SEC Info℠

Home

Search

My Interests

Help

Sign In

Please Sign In

Euro Disney S C A – ‘20-F’ for 9/30/06

On:  Monday, 3/5/07, at 10:41am ET   ·   For:  9/30/06   ·   Accession #:  1193125-7-46034   ·   File #:  33-79548

Previous ‘20-F’:  ‘20-F’ on 4/4/06 for 9/30/05   ·   Latest ‘20-F’:  This Filing

in

this entire Filing. an “Entity” Search.

Show

Documents searched

and

each “hit”. the 1st “hit”.

↓↑Hints

 Text Wildcards:  ? (any letter/digit),  * (many).  Search Logic:  for Documents:  & (and),  | (or);  for Text:  | (anywhere),  "(&)" (near).  Details... 

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 3/05/07  Euro Disney S C A                 20-F        9/30/06    6:1.9M                                   RR Donnelley/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 20-F        Annual Report of a Foreign Private Issuer           HTML   1.31M 
 2: EX-12.1     Chairman and Chief Executive Officer Certification  HTML     14K 
 3: EX-12.2     Chief Financial Officer Certification               HTML     14K 
 4: EX-13.1     Chairman and Chief Executive Officer and Chief      HTML      9K 
                          Financial Officer Certification                        
 5: EX-15.1     Management Report on Internal Control Over          HTML      9K 
                          Financial Reporting                                    
 6: EX-15.2     Internal Control Description Pursuant to the        HTML     18K 
                          French Financial Security Law                          

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2006

Commission file number 33-79548

Euro Disney S.C.A.

(Exact name of registrant as specified in its charter)

Immeubles Administratifs

Route Nationale 34

77700 Chessy

France

(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act: None

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

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

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 3,897,649,046 shares of common stock, par value € 0.01.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES  ¨    NO  x.

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    YES  ¨    NO  x.

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer: See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨                                Accelerated filer  x                                Non-accelerated filer  ¨

Indicate by check mark which financial statement item the registrant has elected to follow.    Item 17  x    Item 18  ¨.

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x.

Table of Contents

TABLE OF CONTENTS

Table of Contents

PART I

PRESENTATION OF INFORMATION AND ACCOUNTING PRINCIPLES

Euro Disney S.C.A. (the “Company”), including its legally controlled subsidiaries (the “Legally Controlled Group”) and consolidated special-purpose financing companies (the “Financing Companies”), together the “Group”, publishes its consolidated financial statements (“Consolidated Financial Statements”) in euros. All currency amounts in this annual report on Form 20-F (“Annual Report”) are expressed in euros.

The Company prepares its Consolidated Financial Statements in accordance with International Financial Reporting Standards (“IFRS”), which differ in certain significant respects from generally accepted accounting principles in the United States of America (“U.S. GAAP”). Unless otherwise specified, all financial information presented in this Annual Report has been derived from or based on the Consolidated Financial Statements. For a discussion of the principal differences between IFRS and U.S. GAAP as they relate to the Group’s consolidated results of operations and financial position, see Item 19 “Financial Statements and Exhibits” – Note 25.

The Company’s fiscal year begins on October 1 of a given year and ends on September 30 of the following year. For example, fiscal year 2006 is the fiscal year that ends on September 30, 2006.

In February 2005, the Company implemented a comprehensive restructuring (the “2005 Restructuring”) of the Group’s financial obligations. The 2005 Restructuring included amendments to the Group’s principal financing agreements as well as its license and management agreements with The Walt Disney Company (“TWDC”); changes to the Group’s organizational structure; and a € 253.3 million share capital increase. The effect of the 2005 Restructuring was to provide new cash resources to the Group, to reduce or defer cash payment obligations and to provide flexibility for investment and development.

Not applicable.

Not applicable.

1

Table of Contents

A.     SELECTED FINANCIAL DATA

Five-Year Selected Financial Data

The following table sets forth the Group’s selected consolidated financial data. This table is qualified by reference to, and should be read in conjunction with, the Consolidated Financial Statements and the related notes thereto included in Item 19 “Financial Statements and Exhibits” and Item 5 “Operating and Financial Review and Prospects”.

2

Table of Contents

3

Table of Contents

Exchange Rates

Since the principal market for the Company’s common stock is the Euronext Paris exchange, fluctuations in the exchange rate between the euro and the U.S. dollar will affect the U.S. dollar value of an investment in its common stock and dividend and other distribution payments, if any, thereon. The following tables set forth, for each of the periods indicated, certain information related to the euro / U.S. dollar exchange rate based on the noon buying rates in the city of New York for cable transfers in euro as certified for customs purposes by the Federal Reserve Bank of New York (the “Noon Buying Rates”) expressed in dollars per € 1.00. Such rates are provided solely for the convenience of the reader and are not necessarily the rates that were used to prepare the Group’s Consolidated Financial Statements nor the selected consolidated financial data included herein.

The Noon Buying Rate on February 27, 2007 for the euro against the U.S. dollar was $ 1.32 per € 1.00 (€ 0.75 per dollar). No representation is made that the euro could have been converted into U.S. dollars at the rates shown herein or at any other rates for such periods or at such dates.

Not applicable.

Not applicable.

4

Table of Contents

The Group is subject to various risks relating to changing competitive, economic, political, legal, social, industry, business and financial conditions. These conditions along with the Group’s approaches to managing certain of these risks are described below and discussed in greater detail elsewhere, in this Annual Report, particularly under the headings Item 5 “Operating and Financial Review and Prospects”, Item 8 “Financial Information” and Item 11 “Quantitative and Qualitative Disclosures about Market Risk”. The most significant factors affecting our operations include the following:

Risks Relating to the Group

The Group’s high level of borrowings requires the Group to devote a large portion of its operating cash flow to service debt, and may limit its operating flexibility

The Group is highly leveraged. As of September 30, 2006, the Group had consolidated borrowings of € 1,941.3 million and shareholders’ equity of € 287.1 million. In addition, the Group incurs significant royalties and management fees to affiliates of TWDC. The Group’s high degree of leverage and the undertakings towards the Group’s Lenders can have important consequences for its business, such as:

If the Group cannot pay its debt service, royalties and management fees and meet its other liquidity needs from operating cash flow, 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 favorable terms, or at all. The Group’s financing agreements limit its ability to take some actions that could generate additional cash proceeds.

The Group must meet financial performance covenants that necessitate improvements to its operating margin

The Group’s strategic plan assumes earnings growth, from among other things, the impact of the Group’s € 240 million multi-year investment program (“Development Plan”). Absent such growth, the Group may not be able to meet its financial performance covenants. There can be no assurance that these covenants will be met for any particular measurement period. If conditions were such that the covenants appeared unlikely to be met, management would pursue measures to meet the covenants, through revenue growth and expense reduction, or would seek to obtain waivers from debt holders. If these efforts were unsuccessful, the relevant lenders could accelerate the maturity of the debt and take other actions that could adversely affect the Group. For additional information regarding the financial performance covenants, see Section “Cash flows and Liquidity” in the Management Report.

The Group has recently incurred losses, and expects to continue to incur a significant aggregate amount of losses over the next several fiscal years

Under IFRS, the Group’s net loss for fiscal year 2006 totaled € 88.6 million, compared to a net loss of € 53.1 million in fiscal year 2005. Excluding the non-recurring, non-cash gain in fiscal year 2005 that resulted from the 2005 Restructuring, net loss amounted to € 112.0 million for fiscal year 2005. Management expects that

5

Table of Contents

even if the Group meets its growth objectives, the Group will incur a significant aggregate amount of net losses over the next several fiscal years. Accordingly, the value of the Company’s shares could be adversely affected.

The Group is subject to Interest Rate Risks

As of September 30, 2006 and September 30, 2005, approximately 30% of the Group’s borrowings were tied to floating interest rates, resulting in a weighted average interest rate of 4.87% and 4.47%, respectively, on total borrowings of € 1.9 billion. As of September 30, 2006, all of the Group’s borrowings tied to floating interest rates were covered by interest rate swaps, except for TWDC loans. While the Group attempts to reduce interest rate risks in respect of a substantial portion of its borrowings through the use of interest rate swaps and other hedging techniques, an increase in interest rates could adversely affect the Group’s financial condition. An hypothetical 10% increase in interest rates, as of September 30, 2006 and 2005, would have a € 0.7 million and € 1.2 million, respectively, unfavorable impact on annual cash flows. This amount excludes the positive cash flow impact such a change in interest rates would have on short term investment income.

The Group is subject to Exchange Rate Risks

A portion of the Group’s purchases and capital investments are denominated in U.S. dollars and could be adversely affected by an increase in the relative value of the U.S. dollar against the euro. The Company attempts to reduce the forecasted dollar risk by purchasing hedging instruments, although it cannot be certain that its hedging techniques will be fully effective to insulate the Group from the risk of changes in value of the U.S. dollar. A weakening of the U.S. dollar (such as that which has recently occurred) also makes tourist destinations in the United States relatively more attractive, increasing competitive pressures on the Group and potentially adversely affecting attendance at the resort. In addition, a significant portion of the Group’s guests (18% in fiscal year 2006) come from the United Kingdom, which is not part of the euro zone. An increase in the relative strength of the euro against the British pound would raise the price of a visit to the resort for guests visiting from the United Kingdom and could negatively affect their rates of attendance, per-guest spending and hotel occupancy.

