FY2015_Q3_10Q_DOC


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
 
Commission File Number 1-11605
June 27, 2015
 
 
 
 
 
 
 
 
Incorporated in Delaware
 
I.R.S. Employer Identification
 
 
No. 95-4545390
500 South Buena Vista Street, Burbank, California 91521
(818) 560-1000
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one).
Large accelerated filer
 
x
 
Accelerated filer
 
¨
 
 
 
 
 
Non-accelerated filer (do not check if smaller reporting company)
 
¨
 
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x
There were 1,687,857,933 shares of common stock outstanding as of July 29, 2015.



PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited; in millions, except per share data)
 
Quarter Ended
 
Nine Months Ended
 
June 27,
2015
 
June 28,
2014
 
June 27,
2015
 
June 28,
2014
Revenues:
 
 
 
 
 
 
 
Services
$
11,308

 
$
10,531

 
$
32,587

 
$
29,989

Products
1,793

 
1,935

 
6,366

 
6,435

Total revenues
13,101

 
12,466

 
38,953

 
36,424

Costs and expenses:
 
 
 
 
 
 
 
Cost of services (exclusive of depreciation and amortization)
(5,547
)
 
(5,217
)
 
(17,224
)
 
(15,617
)
Cost of products (exclusive of depreciation and amortization)
(1,116
)
 
(1,147
)
 
(3,785
)
 
(3,784
)
Selling, general, administrative and other
(2,101
)
 
(2,047
)
 
(6,117
)
 
(6,181
)
Depreciation and amortization
(575
)
 
(557
)
 
(1,751
)
 
(1,698
)
Total costs and expenses
(9,339
)
 
(8,968
)
 
(28,877
)
 
(27,280
)
Restructuring and impairment charges
—

 
—

 
—

 
(67
)
Other expense, net
—

 
—

 
—

 
(31
)
Interest income/(expense), net
(12
)
 
(50
)
 
(62
)
 
61

Equity in the income of investees
212

 
222

 
630

 
678

Income before income taxes
3,962

 
3,670

 
10,644

 
9,785

Income taxes
(1,323
)
 
(1,251
)
 
(3,533
)
 
(3,406
)
Net income
2,639

 
2,419

 
7,111

 
6,379

Less: Net income attributable to noncontrolling interests
(156
)
 
(174
)
 
(338
)
 
(377
)
Net income attributable to The Walt Disney Company (Disney)
$
2,483

 
$
2,245

 
$
6,773

 
$
6,002

 
 
 
 
 
 
 
 
Earnings per share attributable to Disney:
 
 
 
 
 
 
 
Diluted
$
1.45

 
$
1.28

 
$
3.95

 
$
3.40

 
 
 
 
 
 
 
 
Basic
$
1.46

 
$
1.30

 
$
3.99

 
$
3.43

 
 
 
 
 
 
 
 
Weighted average number of common and common equivalent shares outstanding:
 
 
 
 
 
 
 
Diluted
1,711

 
1,748

 
1,714

 
1,767

 
 
 
 
 
 
 
 
Basic
1,696

 
1,732

 
1,699

 
1,748

 
 
 
 
 
 
 
 
Dividends declared per share
$
0.66

 
$
—

 
$
1.81

 
$
0.86

See Notes to Condensed Consolidated Financial Statements

2


THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited; in millions)
 
 
Quarter Ended
 
Nine Months Ended
 
June 27,
2015
 
June 28,
2014
 
June 27,
2015
 
June 28,
2014
Net income
$
2,639

 
$
2,419

 
$
7,111

 
$
6,379

Other comprehensive income/(loss), net of tax:
 
 
 
 
 
 
 
Market value adjustments for investments
(11
)
 
28

 
(81
)
 
(27
)
Market value adjustments for hedges
(109
)
 
(34
)
 
155

 
(67
)
Pension and postretirement medical plan adjustments
43

 
24

 
121

 
88

Foreign currency translation and other
20

 
(3
)
 
(159
)
 
(14
)
Other comprehensive income/(loss)
(57
)
 
15

 
36

 
(20
)
Comprehensive income
2,582

 
2,434

 
7,147

 
6,359

Less: Net income attributable to noncontrolling interests
(156
)
 
(174
)
 
(338
)
 
(377
)
Less: Other comprehensive (income)/loss attributable to noncontrolling interests
(4
)
 
22

 
28

 
38

Comprehensive income attributable to Disney
$
2,422

 
$
2,282

 
$
6,837

 
$
6,020

See Notes to Condensed Consolidated Financial Statements





3

THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited; in millions, except per share data)
 
June 27,
2015
 
September 27,
2014
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
4,475

 
$
3,421

Receivables
8,012

 
7,822

Inventories
1,513

 
1,574

Television costs and advances
1,006

 
1,061

Deferred income taxes
619

 
497

Other current assets
887

 
801

Total current assets
16,512

 
15,176

Film and television costs
5,775

 
5,325

Investments
2,694

 
2,696

Parks, resorts and other property
 
 
 
Attractions, buildings and equipment
42,210

 
42,263

Accumulated depreciation
(24,473
)
 
(23,722
)
 
17,737

 
18,541

Projects in progress
5,449

 
3,553

Land
1,250

 
1,238

 
24,436

 
23,332

Intangible assets, net
7,237

 
7,434

Goodwill
27,848

 
27,881

Other assets
2,865

 
2,342

Total assets
$
87,367

 
$
84,186

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities
 
 
 
Accounts payable and other accrued liabilities
$
7,794

 
$
7,595

Current portion of borrowings
3,119

 
2,164

Unearned royalties and other advances
3,913

 
3,533

Total current liabilities
14,826

 
13,292

 
 
 
 
Borrowings
12,154

 
12,676

Deferred income taxes
4,113

 
4,098

Other long-term liabilities
5,767

 
5,942

Commitments and contingencies (Note 11)


 


Equity
 
 
 
Preferred stock, $.01 par value
    Authorized – 100 million shares, Issued – none
—

 
—

Common stock, $.01 par value
    Authorized – 4.6 billion shares, Issued – 2.8 billion shares
34,930

