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EX-32.B - SECTION 906 CERTIFICATION OF CHIEF FINANCIAL OFFICER - WALT DISNEY CO/fy2018_q4x10kxex32b.htm
EX-32.A - SECTION 906 CERTIFICATION OF CHIEF EXECUTIVE OFFICER - WALT DISNEY CO/fy2018_q4x10kxex32a.htm
EX-31.B - SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER - WALT DISNEY CO/fy2018_q4x10kxex31b.htm
EX-31.A - SECTION 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER - WALT DISNEY CO/fy2018_q4x10kxex31a.htm
EX-23 - CONSENT OF PRICEWATERHOUSECOOPERS LLP - WALT DISNEY CO/fy2018_q4x10kxex23.htm
EX-21 - SUBSIDIARIES OF THE COMPANY - WALT DISNEY CO/fy2018_q4x10kxex21.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 29, 2018
 
Commission File Number 1-11605
 twdcimagea02a06.jpg
Incorporated in Delaware
500 South Buena Vista Street, Burbank, California 91521
(818) 560-1000
 
I.R.S. Employer Identification No.
95-4545390
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
 
 
Name of Each Exchange
on Which Registered
Common Stock, $.01 par value
 
New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.  Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d)
of the Act.  Yes  o  No  x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.   Yes  x   No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes x    No  o
Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
x
 
Accelerated filer
 
 o
 
 
 
 
 
Non-accelerated filer
 
o
 
Smaller reporting company
 
 o
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
 o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes  o No x
The aggregate market value of common stock held by non-affiliates (based on the closing price on the last business day of the registrant’s most recently completed second fiscal quarter as reported on the New York Stock Exchange-Composite Transactions) was $150.0 billion. All executive officers and directors of the registrant and all persons filing a Schedule 13D with the Securities and Exchange Commission in respect to registrant’s common stock have been deemed, solely for the purpose of the foregoing calculation, to be “affiliates” of the registrant.
There were 1,488,670,964 shares of common stock outstanding as of November 14, 2018.
Documents Incorporated by Reference
Certain information required for Part III of this report is incorporated herein by reference to the proxy statement for the 2019 annual meeting of the Company’s shareholders.



THE WALT DISNEY COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS
 
 
 
Page
PART I
 
 
 
ITEM 1.
 
 
 
ITEM 1A.
 
 
 
ITEM 1B.
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
ITEM 4.
 
 
 
PART II
 
 
 
ITEM 5.
 
 
 
ITEM 6.
 
 
 
ITEM 7.
 
 
 
ITEM 7A.
 
 
 
ITEM 8.
 
 
 
ITEM 9.
 
 
 
ITEM 9A.
 
 
 
ITEM 9B.
 
PART III
 
 
 
ITEM 10.
 
 
 
ITEM 11.
 
 
 
ITEM 12.
 
 
 
ITEM 13.
 
 
 
ITEM 14.
 
PART IV
 
 
 
ITEM 15.
 
 
 
 



PART I
ITEM 1. Business
The Walt Disney Company, together with its subsidiaries, is a diversified worldwide entertainment company with operations in four business segments: Media Networks, Parks and Resorts, Studio Entertainment, and Consumer Products & Interactive Media.
For convenience, the terms “Company” and “we” are used to refer collectively to the parent company and the subsidiaries through which our various businesses are actually conducted.
The Company employed approximately 201,000 people as of September 29, 2018.
During fiscal 2018, the Company entered into an Amended and Restated Agreement and Plan of Merger with Twenty-First Century Fox, Inc, (21CF) that includes the acquisition of certain 21CF businesses, the most significant of which are the Twentieth Century Fox film and television studios, certain cable networks (including FX and Nat Geo), 21CF’s international television businesses and 21CF’s 30% interest in Hulu. The closing of the acquisition is expected to occur in the first half of calendar year 2019 (See Note 3 of the Consolidated Financial Statements for additional information on this transaction).
The Company is developing a new direct-to-consumer (DTC) service, Disney+, that is scheduled to launch in the U.S. in late 2019. Disney+ will offer Disney, Pixar, Marvel and Lucasfilm movies released theatrically after calendar 2018. It will also feature an array of exclusive original series and movies, along with titles/episodes from the Companys film and television libraries.
MEDIA NETWORKS
The Media Networks segment includes cable and broadcast television networks, television production and distribution operations, domestic television stations and radio networks and stations. The Company also has investments in entities that operate programming services, including television networks, which are accounted for under the equity method of accounting.
The businesses in the Media Networks segment principally generate revenue from the following:
fees charged to cable, satellite and telecommunications service providers (traditional Multi-channel Video Programming Distributors (MVPD)), over-the-top (OTT) digital MVPDs (DMVPD) (both collectively referred to as MVPDs) and television stations affiliated with our domestic broadcast television network for the right to deliver our programs to their customers/subscribers (“affiliate fees”);
the sale to advertisers of time in programs for commercial announcements (“ad sales”); and
the license to television networks and distributors of the right to use our television programming (“program sales”).
Operating expenses primarily consist of programming and production costs, participations and residuals expense, technical support costs, operating labor and distribution costs.
Cable Networks
Our primary cable networks are branded ESPN, Disney and Freeform. These networks produce their own programs or acquire rights from third parties to air their programs on our networks.
Cable networks derive the majority of their revenues from affiliate fees and, for certain networks (primarily ESPN and Freeform), ad sales. Generally, the Company’s cable networks provide programming under multi-year licensing agreements with MVPDs that include contractually specified rates on a per subscriber basis. The amounts that we can charge to MVPDs for our cable network programming is largely dependent on the quality and quantity of programming that we can provide and the competitive market for programming services. The ability to sell time and the rates received for commercial announcements are primarily dependent on the size and nature of the audience that the network can deliver to the advertiser as well as overall advertiser demand. We also sell programming developed by our cable networks worldwide to television broadcasters, to subscription video-on-demand (SVOD) services (such as Netflix, Hulu and Amazon) and in home entertainment formats (such as DVD, Blu-ray and electronic home video license).

1


The Company’s significant cable channels and the number of subscribers as estimated by Nielsen Media Research(1) (except where noted) are as follows:
 
Estimated
Subscribers
(in millions)
ESPN - Domestic
 
ESPN
86
ESPN2
86
ESPNU
64
ESPNEWS (2)
62
SEC Network (2)
59
Disney - Domestic
 
Disney Channel
89
Disney Junior
69
Disney XD
71
Freeform
88
International Channels (3)
 
ESPN
157
Disney Channel
225
Disney Junior
159
Disney XD
128
(1) 
Nielsen Media Research estimates are as of September 2018 and capture traditional MVPD and certain DMVPD subscriber counts.
(2) 
Because Nielsen Media Research does not measure these channels, estimated subscriber counts are according to SNL Kagan as of December 2017.
(3) 
Because Nielsen Media Research and SNL Kagan do not measure these channels, estimated subscriber counts are based on internal management reports as of September 2018.
ESPN
ESPN is a multimedia sports entertainment company owned 80% by the Company and 20% by Hearst Corporation. ESPN operates eight 24-hour domestic television sports channels: ESPN and ESPN2 (sports channel dedicated to professional and college sports as well as sports news and original programming), ESPNU (a channel devoted to college sports), ESPNEWS, SEC Network (a sports programming channel dedicated to Southeastern Conference college athletics), ESPN Classic, Longhorn Network (a channel dedicated to The University of Texas athletics) and ESPN Deportes (a Spanish language channel), which are all simulcast in high definition except ESPN Classic. The ACC Network (a sports programming channel dedicated to Atlantic Coast Conference college athletics), is set to launch in 2019. ESPN programs the sports schedule on the ABC Television Network, which is branded ESPN on ABC. ESPN owns 19 television channels outside of the United States (primarily in Latin America and Australia) that reach 61 countries and territories in four languages (English, Spanish, Portuguese and French).
ESPN holds rights for various professional and college sports programming including college football (including bowl games and the College Football Playoff) and basketball, the National Basketball Association (NBA), the National Football League (NFL), Major League Baseball (MLB), US Open Tennis, the Professional Golfers Association (PGA) Championship, various soccer rights, the Wimbledon Championships and the Masters golf tournament.
ESPN also operates:
ESPN.com - which delivers sports news, information and video on internet-connected devices, with thirteen editions in three languages globally. In the U.S., ESPN.com also features live video streams of ESPN channels to authenticated MVPD subscribers. Non-subscribers have limited access to certain content.
ESPN App - which delivers scores, news, highlights, short form video, podcasts and live audio, with thirteen editions in three languages globally. In the U.S., the ESPN App also features live video streams of ESPN’s linear channels and exclusive events to authenticated MVPD subscribers. Non-subscribers have limited access to certain content. The ESPN App is available for download on various internet-connected devices.

2


ESPN Radio – which distributes talk and play by play programming and is one of the largest sports radio networks in the U.S. ESPN Radio network programming is carried on approximately 400 terrestrial stations including four ESPN owned stations in New York, Los Angeles, Chicago and Dallas and on satellite and internet radio.
ESPN The Magazine – which is a monthly sports magazine
ESPN owns and operates the following events: ESPYs (annual awards show); X Games (winter and summer action sports competitions); and a portfolio of collegiate sporting events including: bowl games, basketball games, softball games and post-season award shows.
Certain ESPN sports programming is available on ESPN+, a DTC multi-sports subscription offering, which is available through ESPN.com and the ESPN App. ESPN+ is operated by BAMTech LLC (BAMTech).
Disney
The Company operates over 100 Disney branded television channels, which are broadcast in 34 languages and 164 countries/territories. Branded channels include Disney Channel, Disney Junior, Disney XD, Disney Cinemagic, Disney Cinema, Disney International HD and Dlife. Disney content is also available through video-on-demand services and online through the DisneyNOW App and website. Programming for these channels includes internally developed and acquired programming.
Disney Channel - Disney Channel airs original series and movie programming targeted to kids ages 2 to 14. In the U.S., Disney Channel airs 24 hours a day. Disney Channel develops and produces shows for exhibition on its channel, including live-action comedy series, animated programming and preschool series, as well as original movies. Disney Channel also airs programming and content from Disney’s theatrical film and television programming library.
Disney Junior - Disney Junior airs programming targeted to kids ages 2 to 7 and their parents and caregivers, featuring animated and live-action programming that blends Disney’s storytelling and characters with learning. In the U.S., Disney Junior airs 24 hours a day. Disney Junior also airs as a programming block on the Disney Channel.
Disney XD - Disney XD airs a mix of live-action and animated programming targeted to kids ages 6 to 11. In the U.S., Disney XD airs 24 hours a day.
Disney Cinemagic and Disney Cinema - Disney Cinemagic and Disney Cinema are premium subscription services, which are available in a limited number of countries in Europe, that air a selection of Disney movies, cartoons and shorts as well as animated television series.
Disney International HD - Disney International HD is a channel in India that airs programming targeting viewers aged 14 to 40 with content that includes Walt Disney Animation Studios library content and Disney Channel programming.
Dlife - Dlife is an ad-supported, free-to-air satellite channel in Japan, featuring US primetime drama series, Disney-branded programming, as well as a selection of news, variety, informational and shopping programs. It is targeted to adult women and their families.
The Company also operates Radio Disney in the U.S. and Latin America.
Freeform
Freeform is a domestic cable channel targeted to viewers ages 14 to 34. Freeform produces original live-action programming, acquires programming from third parties, airs content from our owned theatrical film library and features branded holiday programming events such as “25 Days of Christmas”. Freeform content is also available through video-on-demand services and through the Freeform App and website.
India Channels
UTV, Bindass and Hungama TV are branded channels in India. UTV Action and UTV Movies offer Bollywood movies as well as Hollywood, Asian and Indian regional movies dubbed in Hindi. Bindass is a youth entertainment channel. Hungama TV is an Indian cable channel targeted at kids that features a mix of animated series and movies.
BAMTech
BAMTech is a streaming technology and content delivery business owned 75% by the Company since September 25, 2017, 15% by MLB and 10% by the National Hockey League (NHL), both of which have the right to sell their shares to the Company in the future. BAMTech comprises two businesses: 1) DTC sports; and 2) third-party streaming technology services. BAMTechs DTC sports business includes ESPN+, which was launched in April 2018, NHL, PGA Tour Live and Major League Soccer DTC offerings. The ESPN+ service offers thousands of live events, on-demand content and original programming not available on ESPNs other networks. The Hearst Corporation owns 20% of the Companys interest in BAMTechs DTC sports business.

3


Broadcasting
Our broadcasting business includes a domestic broadcast network, television production and distribution operations, and eight owned domestic television stations.
Domestic Broadcast Television Network
The Company operates the ABC Television Network (ABC), which as of September 29, 2018, had affiliation agreements with 244 local television stations reaching almost 100% of U.S. television households. ABC broadcasts programs in the primetime, daytime, late night, news and sports “dayparts”.
ABC produces its own programs and also acquires programming rights from third parties as well as entities that are owned by or affiliated with the Company. ABC derives the majority of its revenues from ad sales. The ability to sell time for commercial announcements and the rates received are primarily dependent on the size and nature of the audience that the network can deliver to the advertiser as well as overall advertiser demand for time on network broadcasts. ABC also receives fees from affiliated television stations for the right to broadcast ABC programming.
ABC network programming is available digitally on internet-connected devices to authenticated MVPD subscribers. Non-subscribers have more limited access to on-demand episodes.
ABC provides online access to certain programming through the ABC App and website. ABC also provides in-depth worldwide news coverage online through websites, the ABC NewsApp, OTT apps and to select distribution partners.
Television Production and Distribution
The Company produces the majority of its scripted television programs under the ABC Studios banner. Program development is carried out in collaboration with independent writers, producers and creative teams, with a focus on one-hour dramas and half-hour comedies, primarily for primetime broadcasts. Primetime programming produced either for our networks or for third-party television networks for the 2018/2019 television season includes nine returning and seven new one-hour dramas, six returning and four new half-hour comedies, and three returning non-scripted series. Additionally, the Company is producing original first run series for SVOD services (including Hulu). The Company also produces Jimmy Kimmel Live for late night and a variety of primetime specials, as well as syndicated, news and daytime programming. We distribute the Company’s productions worldwide to television broadcasters, SVOD services (including Hulu), and on home entertainment formats.
Domestic Television Stations
The Company owns eight television stations, six of which are located in the top ten television household markets in the U.S. The television stations derive the majority of their revenues from ad sales. The stations also receive affiliate fees from MVPDs. All of our television stations are affiliated with ABC and collectively reach 21% of the nation’s television households. Generally, each owned station broadcasts three digital channels: the first consists of local, ABC and syndicated programming; the second is the Live Well Network; and the third is the LAFF Network.
The stations we own are as follows: 
TV Station
 
Market
 
Television Market
Ranking(1)
WABC
 
New York, NY
 
1
KABC
 
Los Angeles, CA
 
2
WLS
 
Chicago, IL
 
3
WPVI
 
Philadelphia, PA
 
4
KTRK
 
Houston, TX
 
7
KGO
 
San Francisco, CA
 
8
WTVD
 
Raleigh-Durham, NC
 
25
KFSN
 
Fresno, CA
 
54
(1) 
Based on Nielsen Media Research, U.S. Television Household Estimates, January 1, 2018

4


Equity Investments
The Company has investments in media businesses that are accounted for under the equity method, and the Company’s share of the financial results for these equity investments is reported as “Equity in the income (loss) of investees, net” in the Company’s Consolidated Statements of Income. The Company’s significant media equity investments are as follows:
A+E and Vice
A+E Television Networks (A+E) is owned 50% by the Company and 50% by the Hearst Corporation. A +E operates a variety of cable channels including:
A&E – which offers entertainment programming including original reality and scripted series
HISTORY – which offers original series and event-driven specials
Lifetime and Lifetime Real Women – which are cable channels devoted to female-focused programming
Lifetime Movie Network (LMN) – which is a movie channel
FYI – which offers contemporary lifestyle programming    
A+E programming is available in over 200 countries and territories. A+E’s networks are distributed internationally under multi-year licensing agreements with MVPDs. A+E programming is also sold to international television broadcasters and SVOD services.
A+E has a 20% interest in Vice Group Holding, Inc. (Vice), which operates Viceland, a channel offering programming of lifestyle-oriented documentaries and reality series aimed towards millennials. Viceland is owned 50% by A+E and 50% by Vice. In addition, the Company has an 11% direct ownership interest in Vice.
The number of domestic subscribers for A+E and Vice channels, as estimated by Nielsen Media Research(1), is as follows: 
 
Estimated
Subscribers
(in millions)(1)
A&E
89

HISTORY
89

Lifetime
88

LMN
67

FYI
54

Viceland
67

(1) 
Nielsen Media Research estimates are as of September 2018 and capture traditional MVPD and certain DMVPD subscriber counts.
CTV
ESPN holds a 30% equity interest in CTV Specialty Television, Inc., which owns television channels in Canada, including The Sports Networks (TSN) 1-5, Le Réseau des Sports (RDS), RDS2, RDS Info, ESPN Classic Canada, Discovery Canada and Animal Planet Canada.
Hulu
Hulu LLC (Hulu) aggregates acquired television and film entertainment content and original content produced by Hulu and distributes it digitally to internet-connected devices. Hulu offers a subscription-based service with limited commercial announcements and a subscription-based service with no commercial announcements. In addition, Hulu operates a DMVPD service, which offers linear streams of broadcast and cable channels, including the major broadcast networks.
The Company licenses our television and film content to Hulu in the ordinary course of business. The Company defers a portion of its profits from these transactions. The profit is recognized as Hulu expenses the programming. The portion that is deferred reflects our ownership interest in Hulu.
Hulu is owned 30% each by the Company, 21CF and Comcast Corporation, with Warner Media LLC (WM) holding the remaining 10% interest. WM acquired its interest from Hulu for $0.6 billion in August 2016. In addition, WM has made $0.2 billion in subsequent capital contributions. For not more than 36 months from August 2016, WM may put its shares to Hulu or Hulu may call the shares from WM under certain limited circumstances arising from regulatory review. The Company and 21CF have agreed to make a capital contribution for up to $0.4 billion each if Hulu is required to repurchase WM’s shares.