The Company has not paid any dividends in recent fiscal years, and does not expect to pay dividends for a substantial period of time

The Company paid no dividends for fiscal years 2006, 2005 and 2004 and does not expect to pay dividends for a substantial period of time. The Company’s ability to pay dividends is dependent on the availability of distributable profits under French law, which, in turn, depends on the Company’s operating results, liquidity and financial condition. In addition, certain of the Company’s loan agreements limit or prohibit the payment of dividends in certain circumstances.

The Group’s Relationships with TWDC – Control by TWDC: Potential Conflicts of Interest

TWDC currently owns 39.78% of the Company’s shares and voting rights through an indirect, wholly-owned subsidiary, EDL Holding Company. In addition, TWDC owns 18% of EDA, which is the Group’s principal operating subsidiary. Under French law, the Company’s business (and that of EDA) is managed by a Management Company (gérant) that is appointed by the Company’s general partner (associé commandité). The shareholders elect a Supervisory Board to oversee the Company, but the Supervisory Board does not have the power to remove the Management Company. Both the Company’s Management Company and the Company’s general partner are wholly-owned indirect subsidiaries of TWDC, and the same is true of EDA as regards the Management Company and two of its general partners. EDA incurs significant management fees payable to the management company. For a description of the Company’s corporate governance, see Item 10 “Additional Information” – Section B “Memorandum and Articles of the Association”.

6

Table of Contents

The Group also has several business relationships with TWDC that are important to the Group’s operations. The Group uses Disney intellectual and industrial property rights, for which the Group pays royalties to an affiliate of TWDC. The Company’s Management Company provides and arranges for a variety of additional technical and administrative services, for which it receives a fee and is reimbursed for its direct and indirect costs. For example, the designer and construction manager for Buzz Lightyear Laser Blast^®, the new attraction in the Disneyland Park, is an affiliate of TWDC.

Through its ownership interests, rights and relationships, TWDC has effective control of the Company and EDA.

The relationships of the Group with TWDC and its affiliates create potential conflicts of interest. While the Group believes that its dealings with TWDC and its affiliates are commercially reasonable, the Group has not solicited bids or independent evaluations of the terms of its commercial relationships with TWDC. All such dealings, which must be authorized by the Company’s or EDA’s Supervisory Board, are subject, under the conditions of applicable law, to subsequent ratification by those companies’ shareholders. All such dealings presented to the shareholders for ratification are further subject to a special report issued by the companies’ statutory auditors. Members of the Company’s Supervisory Board who are affiliated with TWDC are not entitled to vote on such dealings.

Risks of Investing in the Theme Park Resorts Business

Demand is variable and can be impacted by seasonality as well as economic and geopolitical conditions

Disneyland Resort Paris is subject to significant seasonal and daily fluctuations in attendance and to the effects of general economic conditions. While the Group has implemented and continues to implement measures designed to alleviate fluctuations in attendance and to mitigate their impact, the Group cannot be certain that such measures will sufficiently offset fluctuations in demand. In addition, the effectiveness and timing of marketing campaigns can have a significant impact on attendance levels. Given the discretionary nature of vacation travel and the fact that travel and lodging expenses often represent a significant expenditure for the average consumer, such expenditures may be reduced, deferred or cancelled by consumers during times of economic downturn or uncertainty.

In addition, a certain number of events, such as international terrorist attacks and subsequent military actions can adversely affect travel related industries and cause sudden economic downturns. Although the Group’s management closely monitors its operating trends and has developed cost-reduction strategies to address such risks, such steps, depending on the duration and intensity of the downturn, may be insufficient to prevent the Group’s financial performance from being adversely affected.

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

As part of the 2005 Restructuring, the Group obtained bank authorization and has the obligation to complete the Development Plan over the next few fiscal years. The Development Plan includes the construction of new attractions and other investments designed to increase attendance. There can be no assurance, however, that the planned investments will in fact result in increased attendance at levels anticipated by the Group (or at all), or that, if attendance increases, the additional revenues will be sufficient to recover the amounts invested and provide a return on such investments or repayment 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

The Group competes for guests throughout the year with other European and international holiday destinations and also other leisure and entertainment activities in the Paris region. The parks operated by the

7

Table of Contents

Group also compete with other European theme parks. The Group also relies on convention business, which is highly competitive, for a portion of its revenues, and to maintain occupancy in Disneyland Resort Paris hotels during off-peak periods.

The Group’s hotels are subject to competition from the third-party hotels located on the resort site, in central Paris and in the Seine-et-Marne area. The Group believes that its hotels are priced at a premium compared to the market, reflecting their proximity to Disneyland Park and Walt Disney Studios Park, their unique themes and the quality service that they offer. The Group is aware, however, that a number of less costly alternatives exist.

Competition limits the Group’s ability to raise prices, and may require the Group to make significant new investments to avoid losing guests to competitors.

Industrial and Environmental Risks

The Group is a service enterprise and thus is not exposed to significant industrial risks. Nevertheless, Disneyland Resort Paris includes a number of activities and installations which are classified within the meaning of environmental regulations, eleven of them being subject to specific administrative authorization.

Given the nature of the Group’s activities, failure of certain classified operations could result in disruption in operations and reduced attendance.

The Group has dedicated on-site fire department and supervision teams, and automatic sprinkler protection in most buildings.

The Group maintains a department of approximately twelve full-time employees who work on environmental and regulatory fire prevention. In addition, approximately fifteen employees responsible for risk management in job safety matters have received specific training in environmental risks.

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 any U.S. exchange. Therefore, the opportunity for U.S. holders to trade shares may be limited.

Introduction

The Group is primarily engaged in the development and operation of Disneyland 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 32 kilometers (approximately 20 miles) east of Paris in Marne-la-Vallée, Seine-et-Marne, France. Disneyland Resort Paris principally consists of Disneyland Park, Walt Disney Studios Park (collectively the “Theme Parks”), seven themed hotels (the “Hotels”), including two convention centers, the Disney Village entertainment center comprising shopping and restaurant facilities, and a 27-hole golf course. The Group’s operating activities also include the management and development of the Site, which currently includes approximately 1,000 hectares of undeveloped land. Most of these facilities (with the exception of the Walt Disney Studios Park facilities, Additional Disneyland Park Assets (“ACP Assets”), two hotels and the golf course, which are owned by the Legally Controlled Group) are leased from the Financing Companies. The Legally Controlled Group has no ownership interest in the Financing Companies. Disneyland Resort Paris is

8

Table of Contents

modeled on the theme park and resort concepts developed by The Walt Disney Company (“TWDC”) for its own theme parks and hotel infrastructure.

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

In March 1987, TWDC entered into an agreement for the creation and operation of Euro Disneyland in France (the “Master Agreement”) with the French Republic and certain other French public authorities (the “Public Parties”). The Company became a party to the Master Agreement after TWDC’s initial signature. The Master Agreement sets out a master land-use plan and general development program establishing the type and size of facilities that the Company has the right, subject to certain conditions, to develop at the Resort Site over a 30-year period ending in 2017.

The Resort, as it exists today, represents the fulfillment of the following phases, and is currently in the initial stages of phase III:

The Group experienced significant losses during the period from April 12, 1992 (the “Opening Day”) through September 30, 1994. Net operating losses before the cumulative effect of an accounting change totaled approximately € 625.0 million for the two-and-a-half-year period ending September 30, 1994. In addition, the Group began to experience serious cash flow difficulties in the course of fiscal year 1993. In March 1994, the Group entered into a memorandum of agreement with major stakeholders outlining the terms of a major restructuring of the Group’s obligations and those of the Phase I Financing Companies and of TWDC. The 1994 Financial Restructuring essentially provided for concessions and contributions to be made by the Group’s lenders and by TWDC, and for the prepayment of certain outstanding loan indebtedness of the Group and Phase I Financing Companies, using the proceeds of a share capital increase of the Company amounting to € 907.0 million.

In fiscal year 1999, the Company obtained the approval of its lenders to obtain the financing necessary for the construction of Walt Disney Studios Park, which opened on March 16, 2002 adjacent to the Disneyland Park.

9

Table of Contents

The construction of Walt Disney Studios Park was financed using the proceeds received from a share capital increase of € 219.5 million in fiscal year 2000 and a new subordinated long term loan from the Caisse des Dépôts et Consignations (“CDC”) of € 381.1 million.

In fiscal year 2003, the Group experienced reduced revenues, particularly as a result of a prolonged downturn in European travel and tourism combined with challenging general economic and geopolitical conditions in key markets of the Group. This reduction occurred, despite the opening of Walt Disney Studios Park, where the number of visitors and the revenues generated were below expectations. The Group also recorded increased losses as a result of reduced revenues, as well as higher operating costs and higher marketing and sales expenses related to the opening of Walt Disney Studios Park.

In this context, the Company (on behalf of the Group) entered into negotiations with its various lenders with a view to restructuring all the credit agreements. After receiving successive waivers of covenants in its credit agreements, the Company (on behalf of the Group) implemented a new restructuring in February 2005 that included amendments to the Group’s financing agreements and agreements with TWDC, changes to its organizational structure and a € 253.3 million capital increase (for further information, see the section entitled “2005 Financial Restructuring” in this Annual Report).

