Jetixeurope Annual Report 2005 En

Jetix Europe N.V.

Jetix Europe N.V.

Annual Review and Financial Statements 2005

Annual Review and Financial Statements 2005

Jetix Europe N.V. For more information write to:

Bergweg 50, 1217 SC Hilversum The Netherlands or contact:

Investor Relations Jetix Europe Limited 3 Queen Caroline Street Hammersmith London W6 9PE Tel: +44 20 8222 3600 Fax: +44 20 8222 5906 www.jetixeurope.com

Jetix Europe N.V. Annual Review and Financial Statements 2005

group at a glance Our Business Lines Channels & Online >>

Broadcasts in 58 countries, reaching more than 41.8 million homes in 18 languages

contents 1 2 4 6 8 10 12 14 18 22 26 30 32 33 35

Introduction Our Highlights Our Content Our Future Our Alliance Our History Chief Executive Officer’s Review Operating and Financial Review Channels and Online Programme Distribution Consumer Products Management Board Supervisory Board Corporate Governance Accounts

Owns and operates fully localised children’s channels

Localised websites in 17 languages

Programme Distribution

Annual Report Copyright Notices © (2005) Jetix Europe. JETIX name and logo © and ™ Disney Enterprises, Inc. ASTROBOY © 2004 Tezuka Productions Co., Ltd., Sony Pictures Entertainment (Japan) Inc. and Dentsu Inc. A.T.O.M. ALPHA TEENS ON MACHINES © 2005 Jetix Europe/SIP Animation. FUNKY COPS © 2005 AnteFilms Production/M6 Metropole Television TPS Cinema/Greenlight Media. GALACTIK FOOTBALL ™ Alphanim © 2006 Alphanim, France 2. All rights reserved. GET ED © Disney Enterprises, Inc. HOTNEWS.NL © & ™ Jetix Europe Channels B.V. OBAN STAR-RACERS © Sav! The World Productions/Jetix Europe 2005. All rights reserved. POWER RANGERS (all series) TM & © BVS Entertainment Inc. and BVS International N.V. All rights reserved. PUCCA © VOOZ. All rights reserved. SONIC X © SONIC Project. All rights reserved. SPIDER-MAN © 2005 New World Animation. Underlying property TM & © Marvel Characters, Inc. All rights reserved. SUPER ROBOT MONKEY TEAM HYPER FORCE GO! © 2005 Disney Enterprises, Inc. TOTALLY SPIES! © 2005 MARATHON – MYSTERY ANIMATION INC. TOTALLY SPIES! and all related logos, names and distinctive likeness are the exclusive property of MARATHON ANIMATION. All rights reserved. MW © 2006 Really Big Bug Movies Ltd.

>>

W.I.T.C.H © SIP Animation 2005.

>>

Designed and produced by MAGEE Printed by the colourhouse

Distributes programmes to terrestrial broadcasters and third party cable and satellite channels Over 90 clients in 44 markets

Consumer Products Licenses merchandising rights to the Jetix library and third party properties throughout Europe and the Middle East Local offices in 7 markets; represented in 37 countries

group at a glance Our Business Lines Channels & Online >>

Broadcasts in 58 countries, reaching more than 41.8 million homes in 18 languages

contents 1 2 4 6 8 10 12 14 18 22 26 30 32 33 35

Introduction Our Highlights Our Content Our Future Our Alliance Our History Chief Executive Officer’s Review Operating and Financial Review Channels and Online Programme Distribution Consumer Products Management Board Supervisory Board Corporate Governance Accounts

Owns and operates fully localised children’s channels

Localised websites in 17 languages

Programme Distribution

Annual Report Copyright Notices © (2005) Jetix Europe. JETIX name and logo © and ™ Disney Enterprises, Inc. ASTROBOY © 2004 Tezuka Productions Co., Ltd., Sony Pictures Entertainment (Japan) Inc. and Dentsu Inc. A.T.O.M. ALPHA TEENS ON MACHINES © 2005 Jetix Europe/SIP Animation. FUNKY COPS © 2005 AnteFilms Production/M6 Metropole Television TPS Cinema/Greenlight Media. GALACTIK FOOTBALL ™ Alphanim © 2006 Alphanim, France 2. All rights reserved. GET ED © Disney Enterprises, Inc. HOTNEWS.NL © & ™ Jetix Europe Channels B.V. OBAN STAR-RACERS © Sav! The World Productions/Jetix Europe 2005. All rights reserved. POWER RANGERS (all series) TM & © BVS Entertainment Inc. and BVS International N.V. All rights reserved. PUCCA © VOOZ. All rights reserved. SONIC X © SONIC Project. All rights reserved. SPIDER-MAN © 2005 New World Animation. Underlying property TM & © Marvel Characters, Inc. All rights reserved. SUPER ROBOT MONKEY TEAM HYPER FORCE GO! © 2005 Disney Enterprises, Inc. TOTALLY SPIES! © 2005 MARATHON – MYSTERY ANIMATION INC. TOTALLY SPIES! and all related logos, names and distinctive likeness are the exclusive property of MARATHON ANIMATION. All rights reserved. MW © 2006 Really Big Bug Movies Ltd.

>>

W.I.T.C.H © SIP Animation 2005.

>>

Designed and produced by MAGEE Printed by the colourhouse

Distributes programmes to terrestrial broadcasters and third party cable and satellite channels Over 90 clients in 44 markets

Consumer Products Licenses merchandising rights to the Jetix library and third party properties throughout Europe and the Middle East Local offices in 7 markets; represented in 37 countries

Welcome to Jetix Europe N.V.’s 2005 Annual Report. We are a leading kids entertainment company whose mission is to deliver the best creative content to our audiences across Europe and the Middle East, through television, consumer products and digital media channels. Our majority shareholder, Disney, has launched the Jetix brand in Asia and the Americas. Together we have created Jetix as a global kids brand, bringing our unique combination of action, adventure and cheeky humour to kids across the globe. Collectively the Jetix brand reaches 275 million households worldwide.

1

our

highlights

97.4

187.8

155.5(4)

75.2(4)

165.3

129.3(3) 120.1(1)

Continued growth

85.9 74.8

146.8 129.3(2) 45.1(3)

58.0(2)

40.3(1)

01

02

03

04

05

01

02

03

05

04

Revenues (6)

Subscription Revenues (6), (7)

[$ million]

[$ million]

58.9(4)

58.0(11)

(3)

53.9

(1)

50.6

53.3(2)

47.1

65.5 41.4

56.0 51.0(10) 26.3(4) 29.4 13.5(3)

21.9(2)

12.3(1)

01

02

03

04

05

01

02

03

04

EBITDA (5)

Advertising Revenues (6), (8)

[$ million]

[$ million]

05

41.8 30.9

32.3(4)

30.9

20.2(4)

38.3 34.8

24.9(3)

31.4(2)

24.7(1) (4.4)(3)

8.9(2)

10.4

02

03

(9.9)(1)

01

2

04

05

01

02

03

04

05

Operating Cash Flow

Households reached by channels

[$ million]

[million]

w? o n k ou Did y se a Chine c a c f u o P r ughte Pucca

a The d ant owner, r one r e restau sed with h es is obs e, Garu. n ov sessio l b e o u s ’ r u d t ly Gar ter an

tunate ja mas Unfor come a nin ame. n e al is to b his family’s a glob o t e n r i o ped rest develo s franchise. s a h Pucca er product m consu

17.1(3) 19.8 16.2(1)

13.6 (11) 3.8 5.8 (10)

(28.9)(2) (29.8)(4)

01

02(9)

03

04

05

Net income [$ million]

(1)

Unaudited results for the year ended May 31, 2001. Unaudited results for the year ended June 30, 2002. (3) Results for the 13-months ended June 30, 2001. (4) Results for the 15-months ended September 30, 2002. (5) Consistent with prior years, EBITDA is stated before programme amortisation, impairment and depreciation. EBITDA less depreciation, amortisation and impairment is equivalent to operating income. (6) Excluding our share of non-consolidated joint ventures. (7) Including other small non-advertising channel revenues. (8) Including online advertising revenues. (9) Before cumulative effect of change in accounting principle. (10) Results for the year ended September 30, 2004, as reported (i.e. including non-recurring charge discussed below). (11) To enhance comparability, the Company has also provided operating results on a pro forma basis for the year ending September 30, 2004, which exclude the impact of non-recurring relocation charges recognised during the year. These charges relate to the relocation of the Company’s UK and French based operations to Disney’s premises within these markets. The Company believes that pro forma results provide additional information useful in analysing the underlying business results. (2)

3

our

content check it out A.T.O.M.

ALPHA TEENS ON MACHINES Set in the bustling metropolis of Landmark City, A.T.O.M. ALPHA TEENS ON MACHINES follows five extreme sport-loving teens whose rebellious spirit and physical skills are called upon to push the limits of high-tech new inventions. But this ‘dream job’ often crosses paths with fiendish crimelords, resulting in high-octane and high-spirited adventures as the Alpha Teens become unlikely saviours of the city.

4

Great quality content is at the heart of the company

5

our

future In the futuristic world of Progress City, Ed and his team of streetsmart couriers go anywhere, anytime, and do whatever it takes to thwart the power-mad plans of Mr Bedlam. Get Ed is the second global Jetix co-production created by the Disney TV Animation studio, and will be the first 3D CGI series from Jetix.

This epic series chronicles the Great Race of Oban, an intergalactic racing competition that takes place every 10,000 years to determine the winner of a mysterious ultimate prize and the balance of power within the Galaxy. Oban Star-Racers incorporates a significant amount of 3D CGI, which gives the racing and action sequences a visual impact rarely seen on TV.

6

Future success is built on great new content

The latest incarnation of Power Rangers launched in the Autumn 2005. The 13th season is set in the Space Patrol Delta Academy, where humans and aliens train to become the newest generation of Power Rangers. The series chronicles the adventures of the young cadets as they hone their extraordinary genetic powers and train to become the best of the best.

Following the huge success of Pucca as a consumer products property, we have commissioned a full TV series to be produced by Canada’s Studio B. The new series retains the visual style of the previous shorts, whilst adding to Pucca’s cast and world, creating additional licensing opportunities. This will be the first Flash animated series for Jetix Europe.

An innovative new entry into the realm of sophisticated fantasy drama for kids 8-14, our new mystery series combines live action with stunning CGI creature animation. A contemporary setting and the teen soap appeal of a pin-up cast of heroes are placed against an extraordinary backdrop of giant monsters, epic threats and tangled webs of mystery, in true Jetix fashion. The series represents our commitment to innovative live action for our older audience, encompassing all our key brand values.

Galactik Football follows the adventures of the Snow Kids, a football team from the planet Akillian as they immerse themselves in the emotion and adventure of competing for the prestigious ‘Galactik Football Cup’. Our heroes master the art of using Flux, a powerful form of magic which raises the stakes and sees the team face both triumph and sabotage.

