Document


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 30, 2018
 
 
 
twdcimagea01a01a01a01a11.jpg
 
 
 
 
 
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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
x
 
Accelerated filer
 
¨
 
 
 
 
 
Non-accelerated filer
(Do not check if smaller reporting company)
 
¨
 
Smaller reporting company
 
¨
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
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 1,487,242,596 shares of common stock outstanding as of August 1, 2018.



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 30,
2018
 
July 1,
2017
 
June 30,
2018
 
July 1,
2017
Revenues:
 
 
 
 
 
 
 
Services
$
13,142

 
$
12,097

 
$
38,646

 
$
35,990

Products
2,086

 
2,141

 
6,481

 
6,368

Total revenues
15,228

 
14,238

 
45,127

 
42,358

Costs and expenses:
 
 
 
 
 
 
 
Cost of services (exclusive of depreciation and amortization)
(7,124
)
 
(6,469
)
 
(20,762
)
 
(19,328
)
Cost of products (exclusive of depreciation and amortization)
(1,224
)
 
(1,248
)
 
(3,856
)
 
(3,764
)
Selling, general, administrative and other
(2,212
)
 
(2,022
)
 
(6,538
)
 
(5,948
)
Depreciation and amortization
(744
)
 
(711
)
 
(2,217
)
 
(2,074
)
Total costs and expenses
(11,304
)
 
(10,450
)
 
(33,373
)
 
(31,114
)
Restructuring and impairment charges
—

 
—

 
(28
)
 
—

Other income/(expense), net
—

 
(177
)
 
94

 
(177
)
Interest expense, net
(143
)
 
(117
)
 
(415
)
 
(300
)
Equity in the income of investees
73

 
124

 
122

 
327

Income before income taxes
3,854

 
3,618

 
11,527

 
11,094

Income taxes
(795
)
 
(1,144
)
 
(880
)
 
(3,593
)
Net income
3,059

 
2,474

 
10,647

 
7,501

Less: Net income attributable to noncontrolling interests
(143
)
 
(108
)
 
(371
)
 
(268
)
Net income attributable to The Walt Disney Company (Disney)
$
2,916

 
$
2,366

 
$
10,276

 
$
7,233

 
 
 
 
 
 
 
 
Earnings per share attributable to Disney:
 
 
 
 
 
 
 
Diluted
$
1.95

 
$
1.51

 
$
6.81

 
$
4.55

 
 
 
 
 
 
 
 
Basic
$
1.96

 
$
1.51

 
$
6.84

 
$
4.58

 
 
 
 
 
 
 
 
Weighted average number of common and common equivalent shares outstanding:
 
 
 
 
 
 
 
Diluted
1,498

 
1,572

 
1,510

 
1,588

 
 
 
 
 
 
 
 
Basic
1,491

 
1,562

 
1,502

 
1,578

 
 
 
 
 
 
 
 
Dividends declared per share
$
0.84

 
$
0.78

 
$
1.68

 
$
1.56

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 30,
2018
 
July 1,
2017
 
June 30,
2018
 
July 1,
2017
Net income
$
3,059

 
$
2,474

 
$
10,647

 
$
7,501

Other comprehensive income/(loss), net of tax:
 
 
 
 
 
 
 
Market value adjustments for investments
1

 
(5
)
 
7

 
(15
)
Market value adjustments for hedges
260

 
(92
)
 
166

 
24

Pension and postretirement medical plan adjustments
70

 
68

 
225

 
194

Foreign currency translation and other
(363
)
 
70

 
(132
)
 
(153
)
Other comprehensive income/(loss)
(32
)
 
41

 
266

 
50

Comprehensive income
3,027

 
2,515

 
10,913

 
7,551

Net income attributable to noncontrolling interests, including redeemable noncontrolling interests
(143
)
 
(108
)
 
(371
)
 
(268
)
Other comprehensive (income)/loss attributable to noncontrolling interests
115

 
(25
)
 
—

 
65

Comprehensive income attributable to Disney
$
2,999

 
$
2,382

 
$
10,542

 
$
7,348

See Notes to Condensed Consolidated Financial Statements





3

THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited; in millions, except per share data)
 
June 30,
2018
 
September 30,
2017
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
4,326

 
$
4,017

Receivables
10,071

 
8,633

Inventories
1,322

 
1,373

Television costs and advances
1,241

 
1,278

Other current assets
769

 
588

Total current assets
17,729

 
15,889

Film and television costs
7,684

 
7,481

Investments
3,155

 
3,202

Parks, resorts and other property
 
 
 
Attractions, buildings and equipment
55,284

 
54,043

Accumulated depreciation
(30,611
)
 
(29,037
)
 
24,673

 
25,006

Projects in progress
3,446

 
2,145

Land
1,254

 
1,255

 
29,373

 
28,406

Intangible assets, net
6,892

 
6,995

Goodwill
31,306

 
31,426

Other assets
2,653

 
2,390

Total assets
$
98,792

 
$
95,789

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities
 
 
 
Accounts payable and other accrued liabilities
$
9,763

 
$
8,855

Current portion of borrowings
5,992

 
6,172

Deferred revenue and other
4,459

 
4,568

Total current liabilities
20,214

 
19,595

Borrowings
17,681

 
19,119

Deferred income taxes
3,222

 
4,480

Other long-term liabilities
6,467

 
6,443

Commitments and contingencies (Note 12)


 


Redeemable noncontrolling interests
1,137

 
1,148

Equity
 
 
 
Preferred stock, $0.01 par value, Authorized – 100 million shares, Issued – none
—

 
—

Common stock, $0.01 par value,
Authorized – 4.6 billion shares, Issued – 2.9 billion shares
36,574

 
36,248

Retained earnings
80,364

 
72,606

Accumulated other comprehensive loss
(3,262
)
 
(3,528
)
 
113,676

 
105,326

Treasury stock, at cost, 1.4 billion shares
(67,588
)
 
(64,011
)
Total Disney Shareholders’ equity
46,088

 
41,315

Noncontrolling interests
3,983

 
3,689

Total equity
50,071

 
45,004

Total liabilities and equity
$
98,792

 
$
95,789

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 30,
2018
 
July 1,
2017
OPERATING ACTIVITIES
 
 
 
Net income
$
10,647

 
$
7,501

Depreciation and amortization
2,217

 
2,074

Deferred income taxes
(1,411
)
 
294

Equity in the income of investees
(122
)

(327
)
Cash distributions received from equity investees
587

 
584

Net change in film and television costs and advances
(601
)
 
(745
)
Equity-based compensation
307

 
278

Other
297

 
373

Changes in operating assets and liabilities:
 