Disneyland Resort Paris is one of Europe’s leading family vacation destinations.

During 2006, the Group continued its development strategy designed to attract and retain Theme Parks visitors and Hotel guests, and started to see some initial benefits. Theme Parks attendance for fiscal year 2006 increased by 4% compared to fiscal year 2005 to 12.8 million, while Hotel occupancy increased by 2.8 percentage points compared to fiscal year 2005 to 83.5% in fiscal year 2006.

The 2005 Restructuring was an important step in re-establishing the Group’s liquidity and a necessary condition to allow the Group to pursue its development strategy, described below. The impact of the 2005 Restructuring is described in Item 5 – Section B.2.1 “Debt – 2005 Financial Restructuring”.

The Group designed its development strategy to take advantage of what management believes are significant opportunities to attract and retain visitors. Market research indicates that there are substantial numbers of European families that have never visited the Resort, but have indicated that they might like to do so in the future. The Group’s strategy to take advantage of this opportunity includes the 2006 opening of Buzz Lightyear Laser Blast^®, the construction of three additional new attractions scheduled to open in fiscal years 2007 and 2008 and the enhancement of existing attractions and the magical atmosphere of the Theme Parks. The Group’s objective is to deliver a guest experience that exceeds expectations. It remains committed to its current development strategy and continually strives to adapt it to current changes in the leisure and tourism landscape of its principal markets.

The principal elements of the Group’s development strategy are as follows:

The Group revitalizes the Disneyland Park experience and enhances the Walt Disney Studios Park experience by adding new attractions and entertainment, while continuing to drive guest satisfaction through increased attraction availability, reduced wait times, an improved food and beverage experience and unique merchandise innovations.

With the increase in ongoing capital expenditure authorization provided by the 2005 Restructuring, the Group has reinvigorated its long-standing policy of continually upgrading Disneyland Park.

In fiscal year 2005 the first example of this element of the strategy was the upgrade of Space Mountain, which has been renamed Space Mountain: Mission 2, creating a completely new experience in order to provide the visitors with a new twist on this already popular roller coaster ride.

10

Table of Contents

In fiscal year 2006, Buzz Lightyear Laser Blast^® opened in Discoveryland at the Disneyland Park. Buzz Lightyear Laser Blast^® is an interactive ride adventure featuring Buzz Lightyear and characters inspired by the Disney / Pixar film, Toy Story 2. Buzz enlists guests to help him in the fight against the evil Emperor Zurg. Boarding a space cruiser, the guests spin, twist and turn their way through the galaxy while shooting at Zurg’s bad toy forces with on-board blasters. With each target hit, guests accumulate points that help them rise through the ranks of Buzz Lightyear’s elite squadron and help save the toy universe.

Beginning with fiscal year 2007, new additions are planned in the Walt Disney Studios Park. First, two new attractions, Cars Race Rally and Crush’s Coaster (inspired by the Disney / Pixar films Cars and Finding Nemo), are scheduled to open. They will be followed by The Twilight Zone Tower of Terror, which has been extremely popular in the TWDC’s U.S. and Japan parks, scheduled to open in fiscal year 2008.

These attractions are designed to add to the appeal and capacity of Disneyland Resort Paris, further enhancing the core guest experience.

The Group focuses visitors on the attractiveness of its own Hotels in order to meet the challenges presented by the opening of new on-site hotels operated by third-parties in fiscal years 2003, 2004 and 2005. The Group continues to develop unique services, while continuing to communicate and deliver the “Disney Difference” for guests staying in these hotels. Its marketing efforts highlight the proximity of its Hotels to the Theme Parks and special attractions such as Disney character breakfasts.

The Group has implemented separate sales and marketing efforts designed specifically to encourage attendance by either first-time or repeat visitors, taking advantage of the large untapped population base in Europe discussed in Item 4 – Section A.4. “Marketing and Sales Strategy”. The marketing effort has been redesigned to focus on families in core and selected markets. This has been done separately to drive first-time and repeat visits and encourage longer stays. Magic, excitement and sharing special moments with children will remain at the heart of the Group’s consumer communication.

The Group is also adapting its sales approach to the changing travel distribution landscape in Europe. In each national market, the Group chooses and focuses on the most appropriate partners (whether new or traditional) and aligns its reward and support structures to recognize performance while continuing to support its direct distribution channels. At the same time, the Group will continue to invest in systems and processes designed to grow sales through all channels.

The Group had implemented innovative pricing strategies in order to improve the perception of the value of its Theme Parks and reduce the affordability barrier of its products and services. Pricing is tailored to the different segments in each market in order to enable guests to design the package that best meets their needs and budget.

The Group is developing procedures to ensure that its employees receive the training necessary, not only to deliver the service excellence visitors expect, but also to develop personally and professionally and to build career paths.

Additionally, the Group offers employees a variety of social support programs from special events and recognition, to connections with local social programs and other features to make Disneyland Resort Paris the most desired employer in the region. Work has also been done with employee representatives to ensure maximum flexibility in matching staffing against guest needs and so to best manage costs against the inherent seasonality of demand.

11

Table of Contents

In December 2006 and after successful completion of negotiations with trade unions, the Group reached two major agreements on salaries and working time. These agreements provide the Group’s employees with higher salaries and allow the Group greater flexibility to staff the Resort according to guest demand levels. The Group’s strategy is to continue to make Disneyland Resort Paris an even better place to work.

The Group’s second business activity is the development and management of the 2,000 hectare site within the terms set out in the Master Agreement. The Group’s strategy is to maximize the value of this land and the overall site and to protect the environment of the tourist destination through the harmonious addition of resort, retail, office and residential real estate projects.

With its public and private partners, the Group will lead the development of the Val d’Europe new urban district in order to build an outstanding hub of infrastructure and a major economic and urban pole that could ultimately host 40,000 inhabitants and 40,000 jobs.

The Group operates in the following segments:

A breakdown of total revenues by major segment and activity during the past two fiscal years is set forth in the table below:

Within the Resort segment, Theme Parks activity includes all operations of Disneyland Park and Walt Disney Studios Park, including merchandise, food and beverage, special events and all other services provided to guests in the parks. Theme Parks revenues are primarily driven by two factors: the number of guests and the total average spending per guest (which includes the admission price and spending on food, beverage and merchandise).

The Theme Parks are operated on a year-round basis. In the first years of operations, Disneyland Park experienced significant difficulties in accommodating all guests during peak days, which resulted in long wait times for attractions, guest dissatisfaction and lost revenues. Despite progress, operations continue to be subject to seasonal fluctuations.

12

Table of Contents

Beginning in fiscal year 2004, seasonal Theme Parks pricing has been eliminated and replaced with stable year-round ticket pricing. However, specific packages are regularly offered for specific markets.

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

The following table summarizes the evolution of the single-gate, one-day Theme Parks admission prices, attendance and average spending per guest for the last five fiscal years:

Disneyland Park

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

There are 43 attractions in Disneyland Park, including upgraded versions of standard features of Disney Theme Parks around the world such as: Big Thunder Mountain, a roller coaster which simulates a mining railway train; Pirates of the Caribbean, which reproduces a pirate attack on a Spanish fort of the 17^th century; Phantom Manor, a haunted Victorian mansion; It’s a small world, an exhibition of dolls from around the world, dressed in their national costumes; and Honey, I Shrunk the Audience!, a three-dimensional film with interactive special effects during which spectators participate in the illusion of being “shrunk”. Other popular attractions that are unique to Disneyland Park include: Indiana Jones and the Temple of Peril, a full-loop roller coaster ride through simulated ancient ruins; and Space Mountain: Mission 2, a roller coaster ride themed to the work of Jules Verne in which guests board a spaceship and are catapulted by a giant canon into outer space.

Disneyland Park also has five permanent theatres at which live stage shows are presented throughout the year. Examples from the past and present include The Tarzan Encounter and Mickey’s Winter Wonderland, and more recently The Legend of the Lion King. The entertainment in the Disneyland Park also includes parades and firework displays, such as the Wonderful World of Disney Parade, Fantillusion Parade and Wishes. As a result of the number of guests that they attract, shows and parades drive an increase in the guest attendance of Disneyland Park while at the same time increasing guest satisfaction.

13

Table of Contents

In addition to the permanent Disneyland Park attractions, parades and live stage shows, there are numerous seasonal events throughout the year which in the past have included the Halloween Festival in October, special Christmas festivities in December and early January, and the Kids Carnival in February and March. The appearance of Disney characters and their interaction with guests is another important aspect of the entertainment provided in the Disneyland Park.

Disneyland Park also has an innovative reservation system called Fastpass. 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 may return and enter directly into the pre-show or boarding area. The Fastpass system has been installed at six major attractions: Space Mountain: Mission 2, Indiana Jones and the Temple of Peril, Peter Pan’s Flight, Big Thunder Mountain, Star Tours and Buzz Lightyear Laser Blast^®.

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 television both from behind the scenes and in front of the camera. Guests discover the world of cinema, see how movies are made today and step into the future of movie making. They also have the opportunity to be part of the action, and get hands-on experience in animation techniques and special effects.