5


Following completion of the 21CF acquisition the Company will consolidate Hulu’s financial results and assume 21CF’s capital contribution obligations.
Seven TV
Seven TV operates an advertising-supported, free-to-air Disney Channel in Russia. The Company has a 20% ownership interest and a 49% economic interest in the business.
Competition and Seasonality
The Company’s Media Networks businesses compete for viewers primarily with other broadcast and cable networks, independent television stations and other media, such as online video services and video games. With respect to the sale of advertising time, we compete with other television networks and radio stations, independent television stations, MVPDs and other advertising media such as digital content, newspapers, magazines and billboards. Our television and radio stations primarily compete for audiences and advertisers in local market areas.
The Company’s Media Networks businesses face competition from other networks for carriage by MVPDs. The Company’s contractual agreements with MVPDs are renewed or renegotiated from time to time in the ordinary course of business. Consolidation and other market conditions in the cable, satellite and telecommunication distribution industry and other factors may adversely affect the Company’s ability to obtain and maintain contractual terms for the distribution of its various programming services that are as favorable as those currently in place.
The Company’s Media Networks businesses also compete with other media and entertainment companies, SVOD providers and DTC services for the acquisition of sports rights, talent, show concepts and scripted and other programming.
The Company’s internet websites and digital products compete with other websites and entertainment products.
Advertising revenues at Media Networks are subject to seasonal advertising patterns and changes in viewership levels. Revenues are typically somewhat higher during the fall and somewhat lower during the summer months. Affiliate fees are generally collected ratably throughout the year.
Federal Regulation
Television and radio broadcasting are subject to extensive regulation by the Federal Communications Commission (FCC) under federal laws and regulations, including the Communications Act of 1934, as amended. Violation of FCC regulations can result in substantial monetary fines, limited renewals of licenses and, in egregious cases, denial of license renewal or revocation of a license. FCC regulations that affect our Media Networks segment include the following:
Licensing of television and radio stations. Each of the television and radio stations we own must be licensed by the FCC. These licenses are granted for periods of up to eight years, and we must obtain renewal of licenses as they expire in order to continue operating the stations. We (and the acquiring entity in the case of a divestiture) must also obtain FCC approval whenever we seek to have a license transferred in connection with the acquisition or divestiture of a station. The FCC may decline to renew or approve the transfer of a license in certain circumstances and may delay renewals while permitting a licensee to continue operating. Although we have received such renewals and approvals in the past or have been permitted to continue operations when renewal is delayed, there can be no assurance that this will be the case in the future.
Television and radio station ownership limits. The FCC imposes limitations on the number of television stations and radio stations we can own in a specific market, on the combined number of television and radio stations we can own in a single market and on the aggregate percentage of the national audience that can be reached by television stations we own. Currently:
FCC regulations may restrict our ability to own more than one television station in a market, depending on the size and nature of the market. We do not own more than one television station in any market.
Federal statutes permit our television stations in the aggregate to reach a maximum of 39% of the national audience. Pursuant to the most recent decision by the FCC as to how to calculate compliance with this limit, our eight stations reach approximately 21% of the national audience.
FCC regulations in some cases impose restrictions on our ability to acquire additional radio or television stations in the markets in which we own radio stations. We do not believe any such limitations are material to our current operating plans.
Dual networks. FCC rules currently prohibit any of the four major broadcast television networks — ABC, CBS, Fox and NBC — from being under common ownership or control.

6


Regulation of programming. The FCC regulates broadcast programming by, among other things, banning “indecent” programming, regulating political advertising and imposing commercial time limits during children’s programming. Penalties for broadcasting indecent programming can range up to nearly $400 thousand per indecent utterance or image per station.
Federal legislation and FCC rules also limit the amount of commercial matter that may be shown on broadcast or cable channels during programming designed for children 12 years of age and younger. In addition, broadcast channels are generally required to provide a minimum of three hours per week of programming that has as a “significant purpose” meeting the educational and informational needs of children 16 years of age and younger. FCC rules also give television station owners the right to reject or refuse network programming in certain circumstances or to substitute programming that the licensee reasonably believes to be of greater local or national importance.
Cable and satellite carriage of broadcast television stations. With respect to cable systems operating within a television station’s Designated Market Area, FCC rules require that every three years each television station elect either “must carry” status, pursuant to which cable operators generally must carry a local television station in the station’s market, or “retransmission consent” status, pursuant to which the cable operator must negotiate with the television station to obtain the consent of the television station prior to carrying its signal. Under the Satellite Home Viewer Improvement Act and its successors, including most recently the STELA Reauthorization Act (STELAR), which also requires the “must carry” or “retransmission consent” election, satellite carriers are permitted to retransmit a local television station’s signal into its local market with the consent of the local television station. The ABC owned television stations have historically elected retransmission consent. Portions of these satellite laws are set to expire on December 31, 2019.
Cable and satellite carriage of programming. The Communications Act and FCC rules regulate some aspects of negotiations regarding cable and satellite retransmission consent, and some cable and satellite companies have sought regulation of additional aspects of the carriage of programming on cable and satellite systems. New legislation, court action or regulation in this area could have an impact on the Company’s operations.
The foregoing is a brief summary of certain provisions of the Communications Act, other legislation and specific FCC rules and policies. Reference should be made to the Communications Act, other legislation, FCC rules and public notices and rulings of the FCC for further information concerning the nature and extent of the FCC’s regulatory authority.
FCC laws and regulations are subject to change, and the Company generally cannot predict whether new legislation, court action or regulations, or a change in the extent of application or enforcement of current laws and regulations, would have an adverse impact on our operations.
PARKS AND RESORTS
The Company owns and operates the Walt Disney World Resort in Florida; the Disneyland Resort in California; Disneyland Paris; Aulani, a Disney Resort & Spa in Hawaii; the Disney Vacation Club (DVC); the Disney Cruise Line; and Adventures by Disney. The Company manages and has effective ownership interests of 47% in Hong Kong Disneyland Resort and 43% in Shanghai Disney Resort, both of which are consolidated in our financial statements. The Company licenses our intellectual property to a third party to operate the Tokyo Disney Resort in Japan. The Company’s Walt Disney Imagineering unit designs and develops new theme park concepts and attractions as well as resort properties.
The businesses in the Parks and Resorts segment generate revenues from the sale of admissions to theme parks, sales of food, beverage and merchandise, charges for resort and vacation packages, which include room nights at hotels, sales of cruise vacations and sales and rentals of vacation club properties. Revenues are also generated from sponsorships and co-branding opportunities, real estate rent and sales, and royalties from Tokyo Disney Resort. Significant costs include labor, infrastructure costs, depreciation, costs of merchandise, food and beverage sold, marketing and sales expense, and cost of vacation club units. Infrastructure costs include information systems expense, repairs and maintenance, utilities and fuel, property taxes, insurance and transportation.
Walt Disney World Resort
The Walt Disney World Resort is located 22 miles southwest of Orlando, Florida, on approximately 25,000 acres of land. The resort includes theme parks (the Magic Kingdom, Epcot, Disney’s Hollywood Studios and Disney’s Animal Kingdom); hotels; vacation club properties; a retail, dining and entertainment complex (Disney Springs); a sports complex; conference centers; campgrounds; golf courses; water parks; and other recreational facilities designed to attract visitors for an extended stay.

7


The Walt Disney World Resort is marketed through a variety of international, national and local advertising and promotional activities. A number of attractions and restaurants in each of the theme parks are sponsored or operated by other corporations under multi-year agreements.
Magic Kingdom — The Magic Kingdom consists of six themed areas: Adventureland, Fantasyland, Frontierland, Liberty Square, Main Street USA and Tomorrowland. Each land provides a unique guest experience featuring themed attractions, live Disney character interactions, restaurants, refreshment areas and merchandise shops. Additionally, there are daily parades and a nighttime fireworks event.
Epcot — Epcot consists of two major themed areas: Future World and World Showcase. Future World dramatizes certain historical developments and addresses the challenges facing the world today through pavilions devoted to showcasing science and technology innovations, communication, transportation, use of imagination, nature and food production, the ocean environment and space. World Showcase presents a community of nations focusing on the culture, traditions and accomplishments of people around the world. Countries represented with pavilions include Canada, China, France, Germany, Italy, Japan, Mexico, Morocco, Norway, the United Kingdom and the United States. Both areas feature themed attractions, restaurants and merchandise shops. Epcot also features a nighttime entertainment event.
Disney’s Hollywood Studios — Disney’s Hollywood Studios consists of seven themed areas: Animation Courtyard, Commissary Lane, Echo Lake, Grand Avenue, Hollywood Boulevard, Sunset Boulevard and Toy Story Land, which opened in June 2018. The areas provide behind-the-scenes glimpses of Hollywood-style action through various shows and attractions and offer themed food service and merchandise facilities. The park also features nighttime entertainment events. The Company is constructing a new themed area, Star Wars: Galaxys Edge, which is scheduled to open in the fall of 2019.
Disney’s Animal Kingdom — Disney’s Animal Kingdom consists of a 145-foot tall Tree of Life centerpiece surrounded by seven themed areas: Africa, Asia, DinoLand USA, Discovery Island, Oasis, Pandora - The World of Avatar and Rafiki’s Planet Watch. Each themed area contains attractions, entertainment, restaurants and merchandise shops. The park features more than 300 species of mammals, birds, reptiles and amphibians and 3,000 varieties of vegetation. Disney’s Animal Kingdom also features a nighttime entertainment event.
Hotels, Vacation Club Properties and Other Resort Facilities — As of September 29, 2018, the Company owned and operated 18 resort hotels and vacation club facilities at the Walt Disney World Resort, with approximately 22,000 rooms and 3,200 vacation club units. Resort facilities include 500,000 square feet of conference meeting space and Disney’s Fort Wilderness camping and recreational area, which offers approximately 800 campsites. The Company is constructing a new 500-room tower scheduled to open in 2019 at Disney’s Coronado Springs Resort. The Company has also announced plans for Reflections - A Disney Lakeside Lodge, which is a nature-inspired resort with more than 900 rooms and vacation club units opening in 2022.
Disney Springs is a 127-acre retail, dining and entertainment complex and consists of four areas: Marketplace, The Landing, Town Center and West Side. The areas are home to more than 150 venues including the 64,000-square-foot World of Disney retail store. Most of the Disney Springs facilities are operated by third parties that pay rent to the Company.
Nine independently-operated hotels with approximately 6,000 rooms are situated on property leased from the Company.
ESPN Wide World of Sports Complex is a 230-acre center that hosts professional caliber training and competitions, festival and tournament events and interactive sports activities. The complex, which welcomes both amateur and professional athletes, accommodates multiple sporting events, including baseball, basketball, football, soccer, softball, tennis and track and field. It also includes a 9,500-seat stadium and an 8,000-seat venue designed for cheerleading, dance competitions and other indoor sports.
Other recreational amenities and activities available at the Walt Disney World Resort include three championship golf courses, miniature golf courses, full-service spas, tennis, sailing, water skiing, swimming, horseback riding and a number of other sports and leisure time activities. The resort also includes two water parks: Disney’s Blizzard Beach and Disney’s Typhoon Lagoon.
Disneyland Resort
The Company owns 486 acres and has the rights under a long-term lease for use of an additional 55 acres of land in Anaheim, California. The Disneyland Resort includes two theme parks (Disneyland and Disney California Adventure), three resort hotels and a retail, dining and entertainment complex (Downtown Disney).

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The Disneyland Resort is marketed through a variety of international, national and local advertising and promotional activities. A number of the attractions and restaurants in the theme parks are sponsored or operated by other corporations under multi-year agreements.
Disneyland — Disneyland consists of eight themed areas: Adventureland, Critter Country, Fantasyland, Frontierland, Main Street USA, Mickey’s Toontown, New Orleans Square and Tomorrowland. These areas feature themed attractions, shows, restaurants, merchandise shops and refreshment stands. Additionally, there are daily parades and nighttime fireworks and entertainment events. The Company is constructing a new themed area, Star Wars: Galaxys Edge, which is scheduled to open in summer 2019.
Disney California Adventure — Disney California Adventure is adjacent to Disneyland and includes six themed areas: Buena Vista Street, Cars Land, Grizzly Peak, Hollywood Land, Pacific Wharf and Pixar Pier. These areas include attractions, shows, restaurants, merchandise shops and refreshment stands. Additionally, Disney California Adventure offers a nighttime entertainment event. The Company is constructing a new Super Hero-themed area that is scheduled to open in 2020.
Hotels, Vacation Club Units and Other Resort Facilities — Disneyland Resort includes three Company owned and operated hotels and vacation club facilities with approximately 2,400 rooms, 50 vacation club units and 180,000 square feet of conference meeting space.
Downtown Disney is a themed 15-acre, retail, entertainment and dining complex with approximately 23 venues located adjacent to both Disneyland and Disney California Adventure. Most of the Downtown Disney facilities are operated by third parties that pay rent to the Company. The Company is building a new 6,500-space parking garage scheduled to open in 2019.
Aulani, a Disney Resort & Spa
Aulani, a Disney Resort & Spa, is a Company-operated family resort on a 21-acre oceanfront property on Oahu, Hawaii featuring 351 hotel rooms, an 18,000-square-foot spa and 12,000 square feet of conference meeting space. The resort also has 481 vacation club units.
Disneyland Paris
Disneyland Paris is located on a 5,510-acre development in Marne-la-Vallée, approximately 20 miles east of Paris, France. The land is being developed pursuant to a master agreement with French governmental authorities. Disneyland Paris includes two theme parks (Disneyland Park and Walt Disney Studios Park); seven themed resort hotels; two convention centers; a shopping, dining and entertainment complex (Disney Village); and a 27-hole golf facility. Of the 5,510 acres comprising the site, approximately half have been developed to date, including a planned community (Val d’Europe) and an eco-tourism destination (Villages Nature).
Disneyland Park — Disneyland Park consists of five themed areas: Adventureland, Discoveryland, Fantasyland, Frontierland and Main Street USA. These areas include themed attractions, shows, restaurants, merchandise shops and refreshment stands. Disneyland Park also features a daily parade and a nighttime entertainment event.
Walt Disney Studios Park — Walt Disney Studios Park takes guests into the worlds of cinema, animation and television and includes four themed areas: Backlot, Front Lot, Production Courtyard and Toon Studio. These areas each include themed attractions, shows, restaurants, merchandise shops and refreshment stands. The Company has announced plans for a multi-year expansion of Walt Disney Studios Park that will roll out in phases beginning in 2021 and add three new themed areas based on Marvel, Frozen and Star Wars.
Hotels and Other Facilities — Disneyland Paris operates seven resort hotels, with approximately 5,800 rooms and 210,000 square feet of conference meeting space. In addition, nine on-site hotels that are owned and operated by third parties provide approximately 2,700 rooms.
Disney Village is a 500,000-square-foot retail, dining and entertainment complex located between the theme parks and the hotels. A number of the Disney Village facilities are operated by third parties that pay rent to Disneyland Paris.
Val d’Europe is a planned community near Disneyland Paris that is being developed in phases. Val d’Europe currently includes a regional train station, hotels and a town center consisting of a shopping center as well as office, commercial and residential space. Third parties operate these developments on land leased or purchased from Disneyland Paris.
Villages Nature is a European eco-tourism resort that consists of recreational facilities, restaurants and 900 vacation units. The resort is a 50% joint venture between Disneyland Paris and Pierre & Vacances-Center Parcs, who manages the venture.