 
 
Receivables
(1,178
)
 
(786
)
Inventories
53

 
93

Other assets
(472
)
 
72

Accounts payable and other accrued liabilities
(316
)
 
(781
)
Income taxes
434

 
143

Cash provided by operations
10,442

 
8,773

 
 
 
 
INVESTING ACTIVITIES
 
 
 
Investments in parks, resorts and other property
(3,264
)
 
(2,728
)
Acquisitions
(1,581
)
 
(557
)
Other
(298
)
 
(5
)
Cash used in investing activities
(5,143
)
 
(3,290
)
 
 
 
 
FINANCING ACTIVITIES
 
 
 
Commercial paper borrowings/(payments), net
453

 
(112
)
Borrowings
1,056

 
4,053

Reduction of borrowings
(1,356
)
 
(1,736
)
Dividends
(1,266
)
 
(1,237
)
Repurchases of common stock
(3,577
)
 
(5,944
)
Proceeds from exercise of stock options
129

 
256

Other
(420
)
 
(1,072
)
Cash used in financing activities
(4,981
)
 
(5,792
)
 
 
 
 
Impact of exchange rates on cash, cash equivalents and restricted cash
(51
)
 
(23
)
 
 
 
 
Change in cash, cash equivalents and restricted cash
267

 
(332
)
Cash, cash equivalents and restricted cash, beginning of period
4,064

 
4,760

Cash, cash equivalents and restricted cash, end of period
$
4,331

 
$
4,428

See Notes to Condensed Consolidated Financial Statements

5


THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(unaudited; in millions)
 
 
Quarter Ended
 
June 30, 2018
 
July 1, 2017
 
Disney
Shareholders
 
Non-
controlling
Interests (1)
 
Total
Equity
 
Disney
Shareholders
 
Non-
controlling
Interests (1)
 
Total
Equity
Beginning balance
$
45,151

 
$
3,500

 
$
48,651

 
$
43,784

 
$
3,483

 
$
47,267

Comprehensive income
2,999

 
41

 
3,040

 
2,382

 
133

 
2,515

Equity compensation activity
156

 
—

 
156

 
174

 
—

 
174

Dividends
(1,249
)
 
—

 
(1,249
)
 
(1,208
)
 
—

 
(1,208
)
Common stock repurchases
(969
)
 
—

 
(969
)
 
(2,444
)
 
—

 
(2,444
)
Distributions and other, net
—

 
442

 
442

 
(157
)
 
(96
)
 
(253
)
Ending balance
$
46,088

 
$
3,983

 
$
50,071

 
$
42,531

 
$
3,520

 
$
46,051

(1) 
Excludes redeemable noncontrolling interest
See Notes to Condensed Consolidated Financial Statements



6


THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(unaudited; in millions)
 
 
Nine Months Ended
 
June 30, 2018
 
July 1, 2017
 
Disney
Shareholders
 
Non-
controlling
Interests (1)
 
Total
Equity
 
Disney
Shareholders
 
Non-
controlling
Interests (1)
 
Total
Equity
Beginning balance
$
41,315

 
$
3,689

 
$
45,004

 
$
43,265

 
$
4,058

 
$
47,323

Comprehensive income
10,542

 
389

 
10,931

 
7,348

 
203

 
7,551

Equity compensation activity
319

 
—

 
319

 
404

 
—

 
404

Dividends
(2,515
)
 
—

 
(2,515
)
 
(2,445
)
 
—

 
(2,445
)
Common stock repurchases
(3,577
)
 
—

 
(3,577
)
 
(5,944
)
 
—

 
(5,944
)
Distributions and other, net
4

 
(95
)
 
(91
)
 
(97
)
 
(741
)
 
(838
)
Ending balance
$
46,088

 
$
3,983

 
$
50,071

 
$
42,531

 
$
3,520

 
$
46,051

(1) 
Excludes redeemable noncontrolling interest
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 nine months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending September 29, 2018. 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 2017 Annual Report on Form 10-K.
The Company enters into relationships or investments with other entities that may be variable interest entities (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 or the right to receive benefits from the VIE that could potentially be significant (as defined by ASC 810-10-25-38) to the VIE. Hong Kong Disneyland Resort and Shanghai Disney Resort (collectively the Asia Theme Parks) are VIEs in which the Company has less than 50% equity ownership. Company subsidiaries (the Management Companies) have management agreements with the Asia 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 Asia Theme Parks. In addition, the Management Companies receive management fees under these arrangements that we believe could be significant to the Asia Theme Parks. Therefore, the Company has consolidated the Asia 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.
Cash and Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the Condensed Consolidated Balance Sheet to the total of the amounts reported in the Condensed Consolidated Statements of Cash Flows.
 
 
June 30,
2018
 
September 30,
2017
Cash and cash equivalents
 
$
4,326

 
$
4,017

Restricted cash included in:
 
 
 
 
Other current assets
 
1

 
26

Other assets
 
4

 
21

Total cash, cash equivalents and restricted cash in the statement of cash flows
 
$
4,331

 
$
4,064

3.
Segment Information
The operating segments reported below are the segments of the Company for which separate financial information is available and for which results are evaluated regularly by the Chief Executive Officer in deciding how to allocate resources and in assessing performance.
Segment operating results reflect earnings before corporate and unallocated shared expenses, restructuring and impairment charges, other income, interest expense, income taxes and noncontrolling interests. Segment operating income includes equity in the income of investees. Corporate and unallocated shared expenses principally consist of corporate functions, executive management and certain unallocated administrative support functions.

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


Equity in the income of investees is included in segment operating income as follows: 
 
Quarter Ended
 
Nine Months Ended
 
June 30,
2018
 
July 1,
2017
 
June 30,
2018
 
July 1,
2017
Media Networks
$
78

 
$
127

 
$
141

 
$
334

Parks and Resorts
(5
)
 
(3
)
 
(19
)
 
(8
)
Consumer Products & Interactive Media
—

 
—

 
—

 
1

Equity in the income of investees included in segment operating income
$
73

 
$
124

 
$
122

 
$
327

Segment revenues and segment operating income are as follows:
 
Quarter Ended
 
Nine Months Ended
 
June 30,
2018
 
July 1,
2017
 
June 30,
2018
 
July 1,
2017
Revenues (1):
 
 
 
 
 
 
 
Media Networks
$
6,156


$
5,866


$
18,537


$
18,045

Parks and Resorts
5,193


4,894


15,226


13,748

Studio Entertainment
2,878


2,393


7,836


6,947

Consumer Products & Interactive Media
1,001


1,085


3,528


3,618

 
$
15,228

 
$
14,238

 
$
45,127

 
$
42,358

Segment operating income (1):
 