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 (the two others being the Warner Brothers Movie World Park in Germany and the Warner Brothers Movie World Park in Spain). Walt Disney Studios Park covers approximately 25 hectares, which is about half the size of Disneyland Park, and will 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 gate designed to look like the entry gates of the major Hollywood studios in the 1930s. The main gate provides access to a richly decorated central hub where all the ticketing and guest welcome services are located.

Walt Disney Studios Park includes nine major attractions, several of which were specifically developed for the park. Examples include: Moteur… Action!, Stunt Show Spectacular, a live show in which stuntmen, facing an audience of up to 3,200 guests, simulate the filming of an action scene involving car and motorcycle chases and other special effects; CinéMagique, a lyrical and emotional salute to the classics of international cinema; Armageddon, a revealing look into the world of film special effects while on board a spaceship hit by a meteorite shower; and Animagique, featuring some of the greatest moments of almost 80 years of Disney animation.

The park also features upgraded versions of attractions from Disney MGM-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 music recording studio, and Catastrophe Canyon, the highlight of the Studio Tram Tour: Behind the Magic, which allows guests to experience a simulated earthquake and the resulting explosions and floods.

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

As in Disneyland Park, the Fastpass system reduces guest waiting-times at Rock’N’Roller Coaster and the Flying Carpets over Agrabah.

The Disney Channel rents and maintains studios and offices in its branded buildings adjacent to attractions. The Group receives annual rents and cost reimbursements of € 2.7 million for this space.

14

Table of Contents

Also included in the Resort segment are the Hotels and Disney Village operations. Revenues from these activities include room rental, food and beverage, merchandise, dinner shows, convention revenues and fixed and variable rent received from third-party partners operating within the Resort.

All of the hotel and resort amenities are currently operated on a year-round basis. Hotel operations are subject to significant seasonal fluctuations, as well as significant fluctuations between weekdays and weekends especially in off-peak seasons. The 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 these fluctuations. The Group believes that the successful implementation and marketing of these events is important to maintaining high average occupancy levels at the Hotels.

Hotels Operations

In fiscal year 2006, approximately 28% of total Hotel room-nights sold were generated in the three-month period from June through August, while approximately 23% were generated in the three-month period from November through January, versus 36% and 14%, respectively, in fiscal year 1993 during the same periods. The Group currently differentiates pricing according to the season and the level of demand with a focus on yield optimization.

The following table shows the evolution of the average occupancy rate and per-room spending:

The Group operates seven hotels at the Resort: the Disneyland Hotel, the Hotel New York, the Newport Bay Club, the Sequoia Lodge, the Hotel Cheyenne, the Hotel Santa Fe and the Davy Crockett Ranch. Together, the Hotels have a total capacity of approximately 5,800 rooms. Each of the Hotels was designed and built with a specific theme and for a particular market segment. The Disneyland Hotel, which is located at the entrance of Disneyland Park, and the Hotel New York are positioned as deluxe hotels offering service equivalent to that of the best hotels in Paris. The Newport Bay Club and the Sequoia Lodge are positioned as “first-class” hotels, while the Hotel Cheyenne and the Hotel Santa Fe were designed as “moderately-priced” hotels. The Davy Crockett Ranch campground is comprised of individual bungalows with private kitchens, camping sites, sports and leisure facilities and a retail shop. Both the Hotel New York and the Newport Bay Club include convention facilities, which provide a total of approximately 10,500 square meters of meeting space. Resort amenities also include 12 restaurants, 9 cafés/bars, a 27-hole golf course, 5 swimming pools, 4 fitness centers, tennis courts and an ice-skating rink.

A wide range of services is offered at the Hotels. Guests are provided transportation between each of the Hotels (except the Davy Crockett Ranch) and the train station and are given the option to check into the Hotels directly from the Chessy-Marne-La-Vallée train station or from on board the Eurostar (London) and Thalys (Brussels and Cologne) trains arriving at Disneyland Resort Paris. As part of the check-in process, guests are provided with room information and welcome booklets, and for guests arriving by train, the Hotels also offer a luggage service, which allows them to go directly to the parks and have their luggage delivered from the train station to their rooms. Entertainment is also an integral part of the Hotel services, including Disney character

15

Table of Contents

breakfasts and dinners, character meet-and-greets in the lobbies of certain hotels, face-painting workshops, and live music in the bars of certain Hotels. Children’s activity corners have also been set up where children can take part in various activities while allowing their parents additional leisure time.

In addition to the seven Disneyland Resort Paris Hotels described above, several third-party managed hotels having signed sales and marketing agreements with the Group are currently operating on the Resort Site. These hotels which benefit from the “Selected Hotel” or “Associated Hotel” designations, depending on their level of integration in the Resort, are as follows:

These hotels benefit from transport shuttles to and from the Theme Parks as well as free parking for their guests (Selected Hotels only), and are an important source of guest attendance at the Theme Parks. For certain of these hotels, the Group has access to blocks of rooms and receives commissions for selling those rooms to guests. Any revenues earned associated with these agreements are recorded in the “Other Revenue” line of the Resort segment. See the sub-section headed “Real Estate Development Segment” for a discussion of hotel capacity development projects currently in process.

Disney Village Operations

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

The over-riding themes of Disney Village are “American Places” and “American Entertainment” in the spirit of a coast-to-coast trip from New York to Los Angeles. The largest of its facilities is an indoor arena seating more than 1,000 guests for dinner and a performance of Buffalo Bill’s Wild West Show. Other facilities include themed bars with music, themed restaurants, including Café Mickey, Planet Hollywood, Rainforest Café, Annette’s Diner, McDonald’s, and King Ludwig’s Castle, retail shops and a 15-screen multiplex Gaumont cinema with one of the largest screens in Europe. The Group manages certain of the facilities in the Disney Village, such as the Buffalo Bill’s Wild West Show, merchandise boutiques and bars. Certain restaurants are managed on behalf of the Group by Groupe Flo, a French catering company. In addition, certain of the facilities, such as the Planet Hollywood, McDonald’s, Rainforest Café and King Ludwig’s Castle restaurants, and the Gaumont cinema, are owned and managed by third parties.

Food and beverage

The Group has 68 restaurants and bars throughout the Resort (four of which are operated by Group Flo on behalf of the Group). Restaurants are themed both in decoration and menu, based upon their location within the Resort, and offer guests a wide variety of dining experiences including quick service, cafeteria-style, table

16

Table of Contents

service (including convention catering), and sophisticated French cuisine. There are also food carts and kiosks located throughout the Resort which offer fast food. Guests are offered the option of a fixed-price menu in all its table service restaurants.

Merchandising

The Group’s merchandising facilities include 54 boutiques, 4 kiosks and a large number of mobile carts strategically located throughout the Resort, which mainly offer a wide range of Disney-themed goods.

The product mix is constantly re-evaluated in an effort to better adapt to guest preferences and guest mix. New merchandise development focuses on Disney character products, such as the Mickey Sorcerer line and the Princesses line, which are popular with guests, and on more variety for the repeat guest. Other innovative merchandising options include photo locations at four attractions, Big Thunder Mountain, Space Mountain: Mission 2, Pirates of the Caribbean and Rock’N’Roller Coaster, which offer guests the opportunity to purchase candid photos taken of them during their ride. During fiscal year 2005, the Group completed major renovations of the Emporium boutique on Main Street, U.S.A^® and of the Constellations boutique in Discoveryland, in Disneyland Park.

The Group’s activities include the planning and development of the 1,943 hectare site on which the Resort is located, in accordance with the Master Agreement. Development activities include the design and planning of improvements and additions to the existing Resort, as well as other commercial and residential real estate projects to be located on the Site, whether financed internally or through third-party partners.

The Group’s principal real estate development revenues are derived from conceptual design services related to third-party development projects on the Resort Site and from the sale of land development rights or from ground lease income from third-party developers. Such transactions not only provide a source of up-front cash inflows but also contribute to improving the potential of future resort and real estate development projects and to increasing the potential local clientele for Disneyland Resort Paris.

The following table summarizes the financial impact of real estate development activities on the Group’s financial statements during the past two fiscal years:

The first phase of development between 1989 and 1997 was essentially devoted to the creation of the resort destination. The second phase between 1998 and 2003 focused on the emergence of the development of an urban center located adjacent to the Resort (Val d’Europe). In addition to Walt Disney Studios Park, this second phase of development resulted in:

17

Table of Contents

Development plans for the coming years

A third phase of development was signed with the French Public Authorities on July 9, 2003 and covers the period 2004 through 2010.

In this phase of development, the following transactions, some of which are underway, are anticipated:

Hotel capacity developments

With the development of Walt Disney Studios Park, the Group also focused on the expansion of on-site Resort lodging capacity. A number of projects have been completed or are in various stages of progress with third-party international hotel developers/tour operators for the creation of additional hotels and vacation units. These projects have or will be constructed, owned and operated by third parties on land purchased from the Group or leased from the Group under long term ground leases. In addition, the Group has and will earn design fees and other development service fees related to these transactions.

As a result of these projects, approximately 1,400 hotel/vacation units were opened on the Resort Site in fiscal year 2003, 457 units were opened in fiscal year 2004, 41 units were opened in fiscal year 2005 and 250 units were opened in fiscal year 2006 bringing the total on-Site capacity to approximately 8,100 total room units. For more information on the projects already completed and operating on the Site, see the sub-section headed “Resort segment – Hotels and Disney Village”.