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Hong Kong Disneyland Resort
The Company owns a 47% interest in Hong Kong Disneyland Resort and the Government of the Hong Kong Special Administrative Region (HKSAR) owns a 53% interest. The resort is located on 310 acres on Lantau Island and is in close proximity to the Hong Kong International Airport. Hong Kong Disneyland Resort includes one theme park and three themed resort hotels. A separate Hong Kong subsidiary of the Company is responsible for managing Hong Kong Disneyland Resort. The Company is entitled to receive royalties and management fees based on the operating performance of Hong Kong Disneyland Resort.
Hong Kong Disneyland — Hong Kong Disneyland consists of seven themed areas: Adventureland, Fantasyland, Grizzly Gulch, Main Street USA, Mystic Point, Tomorrowland and Toy Story Land. These areas feature themed attractions, shows, restaurants, merchandise shops and refreshment stands. Additionally, there are daily parades and a nighttime entertainment event. Hong Kong Disneyland Resort is expanding the park in phases opening through 2023, which will add a number of new guest offerings, including two new themed areas and a transformation of the Sleeping Beauty Castle.
Hotels — Hong Kong Disneyland Resort includes three themed hotels with a total of 1,750 rooms.
Shanghai Disney Resort
The Company owns a 43% interest in Shanghai Disney Resort, and Shanghai Shendi (Group) Co., Ltd (Shendi) owns a 57% interest. The resort is located in the Pudong district of Shanghai on approximately 1,000 acres of land, which includes the Shanghai Disneyland theme park; two themed resort hotels; a retail, dining and entertainment complex (Disneytown); and an outdoor recreation area. A management company, in which the Company has a 70% interest and Shendi has a 30% interest, is responsible for operating the resort and receives a management fee based on the operating performance of Shanghai Disney Resort. The Company is also entitled to royalties based on the resort’s revenues.
Shanghai Disneyland — Shanghai Disneyland consists of seven themed areas: Adventure Isle, Fantasyland, Gardens of Imagination, Mickey Avenue, Tomorrowland, Toy Story Land, which opened in April 2018, and Treasure Cove. These areas feature themed attractions, shows, restaurants, merchandise shops and refreshment stands. Additionally, there are daily parades and a nighttime fireworks event.
Hotels and Other Facilities - Shanghai Disneyland Resort includes two themed hotels with a total of 1,220 rooms. Disneytown is an 11-acre outdoor complex of dining, shopping and entertainment venues located adjacent to Shanghai Disneyland. Most Disneytown facilities are operated by third parties that pay rent to Shanghai Disney Resort.
Tokyo Disney Resort
Tokyo Disney Resort is located on 494 acres of land, six miles east of downtown Tokyo, Japan. The Company earns royalties on revenues generated by the Tokyo Disney Resort, which is owned and operated by Oriental Land Co., Ltd. (OLC), a third-party Japanese corporation. The resort includes two theme parks (Tokyo Disneyland and Tokyo DisneySea); four Disney-branded hotels; six other hotels (operated by third parties other than OLC); a retail, dining and entertainment complex (Ikspiari); and Bon Voyage, a Disney-themed merchandise location.
Tokyo Disneyland — Tokyo Disneyland consists of seven themed areas: Adventureland, Critter Country, Fantasyland, Tomorrowland, Toontown, Westernland and World Bazaar. OLC has begun construction on an expansion of Tokyo Disneyland, which is scheduled to open in 2020.
Tokyo DisneySea — Tokyo DisneySea, adjacent to Tokyo Disneyland, is divided into seven “ports of call,” including American Waterfront, Arabian Coast, Lost River Delta, Mediterranean Harbor, Mermaid Lagoon, Mysterious Island and Port Discovery. OLC has announced plans for an eighth themed port scheduled to open in 2022.
Hotels and Other Resort Facilities — Tokyo Disney Resort includes four Disney-branded hotels with a total of more than 2,400 rooms and a monorail, which links the theme parks and resort hotels with Ikspiari. OLC has announced plans to open a 475-room Disney-branded hotel, which will integrate into the eighth themed port at Tokyo DisneySea.
Disney Vacation Club
DVC offers ownership interests in 14 resort facilities located at the Walt Disney World Resort; Disneyland Resort; Aulani; Vero Beach, Florida; and Hilton Head Island, South Carolina. Available units are offered for sale under a vacation ownership plan and are operated as hotel rooms when not occupied by vacation club members. The Company’s vacation club units range from deluxe studios to three-bedroom grand villas. Unit counts in this document are presented in terms of two-bedroom equivalents. DVC had approximately 4,000 vacation club units as of September 29, 2018. The Company has

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announced plans to add approximately 550 vacation club units at Walt Disney World. These units will be part of Disney’s Riviera Resort and Reflections - A Disney Lakeside Lodge, scheduled to open in 2019 and 2022, respectively.
Disney Cruise Line
Disney Cruise Line is a four-ship vacation cruise line, which operates out of ports in North America and Europe. The Disney Magic and the Disney Wonder are approximately 85,000-ton 875-stateroom ships, and the Disney Dream and the Disney Fantasy are approximately 130,000-ton 1,250-stateroom ships. The ships cater to families, children, teenagers and adults, with distinctly-themed areas and activities for each group. Many cruise vacations include a visit to Disney’s Castaway Cay, a 1,000-acre private Bahamian island. The Company is expanding its cruise business by adding three new ships to be delivered in calendar 2021, 2022 and 2023. The new ships will each be approximately 135,000 tons with 1,250 staterooms.
Adventures by Disney
Adventures by Disney offers all-inclusive guided vacation tour packages predominantly at non-Disney sites around the world. The Company offered 40 different tour packages during 2018.
Walt Disney Imagineering
Walt Disney Imagineering provides master planning, real estate development, attraction, entertainment and show design, engineering support, production support, project management and research and development for the Company’s Parks and Resorts operations.
Competition and Seasonality
The Company’s theme parks and resorts as well as Disney Cruise Line and Disney Vacation Club compete with other forms of entertainment, lodging, tourism and recreational activities. The profitability of the leisure-time industry may be influenced by various factors that are not directly controllable, such as economic conditions including business cycle and exchange rate fluctuations, the political environment, travel industry trends, amount of available leisure time, oil and transportation prices, weather patterns and natural disasters.
All of the theme parks and the associated resort facilities are operated on a year-round basis. Typically, theme park attendance and resort occupancy fluctuate based on the seasonal nature of vacation travel and leisure activities, the opening of new guest offerings, and pricing and promotional offers. Peak attendance and resort occupancy generally occur during the summer months when school vacations occur and during early-winter and spring-holiday periods.
STUDIO ENTERTAINMENT
The Studio Entertainment segment produces and acquires live-action and animated motion pictures, musical recordings and live stage plays.
The businesses in the Studio Entertainment segment generate revenue from distribution of films in the theatrical, home entertainment and television and SVOD markets, stage play ticket sales, music distribution and licensing of Company intellectual property for use in live entertainment productions. Significant operating expenses include amortization of production, participations and residuals costs, marketing and sales costs, distribution expenses and costs of sales.
The Company distributes films primarily under the Walt Disney Pictures, Pixar, Marvel, Lucasfilm and Touchstone banners. In addition, the Company distributes live-action films produced by DreamWorks Studios (DreamWorks) that were released theatrically from 2010 through 2016.
Prior to the Company’s acquisition of Marvel in fiscal year 2010, Marvel had licensed the rights to third-party studios to produce and distribute feature films based on certain Marvel properties including Spider-Man (licensed to Sony Pictures Entertainment), The Fantastic Four (licensed to 21CF) and X-Men (licensed to 21CF). Under the licensing arrangements, the third-party studios incur the costs to produce and distribute the films, and the Company retains the merchandise licensing rights. Under the licensing arrangement for Spider-Man, the Company pays the third-party studio a licensing fee based on each film’s box office receipts, subject to specified limits. Under the licensing arrangements for The Fantastic Four and X-Men, the third-party studio pays the Company a licensing fee and receives a share of the Company’s merchandise revenue on these properties. The Company distributes all Marvel-produced films with the exception of The Incredible Hulk, which is distributed by Universal Pictures.
Prior to the Company’s acquisition of Lucasfilm in fiscal year 2013, Lucasfilm produced six Star Wars films (Episodes 1 through 6). Lucasfilm retained the merchandise licensing rights related to all of those films and the rights related to television

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and electronic distribution formats for all of those films, with the exception of the rights for Episode 4, which are owned by 21CF. All of those films are distributed by 21CF in the theatrical and home entertainment markets. The theatrical and home entertainment distribution rights for these films revert back to Lucasfilm in May 2020 with the exception of Episode 4, for which these distribution rights are retained by 21CF.
Lucasfilm also includes Industrial Light & Magic and Skywalker Sound, which provide visual and audio effects and other post-production services to the Company and third-party producers.
Theatrical Market
We produce and distribute both live-action films and full-length animated films. In the domestic theatrical market, we generally distribute and market our filmed products directly. In most major international markets, we distribute our filmed products directly while in other markets our films are distributed by independent companies or joint ventures. During fiscal 2019, we expect to release 11 of our own produced feature films. Cumulatively through September 29, 2018 the Company has released domestically approximately 1,000 full-length live-action features and 100 full-length animated features.
The Company incurs significant marketing and advertising costs before and throughout the theatrical release of a film in an effort to generate public awareness of the film, to increase the public’s intent to view the film and to help generate consumer interest in the subsequent home entertainment and other ancillary markets. These costs are expensed as incurred. Therefore, we may incur a loss on a film in the theatrical markets, including in periods prior to the theatrical release of the film.
Home Entertainment Market
In the domestic market, we distribute home entertainment releases directly under each of our motion picture banners. In international markets, we distribute home entertainment releases under our motion picture banners both directly and through independent distribution companies.
Domestic and international home entertainment distribution typically starts three to six months after the theatrical release in each market. Home entertainment releases are distributed in physical (DVD and Blu-ray) and electronic formats. Electronic formats may be released up to four weeks ahead of the physical release. Physical formats are generally sold to retailers, such as Walmart and Target and electronic formats are sold through e-tailers, such as Apple and Amazon.
As of September 29, 2018, we had approximately 1,500 active produced and acquired titles, including 1,100 live-action titles and 400 animated titles, in the domestic home entertainment marketplace and approximately 1,600 active produced and acquired titles, including 1,100 live-action titles and 500 animated titles, in the international marketplace.
Television Market
In the television market, we license our films to cable and broadcast networks, television stations and other video service providers, which may provide the content to viewers on television or a variety of internet-connected devices. The Company plans to launch Disney+ in late 2019, therefore we may not license the films to third parties in some of the following windows:
Video-on-Demand (VOD) — Concurrently with physical home entertainment distribution, we license titles to VOD service providers for electronic delivery to consumers for a specified rental period.
Pay Television (Pay 1) — In the U.S., there are two or three pay television windows. The first window is generally eighteen months in duration and follows the VOD window. The Company has licensed exclusive domestic pay television rights to Netflix for all films released theatrically during calendar years 2016 through 2018, with the exception of DreamWorks films. DreamWorks titles that are distributed by the Company are licensed to Showtime under a separate agreement.
Free Television (Free 1) — The Pay 1 window is followed by a television window that may last up to 84 months. Motion pictures are usually sold in the Free 1 window to basic cable networks.
Pay Television 2 (Pay 2) and Free Television 2 (Free 2) — In the U.S., Free 1 is generally followed by a twelve to nineteen-month Pay 2 window under our license arrangements with Netflix, Starz and Showtime. The Pay 2 window is followed by a Free 2 window generally for up to 84 months, whereby films are licensed to basic cable networks, SVOD services and to television station groups.
Pay Television 3 (Pay 3) and Free Television 3 (Free 3) — In the U.S., Free 2 is sometimes followed by a seven-month Pay 3 window, and then by a Free 3 window, which can have license periods of various lengths. In the Free 3 window, films are licensed to basic cable networks, SVOD services and to television station groups.

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International Television — The Company also licenses its films outside of the U.S. The typical windowing sequence is consistent with the domestic cycle such that titles premiere on VOD services and then on pay TV or SVOD services before airing in free TV. Windowing strategies are developed in response to local market practices and conditions, and the exact sequence and length of each window can vary by country.
Disney Music Group
The Disney Music Group (DMG) commissions new music for the Company’s motion pictures and television programs and develops, produces, markets and distributes recorded music worldwide either directly or through license agreements. DMG also licenses the songs and recording copyrights to third parties for printed music, records, audio-visual devices, public performances and digital distribution and produces live musical concerts. DMG includes Walt Disney Records, Hollywood Records, Disney Music Publishing and Disney Concerts.
Disney Theatrical Group
Disney Theatrical Group develops, produces and licenses live entertainment events on Broadway and around the world, including The Lion King, Aladdin, Frozen, The Little Mermaid, Beauty and the Beast, The Hunchback of Notre Dame, Mary Poppins (a co-production with Cameron Mackintosh Ltd), Newsies and TARZAN®.
Disney Theatrical Group also licenses the Company’s intellectual property to Feld Entertainment, the producer of Disney On Ice and Marvel Universe Live!.
Competition and Seasonality
The Studio Entertainment businesses compete with all forms of entertainment. A significant number of companies produce and/or distribute theatrical and television films, exploit products in the home entertainment market, provide pay television and SVOD programming services, produce music and sponsor live theater. We also compete to obtain creative and performing talents, story properties, advertiser support and broadcast rights that are essential to the success of our Studio Entertainment businesses.
The success of Studio Entertainment operations is heavily dependent upon public taste and preferences. In addition, Studio Entertainment operating results fluctuate due to the timing and performance of releases in the theatrical, home entertainment and television markets. Release dates are determined by several factors, including competition and the timing of vacation and holiday periods.
CONSUMER PRODUCTS & INTERACTIVE MEDIA
The Consumer Products & Interactive Media segment licenses the Company’s trade names, characters and visual and literary properties to various manufacturers, game developers, publishers and retailers throughout the world. We develop and publish games, primarily for mobile platforms, and books, magazines and comic books. The segment also distributes branded merchandise directly through retail, online and wholesale businesses. In addition, the segment’s operations include website management and design, primarily for other Company businesses, and the development and distribution of online video content.
The Consumer Products & Interactive Media segment generates revenue primarily from:
licensing characters and content from our film, television and other properties to third parties for use on consumer merchandise, in multi-platform games and published materials;
selling merchandise through our retail stores, internet shopping sites and to wholesalers;
selling self-published children’s books and magazines and comic books to wholesalers;
selling advertising in online video content;
selling games and related content through app distributors, online and through in-game purchases; and
charging tuition at English language learning centers in China (Disney English).
Significant costs include costs of goods sold, distribution expenses, operating labor, retail occupancy costs, product development and marketing.
Merchandise Licensing
The Company’s merchandise licensing operations cover a diverse range of product categories, the most significant of which are: toys, apparel, home décor and furnishings, accessories, health and beauty, stationery, food, footwear and consumer electronics. The Company licenses characters from its film, television and other properties for use on third-party products in

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these categories and earns royalties, which are usually based on a fixed percentage of the wholesale or retail selling price of the products. Some of the major properties licensed by the Company include: Mickey and Minnie, Star Wars, Avengers, Disney Princess, Frozen, Cars, Disney Channel characters, Spider-Man, Winnie the Pooh, Disney Classics and The Incredibles.
Retail
The Company markets Disney-, Marvel- and Lucasfilm-themed products through retail stores operated under the Disney Store name and through internet sites in North America, Western Europe, Japan and China. The stores are generally located in leading shopping malls and other retail complexes. The Company currently owns and operates 214 stores in North America, 87 stores in Europe, 53 stores in Japan and two stores in China. Internet sites are branded shopDisney and shopMarvel in the United States, shopDisney in Europe, and store.Disney in Japan. The Company also sells merchandise to retailers under wholesale arrangements.
Games
The Company licenses our properties to third-party game developers. We also develop and publish games, primarily for mobile platforms.
Publishing
The Company creates, distributes, licenses and publishes a variety of products in multiple countries and languages based on the Company’s branded franchises. The products include children’s books, comic books, graphic novel collections, magazines, learning products and storytelling apps. Disney English develops and delivers an English language learning curriculum for Chinese children using Disney content in 26 learning centers in six cities across China.
Other
The Company develops, publishes and distributes interactive family content through apps and websites. Disney Digital Network (DDN) develops online video content, primarily for distribution on YouTube, and provides online marketing services. The Company also licenses Disney properties and content to mobile phone carriers in Japan.
Competition and Seasonality
The Consumer Products & Interactive Media businesses compete with other licensors, retailers and publishers of character, brand and celebrity names, as well as other licensors, publishers and developers of game software, online video content, internet websites, other types of home entertainment and retailers of toys and kids merchandise. Operating results are influenced by seasonal consumer purchasing behavior, which generally results in higher revenues during the Company’s first and fourth fiscal quarter, and by the timing and performance of theatrical and game releases and cable programming broadcasts.
INTELLECTUAL PROPERTY PROTECTION
The Company’s businesses throughout the world are affected by its ability to exploit and protect against infringement of its intellectual property, including trademarks, trade names, copyrights, patents and trade secrets. Important intellectual property includes rights in the content of motion pictures, television programs, electronic games, sound recordings, character likenesses, theme park attractions, books and magazines. Risks related to the protection and exploitation of intellectual property rights are set forth in Item 1A – Risk Factors.
AVAILABLE INFORMATION
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are available without charge on our website, www.disney.com/investors, as soon as reasonably practicable after they are filed electronically with the Securities and Exchange Commission (SEC). We are providing the address to our internet site solely for the information of investors. We do not intend the address to be an active link or to otherwise incorporate the contents of the website into this report.
ITEM 1A. Risk Factors
For an enterprise as large and complex as the Company, a wide range of factors could materially affect future developments and performance. In addition to the factors affecting specific business operations identified in connection with the description of these operations and the financial results of these operations elsewhere in this report, the most significant factors affecting our operations include the following:

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Changes in U.S., global, or regional economic conditions could have an adverse effect on the profitability of some or all of our businesses.
A decline in economic activity in the U.S. and other regions of the world in which we do business can adversely affect demand for any of our businesses, thus reducing our revenue and earnings. Past declines in economic conditions reduced spending at our parks and resorts, purchase of and prices for advertising on our broadcast and cable networks and owned stations, performance of our home entertainment releases, and purchases of Company-branded consumer products, and similar impacts can be expected should such conditions recur. A decline in economic conditions could also reduce attendance at our parks and resorts, prices that MVPDs pay for our cable programming or subscription levels for our cable programming. Economic conditions can also impair the ability of those with whom we do business to satisfy their obligations to us. In addition, an increase in price levels generally, or in price levels in a particular sector such as the energy sector, could result in a shift in consumer demand away from the entertainment and consumer products we offer, which could also adversely affect our revenues and, at the same time, increase our costs. Changes in exchange rates for foreign currencies may reduce international demand for our products or increase our labor or supply costs in non-U.S. markets, and recent changes have reduced the U.S. dollar value of revenue we receive and expect to receive from other markets. Economic or political conditions in a country could also reduce our ability to hedge exposure to currency fluctuations in the country or our ability to repatriate revenue from the country.
Changes in public and consumer tastes and preferences for entertainment and consumer products could reduce demand for our entertainment offerings and products and adversely affect the profitability of any of our businesses.
Our businesses create entertainment, travel and consumer products whose success depends substantially on consumer tastes and preferences that change in often unpredictable ways. The success of our businesses depends on our ability to consistently create filmed entertainment and television programming, which may be distributed among other ways through broadcast, cable, internet or cellular technology, theme park attractions, hotels and other resort facilities and travel experiences and consumer products that meet the changing preferences of the broad consumer market and respond to competition from an expanding array of choices facilitated by technological developments in the delivery of content. Many of our businesses increasingly depend on acceptance of our offerings and products by consumers outside the U.S., and their success therefore depends on our ability to successfully predict and adapt to changing consumer tastes and preferences outside as well as inside the U.S. Moreover, we must often invest substantial amounts in film production, television programming, acquisition of sports rights, theme park attractions, cruise ships or hotels and other resort facilities before we know the extent to which these products will earn consumer acceptance. If our entertainment offerings and products do not achieve sufficient consumer acceptance, our revenue from advertising sales (which are based in part on ratings for the programs in which advertisements air), from affiliate fees, from subscription fees, from theatrical film receipts, from the license of rights to other distributors, from theme park admissions, from hotel room charges and merchandise, from food and beverage sales, from sales of licensed consumer products or from sales of our other consumer products and services, may decline or fail to grow to the extent we anticipate when making investment decisions and thereby adversely affect the profitability of one or more of our businesses.
Changes in technology and in consumer consumption patterns may affect demand for our entertainment products, the revenue we can generate from these products or the cost of producing or distributing products.
The media entertainment and internet businesses in which we participate increasingly depend on our ability to successfully adapt to shifting patterns of content consumption through the adoption and exploitation of new technologies. New technologies affect the demand for our products, the manner in which our products are distributed to consumers, ways we charge for and receive revenue for our entertainment products and the stability of those revenue streams, the sources and nature of competing content offerings, the time and manner in which consumers acquire and view some of our entertainment products and the options available to advertisers for reaching their desired audiences. This trend has impacted the business model for certain traditional forms of distribution, as evidenced by the industry-wide decline in ratings for broadcast television, the reduction in demand for home entertainment sales of theatrical content, the development of alternative distribution channels for broadcast and cable programming and declines in subscriber levels for traditional cable channels, including for a number of our networks. In order to respond to these developments, we regularly consider and from time to time implement changes to our business models, most recently by developing DTC products for certain sports programming on ESPN+ (launched in 2018) and for filmed entertainment and other programming on Disney+ (to be launched in 2019). There can be no assurance that our DTC offerings and other efforts will successfully respond to these changes, and we expect to forgo revenue from traditional sources in the short term. There can be no assurance that the DTC model and other business models we may develop will ultimately be as profitable as our current business models.
The success of our businesses is highly dependent on the existence and maintenance of intellectual property rights in the entertainment products and services we create.
The value to us of our intellectual property rights is dependent on the scope and duration of our rights as defined by applicable laws in the U.S. and abroad and the manner in which those laws are construed. If those laws are drafted or

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interpreted in ways that limit the extent or duration of our rights, or if existing laws are changed, our ability to generate revenue from our intellectual property may decrease, or the cost of obtaining and maintaining rights may increase.
The unauthorized use of our intellectual property may increase the cost of protecting rights in our intellectual property or reduce our revenues. The convergence of computing, communication, and entertainment devices, increased broadband internet speed and penetration, increased availability and speed of mobile data transmission and increasingly sophisticated attempts to obtain unauthorized access to data systems have made the unauthorized digital copying and distribution of our films, television productions and other creative works easier and faster and protection and enforcement of intellectual property rights more challenging. The unauthorized distribution and access to entertainment content generally continues to be a significant challenge for intellectual property rights holders. Inadequate laws or weak enforcement mechanisms to protect entertainment industry intellectual property in one country can adversely affect the results of the Company’s operations worldwide, despite the Company’s efforts to protect its intellectual property rights. These developments require us to devote substantial resources to protecting our intellectual property against unlicensed use and present the risk of increased losses of revenue as a result of unlicensed distribution of our content.
With respect to intellectual property developed by the Company and rights acquired by the Company from others, the Company is subject to the risk of challenges to our copyright, trademark and patent rights by third parties. Successful challenges to our rights in intellectual property may result in increased costs for obtaining rights or the loss of the opportunity to earn revenue from the intellectual property that is the subject of challenged rights.
Protection of electronically stored data is costly and if our data is compromised in spite of this protection, we may incur additional costs, lost opportunities and damage to our reputation.
We maintain information necessary to conduct our business, including confidential and proprietary information as well as personal information regarding our customers and employees, in digital form. Data maintained in digital form is subject to the risk of unauthorized access, modification and exfiltration. We develop and maintain information security systems in an effort to prevent this, but the development and maintenance of these systems is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. Accordingly, despite our efforts, unauthorized access, modification and exfiltration of data cannot be eliminated entirely, and the risks associated with a potentially material incident remain. In addition, we provide confidential, proprietary and personal information to third parties when it is necessary to pursue business objectives. While we obtain assurances that these third parties will protect this information and, where we believe appropriate, monitor the protections employed by these third parties, there is a risk the confidentiality of data held by third parties may be compromised. If our information security systems or data are compromised in a material way, our ability to conduct our business may be impaired, we may lose profitable opportunities or the value of those opportunities may be diminished and, as described above, we may lose revenue as a result of unlicensed use of our intellectual property. If personal information of our customers or employees is misappropriated, our reputation with our customers and employees may be damaged resulting in loss of business or morale, and we may incur costs to remediate possible harm to our customers and employees and/or to pay fines or take other action with respect to judicial or regulatory actions arising out of the incident.
A variety of uncontrollable events may reduce demand for our products and services, impair our ability to provide our products and services or increase the cost of providing our products and services.
Demand for our products and services, particularly our theme parks and resorts, is highly dependent on the general environment for travel and tourism. The environment for travel and tourism, as well as demand for other entertainment products, can be significantly adversely affected in the U.S., globally or in specific regions as a result of a variety of factors beyond our control, including: adverse weather conditions arising from short-term weather patterns or long-term change, catastrophic events or natural disasters (such as excessive heat or rain, hurricanes, typhoons, floods, tsunamis and earthquakes); health concerns; international, political or military developments; and terrorist attacks. These events and others, such as fluctuations in travel and energy costs and computer virus attacks, intrusions or other widespread computing or telecommunications failures, may also damage our ability to provide our products and services or to obtain insurance coverage with respect to these events. An incident that affected our property directly would have a direct impact on our ability to provide goods and services and could have an extended effect of discouraging consumers from attending our facilities. Moreover, the costs of protecting against such incidents reduces the profitability of our operations.
In addition, we derive affiliate fees and royalties from the distribution of our programming, sales of our licensed goods and services by third parties, and the management of businesses operated under brands licensed from the Company, and we are therefore dependent on the successes of those third parties for that portion of our revenue. A wide variety of factors could influence the success of those third parties and if negative factors significantly impacted a sufficient number of those third parties, the profitability of one or more of our businesses could be adversely affected.
We obtain insurance against the risk of losses relating to some of these events, generally including physical damage to our property and resulting business interruption, certain injuries occurring on our property and some liabilities for alleged

16


breach of legal responsibilities. When insurance is obtained it is subject to deductibles, exclusions, terms, conditions and limits of liability. The types and levels of coverage we obtain vary from time to time depending on our view of the likelihood of specific types and levels of loss in relation to the cost of obtaining coverage for such types and levels of loss.
Changes in our business strategy or restructuring of our businesses may increase our costs or otherwise affect the profitability of our businesses.
As changes in our business environment occur we may adjust our business strategies to meet these changes or we may otherwise decide to restructure our operations or particular businesses or assets. In addition, external events including changing technology, changing consumer patterns, acceptance of our theatrical offerings and changes in macroeconomic conditions may impair the value of our assets. When these changes or events occur, we may incur costs to change our business strategy and may need to write down the value of assets. We also make investments in existing or new businesses, including investments in international expansion of our business and in new business lines. In recent years, such investments have included expansion and renovation of certain of our theme park attractions, investment in Shanghai Disney Resort and investments related to direct-to-consumer offerings of sports and other entertainment products. Some of these investments may have short-term returns that are negative or low and the ultimate business prospects of the businesses may be uncertain. In any of these events, our costs may increase, we may have significant charges associated with the write-down of assets or returns on new investments may be lower than prior to the change in strategy or restructuring.
Increased competitive pressures may reduce our revenues or increase our costs.
We face substantial competition in each of our businesses from alternative providers of the products and services we offer and from other forms of entertainment, lodging, tourism and recreational activities. This includes competition for human resources, programming and other resources we require in operating our business. For example:
Our studio operations and media businesses compete to obtain creative, performing and business talent, sports and other programming, story properties, advertiser support and market share with other studio operations, broadcast and cable networks, SVOD providers, and other new sources of broadband delivered content.
Our broadcast and cable networks and stations compete for the sale of advertising time with other broadcast, cable and satellite services, as well as with newspapers, magazines, billboards and radio stations. In addition, we increasingly face competition for advertising sales from internet and mobile delivered content, which offer advertising delivery technologies that are more targeted than can be achieved through traditional means.
Our cable networks compete for carriage of their programming with other programming providers.
Our theme parks and resorts compete for guests with all other forms of entertainment, lodging, tourism and recreation activities.
Our studio operations compete for customers with all other forms of entertainment.
Our interactive media operations compete with other licensors and publishers of console, online and mobile games and other types of home entertainment.
Competition in each of these areas may increase as a result of technological developments and changes in market structure, including consolidation of suppliers of resources and distribution channels. Increased competition may divert consumers from our creative or other products, or to other products or other forms of entertainment, which could reduce our revenue or increase our marketing costs. Competition for the acquisition of resources can increase the cost of producing our products and services or deprive us of talent necessary to produce high quality creative material. Such competition may also reduce, or limit growth in, prices for our products and services, including advertising rates and subscription fees at our media networks, parks and resorts admissions and room rates, and prices for consumer products from which we derive license revenues
Turmoil in the financial markets could increase our cost of borrowing and impede access to or increase the cost of financing our operations and investments.
Past disruptions in the U.S. and global credit and equity markets made it difficult for many businesses to obtain financing on acceptable terms. These conditions tended to increase the cost of borrowing and if they recur, our cost of borrowing could increase and it may be more difficult to obtain financing for our operations or investments. In addition, our borrowing costs can be affected by short- and long-term debt ratings assigned by independent rating agencies that are based, in part, on the Company’s performance as measured by credit metrics such as interest coverage and leverage ratios. A decrease in these ratings would likely increase our cost of borrowing and/or make it more difficult for us to obtain financing. Past disruptions in the global financial markets also impacted some of the financial institutions with which we do business. A similar decline in the financial stability of financial institutions could affect our ability to secure credit-worthy counterparties for our interest rate and foreign currency hedging programs, could affect our ability to settle existing contracts and could also affect the ability of our business customers to obtain financing and thereby to satisfy their obligations to us.

17


Sustained increases in costs of pension and postretirement medical and other employee health and welfare benefits may reduce our profitability.
With approximately 201,000 employees, our profitability is substantially affected by costs of pension benefits and current and postretirement medical benefits. We may experience significant increases in these costs as a result of macro-economic factors, which are beyond our control, including increases in the cost of health care. In addition, changes in investment returns and discount rates used to calculate pension expense and related assets and liabilities can be volatile and may have an unfavorable impact on our costs in some years. These macroeconomic factors as well as a decline in the fair value of pension and postretirement medical plan assets may put upward pressure on the cost of providing pension and postretirement medical benefits and may increase future funding requirements. Although we have actively sought to control increases in these costs, there can be no assurance that we will succeed in limiting cost increases, and continued upward pressure could reduce the profitability of our businesses.
Our results may be adversely affected if long-term programming or carriage contracts are not renewed on sufficiently favorable terms.
We enter into long-term contracts for both the acquisition and the distribution of media programming and products, including contracts for the acquisition of programming rights for sporting events and other programs, and contracts for the distribution of our programming to content distributors. As these contracts expire, we must renew or renegotiate the contracts, and if we are unable to renew them on acceptable terms, we may lose programming rights or distribution rights. Even if these contracts are renewed, the cost of obtaining programming rights may increase (or increase at faster rates than our historical experience) or programming distributors, facing pressures resulting from increased subscription fees and alternative distribution challenges, may demand terms (including pricing and the breadth of distribution) that reduce our revenue from distribution of programs (or increase revenue at slower rates than our historical experience). Moreover, our ability to renew these contracts on favorable terms may be affected by recent consolidation in the market for program distribution and the entrance of new participants in the market for distribution of content on digital platforms. With respect to the acquisition of programming rights, particularly sports programming rights, the impact of these long-term contracts on our results over the term of the contracts depends on a number of factors, including the strength of advertising markets, subscription levels and rates for programming, effectiveness of marketing efforts and the size of viewer audiences. There can be no assurance that revenues from programming based on these rights will exceed the cost of the rights plus the other costs of producing and distributing the programming.
Changes in regulations applicable to our businesses may impair the profitability of our businesses.
Our broadcast networks and television stations are highly regulated, and each of our other businesses is subject to a variety of U.S. and overseas regulations. These regulations include: 
U.S. FCC regulation of our television and radio networks, our national programming networks and our owned television stations. See Item 1 — Business — Media Networks, Federal Regulation.
Federal, state and foreign privacy and data protection laws and regulations.
Regulation of the safety of consumer products and theme park operations.
Environmental protection regulations.
Imposition by foreign countries of trade restrictions, restrictions on the manner in which content is currently licensed and distributed, ownership restrictions, currency exchange controls or motion picture or television content requirements or quotas.
Domestic and international wage laws, tax laws or currency controls.
Changes in any of these regulations or regulatory activities in any of these areas may require us to spend additional amounts to comply with the regulations, or may restrict our ability to offer products and services in ways that are profitable.
Our operations outside the United States may be adversely affected by the operation of laws in those jurisdictions.
Our operations in non-U.S. jurisdictions are in many cases subject to the laws of the jurisdictions in which they operate rather than U.S. law. Laws in some jurisdictions differ in significant respects from those in the U.S. These differences can affect our ability to react to changes in our business, and our rights or ability to enforce rights may be different than would be expected under U.S. law. Moreover, enforcement of laws in some overseas jurisdictions can be inconsistent and unpredictable, which can affect both our ability to enforce our rights and to undertake activities that we believe are beneficial to our business. In addition, the business and political climate in some jurisdictions may encourage corruption, which could reduce our ability to compete successfully in those jurisdictions while remaining in compliance with local laws or United States anti-corruption laws applicable to our businesses. As a result, our ability to generate revenue and our expenses in non-U.S. jurisdictions may differ from what would be expected if U.S. law governed these operations.