 
34,301

Retained earnings
57,425

 
53,734

Accumulated other comprehensive loss
(1,904
)
 
(1,968
)
 
90,451

 
86,067

Treasury stock, at cost, 1.2 billion shares at June 27, 2015 and
   1.1 billion shares at September 27, 2014
(43,932
)
 
(41,109
)
Total Disney Shareholders’ equity
46,519

 
44,958

Noncontrolling interests
3,988

 
3,220

Total equity
50,507

 
48,178

Total liabilities and equity
$
87,367

 
$
84,186


See Notes to Condensed Consolidated Financial Statements

4


THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in millions)
 
 
Nine Months Ended
 
June 27,
2015
 
June 28,
2014
OPERATING ACTIVITIES
 
 
 
Net income
$
7,111

 
$
6,379

Depreciation and amortization
1,751

 
1,698

Gains on sales of investments and dispositions
(89
)
 
(285
)
Deferred income taxes
(167
)
 
304

Equity in the income of investees
(630
)
 
(678
)
Cash distributions received from equity investees
553

 
538

Net change in film and television costs and advances
(623
)
 
(993
)
Equity-based compensation
309

 
308

Other
214

 
33

Changes in operating assets and liabilities:
 
 
 
Receivables
(229
)
 
(543
)
Inventories
48

 
61

Other assets
(274
)
 
(73
)
Accounts payable and other accrued liabilities
(507
)
 
(288
)
Income taxes
114

 
214

Cash provided by operations
7,581

 
6,675

 
 
 
 
INVESTING ACTIVITIES
 
 
 
Investments in parks, resorts and other property
(3,061
)
 
(2,248
)
Sales of investments/proceeds from dispositions
143

 
382

Acquisitions
—

 
(402
)
Other
(137
)
 
(24
)
Cash used in investing activities
(3,055
)
 
(2,292
)
 
 
 
 
FINANCING ACTIVITIES
 
 
 
Commercial paper borrowings, net
2,352

 
1,253

Borrowings
181

 
2,180

Reduction of borrowings
(2,006
)
 
(1,549
)
Dividends
(1,948
)
 
(1,508
)
Repurchases of common stock
(2,823
)
 
(5,087
)
Proceeds from exercise of stock options
292

 
348

Contributions from noncontrolling interest holders
1,012

 
608

Other
(301
)
 
(335
)
Cash used in financing activities
(3,241
)
 
(4,090
)
 
 
 
 
Impact of exchange rates on cash and cash equivalents
(231
)
 
(134
)
 
 
 
 
Increase in cash and cash equivalents
1,054

 
159

Cash and cash equivalents, beginning of period
3,421

 
3,931

Cash and cash equivalents, end of period
$
4,475

 
$
4,090

See Notes to Condensed Consolidated Financial Statements

5


THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(unaudited; in millions)
 
 
Quarter Ended
 
June 27, 2015
 
June 28, 2014
 
Disney
Shareholders
 
Non-
controlling
Interests
 
Total
Equity
 
Disney
Shareholders
 
Non-
controlling
Interests
 
Total
Equity
Beginning balance
$
46,038

 
$
3,699

 
$
49,737

 
$
44,889

 
$
2,751

 
$
47,640

Comprehensive income
2,422

 
160

 
2,582

 
2,282

 
152

 
2,434

Equity compensation activity
219

 
—

 
219

 
184

 
—

 
184

Dividends
(1,115
)
 
—

 
(1,115
)
 
—

 
—

 
—

Common stock repurchases
(1,035
)
 
—

 
(1,035
)
 
(1,833
)
 
—

 
(1,833
)
Contributions
—

 
183

 
183

 
—

 
167

 
167

Distributions and other
(10
)
 
(54
)
 
(64
)
 
(2
)
 
22

 
20

Ending balance
$
46,519

 
$
3,988

 
$
50,507

 
$
45,520

 
$
3,092

 
$
48,612

See Notes to Condensed Consolidated Financial Statements



6


THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(unaudited; in millions)
 
 
Nine Months Ended
 
June 27, 2015
 
June 28, 2014
 
Disney
Shareholders
 
Non-
controlling
Interests
 
Total
Equity
 
Disney
Shareholders
 
Non-
controlling
Interests
 
Total
Equity
Beginning balance
$
44,958

 
$
3,220

 
$
48,178

 
$
45,429

 
$
2,721

 
$
48,150

Comprehensive income
6,837

 
310

 
7,147

 
6,020

 
339

 
6,359

Equity compensation activity
642

 
—

 
642

 
668

 
—

 
668

Dividends
(3,063
)
 
—

 
(3,063
)
 
(1,508
)
 
—

 
(1,508
)
Common stock repurchases
(2,823
)
 
—

 
(2,823
)
 
(5,087
)
 
—

 
(5,087
)
Contributions
—

 
1,012

 
1,012

 
—

 
608

 
608

Distributions and other
(32
)
 
(554
)
 
(586
)
 
(2
)
 
(576
)
 
(578
)
Ending balance
$
46,519

 
$
3,988

 
$
50,507

 
$
45,520

 
$
3,092

 
$
48,612

See Notes to Condensed Consolidated Financial Statements


7


THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
 
1.
Principles of Consolidation
These Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. We believe that we have included all normal recurring adjustments necessary for a fair presentation of the results for the interim period. Operating results for the quarter and nine months ended June 27, 2015 are not necessarily indicative of the results that may be expected for the year ending October 3, 2015. Certain reclassifications have been made in the prior-year financial statements to conform to the current-year presentation.
These financial statements should be read in conjunction with the Company’s 2014 Annual Report on Form 10-K.
The Company enters into relationships or investments with other entities in which it does not have majority ownership. In certain instances, the entity in which the Company has a relationship or investment may be a variable interest entity (VIE). A VIE is consolidated in the financial statements if the Company has the power to direct activities that most significantly impact the economic performance of the VIE and has the obligation to absorb losses (as defined by ASC 810-10-25-38) or the right to receive benefits from the VIE that could potentially be significant to the VIE. Disneyland Paris, Hong Kong Disneyland Resort (HKDL) and Shanghai Disney Resort (collectively the International Theme Parks) are VIEs. Company subsidiaries (the Management Companies) have management agreements with the International Theme Parks, which provide the Management Companies, subject to certain protective rights of joint venture partners, with the ability to direct the day-to-day operating activities and the development of business strategies that we believe most significantly impact the economic performance of the International Theme Parks. In addition, the Management Companies receive management fees under these arrangements that we believe could be significant to the International Theme Parks. Therefore, the Company has consolidated the International Theme Parks in its financial statements.
The terms “Company,” “we,” “us,” and “our” are used in this report to refer collectively to the parent company and the subsidiaries through which our various businesses are actually conducted.
 