The agreements and projects currently in place will result in a total of approximately 200 hotel/vacation units being added on the Site in the course of fiscal year 2007.

Residential developments

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

To date, this residential development has been financed by third parties. The Group’s role has been limited to overseeing the master planning and architectural design of each development, and to selling to selected developers the land development rights necessary to realize the projects. The Group does not anticipate significant changes in its role for future residential development projects.

18

Table of Contents

Product Offerings

Disneyland Resort Paris is Europe’s biggest tourist destination in terms of guest visitation with a product offering that currently includes two Theme Parks, seven themed Hotels (approximately 5,800 rooms), two separate convention facilities (approximately 10,500 square meters), a dining, shopping and entertainment centre and a 27-hole golf course.

Strategic Location

Disneyland Resort Paris is located approximately 32 kilometers (20 miles) east of Paris, France and benefits from access to a highly developed transportation network. In addition to service to Paris on the French suburban rail system, Disneyland Resort Paris has access to an exceptional highway network that links it in less than one hour to both Paris and the two international airports serving the Paris area, and also makes it easily accessible to most other regions of France. In addition, the train station that is located on the Resort is one of the most active in France, serving most of the large French regional centers and providing service to London, to Brussels and to Amsterdam. The strategic geographic location allows access to a market of 17 million potential guests less than 2 hours away by road or rail transport and 320 million potential guests less than 2 hours away by plane.

19

Table of Contents

Target Markets

The Group has six key markets: France, the United Kingdom, Benelux (Belgium, Luxembourg and the Netherlands), Germany, Italy and Spain. Within these markets, the primary target market is families with children from three to fifteen years old but secondary markets also include groups, young adults and convention planners. Each year success in marketing to specific countries and markets is impacted by a variety of strategic decisions including pricing policy and package offers, as well as external factors such as the strength of local economies, exchange rates, cultural interests, and holiday and vacation timing.

Based on internal surveys, during the past three fiscal years, the geographical breakdown of Theme Parks guest attendance is as follows:

Distribution

The Group’s products are distributed through a wide variety of channels. Tour packages, which in many cases include transportation, lodging, food and Theme Parks tickets are distributed through the Group’s call centers, the internet or through third party distributors.

Theme Parks tickets are sold not only within these packages, but also through tourism intermediaries, directly at the gate and by various retail outlets (including the Disney Stores, FNAC, Virgin Megastores, Carrefour, Auchan, Leclerc, RATP).

Hotel bookings can be made by individual guests, either directly or through Euro Disney Vacances S.A.S., a French corporation (société par actions simplifiée), the Group’s in-house tour operator. The call centers, based at the Resort Site and in the United States, receive an average of approximately 6,000 calls per day from all over Europe.

Disneyland Resort Paris focuses on distribution of short-break packages, with offices in Paris and regional offices in Amsterdam, Brussels, Frankfurt, London, Milan and Madrid. These offices provide a local marketing presence and the necessary travel industry trade support. The Group works with all major European tour operators.

In addition, special travel alliance partnerships have been established with the principal European transporters. Travel alliance agreements have been completed with Air France on a pan-European basis and with SNCF, Eurostar, Thalys and RATP. These agreements provide carriers with the right to use Disneyland Resort Paris in their advertising campaigns and some with the right to special joint promotional packages. In return, the Group has the right to provide airline or train tickets in the short-break packages and to secure allotments.

The Group’s web site (www.disneylandparis.com) is available in 9 languages and allows site visitors to learn about the Resort, order a brochure and make reservations. The Group is currently finalizing projects to improve the offers made to guests based on their specific profiles.

20

Table of Contents

A.4.2.    Competition

The Group competes for guests throughout the year with Theme Parks as well as other European and international holiday destinations (including ski and seaside resorts) and with other leisure and entertainment activities (including museums and cultural activities) in the Paris region. The Group’s Hotels compete with other hotels on the Resort Site and in the Paris region and convention centers all over Europe.

The theme parks market in Europe has grown significantly over the last two decades. The largest European theme parks attracted approximately 36.7 million guests in 2006, as follows:

Theme parks in Europe

(in millions of guests)

A.5.    Human Resources Management

To entertain guests, the Group employed an average of approximately 12,225 employees during fiscal year 2006. Employees come from approximately 100 different countries and more than a quarter of them have been employed by the Group since Opening Day.

The table below presents the average number of persons employed by the Group as well as the associated employee costs for each of the last two fiscal years:

Due to the seasonal nature of the business, the need for employees is also seasonal. Accordingly, the Group has developed a system, used in both the Theme Parks and the Hotels, to optimize scheduling and automate labor exchange between operations. The system improves efficiency by automating both scheduling and the corresponding pay systems. In conjunction with this system, flexible working contracts have been negotiated with the employee representatives. Special part-time contracts such as four-day working weeks, 32-hour weeks or individually negotiated contracts, have been implemented. Over the past four fiscal years, many temporary jobs have been turned into flexible long term contracts with Disneyland Resort Paris, facilitating job security and better training for employees. This new flexibility has helped management to better match the number of employees to the levels of customer demand.

In addition, based upon an assessment of current employment policies and practices within the Group, negotiations took place with employee labor representatives during fiscal year 2006 for the purpose of proposing

21

Table of Contents

a solution for certain difficulties relating to the implementation of required changes in the defined work hours, as well as the treatment of the working hours of executive employees. These negotiations are considered part of the normal evolution over time of the Group’s collective bargaining agreements with employee labor representatives, taking into account changes in the legal environment and the business activities of the Group.

In December 2006, after months of negotiations, management and the Group’s labor unions signed two major labor agreements. The first agreement relates to the 2007 salary plan and the second relates to the modification of the 35 hour work-week agreement for which certain elements will enter into effect at the end of 2006. Consequently, these two agreements will contribute in part to the improvement of employee purchasing power and to the alignment of working hours better adapted to the specific activities of Disneyland Resort Paris.

An internal university provides permanent training for all employees in matters of service and entertainment. To improve quality, approximately 50,405 training days were provided to employees in 2006. To enhance the diversity of skills, training classes range from stress management to more specific subjects such as the welcoming of guests “Disney Style”. The Group is continually seeking to enhance its image as a “teaching” company, recognized for outstanding training techniques. As an example, in November 2000, an agreement was signed with certain labor unions for the creation of a new program aimed at providing employees with a new professional status called “Hôte d’Accueil Touristique” and thus a wider recognition of their skills on a national scale. The objective is to develop the competencies of approximately 300 employees per year, over a period of fifteen months, through group training that permits them to earn four different professional competency certificates.

Seven French labor unions, the Confédération Générale du Travail (C.G.T.), the Confédération Française Démocratique du Travail (C.F.D.T.), the Confédération Française de l’Encadrement – Confédération Générale des Cadres (C.F.E.-C.G.C.), Force Ouvrière (F.O.), the Confédération Française des Travailleurs Chrétiens (C.F.T.C.), the Syndicat Indépendant du Personnel Euro Disney (S.I.P.) and the Union Nationale des Syndicats Autonomes (U.N.S.A.), are represented at Disneyland Resort Paris. The Group complies with all information and consultation requirements with respect to the unions and holds other periodic consultations with representatives.

In June 1998, the Government enacted a law to reduce the official work week from 39 to 35 hours. For companies that implemented the 35-hour week before July 1, 1999, the French government provided subsidies in the form of lower payroll taxes for each of the five years following the date of implementation and since this date new subsidies programs have been implemented. The Group began operating on the basis of a 35-hour work week on June 6, 1999 and continues to benefit from such subsidies, which are decreasing progressively each year. Over 2006, these subsidies covered those employees who earn between the minimum monthly wage and 1.6% above the minimum monthly wage.

The Company has made no distributions under its statutory profit sharing plan. However, since October 1, 1995 through fiscal year 2004, the Group has provided employees with a supplemental profit sharing plan. Under the latest plan amendment signed March 10, 2003 applying to fiscal years 2003 and 2004, employees were eligible to receive a bonus of between 0.2% and 3% of their annual salary, if income before lease and net financial charges as presented in the Consolidated Financial Statements of the Group reached certain pre-defined thresholds. No amount was paid under this profit sharing plan. The Group has not provided employees with a supplemental profit sharing plan since fiscal year 2004.

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

In connection with the screening of new employees, criminal backgrounds were obtained from an outside service provider to assist in ensuring the security of visitors to the Resort. This practice came to the attention of executive management of the Company in December 2004 and, because it may constitute a violation under French law, has been suspended. While the Company might face fines or litigation based on these circumstances, the Company believes that these would not have a material adverse effect on its financial condition.

22

Table of Contents

A.6.    Significant Operating Contracts

A.6.1.    Agreements with French Governmental Authorities

On March 24, 1987, TWDC entered into the Master Agreement with the French Republic, the Region of Ile-de-France, the Department of Seine-et-Marne, the EPA-Marne and the Suburban Paris Transportation Authority (“RATP”), for the development of the Resort and other various development phases for the 1,943 hectares of undeveloped land located 32 kilometers east of Paris in Marne-La-Vallée, France. The Group and certain other parties became parties to the Master Agreement after its signature by the original parties. In 1988, the EPA-France, which has responsibility for the development of the entirety of the Resort, was created pursuant to the Master Agreement, and became a party thereto.

