UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

500 South Buena Vista Street, Burbank, California 91521

(818) 560-1000

          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      X                 Accelerated filer                             Non-accelerated filer             

          Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

            YES                      NO     X

There were 2,194,828,823 shares of common stock outstanding as of May 5, 2006

PART I. FINANCIAL INFORMATION

THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited; in millions, except per share data)

See Notes to Condensed Consolidated Financial Statements

THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited; in millions, except per share data)

See Notes to Condensed Consolidated Financial Statements

THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited; in millions)

See Notes to Condensed Consolidated Financial Statements

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; tabular dollars in millions, except for per share data)

1.      Principles of Consolidation

          These Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been reflected in these Condensed Consolidated Financial Statements. Operating results for the quarter ended April 1, 2006 are not necessarily indicative of the results that may be expected for the year ending September 30, 2006. Certain reclassifications have been made in the fiscal 2005 financial statements to conform to the fiscal 2006 presentation.

          These financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended October 1, 2005 (the 2005 Annual Report) and in the Company’s Current Report on Form 8-K dated February 16, 2006.

          In December 1999, DVD Financing, Inc. (DFI), a subsidiary of Disney Vacation Development, Inc. and an indirect subsidiary of the Company, completed a receivables sale transaction which established a facility that permits DFI to sell receivables arising from the sale of vacation club memberships on a periodic basis. In connection with this facility, DFI prepares separate financial statements, although its separate assets and liabilities are also consolidated in these financial statements.

          The terms “Company”, “we”, “us” and “our” are used in this report to refer collectively to the parent company and the subsidiaries through which our various businesses are actually conducted.

2.      Segment Information

          The operating segments reported below are the segments of the Company for which separate financial information is available and for which segment results are evaluated regularly by the Chief Executive Officer in deciding how to allocate resources and in assessing performance. Beginning with the first quarter of fiscal year 2006, the Company reports the performance of its operating segments including equity in the income of investees to align with how management now reports and measures segment performance for internal management purposes. Previously, equity in the income of investees was reported as a reconciling item between segment operating income and income before income taxes and minority interests. Results for the quarter and six months ended April 2, 2005 have been reclassified to conform to the current period presentation. Equity investees consist primarily of A&E Television Network, Lifetime Television and E! Entertainment Television, which are cable businesses included in the Media Networks segment.

          Equity in the income of investees by segment is as follows:

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; tabular dollars in millions, except for per share data)

          A reconciliation of segment operating income to income before income taxes and minority interests is as follows:

3.      Gains on Sale of Equity Investment and Business

          On October 7, 2005, the Company sold its Discover Magazine business, which resulted in a pre-tax gain of $13 million. In addition, on November 23, 2005, the Company sold a cable television equity investment in Spain, which resulted in a pre-tax gain of $57 million.

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; tabular dollars in millions, except for per share data)

4.      Borrowings

          During the six months ended April 1, 2006, the Company’s borrowing activity was as follows:

          In February 2006, the Company amended its two bank facilities. The amendments included an extension of the maturity of one of the facilities from 2009 to 2011. In addition, the Company also increased the amount of letters of credit that can be issued to $800 million from $500 million under the facility expiring in 2011. Any letter of credit issuances reduce available borrowings. These bank facilities allow for borrowings at LIBOR-based rates plus a spread, which depends on the Company’s public debt rating and can range from 0.175% to 0.75%. As of April 1, 2006, the Company had not borrowed under these bank facilities although $208 million of letters of credit had been issued under the facility expiring in 2011. The capacity of these bank facilities remains $4.5 billion.

          The Company may use commercial paper borrowings up to the amount of its unused bank facilities, in conjunction with term debt issuance and operating cash flow, to retire or refinance other borrowings before or as they come due.

5.      Euro Disney and Hong Kong Disneyland

          In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46R, Consolidation of Variable Interest Entities (FIN 46). Pursuant to the provisions of FIN 46, the Company began consolidating Euro Disney and Hong Kong Disneyland’s balance sheets at the end of the Company’s second quarter of fiscal 2004 and the income and cash flow statements beginning with the third quarter of fiscal 2004.

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; tabular dollars in millions, except for per share data)

          The following table presents a condensed consolidating balance sheet for the Company as of April 1, 2006, reflecting the impact of consolidating the balance sheets of Euro Disney and Hong Kong Disneyland.