 
 
 
 
 
 
Media Networks
$
1,822

 
$
1,842

 
$
5,097

 
$
5,427

Parks and Resorts
1,339

 
1,168

 
3,640

 
3,028

Studio Entertainment
708

 
639

 
2,384

 
2,137

Consumer Products & Interactive Media
324

 
362

 
1,295

 
1,371

 
$
4,193

 
$
4,011

 
$
12,416

 
$
11,963

(1) 
Studio Entertainment revenues and operating income include an allocation of Consumer Products & Interactive Media revenues, which is meant to reflect royalties on sales of merchandise based on film properties. The increase to Studio Entertainment revenues and operating income and corresponding decrease to Consumer Products & Interactive Media revenues and operating income was $119 million and $103 million for the quarters ended June 30, 2018 and July 1, 2017, respectively, and $426 million and $391 million for the nine months ended June 30, 2018 and July 1, 2017, respectively.
A reconciliation of segment operating income to income before income taxes is as follows:
 
Quarter Ended
 
Nine Months Ended
 
June 30,
2018
 
July 1,
2017
 
June 30,
2018
 
July 1,
2017
Segment operating income
$
4,193

 
$
4,011

 
$
12,416

 
$
11,963

Corporate and unallocated shared expenses
(196
)
 
(99
)
 
(540
)
 
(392
)
Restructuring and impairment charges
—

 
—

 
(28
)
 
—

Other income/(expense), net
—

 
(177
)
 
94

 
(177
)
Interest expense, net
(143
)
 
(117
)
 
(415
)
 
(300
)
Income before income taxes
$
3,854

 
$
3,618

 
$
11,527

 
$
11,094

In March 2018, the Company announced a strategic reorganization of its businesses into four operating segments: the newly-formed Direct-to-Consumer and International; the combined Parks, Experiences and Consumer Products; Media Networks; and Studio Entertainment. The Company is in the process of modifying internal and external reporting processes and systems to accommodate the new structure and expects to transition to the new segment reporting structure by the beginning of fiscal 2019. We continue to report operating results to our chief operating decision maker using our current operating segments.

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


4.
Acquisitions
BAMTech
On September 25, 2017, the Company acquired an additional 42% interest in BAMTech, a streaming technology and content delivery business, from an affiliate of Major League Baseball (MLB) for $1.6 billion (paid in January 2018). The acquisition increased our interest from 33% to 75%, and as a result, we began consolidating BAMTech during the fourth quarter of fiscal 2017. The estimated acquisition date fair value of BAMTech is $3.9 billion.
BAMTech’s noncontrolling interest holders, MLB and the National Hockey League (NHL), have the right to sell their interest to the Company in the future. MLB can generally sell their interest to the Company starting five years from and ending ten years after the September 25, 2017 acquisition date at the greater of fair value or a guaranteed floor value ($563 million accreting at 8% annually for eight years). The NHL can sell its interest to the Company in fiscal 2020 for $300 million or in fiscal 2021 for $350 million. Accordingly, these interests are recorded as “Redeemable noncontrolling interests” in the Company’s Condensed Consolidated Balance Sheet. In addition, ESPN’s noncontrolling interest holder has a 20% interest in BAMTech’s direct-to-consumer sports business.
The Company has the right to purchase MLB’s interest in BAMTech starting five years from and ending ten years after the acquisition date at the greater of fair value or the guaranteed floor value. The Company has the right to acquire the NHL interest in fiscal years 2020 or 2021 for $500 million.
The acquisition date fair value of the noncontrolling interests was estimated at $1.1 billion, which was calculated using an option pricing model and generally reflected the net present value of the expected future redemption amount.
As a result of the MLB and NHL sale rights, the noncontrolling interests will generally not be allocated BAMTech losses. The Company will record the noncontrolling interests at the greater of (i) their acquisition date fair value adjusted for their share (if any) of earnings, losses, or dividends or (ii) an accreted value from the date of the acquisition to the earliest redemption date. The accretion of the MLB interest to the earliest redemption value (i.e. in five years after the acquisition date) will be recorded using an interest method. As of June 30, 2018, the redeemable noncontrolling interest subject to accretion would have had a redemption amount of $597 million if it were redeemed at that time. Adjustments to the carrying amount of redeemable noncontrolling interests increase or decrease income available to Company shareholders through an adjustment to “Net income attributable to noncontrolling interests” on the Condensed Consolidated Statement of Income.
We have allocated $3.5 billion of the purchase price to goodwill (approximately half of which is deductible for tax purposes) with the remainder primarily allocated to identifiable intangible assets.
The revenue and costs of BAMTech included in the Company’s Condensed Consolidated Statement of Income for the nine months ended June 30, 2018 were approximately $0.3 billion and $0.5 billion, respectively.
Twenty-First Century Fox
On December 14, 2017, the Company and Twenty-First Century Fox, Inc. (“21CF”) announced a definitive agreement (the “Original Merger Agreement”) for the Company to acquire 21CF.
On June 20, 2018, the Company and 21CF entered into an Amended and Restated Agreement and Plan of Merger (“Amended Merger Agreement”) for the Company to acquire 21CF. The Amended Merger Agreement amends and restates in its entirety the Original Merger Agreement.
Prior to the acquisition, 21CF will transfer a portfolio of its news, sports and broadcast businesses, including the Fox News Channel, Fox Business Network, Fox Broadcasting Company, Fox Sports, Fox Television Stations Group, FS1, FS2, Fox Deportes, Big Ten Network and certain other assets and liabilities into a newly formed subsidiary (“New Fox”) (the “New Fox Separation”) and distribute all of the issued and outstanding common stock of New Fox to shareholders of 21CF (other than holders that are subsidiaries of 21CF) on a pro rata basis (the “New Fox Distribution”). Prior to the New Fox Distribution, New Fox will pay 21CF a dividend in the amount of $8.5 billion. As the New Fox Separation and the New Fox Distribution will be taxable to 21CF at the corporate level, the dividend is intended to fund the taxes resulting from the New Fox Separation and New Fox Distribution and certain other transactions contemplated by the Amended Merger Agreement (the “Transaction Tax”). 21CF will retain all assets and liabilities not transferred to New Fox, which will include the 21CF film and television studios, certain cable networks (including FX and National Geographic) and 21CF’s international television businesses.
Following the New Fox Separation and the New Fox Distribution, WDC Merger Enterprises I, Inc., a wholly owned subsidiary of TWDC Holdco 613 Corp (“New Disney”), a direct wholly owned subsidiary of the Company, will be merged with and into the Company, with the Company continuing as the surviving corporation (the “Disney Merger”), and WDC Merger Enterprises II, Inc., a wholly owned subsidiary of New Disney, will be merged with and into 21CF, with 21CF continuing as the surviving corporation (the “21CF Merger and together with the Disney Merger, the “Mergers”). As a result of the Mergers, the