2.
Segment Information
The operating segments reported below are the segments of the Company for which separate financial information is available and for which segment results are evaluated regularly by the Chief Executive Officer in deciding how to allocate resources and in assessing performance. On June 29, 2015, the Company announced the realignment of two of its segments, Consumer Products and Interactive, into a new combined segment, Disney Consumer Products and Interactive Media. The Company expects to begin reporting the combined segment in fiscal 2016.
The Company reports the performance of its operating segments including equity in the income of investees. Equity in the income of investees included in segment operating results is as follows:
 
 
Quarter Ended
 
Nine Months Ended
 
June 27,
2015
 
June 28,
2014
 
June 27,
2015
 
June 28,
2014
Media Networks
 
 
 
 
 
 
 
Cable Networks
$
220

 
$
230

 
$
685

 
$
710

Broadcasting
(8
)
 
(8
)
 
(55
)
 
(32
)
Equity in the income of investees included in
  segment operating income
$
212

 
$
222

 
$
630

 
$
678




8
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


 
Quarter Ended
 
Nine Months Ended
 
June 27,
2015
 
June 28,
2014
 
June 27,
2015
 
June 28,
2014
Revenues (1):
 
 
 
 
 
 
 
Media Networks
$
5,768

 
$
5,511

 
$
17,438

 
$
15,935

Parks and Resorts
4,131

 
3,980

 
11,801

 
11,139

Studio Entertainment
2,040

 
1,807

 
5,583

 
5,500

Consumer Products
954

 
902

 
3,304

 
2,913

Interactive
208

 
266

 
827

 
937

 
$
13,101

 
$
12,466

 
$
38,953

 
$
36,424

Segment operating income (1):
 
 
 
 
 
 
 
Media Networks
$
2,378

 
$
2,296

 
$
5,974

 
$
5,884

Parks and Resorts
922

 
848

 
2,293

 
1,976

Studio Entertainment
472

 
411

 
1,443

 
1,295

Consumer Products
348

 
273

 
1,336

 
977

Interactive
—

 
29

 
101

 
98

 
$
4,120

 
$
3,857

 
$
11,147

 
$
10,230


(1) Studio Entertainment segment revenues and operating income include an allocation of Consumer Products revenues, which is meant to reflect royalties on sales of merchandise based on certain film properties. The increase to Studio Entertainment revenues and operating income and corresponding decrease to Consumer Products revenues and operating income totaled $109 million and $66 million for the quarters ended June 27, 2015 and June 28, 2014, respectively, and $387 million and $187 million for the nine months ended June 27, 2015 and June 28, 2014, respectively.
A reconciliation of segment operating income to income before income taxes is as follows:
 
Quarter Ended
 
Nine Months Ended
 
June 27,
2015
 
June 28,
2014
 
June 27,
2015
 
June 28,
2014
Segment operating income
$
4,120

 
$
3,857

 
$
11,147

 
$
10,230

Corporate and unallocated shared expenses
(146
)
 
(137
)
 
(441
)
 
(408
)
Restructuring and impairment charges
—

 
—

 
—

 
(67
)
Other expense, net
—

 
—

 
—

 
(31
)
Interest income/(expense), net
(12
)
 
(50
)
 
(62
)
 
61

Income before income taxes
$
3,962

 
$
3,670

 
$
10,644

 
$
9,785

 
3.
Acquisitions
Maker Studios
On May 7, 2014, the Company acquired Maker Studios, Inc. (Maker), a leading network of online video content, for approximately $500 million of cash consideration. Maker shareholders may also receive up to $450 million of additional cash upon final determination of Maker's achievement of certain performance targets for calendar years 2014 and 2015. The Company has recognized a $198 million liability for the fair value of the contingent consideration (determined by a probability weighting of potential payouts). Subsequent changes in the estimated fair value, if any, will be recognized in earnings. The majority of the purchase price has been allocated to goodwill, which is not deductible for tax purposes. Goodwill reflects the synergies expected from enhancing the presence of Disney’s franchises and brands through the use of Maker’s distribution platform, advanced technology and business intelligence capability. The revenue and net income of Maker included in the Company’s Condensed Consolidated Statements of Income for the quarter and nine months ended June 27, 2015 and June 28, 2014 was not material.

9
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


Goodwill
The changes in the carrying amount of goodwill for the nine months ended June 27, 2015 are as follows:
 
Media
Networks
 
Parks and
Resorts
 
Studio
Entertainment
 
Consumer
Products
 
Interactive
 
Total
Balance at Sept. 27, 2014
$
16,378

 
$
291

 
$
6,856

 
$
2,967

 
$
1,389

 
$
27,881

Acquisitions
—

 
—

 
—

 
—

 
—

 
—

Dispositions
—

 
—

 
—

 
(1
)
 
—

 
(1
)
Other, net
(15
)
 
—

 
(12
)
 
—

 
(5
)
 
(32
)
Balance at June 27, 2015
$
16,363

 
$
291

 
$
6,844

 
$
2,966

 
$
1,384

 
$
27,848


4.
Other Expense

There were no amounts recorded in other expense for the quarters ended June 27, 2015 and June 28, 2014 and for the nine-month period ended June 27, 2015. Other expense for the nine-month period ended June 28, 2014 is as follows:
 
Nine Months Ended
 
June 28,
2014
Venezuelan foreign currency translation loss
$
(143
)
Gain on sale of property and other
112

Other expense, net
$
(31
)

