Description of the Business and Segment Information

The Walt Disney Company, together with the subsidiaries through which businesses are conducted (the Company), is a diversified worldwide entertainment company with operations in the following business segments: Media Networks, Parks and Resorts, Studio Entertainment, and Consumer Products & Interactive Media.

The Company is preparing to launch two direct-to-consumer (DTC) streaming services, one in 2018 and one in late 2019. An ESPN-branded service distributing multi-sports content is planned for 2018 and a Disney-branded service distributing the Company’s film and television content is planned for 2019. BAMTech LLC (BAMTech), a streaming technology and content delivery business, is providing technical support for the launch and distribution of these services (see Note 3 for further discussion of the BAMTech transaction).

DESCRIPTION OF THE BUSINESS

Media Networks

The Company operates cable programming services branded ESPN, Disney and Freeform, broadcast businesses, which include the ABC TV Network and eight owned television stations, radio businesses consisting of the ESPN Radio network, including four owned ESPN radio stations, and Radio Disney. The ABC TV and ESPN Radio networks have affiliated stations providing coverage to consumers throughout the U.S. The Company also produces original live-action and animated television programming, which may be sold in network, first-run syndication and other television markets worldwide, to subscription video-on-demand services and in home entertainment formats (such as DVD, Blu-Ray and electric home video license). The Company has interests in media businesses that are accounted for under the equity method including A+E Television Networks LLC (A+E), CTV Specialty Television, Inc. (CTV), Hulu LLC (Hulu), Seven TV and Vice Group Holding, Inc. (Vice). Our Media Networks business also operates branded internet sites and apps. In September 2017, the Company acquired an incremental 42% interest in BAMTech bringing the Company’s aggregate ownership interest to 75%, and the Company now consolidates BAMTech. Prior to the September 2017 acquisition, BAMTech was accounted for under the equity method.

Parks and Resorts

The Company owns and operates the Walt Disney World Resort in Florida and the Disneyland Resort in California. The Walt Disney World Resort includes four theme parks (the Magic Kingdom, Epcot, Disney’s Hollywood Studios and Disney’s Animal Kingdom); 18 resort hotels; vacation club properties; a retail, dining and entertainment complex (Disney Springs); a sports complex; conference centers; campgrounds; water parks; and other recreational facilities. The Disneyland Resort includes two theme parks (Disneyland and Disney California Adventure), three resort hotels and a retail, dining and entertainment complex (Downtown Disney). Internationally, the Company owns and operates Disneyland Paris, which 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); a 27-hole golf facility; and a 50% interest in Villages Nature, a European eco-tourism resort. The Company manages and has a 47% ownership interest in Hong Kong Disneyland Resort, which includes one theme park and three themed resort hotels. The Company has a 43% ownership interest in Shanghai Disney Resort, which opened in June 2016 and includes one theme park; two themed resort hotels; a retail, dining and entertainment complex (Disneytown); and an outdoor recreational area. The Company also has a 70% ownership interest in the management company of Shanghai Disney Resort. The Company earns royalties on revenues generated by the Tokyo Disney Resort, which includes two theme parks (Tokyo Disneyland and Tokyo DisneySea) and four Disney-branded hotels and is owned and operated by an unrelated Japanese corporation. The Company manages and markets vacation club ownership interests through the Disney Vacation Club; operates the Disney Cruise Line; the Adventures by Disney guided group vacations business; and Aulani, a hotel and vacation club resort in Hawaii. The Company’s Walt Disney Imagineering unit designs and develops theme park concepts and attractions as well as resort properties.

Studio Entertainment

The Company produces and acquires live-action and animated motion pictures for worldwide distribution in the theatrical, home entertainment and television markets and to subscription video on demand services. The Company distributes these products through its own distribution and marketing companies in the U.S. and both directly and through independent companies and joint ventures in foreign markets primarily under the Walt Disney Pictures, Pixar, Marvel, Lucasfilm and Touchstone banners. The Company also produces stage plays and musical recordings, licenses and produces live entertainment events and provides visual and audio effects and other post-production services.

Consumer Products & Interactive Media

The Company licenses its trade names, characters and visual and literary properties to various manufacturers, game developers, publishers and retailers throughout the world. We also develop and publish mobile games. The Company’s operations include retail and online distribution of products through The Disney Store, shopDisney.com, shop.Marvel.com and wholesale distribution direct to retailers. We operate The Disney Store in North America, Western Europe, Japan and China. The Company publishes entertainment and educational books and magazines and comic books for children and families and operates English language learning centers in China. In addition, the segment’s operations include website management and design, primarily for other Company businesses. We distribute online video content and provide online marketing services through Disney Digital Network, which includes Maker Studios, a network and developer of online video content.

SEGMENT INFORMATION

The operating segments reported below are the segments of the Company for which separate financial information is available and for which segment results are evaluated regularly by the Chief Executive Officer in deciding how to allocate resources and in assessing performance.

Segment operating results reflect earnings before corporate and unallocated shared expenses, restructuring and impairment charges, other expense, interest expense, income taxes and noncontrolling interests. Segment operating income includes equity in the income of investees. Corporate and unallocated shared expenses principally consist of corporate functions, executive management and certain unallocated administrative support functions.

Equity in the income of investees included in segment operating income is as follows:



	2017			2016			2015
Media Networks	$	344		$	597		$	814
Parks and Resorts	(25		)	(3		)	—
Consumer Products & Interactive Media	1			—			—
Equity in the income of investees included in segment operating income	320			594			814
Vice Gain	—			332			—
Total equity in the income of investees	$	320		$	926		$	814

During fiscal 2016, the Company recognized its share of a net gain (Vice Gain) recorded by A+E, a joint venture owned 50% by the Company, in connection with A+E’s acquisition of an interest in Vice. The Company’s $332 million share of the Vice Gain is recorded in “Equity in the income of investees” in the Consolidated Statement of Income but is not included in segment operating income. See Note 3 for further discussion of the transaction.

The following segment results include allocations of certain costs, including information technology, pension, legal and other shared services costs, which are allocated based on metrics designed to correlate with consumption. These allocations are agreed-upon amounts between the businesses and may differ from amounts that would be negotiated in arm’s length transactions. In addition, all significant intersegment transactions have been eliminated except that Studio Entertainment revenues and operating income include an allocation of Consumer Products & Interactive Media revenues, which is meant to reflect royalties on revenue generated by Consumer Products & Interactive Media on merchandise based on intellectual property from certain Studio Entertainment films.



	2017			2016			2015
Revenues
Media Networks	$	23,510		$	23,689		$	23,264
Parks and Resorts	18,415			16,974			16,162
Studio Entertainment
Third parties	7,887			8,701			6,838
Intersegment	492			740			528
	8,379			9,441			7,366
Consumer Products & Interactive Media
Third parties	5,325			6,268			6,201
Intersegment	(492		)	(740		)	(528		)
	4,833			5,528			5,673

Total consolidated revenues	$	55,137		$	55,632		$	52,465
Segment operating income
Media Networks	$	6,902		$	7,755		$	7,793
Parks and Resorts	3,774			3,298			3,031
Studio Entertainment	2,355			2,703			1,973
Consumer Products & Interactive Media	1,744			1,965			1,884
Total segment operating income	$	14,775		$	15,721		$	14,681
Reconciliation of segment operating income to income before income taxes
Segment operating income	$	14,775		$	15,721		$	14,681
Corporate and unallocated shared expenses	(582		)	(640		)	(643		)
Restructuring and impairment charges	(98		)	(156		)	(53		)
Other income, net	78			—			—
Interest expense, net	(385		)	(260		)	(117		)
Vice Gain	—			332			—
Infinity Charge⁽¹⁾	—			(129		)	—
Income before income taxes	$	13,788		$	14,868		$	13,868
Capital expenditures
Media Networks
Cable Networks	$	75		$	86		$	127
Broadcasting	64			80			71
Parks and Resorts
Domestic	2,375			2,180			1,457
International	816			2,035			2,147
Studio Entertainment	85			86			107
Consumer Products & Interactive Media	30			53			87
Corporate	178			253			269
Total capital expenditures	$	3,623		$	4,773		$	4,265



	2017		2016		2015
Depreciation expense
Media Networks	$	225	$	237	$	245
Parks and Resorts
Domestic	1,336		1,273		1,169
International	660		445		345
Studio Entertainment	50		51		55
Consumer Products & Interactive Media	63		63		69
Corporate	252		251		249
Total depreciation expense	$	2,586	$	2,320	$	2,132
Amortization of intangible assets
Media Networks	$	12	$	18	$	21
Parks and Resorts	3		3		3
Studio Entertainment	65		74		84
Consumer Products & Interactive Media	116		112		114
Total amortization of intangible assets	$	196	$	207	$	222
Identifiable assets⁽²⁾
Media Networks	$	32,475	$	32,706
Parks and Resorts	29,492		28,275
Studio Entertainment	16,307		15,359
Consumer Products & Interactive Media	8,996		9,332
Corporate⁽³⁾	4,919		6,361
Unallocated Goodwill⁽⁴⁾	3,600		—
Total consolidated assets	$	95,789	$	92,033
Supplemental revenue data
Affiliate fees	$	12,659	$	12,259	$	12,029
Advertising	8,237		8,649		8,499
Retail merchandise, food and beverage	6,433		6,116		5,986
Theme park admissions	6,502		5,900		5,483
Revenues
United States and Canada	$	41,881	$	42,616	$	40,320
Europe	6,541		6,714		6,507
Asia Pacific	5,075		4,582		3,958
Latin America and Other	1,640		1,720		1,680
	$	55,137	$	55,632	$	52,465
Segment operating income
United States and Canada	$	10,962	$	12,139	$	10,820
Europe	1,812		1,815		1,964
Asia Pacific	1,626		1,324		1,365
Latin America and Other	375		443		532
	$	14,775	$	15,721	$	14,681



	2017		2016
Long-lived assets⁽⁵⁾
United States and Canada	$	61,215	$	56,388
Europe	8,208		8,125
Asia Pacific	8,196		8,228
Latin America and Other	155		210
	$	77,774	$	72,951


⁽¹⁾	In fiscal 2016, the Company discontinued its Infinity console game business, which is reported in the Consumer Products & Interactive Media segment, and recorded a charge (Infinity Charge) primarily to write down inventory. The charge also included severance and other asset impairments. The charge was reported in “Cost of products” in the Consolidated Statement of Income.


⁽²⁾	Identifiable assets include amounts associated with equity method investments, goodwill and intangible assets. Equity method investments by segment are as follows:



	2017		2016
Media Networks	$	2,998	$	4,032
Parks and Resorts	70		22
Studio Entertainment	1		3
Consumer Products & Interactive Media	—		—
Corporate	18		25
	$	3,087	$	4,082

Goodwill and intangible assets by segment are as follows:



	2017		2016
Media Networks	$	18,346	$	18,153
Parks and Resorts	391		373
Studio Entertainment	8,360		8,450
Consumer Products & Interactive Media	7,594		7,653
Corporate	130		130
Unallocated Goodwill	3,600		—
	$	38,421	$	34,759


⁽³⁾	Primarily fixed assets and cash and cash equivalents.


⁽⁴⁾	Unallocated Goodwill relates to the BAMTech acquisition (see Note 3 for further discussion of the transaction).


⁽⁵⁾	Long-lived assets are total assets less the following: current assets, long-term receivables, deferred taxes, financial investments and derivatives.