7

our

Jetix Europe is part of the Jetix global brand alliance

alliance

Jetix Europe is a partner in the Jetix global brand alliance, established in 2004 with our majority shareholder, The Walt Disney Company. The partners in the alliance are working together to build Jetix into a global brand targeting kids aged 6 -14, with a particular focus on action adventure, combined with cheeky humour. This year the Jetix brand has been rolled out across the world: •

Jetix Europe has renamed all of its activities

•

Disney in the U.S. is broadcasting Jetix branded programme blocks

•

In Asia, Buena Vista International Television (BVITV) has sold Jetix branded programme blocks to a number of broadcasters, and Disney is also carrying Jetix branded blocks on parts of its own channel network •

Disney in Latin America has renamed all of its Fox Kids operations as Jetix

Jetix is becoming a truly global phenomenon 1 >>>

Reaching over 275 million households

>>>

In 80 countries

>>>

Broadcasting in 25 languages

1

8

Statistics refer to the Jetix alliance around the world, Jetix Europe only owns the operations in Europe and the Middle East.

w o h s cool ey Monk

ot ce Go! b o R r r Supe Hyperf-sotyle action Team ristic anime forces of tu e f is a fu that pits th t a band o , ns series e evil agai t Monkey t a bo ultim loured Ro iro – h co iro multi s, led by C en. Ch r e t g r n i warrio rceful you defend the u e a reso team of fiv ity against C s i and h huggazoom g and his in ,S home Skeleton K l i the ev minions. er monst

26%

Public shareholders

74%

ABC Family Worldwide (A subsidiary of Disney)

Jetix Europe ownership structure 9

our

history y t r e p o r p hot s nger ue Ra ed as a tr r e w lish . Po estab perty

ly pro TV is firm en kids’ nese t a e p r a J g bu 0’s ever a 197 estern de y b d W e s, Inspir t made its 13th serie s ,i series . Now in it episodes, s 3 0 tion in 199 re over 45 enera est, G s a r e there wer Rang t of the b s o and P iles the be diences to rs comp g new au wer Range o in allow r classic P e v disco first time. e for th

’99 Initial Public Offering

10

’00 Channels launched in Italy, Germany, Hungary, Turkey and Middle East Fox Kids is now the only children’s entertainment company with a channel in every major European market Fox Kids Europe reaches profitability Channels now reach 20 million households in 38 countries

’05 All operations renamed as Jetix First year of new management team New channel launched in Italy – GXT New programming delivered included W.I.T.C.H., A.T.O.M. Alpha Teens on Machines and Super Robot Monkey Team Hyperforce Go! Programme distribution division began its recovery with a return to profits growth Consumer products restructuring led to major development in Home Entertainment business

’01

Jetix Europe reaches 41.8 million households in 58 countries in 18 languages via 15 channel feeds

Channels launched in Israel and Greece Hungarian channel extended to Czech Republic and Slovakia Disney acquires 100% of Fox Family Worldwide, thereby becoming Fox Kids Europe’s majority shareholder Channels now reach 24.9 million households in 54 countries via 11 channel feeds in 16 languages

’04 Fox Kids creates Jetix, a global programming alliance with Disney Jetix relocates its UK and French offices to Disney’s local premises First two co-productions with Disney underway: W.I.T.C.H. and Super Robot Monkey Team Hyperforce Go!

’02 Buena Vista International Television appointed to service Fox Kids’ programme distribution business Fox Kids Europe now reaches 32.3 million households in 17 languages via 12 channel feeds

Channels now reach 38.3 million households in 58 countries in 17 languages via 14 channel feeds

’03 10 years of Power Rangers success! Power Rangers ranked as best selling action figure brand of all time in the US Disney Consumer Products appointed to represent Power Rangers; Video distribution agreement concluded with Buena Vista Home Entertainment Channels now reach 34.8 million households in 57 countries in 17 languages via 12 channel feeds

11

chief executive officer’s review “I am delighted to be announcing another strong set of results from Jetix Europe. This has been a year of change for the Company and I am pleased that through this period of transition we have succeeded in delivering on our financial targets as well as laying the foundations for continued growth into the future.”

12

Last year we announced that we were creating a new programming brand with our parent, The Walt Disney Company (Disney), centred on our new name and brand – Jetix. This year has seen the completion in Europe and the Middle East of the first phase of this alliance, with the transition to our new name across all of our operations: television, on-line, new digital media and our ancillary activities. We are excited to see that Disney has also launched the Jetix brand in the U.S., Latin America and Asia, making us a key player in the development of a truly global kids’ phenomenon. It is also good to see that our strategy of introducing the new brand gradually, through Jetix branded blocks which preceded the full channel renaming, has worked well. The new brand has become firmly established across Europe and the Middle East with our audiences, commercial partners, advertisers and distributors. As I highlighted when I became CEO, content is at the heart of our company. This year we have significantly improved our production pipeline, with a focus on developing fewer, higher quality properties. Our content strategy is centred on ownership, either in partnership with our parent company or the best independent producers around the world, thus enabling our team to be heavily involved in the creative direction of each property early on in its development. This also more effectively sets us up to participate in the financial rewards of hit franchises. This has been the first full year of our programme alliance with Disney, and during the period we have taken delivery of the first shows which were developed specifically for the Jetix brand. The uniquely named Super Robot Monkey Team Hyperforce Go!, and the soon to be aired Get Ed were produced by Disney’s Television Animation division. It is also important to note that the content alliance with Disney is a two way process. The Jetix Europe led co-production of W.I.T.C.H. with SIP Animation (SIP) in France has aired across our channels in Europe as well as the Disney owned Jetix networks and programme blocks in North America, Latin America and Asia. In addition, since the end of the fiscal year, we have sold two of our flagship co-productions to Jetix in the U.S., A.T.O.M. (Alpha Teens On Machines) and Oban Star-Racers (co-production with Sav! the World). The success of these shows has already allowed us to commission second seasons of Super Robot Monkey Team Hyperforce Go!, W.I.T.C.H. and A.T.O.M. (Alpha Teens On Machines).

The improved quality of our programming can also be seen in the first signs of recovery in our programme distribution division, where we work with Disney’s Buena Vista International Television, Europe’s leading kids programme distribution company. Despite receiving fewer new episodes this year we managed to grow our profits, and I am confident that as our programme pipeline continues to improve we will see further growth in this division. Our consumer products division built on last year’s success with another excellent year. Power Rangers continues to exceed our expectations, supported by the strength of Disney Consumer Products, and our home entertainment business has delivered outstanding results following the internal reorganisation which focused resources on this area. During the year we have also pushed through changes in our corporate management structure. I believe that all of this year’s changes, and the new focused management team, has given the company a new momentum. We are well positioned for the next stage in our development and I remain confident that we will continue to rise to the many challenges and opportunities of the fast changing media world in which we operate. I would also like to take this opportunity to publicly thank each and every member of the team. You have all risen to the challenge this year, and without you, these results would not be possible – Thank You.

Paul Taylor Chief Executive Officer December 2005

13

operating and financial review

“I am pleased that we achieved strong earnings growth in a year of significant transition, and that operating cash flow remained strong despite increased programming investment.”

Dene Stratton Chief Financial Officer December 2005

14

Revenues

Costs and Expenses

Revenues increased by 14% to $187.8 million against the prior year. Channels and online grew revenues by 14% to $144.5 million, with subscription revenues increasing by 13% to $94.0 million and advertising revenues increasing by 14% to $47.1 million. Other channel and online revenues, mainly live events, research and interactive, were up 13% at $3.4 million. The primary drivers of growth in channel and online revenues were increased distribution of our channels, strong advertising growth, notably in Italy, CEE and Poland, and the weakening of the dollar against the euro and the pound.

Costs and expenses increased by 7% to $122.4 million. Excluding the non-recurring relocation expenses in the prior year, costs rose by 14% from $107.3 million. The primary reasons for the increase in costs included a provision for indirect taxes, the weakening of the dollar against the euro and the pound, and increased costs in our consumer products division. Consumer products cost increases were driven by an increased agency fee on one of our properties and an accrual of third party costs primarily attributable to prior periods, which we announced in our interim statement.

Programme distribution revenues, serviced by Buena Vista International Television, increased by 1% to $24.9 million. As reported in our half-year results, revenues were weighted towards the second half of the year, with 65% of revenues in this period. This is due to the timing of programme deliveries during the period rather than any seasonal factor. Programme distribution revenues have increased slightly despite a substantial fall in the volume of programming being delivered. This has been driven by the strong performance of our new programming, notably Power Rangers and W.I.T.C.H., as well as strong sales of older titles, particularly Spiderman.

Other cost increases were attributable to the upgrading of our broadcasting facilities, a provision for settlement of pending legal claims and marketing spend associated with the renaming of our channel and online businesses, partly offset by reduced programme distribution costs due to the lower volume of new episodes delivered.

Our consumer products revenues grew strongly, increasing by 38% to $18.4 million. This was driven by a strong performance from Power Rangers, represented by Disney Consumer Products, as well as significant growth in our home entertainment division, both in-house and the properties distributed by Buena Vista Home Entertainment.

1

EBITDA1 EBITDA increased by 28% to $65.5 million. This represents an increase of 13% on prior year adjusted for non-recurring relocation costs. Channel and online EBITDA increased by 37% (21% after adjusting for non-recurring costs) to $57.6 million. This was driven by subscription and advertising revenue growth being only partially offset by cost increases primarily due to foreign exchange movements, increased technical and increased marketing costs. Programme distribution increased EBITDA by 10% (9% after adjusting for non-recurring costs) to $17.1 million as costs were reduced due to the lower volume of new programming delivered, and consumer products increased EBITDA by 23% (15% after adjusting for non-recurring costs) to $6.3 million, with strong revenue growth partially offset by increased costs from the increased agency fees and the accrual described above. The change in shared costs not allocated to segments was primarily the result of a provision for indirect taxes.

Consistent with prior years, EBITDA is stated before programme amortisation, impairment and depreciation. EBITDA less programme amortisation, impairment and depreciation is equal to Operating Income.

15

operating and financial review Revenue by line of business Programme Distribution 13.2%

continued

Revenue by territory

Consumer Products 9.8%

Other 13.4% UK 29.6%

Spain 5.1%

Channels: Advertising 25.1%

Germany 8.2%

CEE 8.3% Channels: Subscription & Other 51.9%

Italy 12.9% Benelux 11.3%

France 11.2%

Amortisation, Impairment and Depreciation

Financial Income

Programme amortisation and impairment fell by 3% to $41.7 million. This is largely due to a significantly larger impairment charge in the prior period versus the current year, offset by an increase in amortisation from increased revenue in our channels and online and consumer products divisions.

Financial income increased by 142% to $2.4 million due to higher cash balances during the period compared with prior year, and higher interest rates.

Depreciation and impairment of property and equipment fell by 48% to $1.4 million. This is due primarily to the asset write-off in the prior year, associated with our relocation. There has also been a slight increase in fully depreciated assets, which has reduced our overall depreciation rate.

Income before tax and minority interest increased by 243% from $7.6 million to $26.1 million. This is primarily due to increased EBITDA discussed above, as well as reduced amortisation and depreciation and increased financial income.

16

Income Before Tax and Minority Interest

Taxation

REPORTING CURRENCY

The effective tax rate was 23% compared with 26% in the prior fiscal year. The income tax charge for the year comprised income, withholding and capital taxes payable amounting to $3.0 million, and a deferred tax charge of $3.0 million.

Due to the growing usage of euros since their introduction, and the growth in our channel and online business, we expect the euro to be the most significant currency in which our revenues and costs will be originated for the foreseeable future. Therefore for the fiscal year ending September 30, 2006 we will be changing our reporting currency to the euro from the dollar.

Minority Interest Minority interest fell by $0.6 million to an expense of $0.4 million as our Polish channel operation moved into profitability.

Earnings per Share Basic earnings per share increased by 234% to 23.7 cents per share from 7.1 cents per share. Diluted earnings per share increased by 241% to 23.5 cents per share from 6.9 cents per share. These gains were due to the increase in income referred to above, with no significant change in the weighted average number of shares outstanding.

Cash Flow Operating cash flow remained at $30.9 million. Strong growth in operating income was offset by the combination of increased investment in content and the non-recurrence of a working capital benefit associated with the office relocation in the prior year. Cash and cash equivalents increased by $38.3 million. This resulted primarily from operating cash flow and the exercise of employee stock options.