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


Company and 21CF will become direct wholly owned subsidiaries of New Disney, which will be renamed “The Walt Disney Company” concurrently with the Mergers. Each share of Disney stock issued and outstanding immediately prior to the Disney merger will be converted into one share of New Disney stock of the same class.
The Boards of Directors of the Company and 21CF have approved the transaction. In order to seek approval from shareholders of 21CF and the Company, New Disney filed a Form S-4 Registration Statement (“S-4”) with the U.S. Securities and Exchange Commission (“SEC”), which was declared effective on June 28, 2018. The S-4 constitutes a prospectus for the registration of New Disney common stock to be delivered to 21CF shareholders pursuant to the Amended Merger Agreement as well as a joint proxy statement of the Company and 21CF. The consummation of the transaction is subject to various conditions, including, among others, (i) the consummation of the New Fox Separation, (ii) the receipt of certain tax opinions with respect to the treatment of the transaction under U.S. and Australian tax laws, and (iii) the receipt of certain regulatory approvals and governmental consents. The closing condition relating to the adoption of the Amended Merger Agreement by the requisite vote of shareholders of 21CF and the approval of the stock issuance by the requisite vote of the Company’s shareholders was satisfied on July 27, 2018
Upon consummation of the transaction, each issued and outstanding share of 21CF common stock (other than (i) treasury shares, (ii) shares held by 21CF subsidiaries and (iii) shares held by 21CF shareholders who have not voted in favor of the 21CF Merger and perfected and not withdrawn a demand for appraisal rights under Delaware law) will be exchanged for an amount (the “Per Share Value”), payable at the election of the holder thereof in either cash or shares of New Disney common stock. The Per Share Value is equal to fifty percent (50%) of the sum of (i) $38.00 plus (ii) the value of a number of shares of the Company’s common stock equal to an “exchange ratio” (determined based on the volume weighted average price of Disney common stock over the fifteen consecutive trading day period ending on (and including) the trading day that is three trading days prior to the date of the effective time of the 21CF Merger (“Average Company Stock Price”)). If the Average Company Stock Price is greater than $114.32, then the exchange ratio will be 0.3324. If the Average Company Stock Price is less than $93.53, then the exchange ratio will be 0.4063. If the Average Company Stock Price is greater than or equal to $93.53 but less than or equal to $114.32, then the exchange ratio will be an amount equal to $38.00 divided by the Average Company Stock Price. The merger consideration is subject to automatic proration and adjustment to ensure that the aggregate cash consideration (before giving effect to the adjustment for the Transaction Tax) is equal to $35.7 billion.
The exchange ratio may be subject to an adjustment based on the final estimate of the Transaction Tax and other transactions contemplated by the Amended Merger Agreement. The merger consideration in the Amended Merger Agreement was set based on an estimate of $8.5 billion for the Transaction Tax and will be adjusted immediately prior to consummation of the transaction if the final estimate of the Transaction Tax at closing is more than $8.5 billion or less than $6.5 billion. Such adjustment could increase or decrease the merger consideration, depending on whether the final estimate is lower or higher, respectively, than $6.5 billion or $8.5 billion. Additionally, if the final estimate of the Transaction Tax is lower than $8.5 billion, the Company will make a cash payment to New Fox reflecting the difference between such amount and $8.5 billion, up to a maximum cash payment of $2.0 billion.
As included in the S-4 filing, based on the number of shares of 21CF common stock outstanding as of May 29, 2018 and assuming an Average Company Stock Price of $103.926 (which was the volume weighted average price of the Company’s stock over the 20-trading day period ending on June 18, 2018), and assuming no adjustment for the Transaction Tax, New Disney would be required to issue approximately 343 million new shares of New Disney common stock to 21CF stockholders. The value at which New Disney will record the equity consideration will be based upon the Company’s stock price on the date the transaction closes. In addition, New Disney will assume 21CF’s net debt, which had a book value of approximately $13.2 billion and an estimated fair value of approximately $17.1 billion as of March 31, 2018 (approximately $23.9 billion of debt less approximately $6.8 billion in cash) if the Sky Acquisition (as defined below) is not completed or an estimated fair value of $49.3 billion of net debt (fair value of approximately $51.1 billion of debt less approximately $1.8 billion in cash) if the Sky Acquisition is completed.
Under the terms of the Amended Merger Agreement, Disney will pay 21CF $2.5 billion if the Mergers are not consummated under certain circumstances relating to the failure to obtain approvals, or if there is a final, non-appealable order preventing the transaction, in each case, relating to antitrust laws, communications laws or foreign regulatory laws. If the Amended Merger Agreement is terminated under certain other circumstances relating to changes in board recommendations and/or alternative transactions, the Company or 21CF may be required to pay the other party approximately $1.5 billion.
21CF currently has an interest of approximately 39% in Sky. In December 2016, 21CF announced the terms of an offer to acquire the fully diluted share capital of Sky which 21CF and its affiliates do not already own at a price of £10.75 per share, payable in cash, subject to certain payments of dividends (the “Sky Acquisition”). On April 25, 2018, Comcast announced an offer for the fully diluted share capital of Sky at an offer price of £12.50 per Sky share and, on July 11, 2018, Comcast

