10-Q 1 fy2015_q2x10qxdoc.htm FORM 10-Q FY2015_Q2_10Q_DOC


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
 
Commission File Number 1-11605
March 28, 2015
 
 
 
 
 
 
 
 
Incorporated in Delaware
 
I.R.S. Employer Identification
 
 
No. 95-4545390
500 South Buena Vista Street, Burbank, California 91521
(818) 560-1000
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one).
Large accelerated filer
 
x
 
Accelerated filer
 
¨
 
 
 
 
 
Non-accelerated filer (do not check if smaller reporting company)
 
¨
 
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x
There were 1,696,761,250 shares of common stock outstanding as of April 29, 2015.




PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited; in millions, except per share data)
 
Quarter Ended
 
Six Months Ended
 
March 28,
2015
 
March 29,
2014
 
March 28,
2015
 
March 29,
2014
Revenues:
 
 
 
 
 
 
 
Services
$
10,552

 
$
9,601

 
21,279

 
19,458

Products
1,909

 
2,048

 
4,573

 
4,500

Total revenues
12,461

 
11,649

 
25,852

 
23,958

Costs and expenses:
 
 
 
 
 
 
 
Cost of services (exclusive of depreciation and amortization)
(5,543
)
 
(4,786
)
 
(11,677
)
 
(10,400
)
Cost of products (exclusive of depreciation and amortization)
(1,147
)
 
(1,186
)
 
(2,669
)
 
(2,637
)
Selling, general, administrative and other
(2,081
)
 
(2,116
)
 
(4,016
)
 
(4,134
)
Depreciation and amortization
(584
)
 
(580
)
 
(1,176
)
 
(1,141
)
Total costs and expenses
(9,355
)
 
(8,668
)
 
(19,538
)
 
(18,312
)
Restructuring and impairment charges

 
(48
)
 

 
(67
)
Other expense, net

 
(37
)
 

 
(31
)
Interest income/(expense), net
8

 
62

 
(50
)
 
111

Equity in the income of investees
206

 
217

 
418

 
456

Income before income taxes
3,320

 
3,175

 
6,682

 
6,115

Income taxes
(1,092
)
 
(1,119
)
 
(2,210
)
 
(2,155
)
Net income
2,228

 
2,056

 
4,472

 
3,960

Less: Net income attributable to noncontrolling interests
(120
)
 
(139
)
 
(182
)
 
(203
)
Net income attributable to The Walt Disney Company (Disney)
$
2,108

 
$
1,917

 
$
4,290

 
$
3,757

 
 
 
 
 
 
 
 
Earnings per share attributable to Disney:
 
 
 
 
 
 
 
Diluted
$
1.23

 
$
1.08

 
$
2.50

 
$
2.11

 
 
 
 
 
 
 
 
Basic
$
1.24

 
$
1.10

 
$
2.52

 
$
2.14

 
 
 
 
 
 
 
 
Weighted average number of common and common equivalent shares outstanding:
 
 
 
 
 
 
 
Diluted
1,715

 
1,770

 
1,716

 
1,777

 
 
 
 
 
 
 
 
Basic
1,699

 
1,750

 
1,700

 
1,756

 
 
 
 
 
 
 
 
Dividends declared per share
$

 
$

 
$
1.15

 
$
0.86

See Notes to Condensed Consolidated Financial Statements

2



THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited; in millions)
 
 
Quarter Ended
 
Six Months Ended
 
March 28,
2015
 
March 29,
2014
 
March 28,
2015
 
March 29,
2014
Net income
$
2,228

 
$
2,056

 
$
4,472

 
$
3,960

Other comprehensive income/(loss), net of tax:
 
 
 
 
 
 
 
Market value adjustments for investments
(54
)
 
(36
)
 
(70
)
 
(55
)
Market value adjustments for hedges
129

 
(64
)
 
264

 
(33
)
Pension and postretirement medical plan adjustments
34

 
39

 
78

 
64

Foreign currency translation and other
(84
)
 
(25
)
 
(179
)
 
(11
)
Other comprehensive income/(loss)
25

 
(86
)
 
93

 
(35
)
Comprehensive income
2,253

 
1,970

 
4,565

 
3,925

Less: Net income attributable to noncontrolling interests
(120
)
 
(139
)
 
(182
)
 
(203
)
Less: Other comprehensive loss attributable to noncontrolling interests
12

 
24

 
32

 
16

Comprehensive income attributable to Disney
$
2,145

 
$
1,855

 
$
4,415

 
$
3,738

See Notes to Condensed Consolidated Financial Statements





3


THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited; in millions, except per share data)
 
March 28,
2015
 
September 27,
2014
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
3,745

 
$
3,421

Receivables
8,161

 
7,822

Inventories
1,432

 
1,574

Television costs and advances
814

 
1,061

Deferred income taxes
496

 
497

Other current assets
998

 
801

Total current assets
15,646

 
15,176

Film and television costs
5,792

 
5,325

Investments
2,575

 
2,696

Parks, resorts and other property
 
 
 
Attractions, buildings and equipment
41,838

 
42,263

Accumulated depreciation
(24,016
)
 
(23,722
)
 
17,822

 
18,541

Projects in progress
4,691

 
3,553

Land
1,249

 
1,238

 
23,762

 
23,332

Intangible assets, net
7,302

 
7,434

Goodwill
27,855

 
27,881

Other assets
2,783

 
2,342

Total assets
$
85,715

 
$
84,186

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities
 
 
 
Accounts payable and other accrued liabilities
$
6,823

 
$
7,595

Current portion of borrowings
2,771

 
2,164

Unearned royalties and other advances
3,816

 
3,533

Total current liabilities
13,410

 
13,292

 
 
 
 
Borrowings
12,186

 
12,676

Deferred income taxes
4,388

 
4,098

Other long-term liabilities
5,994

 
5,942

Commitments and contingencies (Note 11)

 

Equity
 
 
 
Preferred stock, $.01 par value
    Authorized – 100 million shares, Issued – none

 

