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 combined its former Consumer Products and Interactive segments into a single segment, Consumer Products & Interactive Media, and began reporting the financial results of the combined segment in fiscal 2016.

DESCRIPTION OF THE BUSINESS

Media Networks

The Company operates cable programming services including the ESPN, Disney Channels and Freeform networks, 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 the Radio Disney network, which operates from an owned radio station in Los Angeles. 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 iTunes. The Company has interests in media businesses that are accounted for under the equity method including A+E Television Networks LLC (A+E), BAMTech LLC (BAMTech), CTV Specialty Television, Inc. (CTV), Hulu LLC (Hulu), Seven TV and Vice Group Holdings, Inc. (Vice). Our Media Networks business also operates branded internet sites and apps.

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; a retail, dining and entertainment complex; 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. Internationally, the Company manages and has an 81% effective ownership interest in 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; and a 27-hole golf facility. The Company manages and has a 47% ownership interest in Hong Kong Disneyland Resort, which includes one theme park and two 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; and an outdoor recreational area. The Company also has a 70% ownership interest in the management company of Shanghai Disney Resort. The Company also 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. 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. Certain motion pictures produced by DreamWorks Studios are distributed under our Touchstone Pictures banner. 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 games, primarily for mobile platforms. The Company’s operations include retail, online and wholesale distribution of products through The Disney Store, DisneyStore.com and MarvelStore.com and direct to retailers. We operate The Disney Store in North America, 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 also develop and distribute online video content, which includes content developed by Maker Studios. Revenues and costs generated by Maker Studios have been allocated primarily to the Media Networks and Studio Entertainment segments.

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 income/(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 results is as follows:



	2016			2015			2014
Media Networks
Cable Networks	$	783		$	896		$	895
Broadcasting	(186		)	(82		)	(39		)
Parks and Resorts	(3		)	—			(2		)
Equity in the income of investees included in segment operating income	$	594		$	814		$	854
Vice Gain	332			—			—
Total equity in the income of investees	$	926		$	814		$	854

During fiscal 2016, the Company recognized its share of a net 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 (Vice Gain). 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.



	2016			2015			2014
Revenues
Media Networks	$	23,689		$	23,264		$	21,152
Parks and Resorts	16,974			16,162			15,099
Studio Entertainment
Third parties	8,701			6,838			6,988
Intersegment	740			528			290
	9,441			7,366			7,278
Consumer Products & Interactive Media
Third parties	6,268			6,201			5,574
Intersegment	(740		)	(528		)	(290		)
	5,528			5,673			5,284

Total consolidated revenues	$	55,632		$	52,465		$	48,813
Segment operating income
Media Networks	$	7,755		$	7,793		$	7,321
Parks and Resorts	3,298			3,031			2,663
Studio Entertainment	2,703			1,973			1,549
Consumer Products & Interactive Media	1,965			1,884			1,472
Total segment operating income	$	15,721		$	14,681		$	13,005
Reconciliation of segment operating income to income before income taxes
Segment operating income	$	15,721		$	14,681		$	13,005
Corporate and unallocated shared expenses	(640		)	(643		)	(611		)
Restructuring and impairment charges	(156		)	(53		)	(140		)
Other expense, net	—			—			(31		)
Interest income/(expense), net	(260		)	(117		)	23
Vice Gain	332			—			—
Infinity Charge⁽¹⁾	(129		)	—			—
Income before income taxes	$	14,868		$	13,868		$	12,246
Capital expenditures
Media Networks
Cable Networks	$	86		$	127		$	172
Broadcasting	80			71			88
Parks and Resorts
Domestic	2,180			1,457			1,184
International	2,035			2,147			1,504
Studio Entertainment	86			107			63
Consumer Products & Interactive Media	53			87			48
Corporate	253			269			252
Total capital expenditures	$	4,773		$	4,265		$	3,311



	2016		2015		2014
Depreciation expense
Media Networks	$	237	$	245	$	238
Parks and Resorts
Domestic	1,273		1,169		1,117
International	445		345		353
Studio Entertainment	51		55		48
Consumer Products & Interactive Media	63		69		69
Corporate	251		249		239
Total depreciation expense	$	2,320	$	2,132	$	2,064
Amortization of intangible assets
Media Networks	$	18	$	21	$	12
Parks and Resorts	3		3		2
Studio Entertainment	74		84		88
Consumer Products & Interactive Media	112		114		122
Corporate	—		—		—
Total amortization of intangible assets	$	207	$	222	$	224
Identifiable assets⁽²⁾
Media Networks	$	32,706	$	30,638
Parks and Resorts	28,275		25,510
Studio Entertainment	15,359		15,334
Consumer Products & Interactive Media	9,332		9,678
Corporate⁽³⁾	6,361		7,022
Total consolidated assets	$	92,033	$	88,182
Supplemental revenue data
Affiliate fees	$	12,259	$	12,029	$	10,632
Advertising	8,649		8,499		8,094
Retail merchandise, food and beverage	6,116		5,986		5,598
Theme park admissions	5,900		5,483		5,114
Revenues
United States and Canada	$	42,616	$	40,320	$	36,769
Europe	6,714		6,507		6,505
Asia Pacific	4,582		3,958		3,930
Latin America and Other	1,720		1,680		1,609
	$	55,632	$	52,465	$	48,813
Segment operating income
United States and Canada	$	12,139	$	10,820	$	9,594
Europe	1,815		1,964		1,581
Asia Pacific	1,324		1,365		1,342
Latin America and Other	443		532		488
	$	15,721	$	14,681	$	13,005



	2016		2015
Long-lived assets⁽⁴⁾
United States and Canada	$	56,388	$	53,976
Europe	8,125		8,254
Asia Pacific	8,228		6,817
Latin America and Other	210		182
	$	72,951	$	69,229


⁽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 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:



	2016		2015
Media Networks	$	4,032	$	2,454
Parks and Resorts	22		9
Studio Entertainment	3		2
Consumer Products & Interactive Media	—		1
Corporate	25		17
	$	4,082	$	2,483

Goodwill and intangible assets by segment are as follows:



	2016		2015
Media Networks	$	18,153	$	18,186
Parks and Resorts	373		376
Studio Entertainment	8,450		8,538
Consumer Products & Interactive Media	7,653		7,768
Corporate	130		130
	$	34,759	$	34,998


⁽³⁾	Primarily fixed assets, cash and cash equivalents, deferred tax assets and investments.


⁽⁴⁾	Long-lived assets are total assets less the following: current assets, long-term receivables, deferred taxes, financial investments and derivatives.