedstraight-line over the terms of the related leases.  As a result, the difference between Frenchand U.S. GAAP net results was a credit of € 0.9 million in fiscal year 2004 anda debit of € 10.8 million in fiscal year 2003.

 

During fiscal year2004, the Group incurred various costs linked to the negotiation of theRestructuring.  Under French GAAP thesecosts were recorded as either exceptional expenses (€ 12.6 million) or asequity issuance costs (€ 2.8 million). Under U.S. GAAP, € 7.8 millionof costs expensed under French GAAP have been deferred as debt issuance costs.

 

***Financialinstruments***

 

U.S. GAAP requires that all derivativeinstruments be recorded on the balance sheet at their fair value.  Changes in the fair value of derivatives arerecorded each period in current earnings or in other comprehensive income,depending on whether a derivative is designated as part of a hedgingrelationship and, if it is, depending on the type of hedging relationship.  For fair-value hedges in which the Company ishedging changes in an asset’s, a liability’s, or a firm commitment’s fairvalue, changes in the fair value of the derivative instrument will generally beoffset in the income statement by changes in the hedged item’s fair value.  For cash flow hedges in which the Company ishedging the variability of cash flows related to a variable-rate asset,variable-rate liability, or a forecasted transaction, the effective portion ofthe gain or loss on the derivative instrument will be reported in othercomprehensive income.  The gain or losson the derivative instrument that is reported in other comprehensive incomewill be reclassified as earnings in the periods during which earnings areimpacted by the variability of the cash flows of the hedged items.  The ineffective portion of all hedges will berecognised in current-period earnings.

 

During fiscal years 2004 and 2003, the Companyrecorded the change in the fair value of its interest rate derivative financialinstruments in comprehensive income.  Forforeign exchange financial derivatives, there was no change in the market valueof foreign exchange derivatives outstanding at the end of fiscal year 2004 whencompared to fiscal year 2003. In fiscal year 2003, the Company recorded a lossof € 0.1 million representing the change in the market value of foreignexchange derivatives outstanding at the end of the year.

 

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***Extraordinaryitems***

 

Under French GAAP the definition of exceptional items differssignificantly from the U.S. GAAP definition of extraordinary items. Noexceptional items in the French GAAP Statement of Income would be classified asextraordinary or non-operating under U.S. GAAP during fiscal years 2004 and2003.

 

***Comprehensiveincome***

 

Comprehensive incomeis a term used to define all non-owner changes in shareholders’ equity.  Comprehensive income is a concept notaddressed by French GAAP.  Under U.S.GAAP, comprehensive income includes, in addition to net income:

 

**•****                 **Movementsin cumulative translation adjustments

**•****                 **SFAS 133mark to market adjustments on derivative financial instruments as a designatedhedge, and

**•****                 **Minimumpension liability adjustments.

 

Included in othercomprehensive income in fiscal years 2004 and 2003 are a gain of € 5.2 millionand a gain of  € 2.1 million,respectively, representing the change in value of interest rate derivativesdesignated as cash flow hedges.

 

**Additional U.S. GAAPDisclosures**

 

***Employeestock options***

 

Under U.S. GAAP, theGroup follows Statement of Financial Accounting Standards 123, *Accounting for Stock-Based Compensation* (“SFAS 123”). TheGroup has elected under the provisions of SFAS 123 to continue to measurecompensation costs using the method of accounting prescribed by AccountingPrinciples Board Opinion 25,  *Accounting for Stock Issued to Employees.*

 

***Earningsper share***

 

Under U.S. GAAP, the Groupfollows Statement of Financial Accounting Standards 128, *Earnings perShare*, which requires the presentation of basic and diluted earningsper share (“EPS”). Basic EPS excludes all dilution and is calculated using theweighted-average number of common shares outstanding during the period. DilutedEPS reflects the potential dilution that would occur if securities or othercontracts to issue common stock were exercised or converted into common stock.

 

Under U.S. GAAP,basic and diluted loss per share amounts for fiscal years 2004 and 2003 were €0.07 and € 0.05, respectively.  As of September 30,2004 and 2003, 27 million and 159 million, respectively of potential shareswere excluded from the computation of diluted earnings per share because theireffect would have been anti-dilutive.

 

***Royalties and management fees***

 

The Group is party toa licensing agreement under which the Group pays royalties to an indirectwholly-owned subsidiary of TWDC.  Inaddition, the Company is bound by the terms of its by-laws to pay managementfees to Euro Disney S.A.S., also an indirect wholly-owned subsidiary ofTWDC.  As part of the 1994 financialrestructuring, the terms of the licensing agreement and the terms of theCompany’s by-laws were modified to reduce the amounts of these fees.  See Note 19(b) for a full description.  Under both French and U.S. GAAP, royaltiesand management fees have been recorded as due in accordance with the terms ofthe modified contracts.

 

The table belowcompares the total amount of the royalties and management fees recorded in theConsolidated Statements of Income to that which would have been recorded underthe original terms of the modified contracts. Pro- forma net loss and net loss per share reflect the loss for theperiods as if the royalties and management fees had not been reduced.

 
| ** **                                                                     | ** ** | **Fiscal  Year** | ** ** |
|--------------------------------------------------------------------------------|------------|------------------|------------|
| **(€ in millions, except  per share data)**                               | ** ** | **2004**         | ** ** | **2003** | ** ** | **2002** | ** ** |
| Pro-Forma royalties and management fees  under terms of the original contracts | ** ** | **110.2**        | ** ** | 107.3 |   | 111.9 |   |
| Reduction due to 1994 financial  restructuring                                 | ** ** | **(52.5**        | **)**      | (74.6 | ) | (77.2 | ) |
| Reduction due to 2003 waiver                                                   | ** ** | **—**       | ** ** | (24.6 | ) | — |   |
| Royalties and management fees recorded                                         | ** ** | **57.7**         | ** ** | 8.1 |   | 34.7 |   |
|                                                                           |       |             | ** ** |   |   |   |   |
| Pro-Forma U.S. GAAP Net Loss                                                   | ** ** | **(130.0**       | **)**      | (153.6 | ) | (144.5 | ) |
|                                                                           |       |             | ** ** |   |   |   |   |
| Pro-Forma U.S. GAAP Net Loss Per Share (in  €)                            | ** ** | **(0.12**        | **)**      | (0.15 | ) | (0.14 | ) |

 

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