Common stock, $.01 par value
    Authorized – 4.6 billion shares, Issued – 2.8 billion shares
34,720

 
34,301

Retained earnings
56,058

 
53,734

Accumulated other comprehensive loss
(1,843
)
 
(1,968
)
 
88,935

 
86,067

Treasury stock, at cost, 1.1 billion shares at March 28, 2015 and
   September 27, 2014
(42,897
)
 
(41,109
)
Total Disney Shareholders’ equity
46,038

 
44,958

Noncontrolling interests
3,699

 
3,220

Total equity
49,737

 
48,178

Total liabilities and equity
$
85,715

 
$
84,186


See Notes to Condensed Consolidated Financial Statements

4



THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in millions)
 
 
Six Months Ended
 
March 28,
2015
 
March 29,
2014
OPERATING ACTIVITIES
 
 
 
Net income
$
4,472

 
$
3,960

Depreciation and amortization
1,176

 
1,141

Gains on sales of investments and dispositions
(56
)
 
(280
)
Deferred income taxes
202

 
176

Equity in the income of investees
(418
)
 
(456
)
Cash distributions received from equity investees
349

 
361

Net change in film and television costs and advances
(33
)
 
(663
)
Equity-based compensation
213

 
208

Other
175

 
(29
)
Changes in operating assets and liabilities:
 
 
 
Receivables
(208
)
 
(469
)
Inventories
129

 
134

Other assets
(110
)
 
(31
)
Accounts payable and other accrued liabilities
(847
)
 
(282
)
Income taxes
(271
)
 
(31
)
Cash provided by operations
4,773

 
3,739

 
 
 
 
INVESTING ACTIVITIES
 
 
 
Investments in parks, resorts and other property
(1,905
)
 
(1,359
)
Sales of investments/proceeds from dispositions
81

 
366

Other
(3
)
 
(18
)
Cash used in investing activities
(1,827
)
 
(1,011
)
 
 
 
 
FINANCING ACTIVITIES
 
 
 
Commercial paper borrowings, net
1,954

 
2,316

Borrowings
117

 
138

Reduction of borrowings
(1,953
)
 
(1,084
)
Dividends
(1,948
)
 
(1,508
)
Repurchases of common stock
(1,788
)
 
(3,254
)
Proceeds from exercise of stock options
235

 
295

Contributions from noncontrolling interest holders
829

 
441

Other
209

 
218

Cash used in financing activities
(2,345
)
 
(2,438
)
 
 
 
 
Impact of exchange rates on cash and cash equivalents
(277
)
 
(143
)
 
 
 
 
Increase in cash and cash equivalents
324

 
147

Cash and cash equivalents, beginning of period
3,421

 
3,931

Cash and cash equivalents, end of period
$
3,745

 
$
4,078

See Notes to Condensed Consolidated Financial Statements

5



THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(unaudited; in millions)
 
 
Quarter Ended
 
March 28, 2015
 
March 29, 2014
 
Disney
Shareholders
 
Non-
controlling
Interests
 
Total
Equity
 
Disney
Shareholders
 
Non-
controlling
Interests
 
Total
Equity
Beginning balance
$
44,165

 
$
3,628

 
$
47,793

 
$
44,324

 
$
2,972

 
$
47,296

Comprehensive income
2,145

 
108

 
2,253

 
1,855

 
115

 
1,970

Equity compensation activity
244

 

 
244

 
246

 

 
246

Common stock repurchases
(485
)
 

 
(485
)
 
(1,536
)
 

 
(1,536
)
Contributions

 
478

 
478

 

 
261

 
261

Distributions and other
(31
)
 
(515
)
 
(546
)
 

 
(597
)
 
(597
)
Ending balance
$
46,038

 
$
3,699

 
$
49,737

 
$
44,889

 
$
2,751

 
$
47,640

See Notes to Condensed Consolidated Financial Statements



6



THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(unaudited; in millions)
 
 
Six Months Ended
 
March 28, 2015
 
March 29, 2014
 
Disney
Shareholders
 
Non-
controlling
Interests
 
Total
Equity
 
Disney
Shareholders
 
Non-
controlling
Interests
 
Total
Equity
Beginning balance
$
44,958

 
$
3,220

 
$
48,178

 
$
45,429

 
$
2,721

 
$
48,150

Comprehensive income
4,415

 
150

 
4,565

 
3,738

 
187

 
3,925

Equity compensation activity
423

 

 
423

 
484

 

 
484

Dividends
(1,948
)
 

 
(1,948
)
 
(1,508
)
 

 
(1,508
)
Common stock repurchases
(1,788
)
 

 
(1,788
)
 
(3,254
)
 

 
(3,254
)
Contributions

 
829

 
829

 

 
441

 
441

Distributions and other
(22
)
 
(500
)
 
(522
)
 

 
(598
)
 
(598
)
Ending balance
$
46,038

 
$
3,699

 
$
49,737

 
$
44,889

 
$
2,751

 
$
47,640

See Notes to Condensed Consolidated Financial Statements


7



THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
 
1.
Principles of Consolidation
These Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. We believe that we have included all normal recurring adjustments necessary for a fair presentation of the results for the interim period. Operating results for the quarter and six months ended March 28, 2015 are not necessarily indicative of the results that may be expected for the year ending October 3, 2015. Certain reclassifications have been made in the prior-year financial statements to conform to the current-year presentation.
These financial statements should be read in conjunction with the Company’s 2014 Annual Report on Form 10-K.
The Company enters into relationships or investments with other entities in which it does not have majority ownership. In certain instances, the entity in which the Company has a relationship or investment may be a variable interest entity (VIE). A VIE is consolidated in the financial statements if the Company has the power to direct activities that most significantly impact the economic performance of the VIE and has the obligation to absorb losses (as defined by ASC 810-10-25-38) or the right to receive benefits from the VIE that could potentially be significant to the VIE. Disneyland Paris, Hong Kong Disneyland Resort (HKDL) and Shanghai Disney Resort (collectively the International Theme Parks) are VIEs. Company subsidiaries (the Management Companies) have management agreements with the International Theme Parks, which provide the Management Companies, subject to certain protective rights of joint venture partners, with the ability to direct the day-to-day operating activities and the development of business strategies that we believe most significantly impact the economic performance of the International Theme Parks. In addition, the Management Companies receive management fees under these arrangements that we believe could be significant to the International Theme Parks. Therefore, the Company has consolidated the International Theme Parks in its financial statements.
The terms “Company,” “we,” “us,” and “our” are used in this report to refer collectively to the parent company and the subsidiaries through which our various businesses are actually conducted.
 