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


increased its offer price to £14.75 per Sky share (the “Revised Comcast Sky offer”). The Revised Comcast Sky Offer was recommended by the Independent Committee of the Sky Board responsible for reviewing the terms of the offer.
On July 11, 2018, 21CF announced an increased offer price for Sky of £14.00 per share, payable in cash, subject to reduction if certain dividends or other distributions are paid by Sky. 21CF may elect not to increase the price offered by it in the Sky Acquisition. Any increase in the debt financing for the Sky Acquisition would require the Company’s consent, which we may elect not to provide. Any sale by 21CF of its interest in Sky would require the Company’s consent. Completion of the Sky Acquisition is not a condition to either party’s obligation to consummate the 21CF acquisition transaction. If the Sky Acquisition is not completed by 21CF for any reason, then upon consummation of the 21CF acquisition, New Disney would indirectly acquire 21CF’s approximately 39% interest in Sky.
On July 12, 2018, the Sky Acquisition received approval by the UK Secretary of State for Digital, Culture, Media and Sport. In connection with the approval sought from the UK Secretary of State for Digital, Culture, Media and Sport, 21CF has undertaken to the Secretary of State to separate the Sky News business into a separate company (“Sky News Newco”), and to transfer the shares in Sky News Newco to the Company or to an alternative suitable third party if the Company does not complete its acquisition of Sky News Newco within a specified period (“Sky News Divestment”). The Sky News Divestment is conditional upon the Sky Acquisition completing. 21CF and the Company have agreed to provide financial support to Sky News Newco at the current level of funding (adjusted by cost inflation) and further possible capital expenditures for a period of 15 years after the Sky News Divestment such that the total funds available for Sky News is no less than £100 million per year. The Company has undertaken to continue to operate Sky News for a period of 15 years after the Sky News Divestment and may only sell Sky News Newco with the approval of the Secretary of State.
The Sky Acquisition remains subject to the requisite approval of Sky shareholders unaffiliated with 21CF, as well as to certain other customary closing conditions.
Completion of the Sky Acquisition will not affect the amount or form of consideration that stockholders of 21CF receive in the 21CF Merger. In the event that the 21CF Merger is not completed due to the failure to obtain regulatory approvals or in certain other limited circumstances, the Company has agreed to reimburse 21CF for an amount equal to the difference between the cash consideration of £14.00 and £13.00 for each share of Sky purchased by 21CF pursuant to the Sky Acquisition, plus any interest and fees on such amount.
If the Sky Acquisition is not completed by 21CF and another party has not acquired more than 50% of the ordinary shares of Sky, in each case prior to the completion of the Mergers, New Disney will be required to make a mandatory offer for all the outstanding ordinary shares of Sky not already owned by 21CF. On July 13, 2018, the Panel on Takeovers and Mergers of the United Kingdom (the “U.K. Takeover Panel”), ruled that any such offer would be required to be made in cash and at a price of £14.00 for each ordinary share in Sky (the “July 13 Ruling”), which ruling was upheld on August 4, 2018 by the U.K. Takeover Panel’s Hearings Committee on appeal. It is expected that there will be a further appeal to the U.K. Takeover Appeal Board which could agree or disagree with the July 13 Ruling. In the event that there is a further appeal and the U.K. Takeover Appeal Board does not agree with the July 13 Ruling, the price at which New Disney may be required to make such mandatory offer may be increased or decreased.
Goodwill
The changes in the carrying amount of goodwill for the nine months ended June 30, 2018 are as follows:
 
Media
Networks
 
Parks and
Resorts
 
Studio
Entertainment
 
Consumer
Products & Interactive Media
 
Unallocated (1)
 
Total
Balance at Sept. 30, 2017
$
16,325

 
$
291

 
$
6,817

 
$
4,393

 
$
3,600

 
$
31,426

Acquisitions
—

 
—

 
—

 
—

 
—

 
—

Dispositions
—

 
—

 
—

 
—

 
—

 
—

Other, net(1)
3,078

 
—

 
363

 
39

 
(3,600
)
 
(120
)
Balance at June 30, 2018
$
19,403

 
$
291

 
$
7,180

 
$
4,432

 
$
—

 
$
31,306

(1) 
Other, net represents the allocation of BAMTech goodwill to segments based on the final purchase price allocation and also includes the impact of updates to our initial estimated fair value of intangible assets related to BAMTech.

12
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 30, 2018, the Company’s borrowing activity was as follows: 
 
September 30,
2017
 
Borrowings
 
Payments
 
Other
Activity
 
June 30,
2018
Commercial paper with original maturities less than three months(1)
$
1,151

 
$
—

 
$
(1,098
)
 
$
(3
)
 
$
50

Commercial paper with original maturities greater than three months
1,621

 
7,229

 
(5,678
)
 
11

 
3,183

U.S. and European medium-term notes
19,721

 
—

 
(1,300
)
 
16

 
18,437

BAMTech acquisition payable
1,581

 
—

 
(1,581
)
 
—

 
—

Asia Theme Parks borrowings
1,145

 
—

 
—

 
37

 
1,182

Foreign currency denominated debt and other(2)
72

 
1,056

 
(56
)
 
(251
)
 
821

Total
$
25,291

 
$
8,285

 
$
(9,713
)
 
$
(190
)
 
$
23,673

(1) 
Borrowings and payments are reported net.
(2) 
The other activity is primarily market value adjustments for debt with qualifying hedges.
The Company has bank facilities with a syndicate of lenders to support commercial paper borrowings as follows:
 
Committed
Capacity
 
Capacity
Used
 
Unused
Capacity
Facility expiring March 2019
$
6,000

 
$
—

 
$
6,000

Facility expiring March 2021
2,250

 
—

 
2,250

Facility expiring March 2023
4,000

 
—

 
4,000

Total
$
12,250

 
$
—

 
$
12,250

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 0.18% to 1.63%. The Company also has the ability to issue up to $500 million of letters of credit under the facility expiring in March 2023, which if utilized, reduces available borrowings under this facility. As of June 30, 2018, the Company has $192 million of outstanding letters of credit, of which none were issued under this facility. The facilities specifically exclude certain entities, including the Asia Theme Parks, from any representations, covenants, or events of default and contain only one financial covenant relating to interest coverage, which the Company met on June 30, 2018 by a significant margin.
21CF Credit Facility
In June 2018, the Company received committed financing from a bank syndicate to fund the cash component of the pending acquisition of 21CF. Under the terms of the commitment, the bank syndicate has committed to provide and arrange a 364-day unsecured bridge term loan facility in an aggregate principal amount of $35.7 billion at the completion of the 21CF transaction. The interest rate on the facility can vary based on the Company’s debt rating. The interest rate would have been LIBOR plus 0.875% if the Company had drawn on this facility at June 30, 2018. Prior to the completion of the 21CF acquisition, the Company anticipates that it will execute debt financings for the cash component of the 21CF acquisition and terminate the bridge term loan facility.
Cruise Ship Credit Facilities
In October 2016 and December 2017, the Company entered into credit facilities to finance three new cruise ships, which are expected to be delivered in 2021, 2022 and 2023. The financings may be used for up to 80% of the contract price of the cruise ships. Under the agreements, $1.0 billion in financing is available beginning in April 2021, $1.1 billion is available beginning in May 2022 and $1.1 billion is available beginning in April 2023. If utilized, the interest rates will be fixed at 3.48%, 3.72% and 3.74%, respectively, and the loan and interest will be payable semi-annually over a 12-year period from the borrowing date. Early repayment is permitted subject to cancellation fees.