The Master Agreement, as amended from time to time, determines the general outline of each phase of development as well as the legal and initial financial structure. It provides that loans with specific terms and conditions shall be granted.

The significant components of the Master Agreement are summarized below.

Development planning

The Master Agreement sets out a master plan for the development of the land and a general development program defining the type and size of facilities that the Group has the right to develop, subject to certain conditions, over a 30-year period ending no sooner than 2017.

Before beginning any new development phase, the Group must provide EPA-France and several French public authorities with a proposal and other relevant information for approval. On the basis of the information provided, the Group and the authorities involved develop detailed development programs.

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

Financing of infrastructure

The Master Agreement specifies the infrastructure to be provided by the French authorities to the Resort. The relevant French public authorities have a continuing obligation to finance construction of the primary infrastructure, such as highway interchanges, primary roadways to access the Resort Site, water distribution and storage facilities, rain water and waste water treatment installations, waste treatment facilities, gas and electricity distribution systems, as well as telecommunication networks. The Master Agreement also specifies the terms and conditions of the Group’s contribution to the financing of certain infrastructure.

Infrastructure provided by the French governmental authorities included the extension of the “A” line of the RER suburban rail link (which links Paris and its eastern and western suburbs to Disneyland Resort Paris with two stations), the construction of two interchanges linking the Resort directly to the A4 motorway, a TGV (high speed train) station linking the Resort to other major cities in Europe and the completion of an access road around the Resort Site.

Land rights

The Master Agreement provides for the right of the Group, subject to certain conditions, to acquire the land necessary for the expansion of the Disneyland Resort Paris on the Marne-La-Vallée site. These land acquisition rights are not recorded in the Group’s consolidated financial statements until the land is purchased. Included in the purchase price for the land is the cost of infrastructure that is required to be constructed in order to make the

23

Table of Contents

land viable for use. The Group also incurs costs for certain development studies and services that are intended to optimize future development of the remaining undeveloped land. These costs are expensed as incurred.

The exercise by the Group of these acquisition rights is subject to certain development deadlines, which if not met, would result in the expiration of these rights. To date, all minimum development deadlines have been met and no land rights have expired unused. The next deadline for the expiration of land right options will be December 31, 2007. Management currently anticipates that this development deadline will be met and no options will expire.

In order to maintain the Group’s land acquisition rights for the remaining undeveloped land around the Resort (approximately 1,000 hectares), the Group is required to pay annual average fees to EPA-France of approximately € 0.6 million. All fees paid to EPA-France in conjunction with the land acquisition rights are capitalized as construction in progress and are allocated to the cost of land purchased by the Group. €10.9 million of EPA fees have been paid and remain unallocated as of September 30, 2006.

Department of Seine-et-Marne tax guarantee

Pursuant to the Master Agreement, the Company, the Phase IA Financing Company, EDA and the French Republic guaranteed a minimum level of tax revenues to the Department of Seine-et-Marne. If the Department’s tax revenues were less than the amount of charges borne by the Department for primary and secondary infrastructure during the period from 1992 to 2003 (which was the case), the French Republic and the Group were each required to reimburse, in equal shares to the Department, the difference between the tax revenues collected and the charges borne, up to an aggregate amount of approximately € 45.0 million (after adjustment for inflation from 1986). Based upon the final assessment covering the entire period of the guarantee through December 31, 2003, the Group is required to pay the Department € 20.3 million under the terms of the guarantee over a ten-year period in eight installments, the first of which is due in fiscal year 2007.

This liability is recorded in the Group’s consolidated financial statements under “Other non current liabilities” as of September 30, 2006.

A.6.2.    Participant Agreements

The Group has entered into long term participant agreements with companies that are leaders in their fields. Twelve participant agreements with the following companies are currently in force: Coca-Cola, Esso, France Télécom and its subsidiary Orange, General Motors, Hasbro Inc., Hertz, Kellogg’s, Kodak, Nestlé and its subsidiary Perrier-Vittel, and Visa. These participant agreements provide the Disneyland Resort Paris participants with the following rights in exchange for an individually negotiated fee: (i) a presence on the Resort Site through the sponsoring of one or more of Disneyland Park, Walt Disney Studios Park or Disney Village’s attractions, restaurants or other facilities; (ii) promotional and marketing rights with respect to the category of product which is covered by the participant agreement; and (iii) the status of privileged supplier of the Group. Each participant agreement terminates automatically in the event of termination of the License Agreement between The Walt Disney Company (Netherlands) B.V. and the Company (See Item 4 “Information of the Group”–Section A.6.3. “Undertaking and Agreements with The Walt Disney Company and its Subsidiaries – License Agreement” below).

24

Table of Contents

A.6.3.    Undertakings and Agreements with TWDC and its subsidiaries

The following describes the significant operating contracts with TWDC and its wholly-owned subsidiaries.

Undertakings

In connection with the financing of Walt Disney Studios Park, TWDC has committed to the CDC to hold at least 16.67% of the common stock of the Company until 2027. In connection with the 2005 Restructuring, TWDC has agreed to hold directly or indirectly at least 39% of the common stock of the Company until 2016.

EDA and Euro Disneyland Participations S.A.S., an indirect wholly-owned subsidiary of TWDC (which is also a partner of the Phase IA Financing Company), have agreed to indemnify the partners of the Phase IA Financing Company for losses incurred by them in connection with certain liabilities of EDA and the Phase IA Financing Company under the Master Agreement. To the extent the resources of EDA, Euro Disneyland Participations S.A.S. and the Phase IA Financing Company are insufficient to cover any such indemnity, EDL S.N.C. Corporation, an indirect wholly-owned subsidiary of TWDC, has agreed to pay to the partners of the Phase IA Financing Company the amount by which this indemnity exceeds such resources, up to an additional € 76.2 million. Excluding the amount relating to the tax guarantee given to the department of Seine-et-Marne (see above), the main remaining obligations to be performed by EDA under the Master Agreement consist of developing the Site. A non-fulfillment of these obligations for some parcels or others would result in a loss of the land rights given to EDA for these parcels.

Certain indirect, wholly-owned subsidiaries of TWDC have liability as general partners of EDA, the Company’s operating subsidiary to which substantially all of the Company’s assets and liabilities were transferred as part of the 2005 Restructuring. These obligations consist of the full amount of the indebtedness relating to the Disneyland Park lease.

Development Agreement

Pursuant to the development agreement dated February 28, 1989 with the Group (the “Development Agreement”), Euro Disney S.A.S. provides and arranges for other subsidiaries of TWDC to provide a variety of technical and administrative services to the Company. These services are in addition to the services Euro Disney S.A.S. is required to provide as the Management Company and include, among other things, the development of conceptual design for existing Theme Parks and future facilities and attractions, the manufacture and installation of specialized show elements, the implementation of specialized training for operating personnel, the preparation and updating of operations, maintenance and technical manuals, and the development of a master land use plan and real estate development strategy. Euro Disneyland Imagineering S.A.R.L., an indirect subsidiary of TWDC, was responsible for the management and administration of the overall design as well as the construction of the Theme Parks, including the design and procurement of the show-and-ride equipment. Most of the other facilities of the Resort were designed under the Group’s supervision with the administrative and technical assistance of affiliates of TWDC specialized in the development of hotels, resorts and other retail and commercial real estate projects in the United States, in accordance with the related servicing agreements.

The Group reimburses Euro Disney S.A.S. for all of its direct and indirect costs incurred in connection with the provision of services under the Development Agreement. These costs include, without limitation: (i) all operating expenses of Euro Disney S.A.S., including overhead and implicit funding costs; (ii) all costs related to services under the Development Agreement incurred directly by Euro Disney S.A.S. or billed to it by third parties; and (iii) certain costs billed to Euro Disney S.A.S. for services performed by TWDC or any of its affiliates related to the Development Agreement. Such costs vary considerably from one fiscal year to another depending upon the projects under development (see Item 7 “Major Shareholders and related Party Transactions” – Section B “Related-Party Transactions”).

The Development Agreement has an initial term of 30 years and can be renewed for up to three additional 10-year terms at the option of either party. The Development Agreement may be terminated by Euro Disney S.A.S.

25

Table of Contents

or by the Group under certain conditions, in particular in case of a change of control of the Company and of the Phase IA Financing Company, or in case either company were to be liquidated.

Phase II Development Fee

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

License Agreement

Under a license agreement between The Walt Disney Company (Netherlands) B.V. and the Company (the “License Agreement”), the Company was granted a license to use any present or future intellectual or industrial property rights of TWDC that may be incorporated into attractions and facilities designed from time to time by TWDC and made available to the Company. In addition, the License Agreement authorizes the sale, at the Resort, of merchandise incorporating or based on intellectual property rights owned by, or otherwise available to TWDC. This license granted to the Company is essential to the pursuit of its business activities, as such rights are indispensable to 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 the use of these rights were originally equal to:

As part of the 1994 Financial 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 fiscal year 2003 (inclusive), the royalties payable by the Company were calculated at rates equal to 50% of the initial rates stated above. On March 28, 2003, The Walt Disney Company (Netherlands) B.V. agreed to conditionally waive royalties with respect to the last three quarters of fiscal year 2003 and to change the payment terms for fiscal year 2004 from quarterly to annually in arrears. Beginning in fiscal year 2004, the Company was responsible for the payment of 100% of the original royalty rates as presented above. As of February 23, 2005, this responsibility was transferred to EDA.