2.
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. The Company reports the performance of its operating segments including equity in the income of investees. Equity in the income of investees included in segment operating results is as follows:
 
 
Quarter Ended
 
Six Months Ended
 
March 28,
2015
 
March 29,
2014
 
March 28,
2015
 
March 29,
2014
Media Networks
 
 
 
 
 
 
 
Cable Networks
$
223

 
$
223

 
$
465

 
$
480

Broadcasting
(18
)
 
(6
)
 
(47
)
 
(24
)
Equity in the income of investees included in
  segment operating income
$
205

 
$
217

 
$
418

 
$
456




8

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


 
Quarter Ended
 
Six Months Ended
 
March 28,
2015
 
March 29,
2014
 
March 28,
2015
 
March 29,
2014
Revenues (1):
 
 
 
 
 
 
 
Media Networks
$
5,810

 
$
5,134

 
$
11,670

 
$
10,424

Parks and Resorts
3,760

 
3,562

 
7,670

 
7,159

Studio Entertainment
1,685

 
1,800

 
3,543

 
3,693

Consumer Products
971

 
885

 
2,350

 
2,011

Interactive
235

 
268

 
619

 
671

 
$
12,461

 
$
11,649

 
$
25,852

 
$
23,958

Segment operating income (1):
 
 
 
 
 
 
 
Media Networks
$
2,101

 
$
2,133

 
$
3,596

 
$
3,588

Parks and Resorts
566

 
457

 
1,371

 
1,128

Studio Entertainment
427

 
475

 
971

 
884

Consumer Products
362

 
274

 
988

 
704

Interactive
26

 
14

 
101

 
69

 
$
3,482

 
$
3,353

 
$
7,027

 
$
6,373


(1) Studio Entertainment segment revenues and operating income include an allocation of Consumer Products revenues, which is meant to reflect royalties on sales of merchandise based on certain film properties. The increase to Studio Entertainment revenues and operating income and corresponding decrease to Consumer Products revenues and operating income totaled $133 million and $58 million for the quarters ended March 28, 2015 and March 29, 2014, respectively, and $278 million and $121 million for the six months ended March 28, 2015 and March 29, 2014, respectively.
A reconciliation of segment operating income to income before income taxes is as follows:
 
Quarter Ended
 
Six Months Ended
 
March 28,
2015
 
March 29,
2014
 
March 28,
2015
 
March 29,
2014
Segment operating income
$
3,482

 
$
3,353

 
$
7,027

 
$
6,373

Corporate and unallocated shared expenses
(170
)
 
(155
)
 
(295
)
 
(271
)
Restructuring and impairment charges

 
(48
)
 

 
(67
)
Other expense, net

 
(37
)
 

 
(31
)
Interest income/(expense), net
8

 
62

 
(50
)
 
111

Income before income taxes
$
3,320

 
$
3,175

 
$
6,682

 
$
6,115

 
3.
Acquisitions
Maker Studios
On May 7, 2014, the Company acquired Maker Studios, Inc. (Maker), a leading network of online video content, for approximately $500 million of cash consideration. Maker shareholders may also receive up to $450 million of additional cash upon final determination of Maker’s achievement of performance targets for calendar years 2014 and 2015. The Company has recognized a $198 million liability for the fair value of the contingent consideration (determined by a probability weighting of potential payouts). Subsequent changes in the estimated fair value, if any, will be recognized in earnings. The majority of the purchase price has been allocated to goodwill, which is not deductible for tax purposes. Goodwill reflects the synergies expected from enhancing the presence of Disney’s franchises and brands through the use of Maker’s distribution platform, advanced technology and business intelligence capability. The revenue and net income of Maker included in the Company’s Condensed Consolidated Statement of Income for the quarter and six months ended March 28, 2015 was not material.

9

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


Goodwill
The changes in the carrying amount of goodwill for the six months ended March 28, 2015 are as follows:
 
Media
Networks
 
Parks and
Resorts
 
Studio
Entertainment
 
Consumer
Products
 
Interactive
 
Total
Balance at Sept. 27, 2014
$
16,378

 
$
291

 
$
6,856

 
$
2,967

 
$
1,389

 
$
27,881

Acquisitions

 

 

 

 

 

Dispositions

 

 

 
(1
)
 

 
(1
)
Other, net
(12
)
 

 
(9
)
 

 
(4
)
 
(25
)
Balance at Mar. 28, 2015
$
16,366

 
$
291

 
$
6,847

 
$
2,966

 
$
1,385

 
$
27,855


4.
Dispositions and Other Expense

Other expense for the quarters and six-month periods ended March 28, 2015 and March 29, 2014 is as follows:
 
Quarter Ended
 
Six Months Ended
 
March 28,
2015
 
March 29,
2014
 
March 28,
2015
 
March 29,
2014
Venezuelan foreign currency translation loss
$

 
$
(143
)
 
$

 
$
(143
)
Gain on sale of property

 
77

 

 
77

Other

 
29

 

 
35

Other expense, net
$

 
$
(37
)
 
$

 
$
(31
)

