THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(unaudited; in millions)



	Quarter Ended
	Equity Attributable to Disney
	Shares		Common Stock		Retained Earnings			Accumulated Other Comprehensive Income (Loss)				Treasury Stock			Total Disney Equity			Non-controlling Interests ⁽¹⁾			Total Equity
Balance at September 29, 2018	1,488		$	36,779	$	82,679			$	(3,097	)	$	(67,588	)	$	48,773		$	4,059		$	52,832
Comprehensive income	—		—		2,788				21			—			2,809			(1		)	2,808
Equity compensation activity	2		20		—				—			—			20			—			20
Dividends	—		—		(1,310		)		—			—			(1,310		)	—			(1,310		)
Contributions	—		—		—				—			—			—			20			20
Adoption of new accounting standards:
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income	—		—		691				(691		)	—			—			—			—
Intra-Entity Transfers of Assets Other Than Inventory	—		—		129				—			—			129			—			129
Revenues from Contracts with Customers	—		—		(116		)		—			—			(116		)	—			(116		)
Other	—		—		22				(15		)	—			7			—			7
Distributions and other	—		—		4				—			—			4			(1		)	3
Balance at December 29, 2018	1,490		$	36,799	$	84,887			$	(3,782	)	$	(67,588	)	$	50,316		$	4,077		$	54,393

Balance at September 30, 2017	1,517		$	36,248	$	72,606			$	(3,528	)	$	(64,011	)	$	41,315		$	3,689		$	45,004
Comprehensive income	—		—		4,423				124			—			4,547			97			4,644
Equity compensation activity	3		6		—				—			—			6			—			6
Common stock repurchases	(13	)	—		—				—			(1,313		)	(1,313		)	—			(1,313		)
Dividends	—		—		(1,266		)		—			—			(1,266		)	—			(1,266		)
Distributions and other	—		—		—				—			—			—			8			8
Balance at December 30, 2017	1,507		$	36,254	$	75,763			$	(3,404	)	$	(65,324	)	$	43,289		$	3,794		$	47,083

Quarter Ended
March 31, 2018 April 1, 2017

Disney
Shareholders

Non-
controlling
Interests ⁽¹⁾

Total
Equity

Disney
Shareholders

Non-
controlling
Interests ⁽¹⁾

Total
Equity
Beginning balance $ 43,289
$ 3,794
$ 47,083
$ 43,210
$ 3,967
$ 47,177
Comprehensive income 2,996
251
3,247
2,363
160
2,523
Equity compensation activity 157
—
157
182
—
182
Common stock repurchases (1,295 ) —
(1,295 ) (2,035 ) —
(2,035 )
Distributions and other 4
(545 ) (541 ) 64
(644 ) (580 )
Ending balance $ 45,151
$ 3,500
$ 48,651
$ 43,784
$ 3,483
$ 47,267


⁽¹⁾	Excludes redeemable noncontrolling interest

See Notes to Condensed Consolidated Financial Statements

~~THE WALT DISNEY COMPANY~~

~~CONDENSED CONSOLIDATED STATEMENTS OF EQUITY~~

~~(unaudited; in millions)~~

Six Months Ended
March 31, 2018 April 1, 2017

Disney
Shareholders

Non-
controlling
Interests ⁽¹⁾

Total
Equity

Disney
Shareholders

Non-
controlling
Interests

Total
Equity
Beginning balance $ 41,315
$ 3,689
$ 45,004
$ 43,265
$ 4,058
$ 47,323
Comprehensive income 7,543
348
7,891
4,966
70
5,036
Equity compensation activity 163
—
163
230
—
230
Dividends (1,266 ) —
(1,266 ) (1,237 ) —
(1,237 )
Common stock repurchases (2,608 ) —
(2,608 ) (3,500 ) —
(3,500 )
Distributions and other 4
(537 ) (533 ) 60
(645 ) (585 )
Ending balance $ 45,151
$ 3,500
$ 48,651
$ 43,784
$ 3,483
$ 47,267


⁽¹⁾	~~Excludes redeemable noncontrolling interest~~

~~See Notes to Condensed Consolidated Financial Statements~~

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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


1.	Principles of Consolidation

These Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. 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 ~~six months~~quarter ended~~March 31,~~December 29, 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.~~28, 2019.

These financial statements should be read in conjunction with the Company’s ~~2017~~2018 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~~(together 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.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes thereto. Actual results may differ from those estimates.

Reclassifications

Certain reclassifications have been made in fiscal 2018 financial statements and notes to conform to the fiscal 2019 presentation.


2.	~~Cash~~Description of Business 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 Statement of Cash Flows.

March 31,
2018 September 30,
2017
Cash and cash equivalents $ 4,179
$ 4,017
Restricted cash included in:
Other current assets 11
26
Other assets 5
21
Total cash, cash equivalents and restricted cash in the statement of cash flows $ 4,195
$ 4,064


3.	Segment Information

~~The~~Our operating segments ~~reported below are the segments of the Company for which~~report separate financial information, ~~is available and for~~ which ~~results are~~is evaluated regularly by the Chief Executive Officer in ~~deciding~~order to decide how to allocate resources and to assess performance.

Effective in ~~assessing performance.~~fiscal 2019, the Company started reporting its results in the following operating segments:

Media Networks;

Parks, Experiences & Consumer Products;

Studio Entertainment; and

Direct-to-Consumer & International

The Parks, Experiences & Consumer Products segment reflects the combination of the former Parks & Resorts and Consumer Products & Interactive Media segments. Certain businesses that were previously reported in Media Networks, Studio Entertainment and Consumer Products & Interactive Media are now reported in Direct-to-Consumer & International (DTCI). Fiscal 2018 segment operating results have been recast to align with the fiscal 2019 presentation.

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

DESCRIPTION OF BUSINESS

Media Networks

Significant operations:


◦	Disney, ESPN and Freeform branded domestic cable networks


◦	ABC branded broadcast television network and eight owned domestic television stations


◦	Television programming, production and distribution


◦	A 50% equity investment in A+E Television Networks (A+E), which operates a variety of cable channels including A&E, HISTORY and Lifetime

Significant revenues:


◦	Affiliate fees - Fees charged to multi-channel video programming distributors (i.e. cable, satellite, telecommunications and digital over-the-top (e.g. Hulu, YouTube TV) service providers) (“MVPDs”) and to television stations affiliated with the ABC Network for the right to deliver our programming to their customers

◦

Advertising - Sales of ad time/space on our domestic networks and related platforms, except non-ratings-based advertising on digital platforms (“ratings-based ad sales”), and the sale of time on our domestic television stations. Ratings-based ad sales are generally determined using viewership measured with Nielsen ratings. Non-ratings-based advertising on digital platforms will be reported by DTCI as discussed in the DTCI section


◦	TV/SVOD distribution - Licensing fees and other revenues for the right to use our television programs and productions and content transactions with other Company segments (“program sales”)

Significant expenses:


◦	Operating expenses consisting primarily of programming and production costs, participations and residuals expense, technical support costs, operating labor, and distribution costs


◦	Selling, general and administrative costs


◦	Depreciation and amortization

Parks, Experiences & Consumer Products

Significant operations:


◦	Parks & Experiences:


▪	Theme parks and resorts, which include: Walt Disney World Resort in Florida; Disneyland Resort in California; Disneyland Paris; and 47% and 43% interests in Hong Kong Disneyland Resort and Shanghai Disney Resort, respectively, all of which are consolidated in our results. Additionally, the Company licenses our intellectual property to a third party to operate Tokyo Disney Resort


▪	Disney Cruise Line, Disney Vacation Club and Aulani, a Disney Resort & Spa in Hawaii


◦	Consumer Products:


▪	Licensing of our trade names, characters, visual, literary and other intellectual properties to various manufacturers, game developers, publishers and retailers throughout the world


▪	Sale of branded merchandise through retail, online and wholesale businesses, and development and publishing of books, magazines, comic books and games. As of the end of fiscal 2018, the Company had substantially exited the vertical games development business

Significant revenues:


◦	Theme park admissions - Sales of tickets for admission to our theme parks


◦	Parks & Experiences merchandise, food and beverage - Sales of merchandise, food and beverages at our theme parks and resorts and cruise ships


◦	Resorts and vacations - Sales of room nights at hotels, sales of cruise vacations and sales and rentals of vacation club properties


◦	Merchandise licensing and retail


▪	Merchandise licensing - Royalties from intellectual property licensing


▪	Retail - Sales of merchandise at The Disney Stores and through branded internet shopping sites, as well as, to wholesalers (including sales of published materials and games)


◦	Parks licensing and other - Revenues from sponsorships and co-branding opportunities, real estate rent and sales, and royalties from Tokyo Disney Resort

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Significant expenses:


◦	Operating expenses consisting primarily of operating labor, costs of goods sold, infrastructure costs, supplies, commissions and entertainment offerings. Infrastructure costs include information systems expense, repairs and maintenance, utilities and fuel, property taxes, retail occupancy costs, insurance, and transportation


◦	Selling, general and administrative costs


◦	Depreciation and amortization

Studio Entertainment

Significant operations:


◦	Motion picture production and distribution under the Walt Disney Pictures, Pixar, Marvel, Lucasfilm and Touchstone banners


◦	Development, production and licensing of live entertainment events on Broadway and around the world (“Stage plays”)

Significant revenues:


◦	Theatrical distribution - Rentals from licensing our motion pictures to theaters


◦	Home entertainment - Sale of our motion pictures to retailers and distributors in physical (DVD and Blu-ray) and electronic formats


◦	TV/SVOD distribution and other - Licensing fees and other revenue for the right to use our motion picture productions, content transactions with other Company segments, ticket sales from stage plays and fees from licensing our intellectual properties for use in live entertainment productions

Significant expenses:


◦	Operating expenses consisting primarily of amortization of production, participations and residuals costs, distribution costs and costs of sales


◦	Selling, general and administrative costs


◦	Depreciation and amortization

Direct-to-Consumer & International

Significant operations:


◦	Disney and ESPN branded international television networks and channels (“International Channels”)


◦	Direct-to-consumer (DTC) businesses:


▪	ESPN+ streaming service, which was launched in April 2018


▪	Disney+ streaming service, which we plan to launch in late 2019


◦	Other Company branded digital content distribution platforms and services


◦	BAMTech LLC (BAMTech) (owned 75% by the Company since September 25, 2017), which provides streaming technology services


◦	Equity investments:


▪	A 30% interest in Hulu, which aggregates acquired television and film entertainment content and original content produced by Hulu and distributes it digitally to internet-connected devices


▪	A 21% effective ownership in Vice Group Holdings, Inc. (Vice), which is a media company that targets millennial audiences. Vice operates Viceland, which is owned 50% by Vice and 50% by A+E

Significant revenues:


◦	Affiliate fees - Fees charged to MVPDs for the right to deliver our International Channels to their customers


◦	Advertising - Sales of ad time/space on our International Channels. Sales of non-ratings based ad time/space on digital platforms (“addressable ad sales”). In general, addressable ad sales are delivered using technology that allows for dynamic insertion of advertisements into video content, which can be targeted to specific viewer groups


◦	Subscription fees and other - Fees charged to customers/subscribers for our DTC streaming and other services and fees charged for streaming technology services

Significant expenses:


◦	Operating expenses consisting primarily of programming and production costs (including programming, production and branded digital content obtained from other Company segments), technical support costs, operating labor and distribution costs

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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


◦	Selling, general and administrative costs


◦	Depreciation and amortization

SEGMENT INFORMATION

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.

~~THE WALT DISNEY COMPANY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited; tabular dollars~~Intersegment content transactions (e.g. feature films aired on the ABC Television Network) are presented “gross” (i.e. the segment producing the content reports revenue and profit from intersegment transactions in ~~millions, except for per share data)~~

~~Equity~~a manner similar to the reporting of third-party transactions, and the required eliminations are reported on a separate “Eliminations” line when presenting a summary of our segment results). Previously, these transactions were reported “net”, and the intersegment revenue was eliminated in the ~~income~~results of ~~investees is included in~~the segment ~~operating income as follows:~~

Quarter Ended Six Months Ended
March 31,
2018 April 1,
2017 March 31,
2018 April 1,
2017
Media Networks $ 13
$ 88
$ 63
$ 207
Parks and Resorts (7 ) (3 ) (14 ) (5 )
Consumer Products & Interactive Media —
—
—
1
Equity in the income of investees included in segment operating income $ 6
$ 85
$ 49
$ 203
producing the content. Fiscal 2018 intersegment content transactions have been recast to align with the fiscal 2019 presentation.

