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. During fiscal 2018, the Company announced a strategic reorganization of its businesses into the following operating segments: the newly-formed Direct-to-Consumer and International segment; the combined Parks, Experiences and Consumer Products segment; Media Networks; and Studio Entertainment. The Company is in the process of modifying internal reporting processes and systems to accommodate the new structure and will report under the new segment structure in fiscal 2019. The chief operating decision maker, who is our Chief Executive Officer, received information and assessed performance during 2018 based on the historic operating segments.

DESCRIPTION OF THE BUSINESS

Media Networks

The Company operates cable programming businesses branded ESPN, Disney and Freeform, broadcast businesses, which include the ABC TV Network and eight owned television stations, and radio businesses. The ABC TV network has 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). In April 2018, the Company launched ESPN+, a direct-to-consumer streaming service providing multi-sports content. 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 businesses also operate 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; 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 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, wholesale and online distribution of products. 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 develop and distribute online video content and provide online marketing services through Disney Digital Network.

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:



	2018			2017			2016
Media Networks	$	131		$	344		$	597
Parks and Resorts	(23		)	(25		)	(3		)
Consumer Products & Interactive Media	—			1			—
Equity in the income of investees included in segment operating income	108			320			594
Impairment of equity investments:
Vice	(157		)	—			—
Villages Nature	(53		)	—			—
Vice Gain	—			—			332
Equity in the income (loss) of investees, net	$	(102	)	$	320		$	926

During fiscal 2018, the Company recorded impairments of Vice and Villages Nature equity method investments. 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). These items were recorded in “Equity in the income (loss) of investees, net” in the Consolidated Statement of Income but were not included in segment operating income.

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 Studio Entertainment films.



	2018			2017			2016
Revenues
Media Networks	$	24,500		$	23,510		$	23,689
Parks and Resorts	20,296			18,415			16,974
Studio Entertainment
Third parties	9,431			7,887			8,701
Intersegment	556			492			740
	9,987			8,379			9,441
Consumer Products & Interactive Media
Third parties	5,207			5,325			6,268
Intersegment	(556		)	(492		)	(740		)
	4,651			4,833			5,528

Total consolidated revenues	$	59,434		$	55,137		$	55,632
Segment operating income
Media Networks	$	6,625		$	6,902		$	7,755
Parks and Resorts	4,469			3,774			3,298
Studio Entertainment	2,980			2,355			2,703
Consumer Products & Interactive Media	1,632			1,744			1,965
Total segment operating income	$	15,706		$	14,775		$	15,721
Reconciliation of segment operating income to income before income taxes
Segment operating income	$	15,706		$	14,775		$	15,721
Corporate and unallocated shared expenses	(761		)	(582		)	(640		)
Restructuring and impairment charges	(33		)	(98		)	(156		)
Other income, net	601			78			—
Interest expense, net	(574		)	(385		)	(260		)
Vice Gain	—			—			332
Infinity Charge⁽¹⁾	—			—			(129		)
Impairment of equity investments	(210		)	—			—
Income before income taxes	$	14,729		$	13,788		$	14,868
Capital expenditures
Media Networks
Cable Networks	$	202		$	75		$	86
Broadcasting	87			64			80
Parks and Resorts
Domestic	3,212			2,375			2,180
International	671			816			2,035
Studio Entertainment	96			85			86
Consumer Products & Interactive Media	18			30			53
Corporate	179			178			253
Total capital expenditures	$	4,465		$	3,623		$	4,773



	2018		2017		2016
Depreciation expense
Media Networks	$	264	$	225	$	237
Parks and Resorts
Domestic	1,410		1,336		1,273
International	742		660		445
Studio Entertainment	55		50		51
Consumer Products & Interactive Media	69		63		63
Corporate	218		252		251
Total depreciation expense	$	2,758	$	2,586	$	2,320
Amortization of intangible assets
Media Networks	$	62	$	12	$	18
Parks and Resorts	4		3		3
Studio Entertainment	64		65		74
Consumer Products & Interactive Media	123		116		112
Total amortization of intangible assets	$	253	$	196	$	207
Identifiable assets⁽²⁾
Media Networks	$	35,899	$	32,475
Parks and Resorts	30,670		29,492
Studio Entertainment	17,154		16,307
Consumer Products & Interactive Media	8,793		8,996
Corporate⁽³⁾	6,082		4,919
Unallocated Goodwill⁽⁴⁾	—		3,600
Total consolidated assets	$	98,598	$	95,789
Supplemental revenue data
Affiliate fees	$	13,279	$	12,659	$	12,259
Advertising	7,904		8,237		8,649
Retail merchandise, food and beverage	6,923		6,433		6,116
Theme park admissions	7,183		6,502		5,900
Revenues
United States and Canada	$	45,038	$	41,881	$	42,616
Europe	7,026		6,541		6,714
Asia Pacific	5,531		5,075		4,582
Latin America and Other	1,839		1,640		1,720
	$	59,434	$	55,137	$	55,632
Segment operating income
United States and Canada	$	11,413	$	10,962	$	12,139
Europe	1,922		1,812		1,815
Asia Pacific	1,869		1,626		1,324
Latin America and Other	502		375		443
	$	15,706	$	14,775	$	15,721



	2018		2017
Long-lived assets⁽⁵⁾
United States and Canada	$	65,245	$	61,215
Europe	6,275		8,208
Asia Pacific	7,775		8,196
Latin America and Other	131		155
	$	79,426	$	77,774


⁽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:



	2018		2017
Media Networks	$	2,750	$	2,998
Parks and Resorts	1		70
Studio Entertainment	1		1
Consumer Products & Interactive Media	—		—
Corporate	16		18
	$	2,768	$	3,087

Goodwill and intangible assets by segment are as follows:



	2018		2017
Media Networks	$	21,417	$	18,346
Parks and Resorts	388		391
Studio Entertainment	8,644		8,360
Consumer Products & Interactive Media	7,502		7,594
Corporate	130		130
Unallocated Goodwill	—		3,600
	$	38,081	$	38,421


⁽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.