Venezuela foreign currency loss
The Company has operations in Venezuela, including film and television distribution and merchandise licensing and has net monetary assets denominated in Venezuelan bolivares (BsF), which primarily consist of cash. The Venezuelan government (Government) has foreign currency exchange controls, which centralize the purchase and sale of all foreign currency at an official rate determined by the Government, currently 6.3 BsF per U.S. dollar. Although the Company has generally been unable to repatriate its cash at the official rate, we translated our net monetary assets at the official rate through December 28, 2013. In January 2014, the Government announced that currency arising from certain transactions could be exchanged at an alternative rate (SICAD 1), which fluctuated based on Government-run auctions. The ability to convert currency in the SICAD 1 market was dependent on market factors and Government discretion, and the Company was not able to convert its currency at this rate. In March 2014, the Government launched a new currency exchange market (SICAD 2), which allowed entities to submit a daily application to exchange foreign currency with financial institutions that are registered with the Venezuelan central bank. Foreign currency exchange rates under SICAD 2 fluctuated daily. The ability to convert in the SICAD 2 market was also dependent on market factors, including the availability of U.S. dollars. Although a small portion of the Company’s cash may have been eligible to be exchanged at SICAD 1, the majority was only eligible for exchange at SICAD 2. Accordingly, the Company began translating its BsF denominated net monetary assets at the SICAD 2 rate resulting in a loss of $143 million in the second quarter of fiscal 2014 based on the SICAD 2 rate, which was 50.9 BsF per U.S. dollar at March 29, 2014.
In February 2015, the Government combined the SICAD 1 and SICAD 2 exchange mechanisms (SICAD) and introduced another exchange mechanism, (SIMADI). The SIMADI exchange mechanism allows for trading BsF at prices set by the market. The Company does not believe it can successfully convert currency at the SICAD rate and therefore, in the second quarter of fiscal 2015, the Company began translating its BsF denominated net monetary assets at the SIMADI rate resulting in an immaterial loss included in "Costs and expenses" in the Condensed Consolidated Statement of Income. The SIMADI rate on March 28, 2015 was 191.0 BsF per U.S. dollar and the Company had net monetary assets of approximately 1.9 billion BsF on March 28, 2015.

Other
During the second quarter of fiscal year 2014, the Company recognized $29 million for a portion of a settlement of an affiliate contract dispute.


10

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



5.
Borrowings
During the six months ended March 28, 2015, the Company’s borrowing activity was as follows: 
 
September 27,
2014
 
Borrowings
 
Reductions of borrowings
 
Other
Activity
 
March 28,
2015
Commercial paper with original maturities less than three months (1)
$
50

 
$
1,855

 
$

 
$
1

 
$
1,906

Commercial paper with original maturities greater than three months

 
1,822

 
(1,723
)
 
1

 
100

U.S. medium-term notes
13,713

 

 
(1,800
)
 
5

 
11,918

Foreign currency denominated debt
783

 
123

 
(149
)
 
(34
)
 
723

Other
294

 

 
(24
)
 
40

 
310

Total
$
14,840

 
$
3,800

 
$
(3,696
)
 
$
13

 
$
14,957


(1) Borrowings and reductions of borrowings are reported net.
The Company has bank facilities with a syndicate of lenders to support commercial paper borrowings. The following is a summary of the bank facilities at March 28, 2015:
 
Committed
Capacity
 
Capacity
Used
 
Unused
Capacity
Facility expiring March 2016
$
1,500

 
$

 
$
1,500

Facility expiring June 2017
2,250

 

 
2,250

Facility expiring March 2019
2,250

 

 
2,250

Total
$
6,000

 
$

 
$
6,000

The Company had a $1.5 billion bank facility expiring in March 2015. This facility was refinanced and the maturity extended to March 2016. All of the above bank facilities allow for borrowings at LIBOR-based rates plus a spread depending on the credit default swap spread applicable to the Company’s debt, subject to a cap and floor that vary with the Company’s debt rating assigned by Moody’s Investors Service and Standard and Poor’s. The spread above LIBOR can range from 0.23% to 1.63%. The Company also has the ability to issue up to $800 million of letters of credit under the facility expiring in March 2019, which if utilized, reduces available borrowings under this facility. As of March 28, 2015, $220 million of letters of credit were outstanding, of which none were issued under this facility. The facilities contain only one financial covenant, relating to interest coverage, which the Company met on March 28, 2015 by a significant margin, and specifically exclude certain entities, including the International Theme Parks, from any representations, covenants, or events of default.

Interest income/(expense)
Interest and investment income and interest expense are reported net in the Condensed Consolidated Statements of Income and consist of the following (net of capitalized interest):
 
Quarter Ended
 
Six Months Ended
 
March 28,
2015
 
March 29,
2014
 
March 28,
2015
 
March 29,
2014
Interest expense
$
(66
)
 
$
(67
)
 
$
(135
)
 
$
(148
)
Interest and investment income
74

 
129

 
85

 
259

Interest income/(expense), net
$
8

 
$
62

 
$
(50
)
 
$
111


Interest and investment income includes gains and losses on the sale of publicly and non-publicly traded investments, investment impairments and interest earned on cash and cash equivalents and certain receivables. The quarter and six months ended March 28, 2015 included $48 million and $7 million of realized net gains on publicly and non-publicly traded investments, respectively. The quarter ended March 29, 2014 included $92 million of realized net gains on publicly traded investments and no gains or losses on non-publicly traded investments. The six months ended March 29, 2014 included $151 million and $46 million of realized net gains on publicly and non-publicly traded investments, respectively.


11

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


6.
International Theme Park Investments
At March 28, 2015, the Company had a 77% effective ownership interest in the operations of Disneyland Paris (see Disneyland Paris recapitalization discussion below), a 46% ownership interest in the operations of HKDL and a 43% ownership interest in the operations of Shanghai Disney Resort, all of which are VIEs consolidated in the Company’s financial statements. See Note 1 for the Company’s policy on consolidating VIEs.
The following tables present summarized balance sheet information for the Company as of March 28, 2015 and September 27, 2014, reflecting the impact of consolidating the International Theme Parks balance sheets.
 