CHANGE TO IFRS The company’s primary financial reporting is currently on a U.S. GAAP basis. Companies listed on an E.U. Stock Exchange are required to prepare consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) for accounting periods commencing on or after January 1, 2005. Jetix Europe will therefore be preparing financial statements under IFRS for our fiscal year ending September 30, 2006. Preparing for the transition, we have drawn up plans for implementation, made a survey of differences between U.S. GAAP and IFRS, prepared a preliminary October 1, 2004 opening balance sheet and started the process of implementing necessary changes in systems and routines. Significant differences between current U.S. GAAP and IFRS reporting may include, but are not limited to, programme amortisation and impairment, proportional consolidation of non-consolidated joint ventures, expensing of stock based employee compensation (also required under U.S. GAAP for fiscal 2006) and deferred tax.

17

Channels and online

18

15 channel

feeds reaching

58 countries broadcasting in

18 languages

41.8 million households reached

17 localised websites plus digital and interactive services

19

Channels and online

continued

144.5

47.7(5)

127.3

101.6(4)

35.6(4)

104.1 58.6(2)

57.6

79.9(3)

41.2

42.1(6)

2003

2004

28.4(3)

52.6(1) 7.0(2) 5.6(1) 2001

2002

2003

2004

2005

2001

2002

Revenue (7)

EBITDA (8)

[$ million]

[$ million]

2005

“During the year the key focus for the channels and online division has been the renaming to Jetix.” The renaming began in the prior financial year with our French channel in August, and since then the rest of our feeds have changed to Jetix. The majority transitioned in January, with our German channel being the last to change in June 2005. We supported the renaming with a wide range of marketing activities, from special launches to Jetix branded touring events, all supported by major on-air and online campaigns. The new brand has become firmly established with our audiences, and has also built a strong presence with our commercial partners. The transition highlighted the successful overall strategy we pursued, with the initial launch of branded blocks to introduce our audiences to the new name, followed by the rolling out of the change across our whole channel network.

The channels have continued to expand their distribution during the year and at the year end we reached 41.8 million households, up 3.5 million households. This has maintained our position as one of the leading kids’ television channels across Europe and as at September 30, 2005, we reached 58 countries, through 15 channel feeds broadcasting in 18 languages. During the year we have renewed key deals with pay-tv platforms, securing distribution of our channels into the future. Key deals renewed were with Sky Italia in Italy, NTL and Telewest in the U.K., Sogecable in Spain and a number of deals in Eastern Europe.

(1)

Unaudited results for the year ended May 31, 2001.

(6)

Results for the year ended September 30, 2004, as reported.

(2)

Results for the 13-months ended June 30, 2001.

(7)

Excluding our share of non-consolidated joint ventures.

(3)

Unaudited results for the year ended June 30, 2002.

(8)

(4)

Results for the 15-months ended September 30, 2002.

(5)

Pro forma stated after excluding non-recurring relocation charges of $5.6 million.

Consistent with prior years, EBITDA is stated before programme amortisation, impairment and depreciation. EBITDA less depreciation, amortisation and impairment is equivalent to operating income.

20

highlights >>> All of the channels have been renamed as Jetix

>>> Channel subscribers increase by 3.5 million to 41.8 million households

>>> Channels broadcasting in 58 countries via 15 channel feeds in 18 languages

>>> Strong advertising growth in most markets

>>> Launch of new channel franchise in Italy – GXT

>>> New media trials underway on mobile and ADSL VoD

>>> Key channel distribution deals renewed

Advertising revenue has grown at more than 15% in all of our markets except the U.K. and the Netherlands. On two of our channels, Central and Eastern Europe and Poland, advertising more than doubled, whilst in the U.K. and the Netherlands advertising was broadly in line with last year. In the Netherlands we have defended our market leading position against a strong new market entrant, and in the U.K., our most competitive market, we maintained our position. In May 2005 we launched a new channel brand in Italy, GXT. GXT targets an older “teen” audience with a mix of irreverent humour and edgy programming. To date, the channel has performed strongly and has significantly improved our demographic reach, opening up the opportunity to develop new advertising clients. We are hopeful that this format will have significant potential in the future.

During the period the market for digital media has continued to develop rapidly. We are working with a number of partners to trial new services and to ensure we are present wherever new opportunities are emerging. In France we have two deals in place to distribute our channel over mobile phones. Trials with Orange and SFR began in June and early performance has been positive. In Germany we secured carriage within T-Online’s video on demand ADSL service which distributes some of our most popular library shows, and in the UK our channel is being carried on the Homechoice ADSL service.

21

programme distribution

22

Serviced by Disney’s

Buena Vista Television International

90 clients Over

in

44 markets

Library of over

6,600 episodes 1

1

Half hour equivalents, as at September 30, 2005.

23

programme distribution 61.4(2)

continued

51.2(2)

59.0(1)

49.2(1) (4)

43.2

28.8 (3),(4)

40.1(3) 31.4 24.7

24.9

20.4

15.7(5) 15.5(6)

2001

2002

2003

2004

2005

2001

2002

Revenue

EBITDA (7)

[$ million]

[$ million]

2003

2004

17.1

2005

“Programme distribution revenue has increased for the first time in recent years.” We achieved this despite a significant reduction in the number of episodes delivered compared with the prior year. There has been a concerted focus on the quality of programmes that we have been producing, and we have begun implementing our long-term strategy of moving from acquired programming to co-productions, in which we have significant ownership and creative influence. The improvement is also due to the global scale and industry relationships which Buena Vista International Television brings to servicing our distribution operation. The quality of our programming is highlighted by the on-air performance of a number of our key franchises during the year, both old and new. Power Rangers maintained its market leadership position, airing in all five of the major European markets and leading its timeslot with the highest kids ratings in four of them8. On the back of the most recent movie, Spiderman returned as one of our best selling properties, airing in all five

major European markets and was the most popular programme with boys in all markets for its timeslot. Our new shows also sold well with W.I.T.C.H. selling in 17 countries and Sonic X selling in 19 countries. In the four major markets where W.I.T.C.H. aired it was number one or two in its timeslot amongst kids and Sonic X was number one for boys in its timeslot in the three major markets in which it aired. During the period we have sold a new branded block and a number of notable volume and package deals 9. A new branded block deal has been signed with Polsat in Poland, which complements the blocks we already have in Germany, Russia, Czech Republic and a number of other emerging markets. New volume deals have been signed in the U.K., Ireland and Belgium; and major package deals have been signed in Italy, Greece, Turkey and Finland amongst others.

(1)

Unaudited results for the year ended May 31, 2001.

(5)

Pro forma stated after excluding non-recurring relocation charges of $0.2 million.

(2)

Results for the 13-month period ended June 30, 2001.

(6)

Results for the year ended September 30, 2004, as reported.

(3)

Unaudited results for the year ended June 30, 2002.

(7)

(4)

Results for the 15 months ended September 30, 2002.

Consistent with prior years, EBITDA is stated before programme amortisation, impairment and depreciation. EBITDA less depreciation, amortisation and impairment is equivalent to operating income.

24

highlights >>> Revenue marginally up, reversing

>>> 137 episodes of new programming

recent trend

>>> Strong on-air performance of

delivered

>>> Significant improvement in

key shows

programme pipeline with 244 episodes in production, up 102 from September 30, 2004

>>> New branded block, volume and package deals

We have taken delivery of 137 new episodes during the period. This included the initial season of our first co-production with Disney’s Television Animation unit in the U.S., Super Robot Monkey Team Hyperforce Go!, as well as co-productions with other studios. This year we have received the first seasons of W.I.T.C.H. and A.T.O.M. (Alpha Teens on Machines) from SIP in France, and acquired new series of programming such as Sonic X. We have also received the latest season of our flagship property, Power Rangers. The number of episodes we have in production has significantly increased to 244, up 102 episodes from September 30, 2004. New productions entered into during the period include both new seasons of our successful properties, Power Rangers, Super Robot Monkey Team Hyperforce Go!, W.I.T.C.H. and A.T.O.M. (Alpha Teens on Machines), as well as new original properties such as Get Ed, Pucca and a new “mystery” live action production. Get Ed is a new coproduction with Disney’s TVA in the U.S., and follows the adventures of Ed, a boy genetically created from an ancient artefact, who works as a surreptitious cybersleuth, foiling identity thefts and other information based

crimes whilst toiling at a futuristic messenger service. Pucca has developed from our strong consumer products franchise, and is a kiss-chase meets kung-fu comedy following the exploits of Pucca, the daughter of a Chinese restaurant owner, and Garu, a loyal ninja student. Our new “mystery” live action series will launch next year at MIP TV and is a hybrid between live action and CGI production techniques. Also in production at the period end was Oban Star-Racers, our 26 episode epic co-production with Sav! the World, Super RTL and France 3. This was recently launched at the MIPCOM TV buying market and has generated significant early interest.

8

Source: B.A.R.B. in UK; Mediametrie in France, Spain and Germany; AGB Italia – Italy; all sources cover the key kid demographic in all television households; time period covers when the programmes aired between October 1, 2004 and September 30, 2005.

9

A volume deal is when a broadcaster agrees to buy a defined volume of programming over a number of years with some programmes undefined, versus a package deal when one or more specific titles are acquired.

25

consumer products panEuropean licensing agency

Local offices

in

7 markets

represented in

37

countries

26

27

consumer products 18.4

continued

5.2(2)

5.5(5)

6.3

(4)

4.9

5.2(6) 10.7(4) 9.3(2)

4.6(1)

13.3

4.4(3)

11.3

4.0

(3)

8.5(1)

2001

9.3

2002

2003

2004

2005

2001

2002

Revenue

EBITDA (7)

[$ million]

[$ million]

2003

2004

2005

“Consumer products has performed well, driven by strong sales from Power Rangers and home entertainment.” We exploit our consumer products properties through a dual strategy. We have an in-house division, Jetix Consumer Products (JCP) which represents almost all of our properties, and we have leveraged the global reach of Disney through Disney Consumer Products (DCP) to distribute our global hit property, Power Rangers, and through Buena Vista Home Entertainment (BVHE) to distribute some of our biggest selling home entertainment titles.

on developing new products outside of the core areas, and this has led to strong growth in a number of smaller categories, including youth electronics and communications, sports toys and ride-ons. Power Rangers has also become firmly established as a core franchise within the Disney stores.

Power Rangers has again grown strongly with our royalty revenue from DCP up more than 40%. Retail sales have increased in all of the major European markets, and more than doubled in Germany and Italy 8. Action figures remain the largest category, and despite strong competition from Star Wars, Power Rangers ranked in the top five properties in four of the five major markets. There has also been a focus

Within the properties represented by JCP, Pucca and Sonic X have been particularly strong. Pucca has developed into a uniquely distinctive brand with strong categories including fashion and apparel, as well as stationery and accessories. Following its success as a consumer products property, Jetix is developing Pucca into a TV series. Together with securing the Pucca TV rights from Vooz, we have extended our consumer products licence period for a further 20 years, ensuring that we benefit from the value created by the TV exposure. The terms of our agency representation were also improved.

(1)

Unaudited results for the year ended May 31, 2001.

(6)

Results for the year ended September 30, 2004, as reported.

(2)

Results for the 13-month period ended June 30, 2001.

(7)

(3)

Unaudited results for the year ended June 30, 2002.

(4)

Results for the 15-month period ended September 30, 2002.

Consistent with prior years, EBITDA is stated before programme amortisation, impairment and depreciation. EBITDA less depreciation, amortisation and impairment is equivalent to operating income.

(8)

(5)

Pro forma stated after excluding non-recurring relocation charges of $0.3 million.

Source: NPD Group / Eurotoys / EPoS Tracking Service

28

highlights >>> Strong revenue and profit growth

>>> Sonic X developing well across the region

>>> Power Rangers, represented by Disney Consumer Products, performing well

>>> Home entertainment significantly increased sales as new management structure has improved focus

>>> Pucca licensing agency agreement improved and extended on the back of strong performance

Sonic X, our recent major acquisition, has been licensed across a wide range of territories. The master toy license is developing well with product launched across the region, and the character has been signed for a broad range of merchandise. On the back of this success we have increased the range of rights we are representing. The Jetix brand has also demonstrated its potential and strong early recognition by establishing itself as one of our leading licensing properties. Jetix branded items include magazine publishing, CD compilations, supermarket promotions and the use of the Jetix logo on a range of items from cycle helmets and bean bags through to ice cream.