Venezuelan foreign currency loss
The Company has operations in Venezuela, including film and television distribution and merchandise licensing and has net monetary assets denominated in Venezuelan bolivares (BsF), which primarily consist of cash. The Venezuelan government (Government) has foreign currency exchange controls, which centralize the purchase and sale of all foreign currency at an official rate determined by the Government, currently 6.3 BsF per U.S. dollar. Although the Company has generally been unable to repatriate its cash at the official rate, we translated our net monetary assets at the official rate through December 28, 2013. In January 2014, the Government announced that currency arising from certain transactions could be exchanged at an alternative rate (SICAD 1), which fluctuated based on Government-run auctions. The ability to convert currency in the SICAD 1 market was dependent on market factors and Government discretion. In March 2014, the Government launched a new currency exchange market (SICAD 2), which allowed entities to submit a daily application to exchange foreign currency with financial institutions that are registered with the Venezuelan central bank. Foreign currency exchange rates under SICAD 2 fluctuated daily. The ability to convert in the SICAD 2 market was also dependent on market factors, including the availability of U.S. dollars. Although a small portion of the Company's cash may have been eligible to be exchanged at SICAD 1, the majority was only eligible for exchange at SICAD 2. Accordingly, the Company began translating its BsF denominated net monetary assets at the SICAD 2 rate resulting in a loss of $143 million in the second quarter of fiscal 2014 based on the SICAD 2 rate, which was 50.9 BsF per U.S. dollar at March 29, 2014.
In February 2015, the Government combined the SICAD 1 and SICAD 2 exchange mechanisms (SICAD) and introduced another exchange mechanism, SIMADI. The SIMADI exchange mechanism allows for trading BsF at prices set by the market. The Company does not believe it can successfully convert currency at the SICAD rate and therefore, in the second quarter of fiscal 2015, the Company began translating its BsF denominated net monetary assets at the SIMADI rate resulting in an immaterial loss included in "Costs and expenses" in the Condensed Consolidated Statements of Income. The SIMADI rate on June 27, 2015 was 199.9 BsF per U.S. dollar and the Company had net monetary assets of approximately 2.2 billion BsF.

Other
In fiscal year 2014, the Company recognized $83 million of gains primarily due to the sale of a property and $29 million for a portion of a settlement of an affiliate contract dispute.


10
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


5.
Borrowings
During the nine months ended June 27, 2015, the Company’s borrowing activity was as follows: 
 
September 27,
2014
 
Borrowings
 
Reductions of borrowings
 
Other
Activity
 
June 27,
2015
Commercial paper with original maturities less than three months (1)
$
50

 
$
1,781

 
$
—

 
$
2

 
$
1,833

Commercial paper with original maturities greater than three months
—

 
2,394

 
(1,823
)
 
1

 
572

U.S. medium-term notes
13,713

 
—

 
(1,800
)
 
7

 
11,920

Foreign currency denominated debt
783

 
186

 
(203
)
 
(39
)
 
727

Other
294

 
1

 
(25
)
 
(49
)
 
221

Total
$
14,840

 
$
4,362

 
$
(3,851
)
 
$
(78
)
 
$
15,273


(1) Borrowings and reductions of borrowings are reported net.
The Company has bank facilities with a syndicate of lenders to support commercial paper borrowings. The following is a summary of the bank facilities at June 27, 2015:
 
Committed
Capacity
 
Capacity
Used
 
Unused
Capacity
Facility expiring March 2016
$
1,500

 
$
—

 
$
1,500

Facility expiring June 2017
2,250

 
—

 
2,250

Facility expiring March 2019
2,250

 
—

 
2,250

Total
$
6,000

 
$
—

 
$
6,000

All of the above bank facilities allow for borrowings at LIBOR-based rates plus a spread depending on the credit default swap spread applicable to the Company’s debt, subject to a cap and floor that vary with the Company’s debt rating assigned by Moody’s Investors Service and Standard and Poor’s. The spread above LIBOR can range from 0.23% to 1.63%. The Company also has the ability to issue up to $800 million of letters of credit under the facility expiring in March 2019, which if utilized, reduces available borrowings under this facility. As of June 27, 2015, $214 million of letters of credit were outstanding, of which none were issued under this facility. The facilities contain only one financial covenant, relating to interest coverage, which the Company met on June 27, 2015 by a significant margin, and specifically exclude certain entities, including the International Theme Parks, from any representations, covenants, or events of default.

Interest income/(expense)
Interest and investment income and interest expense are reported net in the Condensed Consolidated Statements of Income and consist of the following (net of capitalized interest):
 
Quarter Ended
 
Nine Months Ended
 
June 27,
2015
 
June 28,
2014
 
June 27,
2015
 
June 28,
2014
Interest expense
$
(62
)
 
$
(74
)
 
$
(197
)
 
$
(222
)
Interest and investment income
50

 
24

 
135

 
283

Interest income/(expense), net
$
(12
)
 
$
(50
)
 
$
(62
)
 
$
61


Interest and investment income includes gains and losses on the sale of publicly and non-publicly traded investments, investment impairments and interest earned on cash and cash equivalents and certain receivables.



11
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


Realized net gains on publicly and non-publicly traded investments are as follows:
 
Quarter Ended
 
Nine Months Ended
 
June 27,
2015
 
June 28,
2014
 
June 27,
2015
 
June 28,
2014
Publicly traded
$
31

 
$
2

 
$
79

 
$
153

Non-publicly traded
1

 
9

 
8

 
53

Realized net gains
$
32

 
$
11

 
$
87

 
$
206




6.
International Theme Park Investments
At June 27, 2015, the Company had an 83% effective ownership interest in the operations of Disneyland Paris (see Disneyland Paris recapitalization discussion below), a 46% ownership interest in the operations of HKDL and a 43% ownership interest in the operations of Shanghai Disney Resort, all of which are VIEs consolidated in the Company’s financial statements. See Note 1 for the Company’s policy on consolidating VIEs.
The following tables present summarized balance sheet information for the Company as of June 27, 2015 and September 27, 2014, reflecting the impact of consolidating the International Theme Parks balance sheets.
 