18


Labor disputes may disrupt our operations and adversely affect the profitability of any of our businesses.
A significant number of employees in various of our businesses are covered by collective bargaining agreements, including employees of our theme parks and resorts as well as writers, directors, actors, production personnel and others employed in our media networks and studio operations. In addition, the employees of licensees who manufacture and retailers who sell our consumer products, and employees of providers of programming content (such as sports leagues) may be covered by labor agreements with their employers. In general, a labor dispute involving our employees or the employees of our licensees or retailers who sell our consumer products or providers of programming content may disrupt our operations and reduce our revenues, and resolution of disputes may increase our costs.
The seasonality of certain of our businesses could exacerbate negative impacts on our operations.
Each of our businesses is normally subject to seasonal variations, as follows: 
Revenues in our Media Networks segment are subject to seasonal advertising patterns and changes in viewership levels. In general, advertising revenues are somewhat higher during the fall and somewhat lower during the summer months. Affiliate fees are typically collected ratably throughout the year.
Revenues in our Parks and Resorts segment fluctuate with changes in theme park attendance and resort occupancy resulting from the seasonal nature of vacation travel and leisure activities. Peak attendance and resort occupancy generally occur during the summer months when school vacations occur and during early-winter and spring-holiday periods.
Revenues in our Studio Entertainment segment fluctuate due to the timing and performance of releases in the theatrical, home entertainment and television markets. Release dates are determined by several factors, including competition and the timing of vacation and holiday periods.
Revenues in our Consumer Products & Interactive Media segment are influenced by seasonal consumer purchasing behavior, which generally results in higher revenues during the Company’s first and fourth fiscal quarters, and by the timing and performance of theatrical and game releases and cable programming broadcasts.
Accordingly, if a short-term negative impact on our business occurs during a time of high seasonal demand (such as hurricane damage to our parks during the summer travel season), the effect could have a disproportionate effect on the results of that business for the year.
Risk Factors Related to the Acquisition of 21CF
The proposed Acquisition of 21CF may cause disruption in our business.
The merger agreement related to the acquisition of 21CF (the “Acquisition”) restricts us from taking certain specified actions without 21CF’s consent until the Acquisition is completed or the merger agreement is terminated, including making certain acquisitions to the extent that the acquisition would reasonably be expected to prevent, materially delay or materially impair the completion of the Acquisition, and from paying dividends in excess of certain thresholds. These restrictions may affect our ability to execute our business strategies and attain our financial and other goals and may impact our financial condition, results of operations and cash flows.
The proposed Acquisition could cause disruptions to our business or business relationships, which could have an adverse impact on results of operations. Parties with which we have business relationships may experience uncertainty as to the future of such relationships and may delay or defer certain business decisions, seek alternative relationships with third parties or seek to alter their present business relationships with us. Parties with whom we otherwise may have sought to establish business relationships may seek alternative relationships with third parties.
The pursuit of the Acquisition and the preparation for the integration of 21CF may place a significant burden on our management and internal resources. The diversion of management’s attention away from day-to-day business concerns and any difficulties encountered in the transition and integration process could adversely affect our financial results.
We have incurred and expect to continue to incur significant costs, expenses and fees for professional services and other transaction costs in connection with the Acquisition. We may also incur unanticipated costs in the integration of the businesses of 21CF and Disney. The substantial majority of these costs will be non-recurring expenses relating to the Acquisition, and many of these costs are payable regardless of whether or not the Acquisition is consummated. We also could be subject to litigation related to the proposed Acquisition, which could result in significant costs and expenses.
Failure to complete the Acquisition in a timely manner or at all could negatively impact the market price of our common stock, as well as our future business and our financial condition, results of operations and cash flows.
We currently anticipate the Acquisition will be completed in the first half of calendar year 2019, but we cannot be certain when or if the conditions for the Acquisition will be satisfied or (if permissible under applicable law) waived. The Acquisition cannot be completed until the conditions to closing are satisfied or (if permissible under applicable law) waived, including (i) receipt of certain required governmental approvals and consents, (ii) receipt by 21CF of a surplus and solvency opinion with

19


respect to the separation of the 21CF assets and liabilities that we are not acquiring in the Acquisition, referred to as the separation, and the cash dividend in connection with the Acquisition, (iii) the registration of the common stock of a newly formed subsidiary of 21CF, referred to as New Fox, that is contemplated to own the 21CF assets and liabilities that we are not acquiring in the Acquisition and which will be spun off to 21CF stockholders, (iv) authorization of Disney and New Fox shares for listing on NYSE or NASDAQ, as applicable, (v) the consummation of the separation and spin off of New Fox to 21CF stockholders, (vi) receipt of certain tax opinions by each of 21CF and Disney, including tax opinions regarding the intended tax treatment of the transactions contemplated by the merger agreement for U.S. federal income tax purposes, and (vii ) the accuracy of the representations and warranties made by 21CF or Disney, as applicable, in the merger agreement. Our obligation to complete the Acquisition is also subject to, among other conditions, the absence of regulatory authorities requiring certain actions on our part. The satisfaction of the required conditions could delay the completion of the Acquisition for a significant period of time or prevent it from occurring. Further, there can be no assurance that the conditions to the closing of the Acquisition will be satisfied or waived or that the Acquisition will be completed.
If the Acquisition is not completed in a timely manner or at all, our business may be adversely affected as follows:
we may experience negative reactions from the financial markets, and our stock price could decline to the extent that the current market price reflects an assumption that the Acquisition will be completed;
we may experience negative reactions from employees, customers, suppliers or other third parties;
management’s focus may have been diverted from pursuing other opportunities that could have been beneficial to Disney; and
our costs of pursuing the Acquisition may be higher than anticipated.
In addition to the above risks, we may be required, under certain circumstances, to pay 21CF a termination fee equal to $1.525 billion, or in connection with a termination under certain specified circumstances in connection with the failure to obtain regulatory approvals, $2.5 billion. If the Acquisition is not consummated, there can be no assurance that these risks will not materialize and will not materially adversely affect our stock price, business, financial conditions, results of operations or cash flows.
The Acquisition may not be accretive, and may be dilutive, to our earnings per share, which may negatively affect the market price of our common stock.
We currently expect the Acquisition to be accretive to our earnings per share, excluding the impact of purchase accounting, in fiscal 2021 assuming the Acquisition closes in fiscal 2019. This expectation, however, is based on preliminary estimates that may materially change. In addition, we could fail to realize all of the benefits anticipated in the Acquisition or experience delays or inefficiencies in realizing such benefits. Such factors could, combined with the issuance of shares of our common stock in connection with the Acquisition, result in the Acquisition being dilutive to our earnings per share, which could negatively affect the market price of our common stock.
In order to complete the Acquisition, Disney and 21CF must obtain certain governmental approvals, and if such approvals are not granted or are granted with conditions, completion of the Acquisition may be jeopardized or the anticipated benefits of the Acquisition could be reduced.
Although Disney and 21CF have agreed to use reasonable best efforts, subject to certain limitations, to make certain governmental filings and obtain the required governmental approvals or expiration or earlier termination of relevant waiting periods, as the case may be, there can be no assurance that the relevant waiting periods will expire or be terminated or that the relevant approvals will be obtained. As a condition to approving the Acquisition, these governmental authorities may impose conditions, terms, obligations or restrictions or require divestitures or place restrictions on the conduct of our business after completion of the Acquisition. There can be no assurance that regulators will not impose conditions, terms, obligations or restrictions and that such conditions, terms, obligations or restrictions will not have the effect of delaying or preventing completion of the Acquisition or imposing additional material costs on or materially limiting the revenues of the combined company following the Acquisition, or otherwise adversely affecting, including to a material extent, our businesses and results of operations after completion of the Acquisition. If we or 21CF are required to divest assets or businesses, there can be no assurance that we or 21CF will be able to negotiate such divestitures expeditiously or on favorable terms or that the governmental authorities will approve the terms of such divestitures. We can provide no assurance that these conditions, terms, obligations or restrictions will not result in the abandonment of the Acquisition.
We will be required to divest the 21CF regional sports networks (the “21CF RSNs”) and we may not be able to negotiate such divestitures expeditiously or on favorable terms.
On June 27, 2018, the U.S. Department of Justice (the “DOJ”) submitted a proposed final judgment resolving a complaint it filed the same day to remedy potential competitive concerns regarding our acquisition of the 21CF RSNs. Pursuant to the DOJ’s proposed final judgment, we will be required to hold separate and divest the 21CF RSNs following the completion of the Acquisition if the divestiture of the 21CF RSNs is not completed prior to the completion of the Acquisition. The proposed final

20


judgment is subject to the approval of the United States District Court for the Southern District of New York. There can be no assurance that such court approval will be granted. Although we intend to fully comply with the proposed final judgment, there can be no assurance that we will be able to negotiate such divestitures expeditiously or on favorable terms, or that governmental authorities will approve the terms of such divestitures. In the event that we are unable to divest all of the 21CF RSNs within the agreed upon time periods, the DOJ may apply for a trustee to be appointed to give effect to the divestitures, and we will be unable to object to any sale of the 21CF RSNs by the trustee on any grounds other than the trustee’s malfeasance.
Although we expect that the Acquisition will result in synergies and other benefits to us, we may not realize those benefits because of difficulties related to integration, the achievement of synergies, and other challenges.
Disney and 21CF have operated and, until completion of the Acquisition, will continue to operate, independently, and there can be no assurances that our businesses can be combined in a manner that allows for the achievement of substantial benefits. If we are not able to successfully integrate 21CF’s businesses with ours or pursue our direct-to-consumer strategy successfully, the anticipated benefits and cost savings of the Acquisition may not be realized fully or may take longer than expected to be realized. Further, it is possible that there could be loss of key Disney or 21CF employees, loss of customers, disruption of either company’s or both companies’ ongoing businesses or unexpected issues, higher than expected costs and an overall post-completion process that takes longer than originally anticipated. Specifically, the following issues, among others, must be addressed in combining the operations of 21CF with ours in order to realize the anticipated benefits of the Acquisition so the combined company performs as the parties hope:
combining the companies’ corporate functions;
combining the businesses of Disney and 21CF in a manner that permits us to achieve the synergies anticipated to result from the Acquisition, the failure of which would result in the anticipated benefits of the Acquisition not being realized in the time frame currently anticipated or at all;
maintaining existing agreements with customers, distributors, providers, talent and vendors and avoiding delays in entering into new agreements with prospective customers, distributors, providers, talent and vendors;
determining whether and how to address possible differences in corporate cultures and management philosophies;
integrating the companies’ administrative and information technology infrastructure;
developing products and technology that allow value to be unlocked in the future; and
effecting potential actions that may be required in connection with obtaining regulatory approvals.
In addition, at times the attention of certain members of our management and resources may be focused on completion of the Acquisition and integration planning of the businesses of the two companies and diverted from day-to-day business operations, which may disrupt our ongoing business and the business of the combined company.
Consummation of the Acquisition will increase our exposure to the risks of operating internationally.
We are a diversified entertainment company that offers entertainment, travel and consumer products worldwide. Although many of our businesses increasingly depend on acceptance of our offerings and products by consumers outside of the U.S., the combination with 21CF will increase the importance of international operations to our future operations, growth and prospects. The risks of operating internationally that we already face may therefore increase upon completion of the Acquisition.
Our consolidated indebtedness will increase substantially following completion of the Acquisition. This increased level of indebtedness could adversely affect us, including by decreasing our business flexibility.
Our consolidated indebtedness as of September 29, 2018 was approximately $20.9 billion. Upon completion of the Acquisition, we will assume an estimated $19 billion of additional outstanding debt of 21CF. In addition, we have obtained a bridge commitment of up to $35.7 billion and may draw on such facility or other bridge facilities, issue additional commercial paper, or obtain other debt financing in order to finance a portion of the cash consideration for the Acquisition. We expect to use a portion of 21CF’s cash to repay a portion of the increased indebtedness promptly after completion of the Acquisition, and use proceeds from the sale of the 21CF RSNs (as defined below) to repay additional indebtedness when those proceeds become available. Following the completion of these transactions, we expect that the combined company will have approximately $40 billion of short and long-term debt and interest expense of approximately $2 billion per year.
The increased indebtedness could have the effect of, among other things, reducing our flexibility to respond to changing business and economic conditions. In addition, the amount of cash required to pay interest on our increased indebtedness levels will increase following completion of the Acquisition, and thus the demands on our cash resources will be greater than prior to the Acquisition. The increased levels of indebtedness following completion of the Acquisition could also reduce funds available for capital expenditures, share repurchases and dividends, and other activities and may create competitive disadvantages for us relative to other companies with lower debt levels. Our financial flexibility may be further constrained by the issuance of shares of common stock in the Acquisition, because of dividend payments.

21


ITEM 1B.
Unresolved Staff Comments
The Company has received no written comments regarding its periodic or current reports from the staff of the SEC that were issued 180 days or more preceding the end of its 2018 fiscal year and that remain unresolved.
ITEM 2.
Properties
The Walt Disney World Resort, Disneyland Resort and other properties of the Company and its subsidiaries are described in Item 1 under the caption Parks and Resorts. Film library properties are described in Item 1 under the caption Studio Entertainment. Television stations owned by the Company are described in Item 1 under the caption Media Networks. Retail store locations leased by the Company are described in Item 1 under the caption Consumer Products & Interactive Media.
The Company and its subsidiaries own and lease properties throughout the world. In addition to the properties noted above, the table below provides a brief description of other significant properties and the related business segment. 
Location
 
Property /
Approximate Size
 
Use
 
Business Segment(1)
Burbank, CA & surrounding cities(2)
 
Land (201 acres) & Buildings (4,681,000 ft2)
 
Owned Office/Production/Warehouse (includes 236,000 ft2 sublet to third-party tenants)
 
Corp/Studio/Media/
CPIM/P&R
 
 
 
 
Burbank, CA & surrounding cities(2)
 
Buildings (1,418,000 ft2)
 
Leased Office/Warehouse
 
Corp/Studio/Media/
CPIM/P&R
 
 
 
 
Los Angeles, CA
 
Land (22 acres) & Buildings (600,000 ft2)
 
Owned Office/Production/Technical
 
Media/Studio
 
 
 
 
Los Angeles, CA
 
Buildings (389,000 ft2)
 
Leased Office/Production/Technical/Theater
 
Media/Studio
 
 
 
 
New York, NY
 
Buildings (529,000 ft2)
 
Owned Office/Production/Technical (includes 478,000 ft2 sublet to third-party tenants)
 
Media/Corp
 
 
 
 
New York, NY
 
Buildings (1,740,000 ft2)
 
Leased Office/Production/Theater/Warehouse (includes 14,000 ft2 sublet to third-party tenants)
 
Corp/Studio/Media/CPIM
 
 
 
 
Bristol, CT
 
Land (117 acres) & Buildings (1,175,000 ft2)
 
Owned Office/Production/Technical
 
Media
 
 
 
 
Bristol, CT
 
Buildings (512,000 ft2)
 
Leased Office/Warehouse/Technical
 
Media
 
 
 
 
Emeryville, CA
 
Land (20 acres) & Buildings (430,000 ft2)
 
Owned Office/Production/Technical
 
Studio
 
 
 
 
Emeryville, CA
 
Buildings (80,000 ft2)
 
Leased Office/Storage
 
Studio
 
 
 
 
San Francisco, CA
 
Buildings (722,000 ft2)
 
Leased Office/Production/Technical/Theater (includes 59,000 ft2 sublet to third-party tenants)
 
Corp/Studio/Media/
CPIM/P&R
 
 
 
 
 
 
 
USA & Canada
 
Land and Buildings (Multiple sites and sizes)
 
Owned and Leased Office/ Production/Transmitter/Theaters/Warehouse
 
Corp/Studio/Media/
CPIM/P&R
 
 
 
 
Hammersmith, England
 
Building (284,000 ft2)
 
Leased Office
 
Corp/Studio/Media/
CPIM/P&R
 
 
 
 
Europe, Asia, Australia & Latin America
 
Buildings (Multiple sites and sizes)
 
Leased Office/Warehouse/Retail
 
Corp/Studio/Media/
CPIM/P&R
(1)    Corp – Corporate, CPIM – Consumer Products & Interactive Media, P&R – Parks and Resorts
(2)    Surrounding cities include Glendale, CA, North Hollywood, CA and Sun Valley, CA

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ITEM 3. Legal Proceedings
As disclosed in Note 14 to the Consolidated Financial Statements, the Company is engaged in certain legal matters, and the disclosure set forth in Note 14 relating to certain legal matters is incorporated herein by reference.
The Company, together with, in some instances, certain of its directors and officers, is a defendant in various other legal actions involving copyright, breach of contract and various other claims incident to the conduct of its businesses. Management does not expect the Company to suffer any material liability by reason of these actions.
ITEM 4. Mine Safety Disclosures
Not applicable.
Executive Officers of the Company
The executive officers of the Company are elected each year at the organizational meeting of the Board of Directors, which follows the annual meeting of the shareholders, and at other Board of Directors meetings, as appropriate. Each of the executive officers has been employed by the Company in the position or positions indicated in the list and pertinent notes below. Each of the executive officers has been employed by the Company for more than five years.
At September 29, 2018, the executive officers of the Company were as follows:
Name
 
Age
 
Title
 
Executive
Officer Since
Robert A. Iger
 
67
 
Chairman and Chief Executive Officer(1)
 
2000
Alan N. Braverman
 
70
 
Senior Executive Vice President, General Counsel and Secretary
 
2003
Christine M. McCarthy
 
63
 
Senior Executive Vice President and Chief Financial Officer(2)
 
2005
M. Jayne Parker
 
57
 
Senior Executive Vice President and Chief Human Resources Officer(3)
 
2009
Zenia B. Mucha
 
62
 
Senior Executive Vice President Corporate Communications(4)
 
2018
 
(1) 
Mr. Iger was appointed Chairman of the Board and Chief Executive Officer effective March 13, 2012. He was President and Chief Executive Officer from October 2, 2005 through that date.
(2) 
Ms. McCarthy was appointed Senior Executive Vice President and Chief Financial Officer effective June 30, 2015. She was previously Executive Vice President, Corporate Real Estate, Alliances and Treasurer of the Company from 2000 to 2015.
(3) 
Ms. Parker was appointed Senior Executive Vice President and Chief Human Resources Officer effective August 20, 2017. She was previously Executive Vice President and Chief Human Resources Officer from 2009.
(4) 
Ms. Mucha was appointed Senior Executive Vice President Corporate Communications effective August 2016. She was previously Executive Vice President Corporate Communications from March 2005.