Within JCP, a dedicated unit has been set up to focus on building our home entertainment activities. This new division has had an excellent start, more than doubling revenues year on year. This success has been driven by both new and library titles, Sonic X has been licensed in 24 countries, including four of the five major European markets, and there has been a significant increase in multi-property deals where a number of our library titles are licensed together as packages. We have continued to expand the range of properties we represent and during the period have taken on the rights for our new “mystery” live action series, and we also control the consumer product rights within our region for our major co-production Oban Star-Racers.

The performance of our home entertainment business has been a notable highlight, with a strong performance from both our in-house operation and the titles distributed by BVHE (Power Rangers and a number of our Marvel titles). Power Rangers has maintained its perennial popularity, and the Marvel titles have increased sales, leveraging the interest generated by the release of the Spiderman and Fantastic Four theatrical movies.

29

Management board

30

PAUL TAYLOR

Dene Stratton

Chief Executive Officer

Chief Financial Officer

Paul Taylor was formally appointed Chief Executive Officer in November 2004 having served as Interim CEO since July 2004. In this role, he is responsible for leading the continued growth of all Jetix Europe’s businesses. Mr. Taylor spent 5 years at BSkyB and was General Manager of Movies & Pay-Per-View when he left to join Jetix Europe. Prior to that he served as Director of Advertising Sales at UK Gold and UK Living. Mr. Taylor also worked at Channel Four from 1992 to 1996, and held posts at various advertising agencies including JWT, McCanns, Lowe Howard-Spink and Geers Gross.

Dene Stratton was appointed Chief Financial Officer and a member of the Management Board in January 2005. He is responsible for all aspects of finance, administration, business development and investor relations. Prior to joining Jetix Europe he worked at Disney, as Senior Vice President, Planning & Control at ABC Inc., having held a number of roles within Disney since 1990. He began his career in public accounting with Ernst & Young in Los Angeles.

Olivier Spiner

OLIVER FRYER

Executive Vice President of International Affairs

General Counsel

Olivier Spiner was appointed as a member of the Management Board and Executive Vice President of International Affairs in November 1999, and is responsible for Jetix Europe’s corporate activities. Prior to joining Jetix Europe he served as Deputy General Manager of Saban International Paris from 1996 and before this, from 1982, he held the positions of Deputy General Manager and Chief Financial Officer at Créativité and Développement.

Oliver Fryer was appointed as a member of the Management Board in September 2003. In his role, he is responsible for all of Jetix Europe’s contractual, legal and business affairs issues. He previously served as Director of Legal and Business Affairs for Jetix Europe. Before joining the company in June 2001, Mr. Fryer worked for The Simkins Partnership and for Zenith Entertainment plc, where for several years he was Director of Legal and Business Affairs.

31

supervisory board Thomas Staggs

Etienne de Villiers

Chairman of the Supervisory Board

Etienne de Villiers was appointed as a member of the Supervisory Board in January 2005. Mr. de Villiers is founder and senior partner of Englefield Capital LLP, a UK based private equity fund focused on mid-market development capital deals. He is a non-executive Director for Pi Capital and Video Networks, as well as non-executive Chairman of BBC Commercial Holdings Limited. He is also the newly appointed Executive Chairman and President of the ATP, the governing body of men’s professional tennis. Until May 2000, Mr. de Villiers served as President and MD of Walt Disney International Europe, Middle East and Africa and President of Walt Disney International where he was responsible for Disney’s production, broadcasting and distribution activities outside the USA.

Tom Staggs was appointed as Chairman of the Supervisory Board in November 2001. He is currently Senior Executive Vice President and Chief Financial Officer of the The Walt Disney Company and a member of Disney’s executive management committee, with responsibility for the company’s worldwide finance organisation, controller functions, acquisitions, investor relations, treasury activities, information systems, real estate and taxes. Mr. Staggs joined Disney in 1990 as Manager of Strategic Planning. In 1995, he became Vice President of Planning and Development and in 1998, Mr. Staggs became Executive Vice President and Chief Financial Officer.

Andy Bird Andy Bird was appointed as a member of the Supervisory Board in January 2005. As president of Walt Disney International, Mr. Bird works with all of Disney’s business unit leaders around the world, coordinating and overseeing growth opportunities for Disney outside the United States. He is responsible for targeting new businesses, growing and increasing penetration of existing businesses, and leading the development of business and operations in emerging markets. Prior to joining Disney, Mr. Bird spent nearly a decade with Time Warner.

Peter Seymour Peter Seymour was appointed as a member of the Supervisory Board in September 2005. He is currently Senior Vice President of Strategy for Disney Media Networks where he oversees strategy development for all of Disney broadcasting and cable programming activities. Mr. Seymour joined Disney in 1996 as Manager of Strategic Planning. In 2001 he became Senior Vice President of Strategic Planning responsible for Disney’s overall corporate development activities as well as strategy and business development for the company’s technology and broadcasting initiatives.

Supervisory Board changes

During the year Philippe Laco, Claus Holst-Gydesen, Peter Murphy and Antoine Jeancourt-Galignani resigned from the Supervisory Board, and Andy Bird, Etienne de Villiers and Peter Seymour joined the Supervisory Board. The Company intends the Supervisory Board to have five members, two of which will be independent from Disney. Therefore, following the end of the period under review the company has announced that it intends to appoint, subject to shareholder approval, Wolf-Dieter Gramatke as a non-Disney director, while Tom Staggs will be replaced by Brian Spaulding. An EGM to approve these changes has been called on January 10, 2006. Andy Bird will be taking over as Chairman. Wolf-Dieter Gramatke has been a freelance media consultant since 2001 and acts as a supervisory board member for a number of German media companies including Deutsche Entertainment and Pixelpark. Previously, he was Chairman and CEO of Universal in Germany, Austria and Switzerland and President and CEO of Polygram in Germany and worked in senior management positions in a number of German and international companies including BMW and Columbia Pictures. Brian Spaulding is Senior Vice President and Chief Financial Officer for Walt Disney International. In this capacity, Brian oversees the finance, business development and information technology activities for many of Disney’s international operations. Mr. Spaulding joined Disney in 1988 as a Senior Auditor in the company’s Management Audit department. Since that time he has held a series of domestic and international positions in Disney’s television, filmed entertainment and corporate groups.

32

Corporate governance This is the first year in which the Company has been subject to the Tabakslat Code relating to Dutch Corporate Governance (the “Code”). The Company agrees with the aims of the Code and seeks to achieve general compliance with it. During the course of the year a number of changes to the rules and regulations of the Company were developed with, and approved by the Supervisory Board and shareholders, and have been implemented. These changes were made in order to comply more fully with the provisions of the Code. At the AGM, changes to the Articles of the Company were approved by the shareholders. The shareholders also approved a Corporate Governance Compliance Policy and Remuneration Policy. Subsequently, new rules for the Supervisory Board and Management Board were approved by the Supervisory Board, together with rules for Audit, Remuneration and Appointment Committees. A number of corporate policies relating to business, financial conduct and whistle-blowing have also been approved by the Supervisory Board and implemented and can be found on the Company’s corporate website. For the avoidance of doubt this report relating to corporate governance is supplied by way of information only and not in purported satisfaction of Dutch law or regulation. As is appropriate, full reports and information required pursuant to Dutch law and regulation will be incorporated into the Company’s Dutch report which will be published later in the Spring. However, as the following issues have been the subject of recent discussion with the shareholders and were issues highlighted in the Company’s Remuneration and Compliance Policies, we specifically draw your attention to the following;

•

For best practice provisions I I.2.1 and I I.2.2 of principle I I.2 (Remuneration – Management Board) the Company partly deviates from the Code, as the current option and restricted stock schemes for the members of the Management Board (as for employees as a whole) do not include any formal conditional criteria following a grant of options or restricted stock. Additionally, options can be vested and exercised over a period of four years (while the restricted stock vests in two equal tranches, two and four years after grant). There is no formal requirement to retain stock following vesting or exercise. It is not proposed to amend this scheme, as it broadly reflects that of the majority shareholder, Disney, and it is considered desirable by the Supervisory Board to have generally consistent incentive arrangements for senior management throughout both companies. To this end, the Supervisory Board approved new Option and Restricted Stock Scheme rules and these were approved by shareholders in an EGM on September 13, 2005.

•

Although the Company complies with principle I I I.2 (Independence – Supervisory Board) the Board notes that at present three of the four members of the Supervisory Board are employees of Disney. It is intended that a further Supervisory Board director, not employed by Disney, will be appointed as soon as possible.

•

Although the principles of the Supervisory Board subcommittees and their rules have been approved, these committees have not yet been implemented. This is primarily due to recent changes in personnel on the Supervisory Board and it is intended that once a fifth Board member is appointed, these committees will be staffed and will begin their work. In the meantime, the Supervisory Board as a whole will continue to perform the broad function of these separate committees.

33

Corporate governance The Supervisory Board held 5 meetings with the Management Board present and two without as well as a large number of more informal contacts with and without members of the Management Board being present. The CEO of the Management Board consults with the Chairman and other members of the Supervisory Board and their nominees on an informal but regular basis. The items discussed included a number of recurring subjects, such as the Company’s strategy, the financial position, results and forecasts, business plans, corporate governance and remuneration (including incentive plans) and appointments. Other subjects included an assessment of the structure and operation of the internal risk management and control systems. The external auditor attended the meeting in which the 2004 results were discussed.

34

continued

accounts

Accounts contents 36 37 38 39 40 41

Report of Independent Auditors Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Cash Flows Consolidated Statements of Shareholders’ Equity Notes to Consolidated Financial Statements

35

Report of Independent Auditors

To the Shareholders of Jetix Europe N.V. We have audited the accompanying consolidated balance sheets of Jetix Europe N.V. and subsidiaries (“the Company”), as of September 30, 2005 and as of September 30, 2004 and the related consolidated statements of operations, cash flows and shareholders’ equity for the years then ended which have been prepared on the basis of accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Jetix Europe N.V. and its subsidiaries at September 30, 2005 and September 30, 2004 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. This report, including the opinion, has been prepared for and only for the Company’s members as a body in order to meet the provisions of the listing agreement with the Euronext Stock Exchange in Amsterdam and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

PricewaterhouseCoopers LLP Chartered Accountants London, United Kingdom January 16, 2006

36

Consolidated Balance Sheets as of September 30, 2005 and September 30, 2004

ASSETS 2005 $’000

2004 $’000

Cash and cash equivalents Accounts receivable, net of allowance of $2,227,000 and $2,568,000 respectively Prepaids and other assets Amounts due from related parties Programme rights, net Investments in equity affiliates Property and equipment, net Deferred income taxes Goodwill, net

124,278 59,816 6,391 14,711 112,366 1,486 2,174 9,092 28,016

86,022 49,051 5,798 20,412 116,207 2,134 3,054 12,101 28,016

Total assets

358,330

322,795

2005 $’000

2004 $’000

11,267 49,645 8,703 24,433 13,247 1,720

10,253 49,035 14,033 10,477 16,200 1,184

109,015

101,182

21,876 457,170 (204,114) 6,752 (32,369)

21,629 449,751 (204,114) 6,475 (52,128)

Total shareholders’ equity

249,315

221,613

Total liabilities, minority interests and shareholders’ equity

358,330

322,795

Notes

5 15 8 6 11 7

LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS’ EQUITY

9 15 10

Accounts payable Accrued liabilities Deferred income Amounts due to related parties Other liabilities Minority interests Total liabilities and minority interests

18

83,966,915 (2004 – 83,196,912) ordinary shares of m0.25 each and 100 (2004 – 100) priority shares of m0.25 each Additional paid-in capital Other reserves Accumulated other comprehensive income Accumulated deficit

The accompanying notes are an integral part of these consolidated financial statements.