26

Table of Contents

As part of the 2005 Restructuring, TWDC amended the License Agreement to provide the Group the following unconditional and conditional payment deferrals (determined on an aggregate basis with management fees, which are described in Item 10 “Additional Information”– Section B “Memorandum and Articles of Association”):

The table below sets out the amount of royalties paid by the Company with respect to fiscal years 1992 through 2006:

The License Agreement gives TWDC substantial rights and discretion to approve, monitor and enforce the use of TWDC intellectual properties within the Resort. The License Agreement has an initial term of 30 years and can be renewed for up to three additional 10-year terms at the option of either party. The License Agreement may be terminated by TWDC upon the occurrence of certain events, including the removal or replacement of the Management Company (Gérant), a change in control, directly or indirectly, of the Company, certain affiliates and the Phase IA Financing Company, the liquidation of such companies, the imposition of laws or regulations that prohibit the Company, certain affiliates and the Phase IA Financing Company from performing any of their material obligations under the License Agreement or the imposition of taxes, duties or assessments that would materially impair distributable earnings of these entities.

27

Table of Contents

On March 28, 2003, the Group entered into agreements with the Management Company and The Walt Disney Company (Netherlands) B.V. to pay management fees and royalties on a fiscal year-end basis rather than quarterly for the second, third and fourth quarters of fiscal year 2003 and for all of fiscal year 2004. In addition, with respect to the last three quarters of fiscal year 2003, the combined royalties and management fees could not exceed the maximum amount that could be paid by the Company while maintaining compliance with the gross operating income covenant under certain of the Company’s debt agreements.

Any portion of the royalties or management fees not paid for fiscal year 2003 as a result of the foregoing may in the future become payable if and to the extent that income before lease and net financial charges excluding depreciation and amortization for any year from fiscal year 2004 through fiscal year 2008 were to exceed € 450 million.

Other services

The Group has an agreement with the Walt Disney Internet Group (“WDIG”) for the hosting of the Group’s Internet sites. The agreement was entered into after a competitive bidding process that included independent third-party service providers and expired on September 30, 2006. This agreement was extended under substantially equivalent terms and conditions for an additional period of twelve months.

The Group has an agreement with Disney Destination LLC for the provision of UK call center services. The majority of Disneyland Resort Paris’ UK trade and consumer calls were up to recently outsourced to a UK call center which also managed the travel services and guest care teams. Based on the outcome of a number of tests, it appeared that such calls could be handled within the existing Disney Destination LLC -managed call center sites with equal or better performance and at a significant cost saving to the Group. This agreement commenced on October 1, 2006 and lasts until September 30, 2009.

B.    BUSINESS OVERVIEW

See above Section A. “History and Development of the Group”.

C.    ORGANISATIONAL STRUCTURE

C.1.    Holding Company

Euro Disney S.C.A. (the “Company”)

Euro Disney S.C.A. is the holding company of the Group and is the listed company, structured as a limited partnership (société en commandite par actions). The main asset of the Company is its investment in 82% of the share capital of its subsidiary, EDA. The general partner of the Company is EDL Participations S.A.S., a French simplified corporation (société par actions simplifiée) and an indirect wholly-owned subsidiary of TWDC. The Management Company of the Company is Euro Disney S.A.S., also a French simplified corporation and an indirect wholly-owned subsidiary of TWDC.

The Company is a société en commandite par actions (“S.C.A.” – similar in certain respects to a master limited partnership in the U.S.) organized under the laws of the French Republic. The Company was originally organized and incorporated in Paris on December 17, 1985 under the name Mivas S.A., in the form of a French société anonyme (“S.A.” – similar to a U.S. corporation), which was closely held. In 1988, EDL Holding Company, a Delaware corporation wholly-owned by The Walt Disney Company and currently owner of approximately 39.8% of the shares of the Company’s common stock, acquired 99% of the shares of Mivas S.A., whose corporate name was changed to Société d’Exploitation d’Euro Disneyland S.A. At an extraordinary meeting held in February 1989, the shareholders of Société d’Exploitation d’Euro Disneyland S.A. decided to modify its corporate form from an S.A. to an S.C.A. and to change its corporate name to Euro Disneyland S.C.A. In November 1989, Euro Disneyland S.C.A. became a publicly held company as a result of a public offering of

28

Table of Contents

its common stock in France, the United Kingdom and Belgium. At the annual general meeting of shareholders on February 4, 1991, the Company’s present corporate name, Euro Disney S.C.A., was adopted.

C.2.    Operating Companies

Euro Disney Associés S.C.A. (“EDA”)

EDA operates Disneyland Park and Walt Disney Studios Park, the Disneyland Hotel, the Davy Crockett Ranch and the golf course and manages the real estate development segment of the Group.

EDA, structured as a limited partnership (société en commandite par actions), is a direct subsidiary of the Company, which holds 82% of its share capital. The remaining 18% is held by two French simplified corporations that are indirect wholly-owned subsidiaries of TWDC: EDL Corporation S.A.S. and Euro Disney Investments S.A.S. The general partners of EDA are Euro Disney Commandité S.A.S., a French simplified corporation and a direct wholly-owned subsidiary of the Company (the controlling general partner), Euro Disney Investments S.A.S. and EDL Corporation S.A.S. The Management Company is Euro Disney S.A.S.

EDL Hôtels S.C.A.

EDL Hôtels S.C.A., a direct wholly-owned subsidiary of EDA, which operates all of the Hotels except the Disneyland Hotel and the Davy Crockett Ranch, and also Disney Village, is structured as a French limited partnership governed by the same principles as EDA.

The general partner of EDL Hôtels S.C.A. is EDL Hôtels Participations S.A.S., a French simplified corporation and direct wholly-owned by EDA. The Management Company of EDL Hôtels S.C.A. is Euro Disney S.A.S., which is also the Management Company of the Company and EDA.

C.3.    Financing Companies

The Financing Companies described below are not owned by the Company but are included in the consolidated reporting group under IFRS. See Item 19 “Financial Statements and Exhibits” – Note 3 “Consolidation Principles”.

Phase IA Financing Company

The Phase IA Financing Company, a company incorporated as a French partnership (société en nom collectif), owns Disneyland Park and leases it to EDA.

The partners of the Phase IA Financing Company are various banks, financial institutions and companies holding an aggregate participation of 83%, and Euro Disneyland Participations S.A.S., a French simplified corporation and an indirect wholly-owned subsidiary of TWDC, holding a participation of 17%. The Group has no ownership interest in the Phase IA Financing Company. The Company is jointly liable for a significant portion of the indebtedness of the Phase IA Financing Company (approximately two-thirds of the outstanding indebtedness due under the Phase IA Credit Facility). The partners are subject to unlimited joint and several liabilities for the financial obligations of the Phase IA Financing Company. The banks that are parties to the Phase IA Credit Facility and the CDC, with regards to CDC Prêts Participatifs, have effectively waived any recourse against the partners of the Phase IA Financing Company. The Phase IA Financing Company has generated tax losses due to interest charges during the construction period and depreciation expenses from Opening Day until December 31, 1996. The legal structure of the Phase IA Financing Company enabled its partners to take these French tax losses directly into their own accounts for French tax purposes. In return, the partners agreed to provide subordinated partner advances to the Phase IA Financing Company at an interest rate below the market rate.

29

Table of Contents

The Phase IA Financing Company is managed by a management company, Société de Gérance d’Euro Disneyland S.A.S., a French simplified corporation and an indirect wholly-owned subsidiary of TWDC.

Phase IB Financing Companies

The Phase IB Financing Companies are incorporated as French partnerships and are governed by the same principles as the Phase IA Financing Company. Each of these companies (i) rents the land on which the related hotel or Disney Village, as the case may be, is located, from EDL Hôtels S.C.A., (ii) owns the related hotel or Disney Village, as the case may be, and (iii) leases the related hotel or Disney Village, to EDL Hôtels S.C.A.

The partners of the Phase IB Financing Companies are various banks and financial institutions that are creditors of the Phase IB Financing Companies. The Legally Controlled Group has no ownership interest in the Phase IB Financing Companies. EDL Hôtels S.C.A., an affiliate of the Company, has guaranteed all the obligations of the Phase IB Financing Companies with respect to the loans extended by their lenders and partners. The partners of the Phase IB Financing Companies are normally subject to unlimited joint and several liabilities for the obligations of the Phase IB Financing Companies. However, the creditors of the Phase IB Financing Companies have waived any recourse against the partners of the Phase IB Financing Companies. The Phase IB Financing Companies have consistently generated tax losses primarily due to interest charges during the construction period and depreciation expense from Opening Day until December 31, 1995 with the exception of Centre de Divertissements Associés S.N.C., which generated tax losses until December 31, 1998. The legal structure of the Phase IB Financing Companies enabled their partners to take these French tax losses directly into their own accounts for French tax purposes. In return, the partners agreed to provide subordinated partner advances to the Phase IB Financing Companies at an interest rate below the market rate.