          The following table presents a condensed consolidating income statement of the Company for the quarter ended April 1, 2006, reflecting the impact of consolidating the income statements of Euro Disney and Hong Kong Disneyland.

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; tabular dollars in millions, except for per share data)

          The following table presents a condensed consolidating income statement of the Company for the six months ended April 1, 2006, reflecting the impact of consolidating the income statements of Euro Disney and Hong Kong Disneyland.

          The following table presents a condensed consolidating cash flow statement of the Company for the six months ended April 1, 2006, reflecting the impact of consolidating the cash flow statements of Euro Disney and Hong Kong Disneyland.

6.      Pension and Other Benefit Programs

          The components of net periodic benefit cost are as follows:

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; tabular dollars in millions, except for per share data)

          During the six months ended April 1, 2006, the Company made no contributions to the Company’s pension and postretirement medical plans. The Company anticipates making contributions of, at a minimum, $61 million to its pension and postretirement medical plans in fiscal 2006. The Company is considering additional fiscal 2006 discretionary pension plan contributions of approximately $300 million depending on how the funded status of those plans change and on the outcome of proposed changes to the funding regulations currently being considered by the United States Congress.

7.      Earnings Per Share

          Diluted earnings per share amounts are based upon the weighted average number of common and common equivalent shares outstanding during the period and are calculated using the treasury stock method for stock options and assuming conversion of the Company’s convertible senior notes. For the quarters ended April 1, 2006 and April 2, 2005, options for 93 million and 75 million shares, respectively, were excluded from the diluted earnings per share calculation as they were anti-dilutive. A reconciliation of net income and weighted average number of common and common equivalent shares outstanding for calculating diluted earnings per share is as follows:

8.      Shareholders’ Equity

          The Company declared a $519 million dividend ($0.27 per share) on December 1, 2005 related to fiscal 2005, which was paid on January 6, 2006 to shareholders of record on December 12, 2005. The Company paid a $490 million dividend ($0.24 per share) during the second quarter of fiscal 2005 related to fiscal 2004.

          During the six months ended April 1, 2006, the Company repurchased 67 million shares of Disney common stock for approximately $1.7 billion, of which 18 million shares for approximately $0.5 billion were purchased in the second quarter. As of April 1, 2006, the Company had authorization in place to repurchase approximately 382 million additional shares. The repurchase program does not have an expiration date.

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; tabular dollars in millions, except for per share data)

9.      Comprehensive Income

          Comprehensive income is as follows:

          Accumulated other comprehensive loss is as follows:

10.    Equity Based Compensation

          The impact of stock options and restricted stock units (RSUs) on net income is as follows:

          Unrecognized compensation cost related to outstanding and unvested stock options and RSUs totaled approximately $376 million and $348 million, respectively as of April 1, 2006.

          On January 9, 2006, the Company made its regular annual stock compensation grant which consisted of 19.6 million stock options and 10.2 million RSUs, of which 1.6 million RSUs included market-based performance conditions.

          Prior to the fiscal 2006 annual grant, the fair value of options granted was estimated on the grant date using the Black-Scholes option pricing model. Beginning with the fiscal 2006 annual grant, the Company has changed to the binomial valuation model. The binomial valuation model considers certain characteristics of fair value option pricing that are not considered under the Black-Scholes model. Similar to the Black-Scholes model, the binomial valuation model takes into account variables such as volatility, dividend yield, and the risk free interest rate. However, the binomial valuation model also considers the expected exercise multiple (the multiple of exercise price to grant price at which exercises are expected to occur on average) and the termination rate (the probability of a vested option being cancelled due to the termination of the option holder) in computing the value of the option. Accordingly, the

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; tabular dollars in millions, except for per share data)

Company believes that the binomial valuation model should produce a fair value that is more representative of the value of an employee option. In addition, the weighted average expected option term assumption used by the Company for fiscal 2005 grants reflected the application of the simplified method set out in SEC Staff Accounting Bulletin No. 107 (SAB 107). The simplified method defines the expected term of an option as the average of the contractual term of the options and the weighted average vesting period for all option tranches. As SAB 107 only permits the use of the simplified method until December 31, 2007, the Company would be required to utilize a method other than the simplified method at that time.

          We utilized an expected volatility of 26% for fiscal 2006 grants as compared to 27% for fiscal 2005 grants. The weighted average fair values of options at their grant date during the six months ended April 1, 2006 and April 2, 2005, were $7.12 and $7.74, respectively.