37

Consolidated Statements of Operations Year ended September 30, 2005 and September 30, 2004

Notes

17

Revenues

17

Costs and expenses Depreciation, amortisation and impairment

13 14

19

187,838

165,345

(122,371) (43,191)

(114,394) (45,804)

22,276

5,147

Other income/(expense): Interest income Interest expense Gain on foreign exchange Equity in income of affiliates

4,501 (2,064) 593 787

2,814 (1,809) 648 810

3,817

2,463

Income before tax and minority interest Tax Minority interest (expense)/income

26,093 (5,960) (374)

7,610 (1,972) 190

Net income

19,759

5,828

2005

2004

23.7 23.5

7.1 6.9

83,502 84,065

82,618 84,156

EARNINGS PER SHARE (CENTS)

Basic Earnings per share Diluted Earnings per share Weighted average number of ordinary shares outstanding (’000) – Basic – Diluted

The accompanying notes are an integral part of these consolidated financial statements.

38

2004 $’000

Operating income

Total other income, net

11

2005 $’000

Consolidated Statements of Cash Flows Year ended September 30, 2005 and September 30, 2004

OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash generated by operating activities: Amortisation and impairment of programme rights Depreciation of property and equipment Impairment of property and equipment Provision for doubtful debts Equity in income of affiliates Dividends from equity affiliates Minority interest expense/(income) Deferred tax Changes in operating assets and liabilities(1): Accounts receivable Amounts due from related parties Programme rights Prepaids and other assets Accounts payable Accrued liabilities and deferred income Amounts due to related parties Other liabilities Net cash generated by operating activities

2004 $’000

19,759

5,828

41,748 1,443 – (341) (787) 1,500 374 3,009

43,008 1,884 912 (472) (810) – (190) (1,331)

(10,318) 5,701 (37,907) (593) 1,014 (4,720) 13,956 (2,953)

(5,474) (4,082) (33,990) 865 (2,445) 12,291 (1,331) 16,200

30,885

30,863

INVESTING ACTIVITIES Purchases of property and equipment

(669)

(1,169)

Net cash used in investing activities

(669)

(1,169)

FINANCING ACTIVITIES Exercise of Stock Options

7,666

4,295

Net cash generated by financing activities

7,666

4,295

NET INCREASE IN CASH AND CASH EQUIVALENTS FROM OPERATING, INVESTING AND FINANCING ACTIVITIES NET INCREASE IN CASH DUE TO FOREIGN CURRENCY FLUCTUATIONS

37,882 374

33,989 583

NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

38,256 86,022

34,572 51,450

124,278

86,022

2,869 2,064

1,316 1,809

CASH AND CASH EQUIVALENTS, END OF YEAR

SUPPLEMENTAL CASH FLOW INFORMATION CASH PAID FOR TAXES CASH PAID FOR INTEREST (1)

2005 $’000

Changes in operating assets and liabilities include the impact of foreign currency translation movements.

The accompanying notes are an integral part of these consolidated financial statements.

39

Consolidated Statements of Shareholders’ Equity

BALANCE AT SEPTEMBER 30, 2003 Net income Foreign currency translation adjustments Share options exercised Comprehensive income BALANCE AT SEPTEMBER 30, 2004

Accumulated(2) other comprehensive Other(1) Accumulated income reserves deficit (loss) $’000 $’000 $’000

Ordinary and priority shares (Note 18) $’000

Additional paid-in capital $’000

21,426

445,659

–

–

–

5,828

–

5,828

– 203

– 4,092

– –

– –

7,487 –

7,487 –

–

–

–

–

–

13,315

21,629

449,751

(204,114)

(204,114)

(57,956)

(52,128)

(1,012)

6,475

Net income Foreign currency translation adjustments Share options exercised

–

–

–

19,759

–

19,759

– 247

– 7,419

– –

– –

277 –

277 –

Comprehensive income

–

–

–

–

–

20,036

21,876

457,170

BALANCE AT SEPTEMBER 30, 2005

(204,114)

(32,369)

The accompanying notes are an integral part of these consolidated financial statements.

40

Comprehensive income (loss) $’000

(1)

Deemed distribution of cash and note payable at IPO to all shareholders.

(2)

This consists solely of cumulative translation adjustments.

6,752

Notes to Consolidated Financial Statements

1.

DESCRIPTION OF BUSINESS, ORGANISATION AND BASIS OF PRESENTATION Description of business Jetix Europe N.V. (together with its subsidiaries, “the Company”) is a pan-European integrated children’s entertainment company with localised television channels & online, programme distribution and consumer products (licensing, merchandising and home entertainment) businesses. Channel and online operations began in October 1996 with the launch of the first channel in the United Kingdom. In the last 9 years, the Company has established operations in most European countries and together with its affiliates is currently broadcasting 15 children’s television channel feeds in 18 different languages in 58 countries via cable and direct to home (DTH) satellite transmission. Main channel markets currently include France, Germany, Italy, the Netherlands, Poland, Scandinavia, Spain, the United Kingdom and various countries in the Middle East and Central and Eastern Europe. The Company also operates 17 fully localised websites. The Company’s programme distribution business is based on rights to children’s programming from the Jetix Library. The Jetix Library comprises the following rights; •

The rights contributed by, acquired from or co-produced with ABC Family Worldwide, Inc. (ABCW) or its affiliates.

•

Other rights acquired from or co-produced with third parties.

The Jetix Library is one of the largest and most recognised libraries of children’s programming in the world. The Company’s consumer products business covers many European countries and includes operations in France, Germany, Italy, Spain, the Netherlands, the United Kingdom and Israel.

Organisation Jetix Europe N.V. (Jetix Europe) was incorporated in the Netherlands in November 1999. At the initial public offering of the ordinary shares of Jetix Europe (IPO) in November 1999, in consideration for 62.5 million shares in Jetix Europe, Fox Family Worldwide, Inc. (FFWW) contributed to Jetix Europe, at book value, its interests in the subsidiaries and businesses specifically noted on page 42. On October 24, 2001, The Walt Disney Company (Disney) concluded the acquisition of the Company’s majority shareholder, FFWW, and thereby assumed 75.7% ownership of Jetix Europe. As of that date, FFWW changed its name to ABCW. ABCW indirectly holds 74.4% of the shares in Jetix Europe at September 30, 2005 (75.1% at September 30, 2004).

41

Notes to Consolidated Financial Statements

1.

DESCRIPTION OF BUSINESS, ORGANISATION AND BASIS OF PRESENTATION (continued) Basis of presentation These consolidated financial statements are prepared under accounting standards generally accepted in the United States of America (US GAAP) and do not constitute statutory accounts under Dutch Law. Dutch statutory accounts are being produced and will be filed at the Chamber of Commerce, PO Box 378, 1200 AJ, Hilversum, The Netherlands. A copy of the Dutch statutory accounts will be available from Jetix Europe’s registered office, Bergweg 50, 1217 SC, Hilversum, The Netherlands. The consolidated financial statements of Jetix Europe reflect the financial statements of: Country of Incorporation

Company Name

Jetix Entertainment Limited Jetix Entertainment Spain SL Jetix Europe Channels B.V. Jetix Europe Limited(1) Jetix Europe Properties Sarl Jetix Hungary Financial Management Limited Liability Company Jetix Europe GmbH (formerly Fox Kids Germany GmbH) Jetix Israel Limited (formerly Fox Kids Israel Limited) Jetix Italy Srl (formerly Fox Kids Italy Srl) Jetix Poland Limited (formerly Fox Kids Poland Limited)(1) Jetix Services B.V. Jetix Consumer Products UK Limited(1) Jetix Consumer Products Italy Srl(1) Active Licensing France SAS(1) Jetix Poland NV(1) Kids Entertainment Services EPE Lollipop Productions Limited (incorporated January 1, 2005) Jetix Consumer Products Israel Limited (merged into Jetix Israel Limited effective July 1, 2004) Fox Kids Play B.V. (merged into Jetix Europe Channels B.V. effective October 1, 2003)(2) Fox Kids Israel Enterprises B.V. (merged into Jetix Europe Channels B.V. effective October 1, 2003) Active Licensing Germany GmbH (merged into Fox Kids Germany GmbH effective October 1, 2003)(1)

United Kingdom Spain The Netherlands United Kingdom Luxembourg Hungary Germany Israel Italy Isle of Man The Netherlands United Kingdom Italy France The Netherlands Greece Israel Israel

Equity Interest (100% unless otherwise stated)

80%

The Netherlands The Netherlands Germany

Fox Kids AB was liquidated as at July 5, 2004. The Company also has the following affiliates accounted for under the equity method: Country of Incorporation

Company Name

Jetix España SL (formerly Fox Kids España SL) TV10 Holdings LLC(1) TV10 B.V.(1) (1) (2)

42

(1)

Equity Interest

50% Spain The United States of America 50% The Netherlands 50%

These entities were contributed to Jetix Europe by ABCW (formerly FFWW) at the IPO. The Company sold 50% of its shares in Fox Kids Play B.V. to Visiware S.A. in December 2002. Accordingly, Fox Kids Play B.V. was equity accounted for in the year ended September 30, 2003. On October 1, 2003, the Company reacquired 50% of the shares in Fox Kids Play B.V. and merged it into Jetix Europe Channels B.V.

Notes to Consolidated Financial Statements

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation The consolidated financial statements comprise the accounts of Jetix Europe N.V. consolidated with the financial statements of those entities under its control, including those entities and businesses contributed by ABCW (formerly FFWW) at the IPO. The Company uses the equity method of accounting for investments in affiliates where it does not have the majority of equity, but where it does exercise significant influence. All material intercompany accounts and transactions have been eliminated.

General Presentation In circumstances where the classification of certain balances has changed from the previous year, the prior year comparatives have been reclassified accordingly.

Cash and cash equivalents Cash and cash equivalents consist of cash on hand and marketable securities with original maturities of three months or less.

Revenue recognition – Channels & Online Subscriber fees receivable from cable operators and DTH broadcasters are recognised as revenue over the period for which the channels are provided and to which the fees relate. Subscriber revenue is recognised as contracted, based upon the level of subscribers. Television advertising revenue is recognised as the commercials are aired. In certain countries, the Company commits to provide advertisers with certain rating levels in connection with their advertising. Revenue is recorded net of estimated shortfalls, which are usually settled by providing the advertiser additional advertising time. In accordance with EITF 99-17, “Accounting for Advertising Barter Transactions”, barter revenues, representing the receipt of goods and services in exchange for advertising time on a television station, are recognised upon the airing of an advertisement, where the fair value of the advertising surrendered is determinable based on the Company’s own historical practice of receiving cash or other consideration that is readily convertible to a known cash amount for similar advertising from buyers unrelated to the counterparty in the barter transaction.

Revenue recognition – Programme Distribution Programme distribution revenue is recognised in accordance with SOP 00-2 “Accounting by Producers or Distributors of Films” when the relevant agreement has been entered into, the product is available for delivery, collectability of the cash is reasonably assured and all the Company’s contractual obligations have been satisfied.

Revenue recognition – Consumer Products Revenues from home entertainment, licensing and merchandising agreements which provide for the receipt by the Company of non-refundable guaranteed amounts, are recognised when the licence or distribution period begins, the payments are due under the terms of the contract, collectability is reasonably assured and all performance obligations of the Company have been fulfilled. Amounts in excess of minimum guarantees under these agreements are recognised when earned. Amounts received in advance of being earned are recorded as deferred revenue. Revenue is recorded net of Value Added Tax (VAT).