As of March 28, 2015
 
Before 
International
Theme Parks
Consolidation
 
International
Theme Parks
and Adjustments
 
Total
Cash and cash equivalents
$
2,778

 
$
967

 
$
3,745

Other current assets
11,644

 
257

 
11,901

Total current assets
14,422

 
1,224

 
15,646

Investments/Advances
6,844

 
(4,269
)
 
2,575

Parks, resorts and other property
17,030

 
6,732

 
23,762

Other assets
43,674

 
58

 
43,732

Total assets
$
81,970

 
$
3,745

 
$
85,715

 
 
 
 
 
 
Current portion of borrowings
$
2,771

 
$

 
$
2,771

Other current liabilities
10,243

 
396

 
10,639

Total current liabilities
13,014

 
396

 
13,410

Borrowings
11,928

 
258

 
12,186

Deferred income taxes and other long-term liabilities
10,205

 
177

 
10,382

Equity
46,823

 
2,914

 
49,737

Total liabilities and equity
$
81,970

 
$
3,745

 
$
85,715

 
 
As of September 27, 2014
 
Before 
International
Theme Parks
Consolidation
 
International
Theme Parks
and Adjustments
 
Total
Cash and cash equivalents
$
2,645

 
$
776

 
$
3,421

Other current assets
11,452

 
303

 
11,755

Total current assets
14,097

 
1,079

 
15,176

Investments/Advances
6,627

 
(3,931
)
 
2,696

Parks, resorts and other property
17,081

 
6,251

 
23,332

Other assets
42,958

 
24

 
42,982

Total assets
$
80,763

 
$
3,423

 
$
84,186

 
 
 
 
 
 
Current portion of borrowings
$
2,164

 
$

 
$
2,164

Other current liabilities
10,318

 
810

 
11,128

Total current liabilities
12,482

 
810

 
13,292

Borrowings
12,423

 
253

 
12,676

Deferred income taxes and other long-term liabilities
9,859

 
181

 
10,040

Equity
45,999

 
2,179

 
48,178

Total liabilities and equity
$
80,763

 
$
3,423

 
$
84,186



12

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


The following table presents summarized income statement information of the Company for the six months ended March 28, 2015, reflecting the impact of consolidating the International Theme Parks income statements.
 
Before 
International
Theme Parks
Consolidation(1)
 
International
Theme Parks
and Adjustments
 
Total
Revenues
$
24,838

 
$
1,014

 
$
25,852

Cost and expenses
(18,409
)
 
(1,129
)
 
(19,538
)
Other income/(expense), net
(31
)
 
31

 

Interest expense, net
(12
)
 
(38
)
 
(50
)
Equity in the income of investees
333

 
85

 
418

Income before income taxes
6,719

 
(37
)
 
6,682

Income taxes
(2,210
)
 

 
(2,210
)
Net income
$
4,509

 
$
(37
)
 
$
4,472

 
(1) 
These amounts include the International Theme Parks under the equity method of accounting. As such, royalty and management fee income from these operations is included in Revenues and our share of their net income/(loss) is included in Equity in the income of investees. There were $29 million of royalties and management fees recognized for the six months ended March 28, 2015.
 
The following table presents summarized cash flow statement information of the Company for the six months ended March 28, 2015, reflecting the impact of consolidating the International Theme Parks cash flow statements. 
 
Before 
International
Theme Parks
Consolidation
 
International
Theme Parks
and Adjustments
 
Total
Cash provided by operations
$
4,788

 
$
(15
)
 
$
4,773

Investments in parks, resorts and other property
(851
)
 
(1,054
)
 
(1,905
)
Cash (used in)/provided by other investing activities
(432
)
 
510

 
78

Cash (used in)/provided by financing activities
(3,125
)
 
780

 
(2,345
)
Impact of exchange rates on cash and cash equivalents
(247
)
 
(30
)
 
(277
)
Change in cash and cash equivalents
133

 
191

 
324

Cash and cash equivalents, beginning of period
2,645

 
776

 
3,421

Cash and cash equivalents, end of period
$
2,778

 
$
967

 
$
3,745

Disneyland Paris    
In January 2015, Disneyland Paris received its shareholders’ approval to implement a €1.0 billion recapitalization consisting of the following:
An equity rights offering completed in February 2015, which raised €0.4 billion in cash proceeds of which the Company funded €0.2 billion. The Company purchased shares that were unsubscribed by other Disneyland Paris shareholders, which increased the Company’s effective ownership by approximately four percentage points.
In February 2015, the Company converted €0.6 billion of its loans to Disneyland Paris into equity at a conversion price of €1.25 per share. The conversion increased the Company’s effective ownership by an additional 23 percentage points. In addition, the Company replaced its existing lines of credit with Disneyland Paris with a new €350 million line of credit bearing interest at EURIBOR plus 2.0% and maturing in 2023. The prior lines of credit were repaid, and there is no outstanding balance under the new line of credit at March 28, 2015. As of March 28, 2015, the total outstanding balance of loans provided by the Company to Disneyland Paris was €1.0 billion.
Following regulatory approval, the Company opened a mandatory tender offer to the other Disneyland Paris shareholders in April 2015 to purchase their shares at €1.25 per share, and the Company may be required to purchase up to an additional €0.3 billion in shares. There was an appeal to the regulatory approval, and the tender offer will remain outstanding during the appeal process.