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


Interest expense, net
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 30,
2018
 
July 1,
2017
 
June 30,
2018
 
July 1,
2017
Interest expense
$
(175
)
 
$
(134
)
 
$
(493
)
 
$
(370
)
Interest and investment income
32

 
17

 
78

 
70

Interest expense, net
$
(143
)
 
$
(117
)
 
$
(415
)
 
$
(300
)
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.
6.
International Theme Parks
The Company has a 47% ownership interest in the operations of Hong Kong Disneyland Resort and a 43% ownership interest in the operations of Shanghai Disney Resort (the Asia Theme Parks together with Disneyland Paris are collectively referred to as the International Theme Parks).
The following table summarizes the carrying amounts of the International Theme Parks’ assets and liabilities included in the Company’s Condensed Consolidated Balance Sheets as of June 30, 2018 and September 30, 2017:
 
June 30,
2018
 
September 30, 2017
Cash and cash equivalents
$
745

 
$
843

Other current assets
427

 
376

Total current assets
1,172

 
1,219

Parks, resorts and other property
9,213

 
9,403

Other assets
96

 
111

Total assets (1)
$
10,481

 
$
10,733

 
 
 
 
Current liabilities
$
1,018

 
$
1,163

Long-term borrowings
1,182

 
1,145

Other long-term liabilities
370

 
371

Total liabilities (1)
$
2,570

 
$
2,679

(1) 
Total assets of the Asia Theme Parks were $8 billion at both June 30, 2018 and September 30, 2017 including parks, resorts and other property of $7 billion. Total liabilities of the Asia Theme Parks were $2 billion at both June 30, 2018 and September 30, 2017.     
The following table summarizes the International Theme Parks’ revenues and costs and expenses included in the Company’s Condensed Consolidated Statement of Income for the nine months ended June 30, 2018:
 
June 30,
2018
Revenues
$
2,781

Costs and expenses
(2,702
)
Equity in the loss of investees
(19
)
Asia Theme Parks’ royalty and management fees of $129 million for the nine months ended June 30, 2018 are eliminated in consolidation but are considered in calculating earnings allocated to noncontrolling interests.
International Theme Parks’ cash flows for the nine months ended June 30, 2018 included in the Company’s Condensed Consolidated Statement of Cash Flows were $558 million generated from operating activities, $488 million used in investing

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


activities and $34 million generated from financing activities. The majority of cash flows generated from operating activities and used in investing activities were for the Asia Theme Parks.
Hong Kong Disneyland Resort
The Government of the Hong Kong Special Administrative Region (HKSAR) and the Company have 53% and 47% equity interests in Hong Kong Disneyland Resort, respectively.
The Company and HKSAR have both provided loans to Hong Kong Disneyland Resort with outstanding balances of $141 million each. The interest rate is three month HIBOR plus 2%, and the maturity date is September 2025 for the majority of the borrowings. The Company’s loan is eliminated upon consolidation.
The Company has provided Hong Kong Disneyland Resort with a revolving credit facility of HK $2.1 billion ($269 million), which bears interest at a rate of three month HIBOR plus 1.25% and matures in December 2023. There is no outstanding balance under the line of credit at June 30, 2018.
In August 2017, the Company and HKSAR entered into an agreement for a multi-year expansion of Hong Kong Disneyland that will add a number of new guest offerings, including two new themed areas, by 2023. Under the terms of the agreement, the HK $10.9 billion ($1.4 billion) expansion will be funded by equity contributions from the Company and HKSAR on an equal basis.
Shanghai Disney Resort
Shanghai Shendi (Group) Co., Ltd (Shendi) and the Company have 57% and 43% equity interests in Shanghai Disney Resort, respectively. A management company, in which the Company has a 70% interest and Shendi a 30% interest, operates Shanghai Disney Resort.
The Company has provided Shanghai Disney Resort with loans totaling $795 million, bearing interest at rates up to 8% and maturing in 2036, with early repayment permitted. In addition, the Company has an outstanding balance of $172 million due from Shanghai Disney Resort primarily related to royalties. The Company has also provided Shanghai Disney Resort with a $157 million line of credit bearing interest at 8%. There is no outstanding balance under the line of credit at June 30, 2018. The outstanding balances are eliminated upon consolidation.
Shendi has provided Shanghai Disney Resort with loans totaling 6.9 billion yuan (approximately $1.0 billion), bearing interest at rates up to 8% and maturing in 2036, with early repayment permitted. Shendi has also provided Shanghai Disney Resort with a 1.4 billion yuan (approximately $206 million) line of credit bearing interest at 8%. There is no outstanding balance under the line of credit at June 30, 2018.
7.
Income Taxes
On December 22, 2017, new federal income tax legislation, the “Tax Cuts and Jobs Act” (Tax Act), was signed into law. The most significant impacts on the Company are as follows:
•
Effective January 1, 2018, the U.S. corporate federal statutory income tax rate was reduced from 35.0% to 21.0%. Because of our fiscal year end, the Company’s fiscal 2018 statutory federal tax rate is 24.5%, which is applicable to each quarter of the fiscal year, and will be 21.0% thereafter.
•
The Company remeasured its U.S. federal deferred tax assets and liabilities at the rate that the Company expects to be in effect when those deferred taxes will be realized (either 24.5% if in 2018 or 21.0% thereafter). The Company recognized a benefit from the deferred tax remeasurement of approximately $2.1 billion in the nine months ended June 30, 2018.
•
A one-time tax is due on certain accumulated foreign earnings (Deemed Repatriation Tax), which is payable over eight years. The effective tax rate is generally 15.5% on the portion of the earnings held in cash and cash equivalents and 8% on the remainder. The Company recognized a charge for the Deemed Repatriation Tax of approximately $0.3 billion in the nine months ended June 30, 2018. Generally there will no longer be a U.S. federal income tax cost arising from the repatriation of foreign earnings.
•
The Company will be eligible to claim an immediate deduction for investments in qualified fixed assets and film and television productions placed in service in fiscal 2018 through fiscal 2022. This provision phases out through fiscal 2027.
•
The domestic production activity deduction was eliminated effective for the Company’s fiscal 2019.
•
Certain foreign derived income will be taxed in the U.S. at an effective rate of approximately 13% (which increases to approximately 16% in 2025) rather than the general statutory rate of 21%. This will be effective for the Company in fiscal 2019.