11.    Commitment and Contingencies

          The Company has exposure to various legal and other contingencies arising from the conduct of its businesses.

Legal Matters

          Milne and Disney Enterprises, Inc. v. Stephen Slesinger, Inc. On November 5, 2002, Clare Milne, the granddaughter of A. A. Milne, author of the Winnie the Pooh books, and the Company’s subsidiary Disney Enterprises, Inc. (DEI) filed a complaint against Stephen Slesinger, Inc. (SSI) in the United States District Court for the Central District of California. On November 4, 2002, Ms. Milne served notices to SSI and DEI terminating A. A. Milne’s prior grant of rights to Winnie the Pooh, effective November 5, 2004, and granted all of those rights to DEI. In their lawsuit, Ms. Milne and DEI seek a declaratory judgment, under United States copyright law, that Ms. Milne’s termination notices were valid; that SSI’s rights to Winnie the Pooh in the United States terminated effective November 5, 2004; that upon termination of SSI’s rights in the United States, the 1983 licensing agreement that is the subject of the Stephen Slesinger, Inc. v. The Walt Disney Company lawsuit terminated by operation of law; and that, as of November 5, 2004, SSI was entitled to no further royalties for uses of Winnie the Pooh. SSI filed (a) an answer denying the material allegations of the complaint and (b) counterclaims seeking a declaration that (i) Ms. Milne’s grant of rights to DEI is void and unenforceable and (ii) DEI remains obligated to pay SSI royalties under the 1983 licensing agreement. SSI also filed a motion to dismiss the complaint or, in the alternative, for summary judgment. Subsequently, the Court ruled that Milne’s termination notices are invalid and dismissed SSI’s counterclaims as moot. Following further motions SSI filed an amended answer and counterclaims and a third-party complaint against Harriet Hunt (heir to E. H. Shepard, illustrator of the original Winnie the Pooh stories), who had served a notice of termination and a grant of rights similar to Ms. Milne’s. By order dated August 3, 2004, the Court granted SSI leave to amend its answer to assert counterclaims against the Company allegedly arising from the Milne and Hunt terminations and the grant of rights to DEI for (a) unlawful and unfair business practices; and (b) breach of the 1983 licensing agreement. In November 2004, the District Court granted a motion by Milne to dismiss her complaint for the purpose of obtaining a final appealable order of dismissal, so as to permit her appeal to the Court of Appeals to proceed. Following oral argument, the Court of Appeals, on December 8, 2005, affirmed the trial court’s grant of summary judgment in favor of SSI and against Milne, whose motion for a hearing en banc was denied on January 19, 2006. On April 17, 2006, Milne filed a petition for a writ of certiorari in the United States Supreme Court.

          Stephen Slesinger, Inc. v. The Walt Disney Company. In this lawsuit, filed on February 27, 1991 in the Los Angeles County Superior Court, the plaintiff claims that a Company subsidiary defrauded it and breached a 1983 licensing agreement with respect to certain Winnie the Pooh properties, by failing to account for and pay royalties on revenues earned from the sale of Winnie the Pooh movies on videocassette and from the exploitation of Winnie the Pooh merchandising rights. The plaintiff seeks damages for the licensee’s alleged breaches as well as confirmation of the plaintiff’s interpretation of the licensing agreement with respect to future activities. The plaintiff also seeks the right to terminate the agreement on the basis of the alleged breaches. If each of the plaintiff’s claims were to be confirmed in a final judgment, damages as argued by the plaintiff could total as much as several hundred million dollars and adversely impact the value to the Company of any future exploitation of the licensed rights. On March 29, 2004, the Court granted the Company’s motion for terminating sanctions against the plaintiff for a host of discovery abuses, including the withholding, alteration, and theft of documents and other information, and, on April 5, 2004,

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; tabular dollars in millions, except for per share data)

dismissed plaintiff’s case with prejudice. Plaintiff’s subsequent attempts to disqualify the judge who granted the terminating sanctions were denied in 2004, and its motion for a “new trial” was denied on January 26, 2005, allowing plaintiff to proceed with its noticed appeal from the April 5, 2004, order of dismissal.

     Management believes that it is not currently possible to estimate the impact, if any, that the ultimate resolution of these matters will have on the Company’s results of operations, financial position or cash flows.

     The Company, together with, in some instances, certain of its directors and officers, is a defendant or co-defendant in various other legal actions involving copyright, breach of contract and various other claims incident to the conduct of its businesses. Management does not expect the Company to suffer any material liability by reason of such actions.