As of June 27, 2015
 
Before 
International
Theme Parks
Consolidation
 
International
Theme Parks
and Adjustments
 
Total
Cash and cash equivalents
$
3,641

 
$
834

 
$
4,475

Other current assets
11,771

 
266

 
12,037

Total current assets
15,412

 
1,100

 
16,512

Investments/Advances
7,268

 
(4,574
)
 
2,694

Parks, resorts and other property
17,070

 
7,366

 
24,436

Other assets
43,661

 
64

 
43,725

Total assets
$
83,411

 
$
3,956

 
$
87,367

 
 
 
 
 
 
Current portion of borrowings
$
3,119

 
$
—

 
$
3,119

Other current liabilities
11,212

 
495

 
11,707

Total current liabilities
14,331

 
495

 
14,826

Borrowings
11,903

 
251

 
12,154

Deferred income taxes and other long-term liabilities
9,688

 
192

 
9,880

Equity
47,489

 
3,018

 
50,507

Total liabilities and equity
$
83,411

 
$
3,956

 
$
87,367

 

12
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


 
As of September 27, 2014
 
Before 
International
Theme Parks
Consolidation
 
International
Theme Parks
and Adjustments
 
Total
Cash and cash equivalents
$
2,645

 
$
776

 
$
3,421

Other current assets
11,452

 
303

 
11,755

Total current assets
14,097

 
1,079

 
15,176

Investments/Advances
6,627

 
(3,931
)
 
2,696

Parks, resorts and other property
17,081

 
6,251

 
23,332

Other assets
42,958

 
24

 
42,982

Total assets
$
80,763

 
$
3,423

 
$
84,186

 
 
 
 
 
 
Current portion of borrowings
$
2,164

 
$
—

 
$
2,164

Other current liabilities
10,318

 
810

 
11,128

Total current liabilities
12,482

 
810

 
13,292

Borrowings
12,423

 
253

 
12,676

Deferred income taxes and other long-term liabilities
9,859

 
181

 
10,040

Equity
45,999

 
2,179

 
48,178

Total liabilities and equity
$
80,763

 
$
3,423

 
$
84,186


The following table presents summarized income statement information of the Company for the nine months ended June 27, 2015, reflecting the impact of consolidating the International Theme Parks income statements.
 
Before 
International
Theme Parks
Consolidation(1)
 
International
Theme Parks
and Adjustments
 
Total
Revenues
$
37,414

 
$
1,539

 
$
38,953

Cost and expenses
(27,187
)
 
(1,690
)
 
(28,877
)
Other income/(expense), net
(31
)
 
31

 
—

Interest expense, net
(13
)
 
(49
)
 
(62
)
Equity in the income of investees
527

 
103

 
630

Income before income taxes
10,710

 
(66
)
 
10,644

Income taxes
(3,533
)
 
—

 
(3,533
)
Net income
$
7,177

 
$
(66
)
 
$
7,111

 
(1) 
These amounts include the International Theme Parks under the equity method of accounting. As such, royalty and management fee income from these operations is included in Revenues and our share of their net income/(loss) is included in Equity in the income of investees. Royalties and management fees totaling $39 million were recognized in the nine months ended June 27, 2015.
 

13
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


The following table presents summarized cash flow statement information of the Company for the nine months ended June 27, 2015, reflecting the impact of consolidating the International Theme Parks cash flow statements. 
 
Before 
International
Theme Parks
Consolidation
 
International
Theme Parks
and Adjustments
 
Total
Cash provided by operations
$
7,474

 
$
107

 
$
7,581

Investments in parks, resorts and other property
(1,417
)
 
(1,644
)
 
(3,061
)
Cash (used in)/provided by other investing activities
(645
)
 
651

 
6

Cash (used in)/provided by financing activities
(4,206
)
 
965

 
(3,241
)
Impact of exchange rates on cash and cash equivalents
(210
)
 
(21
)
 
(231
)
Change in cash and cash equivalents
996

 
58

 
1,054

Cash and cash equivalents, beginning of period
2,645

 
776

 
3,421

Cash and cash equivalents, end of period
$
3,641

 
$
834

 
$
4,475

Disneyland Paris    
In January 2015, the shareholders of Disneyland Paris approved a €1.0 billion recapitalization consisting of the following:
•
A €0.4 billion February 2015 equity rights offering of which the Company funded €0.2 billion. The Company purchased shares that were unsubscribed by other Disneyland Paris shareholders, which increased the Company’s effective ownership by approximately four percentage points.
•
In February 2015, the Company converted €0.6 billion of its loans to Disneyland Paris into equity at a conversion price of €1.25 per share. The conversion increased the Company’s effective ownership by an additional 23 percentage points. In addition, the Company replaced its existing lines of credit with Disneyland Paris with a new €350 million line of credit bearing interest at EURIBOR plus 2% and maturing in 2023. The prior lines of credit were repaid, and there is no outstanding balance under the new line of credit at June 27, 2015. As of June 27, 2015, the total outstanding balance of loans provided by the Company to Disneyland Paris was €1.0 billion.
•
Following regulatory approval, the Company opened a mandatory tender offer to the other Disneyland Paris shareholders in April 2015 to purchase their shares at €1.25 per share, and the Company may be required to purchase up to €0.3 billion in shares. As of June 27, 2015, the Company has acquired €0.1 billion in shares, which increased the Company's effective ownership by an additional six percentage points. There was an appeal to the regulatory approval, and the tender offer will remain outstanding during the appeal process.
•
Following the completion of the mandatory tender offer and to offset the dilution caused by the loan conversion, the Company will offer the right to certain of the remaining Disneyland Paris shareholders to purchase shares from the Company at €1.25.
As of June 27, 2015, the Company has an 83% effective ownership interest in Disneyland Paris reflecting purchases in connection with the recapitalization discussed above. The Company’s final ownership interest following the recapitalization will depend on the number of Disneyland Paris shareholders that accept the Company’s tender offer and/or exercise their anti-dilution rights. The Company will have a minimum effective ownership interest of 54% after the recapitalization.
The Company has recognized approximately $400 million of deferred income tax assets on the difference between the Company’s tax basis in its investment in Disneyland Paris and the Company’s financial statement carrying value of Disneyland Paris. The Company will likely be required to write-off this deferred tax asset as a result of the recapitalization although it will depend on the final outcome of the tender offer and anti-dilution process including the determination of our final ownership interest.
The recapitalization is expected to be completed by the end of calendar 2015.