Segment revenues and segment operating income are as follows:


	Quarter Ended				Six Months Ended				Quarter Ended
	March 31, 2018		April 1, 2017		March 31, 2018		April 1, 2017		December 29, 2018			December 30, 2017
Revenues ⁽¹⁾:
Media Networks	$	6,138	$	5,946	$	12,381	$	12,179	$	5,921		$	5,555
Parks and Resorts	4,879		4,299		10,033		8,854
Parks, Experiences & Consumer Products									6,824			6,527
Studio Entertainment	2,454		2,034		4,958		4,554		1,824			2,509
Consumer Products & Interactive Media	1,077		1,057		2,527		2,533
Direct-to-Consumer & International									918			931
Eliminations⁽²⁾									(184		)	(171		)
	$	14,548	$	13,336	$	29,899	$	28,120	$	15,303		$	15,351
Segment operating income ⁽¹⁾:
Media Networks	$	2,082	$	2,223	$	3,275	$	3,585	$	1,330		$	1,243
Parks and Resorts	954		750		2,301		1,860
Parks, Experiences & Consumer Products									2,152			1,954
Studio Entertainment	847		656		1,676		1,498		309			825
Consumer Products & Interactive Media	354		367		971		1,009
Direct-to-Consumer & International									(136		)	(42		)
Eliminations									—			6
	$	4,237	$	3,996	$	8,223	$	7,952	$	3,655		$	3,986

⁽¹⁾

Studio Entertainment revenues and operating income include an allocation of Parks, Experiences & 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 Parks, Experiences & Consumer Products ~~& Interactive Media~~ revenues and operating income was ~~$136~~$154 million and ~~$107~~$171 million for the quarters ended ~~March 31,~~December 29, 2018 and ~~April 1, 2017, respectively, and $307 million and $288 million for the six months ended March 31, 2018 and April 1,~~December 30, 2017, respectively.

~~A reconciliation of segment operating income to income before income taxes is as follows:~~


⁽²⁾	Intersegment content transactions are as follows:



	Quarter Ended
(in millions)	December 29, 2018			December 30, 2017
Revenues
Studio Entertainment:
Content transactions with Media Networks	$	(21	)	$	(31	)
Content transactions with Direct-to-Consumer & International	(18		)	(8		)
Media Networks:
Content transactions with Direct-to-Consumer & International	(145		)	(132		)
Total revenues	$	(184	)	$	(171	)

Quarter Ended Six Months Ended
March 31,
2018 April 1,
2017 March 31,
2018 April 1,
2017
Segment operating income $ 4,237
$ 3,996
$ 8,223
$ 7,952
Corporate and unallocated shared expenses (194 ) (161 ) (344 ) (293 )
Restructuring and impairment charges (13 ) —
(28 ) —
Other income, net 41
—
94
—
Interest expense, net (143 ) (84 ) (272 ) (183 )
Income before income taxes $ 3,928
$ 3,751
$ 7,673
$ 7,476

In March, 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.

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Equity in the income/(loss) of investees is included in segment operating income as follows:



	Quarter Ended
	December 29, 2018			December 30, 2017
Media Networks	$	179		$	159
Parks, Experiences & Consumer Products	(12		)	(7		)
Direct-to-Consumer & International	(91		)	(109		)
Equity in the income / (loss) of investees	$	76		$	43

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



	Quarter Ended
	December 29, 2018			December 30, 2017
Segment operating income	$	3,655		$	3,986
Corporate and unallocated shared expenses	(161		)	(150		)
Restructuring and impairment charges	—			(15		)
Other income	—			53
Interest expense, net	(63		)	(129		)
Income before income taxes	$	3,431		$	3,745


3.	Revenues

On September 30, 2018, the Company adopted Financial Accounting Standards Board (FASB) guidance, which replaced the existing accounting standards for revenue recognition with a single comprehensive five-step model (“new revenue standard”). The core principle is to recognize revenue upon the transfer of control of goods or services to customers at an amount that reflects the consideration expected to be received. We adopted the new revenue standard using the modified retrospective method, therefore results for reporting periods beginning after September 30, 2018 are presented under the new revenue standard, while prior period amounts have not been adjusted and continue to be reported in accordance with our historic accounting. Upon adoption, we elected to apply the new revenue standard to all contracts and we recorded a net reduction to opening retained earnings of $116 million.

The most significant changes to the Company’s revenue recognition policies resulting from the adoption of the new revenue standard are as follows:

For television and film content licensing agreements with multiple availability windows with the same licensee, the Company now defers more revenue to future windows than under the previous accounting guidance.

For licenses of character images, brands and trademarks with minimum guaranteed license fees, the excess of the minimum guaranteed amount over actual amounts earned based on a percentage of the licensee’s underlying sales (“minimum guarantee shortfall”) is now recognized straight-line over the remaining license period once an expected shortfall is identified. Previously, shortfalls were recognized at the end of the contract period.

For licenses that include multiple television and film titles with a minimum guaranteed license fee across all titles that earns out against the aggregate fees based on the licensee’s underlying sales, the Company now allocates the minimum guaranteed license fee to each title at contract inception and recognizes the allocated license fee as revenue when the title is made available to the customer. License fees earned in excess of the allocated minimum guaranteed amount by title are deferred until the aggregate contractual minimum guarantee is exceeded and then recognized as revenue as earned based on the licensee’s underlying sales. Previously, license fees were recognized as earned based on the licensee’s underlying sales with any shortfalls recognized at the end of the contract period.

For renewals or extensions of license agreements for television and film content, revenues are now recognized when the licensed content becomes available under the renewal or extension. Previously, revenues were recognized when the agreement was renewed or extended.

The adoption of the new revenue standard resulted in certain reclassifications on the Condensed Consolidated Balance Sheet. The primary changes are the reclassification of sales returns reserves (previously reported as a reduction of receivables)

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

to other accrued liabilities ($163 million at December 29, 2018) and the reclassification of refundable customer advances (previously reported as deferred revenues) to other accrued liabilities ($739 million at December 29, 2018).

The cumulative effect of adoption at September 29, 2018 and the impact at December 29, 2018 (had we not applied the new revenue standard) on the Condensed Consolidated Balance Sheet is as follows:



	September 29, 2018							December 29, 2018
	Fiscal 2018 Ending Balances as Reported		Effect of Adoption			Q1 2019 Opening Balances		Balances Assuming Historical Accounting		Q1 2019 Impact of New Revenue Standard			Q1 2019 Ending Balances as Reported
Assets
Receivables - current/non-current	$	11,262	$	(241	)	$	11,021	$	12,030	$	(102	)	$	11,928
Film and television costs and advances - current/non-current	9,202		48			9,250		8,968		33			9,001

Liabilities
Accounts payable and other accrued liabilities	9,479		1,039			10,518		9,799		897			10,696
Deferred revenue and other	4,591		(1,082		)	3,509		4,342		(908		)	3,434
Deferred income taxes	3,109		(34		)	3,075		3,208		(31		)	3,177

Equity	52,832		(116		)	52,716		54,420		(27		)	54,393

The impact on the Condensed Consolidated Statement of Income for the quarter ended December 29, 2018, due to the adoption of the new revenue standard is as follows:



	Quarter ended December 29, 2018
	Results Assuming Historical Accounting			Impact of New Revenue Standard			Reported
Revenues	$	15,109		$	194		$	15,303
Cost and Expenses	(11,806		)	(79		)	(11,885		)
Income Taxes	(619		)	(26		)	(645		)
Net Income	2,697			89			2,786

The most significant impacts were at the Media Networks and Parks, Experiences & Consumer Products segments, both of which reflected a change in the timing of revenue recognition on contracts with minimum guarantees.

Summary of Significant Revenue Recognition Accounting Policies

The Company generates revenue from the sale of both services and products. Revenue is recognized when control of the services or products is transferred to the customer. The amount of revenue recognized reflects the consideration the Company expects to receive in exchange for the services or products.

The Company has three broad categories of service revenues: licenses of rights to use our intellectual property, sales to guests at our Parks and Experiences businesses, and advertising. The Company’s primary product revenues include the sale of food, beverage and merchandise at our parks, resorts and retail stores and the sale of film and television productions in physical formats (DVD and Blu-ray).

The new revenue standard defines two types of licenses of intellectual property (“IP”): IP that has “standalone functionality,” which is called functional IP, and all other IP, which is called symbolic IP. Revenue related to the license of functional IP is generally recognized upon delivery (availability) of the IP to the customer. The substantial majority of the Company’s film and television content distribution activities at the Media Networks, Studio Entertainment and DTCI segments is considered licensing of functional IP. Revenue related to the license of symbolic IP is generally recognized over the term of the license. The Company’s primary revenue stream derived from symbolic IP is the licensing of trade names, characters, visual and literary properties at the Parks, Experiences & Consumer Products segment.

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

More detailed information about the revenue recognition policies for our key revenues is as follows:

Affiliate fees - Fees charged to affiliates (i.e., MVPDs or television stations) for the right to deliver our television network programming on a continuous basis to their customers are recognized as the programming is provided based on contractually specified per subscriber rates and the actual number of the affiliate’s customers receiving the programming.

Affiliate contracts may include a minimum guaranteed license fee. For these contracts, the guaranteed license fee is recognized ratably over the guaranteed period and any fees earned in excess of the guarantee are recognized as earned once the minimum guarantee has been exceeded.

Affiliate agreements may also include a license to use the network programming for on demand viewing. As the fees charged under these contracts are generally based on a contractually specified per subscriber rate for the number of underlying subscribers of the affiliate, revenues are recognized as earned.

Subscription fees - Fees charged to customers/subscribers for our DTC streaming and other services are recognized ratably over the term of the subscription.

Advertising - Sales of advertising time/space on our television networks, digital platforms, and television stations are recognized as revenue, net of agency commissions, when commercials are aired on television or delivered online. The performance obligation in advertising agreements is the delivery of ad time/space and may include a guaranteed number of impressions. When a contract contains a guaranteed number of impressions and the guaranteed number of impressions is not met (“ratings shortfall”), revenues are not recognized for the ratings shortfall until the guaranteed impressions are provided through the delivery of additional advertising time/space.

Theme park admissions - Sales of theme park tickets are recognized when the tickets are used. Sales of annual passes are recognized ratably over the period for which the pass is available for use.

Resorts and vacations - Sales of hotel room nights and cruise vacations and rentals of vacation club properties are recognized as the services are provided to the guest. Sales of vacation club properties are recognized when title to the property transfers to the customer.

Merchandise, food and beverage - Sales of merchandise, food and beverages at our theme parks and resorts, cruise ships and Disney Stores are recognized at the time of sale. Sales from our branded internet shopping sites and to wholesalers are recognized upon delivery. We estimate returns and customer incentives based upon historical return experience, current economic trends and projections of consumer demand for our products.

TV/SVOD distribution licensing - Fees charged for the right to use our television and motion picture productions are recognized as revenue when the content is available for use by the licensee. Contractual license fees may be for a fixed amount, based on performance in previous distribution windows (e.g., box office receipts) or based on underlying sales of the licensee.

TV/SVOD distribution contracts may contain more than one title and/or provide that certain titles are only available for use during defined periods of time during the contract term. In these instances, each title and/or period of availability is generally considered a separate performance obligation. For these contracts, license fees are allocated to each title and period of availability at contract inception based on relative standalone selling price using management’s best estimate. Revenue is recognized when the content is made available for use by the licensee.

For TV/SVOD licenses that include multiple titles subject to an aggregate minimum guaranteed license fee across all titles, the minimum guaranteed license fee is allocated to each title at contract inception and recognized as revenue when the title is available for use by the licensee. License fees earned in excess of the allocated minimum guarantee are deferred until the aggregate contractual minimum guaranteed license fee has been exceeded with the excess then recognized as earned.

When the term of an existing agreement is renewed or extended, revenues are recognized when the licensed content becomes available under the renewal or extension.

Theatrical distribution licensing - Fees charged for licensing of our motion pictures to theaters are recognized as revenue based on the contractual royalty rate applied to the theater’s underlying sales from exhibition of the film.

