On March 20, 2019, the Company acquired the outstanding capital stock of 21CF, a diversified global media and entertainment company. Prior to the acquisition, 21CF and a newly-formed subsidiary of 21CF (New Fox) entered into a separation agreement, pursuant to which 21CF transferred to New Fox a portfolio of 21CF’s news, sports and broadcast businesses and certain other assets. 21CF retained all of the assets and liabilities not transferred to New Fox, including the Twentieth Century Fox film and television studios, certain cable networks and 21CF’s international TV businesses; these remaining assets and businesses are held directly or indirectly by the acquired 21CF entity.

We acquired 21CF to enhance the Company’s position as a premier, global entertainment company by increasing our portfolio of creative assets and branded content to be monetized through our film and television studio, theme parks and direct-to-consumer offerings.

In connection with the acquisition, outstanding 21CF performance stock units and restricted stock units were either vested upon closing of the acquisition or replaced with new restricted stock units (which require additional service for vesting). The purchase price for 21CF includes $361 million related to 21CF awards that were settled or replaced in connection with the

acquisition, and the Company recognized compensation expense of $164 million related to awards that were accelerated to vest upon closing of the acquisition. Additionally, compensation expense of $219 million related to awards that were replaced with new restricted stock units will be recognized over the post-acquisition service period of up to approximately two years.

As part of the 21CF acquisition, the Company acquired 21CF’s 30% interest in Hulu increasing our ownership to 60%. As a result, the Company began consolidating Hulu and recorded a one-time gain of $4.8 billion (Hulu Gain) 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.

On May 13, 2019, the Company entered into a put/call agreement with NBCU that provided the Company with full operational control of Hulu. Under the agreement, beginning in January 2024, NBCU has the option to require the Company to purchase NBCU’s interest in Hulu and the Company has the option to require NBCU to sell its interest in Hulu, based on NBCU’s equity ownership percentage of the greater of Hulu’s then fair value or $27.5 billion. Hulu’s future equity capital calls are limited to $1.5 billion in the aggregate each year, with any excess funding requirements funded with member loans. NBCU has the right, but not the obligation, to fund its proportionate share of future capital calls. If NBCU elects not to fund its share of future equity capital calls its ownership will be diluted. However, Disney has agreed that NBCU’s ownership interest in Hulu cannot be diluted below 21%. Additionally, the agreement provides NBCU with 50% of the tax benefit related to the exercise of the put or call.

NBCU’s interest is classified as a redeemable noncontrolling interest on the Company’s Condensed Consolidated Balance Sheet and will generally not be allocated Hulu’s losses as it is required to be carried at a minimum value representing its fair value as of the May 13, 2019 agreement date accreted to its January 2024 redemption value. The accretion of NBCU’s interest will be based on an interest method and recorded in “Net income attributable to noncontrolling interests” on the Consolidated Statement of Income. At June 29, 2019, NBCU’s interest in Hulu is recorded in the Company’s financial statements at $7.8 billion.

Upon closing of the 21CF acquisition, the Company exchanged new Disney notes for outstanding notes issued by 21^st Century Fox America, Inc. (21CFA Notes) with a principal balance of $16.8 billion (see Note 6).

The Company also assumed 21CF commitments totaling $31 billion, of which $22 billion relate to the RSNs (see Discontinued Operations below). The remaining commitments are primarily for sports and entertainment programming rights. In addition, we entered into commitments with New Fox totaling $0.3 billion, primarily for the lease of production facilities and office space. Hulu commitments total $3.4 billion and relate primarily to programming rights.

The Company is required to allocate the 21CF 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 Company is in the process of obtaining additional information necessary to finalize the valuation of the assets acquired and liabilities assumed including income tax related amounts. Therefore, the preliminary fair values set forth below are subject to adjustment as additional information is obtained and the valuations are completed.



	Initial Allocation			Valuation Adjustments			Updated Allocation
Cash and cash equivalents	$	25,666		$	—		$	25,666
Receivables	4,746			154			4,900
Film and television costs	20,120			(2,135		)	17,985
Investments	1,471			53			1,524
Intangible assets	20,385			(1,325		)	19,060
Net assets held for sale	11,704			(414		)	11,290
Accounts payable and other liabilities	(10,753		)	(1,357		)	(12,110		)
Borrowings	(21,723		)	—			(21,723		)
Deferred income taxes	(6,497		)	975			(5,522		)
Other net liabilities acquired	(3,865		)	1,060			(2,805		)
Noncontrolling interests	(10,638		)	96			(10,542		)
Goodwill	43,751			2,770			46,521
Fair value of net assets acquired	74,367			(123		)	74,244
Less: Disney’s previously held 30% interest in Hulu	(4,860		)	123			(4,737		)
Total purchase price	$	69,507		$	—		$	69,507

These changes to the preliminary values, with a corresponding net increase to goodwill, are based on more detailed information obtained about the specific assets and liabilities acquired. The changes made to the initial amounts during the quarter ended June 29, 2019 resulted in no material changes to the amortization expense recorded in the previous quarter.

The goodwill reflects the value to Disney of increasing our global portfolio of creative assets and branded content to be monetized through our film and television studio, theme parks and direct-to-consumer offerings.

The fair value of investments acquired in the acquisition include $1.2 billion of equity method investments and $0.3 billion of equity investments. Equity method investments primarily consist of a 50% interest in Endemol Shine Group, a global multi-platform content provider and a 30% interest in Tata Sky Limited, a satellite operator in India.

For the nine months ended June 29, 2019, the Company incurred $258 million of acquisition-related expenses, of which $158 million is included in Selling, general, administrative and other, and $100 million related to financing fees is included in Interest expense, net in the Company’s Condensed Consolidated Statement of Income.

The following table summarizes the revenues and net loss from continuing operations (including purchase accounting amortization and the impact of intercompany eliminations and excluding restructuring and impairment charges) of 21CF and Hulu included in the Company’s Condensed Consolidated Statement of Income since the date of acquisition for the quarter and nine months ended June 29, 2019:



	Nine Months Ended
	June 29, 2019		June 30, 2018
Revenues	$	59,017	$	58,223
Net income	6,259		11,800
Net income attributable to Disney	6,147		11,971
Earnings per share attributable to Disney:
Diluted	$	3.22	$	6.58
Basic	3.24		6.62

These pro forma results include adjustments for purposes of consolidating the historical financial results of 21CF and Hulu (net of adjustments to eliminate transactions between Disney and 21CF, Disney and Hulu and Hulu and 21CF). These pro formas also include $2.7 billion and $2.8 billion (including $0.4 billion and $0.6 billion of amortization related to the RSNs) for the nine months ended June 29, 2019 and June 30, 2018, respectively, to reflect the preliminary estimate of incremental amortization as a result of recording film and television programming and production costs and finite lived intangible assets at fair value. Interest expense of $0.3 billion is included to reflect the cost of borrowings to finance the 21CF acquisition in both the nine months ended June 29, 2019 and June 30, 2018.

Additionally, the nine months ended June 30, 2018 pro forma earnings include the Hulu Gain, compensation expense of $0.2 billion related to 21CF equity awards that were accelerated to vest upon closing of the acquisition, and $0.4 billion of acquisition-related expenses. These amounts were recognized by Disney and 21CF in the nine months ended June 29, 2019, but have been excluded from the nine months ended June 29, 2019 pro forma earnings.

The pro forma results exclude a $10.8 billion gain on sale and $0.3 billion of equity earnings recorded by 21CF for the nine months ended June 29, 2019 and June 30, 2018, respectively, related to its 39% interest in Sky plc, which was sold by 21CF in October 2018. The pro forma results include $0.6 billion and $0.5 billion of net income recorded by 21CF for the nine months ended June 29, 2019 and June 30, 2018, respectively, related to the 21CF businesses that we are required to divest as a condition of the acquisition (see the Assets to be Disposed and Discontinued Operations section below).

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.

Pursuant to a consent decree with the U.S. Department of Justice (DOJ), we are required to sell 21CF’s twenty-two RSNs (the RSN Divestiture). The DOJ must approve the purchaser(s) and terms and conditions of the RSN Divestiture and file a motion with the federal court requesting the court to approve the consent decree. The sale must be completed within five days of notice of the federal court approving the consent decree, with the possibility that the DOJ can grant extensions of time up to 90 days. On May 3, 2019, the Company entered into a definitive agreement with Sinclair Broadcast Group, Inc. to sell twenty-one of the RSNs (not including the YES Network), for a sales price of approximately $10 billion. Completion of the transaction is subject to customary closing conditions, including the approval of the DOJ.

Additionally, the Company has agreed with Conselho Administrativo de Defesa Economica (CADE) to sell 21CF’s sports media operations in Brazil (the Brazil Divestiture) and agreed with the Instituto Federal de Telecomunicaciones (IFT) to sell 21CF’s sports media operations in Mexico (the Mexico Divestiture). The Company will have 180 days from the date of the 21CF acquisition to complete the Brazil Divestiture. The Company will have six months, with the possibility that the IFT can grant extensions of time up to another six months, for the Mexico Divestiture. CADE and the IFT must approve the purchaser(s) and terms and conditions of the Brazil and Mexico Divestitures, respectively.

The European Commission approved the acquisition on the condition that the Company divest its interests in certain cable channels in the European Economic Area that are controlled by A+E, including History, H2, Crime & Investigation, Blaze and Lifetime (the EEA Channels). The Company divested its interests in the entities that operate the EEA Channels on April 12, 2019. The EEA Channels are not presented as discontinued operations.

The RSNs and the Brazil and Mexico sports media operations are presented as assets held for sale and discontinued operations in the Condensed Consolidated Balance Sheets and Statements of Income, respectively.

The major classes of assets and liabilities of the RSNs and the Brazil and Mexico sports media operations at June 29, 2019 classified as held for sale on our Condensed Consolidated Balance Sheets are presented below and are subject to change based on developments during the sales process.



Cash	$	591
Receivables and other current assets	964
Television costs and advances	337
Total current assets classified as held for sale	1,892
Film and television costs	1,704
Property and equipment and other assets	69
Intangible assets, net	7,748
Goodwill	3,070
Total assets classified as held for sale	$	14,483

Accounts payable and other accrued liabilities	$	246
Current portion of borrowings	44
Deferred revenue and other	3
Total current liabilities classified as held for sale	293
Borrowings	1,057
Other long-term liabilities	241
Redeemable noncontrolling interests	1,055
Total liabilities classified as held for sale	$	2,646



	Media Networks			Parks and Resorts			Studio Entertainment				Consumer Products & Interactive Media			Parks, Experiences and Products		Direct-to-Consumer & International			Unallocated		Total
Balance at Sept. 29, 2018	$	19,388		$	291			$	7,164		$	4,426		$	—		$	—	$	—	$	31,269
Segment recast ⁽¹⁾	(3,399		)	(291		)		(70		)	(4,426		)	4,487			3,699		—		—
Acquisitions ⁽²⁾	—			—				—			—			—			—		46,521		46,521
Other, net	—			—				4			—			—			7		—		11
Balance at June 29, 2019	$	15,989		$	—			$	7,098		$	—		$	4,487		$	3,706	$	46,521	$	77,801