14
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


Hong Kong Disneyland Resort
At September 27, 2014, the Government of the Hong Kong Special Administrative Region (HKSAR) and the Company had a 52% and 48% equity interest in HKDL, respectively. In addition, HKSAR holds a right to receive additional shares over time to the extent HKDL exceeds certain return on asset performance targets. The amount of additional shares HKSAR can receive is capped on both an annual and cumulative basis. Because HKDL exceeded the performance target in fiscal 2014, HKSAR received additional shares, which increased their ownership interest to approximately 54%. Additional shares that may be issued in future years could decrease the Company’s equity interest by up to an additional 8 percentage points over a period no shorter than 17 years.
HKDL plans to build a third hotel at the resort, which is expected to open in 2017 and cost approximately $550 million. To fund the construction, the Company will contribute approximately $219 million of equity, and HKSAR will convert an equal amount of its outstanding loan to HKDL into equity. Additionally, the Company and HKSAR will provide shareholder loans of up to approximately $149 million and $104 million, respectively. The loans will mature on dates from fiscal 2022 through fiscal 2025 and bear interest at a rate of three month HIBOR plus 2%.
Shanghai Disney Resort
The Company and Shanghai Shendi (Group) Co., Ltd (Shendi) are constructing a Disney Resort (Shanghai Disney Resort) in the Pudong district of Shanghai that initially includes a theme park, two hotels and a retail, dining and entertainment area. Major construction work is anticipated to be complete by the end of calendar 2015 and the opening of the park is planned for spring 2016. Shanghai Disney Resort is owned through two joint venture companies, in which Shendi owns 57% and the Company owns 43%. An additional joint venture, in which the Company has a 70% interest and Shendi a 30% interest, is responsible for designing, constructing and operating Shanghai Disney Resort.

7.
Pension and Other Benefit Programs
The components of net periodic benefit cost are as follows: 
 
Pension Plans
 
Postretirement Medical Plans
 
Quarter Ended
 
Nine Months Ended
 
Quarter Ended
 
Nine Months Ended
 
June 27, 2015
 
June 28, 2014
 
June 27, 2015
 
June 28, 2014
 
June 27, 2015
 
June 28, 2014
 
June 27, 2015
 
June 28, 2014
Service costs
$
82

 
$
71

 
$
248

 
$
213

 
$
4

 
$
3

 
$
11

 
$
8

Interest costs
129

 
121

 
391

 
365

 
17

 
16

 
51

 
49

Expected return on
  plan assets
(178
)
 
(161
)
 
(534
)
 
(484
)
 
(10
)
 
(9
)
 
(29
)
 
(27
)
Amortization of prior-
  year service costs
4

 
4

 
12

 
11

 
—

 
—

 
(1
)
 
(1
)
Recognized net
  actuarial loss/(gain)
62

 
37

 
185

 
110

 
3

 
(2
)
 
8

 
(6
)
Net periodic benefit
  cost
$
99

 
$
72

 
$
302

 
$
215

 
$
14

 
$
8

 
$
40

 
$
23

During the nine months ended June 27, 2015, the Company made $371 million of contributions to its pension and postretirement medical plans. The Company does not anticipate making any material contributions to its pension and postretirement medical plans during the remainder of fiscal 2015. Final minimum pension plan funding requirements for fiscal 2015 will be determined based on our January 1, 2015 funding actuarial valuation, which will be available by the end of the fourth quarter of fiscal 2015.


15
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


8.
Earnings Per Share
Diluted earnings per share amounts are based upon the weighted average number of common and common equivalent shares outstanding during the period and are calculated using the treasury stock method for equity-based compensation awards (Awards). A reconciliation of the weighted average number of common and common equivalent shares outstanding and Awards excluded from the diluted earnings per share calculation, as they were anti-dilutive, are as follows: 
 
Quarter Ended
 
Nine Months Ended
 
June 27,
2015
 
June 28,
2014
 
June 27,
2015
 
June 28,
2014
Shares (in millions):
 
 
 
 
 
 
 
Weighted average number of common and
  common equivalent shares outstanding (basic)
1,696

 
1,732

 
1,699

 
1,748

Weighted average dilutive impact of Awards
15

 
16

 
15

 
19

Weighted average number of common and common
  equivalent shares outstanding (diluted)
1,711

 
1,748

 
1,714

 
1,767

Awards excluded from diluted earnings per share
—

 
6

 
5

 
7

 
9.
Equity
On June 24, 2015, the Company declared a $0.66 per share dividend ($1.1 billion) for the first six months of fiscal 2015 for shareholders of record on July 6, 2015, which was paid on July 29, 2015. On December 3, 2014, the Company declared a $1.15 per share dividend ($1.9 billion) related to fiscal 2014 for shareholders of record on December 15, 2014, which was paid on January 8, 2015. The Company paid a $0.86 per share dividend ($1.5 billion) during the second quarter of fiscal 2014 related to fiscal 2013.
During the nine months ended June 27, 2015, the Company repurchased 29 million shares of its common stock for $2.8 billion. On January 30, 2015, the Company’s Board of Directors increased the share repurchase authorization to a total of 400 million shares as of that date. As of June 27, 2015, the Company had remaining authorization in place to repurchase approximately 386 million additional shares. The repurchase program does not have an expiration date.