23


PART II
ITEM 5. Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The Company’s common stock is listed on the New York Stock Exchange under the ticker symbol “DIS”.
See Note 11 of the Consolidated Financial Statements for a summary of the Company’s dividends in fiscal years 2018 and 2017. The Board of Directors has not declared a dividend related to the second half of fiscal 2018 as of the date of this report.
As of September 29, 2018, the approximate number of common shareholders of record was 854,000.
The following table provides information about Company purchases of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act during the quarter ended September 29, 2018:
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)
July 1, 2018 – July 31, 2018
 
214,168

 
$
112.77

 

 
158 million
August 1, 2018 – August 31, 2018
 
38,441

 
112.60

 

 
158 million
September 1, 2018 – September 29, 2018
 
25,779

 
111.42

 

 
158 million
Total
 
278,388

 
112.62

 

 
158 million
  
(1) 
278,388 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 repurchase authorization to a total of 400 million shares as of that date. The repurchase program does not have an expiration date.

24


ITEM 6. Selected Financial Data
(in millions, except per share data)
 
2018 (1)
 
2017 (2)
 
2016(3)
 
2015 (4)
 
2014 (5)
Statements of income
 
 
 
 
 
 
 
 
 
Revenues
$
59,434

 
$
55,137

 
$
55,632

 
$
52,465

 
$
48,813

Net income
13,066

 
9,366

 
9,790

 
8,852

 
8,004

Net income attributable to Disney
12,598

 
8,980

 
9,391

 
8,382

 
7,501

Per common share
 
 
 
 
 
 
 
 
 
Earnings attributable to Disney
 
 
 
 
 
 
 
 
 
Diluted
$
8.36

 
$
5.69

 
$
5.73

 
$
4.90

 
$
4.26

Basic
8.40

 
5.73

 
5.76

 
4.95

 
4.31

Dividends (6)
1.68

 
1.56

 
1.42

 
1.81

 
0.86

Balance sheets
 
 
 
 
 
 
 
 
 
Total assets
$
98,598

 
$
95,789

 
$
92,033

 
$
88,182

 
$
84,141

Long-term obligations
24,797

 
26,710

 
24,189

 
19,142

 
18,573

Disney shareholders’ equity
48,773

 
41,315

 
43,265

 
44,525

 
44,958

Statements of cash flows
 
 
 
 
 
 
 
 
 
Cash provided (used) by:
 
 
 
 
 
 
 
 
 
Operating activities
$
14,295

 
$
12,343

 
$
13,136

 
$
11,385

 
$
10,148

Investing activities
(5,336
)
 
(4,111
)
 
(5,758
)
 
(4,245
)
 
(3,345
)
Financing activities
(8,843
)
 
(8,959
)
 
(7,220
)
 
(5,801
)
 
(6,981
)
(1) 
The fiscal 2018 results include a net benefit from remeasuring our deferred tax balances to a new U.S. statutory rate, partially offset by a one-time tax on certain accumulated foreign earnings as a result of the Tax Act ($1.11 per diluted share), the benefit from a reduction in the Companys fiscal 2018 U.S. federal statutory income tax rate ($0.75 per diluted share), gains on the sales of real estate and property rights ($0.28 per diluted share), a benefit from the adoption of an accounting pronouncement in fiscal 2017 related to the tax impact of employee share-based awards ($0.03 per diluted share) and insurance proceeds related to a fiscal 2017 legal matter ($0.02 per diluted share). In addition, results include the adverse impact from investment impairments ($0.11 per diluted share) and restructuring and impairment charges ($0.02 per diluted share).
(2) 
The fiscal 2017 results include a benefit from the adoption of a new accounting pronouncement related to the tax impact of employee share-based awards ($0.08 per diluted share), a non-cash net gain in connection with the acquisition of a controlling interest in BAMTech ($0.10 per diluted share) (see Note 3 to the Consolidated Financial Statements), an adverse impact due to a charge, net of committed insurance recoveries, incurred in connection with the settlement of litigation ($0.07 per dilutive share) and restructuring and impairment charges ($0.04 per diluted share).
(3) 
The fiscal 2016 results include the Company’s share of a net gain recognized by A+E in connection with an acquisition of an interest in Vice ($0.13 per diluted share) (see Note 3 to the Consolidated Financial Statements), restructuring and impairment charges ($0.07 per diluted share) and a charge in connection with the discontinuation of our Infinity console game business ($0.05 per diluted share) (see Note 1 to the Consolidated Financial Statements).
(4) 
The fiscal 2015 results include the write-off of a deferred tax asset as a result of a recapitalization at Disneyland Paris ($0.23 per diluted share) and restructuring and impairment charges ($0.02 per diluted share).
(5) 
The fiscal 2014 results include a loss resulting from the foreign currency translation of net monetary assets denominated in Venezuelan currency ($0.05 per diluted share), restructuring and impairment charges ($0.05 per diluted share), a gain on the sale of property ($0.03 per diluted share) and a portion of a settlement of an affiliate contract dispute ($0.01 per diluted share).
(6) 
In fiscal 2015, the Company began paying dividends on a semiannual basis. Accordingly, fiscal 2015 includes dividend payments related to fiscal 2014 and the first half of fiscal 2015.

25


ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CONSOLIDATED RESULTS
(in millions, except per share data)
 
 
 
 
 
 
 
% Change
Better/(Worse)
 
2018
 
2017
 
2016
 
2018
vs.
2017
 
2017
vs.
2016
Revenues:
 
 
 
 
 
 
 
 


Services
$
50,869

 
$
46,843

 
$
47,130

 
9
 %
 
(1
)%
Products
8,565

 
8,294

 
8,502

 
3
 %
 
(2
)%
Total revenues
59,434

 
55,137

 
55,632

 
8
 %
 
(1
)%
Costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of services (exclusive of depreciation and amortization)
(27,528
)
 
(25,320
)
 
(24,653
)
 
(9
)%
 
(3
)%
Cost of products (exclusive of depreciation and amortization)
(5,198
)
 
(4,986
)
 
(5,340
)
 
(4
)%
 
7
 %
Selling, general, administrative and other
(8,860
)
 
(8,176
)
 
(8,754
)
 
(8
)%
 
7
 %
Depreciation and amortization
(3,011
)
 
(2,782
)
 
(2,527
)
 
(8
)%
 
(10
)%
Total costs and expenses
(44,597
)
 
(41,264
)
 
(41,274
)
 
(8
)%
 
 %
Restructuring and impairment charges
(33
)
 
(98
)
 
(156
)
 
66
 %
 
37
 %
Other income, net
601

 
78

 

 
>100
 %
 
nm

Interest expense, net
(574
)
 
(385
)
 
(260
)
 
(49
)%
 
(48
)%
Equity in the income (loss) of investees, net
(102
)
 
320

 
926

 
nm

 
(65
)%
Income before income taxes
14,729

 
13,788

 
14,868

 
7
 %
 
(7
)%
Income taxes
(1,663
)
 
(4,422
)
 
(5,078
)
 
62
 %
 
13
 %
Net income
13,066

 
9,366

 
9,790

 
40
 %
 
(4
)%
Less: Net income attributable to noncontrolling interests
(468
)
 
(386
)
 
(399
)
 
(21
)%
 
3
 %
Net income attributable to The Walt Disney Company (Disney)
$
12,598

 
$
8,980

 
$
9,391

 
40
 %
 
(4
)%
Earnings per share attributable to Disney:
 
 
 
 
 
 
 
 


Diluted
$
8.36

 
$
5.69

 
$
5.73

 
47
 %
 
(1
)%
Basic
$
8.40

 
$
5.73

 
$
5.76

 
47
 %
 
(1
)%
 
 
 
 
 
 
 
 
 
 
Weighted average number of common and common equivalent shares outstanding:
 
 
 
 
 
 
 
 
 
Diluted
1,507

 
1,578

 
1,639

 
 
 
 
Basic
1,499


1,568


1,629

 
 
 
 

26


Organization of Information
Management’s Discussion and Analysis provides a narrative on the Company’s financial performance and condition that should be read in conjunction with the accompanying financial statements. It includes the following sections: 
Consolidated Results and Non-Segment Items
Business Segment Results — 2018 vs. 2017
Business Segment Results — 2017 vs. 2016
Corporate and Unallocated Shared Expenses
Impact of U.S. Federal Income Tax Reform
Significant Developments
Liquidity and Capital Resources
Contractual Obligations, Commitments and Off Balance Sheet Arrangements
Critical Accounting Policies and Estimates
Forward-Looking Statements
CONSOLIDATED RESULTS AND NON-SEGMENT ITEMS
2018 vs. 2017
Revenues for fiscal 2018 increased 8%, or $4.3 billion, to $59.4 billion; net income attributable to Disney increased 40%, or $3.6 billion, to $12.6 billion; and diluted earnings per share attributable to Disney (EPS) increased 47%, or $2.67 to $8.36. The EPS increase in fiscal 2018 was due to a benefit from new federal income tax legislation, the “Tax Cuts and Jobs
Act” (Tax Act) (See Note 9 to the Consolidated Financial Statements), higher segment operating income, a decrease in weighted average shares outstanding as a result of our share repurchase program and gains on the sale of real estate and property rights. These increases were partially offset by the comparison to a non-cash net gain in connection with the acquisition of a controlling interest in BAMTech in the prior year, impairments of our Vice and Villages Nature equity method investments in the current year and higher net interest and corporate and unallocated shared expenses. The increase in segment operating income was due to growth at our Parks and Resorts and Studio Entertainment segments, partially offset by lower results at our Media Networks and Consumer Products & Interactive Media segments. In addition, net income attributable to Disney reflected an approximate 1 percentage point decline due to the movement of the U.S. dollar against major currencies including the impact of our hedging program (FX Impact).
Revenues
Service revenues for fiscal 2018 increased 9%, or $4.0 billion, to $50.9 billion, due to higher theatrical distribution revenue, growth in guest spending and volumes at our parks and resorts, an increase in affiliate fees, increased TV/SVOD distribution revenue and the consolidation of BAMTech. On September 25, 2017, the Company increased its ownership in BAMTech and began consolidating its results. These increases were partially offset by lower advertising revenue.
Product revenues for fiscal 2018 increased 3%, or $0.3 billion, to $8.6 billion, due to guest spending and volume growth at our parks and resorts, partially offset by lower home entertainment volumes and a decrease in retail store sales. Product revenue reflected an approximate 1 percentage point increase due to a favorable FX Impact.
Costs and expenses
Cost of services for fiscal 2018 increased 9%, or $2.2 billion, to $27.5 billion, due to higher film and television cost amortization driven by an increase in theatrical and TV/SVOD distribution revenue and contractual rate increases for television programming. Costs of services also increased due to the consolidation of BAMTech and higher costs at our parks and resorts reflecting cost inflation, higher technology and operations support expenses and a special fiscal 2018 domestic employee bonus.
Cost of products for fiscal 2018 increased 4%, or $0.2 billion, to $5.2 billion, due to cost inflation and higher guest spending and volumes at our parks and resorts. Cost of products reflected an approximate 1 percentage point increase due to an unfavorable FX Impact.

27


Selling, general, administrative and other costs for fiscal 2018 increased 8%, or $0.7 billion, to $8.9 billion, due to higher marketing spend, the consolidation of BAMTech, costs incurred in connection with the 21CF acquisition and an increase in compensation costs.
Depreciation and amortization costs increased 8%, or $0.2 billion, to $3.0 billion due to depreciation of new attractions at our parks and resorts segment and the consolidation of BAMTech. Depreciation and amortization costs reflected an approximate 1 percentage point increase due to an unfavorable FX Impact.
Restructuring and Impairment Charges
The Company recorded $33 million and $98 million of restructuring and impairment charges in fiscal years 2018 and 2017, respectively. Charges in fiscal 2018 were due to severance costs. Charges in fiscal 2017 were due to severance costs and asset impairments.
Other Income, net
Other income, net is as follows: 
(in millions)
 
2018
 
2017
 
% Change
 Better/(Worse) 
Gains on sales of real estate and property rights
 
$
560

 
$

 
nm

 
Settlement of litigation
 
38

 
(177
)
 
nm

 
Gain related to the acquisition of BAMTech
 
3

 
255

 
(99
)%
 
Other income, net
 
$
601

 
$
78

 
>100
 %
 
In fiscal 2018, the Company recorded gains of $560 million in connection with the sales of real estate and property rights in New York City.
In fiscal 2018, the Company recorded $38 million in insurance recoveries in connection with the settlement of a litigation matter for which the Company recorded a charge of $177 million, net of committed insurance recoveries in fiscal 2017.
In fiscal 2018, the Company recorded a $3 million adjustment to a fiscal 2017 non-cash net gain of $255 million recorded in connection with the acquisition of a controlling interest in BAMTech (see Note 3 to the Consolidated Financial Statements).
Interest Expense, net
Interest expense, net is as follows: 
(in millions)
 
2018
 
2017
 
% Change
 Better/(Worse) 
Interest expense
 
$
(682
)
 
$
(507
)
 
(35
)%
 
Interest and investment income
 
108

 
122

 
(11
)%
 
Interest expense, net
 
$
(574
)
 
$
(385
)
 
(49
)%
 
The increase in interest expense was due to an increase in average interest rates, higher average debt balances and financing costs related to the pending 21CF acquisition.
The decrease in interest and investment income for the year was due to the comparison to gains on investments recognized in the prior year, partially offset by an increase in interest income driven by higher average interest rates.
Equity in the Income of Investees
Equity in the income of investees decreased $422 million, to a loss of $102 million due to higher losses from Hulu, impairments of Vice and Villages Nature equity method investments and lower income from A+E. These decreases were partially offset by a favorable comparison to a loss from BAMTech in the prior year. The decrease at Hulu was driven by higher programming, labor and marketing costs, partially offset by growth in subscription and advertising revenue. The decrease at A+E was due to lower advertising revenue and higher programming costs, partially offset by higher program sales.