Contractual Guarantees

          The Company has guaranteed certain special assessment and water/sewer revenue bonds issued by the Celebration Community Development District and the Enterprise Community Development District (collectively, the Districts). The bond proceeds were used by the Districts to finance the construction of infrastructure improvements and the water and sewer system in the mixed-use, residential community of Celebration, Florida. As of April 1, 2006, the remaining debt service obligation guaranteed by the Company was $73 million, of which $46 million was principal. The Company is responsible to satisfy any shortfalls in debt service payments, debt service and maintenance reserve funds, and to ensure compliance with specified rate covenants. To the extent that the Company has to fund payments under its guarantees, the Districts have an obligation to reimburse the Company from future District revenues.

          The Company has also guaranteed certain bond issuances by the Anaheim Public Authority that were used by the City of Anaheim to finance construction of infrastructure and a public parking facility adjacent to the Disneyland Resort. Revenues from sales, occupancy and property taxes from the Disneyland Resort and non-Disney hotels are used by the City of Anaheim to repay the bonds. In the event of a debt service shortfall, the Company will be responsible to fund the shortfall. As of April 1, 2006, the remaining debt service obligation guaranteed by the Company was $394 million, of which $107 million was principal. To the extent that subsequent tax revenues exceed the debt service payments in subsequent periods, the Company would be reimbursed for any previously funded shortfalls.

          To date, tax revenues have exceeded the debt service payments for both the Celebration and Anaheim bonds.

12.    Income Taxes

          As a matter of course, the Company is regularly audited by federal, state and foreign tax authorities. From time to time, these audits result in proposed assessments. The Company believes that its tax positions comply with applicable tax law and has adequately provided for any reasonably foreseeable potential assessments. Accordingly, the Company does not anticipate any material earnings impact from any such assessments. In the current quarter, $16 million in tax reserves were released, related to the favorable resolution of certain state income tax matters. During the first quarter of fiscal 2005, there was a favorable resolution of certain income tax matters that resulted in a $24 million tax reserve release.

13.    Radio Disposition

          On February 6, 2006, the Company and Citadel Broadcasting Corporation (Citadel) announced that their Boards of Directors approved a definitive agreement to merge ABC Radio assets, which include 22 radio stations and the ABC Radio Network, with Citadel. Disney shareholders would own approximately 52% of the new company and the Company is expecting to retain between $1.4 billion and $1.65 billion in cash depending on the market price of Citadel at the date of closing. ESPN Radio and Radio Disney are not included in the transaction. The combined transaction value of the 52% ownership interest and the retained cash is estimated at approximately $2.7 billion. The transaction is expected to be completed by the end of the calendar year 2006, subject to regulatory approvals.

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; tabular dollars in millions, except for per share data)

14.    Subsequent Events

          On May 5, 2006, the Company completed an all stock acquisition of Pixar, a digital animation studio, pursuant to the Agreement and Plan of Merger dated January 24, 2006 between the Company and Pixar (the Agreement). Disney believes that the creation of high quality feature animation is a key driver of success across many of its businesses, and provides content useful across a variety of traditional and new platforms throughout the world. The acquisition of Pixar is intended to support Disney’s strategic priorities of creating the finest content, embracing leading-edge technologies and strengthening its global presence.

          The purchase price of Pixar was $7.5 billion ($6.4 billion net of Pixar’s cash of approximately $1.1 billion) and is based on the market value of the Company’s common stock (using the average Disney common stock price for the five day period beginning two days before the acquisition announcement date on January 24, 2006) issued in connection with the Agreement and the estimated fair value of the Company’s stock based awards exchanged for the outstanding vested stock based awards to purchase shares of Pixar common stock. Under the terms of the Agreement, 2.3 shares of Disney common stock and stock based awards were issued for each share of Pixar common stock and stock based awards outstanding, respectively. Disney issued approximately 279 million shares of Disney common stock in exchange for Pixar shares and converted previously issued vested and unvested Pixar stock-based awards into approximately 45 million Disney stock-based awards.