Merchandise licensing - Fees charged for the use of our trade names and characters in connection with the sale of a licensee’s products are recognized as revenue as the products are sold by the licensee applying a contractual royalty rate to the licensee sales. For licenses with minimum guaranteed license fees, the excess of the minimum guaranteed

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

amount over actual royalties earned from licensee sales (shortfall) is recognized straight-line over the remaining license period once an expected shortfall is probable.

Home entertainment - Sales of our motion pictures to retailers and distributors in physical formats (DVD and Blu-ray) are recognized as revenue on the later of the delivery date or the date that the product can be sold by retailers. We reduce home entertainment revenues for estimated future returns of merchandise and sales incentives based upon historical return experience, current economic trends and projections of consumer demand for our products. Sales of our motion pictures in electronic formats are recognized as revenue when the product is available for use by the consumer.

Taxes - Taxes collected from customers and remitted to governmental authorities are excluded from revenue.

Shipping and handling - Fees collected from customers for shipping and handling are recorded as revenue upon delivery of the product to the consumer. The related shipping expenses are recorded in cost of products upon delivery of the product to the customer.

The following table presents our revenues by segment and major source:



	Quarter Ended December 29, 2018
	Media Networks		Parks, Experiences & Consumer Products		Studio Entertainment		Direct-to-Consumer & International		Eliminations			Consolidated
Affiliate fees	$	3,075	$	—	$	—	$	323	$	—		$	3,398
Advertising	2,023		2		—		417					2,442
Theme park admissions	—		1,933		—		—		—			1,933
Resort and vacations	—		1,531		—		—		—			1,531
Retail and wholesale sales of merchandise, food and beverage	—		2,122		—		—		—			2,122
TV/SVOD distribution licensing	722		—		605		34		(184		)	1,177
Theatrical distribution licensing	—		—		373		—		—			373
Merchandise licensing	—		741		154		15		—			910
Home entertainment	—		—		425		28		—			453
Other	101		495		267		101		—			964
Total revenues	$	5,921	$	6,824	$	1,824	$	918	$	(184	)	$	15,303



	Quarter Ended December 30, 2017⁽¹⁾
	Media Networks		Parks, Experiences & Consumer Products		Studio Entertainment		Direct-to-Consumer & International		Eliminations			Consolidated
Affiliate fees	$	2,867	$	—	$	—	$	338	$	—		$	3,205
Advertising	1,963		2		—		411		—			2,376
Theme park admissions	—		1,832		—		—		—			1,832
Resort and vacations	—		1,463		—		—		—			1,463
Retail and wholesale sales of merchandise, food and beverage	—		2,059		—		—		—			2,059
TV/SVOD distribution licensing	624		—		519		25		(171		)	997
Theatrical distribution licensing	—		—		1,169		—		—			1,169
Merchandise licensing	—		776		171		18		—			965
Home entertainment	—		—		361		30		—			391
Other	101		395		289		109		—			894
Total revenues	$	5,555	$	6,527	$	2,509	$	931	$	(171	)	$	15,351


⁽¹⁾	The table presents our revenues by segment and major source under historical accounting.

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The following table presents our revenues by segment and primary geographical markets:



	Quarter Ended December 29, 2018
	Media Networks		Parks, Experiences & Consumer Products		Studio Entertainment		Direct-to-Consumer & International		Eliminations			Consolidated
United States and Canada	$	5,509	$	5,142	$	1,038	$	404	$	(164	)	$	11,929
Europe	152		1,065		413		180		(15		)	1,795
Asia Pacific	79		551		286		118		(5		)	1,029
Latin America	181		66		87		216		—			550
Total revenues	$	5,921	$	6,824	$	1,824	$	918	$	(184	)	$	15,303

The amount of revenue recognized for the three months ended December 29, 2018 from performance obligations satisfied (or partially satisfied) in previous periods is $378 million, which primarily relates to revenues based on theatrical and TV/SVOD distribution licensee sales in the current quarter on titles made available to the licensee in previous quarters.

As of December 29, 2018, revenue expected to be recognized in the future for unsatisfied performance obligations is $13.3 billion, which primarily relates to content to be delivered in the future under existing agreements with television station affiliates and TV/SVOD licensees. Of this amount, we expect to recognize approximately $4.2 billion in the remainder of fiscal 2019, $3.6 billion in fiscal 2020, $2.3 billion in fiscal 2021, and $3.3 billion thereafter. These amounts include only fixed consideration or minimum guarantees and do not include amounts related to (i) contracts with an original expected term of one year or less (such as most advertising contracts) or (ii) licenses of IP that are based on sales of the licensee.

Payment terms vary by the type and location of our customers and the products or services offered. For certain products or services and customer types, we require payment before the products or services are provided to the customer; in other cases, after appropriate credit evaluations, payment is due in arrears. Advertising contracts, which are generally short term, are billed monthly with payments generally due within 30 days. Payments due under affiliate arrangements are calculated monthly and are generally due within 45 days of month end. Home entertainment terms generally include payment within 60 to 90 days of availability date to the customer. Licensing payment terms vary by contract but are generally collected in advance or over the license term. The Company has accounts receivable with original maturities greater than one year related to the sale of film and television program rights and vacation club properties (see note 12). These receivables are discounted to present value based on a discount rate reflective of a separate financing transaction at contract inception. Therefore, the related revenues are recognized at the discounted amount.

When the timing of the Company’s revenue recognition is different from the timing of customer payments, the Company recognizes either a contract asset (customer payment is subsequent to revenue recognition and subject to the Company satisfying additional performance obligations) or deferred revenue (customer payment precedes the Company satisfying the performance obligations). Consideration due under contracts with payment in arrears are recognized as accounts receivable. Deferred revenues are recognized as revenue as (or when) the Company performs under the contract. Contract assets, accounts receivable and deferred revenues from contracts with customers are as follows:



	December 29, 2018			September 30, 2018
Contract assets	$	146		$	89
Accounts Receivable
Current	9,543			8,553
Non-current	1,561			1,640
Allowance for doubtful accounts	(230		)	(226		)
Deferred revenues
Current	2,968			2,926
Non-current	514			609

Contract assets relate to certain multi-season TV/SVOD licensing contracts. Activity for the quarter ended December 29, 2018 related to contract assets and the allowance for doubtful accounts was not material.

Deferred revenue primarily relates to nonrefundable consideration received in advance for (i) licensing contracts, theme park annual passes, theme park tickets and vacation packages and (ii) the deferral of advertising revenues due to ratings

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

shortfalls. For the three months ended December 29, 2018, $1.6 billion of revenues primarily related to theme park admissions and vacation packages included in the deferred revenue balance at the beginning of the period were recognized. The decrease in deferred revenues due to the revenues recognized was partially offset by the receipt of additional prepaid parks admissions, non-refundable travel deposits and advances on certain licensing arrangements.


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 shares to the Company in the future. MLB can generally sell their shares 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 their shares 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.

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 reflects 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. Prospectively, 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 in five years after the acquisition date will be recorded using an interest method. As of March 31, 2018, the redeemable noncontrolling interest subject to accretion would have had a redemption amount of $586 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.

The Company is negotiating to provide the noncontrolling interest holder in ESPN a portion of the Company’s share of the BAMTech direct-to-consumer sports business at a price that is consistent with the amount the Company invested. If such transaction is finalized, the ESPN noncontrolling interest holder’s investment would be recorded as a noncontrolling interest transaction when consummated.

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. We are in the process of finalizing the valuation of the acquired assets, assumed liabilities and noncontrolling interests.

The revenue and costs of BAMTech included in the Company’s Condensed Consolidated Statement of Income for the six months ended March 31, 2018 were approximately $0.2 billion and $0.3 billion, respectively.

Twenty-First Century Fox

On December 14, 2017, the Company and Twenty-First Century Fox, Inc. (“21CF”) announced a definitive agreement (the ~~“Merger~~“Original Merger Agreement”) for the Company to acquire 21CF.

On June 20, 2018, the Company, TWDC Holdco 613 Corp (“New Disney”), a direct wholly owned subsidiary of the Company, and 21CF entered into an Amended and Restated Agreement and Plan of Merger (“Amended Merger Agreement”) for New Disney to acquire 21CF. The Amended Merger Agreement amends and restates the Original Merger Agreement in its entirety.

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, ~~and~~ 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 (shares held by such holders, the “Hook Stock”))~~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”). On October 3, 2018, 21CF entered into an agreement to sell its existing 39% interest in Sky plc (“Sky”) to Comcast at a price of £17.28 per each Sky share for a total sales price of approximately £11.6 billion ($15.1 billion). 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~~Nat Geo), 21CF’s international television ~~businesses.~~ businesses and the proceeds from the sale of its interest in Sky.

Following the New Fox Separation and the New Fox Distribution, ~~TWC~~WDC Merger Enterprises ~~2 Corp.~~I, Inc., a wholly owned subsidiary of ~~the Company (“Merger Sub”)~~New Disney will ~~merge~~be merged with and into ~~21CF~~the Company, with the Company continuing as the surviving corporation (the ~~“Initial~~“Disney Merger”), ~~with 21CF surviving (the “Surviving Corporation”). Immediately after the effective time of the Initial Merger, the Surviving Corporation will merge with~~ and ~~into TWC~~WDC Merger Enterprises ~~1, LLC,~~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 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 ~~LLC”~~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. On July 27, 2018, the Amended Merger Agreement was adopted by the requisite vote of 21CF’s shareholders, and the stock issuance was approved by the requisite vote of the Company’s shareholders. 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 of the acquisition is expected to occur in the first half of calendar year 2019.

Pursuant to a consent decree with the DOJ, we are required to sell 21CF’s Regional Sports Networks (the “RSNs”) (the “RSN Divestiture”). Under the consent decree, the Company will have at least 90 days from the date of the acquisition to complete the RSN Divestiture, with the possibility that the DOJ can grant extensions of time up to another 90 days; and the DOJ must approve the purchaser(s) and terms and conditions of the RSN Divestiture. The decree is subject to the normal court approval process.

On November 6, 2018, the European Commission approved the acquisition on the condition that the Company divest its interests in certain cable channels in the European Economic Area that are controlled by A+E, including History, H2, Crime & Investigation, Blaze and Lifetime (“the EEA Channels”). A+E is owned 50% by the Company, and the Company plans to comply by divesting its interests in the entities that operate the EEA Channels while retaining its 50% ownership of A +E apart from the A+E entities operating the EEA Channels.

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”), ~~with Merger LLC~~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 befifty percent (50%) of the ~~surviving entity (the “Subsequent~~sum of (i) $38.00 plus (ii) the value of a number of shares of

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

~~Merger,” and together with~~ the ~~Initial Merger,~~Company’s common stock equal to an “exchange ratio” (determined based on the ~~“Mergers”). As a result~~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 ~~Mergers, 21CF will become a wholly owned subsidiary~~effective time of the ~~Company.~~

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 Boards of Directors of the Company and 21CF have approved the transaction. In order to seek approval from 21CF and the Company’s shareholders, the Company filed a preliminary Form S-4 Registration Statement (“S-4”) with the U.S. Securities and Exchange Commission (“SEC”) on April 18, 2018, which S-4, once effective, will constitute a prospectus for the registration of Company common stock to be delivered to 21CF shareholders pursuant to the Merger Agreement as well as a joint proxy statement of the Company and 21CF. The consummation of the transactionmerger consideration is subject to ~~various conditions, including, among others, (i) customary conditions relating~~automatic proration and adjustment to ensure that the aggregate cash consideration (before giving effect to the ~~adoption of~~adjustment for the 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, (ii) the consummation of the New Fox Separation, (iii) the receipt of a tax ruling from the Australian Taxation Office and certain tax opinions with respectTransaction Tax) is equal to ~~the treatment of the transaction under U.S. and Australian tax laws, and (iv) the receipt of certain regulatory approvals and governmental consents.~~$35.7 billion.