13

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


Following the completion of the mandatory tender offer and to offset the dilution caused by the loan conversion, the Company will offer the right to Disneyland Paris shareholders to purchase shares from the Company at €1.25.
As of March 28, 2015, the Company has a 77% effective ownership interest in Disneyland Paris. The Company’s final ownership interest following the recapitalization will depend on the number of Disneyland Paris shareholders that accept the Company’s tender offer and/or exercise their anti-dilution rights. The Company will have a minimum effective ownership interest of 54% after the above transaction.
The Company has recognized approximately $375 million of deferred income tax assets on the difference between the Company’s tax basis in its investment in Disneyland Paris and the Company’s financial statement carrying value of Disneyland Paris. The Company will likely be required to write-off this deferred tax asset as a result of the recapitalization although it will depend on the final outcome of the tender offer and anti-dilution process including the determination of our final ownership interest.
The recapitalization is expected to be completed by the end of 2015.
Hong Kong Disneyland Resort
At September 27, 2014, the Government of the Hong Kong Special Administrative Region (HKSAR) and the Company had a 52% and 48% equity interest in HKDL, respectively. In addition, HKSAR holds a right to receive additional shares over time if HKDL exceeds certain return on asset performance targets. The amount of additional shares HKSAR can receive varies to the extent certain performance targets are exceeded, but is capped on both an annual and cumulative basis. Because HKDL exceeded the performance targets in fiscal 2014, HKSAR received additional shares, which increased their ownership interest to approximately 54%. Additional shares that may be issued in future years could decrease the Company’s equity interest by up to an additional 8 percentage points over a period no shorter than 17 years.
HKDL plans to build a third hotel at the resort, which is expected to open in 2017 and cost approximately $550 million. To fund the construction, the Company will contribute approximately $219 million of equity, and HKSAR will convert an equal amount of its outstanding loan to HKDL into equity. Additionally, the Company and HKSAR will provide shareholder loans of up to approximately $149 million and $104 million, respectively. The loans will mature on dates from fiscal 2022 through fiscal 2025 and bear interest at a rate of three month HIBOR plus 2%.
Shanghai Disney Resort
The Company and Shanghai Shendi (Group) Co., Ltd (Shendi) are constructing a Disney Resort (Shanghai Disney Resort) in the Pudong district of Shanghai that includes a theme park, two hotels and a retail, dining and entertainment area with a planned investment of approximately 34 billion yuan ($5.5 billion). Construction on the project began in April 2011, with the completion of major construction work anticipated by the end of calendar 2015 and opening planned for spring 2016.
The total investment in Shanghai Disney Resort will be funded in accordance with each partner’s ownership percentage, with approximately 67% from equity contributions and 33% from shareholder loans. Shanghai Disney Resort is owned through two joint venture companies, in which Shendi owns 57% and the Company owns 43%. An additional joint venture, in which the Company has a 70% interest and Shendi a 30% interest, is responsible for designing, constructing and operating Shanghai Disney Resort.


14

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


7.
Pension and Other Benefit Programs
The components of net periodic benefit cost are as follows: 
 
Pension Plans
 
Postretirement Medical Plans
 
Quarter Ended
 
Six Months Ended
 
Quarter Ended
 
Six Months Ended
 
March 28, 2015
 
March 29, 2014
 
March 28, 2015
 
March 29, 2014
 
March 28, 2015
 
March 29, 2014
 
March 28, 2015
 
March 29, 2014
Service costs
$
83

 
$
71

 
$
166

 
$
142

 
$
3

 
$
2

 
$
7

 
$
5

Interest costs
131

 
122

 
262

 
244

 
17

 
17

 
34

 
33

Expected return on
  plan assets
(178
)
 
(162
)
 
(356
)
 
(323
)
 
(9
)
 
(9
)
 
(19
)
 
(18
)
Amortization of prior-
  year service costs
4

 
3

 
8

 
7

 
(1
)
 
(1
)
 
(1
)
 
(1
)
Recognized net
  actuarial loss/(gain)
61

 
37

 
123

 
73

 
2

 
(2
)
 
5

 
(4
)
Net periodic benefit
  cost
$
101

 
$
71

 
$
203

 
$
143

 
$
12

 
$
7

 
$
26

 
$
15

During the six months ended March 28, 2015, the Company did not make any material contributions to its pension and postretirement medical plans. The Company expects total pension and postretirement medical plan contributions in fiscal 2015 of approximately $375 million to $400 million. Final minimum pension plan funding requirements for fiscal 2015 will be determined based on our January 1, 2015 funding actuarial valuation, which will be available in the fourth quarter of fiscal 2015.

8.
Earnings Per Share
Diluted earnings per share amounts are based upon the weighted average number of common and common equivalent shares outstanding during the period and are calculated using the treasury stock method for equity-based compensation awards (Awards). A reconciliation of the weighted average number of common and common equivalent shares outstanding and Awards excluded from the diluted earnings per share calculation, as they were anti-dilutive, are as follows: 
 
Quarter Ended
 
Six Months Ended
 
March 28,
2015
 
March 29,
2014
 
March 28,
2015
 
March 29,
2014
Shares (in millions):
 
 
 
 
 
 
 
Weighted average number of common and
  common equivalent shares outstanding (basic)
1,699

 
1,750

 
1,700

 
1,756

Weighted average dilutive impact of Awards
16

 
20

 
16

 
21

Weighted average number of common and common
  equivalent shares outstanding (diluted)
1,715

 
1,770

 
1,716

 
1,777

Awards excluded from diluted earnings per share
5

 
6

 
7

 
8

 
9.
Equity
On December 3, 2014, the Company declared a $1.15 per share dividend ($1.9 billion) related to fiscal 2014 for shareholders of record on December 15, 2014, which was paid on January 8, 2015. The Company paid a $0.86 per share dividend ($1.5 billion) during the second quarter of fiscal 2014 related to fiscal 2013.
During the six months ended March 28, 2015, the Company repurchased 20 million shares of its common stock for $1.8 billion. 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. As of March 28, 2015, the Company had remaining authorization in place to repurchase approximately 396 million additional shares. The repurchase program does not have an expiration date.

15

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


The following table summarizes the changes in each component of accumulated other comprehensive income (loss) (AOCI) including our proportional share of equity method investee amounts, net of 37% estimated tax:
 
 
 
 
 
Unrecognized
Pension and 
Postretirement
Medical 
Expense
 
Foreign
Currency
Translation
and Other
 
AOCI
 
Market Value Adjustments
 
 
Investments, net
 
Cash Flow Hedges
 
Balance at December 27, 2014
$
84

 
$
339

 
$
(2,152
)
 
$
(151
)
 
$
(1,880
)
Quarter Ended March 28, 2015:
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) arising
  during the period
(24
)
 
183

 
(9
)
 
(72
)
 
78

Reclassifications of net (gains)
  losses to net income
(30
)
 
(54
)
 
43

 

 
(41
)
Balance at March 28, 2015
$
30

 
$
468

 
$
(2,118
)
 
$
(223
)
 
$
(1,843
)
 
 
 
 
 
 
 
 
 
 
Balance at December 28, 2013
$
76

 
$
114

 
$
(1,246
)
 