43

Notes to Consolidated Financial Statements

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Advertising costs Advertising costs are expensed as incurred. For the year ended September 30, 2005 and year ended September 30, 2004 the Company incurred advertising costs totalling $0.9 million and $0.7 million, respectively.

Programme rights The Company adopted SOP 00-2 “Accounting by Producers or Distributors of Films” and SFAS No. 139 “Rescission of FASB Statement No. 53 and amendments to SFAS Nos. 63, 89 and 121” as of July 1, 2001. Programme rights that are produced or acquired are stated at the lower of cost less accumulated amortisation or fair value. Amortisation charge is based on the ratio of the current period’s gross revenues to estimated remaining total gross revenues from such programmes. Each year management revises estimates, based on historical and anticipated trends, of future revenue for each programme property. Where television programme rights are licensed from third parties for a defined period for broadcasting on the Company’s channels, usually for periods of between 2 and 5 years, these are amortised in accordance with their expected usage over that defined period. Acquired television programme rights and related liabilities are recorded when the licence period begins and the programme is available for use.

Property and equipment Property and equipment, consisting mainly of computer equipment and office furniture and fittings, is stated at cost less accumulated depreciation. Depreciation is provided using the straight-line method over an estimated useful life of 3 to 10 years. Leasehold improvements are amortised over the shorter of the term of the lease or the estimated life of the improvements. Repair and maintenance costs are expensed as incurred. The Company periodically reviews the carrying amount of property and equipment to determine whether current events or circumstances warrant impairment to the carrying value and/or the estimates of useful lives. When these events or circumstances arise that indicate that assets may be impaired, the assets are written down to their recoverable amount, in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”.

Trade receivables Accounts receivable are reported at their net realisable or expected cash value.

Goodwill In accordance with SFAS No. 142 “Goodwill and Other Intangible Assets”, goodwill recognised on an acquisition is calculated as the excess of the fair value of the consideration over the fair value of the assets and liabilities acquired. Goodwill is not amortised but tested for impairment on an annual basis and whenever indicators of impairment arise. The Company has determined that each business segment comprises its own reporting unit. There was no impairment charge for the year ended September 30, 2005 (year ended September 30, 2004 – $nil).

44

Notes to Consolidated Financial Statements

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Investments in equity affiliates Investments in, and advances to equity affiliates, are accounted for under the equity method. Under this method of accounting, the carrying value of the investment is increased or decreased by the Company’s share of income or losses and decreased by any dividends.

Foreign currency translation The functional currency of each of Jetix Europe’s subsidiaries is the currency of the primary economic environment in which each subsidiary operates. Accordingly, assets and liabilities recorded in foreign currencies in the balance sheets of Jetix Europe’s subsidiaries are translated at the exchange rate between such functional currency and the US dollar at the balance sheet date except for the share capital and reserves of those subsidiaries, which are translated at historic rates. Revenues and expenses are translated at the average rate of exchange prevailing during the period. Translation adjustments resulting from this process are charged or credited to accumulated other comprehensive income. Gains and losses arising from transactions denominated in currencies other than the functional currency are included in determining net income for the period.

Fair value of financial instruments SFAS No. 107, “Disclosures About Fair Value of Financial Instruments”, requires disclosure of fair value information about financial instruments whether or not recognised in the consolidated balance sheet. The amounts reported in the consolidated balance sheet for cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturity of these instruments.

Income taxes In accordance with SFAS 109, “Accounting for Income Taxes”, deferred income taxes are recognised using the asset and liability method. Deferred tax balances are established for the difference between the financial reporting and income tax bases of assets and liabilities as well as operating loss and tax credit carry-forwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realised. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Earnings per share Basic earnings per ordinary share is calculated using income available to ordinary shareholders divided by the weighted average number of shares outstanding. The difference between basic and diluted earnings per share arises after giving effect to the dilutive effect of all dilutive potential ordinary shares equivalents that were outstanding during the period.

45

Notes to Consolidated Financial Statements

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Use of estimates The preparation of consolidated financial statements in conformity with US GAAP requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Stock option plan The Company accounts for stock-based compensation using the intrinsic value method prescribed in APB No. 25, “Accounting for Stock Issued to Employees”, and related interpretations. There are no performance criteria attached to the exercise of the options. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of Jetix Europe’s stock at the date of grant over the amount an employee must pay to acquire the stock. The Company has also disclosed below the impact on earnings that would result if stock options had been valued at their fair value at the grant date, in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation”. The Company has adopted the disclosure provision of SFAS No. 123 and pursuant to its provision elected to continue using the intrinsic value method of accounting for stock-based awards granted to employees in accordance with APB 25. Accordingly, the Company has not recognised compensation expense for its stockbased awards to employees. The following table reflects pro forma net income and earnings per share had the Company elected to adopt the fair value approach of SFAS No. 123: 2005 $’000

2004 $’000

Net income as reported Adjustment for notional expense under FAS 123, net of tax

19,759 (967)

5,828 (3,548)

Pro forma net income

18,792

2,280

23.7 22.5

7.1 2.8

23.5 22.4

6.9 2.7

Basic earnings per share (cents) As reported Pro forma Diluted earnings per share (cents) As reported Pro forma

These pro forma amounts may not be representative of future disclosures since the estimated fair value of stock options is amortised to expense over the vesting period and additional options may be granted in future years.

46

Notes to Consolidated Financial Statements

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) In Note 2 of its 2004 annual report, the Company included a table disclosing pro forma net income and earnings per share had it elected to account for its stock option plan under the fair value approach of SFAS No. 123, “Accounting for Stock-Based Compensation”. Certain financial information was misreported due to incorrect currency translation and number of options used and is corrected below in respect of the years ended September 30, 2004: a) b) c) d)

Notional expense under SFAS No. 123 increased from $1,853,000 to $3,548,000; Proforma net income decreased from $3,975,000 to $2,280,000; Pro forma basic earnings per share reduced from 4.8 cents to 2.8 cents; and Pro forma diluted earnings per share reduced from 4.7 cents to 2.7 cents.

No options were granted during the current year or during the prior year. The estimated fair value of each option granted is calculated using the Black-Scholes option pricing model. The weighted average assumptions used in the model were as follows: 2005

Risk free interest rate Expected years from grant until exercise Expected stock volatility Dividend yield

3.

4.0% 4 60% 0%

REORGANISATION Effective October 1, 2003, Fox Kids Play B.V. and Fox Kids Israel Enterprises B.V. were merged with Jetix Europe Channels B.V. (formerly Fox Kids Europe Channels B.V.). Effective October 1, 2003, Active Licensing GmbH was merged with Jetix Germany GmbH (formerly Fox Kids Germany GmbH).

47

Notes to Consolidated Financial Statements

4.

RELOCATION EXPENSES The Company relocated its operations in the UK and France to Disney’s premises in these markets during the prior year. The Company incurred a charge of $8.0 million resulting from this relocation, which is included in costs and expenses in the year ended September 30, 2004. The charge recognised included a provision in respect of the anticipated costs of fulfilling the Company’s existing lease commitments of $4.4 million (comprised of $3.2 million of lease exit costs and $1.2 million of refitting costs), information technology reconfiguration of $1.2 million, move costs of $0.6 million, impairment of certain fixed assets of $0.9 million and redundancy costs resulting from the contracting out of certain functions (see note 15) to Disney of $0.9 million. In order to induce the Company to relocate its operations in the UK and France, Disney provided the Company with a $3.1 million operating lease incentive as at the year ended September 30, 2004 which, in accordance with US GAAP, is deferred and recognised through the income statement over the term of the operating lease to which it relates. During the year ended September 30, 2005, the provision relating to the lease exit and refit costs was revised, resulting in an additional expense of $1.4 million in the current year. Correspondingly, an additional operating lease incentive of $0.7 million was provided by Disney. The amount of operating lease incentive recognised in the income statement for the year ended September 30, 2005 was $1.5 million. The operating lease incentive outstanding as at the year ended September 30, 2005 was $2.3 million.

5.

ACCOUNTS RECEIVABLE Accounts receivable consists of the following:

Billed receivables Accrued income

6.

2005 $’000

2004 $’000

30,229 29,587

27,689 21,362

59,816

49,051

2005 $’000

2004 $’000

13,258 1,202

12,567 1,115

14,460 (12,286)

13,682 (10,628)

2,174

3,054

PROPERTY AND EQUIPMENT Property and equipment consists of the following:

Property and equipment Leasehold improvements

Less accumulated depreciation and amortisation

48

Notes to Consolidated Financial Statements

7.

GOODWILL At September 30, 2005 goodwill which totals $28.0 million (September 30, 2004 – $28.0 million), was comprised of the goodwill of $18.3 million arising from the acquisition of the minority interest in Fox Kids Israel Enterprises B.V. on December 19, 2002 and the goodwill of $9.7 million arising from the acquisition of the Fox Kids Netherlands Channel on December 1, 2000. The Company purchased the 49.5% of shares in Fox Kids Israel Enterprises B.V. not owned by the Company from the Middle East Communications Holdings BV as well as rights to the Israel Jetix library. Goodwill arose from the difference between the purchase consideration and the fair value of the net assets acquired. Goodwill has been fully allocated to the Channels & Online business segment (see note 17). The goodwill is not tax deductible. The Company adopted SFAS No. 142 as of July 1, 2001. Accordingly there has been no amortisation charge since that date. As a result of the annual impairment review carried out on September 30, there was no impairment charge for the year ended September 30, 2005 (September 30, 2004 – $nil).

8.

PROGRAMME RIGHTS Programme rights consist of the following: 2005 $’000

Programme rights cost Less accumulated amortisation and impairment

2004 $’000

508,281 (395,915)

470,374 (354,167)

112,366

116,207

In accordance with SOP 00-2, the Company periodically performs a review of the fair value of the Jetix library to determine whether any of the titles are impaired. This review compares the estimated remaining ultimate profits to be earned to the net book value by title for all properties in the Jetix library. Where the estimated remaining ultimate profits were lower than the net book value of a title, an impairment was identified and the title was written down to fair value. During the year ended September 30, 2005 the Company recorded an impairment charge of $1.6 million (year ended September 30, 2004 – $5.0 million).

49

Notes to Consolidated Financial Statements

8.

PROGRAMME RIGHTS (continued) The amortisation charge relating to programme rights, excluding any impairment charge, for the years ended September 30, 2005 and September 30, 2004, was $40.1 million and $38.0 million respectively. Of the net book value of programme rights at September 30, 2005, $83.5 million (year ended September 30, 2004 – $89.8 million) represents the rights of the Jetix library in the Company’s territories, with the remainder being programming licensed from third parties for broadcasting by the channels operated by the Company. At September 30, 2005 the net book value of programme rights included programmes in production of $4.9 million (2004 – $2.2 million). The Company expects to amortise the net book value of its programme rights on the following timescale: Within one year Within three years Within five years

9.

30-40% 55-65% 80%

ACCRUED LIABILITIES Accrued liabilities consist of the following:

Participation and royalty costs Accrued programme costs Payroll liabilities Taxation Provision for indirect taxes Relocation costs Other accruals

10.

2005 $’000

2004 $’000

13,086 7,757 7,014 3,583 4,259 – 13,946

10,715 15,141 6,578 3,503 – 821 12,277

49,645

49,035

2005 $’000

2004 $’000

3,321 7,526 2,400

3,200 13,000 –

13,247

16,200

OTHER LIABILITIES Other liabilities consist of the following:

Provision for lease exit costs Operating lease incentive Other provision

The operating lease incentive and provision for lease exit costs are discussed in notes 4 and 15. The other provision is discussed in note 16.

50

Notes to Consolidated Financial Statements

11.