28


Effective Income Tax Rate 
 
2018
 
2017
 
Change
Better/(Worse)
Effective income tax rate
11.3
%
 
32.1
%
 
20.8

ppt
The decrease in the effective income tax rate was due to the impact of the Tax Act, which included:
A net benefit of $1.7 billion, which reflected a $2.1 billion benefit from remeasuring our deferred tax balances to the new statutory rate (Deferred Remeasurement), partially offset by a charge of $0.4 billion for a one-time tax on certain accumulated foreign earnings (Deemed Repatriation Tax). This benefit had an impact of approximately 11.5 percentage points on the effective income tax rate.
A reduction in the Company’s fiscal 2018 U.S. statutory federal income tax rate to 24.5% from 35.0% in the prior year. Net of state tax and other related effects, the reduction in the statutory rate had an impact of approximately 8.2 percentage points on the effective income tax rate.
Noncontrolling Interests
Net income attributable to noncontrolling interests for the year increased $82 million to $468 million due to lower tax expense at ESPN, largely due to the Tax Act, and the impact of the Company’s acquisition of the noncontrolling interest in Disneyland Paris in the third quarter of the prior year. These increases were partially offset by losses at BAMTech.
Net income attributable to noncontrolling interests is determined on income after royalties and management fees, financing costs and income taxes, as applicable.
2017 vs. 2016
Revenues for fiscal 2017 decreased 1%, or $0.5 billion, to $55.1 billion; net income attributable to Disney decreased 4%, or $0.4 billion, to $9.0 billion; and EPS for the year decreased 1%, or $0.04 to $5.69. The EPS decrease in fiscal 2017 was due to lower segment operating income at Media Networks, Studio Entertainment and Consumer Products & Interactive Media and higher net interest expense. These decreases were partially offset by a decrease in weighted average shares outstanding as a result of our share repurchase program, higher operating income at Parks and Resorts and a decrease in the effective tax rate. In addition, net income attributable to Disney reflected an approximate 1 percentage point decline due to an unfavorable FX Impact.
Revenues
Service revenues for fiscal 2017 decreased 1%, or $0.3 billion, to $46.8 billion, due to declines from theatrical and home entertainment distribution, advertising and merchandise licensing. These decreases were partially offset by the benefit from a full year of operations at Shanghai Disney Resort, which opened in June 2016, an increase in affiliate fees and higher average guest spending and attendance at our other parks and resorts. Service revenue reflected an approximate 1 percentage point decline due to an unfavorable FX Impact.
Product revenues for fiscal 2017 decreased 2%, or $0.2 billion, to $8.3 billion, due to lower volumes at our home entertainment distribution and retail businesses and the discontinuation of Infinity, partially offset by the impact of a full year of operations at Shanghai Disney Resort and higher average guest spending and volumes at our other parks and resorts. Product revenue reflected an approximate 1 percentage point decline due to an unfavorable FX Impact.
Costs and expenses
Cost of services for fiscal 2017 increased 3%, or $0.7 billion, to $25.3 billion, due to higher sports programming costs, a full year of operations at Shanghai Disney Resort and new guest offerings and inflation at our other parks and resorts. These increases were partially offset by lower film cost amortization and theatrical distribution costs.
Cost of products for fiscal 2017 decreased 7%, or $0.4 billion, to $5.0 billion, due to the discontinuation of Infinity, the absence of the Infinity Charge (See Note 1 to the Consolidated Financial Statements) and lower retail and home entertainment volumes. These decreases were partially offset by a full year of operations at Shanghai Disney Resort and inflation at our domestic parks and resorts.

29


Selling, general, administrative and other costs for fiscal 2017 decreased 7%, or $0.6 billion, to $8.2 billion, due to lower theatrical marketing costs and the discontinuation of Infinity. Selling, general, administrative and other costs reflected an approximate 1 percentage point benefit due to a favorable FX Impact.
Depreciation and amortization costs increased 10%, or $0.3 billion, to $2.8 billion primarily due to a full year of operations at Shanghai Disney Resort and depreciation associated with new attractions at our domestic parks and resorts.
Restructuring and Impairment Charges
The Company recorded $98 million and $156 million of restructuring and impairment charges in fiscal years 2017 and 2016, respectively. Charges in fiscal 2017 were due to severance costs and asset impairments. Charges in fiscal 2016 were due to asset impairments and severance and contract termination costs.
Interest Expense, net
Interest expense, net is as follows: 
(in millions)
 
2017
 
2016
 
% Change
 Better/(Worse) 
Interest expense
 
$
(507
)
 
$
(354
)
 
(43
)%
 
Interest and investment income
 
122

 
94

 
30
 %
 
Interest expense, net
 
$
(385
)
 
$
(260
)
 
(48
)%
 
The increase in interest expense was due to higher average debt balances, lower capitalized interest and an increase in our effective interest rate.
The increase in interest and investment income was driven by an increase in average interest bearing cash balances and higher interest rates.
Equity in the Income of Investees
Equity in the income of investees decreased 65% or $606 million, to $0.3 billion due to the comparison to the $332 million Vice Gain (See Note 3 to the Consolidated Financial Statements), which was recognized in fiscal 2016, and higher losses from our investments in BAMTech and Hulu. The BAMTech results reflected a valuation adjustment to sports programming rights that were prepaid prior to our acquisition of BAMTech and increased costs for technology platform investments. The decrease at Hulu was due to higher programming, distribution, marketing and labor costs, partially offset by growth in advertising and subscription revenues.
Effective Income Tax Rate
 
2017
 
2016
 
Change
 Better/(Worse) 
Effective income tax rate
32.1
%
 
34.2
%
 
2.1

ppt
The decrease in the effective income tax rate was due to lower tax on foreign earnings, a favorable impact from the adoption of the new accounting pronouncement related to the tax impact of employee share-based awards ($125 million) and an increase in the benefit related to qualified domestic production activities. These decreases were partially offset by a benefit in the prior year from the favorable resolution of certain tax matters. The lower tax on foreign earnings was driven by a decrease in foreign losses for which we are not recognizing a tax benefit.
Noncontrolling Interests
Net income attributable to noncontrolling interests for fiscal 2017 decreased $13 million to $386 million due to the impact of lower net income at ESPN, partially offset by the impact of improved results at Shanghai Disney Resort.

30


Certain Items Impacting Comparability
Results for fiscal 2018 were impacted by the following:
A benefit of $1.7 billion from the Tax Act Deferred Remeasurement, net of the Deemed Repatriation Tax
A benefit of $601 million comprising $560 million in gains from the sales of real estate and property rights, $38 million from insurance recoveries in connection with the settlement of a fiscal 2017 litigation matter and $3 million from an adjustment related to a non-cash gain recognized in fiscal 2017 for the acquisition of a controlling interest in BAMTech
Impairments of $210 million for Vice and Villages Nature equity investments
Restructuring and impairment charges of $33 million
Results for fiscal 2017 were impacted by the following:
A non-cash net gain of $255 million in connection with the acquisition of a controlling interest in BAMTech
A charge, net of committed insurance recoveries, of $177 million in connection with the settlement of litigation
Restructuring and impairment charges of $98 million
Results for fiscal 2016 were impacted by the following:
A benefit of $332 million for the Vice Gain
Restructuring and impairment charges of $156 million
A charge of $129 million related to our Infinity game business
A summary of the impact of these items on EPS is as follows:
(in millions, except per share data)
Pre-Tax Income/(Loss)
 
Tax Benefit/(Expense)(1)
 
After-Tax Income/(Loss)
 
EPS Favorable/(Adverse) (2)
Year Ended September 29, 2018:
 
 
 
 
 
 
 
Net benefit from the Tax Act
$

 
$
1,701

 
$
1,701

 
$
1.11

Gain from sale of real estate, property rights and other
601

 
(158
)
 
443

 
0.30

Impairment of equity investments
(210
)
 
49

 
(161
)
 
(0.11
)
Restructuring and impairment charges
(33
)
 
7

 
(26
)
 
(0.02
)
Total
$
358

 
$
1,599

 
$
1,957

 
$
1.28

 
 
 
 
 
 
 
 
Year Ended September 30, 2017:
 
 
 
 
 
 
 
Settlement of litigation
$
(177
)
 
$
65

 
$
(112
)
 
$
(0.07
)
Restructuring and impairment charges
(98
)
 
31

 
(67
)
 
(0.04
)
Gain related to the acquisition of BAMTech
255

 
(93
)
 
162

 
0.10

Total
$
(20
)
 
$
3

 
$
(17
)
 
$
(0.01
)
 
 
 
 
 
 
 
 
Year Ended October 1, 2016:
 
 
 
 
 
 
 
Vice Gain
$
332

 
$
(122
)
 
$
210

 
$
0.13

Restructuring and impairment charges
(156
)
 
43

 
(113
)
 
(0.07
)
Infinity Charge(3)
(129
)
 
47

 
(82
)
 
(0.05
)
Total
$
47

 
$
(32
)
 
$
15

 
$
0.01

(1) 
Tax benefit/expense adjustments are determined using the tax rate applicable to the individual item affecting comparability.
(2) 
EPS is net of noncontrolling interest share, where applicable. Total may not equal the sum of the column due to rounding.
(3) 
Recorded in “Cost of products” in the Consolidated Statements of Income. See Note 1 to the Consolidated Financial Statements.

31


BUSINESS SEGMENT RESULTS — 2018 vs. 2017
Below is a discussion of the major revenue and expense categories for our business segments. Costs and expenses for each segment consist of operating expenses, selling, general, administrative and other costs and depreciation and amortization. Selling, general, administrative and other costs include third-party and internal marketing expenses.
Our Media Networks segment generates revenue from affiliate fees, ad sales and other revenues, which include the sale and distribution of television programs and subscription fees for our DTC offerings. Significant expenses include amortization of programming, production, participations and residuals costs, technical support costs, operating labor and distribution costs.
Our Parks and Resorts segment generates revenue from the sale of admissions to theme parks, the sale of food, beverage and merchandise, charges for room nights at hotels, sales of cruise vacation packages and sales and rentals of vacation club properties. Revenues are also generated from sponsorships and co-branding opportunities, real estate rent and sales, and royalties from Tokyo Disney Resort. Significant expenses include operating labor, infrastructure costs, depreciation, costs of sales and other operating expenses. Infrastructure costs include information systems expense, repairs and maintenance, utilities and fuel, property taxes, insurance and transportation and other operating expenses include costs for such items as supplies, commissions and entertainment offerings.
Our Studio Entertainment segment generates revenue from the distribution of films in the theatrical, home entertainment and TV/SVOD markets, stage play ticket sales, music distribution and licensing of our intellectual property for use in live entertainment productions. Significant expenses include amortization of production, participations and residuals costs, marketing and sales costs, distribution expenses and costs of sales.
Our Consumer Products & Interactive Media segment generates revenue from licensing characters and content from our film, television and other properties to third parties for use on consumer merchandise, published materials and in multi-platform games and from operating retail stores, internet shopping sites and a wholesale business. We also generate revenue from the sales of games through app distributors and online, consumers’ in-game purchases, sales of self-published children’s books and magazines and comic books, advertising in online video content and operating English language learning centers. Significant expenses include costs of goods sold and distribution expenses, operating labor and retail occupancy costs, product development and marketing.
The following is a summary of segment revenue and operating income:
  
 
 
 
 
 
 
% Change
Better/(Worse)
(in millions)
2018
 
2017
 
2016
 
2018
vs.
2017
 
2017
vs.
2016
Revenues:
 
 
 
 
 
 
 
 
 
Media Networks
$
24,500

 
$
23,510

 
$
23,689

 
4
 %
 
(1
)%
Parks and Resorts
20,296

 
18,415

 
16,974

 
10
 %
 
8
 %
Studio Entertainment
9,987

 
8,379

 
9,441

 
19
 %
 
(11
)%
Consumer Products & Interactive Media
4,651

 
4,833

 
5,528

 
(4
)%
 
(13
)%
 
$
59,434

 
$
55,137

 
$
55,632

 
8
 %
 
(1
)%
Segment operating income:
 
 
 
 
 
 
 
 
 
Media Networks
$
6,625

 
$
6,902

 
$
7,755

 
(4
)%
 
(11
)%
Parks and Resorts
4,469

 
3,774

 
3,298

 
18
 %
 
14
 %
Studio Entertainment
2,980

 
2,355

 
2,703

 
27
 %
 
(13
)%
Consumer Products & Interactive Media
1,632

 
1,744

 
1,965

 
(6
)%
 
(11
)%
 
$
15,706

 
$
14,775

 
$
15,721

 
6
 %
 
(6
)%
The Company evaluates the performance of its operating segments based on segment operating income, and management uses aggregate segment operating income as a measure of the overall performance of the operating businesses. Aggregate segment operating income is not a financial measure defined by GAAP, should be reviewed in conjunction with the relevant GAAP financial measure and may not be comparable to similarly titled measures reported by other companies. The Company believes that information about aggregate segment operating income assists investors by allowing them to evaluate changes in the operating results of the Company’s portfolio of businesses separate from factors other than business operations that affect net income.

32


The following table reconciles income before income taxes to segment operating income. 
  
 
 
 
 
 
 
% Change
Better/(Worse)
(in millions)
2018
 
2017
 
2016
 
2018
vs.
2017
 
2017
vs.
2016
Income before income taxes
$
14,729

 
$
13,788

 
$
14,868

 
7
 %
 
(7
)%
Add/(subtract):
 
 
 
 
 
 
 
 
 
Corporate and unallocated shared expenses
761


582


640

 
(31
)%
 
9
 %
Restructuring and impairment charges
33

 
98

 
156

 
66
 %
 
37
 %
Other income, net
(601
)
 
(78
)
 

 
>100
 %
 
nm

Interest expense, net
574

 
385

 
260

 
(49
)%
 
(48
)%
Impairment of equity investments
210

 

 

 
nm

 
nm

Vice Gain

 

 
(332
)
 
nm

 
nm

Infinity Charge

 

 
129

 
nm

 
nm

Segment operating income
$
15,706

 
$
14,775

 
$
15,721

 
6
 %
 
(6
)%
Media Networks
Operating results for the Media Networks segment are as follows: 
 
Year Ended
 
% Change
Better /
(Worse)
(in millions)
September 29, 2018
 
September 30, 2017
 
Revenues
 
 
 
 
 
 
Affiliate fees
$
13,279

 
$
12,659

 
5
 %
 
Advertising
7,763

 
8,129

 
(5
)%
 
TV/SVOD distribution and other
3,458

 
2,722

 
27
 %
 
Total revenues
24,500

 
23,510

 
4
 %
 
Operating expenses
(14,928
)
 
(14,068
)
 
(6
)%
 
Selling, general, administrative and other
(2,752
)
 
(2,647
)
 
(4
)%
 
Depreciation and amortization
(326
)
 
(237
)
 
(38
)%
 
Equity in the income of investees
131

 
344

 
(62
)%
 
Operating Income
$
6,625

 
$
6,902

 
(4
)%
 

Revenues
The increase in affiliate fees was due to an increase of 7% from higher contractual rates, partially offset by a decrease of 2% from fewer subscribers.
The decrease in advertising revenues was due to decreases of $260 million at Cable Networks, from $4,263 million to $4,003 million and $106 million at Broadcasting, from $3,866 million to $3,760 million. The decrease at Cable Networks was due to a decrease of 5% from lower impressions. The decrease in impressions was due to lower average viewership, partially offset by higher units delivered. The decrease at Broadcasting was due to decreases of 6% from lower network impressions and 1% from lower impressions at the owned television stations, both of which were attributed to lower average viewership. This decrease was partially offset by an increase of 5% from higher network rates.
TV/SVOD distribution and other revenue increased $736 million due to higher ABC program sales and the consolidation of BAMTech. The increase in program sales was driven by increased revenue from programs licensed to Hulu and higher sales of Grey’s Anatomy and Black-ish. Additionally, the current year included the sales of Luke Cage, Daredevil and Jessica Jones compared to the prior-year sales of The Punisher and The Defenders. On September 25, 2017, the Company acquired a controlling ownership interest in BAMTech and began consolidating its results and including BAMTech’s revenues in other revenues. The Company’s share of BAMTech’s results was previously reported in equity in the income of investees.