$
(88
)
 
$
(1,144
)
Quarter Ended March 29, 2014:
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) arising
  during the period
22

 
(43
)
 
15

 
(1
)
 
(7
)
Reclassifications of net (gains)
  losses to net income
(58
)
 
(21
)
 
24

 

 
(55
)
Balance at March 29, 2014
$
40

 
$
50

 
$
(1,207
)
 
$
(89
)
 
$
(1,206
)
 
 
 
 
 
 
 
 
 
 
Balance at September 27, 2014
$
100

 
$
204

 
$
(2,196
)
 
$
(76
)
 
$
(1,968
)
Six Months Ended March 28, 2015:
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) arising
  during the period
(40
)
 
359

 
(9
)
 
(147
)
 
163

Reclassifications of net (gains)
  losses to net income
(30
)
 
(95
)
 
87

 

 
(38
)
Balance at March 28, 2015
$
30

 
$
468

 
$
(2,118
)
 
$
(223
)
 
$
(1,843
)
 
 
 
 
 
 
 
 
 
 
Balance at September 28, 2013
$
95

 
$
83

 
$
(1,271
)
 
$
(94
)
 
$
(1,187
)
Six Months Ended March 29, 2014:
 
 
 
 
 
 
 
 
 
Unrealized gains (losses) arising
  during the period
40

 
(2
)
 
15

 
5

 
58

Reclassifications of net (gains)
  losses to net income
(95
)
 
(31
)
 
49

 

 
(77
)
Balance at March 29, 2014
$
40

 
$
50

 
$
(1,207
)
 
$
(89
)
 
$
(1,206
)


16

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


Details about AOCI components reclassified to net income are as follows:
Gains/(losses) in net income:
 
Affected line item in the
  Condensed Consolidated
  Statements of Income:
 
Quarter Ended
 
Six Months Ended
 
 
March 28,
2015
 
March 29,
2014
 
March 28,
2015
 
March 29,
2014
Investments, net
 
Interest income/(expense), net
 
$
48

 
$
92

 
$
48

 
$
151

Estimated tax
 
Income taxes
 
(18
)
 
(34
)
 
(18
)
 
(56
)
 
 
 
 
30

 
58

 
30

 
95

 
 
 
 
 
 
 
 
 
 
 
Cash flow hedges
 
Primarily revenue
 
86

 
33

 
151

 
49

Estimated tax
 
Income taxes
 
(32
)
 
(12
)
 
(56
)
 
(18
)
 
 
 
 
54

 
21

 
95

 
31

 
 
 
 
 
 
 
 
 
 
 
Pension and postretirement
  medical expense
 
Costs and expenses
 
(68
)
 
(38
)
 
(138
)
 
(78
)
Estimated tax
 
Income taxes
 
25

 
14

 
51

 
29

 
 
 
 
(43
)
 
(24
)
 
(87
)
 
(49
)
 
 
 
 
 
 
 
 
 
 
 
Total reclassifications for the period
 
 
 
$
41

 
$
55

 
$
38

 
$
77

At March 28, 2015, the Company held available-for-sale investments in net unrecognized gain positions totaling $45 million and no investments in significant unrecognized loss positions. At September 27, 2014, the Company held available-for-sale investments in net unrecognized gain positions totaling $55 million and no investments in significant unrecognized loss positions.

10.
Equity-Based Compensation
Compensation expense related to stock options, stock appreciation rights and restricted stock units (RSUs) is as follows:
 
Quarter Ended
 
Six Months Ended
 
March 28,
2015
 
March 29,
2014
 
March 28,
2015
 
March 29,
2014
Stock options/rights (1)
$
27

 
$
26

 
$
52

 
$
51

RSUs
83

 
86

 
162

 
160

Total equity-based compensation expense (2)
$
110

 
$
112

 
$
214

 
$
211

Equity-based compensation expense capitalized
  during the period
$
14

 
$
15

 
$
29

 
$
29

 
(1) 
Includes stock appreciation rights.
(2) 
Equity-based compensation expense is net of capitalized equity-based compensation and excludes amortization of previously capitalized equity-based compensation costs. During the quarter and six months ended March 28, 2015, amortization of previously capitalized equity-based compensation totaled $9 million and $18 million, respectively. During the quarter and six months ended March 29, 2014, amortization of previously capitalized equity-based compensation totaled $14 million and $27 million, respectively.
Unrecognized compensation cost related to unvested stock options/rights and RSUs totaled approximately $197 million and $629 million, respectively, as of March 28, 2015.
The weighted average grant date fair values of options issued during the six months ended March 28, 2015 and March 29, 2014 were $22.64 and $19.16, respectively.
During the six months ended March 28, 2015, the Company made equity compensation grants consisting of 5.0 million stock options and 4.2 million RSUs.