TAX The (provision)/benefit for income tax consists of the following: 2005 $’000

Income taxes Other taxes Deferred income taxes

2004 $’000

(1,727) (1,224) (3,009)

(2,049) (1,254) 1,331

(5,960)

(1,972)

and are as follows: 2005 $’000

The Netherlands Others

– Current – Current – Deferred

2004 $’000

(543) (2,408) (3,009)

(702) (2,601) 1,331

(5,960)

(1,972)

The components of the (provision)/benefit for income taxes for the year ended September 30, 2005 and the year ended September 30, 2004 were based upon the following sources of pre-tax income.

The Netherlands Others

2005 $’000

2004 $’000

1,011 25,082

368 7,242

26,093

7,610

51

Notes to Consolidated Financial Statements

11.

TAX (continued) A reconciliation of the provision for income taxes with the amount computed by applying the statutory income tax rate of the Netherlands of 31.5% (2004 – 34.5%) to income before provision for income taxes and minority interest is as follows:

Income before tax and minority interests Income before tax and minority interests multiplied by statutory rate of corporation tax Effects of: Permanent differences Equity in income of affiliates Timing differences subject to valuation allowance Statutory income tax difference Adjustments to tax charge in respect of previous periods Other taxes Current tax charge for the year

2005 $’000

2004 $’000

26,093

7,610

8,219

2,626

(4,757) (283) 2,382 (720) (105) 1,224

(1,499) (279) 3,321 (3,206) (245) 1,254

5,960

1,972

Where the Company has provided for income taxes, the provisions have been calculated at the statutory rates in the relevant jurisdictions.

Deferred taxes Principal components of the deferred tax assets and liabilities are as follows: 2005 $’000

2004 $’000

Deferred tax asset Net operating losses Fixed assets Other

68,429 2,867 (267)

73,370 1,896 1,980

Total

71,029

77,246

(61,937)

(65,145)

9,092

12,101

Valuation Allowance Deferred tax

The estimated portion of the Deferred Income Tax Asset to be utilised during the year ended September 30, 2006 is $2.6 million. Management has determined that as of September 30, 2005 approximately $61.9 million (year ended September 30, 2004 – $65.1 million) of deferred income tax assets do not satisfy the recognition criteria set forth in SFAS No 109 “Accounting for Income Taxes”. Accordingly a valuation allowance has been recorded for that amount. The above amount relating to net operating losses results from approximately $438.3 million of tax net operating loss carryforwards as at September 30, 2005, of which approximately $118.9 million have no expiry date and approximately $319.4 million expire between 2006 and 2012. Realisation of these net operating losses is dependent on generating sufficient taxable income prior to the expiration of the loss carryforwards, subject to any limitations on their use.

52

Notes to Consolidated Financial Statements

12.

PENSION PLANS Jetix Europe Limited operates a defined contribution group personal pension plan (the “Plan”) for United Kingdom employees. The Plan is effectively a collection of individual personal pension plans. Jetix Europe Limited contributes a percentage of eligible employees’ annual compensation, provided that the employee contributes a minimum percentage. The contributions to the Plan are expensed as incurred and for the year ended September 30, 2005 were $425,000 (year ended September 30, 2004 – $484,000).

13.

INTEREST INCOME

Interest receivable on bank deposits

14.

2004 $’000

4,501

2,814

4,501

2,814

2005 $’000

2004 $’000

2,064

1,809

2,064

1,809

INTEREST EXPENSE

Interest expense

15.

2005 $’000

RELATED PARTY TRANSACTIONS Sales to Parent Company The Company has secured non-European distribution rights to certain properties (in addition to the European rights). The Company in turn sold these rights to subsidiaries of its parent company ABCW. During the year, sales to subsidiaries of ABCW were $0.3 million (year ended September 30, 2004 – $nil). The amount receivable at September 30, 2005 was $1.2 million (September 30, 2004 – $2.1 million).

53

Notes to Consolidated Financial Statements

15.

RELATED PARTY TRANSACTIONS (continued) Logistical Services Buena Vista International Television (BVITV), a Disney subsidiary, provides logistical services to the Company in connection with its third party programme distribution. The Company pays BVITV on the basis of cost plus a margin of 5% – 10% dependent on the service performed. The amount charged in the income statement, included in Costs and expenses, relating to services provided by BVITV for the year ended September 30, 2005 was $3.7 million (September 30, 2004 – $3.7 million). In addition BVITV incurs distribution expenses on behalf of the Company whilst performing its services. These expenses are recharged back to the Company. The amount charged to the income statement relating to distribution expenses incurred by BVITV on behalf of the Company was $1.4 million for the year ended September 30, 2005 (year ended September 30, 2004 – $2.2 million). The amount owed to BVITV as at September 30, 2005 was $8.8 million (September 30, 2004 – $5.5 million).

Arrangements with Sogecable S.A. (Sogecable) The Jetix channel in Spain is operated by Jetix España SL, a company jointly owned by a subsidiary of Sogecable and the Company. Sogecable and its subsidiaries provide office and sales administration, programming and production facilities and services to Jetix Spain. The costs incurred for the services with Sogecable for the year ended September 30, 2005 were $4.3 million (year ended September 30, 2004 – $1.4 million). The amount owed at September 30, 2005 was $0.4 million (September 30, 2004 – $0.6 million). The Company leases rights to the Jetix Library to Jetix Espa˜ na SL. The lease fee for the year ended September 30, 2005 was $5.0 million (September 30, 2004 – $4.1 million). The amount receivable at September 30, 2005 was $2.2 million (September 30, 2004 – $nil).

Arrangements with United Pan-Europe Communications N.V. (UPC) The minority shareholder in Jetix Poland Limited, a subsidiary of UPC, provided certain transmission, programming and marketing services to the Jetix channels in Poland and Central and Eastern Europe during the year. The amount charged in the income statement, included in Costs and expenses, in relation to these services for the year ended September 30, 2005 was $0.4 million (year ended September 30, 2004 – $1.0 million). There were no amounts payable to UPC for these services at September 30, 2005 (September 30, 2004 – $nil).

Trademark arrangements Disney has granted the Company a trademark licence without a fixed term to use the “Jetix” name and related logos without material charge.

54

Notes to Consolidated Financial Statements

15.

RELATED PARTY TRANSACTIONS (continued) Buena Vista Home Entertainment (BVHE) On May 5, 2003, the Company entered into an agreement with BVHE, a subsidiary of Disney, to grant BVHE the sole and exclusive right to exploit on VHS and DVD formats all home entertainment distribution and exhibition rights for certain major programmes including Power Rangers and some of our programmes based upon Marvel comics characters. The Company will receive from BVHE a minimum guarantee against certain royalties during the term of the agreement, which ends on May 4, 2006, of which $1.4 million was earned in the year ended September 30, 2005 (year ended September 30, 2004 – $0.7 million). The receivable amount outstanding for the year ended September 30, 2005 was $0.4 million (year ended September 30, 2004 $0.4 million).

Disney Consumer Products (DCP) On October 1, 2003 the Company appointed DCP, a subsidiary of Disney, to act as its licensing agent within Europe and the Middle East in respect of the property, Power Rangers. The Company will receive from DCP a minimum guarantee against certain royalties during the term of the agreement, which ends on September 30, 2006. The minimum guarantee received during the year ended September 30, 2005 was $7.2 million (September 30, 2004 – $6.3 million). DCP will receive a commission of 30% of earned revenues in return for its services and its commission earned for the year ended September 30, 2005 was $3.0 million (September 30, 2004 – $2.1 million) which was recorded as costs and expenses. During the year ended September 30, 2004, DCP paid a marketing contribution of $1.3 million which was recorded net of costs and expenses, with no such arrangement in the year ended September 30, 2005.

Super RTL On September 30, 2003, the Company entered into a co-production agreement with Super RTL, a Disney affiliate. Under the terms of the deal the Company will co-produce two series, namely W.I.T.C.H. and Oban Star Racers, with Super RTL and a third party. W.I.T.C.H. was fully delivered in the year ended September 30, 2005 and earned revenues of $2.1 million (September 30, 2004 – $nil). The Company has also entered into a further agreement to produce a second season of W.I.T.C.H.

55

Notes to Consolidated Financial Statements

15.

RELATED PARTY TRANSACTIONS (continued) Premises and facilities During the prior year, the Company entered into arrangements with The Walt Disney Company Limited and The Walt Disney Company (France) SAS with respect to the lease of office and broadcast operations facilities and the provision of certain accounting functions in the UK and France. Under these arrangements, the amount payable for services received during the year ended September 30, 2005 was $8.9 million (September 30, 2004 – $1.3 million). The relocation costs incurred and the amount recharged to Disney are disclosed in note 4. As part of these arrangements, the Company will also receive an incentive of $5.2 million from Disney over the next three years (September 30, 2004 – $9.9 million over four years). This together with the amount recharged to Disney of $2.3 million (September 30, 2004 – $3.1 million) as disclosed in note 4 has been accounted for as an operating lease incentive, which, in accordance with US GAAP, is deferred and recognised in the income statement over the period of the leases. Of the total receivable of $7.5 million, $3.4 million will be received after one year.

Receivables ABCW collects certain receivables on behalf of the Company. The amount owed to the Company at September 30, 2005 was $1.2 million (September 30, 2004 – $2.0 million).

TV10 B.V. Through a shareholder agreement with Fox TV10 Holdings, Inc. (Fox), up to December 1, 2000, the revenues and direct costs of the daytime programming of TV10 B.V. were attributed to the Company, with those of the evening programming being attributed to Fox. Subject to certain limits, indirect costs were allocated between the Company and Fox in proportion to revenue. Since December 1, 2000 any material costs as well as revenues of TV10 B.V. in which the Company has an interest, are recharged to the Company. The revenues recharged from TV10 B.V. for the year to September 30, 2005 was $nil (September 30, 2004 – $nil). The costs recharged from TV10 B.V. for the year to September 30, 2005 was $1.5 million (September 30, 2004 – $1.1 million). The amount payable to TV10 B.V. at September 30, 2005 was $1.1 million (September 30, 2004 – $0.8 million).

Programme Rights The Company acquires certain programme rights relating to its territories from ABCW. The amount payable to ABCW at September 30, 2005 was $9.4 million (September 30, 2004 – $1.8 million). The current year has seen the co-production with ABCW of Super Robot Monkey Hyper Force Go! and Get Ed.

56

Notes to Consolidated Financial Statements

16.

COMMITMENTS AND CONTINGENCIES Commitments The company leases transponders, office facilities, and certain programme related equipment. These leases which qualify as operating leases, expire at various dates through 2010. The Company also has various contractual commitments for the purchase of programme rights. Contractual commitments for programme rights and non-cancellable future minimum payments for the remainder of the non-cancellable operating lease periods are as follows:

Year Ending September 30,

2006 2007 2008 2009 2010 Thereafter

Operating leases $’000

Programming rights $’000

Total $’000

19,485 18,619 9,963 9,219 589 –

20,950 2,036 – – – –

40,435 20,655 9,963 9,219 589 –

57,875

22,986

80,861

The non-cancellable future minimum payments included in the numbers above relating to operating leases from Disney and its subsidiaries was as follows: for the year ending September 30, 2006 – $10.5m, for the year ending September 30, 2007 – $10.8m, for the year ending September 30, 2008 – $8.5m, for the year ending September 30, 2009 – $8.6m, for the year ending September 30, 2010 – $nil, and thereafter – $nil. Total operating lease expenses were approximately $14.7 million and $11.0 million for the years ended September 30, 2005 and September 30, 2004, respectively.

Litigation As at September 30, 2005, the Company and a subsidiary of its major shareholder are in settlement discussions with a third party over claims relating to the exploitation of the third party’s programming. The Company has estimated that a reserve of $2.4 million is necessary to cover the amounts of such settlement.

