Euro Disney S.C.A. ("Euro Disney") operates the Disneyland Paris theme park and resort complex on a 4,800-acre site near Paris, France. The company accounts for its 39% ownership interest in Euro Disney using the equity method of accounting. As of September 30, 1998, the company's recorded investment in Euro Disney was $340 million. The quoted market value of the company's Euro Disney shares at September 30, 1998 was approximately $452 million.
In connection with the financial restructuring of Euro Disney in 1994, Euro Disney Associés S.N.C. ("Disney SNC"), a wholly-owned affiliate of the company, entered into a lease arrangement with a noncancelable term of 12 years (the "Lease") related to substantially all of the Disneyland Paris theme park assets, and then entered into a 12-year sublease agreement (the "Sublease") with Euro Disney. Remaining lease rentals at September 30, 1998 of FF 8.3 billion ($1.5 billion) receivable from Euro Disney under the Sublease approximate the amounts payable by Disney SNC under the Lease. At the conclusion of the Sublease term, Euro Disney will have the option to assume Disney SNC's rights and obligations under the Lease. If Euro Disney does not exercise its option, Disney SNC may purchase the assets, continue to lease the assets or elect to terminate the Lease, in which case Disney SNC would make a termination payment to the lessor equal to 75% of the lessor's then outstanding debt related to the theme park assets, estimated to be $1.1 billion; Disney SNC could then sell or lease the assets on behalf of the lessor to satisfy the remaining debt, with any excess proceeds payable to Disney SNC.
Also as part of the restructuring, the company agreed to arrange for the provision of a 10-year unsecured standby credit facility of approximately $201 million, upon request, bearing interest at PIBOR. As of September 30, 1998, Euro Disney had not requested that the company establish this facility. The company also agreed, as long as any of the restructured debt is outstanding, to maintain ownership of at least 34% of the outstanding common stock of Euro Disney until June 1999, at least 25% for the subsequent five years and at least 16.67% for an additional term thereafter.
Based on management's total gross revenue estimates as of September 30, 1998, approximately 82% of unamortized film and television costs (except in-process) are expected to be amortized during the next three years.
The company's borrowings at September 30, 1998 and 1997, including interest rate swaps designated as hedges, are summarized below.
| (a) | The company has established bank facilities totaling $5.2 billion which expire in one to four years. Under the bank facilities, the company has the option to borrow at various interest rates. Commercial paper is classified as long-term since the company intends to refinance these borrowings on a long-term basis through continued commercial paper borrowings supported by available bank facilities. |
| (b) | Includes $771 million in 1998 and $821 million in 1997 representing minority interest in a real estate investment trust established by the company. |
| (c) | Denominated principally in U.S. dollars, Japanese yen, Australian dollars and Italian lira. |
| (d) | The average coupon rate is 2.7% on $1.3 billion face value of notes. Additional interest may be paid based on the performance of designated portfolios of films. The effective interest rates at September 30, 1998 and 1997 were 6.8% and 6.3%, respectively. |
| (e) | The stated interest rate represents the weighted average coupon rate for each category of borrowings. For floating rate borrowings, interest rates are based upon the rates at September 30, 1998 and 1997; these rates are not necessarily an indication of future interest rates. |
| (f) | Amounts represent notional values of interest rate swaps. |
| (g) | The effective interest rate reflects the effect of interest rate and cross-currency swaps entered into with respect to certain borrowings as indicated in the "Pay Float" and "Pay Fixed" columns. |
Borrowings, excluding commercial paper and minority interest, have the following scheduled maturities:
The company capitalizes interest on assets constructed for its theme parks, resorts and other property, and on theatrical and television productions in process. In 1998, 1997 and 1996, respectively, total interest costs incurred were $824 million, $841 million and $545 million, of which $139 million, $100 million and $66 million were capitalized.
In 1998, 1997 and 1996, income tax benefits attributable to employee stock option transactions of $327 million, $81 million and $44 million, respectively, were allocated to stockholders' equity.
The company maintains pension plans and postretirement medical benefit plans covering most of its domestic employees not covered by union or industry-wide plans. Employees hired after January 1, 1994 are not eligible for the postretirement medical benefits. Pension benefits are generally based on years of service and/or compensation. The following chart summarizes the balance sheet impact, as well as the benefit obligations, assets, funded status and rate assumptions associated with the pension and postretirement medical benefit plans.