17

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


11.
Commitments and Contingencies
Legal Matters
Beef Products, Inc. v. American Broadcasting Companies, Inc. On September 13, 2012, plaintiffs filed an action in South Dakota state court against certain subsidiaries and employees of the Company and others, asserting claims for defamation arising from alleged false statements and implications, statutory and common law product disparagement, and tortious interference with existing and prospective business relationships. The claims arise out of ABC News reports published in March and April 2012 that discussed the subject of labeling requirements for production processes related to a product one plaintiff produces that is added to ground beef before sale to consumers. Plaintiffs seek actual and consequential damages in excess of $400 million, statutory damages (including treble damages) pursuant to South Dakota’s Agricultural Food Products Disparagement Act, and punitive damages. On July 9, 2013, the Company moved in state court to dismiss all claims and on March 27, 2014, the state court dismissed certain common law disparagement counts as preempted by South Dakota’s produce disparagement statute, but denied the motion on the remaining claims. On April 23, 2014, the Company petitioned the South Dakota Supreme Court to allow a discretionary appeal seeking reversal of the state court’s order permitting the remaining common law disparagement claims to proceed and also seeking reversal of its decision to allow certain claims to proceed as defamation claims. On May 22, 2014, the South Dakota Supreme Court denied the Company’s petition. On May 23, 2014, the Company answered the Complaint. Trial is set for February 2017. At this time, the Company is not able to predict the ultimate outcome of this matter, nor can it estimate the range of possible loss.
The Company, together with, in some instances, certain of its directors and officers, is a defendant or codefendant in various other legal actions involving copyright, breach of contract and various other claims incident to the conduct of its businesses.
Management does not believe that the Company has incurred a probable, material loss by reason of any of the above actions.
Contractual Guarantees
The Company has guaranteed bond issuances by the Anaheim Public Authority that were used by the City of Anaheim to finance construction of infrastructure and a public parking facility adjacent to the Disneyland Resort. Revenues from sales, occupancy and property taxes from the Disneyland Resort and non-Disney hotels are used by the City of Anaheim to repay the bonds. In the event of a debt service shortfall, the Company will be responsible to fund the shortfall. As of March 28, 2015, the remaining debt service obligation guaranteed by the Company was $330 million, of which $64 million was principal. To the extent that tax revenues exceed the debt service payments in subsequent periods, the Company would be reimbursed for any previously funded shortfalls. To date, tax revenues have exceeded the debt service payments for these bonds.
Long-Term Receivables and the Allowance for Credit Losses
The Company has accounts receivable with original maturities greater than one year related to the sale of television program rights within the Media Networks segment and vacation ownership units within the Parks and Resorts segment. Allowances for credit losses are established against these receivables as necessary.
The Company estimates the allowance for credit losses related to receivables from the sale of television programs based upon a number of factors, including historical experience and the financial condition of individual companies with which we do business. The balance of television program sales receivables recorded in other non-current assets, net of an immaterial allowance for credit losses, was $0.9 billion as of March 28, 2015. The activity in the current period related to the allowance for credit losses was not material.
The Company estimates the allowance for credit losses related to receivables from sales of its vacation ownership units based primarily on historical collection experience. Estimates of uncollectible amounts also consider the economic environment and the age of receivables. The balance of mortgage receivables recorded in other non-current assets, net of a related allowance for credit losses of approximately 4%, was approximately $0.7 billion as of March 28, 2015. The activity in the current period related to the allowance for credit losses was not material.
Income Taxes
During the six months ended March 28, 2015, the Company increased its gross unrecognized tax benefits by $57 million to $860 million with a corresponding increase to income tax expense.

18

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


In the next twelve months, it is reasonably possible that our unrecognized tax benefits could change due to resolutions of open tax matters. These resolutions would reduce our unrecognized tax benefits by approximately $151 million, of which $78 million would reduce our income tax expense and effective tax rate if recognized. 

12. Fair Value Measurements
Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants and is classified in one of the following three categories:
Level 1 - Quoted prices for identical instruments in active markets
Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets
Level 3 - Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable
The Company’s assets and liabilities measured at fair value are summarized in the following tables by fair value measurement Level: 
 
Fair Value Measurement at March 28, 2015
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 Investments
$
79

 
$

 
$

 
$
79

Derivatives
 
 
 
 
 
 
 
Interest rate

 
104

 

 
104

Foreign exchange

 
1,327

 

 
1,327

Other

 
1

 

 
1

Liabilities
 
 
 
 
 
 
 
Derivatives
 
 
 
 
 
 
 
Interest rate

 
(20
)
 

 
(20
)
Foreign exchange

 
(300
)
 

 
(300
)
Other

 
(68
)
 

 
(68
)
Other

 

 
(198
)
 
(198
)
Total recorded at fair value
$
79

 
$
1,044

 
$
(198
)
 
$
925

Fair value of borrowings
$

 
$
14,656

 
$
816

 
$
15,472

 

19

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


 
Fair Value Measurement at September 27, 2014
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 Investments
$
100

 
$

 
$

 
$
100

Derivatives
 
 
 
 
 
 
 
Interest rate

 
117

 

 
117

Foreign exchange

 
621

 

 
621

Liabilities
 
 
 
 
 
 
 
Derivatives
 
 
 
 
 
 
 
Interest rate

 
(75
)
 

 
(75
)
Foreign exchange

 
(121
)
 

 
(121
)
Other

 

 
(198
)
 
(198
)
Total recorded at fair value
$
100

 
$
542

 
$
(198
)
 
$
444

Fair value of borrowings
$

 
$
14,374

 
$
901

 
$
15,275

 The fair values of Level 2 derivatives are primarily determined by internal discounted cash flow models that use observable inputs such as interest rates, yield curves and foreign currency exchange rates. Counterparty credit risk, which is mitigated by master netting agreements and collateral posting arrangements with certain counterparties, did not have a material impact on derivative fair value estimates.
Level 2 borrowings, which include commercial paper and U.S. medium-term notes, are valued based on quoted prices for similar instruments in active markets.
The fair value of the Level 3 other liabilities represents the fair value of the contingent consideration for Maker and is determined by a probability weighting of potential payouts.
Level 3 borrowings, which include HKDL borrowings and other foreign currency denominated borrowings, are generally valued based on historical market transactions, prevailing market interest rates and the Company’s current borrowing cost and credit risk.
The Company’s financial instruments also include cash, cash equivalents, receivables and accounts payable. The carrying values of these financial instruments approximate the fair values.


20

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


13. Derivative Instruments
The Company manages its exposure to various risks relating to its ongoing business operations according to a risk management policy. The primary risks managed with derivative instruments are interest rate risk and foreign exchange risk.
The Company’s derivative positions measured at fair value are summarized in the following tables: 
 
As of March 28, 2015
 
Current
Assets
 
Other Assets
 
Other
Accrued
Liabilities
 
Other Long-
Term
Liabilities
Derivatives designated as hedges
 
 
 
 
 
 
 
Foreign exchange
$
562

 
$
371

 
$
(113
)
 
$
(16
)
Interest rate

 
104

 
(20
)
 

Other

 
1

 
(16
)
 
(5
)
Derivatives not designated as hedges
 
 
 
 
 
 
 
Foreign exchange
180

 
214

 
(160
)
 
(11
)
Other

 

 

 
(47
)
Gross fair value of deriva