16
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


The following table summarizes the changes in each component of accumulated other comprehensive income (loss) (AOCI) including our proportional share of equity method investee amounts, net of 37% estimated tax:
 
 
 
 
 
Unrecognized
Pension and 
Postretirement
Medical 
Expense
 
Foreign
Currency
Translation
and Other
 
AOCI
 
Market Value Adjustments
 
 
Investments, net
 
Cash Flow Hedges
 
Balance at March 28, 2015
$
30

 
$
468

 
$
(2,118
)
 
$
(223
)
 
$
(1,843
)
Quarter Ended June 27, 2015:
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) arising
  during the period
9

 
(16
)
 
—

 
16

 
9

Reclassifications of net (gains)
  losses to net income
(20
)
 
(93
)
 
43

 
—

 
(70
)
Balance at June 27, 2015
$
19

 
$
359

 
$
(2,075
)
 
$
(207
)
 
$
(1,904
)
 
 
 
 
 
 
 
 
 
 
Balance at March 29, 2014
$
40

 
$
50

 
$
(1,207
)
 
$
(89
)
 
$
(1,206
)
Quarter Ended June 28, 2014:
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) arising
  during the period
29

 
(24
)
 
—

 
19

 
24

Reclassifications of net (gains)
  losses to net income
(1
)
 
(10
)
 
24

 
—

 
13

Balance at June 28, 2014
$
68

 
$
16

 
$
(1,183
)
 
$
(70
)
 
$
(1,169
)
 
 
 
 
 
 
 
 
 
 
Balance at September 27, 2014
$
100

 
$
204

 
$
(2,196
)
 
$
(76
)
 
$
(1,968
)
Nine Months Ended June 27, 2015:
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) arising
  during the period
(31
)
 
343

 
(9
)
 
(131
)
 
172

Reclassifications of net (gains)
  losses to net income
(50
)
 
(188
)
 
130

 
—

 
(108
)
Balance at June 27, 2015
$
19

 
$
359

 
$
(2,075
)
 
$
(207
)
 
$
(1,904
)
 
 
 
 
 
 
 
 
 
 
Balance at September 28, 2013
$
95

 
$
83

 
$
(1,271
)
 
$
(94
)
 
$
(1,187
)
Nine Months Ended June 28, 2014:
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) arising
  during the period
69

 
(26
)
 
15

 
24

 
82

Reclassifications of net (gains)
  losses to net income
(96
)
 
(41
)
 
73

 
—

 
(64
)
Balance at June 28, 2014
$
68

 
$
16

 
$
(1,183
)
 
$
(70
)
 
$
(1,169
)


17
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


Details about AOCI components reclassified to net income are as follows:
Gains/(losses) in net income:
 
Affected line item in the
  Condensed Consolidated
  Statements of Income:
 
Quarter Ended
 
Nine Months Ended
 
 
June 27,
2015
 
June 28,
2014
 
June 27,
2015
 
June 28,
2014
Investments, net
 
Interest income/(expense), net
 
$
31

 
$
2

 
$
79

 
$
153

Estimated tax
 
Income taxes
 
(11
)
 
(1
)
 
(29
)
 
(57
)
 
 
 
 
20

 
1

 
50

 
96

 
 
 
 
 
 
 
 
 
 
 
Cash flow hedges
 
Primarily revenue
 
148

 
16

 
299

 
65

Estimated tax
 
Income taxes
 
(55
)
 
(6
)
 
(111
)
 
(24
)
 
 
 
 
93

 
10

 
188

 
41

 
 
 
 
 
 
 
 
 
 
 
Pension and postretirement
  medical expense
 
Costs and expenses
 
(68
)
 
(38
)
 
(206
)
 
(116
)
Estimated tax
 
Income taxes
 
25

 
14

 
76

 
43

 
 
 
 
(43
)
 
(24
)
 
(130
)
 
(73
)
 
 
 
 
 
 
 
 
 
 
 
Total reclassifications for the period
 
 
 
$
70

 
$
(13
)
 
$
108

 
$
64

At June 27, 2015, the Company held available-for-sale investments in net unrecognized gain positions totaling $30 million and no investments in significant unrecognized loss positions. At September 27, 2014, the Company held available-for-sale investments in net unrecognized gain positions totaling $55 million and no investments in significant unrecognized loss positions.

10.
Equity-Based Compensation
Compensation expense related to stock options, stock appreciation rights and restricted stock units (RSUs) is as follows:
 
Quarter Ended
 
Nine Months Ended
 
June 27,
2015
 
June 28,
2014
 
June 27,
2015
 
June 28,
2014
Stock options/rights (1)
$
25

 
$
25

 
$
77

 
$
76

RSUs
71

 
77

 
233

 
237

Total equity-based compensation expense (2)
$
96

 
$
102

 
$
310

 
$
313

Equity-based compensation expense capitalized
  during the period
$
13

 
$
10

 
$
42

 
$
39

 
(1) 
Includes stock appreciation rights.
(2) 
Equity-based compensation expense is net of capitalized equity-based compensation and excludes amortization of previously capitalized equity-based compensation costs. During the quarter and nine months ended June 27, 2015, amortization of previously capitalized equity-based compensation totaled $12 million and $30 million, respectively. During the quarter and nine months ended June 28, 2014, amortization of previously capitalized equity-based compensation totaled $10 million and $37 million, respectively.
Unrecognized compensation cost related to unvested stock options/rights and RSUs totaled approximately $169 million and $557 million, respectively, as of June 27, 2015.
The weighted average grant date fair values of options issued during the nine months ended June 27, 2015 and June 28, 2014 were $22.64 and $19.21, respectively.
During the nine months ended June 27, 2015, the Company made equity compensation grants consisting of 5.0 million stock options and 4.0 million RSUs.