17.

SEGMENT INFORMATION During the periods presented, the Company operated in three business segments based on its products and services: Channels & Online (which principally consists of the operation and broadcast of television channels and websites, subscription and advertising revenues), Programme Distribution (which principally consists of the sale of programming to third parties) and Consumer Products (licensing and merchandising operations and home entertainment). The accounting policies of the segments are the same as those described in Note 2. In addition, for segment reporting, the Company measures profitability based on Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA). EBITDA is stated before interest, taxation, depreciation, programme amortisation and impairment. EBITDA less depreciation, amortisation and impairment is equal to operating income.

57

Notes to Consolidated Financial Statements

17.

SEGMENT INFORMATION (continued) Business Segments Revenues

2005 $’000

2004 $’000

Channels & Online Programme Distribution Consumer Products

144,547 24,852 18,439

127,332 24,681 13,332

Revenues(1)

187,838

165,345

(1)

Revenues exclude our share of non-consolidated joint ventures. In order to facilitate comparison with our prior financial statements; revenues including our share of the revenues of the non-consolidated joint ventures was $193.1 million, compared to $170.7 million in the year ending September 30, 2004. Our share of non-consolidated joint ventures relates entirely to Channels & Online operations.

EBITDA

2005 $’000

2004 $’000

Channels & Online Programme Distribution Consumer Products Shared costs not allocated to segments

57,552 17,090 6,335 (15,510)

42,118 15,551 5,170 (11,888)

EBITDA(2) Less: depreciation, amortisation and impairment

65,467 (43,191)

50,951 (45,804)

22,276

5,147

2005 $’000

2004 $’000

Operating income (2)

EBITDA excludes costs related to the Company’s non-consolidated joint ventures.

Depreciation, amortisation and impairment

Channels & Online Programme Distribution Consumer Products Shared costs not allocated to segments

(30,677) (8,507) (3,934) (73)

(28,553) (13,295) (3,662) (294)

(43,191)

(45,804)

Programming and impairment charges are as follows: the Channels & Online segment had impairment charges of $1.6 million (year ended September 30, 2004 – $3.4 million). The distribution segment had impairment charges of $nil (year ended September 30, 2004 – $1.6 million). Identifiable assets

Channels & Online Programme Distribution Consumer Products Shared assets not allocated to segments

58

2005 $’000

2004 $’000

118,155 231,528 7,995 652

129,758 185,661 6,244 1,132

358,330

322,795

Notes to Consolidated Financial Statements

17.

SEGMENT INFORMATION (continued) Geographic Segments Revenues

2005 $’000

2004 $’000

55,505 24,182 21,286 21,115 15,599 15,403 9,608 8,653 8,433 6,314 1,740

49,567 18,018 20,217 20,510 13,690 13,813 9,031 6,944 8,106 3,738 1,711

Revenues

187,838

165,345

EBITDA(2)

2005 $’000

2004 $’000

United Kingdom and Ireland Italy Benelux France Central and Eastern Europe Germany Spain and Portugal(1) Nordic Region Middle East Poland Other

United Kingdom and Ireland Italy Benelux France Central and Eastern Europe Germany Spain and Portugal Nordic Region Middle East Poland Other Shared costs not allocated to segments EBITDA Less: depreciation, amortisation and impairment Operating income (1) (2)

33,434 10,309 7,057 6,223 3,956 5,921 5,545 2,105 2,636 2,594 1,197 (15,510)

25,915 7,765 7,985 4,812 2,976 3,981 4,944 732 2,871 (231) 1,089 (11,888)

65,467

50,951

(43,191)

(45,804)

22,276

5,147

Excludes the Company’s share of revenues of non-consolidated joint ventures. EBITDA excludes costs related to the Company’s non-consolidated joint ventures.

59

Notes to Consolidated Financial Statements

17.

SEGMENT INFORMATION (continued) Geographic Segments Identifiable assets

United Kingdom and Ireland France Benelux Italy Other

2005 $’000

2004 $’000

8,047 16,520 220,486 45,317 67,960

21,128 9,127 238,425 7,762 46,353

358,330

322,795

Revenues are attributed to geographic segments based on the destination of the sale. Assets are attributed to geographic segments based on the location of individual assets. The programme rights and goodwill are located in the Benelux segment. The only customer which has had revenues greater than 10% of the revenues for at least one of the periods presented is as follows:

Customer A

18.

Revenue 2005 $’000

% 2005

Revenue 2004 $’000

% 2004

27,125

14.4

33,049

20.0

SHARE CAPITAL The authorised share capital of Jetix Europe consists of 349,999,900 ordinary shares with a nominal value of m0.25 per share, and 100 priority shares, each with a nominal value of m0.25 per share. The issued shares are as follows:

Issued at September 30, 2004 Shares issued during the year Issued at September 30, 2005 (1) (2)

60

Priority shares Number

Ordinary shares Number

Total number

100 – 100

83,196,912 770,003 83,966,915

83,197,012 770,003 83,967,015

Priority(1) shares Nominal value $’000

0 – 0

Ordinary(2) shares Nominal value $’000

Total Nominal value $’000

21,629 247 21,876

21,629 247 21,876

The nominal value of priority shares at September 30, 2005 is $26 (September 30, 2004 – $26). The shares issued during the year are translated using the rate at the date of issuance.

Notes to Consolidated Financial Statements

18.

SHARE CAPITAL (continued) The priority shares are held by BVS Entertainment, Inc. (BVSEI, formerly Saban Entertainment, Inc.) a wholly owned subsidiary of ABCW. The priority shares can only be transferred with the approval of the Board of Management and the Supervisory Board. The holder or holders of the priority shares have the right, inter alia, to: nominate members for the appointment of the Board of Management and the Supervisory Board; receive a non-cumulative preferential dividend of 5% of the nominal value of each share per annum; propose amendments to the Articles of Association; propose the dissolution, legal merger or split-up of Jetix Europe; and receive a preferential liquidation distribution. The members of the board of directors of BVEI are Griffith Foxley, Marsha Reed and Joseph Santaniello. The members of the board of directors of ABCW are Marsha Reed and David Thompson. The directors of BVEI and ABCW are responsible for the management of their respective companies. None of the priority shares are held by a member of the Board of Management of Jetix Europe.

19.

EARNINGS PER SHARE The earnings per share is computed using the net income for each period divided by the weighted average number of shares in issue in each period. The following table sets forth the computation of basic and diluted earnings per share. 2005

2004

Numerator ($’000) Net income

19,759

5,828

Denominator (’000) Basic – weighted average ordinary shares outstanding Dilutive effect of employee stock options

83,502 563

82,618 1,538

84,065

84,156

Basic earnings per share (cents)

23.7

7.1

Diluted earnings per share (cents)

23.5

6.9

For the year ended September 30, 2005, options to acquire shares totalling 30,332 (September 30, 2004 – 739,236) were excluded from diluted earnings per share, as their impact was anti-dilutive.

61

Notes to Consolidated Financial Statements

20.

STOCK OPTION PLAN Under the Jetix Discretionary Stock Option Scheme, Jetix Europe may grant options to acquire shares to employees at exercise prices equal to or exceeding the market price at the date of grant. Options vest equally over a four-year period from the date of grant and expire ten years after the date of grant. Shares available for future option grants at September 30, 2005 totalled 5,447,676 (September 30, 2004 – 4,856,281). The following table summarises information about stock option transactions: 2005 Weighted average exercise price (Euro)

2005

Number of options

2004 Weighted average exercise price (Euro)

2004

Number of options

Awards forfeited Awards exercised

7.33 – 5.11 7.71

2,718,045 – (591,399) (769,999)

6.92 – 6.88 5.28

3,927,307 – (531,657) (677,605)

Outstanding at September 30

8.08

1,356,647

7.33

2,718,045

13.03

476,628

13.61

715,036

Outstanding at beginning of year Awards granted

Exercisable at September 30

The following table summarises information about stock options outstanding at September 30, 2005:

Exercise prices – Euro

Number of options

Outstanding weighted average remaining years of contractual life

3.4 – 5.4 9.1 – 13.5

911,279 415,036 30,332

7.91 4.37 4.64

16.5 – 20.2

62

Exercisable Weighted average exercise price (Euro)

Number of options

Weighted average exercise price (Euro)

5.32 13.41 18.18

41,260 405,036 30,332

5.43 13.41 18.18

Jetix Europe N.V.

Jetix Europe N.V.

Annual Review and Financial Statements 2005

Annual Review and Financial Statements 2005

Jetix Europe N.V. For more information write to:

Bergweg 50, 1217 SC Hilversum The Netherlands or contact:

Investor Relations Jetix Europe Limited 3 Queen Caroline Street Hammersmith London W6 9PE Tel: +44 20 8222 3600 Fax: +44 20 8222 5906 www.jetixeurope.com

Jetix Europe N.V. Annual Review and Financial Statements 2005

group at a glance Our Business Lines Channels & Online >>

Broadcasts in 58 countries, reaching more than 41.8 million homes in 18 languages

contents 1 2 4 6 8 10 12 14 18 22 26 30 32 33 35

Introduction Our Highlights Our Content Our Future Our Alliance Our History Chief Executive Officer’s Review Operating and Financial Review Channels and Online Programme Distribution Consumer Products Management Board Supervisory Board Corporate Governance Accounts

Owns and operates fully localised children’s channels

Localised websites in 17 languages

Programme Distribution

Annual Report Copyright Notices © (2005) Jetix Europe. JETIX name and logo © and ™ Disney Enterprises, Inc. ASTROBOY © 2004 Tezuka Productions Co., Ltd., Sony Pictures Entertainment (Japan) Inc. and Dentsu Inc. A.T.O.M. ALPHA TEENS ON MACHINES © 2005 Jetix Europe/SIP Animation. FUNKY COPS © 2005 AnteFilms Production/M6 Metropole Television TPS Cinema/Greenlight Media. GALACTIK FOOTBALL ™ Alphanim © 2006 Alphanim, France 2. All rights reserved. GET ED © Disney Enterprises, Inc. HOTNEWS.NL © & ™ Jetix Europe Channels B.V. OBAN STAR-RACERS © Sav! The World Productions/Jetix Europe 2005. All rights reserved. POWER RANGERS (all series) TM & © BVS Entertainment Inc. and BVS International N.V. All rights reserved. PUCCA © VOOZ. All rights reserved. SONIC X © SONIC Project. All rights reserved. SPIDER-MAN © 2005 New World Animation. Underlying property TM & © Marvel Characters, Inc. All rights reserved. SUPER ROBOT MONKEY TEAM HYPER FORCE GO! © 2005 Disney Enterprises, Inc. TOTALLY SPIES! © 2005 MARATHON – MYSTERY ANIMATION INC. TOTALLY SPIES! and all related logos, names and distinctive likeness are the exclusive property of MARATHON ANIMATION. All rights reserved. MW © 2006 Really Big Bug Movies Ltd.

>>

W.I.T.C.H © SIP Animation 2005.

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Designed and produced by MAGEE Printed by the colourhouse

Distributes programmes to terrestrial broadcasters and third party cable and satellite channels Over 90 clients in 44 markets

Consumer Products Licenses merchandising rights to the Jetix library and third party properties throughout Europe and the Middle East Local offices in 7 markets; represented in 37 countries

Jetix Europe N.V.

Jetix Europe N.V.

Annual Review and Financial Statements 2005

Annual Review and Financial Statements 2005

Jetix Europe N.V. For more information write to:

Bergweg 50, 1217 SC Hilversum The Netherlands or contact:

Investor Relations Jetix Europe Limited 3 Queen Caroline Street Hammersmith London W6 9PE Tel: +44 20 8222 3600 Fax: +44 20 8222 5906 www.jetixeurope.com

Jetix Europe N.V. Annual Review and Financial Statements 2005