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


•
Certain foreign earnings will be taxed at a minimum effective rate of approximately 13%, which increases to approximately 16% in 2025. This will be effective for the Company in fiscal 2019.
The amounts that the Company has recorded are provisional estimates of the impact the Tax Act will have on the Company’s financial statements. Although the Company does not anticipate material adjustments to the provisional amounts, final amounts could vary. Additional information and analysis is required to finalize the impact including determining foreign cash and cash equivalents at the end of fiscal 2018 to calculate the Deemed Repatriation Tax.
Additionally, potential further guidance may be forthcoming from the Financial Accounting Standards Board and the Securities and Exchange Commission, as well as regulations, interpretations and rulings from federal and state tax agencies, which could result in additional impacts.
During the nine months ended June 30, 2018, the Company decreased its gross unrecognized tax benefits by $0.1 billion from $0.9 billion to $0.8 billion. 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 $0.2 billion, of which $0.1 billion would reduce our income tax expense and effective tax rate if recognized.
8.
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 30, 2018
 
July 1, 2017
 
June 30, 2018
 
July 1, 2017
 
June 30, 2018
 
July 1, 2017
 
June 30, 2018
 
July 1, 2017
Service costs
$
87

 
$
90

 
$
262

 
$
273

 
$
3

 
$
3

 
$
8

 
$
9

Interest costs
122

 
113

 
367

 
336

 
15

 
14

 
45

 
42

Expected return on plan assets
(225
)
 
(219
)
 
(677
)
 
(656
)
 
(13
)
 
(13
)
 
(39
)
 
(37
)
Amortization of prior-year service costs
3

 
3

 
11

 
8

 
—

 
—

 
—

 
—

Recognized net actuarial loss
86

 
101

 
261

 
303

 
3

 
4

 
10

 
12

Net periodic benefit cost
$
73

 
$
88

 
$
224

 
$
264

 
$
8

 
$
8

 
$
24

 
$
26

During the nine months ended June 30, 2018, the Company made $366 million of contributions to its pension and postretirement medical plans. The Company currently does not expect to make any additional material contributions to its pension and postretirement medical plans during the remainder of fiscal 2018. However, final funding amounts for fiscal 2018 will be assessed based on our January 1, 2018 funding actuarial valuation, which will be available by the end of the fourth quarter of fiscal 2018.

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


9.
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 the number of Awards excluded from the diluted earnings per share calculation, as they were anti-dilutive, are as follows: 
 
Quarter Ended
 
Nine Months Ended
 
June 30,
2018
 
July 1,
2017
 
June 30,
2018
 
July 1,
2017
Shares (in millions):
 
 
 
 
 
 
 
Weighted average number of common and common equivalent shares outstanding (basic)
1,491

 
1,562

 
1,502

 
1,578

Weighted average dilutive impact of Awards
7

 
10

 
8

 
10

Weighted average number of common and common equivalent shares outstanding (diluted)
1,498

 
1,572

 
1,510

 
1,588

Awards excluded from diluted earnings per share
12

 
8

 
12

 
11

10.
Equity
The Company paid the following dividends in fiscal 2018 and 2017:
Per Share
 
Total Paid
 
Payment Timing
 
Related to Fiscal Period
$0.84
$1.2 billion
Fourth Quarter of Fiscal 2018
First Half of 2018
$0.84
$1.3 billion
Second Quarter of Fiscal 2018
Second Half 2017
$0.78
$1.2 billion
Fourth Quarter of Fiscal 2017
First Half 2017
$0.78
$1.2 billion
Second Quarter of Fiscal 2017
Second Half 2016
During the nine months ended June 30, 2018, the Company repurchased 35 million shares of its common stock for $3.6 billion. As of June 30, 2018, the Company had remaining authorization in place to repurchase approximately 158 million additional shares. The repurchase program does not have an expiration date.

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


The following tables summarize the changes in each component of accumulated other comprehensive income (loss) (AOCI) including our proportional share of equity method investee amounts:
 
 
 
 
 
Unrecognized
Pension and 
Postretirement
Medical 
Expense
 
Foreign
Currency
Translation
and Other
 
AOCI
 
Market Value Adjustments
 
AOCI, before tax
Investments
 
Cash Flow Hedges
 
Balance at March 31, 2018
$
24

 
$
(197
)
 
$
(4,690
)
 
$
(358
)
 
$
(5,221
)
Quarter Ended June 30, 2018:
 
 
 
 
 
 
 
 


Unrealized gains (losses) arising during the period
1

 
296

 
—

 
(286
)
 
11

Reclassifications of realized net (gains) losses to net income
—

 
26

 
96

 
—

 
122

Balance at June 30, 2018
$
25

 
$
125

 
$
(4,594
)
 
$
(644
)
 
$
(5,088
)
 
 
 
 
 
 
 
 
 
 
Balance at April 1, 2017
$
28

 
$
141

 
$
(5,638
)
 
$
(599
)
 
$
(6,068
)
Quarter Ended July 1, 2017:
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) arising during the period
(1
)
 
(108
)
 
—

 
54

 
(55
)
Reclassifications of realized net (gains) losses to net income
—

 
(41
)
 
108

 
—

 
67

Balance at July 1, 2017
$
27

 
$
(8
)
 
$
(5,530
)
 
$
(545
)
 
$
(6,056
)
 
 
 
 
 
 
 
 
 
 
Balance at September 30, 2017
$
15

 
$
(108
)
 
$
(4,906
)
 
$
(523
)
 
$
(5,522
)
Nine Months Ended June 30, 2018:
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) arising during the period
10

 
150

 
24

 
(121
)
 
63

Reclassifications of net (gains) losses to net income
—

 
83

 
288

 
—

 
371

Balance at June 30, 2018
$
25

 
$
125

 
$
(4,594
)
 
$
(644
)
 
$
(5,088
)
 
 
 
 
 
 
 
 
 
 
Balance at October 1, 2016
$
44

 
$
(38
)
 
$
(5,859
)
 
$
(521
)
 
$
(6,374
)
Nine Months Ended July 1, 2017:
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) arising during the period
(11
)
 
192

 
5

 
(24
)
 
162

Reclassifications of net (gains) losses to net income
(6
)
 
(162
)
 
324

 
—

 
156

Balance at July 1, 2017
$
27

 
$
(8
)
 
$
(5,530
)
 
$
(545
)
 
$
(6,056
)

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


 
 
 
 
 
Unrecognized
Pension and 
Postretirement
Medical 
Expense
 
Foreign
Currency
Translation
and Other
 
AOCI
 
Market Value Adjustments
 
Tax on AOCI
Investments
 
Cash Flow Hedges
 
Balance at March 31, 2018
$
(10
)
 
$
41

 
$
1,778

 
$
67

 
$
1,876

Quarter Ended June 30, 2018:
 
 
 
 
 
 
 
 


Unrealized gains (losses) arising during the period
—

 
(56
)
 
(2
)
 
38

 
(20
)
Reclassifications of realized net (gains) losses to net income
—

 
(6
)
 