          The Company is required to allocate the purchase price to the net tangible and intangible assets acquired and liabilities assumed based on their respective fair values. The fair values will be determined by internal studies and independent third party appraisals. Any excess of the purchase price over those fair values will be recorded as goodwill, and allocated to the Company’s segments. The amount of the purchase price allocated to goodwill, which is based on certain preliminary assumptions, is estimated to be in the range of $5.5 billion to $6.0 billion. None of the goodwill is deductible for tax purposes. The Company will include the results of Pixar in its Consolidated Financials Statements effective May 5, 2006.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

ORGANIZATION OF INFORMATION

       Management’s Discussion and Analysis provides a narrative of the Company’s financial performance and condition that should be read in conjunction with the accompanying financial statements. It includes the following sections:

Overview

Seasonality

Business Segment Results

     Quarter Results

     Six Month Results

Corporate and Other Non-Segment Items

Potential Dilution from Equity Based Compensation

Financial Condition

Commitments and Contingencies

Other Matters

Market Risk

OVERVIEW

Our summary consolidated results are presented below:

Quarter Results

       Revenues for the quarter increased 3%, or $198 million, to $8.0 billion driven by higher advertising revenues at the ABC Television Network, higher license fees at Television Production and Distribution, strong performance from both of our domestic theme parks led by the on-going success of the 50th anniversary celebration, a full quarter of theme park operations at Hong Kong Disneyland as compared to the prior year quarter when the park was not yet open, and higher affiliate revenues at ESPN. These increases were partially offset by lower DVD unit sales as the prior year quarter included the outstanding performance of The Incredibles.

       Net income increased 12%, or $76 million, to $733 million driven by improved primetime performance at the ABC Television Network, stronger performance at both of our domestic theme parks and increased international sales of Touchstone Television dramas. These increases were partially offset by lower home entertainment results, which reflected fewer DVD unit sales, and lower performance at Disneyland Resort Paris.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(continued)

       Diluted earnings per share increased 19% to $0.37 in the current quarter. The prior-year quarter’s earnings per share included a $61 million benefit ($38 million after-tax) on the restructuring of Euro Disney’s borrowings, partially offset by a $32 million charge ($20 million after-tax) to write down an investment, which together had a net favorable impact of $0.01 per share.

Six Month Results

       Revenues for the six months increased 2%, or $386 million, to $16.9 billion. The increase was driven by increased advertising revenues at the ABC Television Network, strong performance from both of our domestic theme parks, led by the on-going success of the 50th anniversary celebration, and a full six months of theme park operations at Hong Kong Disneyland as compared to the prior year period when the park was not yet open. The revenue increase also reflected growth at ESPN and higher license fees at Television Production and Distribution. These increases were partially offset by lower DVD unit sales as the prior year period included the outstanding performance of The Incredibles.

       Net income increased 9%, or $124 million, to $1.5 billion driven by higher primetime advertising revenues at the ABC Television Network and strong performance at both of our domestic theme parks. These increases were partially offset by a decline in DVD unit sales and lower performance in the theatrical markets.

       Diluted earnings per share increased 16% to $0.74 in the six month period. The current six months benefited from gains of $70 million ($44 million after-tax or $0.02 per share) related to the sales of a cable television equity investment in Spain and the Discover Magazine business. In addition to the impact from the restructuring of Euro Disney’s borrowings and the investment write down discussed above, the prior six month period included a $24 million benefit ($0.01 per share) from the favorable resolution of certain tax matters and restructuring and impairment charges totaling $24 million ($15 million after-tax or $0.01 per share) related to the sale of the Disney Store North America.

SEASONALITY

       The Company’s businesses are subject to the effects of seasonality. Consequently, the operating results for the quarter and six months ended April 1, 2006 for each business segment, and for the Company as a whole, are not necessarily indicative of results to be expected for the full year.

       Media Networks revenues are influenced by advertiser demand and the seasonal nature of programming, and generally peak in the spring and fall.

       Parks and Resorts revenues fluctuate with changes in theme park attendance and resort occupancy resulting from the seasonal nature of vacation travel. Peak attendance and resort occupancy generally occur during the summer months, when school vacations occur, and during early-winter and spring holiday periods.

       Studio Entertainment revenues fluctuate based upon the timing of theatrical motion picture, home entertainment and television releases. Release dates for theatrical, home entertainment and television products are determined by several factors, including timing of vacation and holiday periods and competition in the market.

       Consumer Products revenues are influenced by seasonal consumer purchasing behavior and the timing of animated theatrical releases.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(continued)

BUSINESS SEGMENT RESULTS

       The Company evaluates the performance of its operating segments based on segment operating income, which is shown below along with segment revenues:

     The following table reconciles segment operating income to income before income taxes and minority interests.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS—(continued)

Depreciation expense is as follows: