Acquisitions

9 Months Ended

Jun. 27, 2020

TFCF Corporation

On March 20, 2019, the Company acquired the outstanding capital stock of TFCF, a diversified global media and entertainment company. The acquisition purchase price totaled $69.5 billion, of which the Company paid $35.7 billion in cash and $33.8 billion in Disney shares (307 million shares at a price of $110.00 per share).

As part of the TFCF acquisition, the Company acquired TFCF’s 30% interest in Hulu increasing our ownership in Hulu to 60%. As a result, the Company began consolidating Hulu and recorded a one-time gain of $4.9 billion (Hulu gain) in the second quarter of the prior-year from remeasuring our initial 30% interest to its estimated fair value, which was determined based on a discounted cash flow analysis. On April 15, 2019, Hulu redeemed Warner Media LLC’s (WM) 10% interest in Hulu for $1.4 billion. The redemption was funded by the Company and Hulu’s remaining noncontrolling interest holder, NBC Universal (NBCU). This resulted in the Company’s and NBCU’s interests in Hulu increasing to 67% and 33%, respectively. NBCU’s participation in the redemption resulted in an update to the Company’s estimated fair value of its initial 30% interest decreasing the Hulu Gain by $123 million.

The Company is required to allocate the TFCF purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values. The excess of the purchase price over those fair values is recorded as goodwill.

The following table summarizes our final allocation of the purchase price:


Cash and cash equivalents	$	25,701
Receivables	5,096
Film and television costs	17,740
Investments	962
Intangible assets	17,881
Net assets held for sale	11,356
Accounts payable and other liabilities	(12,529)
Borrowings	(21,723)
Deferred income taxes	(5,100)
Other net liabilities acquired	(3,979)
Noncontrolling interests	(10,408)
Goodwill	49,247
Fair value of net assets acquired	74,244
Less: Disney’s previously held 30% interest in Hulu	(4,737)
Total purchase price	$	69,507

The following table summarizes the revenues and net loss from continuing operations (including purchase accounting amortization and excluding restructuring and impairment charges and interest income and expense) of TFCF and Hulu included in the Company’s Condensed Consolidated Statement of Income for the quarter and nine months ended June 27, 2020 and June 29, 2019, respectively. In addition, the table provides the impact of intercompany eliminations of transactions between the Company, TFCF and Hulu:


	Quarter Ended						Nine Months Ended
	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
TFCF (before intercompany eliminations):
Revenues	$	2,969	$	3,654	$	9,822	$	4,027
Net income (loss) from continuing operations	134		(529)		(102)		(582)
Hulu (before intercompany eliminations):
Revenues	$	1,733	$	1,321	$	5,017	$	1,466
Net loss from continuing operations	(278)		(301)		(881)		(352)
Intercompany eliminations:
Revenues	$	(757)	$	(579)	$	(2,149)	$	(591)
Net loss from continuing operations	(41)		(83)		(172)		(83)

The following pro forma summary presents consolidated information of the Company for the nine months ended June 29, 2019 as if the acquisition had occurred on October 1, 2017:


Revenues	$	59,009
Net income	6,362
Net income attributable to Disney	6,208
Earnings per share attributable to Disney:
Diluted	$	3.26
Basic	$	3.27

These pro forma results include adjustments for purposes of consolidating the historical results of TFCF and Hulu (net of adjustments to eliminate transactions between Disney and TFCF, Disney and Hulu and Hulu and TFCF). These pro formas include $2.4 billion (including $0.4 billion of amortization related to the RSNs) of amortization as a result of recording film and television programming and production costs and finite lived intangible assets at fair value. Interest expense of $0.4 billion is included to reflect the cost of borrowings to finance the TFCF acquisition. The pro forma results also include $0.6 billion of net income related to the TFCF businesses that we are required to divest as a condition of the acquisition.

The pro forma results exclude the Hulu gain, compensation expense of $0.2 billion related to TFCF equity and cash awards that were accelerated to vest upon closing of the acquisition, $0.4 billion of acquisition-related expenses, and a $10.8 billion gain on sale recorded by TFCF related to its 39% interest in Sky plc, which was sold by TFCF in October 2018. These amounts were recognized by Disney and TFCF in the nine months ended June 29, 2019.

These pro forma results do not represent financial results that would have been realized had the acquisition actually occurred on October 1, 2017, nor are they intended to be a projection of future results.

Goodwill

The changes in the carrying amount of goodwill for the nine months ended June 27, 2020 are as follows:


	Media Networks		Parks, Experiences and Products		Studio Entertainment					Direct-to-Consumer & International			Total




Balance at September 28, 2019	$	33,423	$	5,535		$	17,797	$	23,538		$	80,293

Acquisitions⁽¹⁾	133		2			15		10			160

Impairments (see Note 18)	—		—			—		(3,074)			(3,074)
Currency translation adjustments and other, net	—		—			—		(146)			(146)
Balance at June 27, 2020	$	33,556	$	5,537		$	17,812	$	20,328		$	77,233

(1)Reflects updates to allocation of purchase price for the acquisition of TFCF.