(24
)
 
—

 
(30
)
Balance at June 30, 2018
$
(10
)
 
$
(21
)
 
$
1,752

 
$
105

 
$
1,826

 
 
 
 
 
 
 
 
 
 
Balance at April 1, 2017
$
(12
)
 
$
(50
)
 
$
2,113

 
$
137

 
$
2,188

Quarter Ended July 1, 2017:
 
 
 
 
 
 
 
 


Unrealized gains (losses) arising during the period
(4
)
 
42

 
—

 
(9
)
 
29

Reclassifications of realized net (gains) losses to net income
—

 
15

 
(40
)
 
—

 
(25
)
Balance at July 1, 2017
$
(16
)
 
$
7

 
$
2,073

 
$
128

 
$
2,192

 
 
 
 
 
 
 
 
 
 
Balance at September 30, 2017
$
(7
)
 
$
46

 
$
1,839

 
$
116

 
$
1,994

Nine Months Ended June 30, 2018:
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) arising during the period
(3
)
 
(44
)
 
(5
)
 
(11
)
 
(63
)
Reclassifications of net (gains) losses to net income
—

 
(23
)
 
(82
)
 
—

 
(105
)
Balance at June 30, 2018
$
(10
)
 
$
(21
)
 
$
1,752

 
$
105

 
$
1,826

 
 
 
 
 
 
 
 
 
 
Balance at October 1, 2016
$
(18
)
 
$
13

 
$
2,208

 
$
192

 
$
2,395

Nine Months Ended July 1, 2017:
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) arising during the period
—

 
(66
)
 
(15
)
 
(64
)
 
(145
)
Reclassifications of net (gains) losses to net income
2

 
60

 
(120
)
 
—

 
(58
)
Balance at July 1, 2017
$
(16
)
 
$
7

 
$
2,073

 
$
128

 
$
2,192


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


 
 
 
 
 
Unrecognized
Pension and 
Postretirement
Medical 
Expense
 
Foreign
Currency
Translation
and Other
 
AOCI
 
Market Value Adjustments
 
AOCI, after tax
Investments
 
Cash Flow Hedges
 
Balance at March 31, 2018
$
14

 
$
(156
)
 
$
(2,912
)
 
$
(291
)
 
$
(3,345
)
Quarter Ended June 30, 2018:
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) arising during the period
1

 
240

 
(2
)
 
(248
)
 
(9
)
Reclassifications of realized net (gains) losses to net income
—

 
20

 
72

 
—

 
92

Balance at June 30, 2018
$
15

 
$
104

 
$
(2,842
)
 
$
(539
)
 
$
(3,262
)
 
 
 
 
 
 
 
 
 
 
Balance at April 1, 2017
$
16

 
$
91

 
$
(3,525
)
 
$
(462
)
 
$
(3,880
)
Quarter Ended July 1, 2017:
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) arising during the period
(5
)
 
(66
)
 
—

 
45

 
(26
)
Reclassifications of realized net (gains) losses to net income
—

 
(26
)
 
68

 
—

 
42

Balance at July 1, 2017
$
11

 
$
(1
)
 
$
(3,457
)
 
$
(417
)
 
$
(3,864
)
 
 
 
 
 
 
 
 
 
 
Balance at September 30, 2017
$
8

 
$
(62
)
 
$
(3,067
)
 
$
(407
)
 
$
(3,528
)
Nine Months Ended June 30, 2018:
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) arising during the period
7

 
106

 
19

 
(132
)
 
—

Reclassifications of net (gains) losses to net income
—

 
60

 
206

 
—

 
266

Balance at June 30, 2018
$
15

 
$
104

 
$
(2,842
)
 
$
(539
)
 
$
(3,262
)
 
 
 
 
 
 
 
 
 
 
Balance at October 1, 2016
$
26

 
$
(25
)
 
$
(3,651
)
 
$
(329
)
 
$
(3,979
)
Nine Months Ended July 1, 2017:
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) arising during the period
(11
)
 
126

 
(10
)
 
(88
)
 
17

Reclassifications of net (gains) losses to net income
(4
)
 
(102
)
 
204

 
—

 
98

Balance at July 1, 2017
$
11

 
$
(1
)
 
$
(3,457
)
 
$
(417
)
 
$
(3,864
)

20
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 30,
2018
 
July 1,
2017
 
June 30,
2018
 
July 1,
2017
Investments, net
 
Interest expense, net
 
$
—

 
$
—

 
$
—

 
$
6

Estimated tax
 
Income taxes
 
—

 
—

 
—

 
(2
)
 
 
 
 
—

 
—

 
—

 
4

 
 
 
 
 
 
 
 
 
 
 
Cash flow hedges
 
Primarily revenue
 
(26
)
 
41

 
(83
)
 
162

Estimated tax
 
Income taxes
 
6

 
(15
)
 
23

 
(60
)
 
 
 
 
(20
)
 
26

 
(60
)
 
102

 
 
 
 
 
 
 
 
 
 
 
Pension and postretirement
  medical expense
 
Costs and expenses
 
(96
)
 
(108
)
 
(288
)
 
(324
)
Estimated tax
 
Income taxes
 
24

 
40

 
82

 
120

 
 
 
 
(72
)
 
(68
)
 
(206
)
 
(204
)
 
 
 
 
 
 
 
 
 
 
 
Total reclassifications for the period
 
 
 
$
(92
)
 
$
(42
)
 
$
(266
)
 
$
(98
)
At June 30, 2018 and September 30, 2017, unrealized gains and losses on available-for-sale investments were not material.
11.
Equity-Based Compensation
Compensation expense related to stock options and restricted stock units (RSUs) is as follows:
 
Quarter Ended
 
Nine Months Ended
 
June 30,
2018
 
July 1,
2017
 
June 30,
2018
 
July 1,
2017
Stock options
$
21

 
$
20

 
$
67

 
$
62

RSUs
92

 
69

 
240

 
216

Total equity-based compensation expense (1)
$
113

 
$
89

 
$
307

 
$
278

Equity-based compensation expense capitalized during the period
$
17

 
$
19

 
$
54

 
$
61

(1) 
Equity-based compensation expense is net of capitalized equity-based compensation and excludes amortization of previously capitalized equity-based compensation costs.
Unrecognized compensation cost related to unvested stock options and RSUs was $146 million and $520 million, respectively, as of June 30, 2018.
The weighted average grant date fair values of options granted during the nine months ended June 30, 2018 and July 1, 2017 were $28.01 and $25.66, respectively.
During the nine months ended June 30, 2018, the Company made equity compensation grants consisting of