~~Upon consummation of the transaction, each issued and outstanding share of 21CF common stock (other than Hook Stock) will be exchanged automatically for 0.2745 shares of Company common stock.~~ The ~~exchange ratio~~merger consideration may be subject to an adjustment based on the final estimate of the Transaction ~~Tax and other transactions contemplated by the Merger Agreement.~~Tax. The ~~initial exchange ratio~~merger consideration in the Amended Merger Agreement ~~of 0.2745 shares of Company common stock for each share of 21CF common stock (other than Hook Stock)~~ 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 ~~exchange ratio,~~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~~described in an 8-K filed by the ~~S-4 filing,~~Company on October 5, 2018, based on the estimated number of shares of 21CF common stock outstanding as of ~~April 11,~~September 27, 2018 and assuming an Average Company Stock Price of $111.6013 (which was the ~~closing~~volume weighted average price of the Company’s stock over the 15-trading day period ending on September 27, 2018), and assuming no adjustment for the ~~Company’s common stock on April 11, 2018 of $100.80, the Company~~Transaction Tax, New Disney would be required to issue approximately ~~512~~319 million ~~new~~ shares of ~~Company~~New Disney common stock ~~a value of approximately $51.6 billion. The value at which the Company~~to 21CF shareholders. New Disney will record the ~~equity~~merger consideration based upon the cash paid, which will be ~~based upon~~funded from New Disney borrowings, plus the value of New Disney common stock issued to 21CF shareholders, which will be determined by the number of shares issued and the Company’s stock price on the ~~date~~closing date. We anticipate that we will repay approximately half of the borrowings shortly after the transaction ~~closes. In addition, the Company~~closes using cash we expect to acquire from 21CF. New Disney will assume ~~21CF’s net~~approximately $19 billion of 21CF debt ~~which was~~that had an estimated fair value of approximately ~~$14.6~~$23 billion as of ~~December~~September 30, ~~2017 (approximately $19.8 billion of debt less approximately $5.2 billion in cash).~~2018.

Under the terms of the Amended Merger Agreement, Disney will pay 21CF $2.5 billion if the ~~merger is~~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~~On October 5, 2018, the Company commenced an ~~approximately 39% interest in Sky.~~exchange offer for any and all outstanding notes (the “21CFA Notes”) issued by 21st Century Fox America, Inc. (“21CFA”), for up to $18.1 billion aggregate principal amount of new notes (the “New Disney Notes”) and cash. In ~~December 2016, 21CF issued an announcement disclosing~~conjunction with the ~~terms of a firm~~ offer to ~~acquire~~exchange (each an “Exchange Offer” and collectively, the ~~fully diluted share capital~~“Exchange Offers”) the 21CFA Notes, New Disney, on behalf of ~~Sky which~~21CFA, was concurrently soliciting consents (each, a “Consent Solicitation” and, collectively, the “Consent Solicitations”) to adopt certain proposed amendments to each of the indentures governing the 21CFA Notes to eliminate substantially all of the restrictive covenants in such indentures, release the guarantee provided by 21CF pursuant to such indentures and ~~its affiliates do~~limit the reporting covenants under such indentures so that 21CFA is only required to comply with the reporting requirements under the Trust Indenture Act of 1939 (collectively, the “Proposed Amendments”).

On October 22, 2018, the Company announced that the requisite number of consents had been received to adopt the Proposed Amendments with respect to all 21CFA Notes. Supplemental indentures effecting the Proposed Amendments were executed on October 22, 2018. Such supplemental indentures were valid and enforceable upon execution but will only become operative upon the settlement of the Exchange Offers and Consent Solicitations. The settlement of the Exchange Offers and Consent Solicitations is expected to occur on or around the closing date of the acquisition. If the acquisition is not ~~already own at a price of £10.75 per share, payable in cash, subject~~consummated, or if the Exchange Offers and Consent Solicitations are otherwise terminated or withdrawn prior to ~~certain payments of dividends (the “Sky Acquisition”). The Sky Acquisition remains subject to certain customary closing conditions, including approval~~settlement, the Proposed Amendments effected by the UK Secretary of State for Digital, Culture, Media and Sport and the requisite approval by Sky shareholders unaffiliated with 21CF. On April 12, 2018, the U.K. Takeover Panel ruled that, if the closing occurs under the Merger Agreement, and if 21CF has not previously completed its acquisition of the remaining interests in Sky and if no third party has acquired more than 50% of the ordinary shares in Sky prior to such time, then Disneysupplemental indentures will be obliged to make a mandatory offer for all the ordinary shares in Sky not already owned by 21CF in accordance with Note 8 of Rule 9.1 of the U.K. Takeover Code within 28 days of the closing under the Merger Agreement. The U.K. Takeover Panel further ruled that any such offer would be requireddeemed to be ~~made in cash and at a price of £10.75 for each ordinary share in Sky.~~

~~In connection with 21CF’s efforts~~revoked retroactive to obtain U.K. regulatory approval for the Sky Acquisition, 21CF offered to sell, and Disney has advised 21CF that it is prepared to acquire, the Sky News business for a nominal amount if the Sky Acquisition is completed. Under the terms of the proposal, the Company would be committed to operate the Sky News business at its current cost structure for 10 years and 21CF has agreed to fund the anticipated costs of the Sky News business, based on the current cost structure (plus inflation), for 10 years.October 22, 2018.

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 ~~six months~~quarter ended ~~March 31,~~December 29, 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 3
—
2
1
(82 ) (76 )
Balance at Mar. 31, 2018 $ 16,328
$ 291
$ 6,819
$ 4,394
$ 3,518
$ 31,350



	Media Networks			Parks and Resorts			Studio Entertainment			Consumer Products & Interactive Media			Parks, Experiences & Consumer Products		Direct-to-Consumer & International		Total
Balance at Sep. 29, 2018	$	19,388		$	291		$	7,164		$	4,426		$	—	$	—	$	31,269
Segment recast ⁽¹⁾	(3,399		)	(291		)	(70		)	(4,426		)	4,487		3,699		—
Other, net	—			—			9			—			—		11		20
Balance at Dec. 29, 2018	$	15,989		$	—		$	7,103		$	—		$	4,487	$	3,710	$	31,289


⁽¹⁾ ⁽¹⁾Represents the reallocation of goodwill as a result of the Company recasting its segments (see Note 2).	Unallocated amount will be allocated to the segments once the BAMTech purchase price allocation is finalized. Other, net represents the impact on goodwill of updates to our initial estimated fair value of intangible assets related to BAMTech.


5.	Cash, Cash Equivalents, Restricted Cash and Borrowings

Cash, Cash Equivalents and Restricted Cash



	December 29, 2018		September 29, 2018
Cash and cash equivalents	$	4,455	$	4,150
Restricted cash included in:
Other current assets	4		1
Other assets	4		4
Total cash, cash equivalents and restricted cash in the statement of cash flows	$	4,463	$	4,155

Borrowings

During the ~~six months~~quarter ended ~~March 31,~~December 29, 2018, the Company’s borrowing activity was as follows:



	September 29, 2018		Borrowings		Payments			Other Activity			December 29, 2018
Commercial paper with original maturities less than three months⁽¹⁾	$	50	$	548	$	—		$	1		$	599
Commercial paper with original maturities greater than three months	955		99		(950		)	(4		)	100
U.S. and European medium-term notes	17,942		—		—			5			17,947
Asia Theme Parks borrowings	1,145		—		—			15			1,160
Foreign currency denominated debt and other⁽²⁾	782		1		—			76			859
Total	$	20,874	$	648	$	(950	)	$	93		$	20,665

September 30,
2017 Borrowings Payments
Other
Activity
March 31,
2018
Commercial paper with original maturities less than three months⁽¹⁾
$ 1,151
$ —
$ (764 ) $ (2 ) $ 385
Commercial paper with original maturities greater than three months 1,621
4,467
(2,331 ) 9
3,766
U.S. and European medium-term notes 19,721
—
(1,300 ) 12
18,433
BAMTech acquisition payable 1,581
—
(1,581 ) —
—
Asia Theme Parks borrowings⁽²⁾
1,145
—
—
81
1,226
Foreign currency denominated debt and other⁽³⁾
72
1,048
(50 ) (196 ) 874
Total $ 25,291
$ 5,515
$ (6,026 ) $ (96 ) $ 24,684


⁽¹⁾	Borrowings and ~~payments~~reductions of borrowings are reported net.


⁽²⁾	The other activity is ~~primarily the U.S. dollar weakening against the Chinese Renminbi.~~


⁽³⁾	~~The other activity is primarily~~due to market value adjustments for debt with qualifying ~~hedges.~~hedges, partially offset by the impact of changes in foreign currency exchange rates.

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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 2020	$	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

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

The Company had a $6.0 billion bank ~~facilities totaling $2.5 billion and $2.25 billion~~facility expiring in March ~~2018 and March 2019, respectively. These facilities were~~2019. This facility was refinanced ~~increasing the borrowing capacity to $6.0 billion and $4.0 billion and~~ extending the maturity ~~dates~~date to March ~~2019 and March 2023, respectively.~~2020. 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 ~~March 31,~~December 29, 2018, the Company has ~~$196~~$221 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

~~THE WALT DISNEY COMPANY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

events of default and contain only one financial covenant relating to interest coverage, which the Company met on ~~March 31,~~December 29, 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 0.75% if the Company had drawn on this facility at December 29, 2018.

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~~loans and interest will be payable semi-annually over a 12-year period from the borrowing date. Early repayment is permitted subject to cancellation fees.

Interest expense, net

Interest expense, interest and investment income, and ~~interest expense~~net periodic pension and postretirement benefit costs (other than service costs) (see Note 8) are reported net in the Condensed Consolidated Statements of Income and consist of the following (net of capitalized interest):



	Quarter Ended
	December 29, 2018			December 30, 2017
Interest expense	$	(163	)	$	(146	)
Interest and investment income	75			17
Net periodic pension and postretirement benefit costs (other than service costs)	25			—
Interest expense, net	$	(63	)	$	(129	)

Quarter Ended Six Months Ended
March 31,
2018 April 1,
2017 March 31,
2018 April 1,
2017
Interest expense $ (172 ) $ (115 ) $ (318 ) $ (236 )
Interest and investment income 29
31
46
53
Interest expense, net $ (143 ) $ (84 ) $ (272 ) $ (183 )

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 WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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 ~~March 31,~~December 29, 2018 and September ~~30, 2017:~~29, 2018:



	December 29, 2018		September 29, 2018
Cash and cash equivalents	$	737	$	834
Other current assets	364		400
Total current assets	1,101		1,234
Parks, resorts and other property	8,947		8,973
Other assets	107		103
Total assets ⁽¹⁾	$	10,155	$	10,310

Current liabilities	$	769	$	921
Long-term borrowings	1,121		1,106
Other long-term liabilities	348		382
Total liabilities ⁽¹⁾	$	2,238	$	2,409

March 31, 2018 September 30, 2017
Cash and cash equivalents $ 780
$ 843
Other current assets 450
376
Total current assets 1,230
1,219
Parks, resorts and other property 9,640
9,403
Other assets 94
111
Total assets ⁽¹⁾
$ 10,964
$ 10,733

Current liabilities $ 1,075
$ 1,163
Borrowings - long-term 1,226
1,145
Other long-term liabilities 386
371
Total liabilities ⁽¹⁾
$ 2,687
$ 2,679

⁽¹⁾

Total assets of the Asia Theme Parks were $8 billion at ~~March 31,~~both December 29, 2018 and September ~~30, 2017, which primarily consist of~~29, 2018 including parks, resorts and other property of $7 ~~billion at March 31, 2018 and September 30, 2017.~~billion. Total liabilities of the Asia Theme Parks were $2 billion at ~~March 31,~~both December 29, 2018 and September ~~30, 2017.~~29, 2018.

~~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 International Theme Parks’ revenues and costs and expenses included in the Company’s Condensed Consolidated Statement of Income for the ~~six months~~quarter ended ~~March 31,~~December 29, 2018:



	December 29, 2018
Revenues	$	910
Costs and expenses	(891		)
Equity in the loss of investees	(12		)

March 31, 2018
Revenues $ 1,749
Costs and expenses (1,752 )
Equity in the loss of investees (14 )

Asia Theme Parks’ royalty and management fees of ~~$83~~$33 million for the ~~six months~~quarter ended ~~March 31,~~December 29, 2018 are eliminated in consolidation but are considered in calculating earnings ~~allocated~~attributable to noncontrolling interests.

International Theme Parks’ cash flows ~~for the six months ended March 31, 2018~~ included in the Company’s Condensed Consolidated Statement of Cash Flows for the quarter ended December 29, 2018 were ~~$272~~$135 million generated from operating activities, ~~$319~~$230 million used in investing activities and $8$20 million generated from financing activities. ~~The majority~~Approximately half 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 a 53% and a 47% equity ~~interests~~interest in Hong Kong Disneyland Resort, respectively.