18
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


11.
Commitments and Contingencies
Legal Matters
Beef Products, Inc. v. American Broadcasting Companies, Inc. On September 13, 2012, plaintiffs filed an action in South Dakota state court against certain subsidiaries and employees of the Company and others, asserting claims for defamation arising from alleged false statements and implications, statutory and common law product disparagement, and tortious interference with existing and prospective business relationships. The claims arise out of ABC News reports published in March and April 2012 that discussed the subject of labeling requirements for production processes related to a product one plaintiff produces that is added to ground beef before sale to consumers. Plaintiffs seek actual and consequential damages in excess of $400 million, statutory damages (including treble damages) pursuant to South Dakota’s Agricultural Food Products Disparagement Act, and punitive damages. On July 9, 2013, the Company moved in state court to dismiss all claims and on March 27, 2014, the state court dismissed certain common law disparagement counts as preempted by South Dakota’s produce disparagement statute, but denied the motion on the remaining claims. On April 23, 2014, the Company petitioned the South Dakota Supreme Court to allow a discretionary appeal seeking reversal of the state court’s order permitting the remaining common law disparagement claims to proceed and also seeking reversal of its decision to allow certain claims to proceed as defamation claims. On May 22, 2014, the South Dakota Supreme Court denied the Company’s petition. On May 23, 2014, the Company answered the Complaint. Trial is set for February 2017. At this time, the Company is not able to predict the ultimate outcome of this matter, nor can it estimate the range of possible loss.
The Company, together with, in some instances, certain of its directors and officers, is a defendant or codefendant in various other legal actions involving copyright, breach of contract and various other claims incident to the conduct of its businesses.
Management does not believe that the Company has incurred a probable material loss by reason of any of the above actions.
Contractual Guarantees
The Company has guaranteed bond issuances by the Anaheim Public Authority that were used by the City of Anaheim to finance construction of infrastructure and a public parking facility adjacent to the Disneyland Resort. Revenues from sales, occupancy and property taxes from the Disneyland Resort and non-Disney hotels are used by the City of Anaheim to repay the bonds. In the event of a debt service shortfall, the Company will be responsible to fund the shortfall. As of June 27, 2015, the remaining debt service obligation guaranteed by the Company was $330 million, of which $64 million was principal. To the extent that tax revenues exceed the debt service payments in subsequent periods, the Company would be reimbursed for any previously funded shortfalls. To date, tax revenues have exceeded the debt service payments for these bonds.
Long-Term Receivables and the Allowance for Credit Losses
The Company has accounts receivable with original maturities greater than one year related to the sale of television program rights and vacation ownership units. Allowances for credit losses are established against these receivables as necessary.
The Company estimates the allowance for credit losses related to receivables from the sale of television programs based upon a number of factors, including historical experience and the financial condition of individual companies with which we do business. The balance of television program sales receivables recorded in other non-current assets, net of an immaterial allowance for credit losses, was $1.0 billion as of June 27, 2015. The activity in the current period related to the allowance for credit losses was not material.
The Company estimates the allowance for credit losses related to receivables from sales of its vacation ownership units based primarily on historical collection experience. Estimates of uncollectible amounts also consider the economic environment and the age of receivables. The balance of mortgage receivables recorded in other non-current assets, net of a related allowance for credit losses of approximately 4%, was approximately $0.7 billion as of June 27, 2015. The activity in the current period related to the allowance for credit losses was not material.
Income Taxes
During the nine months ended June 27, 2015, the Company increased its gross unrecognized tax benefits by $145 million to $948 million including an $85 million increase to income tax expense.

19
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


In the next twelve months, it is reasonably possible that our unrecognized tax benefits could change due to resolutions of open tax matters. These resolutions would reduce our unrecognized tax benefits by approximately $195 million, of which $83 million would reduce our income tax expense and effective tax rate if recognized. 

12. Fair Value Measurements
Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants and is classified in one of the following three categories:
Level 1 - Quoted prices for identical instruments in active markets
Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets
Level 3 - Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable
The Company’s assets and liabilities measured at fair value are summarized in the following tables by fair value measurement Level: 
 
Fair Value Measurement at June 27, 2015
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 Investments
$
48

 
$
—

 
$
—

 
$
48

Derivatives
 
 
 
 
 
 
 
Interest rate
—

 
95

 
—

 
95

Foreign exchange
—

 
1,072

 
—

 
1,072

Other
—

 
2

 
—

 
2

Liabilities
 
 
 
 
 
 
 
Derivatives
 
 
 
 
 
 
 
Interest rate
—

 
(44
)
 
—

 
(44
)
Foreign exchange
—

 
(247
)
 
—

 
(247
)
Other
—

 
(64
)
 
—

 
(64
)
Other
—

 
—

 
(198
)
 
(198
)
Total recorded at fair value
$
48

 
$
814

 
$
(198
)
 
$
664

Fair value of borrowings
$
—

 
$
14,834

 
$
764

 
$
15,598

 

20
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


 
Fair Value Measurement at September 27, 2014
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 Investments
$
100

 
$
—

 
$
—

 
$
100

Derivatives
 
 
 
 
 
 
 
Interest rate
—

 
117

 
—

 
117

Foreign exchange
—

 
621

 
—

 
621

Liabilities
 
 
 
 
 
 
 
Derivatives
 
 
 
 
 
 
 
Interest rate
—

 
(75
)
 
—

 
(75
)
Foreign exchange
—

 
(121
)
 
—

 
(121
)
Other
—

 
—

 
(198
)
 
(198
)
Total recorded at fair value
$
100

 
$
542

 
$
(198
)
 
$
444

Fair value of borrowings
$
—

 
$
14,374

 
$
901

 
$
15,275

 The fair values of Level 2 derivatives are primarily determined by internal discounted cash flow models that use observable inputs such as interest rates, yield curves and foreign currency exchange rates. Counterparty credit risk, which is mitigated by master netting agreements and collateral posting arrangements with certain counterparties, did not have a material impact on derivative fair value estimates.
Level 2 borrowings, which include commercial paper and U.S. medium-term notes, are valued based on quoted prices for similar instruments in active markets.
The fair value of the Level 3 other liabilities represents the fair value of the contingent consideration for Maker and is determined by a probability weighting of potential payouts.
Level 3 borrowings, which include HKDL borrowings and other foreign currency denominated borrowings, are generally valued based on historical market transactions, prevailing market interest rates and the Company’s current borrowing cost and credit risk.
The Company’s financial instruments also include cash, cash equivalents, receivables and accounts payable. The carrying values of these financial instruments approximate the fair values.


21
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


13. Derivative Instruments
The Company manages its exposure to various risks relating to its ongoing business operations according to a risk management policy. The primary risks managed with derivative instruments are interest rate risk and foreign exchange risk.
The Company’s derivative positions measured at fair value are summarized in the following tables: 
 
As of June 27, 2015
 
Current
Assets
 
Other Assets
 
Other
Accrued
Liabilities
 
Other Long-
Term
Liabilities
Derivatives designated as hedges
 
 
 
 
 
 
 
Foreign exchange
$
421

 
$
304

 
$
(70
)
 
$
(26
)
Interest rate
—

 
95

 
(44
)
 
—

Other
1