33


Costs and Expenses
Operating expenses include programming and production costs, which increased $654 million from $12,922 million to $13,576 million. At Cable Networks, programming and production costs increased $332 million due to contractual rate increases for college sports, NFL, NBA and MLB programming and the consolidation of BAMTech, partially offset by lower production costs. At Broadcasting, programming and production costs increased $322 million due to higher program sales and a higher average cost of network programming, including the impact of Americal Idol, Roseanne and The Goldbergs in the current year. Other operating costs, which include distribution and technology costs, increased primarily due to the consolidation of BAMTech.
Selling, general, administrative and other costs increased $105 million from $2,647 million to $2,752 million due to the consolidation of BAMTech, partially offset by lower marketing costs at the Disney Channels.
Depreciation and amortization increased $89 million, from $237 million to $326 million due to the consolidation of BAMTech.
Equity in the Income of Investees
Income from equity investees decreased $213 million from $344 million to $131 million due to higher losses from Hulu and lower income from A+E. These decreases were partially offset by a favorable comparison to a loss from BAMTech in the prior-year period. The decrease at Hulu was driven by higher programming, labor and marketing costs, partially offset by growth in subscription and advertising revenue. The decrease at A+E was due to lower advertising revenue and higher programming costs, partially offset by higher program sales.
Segment Operating Income
Segment operating income decreased 4%, or $277 million, to $6,625 million due to the consolidation of BAMTech and lower income from equity investees, partially offset by higher program sales and an increase at the Disney Channels.
The following table provides supplemental revenue and operating income detail for the Media Networks segment: 
 
Year Ended
 
% Change
Better /
(Worse)
(in millions)
September 29, 2018
 
September 30, 2017
 
Revenues
 
 
 
 
 
 
Cable Networks(1)
$
17,063

 
$
16,527

 
3
 %
 
Broadcasting
7,437

 
6,983

 
7
 %
 
 
$
24,500

 
$
23,510

 
4
 %
 
Segment operating income
 
 
 
 
 
 
Cable Networks(1)
$
5,126

 
$
5,353

 
(4
)%
 
Broadcasting
1,368

 
1,205

 
14
 %
 
Equity in the income of investees
131

 
344

 
(62
)%
 
 
$
6,625

 
$
6,902

 
(4
)%
 
(1) 
Cable Networks results in the current year include the consolidated results of BAMTech, whereas in the prior year the Company’s share of BAMTech’s results was reported in equity in the income of investees.
Impairment of Equity Investments and Restructuring and Impairment Charges
The Company recorded charges of $157 million, $74 million and $87 million related to Media Networks for fiscal years 2018, 2017 and 2016, respectively, which are excluded from Media Networks segment operating income. The charge in fiscal 2018 was for an impairment of our equity investment in Vice. The charges in fiscal 2017 were due to severance costs and asset impairments. The charges in fiscal 2016 were for an investment impairment and contract termination and severance costs. The fiscal 2018 charge was reported in “Equity in the income (loss) of investees, net,” in the Consolidated Statements of Income. The charges in fiscal 2017 and 2016 were reported in “Restructuring and impairment charges” in the Consolidated Statements of Income.

34


Parks and Resorts
Operating results for the Parks and Resorts segment are as follows: 
 
Year Ended
 
% Change
Better /
(Worse)
(in millions)
September 29, 2018
 
September 30, 2017
 
Revenues
 
 
 
 
 
 
Domestic
$
16,161

 
$
14,812

 
9
 %
 
International
4,135

 
3,603

 
15
 %
 
Total revenues
20,296

 
18,415

 
10
 %
 
Operating expenses
(11,590
)
 
(10,667
)
 
(9
)%
 
Selling, general, administrative and other
(2,058
)
 
(1,950
)
 
(6
)%
 
Depreciation and amortization
(2,156
)
 
(1,999
)
 
(8
)%
 
Equity in the loss of investees
(23
)
 
(25
)
 
8
 %
 
Operating Income
$
4,469

 
$
3,774

 
18
 %
 

Revenues
Parks and Resorts revenues increased 10%, or $1,881 million, to $20.3 billion due to increases of $1,349 million at our domestic operations and $532 million at our international operations.
Revenue growth at our domestic operations reflected increases of 6% from higher average guest spending and 2% from volume growth. Guest spending growth was due to higher average ticket prices for theme park admissions and for cruise line sailings, increased food, beverage, and merchandise spending and higher average daily hotel room rates. The increase in volumes was due to higher attendance and passenger cruise ship days, partially offset by lower occupied hotel room nights. Volumes benefited from a favorable comparison to the prior-year impacts of Hurricanes Irma and Matthew. Lower occupied hotel room nights were driven by fewer available room nights at Walt Disney World Resort due to room refurbishments and conversions to vacation club units.
Revenue growth at our international operations reflected increases of 5% from a favorable FX Impact, 5% from an increase in volumes and 4% from higher average guest spending. The increase in volumes was due to higher occupied room nights and attendance. Guest spending growth was driven by increases in average ticket prices, food, beverage and merchandise spending and average daily hotel room rates at Disneyland Paris, partially offset by lower average ticket prices at Shanghai Disney Resort.
The following table presents supplemental park and hotel statistics: 
 
Domestic
 
International (2)
 
Total
 
Fiscal Year 2018
 
Fiscal Year 2017
 
Fiscal Year 2018
 
Fiscal Year 2017
 
Fiscal Year 2018
 
Fiscal Year 2017
Parks
 
 
 
 
 
 
 
 
 
 
 
Increase/ (decrease)
 
 
 
 
 
 
 
 
 
 
 
Attendance
4
%
 
2
%
 
4
%
 
47
 %
 
4
%
 
13
 %
Per Capita Guest Spending
6
%
 
2
%
 
5
%
 
(1
)%
 
6
%
 
(1
)%
Hotels (1)
 
 
 
 
 
 
 
 
 
 
 
Occupancy
88
%
 
88
%
 
84
%
 
80
 %
 
87
%
 
86
 %
Available Room Nights
(in thousands)
10,045

 
10,205

 
3,179

 
3,022

 
13,224

 
13,227

Per Room Guest Spending

$345

 

$317

 

$297

 

$289

 

$334

 

$311

 
(1)
Per room guest spending consists of the average daily hotel room rate as well as guest spending on food, beverage and merchandise 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 average foreign exchange rate.

35


Costs and Expenses
Operating expenses include operating labor, which increased $481 million from $4,990 million to $5,471 million, cost of sales, which increased $147 million from $1,656 million to $1,803 million, and infrastructure costs, which increased $99 million from $2,065 million to $2,164 million. The increase in operating labor was due to inflation, higher volumes, an unfavorable FX Impact and a special fiscal 2018 domestic employee bonus. The increase in cost of sales was primarily due to higher volumes and inflation. Higher infrastructure costs were due to increased technology spending and inflation. Other operating expenses, which include costs for such items as supplies, commissions and entertainment offerings, increased $196 million, from $1,956 million to $2,152 million primarily due to an unfavorable FX Impact, inflation and new guest offerings.
Selling, general, administrative and other costs increased $108 million from $1,950 million to $2,058 million primarily due to inflation and an unfavorable FX Impact.
Depreciation and amortization increased $157 million from $1,999 million to $2,156 million primarily due to new attractions at our domestic parks and resorts and Hong Kong Disneyland Resort.
Segment Operating Income
Segment operating income increased 18%, or $695 million, to $4.5 billion due to growth at our domestic and international operations.
Impairment of Equity Investment and Restructuring and Impairment Charges
The Company recorded charges of $53 million, $9 million and $17 million related to Parks and Resorts for fiscal years 2018, 2017 and 2016, respectively, which are excluded from Parks and Resorts segment operating income. The charge in fiscal 2018 was for an impairment of our equity investment in Villages Nature. The charges in fiscal 2017 and 2016 were for severance costs. The charge in fiscal 2018 was reported in “Equity in the income (loss) of investees, net” in the Consolidated Statements of Income. The charges in fiscal 2017 and 2016 were reported in “Restructuring and impairment charges” in the Consolidated Statements of Income.
Studio Entertainment
Operating results for the Studio Entertainment segment are as follows: 
 
Year Ended
 
% Change
Better /
(Worse)
(in millions)
September 29, 2018
 
September 30, 2017
 
Revenues
 
 
 
 
 
 
Theatrical distribution
$
4,303

 
$
2,903

 
48
 %
 
Home entertainment
1,750

 
1,798

 
(3
)%
 
TV/SVOD distribution and other
3,934

 
3,678

 
7
 %
 
Total revenues
9,987

 
8,379

 
19
 %
 
Operating expenses
(4,326
)
 
(3,667
)
 
(18
)%
 
Selling, general, administrative and other
(2,562
)
 
(2,242
)
 
(14
)%
 
Depreciation and amortization
(119
)
 
(115
)
 
(3
)%
 
Operating Income
$
2,980

 
$
2,355

 
27
 %
 

Revenues
The increase in theatrical distribution revenue was due to the release of four Marvel titles in the current year compared to two Marvel titles in the prior year. The Marvel titles in the current year were Avengers: Infinity War, Black Panther, Thor: Ragnarok and Ant-Man and the Wasp, whereas the prior year included Guardians of the Galaxy Vol. 2 and Doctor Strange. Other significant titles in the current year included Star Wars: The Last Jedi, Incredibles 2 and Coco, while the prior year included Beauty and the Beast, Rogue One: A Star Wars Story, Pirates of the Caribbean: Dead Men Tell No Tales and Moana.
Lower home entertainment revenue reflected a 5% decrease from lower unit sales, partially offset by an increase of 3% from higher average net effective pricing. Lower unit sales were driven by the success of Moana and Finding Dory in the prior year compared to Coco and Cars 3 in the current year. The decrease was also driven by three live action titles in the prior year as compared to two live action titles in the current year and the carryover performance of fiscal 2016 new release titles in fiscal 2017 compared to the carryover performance of fiscal 2017 new release titles in fiscal 2018. These decreases were partially offset by the release of three Marvel titles and two Lucas titles in the current year compared to two Marvel titles and one Lucas

36


title in the prior year. The increase in average net effective pricing was due to higher rates and a higher sales mix of Blu-ray discs, partially offset by a lower mix of new release titles.
TV/SVOD distribution and other revenue reflected a 4% increase from TV/SVOD distribution and a 3% increase from stage plays. The increase in TV/SVOD distribution revenue was due to an increase in our free television business driven by new international agreements and the sale of Star Wars: The Force Awakens in the current year with no comparable title in the prior year. Higher stage play revenue was due to the opening of additional productions in the current year.
Costs and Expenses
Operating expenses include film cost amortization, which increased $564 million, from $2,474 million to $3,038 million and cost of goods sold and distribution costs, which increased $95 million, from $1,193 million to $1,288 million. Higher film cost amortization was due to the impact of higher theatrical distribution revenues. Higher cost of goods sold and distribution costs were due to an increase in stage plays production and theatrical distribution costs.
Selling, general, administrative and other costs increased $320 million from $2,242 million to $2,562 million primarily due to higher theatrical marketing costs reflecting more titles released in the current year and, to a lesser extent, higher stage play marketing costs due to additional productions in the current year.
Segment Operating Income
Segment operating income increased 27%, or $625 million to $2,980 million due to an increase in theatrical distribution results.
Consumer Products & Interactive Media
Operating results for the Consumer Products & Interactive Media segment are as follows: 
 
Year Ended
 
% Change
Better /
(Worse)
(in millions)
September 29, 2018
 
September 30, 2017
 
Revenues
 
 
 
 
 
 
Licensing, publishing and games
$
3,060

 
$
3,256

 
(6
)%
 
Retail and other
1,591

 
1,577

 
1
 %
 
Total revenues
4,651

 
4,833

 
(4
)%
 
Operating expenses
(1,882
)
 
(1,904
)
 
1
 %
 
Selling, general, administrative and other
(945
)
 
(1,007
)
 
6
 %
 
Depreciation and amortization
(192
)
 
(179
)
 
(7
)%
 
Equity in the income of investees

 
1

 
 %
 
Operating Income
$
1,632

 
$
1,744

 
(6
)%
 
Revenues
The decrease in licensing, publishing and games revenue was primarily due to lower revenues from sales of licensed merchandise, an unfavorable FX Impact and a decrease in licensee settlements. Lower revenues from sales of licensed merchandise includes decreases from products based on Frozen, Cars and Princess, partially offset by an increase from products based on Mickey and Minnie and Avengers.
The increase in retail and other revenue was due to lower online advertising revenue share with the Media Networks and Studio Entertainment segments, an increase in sponsorship revenue and a favorable FX Impact. These increases were largely offset by a decrease in online advertising revenue and lower retail and wholesale distribution sales. The decrease in retail sales was due to lower comparable store sales, partially offset by an increase in online retail revenue. Lower comparable retail store sales reflected decreased sales of Star Wars and Moana merchandise in the current year, partially offset by higher sales of Mickey and Minnie merchandise.
Costs and Expenses
Operating expenses included a $46 million decrease in cost of goods sold and distribution costs, from $1,091 million to $1,045 million, a $33 million increase in other operating expenses, from $591 million to $624 million, and a $9 million decrease in product development expense, from $222 million to $213 million. The decrease in cost of goods sold and distribution costs was driven by lower royalty expense and the decrease in retail and wholesale sales, partially offset by a lower cost share with the Media Networks and Studio Entertainment segments related to online advertising. The increase in other operating expenses, which include occupancy costs, labor at our retail stores and other direct costs, was driven by an unfavorable FX Impact. Lower product development expense was due to fewer games in development.

37


Selling, general, administrative and other costs decreased $62 million from $1,007 million to $945 million primarily due to lower costs at our games business.
Depreciation and amortization increased $13 million from $179 million to $192 million due to asset impairments in the current year.
Segment Operating Income
Segment operating income decreased 6%, or $112 million, to $1.6 billion due to lower results at our merchandise licensing and retail businesses.
Restructuring and Impairment Charges
The Company recorded charges of $17 million, $8 million and $143 million related to Consumer Products & Interactive Media for fiscal years 2018, 2017 and 2016, respectively, which are excluded from Consumer Products & Interactive Media segment operating income. The charges in fiscal years 2018 and 2017 included severance costs that were reported in “Restructuring and impairment charges” in the Consolidated Statements of Income. Charges in fiscal 2016 included the Infinity Charge of $129 million, which was reported in “Cost of Products” in the Consolidated Statement of Income, and $14 million of severance costs, which were reported in “Restructuring and impairment charges” in the Consolidated Statements of Income.

BUSINESS SEGMENT RESULTS – 2017 vs. 2016
Media Networks
Operating results for the Media Networks segment are as follows: 
 
Year Ended
 
% Change
Better /
(Worse)
(in millions)
September 30, 2017
 
October 1, 2016
 
Revenues
 
 
 
 
 
 
Affiliate fees
$
12,659

 
$
12,259

 
3
 %
 
Advertising
8,129

 
8,509

 
(4
)%
 
TV/SVOD distribution and other
2,722

 
2,921

 
(7
)%
 
Total revenues
23,510

 
23,689

 
(1
)%
 
Operating expenses
(14,068
)
 
(13,571
)
 
(4
)%
 
Selling, general, administrative and other
(2,647
)
 
(2,705
)
 
2
 %
 
Depreciation and amortization
(237
)
 
(255
)
 
7
 %
 
Equity in the income of investees
344

 
597

 
(42
)%
 
Operating Income
$
6,902

 
$
7,755

 
(11
)%
 

Revenues
The increase in affiliate fees was due to an increase of 7% from higher contractual rates, partially offset by a decrease of 3% from subscribers.
The decrease in advertising revenues was due to decreases of $192 million at Broadcasting, from $4,058 million to $3,866 million and $188 million at Cable Networks, from $4,451 million to $4,263 million. The decrease at Broadcasting was due to decreases of 8% from lower network impressions and 1% from the absence of the Emmy Awards show, partially offset by an increase of 6% from higher network rates. The decrease at Cable Networks was due to a decrease of 6% from lower impressions, partially offset by an increase of 3% from higher rates. The decrease in impressions at Cable Networks and Broadcasting was due to lower average viewership.
TV/SVOD distribution and other revenue decreased $199 million due to a decrease in program sales and an unfavorable FX Impact. The decrease in program sales was due to lower sales of cable and ABC programs.
Costs and Expenses
Operating expenses include programming and production costs, which increased $559 million from $12,363 million to $12,922 million. At Cable Networks, programming and production costs increased $636 million due to rate increases for NBA and, to a lesser extent, NFL and college sports programming. At Broadcasting, programming and production costs decreased $77 million due to lower program sales.

38


Selling, general, administrative and other costs decreased $58 million from $2,705 million to $2,647 million due to lower marketing costs at Cable Networks and a favorable FX Impact.
The decrease in depreciation and amortization was driven by lower depreciation for broadcasting equipment.
Equity in the Income of Investees
Income from equity investees decreased $253 million from $597 million to $344 million due to higher losses from our investments in BAMTech and Hulu. BAMTech results reflected a valuation adjustment to sports programming rights that were prepaid prior to our acquisition of BAMTech and increased costs for technology platform investments. The decrease at Hulu was due to higher programming, distribution, marketing and labor costs, partially offset by growth in advertising and subscription revenues.
Segment Operating Income
Segment operating income decreased 11%, or $853 million, to $6,902 million due to a decrease at ESPN and lower income from equity investees.
The following table provides supplemental revenue and operating income detail for the Media Networks segment: 
 
Year Ended
 
% Change
Better /
(Worse)
(in millions)
September 30, 2017
 
October 1, 2016
 
Revenues
 
 
 
 
 
 
Cable Networks
$
16,527

 
$
16,632

 
(1
)%
 
Broadcasting
6,983

 
7,057