~~As part of financing the construction of a third hotel, which opened in April 2017, the~~The Company and HKSAR have both provided loans to Hong Kong Disneyland Resort with outstanding balances of ~~$140~~$144 million and ~~$93~~$143 million ~~respectively, which bear~~respectively. The interest ~~at a~~ rate ofis three month HIBOR plus 2%, and ~~mature in~~the maturity date is September ~~2025.~~2025 for the majority of the borrowings. The Company’s loan is eliminated ~~upon~~in 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 ~~March 31,~~December 29, 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, ~~is responsible for operating~~operates Shanghai Disney Resort.

The Company has provided Shanghai Disney Resort with loans totaling ~~$788~~$809 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 ~~$320~~$160 million due from Shanghai Disney Resort primarily related to ~~development costs, pre-opening expense and royalties and management fees.~~royalties. The Company has also provided Shanghai Disney Resort with a ~~$157~~

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

$157 million line of credit bearing interest at 8%. There is no outstanding balance under the line of credit at ~~March 31,~~December 29, 2018. These balances are eliminated ~~upon~~in consolidation.

Shendi has provided Shanghai Disney Resort with loans totaling ~~6.8~~7.0 billion yuan (approximately ~~$1.1~~$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 ~~$217~~$199 million) line of credit bearing interest at 8%. There is no outstanding balance under the line of credit at ~~March 31,~~December 29, 2018.


7.	Income Taxes

OnU.S. Tax Cuts and Jobs Act

In 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 was 24.5%. The Company’s statutory federal tax rate is ~~24.5%, which is applicable to each quarter of the~~21.0% for fiscal ~~year, and will be 21.0% thereafter.~~2019 (and 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~~are realized (either 24.5% if in 2018 or 21.0% thereafter) (Deferred Remeasurement). The Company

~~THE WALT DISNEY COMPANY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

recognized a benefit of approximately $2.2 billion from the ~~deferred tax remeasurement~~Deferred Remeasurement, the majority of ~~approximately $2.0 billion~~which was recognized in the ~~six months~~first quarter of fiscal 2018. The amount recognized for the quarter ended ~~March 31, 2018.~~December 29, 2018 was not material.

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 ~~$350 million~~$0.4 billion, the majority of which was recognized in the ~~six months~~first quarter of fiscal 2018. The amount recognized for the quarter ended ~~March 31, 2018.~~December 29, 2018 was not material. Generally there will no longer be a U.S. federal income tax cost arising from the repatriation of foreign earnings.

The Company ~~will be~~is eligible to claim an immediate deduction for investments in qualified fixed assets acquired and film and television productions that commenced after September 27, 2017 and placed in service by the end of fiscal 2022. The immediate deduction phases out for assets placed in service in fiscal ~~2018 through fiscal 2022. This provision phases out~~2023 through fiscal 2027.

~~The domestic production activity deduction was eliminated effective for the Company’s~~Beginning in fiscal ~~2019.~~2019:


◦	The domestic production activity deduction is eliminated.


◦	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%.


◦	Certain foreign earnings will be taxed at a minimum effective rate of approximately 13%, which increases to approximately 16% in 2025. The Company’s policy is to expense the tax on these earnings in the period the earnings are taxable in the U.S.

Intra-Entity Transfers of Assets Other Than Inventory

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 forOn September 30, 2018, the Company ~~in fiscal 2019.~~

~~Certain foreign earnings will be taxed at~~adopted a ~~minimum effective rate~~FASB standard that requires recognition of ~~approximately 13%. This will be effective for~~the income tax consequences of an intra-entity transfer of an asset (other than inventory) when the transfer occurs instead of when the asset is ultimately sold to an outside party. For the quarter ended December 29, 2018, the Company ~~in fiscal 2019.~~recorded a $0.1 billion deferred tax asset with an offsetting increase to retained earnings.

~~The amounts that the Company has recorded are provisional estimates of the impact the~~Unrecognized Tax Act will have on the Company’s financial statements in fiscal 2018. Additional information and analysis is required to finalize the impact that the Tax Act will have on our full year financial results including the following:

~~Filing the fiscal 2017 U.S. federal income tax return, which could impact our estimated foreign earnings and deferred income tax assets and liabilities, and~~

~~Finalizing the determination of foreign cash and cash equivalents at the end of fiscal 2018, which is required to calculate the Deemed Repatriation Tax.~~

~~Although the Company does not anticipate material adjustments to the provisional amounts, final results could vary from these provisional amounts.~~

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.Benefits

During the ~~six months~~quarter ended ~~March 31,~~December 29, 2018, the Company increased its gross unrecognized tax benefits by $0.1 billion from $0.6 billion to ~~$0.9~~$0.7 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~~matters and we do not expect that the resolutions ~~would reduce our unrecognized tax benefits by approximately $296 million, of which $131 million would reduce our income tax expense and effective tax rate if recognized.~~will have a material impact.


8.	~~Pension and Other Benefit Programs~~

~~The components of net periodic benefit cost are as follows:~~

Pension Plans Postretirement Medical Plans
Quarter Ended Six Months Ended Quarter Ended Six Months Ended
March 31, 2018 April 1, 2017 March 31, 2018 April 1, 2017 March 31, 2018 April 1, 2017 March 31, 2018 April 1, 2017
Service costs $ 87
$ 92
$ 175
$ 183
$ 2
$ 3
$ 5
$ 6
Interest costs 122
111
245
223
15
14
30
28
Expected return on plan assets (227 ) (218 ) (452 ) (437 ) (13 ) (12 ) (26 ) (24 )
Amortization of prior-year service costs 5
2
8
5
—
—
—
—
Recognized net actuarial loss 88
101
175
202
4
4
7
8
Net periodic benefit cost $ 75
$ 88
$ 151
$ 176
$ 8
$ 9
$ 16
$ 18

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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


8.	Pension and Other Benefit Programs

The components of net periodic benefit cost are as follows:



	Pension Plans						Postretirement Medical Plans
	Quarter Ended						Quarter Ended
	December 29, 2018			December 30, 2017			December 29, 2018			December 30, 2017
Service costs	$	83		$	88		$	2		$	3
Other costs (benefits):
Interest costs	145			123			16			15
Expected return on plan assets	(239		)	(225		)	(14		)	(13		)
Amortization of prior-year service costs	3			3			—			—
Recognized net actuarial loss	64			87			—			3
Total other costs (benefits)	(27		)	(12		)	2			5
Net periodic benefit cost	$	56		$	76		$	4		$	8

On September 30, 2018, the Company adopted a FASB standard on the presentation of the components of net periodic pension and postretirement benefit cost (“net periodic benefit cost”). This standard requires the Company to present the service cost component of net periodic benefit cost in the same line items on the statement of operations as other compensation costs of the related employees (i.e. “Costs and expense” in the Condensed Consolidated Statement of Income). All of the other components of net periodic benefit cost (“other costs / benefits”) are presented as a component of “Interest expense, net” in the Condensed Consolidated Statement of Income (see Note 5). The other costs / benefits in fiscal 2018 were not material and are reported in Costs and expenses.

During the ~~six months~~quarter ended ~~March 31,~~December 29, 2018, the Company did not make ~~any~~ material contributions to its pension and postretirement medical plans. The Company ~~is assessing whether it will make any material~~expects total pension and postretirement medical plan contributions in ~~the remainder~~fiscal 2019 of ~~fiscal 2018. Final~~approximately $600 million to $700 million. However, final funding amounts for fiscal ~~2018~~2019 will be assessed based on our January 1, ~~2018~~2019 funding actuarial valuation, which will be available ~~by the end of~~in the fourth quarter of fiscal ~~2018.~~2019.


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
	December 29, 2018	December 30, 2017
Shares (in millions):
Weighted average number of common and common equivalent shares outstanding (basic)	1,490	1,512
Weighted average dilutive impact of Awards	8	9
Weighted average number of common and common equivalent shares outstanding (diluted)	1,498	1,521
Awards excluded from diluted earnings per share	11	16

Quarter Ended Six Months Ended
March 31,
2018 April 1,
2017 March 31,
2018 April 1,
2017
Shares (in millions):
Weighted average number of common and common equivalent shares outstanding (basic) 1,503
1,580
1,507
1,586
Weighted average dilutive impact of Awards 7
11
8
11
Weighted average number of common and common equivalent shares outstanding (diluted) 1,510
1,591
1,515
1,597
Awards excluded from diluted earnings per share 12
8
13
12

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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


10.	Equity

The Company paid the following dividends in fiscal ~~2018~~2019 and ~~2017:~~2018:



Per Share	Total Paid	Payment Timing	Related to Fiscal Period
$0.88	$1.3 billion	Second quarter of Fiscal 2019	Second Half of 2018
$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 of 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 ~~six months~~quarter ended ~~March 31,~~December 29, 2018, the Company ~~repurchased25 million shares~~did not purchase any of its common stock ~~for $2.6 billion.~~to hold as treasury shares. As of ~~March 31,~~December 29, 2018, the Company had remaining authorization in place to repurchase approximately ~~167~~158 million ~~additional shares.~~shares of common stock. The repurchase program does not have an expiration date.

~~THE WALT DISNEY COMPANY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

As of September 29, 2018 and December 29, 2018 the Company had 100 million preferred series A shares authorized with a $0.01 par value, of which none are issued. As of September 29, 2018, the Company had 40 thousand preferred series B shares authorized with $0.01 par value, which were canceled during the quarter ended December 29, 2018.

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 December 30, 2017 $ 14
$ (69 ) $ (4,810 ) $ (461 ) $ (5,326 )
Quarter Ended March 31, 2018:

Unrealized gains (losses) arising during the period 10
(165 ) 24
103
(28 )
Reclassifications of realized net (gains) losses to net income —
37
96
—
133
Balance at March 31, 2018 $ 24
$ (197 ) $ (4,690 ) $ (358 ) $ (5,221 )

Balance at December 31, 2016 $ 26
$ 398
$ (5,751 ) $ (662 ) $ (5,989 )
Quarter Ended April 1, 2017:
Unrealized gains (losses) arising during the period 8
(206 ) 5
63
(130 )
Reclassifications of realized net (gains) losses to net income (6 ) (51 ) 108
—
51
Balance at April 1, 2017 $ 28
$ 141
$ (5,638 ) $ (599 ) $ (6,068 )

Balance at September 30, 2017 $ 15
$ (108 ) $ (4,906 ) $ (523 ) $ (5,522 )
Six Months Ended March 31, 2018:
Unrealized gains (losses) arising during the period 9
(146 ) 24
165
52
Reclassifications of net (gains) losses to net income —
57
192
—
249
Balance at March 31, 2018 $ 24
$ (197 ) $ (4,690 ) $ (358 ) $ (5,221 )

Balance at October 1, 2016 $ 44
$ (38 ) $ (5,859 ) $ (521 ) $ (6,374 )
Six Months Ended April 1, 2017:
Unrealized gains (losses) arising during the period (10 ) 300
5
(78 ) 217
Reclassifications of net (gains) losses to net income (6 ) (121 ) 216
—
89
Balance at April 1, 2017 $ 28
$ 141
$ (5,638 ) $ (599 ) $ (6,068 )



							Unrecognized Pension and Postretirement Medical Expense			Foreign Currency Translation and Other			AOCI
	Market Value Adjustments
AOCI, before tax	Investments			Cash Flow Hedges
First quarter of fiscal 2019
Balance at September 29, 2018	$	24		$	177		$	(4,323	)	$	(727	)	$	(4,849	)
Quarter Ended December 29, 2018:
Unrealized gains (losses) arising during the period	—			27			—			(16		)	11
Reclassifications of realized net (gains) losses to net income	—			(39		)	69			—			30
Reclassifications to retained earnings	(24		)	1			—			—			(23		)
Balance at December 29, 2018	$	—		$	166		$	(4,254	)	$	(743	)	$	(4,831	)

First quarter of fiscal 2018
Balance at September 30, 2017	$	15		$	(108	)	$	(4,906	)	$	(523	)	$	(5,522	)
Quarter Ended December 30, 2017:
Unrealized gains (losses) arising during the period	(1		)	19			—			62			80
Reclassifications of realized net (gains) losses to net income	—			20			96			—			116
Balance at December 30, 2017	$	14		$	(69	)	$	(4,810	)	$	(461	)	$	(5,326	)

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 December 30, 2017 $ (7 ) $ 25
$ 1,804
$ 100
$ 1,922
Quarter Ended March 31, 2018:

Unrealized gains (losses) arising during the period (3 ) 25
(3 ) (33 ) (14 )
Reclassifications of realized net (gains) losses to net income —
(9 ) (23 ) —
(32 )
Balance at March 31, 2018 $ (10 ) $ 41
$ 1,778
$ 67
$ 1,876

Balance at December 31, 2016 $ (11 ) $ (143 ) $ 2,146
$ 142
$ 2,134
Quarter Ended April 1, 2017:

Unrealized gains (losses) arising during the period (3 ) 74
7
(5 ) 73
Reclassifications of realized net (gains) losses to net income 2
19
(40 ) —
(19 )
Balance at April 1, 2017 $ (12 ) $ (50 ) $ 2,113
$ 137
$ 2,188

Balance at September 30, 2017 $ (7 ) $ 46
$ 1,839
$ 116
$ 1,994
Six Months Ended March 31, 2018:
Unrealized gains (losses) arising during the period (3 ) 12
(3 ) (49 ) (43 )
Reclassifications of net (gains) losses to net income —
(17 ) (58 ) —
(75 )
Balance at March 31, 2018 $ (10 ) $ 41
$ 1,778
$ 67
$ 1,876

Balance at October 1, 2016 $ (18 ) $ 13
$ 2,208
$ 192
$ 2,395
Six Months Ended April 1, 2017:
Unrealized gains (losses) arising during the period 4
(108 ) (15 ) (55 ) (174 )
Reclassifications of net (gains) losses to net income 2
45
(80 ) —
(33 )
Balance at April 1, 2017 $ (12 ) $ (50 ) $ 2,113
$ 137
$ 2,188



							Unrecognized Pension and Postretirement Medical Expense			Foreign Currency Translation and Other			AOCI
	Market Value Adjustments
Tax on AOCI	Investments			Cash Flow Hedges
First quarter of fiscal 2019
Balance at September 29, 2018	$	(9	)	$	(32	)	$	1,690		$	103		$	1,752
Quarter Ended December 29, 2018:
Unrealized gains (losses) arising during the period	—			(6		)	—			(7		)	(13		)
Reclassifications of realized net (gains) losses to net income	—			9			(16		)	—			(7		)
Reclassifications to retained earnings	9			(9		)	(667		)	(16		)	(683		)
Balance at December 29, 2018	$	—		$	(38	)	$	1,007		$	80		$	1,049

First quarter of fiscal 2018
Balance at September 30, 2017	$	(7	)	$	46		$	1,839		$	116		$	1,994
Quarter Ended December 30, 2017:
Unrealized gains (losses) arising during the period	—			(13		)	—			(16		)	(29		)
Reclassifications of realized net (gains) losses to net income	—			(8		)	(35		)	—			(43		)
Balance at December 30, 2017	$	(7	)	$	25		$	1,804		$	100		$	1,922

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 December 30, 2017 $ 7
$ (44 ) $ (3,006 ) $ (361 ) $ (3,404 )
Quarter Ended March 31, 2018:
Unrealized gains (losses) arising during the period 7
(140 ) 21
70
(42 )
Reclassifications of realized net (gains) losses to net income —
28
73
—
101
Balance at March 31, 2018 $ 14
$ (156 ) $ (2,912 ) $ (291 ) $ (3,345 )

Balance at December 31, 2016 $ 15
$ 255
$ (3,605 ) $ (520 ) $ (3,855 )
Quarter Ended April 1, 2017:
Unrealized gains (losses) arising during the period 5
(132 ) 12
58
(57 )
Reclassifications of realized net (gains) losses to net income (4 ) (32 ) 68
—
32
Balance at April 1, 2017 $ 16
$ 91
$ (3,525 ) $ (462 ) $ (3,880 )

Balance at September 30, 2017 $ 8
$ (62 ) $ (3,067 ) $ (407 ) $ (3,528 )
Six Months Ended March 31, 2018:
Unrealized gains (losses) arising during the period 6
(134 ) 21
116
9
Reclassifications of net (gains) losses to net income —
40
134
—
174
Balance at March 31, 2018 $ 14
$ (156 ) $ (2,912 ) $ (291 ) $ (3,345 )

Balance at October 1, 2016 $ 26
$ (25 ) $ (3,651 ) $ (329 ) $ (3,979 )
Six Months Ended April 1, 2017:
Unrealized gains (losses) arising during the period (6 ) 192
(10 ) (133 ) 43
Reclassifications of net (gains) losses to net income (4 ) (76 ) 136
—
56
Balance at April 1, 2017 $ 16
$ 91
$ (3,525 ) $ (462 ) $ (3,880 )



							Unrecognized Pension and Postretirement Medical Expense			Foreign Currency Translation and Other			AOCI
	Market Value Adjustments
AOCI, after tax	Investments			Cash Flow Hedges
First quarter of fiscal 2019
Balance at September 29, 2018	$	15		$	145		$	(2,633	)	$	(624	)	$	(3,097	)
Quarter Ended December 29, 2018:
Unrealized gains (losses) arising during the period	—			21			—			(23		)	(2		)
Reclassifications of realized net (gains) losses to net income	—			(30		)	53			—			23
Reclassifications to retained earnings ⁽¹⁾	(15		)	(8		)	(667		)	(16		)	(706		)
Balance at December 29, 2018	$	—		$	128		$	(3,247	)	$	(663	)	$	(3,782	)

First quarter of fiscal 2018
Balance at September 30, 2017	$	8		$	(62	)	$	(3,067	)	$	(407	)	$	(3,528	)
Quarter Ended December 30, 2017:
Unrealized gains (losses) arising during the period	(1		)	6			—			46			51
Reclassifications of realized net (gains) losses to net income	—			12			61			—			73
Balance at December 30, 2017	$	7		$	(44	)	$	(3,006	)	$	(361	)	$	(3,404	)


⁽¹⁾	On September 30, 2018, the Company adopted a FASB standard, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, and elected to reclassify $691 million from AOCI to retained earnings in the quarter ended December 29, 2018.

In addition, on September 30, 2018, the Company adopted a FASB standard, Recognition and Measurement of Financial Assets and Liabilities, and reclassified $24 million ($15 million after tax) of market value adjustments on investments previously recorded in AOCI to retained earnings.

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
Gains/(losses) in net income:		December 29, 2018			December 30, 2017
Cash flow hedges	Primarily revenue	$	39		$	(20	)
Estimated tax	Income taxes	(9		)	8
		30			(12		)

Pension and postretirement medical expense	Costs and expenses	—			(96		)
	Interest expense, net	(69		)	—
Estimated tax	Income taxes	16			35
		(53		)	(61		)

Total reclassifications for the period		$	(23	)	$	(73	)

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 Six Months Ended
March 31,
2018 April 1,
2017 March 31,
2018 April 1,
2017
Investments, net Interest expense, net $ —
$ 6
$ —
$ 6
Estimated tax Income taxes —
(2 ) —
(2 )
—
4
—
4

Cash flow hedges Primarily revenue (37 ) 51
(57 ) 121
Estimated tax Income taxes 9
(19 ) 17
(45 )
(28 ) 32
(40 ) 76

Pension and postretirement
  medical expense
Costs and expenses (96 ) (108 ) (192 ) (216 )
Estimated tax Income taxes 23
40
58
80
(73 ) (68 ) (134 ) (136 )

Total reclassifications for the period $ (101 ) $ (32 ) $ (174 ) $ (56 )

~~At March 31, 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
	December 29, 2018		December 30, 2017
Stock options	$	19	$	23
RSUs	73		71
Total equity-based compensation expense ⁽¹⁾	$	92	$	94
Equity-based compensation expense capitalized during the period	$	16	$	19

Quarter Ended Six Months Ended
March 31,
2018 April 1,
2017 March 31,
2018 April 1,
2017
Stock options $ 23
$ 22
$ 46
$ 42
RSUs 77
70
148
147
Total equity-based compensation expense ⁽¹⁾
$ 100
$ 92
$ 194
$ 189
Equity-based compensation expense capitalized during the period $ 18
$ 21
$ 37
$ 42


⁽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 $~~178~~209 millionand $~~618~~735 million, respectively, as of ~~March 31,~~December 29, 2018.

The weighted average grant date fair values of options granted during the ~~six months~~quarter ended ~~March 31,~~December 29, 2018 and ~~April 1,~~December 30, 2017 were $28.72 and $28.01 ~~and~~ ~~$25.79~~, respectively.

During the ~~six months~~quarter ended ~~March 31,~~December 29, 2018, the Company made equity compensation grants consisting of ~~4.0~~3.8 million stock options and ~~4.2~~3.2 million RSUs.


12.	Commitments and Contingencies

Legal Matters

The Company, together with, in some instances, certain of its directors and officers, is a defendant ~~or codefendant~~ in various 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 those 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,

~~THE WALT DISNEY COMPANY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

occupancy and property taxes from the Disneyland Resort and non-Disney hotels are used by the City of Anaheim to repay the ~~bonds.~~bonds, which mature in 2037. In the event of a debt service shortfall, the Company will be responsible to fund the shortfall. As of ~~March 31,~~December 29, 2018, the remaining debt service obligation guaranteed by the Company was ~~$301 million, of which $47 million was principal.~~$296 million. To the extent that tax revenues exceed the debt service payments subsequent to the Company funding a shortfall, the Company would be reimbursed for any previously funded shortfalls. To date, tax revenues have exceeded the debt service payments for these bonds.

~~The Company has guaranteed $113 million of Hulu LLC’s $338 million term loan, which expires in August 2022.~~ Commitments

The Company is ~~also~~ committed to make a capital contribution of approximately ~~$450~~$645 million to Hulu LLC in calendar 2018. For the six months ended March 31, 2018, the Company made capital contributions of $114 million against this commitment. Hulu is a joint venture in which the Company has a 30% ownership interest.year 2019.

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 film and television program rights and vacation ~~ownership units.~~club properties. 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 film and 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 film and television program sales receivables recorded in other non-current assets, net of an immaterial allowance for credit losses, was ~~$0.8~~$0.9 billion as of ~~March 31,~~December 29, 2018. The activity infor the ~~current period~~quarters ended December 29, 2018 and December 30, 2017 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~~club properties 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

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

for credit losses of approximately 4%, was ~~approximately~~ $0.7 billion as of ~~March 31,~~December 29, 2018. The activity infor the ~~current period~~quarters ended December 29, 2018 and December 30, 2017 related to the allowance for credit losses was not material.


13.	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 generally classified in one of the following 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 March 31, 2018
Level 1 Level 2 Level 3 Total
Assets
Investments $ 42
$ —
$ —
$ 42
Derivatives
Foreign exchange —
458
—
458
Other —
10
—
10
Liabilities
Derivatives
Interest rate —
(296 ) —
(296 )
Foreign exchange —
(688 ) —
(688 )
Total recorded at fair value $ 42
$ (516 ) $ —
$ (474 )
Fair value of borrowings $ —
$ 23,762
$ 1,267
$ 25,029

~~THE WALT DISNEY COMPANY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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



	Fair Value Measurement at December 29, 2018
	Level 1		Level 2			Level 3		Total
Assets
Investments	$	28	$	—		$	—	$	28
Derivatives
Foreign exchange	—		508			—		508
Other	—		2			—		2
Liabilities
Derivatives
Interest rate	—		(284		)	—		(284		)
Foreign exchange	—		(342		)	—		(342		)
Other	—		(11		)	—		(11		)
Total recorded at fair value	$	28	$	(127	)	$	—	$	(99	)
Fair value of borrowings	$	—	$	19,544		$	1,187	$	20,731


	Fair Value Measurement at September 30, 2017										Fair Value Measurement at September 29, 2018
	Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3		Total
Assets
Investments	$	36	$	—		$	—	$	36		$	38	$	—		$	—	$	38
Derivatives
Interest rate	—		10			—		10
Foreign exchange	—		403			—		403			—		469			—		469
Other	—		8			—		8			—		15			—		15
Liabilities
Derivatives
Interest rate	—		(122		)	—		(122		)	—		(410		)	—		(410		)
Foreign exchange	—		(427		)	—		(427		)	—		(274		)	—		(274		)
Total recorded at fair value	$	36	$	(128	)	$	—	$	(92	)	$	38	$	(200	)	$	—	$	(162	)
Fair value of borrowings	$	—	$	23,110		$	2,764	$	25,874		$	—	$	19,826		$	1,171	$	20,997



Large accelerated filer	x	Accelerated filer	¨

Non-accelerated filer ~~(Do not check if smaller reporting company)~~	¨	Smaller reporting company	¨

		Emerging growth company	¨


	Quarter Ended						Six Months Ended						Quarter Ended
	March 31, 2018			April 1, 2017			March 31, 2018			April 1, 2017			December 29, 2018			December 30, 2017
Revenues:
Services	$	12,520		$	11,487		$	25,504		$	23,893		$	12,866		$	12,984
Products	2,028			1,849			4,395			4,227			2,437			2,367
Total revenues	14,548			13,336			29,899			28,120			15,303			15,351
Costs and expenses:
Cost of services (exclusive of depreciation and amortization)	(6,304		)	(5,839		)	(13,638		)	(12,859		)	(7,564		)	(7,324		)
Cost of products (exclusive of depreciation and amortization)	(1,229		)	(1,130		)	(2,632		)	(2,516		)	(1,437		)	(1,405		)
Selling, general, administrative and other	(2,247		)	(1,941		)	(4,326		)	(3,926		)	(2,152		)	(2,087		)
Depreciation and amortization	(731		)	(676		)	(1,473		)	(1,363		)	(732		)	(742		)
Total costs and expenses	(10,511		)	(9,586		)	(22,069		)	(20,664		)	(11,885		)	(11,558		)
Restructuring and impairment charges	(13		)	—			(28		)	—			—			(15		)
Other income, net	41			—			94			—
Other income													—			53
Interest expense, net	(143		)	(84		)	(272		)	(183		)	(63		)	(129		)
Equity in the income of investees	6			85			49			203			76			43
Income before income taxes	3,928			3,751			7,673			7,476			3,431			3,745
Income taxes	(813		)	(1,212		)	(85		)	(2,449		)	(645		)	728
Net income	3,115			2,539			7,588			5,027			2,786			4,473
Less: Net income attributable to noncontrolling interests	(178		)	(151		)	(228		)	(160		)
Less: Net (income) loss attributable to noncontrolling interests													2			(50		)
Net income attributable to The Walt Disney Company (Disney)	$	2,937		$	2,388		$	7,360		$	4,867		$	2,788		$	4,423

Earnings per share attributable to Disney:
Diluted	$	1.95		$	1.50		$	4.86		$	3.05		$	1.86		$	2.91

Basic	$	1.95		$	1.51		$	4.88		$	3.07		$	1.87		$	2.93

Weighted average number of common and common equivalent shares outstanding:
Diluted	1,510			1,591			1,515			1,597			1,498			1,521

Basic	1,503			1,580			1,507			1,586			1,490			1,512

Dividends declared per share	$	—		$	—		$	0.84		$	0.78		$	0.88		$	0.84


	March 31, 2018			September 30, 2017			December 29, 2018			September 29, 2018
ASSETS
Current assets
Cash and cash equivalents	$	4,179		$	4,017		$	4,455		$	4,150
Receivables	9,678			8,633			10,123			9,334
Inventories	1,301			1,373			1,357			1,392
Television costs and advances	1,114			1,278			824			1,314
Other current assets	536			588			778			635
Total current assets	16,808			15,889			17,537			16,825
Film and television costs	8,074			7,481			8,177			7,888
Investments	3,148			3,202			2,970			2,899
Parks, resorts and other property
Attractions, buildings and equipment	55,317			54,043			55,385			55,238
Accumulated depreciation	(30,435		)	(29,037		)	(31,069		)	(30,764		)
	24,882			25,006			24,316			24,474
Projects in progress	3,056			2,145			4,336			3,942
Land	1,262			1,255			1,145			1,124
	29,200			28,406			29,797			29,540
Intangible assets, net	6,962			6,995			6,747			6,812
Goodwill	31,350			31,426			31,289			31,269
Other assets	2,401			2,390			3,424			3,365
Total assets	$	97,943		$	95,789		$	99,941		$	98,598

LIABILITIES AND EQUITY
Current liabilities
Accounts payable and other accrued liabilities	$	9,022		$	8,855		$	10,696		$	9,479
Current portion of borrowings	5,918			6,172			3,489			3,790
Deferred revenue and other	4,788			4,568			3,434			4,591
Total current liabilities	19,728			19,595			17,619			17,860
Borrowings	18,766			19,119			17,176			17,084
Deferred income taxes	2,949			4,480			3,177			3,109
Other long-term liabilities	6,699			6,443			6,452			6,590
Commitments and contingencies (Note 12)
Redeemable noncontrolling interests	1,150			1,148			1,124			1,123
Equity
Preferred stock, $0.01 par value, Authorized – 100 million shares, Issued – none	—			—
Preferred stock							—			—
Common stock, $0.01 par value, Authorized – 4.6 billion shares, Issued – 2.9 billion shares	36,411			36,248			36,799			36,779
Retained earnings	78,704			72,606			84,887			82,679
Accumulated other comprehensive loss	(3,345		)	(3,528		)	(3,782		)	(3,097		)
	111,770			105,326			117,904			116,361
Treasury stock, at cost, 1.4 billion shares	(66,619		)	(64,011		)	(67,588		)	(67,588		)
Total Disney Shareholders’ equity	45,151			41,315			50,316			48,773
Noncontrolling interests	3,500			3,689			4,077			4,059
Total equity	48,651			45,004			54,393			52,832
Total liabilities and equity	$	97,943		$	95,789		$	99,941		$	98,598


	Six Months Ended						Quarter Ended
	March 31, 2018			April 1, 2017			December 29, 2018			December 30, 2017
OPERATING ACTIVITIES
Net income	$	7,588		$	5,027		$	2,786		$	4,473
Depreciation and amortization	1,473			1,363			732			742
Deferred income taxes	(1,623		)	126			46			(1,726		)
Equity in the income of investees	(49		)	(203		)	(76		)	(43		)
Cash distributions received from equity investees	389			397			170			170
Net change in film and television costs and advances	(490		)	(428		)	468			34
Equity-based compensation	194			189			92			94
Other	155			261			61			139
Changes in operating assets and liabilities:
Receivables	(1,004		)	(284		)	(1,078		)	(1,378		)
Inventories	64			90			32			65
Other assets	(248		)	78			25			(29		)
Accounts payable and other accrued liabilities	(92		)	(1,934		)
Accounts payable and other liabilities							(1,289		)	(1,160		)
Income taxes	406			(9		)	130			856
Cash provided by operations	6,763			4,673			2,099			2,237

INVESTING ACTIVITIES
Investments in parks, resorts and other property	(2,044		)	(1,923		)	(1,195		)	(981		)
Acquisitions	(1,581		)	(557		)
Other	(180		)	90			(141		)	(62		)
Cash used in investing activities	(3,805		)	(2,390		)	(1,336		)	(1,043		)

FINANCING ACTIVITIES
Commercial paper borrowings, net	1,372			914
Commercial paper borrowings/(payments), net							(302		)	1,140
Borrowings	1,048			2,053			—			1,025
Reduction of borrowings	(1,350		)	(1,233		)	—			(1,330		)
Dividends	(1,266		)	(1,237		)
Repurchases of common stock	(2,608		)	(3,500		)	—			(1,313		)
Proceeds from exercise of stock options	91			186			37			50
Other	(169		)	(232		)	(146		)	(156		)
Cash used in financing activities	(2,882		)	(3,049		)	(411		)	(584		)

Impact of exchange rates on cash, cash equivalents and restricted cash	55			(69		)	(44		)	21

Change in cash, cash equivalents and restricted cash	131			(835		)	308			631
Cash, cash equivalents and restricted cash, beginning of period	4,064			4,760			4,155			4,064
Cash, cash equivalents and restricted cash, end of period	$	4,195		$	3,925		$	4,463		$	4,695



For the Quarterly Period Ended		Commission File Number 1-11605
~~March 31,~~December 29, 2018




Incorporated in Delaware		I.R.S. Employer Identification
		No. 95-4545390



	Quarter Ended
	March 31, 2018									April 1, 2017
	Disney Shareholders			Non- controlling Interests ⁽¹⁾			Total Equity			Disney Shareholders			Non- controlling Interests ⁽¹⁾			Total Equity
Beginning balance	$	43,289		$	3,794		$	47,083		$	43,210		$	3,967		$	47,177
Comprehensive income	2,996			251			3,247			2,363			160			2,523
Equity compensation activity	157			—			157			182			—			182
Common stock repurchases	(1,295		)	—			(1,295		)	(2,035		)	—			(2,035		)
Distributions and other	4			(545		)	(541		)	64			(644		)	(580		)
Ending balance	$	45,151		$	3,500		$	48,651		$	43,784		$	3,483		$	47,267



	March 31, 2018		September 30, 2017
Cash and cash equivalents	$	780	$	843
Other current assets	450		376
Total current assets	1,230		1,219
Parks, resorts and other property	9,640		9,403
Other assets	94		111
Total assets ⁽¹⁾	$	10,964	$	10,733

Current liabilities	$	1,075	$	1,163
Borrowings - long-term	1,226		1,145
Other long-term liabilities	386		371
Total liabilities ⁽¹⁾	$	2,687	$	2,679



	March 31, 2018
Revenues	$	1,749
Costs and expenses	(1,752		)
Equity in the loss of investees	(14		)


	As of March 31, 2018												As of December 29, 2018
	Current Assets			Other Assets			Other Current Liabilities			Other Long- Term Liabilities			Current Assets				Other Assets			Other Current Liabilities			Other Long- Term Liabilities
Derivatives designated as hedges
Foreign exchange	$	107		$	308		$	(281	)	$	(282	)	$	211			$	181		$	(72	)	$	(77	)
Interest rate	—			—			(260		)	—			—				—			(221		)	—
Other	8			2			—			—			2				—			(7		)	(4		)
Derivatives not designated as hedges																��
Foreign exchange	25			18			(86		)	(39		)	27				89			(140		)	(53		)
Interest rate	—			—			—			(36		)	—				—			—			(63		)
Gross fair value of derivatives	140			328			(627		)	(357		)	240				270			(440		)	(197		)
Counterparty netting	(125		)	(324		)	206			243			(145		)		(225		)	228			142
Cash collateral (received)/paid	(10		)	—			261			—			(3		)		—			104			15
Net derivative positions	$	5		$	4		$	(160	)	$	(114	)	$	92			$	45		$	(108	)	$	(40	)



	As of September 29, 2018
	Current Assets			Other Assets			Other Current Liabilities			Other Long- Term Liabilities
Derivatives designated as hedges
Foreign exchange	$	166		$	169		$	(80	)	$	(39	)
Interest rate	—			—			(329		)	—
Other	13			2			—			—
Derivatives not designated as hedges
Foreign exchange	38			96			(95		)	(60		)
Interest rate	—			—			—			(81		)
Gross fair value of derivatives	217			267			(504		)	(180		)
Counterparty netting	(158		)	(227		)	254			131
Cash collateral (received)/paid	—			—			135			5
Net derivative positions	$	59		$	40		$	(115	)	$	(44	)



	As of September 30, 2017
	Current Assets			Other Assets			Other Current Liabilities			Other Long- Term Liabilities
Derivatives designated as hedges
Foreign exchange	$	175		$	190		$	(192	)	$	(170	)
Interest rate	—			10			(106		)	—
Other	6			2			—			—
Derivatives not designated as hedges
Foreign exchange	38			—			(46		)	(19		)
Interest rate	—			—			—			(16		)
Gross fair value of derivatives	219			202			(344		)	(205		)
Counterparty netting	(142		)	(190		)	188			144
Cash collateral (received)/paid	(20		)	(7		)	19			—
Net derivative positions	$	57		$	5		$	(137	)	$	(61	)



	Carrying Amount of Hedged Borrowings ⁽¹⁾				Fair Value Adjustments Included in Hedged Borrowings ⁽¹⁾
	December 29, 2018		September 29, 2018		December 29, 2018			September 29, 2018
Borrowings:
Current	$	1,590	$	1,585	$	(9	)	$	(14	)
Long-term	6,499		6,425		(177		)	(290		)
	$	8,089	$	8,010	$	(186	)	$	(304	)


⁽¹⁾	Includes $40 million and $41 million of gains on terminated interest rate swaps as of December 29, 2018 and September 29, 2018, respectively.



	December 29, 2018
Gain/(loss) recognized in Other Comprehensive Income	$	50
Gain/(loss) reclassified from AOCI into the Statement of Income ⁽¹⁾	37



	Costs and Expenses						Interest expense, net						Income Tax expense
Quarter Ended:	March 31, 2018			April 1, 2017			March 31, 2018			April 1, 2017			March 31, 2018			April 1, 2017
Net gains (losses) on foreign currency denominated assets and liabilities	$	64		$	110		$	24		$	(3	)	$	(15	)	$	(11	)
Net gains (losses) on foreign exchange risk management contracts not designated as hedges	(77		)	(103		)	(27		)	3			17			14
Net gains (losses)	$	(13	)	$	7		$	(3	)	$	—		$	2		$	3

Six Months Ended:
Net gains (losses) on foreign currency denominated assets and liabilities	$	81		$	(123	)	$	27		$	4		$	(12	)	$	12
Net gains (losses) on foreign exchange risk management contracts not designated as hedges	(91		)	118			(28		)	(4		)	16			(17		)
Net gains (losses)	$	(10	)	$	(5	)	$	(1	)	$	—		$	4		$	(5	)


~~15.~~	~~Restructuring and Impairment Charges and Other Income~~


•	The Company’s lease arrangements are operating or capital leases (financing)


	Quarter Ended						% Change		Six Months Ended						% Change		Quarter Ended						% Change
(in millions, except per share data)	March 31, 2018			April 1, 2017			Better/ (Worse)		March 31, 2018			April 1, 2017			Better/ (Worse)		December 29, 2018			December 30, 2017			Better/ (Worse)
Revenues:
Services	$	12,520		$	11,487		9	%	$	25,504		$	23,893		7	%	$	12,866		$	12,984		(1)	%
Products	2,028			1,849			10	%	4,395			4,227			4	%	2,437			2,367			3	%
Total revenues	14,548			13,336			9	%	29,899			28,120			6	%	15,303			15,351			—	%
Costs and expenses:
Cost of services (exclusive of depreciation and amortization)	(6,304		)	(5,839		)	(8)	%	(13,638		)	(12,859		)	(6)	%	(7,564		)	(7,324		)	(3)	%
Cost of products (exclusive of depreciation and amortization)	(1,229		)	(1,130		)	(9)	%	(2,632		)	(2,516		)	(5)	%	(1,437		)	(1,405		)	(2)	%
Selling, general, administrative and other	(2,247		)	(1,941		)	(16)	%	(4,326		)	(3,926		)	(10)	%	(2,152		)	(2,087		)	(3)	%
Depreciation and amortization	(731		)	(676		)	(8)	%	(1,473		)	(1,363		)	(8)	%	(732		)	(742		)	1	%
Total costs and expenses	(10,511		)	(9,586		)	(10)	%	(22,069		)	(20,664		)	(7)	%	(11,885		)	(11,558		)	(3)	%
Restructuring and impairment charges	(13		)	—			nm		(28		)	—			nm		—			(15		)	nm
Other income, net	41			—			nm		94			—			nm
Other income																	—			53			nm
Interest expense, net	(143		)	(84		)	(70)	%	(272		)	(183		)	(49)	%	(63		)	(129		)	51	%
Equity in the income of investees	6			85			(93)	%	49			203			(76)	%	76			43			77	%
Income before income taxes	3,928			3,751			5	%	7,673			7,476			3	%	3,431			3,745			(8)	%
Income taxes	(813		)	(1,212		)	33	%	(85		)	(2,449		)	97	%	(645		)	728			nm
Net income	3,115			2,539			23	%	7,588			5,027			51	%	2,786			4,473			(38)	%
Less: Net income attributable to noncontrolling interests	(178		)	(151		)	(18)	%	(228		)	(160		)	(43)	%
Less: Net (income) loss attributable to noncontrolling interests																	2			(50		)	nm
Net income attributable to Disney	$	2,937		$	2,388		23	%	$	7,360		$	4,867		51	%	$	2,788		$	4,423		(37)	%

Diluted earnings per share attributable to Disney	$	1.95		$	1.50		30	%	$	4.86		$	3.05		59	%	$	1.86		$	2.91		(36)	%


⁽¹⁾	Cable Networks results in the current quarter include the consolidated results of BAMTech, whereas in the prior-year quarter the Company’s share of BAMTech’s results was reported in equity in the income of investees.


	Domestic						International ⁽²⁾						Total						Domestic						International ⁽²⁾						Total
	Quarter Ended						Quarter Ended						Quarter Ended						Quarter Ended						Quarter Ended						Quarter Ended
	Mar. 31, 2018			Apr. 1, 2017			Mar. 31, 2018			Apr. 1, 2017			Mar. 31, 2018			Apr. 1, 2017			Dec. 29, 2018			Dec. 30, 2017			Dec. 29, 2018			Dec. 30, 2017			Dec. 29, 2018			Dec. 30, 2017
Parks
Increase/(decrease)
Attendance	5		%	4		%	1		%	70		%	4		%	17		%	—		%	6		%	(5)		%	10		%	(1)		%	7		%
Per Capita Guest Spending	6		%	—		%	10		%	—		%	7		%	(3)		%	7		%	7		%	8		%	9		%	8		%	7		%
Hotels ⁽¹⁾
Occupancy	90		%	88		%	84		%	82		%	88		%	87		%	94		%	91		%	86		%	84		%	92		%	89		%
Available Room Nights (in thousands)	2,509			2,561			787			719			3,296			3,280			2,491			2,516			799			799			3,290			3,315
Per Room Guest Spending		$347			$310			$252			$226			$326			$292			$360			$344			$318			$311			$351			$337


⁽¹⁾	Per room guest spending consists of the average daily hotel room rate, as well as food, beverage and merchandise sales at the hotels. Hotel statistics include rentals of Disney Vacation Club units.


⁽²⁾	Per capita guest spending growth rate is stated on a constant currency basis. Per room guest spending is stated at the fiscal ~~2017 second~~2018 first quarter average foreign exchange rate.



	Quarter Ended				% Change Better / (Worse)
(in millions)	December 29, 2018		December 30, 2017		% Change Better / (Worse)
Supplemental revenue detail
Parks & Experiences
Domestic	$	4,473	$	4,171	7	%
International	1,012		985		3	%
Consumer Products	1,339		1,371		(2	)%
	$	6,824	$	6,527	5	%
Supplemental operating income detail
Parks & Experiences
Domestic	$	1,481	$	1,240	19	%
International	99		109		(9	)%
Consumer Products	572		605		(5	)%
	$	2,152	$	1,954	10	%



	Quarter Ended						% Change Better/ (Worse)
(in millions)	December 29, 2018			December 30, 2017			% Change Better/ (Worse)
Cash provided by operations	$	2,099		$	2,237		(6)	%
Cash used in investing activities	(1,336		)	(1,043		)	(28)	%
Cash used in financing activities	(411		)	(584		)	30	%
Impact of exchange rates on cash, cash equivalents and restricted cash	(44		)	21			nm
Change in cash, cash equivalents and restricted cash	$	308		$	631		(51)	%


⁽¹⁾	Cable Networks results in the current period include the consolidated results of BAMTech, whereas in the prior-year period the Company’s share of BAMTech’s results was reported in equity in the income of investees.


⁽¹⁾	~~Per room guest spending consists of the average daily hotel room rate, as well as food, beverage and merchandise sales at the hotels. Hotel statistics include rentals of Disney Vacation Club units.~~


⁽²⁾	~~Per capita guest spending growth rate is stated on a constant currency basis. Per room guest spending is stated at the fiscal 2017 six-month average foreign exchange rate.~~



Period	Total Number of Shares Purchased ⁽¹⁾	Weighted Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs ⁽²⁾
December 31, 2017 - January 31, 2018	4,083,370	$	110.69	3,850,092	175 million
February 1, 2018 - February 28, 2018	3,817,590	106.09		3,793,500	171 million
March 1, 2018 - March 31, 2018	4,562,314	102.89		4,534,524	167 million
Total	12,463,274	106.43		12,178,116	167 million


⁽¹⁾	~~285,158~~75,557 shares were purchased on the open market to provide shares to participants in the Walt Disney Investment Plan (WDIP). These purchases were not made pursuant to a publicly announced repurchase plan or program.


⁽²⁾	Under a share repurchase program implemented effective June 10, 1998, the Company is authorized to repurchase shares of its common stock. 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. The repurchase program does not have an expiration date.




		THE WALT DISNEY COMPANY
		(Registrant)

By:		/s/ CHRISTINE M. MCCARTHY
		Christine M. McCarthy, Senior Executive Vice President and Chief Financial Officer




Number and Description of Exhibit (Numbers Coincide with Item 601 of Regulation S-K)		Document Incorporated by Reference from a Previous Filing or Filed Herewith, as Indicated below

~~2.1~~	Amendment to Agreement and Plan of Merger, dated as of May 7, 2018, among Twenty-First Century Fox Inc., The Walt Disney Company, TWC Merger Enterprises 2 Corp. and TWC Merger Enterprises 1, LLC*	~~Filed herewith~~

3.1	Certificate of ~~Designation~~Elimination of Series B Convertible Preferred Stock of The Walt Disney Company as filed with the Secretary of State of the State of Delaware on ~~March 8,~~November 28, 2018	Exhibit 3.1 to the Current Report on Form 8-K of the Company filed ~~March 9,~~November 30, 2018

10.1	~~364 Day Credit~~Amendment to Amended and Restated Employment Agreement, ~~dated~~Dated as of ~~March 9,~~October 6, 2011, as amended, between the Company and Robert A. Iger, dated November 30, 2018	Exhibit 10.1 to the Current Report on Form 8-K of the Company filed ~~March 9,~~December 3, 2018

10.2	~~Five-Year Credit Agreement dated~~Performance-Based Stock Unit Award (Four-Year Vesting subject to Total Shareholder Return Test) as ~~of March 9,~~Amended and Restated November 30, 2018 by and between the Company and Robert A. Iger	Exhibit 10.2 to the Current Report on Form 8-K of the Company filed ~~March 9,~~December 3, 2018

10.3	Amendment dated December 3, 2018 to the Employment Agreement, dated as of ~~March 14, 2018~~September 27, 2013, as amended, between the Company and ~~Kevin A. Mayer~~Alan N. Braverman	~~Filed herewith~~Exhibit 10.1 to the Current Report on Form 8-K of the Company filed December 4, 2018

~~12.1~~10.4	~~Ratio~~Employment Agreement, dated as of ~~Earnings to Fixed Charges~~September 27, 2018 between the Company and Zenia Mucha	Filed herewith

10.5	364 Day Credit Agreement dated as of December 19, 2018	Exhibit 10.1 to the Current Report on Form 8-K of the Company filed December 26, 2018

10.6	First Amendment dated as of December 19, 2018 to the Five-Year Credit Agreement dated as of March 9, 2018	Exhibit 10.2 to the Current Report on Form 8-K of the Company filed December 26, 2018

10.7	Second Amendment dated as of December 19, 2018 to the Five-Year Credit Agreement dated as of March 11, 2016	Exhibit 10.3 to the Current Report on Form 8-K of the Company filed December 26, 2018

10.8	Form of Restricted Stock Unit Award Agreement (Time-Based Vesting)	Filed herewith

10.9	Form of Restricted Stock Unit Award Agreement (Section 162(m) Vesting Requirement)	Filed herewith

10.10	Form of Performance-Based Stock Unit Award Agreement (Three-Year Vesting subject to Total Shareholder Return/EPS Growth Tests)	Filed herewith
10.11	Form of Performance-Based Stock Unit Award Agreement (Three-Year Vesting subject to Total Shareholder Return Test /EPS Growth Test/Section 162(m) Vesting Requirements)	Filed herewith
10.12	Form of Non-Qualified Stock Option Award Agreement	Filed herewith

31(a)	Rule 13a-14(a) Certification of Chief Executive Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith

31(b)	Rule 13a-14(a) Certification of Chief Financial Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith

32(a)	Section 1350 Certification of Chief Executive Officer of the Company in accordance with Section 906 of the Sarbanes-Oxley Act of 2002**	Furnished

32(b)	Section 1350 Certification of Chief Financial Officer of the Company in accordance with Section 906 of the Sarbanes-Oxley Act of 2002**	Furnished



101	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~March 31,~~December 29, 2018 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, (v) the Condensed Consolidated Statements of Equity and (vi) related notes	Filed