Pursuant to the respective by-laws of the Phase IB Financing Companies, the management company of each of the Phase IB Financing Companies is EDL Services S.A.S., a direct wholly-owned subsidiary of EDA.

Centre de Congrès Newport S.A.S.

Centre de Congrès Newport S.A.S., a French simplified corporation and an indirect wholly-owned subsidiary of TWDC, entered into a ground lease with EDL Hôtels S.C.A. pursuant to which it financed and acquired the Newport Bay Club Convention Centre and, when completed, leased it back to EDL Hôtels S.C.A.; EDL Hôtels S.C.A. has an option to repurchase such assets.

30

Table of Contents

The Group structure as of the date of this Annual Report on form 20-F is illustrated in the diagram set forth below.

31

Table of Contents

The Group’s resort-related facilities are comprised of the two Theme Parks (including related support buildings), the seven themed Hotels, Disney Village and the golf course. The Group leases all of these facilities except Walt Disney Studios Park, Disneyland Hôtel, Davy Crockett Ranch and the golf course, which the Group owns. See Item 4 “Information on the Group” – Section C.3. “Financing Companies” for additional information on the Group’s leases. These facilities are all located in Marne-la-Vallée, France. The Company believes that the Group’s facilities are suitable and adequate for the conduct of its business.

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

For a description of the Group’s capital expenditures during the past two fiscal years, See Item 5 “Operating and Financial Review and Prospects” – Section B “ Liquidity and Cash Resources – Capital Investment”.

The following discussion should be read in conjunction with the Consolidated Financial Statements, the related notes thereto included in Item 19 “Financial Statements and Exhibits” herein and Item 3 “Key Information” – Section D “Risk Factors”. The Group’s Consolidated Financial Statements have been prepared in accordance with IFRS, which differ in certain respects from U.S. GAAP. For a discussion of the principal differences between IFRS and U.S. GAAP as they relate to the consolidated results of operations and financial position, see Item 19 “Financial Statements and Exhibits” – Note 25. There are no material differences between IFRS as endorsed by the European Union and IFRS as issued by the International Accounting Standards Board (“IASB”).

A.    OPERATING RESULTS

Revenues increased 4.5% to € 1,087.7 million in fiscal year 2006 reflecting increases in Theme Parks attendance and Hotel occupancy. Theme Parks revenues increased 5.4% to € 579.2 million, following an increase of 0.5 million in attendance, which reached 12.8 million in 2006. Hotel and Disney Village revenues increased 4.2% to € 412.2 million due to a higher occupancy rate of 83.5% compared to 80.7% for fiscal year 2005, as well as increased guest visitations at Disney Village.

Costs and expenses for fiscal year 2006 grew 1.6% compared to the prior year reflecting management’s ongoing focus on cost containment. The Group’s operating margin improved € 29.5 million to a loss of € 2.4 million for fiscal year 2006, from a loss of € 31.9 million in the prior year. Other net financial charges increased over the period due to a higher effective interest rate on the Group’s debt.

For fiscal year 2006, net losses of the Group amounted € 88.6 million. Excluding the non-recurring, non-cash gain in fiscal year 2005 that resulted from the 2005 Restructuring, net loss on a comparable basis¹ attributable to equity holders of the parent decreased 20.5% from the prior year to € 73.1 million. Net loss on a comparable basis attributable to minority interests decreased 22.5% from the prior year to € 15.5 million.

Cash and cash equivalents increased € 24.2 million from the prior year to € 266.4 million.

32

Table of Contents

A.1. Fiscal year 2006 operating results

Condensed consolidated statements of income

n/m: Non material

Comparable basis results

The following table provides information regarding the key operating indicators of the Group:

33

Table of Contents

The increase of 0.5 million in Theme Parks attendance primarily reflects the solid performance during the second half of the year. Attendance by French visitors increased 12% over the prior year resulting in a French visitors’ share of total visits up from 39% to 42%. This was mostly as a result of special offers targeted at local markets, including a new ticket, the “Francilien”, marketed in the Ile-de-France region, as well as special offers made to certain workers councils (“Comités d’Entreprise”).

Hotel occupancy rates increased 2.8 percentage points, which translated into an additional 59,000 room nights compared to fiscal year 2005. This increase was mostly driven by higher attendance of Spanish visitors, who predominantly stayed on-site.

Theme Parks spending per guest increased 1.1%, driven by a moderate price increase in Theme Parks admissions partially offset by special offers.

A.3.    Results of Operations for fiscal year 2006 compared with fiscal year 2005

Revenues

Revenues of the Group were generated from the following sources:

Theme Parks revenues increased 5.4% to € 579.2 million from € 549.7 million in the prior year, primarily as a result of increased attendance and average spending per guest on admission. Increases in attendance levels are largely the result of new marketing and sales initiatives aimed at attracting the local French market, special offers and the opening of Buzz Lightyear Laser Blast^®.

Hotels and Disney Village revenues increased 4.2% to € 412.2 million from € 395.4 million in the prior year reflecting higher Hotel occupancy and guest visitation at Disney Village.

Other revenues mainly include participant sponsorships, transportation and other travel services sold to guests. Other revenues remained stable at € 66.9 million compared to € 66.8 million in the prior year.

Real estate development segment revenues increased € 0.7 million to € 29.4 million from € 28.7 million in the prior year, due to land sales of residential property made as part of our long term development plan, primarily near the Resort’s golf course and the commercial area of Val d’Europe town center.

Costs and Expenses

Costs and expenses were composed of:

34

Table of Contents

Costs and expenses for fiscal year 2006 increased 1.6% to € 1,090.1 million from € 1,072.5 million, although Theme Parks attendance and Hotel occupancy increased 4.1% and 2.8 percentage points, respectively. This increase was largely due to increases in labor costs and business tax as well as incremental depreciation and amortization related to the opening of Buzz Lightyear Laser Blast^® in April 2006.

Other net financial charges

Other net financial charges were composed of:

Other net financial charges increased over the period due to a higher effective interest rate on the Group’s debt.

Net loss

For fiscal year 2006, net losses of the Group amounted to € 88.6 million. Excluding the non-recurring, non-cash gain in fiscal year 2005, which amounted to € 58.9 million, net loss on a comparable basis attributable to equity holders of the parent decreased 20.5% from the prior year to € 73.1 million.

Resort segment capital expenditures primarily included expenditures associated with the Development Plan approved as part of the 2005 Restructuring.

At the end of fiscal year 2006, € 115.4 million had been cumulatively incurred on the development and construction of Theme Parks improvements including Buzz Lightyear Laser Blast^® attraction for Disneyland Park, Cars Race Rally, Crush’s Coaster and The Twilight Zone Tower of Terror for Walt Disney Studios.

B.2.    Cash Flows and Liquidity

Cash and cash equivalents as of September 30, 2006 was € 266.4 million, up € 24.2 million from the prior year. This increase in cash and cash equivalents resulted from:

35

Table of Contents

Cash flows generated by operating activities amounted to € 151.9 million compared to € 25.2 million in the prior year, reflecting improved operating performance during the year as well as payments made in 2005 related to 2004 royalties and management fees and previously deferred interest on certain loans. In 2006 and 2005, certain royalties, management fees and interest expense were accrued in borrowings, but not paid.

Cash flows used in investing activities totaled € 131.2 million, an increase of € 56.2 million, which primarily reflects capital expenditures related to the projects associated with the Development Plan.

Cash flows generated by financing activities totaled € 3.5 million and primarily related to releases of debt security and other deposits back to the Group during the year.

Based on existing cash positions, liquidity from the undrawn € 150.0 million line of credit from TWDC, and provisions for the unconditional and conditional deferral of certain royalties and management fees and interest charges pursuant to the 2005 Restructuring, management believes the Group has adequate cash and liquidity for the foreseeable future, subject to the Group’s compliance with its debt agreements as discussed below.

The Group has covenants under its debt agreements that limit its investments and financing activities. Beginning with fiscal year 2006, the Group must also meet financial performance covenants that necessitate improvements to its operating margin. The Group received confirmation from a third-party reviewer in December 2006 that it has complied with these covenants for fiscal year 2006. This compliance was achieved through revenue growth which outpaced the increase in the Group’s costs and expenses during the period.

For fiscal year 2007, if compliance with financial performance covenants could not be achieved through increased revenues, the Group would have to appropriately reduce operating costs, curtail a portion of planned capital expenditures (outside those contained in the Group’s Development Plan) and/or seek assistance from TWDC or other parties as permitted under the loan agreements. Although no assurances can be given, the Group currently believes that it will meet its financial performance covenants in fiscal year 2007 through increased revenues and continuing cost containment, without the need for any of the additional measures referred to above.

See “2005 Financial Restructuring” below for a description of the Group’s financial performance covenants. See Item 3 “Key Information” – Section D “Risk Factors” for a further discussion of the consequences and courses of action that would be available to the Group, in the event of a default in the financial performance covenants.

B.2.1.    Debt

The Group’s borrowings as of September 30, 2006 are detailed below (the various loans are presented in more detail in Item 5 “Operating and Financial Review and Prospects” – Section F “Tabular Disclosure of Contractual Obligations”):